2007-10-23 12:05:50 CEST
2007-10-23 12:05:50 CEST
REGLERAD INFORMATION
Outokumpu Oyj - Quarterly report
Outokumpu Third Quarter 2007 Interim Report - substantial nickel-related inventory losses hit profitability, underlying operational result positive
Stock Exchange Release
October 23, 2007 at 1.00 p.m.
Third quarter highlights
- Nickel-related inventory losses in the order of EUR 280 million
turned operating profit EUR 256 million negative, underlying
operational result EUR 35 million positive.
- End-user demand for stainless steel continued strong, distributors
kept on de-stocking.
- Weak demand for stainless steel standard products and seasonality
dropped deliveries to a very low level of 238 000 tons.
- The main reference transaction price fell by 17% from the previous
quarter.
- Demand started to pick-up in late September.
- EUR 299 million released from working capital, cash flow from
operations EUR 161 million.
- The second phase in Outokumpu's strategic development started. New
investments totaling EUR 880 million approved in September and
October.
Group key figures
III/07 II/07 III/06 2006
Sales EUR million 1 227 2 092 1 447 6 154
Operating profit EUR million -256 406 231 824
Non-recurring items
in operating profit EUR million -11 25 - 1
Profit before taxes EUR million -277 652 214 784
Non-recurring items
in financial income EUR million - 252 - -
Net profit for the period
from continuing operations EUR million -210 553 166 606
Net profit for the period EUR million -214 565 172 963
Earnings per share from
continuing operations EUR -1.17 3.04 0.91 3.34
Earnings per share EUR -1.19 3.11 0.94 5.31
Return on capital employed % -22.3 35.5 24.3 20.7
Net cash generated from
operating activities EUR million 161 132 -24 -35
Capital expenditure,
continuing operations EUR million 47 75 45 187
Net interest-bearing debt
at end of period EUR million 1 016 1 119 1 560 1 300
Debt-to-equity ratio at
end of period % 29.8 30.8 66.4 42.3
Stainless steel deliveries 1 000 tons 238 399 393 1 815
Stainless steel base price 1) EUR/ton na. 1 518 1 572 1 470
Personnel at the end of period,
continuing operations 8 049 8 783 8 215 8 159
1) Stainless steel: CRU - German base price (2 mm cold rolled 304
sheet). As of July 2007, CRU has not reported base prices separately.
SHORT-TERM OUTLOOK
Underlying demand for stainless steel is holding firm. End-user
demand and demand for special grades and project deliveries continues
healthy. Distributor inventories are on a declining trend.
Outokumpu's order intake for standard products began to pick-up in
late September and the order book has been gradually improving. The
price of nickel was more stable in July-September, and the alloy
surcharge will clearly decline in October and November before the
expected increase in December.
The pick-up in demand for standard products will increase Outokumpu's
delivery volumes and improve profits in the fourth quarter. Prices
for stainless steel standard products are stabilizing and even some
price increases have been achieved. On the other hand,
nickel-related inventory losses continue to impair results in the
fourth quarter due to lower alloy surcharge. At the current nickel
price level the losses due to the timing differences between the
alloy surcharge and inventory turnover, are expected to be in the
order of EUR 100 million. However, Outokumpu's underlying operational
result in the fourth quarter, excluding nickel-related inventory
losses and non-recurring items, is expected to be better than in the
third quarter. The decline in nickel prices will continue to release
working capital and generate strong cash flow during the fourth
quarter resulting in clearly better full-year cash flow from
operations in 2007 than in 2006.
Strike by the Union of Salaried Employees in Finland started on
October 22, 2007. Some 400 salaried employees in Tornio are involved.
This industrial action will lead to cessation of production of
stainless steel at Outokumpu's Tornio Works in a few days. The
duration of the strike is today not known, but if continued, will
have a negative impact on the fourth quarter result.
The Group's underlying operational result for 2007 is estimated to be
better than the about EUR 650 million reached in 2006. However, due
to significant nickel-related inventory losses during the latter part
of 2007, Outokumpu's operating profit for the whole year 2007 is
expected to be lower than in 2006.
CEO Juha Rantanen:
- The steep decline in the price of nickel during the summer causes a
major hit on Outokumpu's profitability in the second half of 2007.
Distributors freezed their orders of stainless steel ahead of
declining transaction prices which resulted in very low delivery
volumes. The nickel-related inventory losses that we were forced to
book in the third quarter were as dramatic as we had feared in our
worst expectations.
- Outokumpu announced recently an adjustment in our pricing
mechanism, which means that transaction prices of stainless steel
will reflect changes in nickel price with shorter delay than today.
In our view, this will result in less volatile market behavior.
- Right now the distributor market is coming back as we were
anticipating earlier and the end-user demand continues to be strong.
This strengthens our confidence to continue to invest in the
business. The recently announced investments to move more into
special grades and closer to end-users will contribute to achieving a
more stable and profitable business model in the future, a target
that we now see more important than ever in the light of the
third-quarter results.
The attachments present Management analysis of the third quarter
operating result and the Interim review by the Board of Directors for
January-September 2007, the accounts and notes to the interim
accounts. This interim report is unaudited.
For further information, please contact:
Päivi Lindqvist, SVP - IR and Communications
tel. +358 9 421 2432, mobile +358 40 708 5351
paivi.lindqvist@outokumpu.com
Eero Mustala, SVP - Corporate Communications
tel. +358 9 421 2435, mobile +358 40 504 5146
eero.mustala@outokumpu.com
Esa Lager, CFO
tel +358 9 421 2516, mobile +358 40 506 5929
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 third-quarter 2007 results will be held on October 23,
2007 at 2.30 p.m. Finnish time (7.30 a.m. US EST, 12.30 p.m. UK time,
1.30 p.m. 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 0025
US & Canada +1 334 323 6201
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 October 23, 2007 at around 6.00 p.m.
An instant replay service of the conference call will be available
until Friday, October 26, 2007 on the following numbers:
UK replay number +44 20 7031 4064, access code: 769371
US & Canada replay number +1 954 334 0342, access code: 769371
OUTOKUMPU OYJ
Corporate Management
Ingela Ulfves
Vice President - Investor Relations
tel. + 358 9 421 2438, mobile +358 40 515 1531, fax +358 9 421 2125
e-mail: ingela.ulfves@outokumpu.com
www.outokumpu.com
MANAGEMENT ANALYSIS - THIRD-QUARTER OPERATING RESULT
Group key
figures
EUR million I/06 II/06 III/06 IV/06 2006 I/07 II/07 III/07
Sales
General
Stainless 1 013 1 066 1 130 1 561 4 770 1 700 1 670 879
Specialty
Stainless 650 638 614 821 2 723 1 003 1 028 687
Other
operations 87 93 97 85 361 64 63 53
Intra-group -1
sales -342 -405 -394 -560 700 -638 -669 -391
The Group 1 408 1 392 1 447 1 907 6 154 2 129 2 092 1 227
Operating
profit
General
Stainless 43 91 166 236 536 245 188 -224
Specialty
Stainless 22 65 81 171 338 182 196 -51
Other
operations 2 -8 -13 -16 -35 1 19 8
Intra-group
items -0 1 -3 -13 -15 -4 2 11
The Group 67 149 231 378 824 424 406 -256
Stainless steel
deliveries
1 000 tons I/06 II/06 III/06 IV/06 2006 I/07 II/07 III/07
Cold rolled 286 239 200 211 936 220 186 117
White hot
strip 104 103 80 103 390 94 94 49
Quarto plate 44 44 35 39 162 39 41 30
Tubular
products 20 20 16 18 74 20 17 13
Long products 14 15 14 16 59 16 15 10
Semi-finished
products 43 47 47 58 195 40 46 21
Total
deliveries 510 467 393 445 1 815 430 399 238
Market prices and exchange
rates
I/06 II/06 III/06 IV/06 2006 I/07 II/07 III/07
Market prices
1)
Stainless
steel
Base price EUR/t 1 127 1 342 1 572 1 840 1 470 1 930 1 518 na.
