2008-01-31 12:00:00 CET
2008-01-31 12:00:54 CET
REGLAMENTUOJAMA INFORMACIJA
Outokumpu Oyj - Financial Statement Release
Outokumpu Annual Accounts Bulletin 2007 - Good results in a turbulent year I/II
Stock Exchange Release (this announcement is in two parts)
January 31, 2008 at 1.00 p.m.
Year 2007 highlights
- Good operating profit of EUR 589 million in very volatile stainless
steel markets in 2007, underlying operational result of some EUR 800
million improved significantly (2006: EUR 650 million). Return on
capital employed at 13.9% (target: >13%).
- Excellent operating cash flow of EUR 676 million, gearing improved
to 23.6% (target: < 75%)
- Excellence programs ahead of schedule delivering higher than
targeted cumulative benefits of some EUR 70 million (target: EUR 40
million) by year-end 2007.
- Next phase in the strategic development related to customer and
product mix transition initiated with major investment decisions of
some EUR 900 million in 2007; expansion of special grades and
products capacity and large investments in the service center
network.
- The Board of Directors' proposal for a dividend of EUR 1.20 per
share (2006: EUR 1.10).
Fourth quarter 2007 highlights
- Operating profit EUR 15 million including nickel-related inventory
losses of some EUR 100 million, underlying operational result some
EUR 115 million (III/07: EUR 35 million).
- End-user demand for stainless steel continued good, recovery in
distributor demand began in October.
- Recovery in demand for standard products improved deliveries by 48%
to 352 000 tons from III/07.
- Base prices stabilized and gradual price increases achieved.
- EUR 447 million released from working capital, operating cash flow
EUR 299 million.
- In January 2008, a decision to invest EUR 370 million mainly to
increase ultra-clean ferritics and bright-annealed capacity at Tornio
Works.
Group key figures
IV/07 III/07 IV/06 2007 2006
Sales EUR million 1 465 1 227 1 907 6 913 6 154
Operating profit EUR million 15 -256 378 589 824
Non-recurring items
in operating profit EUR million - -11 1 14 1
Profit before taxes EUR million 7 -277 369 798 784
Non-recurring items
in financial income EUR million - - - 252 -
Net profit for the period
from continuing operations EUR million 7 -210 286 660 606
Net profit for the period EUR million -16 -214 603 641 963
Earnings per share
from continuing operations EUR 0.04 -1.17 1.58 3.63 3.34
Earnings per share EUR -0.09 -1.19 3.33 3.52 5.31
Return on capital employed % 1.4 -22.3 36.5 13.9 20.7
Net cash generated from
operating activities EUR million 299 161 -82 676 -35
Capital expenditure,
continuing operations EUR million 43 47 74 190 187
Net interest-bearing debt
at end of period EUR million 788 1 016 1 300 788 1 300
Debt-to-equity ratio at
end of period % 23.6 29.8 42.3 23.6 42.3
Stainless steel deliveries 1 000 tons 352 238 445 1 419 1 815
Stainless steel
base price 1) EUR/ton 1 058 710 1 840 1 304 1 470
Personnel at the
end of period,
continuing operations 8 108 8 049 8 159 8 108 8 159
1) Stainless steel: CRU - German base price (2 mm cold rolled 304
sheet), estimates for deliveries during the period. Please note:
Between July - October 2007, European prices for some stainless
grades were quoted on a transaction price basis, therefore base
prices are the calculated value of transaction price minus alloy
surcharge for this time period (CRU).
SHORT-TERM OUTLOOK
Underlying demand for stainless steel is healthy. End-user demand and
demand for special grades also continues healthy. The current global
economic turmoil has however created some uncertainty that might have
an impact on overall stainless steel fundamentals.
Distributor inventories for standard products have declined and are
at or below long-term average levels. Outokumpu's order intake for
standard products has improved and lead times have normalized. Due to
the pick-up in demand for standard products, Outokumpu's delivery
volumes are expected to be close to capacity. The gradual recovery in
base prices is expected to continue during the first quarter. Towards
the end of the quarter, base price for cold rolled 304 2mm sheet is
expected to be 100-125 EUR/t higher than the December price of 1 125
EUR/t reported by CRU.
Following the decline in nickel price in the fourth quarter, the
January alloy surcharge is lower than in December but will rise
slightly in February. As a result, nickel-related inventory losses
continue to impair results in the first quarter due to the lower
alloy surcharge. At current nickel price level, the losses due to the
timing differences between the alloy surcharge and inventory turnover
are estimated to be in the range of EUR 50-70 million.
Outokumpu's operating profit for the first quarter 2008 is estimated
to be better than in the previous quarter, assuming no major further
negative impact from nickel price volatility. Outokumpu's underlying
operational result in the first quarter, excluding nickel-related
inventory losses and non-recurring items, is expected to be somewhat
better than in the fourth quarter 2007.
CEO Juha Rantanen:" I am really pleased to see that we achieved good financial results
in spite of the very turbulent markets. We achieved our financial
target of return on capital employed above 13% and strengthened our
balance sheet considerably. However, last year also demonstrated that
our current business model is exposed to external volatility with
earnings varying a lot between first and second part of the year.
Thus, the strategy we announced in September 2007 is very crucial for
our future. It is all about building a more stable and predictable
business model with a more balanced customer and product portfolio.
Major investment decisions were already taken last fall to realize
the strategy. The most recent decision, investing into ferritics and
bright annealed capability at Tornio Works is another important step
in line with our strategy as it will further balance our product
portfolio and increase the end user business."
The attachments present the Management analysis of the fourth quarter
operating result 2007 and a summary of the Review by the Board of
Directors for January-December 2007 as well as extracts from the
financial statements. This report is audited.
For further information, please contact:
Päivi Lindqvist, SVP - Communications and IR
tel. +358 9 421 2432, mobile +358 40 708 5351
paivi.lindqvist@outokumpu.com
Ingela Ulfves, VP - Investor Relations and Financial Communications
tel. +358 9 421 2438, mobile +358 40 515 1531
ingela.ulfves@outokoumpu.com
Esa Lager, CFO
tel +358 9 421 2516
esa.lager@outokumpu.com
News conference and live webcast today at 2.30 pm
A combined news conference, conference call and live webcast
concerning the annual accounts 2007 will be held on January 31, 2008
at 2.30 pm Finnish time (7.30 am US EST, 12.30 pm UK time, 1.30 pm
CET) at Hotel Kämp, conference room Akseli Gallen-Kallela,
Pohjoisesplanadi 29, 00100 Helsinki, Finland.
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 webcast of the news conference will be available at
www.outokumpu.com as of January 31, 2008 at around 6.00 pm.
