OUTOKUMPU ANNUAL ACCOUNTS BULLETIN 2005 - MAJOR TRANSFORMATION IN DIFFICULT MARKET CONDITIONS
OUTOKUMPU OYJ STOCK EXCHANGE RELEASE FEBRUARY 2, 2006 AT 1.00 PM
OUTOKUMPU ANNUAL ACCOUNTS BULLETIN 2005 - MAJOR TRANSFORMATION IN
DIFFICULT MARKET CONDITIONS
Outokumpus sales in 2005 increased by 8% to EUR 5 552 million.
Operating profit amounted to EUR 83 million and operating profit
excluding non-recurring items totaled EUR 212 million. Net loss from
continuing operations totaled EUR 3 million and net loss from
discontinued operations was EUR 360 million resulting in EUR 2.01
negative earnings per share. Net cash generated from operating
activities improved to EUR 459 million. The Groups gearing was on
target at 74.5%. The Board is proposing a dividend of EUR 0.45 per
share.
Oct- July- Jan- Jan-
Dec Sept Dec Dec
Group key figures 2005 2005 2005 2004
Sales EUR 1 317 1 191 5 552 5 122
million
Operating profit EUR (179) (20) 83 436
million
Non-recurring items
in operating profit EUR (164) 10 (129) 19
million
Profit/(loss) before EUR (191) (39) 22 440
taxes million
Net profit/(loss) for
the
period from
continuing operations EUR (165) (31) (3) 379
million
Net profit/(loss) for
the
period from
discontinued operations EUR (14) (5) (360) 7
million
Net profit/(loss)
for the period EUR (180) (36) (363) 386
million
Earnings per share EUR (0.99) (0.20) (2.01) 2.12
Earnings per share
from continuing EUR (0.91) (0.17) (0.02) 2.08
operations
Earnings per share
from discontinued EUR (0.08) (0.03) (1.99) 0.04
operations
Dividend per share EUR - - 0.45 1) 0.50
Capital expenditure,
continuing operations EUR 57 39 174 414
million
Capital employed
at end of period EUR 3 599 3 981 3 599 4 941
million
Return on capital % (18.8) (2.0) 1.9 9.6
employed
Net cash generated
from operating EUR 206 132 459 (128)
activities million
Net interest-bearing
debt at end of period EUR 1 537 1 744 1 537 2 435
million
Equity-to-assets ratio
at end of period % 38.2 38.7 38.2 35.8
Debt-to-equity ratio
at end of period % 74.5 77.9 74.5 97.2
Stainless steel 1 000 370 333 1 647 1 786
deliveries tonnes
Average personnel for
the
period,
continuing operations 11 013 11 746 11 517 11 787
1) Board's proposal to the Annual General Meeting.
YEAR 2005 IN BRIEF
-The Groups vision of becoming the undisputed number one in
stainless steel, with success based on operational excellence was
reinforced by divestiture of the fabricated copper products business
in 2005. Following the sale, Outokumpu is an international stainless
steel and technology company.
-Year 2005 was difficult in the stainless steel market, especially in
standard grade volume products, marked by de-stocking and extremely
high raw material prices. Global demand declined marginally, but
development varied in different regions. According to CRU estimates,
apparent consumption of flat products in Western Europe and the US
fell by 5%, while in China it rose by 12%. Prolonged de-stocking
pushed the industry into oversupply. Producers responded to
weakening markets by cutting production in the second half of the
year. Base prices drifted downwards throughout 2005. The German base
price for CR 304 sheet fell from 1 425 EUR/tonne in December 2004 to
1 030 EUR/tonne at the end of 2005. Demand for special grade and
project-related products was stronger than for standard products.
-During the autumn, Outokumpu initiated several measures to secure
achieving the profitability targets and to adjust to the new
competitive market environment. The fixed cost reduction program
covers all stainless steel business units and group functions.
Targeted savings are some EUR 100 million on an annual basis and the
reduced fixed cost running rate will be in place during the second
half of 2006, with full effect in 2007. A decision was also made to
close down operations at Coil Products Sheffield (CPS) at the end of
April 2006 and to adjust capacity at the Sheffield melt shop and
Avesta hot rolling mill accordingly. As a consequence the estimated
additional profit improvement from the second half of 2006 onwards
is some EUR 50 million annually. The above actions will reduce
Outokumpus workforce by 1 500 employees.
-The closure of CPS and transfer of orders to Tornio confirms the
ability of the worlds largest stainless steel integrate to operate
at full load and deliver the benefits of its low cost base. Together
with the cost reduction program and benefits derived from the
Operational Excellence programs, this will improve profitability and
the Groups ability to reach the financial goals.
-Outokumpus sales rose by 8% to EUR 5 552 million. High transaction
prices and improved product mix increased the stainless steel sales
even though delivery volumes fell by 8% to 1 647 000 tonnes. Sales
by Outokumpu Technology increased by 39%.
-Operating profit totaled EUR 83 million and operating profit
excluding non-recurring items was EUR 212 million. Lowest ever base
prices, lower delivery volumes and inventory losses resulting from
timing difference between the alloy surcharge and inventory turnover
adversely affected profitability during the second half of 2005. Non-
recurring items comprise write-downs and non-recurring costs of EUR
130 million related to the closure of CPS and EUR 34 million related
to actions taken in the fixed cost reduction program. Non-recurring
gain from the sale of Boliden shares amounted to EUR 35 million.
-High metal prices and robust investment activity in the metals and
mining industries resulted in 2005 being a very good year for
Outokumpu Technology. Technology succeeded in mastering the market
momentum by receiving orders for several large projects. Sales
increased to EUR 590 million and operating profit was a record at
EUR 25 million. The strong EUR 596 million order backlog at the end
of 2005 provides confidence that the good profitability development
will continue in 2006.
-In the fourth quarter, the Groups operating profit deteriorated to
a loss of EUR 179 million, including non-recurring expenditure of
EUR 164 million. Underlying profitability excluding non-recurring
items and inventory losses was slightly positive.
-Following the sale of the fabricated copper products business in
April, the operations of Outokumpu Copper were classified as
discontinued operations and reported separately from the Group´s
continuing operations. The total consideration received from the
sale to Nordic Capital was EUR 612 million. The EUR 360 million loss
from discontinued operations consists primarily of the EUR 252
million loss from the sale and the impairment loss of EUR 86 million
recognized in the Outokumpu Copper Tube and Brass business, which
was excluded from the scope of the transaction. A turnaround plan
has been initiated and Outokumpus intention is to divest the tube
and brass business.
-Net cash generated from operating activities totaled EUR 459
million. EUR 202 million was released from working capital. Capital
expenditure declined to EUR 174 million. The Tornio expansion was
completed and new capacity has been technically available from the
second half of 2005. The Group's short-term profitability
improvement program also includes tight capital expenditure
discipline, and capital expenditure limit was set at an annual EUR
175 million for 2006-2007. In 2006, however, capital expenditure is
expected to be higher due to delayed phasing and rollovers from
2005, but will not exceed the annual depreciation level of EUR 210
million. At the year-end, the Groups net interest-bearing debt
stood at EUR 1 537 million and gearing was 74.5%, achieving the
target level of below 75%.
SHORT-TERM OUTLOOK
Global economic growth is expected to remain solid in 2006. Although
global demand for stainless steel fell marginally in 2005 as a
result of de-stocking and extremely high and volatile raw material
prices, underlying demand has remained healthy and in the long-term
annual growth in consumption is expected to continue at a rate of 5-
7%. Towards the end of 2005 orders started to pick up and market
sentiment for early 2006 is cautiously optimistic.
For the first quarter of 2006 deliveries of 304 cold rolled flat
products in Europe, Outokumpu has gradually achieved base price
increases totaling 100 EUR/tonne or more. The increases vary country
by country. The order backlog has strengthened and further price
increases are being pressed for April and beyond.
In 2006 the target is to fully utilize Tornios capacity for
finished products and benefit from its low cost base. In the short-
term, Outokumpus profitability is expected to improve compared to
the second half of 2005. However, with the still very low base
prices prevailing at the start of 2006, operating profit is expected
to fall substantially short of the high levels seen in the first half
of 2005.
CEO Juha Rantanen:
"Last year we experienced a very tough situation in stainless
markets, especially within standard grades. The main reason was
heavy de-stocking by our customers, which reduced demand and put
pressure on prices. I am pleased to see that our specialty
businesses had a relatively better performance, thanks to the more
stable nature of these markets.
Longer-term, I remain confident that stainless steel markets will
keep growing at a good rate. To ensure that we are able to achieve
our financial goals even in a challenging market environment, we
launched several actions to reduce our cost base and improve our
performance. This year will be marked by implementation of all our
cost related actions and the benefits will be fully visible in
2007."
