OUTOKUMPU?S FIRST QUARTER RESULTS REMAIN
OUTOKUMPU OYJ STOCK EXCHANGE RELEASE April 24, 2003 at 1.00 pm
OUTOKUMPUS FIRST QUARTER RESULTS REMAINED UNSATISFACTORY
The first quarter net sales were EUR 1 483 million (IV/2002:
EUR 1 391 million) and operating profit was EUR 28 million
(IV/2002: EUR 15 million). Earnings per share totaled EUR -0.03
(IV/2002: EUR 0.06). Cash flow from operating activities was
EUR -22 million (IV/2002: EUR -58 million).
THE FIRST QUARTER IN BRIEF
- In relatively stable market the Groups first quarter
operating profit improved from the last quarter of 2002 due to
higher deliveries of stainless steel.
- The operating profit, however, remained well below the
first quarter a year ago. This was mainly due to lower profits
of Stainless Steel, Copper and Other operations.
- The Tornio expansion is progressing well and it is
keeping the Groups capital expenditure high. Capital
expenditure for the full year 2003 is estimated at EUR 700
million.
- As a result of weak cash flow from operating
activities and high capital expenditure the Groups gearing
increased to 137.8%.
- The key for the Groups operating profit in 2003, in
addition to market conditions, will be the successful ramp-up
of the Tornio expansion. Stainless steel deliveries are
expected to increase markedly compared to last year. The Group
is still aiming for better operating profit for 2003 compared
to the previous year. However, the market situation remains
uncertain and therefore the target looks increasingly
challenging.
CEO Jyrki Juusela comments as follows:
"The market situation for our products remained largely
unchanged during January to March, and the demand for metals
actually increased in spite of sluggish economy. Our
performance in the first quarter was an improvement compared to
the previous quarter, however, far from satisfactory. As a
result of weak free cash flow, the Groups indebtedness has
increased and therefore we are prepared to take further
measures in order to bring the capital structure back to
acceptable level. This year the key for the entire Groups
earnings development will be the successful ramp-up of the
expansion at Tornio. This is a priority that we are not willing
to compromise."
MANAGEMENT ANALYSIS OF THE OPERATING RESULT FOR THE FIRST
QUARTER
Improvement in comparable operating profit compared with the
previous quarter
The following table presents the Groups net sales and
comparable operating profit (i.e. operating profit excluding
inventory gains or losses relating to inventory valuation as
well as one-off items) by main businesses.
EUR million I/02 II/02 III/02 IV/02 2002 I/03
Net sales
Stainless Steel 769 823 671 739 3 002 876
Copper 1) 409 452 392 416 1 669 409
Zinc 99 120 101 98 418 93
Technology 71 114 90 124 399 88
Other operations 89 90 65 92 336 87
Intra-group sales (61) (68) (59) (78) (266) (70)
The Group 1 376 1 531 1 260 1 391 5 558 1 483
Comparable
operating profit
Stainless Steel 75 83 20 21 184 49
Copper 1) 15 22 15 8 60 2
Zinc 3 1 1 (0) 5 5
Technology (8) 5 (1) 8 4 (9)
Other operations (4) 9 (15) (25) (35) (23)
Intra-group items (0) (1) 5 1 5 1
The Group 81 119 25 13 223 25
Items affecting
comparability,
businesses 14 53 (20) 2 64 3
Items affecting
comparability,
the Group - (21) 1 - (20) -
The Group,
official
operating profit 95 151 6 15 267 28
1) Harjavalta Metals was transferred from Metallurgy to the
newly-named Copper business area as of January 1, 2003. The
comparison figures have been restated accordingly.
In relatively stable market conditions the Groups comparable
first quarter operating profit improved compared with the
previous quarter. The operating profit of AvestaPolarit
doubled, whereas the results for Copper and Technology weakened
compared to the fourth quarter of 2002.
In January-March the euro strengthened against the US dollar by
7% compared with the previous quarter and by as much as 22%
compared with the corresponding quarter in 2002. However, the
adverse effect that this had on the Groups financial results
was largely offset by the Groups currency hedging measures.
Satisfactory performance for Stainless Steel
Stainless Steel key figures
EUR million I/02 II/02 III/02
Net sales
Coil Products 599 628 517
Special Products 325 375 299
North America 71 72 60
Others (226) (252) (205)
Stainless Steel total 769 823 671
Comparable
operating profit
Coil Products 54 60 16
Special Products 9 11 1
North America 1 3 1
Others 11 9 8
AvestaPolarit total 75 83 26
Amortization of
positive goodwill - - (6)
Stainless Steel total 75 83 20
Market valuation provision
in inventories 1) - - -
Amortization of positive
goodwill arising from the
acquisition of the
AvestaPolarit
minority interest 2)
Insurance compensation - 20 -
Stainless Steel,
official operating profit 75 103 20
Operating capital
at the end of period 1 992 2 154 2 819
Production of main
products (1 000 tonnes)
Coil Products
Steel slabs 411 411 337
- of which Long
Products share 130 147 109
Cold rolling
mill production
- cold rolled 205 222 179
- white hot strip 102 104 75
Special Products
Ferrochrome 63 63 59
Tubes 18 19 14
Quarto plate 25 26 19
Long products 3) 40 54 33
Precision strip 5 5 6
North America
Quarto plate,
bar and tubes 19 21 17
Development of
market prices 4)
Stainless steel
Transaction price EUR/kg 1.54 1.75 1.82
Base price EUR/kg 1.31 1.41 1.45
Conversion margin EUR/kg 0.88 0.98 1.03
Nickel USD/lb 2.81 3.15 3.10
EUR/kg 7.08 7.56 6.95
Ferrochrome (Cr-content) USD/lb 0.29 0.30 0.32
EUR/kg 0.72 0.72 0.72
1) The accounting principle was adjusted in the annual closing
2002. The cost of inventories is now compared with the
estimated net realizable value at balance sheet date instead of
previous practice of reporting calculated inventory valuation
gains and losses. The comparison periods have been restated
accordingly.
