OUTOKUMPU?S FIRST QUARTER 2006 INTERIM REPORT ? UPTURN IN MARKET CONDITIONS, PROFITS IMPROVING
OUTOKUMPU OYJ STOCK EXCHANGE RELEASE APRIL 25, 2006 AT 1.00 PM
OUTOKUMPUS FIRST QUARTER 2006 INTERIM REPORT UPTURN IN MARKET
CONDITIONS, PROFITS IMPROVING
Outokumpus sales for January-March 2006 increased by 18% from the
previous quarter and amounted to EUR 1 548 million. Operating
profit amounted to EUR 71 million (IV/2005: EUR 179 million
negative, including EUR 164 million of non-recurring expenditure).
Net profit for the period was EUR 56 million (IV/2005: EUR 180
million negative) and earnings per share EUR 0.31. Net cash
generated from the Groups operating activities totaled EUR 37
million.
Group key figures Jan- Oct- Jan- Jan-
March Dec March Dec
2006 2005 2005 2005
Sales EUR 1 548 1 317 1 456 5 552
million
Operating profit EUR 71 (179) 121 83
million
Non-recurring items
in operating profit EUR - (164) 25 (129)
million
Profit/(loss) before EUR 66 (191) 108 22
taxes million
Net profit/(loss)
for the period
from continuing EUR 46 (165) 89 (3)
operations million
Net profit/(loss)
for the period EUR 56 (180) (244) (363)
million
Earnings per share from
continuing operations EUR 0.26 (0.91) 0.49 (0.02)
Earnings per share EUR 0.31 (0.99) (1.35) (2.01)
Net cash generated from
operating activities EUR 37 206 70 459
million
Net interest-bearing
debt
at end of period EUR 1 483 1 537 1 695 1 537
million
Debt-to-equity ratio
at end of period % 73.0 74.5 75.0 74.5
Return on capital % 8.0 (18.8) 10.9 1.9
employed
Capital expenditure,
continuing operations EUR 35 57 37 174
million
Stainless steel 1 000 510 370 485 1 647
deliveries tonnes
Average personnel
for the period,
continuing operations 10 554 11 013 11 475 11 517
THE FIRST QUARTER IN BRIEF
- During the first quarter the stainless steel market experienced
a strong increase in demand after heavy de-stocking during the
second half of 2005. Good end-user demand and re-stocking drove
the improved development in demand. Base prices have been on the
rise in both Europe and the US and prices also improved in Asia.
According to CRU, the German base prices for cold rolled 304 sheet
rose from the very low level of 1 030 EUR/tonne in December to 1
180 EUR/tonne at the end of March.
- The expanded capacity for finished products at Tornio has been
running at full load with good manufacturing performance.
- The performance improvement initiatives - commercial and
production excellence programs, closure of Coil Products Sheffield
and the fixed cost reduction program - are proceeding according to
plan.
- The Groups stainless steel deliveries increased by 38% from the
previous quarter and by 5% compared to the first quarter of 2005.
Sales rose by 18% from the previous quarter to EUR
1 548 million. The increase in sales was more modest than the
increase in deliveries because of the very low prices for
deliveries at the beginning of the year.
- Operating profit was EUR 71 million. The EUR 179 million
negative operating result in the fourth quarter of 2005 included
EUR 164 million of non-recurring expenditure. Higher volumes
together with base price increases contributed to the good
development in profits.
- Outokumpu Technology´s sales almost tripled compared to the
first quarter of 2005 and totaled EUR 170 million. The earlier
seasonally weak performance during the first quarter turned into a
solid operating profit of EUR 5 million (I/2005: EUR 7 million
negative).
- Net cash generated from operating activities totaled EUR 37
million. At the end of March, net interest-bearing debt stood at
EUR 1 483 million and gearing improved further to 73.0%.
- In February, Outokumpu and The Meade Corporation of the UK
signed and closed an agreement by which Outokumpu sold Outokumpu
Copper MKM Ltd, its brass rod mill in Aldridge, in the UK, to the
Meade Corporation. The total consideration for the transaction was
some EUR 20 million.
SHORT-TERM OUTLOOK
Strong demand for stainless steel, attributable to both healthy
end-user demand and re-stocking is continuing in the second
quarter. Outokumpus order backlog is firm and all mills are
running at full capacity for finished products. In Europe gradual
base price increases have been attained for the second quarter
deliveries, for example, the base price in Germany for cold rolled
304 sheet for June is around 200 EUR/tonne higher compared to
March.
The usually seasonally weaker third quarter is approaching with
still a good order intake. Some price increases have also been
achieved for July and August deliveries. Continuously high and
volatile nickel prices together with increased base prices are
boosting stainless steel transaction prices during the third
quarter, which may cause some uncertainty in the market.
Visibility beyond the summer period is still weak.
Higher base prices will improve profits, and Outokumpus operating
profit for the second quarter of 2006 will be substantially better
than in the first quarter. Operating profit for the first half of
the year, however, is expected to be lower than in the
corresponding period last year due to low base price levels at the
beginning of this year.
CEO Juha Rantanen:
"I regard the first-quarter development as encouraging. We are
experiencing positive market sentiment, which confirms the long-
term growth prospects for stainless steel demand. At the same
time, our internal development programs are progressing well; our
cost-cutting initiatives are on track and the excellence programs
are beginning to show their potential. In the cyclical stainless
steel business our internal measures will ensure that Outokumpu is
able to meet its financial goals even in a tougher market
environment."
