OUTOKUMPU POSTS SOLID FIRST-QUARTER PROFITS FROM CONTINUING OPERATIONS - SIGNIFICANT IMPROVEMENT IN
OUTOKUMPU OYJ STOCK EXCHANGE RELEASE APRIL 27, 2005 AT 1.00 PM
OUTOKUMPU POSTS SOLID FIRST-QUARTER PROFITS FROM CONTINUING
OPERATIONS - SIGNIFICANT IMPROVEMENT IN CAPITAL STRUCTURE
Following the sale of the Groups fabricated copper products
business, the operations of Outokumpu Copper have been classified as
discontinued operations and reported separately from the continuing
operations. Sales from continuing operations in January-March
amounted to EUR 1 456 million, down by 3% from the previous quarter
but 22% higher than during the comparison period in 2004. Operating
profit was EUR 111 million (IV/2004: EUR 108 million, I/2004: EUR
118 million). Net profit for the period from continuing operations
amounted to EUR 79 million (IV/2004: EUR 121 million, I/2004: EUR 92
million) and the net loss from discontinued operations amounted to
EUR 324 million. Earnings per share from continuing operations
totaled EUR 0.44 and from discontinued operations EUR 1.79 negative.
THE FIRST QUARTER IN BRIEF
- Global demand for stainless steel continued to grow in the first
quarter of 2005, but at a slower pace than in 2004. In Europe,
demand weakened and base prices declined whereas in Asia and in the
US markets held up quite well. Delivery volumes from Tornio rose by
about 15%, while total deliveries were at the level of the previous
quarter.
- The Groups comparable operating profit was EUR 90 million (IV/04:
EUR 99 million). Operating profit in Stainless improved due to a
better product mix, while Technology posted a typical first-quarter
loss.
- Net cash generated from operating activities was EUR 70 million.
At the end of March, net interest-bearing debt was markedly down to
EUR 1 695 million and gearing improved to targeted 75.0% as a result
of good cash flow and the sale of the fabricated copper products
business and the Boliden shares.
- On April 5, 2005, Outokumpu and Nordic Capital signed a sales and
purchase agreement according to which Outokumpu will sell its
fabricated copper products business, excluding the Tube and Brass
division, to Nordic Capital. The total consideration for this
transaction is EUR 599 million. Following the sale, operations by
Outokumpu Copper are classified as discontinued operations. The loss
of EUR 324 million from discontinued operations, including net
profit for the period and the EUR 238 million loss on disposal of
the sold businesses and the EUR 83 million impairment of the Tube
and Brass divisions assets and liabilities, is reported in the
first-quarter income statement separately from the profit on
continuing operations.
- In March, 30 million Boliden shares were sold reducing Outokumpus
holding to 16.1%. The proceeds from the sale amounted to EUR 115
million and resulted in a gain of EUR 25 million.
- The ramp-up of the Tornio expansion progressed according to plan,
and in March a production record was once again set by the new cold
rolling mill (RAP5). Plans are for full capacity to be technically
available in mid-2005 and the ramping-up process involves a demand-
driven approach.
- The stainless steel market situation in Europe has continued to
soften and base prices have declined clearly since the beginning of
the year. In spite of the downward trend in base prices, Outokumpus
order intake has remained firm until April. In China, growth in
order intake is slowing as a result of increased stock levels. The
ramp-up at Tornio will continue to improve Outokumpus profitability
through higher volumes and lower unit conversion costs. In response
to weakened market conditions, Outokumpu will cut production at
other stainless mills in the coming months. The Groups comparable
operating profit for the first half of 2005 is expected to be at the
same level, or somewhat lower, than in the corresponding period last
year.
CEO Juha Rantanen comments:
"Improving the capital structure and gearing ratio have been high on
our agenda for some time now. With improving operating cash flows
and the recent strategic deal to divest the fabricated copper
products business, Im pleased to see that we are now approaching
our target. This will give us greater financial strength and
flexibility in following our chosen path to become the global
number one in stainless. With the new organizational structure now
in place, we have launched the Commercial and Production Excellence
programs, and these, together with the new capacity at Tornio, will
enhance our operational and financial performance even further."
MANAGEMENT ANALYSIS OF THE FIRST-QUARTER OPERATING RESULT FROM
CONTINUING OPERATIONS
The Groups comparable operating profit EUR 90 million
The following table presents the Groups sales and comparable
operating profit (i.e. operating profit excluding non-recurring
items) from continuing operations by segment.
Group key
figures
EUR million I/04 II/04 III/04 IV/04 2004 I/05
Sales
Stainless 1 102 1 162 1 034 1 338 4 637 1 376
Technology 81 104 91 147 423 65
Other 41 39 41 42 163 44
operations
Intra-group (27) (23) (23) (26) (100) (29)
sales
The Group 1 196 1 283 1 143 1 500 5 122 1 456
Comparable
operating
profit
Stainless 120 118 81 106 425 113
Technology (9) 0 1 15 8 (10)
Other (8) (3) (7) (22) (40) (13)
operations
Intra-group (2) 3 (0) 0 1 (1)
items
The Group 101 118 75 99 394 90
Items affecting
comparability 17 (1) (3) 9 22 21
The Group,
official
operating
profit 118 117 72 108 415 111
China was the driver of global economic growth with a growth rate of
9% in the first quarter. In the US, the economic activity also
remained robust and growth was about 4%. European growth was
disappointing and averaged just to 1.5% in the period. The global
economic growth is estimated to slow down somewhat in the course of
the year.
The Groups sales were down by 3% compared with the previous
quarter. Outokumpus stainless steel deliveries were at the level of
the previous quarter but sales of Technology declined. The Groups
comparable operating profit amounted to EUR 90 million (IV/2004: EUR
99 million), a reduction of EUR 11 million compared with the
corresponding period in 2004.