2) In the fourth quarter of 2002, an EUR 15 million
amortization of positive goodwill not belonging to the period
was made so that the total amount corresponds to the annual
amortization level.
3) Other than slabs.
4) 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.
EUR million IV/02 2002 I/03
Net sales
Coil Products 584 2 328 682
Special Products 312 1 311 349
North America 64 267 64
Others (221) (904) (219)
Stainless Steel total 739 3 002 876
Comparable
operating profit
Coil Products 32 162 45
Special Products (8) 13 0
North America (2) 3 (1)
Others 6 34 12
AvestaPolarit total 28 212 56
Amortization of
positive goodwill (7) (28) (7)
Stainless Steel total 21 184 49
Market valuation provision
in inventories 1) 0 0 1
Amortization of positive
goodwill arising from the
acquisition of the
AvestaPolarit
minority interest 2) (15) - -
Insurance compensation - 20 -
Stainless Steel,
official operating profit 6 204 50
Operating capital
at the end of period 3 038 3 038 3 204
Production of main
products (1 000 tonnes)
Coil Products
Steel slabs 435 1 594 494
- of which Long
Products share 115 501 110
Cold rolling
mill production
- cold rolled 201 807 204
- white hot strip 104 385 112
Special Products
Ferrochrome 63 248 63
Tubes 17 68 20
Quarto plate 25 95 27
Long products 3) 53 180 54
Precision strip 5 21 5
North America
Quarto plate,
bar and tubes 17 74 20
Development of
market prices 4)
Stainless steel
Transaction price EUR/kg 1.76 1.72 1.77
Base price EUR/kg 1.44 1.41 1.43
Conversion margin EUR/kg 1.00 0.97 0.98
Nickel USD/lb 3.22 3.07 3.78
EUR/kg 7.11 7.16 7.77
Ferrochrome (Cr-content) USD/lb 0.35 0.31 0.36
EUR/kg 0.77 0.73 0.74
1) The accounting principle was adjusted in the annual closing
2002. The cost of inventories is now compared with the
estimated net realizable value at balance sheet date instead of
previous practice of reporting calculated inventory valuation
gains and losses. The comparison periods have been restated
accordingly.
2) In the fourth quarter of 2002, an EUR 15 million
amortization of positive goodwill not belonging to the period
was made so that the total amount corresponds to the annual
amortization level.
3) Other than slabs.
4) 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.
The market conditions for stainless steel remained relatively
stable during the quarter. According to CRU, German average
cold rolled base prices fell by 1% and conversion margins by 2%
compared to the last quarter of 2002. Demand for cold rolled
and hot rolled stainless steel was firm in Europe and Asia, but
slowed down towards the end of the period. In Europe, demand
for quarto plate improved during the quarter, however remaining
below normal levels. The market conditions for long products
remained depressed. Demand for precision strip improved during
the quarter and prices were stable. Prices for tubes and tube
fittings were mostly stable with pressure on standard stock
materials.
AvestaPolarits net sales for the first quarter rose by 19%
compared to the fourth quarter of 2002 as a result of increased
deliveries. Also the comparable operating profit, which
amounted to EUR 56 million, doubled compared to the previous
quarter mainly due to higher deliveries, but this is still
below the comparable operating profit reported for January-
March last year. High share of low margin semi-finished
products coupled with currency exchange rate losses caused by a
weakening US dollar had an adverse effect on the operating
profit. Special Products and North America suffered from weak
market and low prices.
Discussions to establish a new pension fund for those
AvestaPolarit employees in Britain that have remained as
beneficiaries of the British Steel Pension fund following the
AvestaPolarit merger in 2001 are underway. The closure of the
Degerfors melt shop in Sweden has been postponed until the end
of September 2003 to ensure the smooth transfer of production
to the Sheffield melt shop in Britain. Personnel negotiations
relating to production optimization measures in tubes and tube
fittings business were completed in January at Pietarsaari and
Veteli in Finland, resulting in 32 redundancies.
The short-term market outlook for stainless steel remains
uncertain. In the generally depressed economic environment
demand is not expected to improve in the near future and any
increase in stainless steel consumption is likely to be modest.
European cold rolled stainless steel base prices for second
quarter deliveries are expected to remain at the same level as
during the first quarter. The high volatility in the price of
nickel has increased uncertainty in the market. The US dollar
based ferrochrome price has increased by some 20% for the
second quarter.
The key issue for AvestaPolarits results, apart from market
conditions, will be the successful ramp-up of the Tornio
expansion. The commissioning and ramp-up of the new melt shop
have proceeded well. The production of white hot strip in the
new cold rolling mill has started and cold rolled production
will begin during the second quarter. The melt shop and the
cold rolling mill are scheduled to gradually reach full
production by the end of 2004. The full benefits of the
investment will be achieved once the production facility has
reached full capacity. Profitability during the ramp-up phase
will be affected by the low capacity utilization rate and
relatively high proportion of semi-finished products.
Copper struggling with general price pressure
Copper key figures
EUR million I/02 II/02 III/02
Net sales
Americas 90 93 81
Europe 142 144 120
Automotive
Heat Exchangers 61 74 63
Appliance Heat
Exchangers & Asia 73 92 85
Harjavalta Metals 96 103 87
Others (53) (54) (44)
Copper total 409 452 392
Comparable
operating profit
Americas 4 5 5
Europe 2 7 0
Automotive
Heat Exchangers 4 8 6
Appliance Heat
Exchangers & Asia 2 4 0
Harjavalta Metals 8 (1) 2
Others (5) (1) 2
Copper total 15 22 15
Market price adjustments
to inventories 7 (1) (9)
Pension provision (the - - -
US)
Copper, official
operating profit 22 21 6
Operating capital
at the end of period 1 008 933 991
Deliveries of fabricated
products (1 000 tonnes)
Americas 24 25 25
Europe 36 40 34
Automotive
Heat Exchangers 21 24 22
Appliance Heat
Exchangers & Asia 22 28 21
Internal deliveries (1) (2) (2)
Total deliveries 102 115 100
Order backlog at the
end of period
(1 000 tonnes) 67 61 60
Production of Harjavalta
Metals (1 000 tonnes)
Blister copper 43 34 41
Cathode copper 29 28 27
Price development
Conversion margin of
copper products,
change on the
previous period, % 1) 3 (3) (7)
Copper TC/RC,
change on the
previous period, % 2) (8) (2) (8)
Price of copper 3) USD/lb 0.71 0.73 0.69
EUR/kg 1.78 1.85 1.54
1) The average conversion margin of Outokumpus copper
products. Includes changes in product mix.