An instant replay service of the conference call will be available
until Tuesday February 5, 2008 on the following numbers:
UK replay number +44 20 7031 4064, access code: 781461
US & Canada replay number +1 954 334 0342, access code: 781461
OUTOKUMPU OYJ
Corporate Management
Ingela Ulfves
VP - Investor Relations and Financial Communications
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 - FOURTH QUARTER 2007 OPERATING RESULT
Group key figures
EUR million I/06 II/06 III/06 IV/06 2006
Sales
General Stainless 1 013 1 066 1 130 1 561 4 770
Specialty Stainless 650 638 614 821 2 723
Other operations 87 93 97 85 361
Intra-group sales -342 -405 -394 -560 -1 700
The Group 1 408 1 392 1 447 1 907 6 154
Operating profit
General Stainless 43 91 166 236 536
Specialty Stainless 22 65 81 171 338
Other operations 2 -8 -13 -16 -35
Intra-group items -0 1 -3 -13 -15
The Group 67 149 231 378 824
EUR million I/07 II/07 III/07 IV/07 2007
Sales
General Stainless 1 700 1 670 879 1 073 5 321
Specialty Stainless 1 003 1 028 687 738 3 456
Other operations 64 63 53 57 237
Intra-group sales -638 -669 -391 -403 -2 101
The Group 2 129 2 092 1 227 1 465 6 913
Operating profit
General Stainless 245 188 -224 11 220
Specialty Stainless 182 196 -51 9 337
Other operations 1 19 8 -6 21
Intra-group items -4 2 11 2 11
The Group 424 406 -256 15 589
Stainless steel
deliveries
1 000 tons I/06 II/06 III/06 IV/06 2006
Cold rolled 286 239 200 211 936
White hot strip 104 103 80 103 390
Quarto plate 44 44 35 39 162
Tubular products 20 20 16 18 74
Long products 14 15 14 16 59
Semi-finished
products 43 47 47 58 195
Total deliveries 510 467 393 445 1 815
1 000 tons I/07 II/07 III/07 IV/07 2007
Cold rolled 220 186 117 180 703
White hot strip 94 94 49 78 314
Quarto plate 39 41 30 36 146
Tubular products 20 17 13 15 65
Long products 16 15 10 12 54
Semi-finished
products 40 46 21 31 137
Total deliveries 430 399 238 352 1 419
Market prices and
exchange rates
I/06 II/06 III/06 IV/06 2006
Market prices 1)
Stainless steel
Base price EUR/t 1 127 1 342 1 572 1 840 1 470
Alloy surcharge EUR/t 844 1 020 1 437 2 064 1 341
Transaction price EUR/t 1 971 2 362 3 009 3 904 2 811
Nickel USD/t 14 810 19 925 29 154 33 129 24 254
EUR/t 12 318 15 836 22 878 25 707 19 317
Ferrochrome
(Cr-content) USD/lb 0.63 0.70 0.75 0.78 0.72
EUR/kg 1.16 1.23 1.30 1.33 1.26
Molybdenum USD/lb 23.38 25.01 26.47 25.56 25.10
EUR/kg 42.86 43.82 45.79 43.73 44.08
Recycled steel USD/t 200 238 243 239 230
EUR/t 167 189 191 185 183
Exchange rates
EUR/USD 1.202 1.258 1.274 1.289 1.256
EUR/SEK 9.352 9.298 9.230 9.135 9.254
EUR/GBP 0.686 0.688 0.680 0.673 0.682
I/07 II/07 III/07 IV/07 2007
Market prices 1)
Stainless steel
Base price EUR/t 1 930 1 518 710 1 058 1 304
Alloy surcharge EUR/t 2 277 2 913 2 967 1 939 2 524
Transaction price EUR/t 4 207 4 432 3 677 2 997 3 828
Nickel USD/t 41 440 48 055 30 205 29 219 37 230
EUR/t 31 619 35 646 21 983 20 175 27 161
Ferrochrome
(Cr-content) USD/lb 0.77 0.82 1.00 1.05 0.91
EUR/kg 1.30 1.34 1.60 1.60 1.46
Molybdenum USD/lb 26.69 30.97 31.97 32.66 30.57
EUR/kg 44.90 50.65 51.30 49.71 49.17
Recycled steel USD/t 278 287 271 283 280
EUR/t 212 213 197 195 204
Exchange rates
EUR/USD 1.311 1.348 1.374 1.448 1.371
EUR/SEK 9.189 9.257 9.264 9.288 9.250
EUR/GBP 0.671 0.679 0.680 0.708 0.684
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.
Please note: Between July - October 2007, European prices for some
stainless grades were quoted on a transaction price basis, therefore
base prices are the calculated value of transaction price minus alloy
surcharge for this time period (CRU).
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
Drop in nickel price led to substantially lower alloy surcharge in
the fourth quarter
In the fourth quarter, apparent consumption of stainless steel flat
products was 3% higher globally and 10% higher in Europe than in the
third quarter. After collapsing in the summer from its all-time-high
of 54 200 USD/ton to around 25 000 USD/ton, nickel prices stabilized
around 30 000 USD/ton and distributor demand in Europe for stainless
steel standard products started to recover. Following the dramatic
de-stocking in the summer, order intake for standard products
returned to more normal levels after the third quarter. Both end-user
demand and demand for special grades and project deliveries remained
at healthy levels.
As a result of very thin European market activity during the
de-stocking phase, a total price for standard products instead of a
base price plus alloy surcharge was applied and no base prices were
reported by CRU between July and October. Stainless steel base prices
were applied and reported from November onwards again. According to
CRU, the base price for 2mm cold rolled 304 stainless steel sheet in
Germany was 1 050 EUR/ton in November and rose to 1 125 EUR/ton in
December. Using a calculated value for the base price (transaction
price minus alloy surcharge) for October, the average base price for
the fourth quarter was 1 058 EUR/ton. According to CRU, as a result
of the sharp correction in the nickel price, the alloy surcharge
dropped by 35% to an average of 1 939 EUR/ton in the fourth quarter.
The average transaction price in the fourth quarter was 2 997
EUR/ton, down by 18% from the previous quarter. Price differences
between Chinese and European stainless steel are currently small
which has reduced Chinese imports to the European market.
Among the alloying elements, the price of nickel averaged 29 219
USD/ton in the fourth quarter, down by 3% on III/2007. Demand for
ferrochrome was up by 6% compared to the previous quarter partly as a
result of increased production of ferritic stainless steel. The
average price was 1.05 USD/lb, up by 5% from III/07. The contract
price for I/08 was agreed at 1.21 USD/lb. Supply of molybdenum was
fairly balanced in the period and the average price increased by 2%
to 32.66 USD/lb. The price of recycled steel increased to 283
USD/ton, up by 4% from the previous quarter.
Recovery in the demand for stainless steel resulted in increased
deliveries and improved profitability in the fourth quarter
Group sales in the fourth quarter totaled EUR 1 465 million, 19% up
on III/2007. Deliveries improved by 48% to 352 000 tons. The gradual
recovery in demand for stainless steel standard products after the
de-stocking phase and the seasonally low third quarter were the main
reasons behind the improvement in delivery volumes.
Operating profit for the period totaled EUR 15 million. This figure
includes some EUR 100 million nickel-related inventory losses split
fairly evenly between General and Specialty Stainless. Excluding
nickel-related inventory losses in the operating profit, Outokumpu's
underlying operational result for the fourth quarter improved to some
EUR 115 million (III/07: some EUR 35 million). The profitability
improvement is mainly attributable to increased deliveries. Return on
capital employed was 1.4% (III/07: -22.3%).
Nickel-related inventory losses are a result of timing differences
between the alloy surcharge and inventory turnover. As the alloy
surcharge in the fourth quarter reflected a lower nickel price than
the original nickel purchase price, this has resulted in nickel price
losses.
In the fourth quarter, EUR 447 million was released from working
capital primarily due to the decline in nickel prices and to the
decrease in inventory volumes. As a result, net cash generated from
operating activities improved to EUR 299 million (III/07: EUR 161
million). Earnings per share totaled EUR -0.09, with earnings per
share from continuing operations EUR 0.04 and from discontinued
operations EUR -0.13.
Sales by General Stainless totaled EUR 1 073 million, up by 22% from
III/07, and deliveries increased to 305 000 tons, 54% higher than in
III/2007. Operating profit totaled EUR 11 million (III/2007: EUR 224
million loss), of which Tornio Works posted EUR 3 million (III/2007:
EUR 195 million loss). The main factors contributing to the better
result were improved delivery volumes and lower nickel-related
inventory losses.
Sales by Specialty Stainless totaled EUR 738 million, up by 7%
compared to the previous quarter. Deliveries increased by 22% to 133
000 tons. Specialty Stainless' operating profit totaled EUR 9 million
(III/2007: EUR 51 million loss). The main reasons for the improved
profitability were higher delivery volumes and lower nickel-related
inventory losses.