MANAGEMENT ANALYSIS OF THE FOURTH-QUARTER OPERATING RESULT
Group key figures
EUR million I/04 II/04 III/04 IV/04 2004
Sales
General Stainless 1 018 1 106 961 1 152 4 237
Specialty Stainless 640 720 601 741 2 702
Technology 81 104 91 146 423
Other operations 55 50 56 57 218
Intra-group sales (599) (698) (566) (596) (2 458)
The Group 1 196 1 283 1 143 1 500 5 122
Operating profit
General Stainless 78 74 44 72 269
Specialty Stainless 51 46 36 48 181
Technology 9 (1) 2 20 30
Other operations 1) (3) (8) (12) (27) (50)
Intra-group items (7) 12 (2) 1 5
The Group 1) 129 123 69 115 436
Stainless steel deliveries
1 000 tonnes I/04 II/04 III/04 IV/04 2004
Cold rolled 239 221 213 217 890
White hot strip 103 99 74 157 432
Other 138 123 87 116 464
Total deliveries 479 444 374 490 1 786
Market prices and exchange rates
I/04 II/04 III/04 IV/04 2004
Market prices 2)
Stainless steel
Base price EUR/t 1 397 1 433 1 442 1 425 1 424
Alloy surcharge EUR/t 725 847 815 925 828
Transaction price EUR/t 2 122 2 280 2 257 2 350 2 252
Nickel USD/t 14 737 12 503 13 998 14 080 13 852
EUR/t 11 792 10 379 11 455 10 850 11 136
Ferrochrome (Cr- USD/lb 0.61 0.69 0.73 0.73 0.69
content)
EUR/kg 1.08 1.26 1.32 1.24 1.22
Molybdenum USD/lb 8.20 14.61 16.91 25.85 16.39
EUR/kg 14.46 26.49 30.50 43.92 29.05
Steel scrap USD/t 231 211 238 265 236
EUR/t 185 176 195 204 190
Exchange rates
EUR/USD 1.250 1.200 1.220 1.298 1.244
EUR/SEK 9.184 9.150 9.150 9.013 9.124
EUR/GBP 0.680 0.667 0.672 0.695 0.679
EUR million I/05 II/05 III/05 IV/05 2005
Sales
General Stainless 1 286 1 158 813 816 4 073
Specialty Stainless 785 819 584 552 2 739
Technology 65 158 144 223 590
Other operations 55 64 58 60 238
Intra-group sales (736) (610) (408) (335) (2 088)
The Group 1 456 1 589 1 191 1 317 5 552
Operating profit
General Stainless 71 93 (55) (170) (62)
Specialty Stainless 55 65 14 (23) 110
Technology (8) 4 6 23 25
Other operations 1) 10 (3) 9 (7) 8
Intra-group items (6) 3 5 (1) 1
The Group 1) 121 161 (20) (179) 83
Stainless steel deliveries
1 000 tonnes I/05 II/05 III/05 IV/05 2005
Cold rolled 233 226 195 212 867
White hot strip 135 126 61 68 391
Other 117 106 77 89 390
Total deliveries 485 459 333 370 1 647
Market prices and exchange rates
I/05 II/05 III/05 IV/05 2005
Market prices 2)
Stainless steel
Base price EUR/t 1 332 1 217 1 113 1 035 1 174
Alloy surcharge EUR/t 875 956 1 012 923 942
Transaction price EUR/t 2 207 2 173 2 125 1 958 2 116
Nickel USD/t 15 348 16 411 14 567 12 649 14 744
EUR/t 11 704 13 031 11 941 10 644 11 851
Ferrochrome (Cr- USD/lb 0.78 0.78 0.73 0.68 0.74
content)
EUR/kg 1.31 1.37 1.32 1.26 1.32
Molybdenum USD/lb 32.02 35.62 31.74 30.66 32.51
EUR/kg 53.84 62.35 57.37 56.89 57.61
Steel scrap USD/t 240 209 236 212 224
EUR/t 183 166 194 179 180
Exchange rates
EUR/USD 1.311 1.259 1.220 1.188 1.244
EUR/SEK 9.074 9.208 9.366 9.473 9.282
EUR/GBP 0.694 0.679 0.683 0.680 0.684
1) Market price gains and losses on derivatives related to
discontinued operations have been reclassified from operating profit
to net financial expenses. Figures for all presented periods have
been restated.
2) Sources of market prices:
Stainless steel: CRU - German base price, alloy surcharge and
transaction price (2 mm cold rolled 304 sheet), estimates for
deliveries during the period.
Nickel: London Metal Exchange (LME) cash quotation.
Ferrochrome: Metal Bulletin - Ferrochrome lumpy chrome charge, basis
52% chrome.
Molybdenum: Metal Bulletin - Molybdenum oxide - Europe.
Steel Scrap: Metal Bulletin - Steel scrap HMS1 fob Rotterdam.
Some positive signs in the market
Global economic growth continued at a rate of about 3% during the
fourth quarter, but growth in Europe remained modest. During the
fourth quarter, European demand for stainless steel started to pick
up as the sizeable production cuts implemented in the latter half of
2005 helped eliminate excess supply and inventories began to return
to normal levels. Prices did however continue to drift downwards
during the quarter. The German base price for CR 304 sheet fell by a
further 40 EUR/tonne and stood at 1 030 EUR/tonne in December. Base
price erosion has however now stopped and price increases for the
first quarter 2006 deliveries have been achieved. During the fourth
quarter, US prices remained higher than prices in Europe and Asia.
Prices of alloying materials for stainless steel continued to
decline due to weak demand from stainless steel producers. The price
of nickel averaged 12 649 USD/tonne in the fourth quarter, 13% lower
than in the third quarter. At the beginning of 2006, nickel prices
started to rise again and stood at 15 200 EUR/tonne at the end of
January. The ferrochrome market was oversupplied and the contract
price for the quarter was 0.68 USD/lb, 7% below the level in the
third quarter. The ferrochrome market is expected to remain
oversupplied and the contract price for the first quarter of 2006
was settled at 0.63 USD/lb. Slight oversupply in molybdenum
continued and the price fell by 2% compared to the third quarter,
though still remaining at a level which is historically very high.
The price of steel scrap fell by 10% in the fourth quarter. The
alloy surcharge for stainless steel fell month-on-month during the
quarter from its record high in August. The alloy surcharge declined
further in January before rising slightly in February.
Operating profit negative due to non-recurring items and inventory
losses underlying profitability slightly positive
The Groups sales in the fourth quarter totaled EUR 1 317 million,
11% higher than in the third quarter and deliveries of stainless
steel increased by 11% as well. The increase in sales was mainly
attributable to Technology, while sales by General Stainless were at
third-quarter level and sales by Specialty Stainless were down
slightly. The Group recorded an operating loss of EUR 179 million in
the fourth quarter. Excluding inventory losses and EUR 164 million
of non-recurring expenditure, the operating profit was slightly
positive. Non-recurring items comprise EUR 130 million of write-
downs and costs related to the closure of Coil Products Sheffield
(CPS), and EUR 34 million for actions taken in the fixed cost
reduction program. Technology posted a very good operating profit.
General Stainless increased deliveries offset by lower base prices
General Stainless
EUR million I/04 II/04 III/04 IV/04 2004
Sales 1 018 1 106 961 1 152 4 237
of which Tornio 522 578 471 613 2 183
Works
Operating profit 78 74 44 72 269
of which Tornio 70 67 47 57 241
Works
Operating capital
at the end of period 2 624 2 737 2 811 2 882 2 882
Deliveries of main
products (1 000
tonnes)
Cold rolled 220 201 200 196 818
White hot strip 81 77 57 119 335
Other 220 234 160 184 799
Total deliveries
of the division 522 513 417 499 1 951
EUR million I/05 II/05 III/05 IV/05 2005
Sales 1 286 1 158 813 816 4 073
of which Tornio 699 657 476 467 2 299
Works
Operating profit 71 93 (55) (170) (62)
of which Tornio 59 74 (36) (48) 49
Works
Operating capital
at the end of period 2 920 2 901 2 820 2 484 2 484
Deliveries of main
products (1 000
tonnes)
Cold rolled 210 183 162 179 734
White hot strip 102 89 41 53 284
Other 238 192 105 97 631
Total deliveries
of the division 550 463 307 329 1 649
General Stainless sales were at third-quarter level even though
deliveries increased by 7%. The operating loss totaled EUR 170
million, which included EUR 127 million of write-downs and costs
related to the closure of CPS activities and costs of EUR 11 million
related to the fixed cost reduction program. The effect of the
increase in deliveries was offset by lower base prices. Also
inventory losses resulting from the timing difference between the
alloy surcharge and inventory turnover had an adverse effect on the
fourth quarter result.
Tornio Works posted an operating loss of EUR 48 million, including
EUR 8 million of non-recurring costs. Delivery volumes of finished
products returned to higher levels during the quarter, but the melt
shops and hot rolling mill suffered from a lack of orders and the
benefits from Tornio Works low cost base were not therefore fully
achieved. Inventory losses during the quarter affected mostly Tornio
Works.
To expand the product offering, a decision to start the production
of ferritic stainless steel in Tornio was made in November. With an
investment of EUR 13 million in batch annealing furnaces, the
targeted annual production of ferritics is 60 000 tonnes. Deliveries
will begin in the first quarter of 2007.
At CPS, the consultation process with trade unions on the closure of
the cold rolling operations in Sheffield was concluded on December
23, 2005 and production (annual capacity 300 000 tonnes) will cease
by the end of April 2006. The closure of CPS and adjustments to
operational production capacity at the Sheffield melt shop will
reduce workforce by 670 employees.
The order backlog has strengthened and base price increases have
been achieved for deliveries in the first quarter of 2006. Further
price increases are being pressed for April and beyond. The target
is to fully utilize Tornios capacity for finished products and
benefit from its low cost base. General Stainless operating profit
is expected to improve from the level seen in the latter part of
2005, excluding non-recurring items.
Specialty Stainless - satisfactory performance for special grades
and project sales
Specialty Stainless
EUR million I/04 II/04 III/04 IV/04 2004
Sales 640 720 601 741 2 702
Operating profit 51 46 36 48 181
Operating capital
at the end of period 1 148 1 224 1 213 1 250 1 250
Deliveries of main
products (1 000
tonnes)
Cold rolled 48 47 31 42 169
White hot strip 58 53 37 57 204
Other 153 157 136 142 588
Total deliveries
of the division 258 257 205 241 961
EUR million I/05 II/05 III/05 IV/05 2005
Sales 785 819 584 552 2 739
Operating profit 55 65 14 (23) 110
Operating capital
at the end of period 1 248 1 358 1 310 1 161 1 161
Deliveries of main
products (1 000
tonnes)
Cold rolled 44 54 43 47 188
White hot strip 57 43 30 30 160
Other 148 148 89 71 455
Total deliveries
of the division 249 245 162 148 803
Specialty Stainless sales were down by 5% in the period and
deliveries were 9% lower. The operating loss was EUR 23 million,
which included EUR 21 million of non-recurring costs related to
operational capacity adjustments in Avesta and the fixed cost
reduction program. Delivery volumes and price levels for special
products, such as special grade and project-related products were
satisfactory. The hot rolled plate business in particular continues
to perform well supported by strong growth in its key customer
segments. Specialty Stainless units were, however, also affected by
weak demand for more standard products and by inventory losses. The
decline in base prices mostly affected more standard products, but
profitability was stabilized by sales of special products.
Specialty Stainless products are widely used in industries, in
which investment activity has been firm throughout 2005 and is
expected to continue to be so also in 2006, i.e. oil, gas,
desalination, building and construction as well as pulp and paper.
In the short-term Specialty Stainless operating profit is expected
to improve from the latter part of 2005, excluding non-recurring
items.
Technology posted record sales and operating profit
Technology
EUR million I/04 II/04 III/04 IV/04 2004
Sales 81 104 91 146 423
Operating profit 9 (1) 2 20 30
Operating capital
at the end of period 27 45 29 39 39
Order backlog
at the end of period 390 336 423 458 458
EUR million I/05 II/05 III/05 IV/05 2005
Sales 65 158 144 223 590
Operating profit (8) 4 6 23 25
Operating capital
at the end of period 40 32 60 4 4
Order backlog
at the end of period 490 520 525 596 596
The fourth quarter was a successful one for Technology. Completion
of several projects and good progress in others boosted both sales
and operating profit. Compared to the third quarter, sales were up
by 55% and the operating profit margin rose to 10%. Advance payments
significantly reduced operating capital and free cash flow was good
at EUR 60 million.
