OUTOKUMPU?S SECOND QUARTER 2006 INTERIM REPORT ? STRONG DEMAND AND HIGHER BASE PRICES IMPROVED PROF
OUTOKUMPU OYJ STOCK EXCHANGE RELEASE JULY 25, 2006 AT 1.00 PM
OUTOKUMPUS SECOND QUARTER 2006 INTERIM REPORT STRONG DEMAND AND
HIGHER BASE PRICES IMPROVED PROFITS
Outokumpus sales for April-June 2006 amounted to EUR 1 564 million
(I/2006: EUR 1 548 million). Operating profit improved substantially
to EUR 159 million (I/2006: EUR 71 million). Net profit for the
period was EUR 133 million (I/2006: EUR 56 million) and earnings per
share EUR 0.73. Net cash generated from the Groups operating
activities totaled EUR 33 million.
Group key figures April- Jan- April- Jan-
June March June Dec
2006 2006 2005 2005
Sales EUR million 1 564 1 548 1 589 5 552
Operating profit EUR million 159 71 161 83
Non-recurring items
in operating profit EUR million - - - (129)
Profit before taxes EUR million 152 66 144 22
Net profit/(loss) for the
period
from continuing operations EUR million 116 46 105 (3)
Net profit/(loss) for the EUR million 133 56 97 (363)
period
Earnings per share
from continuing operations EUR 0.64 0.26 0.57 (0.02)
Earnings per share EUR 0.73 0.31 0.53 (2.01)
Net cash generated
from operating activities EUR million 33 37 51 459
Net interest-bearing debt
at end of period EUR million 1 509 1 483 1 822 1 537
Debt-to-equity ratio
at end of period % 69.5 73.0 80.6 74.5
Return on capital employed % 17.7 8.0 16.0 1.9
Capital expenditure,
continuing operations EUR million 34 35 41 174
Stainless steel deliveries 1 000 tonnes 467 510 459 1 647
Average personnel for the period,
continuing operations 10 675 10 554 11 833 11 517
THE SECOND QUARTER IN BRIEF
- Strong demand in the stainless steel market continued, especially
in Europe. Base prices have risen mainly due to good end-user
demand, whereas the effect of re-stocking appears to have been
smaller. Customer inventories still seem to be at normal or below
normal levels. According to CRU, prices were highest in the German
market, where the base price for cold rolled 304 sheet rose by 255
EUR/tonne from March and stood at 1 435 EUR/tonne at the end of
June.
- The nickel market has continued to be tight and volatile. The
price of nickel, the main alloying element in stainless steel,
increased during the second quarter and peaked in mid-July reaching
its all time high of over 29 000 USD/tonne. High raw material prices
had a negative effect on the Groups cash flow through increasing
working capital.
- Order backlogs of all Outokumpu units are record high. All mills
are running at full current capacity. Several production records
were achieved at Tornio Works.
- The closure of Coil Products Sheffield (CPS) was completed at the
end of April. Also the other performance improvement initiatives are
progressing well.
- The Groups sales totaled EUR 1 564 million and were on the
previous quarters level. Operating profit improved substantially to
EUR 159 million. Return on capital employed was 17.7%.
- Stainless steel deliveries decreased by 8% from the high level in
the previous quarter. Soaring base prices were the main contributor
to the significant profit improvement.
- Sales by Outokumpu Technology in the second quarter totaled EUR
177 million, an increase of 23% compared to the previous quarter.
Operating profit improved further and totaled EUR 12 million
(I/2006: EUR 4 million). Sales by Outokumpu Technology in the first
six months of 2006 were 48% higher than during the same period in
2005 and totaled EUR 321 million. Operating profit improved
significantly and totaled EUR 16 million (I-II/2005: EUR 3 million
negative).
- In June, the Board of Directors of Outokumpu Oyj decided to start
evaluating the possibility of listing Outokumpu Technology on the
Helsinki Stock Exchange. The timing of the possible listing is
subject to market conditions, however, in the autumn 2006 at the
earliest.
SHORT-TERM OUTLOOK
Demand for stainless steel continues to be strong at least up to the
year-end. The Groups order backlog is firm and Outokumpu is
currently selling for deliveries in November and beyond. Robust
demand and supply constraints provide an impetus for further base
price increases. For example in Germany, Outokumpus base price for
cold rolled 304 sheet for September is some 100 EUR/tonne higher
than it was in June. Further gradual base price increases have been
achieved in Europe for October and November deliveries, and base
prices for November, depending on the region, are some 150-200
EUR/tonne higher than in September. Transaction prices are also
boosted by the record high nickel price, which may cause uncertainty
in the market.
All of Outokumpus mills are running at full load. However, the
annual maintenance breaks in August-September will affect production
volumes during the third quarter. Nevertheless, due to higher base
prices Outokumpus operating profit for the third quarter is
expected to be close to that achieved in the second quarter. In
addition to operational performance the main risk related to profit
development during the rest of the year is linked to the high
volatility of nickel price.