MANAGEMENT ANALYSIS OF THE FIRST QUARTER OPERATING RESULT
Group key figures
EUR million I/05 II/05 III/05 IV/05 2005 I/06
Sales
General Stainless 1 286 1 158 813 816 4 073 1 013
Specialty Stainless 785 819 584 552 2 739 650
Technology 65 158 144 223 590 170
Other operations 55 64 58 60 237 61
Intra-group sales (736) (610) (408) (335) (2 088) (346)
The Group 1 456 1 589 1 191 1 317 5 552 1 548
Operating profit
General Stainless 71 93 (55) (170) (62) 43
Specialty Stainless 55 65 14 (23) 110 22
Technology (7) 4 6 23 26 5
Other operations 9 (3) 9 (7) 8 2
Intra-group items (6) 3 5 (1) 1 (0)
The Group 121 161 (20) (179) 83 71
Stainless steel
deliveries
1 000 tonnes I/05 II/05 III/05 IV/05 2005 I/06
Cold rolled 233 226 195 212 867 286
White hot strip 135 126 61 68 391 104
Other 117 106 77 89 390 121
Total deliveries 485 459 333 370 1 647 510
Market prices and
exchange rates
I/05 II/05 III/05 IV/05 2005 I/06
Market prices 1)
Stainless steel
Base price EUR/t 1 332 1 217 1 113 1 035 1 174 1 127
Alloy surcharge EUR/t 875 956 1 012 923 942 844
Transaction price EUR/t 2 207 2 173 2 125 1 958 2 116 1 971
Nickel USD/t 15 348 16 411 14 567 12 649 14 744 14 810
EUR/t 11 704 13 031 11 941 10 644 11 851 12 318
Ferrochrome (Cr- USD/lb 0.78 0.78 0.73 0.68 0.74 0.63
content) EUR/kg 1.31 1.37 1.32 1.26 1.32 1.16
Molybdenum USD/lb 32.02 35.62 31.74 30.66 32.51 23.38
EUR/kg 53.84 62.35 57.37 56.89 57.61 42.86
Steel scrap USD/t 221 193 208 193 204 200
EUR/t 169 153 170 162 164 167
Exchange rates
EUR/USD 1.311 1.259 1.220 1.188 1.244 1.202
EUR/SEK 9.074 9.208 9.366 9.473 9.282 9.352
EUR/GBP 0.694 0.679 0.683 0.680 0.684 0.686
1) Sources of market prices:
Stainless steel: CRU - German base price, alloy surcharge and
transaction price (2 mm cold rolled 304 sheet), estimates for
deliveries during the period
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 HMS 1&2 fob Rotterdam
Upturn in the stainless steel market
Global economic growth continued favorable during the first
quarter. Growth in China was some 10%, growth in the US was 3% and
growth in Europe accelerated to 2%. Stainless steel markets
improved considerably during the period. Underlying demand
continued to grow and the earlier de-stocking of stainless steel
turned into a re-stocking phase. Global apparent consumption of
stainless steel flat products increased by some 10% from the
previous quarter. In Europe, orders for stainless steel increased
by 15-20% in the period. European base prices turned upwards in
January for the first time since May 2004. The base price in
German markets rose by a total of 150 EUR/tonne during the period.
The average German base price was 1 127 EUR/tonne, up by 9% from
the previous quarter, but still 15% below the first quarter of
2005.
Order intake was strong for Outokumpus stainless steel coil and
sheet products as well as for hot rolled plate. The European
market for tubular products picked up and prices have risen
together with markedly increased demand. Demand for long products
and thin strip products was good but price development has been
rather tepid. The Groups stainless steel order backlog is firm
and delivery times are extended. All mills are running at full
capacity for finished products to fulfill orders.
Prices of alloying materials for stainless steel remained high in
the period due to increased demand from stainless steel producers.
The average price of nickel was 14 810 USD/tonne, an increase of
17% from the previous quarter. Nickel prices have continued to
rise and exceeded 18 000 USD/tonne in mid-April. Oversupply in the
ferrochrome market moved close to balance. The average price of
ferrochrome in the period was 0.63 USD/lb, down 7% from the
previous quarter. Towards the end of the period, spot prices for
ferrochrome began to recover and the contract price for the second
quarter of 2006 was agreed at 0.70 USD/lb. The price of molybdenum
declined by 24% from the previous quarter. The price of steel
scrap increased by 3%. After falling in January, the alloy
surcharge has increased month-on-month from February to May.
Improvement actions and excellence programs proceeding well
The closure of Coil Products Sheffield proceeded ahead of schedule
and the majority of the employees have left the company by the end
of March. The annual profit improvement resulting from the closure
is expected to be some EUR 50 million from the second half of 2006
onwards.
The fixed cost reduction program progressed according to plan, the
annual savings target is EUR 100 million. As announced earlier,
the reduced fixed cost running rates will be in place during the
second half of 2006 with full effect in 2007. Targeted savings are
divided 50/50 between personnel and non-personnel related costs.
The commercial excellence program is focusing on improving
Outokumpu´s understanding on its customers and seeking ways of
deepening relationships. In order to facilitate this, training of
key account managers has been started. In the production
excellence program the first pilot projects covering the melt
shops were completed in March and implementation in the Groups
cold rolling operations has begun. As announced earlier,
realization of the combined benefits from these long-term
operational enhancement programs are expected in future years and
are expected to total EUR 40 million in 2007, EUR 80 million in
2008 and EUR 160 million on an annual basis thereafter.