Alloy
surcharge EUR/t 844 1 020 1 437 2 064 1 341 2 277 2 913 2 967
Transaction
price EUR/t 1 971 2 362 3 009 3 904 2 811 4 207 4 432 3 677
14 19 33 24 41 48
Nickel USD/t 810 925 29 154 129 254 440 055 30 205
12 15 25 19 31 35
EUR/t 318 836 22 878 707 317 619 646 21 983
Ferrochrome
(Cr-content) USD/lb 0.63 0.70 0.75 0.78 0.72 0.77 0.82 1.00
EUR/kg 1.16 1.23 1.30 1.33 1.26 1.30 1.34 1.60
Molybdenum USD/lb 23.38 25.01 26.47 25.56 25.10 26.69 30.97 31.97
EUR/kg 42.86 43.82 45.79 43.73 44.08 44.90 50.65 51.30
Recycled
steel USD/t 200 238 243 239 230 278 287 271
EUR/t 167 189 191 185 183 212 213 197
Exchange
rates
EUR/USD 1.202 1.258 1.274 1.289 1.256 1.311 1.348 1.374
EUR/SEK 9.352 9.298 9.230 9.135 9.254 9.189 9.257 9.264
EUR/GBP 0.686 0.688 0.680 0.673 0.682 0.671 0.679 0.680
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. As of July 2007, CRU has not reported
base prices separately.
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
Collapse in nickel price led to weak demand for stainless steel
standard products
Global apparent consumption of stainless steel flat products was 4%
lower than in the previous quarter, and in Europe the decrease was
17%, partly as a result of seasonal effects. In Europe, mills
suffered from low demand for standard grades as distributors
continued to reduce inventories in expectation of lower transaction
prices following the marked decline in nickel prices that began in
late June. Both end-user demand and demand for special grades and
project deliveries remained firm, suffering only from seasonality due
to the holiday period and maintenance breaks. The high and volatile
nickel prices have resulted in consumers attempting, where
technically feasible, to move away from grades with high nickel
content. To meet this demand, Outokumpu is gradually increasing
production of both ferritic and low-nickel grades.
The alloy surcharge continued to increase and peaked at 3 365 EUR/ton
in July before turning into decline in August. According to CRU, the
average alloy surcharge for 304 cold rolled stainless steel sheet in
Germany was 2 967 EUR/ton in the third quarter, 2% higher than in the
previous quarter. Stainless steel base prices were therefore under
intense pressure and declined month-on-month during the period. Due
to very thin stainless market activity and temporary use of a total
price instead of base price plus alloy surcharge for stainless steel
standard products, CRU has not been reporting base prices from July
onwards. The average transaction price in the quarter was 3 677
EUR/ton, down by 17% from the previous quarter. The difference in
price between Chinese and European stainless steel continued to
narrow in the period, and Chinese imports to the European market
continued the decline that was evident in II/2007.
Among the alloying elements, the price of nickel peaked at 54 200
USD/ton in mid-May but fell sharply in the period and was at its
lowest in mid-August at around 25 000 USD/ton. The average price in
the third quarter was 30 205 USD/ton, down by 37% on II/2007 but
still 4% higher than in III/2006. In October, the price has been
around 31 000 USD/ton. Demand for ferrochrome was down by 15%
compared to the previous quarter and markets were oversupplied. The
average price, however, rose by 22% to 1.00 USD/lb. The supply of
molybdenum was slightly constrained in the period and the average
price increased by 3% to 31.97 USD/lb. The price of recycled steel
fell by 6% to 271 USD/ton.
Nickel-related inventory losses and low delivery volumes adversely
affected results
Group sales in the third quarter totaled EUR 1 227 million, 41% down
on II/2007. Deliveries were down by 40% to 238 000 tons (II/2007: 399
000 tons). Weak demand for stainless steel standard products due to
the de-stocking resulted in further production cuts, and these
together with the holiday season and maintenance breaks, were the
main reasons behind the significant drop in delivery volumes.
The operating loss for the period totaled EUR 256 million. This
figure includes some EUR 280 million nickel-related inventory losses
resulting from the steep and rapid fall in nickel prices, and EUR 11
million net non-recurring costs related to the restructuring at Thin
Strip in the UK. Even though there was a significant reduction in
delivery volumes, Outokumpu's underlying operational result for the
third quarter was some EUR 35 million positive.
The majority of nickel-related inventory losses comprised write-downs
of inventories in addition to losses due to timing differences
between the alloy surcharge and inventory turnover. Part of standard
products were temporarily sold at base price plus a lower forward
alloy surcharge, and this also contributed to nickel-related losses.
The steep decline of the nickel price that started in June resulted
in a dramatic drop in the orders for stainless steel standard
products by distributors and thus exceptionally low delivery volumes
in the third quarter. Consequently raw material and process inventory
turnover slowed down substantially. The nickel tied up in the
inventories was and will be sold as part of deliveries at a
significantly lower value. To the extent the selling prices of these
deliveries are not expected to cover corresponding total production
costs, a write-down to net realizable value was made at the end of
the third quarter. Additionally, as the alloy surcharge in the fourth
quarter reflects a lower nickel price than the original purchase
price of the nickel, losses due to timing differences will still
adversely affect fourth quarter results.
Net cash generated from operating activities totaled EUR 161 million.
EUR 299 million was released from working capital primarily due to
the decline in nickel prices.
General Stainless' sales fell by 47% to EUR 879 million and
deliveries were 43% lower than in II/2007. In addition to weak
demand, extensive production cuts, as well as the holiday season and
maintenance breaks decreased delivery volumes. Operating loss totaled
EUR 224 million (II/2007: profit EUR 188 million), of which Tornio
Works posted EUR 195 million (II/2007: profit EUR 143 million).
Nickel-related inventory losses totaled some EUR 200 million.
Declining base prices and low delivery volumes turned the underlying
operational result negative.
Specialty Stainless' sales totaled EUR 687 million, down by 33%
compared to the previous quarter. Deliveries fell by 34%. Specialty
Stainless' operating loss totaled EUR 51 million (II/2007: profit EUR
196 million), including some EUR 80 million nickel-related inventory
losses and EUR 11 million net non-recurring costs related to the Thin
Strip restructuring. The underlying operational result achieved by
Specialty Stainless was clearly positive.
In September, plans were announced to streamline and concentrate the
UK Thin Strip operations to the Meadowhall site in Sheffield, and to
cease production of martensitic stainless steel strip for razor,
scalpel and cutlery applications at Stocksbridge. These changes will
take place at the end of March 2008 and will result in the closure of
operations at Stocksbridge with the loss of approximately 50 jobs.
Consultation with local trade union representatives has commenced.