Technologys order backlog strengthened further and stood at EUR 596
million at the end of 2005, 30% higher than it was one year earlier.
Order intake in the fourth quarter was EUR 260 million with the most
important project signed being the worlds biggest pellet indurating
furnace for Samarco Mineracao S.A in Brazil. The EUR 170 million
contract covers the entire engineering, supply, construction and
start-up of the pellet indurating furnace. Two ferrochrome process
projects in South Africa for International Ferro Metals´ and for
Xstrata ferrochrome plants were also booked. The value of these two
projects exceeds EUR 40 million. One of the biggest orders received
in the minerals processing area was the grinding technology contract
with First Quantum Minerals for a large SAG mill for the Frontier
Project in Peoples Republic of Congo. The value of the contract
exceeds EUR 10 million. A contract valued at more than EUR 20
million to deliver copper smelting and refining technology to the
Jiangxi Copper Companys Guixi copper plant expansion in China was
also signed.
In November, strategic objectives of improved profitability and
growth for Outokumpu Technology were announced. The target is to
increase annual sales to EUR 700 million by 2008 with the current
business concept and to generate profit before taxes of EUR 50
million. Outokumpu Technology has outlined its vision of being the
leading technology partner in the minerals and metals processing
industries.
Metal prices have continued to strengthen and investment activity
within the metals and mining industry is expected to remain robust.
Investment activity is strong in both ferrous and non-ferrous
markets. Outokumpu Technologys strong order backlog, which is
forecast to remain at a high level, provides confidence that the
good profitability development will continue in 2006 and that
strategic objectives can be met.
Other operations
Other operations
EUR million I/04 II/04 III/04 IV/04 2004
Sales 55 50 56 57 218
Operating profit 1) (3) (8) (12) (27) (50)
Operating capital
at the end of period 89 83 113 58 58
EUR million I/05 II/05 III/05 IV/05 2005
Sales 55 64 58 60 238
Operating profit 1) 10 (3) 9 (7) 8
Operating capital
at the end of period 34 44 37 140 140
1) Market price gains and losses on derivatives related to
discontinued operations have been reclassified from operating profit
to net financial expenses. Figures for all presented periods have
been restated.
Other operations consists of activities outside the Groups primary
businesses as well as industrial holdings. Business development
costs and group functions expenses not allocated to the businesses
are also reported under Other operations. Other operations fourth
quarter result includes EUR 3 million of non-recurring costs related
to the fixed cost reduction program and a EUR 3 million write-down
of an IT-system related to the closure of CPS.
The attachments present a summary of the Review by the Board of
Directors for 2005 as well as extracts from the financial
statements.
This report is unaudited.
For further information, please contact:
Kari Lassila, SVP IR and Communications, tel. +358 9 421 2555,
kari.lassila@outokumpu.com
Vesa-Pekka Takala, SVP Corporate Controller, tel. +358 9 421 4134,
vesa-pekka.takala@outokumpu.com
Eero Mustala, SVP Corporate Communications, tel. +358 9 421 2435,
eero.mustala@outokumpu.com
News conference and live webcast today at 3.00 pm
A combined news conference, conference call and live webcast
concerning the 2005 financial results will be held on February 2,
2006 at 3.00 pm Finnish time (8.00 am US EST, 1.00 pm UK time, 2.00
pm CET) at Hotel Kämp, conference room Mirror Room, Pohjoisesplanadi
29, 00100 Helsinki, Finland.
To participate via a conference call, please dial in 5-10 minutes
before the beginning of the event:
UK +44 207 162 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 February 2, 2006 at 5.00 pm.
An instant reply service of the conference call will be available
until Monday, February 6, 2006 on the following numbers:
UK replay number +44 20 7031 4064, access code: 691364
US & Canada replay number + 1 954 334 0342, access code: 691364
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
SUMMARY OF THE REVIEW BY THE BOARD OF DIRECTORS FOR 2005
Major transformation but reduced profits in difficult market
conditions
Outokumpu went through a major transformation in 2005. Sale of the
Groups fabricated copper products business to Nordic Capital was
finalized in June 2005. Outokumpu Copper Tube and Brass was excluded
from the transaction and a turnaround plan to improve its
profitability has been initiated. It is Outokumpus intention to
divest the tube and brass business.
Following the sale of the fabricated copper products business,
Outokumpu is a leading stainless steel and technology company. In
April, the Groups stainless steel business was organized into the
General Stainless and Specialty Stainless divisions. In the new
structure Outokumpu Technology is managed at arms-length as a stand-
alone business through the board work of Outokumpu Technology.
Tornio expansion was completed and the new capacity has been
technically available from the second half of 2005. The market
environment, however, changed dramatically during the second half of
the year when prolonged de-stocking in the stainless steel markets
resulted in oversupply. To achieve the Groups profitability and
financial strength targets and to adjust to the new competitive
market environment, several measures were initiated during the fall
of 2005. In September a fixed cost reduction program was initiated
in all stainless steel business units and group functions. In
October, Outokumpu announced the plan to cease operations at Coil
Products Sheffield (CPS) in Britain, having the annual capacity of
300 000 tonnes and CPS orders were transferred to Tornio, thus
enabling the worlds largest stainless steel integrate to operate at
full load and deliver the benefits of its low cost base. The
Sheffield melt shops annual operational capacity was also adjusted
from 500 000 tonnes to 300 000 tonnes. As the Avesta Works in Sweden
has been hot rolling slabs from the Sheffield melt shop for CPS, the
annual operational hot rolling capacity in Avesta was adjusted to
450 000 tonnes to reflect the new operational structure. The above
actions will reduce workforce by a total of 1 500 employees.
Outokumpus financial result for 2005 was a significant
deterioration from the previous year. Prolonged de-stocking
especially in Europe, Outokumpus main market, had an adverse effect
on Groups delivery volumes, and these were 8% lower than in 2004.
Groups sales rose by 8% to EUR 5 552 million as a result of high
transaction prices, improved product mix and Technologys 39%
increase in sales. Operating profit fell to EUR 83 million. In
addition to lower deliveries, the main reasons for the significant
drop in profits were lowest ever base prices during the latter part
of the year and EUR 164 million of non-recurring costs and write-
downs related to the closure of CPS and actions taken to reduce
fixed costs. Non-recurring gain from the sale of the Boliden holding
amounted to EUR 35 million. Outokumpu Technology posted a record
operating profit of EUR 25 million.
The Groups net loss for 2005 from continuing operations totaled EUR
3 million and the net loss from discontinued operations was EUR 360
million. Earnings per share was negative at EUR 2.01.Net cash
generated from operating activities improved significantly and was
EUR 459 million. EUR 202 million was released from working capital.
Gearing was 74.5% and reached the targeted level of below 75%.
The Board of Directors is proposing to the Annual General Meeting
that a dividend of EUR 0.45 per share be paid for 2005.
Weak global demand for stainless steel
Despite the solid economic background global consumption of cold
rolled and hot rolled stainless steel flat products declined
marginally during 2005. According to CRU estimates apparent
consumption fell by 5% in both Western Europe and the US, and the
only region to show significant growth was China, where apparent
consumption grew by 12% from the previous year. European markets
were heavily oversupplied in 2005 due to the prolonged de-stocking
and declining export possibilities to Asia. Producers responded to
the weakening markets by cutting production in the second half of
the year.
The weak demand for stainless steel had its biggest negative effect
on the standard grade volume products supplied by General Stainless
whereas demand for Specialty Stainless special grade and project-
related products performed better.
Base prices declined throughout 2005. The European base price for CR
304 sheet fell from 1 425 EUR/tonne at the end of 2004 to 1 030
EUR/tonne at the end of 2005, and the average price in 2005 was 1
174 EUR/tonne, 18% lower than in 2004. Base prices have, however,
turned upwards in early 2006.
The price of nickel was extremely high in 2005 and markets were very
volatile. The average price of nickel in 2005 was 14 744 USD/tonne,
up by 6% from 2004 and the highest ever annual average price. Nickel
prices peaked at above 17 000 USD/tonne in May-June. In the second
half of the year nickel markets moved into oversupply as demand from
the stainless steel sector declined significantly and prices fell to
around 13 000 USD/tonne in the fourth quarter. In the beginning of
2006 nickel prices turned upwards again and stood at 15 200
USD/tonne at the end of January.
Ferrochrome markets softened during 2005. Undersupplied in the first
half of the year markets moved into oversupply in the second half of
2005 as a result of the significant cutbacks in stainless steel
production, and prices for ferrochrome drifted downwards. The
average price for the year was 0.74 USD/lb, 7% higher than in 2004.
The ferrochrome market is expected to remain oversupplied and the
contract price for the first quarter of 2006 was settled at 0.63
USD/lb. The price of molybdenum was exceptionally high in 2005. The
average annual price of 32.51 USD/lb was the highest annual price
ever and twice what it was in 2004. The average price for steel
scrap was 224 USD/tonne, 5% less than in 2004.
Stainless steel deliveries down by 8%
Sales
EUR million 2005 2004 Change,
%
General Stainless 4 073 4 237 (4)
Specialty Stainless 2 739 2 702 1
Technology 590 423 39
Other operations 238 218 9
Intra-group sales (2 088) (2 458) (15)
The Group 5 552 5 122 8
Stainless steel
deliveries
1 000 tonnes 2005 2004 Change,
%
Cold rolled 867 890 (3)
White hot strip 391 432 (9)
Other 390 464 (16)
Total deliveries 1 647 1 786 (8)
The Groups sales rose by 8% compared with 2004 and amounted to EUR
5 552 million. Deliveries of stainless steel were down by 8%. The
main reasons were prolonged de-stocking in Europe, Outokumpus main
market, high and volatile raw material prices and increasing
capacity in China, which undermined export possibilities to Asia.
The reduction in demand in Europe had its greatest adverse effect on
General Stainless sales, which fell by 4%, whereas Specialty
Stainless sales increased by 1%. Outokumpu Technologys sales rose
by 39% as a result of increased deliveries to the minerals and
metals industries, in which firm investment activity continued
throughout 2005.
The share of the Groups sales to Europe declined from 69% to 64%.
The share of Asia and Americas rose to 17% and 13%, respectively.
Sales to Asia increased due to the good demand of white hot strip
during the first half of 2005.