Operational Excellence programs expanded
Both Production and Commercial Excellence programs are proceeding
well and are ahead of schedule and have delivered cumulative benefits
of some EUR 70 million (EUR 25 million in 2006 and EUR 45 million in
2007) from the start of the program in 2005 until the end of 2007,
clearly above the estimated EUR 40 million. The profitability
improvement target for 2008 compared to 2005 is EUR 80 million.
The excellence initiatives were expanded into Supply Chain
Excellence, where supply chain management will initially focus on
procurement. This expansion means that the set total benefits of all
the excellence programs were increased from a figure of EUR 160
million from 2009 onwards to EUR 200 million in 2009 and EUR 300
million from 2010 onwards.
Further investment decisions supporting the strategy
In October, new investment decisions were made worth a total of some
EUR 240 million over the next five years. In line with the new
strategy phase, announced in September 2007, Outokumpu is investing
in both value-added special products capacity and stock and
processing capacity in order to increase the share of direct,
end-user and project sales and to broaden the product range.
EUR 220 million will be invested in the Group's hot rolled plate
(quarto plate) capacity in Sweden and in the US increasing it by a
total of some 100 000 tons. In Degerfors in Sweden, capacity will be
expanded by some 80 000 tons to 190 000 tons through an investment
totaling EUR 180 million. In New Castle in the US, an investment of
EUR 40 million will increase current capacity by some 20 000 tons to
70 000 tons. The majority of the cash out-flows resulting from this
five year investment schedule will take place in 2008 and 2009.
To improve and expand Outokumpu's service offering to end-user and
project customers in Germany, EUR 20 million will be invested in
stock and processing capability at the service center in Willich in
north-west Germany. Annual stock and processing capacity at Willich
will be increased by 50 000 tons to some 110 000 tons by 2009.
Events after the review period
Today, the Board of Directors made a decision to invest EUR 370
million over three years to broaden the product range of Tornio
Works. In order to increase the share of direct end-user and project
sales and to expand the value-added special stainless steel products
capacity, Outokumpu will start producing high-quality ultra-clean
ferritic stainless steel grades, as well as bright-annealed
austenitic and ferritic stainless products. The investment, together
with the on-going replacement of the no. 2 annealing and pickling
line, will increase the total finished products installed capacity of
Tornio Works from the current 1.2 million tons to some 1.3 million
tons by the end of 2010.
The investment also includes a service center especially for
bright-annealed austenitic and ferritic products near Stuttgart in
Southern Germany. The annual processing capacity for the service
center will be some 60 000 tons and will be in place by the end of
2010.
Outokumpu to align its organization to support the next phase in its
strategic development
To facilitate the new phase in strategy development, Outokumpu is
aligning its organization into an integrated model that emphasizes
the one-company approach towards customers. This new organization is
designed to serve customers in an optimal way and sales are being
organized into customer segment groups served by dedicated teams.
In the integrated organization, business units are responsible for
both product strategy and overall profitability. The
cross-organizational Group Sales and Marketing function is
responsible for the delivery of commercial targets, and Supply Chain
Management is responsible for end-to-end delivery performance.
Change in the alloy surcharge calculation method for deliveries
started in January 2008
The alloy surcharge reflects the cost of raw materials for stainless
steel and is added to the so-called base price resulting in
transaction price, which is payable by the customer.
As of January 2008, Outokumpu is applying a new method for
calculating the alloy surcharge. The alloy surcharge is based on the
30-day average raw material prices calculated backwards from the 20th
day of the previous month. In this new method, only the reference
period has changed, and all other parameters remain as before. The
old alloy surcharge calculation method was based on average raw
material prices in two and three months prior to delivery.
Outokumpu has changed the calculation method for the alloy surcharge
in its stainless steel pricing in order to bring more stability in
the stainless steel market and to ultimately reduce the raw material
price volatility.
The new alloy surcharge calculation period is shorter than the
Group's production cycle. If nickel prices are very volatile, this
may result in substantial nickel-related inventory gains or losses.
Repurchase of Outokumpu shares in November
Based on the authorization given by the Annual General Meeting on
March 28, 2007, Outokumpu repurchased one million of its own shares
between November 1 and 6, 2007 for a total amount of EUR 24.9
million. The shares represent some 0.6% of the company's share
capital and voting rights. After the share buy back, Outokumpu holds
1 218 603 treasury shares (0.7% of the company's share capital and
votes). Shares repurchased are to be used mainly in the company's
share based incentive schemes.
Only minor financial impact from the Salaried Employees strike at
Tornio Works in October
From October 22-26, operations at Tornio Works were affected by a
strike by the Union of Salaried Employees in Finland, which suspended
most stainless steel production at the plant. As the duration of the
strike was short, direct effects on the Group's results were
marginal.
SUMMARY OF THE REVIEW BY THE BOARD OF DIRECTORS FOR 2007
Good financial performance and major investment decisions supporting
strategic development
The new phase of strategic development in Outokumpu's vision of
becoming the undisputed number one in stainless steel - delivering a
more stable and profitable business model - was initiated. The main
targets are to increase the share of sales to end-users and project
customers, to increase the share of value-added special grades and
also address the most attractive growth opportunities, while at the
same time maintaining cost leadership in standard grade volume
production. Major investment decisions relating to special grades
capacity and the Group's stock and processing network were therefore
made.
Cost cutting initiatives were completed as planned and good progress
was achieved in the Operational Excellence programs.
Group sales for 2007 rose by 12% to EUR 6 913 million. Stainless
steel deliveries fell by 22% to 1 419 000 tons. Operating profit
totaled EUR 589 million (2006: EUR 824 million). Underlying
operational result for 2007 was however some EUR 800 million (2006:
EUR 650 million). Operating profit includes some EUR 230 million of
nickel-related inventory losses (2006: EUR 175 million gains). Nickel
is the main alloying material used in production of stainless steel.
In 2007, mainly as a result of a sharp decline in the nickel price,
some EUR 181 million was released from working capital and the
Group's working capital at the end of 2007 was EUR 1 885 million. Net
cash generated from operating activities was EUR 676 million (2006:
EUR 35 million negative).
Return on capital employed was 13.9% and gearing improved to 23.6%,
achieving the Group's targets of more than 13% return on capital
employed and gearing below 75%. Earnings per share totaled EUR 3.52,
and earnings per share from continuing operations EUR 3.63.
Outokumpu's Board of Directors has approved a revision of the Group's
dividend policy to stress the importance of payout stability. The
Board of Directors is proposing to the Annual General Meeting a
dividend of EUR 1.20 per share to be paid for 2007 (2006: EUR 1.10).
The dividend corresponds to a payout ratio of 33.9% in 2007.
Turbulence in stainless steel markets with historical price peak and
trough
Global apparent consumption of stainless steel flat products in 2007
was only 1.2% higher than in 2006 despite good underlying demand.
According to CRU, China was the fastest growing area with growth of
5.6%. In Europe consumption of stainless steel fell by 2%.
The first half of 2007 was characterized by strong demand for
stainless steel and record-high transaction prices. The price of
nickel rose strongly in January-May, reached a record high of 54 200
EUR/t in May but collapsed in the summer to 25 000 before stabilizing
around 30 000 EUR/t. This collapse weakened stainless steel order
intake as buyers postponed their purchases in expectation of lower
transaction prices. A strong de-stocking phase in the distributor
sector started, as markets turned oversupplied. As a result,
stainless steel producers cut back production strongly to balance the
oversupplied markets during the second and third quarter of 2007.
Underlying demand for stainless steel remained healthy. After the
nickel price stabilized in the autumn and distributors' inventories
had fallen to more normal levels, buyers returned to the markets,
order intake for standard products began to recover and base prices
increased gradually in the fourth quarter of 2007.
According to CRU, the German base price for cold rolled 304 2mm
stainless steel sheet in 2007 was 2 020 EUR/t in January and 1 125
EUR/t in December. Due to the very thin market activity in
July-October, no base prices were reported by CRU in this period.