Second phase in Outokumpu's strategic development began with major
investment decisions
Outokumpu is entering the next development phase in its strategy to
become the undisputed number one in stainless with success based on
operational excellence, aiming at delivering a more stable and
profitable business model whilst also addressing the most attractive
growth opportunities. This entails an increase in the proportion of
direct end-user and project sales from the current figure of 35% to
at least 50% over the next five years. It will also include expansion
of capacity in value-added special products, while maintaining cost
leadership in standard grade volume production.
In September, as the first 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, in expanding stainless
steel special grades capacity at Avesta Works in Sweden. This
investment will raise finished products capacity at Avesta from the
current level of 250 000 tons to some 650 000 tons in mainly duplex
grades, with the additional capacity operational in 2010.
In October, the Board of Directors approved plans to expand the
Group's capacity to produce quarto plate in Degerfors, Sweden and in
New Castle (IN) in the US by 80 000 tons and 20 000 tons
respectively. Following the EUR 220 million investments the total
quarto plate capacity will increase from 160 000 tons to 260 000 tons
in 2010.
The transformation towards increased end-user and project sales also
requires investment in the Group's service capabilities. To this end,
Outokumpu has decided to establish a new business, Outokumpu
Solutions, dedicated to provide value-added stainless steel solutions
to the architecture, building and construction (AB&C) sector.
Initially, Outokumpu Solutions will focus on architectural and facade
applications in connection with which Outokumpu will provide a full
service offering including the design, fabrication, installation,
maintenance and renewal of the facades.
To increase sales and enhance customer service further, the Group's
service center network is being amended and expanded. In September, a
decision was made to invest some EUR 70 million in restructuring the
Group's service center in Italy, increasing its capacity from the
current 40 000 tons to some 110 000 tons with effect from 2010. A new
service center is also to be built near Shanghai in China. This
facility, which represents an investment of some EUR 20 million, will
have the capacity to stock and process some 30 000 tons of mainly
special grades from 2010 onwards.
A decision was made in October to upgrade the Group's service center
in Willich, Germany. With an investment of EUR 18 million, its
capacity will increase from some 60 000 tons to 110 000 tons in 2009.
The total estimated EUR 880 million cash outflow of these new
investments decided in September and October, is preliminarily
estimated to materialize as follows: EUR 10 million in 2007, EUR 275
million in 2008, EUR 325 million in 2009, EUR 170 million in 2010,
EUR 80 million in 2011 and EUR 20 million in 2012.
Operational Excellence programs to be expanded
Both the Production Excellence and Commercial Excellence programs are
proceeding at full speed delivering this year at least the planned
EUR 40 million benefits. The estimated benefits to be achieved in
2008 are EUR 80 million.
The excellence initiatives are being expanded into supply chain
management. The first phase of the Supply Chain Excellence program
will concentrate on procurement. Addition of this new initiative into
the Operational Excellence programs will increase the existing target
of EUR 160 million in benefits for the year 2009 to EUR 200 million,
and the target from 2010 onwards will be increased to some EUR 300
million.
INTERIM REVIEW BY THE BOARD OF DIRECTORS - JANUARY-SEPTEMBER 2007
(Unaudited)
High stainless steel transaction prices
The strong increase in demand that characterized stainless steel
markets during 2006 slowed during 2007, however, global apparent
consumption of stainless steel flat products was during the first
nine months in 2007 still 6% higher than in I-III/2006. According to
CRU, the German transaction price for 304 2mm sheet rose strongly
during the first half of 2007, but declined steeply from July
onwards. The average transaction price in the third quarter was 3 677
EUR/ton, 17% down on the previous quarter. The average transaction
price for January-September was 4 105 EUR/ton, 68% higher than in the
corresponding period in 2006.
Good profitability, significant non-recurring gains in financial
income
Group sales for January-September 2007 totaled EUR 5 448 million
(I-III/2006: EUR 4 247 million), up by 28% on the previous year. The
increase in sales was a result of significantly higher transaction
prices. Stainless steel deliveries declined by 22% to 1 067 000 tons
(I-III/2006: 1 371 000 tons). Falling but still high nickel prices
weakened demand for stainless steel standard products from June
onwards. Distributor sectors' de-stocking continued over the summer
period resulting in low demand. Production cuts at mills producing
standard products, reduced the Group's delivery volumes.
Operating profit totaled EUR 574 million (I-III/2006: EUR 446
million). This good figure resulted from high base prices during the
first half of 2007 and internal improvement measures. Operating
profit also included EUR 14 million net of positive non-recurring
items, 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 Thin Strip operations in the UK.
Financial income included a EUR 142 million non-recurring gain from
the sale of Outotec Oyj shares and a EUR 110 million gain recognized
in the Talvivaara transaction. Net financial expenses, excluding
non-recurring gains, totaled EUR 39 million (I-III/2006: EUR 35
million). Net profit for the period from continuing operations
totaled EUR 653 million (I-III/2006: EUR 320 million) and net profit
from discontinued operations was EUR 5 million (I-III/2006: EUR 40
million). Earnings per share from continuing operations totaled EUR
3.59 and from discontinued operations EUR 0.03.
Return on capital employed rose to 17.4% (I-III/2006: 15.8%).
Net cash generated from operating activities totaled EUR 377 million
(I-III/2006: EUR 47 million). EUR 266 million was tied up in working
capital during January-September primarily as a consequence of high
nickel prices. Net interest-bearing debt fell by EUR 284 million to
EUR 1 016 million (Dec. 31, 2006: EUR 1 300 million). Gearing
improved to 29.8% (Dec. 31, 2006: 42.3%).
Decisions on major investments support Group strategy
Capital expenditure totaled EUR 147 million (I-III/2006: EUR 113
million). Capital expenditure for the whole year 2007 is estimated to
be about EUR 240 million.
Outokumpu has now launched the second 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, and 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 the current figure of 35% to at least
50% in the next five years. It also includes expansion of capacity in
value-added special products, while maintaining cost leadership in
standard grade volume production.
Increasing the Group'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.
Production at the EUR 55 million expansion in Kloster, Sweden, was
ramped up in the beginning of 2007. The 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.
In Tornio, a EUR 13 million investment in batch annealing furnaces
enabling annual production of 60 000 tons of ferritic stainless
steel, has been completed. The first deliveries took place during
II/2007.
Replacement of one of the five annealing and pickling lines at Tornio
Works will provide additional production capacity for 75 000 tons of
cold rolled products. It will also improve the Group's ability to
produce brighter ferritic steel grades and enhances Outokumpu's
flexibility in meeting customer needs. The new line will increase
Tornio Works' nominal annual cold rolling capacity to more than 1 250
000 tons by the end of 2009. The total investment at Tornio is EUR 90
million, spread over three years.
At Thin Strip Nyby in Sweden, EUR 27 million will be 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.
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, in expanding stainless
steel special grades capacity at Avesta Works in Sweden. This
investment will increase finished products capacity at Avesta from
the current 250 000 tons to some 650 000 tons with mainly duplex
grades, with the additional capacity operational 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 will be
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 this service
center's capacity from the 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 by the end of
2008.
To establish presence in growing Asian markets, a new service center
with an 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 facility, an
investment of EUR 20 million, will have the capacity to stock and
process some 30 000 tons of mainly special grades from 2010 onwards.
To widen 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
I/2008. The possibility of utilizing some equipment from the Group's
cold rolling mill in Sheffield, which was closed in 2006 is being
evaluated.