A substantial reduction in profits
Operating profit
EUR million 2005 2004 Change
General Stainless (62) 269 (331)
Specialty Stainless 110 181 (71)
Technology 25 30 (5)
Other operations 8 (50) 58
Intra-group items 1 5 (4)
The Group 83 436 (353)
The Groups operating profit declined to EUR 83 million (2004: EUR
436 million). Operating profit includes a negative net impact of EUR
129 million from non-recurring items (2004: EUR 19 million
positive). The non-recurring items comprise a EUR 35 million capital
gain on the sale of Boliden shares, EUR 130 million of write-downs
and costs related to the closure of CPS and EUR 34 million of costs
related to actions taken in the fixed cost reduction program.
Low base prices for stainless steel mainly affected Outokumpus
standard grade volume products. During the second half of 2005,
production was market constraint and the benefits from Tornio Works
expansions efficiency and low cost base were not fully achieved.
General Stainless posted an operating loss of EUR 62 million while
Specialty Stainless posted an operating profit of EUR 110 million.
Negative non-recurring items in General Stainless operating profit
totaled EUR 138 million and in Specialty Stainless EUR 21 million.
Technologys operating profit rose to a record high of EUR 25
million as a result of increased deliveries to customer industries.
Technologys operating profit for 2004 included a EUR 16 million non-
recurring gain from the sale of the filter business.
Net financial expenses decreased to EUR 61 million (2004: EUR 75
million). Net interest expenses were EUR 62 million (2004: EUR 66
million). Profit before taxes was EUR 22 million (2004: EUR 440
million) and taxes amounted to EUR 24 million (2004: EUR 61
million). The loss for the period from continuing operations was EUR
3 million (2004: profit EUR 379 million) and the loss from
discontinued operations EUR 360 million (2004: profit EUR 7
million). The Groups earnings per share was EUR 2.01 negative
(2004: EUR 2.12 positive). Earnings per share from continuing
operations was EUR 0.02 negative and from discontinued operations
EUR 1.99 negative. Return on capital employed declined to 1.9%
(2004: 9.6%).
Capital structure strengthened
Key financial indicators on financial
position
EUR million 2005 2004
Net interest-bearing debt
Long-term debt 1 624 1 975
Current debt 556 1 150
Total interest-bearing debt 2 180 3 125
Interest-bearing assets (511) (690)
Net assets held for sale (132) -
Net interest-bearing debt 1 537 2 435
Net interest-bearing debt
in relation to sales, % 27.7 47.5
Shareholders' equity 2 047 2 468
Debt-to-equity ratio, % 74.5 97.2
Equity-to-assets ratio, % 38.2 35.8
Net cash generated from
operating activities 459 (128)
Net financial expenses 61 75
Net financial expenses
in relation to sales, % 1.1 1.5
Interest cover 1.4 7.6
The Group´s net cash generated from operating activities improved
significantly in 2005 and amounted to EUR 459 million. The
contribution by continuing operations totaled EUR 544 million. EUR
202 million was released from working capital. Net interest-bearing
debt fell to EUR 1 537 million. Divestiture of the Groups
fabricated copper products business reduced indebtedness.
In June, Outokumpu signed a five-year revolving credit facility of
EUR 1 billion. This is a committed credit facility, which replaces
the comparable EUR 875 million facility from May 2003.
Outokumpu sold its remaining stake in Boliden in two lots, in March
and in September. Proceeds from the disposal totaled EUR 295 million
and resulted in a capital gain of EUR 35 million.
In October, Outokumpu sold its stainless welding business, Avesta
Welding to Böhler-Uddeholm of Austria. Sales by the business in 2004
was EUR 38 million and it employs some 160 people. The gain on the
sale was EUR 3 million.
At the end of 2005, the Groups equity-to-assets ratio stood at
38.2%. Gearing declined to 74.5% as a result of sale of assets and a
good cash flow from operating activities and was at the targeted
level of below 75%.
Capital expenditure under tight control
Capital expenditure
EUR million 2005 2004
General Stainless 94 222
Specialty Stainless 58 53
Technology 10 9
Other operations 13 130
The Group 174 414
The Group's short-term profitability improvement program also
includes tight capital expenditure discipline. The capital
expenditure continued to decline markedly from previous years and
totaled EUR 174 million. Towards the end of 2005, cash outflows on
capital expenditure were delayed and some capital expenditure
planned for 2005 was postponed until 2006. The Group's capital
expenditure limit for 2006-2007 has been set at an annual EUR 175
million. In 2006, however, delayed phasing and rollovers from 2005
will mean that capital expenditure is expected to be higher, but
will not exceed the annual depreciation level of EUR 210 million.
The expansion project at the Tornio Works was completed and new
capacity has been technically available from the second half of
2005. Tornios annual capacities are: some 1.65 million tonnes for
melting and 1.2 million tonnes for the cold rolling mill. Open pit
mining at the Kemi mine ceased in December and all production comes
now from the underground mine.
The EUR 53 million investment at the Kloster Thin Strip in Sweden is
proceeding according to plan. Site works and civil engineering works
have been completed and equipment is currently being installed. The
new production capacity is scheduled to be on stream by the end of
2006, and will expand the mill's annual production capacity from 25
000 tonnes to 45 000 tonnes. It will also enable the production of
thinner (0.12 mm) and wider (1 050 mm) products. The investment
comprises a new cold rolling mill, a bright annealing line and a
slitting line.
To widen the Groups product offering, a decision to start
production of ferritic stainless steel in Tornio was made in
November. Ferritic stainless steel normally includes some 12-17%
chromium, with the remainder being iron. The price of the ferritics,
not containing any nickel, has traditionally been less volatile than
that of austenitic stainless steel, the main product produced by
General Stainless. Tornio has a cost competitive advantage in the
ferritics production by utilizing liquid ferrochrome from its own
smelter in the process, which reduces the melting costs. EUR 13
million is being invested in batch annealing furnaces and annual
production capacity target for ferritics is 60 000 tonnes.
Deliveries will begin in the first quarter of 2007.
Discontinued operations
On April 5, 2005 Outokumpu and Nordic Capital signed a sales and
purchase agreement according to which Outokumpu sold the fabricated
copper products business to Nordic Capital. The sale was finalized
on June 7, 2005 and the total consideration received was EUR 612
million. The scope of the transaction comprised the following
divisions and businesses of the former Outokumpu Copper business
area: Americas, Europe, Automotive Heat Exchangers, Appliance Heat
Exchangers & Asia, including 100% of Outokumpu Heatcraft, and the
Forming equipment businesses.
Sales in 2004 by the divested businesses totaled EUR 1 684 million
and the number of personnel employed totaled 6 400 at the end of
2004. Personnel continued with Nordic Capital under their existing
employment terms and conditions. It was also agreed by the parties
that the divested businesses may continue to use the name Outokumpu
Copper Products Oy during a transition period of up to 12 months
after the closing.
Outokumpu Copper Tube and Brass business was excluded from the
transaction and comprises European sanitary and industrial tubes,
including air-conditioning and refrigeration tubes in Europe, as
well as brass rod.
Outokumpu recorded a capital loss of EUR 252 million from the sale
to Nordic Capital. An impairment loss of EUR 86 million has also
been recognized based on managements valuation of the remaining
tube and brass business. As a result of Finnish participation
exemption tax rules, these losses are not tax deductible. The whole
former Outokumpu Copper business area has been classified as a
discontinued operation. The EUR 360 million loss from discontinued
operations consists of the result of fabricated copper products
business in the first quarter of 2005, the loss on the sale to
Nordic Capital, the impairment loss recognized for the Outokumpu
Copper Tube and Brass as well as the tube and brass business result
for 2005. The loss from discontinued operations is presented in the
income statement as a separate item after the profit from continuing
operations.
The assets sold to Nordic Capital were de-consolidated at the end of
March 2005 and the assets and liabilities of Outokumpu Copper Tube
and Brass are presented as held for sale. Outokumpu Copper Tube and
Brass posted an operating loss of EUR 20 million in 2005 and
operating capital at the end of December 2005 totaled EUR 132
million. A turnaround plan has been initiated and Outokumpu has
stated its intention to divest the business.
Outokumpu Copper (USA), Inc. has been served with a complaint in a
case filed in federal district court in Memphis, Tennessee, the US
by plaintiff American Copper & Brass, Inc. The complaint alleges
claims and damages under the US antitrust laws and purports to be a
class action on behalf of all direct purchasers of copper plumbing
tubes in the US from 1988 to March 31, 2001. Outokumpu believes that
the allegations in this case 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 this class action.
Decisive actions to improve profitability and cash flow
During the autumn, decisive actions were initiated to counter the
difficult market conditions caused by the continued de-stocking and
roll-out of new production capacity especially in China. Oversupply
in the market drove stainless steel base prices down and kept them
at a very low level. After completing the review of its stainless
steel cold rolling operation in Sheffield, Outokumpu announced in
October the intention to cease the operations of CPS. CPSs new
orders were transferred to Tornio, the worlds largest single-site
stainless operation and a clear cost leader. To obtain the full
benefits of Tornio Works cost efficiency, the plant has to be run
as close to capacity as possible.
CPS is a medium-scale, high-cost operation with complicated
logistics and cannot compete with the clearly more cost-efficient
integrated operations in current and foreseeable market conditions.
In addition to ceasing the CPS operation (annual capacity 300 000
tonnes), the annual operational capacity of the Sheffield melt shop
is being adjusted from 500 000 tonnes to 300 000 tonnes to provide
feedstock only for the Groups long products and plate operations in
Britain, Sweden and the US. These actions will reduce the workforce
in Britain by 670 employees. At the end of December, the
consultation process between the management and local trade unions
was concluded and the operations at CPS will be closed down at the
end of April 2006.
As the Avesta Works in Sweden has been hot rolling slabs from the
Sheffield melt shop for CPS, the annual operational hot rolling
capacity in Avesta was adjusted to 450 000 tonnes to reflect the new
operational structure. This resulted in a review of shift manning
levels at Avesta hot rolling mill and union negotiations in this
respect have been concluded.
The closure of CPS resulted in non-recurring write-downs of EUR 84
million and costs of EUR 46 million. The resulting annual
improvement in the Groups operating profit is expected to be some
EUR 50 million from the second half of 2006 onwards.
In the new operational structure, Outokumpus annual melting
capacity will be 2.5 million tonnes with hot rolling capacity
matching melting capacity, annual cold rolling mill capacity will be
1.6 million tonnes and annual long products and plate capacity 0.3
million tonnes.
In September, Outokumpu also started a decisive program to improve
profitability and cash flow. This program has three components:
fixed cost reduction, reduced capital expenditure and tight working
capital management.