Using a calculated value for the base price (transaction price minus
alloy surcharge) in July-October, the average base price for 2007 was
1 304 EUR/ton. As a result of the record high nickel price during
2007, the alloy surcharge almost doubled from 2006 and the average
was 2 524 EUR/t in 2007. The average transaction price for stainless
steel in 2007 was 3 828 EUR/ton, 36% higher than in 2006.
Market volatility continued for main alloying materials used in the
production of stainless steel: nickel, ferrochrome and molybdenum.
Nickel markets were extremely volatile in 2007. The price of nickel
rose continuously from the beginning of the year peaking at 54 200
USD/t in mid-May. Since then, the price of nickel dropped sharply
until reaching a level of 25 000 USD/t in mid-August, and remained at
levels around 25 000-33 000 USD/t ending the year at 25 805 USD/t.
The average nickel price for 2007 was 37 230 USD/t, up 54% on 2006.
Ferrochrome markets tightened in the course of 2007. Demand for
ferrochrome increased by 14% in 2007, led especially by China where,
according to CRU, stainless steel production increased by 42%. The
average contract price in 2007 was 0.91 USD/lb, 26% higher than in
the previous year. The contract price was on a rising trend and ended
the year at 1.05 USD/lb. Markets for molybdenum remained tight in
2007. The price of molybdenum in 2007 was 30.57 USD/lb, up 22% from
the previous year. The average price of recycled steel was 280 USD/t
in 2007, up by 22% from 2006.
High transaction prices increased sales
Sales
EUR million 2007 2006 Change, %
General Stainless 5 321 4 770 12
Specialty Stainless 3 456 2 723 27
Other operations 237 361 -34
Intra-group sales -2 101 -1 700 24
The Group 6 913 6 154 12
Stainless steel deliveries
1 000 tons 2007 2006 Change, %
Cold rolled 703 936 -25
White hot strip 314 390 -19
Quarto plate 146 162 -10
Tubular products 65 74 -12
Long products 54 59 -8
Semi-finished products 137 195 -30
Total deliveries 1 419 1 815 -22
Group sales for 2007 increased to EUR 6 913 million, up by 12% on the
previous year. Sales increased mainly as a result of strong stainless
steel demand and very high transaction prices during the first half
of the year. Stainless steel deliveries by the Group declined by 22%
to 1 419 000 tons mainly due to the weak demand for standard products
in the second half of the year. Sales by General Stainless increased
by 12% and sales by Specialty Stainless were up by 27% from 2006.
The European share of Group sales decreased slightly to 73% in 2007
(2006: 76%). The shares taken by Asia and the Americas were 12%
(2006: 11%) and 12% (2006: 10%), respectively.
Operating profit at a good level
EUR million 2007 2006 Change
Operating profit
General Stainless 220 536 -316
Specialty Stainless 337 338 -1
Other operations 21 -35 56
Intra-group items 11 -15 26
Operating profit 589 824 -235
Share of results in associated companies 4 8 -4
Financial income and expenses 206 -48 254
Profit before taxes 798 784 14
Income taxes -138 -178 40
Net profit,
continuing operations 660 606 54
Net profit,
discontinued operations -18 357 -375
Net profit,
for the financial year 641 963 -322
Return on capital employed, % 13.9 20.7 -6.8
Earnings per share
from continuing operations, EUR 3.63 3.34 0.29
Earnings per share, EUR 3.52 5.31 -1.79
Operating profit totaled EUR 589 million in 2007. Operating profit
was down from the record-high level achieved in 2006, as the sudden
mid-year collapse in the nickel price froze demand and turned the
healthy level of deliveries in the first half of 2007 to very low
volumes in the second half. Also, significant nickel-related
inventory gains that occurred in the first half of 2007 turned into
inventory losses during the second half of the year. In total for
2007, nickel related inventory losses amounted to EUR 230 million
(2006: EUR 175 million gains). The underlying operational result was
some EUR 800 million (2006: EUR 650 million). Operating profit for
2007 included EUR 14 million of net positive non-recurring items due
to an EUR 25 million gain from the sale of the Hitura mine and EUR 11
million net non-recurring costs related to the restructuring of the
Group's Thin Strip operations in the UK.
Return on capital employed was 13.9% (2006: 20.7%), exceeding the
Group's target of 13%.
Net financial income totaled EUR 206 million. Financial income in
2007 included EUR 268 million of non-recurring gains. These comprise
a EUR 142 million tax-free non-recurring gain from the sale of the
remaining 12% holding in Outotec Oyj and a EUR 110 million tax-free
non-recurring gain from the Talvivaara transaction. Net interest
expenses fell slightly to EUR 58 million (2006: EUR 62 million).
Taxes totaled EUR 138 million. The effective tax rate was low at 17%,
mainly due to the tax-free non-recurring gains mentioned above.
Net profit for the period from continuing operations totaled EUR 660
million and net loss from discontinued operations totaled EUR 18
million. Group earnings per share totaled EUR 3.52, with earnings per
share from continuing operations EUR 3.63 and from discontinued
operations EUR 0.10 negative.
Capital structure strengthened
Key financial indicators on financial position
EUR million 2007 2006
Net interest-bearing debt
Long-term debt 1 046 1 293
Current debt 464 685
Total interest-bearing debt 1 510 1 977
Interest-bearing assets -589 -515
Net assets held for sale -132 -162
Net interest-bearing debt 788 1 300
Shareholders' equity 3 337 3 054
Debt-to-equity ratio, % 23.6 42.3
Equity-to-assets ratio, % 56.5 47.9
Net cash generated
from operating activities 676 -35
Net interest expenses 58 62
Outokumpu's financial position strengthened further during 2007. Net
interest-bearing debt fell by EUR 512 million to EUR 788 million. At
the end of 2007, the Group's equity-to-assets ratio stood at 56.5%.
Gearing improved to 23.6%, significantly better than the Group's
target of below 75%.
The Group's net cash generated from operating activities totaled EUR
676 million (2006: EUR 35 million negative). EUR 181 million was
released from working capital in 2007 primarily as a result of lower
inventory volumes and lower nickel prices in the second half of the
year. At the end of the second quarter after the peak of the nickel
price, working capital was in excess of EUR 2.5 billion and reduced
to EUR 1 885 million at the end of 2007.
Capital expenditure
Capital expenditure
EUR million 2007 2006
General Stainless 57 83
Specialty Stainless 69 95
Other operations 64 9
The Group 190 187
Depreciation 204 221
Capital expenditure totaled EUR 190 million, somewhat below the
annual depreciation level. The largest investments were the expansion
at Kloster in Sweden, replacement of an annealing and pickling line
at Tornio Works in Finland, purchase of the 11.6% minority share in
OSTP, and participation in Talvivaara IPO.
After the EUR 55 million expansion at Kloster, Sweden, production was
ramped up in the beginning of 2007. This investment increased the
mill's annual capacity in special products from 25 000 tons to 45 000
tons and enabled the production of thinner (0.12 mm) and wider (1 050
mm) products.
At Tornio Works, the EUR 13 million investment in batch annealing
furnaces enabling annual production of 60 000 tons of ferritic
stainless steel was completed. The first deliveries took place during
II/2007.
Replacement of one of the five annealing and pickling lines at Tornio
Works provides additional production capacity totaling 75 000 tons of
cold rolled products. It also improves Outokumpu's ability to produce
brighter ferritic steel grades and enhances Group flexibility in
meeting customer needs. The total investment at Tornio will be EUR 90
million, spread over 2007-2009.
At Thin Strip Nyby in Sweden, EUR 27 million is being invested in
equipment for surface grinding and automatic storage and retrieval.
This investment will increase the proportion of special grade sales
at the expense of standard grade products and will result in annual
special grades capacity in cold rolled stainless steel products being
scaled up from 34 000 to 64 000 tons by the end of 2008.
Major investment decisions support Group strategy
In September 2007, Outokumpu launched the next phase in the Group's
strategy development towards being the undisputed number one in
stainless. In this phase, the focus is on developing and securing a
more stable and profitable business model to balance the effects of
volatility in the market for stainless steel standard products.