CEO Juha Rantanen:
"The second quarter performance was very encouraging. Stainless
steel demand is strong and prices are improving. Operationally our
teams did well with sales and production running at full capacity.
Also the improvement initiatives are on track and the fixed cost
reduction program and the closure of Coil Products Sheffield start
to deliver the planned benefits during the second half of this
year."
MANAGEMENT ANALYSIS OF THE SECOND-QUARTER OPERATING RESULT
Group key figures
EUR million I/05 II/05 III/05 IV/05 2005 I/06 II/06
Sales
General Stainless 1 286 1 158 813 816 4 073 1 013 1 066
Specialty 785 819 584 552 2 739 650 638
Stainless
Technology 1) 65 151 133 207 556 144 177
Other operations 55 71 70 76 272 87 93
1)
Intra-group sales (736) (610) (408) (335) (2 088) (346) (409)
The Group 1 456 1 589 1 191 1 317 5 552 1 548 1 564
Operating profit
General Stainless 71 93 (55) (170) (62) 43 91
Specialty 55 65 14 (23) 110 22 65
Stainless
Technology 1) (7) 4 5 23 25 4 12
Other operations 9 (3) 10 (8) 8 2 (8)
1)
Intra-group items (6) 3 5 (1) 1 (0) (1)
The Group 121 161 (20) (179) 83 71 159
Stainless steel
deliveries
1 000 tonnes I/05 II/05 III/05 IV/05 2005 I/06 II/06
Cold rolled 233 226 195 212 867 286 239
White hot strip 135 126 61 68 391 104 103
Other 117 106 77 89 390 121 125
Total deliveries 485 459 333 370 1 647 510 467
Market prices and
exchange rates
I/05 II/05 III/05 IV/05 2005 I/06 II/06
Market prices 2)
Stainless steel
Base price EUR/t 1 332 1 217 1 113 1 035 1 174 1 127 1 342
Alloy surcharge EUR/t 875 956 1 012 923 942 844 1 020
Transaction EUR/t 2 207 2 173 2 125 1 958 2 116 1 971 2 362
price
Nickel USD/t 15 348 16 411 14 567 12 649 14 744 14 810 19 925
EUR/t 11 704 13 031 11 941 10 644 11 851 12 318 15 836
Ferrochrome
(Cr-content) USD/lb 0.78 0.78 0.73 0.68 0.74 0.63 0.70
EUR/kg 1.31 1.37 1.32 1.26 1.32 1.16 1.23
Molybdenum USD/lb 32.02 35.62 31.74 30.66 32.51 23.38 25.01
EUR/kg 53.84 62.35 57.37 56.89 57.61 42.86 43.82
Steel scrap USD/t 221 193 208 193 204 200 238
EUR/t 169 153 170 162 164 167 189
Exchange rates
EUR/USD 1.311 1.259 1.220 1.188 1.244 1.202 1.258
EUR/SEK 9.074 9.208 9.366 9.473 9.282 9.352 9.298
EUR/GBP 0.694 0.679 0.683 0.680 0.684 0.686 0.688
1) Outokumpu Metals Off-Take Oy has been transferred from Technology
to Other operations and figures from II/05 onwards have been restated.
2) Sources of market prices:
Stainless steel: CRU - German base price, alloy surcharge and
transaction price (2 mm cold rolled 304 sheet), estimates for
deliveries during the period
Nickel: London Metal Exchange (LME) cash quotation
Ferrochrome: Metal Bulletin - Ferrochrome lumpy chrome charge, basis
52% chrome
Molybdenum: Metal Bulletin - Molybdenum oxide - Europe
Steel Scrap: Metal Bulletin - Steel scrap HMS 1&2 fob Rotterdam
Strong demand continued in the stainless steel market
Favorable global economic growth continued during the second
quarter. The strong improvement in global stainless steel markets
continued. Global apparent consumption of stainless steel flat
products was some 2% higher than in the previous quarter. European
supply of stainless steel was production constrained, markets
tightened and base prices increased strongly. According to CRU, the
base price of 304 cold rolled stainless steel sheet in Germany rose
by a total of 255 EUR/tonne during the period. The average German
base price was 1 342 EUR/tonne, up by 19% from the previous quarter.
Demand for all main alloying materials in stainless steel increased
by some 3% from the previous quarter and prices for these materials
were both high and volatile. The price of nickel was a record high
with the average price being 19 925 USD/tonne, an increase of 35%
from the previous quarter. Nickel prices have continued to skyrocket
and peaked above 29 000 USD/tonne in mid-July. The ferrochrome
market moved to a clear undersupply in the second quarter. The
average price of ferrochrome in the period was 0.70 USD/lb, up by
11% from the previous quarter. Strong demand from stainless steel
producers, a restricted ferrochrome supply and increase in energy
prices are supporting the rise in the ferrochrome price and the
contract price for the third quarter of 2006 was agreed at 0.75
USD/lb. The price of molybdenum rose by 7% from the previous
quarter. Availability of stainless steel scrap has been tight and
the price of scrap increased by 19% during the second quarter. The
alloy surcharge of stainless steel has increased month-on-month from
February to August, boosting the transaction prices.