A Strategic Leadership Program (SLP) started at the end of March
with 62 global managers as participants. The main target of this
program is to develop Outokumpus leadership behavior to support
the execution of the Groups strategy. SLP is an action-learning
program based on Outokumpus newly defined leadership principles
with focus on learning to lead people in ways that help, for
example, the excellence programs succeed and achieve sustainable
improvements.
Operating profit improved markedly
The Groups sales totaled EUR 1 548 million, 18% higher than in
the fourth quarter of 2005. Stainless steel deliveries increased
by 38% to 510 000 tonnes. Sales by General Stainless and Specialty
Stainless were boosted by higher volumes, but low transaction
prices at the start of the year partly mitigated the increase.
The Groups operating profit improved markedly to EUR 71 million.
The EUR 179 million negative operating profit in the fourth
quarter of 2005 included EUR 164 million of non-recurring
expenditure consisting of EUR 130 million costs related to the
closure of Coil Products Sheffield and EUR 34 million costs
related to the fixed cost reduction program. Increased deliveries
of stainless steel and higher base prices were the main
contributors to the positive turnaround.
General Stainless significant increase in deliveries and profits
General Stainless
EUR million I/05 II/05 III/05 IV/05 2005 I/06
Sales 1 286 1 158 813 816 4 073 1 013
of which Tornio Works 699 657 476 467 2 299 652
Operating profit 71 93 (55) (170) (62) 43
of which Tornio Works 59 74 (36) (48) 49 37
Operating capital
at the end of period 2 920 2 901 2 820 2 484 2 484 2 397
Deliveries of main
products (1 000 tonnes)
Cold rolled 210 183 162 179 734 246
White hot strip 102 89 41 53 284 74
Other 238 192 105 97 631 128
Total deliveries of the 550 463 307 329 1 649 448
division
General Stainless deliveries increased by 36% in spite of the
closure of Coil Products Sheffield. Sales totaled EUR 1 013
million, an increase of 24% compared to the fourth quarter of
2005. Operating profit was EUR 43 million. Operating result for
the previous quarter included EUR 138 million of non-recurring
costs related to the closure of Coil Products Sheffield and the
fixed cost reduction program.
Tornio Works posted an operating profit of EUR 37 million.
Operating result for the previous quarter included EUR 8 million
of non-recurring costs. A new record for finished products
deliveries was achieved in March. Manufacturing performance was
good and Tornio Works is running at full current finished products
capacity. Together with continuing base price increases, this will
improve the profit in the second quarter.
The closure of Coil Products Sheffield has proceeded ahead of
schedule and the majority of the employees have left the company.
A separate closure team is in place to prepare and perform closing
activities at the site.
Specialty Stainless higher volumes and improved profits from
special products
Specialty Stainless
EUR million I/05 II/05 III/05 IV/05 2005 I/06
Sales 785 819 584 552 2 739 650
Operating profit 55 65 14 (23) 110 22
Operating capital
at the end of period 1 248 1 358 1 310 1 161 1 161 1 173
Deliveries of main
products (1 000 tonnes)
Cold rolled 44 54 43 47 188 56
White hot strip 57 43 30 30 160 49
Other 148 148 89 71 455 76
Total deliveries of the 249 245 162 148 803 182
division
Specialty Stainless deliveries increased by 23% and sales totaled
EUR 650 million, an increase of 18% compared to the fourth quarter
of 2005. Operating profit was EUR 22 million. Operating result for
the previous quarter included EUR 21 million of non-recurring
expenditure related to operational capacity adjustments at Avesta
and the fixed cost reduction program.
The Kloster Thin Strip cold rolling mill investment in Sweden is
proceeding according to plan. This investment will expand the
mill's overall capacity from 25 000 tonnes to 45 000 tonnes per
year and will also allow the production of thinner and wider
products.
Specialty Stainless products are used in industries such as oil
and gas, desalination, building and construction as well as pulp
and paper, where investment activity has been solid and is
expected to continue strong. The prices of project related and
special products are more stable than those of more standard
products and therefore Specialty Stainless profit improvement
materializes slightly slower than General Stainless.
Outokumpu Technology solid first quarter profits
Technology
EUR million I/05 II/05 III/05 IV/05 2005 I/06
Sales 65 158 144 223 590 170
Operating profit (7) 4 6 23 26 5
Operating capital
at the end of period 40 31 58 (7) (7) 2
Order backlog
at the end of period 490 520 525 596 596 634
Outokumpu Technologys sales totaled EUR 170 million, down by 24%
compared to the previous quarter, but almost triple the level in
the first quarter of 2005. The earlier seasonally weak performance
during the first quarter turned into a solid operating profit of
EUR 5 million. Operating capital was EUR 2 million and working
capital was EUR 102 million negative due to advance payments
received.
In 2005, Technology succeeded in mastering the business momentum
by receiving several large projects. This continued in the first
quarter with order intake totaling EUR 186 million. Technologys
order backlog strengthened further and stood at EUR 634 million at
the end of March. In the first quarter the order intake for
grinding mills continued to be strong. The biggest grinding mill
order was for LKAB Kiruna plant. The other orders included ball
mill orders for Compania Minera del Pacifico´s Atama iron ore
project in Chile and Nkomati nickel plant in South Africa. Strong
growth in Brazil continued and Technology booked an order for
basic and detail engineering for Minerações Brasileiras Reunidas
iron ore pellet operation, owned by CVRD and Mitsui, to deliver a
pelletizing plant. Technology booked an USD 20 million contract
with Codelco for a sulphuric acid plant expansion in its Caletones
copper smelter in Chile. Technology announced its third contract
for the new Direct-to-Blister flash smelting technology for
Konkola Copper Mines in Zambia. This technology for copper
production reduces the number of process steps and improves the
environmental and safety performance of copper smelters.