Growth prospects related to both the size and geographical coverage
of the Group will also be addressed. This entails increasing the
proportion of direct end-user and project sales from its current
level of 35% to at least 50% over the next five years. It also
includes expansion of capacity in value-added special products from
one third to half, while maintaining cost leadership in standard
grade volume production.
Increasing Outokumpu's capacity in value-added special products will
include a broadening of the range of grades manufactured and an
increase in the production of low-nickel duplex grades. Growth
targets also include a scaling up of production capacity in ferritic
grades to help reduce the earnings cyclicality driven by volatile
nickel prices.
In September, as a major step in increasing the Group's capacity in
value-added special products, Outokumpu decided on an investment of
EUR 550 million, over the next three years, to expand capacity in
special grades at Avesta Works in Sweden. This investment will
increase finished products capacity at Avesta from its current
250 000 tons to some 650 000 tons by mainly duplex grades, with the
additional capacity operational in 2010.
In October, an investment decision was made to expand Outokumpu's
capacity in hot rolled plate (quarto plate) at Degerfors, Sweden by
80 000 tons and at New Castle (IN) in the US by 20 000 tons.
Following the EUR 220 million investments, total quarto plate
capacity will increase from its current level of 160 000 tons to 260
000 tons in 2010.
The transformation towards increased end-user and project sales
requires investment into the Group's service capabilities. To this
end, Outokumpu's service center network is being upgraded and
expanded.
In March, a new service center for plate and tubular products was
opened on the Group's site at Sheffield in the UK. The plate service
centers in Jyväskylä in Finland and in Eskilstuna in Sweden were
revamped and expanded during 2007.
The Group's service center in Italy is to be restructured and
expanded. This EUR 70 million investment will increase capacity at
this service center from its current level of 40 000 tons to some
110 000 tons from 2010 onwards.
To serve the growing markets in Eastern Europe better, a new
stainless steel service center is being established near Katowice in
the south of Poland. This EUR 20 million investment in a combined
coil and plate facility is scheduled to be operational during the
first half of 2009.
To establish presence in growing Asian markets, a new service center
with the annual capacity to stock and process some 50 000 tons of
stainless steel coil, will be built in the western part of India. The
investment totals EUR 30 million and the service center is scheduled
to be operational in the first half of 2009. A new service center
will also be built near Shanghai in China. This investment of EUR 20
million will result in capacity to stock and process some 30 000 tons
of mainly special grades from 2010 onwards.
The Group's service center in Willich, Germany, will be upgraded. An
investment of EUR 18 million will increase its current capacity from
some 60 000 tons to 110 000 tons in 2009.
To expand the Group's geographical coverage, in addition to the above
mentioned service centers, Outokumpu is currently conducting a
feasibility study on the building of a 250 000 ton stainless steel
cold rolling mill in India. Finalization of the study is expected in
II/2008. The possibility of utilizing some equipment from the Group's
cold rolling mill in Sheffield, closed in 2006, is being evaluated.
The total estimated EUR 1.3 billion cash outflow of strategy related
investments decided in 2007 (including the Tornio investment
announced on January 31, 2008), is estimated to materialize as
follows: EUR 300 million in 2008, EUR 650 million in 2009, EUR 260
million in 2010, EUR 80 million in 2011 and EUR 20 million in 2012.
In addition, the Group's annual maintenance capital expenditure for
2008-2010 is estimated to be EUR 150 million.
Acquisitions and divestments
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 was 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
proportion of special products with higher added value.
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, representing a holding of 4.9%.
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 fair
valuation of Outokumpu's 20% stake resulted in a tax-free
non-recurring gain of EUR 110 million, which was recognized in
financial income.
In June, Outokumpu sold 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. Outokumpu
recognized a non-recurring gain of EUR 25 million from this
transaction. The Hitura mine was the last remaining asset in
Outokumpu's Exit Mining program.
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 1 500 - 2 500MW nuclear power plant to meet Finland's increasing
need for electricity. Operation of the plant is planned to start by
year 2018. By participating in Fennovoima, Outokumpu's aim is to
secure a significant portion of its electricity needs in years to
come.
Discontinued operations
Outokumpu's discontinued operations includes the Outokumpu copper
tube and brass business in Europe. Outokumpu's intention is to divest
this business. In 2007, sales by the tube and brass businesses
totaled EUR 599 million with an operating loss of EUR 8 million.
Operating capital at the end of December 2007 totaled EUR 130
million. Net profit from discontinued operations totaled EUR 18
million negative (2006: EUR 357 million profit). In 2006, net profit
from discontinued operations also comprised operating result of
Outokumpu Technology (later Outotec Oyj) for the I-III/2006 period
and the gain on the sale of shares in the company.
Operational Excellence and profitability improvement initiatives
progressed well
Both Production and Commercial Excellence programs have been
proceeding well and are ahead of schedule and have delivered
cumulative benefits of some EUR 70 million (EUR 25 million in 2006
and EUR 45 million in 2007) from the start of the program in 2005
until the end of 2007, clearly above the estimated EUR 40 million.
The profitability improvement target for 2008 compared to 2005 is EUR
80 million.
Encouraged by the success of the on-going Production and Commercial
Excellence programs the excellence initiatives were expanded into
supply chain management. The first phase of the Supply Chain
Excellence program concentrates on procurement. Due to the expansion,
the total original EUR 160 million benefit target of the Operational
Excellence programs for the year 2009 was raised to EUR 200 million
and the target from 2010 onwards to EUR 300 million.
In the Group's cost cutting initiatives, initiated in 2005 and
completed in 2006, full effect of the EUR 150 million lower
comparable fixed cost running rate was achieved in 2007.
Stainless steel price calculation method revised
Outokumpu changed its calculation method for the alloy surcharge in
stainless steel pricing starting from stainless steel deliveries for
January 2008. Outokumpu's alloy surcharge is now based on the 30-day
average price of raw materials calculated backwards from the previous
month's 20th day. The former alloy surcharge was based on the average
raw material prices two and three months prior to delivery.
Outokumpu has changed the calculation method in order to bring more
stability in the stainless steel market and to ultimately reduce the
raw material price volatility. The new alloy surcharge calculation
period is shorter than Outokumpu's production cycle. In case of a
very volatile nickel price, this may result in substantial nickel
related inventory gains or losses.
Class actions regarding the sold 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 the 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.
Customs investigation of exports to Russia by Outokumpu Tornio Works
In March, Finnish Customs authorities initiated a criminal
investigation into the Group's Tornio Works' export practices to
Russia. 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
focusing on possible complicity by Outokumpu Stainless Oy in the
preparation of defective and/or forged invoices by the forwarding
agency in question. The investigation is expected to last until the
summer of 2008.
Directly after the Finnish Customs authorities started their
investigations, Outokumpu initiated its own investigation into the
trade practices connected with stainless steel exports from Tornio to
Russia. In June, after carrying out its investigation, the leading
Finnish law firm Roschier Attorneys Ltd., concluded that it had not
found evidence that any employees of Tornio Works or the company had
committed any of the crimes alleged by the Finnish Customs.
Risk management
Outokumpu operates in accordance with the Board-approved risk
management policy, which defines the objectives, approaches and areas
of responsibility of risk management. Risk management supports the
Group's strategy and it also helps to define a balanced risk profile
from the perspective of shareholders as well as other stakeholders.
Outokumpu categorizes risks to being strategic/business, operational
or financial.
The most important strategic and business risks include overcapacity
of stainless steel production, product substitution and cyclical
nature of stainless steel demand. There is lots of investment
activity in the sector in China and this may lead to overcapacity of
cold rolled stainless production. In order to mitigate risk related
to the cyclical nature of the business and risk of product
substitution, Outokumpu aims to increase sales to end-users and to
widen its product offering.