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 is a subsidiary of Shree Ganesh Forgings Ltd,
an Indian company. This divestment had no significant impact on Group
results.
In April, Outokumpu sold its remaining 12% shareholding in Outotec
Oyj to institutional investors. The net proceeds from the sale
totaled EUR 158 million and a tax-free non-recurring gain of EUR 142
million was recognized in the Group's financial income.
In May, Outokumpu acquired Swedish Sandvik's 11.6% minority
shareholding in OSTP for EUR 22 million. Full ownership in OSTP
enables Outokumpu to further develop the business in line with its
strategy of increasing the 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 4.9% holding in the
company. 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 has been 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 on 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 1 000 - 1 800MW nuclear power plant to meet Finland's increasing
need for electricity. Operation of the plant is planned to start
between 2016 and 2018. By participating in Fennovoima, Outokumpu's
aim is to secure a significant portion of its electricity needs in
years to come.
Environment, health and safety
In September, the Sustainable Asset Management Group (SAM) announced
the results of the annual review carried out for the Dow Jones
Sustainability Indexes (DJSI). Outokumpu retained its position in the
Pan-European Dow Jones STOXX Sustainability Index (DJSI STOXX) and
was also accepted for the first time into the Dow Jones
Sustainability World Index (DJSI World).
The Carbon Disclosure Project (CDP) published the results of the
fifth CDP request in September. The first Nordic Report was also
released this year. Outokumpu was one of the 125 listed Nordic
companies which answered the questionnaire and 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.
In the European Union, preparations for emissions trading in the
Kyoto- period 2008-2013 are ongoing, and the Group's operations in
Sheffield are now also in the European Union's emissions trading
system. The national allocation of allowances in the UK has already
been settled and it appears that the allowances for the Sheffield
operation are adequate. The European Commission cut Swedish
allowances by 9.5% and Finnish allowances by 5.2%. The national
reallocations have not yet been finalized. In November, applications
for emission permits are to be sent to authorities in Sweden. The
units in Finland and the UK have already filed their applications.
At Outokumpu sites, emissions to air and discharges to water in the
review period mostly remained within permitted limits and the
breaches that occurred were temporary, were identified quickly and
caused only minimal environmental impact.
During January-September 2007, the lost-time injury rate (i.e.
lost-time accidents per million working hours) was 11 (I-III/2006:
16). The annual target is less than 12 in 2007. No major accidents
were reported during the review period.
Personnel
During January-September 2007, the Group's continuing operations
employed an average of 8 310 people (I-IIII/2006: 8 620) and there
were 8 049 employees at the end of September (Dec. 31, 2006: 8 159).
The average number of employees was boosted by some 800 summer
trainees employed in the Group's units during June-August.
Customs investigation of exports to Russia by Outokumpu Tornio Works
In March, the 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
end of 2007.
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.
Class actions related to the divested fabricated copper products
business
The fabricated copper products business sold in 2005, comprised among
others Outokumpu Copper (USA), Inc. This company has been served with
several complaints in cases filed in federal district courts and
state courts in 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.
Appointments in Corporate Management
Bo Annvik has been appointed Executive Vice President - Specialty
Businesses and a member of Outokumpu's Group Executive Committee as
of June 1, 2007. Mr. Annvik's portfolio includes supervision of
Avesta Works, Hot Rolled Plate, Thin Strip and OSTP business units.
Päivi Lindqvist has been appointed Outokumpu's new SVP - IR and
Communications as of October 1, 2007. Ms. Lindqvist reports to CEO
Juha Rantanen.
Decisions by the Annual General Meeting
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. The AGM 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. By October
23, 2007, these authorizations had 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.
KPMG Oy Ab, Authorized Public Accountants, was elected as the
company's auditor.
Events after the review period
The Board of Directors has today approved plans to expand the Group's
capacity to produce quarto plate in Degerfors, Sweden and in New
Castle (IN) in the US by 80 000 tons and 20 000 tons respectively.
Following the EUR 220 million investments the total quarto plate
capacity will increase from 160 000 tons to 260 000 tons in 2010.
The Group's service center in Willich, Germany, will be upgraded.
With an investment of EUR 18 million, its capacity will increase from
some 60 000 tons to 110 000 tons in 2009.
Strike by the Union of Salaried Employees in Finland started on
October 22, 2007. Some 400 salaried employees in Tornio are involved,
mainly at the stainless steel mill. This industrial action will lead
to cessation of production of stainless steel at Outokumpu's Tornio
Works in a few days. The duration of the strike is today not known.
Outokumpu announced on October 22, 2007 a change to the calculation
method for the alloy surcharge in stainless steel pricing. Starting
with stainless steel deliveries for January 2008, Outokumpu's alloy
surcharge will be based on the 30-day average price of raw materials
calculated back from the previous month's 20th day. The new method is
expected to bring more stability to the stainless steel demand,
however, the overall risk associated with the prices of alloying
materials is estimated to increase. Outokumpu aims to reduce this
risk by adjusting its business processes and by financial hedging,
e.g. use of derivatives.
Outokumpu's Board of Directors has decided to start a repurchase of
own shares based on the authorization of the Annual General Meeting
of March 28, 2007. The maximum amount to be repurchased is 1 000 000
shares, representing some 0.55% of the company's share capital and
voting rights. Outokumpu currently holds 218 603 treasury shares. The
own shares are repurchased to be used in the company's share based
incentive schemes. The shares will be acquired through public
securities trading on the Helsinki stock exchange, at market price.
The repurchase of own shares will commence on November 1, 2007, at
the earliest.
Short-term outlook
Underlying demand for stainless steel is holding firm. End-user
demand and demand for special grades and project deliveries continues
healthy. Distributor inventories are on a declining trend.
Outokumpu's order intake for standard products began to pick-up in
late September and the order book has been gradually improving. The
price of nickel was more stable in July-September, and the alloy
surcharge will clearly decline in October and November before the
expected increase in December.
The pick-up in demand for standard products will increase Outokumpu's
delivery volumes and improve profits in the fourth quarter. Prices
for stainless steel standard products are stabilizing and even some
price increases have been achieved. On the other hand,
nickel-related inventory losses continue to impair results in the
fourth quarter due to lower alloy surcharge. At the current nickel
price level the losses due to the timing differences between the
alloy surcharge and inventory turnover, are expected to be in the
order of EUR 100 million. However, Outokumpu's underlying operational
result in the fourth quarter, excluding nickel-related inventory
losses and non-recurring items, is expected to be better than in the
third quarter. The decline in nickel prices will continue to release
working capital and generate strong cash flow during the fourth
quarter resulting in clearly better full-year cash flow from
operations in 2007 than in 2006.
Strike by the Union of Salaried Employees in Finland started on
October 22, 2007. Some 400 salaried employees in Tornio are involved.
This industrial action will lead to cessation of production of
stainless steel at Outokumpu's Tornio Works in a few days. The
duration of the strike is today not known, but if continued, will
have a negative impact on the fourth quarter result.
The Group's underlying operational result for 2007 is estimated to be
better than the about EUR 650 million reached in 2006. However, due
to significant nickel-related inventory losses during the latter part
of 2007, Outokumpu's operating profit for the whole year 2007 is
expected to be lower than in 2006.