Metal prices have continued to strengthen and investment activity
within the metals and mining industry has been robust in both
ferrous and non-ferrous markets. Technology has a strong order
backlog and the outlook for 2006 is favorable, indicating that
Technologys profitability will improve compared to the previous
year and that strategic objectives set in 2005 can be met.
Outokumpu Technology has outlined its vision of being the leading
technology partner in the minerals and metals production
industries. It has also announced its target of generating EUR 50
million profit before taxes by 2008 under the current business
concept.
Other operations
Other operations
EUR million I/05 II/05 III/05 IV/05 2005 I/06
Sales 55 64 58 60 237 61
Operating profit 9 (3) 9 (7) 8 2
Operating capital
at the end of period 34 44 37 139 139 134
Other operations consists of activities outside the Groups
primary businesses as well as industrial holdings. Business
development costs and group functions´ expenses that are not
allocated to the businesses are also reported under Other
operations. The result posted by Other operations in the last
quarter of 2005 included 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 Coil Products
Sheffield.
The attachments present the interim review by the Board of
Directors, the accounts and notes to the interim accounts.
This interim 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 first-quarter interim report will be held on April
25, 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: +44 20 7162 0025 (UK) or +1 334
323 6201 (US & Canada). The password is Outokumpu.
The news conference can be viewed live via Internet at
www.outokumpu.com. The 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 25, 2006 at 6.00 pm. An instant
replay service for the conference call will be available until
Friday, April 28, 2006 on the following numbers: +44 20 7031 4064
(UK replay number) or +1 954 334 0342
(US & Canada replay number). The access code is 701159.
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
INTERIM REVIEW BY THE BOARD OF DIRECTORS
Stainless steel market conditions clearly improved during the
first quarter
During the first quarter of 2006, global apparent consumption of
stainless steel increased by 10% compared to the previous quarter,
but was 2% lower than in the first quarter of 2005. Demand picked
up significantly in all markets following the year-end. Although
both base prices and transaction prices rose during the first
quarter, they were still below the levels in the corresponding
period in 2005. The average German base price for 304 2mm sheet
was 1 127 EUR/tonne, 15% below the price of 1 332 EUR/tonne in the
first quarter of 2005.
Financial result improving but still lagging behind 2005
The Groups sales for the first quarter totaled EUR 1 548 million
(I/2005: EUR 1 456 million), an increase of 6%. Stainless steel
deliveries increased by 5% but the effect on sales was mitigated
by lower transaction prices. Outokumpu Technologys first quarter
was very strong with sales totaling EUR 170 million, almost triple
the level in the first quarter of 2005.
Operating profit was EUR 71 million (I/2005: EUR 121 million). In
the first quarter of 2005, operating profit included a non-
recurring gain of EUR 25 million from the sale of Boliden shares.
Stainless steel base prices were substantially lower than in the
first quarter of 2005, and operating profit consequently remained
below the good level achieved in the previous year. Outokumpu
Technology posted an operating profit of EUR 5 million compared
with an operating loss of EUR 7 million in the corresponding
period last year.
Net financial expenses totaled EUR 5 million (I/2005: EUR 12
million). Net profit for the period from continuing operations
totaled EUR 46 million (I/2005: EUR 89 million) and net profit
from discontinued operations totaled EUR 10 million (I/2005: EUR
333 million negative). Earnings per share from continuing
operations was EUR 0.26 and from discontinued operations EUR 0.06.
Return on capital employed was 8.0% (I/2005: 10.9%).
The Groups performance improvement initiatives are proceeding
well. The commercial excellence program is focusing on improving
Outokumpu´s understanding on its customers and seeking ways of
deepening relationships. In order to facilitate this, training of
key account managers has been started. In the production
excellence program the pilot projects in the melt shops were
completed and the program will now be expanded to the cold rolling
mills. The closure of Coil Products Sheffield has proceeded ahead
of schedule and the majority of the employees have left the
company by the end of March. The Groups fixed cost reduction
program is progressing according to plan.
Tight limits on capital expenditure
Capital expenditure for the first quarter totaled EUR 35 million
(I/2005: EUR 37 million). 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 mean that capital
expenditure is expected to be higher, but will not exceed the
annual depreciation level of EUR 210 million.
Net cash generated from operating activities was EUR 37 million
(I/2005: EUR 70 million). Net interest-bearing debt fell by EUR 54
million to EUR 1 483 million (Dec. 31, 2005: EUR 1 537 million)
and gearing improved to 73.0% (Dec. 31, 2005: 74.5%).
Discontinued operations - brass rod mill in the UK sold
On February 27, 2006, Outokumpu and The Meade Corporation of the
UK signed and closed a sales and purchase agreement according to
which Outokumpu sold Outokumpu Copper MKM Ltd, its brass rod mill
located in Aldridge in the UK, to The Meade Corporation. The total
consideration for the transaction was some EUR 20 million.
Production capacity at Outokumpu Copper MKM Ltd is some
40 000 tonnes of brass rod and sales in 2005 totaled about EUR 70
million. The company employs 320 people.
Outokumpu is currently implementing a vigorous improvement project
in its existing copper tube and brass business. In the first
quarter, the copper tube and brass business posted an operating
profit of EUR 12 million, including the gain from the sale of
Outokumpu Copper MKM Ltd and inventory gains. Operating capital at
the end of March totaled EUR 133 million.