Operational risks arise as a consequence of inadequate or failed
internal processes, employees' actions, systems or other events, such
as natural catastrophes and misconduct or crime. Property damage and
business interruption caused by fire at some major site is a key risk
concern for the Group. Outokumpu has a systematic fire audit program
in place and part of hazard risk is covered with insurances. In last
year Outokumpu strengthened the internal organization for corporate
security and started focused security audits at sites.
Financial risks include exposure to market prices, capability to
maintain adequate liquidity and exposure to default risk. The most
important market risks for Outokumpu include variation in nickel
price, Swedish krona exchange rate against euro and the value of the
US dollar. Outokumpu has also significant exposures to equity and
loan security prices. Part of Group's market risks is mitigated with
use of financial derivative contracts. Liquidity and refinancing risk
is taken into account in capital management decisions. It is
Outokumpu's aim to mitigate significant part of credit risk with
insurances and other arrangements.
Environment, health and safety
In the European Union, preparations for emission trading in the
Kyoto-period 2008-2012 are ongoing. By the end of the year the
allocation was clear for Tornio Works in Finland and Sheffield melt
shop in the UK. In Sweden, the final decision was still pending, but
according to the information received, the total amount allocated to
the installations in the UK, Sweden and Finland are estimated to be
enough for the Group's planned production. The scope of emission
trading was extended to heat treatment installations in Sweden.
Carbon dioxide emissions for the Group were about 1 000 000 tons in
2007 at almost the same level as in 2006. Due to changes in product
mix and raw material base, production cuts, performance improvements
and better energy efficiency, all sites had surplus of allowances. In
2007, the Group sold 364 000 tons of carbon dioxide allowances. The
permission for allowances for the period 2008 - 2012 was applied for.
In 2007, at Outokumpu sites, emissions to air and discharges to water
in 2007 mostly remained within permitted limits and the breaches that
occurred were temporary, were identified quickly and caused only
minimal environmental impact. Outokumpu is not a party in any
significant juridical or administrative proceeding concerning
environmental issues, nor is it aware of any environmental risks that
could have a material adverse effect on the Group's financial
position.
At the beginning of 2007, the steel melting shop in Tornio began
monitoring dust particle emissions using a continuous emission
measurement system. These continuous measurements provide emission
data on a daily basis, helping to detect and repair potential filter
leakages more quickly. A new dust filter was also installed at the
Tornio cold rolling unit in August 2007.
In 2007, the lost-time injury rate (i.e. lost-time accidents per
million working hours) improved clearly to 11 (2006: 17) and was
below the Group's annual target of 2007 (less than 12). No severe
accidents were reported during the review period.
In September, the results of the annual review carried out for the
Dow Jones Sustainability Indexes (DJSI) by the Sustainable Asset
Management Group (SAM) were published. Outokumpu retained its
position in the Pan-European Dow Jones STOXX Sustainability Index
(DJSI STOXX) and was also accepted into the Dow Jones Sustainability
World Index (DJSI World). In January 2008, Outokumpu was given the
title of "SAM Sector Mover" for having shown the greatest relative
improvement in its sustainability performance and for its outstanding
achievements in the area of sustainability.
In the Carbon Disclosure Project (CDP), published in September,
Outokumpu was for the first time included in the Climate Disclosure
Leadership Index (CDLI). Among all carbon intensive companies,
Outokumpu was ranked number eight and was the best of the Nordic
Metals and Mining companies.
Outokumpu's corporate responsibility report - Outokumpu and the
environment 2007 - is based on the Global Reporting Initiative (GRI).
The report will be published together with the annual report.
Research and development
Group expenditure on research and development in 2007 totaled EUR 18
million or 0.3% of sales (2006: EUR 17 million and 0.3%). Outokumpu
has research centers in Tornio, Finland and in Avesta, Sweden. Some
process and technology development work is also carried out in
production units, and there are close links between R&D operations
and the Production Excellence program. The R&D function employs
almost 200 professionals. Outokumpu conducts research also in
collaboration with its customers, research institutes and
universities.
The main focus area in 2007 was development new low-nickel and
nickel-free stainless steels, which reduce dependence on the volatile
nickel price in steel price. Much effort has been put on development
of duplex grades, which offer a good combination of high strength and
good corrosion resistance. Outokumpu has been able to substantially
increase volumes of these products, and customers have also shown
growing interest in Outokumpu's LDX 2101®. Production technology for
this grade has been improved and new applications are continuously
being developed.
Studies on optimum process parameters and product properties for
several ferritic grades at production scale continued. The capability
to sell and produce different type of Cr-Mn-Ni grades (200-series) is
now available.
In addition to new products, R&D operations focus on innovative
manufacturing processes that reduce costs, result in lower emissions,
shorten lead times and improve quality as well as on new applications
for stainless steel. The main subject of environmental research in
2007 was slag utilization. When treated in an optimal manner, slag
from steel melt shops is a suitable material for roads and
construction beds where it replaces virgin material.
Personnel
Personnel
Dec. 31 2007 2006 Change
General Stainless 3 571 3 498 73
Specialty Stainless 4 099 4 200 -101
Other operations 439 462 -23
The Group 8 108 8 159 -51
In 2007, the Group's continuing operations employed an average of 8
270 people (2006: 8 505) in some 30 countries. At the end of 2007,
the number of personnel employed by the Group was 8 108. Net
reduction in the number of personnel in 2007 was 51 (2006: 804).
Personnel expenses totaled EUR 499 million (2006: EUR 506 million).
The most visible personnel training and development projects were an
extensive training program on Production Excellence and a Strategic
Leadership Program. Also, the implementation of Outokumpu's
leadership principles, introduced in 2006, continued throughout the
Group. The recruitment program for graduates, Stainless Pro, was
started in 2007.
Development Dialogues took place with all clerical staff, and the
objective is for all Group employees to fall within the sphere of
dialogues in 2008. Harmonized performance appraisal and reward models
have been in use from the beginning of 2007.
The Outokumpu Personnel Forum held its 16th meeting in Avesta in
Sweden. The Group Working Committee, a forum for continuous dialogue
between personnel and management, met 7 times during 2007.
The personnel survey O'People was carried out again in 2007, and it
mapped out the opinions of employees concerning their working
environment and its working practices as well the company strategy
and leadership. The results are a basis for further development and
change in the working environment and corporate culture throughout
the Group.
As entering into the second phase in the Group's strategy
development, the organization is being aligned into an integrated
model. As a result, a wide-scale internal recruitment was launched at
the end of 2007.
Strike by the Union of Salaried Employees in Finland
In October 22-26, the operations at Tornio Works were affected by a
strike by the Union for Salaried Employees in Finland suspending most
of the stainless steel production operations in Tornio. Due to the
short duration of the strike, direct effects to the Group's results
were marginal.
Organizational change and appointments in Corporate Management
To facilitate the second phase in its strategy development Outokumpu
aligns its organization into an integrated model that emphasizes the
one-company approach towards customers. The new organization model,
starting from January 1, 2008, is designed to serve customers in an
optimal way, and sales will be organized into customer segment groups
served by dedicated teams.
In the integrated model, business units are responsible for product
strategy and overall profitability. The cross-organizational Group
Sales and Marketing function is responsible for delivery of
commercial targets, and the Supply Chain Management for end-to-end
delivery performance. The new organizational structure will be fully
effective as of April 1, 2008.
Bo Annvik was appointed Executive Vice President - Specialty
Stainless and a member of Outokumpu's Group Executive Committee as of
June 1, 2007. Mr. Annvik's current responsibilities include Special
Coil and Plate, Thin Strip, OSTP.
Jamie Allan was appointed Executive Vice President - Supply Chain
Management and a member of Outokumpu's Group Executive Committee as
of January 1, 2008. Mr. Allan's responsibility includes supply chain
management operations, Production Excellence program and procurement.