2) Combined treatment and refining charges received by
Outokumpu.
3) London Metal Exchange (LME) cash quotation.
EUR million IV/02 2002 I/03
Net sales
Americas 76 340 74
Europe 120 526 112
Automotive
Heat Exchangers 58 256 59
Appliance Heat
Exchangers & Asia 101 351 121
Harjavalta Metals 105 391 93
Others (44) (195) (50)
Copper total 416 1 669 409
Comparable
operating profit
Americas 5 19 2
Europe 0 9 (6)
Automotive
Heat Exchangers 5 23 3
Appliance Heat
Exchangers & Asia (7) (1) 1
Harjavalta Metals 5 14 3
Others 0 (4) (1)
Copper total 8 60 2
Market price adjustments
to inventories 2 (1) 2
Pension provision (the (6) (6) -
US)
Copper, official
operating profit 4 53 4
Operating capital
at the end of period 935 935 947
Deliveries of fabricated
products (1 000 tonnes)
Americas 24 98 24
Europe 35 145 35
Automotive
Heat Exchangers 21 88 22
Appliance Heat
Exchangers & Asia 19 90 26
Internal deliveries (1) (6) (1)
Total deliveries 98 415 106
Order backlog at the
end of period
(1 000 tonnes) 60 60 67
Production of Harjavalta
Metals (1 000 tonnes)
Blister copper 43 161 43
Cathode copper 31 115 31
Price development
Conversion margin of
copper products,
change on the
previous period, % 1) (3) (4) (4)
Copper TC/RC,
change on the
previous period, % 2) 7 (8) (9)
Price of copper 3) USD/lb 0.70 0.71 0.75
EUR/kg 1.55 1.65 1.55
1) The average conversion margin of Outokumpus copper
products. Includes changes in product mix.
2) Combined treatment and refining charges received by
Outokumpu.
3) London Metal Exchange (LME) cash quotation.
Markets for fabricated copper products were generally poor in
the first quarter. European and US demand was disappointing and
pressure on conversion margins was noted in all the major
regions. Asia was the only region to show signs of healthy
demand. Market drivers in China included consumer electronics,
the automotive industry and industrial investments. Japanese
demand recovered in certain sectors, particularly the
automotive industry, which performed well. In Europe,
construction activity remained subdued, affecting the demand
for strip, sheet and plate. Demand from the European automotive
industry was moderate, but the IT-related industries were flat.
In the US, demand has been underpinned by the growing housing
sector. However, in the first quarter housing starts showed
signs of slowing down. US automotive producers also announced
production cuts due to weakening demand.
Year-on-year demand for copper metal in the period increased by
some 1.5%. China was the only region where demand continued to
grow. Tightness of the concentrate markets continued despite
the growth in mine output. The spot treatment and refining
charges remained at record lows in the first quarter, whereas
the contract terms reported by CRU dropped by 6% compared with
the previous quarter. The copper market is forecast to be in
undersupply for the rest of 2003. The growth of metal supply is
constrained by the lack of concentrates, but the price of
copper is estimated to rise only moderately due to the high
level of stocks.
The Copper business areas net sales in January-March fell 2%
compared to the last quarter of 2002, following the
strengthening of the euro against the US dollar. The comparable
operating profit for the first quarter was EUR 2 million. The
decline in comparable operating profit compared to the previous
quarter and to the corresponding quarter a year ago resulted
mainly from the lower average conversion margins.
As a part of the profitability improvement program of Coppers
Europe division the regulatory employee/employer negotiations
at Pori, Finland concerning workforce reduction were completed
in March. The reduction of workforce involves 184 persons.
Measures will be carried out during the year mainly by pension
arrangements and termination of temporary jobs. A restructuring
provision of some EUR 5 million was entered in the first
quarter accounts.
Orders for fabricated copper products received during the first
quarter increased by some 13% compared with the previous
quarter. However, the general market conditions for the Copper
business area are not expected to recover in the near future.
Delivery volumes are expected to increase during the rest of
the year, but prices and product mix are not likely to improve
markedly. Operating profit is estimated to improve clearly
compared with the first quarter, but the operating profit for
the full year is expected to fall below that reported the
previous year.
Zincs performance suffered from continuing poor market
situation
Zinc key figures
EUR million I/02 II/02 III/02
Net sales 99 120 101
Comparable
operating profit 3 1 1
Market price adjustments
to inventories 1 (0) (1)
Write down of
reactors at Kokkola - - (4)
Zinc, official
operating profit 4 1 (4)
Operating capital
at the end of period 416 383 378
Production of zinc
(1 000 tonnes) 103 81 94
Price development
Zinc TC,
change on the
previous period, % 1) (4) (6) (9)
Price of zinc 2) USD/lb 0.36 0.35 0.35
EUR/kg 0.91 0.85 0.78
1) Zinc TC received by Outokumpu. Includes so-called free zinc.
2) London Metal Exchange (LME) cash quotation.
EUR million IV/02 2002 I/03
Net sales 98 418 93
Comparable
operating profit (0) 5 5
Market price adjustments
to inventories 2 2 (0)
Write down of
reactors at Kokkola - (4) -
Zinc, official
operating profit 2 3 5
Operating capital
at the end of period 361 361 353
Production of zinc
(1 000 tonnes) 102 380 97
Price development
Zinc TC,
change on the
previous period, % 1) (2) (20) (9)
Price of zinc 2) USD/lb 0.35 0.35 0.36
EUR/kg 0.77 0.82 0.73
1) Zinc TC received by Outokumpu. Includes so-called free zinc.