Fixed cost reductions are being implemented in all the Groups
stainless business units and group functions. The target of a 10%
reduction in fixed costs will result in some EUR 100 million
improvement in the group-level operating profit on an annual basis.
Units prepared their plans and implementation began following the
completion of employee negotiations at the year-end. The program
will reduce the workforce by some 800 employees. Reduced fixed cost
running rates will be in place during the second half of 2006, and
deliver full effect in 2007.
Targets and achievements in commercial and production excellence
programs
Outokumpu's vision to be the undisputed number one in stainless
with success based on operational excellence was announced in
January 2005. Operational excellence comprises the commercial and
production excellence programs launched in April 2005.
The commercial excellence program covers all Outokumpus stainless
business units and sales companies. The program will help move the
Group increasingly towards customer orientation and a one-company
operating model. Through key account management practices, sales
force training and by improving internal effectiveness in areas such
as pricing management, the program seeks to significantly improve
both the value Outokumpu can offer its customers and the Groups own
business performance. In order to fully leverage all improvement
opportunities, the commercial excellence program will have close
links to the production excellence program.
Production excellence is a very practical program for improving
Outokumpu´s production activities. Objectives of the program are to
decrease variation in production and improve health, safety and
environmental performance, raw material and equipment efficiency, as
well as to benchmark and employ best practices. The program started
from the Groups three melt shops and the first improvement teams
have already kicked off. The next step is to expand the program to
include cold rolling operations. After three years, the program will
be launched throughout the Group. The first pilot projects in Tornio
and Avesta have been audited which reinforced the confidence in the
program. In short time the teams involved have already achieved
significant results and have confirmed that there is remarkable
improvement potential to be attained.
Total combined benefits from the commercial and production
excellence programs are expected to amount to EUR 40 million in
2007, EUR 80 million in 2008 and EUR 160 million on an annual basis
thereafter.
Risk identification and assessment workshops carried out
Two extensive risk identification and assessment workshops were
carried out during 2005 one with Group Executive Committee
concentrating on the steel business and another with the management
of Outokumpu Technology where the emphasis was on technology
business. Key risks and related management actions for business
units were also identified and assessed during the strategic
planning process. In workshops, participants identified risks that
could prevent the achievement of particular business targets or
risks within predefined key areas of business activity.
Outokumpu has classified risks that affect its operations into three
categories: risks relating to strategy and business, operational
risks and financial risks. Risks are assessed based on their
estimated impact and likelihood of occurrence. Key risks are further
described and addressed through more detailed analysis. This
analysis also involves definitions of risk mitigating actions as
well as roles and responsibilities.
Environment, health and safety
Outokumpus stainless steel plants in Finland, Sweden and Britain
belong to the Greenhouse Gas emission trading system that started in
the European Union in 2005. In February, carbon dioxide allowances
and associated permits for the first three-year period were granted
to the Tornio site in Finland and the steel making and casting
plants at Avesta and Degerfors in Sweden. The allocated allowances
are sufficient for Outokumpus planned production in 2005-2007 and
preparations for applying for allowances for the 2008-2012 Kyoto
period have began. For the 2005-2007 period, the Sheffield melt shop
in Britain utilized the opt-out possibility provided by the British
Climate Change Levy system.
Emissions remained mostly within permitted limits during 2005. The
modernization of the older melt shop in Tornio has markedly
decreased the specific emission of dust. Also, the emissions of
nitrogen oxides have decreased in Avesta, Nyby and Sheffield due to
implementation of the latest burner technology in annealing furnaces
and introduction of a new technology for handling pickling fumes.
All Outokumpu units have valid environmental permits in place or are
in the process of applying. 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 Groups financial
position.
The Supreme Administrative Court of Finland issued its decision in
December 2005 concerning waste interpretation at Tornio Works.
According to this decision, slag formed in the ferrochrome
production as well as steel scrap used as raw material in the Tornio
melt shop are not classified as waste. The ferrochrome slag is used
as a replacement for natural rock material for example in the
construction of roads and buildings.
In 2005 occupational safety was the group-wide theme. The aim was to
increase safety awareness and encourage people to report near miss
cases in particular. A safety target for the Group of no more than
five accidents per million man-hours before 2009 has been set. The
accident rate in the Group´s continuing operations in 2005 was 18
per million man-hours (2004: 19). In November, one fatal accident
occurred at the Outokumpu Stainless Tubular Products tube mill in
Nyby, Sweden.
Research and development
Expenditure on research and development during 2005 amounted to EUR
33 million or 0.6% of net sales (2004: EUR 31 million and 0.6%). In
addition to new products, R&D focuses on innovative manufacturing
processes that reduce costs, result in lower emissions, shorten lead
times and improve quality.
In the joint Next Generation Vehicle project, Outokumpu and other
European stainless steel producers are developing new solutions
together with the main automotive producers. Stainless steel grades
that are lighter in weight, such as the innovative HyTens® material,
have very good potential in automotive applications. In 2006,
research and development resources will be directed to a greater
extent into the architecture, building and construction sectors,
where stainless steel products have enormous potential.
Outokumpus strategic intention is to increase market share in
special grades. Development of duplexes, especially LDX 2101®. and
corresponding applications has progressed well. The largest orders
have been delivered to desalination plants, de-washers, various
storage tanks and flexible tubes. The RAPTM2E product has been
launched and has been well received by customers.
The Tornio ramp-up of the unique Steckel-Tandem hot rolling process
has progressed well. The RAP-line has shown its capabilities, and
the possibilities of utilizing its flexible characteristics as part
of the new ferritics route are being examined.
Development of processes for slag utilization was a high priority in
2005. Slag can be treated to be an optimum raw material for roads,
construction beds etc. instead of using virgin materials. Process
route for Hydroflux, neutralized and processed pickling sludge, has
been developed to save fluorspar in the steel melting process.
In June 2005, Outokumpu Technology launched its largest-ever
flotation cell, the TankCell® 300, for enhanced metal recovery and
operating efficiency in mineral processing operations.
Commercialization of the HydroCopper process continued. An
important milestone in commercializing the Kennecott-Outokumpu Flash
Converting technology was the contract with Yanggu Xiangguang Copper
in China. Extensive tests on Circofer® technology for an iron-ore
direct-smelt reduction process were carried out. Technologys both
innovative solution and novel technology were combined to develop a
cost effective way of producing metallic radio-frequency
identification (RFID) antennas to the rapidly growing and emerging
RFID technology based item identification markets. As a result, the
Finnish paper company UPM, Outokumpu Technology and Finnish Industry
Investment formed a joint venture company, Intune Circuits Oy, to
produce high-quality RFID antennas.
Personnel
Personnel
Dec. 31 2005 2004 Change
General Stainless 4 123 4 462 (339)
Specialty Stainless 4 334 4 493 (159)
Technology 1 791 1 806 (15)
Other operations 516 753 (237)
The Group 10 764 11 514 (750)
Outokumpus human resource management was strengthened and
reorganized during 2005 to support the Groups new business
structure and strategic targets.
A new participation model consisting of the Outokumpu Personnel
Forum and the Group Working Committee elected by the Forum has
proved out to be a very effective channel of two way communication.
The Group Working Committee held a total of 11 meetings in 2005.
Personnel participation played a significant role in the
transformation of the Group. The contribution by personnel
representatives was of great importance in the planning and
implementation of operational adjustments and fixed cost reduction
measures.
The total personnel reduction from the fixed cost reduction program
will be some 800 employees. Of this, 60% will be lay-offs and the
remainder will consist of retirements, resignations and the
terminations of fixed term contracts. The total reduction of
personnel in Finland will be 320, in Sweden 350 and in other
countries 130. The closure of CPS and the adjustment of operational
production capacity at the Sheffield melt shop will result in 670
employees being made redundant in Britain by the end of April 2006.
Appropriate employee severance, outplacement and career support
arrangements have been agreed with the local unions to mitigate the
effects of the job losses.
A new performance and development dialogue has been created in 2005
to develop a common management approach linked to rewards.
At the end of the year, the Groups continuing operations employed
10 764 people in some 30 countries. The total number of personnel
employed fell by 750 mainly due to restructurings carried out during
2005.
Changes in organization
Mr. Juha Rantanen was appointed CEO of the Outokumpu Group,
effective January 1, 2005. The new organization for direct running
of the stainless steel business came into effect on April 1, 2005.
The Group Executive Committee members are: Juha Rantanen (CEO),
Karri Kaitue (Deputy CEO), Pekka Erkkilä (EVP - General Stainless &
Production Operations), Olof Faxander (EVP - Specialty Stainless),
Andrea Gatti (EVP - Commercial Operations), Esa Lager (CFO) and Timo
Vuorio (EVP - Human Resources, as of May 1, 2005). Mr. Olof Faxander
will leave Outokumpu on February 28, 2006.
The stainless steel business has been organized into two divisions
according to product types. The General Stainless division comprises
three business units: Tornio Works, Coil Products Sheffield (until
closure at the end of April 2006) and Sheffield Primary Products.
The Specialty Stainless division consists of six business units:
Avesta Works, Thin Strip, Hot Rolled Plate, Long Products, Sheffield
Special Strip and Outokumpu Stainless Tubular Products.
In the new structure Outokumpu Technology is managed at arms length
as a stand-alone business through the board work of Outokumpu
Technology. Outokumpu Copper Tube and Brass is also managed
separately and will be reported as a discontinued operation until
divestment. These businesses report to the Deputy CEO.
Board of Directors
In the Annual General Meeting on April 5, 2005, Mr. Evert Henkes,
Mr. Arto Honkaniemi, Mr. Jorma Huuhtanen, Mr. Ole Johansson, Mr.
Heimo Karinen, Ms. Leena Saarinen and Ms. Soili Suonoja were re-
elected as members of the Board of Directors, and Mr. Jukka Härmälä,
Mr. Juha Lohiniva and Ms. Anna Nilsson-Ehle were elected as new
members. Mr. Heimo Karinen was elected as Chairman of the Board of
Directors and Mr. Ole Johansson as Vice Chairman. Mr. Karinen was
nominated the chairman of the Board Nomination and Compensation
Committee and Mr. Ole Johansson of the Audit Committee.
Shareholders Nomination Committee
Outokumpu's Annual General Meeting of April 5, 2005 decided to
establish a Shareholders' Nomination Committee to prepare proposals
concerning the composition of the Board of Directors and director
remuneration for the following Annual General Meeting. The members
represent Outokumpus four largest registered shareholders on
December 1, 2005: Mr. Markku Tapio (Chairman), representing the
Finnish State, Mr. Pertti Parmanne, representing the Finnish Social
Insurance Institution, Mr. Kari Puro, representing Ilmarinen Mutual
Pension Insurance Company and Mr. Kalevi Hemilä, representing Etera
Mutual Pension Insurance Company. Mr. Heimo Karinen, the Chairman of
Outokumpu's Board served as an expert member. The Shareholders'
Nomination Committee submitted its proposals to the Board of
Directors on January 27, 2006.