Improvement actions and excellence programs proceeding well
The closure of Coil Products Sheffield (CPS) was completed at the
end of April. The annual profit improvement resulting from the
closure will 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. The reduced fixed cost
running rate will start to materialize during the second half of
2006 with full effect in 2007. Targeted savings are divided 50/50
between personnel and non-personnel related costs.
In the commercial excellence program a common pricing tool is being
developed and training of key account managers is underway. A total
of twelve plants are currently involved in the production excellence
program: five plants are in the preparation phase, five plants are
in the pilot phase and two plants are in the expansion phase. More
plants will join the program in the autumn. The combined benefits
from these long-term operational enhancement programs will be
achieved 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.
Substantial improvement in operating profit
The Groups sales in the review period totaled EUR 1 564 million, 1%
higher than in the previous quarter. Order intake for all stainless
steel business units was strong and all mills ran at full capacity.
Stainless steel deliveries were 467 000 tonnes, 8% lower than in the
first quarter. Higher deliveries in the first quarter of 2006 were
partly due to postponement of some December 2005 deliveries to
January 2006 and partly due to the sale of CPSs inventories during
the first quarter before the closure. Despite lower level of
deliveries, the solid rise in stainless steel base prices
contributed to the substantially improved operating profit of EUR
159 million. Raw material costs were somewhat higher because more
virgin material was used in the melt shops due to reduced
availability of stainless steel scrap. In view of the high and
volatile raw material prices, Outokumpus target is to keep
inventory volumes at current low levels. The majority of raw
material requirements are secured by long-term supply contracts.
General Stainless increased profits
General Stainless
EUR million I/05 II/05 III/05 IV/05 2005 I/06 II/06
Sales 1 286 1 158 813 816 4 073 1 013 1 066
of which Tornio Works 699 657 476 467 2 299 652 740
Operating profit 71 93 (55) (170) (62) 43 91
of which Tornio Works 59 74 (36) (48) 49 37 70
Operating capital
at the end of period 2 920 2 901 2 820 2 484 2 484 2 397 2 404
Deliveries of main
products (1 000
tonnes)
Cold rolled 210 183 162 179 734 246 206
White hot strip 102 89 41 53 284 74 85
Other 238 192 105 97 631 128 144
Total deliveries
of the division 550 463 307 329 1 649 448 434
Sales by General Stainless totaled EUR 1 066 million, an increase of
5% compared to the previous quarter with deliveries slightly lower
than in the previous quarter. Operating profit increased
substantially to EUR 91 million. The strong base price increase
during the review period was the primary contributor to the profit
improvement.
Tornio Works posted a good operating profit of EUR 70 million. A new
record for deliveries of finished products was achieved in May.
Manufacturing performance was good and Tornio Works is running at
its full current finished products capacity. Several production
records were achieved during the second quarter.
The closure of Coil Products Sheffield was completed at the end of
April. All activities at the site are now related to
decommissioning. Costs related to the decommissioning process are
covered by the closure provision recorded in December 2005.
Specialty Stainless strong profits from special products
Specialty Stainless
EUR million I/05 II/05 III/05 IV/05 2005 I/06 II/06
Sales 785 819 584 552 2 739 650 638
Operating profit 55 65 14 (23) 110 22 65
Operating capital
at the end of period 1 248 1 358 1 310 1 161 1 161 1 173 1 240
Deliveries of main
products (1 000
tonnes)
Cold rolled 44 54 43 47 188 56 54
White hot strip 57 43 30 30 160 49 41
Other 148 148 89 71 455 76 79
Total deliveries
of the division 249 245 162 148 803 182 173
Sales by Specialty Stainless in the review period were slightly
lower than in the previous quarter and totaled EUR 638 million.
Deliveries were 5% lower than in the first quarter. Operating profit
increased from the previous quarter and totaled EUR 65 million. The
main contributors to this significant improvement were higher prices
and a better product mix.
The Kloster Thin Strip cold rolling mill investment in Sweden is
proceeding according to plan. The EUR 53 million investment will
expand the mill's overall annual production capacity from 25 000
tonnes to 45 000 tonnes and will also allow the production of
thinner and wider products. The new capacity is scheduled to be on
stream by the end of 2006.
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. Specialty Stainless has succeeded in increasing the
share of sales of special grades and products.
Outokumpu Technology solid profit performance continued
Technology 1)
EUR million I/05 II/05 III/05 IV/05 2005 I/06 II/06
Sales 65 151 133 207 556 144 177
Operating profit (7) 4 5 23 25 4 12
Operating capital
at the end of period 41 31 58 (7) (7) 3 5
Order backlog
at the end of period 490 520 525 596 596 634 694
1) Outokumpu Metals Off-Take Oy has been transferred from Technology
to Other operations and figures from II/05 onwards
have been restated.