2) London Metal Exchange (LME) cash quotation.
The market situation for zinc remained poor during the period.
Despite the year-on-year 4% growth in demand, the zinc metal
market remained oversupplied and stocks continued to rise. The
growth in demand was attributable to China, which enjoyed a
robust 10% growth in consumption. In Europe, demand fell by
some 1% due to the weak construction sector. In the US, demand
growth remained flat as the automotive industry slowed down.
The zinc concentrate markets were undersupplied and the
treatment charges remained at record lows.
Zinc production ran smoothly during the quarter both at Kokkola
and Odda even though production was temporarily restricted to
take advantage of peaks in the spot prices for electrical power
in order to maximize the financial results. The concentrate
supply for both zinc plants has been secured for the rest of
the year. Zinc divisions net sales and operating profit for
the first quarter remained at low levels in a lackluster
market. The comparable operating profit amounted to EUR 5
million.
Weak profitability of world zinc producers has intensified
rationalization measures in the industry. European smelter
capacity was reduced by some 200 000 tonnes in March as two
smelters were closed down permanently. China is also likely to
cut production in 2003. These measures are expected to bring
some relief to the oversupplied zinc metals market. In addition
to this, the metal producers have run down their concentrate
stockpiles and the shortage of raw material will further
restrict metal output. The short-term outlook for zinc is
rather gloomy with the demand for zinc still being the key
factor for higher prices. Demand is expected to start picking
up, but not before the end of the summer period, at the
earliest. The tight concentrate market may keep treatment
charges low for a while still, and the operating profit of the
Zinc division is not expected to improve markedly towards the
end of the year. However, Outokumpus competitive production
plants, supported by strong commercial business concept in
zinc, are capable of producing high margins under normal market
conditions.
Technology posted a loss
Technology key figures
EUR million I/02 II/02 III/02 IV/02 2002 I/03
Net sales 71 114 90 124 399 88
Official
operating profit (8) 5 (1) 8 4 (9)
Operating capital
at the end of
period 33 36 26 35 35 28
Order backlog
at the end of
period 392 401 370 370 370 359
The market situation for technology sales did not improve
noticeably during the period and major project decisions were
further postponed, reflecting the continuing economic
uncertainty. The most significant order received during the
first quarter was a EUR 15 million pitch handling plant to
Dubai Aluminium. Technologys operating loss for the first
quarter amounted to EUR 9 million as a result of the low sales
volume. Given the typical seasonality of technology sales, the
bulk of operating profit is again expected to accrue in the
last quarter.
Technologys order backlog contracted slightly during the first
quarter and amounted to EUR 359 million. However, the market
situation for technology sales is not expected to further
deteriorate and there is still some optimism regarding the rest
of the years aggregate order intake. Following the integration
and reorganization of the recently acquired businesses, the
Technology division is well-poised to serve the market with its
wide range of products and services as general economic
conditions start to improve.
Other operations relative role in the Group portfolio has
decreased
Other operations key figures
EUR million I/02 II/02 III/02 IV/02 2002 I/03
Net sales 89 90 65 92 336 87
Comparable
operating profit (4) 9 (15) (25) (35) (23)
Gain on the sale
of the real
estate in Espoo - - - 13 13 -
Refund of
actuarial surplus - - - 4 4 -
Refund of pension
surplus from
Henki-Sampo - - - 2 2 -
Final settlement
on the sale
of the Harjavalta
nickel refinery - - (6) - (6) -
Capital gain on - 34 - - 34 -
AvestaPolarit Oyj
Abp shares
Gain on the sale
of the Pyhäsalmi
mine 6 - - - 6 -
Other operations,
official
operating profit 2 43 (21) (6) 18 (23)
Operating capital
at the end of
period 147 223 100 209 209 228
Mine production
(1 000 tonnes)
Zinc in concentrates,
the Tara mine - - 7 42 49 43
The Groups remaining mining business accounted for almost half
of the operating loss posted under Other operations. The
operating loss reported by Mining was mainly attributable to
the low price of zinc. The Tara zinc mine has to a large extent
reached its operational efficiency targets and is moving into
the exploitation of better grade ore for the rest of the year.
The cost base of Other operations also covers Corporate
Management and business development expenses, which are not
allocated to the business areas or divisions.
The attachments present the interim review and accounts.
For further information, please contact:
Kari Lassila, SVP - Investor Relations and Corporate
Development, tel. +358 9 421 2555, kari.lassila@outokumpu.com
Eero Mustala, SVP - Corporate Communications,
tel. +358 9 421 2435, eero.mustala@outokumpu.com
Vesa-Pekka Takala, SVP - Corporate Controller,
tel. +358 9 421 4134,
vesa-pekka.takala@outokumpu.com
News conference today at 3.00 pm
A combined news conference, conference call and live web cast
concerning the first quarter results will be held today, April
24, 2003 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 5-10 minutes
before the beginning of the event +44 20 7162 0191 (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 ->
Investor information -> Downloads.
An on-demand web cast of the news conference will be available
at www.outokumpu.com as of April 24, 2003 at 4.30 pm Finnish
time. An instant reply service of the conference call will be
available until Saturday, April 26, 2003 in the following
numbers: +44 20 8288 4459 (UK) or +1 334 323 6222 (US &
Canada). The access code is 344962.
OUTOKUMPU OYJ
Corporate Management
Johanna Sintonen
Manager - Investor and Media Relations
tel. +358 9 421 2438, mobile +358 40 530 0778,
fax +358 9 421 2429
e-mail: johanna.sintonen@outokumpu.com
www.outokumpu.com
INTERIM REVIEW BY THE BOARD OF DIRECTORS
Official result contracted on the previous year
The Groups net sales in the first quarter increased by 8% from
the corresponding period last year and stood at EUR 1 483
million (I/2002: EUR 1 376 million). The rise was primarily
attributable to higher transaction prices and increased
delivery volumes of stainless steel.