Stainless posts solid profits
Outokumpu Stainless key
figures
EUR million I/04 II/04 III/04 IV/04 2004 I/05
Sales
Coil Products 849 894 767 994 3 503 1 060
Special Products 363 459 379 449 1 650 464
North America 78 94 98 98 367 102
Others (188) (285) (210) (203) (883) (250)
Outokumpu Stainless
total 1 102 1 162 1 034 1 338 4 637 1 376
Comparable
operating profit
Coil Products 102 88 69 62 320 81
Special Products 11 25 8 25 69 30
North America 5 6 5 7 22 6
Others 2 (1) (1) 12 14 (4)
Outokumpu Stainless
total 120 118 81 106 425 113
Sheffield Special Strip - - - - - (3)
restructuring
Dissolving of North - - - - - (1)
America Division
Release of the Finnish
TEL disability
pension liability - - - 13 13 -
Panteg closure - - - 7 7 -
Stelco Hardy closure - - (3) - (3) -
Outokumpu Stainless,
official operating 120 118 78 126 442 109
profit
Operating capital
at the end of period 3 757 3 965 4 046 4 108 4 108 4 103
Deliveries of
main products
(1 000 tonnes)
Cold rolled 239 222 213 217 891 235
White hot strip 103 99 74 157 432 135
Other 137 123 87 116 464 115
Total deliveries 479 444 374 490 1 787 485
Development of
market prices 1)
Stainless steel
Transaction price EUR/kg 2.12 2.28 2.26 2.35 2.25 2.21
Base price EUR/kg 1.40 1.43 1.44 1.43 1.43 1.33
Conversion margin EUR/kg 0.88 0.90 0.94 0.94 0.91 0.86
Nickel USD/lb 6.68 5.67 6.35 6.38 6.27 6.96
EUR/kg 11.79 10.38 11.45 10.84 11.11 11.70
Ferrochrome (Cr-content) USD/lb 0.60 0.71 0.73 0.68 0.69 0.72
EUR/kg 1.05 1.30 1.32 1.16 1.22 1.21
Molybdenum USD/lb 8.20 14.61 16.91 25.85 16.39 32.02
EUR/kg 14.46 26.49 30.50 43.92 29.05 53.84
Iron scrap USD/t 231 211 238 265 236 240
EUR/t 185 176 195 204 190 183
1) Sources:
Stainless steel: CRU - German conversion margin (2 mm cold rolled
304 sheet), price estimate for deliveries during the period.
Nickel: London Metal Exchange (LME) cash quotations converted into
USD/lb and EUR/kg.
Ferrochrome: CRU - US imported high carbon 50-55% Cr.
Molybdenum: Metal Bulletin - molybdenum oxide - Europe.
Iron Scrap: Metal Bulletin - Iron scrap HMS1 fob Rotterdam.
Demand for stainless steel continued to grow globally in the first
quarter, but with a slower pace than in 2004. Demand in Europe
weakened but was reasonably good in Asia and in the US. The downturn
in the European market was the result of several factors: sluggish
economic growth, high stocks of stainless steel and increasing
capacity. Consequently, competition was fierce and pricing
aggressive. Raw material prices for stainless steel remained very
high, placing downward pressure on base prices. According to CRU,
the German base price for cold rolled 304 stainless steel sheet fell
in the period by 140 EUR/tonne to a level of 1 285 EUR/tonne. In
Asia, demand for stainless steel continued to grow, but some
softening of demand resulted from excess supply. Prices for both
cold rolled and hot rolled stainless steel rose in the period. China
continued to import large amounts of hot rolled material and Asian
prices remained firm. However, even in China consumption growth is
slowing compared to the increases of 30-40% seen in previous years.
A reflection of the balancing Asian markets was that the major
Chinese stainless producers decided not to raise their April prices
for cold rolled products. In the US, markets for cold rolled
products were close to balance and prices remained essentially
unchanged. Prices for quarto plate are holding up quite well, and
base prices for long products in all markets have been mostly
unchanged.
Nickel markets remained quite tight with the price averaging to USD
15 343 per tonne in the period, up by 9% from the previous quarter.
Demand for nickel was up by 4%. Most of the big nickel producers
were able to increase their production, and total nickel supply rose
by about 5%. Nickel markets are forecast to remain rather tight with
demand boosted by the increase in stainless steel production. It is
expected that a major proportion of the new nickel supply will be
used in increasing Chinese stainless steel production.
Ferrochrome markets tightened in the first quarter and moved back to
a situation of undersupply. The average price for the period was 6%
higher than in the previous quarter and 20% higher than in the first
quarter of 2004. Ferrochrome markets are forecast to remain tight,
and contract prices rose by Usc 5/lb for second-quarter deliveries.
In addition to growing demand from stainless steel production, the
appreciation of the South African rand, booming coke prices and the
high cost of sea freight have put upward pressure on ferrochrome
prices. Molybdenum prices continued to rise and were 24% higher than
in the previous quarter. Iron scrap prices were down by 10% compared
to October-December 2004.
Stainless sales were 3% higher than in the previous quarter and
amounted to EUR 1 376 million. Deliveries from Tornio were up by
about 15%, while total delivery volumes were at the level of the
previous quarter. In response to the weakened market situation in
Europe and in order to maximize profitability, Outokumpu continued
directing sales to Asian markets. In spite of falling cold rolled
base prices, comparable operating profit improved slightly from the
previous quarter to EUR 113 million and the comparable operating
profit margin rose to 8.2% compared with 7.9% in the fourth quarter
of 2004. The main factors contributing to improved profitability
were a better product mix and reduced unit conversion costs
resulting from increased production at Tornio. High ferrochrome
prices also continued to have a positive effect on Outokumpus
profitability. In March, a comprehensive business capacity review
aimed at improved profitability was initiated in Sheffield Special
Strip. In the US, the North America divisional structure was
dissolved in the period.