Päivi Lindqvist was appointed Outokumpu's Senior Vice President -
Communications and IR as of October 1, 2007. Ms. Lindqvist reports to
CEO Juha Rantanen.
Shares and shareholders
According to the Nordic Central Securities Depository, Outokumpu's
largest shareholders by group at the end of 2007 were the Finnish
State (31.1%), foreign investors (39.2%), Finnish public sector
institutions (15.2%), Finnish private households (7.9%), Finnish
financial and insurance institutions (2.9%), Finnish corporations
(2.1%) and Finnish non-profit organizations (1.7%).
Shareholders that have more than 5% of shares and votes of Outokumpu
Oyj are the Finnish State (31.1%) and the Finnish Social Insurance
Institution (8.6%).
At the beginning of the year, Outokumpu's closing share price was EUR
29.97. At the year-end, the closing share price was EUR 21.21 (2006:
EUR 29.66), down 28%. The average share price during 2007 was EUR
24.94 (2006: EUR 19.77). At the year-end, the market capitalization
of Outokumpu Oyj shares totaled EUR 3 845 million (2006: EUR 5 376
million). Share turnover in 2007 was 62% higher than in 2006, with
516.4 (2006: 319.3) million shares being traded on OMX Nordic
Exchange Helsinki. The total value of share turnover more than
doubled to EUR 12 882 million in 2007 (2006: EUR 6 312 million).
At the year-end, Outokumpu's fully paid share capital totaled EUR 308
247 053.20 and consisted of 181 321 796 shares. The average number of
shares outstanding during 2007 was 180 922 336. On January 31, 2008,
shares owned by Board members totaled 8 976 and members of the
Executive Committee held 41 343 shares and had share options that
entitle to subscribe a maximum of 186 140 shares. In addition, based
on the share incentive programs the members of the Executive
Committee can obtain a maximum of 198 100 shares.
Annual General Meeting 2007
The Annual General Meeting (AGM), held on March 28, 2007, approved a
dividend of EUR 1.10 per share for 2006 and dividends totaling EUR
199 million were paid on April 11, 2007.
The AGM authorized the Board of Directors to repurchase a maximum of
18 000 000 of the Company's own shares. Based on the authorization
given by the AGM of March 28, 2007 to repurchase of its own shares,
Outokumpu repurchased 1 000 000 of its own shares between November 1
and 6, 2008 for EUR 24.9 million. These shares represent some 0.6% of
the company's share capital and voting rights. After these share
repurchases Outokumpu holds 1 218 603 treasury shares, which
correspond to 0.7% of Group's shares and votes. The shares
repurchased are mainly to be used in the Outokumpu's share-based
incentive schemes.
The AGM also authorized the Board of Directors to decide to issue
shares and grant share entitlements for a maximum of 18 000 000
shares and, in addition, the maximum number of treasury shares to be
transferred is 18 000 000. To date, this authorization has not been
exercised.
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 was re-elected as Vice Chairman. The
Board of Directors also appointed two permanent committees consisting
of Board members. Ole Johansson (Chairman), Leena Saarinen and Taisto
Turunen were elected as members of the Board Audit Committee and
Jukka Härmälä, Evert Henkes and Anna Nilsson-Ehle were elected as
members of the Board Nomination and Compensation Committee.
KPMG Oy Ab, Authorized Public Accountants, was elected as the
company's auditor.
Shareholder's Nomination Committee
Outokumpu's Annual General Meeting of March 28, 2007 decided to
establish a Shareholders' Nomination Committee to prepare proposals
on the composition of the Board of Directors along with director
remuneration for the following Annual General Meeting. The members
represent Outokumpu's four largest shareholders, registered in the
Finnish book-entry securities system as of November 1, 2007, which
accepted the assignment. The Shareholders' Nomination Committee of
Outokumpu consists of the following four shareholders: The Finnish
State (Jarmo Väisänen, Senior Financial Counsellor, Prime Minister's
Office), The Finnish Social Insurance Institution (Jorma Huuhtanen,
Director General), Ilmarinen Mutual Pension Insurance Company (Jussi
Laitinen, Chief Investment Officer) and Varma Mutual Pension
Insurance Company (Matti Vuoria, President & CEO). Jarmo Väisänen
acts as Chairman of the Committee. The Chairman of Outokumpu's Board
of Directors Jukka Härmälä serves as an expert member. The
Shareholders' Nomination Committee is required to submit its
proposals to the Board of Directors of the company by February 1,
2008.
Events after the review period
Today, the Board of Directors made a decision to invest EUR 370
million over three years to broaden the product range of Tornio
Works. In order to increase the share of direct end-user and project
sales and to expand the value-added special stainless steel products
capacity, Outokumpu will start producing high-quality ultra-clean
ferritic stainless steel grades, as well as bright-annealed
austenitic and ferritic stainless products. The investment, together
with the on-going replacement of the no. 2 annealing and pickling
line, will increase the total finished products installed capacity of
Tornio Works from the current 1.2 million tons to some 1.3 million
tons by the end of 2010.
The investment also includes a service center for especially the
bright-annealed austenitic and ferritic products near Stuttgart in
Southern Germany. The annual processing capacity for the service
center will be some 60 000 tons and will be in place by the end of
2010.
Short-term outlook
Underlying demand for stainless steel is healthy. End-user demand and
demand for special grades also continues healthy. The current global
economic turmoil has however created some uncertainty that might have
an impact on overall stainless steel fundamentals.
Distributor inventories for standard products have declined and are
at or below long-term average levels. Outokumpu's order intake for
standard products has improved and lead times have normalized. Due to
the pick-up in demand for standard products, Outokumpu's delivery
volumes are expected to be close to capacity. The gradual recovery in
base prices is expected to continue during the first quarter. Towards
the end of the quarter, base price for cold rolled 304 2mm sheet is
expected to be 100-125 EUR/t higher than the December price of 1 125
EUR/t reported by CRU.
Following the decline in nickel price in the fourth quarter, the
January alloy surcharge is lower than in December but will rise
slightly in February. As a result, nickel-related inventory losses
continue to impair results in the first quarter due to the lower
alloy surcharge. At current nickel price level, the losses due to the
timing differences between the alloy surcharge and inventory turnover
are estimated to be in the range of EUR 50-70 million.
Outokumpu's operating profit for the first quarter 2008 is estimated
to be better than in the previous quarter, assuming no major further
negative impact from nickel price volatility. Outokumpu's underlying
operational result in the first quarter, excluding nickel-related
inventory losses and non-recurring items, is expected to be somewhat
better than in the fourth quarter 2007.
Board of Directors proposal for profit distribution and revision of
dividend policy
Today, Outokumpu's Board of Directors has approved a revision of the
Group's dividend policy to stress the importance of payout stability.
The approved dividend policy reads as follows: "Payout ratio over a
business cycle should be at least one-third of the Group's profit for
the period with the aim to have stable annual payments to
shareholders. In its annual dividend proposal, the Board of Directors
will, in addition to financial results, take into consideration the
Group's investment and development needs."
The Board of Directors is proposing to the Annual General Meeting to
be held on March 27, 2008 a dividend of EUR 1.20 per share to be paid
from the parent company's distributable funds on December 31, 2007
and that any remaining distributable funds be allocated to retained
earnings. The suggested dividend record date is April 1, 2008 and the
dividend will be paid on April 8, 2008. The payout ratio is 33.9%.
According to the financial statements at December 31, 2007,
distributable funds of the parent company totaled EUR 807 million. No
material changes have taken place in the company's financial position
after the balance sheet date and the proposed dividend does not
compromise the company's financial standing.