Outokumpu Technologys sales increased by 23% compared to the
previous quarter and operating profit was solid at EUR 12 million.
Sales by Outokumpu Technology in the first six months of 2006
increased by 48% compared to the corresponding period of the previous
year and totaled EUR 321 million. Operating profit improved markedly
and totaled EUR 16 million (I-II/2005: EUR 3 million negative).
In 2005 and during the first half of 2006 Outokumpu Technology
benefited from the favorable market situation and received several
large projects. In the second quarter the order intake totaled EUR
240 million. Outokumpu Technologys order backlog strengthened
further and was record high at EUR 694 million at the end of June.
Major orders received included a flotation circuit for the
Boddington gold mine expansion in Western Australia (EUR 11
million), modernization of Boliden Harjavaltas copper refinery in
Pori, Finland, two new alumina calcination plants after successful
commissioning of five earlier deliveries for Alunorte in Brazil (EUR
15 million), modernization of Aluminij d.d Mostar carbon anode plant
in Bosnia Herzegovina (EUR 28 million), a rodding shop for Vedanta
Alumina Company in India (EUR 10 million) and a bauxite residue
neutralization plant for Queensland Alumina in Australia (EUR 20
million). In May, an engineering agreement, the first phase of the
project for the world's largest sulfuric acid plant complex for the
Saudi Arabian Mining Company (Maaden) in Kingdom of Saudi Arabia,
was signed, with a plan to negotiate a contract for the project
implementation and construction in the second phase of the project.
Outokumpu Technology was chosen as the lead technology supplier for
a greenfield copper processing plant being built by Cobre Las Cruces
in Spain (EUR 45 million).
Demand for metals has continued strong during the second quarter.
The mining and metals industry has invested actively in both ferrous
and non-ferrous metals production plants, and there are no signs of
a slow-down in the activity in the short-term. Outokumpu
Technologys outlook is favorable for 2006 indicating that the
profitability will improve clearly from the previous year. The
current solid order backlog extends well beyond 2006.
Other operations
Other operations 1)
EUR million I/05 II/05 III/05 IV/05 2005 I/06 II/06
Sales 55 71 70 76 272 87 93
Operating profit 9 (3) 10 (8) 8 2 (8)
Operating capital
at the end of period 34 43 37 139 139 134 240
1) Outokumpu Metals Off-Take Oy has been transferred from Technology
to Other operations and figures from II/05 onwards have been
restated.
Other operations consists of activities outside the Groups primary
businesses as well as industrial holdings. Business development
costs and expenses associated with Group functions that are not
allocated to the businesses are also reported under Other
operations. The result posted by Other operations in the second
quarter included EUR 4 million gain on the sale of Okmetic Oyj
shares. Net market price losses totaled EUR 3 million (I/2006: net
market price gains EUR 8 million). Outokumpu Metals Off-Take Oy
involved in copper metal trading has been transferred from Outokumpu
Technology to Other operations and historical figures have been
restated.
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 second-quarter interim report will be held on July
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:
UK +44 20 7162 0025
US & Canada +1 334 323 6201
Password Outokumpu
The news conference can be viewed live via the 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 July 25, 2006 at around 6.00 pm.
An instant replay service for the conference call will be available
until Friday, July 28, 2006 on the following numbers:
UK replay number +44 20 7031 4064, access code: 709 871
US & Canada replay number +1 954 334 0342, access code: 709 871
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 demand improved during the first half of 2006
During the first half of 2006, global apparent consumption of
stainless steel increased by 2% compared to the previous year.
Demand for stainless steel was strong during the first half of 2006
and both base prices and transaction prices rose month-on-month.
According to CRU, the average German base price for 304 2mm cold
rolled sheet was 1 234 EUR/tonne, 3% lower than in the first half of
2005. At the end of June 2006, the base price was 1 435 EUR/tonne
compared to 1 030 EUR/tonne at the end of 2005. Raw material prices
increased strongly during the first half of 2006. Although the
average nickel price in the first half of 2006 was 17 368 USD/tonne,
9% higher than in 2005, prices skyrocketed during the second
quarter, reaching 22 275 USD/tonne at the end of June and peaked
in mid-July exceeding 29 000 USD/tonne.
Solid financial result
The Groups sales for the first half of 2006 totaled EUR 3 112
million (I-II/2005: EUR 3 044 million), an increase of 2%. Stainless
steel deliveries increased by 4%. Outokumpu Technologys first half
of 2006 was very strong with sales totaling EUR 321 million, an
increase of 48% compared to the same period in 2005.
Operating profit was EUR 230 million (I-II/2005: EUR 281 million).
In the first half of 2005, operating profit included a non-recurring
gain of EUR 25 million from the sale of Boliden shares. While
stainless steel base prices during January-June 2006 represented a
considerable increase on prices in the second half of 2005, the
average prices were still slightly below the prices in the first
half of 2005. Outokumpu Technology posted an operating profit of EUR
16 million compared to an operating loss of EUR 3 million in the
corresponding period last year.