Espoo October 23, 2007
Board of Directors
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Condensed income
statement
Jan-Sept Jan-Sept July-Sept July-Sept Jan-Dec
EUR million 2007 2006 2007 2006 2006
Continuing operations:
Sales 5 448 4 247 1 227 1 447 6 154
Other operating income 65 52 16 31 44
Costs and expenses -4 917 -3 836 -1 486 -1 232 -5 364
Other operating
expenses -22 -18 -14 -14 -11
Operating profit 574 446 -256 231 824
Share of results in
associated companies 5 3 -2 1 8
Financial income and
expenses
Interest income 18 16 6 5 26
Interest expenses -63 -67 -20 -23 -88
Market price gains
and losses -2 13 -4 0 12
Other financial
income 263 8 0 1 8
Other financial
expenses -4 -5 -1 -2 -5
Profit before taxes 791 415 -277 214 784
Income taxes -138 -95 67 -48 -178
Net profit for the
period
from continuing
operations 653 320 -210 166 606
Discontinued
operations:
Net profit for the
period
from discontinued
operations 5 40 -4 5 357
Net profit for the
period 658 360 -214 172 963
Attributable to:
Equity holders of the
Company 654 359 -214 171 962
Minority interest 4 1 -0 1 2
Earnings per share
for profit attributable
to the equity holders
of the Company:
Earnings per share, EUR 3.61 1.98 -1.19 0.94 5.31
Diluted earnings per
share, EUR 3.59 1.98 -1.19 0.94 5.29
Earnings per share
from continuing
operations
attributable to the
equity
holders of the Company:
Earnings per share, EUR 3.59 1.76 -1.17 0.91 3.34
Earnings per share
from discontinued
operations
attributable to the
equity
holders of the Company:
Earnings per share, EUR 0.03 0.22 -0.02 0.03 1.97
Condensed balance sheet Sept 30 Sept 30 Dec 31
EUR million 2007 2006 2006
ASSETS
Non-current assets
Intangible assets 481 496 493
Property, plant and equipment 2 006 2 037 2 069
Non-current financial assets
Interest-bearing 446 270 375
Non interest-bearing 79 42 77
3 013 2 845 3 014
Current assets
Inventories 1 925 1 518 1 710
Current financial assets
Interest-bearing 67 69 55
Non interest-bearing 942 1 026 1 314
Cash and cash equivalents 69 98 85
3 003 2 711 3 164
Assets held for sale 224 678 235
Total assets 6 240 6 233 6 414
EQUITY AND LIABILITIES
Equity
Equity attributable to the
equity holders of the Company 3 405 2 334 3 054
Minority interest 0 16 17
3 405 2 350 3 071
Non-current liabilities
Interest-bearing 1 140 1 365 1 293
Non interest-bearing 333 329 337
1 472 1 694 1 630
Current liabilities
Interest-bearing 617 890 685
Non interest-bearing 680 880 955
1 297 1 770 1 640
Liabilities related to
assets held for sale 65 420 73
Total equity and liabilities 6 240 6 233 6 414
Consolidated statement of changes in
equity
Attributable to the equity holders of
the Company
Fair
Share Unregistered Share Other value
capital Share premium reserves reserves
EUR million capital fund
Equity on December
31, 2005 308 - 701 11 23
Cash flow hedges - - - - 5
Fair value changes
on
available-for-sale
financial assets - - - - 9
Net investment
hedges - - - - -
Change in
translation
differences - - - - -
Items recognised
directly in equity - - - - 14
Net profit
for the period - - - - -
Total recognised
income and expenses - - - - 14
Dividend
distribution - - - - -
Management stock
option program:
value
of received services - - - - -
Equity on September
30, 2006 308 - 701 11 37
Equity on December
31, 2006 308 0 701 11 144
Cash flow hedges - - - - 2
Fair value changes
on
available-for-sale
financial assets - - - - 9
Available-for-sale
financial assets
recognized through
P&L - - - - -99
Net investment
hedges - - - - -
Change in
translation
differences - - - - -
Items recognised
directly in equity - - - - -88
Net profit
for the period - - - - -
Total recognised
income and expenses - - - - -88
Transfers from
unregistered
share capital 0 -0 - - -
Transfers from
retained earnings - - - 4 -
Dividend
distribution - - - - -
Shares subscribed
with options 0 - 0 - -Management stock
option program:
value
of received services - - - - -
Purchase of
minority in OSTP - - - - -
Equity on September
30, 2007 308 - 701 15 56
Attributable to the equity holders of
the Company
Cumulative
Treasury translation Retained Minority Total
EUR million shares differences earnings interest equity
Equity on December
31, 2005 -2 -38 1 044 15 2 062
Cash flow hedges - - - - 5
Fair value changes
on
available-for-sale
financial assets - - - - 9
Net investment
hedges - -1 - - -1
Change in
translation
differences - -5 - 0 -5
Items recognised
directly in equity - -6 - 0 8
Net profit
for the period - - 359 1 360
Total recognised
income and expenses - -6 359 1 368
Dividend
distribution - - -81 - -81
Management stock
option program:
value
of received services - - 1 - 1
Equity on September
30, 2006 -2 -44 1 323 16 2 350
Equity on December
31, 2006 -2 -35 1 927 17 3 071
Cash flow hedges - - - - 2
Fair value changes
on
available-for-sale
financial assets - - - - 9
Available-for-sale
financial assets
recognized through
P&L - - - - -99
Net investment
hedges - 2 - - 2
Change in
translation
differences - -20 - 0 -20
Items recognised
directly in equity - -18 - 0 -106
Net profit
for the period - - 654 4 658
Total recognised
income and expenses - -18 654 4 552
Transfers from
unregistered
share capital - - - - -
Transfers from
retained earnings - - -4 - -
Dividend
distribution - - -199 - -199
Shares subscribed
with options - - - - 0
Management stock
option program:
value
of received services - - 2 - 2
Purchase of
minority in OSTP - - - -21 -21
Equity on September
30, 2007 -2 -53 2 380 0 3 405
Condensed statement of cash flows
Jan-Sept Jan-Sept Jan-Dec
EUR million 2007 2006 2006
Net profit for the period 658 360 963
Adjustments
Depreciation and amortization 152 176 229
Impairments 3 6 12
Gain on the sale of Outotec shares -142 - -328
Gain on the Talvivaara transaction -110 - -
Other adjustments 318 141 215
Increase in working capital -266 -525 -975
Dividends received 13 7 7
Interests received 7 12 17
Interests paid -67 -69 -89
Income taxes paid -189 -63 -87
Net cash from operating activities 377 47 -35
Purchases of assets -106 -127 -183
Purchase of Talvivaara shares -32 - -
Purchase of the minority in OSTP -22 - -
Proceeds from the sale of subsidiaries 1 20 338
Proceeds from the sale of
shares in associated companies - 9 9
Proceeds from the sale of other assets 9 9 20
Net cash from other investing activities 3 1 14
Net cash from investing activities -146 -88 198
Cash flow before financing activities 231 -41 163
Borrowings of long-term debt 151 181 174
Repayment of long-term debt -301 -277 -380
Change in current debt -54 191 3
Dividends paid -199 -81 -81
The sale of the shares of Outotec 158 - -
Other financing cash flow -0 -2 -2
Net cash from financing activities -246 11 -286
Adjustments 0 0 0
Net change in cash and cash equivalents -15 -30 -123
Cash and cash equivalents at
the beginning of the period 85 212 212
Foreign exchange rate effect -1 -6 -5
Net change in cash and cash equivalents -15 -30 -123
Cash and cash equivalents at
the end of the period 69 176 85
Key figures
Jan-Sept Jan-Sept Jan-Dec
EUR million 2007 2006 2006
Operating profit margin, % 10.5 10.5 13.4
Return on capital employed, % 17.4 15.8 20.7
Return on equity, % 27.1 21.8 37.5
Return on equity from
continuing operations, % 26.9 19.3 23.6
Capital employed at end of period 4 421 3 910 4 371
Net interest-bearing debt
at end of period 1 016 1 560 1 300
Equity-to-assets ratio
at end of period, % 54.6 37.7 47.9
Debt-to-equity ratio
at end of period, % 29.8 66.4 42.3
Earnings per share, EUR 3.61 1.98 5.31
Earnings per share from
continuing operations, EUR 3.59 1.76 3.34
Earnings per share from
discontinued operations, EUR 0.03 0.22 1.97
Average number of shares
outstanding, in thousands 1) 181 078 181 032 181 033
Fully diluted earnings per share, EUR 3.59 1.98 5.29
Fully diluted average number of
shares, in thousands 1) 182 100 181 754 181 758
Equity per share at end of period, EUR 18.81 12.89 16.87
Number of shares outstanding
at end of period, in thousands 1) 181 084 181 032 181 032
Capital expenditure,
continuing operations 147 113 187
Depreciation, continuing operations 152 169 221
Average personnel for the period,
continuing operations 8 310 8 620 8 505
1)The number of own shares repurchased is excluded.