Comparable operating profit for January-March was EUR 7 million
lower than in the first quarter of 2004. Coil Products comparable
operating profit declined mainly due to lower base prices and a
larger share of white hot strip deliveries during the first quarter
of 2005. In the corresponding period last year, profits were also
boosted by inventory gains due to timing differences between the
alloy surcharge and inventory turnover. Comparable operating profit
of Special Products improved as a result of 20% higher ferrochrome
prices compared to January-March 2004. The profitability of the Hot
Rolled Plate business unit also improved significantly.
At Tornio, production records were set in March at the new melt
shop, hot rolling mill and the new cold rolling mill (RAP5). Ramp-up
of the Tornio expansion is progressing according to plan and full
capacity is planned to be technically available in mid-2005. The
ramping-up process involves a demand-driven approach.
The Commercial and Production Excellence programs to improve
operational performance were launched at the beginning of April.
Commercial Excellence emphasizes a customer-focused business
approach, in which the goal is to continuously improve the managing
of customer relations and achieve a leading position in customer
service that distinguishes Outokumpu from its competitors. The
program includes several parallel projects, which will be carried
out in phases. Production Excellence is a consistent way of acting,
improving occupational safety, enhancing efficiency and productivity
as well as reducing costs at all mills. The World Class Operations
Management (WCOM) tool, which has been very successful in several
other industries, will be adopted. This tool enables employees and
teams to recognize gaps in performance, for example, in delivery
reliability and assist the development and implementation of
improvement processes. Three pilot projects have started at Tornio,
Avesta and Sheffield. The project phase of the Production Excellence
program covering all the production sites and major service centers
will be completed within three years.
The stainless steel market situation in Europe has weakened and base
prices have declined clearly since the beginning of the year.
Outokumpus order stock is still at the normal level. There are,
however, some speculative elements in buying activity by European
stockists due to the high and volatile prices of alloying elements.
In China, the growth in demand is also slowing as a result of
increased stock levels. The ramp-up at Tornio will continue to
improve Outokumpus profitability through higher volumes and lower
unit conversion costs. In response to weakened market conditions,
Outokumpu will cut production at other stainless mills in the coming
months.
Outokumpu Stainless comparable operating profit for the first half
of 2005 is expected to be close to the last years level.
Technology records a loss
Outokumpu Technology key
figures
EUR million I/04 II/04 III/04 IV/04 2004 I/05
Sales 81 104 91 147 423 65
Comparable operating (9) 0 1 15 8 (10)
profit
Release of the Finnish
TEL disability
pension liability - - - 5 5 -
Gain on the sale of
the filter business 18 (1) - (1) 16 -
Technology, official
operating profit 9 (1) 1 19 29 (10)
Operating capital
at the end of period 27 45 29 39 39 40
Order backlog
at the end of period 390 336 423 458 458 490
Outokumpu Technologys sales were down compared to the first quarter
in 2004, primarily for some technical reasons related to stricter
revenue recognition criteria. The comparable operating loss was EUR
10 million. This follows the pattern seen in previous years where
profit is generated toward the end of the year. The weak first-
quarter performance has not changed the positive outlook for the
year as a whole. Technologys order backlog has continued to grow
and reached a record level of EUR 490 million at the end of March.
The most significant new orders booked during the quarter were: a
copper concentrator technology package for ZAO Ormet´s project in
Kazakstan; ferrous technologies for Gol-e-Gohar in Iran;
pyrometallurgy technology for Goro Nickel in New Caledonia; and
conceptual engineering for copper smelting at Codelcos Chuquicamata
plant in Chile. Negotiations in connection with several new
contracts are well advanced.
In April, UPM, Outokumpu Technology and Finnish Industry Investment
established a joint venture company to produce high-quality radio
frequency identification (RFID) antennas and develop associated
production technologies. This joint venture is the worlds first
producer specializing in RFID antennas aimed at global markets.
Outokumpu Technologys shareholding in the new company is 28%.
Antenna production is scheduled to begin in the fall of 2005.
High metals prices indicate that investment activity within the
metals and mining industry remains robust, and Outokumpu
Technologys order backlog is forecast to be strong throughout the
year. Based on this strong order backlog, the comparable operating
profit is expected to be slightly better than in 2004.
Other operations
Other operations key figures
EUR million I/04 II/04 III/04 IV/04 2004 I/05
Sales 41 39 41 42 163 44
Comparable
operating profit (8) (3) (7) (22) (40) (13)
Release of the
Finnish
TEL disability
pension liability - - - 4 4 -
Gain/loss on the
sale
of the Boliden - - - (19) (19) 25
shares
Adjustment to the
Boliden transaction (1) - - - (1) -
Other operations,
official
operating profit (9) (3) (7) (37) (56) 12
Operating capital
at the end of 83 75 83 77 77 89
period
Other operations consists of activities outside the primary
businesses as well as industrial holdings. Business development
costs and Corporate Management expenses not allocated to the
businesses are also reported under Other operations. The EUR 25
million non-recurring gain on the sale of the Boliden shares is
recognized in the first quarter.
The attachments present the interim review by the Board of Directors
as well as accounts.
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 web cast today at 3.00 pm
A combined news conference, conference call and live webcast
concerning the first-quarter interim report will be held today on
April 27, 2005 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 Akseli Gallen-
Kallela, Pohjoisesplanadi 29, 00100 Helsinki, Finland.
To participate via a conference call, please dial in 5-10 minutes
before the beginning of the event:
+44 20 7162 0187 (UK) or +1 334 323 6203 (US & Canada). The password
is 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 April 27, 2005 at 4.30 pm. An instant reply
service of the conference call will be available until Monday, May
2, 2005 in the following numbers: +44 20 7031 4064 (UK) or +1 954
334 0342 (US & Canada). The access code is 656 906.