Operating profit for the first quarter fell to EUR 28 million
(I/2002: EUR 95 million). The unfavorable development was
mainly due to lower profits of Stainless Steel, Copper and
Other operations. Stainless Steels weaker operating profit
resulted primarily from a higher share of low margin, semi-
finished products for the Coil Products division, weak market
for Special Products and North America, currency exchange rate
losses caused by a weakening US dollar as well as an
amortization of positive goodwill resulting from the
acquisition of the AvestaPolarit minority interest. Coppers
operating profit was hit by lower conversion margins arising
from weaker product mix and general price pressure. The
comparison period last year included an unusual gain of EUR 6
million resulting from the sale of the Pyhäsalmi mine.
During the period January-March the euro strengthened against
the US dollar by 22% compared with the corresponding period a
year ago. However, the adverse effect that this had on the
Groups financial results was largely offset by the Groups
hedging measures. The Groups net financial expenses increased
in the first quarter to EUR 29 million (I/2002: EUR 11 million)
primarily due to the increased interest expenses from higher
net interest-bearing debt. The Groups substantial hedging
position against the weakening of the US dollar relative to the
euro extends to twelve months, although the average exchange
rate of forward contracts is gradually getting less favorable.
The Groups loss before extraordinary items for January-March
was EUR 4 million and loss for the period EUR 5 million
(I/2002: profit of EUR 84 million and profit of EUR 46
million). Earnings per share decreased to EUR -0.03 (I/2002:
EUR 0.34). The return on capital employed fell compared with
the first quarter of last year and was 2.5% (I/2002: 11.4%).
Capital structure weakened further
The cash flow from operating activities fell in January-March
and stood at EUR -22 million (I/2002: EUR 82 million). The cash
flow weakened due to lower income financing and increased
working capital, particularly in trade receivables. The Groups
net interest-bearing debt rose to EUR 2 624 million (Dec. 31,
2002: EUR 2 385 million) as a result of the weak cash flow and
the ongoing Tornio expansion.
The Groups capital structure has weakened below the target
level as expected due to the acquisition of the AvestaPolarit
minority. At the end of the first quarter, the equity-to-assets
ratio was 29.9% and the debt-to-equity ratio 137.8% (Dec. 31,
2002: 31.1% and 122.6%). The continuing uncertainty in the
world economy and the difficult market situation make it
challenging to bring the debt-to-equity ratio back to the
target level - below 75% - in the planned time frame, by the
end of 2004. However, the ongoing EUR 200 million divestment
program is well underway and divestments will be increased, if
necessary.
Tornio expansion program is keeping the Groups capital
expenditure high
The Groups total capital expenditure for January-March
amounted to EUR 178 million (I/2002: EUR 146 million). The high
level of capital expenditure is mainly due to the ongoing
Tornio expansion program. The capital expenditure for 2003 as a
whole is expected to be some EUR 700 million. Capital
expenditure in 2004 is estimated to decrease compared to 2003,
but will nevertheless exceed the level of depreciation.
The EUR 1 billion expansion program at Tornio is proceeding
well, despite some two months behind the original timetable, as
previously communicated. The cold rolling mill started
commissioning in February 2003 and the deliveries of white hot
strip began in March. The reconditioning of the first melt shop
at Tornio was announced in February and will be completed in
2004 at a total investment cost of EUR 55 million. The
acquisition of the quarto plate business of ThyssenKrupp
Nirosta for EUR 59 million was completed in February.
AvestaPolarits other major investment projects, the move to
underground mining at the Kemi chromium mine and the increase
of long products capacity in the US, are proceeding to plan.
The EUR 88 million modernization program being carried out at
the Odda zinc plant in Norway is progressing at planned cost
estimate and schedule. The project will be completed in the
autumn of 2004. The construction phase will not cause any
significant production losses.
Annual General Meeting of April 3, 2003
The Annual General Meeting (AGM) approved a dividend of EUR
0.40 per share for 2002. The AGM also approved the proposals of
the Board of Directors to amend the Articles of Association of
the Company, to authorize the Board to repurchase and transfer
the Companys own shares and to increase the Companys share
capital. The Boards authorizations are explained in more
detail in the notes to the financial statements. Furthermore,
the AGM approved the issuance of stock options to the key
persons of the Outokumpu Group.
Mr. Arto Honkaniemi, Mr. Jorma Huuhtanen, Mr. Ole Johansson,
Mr. Heimo Karinen and Mr. Matti Puhakka were re-elected as
members to the Board of Directors, and Mr. Evert Henkes, Mr.
Juha Rantanen, Ms. Leena Saarinen, Ms. Soili Suonoja and Mr.
Seppo Ukskoski were elected as new members, for the term
expiring at the close of the next AGM.
At its first meeting, the Board elected Heimo Karinen as
Chairman and Juha Rantanen as Vice Chair-man. The Board also
appointed two permanent committees consisting of Board members
- the Audit Committee and the Nomination and Compensation
Committee. The members of the Audit Committee are Juha Rantanen
(Chairman), Jorma Huuhtanen and Leena Saarinen. The members of
the Nomination and Compensation Committee are Heimo Karinen
(Chairman), Evert Henkes, Arto Honkaniemi and Ole Johansson.
PricewaterhouseCoopers Oy, Authorized Public Accountants, was
re-appointed to Companys Auditor with Mr. Markku Marjomaa
appointed as the new audit partner in charge.
Changes in management and organization
Mr. Pekka Erkkilä was appointed to the Outokumpus Group
Executive Committee in February 2003. He will assume the
responsibility for the Stainless Steel business area and be
President of AvestaPolarit as of June 1, 2003. Pekka Erkkilä
succeeds Mr. Ossi Virolainen who will retire on May 31, 2003.