NOTES TO THE INCOME STATEMENT AND BALANCE SHEET
This interim financial report is prepared in accordance with IAS 34
(Interim Financial Reporting). The same accounting policies and
methods of computation have been followed in the interim financial
statements as in the annual financial statements for 2006.
Use of estimates
The preparation of the financial statements in accordance with IFRS
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, as well as the disclosure
of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of income and expenses during
the reporting period. Accounting estimates are employed in the
financial statements to determine reported amounts, including the
realizability of certain assets, the useful lives of tangible and
intangible assets, income taxes, provisions, pension obligations,
impairment of goodwill and other items. Although these estimates are
based on management's best knowledge of current events and actions,
actual results may differ from the estimates.
Shares and share capital
The total number of Outokumpu Oyj shares was 181 300 967 and the
share capital amounted to EUR 308.2 million on September 30, 2007.
Outokumpu Oyj held 218 603 treasury shares on September 30, 2007.
This corresponded to 0.1% of the share capital and the total voting
rights of the Company on September 30, 2007.
The Annual General Meeting held in 2003 passed a resolution on a
stock option program for management (2003 option program).
The stock options have been allocated as part of the Group's
incentive programs to key personnel of Outokumpu. Trading with
Outokumpu Oyj's stock options 2003A has commenced on the main list of
OMX Nordic Exchange Helsinki as of September 1, 2006. On September
30, 2007 a total of 51 812 Outokumpu Oyj shares had been subscribed
for on the basis of 2003A stock option program. An aggregate maximum
of 607 490 Outokumpu Oyj shares can be subscribed for with the
remaining 2003A stock options. In accordance with the terms and
conditions of the option program, the dividend adjusted share price
for a stock option was EUR 8.45 on September 30, 2007. The share
subscription period for the 2003A stock options is September 1, 2006
- March 1, 2009.
Trading with Outokumpu Oyj's stock options 2003B has commenced on the
main list of OMX Nordic Exchange Helsinki as of September 3, 2007. An
aggregate maximum of 1 028 820 Outokumpu Oyj shares can be subscribed
for with the remaining 2003B stock options. In accordance with the
terms and conditions of the option program, the dividend adjusted
share price for a stock option was EUR 11.51 on September 30, 2007.
The share subscription period for the 2003B stock options is
September 3, 2007 - March 1, 2010. The current amounts that Outokumpu
Oyj shares could be subscribed for with the 2003C stock options are
100 500 shares. The subscription period for shares with stock option
2003C is from September 1, 2008 to March 1, 2011. As a result of the
share subscriptions with the 2003 stock options, Outokumpu Oyj's
share capital may be increased by a maximum of EUR 2 952 577 and the
number of shares by a maximum of 1 736 840 shares. This corresponds
to 1.0% of the Company's shares and voting rights.
Outokumpu's Board of Directors confirmed on February 2, 2006 a
share-based incentive program for years 2006-2010 as part of the key
employee incentive and commitment system of the Company. If persons
to be covered by the first earning period 2006-2008 and the second
earning period 2007-2009 of the program were to receive the number of
shares in accordance with the maximum reward, currently a total of
601 000 shares, their shareholding obtained via the program would
amount to 0.3% of the Company's shares and voting rights.
The detailed information of the 2003 option program and of the
share-based incentive program for 2006-2010 can be found in the
annual report 2006.
Non-current assets held for sale and discontinued operations
Outokumpu Copper Tube and Brass
The assets and liabilities of Outokumpu Copper Tube and Brass are
presented as held for sale. Outokumpu Copper Tube and Brass business
comprises European sanitary and industrial tubes, including
air-conditioning and refrigeration tubes in Europe, as well as brass
rod. Outokumpu is implementing a vigorous improvement project in this
business and it is Outokumpu's intention to divest the tube and brass
business.
Outotec
In September 2006, Outokumpu Oyj sold 88% of Outotec (former
Outokumpu Technology) by a sale of shares through an Initial Public
Offering (IPO). In April 2007, Outokumpu sold its remaining 12%
shareholding in Outotec Oyj to institutional investors. The net
proceeds from the sale totaled EUR 158 million and a tax-free
non-recurring gain of EUR 142 million was recognized in financial
income.
In the following tables Outokumpu Tube and Brass is referred as TB
and Outotec as OT.
Specification of
non-current
assets held for
sale and
discontinued
operations
Income statement
Jan-Sept Jan-Sept Jan-Dec
2007 2006 2006
EUR million TB Total OT TB Total OT TB
Sales 461 1 014 501 513 1 178 501 678
Expenses -449 -946 -470 -476 -1 124 -470 -654
Operating profit 13 68 31 37 54 31 23
Net financial
items -5 0 5 -5 -2 5 -7
Profit before
taxes 7 68 36 32 53 36 17
Taxes -1 -18 -14 -4 -17 -14 -3
Profit after
taxes 6 50 22 28 35 22 14
Gain on the sale
of Outotec - - - - 328 328 -
Impairment loss
recognized on
the fair
valuation of
the Tube and
Brass division's
assets and
liabilities -1 -4 - -4 -6 - -6
Costs related to
initial public
offering of
Outotec - -6 -6 - - - -
Taxes - - - - - - -
After-tax result
from the
disposal and
impairment loss 5 -9 -6 -4 322 328 -6
Minority
interest - 0 0 - 0 0 -
Net profit for
the period
from
discontinued
operations 5 40 16 25 357 349 8
Balance sheet
Sept 30 Sept 30 Dec 31
EUR million 2007 2006 2006
Assets
Intangible and
tangible assets 6 106 6
Other
non-current
assets 3 23 4
Inventories 112 190 122
Current
interest-bearing
assets - 79 -
Other current
non
interest-bearing
assets 103 280 104
224 678 235
Liabilities
Provisions 2 6 3
Non-current
interest-
bearing
liabilities - 4 -
Other
non-current non
interest-bearing
liabilities 4 41 6
Current
interest-bearing
liabilities - 0 -
Trade payables 44 100 46
Other current
non
interest-bearing
liabilities 15 269 18
65 420 73
Cash flows
Jan-Sept Jan-Sept Jan-Dec
EUR million 2007 2006 2006
Operating cash
flows 10 -13 -13
Investing cash
flows -2 -11 -145
Financing cash
flows -6 24 80
Total cash flows 2 1 -77
Acquisitions and disposals
Acquisitions
In May, Outokumpu acquired from Swedish Sandvik its 11.6% minority
shareholding in OSTP for EUR 22 million. Goodwill of EUR 1 million
was recognized from the acquisition. Full ownership in OSTP enables
Outokumpu to develop the business further in line with its strategy
to increase the share of the more value-added special products.