OUTOKUMPU OYJ
Corporate Management
Johanna Sintonen
Vice President Investor Relations
tel. +358 9 421 2438, mobile +358 40 530 0778, fax +358 9 421 2125
e-mail: johanna.sintonen@outokumpu.com
www.outokumpu.com
INTERIM REVIEW BY THE BOARD OF DIRECTORS
Major step toward becoming number one in stainless
Sale of the majority of the fabricated copper products business to
Nordic Capital in April was a significant strategic move on
Outokumpus road to becoming a focused stainless steel and
technology company. Following the divestiture, operations by
Outokumpu Copper have been classified as discontinued operations on
March 31, 2005. The result generated by these discontinued
operations is reported as a single line in the income statement and
separately from the continuing operations. Continuing operations
consist of Outokumpu Stainless, Outokumpu Technology and Other
operations.
New IFRS standards applied
Outokumpu has applied the following new International Financial
Reporting Standards (IFRS) as of January 1, 2005: IFRS 2 (Share-
based Payment) and IFRS 5 (Non-current Assets Held for Sale and
Discontinued Operations). Furthermore, International Financial
Reporting Interpretation Committees (IFRIC) interpretation IFRIC 3
(Emission Rights) has been applied for EU emission allowances. For
Share-based Payment, the comparative figures for 2004 have been
restated.
Solid financial results from continuing operations
The Groups sales from continuing operations increased by 22% in the
first quarter compared to the corresponding period last year and
amounted to EUR 1 456 million (I/2004: EUR 1 196 million). The
increase was primarily attributable to higher stainless steel
transaction prices as delivery volumes were only marginally higher
than in the first quarter of 2004. Operating profit for the first
quarter amounted to EUR 111 million (I/2004: EUR 118 million).
Non-recurring items amounting to EUR 21 million (I/2004: EUR 17
million) include an EUR 25 million gain from sale of the Boliden
shares, an EUR 3 million provision for the Sheffield Special Strip
restructuring and an EUR 1 million provision for dissolving the
North America division. The share of results in associated companies
was EUR 1 million negative (I/2004: EUR 16 million positive) because
Boliden is no longer an associated company. Net financial expenses
were EUR 10 million (I/2004: EUR 10 million). Net profit for the
period from continuing operations amounted to EUR 79 million
(I/2004: EUR 92 million) and the net loss from discontinued
operations to EUR 324 million. Earnings per share from continuing
operations were EUR 0.44 and from discontinued operations EUR 1.79
negative. Return on capital employed was 9.9% (I/2004: 10.9%).
Fabricated copper products business sold
On April 5, 2005 Outokumpu and Nordic Capital signed a sales and
purchase agreement according to which Outokumpu will sell its
fabricated copper products business to Nordic Capital. The scope of
the transaction comprises the following divisions and businesses of
the Outokumpu Copper business area: Americas, Europe, Automotive
Heat Exchangers, Appliance Heat Exchanger & Asia and the Forming
equipment businesses. In 2004, the businesses now sold generated
sales of EUR 1 689 million and employed 6 400 people at the end of
the year. Personnel will continue with Nordic Capital under their
existing employment terms and conditions. Closing of the transaction
is expected to take place in June this year at the latest. The Tube
and Brass division is not included in the transaction. It is
Outokumpus intention to divest this business at a later date.
The total consideration for the transaction, EUR 599 million,
comprises a cash component of EUR 389 million, a USD-denominated
long-term subordinated vendor note of EUR 100 million as well as the
transfer of debt and pension liabilities with a net worth of EUR 109
million. In order to allow 100% of the joint venture company
Outokumpu Heatcraft to be transferred in connection with the
transaction, Outokumpu will use its option to buy out the 45%
minority shareholder Lennox International.
Outokumpu recognized a capital loss of EUR 238 million from the
disposal. The loss on the sale was somewhat larger than originally
announced primarily because the US dollar appreciated by about 5%
against the euro during the first-quarter of 2005. Furthermore, an
EUR 83 million impairment loss on the remaining Tube and Brass
division was recognized based on managements updated valuation of
the business. These non-cash losses have been recorded in the first
quarter results. As a result of new Finnish participation exemption
tax rules, the losses are not tax deductible. The whole Outokumpu
Copper business area has been classified as discontinued operations
on March 31, 2005. The EUR 324 loss from discontinued operations
comprises the result of Outokumpu Copper in the first quarter, the
EUR 238 million loss resulting from the sale to Nordic Capital, and
the impairment loss of EUR 83 million recognized on the Tube and
Brass division. This loss from discontinued operations is recorded
in the income statement on a single line after the profit from
continuing operations.
Outokumpu has de-consolidated the assets sold to Nordic Capital at
the end of the first quarter and presented the assets and
liabilities of the Tube and Brass division as held for sale. The
Tube and Brass division posted a break-even operating profit in the
first quarter and the operating capital of the division was EUR 114
million.
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.
Shareholding in Boliden reduced to 16.1%
In March, Outokumpu sold 30 000 000 Boliden shares to institutional
investors. The proceeds from the sale amounted to EUR 115 million,
and Outokumpus holding in Boliden fell from 26.5% to 16.1%. An EUR
25 million non-recurring tax-free gain was recognized on the sale.
The remaining stake is regarded as an industrial holding in Boliden
with whom Outokumpu has a comprehensive technology cooperation
agreement. At the end of March, the market value of the 16.1%
shareholding in Boliden was about EUR 166 million.
Capital structure strengthened markedly
Net cash generated from operating activities was EUR 70 million
(I/2004: EUR 170 million negative).
As a result of the good cash flow, divestiture of the fabricated
copper products businesses and the sale of shares in Boliden, net
interest-bearing debt fell to EUR 1 695 million (Dec. 31, 2004: EUR
2 435 million). The purchase money claim from Nordic Capital and the
net assets of the Tube and Brass division have been regarded as
interest-bearing assets.
At the end of March, the Groups equity-to-assets ratio stood at
35.5% (Dec. 31, 2004: 35.8%). The gearing ratio improved to the
target level, and was 75.0% (Dec. 31, 2004: 97.2%).