Net financial expenses totaled EUR 14 million (I-II/2005: EUR 31
million) and included net market price gains of EUR 12 million (I-
II/2005: EUR 2 million). Net profit for the period from continuing
operations totaled EUR 162 million (I-II/2005: EUR 193 million) and
net profit from discontinued operations totaled EUR 27 million (I-
II/2005: EUR 341 million negative). Earnings per share from
continuing operations was EUR 0.90 and from discontinued operations
EUR 0.15. Return on capital employed was 12.6% (I-II/2005: 12.5%).
The Groups performance improvement initiatives are proceeding well.
In the commercial excellence program a common pricing tool is being
developed and training of key account managers is underway. A total
of twelve production units are currently involved in the production
excellence program and additional plants will join this program in
the autumn. The closure of Coil Products Sheffield was completed at
the end of April. The Groups fixed cost reduction program is
progressing according to plan.
Capital expenditure and cash flow
Capital expenditure for January-June totaled EUR 69 million (I-
II/2005: EUR 78 million). The Group's capital expenditure limit for
the 2006-2007 period has been set at an annual level of 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 totaled EUR 70 million
(I-II/2005: EUR 121 million). Dividends of EUR 81 million were paid
in April 2006. EUR 213 million was tied up in working capital mainly
as a result of high raw material prices. Due to the high and
volatile raw material prices Outokumpu attempts to keep inventory
volumes low.
Net interest-bearing debt totaled EUR 1 509 (Dec. 31, 2005: EUR
1 537 million) and gearing improved to 69.5% (Dec. 31, 2005: 74.5%).
Outokumpu evaluates listing of Outokumpu Technology
In June, the Board of Directors of Outokumpu Oyj decided to start
evaluating the possibility of listing Outokumpu Technology on the
Helsinki Stock Exchange. The primary structural alternative under
consideration is the sale of shares via an Initial Public Offering
to Finnish and international institutional investors and to the
public in Finland. The timing of the possible listing is subject to
market conditions, however, in the autumn 2006 at the earliest.
Outokumpu Technology, currently a wholly owned subsidiary of
Outokumpu Oyj, is a global leader in designing, developing and
supplying tailored plants, processes and equipment for the minerals
and metals processing industries worldwide. Outokumpu Technology has
1 800 employees and generated sales of EUR 556 million in 2005.
The Board and management of Outokumpu believe that the listing of
Outokumpu Technology as an independent company on the Helsinki Stock
Exchange, with its own focus, will improve the strategic focus and
prospects for continued business development for both companies,
also considering the limited synergies between the two companies. As
two listed companies, both Outokumpus and Outokumpu Technologys
valuations will be more transparent in the market.
Discontinued operations
Outokumpu is implementing a vigorous improvement program in
Outokumpu Copper Tube and Brass. In the first half of 2006, the
copper tube and brass business posted an operating profit of
EUR 33 million, which included the gain from the sale of Outokumpu
Copper MKM Ltd and inventory gains. Operating capital at the end of
June totaled EUR 181 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). Actual 2005 carbon dioxide emissions have been reported to
the local authorities. New allowances for 2006 were distributed in
February and the allowances received are sufficient for production
in 2006. Preparations to apply for allowances in the 2008-2012 Kyoto-
period are underway.
At the majority of the Groups stainless steel sites the emissions
and discharges were within permitted limits.
The Groups Corporate Responsibility report Outokumpu and the
environment 2005 was published in May.
Developments in reducing the number of occupational accidents has
been positive and the lost time injury frequency rate (i.e. lost
time accidents per million working hours) in the Groups continuing
operations improved to 14 (I-II/2005:16). The target for the Group
is less than 14 in 2006 and less than five in 2009. No major
accidents were reported during January-June 2006.
Personnel
During January-June 2006 the Groups continuing operations employed
an average of 10 615 people (I-II/2005:11 654) and at the end of
June had 11 006 employees (Dec. 31, 2005: 10 764). The number of
employees at the end of June includes some 800 temporary summer
trainees. The total reduction in the number of personnel employed
resulting from the fixed cost reduction program will be achieved by
the end of 2006.
Annual General Meeting 2006
The Annual General Meeting (AGM) of March 30, 2006 approved a
dividend of EUR 0.45 per share for 2005. Dividends totaling EUR 81
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 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 July 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
Demand for stainless steel continues to be strong at least up to the
year-end. The Groups order backlog is firm and Outokumpu is
currently selling for deliveries in November and beyond. Robust
demand and supply constraints provide an impetus for further base
price increases. For example in Germany, Outokumpus base price for
cold rolled 304 sheet for September is some 100 EUR/tonne higher
than it was in June. Further gradual base price increases have been
achieved in Europe for October and November deliveries, and base
prices for November, depending on the region, are some 150-200
EUR/tonne higher than in September. Transaction prices are also
boosted by the record high nickel price, which may cause uncertainty
in the market.