Furthermore, as of June 1, 2003 the responsibility area of Mr.
Karri Kaitue, Executive Vice President in the Group Executive
Committee will be the Coil Products division of the Stainless
Steel business area.
Outokumpus copper smelting and refining business, Harjavalta
Metals, was transferred from Metallurgy to the newly-named
Copper business area effective from January 1, 2003 and it will
report to Executive Vice President Kalevi Nikkilä. As a result,
Metallurgy ceased to exist as a separate business area. Zinc
and Technology will continue to report as stand-alone divisions
to Executive Vice President Tapani Järvinen.
Outokumpu obtains full ownership in AvestaPolarit
On March 14, 2003, Outokumpu placed a security approved by the
Arbitration Tribunal to secure the payment of the redemption
price and thus obtained title to the entire share capital in
AvestaPolarit in accordance with Chapter 14 Section 21 of the
Finnish Companies Act. The redemption price will be paid to the
minority shareholders (0.2% of the total share capital) of
AvestaPolarit as soon as possible after the arbitration award
regarding the redemption price, which will be rendered at a
later date, has gained legal force.
AvestaPolarits shares were de-listed from the main list of the
Helsinki Exchanges on March 14, 2003. De-listing from Stockholm
had already taken place in December 2002.
Uncertainty over-shadowing prospects for 2003
The war in Iraq disturbed global economic growth during the
first quarter and the growth in the US and Europe fell to about
1%. However, in China the economic boom continued at a rate of
over 8%. Based on the confidence indicators, the US industrial
sector is not expected to recover during the next few months.
In Europe, the confidence indexes also dropped, and economic
growth in 2003 is likely to remain below 1%. The consequences
of the war in Iraq are shadowing the global economic outlook. A
general view supports a rather slow recovery.
Demand for metals increased in the first quarter, despite of
sluggish economic growth. However, without Chinas double-digit
rate of demand growth the performance of metals would have been
weaker. The metals market was mainly close to balance during
the period. Demand for cold rolled and hot rolled stainless
steel was good in Europe and Asia, but slowed down towards the
end of the period. The short-term market outlook for stainless
steel remains uncertain.
The key issue for the Groups full year operating profit, in
addition to market conditions, will be the successful ramp-up
of the Tornio expansion. Stainless steel deliveries are
expected to increase markedly compared to last year. The Group
is still aiming for better operating profit for 2003 compared
to the previous year. However, the market situation remains
uncertain and therefore the target looks increasingly
challenging.
Espoo, April 24, 2003
The Board of Directors
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
INCOME STATEMENT Jan-Mar Jan-Mar Jan-Dec
EUR million 2003 2002 2002
Net sales 1 483 1 376 5 558
Costs and
expenses (1 455) (1 297) (5 332)
Unusual items 0 6 49
Other operating
income and expenses 1 2 (6)
Amortization of positive
and negative goodwill (1) 8 (2)
Operating profit 28 95 267
Equity earnings in
associated companies (3) 0 (7)
Financial income
and expenses
Net interest
expenses (25) (13) (75)
Exchange gains
and losses (3) 0 15
Other financial
income and expenses (1) 2 13
Profit (loss) before
extraordinary items (4) 84 213
Extraordinary items - - -
Income taxes (1) (12) (53)
Minority interest
in earnings 0 (26) (1)
Profit (loss) for
the financial period (5) 46 159
BALANCE SHEET Mar 31 Mar 31 Dec 31
EUR million 2003 2002 2002
Fixed assets and
other long-term
investments
Intangible assets 455 75 373
Property, plant
and equipment 3 067 2 683 3 088
Long-term
financial assets
Interest-bearing 153 171 157
Non interest-bearing 92 86 105
3 767 3 015 3 723
Current assets
Inventories 1 261 1 139 1 235
Receivables
Interest-bearing 41 20 76
Non interest-bearing 1 174 1 171 1 067
Marketable securities 10 14 31
Cash and bank 166 199 195
2 652 2 543 2 604
Total assets 6 419 5 558 6 327
Shareholders equity 1 863 1 617 1 906
Minority interest 40 568 40
Negative goodwill
on consolidation - 276 -
Long-term liabilities
Interest-bearing 1 549 879 1 493
Non interest-bearing 455 448 463
2 004 1 327 1 956
Current liabilities
Interest-bearing 1 444 732 1 352
Non interest-bearing 1 068 1 038 1 073
2 512 1 770 2 425
Total shareholders
equity and liabilities 6 419 5 558 6 327
STATEMENT OF CASH FLOWS Jan-Mar Jan-Mar Jan-Dec
EUR million 2003 2002 2002
Income financing 87 141 450
Increase in
working capital (108) (55) (100)
Other adjustments (1) (4) (16)
Cash provided by
operating activities (22) 82 334
Capital expenditure (178) (146) (2 042)
Other investing
activities (14) 12 73
Cash flow before
financing activities (214) (52) (1 635)
Cash provided by
financing activities 176 (20) 1 569
Adjustments (12) 1 7
Decrease in cash
and marketable
securities (50) (71) (59)
Jan-Mar Jan-Mar Jan-Dec
GROUP KEY FIGURES 2003 2002 2002
Operating profit
margin, % 1.9 6.9 4.8
Return on capital
employed, % 2.5 11.4 7.0
Return on
shareholders'
equity, % neg. 13.6 8.0
Capital employed
at end of period,
EUR million 4 528 3 393 4 331
Net interest-bearing
debt at end of
period, EUR million 2 624 1 207 2 385
Equity-to-assets
ratio at end
of period, % 1) 29.9 42.2 31.1
Debt-to-equity ratio
at end of period, % 137.8 55.3 122.6
Earnings per share
(excluding extraordinary
items), EUR (0.03) 0.34 1.15
Earnings per
share, EUR (0.03) 0.34 1.15
Average number of
shares outstanding,
in thousands 2) 171 375 136 278 137 658
Fully diluted
earnings per share
(excl. extraordinary
items), EUR (0.03) 0.34 1.14
Fully diluted average
number of shares,
in thousands 2) 172 189 137 765 139 293
Shareholders' equity per
share at end of
period, EUR 10.86 11.87 11.14
Number of shares
outstanding at
end of period,
in thousands 2) 171 534 136 278 171 111
Capital expenditure,
EUR million 3) 178 146 2 042
Depreciation,
EUR million 4) 75 67 264
Average personnel
for the period 21 242 19 312 20 196
1) The negative goodwill is netted against assets.