Short-term outlook
Global economic growth is expected to remain solid in 2006. Although
global demand for stainless steel fell marginally in 2005 as a
result of de-stocking and extremely high and volatile raw material
prices, underlying demand has remained healthy and in the long-term
annual growth in consumption is expected to continue at a rate of 5-
7%. Towards the end of 2005 orders started to pick up and market
sentiment for early 2006 is cautiously optimistic.
For the first quarter of 2006 deliveries of 304 cold rolled flat
products in Europe, Outokumpu has gradually achieved base price
increases totaling 100 EUR/tonne or more. The increases vary country
by country. The order backlog has strengthened and further price
increases are being pressed for April and beyond.
In 2006 the target is to fully utilize Tornios capacity for
finished products and benefit from its low cost base. In the short-
term, Outokumpus profitability is expected to improve from the
second half of 2005. However, with the still very low base prices
prevailing at the start of 2006, operating profit is expected to
fall substantially short of the high levels seen in the first half of
2005.
Board of Directors proposal for profit distribution
In accordance with the Board of Directors established dividend
policy, the payout ratio over a business cycle should be at least
one-third of the companys profit for the period. In its annual
dividend proposal to the Annual General Meeting, the Board of
Directors will, in addition to the Groups financial results, take
into consideration the companys investment and development needs.
The Board of Directors is proposing to the Annual General Meeting to
be held on March 30, 2006 that a dividend of EUR 0.45 per share be
paid from the Groups distributable funds on December 31, 2005 and
that any remaining distributable funds be allocated to retained
earnings. The suggested dividend record date is April 4, 2006 and
the dividend will be paid on April 11, 2006.
According to the financial statements at December 31, 2005, the
Groups distributable funds total EUR 665 million and those of the
parent company total EUR 318 million.
Espoo, February 2, 2006
Board of Directors
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Condensed income statement
Jan-Dec Jan-Dec
EUR million 2005 2004
Continuing operations:
Sales 5 552 5 122
Other operating income 84 80
Costs and expenses (5 460) (4 737)
Other operating expenses (94) (28)
Operating profit 1) 83 436
Share of results in associated companies 0 78
Financial income and expenses
Net interest expenses (62) (66)
Market price gains and losses (0) (12)
Other financial income and expenses 1 4
Profit before taxes 22 440
Income taxes (24) (61)
Net profit/ (loss) for
the period from continuing operations (3) 379
Discontinued operations:
Net profit/ (loss) for
the period from discontinued operations (360) 7
Net profit/ (loss) for the period (363) 386
Attributable to:
Equity holders of the Company (364) 382
Minority interest 1 4
Earnings per share for profit attributable
to the equity holders of the Company:
Earnings per share, EUR (2.01) 2.12
Diluted earnings per share, EUR (2.01) 2.12
Earnings per share from continuing
operations
attributable to the equity holders of the
Company:
Earnings per share, EUR (0.02) 2.08
Earnings per share from discontinued
operations
attributable to the equity holders of the
Company:
Earnings per share, EUR (1.99) 0.04
1) Market price gains and losses on derivatives related to
discontinued operations have been reclassified from operating profit
to net financial expenses. Figures for all presented periods have
been restated.
All figures in the accounts have been rounded and consequently the
sum of individual figures can deviate from the presented sum figure.
Condensed balance sheet
Dec 31 Dec 31
EUR million 2005 2004
ASSETS
Non-current assets
Intangible assets 578 620
Property, plant and equipment 2 125 2 743
Non-current financial assets
Interest-bearing 262 409
Non interest-bearing 45 55
3 009 3 827
Current assets
Inventories 1 186 1 579
Current financial assets
Interest-bearing 37 70
Non interest-bearing 841 1 390
Cash and cash equivalents 212 211
2 277 3 250
Receivables related to assets held for 221 -
sale
Total assets 5 507 7 077
EQUITY AND LIABILITIES
Equity
Equity attributable to the
equity holders of the Company 2 047 2 468
Minority interest 15 38
2 062 2 506
Non-current liabilities
Interest-bearing 1 624 1 975
Non interest-bearing 319 442
1 943 2 417
Current liabilities
Interest-bearing 556 1 150
Non interest-bearing 857 1 003
1 413 2 153
Liabilities related to assets held for 89 -
sale
Total equity and liabilities 5 507 7 077
Consolidated statement of changes in
equity
Attributable to equity holders of the
Company
Unregis-
tered Share Fair
Share share premi-Other value
capi- capi- um reser- reser-
EUR million tal tal fund ves ves
Equity on December 31, 2003 304 0 681 14 -
Cash flow hedges - - - - (2)
Fair value gains on
available-for-sale financial assets - - - - 16
Net investment hedges - - - - -
Change in translation differences - - - - -
Items recognised directly in equity - - - - 15
Net profit for the financial year - - - - -
Total recognised
income and expenses - - - - 15
Dividends paid - - - - -
Transfers from unregistered share 0 (0) - - -
capital
Shares subscribed with options 4 - 15 - -
Converted bonds 1 - 3 - -
Outokumpu Oyj shares
owned by associated companies - - - - -
Management stock option program:
value of received services - - - - -
Transfer of treasury shares - - 0 - -
Other changes - - 1 (1) -
Equity on December 31, 2004 308 - 700 13 15
Cash flow hedges - - - - 6
Fair value gains on
available-for-sale financial assets - - - - 3
Net investment hedges - - - - -
Change in translation differences - - - - -
Items recognised directly in equity - - - - 9
Net loss for the period - - - - -
Total recognised
income and expenses - - - - 9
Dividends paid - - - - -
Management stock option program:
value of received services - - - - -
Transfer of treasury shares - - 1 - -
Effect of the sale of the fabricated
copper products business - - - - -
Other changes - - - (1) -
Equity on December 31, 2005 308 - 701 11 23
Attributable to equity holders of the
Company
Cumula-
tive
trans- Retai- Mino-
Trea-lation ned rity
sury diffe- ear- inte- Total
EUR million share rence nings rest equit
s y
Equity on December 31, 2003 (12) (61) 1 122 35 2 083
Cash flow hedges - - - - (2)
Fair value gains on
available-for-sale financial assets - - - - 16
Net investment hedges - (2) - - (2)
Change in translation differences - 4 - 0 4
Items recognised directly in equity - 2 - 0 17
Net profit for the financial year - - 382 4 386
Total recognised
income and expenses - 2 382 4 403
Dividends paid - - (36) - (36)
Transfers from unregistered share - - - - 0
capital
Shares subscribed with options - - - - 19
Converted bonds - - - - 4
Outokumpu Oyj shares
owned by associated companies - - 26 - 26
Management stock option program:
value of received services - - 1 - 1
Transfer of treasury shares 6 - - - 6
Other changes - - 1 (1) 0
Equity on December 31, 2004 (5) (59) 1 496 38 2 506
Cash flow hedges - - - - 6
Fair value gains on
available-for-sale financial assets - - - - 3
Net investment hedges - 1 - - 1
Change in translation differences - 19 - 0 19
Items recognised directly in equity - 20 - 0 29
Net loss for the period - - (364) 1 (363)
Total recognised
income and expenses - 20 (364) 1 (334)
Dividends paid - - (91) - (91)
Management stock option program:
value of received services - - 3 - 3
Transfer of treasury shares 3 - - - 4
Effect of the sale of the fabricated
copper products business - - - (24) (24)
Other changes - - - - (1)
Equity on December 31, 2005 (2) (38) 1 044 15 2 062
Condensed statement of cash flows
Jan-Dec Jan-Dec
EUR million 2005 2004
Net profit (loss) for the period (363) 386
Adjustments
Depreciation and amortization 232 251
Impairments 168 -
Loss from sale of the fabricated copper products 249 -
business
Other adjustments 95 94
Decrease (increase) in working capital 202 (710)
Dividends received 7 3
Interest received 21 23
Interest paid (93) (112)
Income tax paid (58) (63)
Net cash from operating activities 459 (128)
Purchases of assets (245) (478)
Proceeds from the sale of subsidiaries 489 18
Proceeds from the sale of shares in associated 290 127
companies
Proceeds from sale of other assets 13 14
Change in other investing activities 18 166
Net cash from investing activities 565 (152)
Cash flow before financing activities 1 024 (280)
Borrowings of long-term debt 136 379
Repayments of long-term debt (454) (144)
Increase (decrease) in current debt (600) 25
Dividends paid (91) (36)
Change in other financing activities (22) 11
Net cash from financing activities (1 032) 235
Adjustments 2 30
Net change in cash and cash equivalents (6) (16)
Cash and cash equivalents at the beginning of the 211 231
financial year
Foreign exchange rate effect on cash and cash 7 (4)
equivalents
Net change in cash and cash equivalents (6) (16)
Cash and cash equivalents at the end of the financial 212 211
year
Key figures
Jan-Dec Jan-Dec
EUR million 2005 2004
Operating profit margin, % 1.5 8.5
Return on capital employed, % 1.9 9.6
Return on equity, % (15.9) 16.8
Return on equity from continuing operations, % (0.1) 16.5
Capital employed at end of period 3 599 4 941
Net interest-bearing debt at end of period 1 537 2 435
Equity-to-assets ratio at end of period, % 38.2 35.8
Debt-to-equity ratio at end of period, % 74.5 97.2
Earnings per share, EUR (2.01) 2.12
Earnings per share from continuing operations, EUR (0.02) 2.08
Earnings per share from discontinued operations, EUR (1.99) 0.04
Average number of shares outstanding, in thousands 1) 181 031 180 057
Fully diluted earnings per share, EUR (2.01) 2.12
Fully diluted average number of shares, in thousands 1) 181 140 180 172
Equity per share at end of period, EUR 11.31 13.65
Number of shares outstanding at end of period,
in thousands 1) 181 032 180 752
Capital expenditure, continuing operations 174 414
Depreciation, continuing operations 216 191
Average personnel for the period, continuing operations 11 517 11 787
1) The number of own shares repurchased is excluded.