Outokumpu divested the Talvivaara exploration project in 2004 and
held an option to subscribe shares with a 20% discount in a possible
Initial Public Offering (IPO), representing up to 5% ownership in the
company. The IPO of Talvivaara Mining Company Ltd. was carried out
and the listing of the shares started on the London Stock Exchange on
May 30, 2007. Outokumpu participated in the IPO by subscribing 10.9
million shares, resulting in a 4.9% ownership in the company on a
fully diluted basis, with a total consideration of EUR 32 million.
Outokumpu also exercised its option, part of the divestment
agreement, to acquire a 20% stake in the Talvivaara nickel mining
project company (Talvivaara Project Ltd.) owned by Talvivaara Mining
Company Ltd., for a total consideration of one euro.
Talvivaara Project Ltd. will be consolidated in the Group's income
statement as an associated company reflecting Outokumpu's 20%
holding. The fair valuation of Outokumpu's 20% stake resulted in a
tax-free non-recurring gain of EUR 110 million, which has been
recognized in financial income. The shareholding in the listed
Talvivaara Mining Company Ltd. has been classified as an
available-for-sale financial asset with changes in fair value
recognized directly in equity.
The purchase price allocation is preliminary and subject to
finalization of the fair valuation of the ore reserves. The
preliminary assumption is that the majority of the excess value will
be allocated to the nickel ore reserves according to the fair value
and amortized using the units-of-production method based on the
depletion of ore reserves in Talvivaara. The Talvivaara mine is
estimated to start production of nickel and other metals at the end
of 2008. Its target is to gradually ramp up its nickel output to some
33 000 tons annually.
Disposals
In March, OSTP (Outokumpu Stainless Tubular Products) sold its flange
business in order to focus on pipes, tubes, butt-welded and threaded
fittings. The purchaser is a subsidiary of Shree Ganesh Forgings Ltd,
an Indian company. The sale had no significant impact on the Group's
results.
In June, Outokumpu sold the Hitura nickel mine in Finland to
Belvedere Resources Ltd. of Canada. The Hitura mine was the last
remaining asset in Outokumpu's Exit Mining program. Hitura produces
some 2 200 tons of nickel in concentrate annually and employs 90
people. The total consideration from the sale, EUR 25 million, is in
Belvedere shares and warrants entitling to subscribe for additional
Belvedere shares, resulting in a maximum 19.2% ownership in
Belvedere, on a fully-diluted basis. Outokumpu recognized a
non-recurring gain of EUR 25 million on the transaction, which has
been included in the operating profit. The shareholding in Belvedere
is classified as an available-for-sale financial asset with changes
in fair value recognized directly in equity and the warrants as
derivative instruments with changes in fair value recognized in
financial income and expenses.
Net assets of these disposed businesses totaled EUR 6 million. Net
gain on the disposals totaled EUR 23 million and net cash flow EUR 1
million.
Major non-recurring items in operating profit
Jan-Sept Jan-Sept Jan-Dec
EUR million 2007 2006 2006
Gain on the sale of
Hitura mine in Finland 25 - -
Thin Strip
restructuring
in the UK -11 - -
Gain on the sale of
real estate in the UK - - 9
OSTP Fagersta closure - - -8
14 - 1
Major non-cash items in operating profit comprise EUR 155 million
write-down of inventories to net realizable value (NRV) during the
third quarter, and EUR 11 million provision for the Thin Strip
restructuring.
Major non-recurring items in financial income
Jan-Sept Jan-Sept Jan-Dec
EUR million 2007 2006 2006
Gain on the sale of
Outotec shares 142 - -
Gain on the Talvivaara
transaction 110 - -
252 - -
Income taxes
Jan-Sept Jan-Sept Jan-Dec
EUR million 2007 2006 2006
Current taxes -124 -61 -156
Deferred taxes -14 -34 -22
-138 -95 -178
Property, plant and equipment
Jan 1, 2007 - Jan 1, 2006 - Jan 1, 2006 -
EUR million Sept 30, 2007 Sept 30, 2006 Dec 31, 2006
Historical cost at the
beginning of the period 4 009 4 188 4 188
Translation differences -35 11 37
Additions 93 105 179
Disposal of
subsidiaries -20 0 -0
Disposals -3 -14 -299
Reclassifications 0 -8 -8
Discontinued operations - -88 -88
Historical cost at the
end of the period 4 044 4 194 4 009
Accumulated
depreciation
at the beginning
of the period -1 939 -2 063 -2 063
Translation differences 21 -6 -21
Disposal of
subsidiaries 19 0 0
Disposals 3 12 296
Reclassifications 0 8 8
Depreciation -141 -155 -204
Impairments - -1 -3
Discontinued operations - 48 48
Accumulated
depreciation at the
end of the period -2 037 -2 157 -1 939
Carrying value at the
end of the period 2 006 2 037 2 069
Carrying value at the
beginning of the period 2 069 2 125 2 125
Commitments
Sept 30 Sept 30 Dec 31
EUR million 2007 2006 2006
Mortgages and pledges
Mortgages on land 132 129 126
Other pledges 0 4 0
Guarantees
On behalf of
subsidiaries
For commercial
commitments 84 137 97
On behalf of
associated companies
For financing 5 4 5
Other commitments 55 61 59
Minimum future
lease payments
on operating leases 59 119 93
Group's major off-balance sheet investment commitments totaled EUR 38
million on September 30, 2007 (Dec 31, 2006: EUR 15 million).