The fabricated copper products business that was sold in 2005
comprised among others Outokumpu Copper (USA), Inc. In 2005, the
company was served with a complaint in a case filed in a federal
district court in Memphis, Tennessee, US by the plaintiff American
Copper & Brass, Inc. The complaint alleges claims and damages
under 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.
Environment, health and safety
The Tornio site and the steel making and casting plants at Avesta
and Degerfors are participating in the EU Emissions Trading System
(ETS). The actual 2005 carbon dioxide emissions have been reported
to the local authorities and emissions have been verified by
Inspecta in Finland and DNV in Sweden. Allowances for 2006 were
distributed in February. In the UK, the melt shop used the opt-out
possibility for the period 2005 2007 and this has now been
granted. Preparations to apply for allowances in the 2008-2012
Kyoto-period have begun. The first allocation plans will be
submitted to the European Commission by the end of June 2006.
At most of the stainless steel sites the emissions and discharges
were below permission levels.
The accident rate in the Groups continuing operations was 17 per
million man-hours (I/2005:15). No major accidents were reported
during the first quarter.
Annual General Meeting of March 30, 2006
The Annual General Meeting (AGM) approved a dividend of EUR 0.45
per share for 2005. Total dividends of EUR 81.5 million were paid
on April 11, 2006.
The AGM authorized the Board of Directors for one year to increase
the Companys share capital with a total maximum of EUR 30 800 000
by issuing new shares or convertible bonds. Accordingly, an
aggregate maximum of 18 117 647 shares, having the account
equivalent value of EUR 1.70 each, may be issued. The AGM
authorized the Board of Directors for one year to repurchase and
transfer the Companys own shares. The maximum number of shares to
be repurchased and the maximum number of shares to be transferred
is 18 000 000. The number of own shares in the Companys
possession may not exceed 10 % of the total amount of the
Companys shares. By April 25, 2006, the authorizations had not
been exercised.
The AGM decided on the number of the Board members, including the
Chairman and Vice Chairman, to be eight (previously ten). For the
term expiring at the close of the following AGM, Mr. Evert Henkes,
Mr. Jukka Härmälä, Mr. Ole Johansson, Mr. Juha Lohiniva, Ms. Anna
Nilsson-Ehle, Ms. Leena Saarinen and Ms. Soili Suonoja were re-
elected as members of the Board of Directors, and Mr. Taisto
Turunen was elected as a new member. Mr. Jukka Härmälä was elected
Chairman of the Board of Directors and Mr. Ole Johansson Vice
Chairman. The AGM also resolved to form a Shareholders Nomination
Committee to prepare proposals on the composition and remuneration
of the Board of Directors for presentation to the next AGM.
KPMG Oy Ab, Authorized Public Accountants, was elected as the
Companys new auditor for the term ending at the close of the next
AGM.
At its first meeting, the Board of Directors appointed two
permanent committees consisting of board members. Mr. Ole
Johansson (Chairman), Ms. Leena Saarinen and Mr. Taisto Turunen
were elected as members of the Board Audit Committee. Mr. Jukka
Härmälä (Chairman), Mr. Evert Henkes and Ms. Anna Nilsson-Ehle
were elected as members of the Board Nomination and Compensation
Committee.
Short-term outlook
Strong demand for stainless steel, attributable to both healthy
end-user demand and re-stocking is continuing in the second
quarter. Outokumpus order backlog is firm and all mills are
running at full capacity for finished products. In Europe gradual
base price increases have been attained for the second quarter
deliveries, for example, the base price in Germany for cold rolled
304 sheet for June is around 200 EUR/tonne higher compared to
March.
The usually seasonally weaker third quarter is approaching with
still a good order intake. Some price increases have also been
achieved for July and August deliveries. Continuously high and
volatile nickel prices together with increased base prices are
boosting stainless steel transaction prices during the third
quarter, which may cause some uncertainty in the market.
Visibility beyond the summer period is still weak.
Higher base prices will improve profits, and Outokumpus operating
profit for the second quarter of 2006 will be substantially better
than in the first quarter. Operating profit for the first half of
the year, however, is expected to be lower than in the
corresponding period last year due to low base price levels at the
beginning of this year.