NOTES TO THE INCOME STATEMENT AND BALANCE SHEET
Outokumpu has applied the following new International Financial
Reporting Standards (IFRS) as of January 1, 2005: IFRS 2 (Share-
based Payment) and IFRS 5 (Discontinued Operations). IFRS 5 has been
applied to Outokumpu Copper and it is specified in a separate note:
Discontinued operations and assets held for sale. Based on the
revised IAS 1 standard, Outokumpu has presented from the second
quarter 2005 onwards market price gains and losses above operating
profit instead of financial income and expenses. Furthermore,
application of International Financial Reporting Interpretation
Committee's (IFRIC) interpretation IFRIC 3 (Emission Rights) has
been reversed in June 2005.
Share-based payment
IFRS 2 has been applied for the 2003 option program and comparative
figures have been restated. The terms and conditions of the option
program are described in detail in the annual report 2004 and below
under the note Shares and share capital. The options are valued at
fair value on the grant date by using the Black-Scholes-Merton
option pricing model. The total estimated value of the program is
EUR 6 million. This value is recognized as an expense in the income
statement during the vesting periods.
Reclassification of market price gains and losses
Based on the revised IAS 1 standard, Outokumpu has presented from
the second quarter 2005 onwards gains and losses on derivative
instruments above operating profit, and in financial income and
expenses only when the derivative instrument is assigned to
financial assets or liabilities. Exchange gains and losses from
accounts receivable and payable have also been reclassified from
financial income and expenses above operating profit. The
comparative figures have been restated accordingly. The
reclassification had no effect on the Group´s net profits for the
financial periods.
Emission allowances
As of January 1, 2005 Outokumpu applied IFRIC Interpretation 3 in
accounting for carbon dioxide (CO2) emission allowances. In June
2005, the International Accounting Standards Board (IASB) decided to
withdraw IFRIC 3 with immediate effect. Following the decision
Outokumpu has changed the accounting treatment for emission
allowances. Accounting for CO2 allowances is based on current IFRS
standards where purchased CO2 allowances are accounted for as
intangible assets at cost, whereas CO2 emission allowances received
free of charge are accounted for at nominal value, i.e. at zero. A
provision to cover the obligation to return emission allowances is
recognized provided that emission allowances received free of charge
will not cover the actual emissions. Consequently the possible
effect in operating profit will reflect the difference between what
has been emitted and the received emission allowances. The effect of
IFRIC 3 on the reported first quarter operating profit was negative
EUR 0.2 million. This amount has been reversed in June 2005. At the
end of December, emission allowances are not reflected in
Outokumpu's balance sheet because no allowances have been purchased
and actual emissions in 2005 were lower than the amount of received
allowances for 2005.
Shares and share capital
The total number of Outokumpu Oyj shares was 181 250 555 and the
share capital amounted to EUR 308.1 million on December 31, 2005.
Outokumpu Oyj held 218 603 treasury shares on December 31, 2005 with
a total account equivalent value of EUR 0.4 million. This
corresponded to 0.1% of the share capital and the total voting
rights of the Company on December 31, 2005.
The Annual General Meeting held in 2003 passed a resolution on a
stock option program for management. Under the terms and conditions
of the stock option program, a total of 5 100 000 stock options may
be issued, entitling holders thereof to subscribe for 5 100 000 new
shares in the Company in the period 2006 to 2011.
In February 2004, the Board of Directors confirmed that a total of
742 988 stock options 2003A be distributed to 116 persons in
management positions of Outokumpu. The maximum number of 2003A stock
options was 1 700 000. Members of the Group Executive Committee
received 62% and other key persons 45.25% of the maximum number of
2003A stock options. The number of 2003A stock options distributed
was decided on the basis of the earnings criteria established in
June 2003, and which were the Groups earnings per share and share
price performance outperforming the share price trend of peer
companies. The additional earnings criterion for Group Executive
Committee members was the Groups gearing. Currently altogether 684
191 Outokumpu Oyj shares can be subscribed for with the 2003A stock
options between September 1, 2006 and March 1, 2009. In accordance
with the terms and conditions of the option program, the
subscription price for a stock option was EUR 10.70 per share, with
annual dividends being deducted.
On February 16, 2005, the Board of Directors confirmed that a total
of 1 148 820 stock options 2003B be distributed to 130 persons in
management positions in Outokumpu. The maximum number of 2003B stock
options was 1 700 000. Members of the Group Executive Committee
received 55.2% and other key persons 75% of the maximum number of
2003B stock options. The number of 2003B stock options distributed
was decided on the basis of the earnings criteria established in
February 2004, and which were the Groups earnings per share and
share price performance outperforming the share price trend of peer
companies. The additional earnings criterion for Group Executive
Committee members was the Groups gearing. Currently altogether 1
107 570 Outokumpu Oyj shares can be subscribed for with the 2003B
stock options between September 1, 2007 and March 1, 2010. In
accordance with the terms and conditions of the option program, the
subscription price for a stock option was EUR 13.56 per share, with
annual dividends being deducted.
In March 2005, the Board of Directors established the earnings
criteria on the basis of which stock options 2003C will be
distributed to 158 key persons of the Outokumpu Group in spring
2006. The earnings criteria comprise the development of the Groups
total shareholders return (TSR) compared to a peer group, operating
profit (EBIT), and additionally gearing for Group Executive
Committee members. A total maximum of 1 700 000 Outokumpu Oyj shares
can be subscribed for with the 2003 stock options between September
1, 2008 and March 1, 2011. The current maximum number of 2003C stock
options to be distributed is 1 160 000 shares. Subscription price
for a 2003C stock option will be the trading volume weighted average
of the Outokumpu share on the Helsinki stock exchange between
December 1, 2005 and February 28, 2006.
As a result of the share subscriptions with the 2003 stock options,
and if the 2003C stock options are fully exercised, Outokumpu Oyjs
share capital may be increased by a maximum of EUR 5 017 994 and the
number of shares by a maximum of 2 951 761 shares. The shares that
can be subscribed with the 2003 stock options correspond to 1.6% of
the Company's shares and voting rights.
Authorizations of the Board of Directors
In 2005, the Board of Directors utilized once its authorization to
transfer the Companys own shares granted by the Annual General
Meeting in 2004. On February 14, 2005, Outokumpu Oyj transferred a
total of 279 930 of treasury shares to the persons participating in
the share remuneration scheme for the management.
The Board of Directors has a valid authorizations granted by the
Annual General Meeting of April 5, 2005 to increase the Companys
share capital by issuing new shares, stock options or convertible
bonds. The share capital may be increased on one or several
occasions by no more than EUR 30 800 000 in total. Accordingly, an
aggregate maximum of 18 117 647 shares, having the account
equivalent value of EUR 1.70 each, may be issued. The Board of
Directors is authorized to decide who will have the right to
subscribe for the new shares, stock options or convertible bonds.
The Board of Directors may deviate from the shareholders' pre-
emptive subscription right, provided that such deviation is
justified by an important financial reason for the Company, such as
strengthening the Company's capital structure or financing corporate
acquisitions or restructurings. The Board of Directors decides the
subscription price and the other terms and conditions of the issue
of shares, stock options or convertible bonds. The Board of
Directors may decide that the subscription price for new shares be
paid by means of contribution in kind, set-off or otherwise subject
to specific terms and conditions determined by the Board of
Directors. The authorization is valid until the Annual General
Meeting in 2006, however not longer than one year from the decision
of the General Meeting. By February 2, 2006 the Board of Directors
had not used this authorization.
The Board of Directors has a valid authorizations granted by the
Annual General Meeting of April 5, 2005 to repurchase the Companys
own shares. Shares may be repurchased for improving of the Company's
capital structure or to be used as consideration when acquiring
assets for the Company's business or as consideration in possible
corporate acquisitions, in the manner and to the extent decided by
the Board of Directors. Repurchased shares may also be used as a
part of incentive and bonus schemes directed to the personnel of the
Company. The maximum number of shares to be repurchased is 9 000
000. The number of own shares in the Companys possession may not
exceed 5 % of the total amount of the Companys shares. Shares may
be repurchased pursuant to a decision of the Board of Directors
through purchases in public trading at the Helsinki stock exchange
at the prevailing market price. The purchase price shall be paid to
the sellers within the time limit provided in the rules of the
Helsinki stock exchange and the Finnish Central Securities
Depository Ltd. The shares shall be repurchased with distributable
funds and accordingly repurchasing will reduce distributable equity
of the Company. As the number of shares to be repurchased is limited
as explained above and as the Company has only one class of shares,
repurchases of own shares are not likely to have a significant
impact on the relative holdings or voting rights between
shareholders of the Company. Since shares will be repurchased in
public trading at the Helsinki stock exchange without knowledge of
the sellers' identity, it is not possible to determine whether and
to what extent the repurchase could affect the proportionate
holdings of persons that are closely connected to the Company in the
meaning of chapter 1, section 4, subsection 1 of the Finnish
Companies Act. The Board of Directors is authorized to decide on
other matters and measures related to the repurchasing of own
shares. The authorization is valid until the Annual General Meeting
in 2006, however not longer than one year from the decision of the
General Meeting. By February 2, 2006 the Board of Directors had not
used this authorization.
The Board of Directors has a valid authorizations granted by the
Annual General Meeting of April 5, 2005 to transfer the Companys
own shares. The maximum number of shares to be transferred is 9 300
000. Shares may be transferred on one or several occasions. The
Board of Directors shall be authorized to decide on the recipients
of the shares and the procedure and terms to be applied. The Board
of Directors may decide to transfer shares in deviation of the pre-
emptive right of the shareholders to the Companys shares. Shares
can be transferred as consideration when acquiring assets for the
Company's business or as consideration in possible corporate
acquisitions, in the manner and to the extent decided by the Board
of Directors. The Board of Directors may decide to sell shares
through public trading at the Helsinki stock exchange in order to
obtain funds for the Company for investments and possible corporate
acquisitions. Shares can also be transferred as a part of incentive
and bonus schemes directed to the personnel of the Company,
including the Chief Executive Officer and his/her deputy. Except as
separately authorized, the Board of Directors may not deviate from
the shareholders' pre-emptive right to shares in favor of persons
that are closely connected to the Company in the meaning of chapter
1, section 4, subsection 1 of the Finnish Companies Act. The
transfer price may not be less than the fair market value of the
shares at the time of the transfer set in public trading at the
Helsinki stock exchange. The consideration can be paid by means of
contribution in kind, set-off or otherwise subject to specific terms
and conditions determined by the Board of Directors. The Board of
Directors is authorized to decide on other matters and measures
related to the transfer of own shares. The authorization is valid
until the Annual General Meeting in 2006, however not longer than
one year from the decision of the General Meeting. By February 2,
2006 the Board of Directors had not used this authorization.