In Janurary - March, capital expenditure of continuing operations
amounted to EUR 37 million (I/2004: EUR 133 million). Capital
expenditure for 2005 is expected to total about EUR 300 million.
Environment, heath and safety
The EU emissions trading system started in January and allowances
have been distributed to the plants involved. Outokumpus sites
covered by EU emissions trading are the stainless steel production
plants in Tornio, Finland as well as in Avesta and Degerfors,
Sweden. The Sheffield melt shop has utilized the opt-out from the EU
system and will work under Britains Climate Change Levy system.
Emissions and discharges were below permission levels at Outokumpus
sites during the first quarter.
This year is the second group-wide safety theme year. A safety
target for the Group of no more than 5 accidents per million man-
hours before 2009 has been set. In the first quarter, the accident
rate fell to 17 per million man-hours (2004: 18). In Outokumpu
Stainless the rate was 14 per million man-hours (2004: 20) and in
Outokumpu Copper the rate was 20 per million man-hours (2004: 25).
No major accidents were reported during the first quarter.
Annual General Meeting of April 5, 2005
The Annual General Meeting (AGM) approved a dividend of EUR 0.50 per
share for 2004. Total dividends of EUR 91 million were paid on April
15, 2005. The AGM also authorized the Board of Directors to increase
the Companys share capital as well as to repurchase and to transfer
the Companys own shares. The Boards authorizations are explained
in more detail in the notes to the interim accounts. Furthermore,
the AGM approved amendments to the Articles of Association and a
proposal to establish a shareholders nomination committee.
PricewaterhouseCoopers Oy, Authorized Public Accountants, was re-
appointed the Companys Auditor, with Mr. Markku Marjomaa as the
audit partner in charge.
The AGM decided to amend Article 7 of the Company's Articles of
Association to the effect that a person who has reached the age of
68 years cannot be elected to the Board of Directors and, in
addition, that the Chairman and Vice Chairman of the Board of
Directors be elected by the General Meeting. 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 to
seats on the Board of Directors, and Mr. Jukka Härmälä, Mr. Juha
Lohiniva and Ms. Anna Nilsson-Ehle were elected as new members for
the term expiring at the close of the next AGM. The AGM elected
proactively Mr. Heimo Karinen as Chairman of the Board of Directors
and Mr. Ole Johansson as Vice Chairman. These decisions are now in
effect as amendments to the Articles of Association have been
registered with the Finnish Trade Register.
At its first meeting, the Board of Directors appointed two permanent
committees consisting of Board members - the Audit Committee and the
Nomination and Compensation Committee. Members of the Board Audit
Committee are Mr. Ole Johansson (Chairman), Mr. Jorma Huuhtanen and
Ms. Leena Saarinen. Members of the Board Nomination and Compensation
Committee are Mr. Heimo Karinen (Chairman), Mr. Evert Henkes, Mr.
Arto Honkaniemi and Mr. Jukka Härmälä.
New organization kicks off on April 1, 2005
The new Group Executive Committee responsible for direct running of
the stainless steel business is as follows: 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).
The Groups stainless business has been organized into two divisions
according to product types as well as into a separate Outokumpu
Stainless Tubular Products (OSTP) business unit. The new General
Stainless division comprises three business units: Tornio Works,
Coil Products Sheffield, and Sheffield Primary Products. The new
Specialty Stainless division consists of five business units: Avesta
Works, Thin Strip, Hot Rolled Plate, Long Products and Sheffield
Special Strip. Corporate management and support functions are in the
process of being realigned to support the new management system and
business organization.
At the beginning of April, some 130 representatives from the
business units, sales companies and corporate management gathered at
the Outokumpu Executive Forum to launch the Operational Excellence
programs. Outokumpus Commercial Excellence means customer-focused
business. The goal is to improve the managing of customer relations
and thereby achieve a leading position in customer service that
distinguishes Outokumpu from its competitors. Production Excellence
is a consistent way of acting, improving occupational safety,
enhancing efficiency and productivity as well as reducing costs at
all mills. As both programs have ambitious targets and include
extensive training throughout the organization the focus is on
achieving significant results in the long term.
Outokumpu Technology is managed at arms length as a stand-alone
business through the board work of Outokumpu Technology. The Tube
and Brass division is also managed separately and it is reported as
discontinued operation until disposal. These businesses report to
the Deputy CEO.
Outokumpus new structure will be implemented in the Groups
financial reporting in the second quarter of 2005. Comparative
information for 2004 and the first quarter of 2005 according to the
new organization will be published in June.
Markets under pressure in the coming months
The stainless steel market situation in Europe has continued to
soften and base prices have declined clearly since the beginning of
the year. In spite of the downward trend in base prices, Outokumpus
order intake has remained firm until April. There are some
speculative elements in buying activity by European stockists due to
the high and volatile prices of alloying elements. In China, the
growth in demand is also slowing as a result of increased stock
levels. In spite of the current market conditions, longer-term
market fundamentals remain quite healthy. The ramp-up at Tornio will
continue to improve profitability through higher volumes and lower
unit conversion costs although lower base prices largely mitigate
this positive effect on profitability. In response to weakened
market conditions, Outokumpu will cut production at other stainless
mills in the coming months. On the basis of the progress in ramping-
up of capacity at Tornio, the product mix is set to improve further
and the increase in Outokumpus total deliveries of finished
products in 2005 is expected to be well above 20%, however,
depending increasingly on the market situation.
Based on the weakened market situation, and on the other hand, on
the progress in ramping-up of the capacity at Tornio, Outokumpus
comparable operating profit for the first half of 2005 is expected
to be at the same level, or somewhat lower, than in the
corresponding period last year.