Espoo, April 25, 2006
Board of Directors
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Condensed income statement
Jan- Jan- Jan-
March March Dec
EUR million 2006 2005 2005
Continuing operations:
Sales 1 548 1 456 5 552
Other operating income 12 23 84
Costs and expenses (1 488) (1 357)(5 460)
Other operating expenses (1) (1) (94)
Operating profit 71 121 83
Share of results in associated companies (0) (1) 0
Financial income and expenses
Net interest expenses (14) (14) (62)
Market price gains and losses 10 4 (0)
Other financial income and expenses (1) (2) 1
Profit before taxes 66 108 22
Income taxes (20) (20) (24)
Net profit/(loss) for the
period from continuing operations 46 89 (3)
Discontinued operations:
Net profit/(loss) for the
period from discontinued operations 10 (333) (360)
Net profit/(loss) for the period 56 (244) (363)
Attributable to:
Equity holders of the Company 56 (245) (364)
Minority interest (0) 1 1
Earnings per share for profit attributable
to the equity holders of the Company:
Earnings per share, EUR 0.31 (1.35) (2.01)
Diluted earnings per share, EUR 0.31 (1.35) (2.01)
Earnings per share from continuing
operations
attributable to the equity holders of the
Company:
Earnings per share, EUR 0.26 0.49 (0.02)
Earnings per share from discontinued
operations
attributable to the equity holders of the
Company:
Earnings per share, EUR 0.06 (1.84) (1.99)
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
March March Dec
31 31 31
EUR million 2006 2005 2005
ASSETS
Non-current assets
Intangible assets 574 606 578
Property, plant and equipment 2 101 2 247 2 125
Non-current financial assets
Interest-bearing 290 161 262
Non interest-bearing 57 51 45
3 021 3 065 3 009
Current assets
Inventories 1 059 1 324 1 186
Current financial assets
Interest-bearing 67 229 37
Non interest-bearing 1 040 937 841
Cash and cash equivalents 165 147 212
2 331 2 637 2 277
Receivables related to assets held for 201 729 221
sale
Total assets 5 553 6 431 5 507
EQUITY AND LIABILITIES
Equity
Equity attributable to the
equity holders of the Company 2 016 2 243 2 047
Minority interest 14 15 15
2 030 2 258 2 062
Non-current liabilities
Interest-bearing 1 554 1 934 1 624
Non interest-bearing 342 383 319
1 896 2 317 1 943
Current liabilities
Interest-bearing 584 932 556
Non interest-bearing 974 828 857
1 559 1 760 1 413
Liabilities related to assets held for 68 95 89
sale
Total equity and liabilities 5 553 6 431 5 507
Consolidated statement of changes in
equity
Attributable to equity
holders of the company
Share Share Other Fair Trea-
capi- premi-reser- value sury
tal um ves reser-sha-
fund ves res
EUR million
Equity on December 31, 2004 308 700 13 15 (5)
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 - - 3
Effect of the sale of the
fabricated copper
products business - - - - -
Other changes - - (1) - -
Equity on December 31, 2005 308 701 11 23 (2)
Cash flow hedges - - - 4 -
Fair value gains on
available-for-sale
financial assets - - - 2 -
Net investment hedges - - - - -
Change in translation
differences - - - - -
Items recognised
directly in equity - - - 5 -
Net profit for the period - - - - -
Total recognised
income and expenses - - - 5 -
Dividends - - - - -
Management stock option
program:
value of received services - - - - -
Equity on March 31, 2006 308 701 11 28 (2)
Attributable to equity
holders of the company
Cumu-
lative
trans- Re- Mino- Trea-
lation tained rity sury
diffe- ear- inte- Total sha-
rencesnings rest equity res
EUR million
Equity on December 31, 2004 (59) 1 496 38 2 506 (5)
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 - - - 4 3
Effect of the sale of the
fabricated copper
products business - - (24) (24) -
Other changes - - - (1) -
Equity on December 31, 2005 (38) 1 044 15 2 062 (2)
Cash flow hedges - - - 4 -
Fair value gains on
available-for-sale
financial assets - - - 2 -
Net investment hedges 1 - - 1 -
Change in translation
differences (12) - 0 (12) -
Items recognised
directly in equity (11) - 0 (6) -
Net profit for the period - 56 0 56 -
Total recognised
income and expenses (11) 56 0 50 -
Dividends - (81) - (81) -
Management stock option
program:
value of received services - 1 - 1 -
Equity on March 31, 2006 (49) 1 019 14 2 030 (2)
Condensed statement of cash flows
Jan- Jan- Jan-
March March Dec
EUR million 2006 2005 2005
Net profit/(loss) for the period 56 (244) (363)
Adjustments
Depreciation and amortization 53 53 232
Impairments 1 83 168
Loss from the sale of the
fabricated copper products business - 238 252
Other adjustments 25 (35) 92
Increase (decrease) in working capital (38) 9 202
Dividends received 0 0 7
Interest received 4 9 21
Interest paid (21) (19) (93)
Income tax paid (42) (24) (58)
Net cash from operating activities 37 70 459
Purchases of assets (44) (46) (245)
Proceeds from the sale of subsidiaries 20 520 489
Proceeds from the sale
of shares in associated companies - 109 290
Proceeds from sale of other assets 3 0 13
Change in other investing activities (0) (39) 18
Net cash from investing activities (21) 544 565
Cash flow before financing activities 16 614 1 024
Borrowings of long-term debt 46 286 136
Repayments of long-term debt (69) (311) (454)
Decrease in current debt (22) (115) (600)
Dividends paid - - (91)
Change in other financing activities (16) (540) (22)
Net cash from financing activities (61) (679) (1 032)
Adjustments (0) 5 2
Net change in cash and cash equivalents (45) (61) (6)
Cash and cash equivalents at
the beginning of the financial year 212 211 211
Foreign exchange rate effect
on cash and cash equivalents (3) (4) 7
Net change in cash and cash equivalents (45) (61) (6)
Cash and cash equivalents at
the end of the financial year 165 147 212
Key figures
Jan- Jan- Jan-
March March Dec
EUR million 2006 2005 2005
Operating profit margin, % 4.6 8.3 1.5
Return on capital employed, % 8.0 10.9 1.9
Return on equity, % 11.0 (41.0) (15.9)
Return on equity from continuing 9.0 14.9 (0.1)
operations, %
Capital employed at end of period 3 513 3 953 3 599
Net interest-bearing debt at end of 1 483 1 695 1 537
period
Equity-to-assets ratio at end of 37.4 35.5 38.2
period, %
Debt-to-equity ratio at end of period, 73.0 75.0 74.5
%
Earnings per share, EUR 0.31 (1.35) (2.01)
Earnings per share from
continuing operations, EUR 0.26 0.49 (0.02)
Earnings per share from
discontinued operations, EUR 0.06 (1.84) (1.99)
Average number of shares
outstanding, in thousands 1) 181 032 180 901 181 031
Fully diluted earnings per share, EUR 0.31 (1.35) (2.01)
Fully diluted average number
of shares, in thousands 1) 181 431 181 080 181 140
Equity per share at end of period, EUR 11.14 12.39 11.31
Number of shares outstanding at end of
period,
in thousands 1) 181 032 181 032 181 032
Capital expenditure, continuing 35 37 174
operations
Depreciation, continuing operations 53 53 216
Average personnel for the period,
continuing operations 10 554 11 475 11 517
1) The number of own shares repurchased is excluded.