Discontinued operations and assets held for sale
On April 5, 2005 Outokumpu and Nordic Capital signed a sales and
purchase agreement according to which Outokumpu sold its fabricated
copper products business to Nordic Capital. The sale was finalized
on June 7, 2005. The scope of the transaction comprised the
following businesses of the former Outokumpu Copper business area:
Americas, Europe, Automotive Heat Exchangers, Appliance Heat
Exchanger & Asia, including 100% of Outokumpu Heatcraft, and the
Forming equipment businesses. Sales in 2004 by the divested
businesses totaled EUR 1 684 million and the number of personnel was
6 400 at the year end. Outokumpu Copper Tube and Brass business was
excluded from the transaction and comprises European sanitary and
industrial tubes, including air-conditioning and refrigeration tubes
in Europe, as well as brass rod.
The total consideration received EUR 612 million comprised a cash
component of EUR 512 million and a USD-denominated long-term
subordinated vendor note of EUR 100 million. Outokumpu recorded a
capital loss of EUR 252 million from the disposal. An EUR 86 million
impairment loss on the remaining tube and brass business has also
been recognized based on the managements valuation of the business.
As a result of the Finnish participation exemption tax rules, the
losses are not tax deductible. The whole former Outokumpu Copper
business area has been classified as a discontinued operation. The
EUR 360 million loss from discontinued operations consists of the
net result of the fabricated copper products business in the first
quarter of 2005, the EUR 252 million loss on the sale to Nordic
Capital and the impairment loss of EUR 86 million recognized for the
tube and brass business as well as its result for 2005. The loss
from discontinued operations is recorded in the income statement on
a single line after the profit from continuing operations. The
assets and liabilities of Outokumpu Copper Tube and Brass are
presented as held for sale. A turnaround plan to improve
profitability has been initiated and Outokumpu has stated its
intention to divest the tube and brass business.
Specification of discontinued operations
and assets held for sale
Income statement
Jan-Dec Jan-Dec
EUR million 2005 2004
Sales 921 2 050
Expenses (927) (1 978)
Operating profit (6) 72
Net financial items (10) (35)
Profit/ (loss) before taxes (16) 37
Taxes (4) (26)
Profit/ (loss) after taxes (20) 11
Impairment loss recognized on the
fair valuation of the Tube and Brass
division's assets and liabilities (86) -
Loss on the sale of the
fabricated copper products business (252) -
Taxes - -
After-tax loss recognized on the
measurement of
assets and liabilities of the disposal (338) -
group
Minority interest (1) (3)
Net profit/ (loss) for the
period from discontinued operations (360) 7
Cash flows
Jan-Dec
EUR million 2005
Operating cash flows (88)
Investing cash flows (70)
Financing cash flows 142
Total cash flows (17)
Balance sheet
Dec 31
EUR million 2005
Assets
Intangible and tangible assets 9
Other non-current assets 4
Inventories 113
Other current non-interest bearing assets 95
221
Liabilities
Provisions 21
Other non-current
non-interest bearing liabilities 3
Trade payables 49
Other current non-interest bearing 17
liabilities
89
Major non-recurring items in operating
profit
Jan-Dec Jan-Dec
EUR million 2005 2004
Gain/(loss) on the sale of the Boliden 35 (19)
shares
Fixed cost reduction program (34) -
Coil Products Sheffield closure (130) -
Release of the Finnish TEL
disability pension liability - 22
Gain on the sale of the filter business - 16
(129) 19
Income taxes
Jan-Dec Jan-Dec
EUR million 2005 2004
Current taxes (67) (50)
Deferred taxes 43 (11)
(24) (61)
Commitments
Dec 31 Dec 31
EUR million 2005 2004
Mortgages and pledges
Mortgages on land 94 110
Other pledges 8 2
Guarantees
On behalf of subsidiaries
For commercial commitments 77 81
On behalf of associated companies
For financing 4 4
Other commitments 65 -
Minimum future lease
payments on operating leases 207 146
Open derivative instruments
Dec 31 Dec 31 Dec 31 Dec 31
2005 2004 2005 2004
EUR million Net fair values Contract amounts
Currency and interest rate derivatives
Currency forwards (1) 26 1 796 1 247
Currency options
Purchased - 0 - 7
Written - 0 - 8
Currency swaps - (1) - 21
Interest rate swaps 3 (2) 432 172
Tonnes Tonnes
Metal derivatives
Copper forward and futures (1) 3 33 775 50 150
contracts
Copper options
Purchased - 0 - 20 522
Nickel forward and futures 1 1 1 608 1 758
contracts
Zinc forward and futures contracts 0 0 1 300 39 000
Aluminium forward and futures - 0 - 2 550
contracts
TWh TWh
Electricity derivatives
Traded electricity forwards and 1 0 0.1 0.1
futures
Other financial contracts 13 0 4.6 5.0
Income statement by quarter
EUR million I/04 II/04 III/04 IV/04 2004
Continuing operations:
Sales 1 196 1 283 1 143 1 500 5 122
Operating profit 129 123 69 115 436
Share of results
in associated companies 16 8 31 24 78
Financial income and (14) (7) (25) (28) (75)
expenses
Profit/(loss) before taxes 130 124 75 111 440
Income taxes (31) (17) (17) 4 (61)
Net profit/(loss) for the
period
from continuing operations 99 107 58 115 379
Net profit/(loss) for the
period
from discontinued operations 33 (12) (5) (9) 7
Net profit/(loss) for the 132 96 53 106 386
period
Attributable to:
Equity holders of the 130 95 52 105 382
Company
Minority interest 2 1 0 0 4
Major non-recurring items
in operating profit
EUR million I/04 II/04 III/04 IV/04 2004
General Stainless
Release of the Finnish TEL
disability pension - - - 13 13
liability
Coil Products Sheffield - - - - -
closure
Fixed cost reduction - - - - -
program
Specialty Stainless
Fixed cost reduction - - - - -
program
Technology
Release of the Finnish TEL
disability pension - - - 5 5
liability
Gain on the sale of
the filter business 18 (1) - (1) 16
Other operations
Release of the Finnish TEL
disability pension - - - 4 4
liability
Fixed cost reduction - - - - -
program
Coil Products Sheffield - - - - -
closure
Gain/loss on the sale of
the Boliden shares - - - (19) (19)
18 (1) - 2 19
EUR million I/05 II/05 III/05 IV/05 2005
Continuing operations:
Sales 1 456 1 589 1 191 1 317 5 552
Operating profit 121 161 (20) (179) 83
Share of results
in associated companies (1) 2 (1) 0 0
Financial income and (12) (19) (18) (13) (61)
expenses
Profit/(loss) before taxes 108 144 (39) (191) 22
Income taxes (20) (39) 8 26 (24)
Net profit/(loss) for the
period
from continuing operations 89 105 (31) (165) (3)
Net profit/(loss) for the
period
from discontinued operations (333) (8) (5) (14) (360)
Net profit/(loss) for the (244) 97 (36) (180) (363)
period
Attributable to:
Equity holders of the (245) 96 (36) (179) (364)
Company
Minority interest 1 1 0 (1) 1
Major non-recurring items
in operating profit
EUR million I/05 II/05 III/05 IV/05 2005
General Stainless
Release of the Finnish TEL
disability pension - - - - -
liability
Coil Products Sheffield - - - (127) (127)
closure
Fixed cost reduction - - - (11) (11)
program
Specialty Stainless
Fixed cost reduction - - - (21) (21)
program
Technology
Release of the Finnish TEL
disability pension - - - - -
liability
Gain on the sale of
the filter business - - - - -
Other operations
Release of the Finnish TEL
disability pension - - - - -
liability
Fixed cost reduction - - - (3) (3)
program
Coil Products Sheffield - - - (3) (3)
closure
Gain/loss on the sale of
the Boliden shares 25 - 10 - 35
25 - 10 (164) (129)
Key figures by quarter
EUR million I/04 II/04 III/04 IV/04
Operating profit margin, % 10.7 9.6 6.1 7.7
Return on capital employed, % 11.9 10.5 5.7 9.3
Return on equity, % 24.1 16.5 8.9 17.2
Return on equity,
continuing operations, % 18.1 18.6 9.7 18.7
Capital employed
at end of period 4 543 4 839 4 919 4 941
Net interest-bearing
debt at end of period 2 261 2 496 2 515 2 435
Equity-to-assets ratio
at end of period, % 33.1 32.7 33.6 35.8
Debt-to-equity ratio
at end of period, % 99.0 106.5 104.6 97.2
Earnings per share, EUR 0.73 0.52 0.29 0.58
Earnings per share from
continuing operations, EUR 0.54 0.59 0.32 0.63
Earnings per share from
discontinued operations, EUR 0.19 (0.07) (0.03) (0.05)
Average number of shares
outstanding, in thousands 1) 178 081 180 742 180 752 180 752
Equity per share at end of 12.43 12.75 13.08 13.65
period, EUR
Number of shares outstanding
at end of period, in thousands 1) 178 914 180 752 180 752 180 752
Capital expenditure,
continuing operations 133 76 91 114
Depreciation,
continuing operations 44 48 48 50
Average personnel for the period,
continuing operations 11 681 11 997 11 960 11 513
EUR million I/05 II/05 III/05 IV/05
Operating profit margin, % 8.3 10.1 (1.7) (13.6)
Return on capital employed, % 10.9 16.0 (2.0) (18.8)
Return on equity, % (41.0) 17.2 (6.4) (33.5)
Return on equity,
continuing operations, % 14.9 18.6 (5.5) (30.8)
Capital employed
at end of period 3 953 4 084 3 981 3 599
Net interest-bearing
debt at end of period 1 695 1 822 1 744 1 537
Equity-to-assets ratio
at end of period, % 35.5 37.2 38.7 38.2
Debt-to-equity ratio
at end of period, % 75.0 80.6 77.9 74.5
Earnings per share, EUR (1.35) 0.53 (0.20) (0.99)
Earnings per share from
continuing operations, EUR 0.49 0.57 (0.17) (0.91)
Earnings per share from
discontinued operations, EUR (1.84) (0.04) (0.03) (0.08)
Average number of shares
outstanding, in thousands 1) 180 901 181 032 181 032 181 032
Equity per share at end of 12.39 12.41 12.27 11.31
period, EUR
Number of shares outstanding
at end of period, in thousands 1) 181 032 181 032 181 032 181 032
Capital expenditure,
continuing operations 37 41 39 57
Depreciation,
continuing operations 53 54 54 55
Average personnel for the period,
continuing operations 11 475 11 833 11 746 11 013
1) The number of own shares repurchased is excluded.