Espoo, April 27, 2005
Board of Directors
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
INCOME STATEMENT Jan-March Jan-March Jan-Dec
EUR million 2005 2004 2004
Continuing operations:
Sales 1 456 1 196 5 122
Other operating income 26 22 24
Costs and expenses (1 370) (1 099) (4 723)
Other operating expenses (1) (2) (8)
Operating profit 111 118 415
Share of results
in associated companies (1) 16 78
Financial income
and expenses
Net interest expenses (20) (24) (89)
Market price gains and losses 11 13 27
Other financial income and
expenses (2) 1 3
Profit before taxes 99 123 433
Income taxes (20) (31) (61)
Net profit for the period
from continuing operations 79 92 372
Discontinued operations:
Net (loss), profit for the
period
from discontinued operations (324) 39 14
Net (loss), profit for the (244) 132 386
period
Attributable to:
Equity holders of the Company (245) 130 382
Minority interest 1 2 4
Earnings per share
for profit attributable
to the equity holders
of the Company:
Earnings per share, EUR (1.35) 0.73 2.12
Earnings per share, EUR - (1.35) 0.73 2.12
diluted
Earnings per share
from continuing operations
attributable to the equity
holders of the Company:
Earnings per share, EUR 0.44 0.51 2.04
Earnings per share
from discontinued operations
attributable to the equity
holders of the Company:
Earnings per share, EUR (1.79) 0.22 0.08
All figures in the accounts have been rounded and
consequently the sum of individual figures can
deviate from the presented sum figure.
BALANCE SHEET March 31 March 31 Dec 31
EUR million 2005 2004 2004
ASSETS
Non-current assets
Intangible assets 606 601 620
Property, plant and equipment 2 247 2 692 2 743
Non-current financial assets
Interest-bearing 161 618 409
Non interest-bearing 51 61 55
3 065 3 971 3 827
Current assets
Inventories 1 324 1 463 1 579
Current financial assets
Interest-bearing 229 95 70
Non interest-bearing 937 1 291 1 390
Cash and cash equivalents 147 172 211
2 637 3 021 3 250
Receivables related to
discontinued operations and
assets held for sale 729 - -
Total assets 6 431 6 992 7 077
EQUITY AND LIABILITIES
Equity
Equity attributable to the
equity holders of the Company 2 243 2 245 2 468
Minority interest 15 38 38
2 258 2 283 2 506
Non-current liabilities
Interest-bearing 1 934 1 771 1 975
Non interest-bearing 383 518 441
2 317 2 289 2 416
Current liabilities
Interest-bearing 932 1 374 1 150
Non interest-bearing 828 1 047 1 004
1 760 2 421 2 154
Liabilities associated with
assets held for sale 95 - -
Total equity and liabilities 6 431 6 992 7 077
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders
of the Company
Unregis-
tered Share Other Fair
Share share premium reser- value
EUR million capital capital fund ves reserves
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 capital 0 (0) - - -
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 - - - - 2
Fair value gains on
available-for-sale
financial assets - - - - (3)
Net investment hedges - - - - -
Emission allowances - - - - 4
Change in
translation differences - - - - -
Items recognised
directly in equity - - - - 3
Net profit for the period - - - - -
Total recognised
income and expenses - - - - 3
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 - - - (2) -
Equity on March 31, 2005 308 - 701 11 18
Attributable to equity holders
of the Company
Cumula-
tive
trans- Mino-
lation rity
Treasury diffe- Retained inte- Total
EUR million shares rences earnings rest equity
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 capital - - - - 0
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 - - - - 2
Fair value gains on
available-for-sale
financial assets - - - - (3)
Net investment hedges - 0 - - 0
Emission allowances - - - - 4
Change in
translation differences - 14 - 0 14
Items recognised
directly in equity - 14 - 0 17
Net profit for the period - - (245) 1 (244)
Total recognised
income and expenses - 14 (245) 1 (227)
Management stock
option program:
value of received services - - 0 - 0
Transfer of treasury shares 3 - - - 4
Effect of the sale
of the fabricated
copper products business - - - (24) (24)
Other changes - - - - (2)
Equity on March 31, 2005 (2) (45) 1 252 15 2 258
STATEMENT OF CASH FLOWS Jan-March Jan-March Jan-Dec
EUR million 2005 2004 2004
Net profit for the period (244) 132 390
Adjustments 306 (12) 192
Change in working capital 9 (290) (710)
Net cash generated
from operating activities 70 (170) (128)
Purchases of assets (46) (156) (473)
Proceeds from
asset disposal 629 18 327
Change in other
investing activities (39) 1 (6)
Cash flow before
financing activities 614 (307) (279)
Net cash generated
from financing activities (679) 286 235
Adjustments 2 (26) 26
Decrease in cash
and cash equivalents (64) (47) (19)
Jan-March Jan-March Jan-Dec
KEY FIGURES 2005 2004 2004
Operating profit margin, % 7.6 9.9 8.1
Return on capital employed, % 9.9 10.9 9.2
Return on equity, % (41.0) 24.1 16.8
Return on equity from
continuing operations, % 13.3 16.9 16.2
Capital employed at end
of period, EUR million 3 953 4 543 4 941
Net interest-bearing debt
at end of period, EUR million 1 695 2 261 2 435
Equity-to-assets ratio
at end of period, % 35.5 33.1 35.8
Debt-to-equity ratio
at end of period, % 75.0 99.0 97.2
Earnings per share, EUR (1.35) 0.73 2.12
Earnings per share from
continuing operations, EUR 0.44 0.51 2.04
Earnings per share from
discontinued operations, EUR (1.79) 0.22 0.08
Average number of shares
outstanding, in thousands 1) 180 901 178 081 180 057
Fully diluted
earnings per share, EUR (1.35) 0.73 2.13
Fully diluted
average number of shares,
in thousands 1) 181 080 178 516 180 172
Equity per share
at end of period, EUR 12.39 12.43 13.65
Number of shares
outstanding at end of period,
in thousands 1) 181 032 178 914 180 752
Capital expenditure of
continuing operations,
EUR million 37 133 414
Depreciation of continuing
operations, EUR million 53 44 191
Average personnel
for the period 17 443 19 433 19 761
1) The number of own shares repurchased is excluded.