All of Outokumpus mills are running at full load. However, the
annual maintenance breaks in August-September will affect production
volumes during the third quarter. Nevertheless, due to higher base
prices Outokumpus operating profit for the third quarter is
expected to be close to that achieved in the second quarter. In
addition to operational performance the main risk related to profit
development during the rest of the year is linked to the high
volatility of nickel price.
Espoo, July 25, 2006
Board of Directors
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Condensed income statement
Jan-June Jan-June Jan-Dec
EUR million 2006 2005 2005
Continuing operations:
Sales 3 112 3 044 5 552
Other operating income 23 37 84
Costs and expenses (2 900) (2 799) (5 460)
Other operating expenses (5) (1) (94)
Operating profit 230 281 83
Share of results in associated companies 2 1 0
Financial income and expenses
Net interest expenses (29) (34) (62)
Market price gains and losses 12 2 (0)
Other financial income and expenses 3 2 1
Profit before taxes 217 252 22
Income taxes (55) (59) (24)
Net profit/(loss) for the
period from continuing operations 162 193 (3)
Discontinued operations:
Net profit/(loss) for the
period from discontinued operations 27 (341) (360)
Net profit/(loss) for the period 189 (147) (363)
Attributable to:
Equity holders of the Company 189 (149) (364)
Minority interest 0 1 1
Earnings per share for profit attributable
to the equity holders of the Company:
Earnings per share, EUR 1.04 (0.82) (2.01)
Diluted earnings per share, EUR 1.04 (0.82) (2.01)
Earnings per share from continuing
operations
attributable to the equity
holders of the Company:
Earnings per share, EUR 0.90 1.06 (0.02)
Earnings per share from discontinued
operations
attributable to the equity
holders of the Company:
Earnings per share, EUR 0.15 (1.88) (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
June 30 June 30 Dec 31
EUR million 2006 2005 2005
ASSETS
Non-current assets
Intangible assets 568 590 578
Property, plant and equipment 2 093 2 227 2 125
Non-current financial assets
Interest-bearing 274 243 262
Non interest-bearing 67 48 45
3 002 3 109 3 009
Current assets
Inventories 1 220 1 466 1 186
Current financial assets
Interest-bearing 58 236 37
Non interest-bearing 1 064 1 027 841
Cash and cash equivalents 176 102 212
2 517 2 831 2 277
Receivables related to
assets held for sale 266 228 221
Total assets 5 785 6 167 5 507
EQUITY AND LIABILITIES
Equity
Equity attributable to the
equity holders of the Company 2 156 2 246 2 047
Minority interest 15 16 15
2 171 2 262 2 062
Non-current liabilities
Interest-bearing 1 530 1 721 1 624
Non interest-bearing 366 397 319
1 897 2 117 1 943
Current liabilities
Interest-bearing 667 822 556
Non interest-bearing 965 878 857
1 632 1 700 1 413
Liabilities related to
assets held for sale 85 88 89
Total equity and liabilities 5 785 6 167 5 507
Consolidated statement of changes in equity
Attributable to equity holders of the
Company
Sha- Sha- Fair Trea-
re re Other value sury
Capi- premium reser- reser- sha-
EUR million tal fund ves ves res
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 - - - 6 -
Net investment hedges - - - - -
Change in translation
differences - - - - -
Items recognised
directly in equity - - - 9 -
Net profit for the period - - - - -
Total recognised
income and expenses - - - 9 -
Dividends paid - - - - -
Management stock option program:
value of received services - - - - -
Equity on June 30, 2006 308 701 11 33 (2)
Attributable to equity holders of the
Company
Cumu-
lative
trans- Re- Mino-
lation tained rity
diffe- ear- inte- Total
EUR million rences nings rest equity
Equity on December 31, 2004 (59) 1 496 38 2 506
Cash flow hedges - - - 6
Fair value gains on
available-for-sale
financial assets - - - 3
Net investment hedges 1 - - 1
Change in translation
differences 19 - 0 19
Items recognised
directly in equity 20 - 0 29
Net loss for the period - (364) 1 (363)
Total recognised
income and expenses 20 (364) 1 (334)
Dividends paid - (91) - (91)
Management stock
option program:
value of received services - 3 - 3
Transfer of treasury shares - - - 4
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
Cash flow hedges - - - 4
Fair value gains on
available-for-sale
financial assets - - - 6