NOTES TO THE INCOME STATEMENT AND BALANCE SHEET
This interim financial report is prepared in accordance with IAS
34 (Interim Financial Reporting).
Use of estimates
The preparation of the financial statements in accordance with
IFRS requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, as well as
the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of income and
expenses during the reporting period. Accounting estimates are
employed in the financial statements to determine reported
amounts, including the realizability of certain assets, the useful
lives of tangible and intangible assets, income taxes, provisions,
pension obligations, impairment of goodwill and other items.
Although these estimates are based on managements best knowledge
of current events and actions, actual results may differ from the
estimates.
Amended and new International Financial Reporting Standards (IFRS)
as of January 1, 2006
Outokumpu has adopted the following amended and new standards as
of January 1, 2006:
IAS 39 Financial Instruments: Recognition and Measurement:
Amendments after March 31, 2004:
- Cash flow hedges of forecast intra group transactions, issued on
April 14, 2005, effective date January 1, 2006.
- Fair value option, issued on June 16, 2005, effective date
January 1, 2006.
- Financial guarantee contracts, issued on August 18, 2005,
effective date January 1, 2006.
The adoption of these amendments has not had material effect on
the first quarter financial statements.
IFRS 6 Exploration for and Evaluation of Mineral Resources, issued
on December 9, 2004, effective date January 1, 2006. This standard
is not applicable for Outokumpu.
Amendment to IAS 19 Employee Benefits - Actuarial Gains and
Losses, Group Plans and Disclosures, issued on December 16, 2004,
effective date January 1, 2006. The amendment introduces the
option of an alternative recognition approach for actuarial gains
and losses. It also adds new disclosure requirements. As the Group
does not intend to change the accounting policy adopted for
recognition of actuarial gains and losses, adoption of this
amendment will only impact the format and extent of disclosures
presented in the accounts.
IFRIC 4 Interpretation: Determining whether an Arrangement
contains a Lease, issued on December 2, 2004, effective date
January 1, 2006. The adoption of this interpretation has not had
material effect on the first quarter financial statements.
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, 2006.
Outokumpu Oyj held 218 603 treasury shares on March 31, 2006 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, 2006.
The current amounts that Outokumpu Oyj shares could be subscribed
for with the option 2003 program for management are as follows:
2003A 666 090 shares, 2003B 1 058 820 shares and 2003C 87 500
shares. As a result of the share subscriptions with the 2003 stock
options, Outokumpu Oyjs share capital may be increased by a
maximum of EUR 3 081 097 and the number of shares by a maximum of
1 812 410 shares. This corresponds to 1.0% of the Company's shares
and voting rights.
Outokumpus Board of Directors confirmed on February 2, 2006 a
share-based incentive program for years 2006-2010 as part of the
key employee incentive and commitment system of the Company. If
persons to be covered by the first earning period 2006-2008 of the
program were to receive the number of shares in accordance with
the maximum reward, a total of 387 000 shares, their shareholding
obtained via the program would amount to 0.2% of the Companys
shares and voting rights.
Detailed information of the 2003 option program and of the share-
based incentive program for 2006-2010 are presented in the annual
report 2005 of Outokumpu Oyj.
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.
On February 27, 2006 Outokumpu and The Meade Corporation of the UK
signed and closed a sales and purchase agreement whereby Outokumpu
sold its brass rod mill, Outokumpu Copper MKM Ltd, located in
Aldridge in the UK, to The Meade Corporation. The total
consideration of the transaction was some EUR 20 million. Sales by
Outokumpu Copper MKM Ltd in 2005 amounted to some EUR 70 million.
It employs 320 people.
The assets and liabilities of Outokumpu Copper Tube and Brass are
presented as held for sale. Outokumpu is currently implementing a
vigorous improvement project in its existing copper tube and brass
business and Outokumpu has stated its intention to divest the tube
and brass business.