NOTES TO THE INCOME STATEMENT AND BALANCE SHEET
This report is prepared in accordance with IAS 34 (Interim Financial
Reporting). Outokumpu has applied the following new International
Financial Reporting Standards (IFRS) as of January 1, 2005: IFRS 2
(Share-based Payment) and IFRS 5 (Non-current Assets Held for Sale
and Discontinued Operations). Furthermore, International Financial
Reporting Interpretation Committees (IFRIC) interpretation IFRIC 3
(Emission Rights) has been applied for EU emission allowances. IFRS
5 has been applied to Outokumpu Copper and it is specified in a
separate note: Discontinued operations and assets held for sale.
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 7.2 million. This value is recognized as an expense in the
income statement during the vesting periods.
Grant date is the date at which the entity and another party agree
to a share-based payment arrangement, being when the entity and the
counter party have a shared understanding of the terms and
conditions of the arrangement. Grant dates for the option program
are as follows: 2003A June 12, 2003, 200B February 10, 2004 and
2003C March 22, 2005.
Vesting period is the period during which all the specified vesting
conditions of a share-based payment arrangement are to be satisfied.
The vesting periods of the option program are: for 2003A June 12,
2003 to August 31, 2006, for 2003B February 10, 2004 to August 31,
2007 and for 2003C March 22, 2005 to August 31, 2008.
Applying of IFRS 2 has reduced operating profit with EUR 0.4 million
in 2003, EUR 1.7 million in 2004 and EUR 0.5 million in the first
quarter 2005.
Emission allowances
IFRIC 3 has been applied to EU emission trading scheme (ETS), which
started January 1, 2005. The scheme gives rise to an asset for
emission allowances held, a government grant and a liability for the
obligation to deliver allowances equal to actual emissions as well
as recordings of applicable deferred taxes. Receiving emission
allowances is accounted for as government grant in accordance with
IAS 20 (Accounting for Government Grants and Disclosure of
Government Assistance) i.e. it is recognized as deferred income at
current market value of the allowances at receipt and amortized in
proportion to actual and estimated emissions during the year.
Emission allowances are recognized in the balance sheet as
intangible assets according to IAS 38 (Intangible Assets) and valued
at fair value. Reductions in fair value are charged to income and
increases to equity. Liability for the obligation to deliver
emission allowances is accounted for in accordance with IAS 37
(Provisions, Contingent Liabilities and Contingent Assets). The
liability is recognized based on actual emissions and at current
market value of the emission allowances. Changes in the value of
liability are charged to income. At initial recognition of emission
allowances for 2005 on February 28, 2005, the total fair value of
the allowances was EUR 9.9 million. At the end of March, the fair
value was EUR 14.7 million. In the first quarter of 2005, the
amortization of the government grant amounted to EUR 2.6 million and
the expenses for actual emissions to EUR 2.8 million.
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 March 31, 2005.
Outokumpu Oyj held 218 603 treasury shares on March 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 March 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 700
030 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
130 070 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 2003C stock options between September
1, 2008 and March 1, 2011. The current maximum number of 2003C stock
options to be distributed is 1 190 000 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 all of the 2003C stock options are distributed, Outokumpu
Oyjs share capital may be increased by a maximum of EUR 5 134 170
and the number of shares by a maximum of 3 020 100 shares. The
shares that can be subscribed with the 2003 stock options correspond
to 1.7% of the Company's shares and voting rights.
Authorizations of the Board of Directors
During the first quarter, 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 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 no longer than one year from the decision
of the General Meeting. By April 27, 2005 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 no longer than one year from the decision of the
General Meeting. By April 27, 2005 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 no longer than one
year from the decision of the General Meeting. By April 27, 2005 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 will sell its
fabricated copper products business to Nordic Capital. The scope of
the transaction comprises the following divisions and businesses of
the Outokumpu Copper business area: Americas, Europe, Automotive
Heat Exchangers, Appliance Heat Exchanger & Asia and the Forming
equipment businesses. In 2004, the sold businesses generated sales
of EUR 1 689 million and the number of personnel was 6 400 at the
end of the year. Closing of the transaction is expected to take
place in June this year at the latest. The Tube and Brass division
is excluded from the transaction, and Outokumpus intention is to
divest the business at a later date.
The total consideration for the transaction, EUR 599 million,
comprises a cash component of EUR 389 million, a USD-denominated
long-term subordinated vendor note of EUR 100 million as well as
transfer of debt and pension liabilities with a net worth of EUR 109
million. In order to be able to transfer 100% of the joint venture
company Outokumpu Heatcraft in connection with the transaction,
Outokumpu will use its option to buy out the 45% minority
shareholder Lennox International.
Outokumpu has recognized a capital loss of EUR 238 million from the
disposal. Furthermore, an EUR 83 million impairment loss on the
remaining Tube and Brass division was recognized based on the
managements updated valuation of the business. These losses have
been recorded in the first quarter results. As a result of the
Finnish participation exemption tax rules, the losses are not tax
deductible. The whole Outokumpu Copper segment is classified as
discontinued operations on March 31, 2005. Loss from discontinued
operations, EUR 324 million, comprise the net result of Outokumpu
Copper for the first quarter, the EUR 238 million loss from the sale
to Nordic Capital and the impairment loss of EUR 83 million
recognized on the Tube and Brass division. This loss from
discontinued operations has been recorded in the income statement on
single line after the profit from continuing operations. Outokumpu
has de-consolidated the assets sold to Nordic Capital at the end of
the first quarter and presented the assets and liabilities of the
Tube and Brass division as held for sale.