In Espoo, January 31, 2008
Board of Directors
CONSOLIDATED FINANCIAL
STATEMENTS
Condensed income statement
Jan- Jan- Oct- Oct-
Dec Dec Dec Dec
EUR million 2007 2006 2007 2006
Continuing operations:
Sales 6 913 6 154 1 465 1 907
Other operating income 82 44 18 5
Costs and expenses -6 364 -5 364 -1 447 -1 528
Other operating expenses -43 -11 -21 -6
Operating profit 589 824 15 378
Share of results in
associated companies 4 8 -1 4
Financial income and expenses
Interest income 25 26 6 10
Interest expenses -82 -88 -19 -21
Market price gains and losses 0 12 2 -1
Other financial income 268 8 4 0
Other financial expenses -5 -5 -1 -1
Profit before taxes 798 784 7 369
Income taxes -138 -178 -0 -83
Net profit for the period
from continuing operations 660 606 7 286
Discontinued operations:
Net profit for the period
from discontinued operations -18 357 -23 317
Net profit for the period 641 963 -16 603
Attributable to:
Equity holders of the Company 638 962 -16 603
Minority interest 4 2 -0 1
Earnings per share
for profit attributable
to the equity
holders of the Company:
Earnings per share, EUR 3.52 5.31 -0.09 3.33
Diluted earnings per share, EUR 3.50 5.29 -0.09 3.31
Earnings per share from
continuing operations
attributable to the equity
holders of the Company:
Earnings per share, EUR 3.63 3.34 0.04 1.58
Earnings per share from
discontinued operations
attributable to the equity
holders of the Company:
Earnings per share, EUR -0.10 1.97 -0.13 1.75
Condensed balance sheet
Dec 31 Dec 31
EUR million 2007 2006
ASSETS
Non-current assets
Intangible assets 475 493
Property, plant and equipment 1 980 2 069
Non-current financial assets
Interest-bearing 453 375
Non interest-bearing 77 77
2 986 3 014
Current assets
Inventories 1 630 1 710
Current financial assets
Interest-bearing 50 55
Non interest-bearing 975 1 314
Cash and cash equivalents 86 85
2 740 3 164
Assets held for sale 184 235
Total assets 5 910 6 414
EQUITY AND LIABILITIES
Equity
Equity attributable to the
equity holders of the Company 3 337 3 054
Minority interest 0 17
3 337 3 071
Non-current liabilities
Interest-bearing 1 046 1 293
Non interest-bearing 337 337
1 382 1 630
Current liabilities
Interest-bearing 464 685
Non interest-bearing 675 955
1 139 1 640
Liabilities related to
assets held for sale 52 73
Total equity and liabilities 5 910 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 January 1,
2006 308 - 701 11 23
Cash flow hedges - - - - -3
Fair value changes on
available-for-sale
financial assets - - - - 124
Net investment hedges - - - - -
Change in translation
differences - - - - -
Items recognized
directly in equity - - - - 121
Net profit for the
period - - - - -
Total recognized
income and expenses - - - - 121
Unregistered share
capital - 0 - - -
Dividend distribution - - - - -
Management stock
option program:
value of received
services - - - - -
Equity on December
31, 2006 308 0 701 11 144
Cash flow hedges - - - - 3
Fair value changes on
available-for-sale
financial assets - - - - 13
Available-for-sale
financial assets
recognized through
P&L - - - - -100
Net investment hedges - - - - -
Change in translation
differences - - - - -2
Items recognized
directly in equity - - - - -86
Net profit for the
period - - - - -
Total recognized
income and expenses - - - - -86
Transfers from
unregistered
share capital 0 -0 - - -
Transfers from
retained earnings - - - 5 -
Dividend distribution - - - - -
Purchases of treasury
shares - - - - -
Shares subscribed
with options 0 - 0 - -
Management stock
option program:
value of received
services - - - - -
Purchase of minority
in OSTP - - - - -
Equity on December
31, 2007 308 - 701 16 57
Attributable to the equity
holders
of the Company
Treasury Cumulative Retained Minority Total
shares translation earnings interest equity
EUR million differences
Equity on January 1,
2006 -2 -38 1 044 15 2 062
Cash flow hedges - - - - -3
Fair value changes on
available-for-sale
financial assets - - - - 124
Net investment hedges - -2 - - -2
Change in translationdifferences - 6 - 0 6
Items recognized
directly in equity - 4 - 0 125
Net profit for the
period - - 962 2 963
Total recognized
income and expenses - 4 962 2 1 088
Unregistered share
capital - - - - 0
Dividend distribution - - -81 - -81
Management stock
option program:
value of received
services - - 2 - 2
Equity on December
31, 2006 -2 -35 1 927 17 3 071
Cash flow hedges - - - - 3
Fair value changes on
available-for-sale
financial assets - - - - 13
Available-for-sale
financial assets
recognized through
P&L - - - - -100
Net investment hedges - 3 - - 3
Change in translation
differences - -51 - 0 -53
Items recognized
directly in equity - -48 - 0 -134
Net profit for the
period - - 638 4 642
Total recognized
income and expenses - -48 638 4 508
Transfers from
unregistered
share capital - - - - -
Transfers from
retained earnings - - -5 - -
Dividend distribution - - -199 - -199
Purchases of treasury
shares -25 - - - -25
Shares subscribed
with options - - - - 0
Management stock
option program:
value of received
services - - 3 - 3
Purchase of minority
in OSTP - - - -21 -21
Equity on December
31, 2007 -27 -82 2 364 - 3 337
Condensed statement of cash flows
Jan-Dec Jan-Dec
EUR million 2007 2006
Net profit for the period 641 963
Adjustments
Depreciation and amortization 204 229
Impairments 1 12
Gain on the sale
of Outotec shares -142 -328
Gain on the Talvivaara
transaction -110 -
Other adjustments 199 215
Increase in working capital 181 -975
Dividends received 13 7
Interests received 10 17
Interests paid -83 -89
Income taxes paid -239 -87
Net cash from
operating activities 676 -35
Purchases of assets -163 -183
Purchase of Talvivaara shares -32 -
Purchase of the minority in OSTP -22 -
Proceeds from the sale
of subsidiaries 1 338
Proceeds from the sale of
shares in associated companies - 9
Proceeds from the sale
of other assets 15 20
Net cash from other
investing activities 4 14
Net cash from
investing activities -197 198
Cash flow before
financing activities 479 163
Purchase of treasury shares -25 -
Borrowings of long-term debt 151 174
Repayment of long-term debt -388 -380
Change in current debt -180 3
Dividends paid -199 -81
Proceeds from the sale of Outotec shares 158 -
Proceeds from the sale
of other financial assets 6 -
Other financing cash flow 1 -2
Net cash from
financing activities -477 -286
Net change in cash
and cash equivalents 2 -123
Cash and cash equivalents at
the beginning of the period 85 212
Foreign exchange rate effect -1 -5
Net change in cash
and cash equivalents 2 -123
Cash and cash equivalents
at the end of the period 86 85
Key figures
Jan-Dec Jan-Dec
EUR million 2007 2006
Operating profit margin, % 8.5 13.4
Return on capital employed, % 13.9 20.7
Return on equity, % 20.0 37.5
Return on equity from
continuing operations, % 20.6 23.6
Capital employed at end of period 4 125 4 371
Net interest-bearing
debt at end of period 788 1 300
Equity-to-assets ratio
at end of period, % 56.5 47.9
Debt-to-equity ratio
at end of period, % 23.6 42.3
Earnings per share, EUR 3.52 5.31
Earnings per share from
continuing operations, EUR 3.63 3.34
Earnings per share from
discontinued operations, EUR -0.10 1.97
Average number of shares
outstanding, in thousands 1) 180 922 181 033
Fully diluted earnings
per share, EUR 3.50 5.29
Fully diluted average number
of shares, in thousands 1) 181 920 181 758
Equity per share at end
of period, EUR 18.53 16.87
Number of shares outstanding
at end of period,
in thousands 1) 180 103 181 032
Capital expenditure,
continuing operations 190 187
Depreciation,
continuing operations 204 221
Average personnel for the
period, continuing operations 8 270 8 505
1) The number of own shares repurchased is excluded.
- - - - - - -
This announcement continues in part II/II of the release.
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