Net investment hedges 0 - - 0
Change in translation
differences (9) - 0 (9)
Items recognised
directly in equity (9) - 0 0
Net profit for the period - 189 0 189
Total recognised income
and expenses (9) 189 0 189
Dividends paid - (81) - (81)
Management stock option program:
value of received services - 1 - 1
Equity on June 30, 2006 (47) 1 152 15 2 171
Condensed statement of cash flows
Jan-June Jan-June Jan-Dec
EUR million 2006 2005 2005
Net profit/(loss) for the period 189 (147) (363)
Adjustments
Depreciation and amortization 106 107 232
Impairments 4 (83) 168
Loss on the sale of the
fabricated copper products business - 246 252
Other adjustments 71 230 92
(Increase)/decrease in working capital (213) (188) 202
Dividends received 6 6 7
Interest received 7 20 21
Interest paid (47) (59) (93)
Income tax paid (52) (11) (58)
Net cash from operating activities 70 121 459
Purchases of assets (80) (78) (245)
Proceeds from the sale of subsidiaries 20 487 489
Proceeds from the sale of
shares in associated companies 9 109 290
Proceeds from sale of other assets 6 0 13
Change in other investing activities (1) (1) 18
Net cash from investing activities (46) 517 565
Cash flow before financing activities 24 638 1 024
Borrowings of long-term debt 46 90 136
Repayments of long-term debt (90) (331) (454)
Increase/(decrease) in current debt 75 (239) (600)
Dividends paid (81) (91) (91)
Change in other financing activities (4) (165) (22)
Net cash from financing activities (54) (735) (1 032)
Adjustments 0 (12) 2
Net change in cash and cash equivalents (30) (109) (6)
Cash and cash equivalents
at the beginning of the financial year 212 211 211
Foreign exchange rate effect
on cash and cash equivalents (7) 3 7
Net change in cash and cash equivalents (30) (109) (6)
Cash and cash equivalents
at the end of the financial year 176 102 212
Key figures
Jan-June Jan-June Jan-Dec
EUR million 2006 2005 2005
Operating profit margin, % 7.4 9.2 1.5
Return on capital employed, % 12.6 12.5 1.9
Return on equity, % 18.0 (12.4) (15.9)
Return on equity from continuing operations, 15.4 16.2 (0.1)
%
Capital employed at end of period 3 680 4 084 3 599
Net interest-bearing debt at end of period 1 509 1 822 1 537
Equity-to-assets ratio at end of period, % 38.4 37.2 38.2
Debt-to-equity ratio at end of period, % 69.5 80.6 74.5
Earnings per share, EUR 1.04 (0.82) (2.01)
Earnings per share from
continuing operations, EUR 0.90 1.06 (0.02)
Earnings per share from
discontinued operations, EUR 0.15 (1.88) (1.99)
Average number of shares
outstanding, in thousands 1) 181 032 181 002 181 031
Fully diluted earnings per share, EUR 1.04 (0.82) (2.01)
Fully diluted average number
of shares, in thousands 1) 181 683 181 045 181 140
Equity per share at end of period, EUR 11.91 12.41 11.31
Number of shares outstanding at end of
period,
in thousands 1) 181 032 181 032 181 032
Capital expenditure, continuing operations 69 78 174
Depreciation, continuing operations 106 107 216
Average personnel for the period,
continuing operations 10 615 11 654 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
Groups 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 Groups 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 June 30, 2006.
Outokumpu Oyj held 218 603 treasury shares on June 30, 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 June 30, 2006.
The current amounts that Outokumpu Oyj shares could be subscribed
for with the option 2003 program for management are as follows:
2003A 659 302 shares, 2003B 1 032 570 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 3 024 932 and the number of shares by a maximum of 1 779 372
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, currently a total of 397 400 shares, their shareholding
obtained via the program would amount to 0.2% of the Companys
shares and voting rights.
The detailed information of the 2003 option program and of the share-
based incentive program for 2006-2010 is 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. The
production capacity of Outokumpu Copper MKM Ltd is some 40 000
tonnes of brass rod and its sales 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 implementing a vigorous
improvement project in its existing copper tube and brass business
and it is Outokumpus intention to divest the tube and brass
business.