2) The number of own shares repurchased is excluded.
3) The acquisition of AvestaPolarit shares is included.
4) The amortization of negative and positive goodwill is
excluded.
NOTES TO THE INCOME STATEMENT AND BALANCE SHEET
Shares and share capital
Following the registration of the secondary subsciptions in the
Outokumpu rights offering on January 3, 2003 the total number
of Outokumpu Oyj shares was 172 659 119 and the share capital
amounted to EUR 293.5 million. Since, there has been no changes
in the number of shares or share capital.
Bonds relating to the subordinated bond loan have been
converted into 1 042 551 shares by March 31, 2003. No 1998
management option warrants have been converted into shares. The
number of Outokumpu Oyj shares may be increased to a maximum of
176 309 298 following the share subscriptions under the
convertible bonds to personnel and the 1998 management option
program.
On February 20, 2003, Outokumpu Oyj transferred 282 660
treasury shares to the persons participating in the 2000 share
remuneration scheme for management. However, 2 150 shares were
returned to the Company, and on March 31, 2003 Outokumpu Oyj
held a total of 1 125 490 treasury shares. The total account
equivalent value of the treasury shares is EUR 1.9 million.
This equals to 0.7% of the share capital and the total voting
rights of the Company.
The Annual General Meeting of April 3, 2003 approved a stock
option program for management. Under the terms and conditions
of the stock option program, 5 100 000 stock options will be
issued entitling their holders to subscribe for 5 100 000 new
shares in the Company during the years 2006 and 2011. As a
result of the share subscriptions with the 2003 stock options,
the share capital of Outokumpu Oyj may be increased by a
maximum of EUR 8 670 000 and the number of shares by a maximum
of 5 100 000 shares. The shares that can be subscribed with the
2003 stock options equal to 2.9% of the Companys shares and
voting rights following the potential share capital increase.
By April 24, 2003, the Board of Directors of Outokumpu Oyj had
not made any decision to distribute the stock options on the
terms and conditions of the 2003 stock options.
Authorizations of the Board of Directors
The Board of Directors has a valid authorization by the Annual
General Meeting of April 3, 2003 to repurchase and transfer the
Company's own shares. Shares may be repurchased through
purchases in public trading on the Helsinki Exchanges at the
market price prevailing at the time of the purchase. The
maximum number of shares to be repurchased or transferred is 8
632 955, which equals 5% of the total number of shares of the
Company registered on April 3, 2003. Own shares can be
repurchased for improving the Company's equity 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. Authorizations to repurchase and transfer the
Companys own shares are valid until AGM in 2004, however no
longer than April 2, 2004. By April 24, 2003 the Board of
Directors had not used these authorizations.
The Board of Directors has a valid authorization by the Annual
General Meeting of April 3, 2003 to increase the share capital
through an issue of new shares, stock options, option warrants
and/or convertible bonds. The share capital may be increased by
no more than EUR 29 352 050 and the aggregate maximum number of
new shares shall not exceed 17 265 911 shares. This equals 10%
of the share capital and voting rights of the Company
registered on April 3, 2003. By April 24, 2003 the Board of
Directors had not used this authorization.
Jan-Mar Jan-Mar Jan-Dec
EUR million 2003 2002 2002
Unusual items
Gain on the sale
of the real estate
in Espoo - - 13
Refund of
actuarial surplus
Outokumpu Oyj - - 3
Other companies - - 1
Refund of pension surplus
from Henki-Sampo,
Outokumpu Oyj - - 2
Final settlement on the
sale of the Harjavalta
nickel refinery - - (6)
Write down of
reactors at Kokkola - - (4)
Capital gain on
AvestaPolarit
Oyj Abp shares - - 14
AvestaPolarit's
insurance compensation - - 20
Restructuring provision
of AvestaPolarit - (16) (32)
Additional amortization of
negative goodwill of
AvestaPolarit - 16 32
Gain on the sale
of the Pyhäsalmi mine - 6 6
- 6 49
Income taxes
Current taxes (4) (9) (53)
Deferred taxes 3 (3) 0
(1) (12) (53)
Commitments Mar 31 Mar 31 Dec 31
EUR million 2003 2002 2002
Mortgages and pledges
To secure borrowings
of Group companies 165 105 119
Guarantees
On behalf of
associated companies 7 8 7
On behalf of
other parties 35 77 41
42 85 48
Minimum future lease
payments on
operating leases 128 130 133
Open derivative instruments
Carrying Fair
value value
Mar 31 Mar 31
EUR million 2003 2003
Financial derivatives
Forward foreign
exchange contracts 14 14
Currency options
Purchased 2 2
Written 0 0
Currency swaps (3) (4)
Interest rate swaps (1) (1)
Metal derivatives 1)
Forward and futures
copper contracts (1) (1)
Forward and futures
nickel contracts 2 2
Forward and futures
zinc contracts 0 0
Zinc options
Purchased 0 0
Written 0 0
Forward and futures
aluminium contracts 0 0
Forward and futures
gold contracts 1 1
Forward and futures
silver contracts 0 0
Electricity
derivatives 2)
Traded electricity
forwards and futures - 0.5
Other financial
contracts - 6.5
1) Contract amounts of base metal derivatives in tonnes and
precious metal derivatives in troy ounce.
2) Contract amounts of electricity derivatives in TWh.