Specification of discontinued
operations and assets held for sale
Income statement
Jan- Jan- Jan-
March March Dec
EUR million 2005 2004 2004
Sales 524 493 2 050
Expenses (518) (469) (1 998)
Operating profit 6 24 52
Net financial items (5) 19 (12)
Profit before taxes 1 43 40
Taxes (4) (4) (26)
(Loss), profit after taxes (3) 39 14
Impairment loss recognized
on the fair valuation of
the Tube and Brass division's
assets and liabilities (83) - -
Loss on the sale of
the fabricated copper
products business (238) - -
Taxes - - -
After-tax loss recognized
on the measurement of
assets and liabilities
of the disposal group (321) - -
Net (loss), profit for the
period
from discontinued operations (324) 39 14
Cash flows
Jan-
March
EUR million 2005
Operating cash flows (53)
Investing cash flows (11)
Financing cash flows 59
Total cash flows (5)
Balance sheet
March
31
EUR million 2005
Assets
Tangible assets 8
Inventories 100
Purchase money claim 520
Other current assets 101
729
Liabilities
Provisions 3
Other non-current liabilities 24
Trade payables 46
Other current liabilities 22
95
Non-recurring items in operating profit Jan-March Jan-March Jan-Dec
EUR million 2005 2004 2004
Gain/loss on the sale
of the Boliden shares 25 - (19)
Dissolving of the
North America division (1) - -
Sheffield Special Strip restructuring (3) - -
Release of the Finnish TEL
disability pension liability - - 22
Gain on the sale
of the filter business - 18 16
Panteg closure - - 7
Adjustment to gain
on the Boliden transaction - (1) (1)
Stelco Hardy closure costs - - (3)
21 17 22
Income taxes
Current taxes (16) (10) (50)
Deferred taxes (4) (21) (11)
(20) (31) (61)
Commitments March 31 March 31 Dec 31
EUR million 2005 2004 2004
Mortgages and pledges
To secure borrowings of Group 107 149 112
companies
Guarantees
On behalf of associated companies 4 2 4
On behalf of other parties 40 45 38
44 47 42
Minimum future lease payments
on operating leases 109 154 146
Net fair values Contract amounts
Open derivative March Dec 31 March Dec 31
instruments 31 31
2005 2004 2005 2004
EUR million
Currency and interest rate
derivatives
Currency forwards 6 26 1 769 1 247
Currency options
Purchased - 0 - 7
Written - 0 - 8
Currency swaps - (1) - 21
Interest rate swaps (1) (2) 123 172
Tonnes Tonnes
Metal derivatives
Copper forward and
futures contracts (1) 3 43 275 50 150
Copper options
Purchased 0 0 20 000 20 522
Nickel forward and
futures contracts 1 1 1 752 1 758
Zinc forward and
futures contracts (0) 0 29 125 39 000
Aluminium forward and
futures contracts 0 0 2 000 2 550
TWh TWh
Electricity derivatives
Traded electricity
forwards and futures 0 (0) 0.1 0.1
Other financial 2 0 4.5 5.0
contracts
KEY FINANCIAL INDICATORS BY QUARTER
EUR million I/04 II/04 III/04 IV/04 I/05
Continuing operations
Sales
Outokumpu Stainless
Coil Products 849 894 767 994 1 060
Special Products 363 459 379 449 464
North America 78 94 98 98 102
Others (188) (285) (210) (203) (250)
Outokumpu Stainless total 1 102 1 162 1 034 1 338 1 376
Outokumpu Technology 81 104 91 147 65
Other operations 41 39 41 42 44
Intra-group sales (27) (23) (23) (26) (29)
The Group 1 196 1 283 1 143 1 500 1 456
Operating profit
Outokumpu Stainless
Coil Products 102 88 69 77 81
Special Products 11 25 5 30 28
North America 5 6 5 7 5
Others 2 (1) (1) 12 (5)
Outokumpu Stainless total 120 118 78 126 109
Outokumpu Technology 9 (1) 1 19 (10)
Other operations (9) (3) (7) (37) 12
Intra-group items (2) 3 (0) 0 (1)
The Group 118 117 72 108 111
Share of results in
associated companies 16 8 31 24 (1)
Financial income and expenses (10) (10) (25) (15) (10)
Profit before taxes 123 116 77 117 99
Income taxes (31) (17) (17) 4 (20)
Net profit for the period
from continuing operations 92 99 60 121 79
Net profit, (loss)
for the period
from discontinued operations 39 (3) (7) (15) (324)
Net profit, (loss)
for the period 132 96 53 106 (244)
Attributable to:
Equity holders of the Company 130 95 52 105 (245)
Minority interest 2 1 0 0 1
KEY FIGURES BY QUARTER I/04 II/04 III/04 IV/04 I/05
Operating profit margin, % 9.9 9.1 6.3 7.2 7.6
Return on capital employed, % 10.9 10.0 5.9 8.7 9.9
Return on equity, % 24.1 16.5 8.9 17.2 (41.0)
Return on equity
from continuing operations, % 16.9 17.1 10.1 19.7 13.3
Capital employed
at end of period, EUR million 4 543 4 839 4 919 4 941 3 953
Net interest-bearing debt
at end of period, EUR million 2 261 2 496 2 515 2 435 1 695
Equity-to-assets ratio
at end of period, % 33.1 32.7 33.6 35.8 35.5
Debt-to-equity ratio
at end of period, % 99.0 106.5 104.6 97.2 75.0
Earnings per share, EUR 0.73 0.52 0.29 0.58 (1.35)
Earnings per share
from continuing operations, 0.51 0.54 0.33 0.67 0.44
EUR
Earnings per share
from discontinued
operations, EUR 0.22 (0.02) (0.04) (0.08) (1.79)
Average number of shares
outstanding, in thousands 1) 178 081 180 742 180 752 180 752 180 901
Equity per share
at end of period, EUR 12.43 12.75 13.08 13.65 12.39
Number of shares outstanding
at end of period,
in thousands 1) 178 914 180 752 180 752 180 752 181 032
Capital expenditure
of continuing
operations, EUR million 133 76 91 114 37
Depreciation
of continuing
operations, EUR million 44 48 48 50 53
Average personnel for the 19 433 20 122 20 013 19 475 17 443
period
1) The number of own shares repurchased is excluded.