Specification of discontinued
operations and assets held for sale
Income statement
Jan-June Jan-June Jan-Dec
EUR million 2006 2005 2005
Sales 357 662 921
Expenses (321) (661) (927)
Operating profit 36 1 (6)
Net financial items (3) (7) (10)
Profit/(loss) before taxes 33 (6) (16)
Taxes (3) (5) (4)
Profit/(loss) after taxes 29 (11) (20)
Impairment loss recognized
on the fair valuation of
the Tube and Brass division's
assets and liabilities (2) (83) (86)
Loss on the sale of the fabricated
copper products business - (246) (252)
Taxes - - -
After-tax loss recognized
on the measurement of
assets and liabilities
of the disposal group 27 (329) (338)
Minority interest - (1) (1)
Net profit/(loss) for the period
from discontinued operations 27 (341) (360)
Balance sheet
June 30 June 30 Dec 31
EUR million 2006 2005 2005
Assets
Intangible and tangible assets 6 12 9
Other non-current assets 4 4 4
Inventories 127 111 113
Other current non-interest bearing 129 101 95
assets
266 228 221
Liabilities
Provisions 6 4 7
Other non-current non-interest
bearing liabilities 6 24 17
Trade payables 57 41 49
Other current non-interest
bearing liabilities 16 19 17
85 88 89
Cash flows
Jan-June Jan-June Jan-Dec
EUR million 2006 2005 2005
Operating cash flows (38) (76) (88)
Investing cash flows (4) (15) (70)
Financing cash flows 40 77 142
Total cash flows (2) (14) (17)
Major non-recurring items in operating profit
Jan- Jan-June Jan-Dec
June
EUR million 2006 2005 2005
Gain on the sale of
the Boliden shares - 25 35
Fixed cost reduction program - - (34)
Coil Products Sheffield closure - - (130)
- 25 (129)
Income taxes
Jan- Jan-June Jan-Dec
June
EUR million 2006 2005 2005
Current taxes (31) (36) (67)
Deferred taxes (24) (23) 43
(55) (59) (24)
Commitments
June 30 June 30 Dec 31
EUR million 2006 2005 2005
Mortgages and pledges
Mortgages on land 129 81 94
Other pledges 4 7 8
Guarantees
On behalf of subsidiaries
For commercial commitments 128 107 77
On behalf of associated
companies
For financing 4 4 4
Other commitments 62 68 65
Minimum future lease
payments on operating leases 118 121 120
Open derivative instruments
June 30 Dec 31 June 30 Dec 31
2006 2005 2006 2005
EUR million Net fair Contract amounts
values
Currency and interest
rate derivatives
Currency forwards (7) (1) 2 309 1 796
Interest rate swaps 10 3 282 432
Tonnes Tonnes
Metal derivatives
Copper forward and
futures contracts 2 (1) 7 275 33 775
Nickel forward and
futures contracts 3 1 2 196 1 608
Zinc forward and
futures contracts 0 0 3 325 1 300
TWh TWh
Electricity derivatives
Traded electricity
forwards and futures 1 1 0.0 0.1
Other financial contracts 27 13 4.5 4.6
Income statement by quarter
EUR million I/05 II/05 III/05 IV/05 2005 I/06 II/06
Continuing operations:
Sales 1 456 1 589 1 191 1 317 5 552 1 548 1 564
Operating profit 121 161 (20) (179) 83 71 159
Share of results in
associated companies (1) 2 (1) 0 0 (0) 2
Financial income and expenses (12) (19) (18) (13) (61) (5) (9)
Profit/(loss) before taxes 108 144 (39) (191) 22 66 152
Income taxes (20) (39) 8 26 (24) (20) (35)
Net profit/(loss) for the
period
from continuing operations 89 105 (31) (165) (3) 46 116
Net profit/(loss) for the
period
from discontinued operations (333) (8) (5) (14) (360) 10 17
Net profit/(loss) for the (244) 97 (36) (180) (363) 56 133
period
Attributable to:
Equity holders of the Company (245) 96 (36) (179) (364) 56 133
Minority interest 1 1 0 (1) 1 (0) 0
Major non-recurring items
in operating profit
EUR million I/05 II/05 III/05 IV/05 2005 I/06 II/06
General Stainless
Coil Products Sheffield - - - (127) (127) - -
closure
Fixed cost reduction program - - - (11) (11) - -
Specialty Stainless
Fixed cost reduction program - - - (21) (21) - -
Technology - - - - - - -
Other operations
Coil Products Sheffield - - - (3) (3) - -
closure
Fixed cost reduction program - - - (3) (3) - -
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 II/06
Operating profit margin, 8.3 10.1 (1.7) (13.6) 4.6 10.2
%
Return on capital
employed, % 10.9 16.0 (2.0) (18.8) 8.0 17.7
Return on equity, % (41.0) 17.2 (6.4) (33.5) 11.0 25.3
Return on equity,
continuing operations, % 14.9 18.6 (5.5) (30.8) 9.0 22.1
Capital employed
at end of period 3 953 4 084 3 981 3 599 3 513 3 680
Net interest-bearing debt
at end of period 1 695 1 822 1 744 1 537 1 483 1 509
Equity-to-assets ratio
at end of period, % 35.5 37.2 38.7 38.2 37.4 38.4
Debt-to-equity ratio
at end of period, % 75.0 80.6 77.9 74.5 73.0 69.5
Earnings per share, EUR (1.35) 0.53 (0.20) (0.99) 0.31 0.73
Earnings per share from
continuing operations, 0.49 0.57 (0.17) (0.91) 0.26 0.64
EUR
Earnings per share from
discontinued
operations, EUR (1.84) (0.04) (0.03) (0.08) 0.06 0.09
Average number of shares
outstanding,
in thousands 1) 180 901 181 032 181 032 181 032 181 032 181 032
Equity per share at
end of period, EUR 12.39 12.41 12.27 11.31 11.14 11.91
Number of shares
outstanding
at end of period,
in thousands 1) 181 032 181 032 181 032 181 032 181 032 181 032
Capital expenditure,
continuing operations 37 41 39 57 35 34
Depreciation,
continuing operations 53 54 54 55 53 53
Average personnel
for the period,
continuing operations 11 475 11 833 11 746 11 013 10 554 10 675
1) The number of own shares repurchased is excluded.