Discontinued operations and assets held for
sale
Specification of discontinued
operations and assets held for sale
Income statement
Jan- Jan- Jan-
March March Dec
EUR million 2006 2005 2005
Sales 169 524 921
Expenses (157) (524) (927)
Operating profit 12 0 (6)
Net financial items (1) (10) (10)
Profit/(loss) before taxes 11 (10) (16)
Taxes (0) (1) (4)
Profit/(loss) after taxes 11 (11) (20)
Impairment loss recognized
on the fair valuation of
the Tube and Brass division's
assets and liabilities (1) (83) (86)
Loss on the sale of the
fabricated copper products business - (238) (252)
Taxes - - -
After-tax loss recognized
on the measurement of assets
and liabilities of the disposal 10 (321) (338)
group
Minority interest (0) (1) (1)
Net profit/(loss) for the period
from discontinued operations 10 (333) (360)
Balance sheet
March 31 March 31 Dec 31
EUR million 2006 2005 2005
Assets
Intangible and tangible assets 6 8 9
Other non-current assets 4 5 4
Inventories 90 100 113
Purchase money claim - 520 -
Other current non-interest bearing 102 95 95
assets
201 729 221
Liabilities
Provisions 6 3 7
Other non-current
non-interest bearing liabilities 4 24 17
Trade payables 44 46 49
Other current
non-interest bearing liabilities 14 22 17
68 95 89
Cash flows
Jan- Jan- Jan-
March March Dec
EUR million 2006 2005 2005
Operating cash flows (13) (53) (88)
Investing cash flows (2) (11) (70)
Financing cash flows 13 59 142
Total cash flows (2) 5 (17)
Major non-recurring items in operating
profit
Jan- Jan- Jan-
March March Dec
EUR million 2006 2005 2005
Gain on the sale of the - 25 35
Boliden shares
Fixed cost reduction - - (34)
program
Coil Products Sheffield - - (130)
closure
- 25 (129)
Income taxes
Jan- Jan- Jan-
March March Dec
EUR million 2006 2005 2005
Current taxes (10) (16) (67)
Deferred taxes (10) (4) 43
(20) (20) (24)
Commitments
March 31 March 31 Dec 31
EUR million 2006 2005 2005
Mortgages and pledges
Mortgages on land 128 96 94
Other pledges 4 11 8
Guarantees
On behalf of subsidiaries
For commercial 88 40 77
commitments
On behalf of
associated companies
For financing 4 4 4
Other commitments 64 69 65
Minimum future lease
payments on operating 119 109 120
leases
Open derivative
instruments
March 31 Dec 31 March 31 Dec 31
2006 2005 2006 2005
EUR million Net fair values Contract amounts
Currency and interest
rate derivatives
Currency forwards (2) (1) 1 876 1 796
Interest rate swaps 8 3 382 432
Tonnes Tonnes
Metal derivatives
Copper forward
and futures contracts 2 (1) 17 900 33 775
Nickel forward
and futures contracts 1 1 1 446 1 608
Zinc forward
and futures contracts 0 0 2 325 1 300
TWh TWh
Electricity derivatives
Traded electricity
forwards and futures 1 1 0.1 0.1
Other financial 30 13 4.5 4.6
contracts
Income statement by quarter
EUR million I/05 II/05 III/05 IV/05 2005 I/06
Continuing operations:
Sales 1 456 1 589 1 191 1 317 5 552 1 548
Operating profit 121 161 (20) (179) 83 71
Share of results in
associated companies (1) 2 (1) 0 0 (0)
Financial income and expenses (12) (19) (18) (13) (61) (5)
Profit/(loss) before taxes 108 144 (39) (191) 22 66
Income taxes (20) (39) 8 26 (24) (20)
Net profit/(loss) for the
period
from continuing operations 89 105 (31) (165) (3) 46
Net profit/(loss) for the
period
from discontinued operations (333) (8) (5) (14) (360) 10
Net profit/(loss) for the (244) 97 (36) (180) (363) 56
period
Attributable to:
Equity holders of the Company (245) 96 (36) (179) (364) 56
Minority interest 1 1 0 (1) 1 (0)
Major non-recurring items
in operating profit
EUR million I/05 II/05 III/05 IV/05 2005 I/06
General Stainless
Coil Products Sheffield - - - (127) (127) -
closure
Fixed cost reduction - - - (11) (11) -
program
Specialty Stainless
Fixed cost reduction - - - (21) (21) -
program
Technology - - - - - -
Other operations
Fixed cost reduction - - - (3) (3) -
program
Coil Products Sheffield - - - (3) (3) -
closure
Gain on the sale of
the Boliden shares 25 - 10 - 35 -
25 - 10 (164) (129) -
Key figures by quarter
EUR million I/05 II/05 III/05 IV/05 I/06
Operating profit margin,% 8.3 10.1 (1.7) (13.6) 4.6
Return on capital 10.9 16.0 (2.0) (18.8) 8.0
employed, %
Return on equity, % (41.0) 17.2 (6.4) (33.5) 11.0
Return on equity,
continuing operations, % 14.9 18.6 (5.5) (30.8) 9.0
Capital employed
at end of period 3 953 4 084 3 981 3 599 3 513
Net interest-bearing
debt at end of period 1 695 1 822 1 744 1 537 1 483
Equity-to-assets ratio
at end of period, % 35.5 37.2 38.7 38.2 37.4
Debt-to-equity ratio
at end of period, % 75.0 80.6 77.9 74.5 73.0
Earnings per share, EUR (1.35) 0.53 (0.20) (0.99) 0.31
Earnings per share from
continuing operations, 0.49 0.57 (0.17) (0.91) 0.26
EUR
Earnings per share from
discontinued operations, (1.84) (0.04) (0.03) (0.08) 0.06
EUR
Average number of shares
outstanding, in thousands 180 901 181 032 181 032 181 032 181 032
1)
Equity per share
at end of period, EUR 12.39 12.41 12.27 11.31 11.14
Number of shares
outstanding
at end of period,
in thousands 1) 181 032 181 032 181 032 181 032 181 032
Capital expenditure,
continuing operations 37 41 39 57 35
Depreciation,
continuing operations 53 54 54 55 53
Average personnel
for the period,
continuing operations 11 475 11 833 11 746 11 013 10 554
1) The number of own shares repurchased is excluded.