Fair values and nominal amounts of derivative
instruments
Sept 30 Sept 30 Sept 30 Dec 31 Sept Dec
2007 2007 2007 2006 2007 2006
Net Net
Positive Negative fair fair Nominal Nominal
EUR million fair value fair value value value amounts amounts
Currency and
interest
rate derivatives
Currency
forwards 16 11 5 -9 1 940 2 139
Interest rate
swaps 10 - 10 10 283 283
Number Number
of of
shares, shares,
million million
Stock options
Belvedere
Resources Ltd. 1 - 1 - 3.7 -
Tons Tons
Metal
derivatives
Forward and
futures
copper
contracts 1 0 1 -1 4 325 6 000
Forward and
futures
nickel
contracts 10 11 -1 9 9 804 3 636
Forward and
futures
zinc contracts 0 0 -0 0 850 2 150
Forward and
futures
molybdenum
contracts - -0 -0 - 10 -
Nickel options 2 - 2 - 3 804 -
Emission
allowance
derivatives 0 - 0 - 80 000 -
TWh TWh
Electricity
derivatives
Publicly
traded
electricity
derivatives - - - - - 0.0
Other
electricity
derivatives 22 9 13 8 2.8 4.1
63 32 31 16
Segment information
General Stainless
EUR million I/06 II/06 III/06 IV/06 2006 I/07 II/07 III/07
Sales 1 013 1 066 1 130 1 561 4 770 1 700 1 670 879
of which Tornio
Works 652 740 781 1 142 3 316 1 206 1 038 516
Operating profit 43 91 166 236 536 245 188 -224
of which Tornio
Works 37 70 120 213 440 227 143 -195
Operating capital at the
end of period 2 397 2 404 2 602 2 847 2 847 3 047 3 007 2 789
Average personnel
for
the period 3 926 3 940 3 857 3 529 3 735 3 506 3 794 3 807
Deliveries of main
products (1 000
tons)
Cold rolled 246 206 172 180 805 187 151 94
White hot strip 74 85 62 84 305 81 82 41
Semi-finished
products 128 144 126 154 551 117 118 64
Total deliveries of
the division 448 434 360 419 1 661 386 350 198
Specialty Stainless
EUR million I/06 II/06 III/06 IV/06 2006 I/07 II/07 III/07
Sales 650 638 614 821 2 723 1 003 1 028 687
Operating profit 22 65 81 171 338 182 196 -51
Operating capital at the
end of period 1 173 1 240 1 350 1 594 1 594 1 668 1 871 1 657
Average personnel
for
the period 4 317 4 377 4 329 4 201 4 289 4 146 4 188 4 185
Deliveries of main
products (1 000
tons)
Cold rolled 56 54 39 47 196 51 52 33
White hot strip 49 41 33 42 166 43 38 23
Quarto plate 44 44 36 39 162 41 43 30
Tubular products 20 20 16 18 74 20 17 12
Long products 14 15 14 16 59 16 15 11
Total deliveries of
the division 182 173 139 162 656 170 164 109
Other operations
EUR million I/06 II/06 III/06 IV/06 2006 I/07 II/07 III/07
Sales 87 93 97 85 361 64 63 53
Operating profit 2 -8 -13 -16 -35 1 19 8
Operating capital at the
end of period 133 239 188 138 138 -125 101 184
Average personnel
for
the period 504 505 479 457 481 477 459 424
Income statement
by quarter
EUR million I/06 II/06 III/06 IV/06 2006 I/07 II/07 III/07
Continuing
operations:
Sales
General Stainless 1 013 1 066 1 130 1 561 4 770 1 700 1 670 879
of which
intersegment
sales 205 277 273 389 1 144 421 430 230
Specialty
Stainless 650 638 614 821 2 723 1 003 1 028 687
of which
intersegment
sales 94 92 82 129 397 169 193 119
Other operations 87 93 97 85 361 64 63 53
of which
intersegment
sales 44 36 38 41 159 48 45 43
Intra-group sales -342 -405 -394 -560 -1 700 -638 -669 -391
Total sales 1 408 1 392 1 447 1 907 6 154 2 129 2 092 1 227
Operating profit
General Stainless 43 91 166 236 536 245 188 -224
Specialty
Stainless 22 65 81 171 338 182 196 -51
Other operations 2 -8 -13 -16 -35 1 19 8
Intra-group items -0 1 -3 -13 -15 -4 2 11
Total operating
profit 67 149 231 378 824 424 406 -256
Share of results
in
associated
companies 0 2 1 4 8 2 4 -2
Financial income
and expenses -7 -10 -18 -13 -48 -10 242 -19
Profit before
taxes 60 141 214 369 784 416 652 -277
Income taxes -18 -29 -48 -83 -178 -105 -100 67
Net profit
for the period
from
continuing
operations 41 112 166 286 606 311 553 -210
Net profit
for the period
from
discontinued
operations 15 20 6 317 357 -4 12 -4
Net profit
for the period 56 133 172 603 963 307 565 -214
Attributable to:
Equity holders of
the Company 56 132 171 603 962 305 563 -214
Minority interest -0 0 1 1 2 2 2 -0
Major non-recurring items in
operating profit
EUR million I/06 II/06 III/06 IV/06 2006 I/07 II/07 III/07
General Stainless
Gain on sale
of real
estate in the UK - - - 9 9 - - -
Specialty
Stainless
Thin Strip
restructuring
in the UK - - - - - - - -11
OSTP Fagersta
closure - - - -8 -8 - - -
Other operations
Gain on sale
of Hitura
mine in Finland - - - - - - 25 -
- - - 1 1 - 25 -11
Major non-recurring items in
financial income
EUR million I/06 II/06 III/06 IV/06 2006 I/07 II/07 III/07
Gain on the sale
of
Outotec shares - - - - - - 142 -
Gain on the
Talvivaara
transaction - - - - - - 110 -
- - - - - - 252 -
Key figures by quarter
EUR million I/06 II/06 III/06 IV/06 I/07 II/07 III/07
Operating profit
margin, % 4.7 10.7 16.0 19.8 19.9 19.4 -20.9
Return on capital
employed, % 7.5 16.5 24.3 36.5 38.8 35.5 -22.3
Return on equity, % 11.0 25.2 30.4 89.0 39.3 66.2 -24.3
Return on equity,
continuing operations,
% 8.1 21.4 29.4 42.3 39.8 64.8 -23.9
Capital employed at
end of period 3 513 3 679 3 910 4 371 4 377 4 753 4 421
Net interest-bearing
debt
at end of period 1 483 1 509 1 560 1 300 1 189 1 119 1 016
Equity-to-assets ratio
at
end of period, % 37.4 38.4 37.7 47.9 47.2 50.9 54.6
Debt-to-equity ratio at
end of period, % 73.0 69.5 66.4 42.3 37.3 30.8 29.8
Earnings per share, EUR 0.31 0.73 0.94 3.33 1.69 3.11 -1.19
Earnings per share from
continuing operations,
EUR 0.23 0.62 0.91 1.58 1.71 3.04 -1.17
Earnings per share from
discontinued
operations, EUR 0.08 0.11 0.03 1.75 -0.02 0.07 -0.02
Average number of
shares
outstanding, in 181 181 181 181 181
thousands 1) 032 032 181 032 037 067 082 181 084
Equity per share at end
of period, EUR 11.14 11.91 12.89 16.87 17.51 20.07 18.81
Number of shares
outstanding at end
of period, in thousands 181 181 181 181 181
1) 032 032 181 032 032 082 082 181 084
Capital expenditure,
continuing operations 33 34 45 74 25 75 47
Depreciation,
continuing
operations 50 50 68 52 51 50 51
Average personnel
for the period,
continuing operations 8 746 8 822 8 665 8 187 8 129 8 441 8 416
1)The number of own shares repurchased is excluded.
Definitions of key financial
figures
Capital employed = Total equity + net interest-bearing debt
Operating capital = Capital employed + net tax liability
Return on equity = Net profit for the financial year × 100
Total equity (average for the period)
Return on capital employed
(ROCE) = Operating profit
Capital employed (average for the
period)
Net interest- = Total interest-bearing debt -
bearing debt total interest-bearing assets
Equity-to-assets ratio = Total equity
Total assets - advances received
Debt-to-equity ratio = Net interest-bearing debt × 100
Total equity
Net profit for the
financial year attributable
Earnings per share = to the equity holders
Adjusted average number
of shares during the period
Equity attributable to
Equity per share = the equity holders
Adjusted number of shares
at the end of the period
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