Contract amounts
Mar 31 Dec 31
EUR million 2003 2002
Financial derivatives
Forward foreign
exchange contracts 1 600 1 100
Currency options
Purchased 50 60
Written 50 60
Currency swaps 40 60
Interest rate swaps 170 70
Metal derivatives 1)
Forward and futures
copper contracts 117 400 121 200
Forward and futures
nickel contracts 4 500 2 200
Forward and futures
zinc contracts 133 700 197 300
Zinc options
Purchased 2 300 3 000
Written 2 300 3 000
Forward and futures
aluminium contracts 1 600 1 300
Forward and futures
gold contracts 55 800 63 400
Forward and futures
silver contracts 456 300 529 300
Electricity
derivatives 2)
Traded electricity
forwards and futures 0.2 0.2
Other financial
contracts 4.1 4.5
1) Contract amounts of base metal derivatives in tonnes and
precious metal derivatives in troy ounce.
2) Contract amounts of electricity derivatives in TWh.
The derivate transactions have been made for hedging purposes.
The market value of derivatives indicates the result of those
transactions if the deals were closed at the balance sheet
date. The realized gains and losses of derivative instruments
are booked in the income statement according to hedge
accounting principle i.e. against the underlying transaction.
The carrying amount of forward foreign exchange contracts,
currency options and currency swaps include unrealized gains
and losses relating to hedges on firm and anticipated
commitments, which have been deferred.
KEY FINANCIAL INDICATORS BY QUARTER
EUR million I/02 II/02 III/02 IV/02 I/03
Net sales
Stainless Steel
Coil Products 599 628 517 584 682
Special Products 325 375 299 312 349
North America 71 72 60 64 64
Others (226) (252) (205) (221) (219)
Stainless Steel
total 769 823 671 739 876
Copper
Americas 90 93 81 76 74
Europe 142 144 120 120 112
Automotive Heat
Exchangers 61 74 63 58 59
Appliance Heat
Exchangers & Asia 73 92 85 101 121
Harjavalta Metals 96 103 87 105 93
Others (53) (54) (44) (44) (50)
Copper total 409 452 392 416 409
Zinc 99 120 101 98 93
Technology 71 114 90 124 88
Other operations 89 90 65 92 87
Intra-group sales (61) (68) (59) (78) (70)
The Group 1 376 1 531 1 260 1 391 1 483
Operating profit
Stainless Steel
Coil Products 54 60 16 32 45
Special Products 9 26 1 (8) 0
North America 1 3 1 (2) (1)
Others 11 14 8 6 13
AvestaPolarit
total 75 103 26 28 57
Amortization of
positive goodwill (6) (22) (7)
Stainless Steel
total 75 103 20 6 50
Copper
Americas 7 6 1 (0) 3
Europe 2 6 (2) 0 (7)
Automotive Heat
Exchangers 4 7 5 5 4
Appliance Heat
Exchangers & Asia 5 4 (2) (6) 2
Harjavalta Metals 8 (1) 2 5 3
Others (4) (1) 2 0 (1)
Copper total 22 21 6 4 4
Zinc 4 1 (4) 2 5
Technology (8) 5 (1) 8 (9)
Other operations 2 43 (21) (6) (23)
Intra-group items 0 (22) 6 1 1
The Group 95 151 6 15 28
Equity earnings in
associated companies (0) (2) (3) (2) (3)
Financial income
and expenses (11) 10 (21) (25) (29)
Profit (loss) before
extraordinary items 84 159 (18) (12) (4)
Income taxes (12) (48) (12) 19 (1)
Minority interest
in earnings (26) (28) 50 3 0
Profit (loss) for
the period 46 83 20 10 (5)
GROUP KEY FIGURES BY QUARTER I/02 II/02
Operating profit
margin, % 6.9 9.9
Return on capital
employed, % 11.4 17.7
Return on
shareholders' equity, % 13.6 20.1
Capital employed at
end of period, EUR million 3 393 3 443
Net interest-bearing debt
at end of period, EUR million 1 207 1 229
Equity-to-assets ratio
at end of period, % 1) 42.2 41.2
Debt-to-equity ratio
at end of period, % 55.3 55.5
Earnings per share
(excluding extraordinary
items), EUR 0.34 0.60
Earnings per share, EUR 0.34 0.60
Average number of shares
outstanding, in thousands 2) 136 278 136 774
Shareholders' equity
per share at end of
period, EUR 11.87 11.70
Number of shares
outstanding at end of
period, in thousands 2) 136 278 137 082
Capital expenditure,
EUR million 3) 146 194
Depreciation,
EUR million 4) 67 64
Average personnel
for the period 19 312 19 727
1) The negative goodwill is netted against assets.
2) The number of own shares repurchased is excluded.
3) The acquisition of AvestaPolarit shares is included.
4) The amortization of negative and positive goodwill is
excluded.
III/02 IV/02 I/03
Operating profit
margin, % 0.5 1.0 1.9
Return on capital
employed, % 0.7 1.3 2.5
Return on
shareholders' equity, % neg. 1.6 neg.
Capital employed at
end of period, EUR million 4 083 4 331 4 528
Net interest-bearing debt
at end of period, EUR million 2 414 2 385 2 624
Equity-to-assets ratio
at end of period, % 1) 27.7 31.1 29.9
Debt-to-equity ratio
at end of period, % 144.7 122.6 137.8
Earnings per share
(excluding extraordinary
items), EUR 0.15 0.06 (0.03)
Earnings per share, EUR 0.15 0.06 (0.03)
Average number of shares
outstanding, in thousands 2) 137 138 140 498 171 375
Shareholders' equity
per share at end of
period, EUR 11.78 11.14 10.86
Number of shares
outstanding at end of
period, in thousands 2) 137 168 171 111 171 534
Capital expenditure,
EUR million 3) 1 403 299 178
Depreciation,
EUR million 4) 62 71 75
Average personnel
for the period 20 886 21 173 21 242
1) The negative goodwill is netted against assets.
2) The number of own shares repurchased is excluded.
3) The acquisition of AvestaPolarit shares is included.
4) The amortization of negative and positive goodwill is
excluded.
