WEAK MARKET CONDITIONS TURNED THIRD QUARTER NEGATIVE ? DECISIVE CHANGE PROGRAM INITIATED
OUTOKUMPU OYJ STOCK EXCHANGE RELEASE OCTOBER 25, 2005 AT 1.45 PM
WEAK MARKET CONDITIONS TURNED THIRD QUARTER NEGATIVE DECISIVE
CHANGE PROGRAM INITIATED
Outokumpus sales for the seasonally weak July-September period
amounted to EUR 1 191 million (II/2005: EUR 1 589 million,
III/2004: EUR 1 143 million). Continued de-stocking, the roll-out
of new capacity and weak growth in demand as well as high raw
material prices resulted in decreased base prices for stainless
steel. As announced earlier, the third quarter result turned
negative and the Groups operating loss was EUR 21 million
(Operating profit II/2005: EUR 157 million and III/2004: EUR 77
million). Net loss for the period from continuing operations
totaled EUR 31 million (Net profit II/2005: EUR 105 million and
III/2004: EUR 58 million). Earnings per share from continuing
operations was EUR 0.17 negative and from discontinued operations
EUR 0.03 negative.
THE THIRD QUARTER IN BRIEF
- Outokumpu has now completed the review of its stainless steel
cold rolling operations in Sheffield and today (see separate stock
exchange release) the Board of Directors has concluded that it is
the intention of Outokumpu to cease the operations of its Coil
Products Sheffield business unit in Britain. It has some 570
employees. The annual capacity of Coil Products Sheffield is 300
000 tonnes representing more than 6 percent of the Western
European cold rolled capacity. In addition to this, the
operational capacity of the Sheffield melt shop will be adjusted
from 500 000 tonnes to 300 000 tonnes. In the new operational
structure Outokumpus melting capacity will be 2.5 million tonnes,
hot rolling capacity to match melting capacity and cold rolling
mill capacity 1.6 million tonnes annually.
- The stainless steel markets remained weak in the third quarter.
The holiday period in Europe, Outokumpus main market, resulted in
low order intake and a short order backlog. High alloy surcharges
also continued to curtail growth in demand, which slowed
especially in Europe and Asia.
- The Group posted an operating loss of EUR 21 million. Oversupply
in the market as well as high raw material prices have driven base
prices for stainless steel to a very low level, mainly affecting
Outokumpus standard grade volume products. Outokumpu cut back
production by some 150 000 tonnes during the third quarter
including the effect of maintenance stoppages. General Stainless
made an operating loss of EUR 49 million while Specialty Stainless
posted an operating profit of EUR 8 million. Technologys
operating profit totaled EUR 6 million.
- In September Outokumpu divested its remaining 16.1% holding in
Boliden. Proceeds from the sale totaled some EUR 180 million and
resulted in a capital gain of EUR 10 million.
- Net cash generated from continuing activities totaled EUR 197
million. Working capital decreased by EUR 176 million during the
third quarter. Net interest-bearing debt fell by EUR 78 million
and stood at EUR 1 744 million at the end of September. Gearing
declined to 77.9%.
- In September, the financial targets for the ongoing commercial
and production excellence programs were confirmed. Outokumpu also
announced decisive actions to counter the weak market situation
and to improve profitability and cash flow. This improvement
program has three components: fixed cost reduction, reduced
capital expenditure and tight working capital management. As a
temporary measure, with immediate effect, new orders from Coil
Products Sheffield were transferred to Tornio in order to achieve
full benefit from the plants expanded and cost-efficient
capacity.
- There are some positive signals in the stainless steel market.
The base price erosion in Europe seems to have stopped, partly
attributable to the significantly reduced inventories as well
as declining alloy surcharges. This suggests that de-stocking
could come to an end during the first half of 2006.
However, the demand outlook for the fourth quarter 2005
remains uncertain.
- Outokumpus deliveries of finished products for the full year
2005 are estimated to be slightly lower than in the previous year,
despite the fact that the order intake has picked up towards the
end of the third quarter. After cessation of the production at
Coil Products Sheffield, Tornio will be fully loaded as of the
fourth quarter 2005. Outokumpu´s underlying profitability in the
fourth quarter is estimated to be around break-even on operating
profit level. Nevertheless, due to non-recurring write-downs and
provisions as well as inventory losses, the fourth quarter
operating profit will be heavily negative.
CEO Juha Rantanen comments:
"Long-term stainless demand is healthy but new capacity in China
puts pressure on markets also in Europe. Thus we have initiated a
bold change program to enable us to reach our financial goals even
in a challenging market. The process we have initiated in
Sheffield leading to a ceasing of the cold rolling mill is aiming
at improving our manufacturing structure by enabling full capacity
utilization in Tornio. This in combination with the already
initiated performance improvement actions will significantly
improve our profitability and cash flow in the years to come."
MANAGEMENT ANALYSIS OF THE THIRD-QUARTER OPERATING RESULT
Group key figures
EUR million I/04 II/04 III/04 IV/04 2004 I/05 II/05 III/0
5
Sales
General Stainless 1 080 1 178 1 014 1 213 4 485 1 342 1 223 878
Specialty Stainless 570 638 531 670 2 409 718 750 517
Technology 81 104 91 146 423 65 158 144
Other operations 55 50 56 57 218 55 64 58
Intra-group sales (590) (687) (549) (586) (2 413) (724) (606) (406)
The Group 1 196 1 283 1 143 1 500 5 122 1 456 1 589 1 191
Operating profit
General Stainless 1) 88 81 46 80 295 73 99 (49)
Specialty Stainless 41 38 33 42 154 51 59 8
1)
Technology 9 (1) 2 20 30 (8) 4 6
Other operations 1) (4) (10) (4) (14) (33) 6 (7) 8
Intra-group items (6) 13 0 0 7 (4) 2 6
The Group 128 121 77 128 453 118 157 (21)
Stainless steel
deliveries
1 000 tonnes I/04 II/04 III/04 IV/04 2004 I/05 II/05 III/05
Cold rolled 239 221 213 217 890 233 226 195
White hot strip 103 99 74 157 432 135 126 61
Other 138 124 87 116 464 117 106 77
Total deliveries 479 444 374 490 1 786 485 459 333
Market prices and
exchange rates
I/04 II/04 III/04 IV/04 2004 I/05 II/05 III/05
Market prices 2)
Stainless steel
Transaction price EUR/t 2 122 2 280 2 257 2 350 2 252 2 207 2 173 2 125
Base price EUR/t 1 397 1 433 1 442 1 425 1 424 1 332 1 217 1 113
Nickel USD/t14 737 12 503 13 998 14 080 13 852 15 348 16 411 14567
EUR/t11 792 10 379 11 455 10 850 11 136 11 704 13 031 11 941
Ferrochrome (Cr- USD/lb 0.61 0.69 0.73 0.73 0.69 0.78 0.78 0.73
content)
EUR/kg 1.08 1.26 1.32 1.24 1.22 1.31 1.37 1.32
Molybdenum USD/lb 8.20 14.61 16.91 25.85 16.39 32.02 35.62 31.74
EUR/kg 14.46 26.49 30.50 43.92 29.05 53.84 62.35 57.37
Iron scrap USD/t 231 211 238 265 236 240 209 236
EUR/t 185 176 195 204 190 183 166 194
Exchange rates
EUR/USD 1.250 1.200 1.220 1.298 1.244 1.311 1.259 1.220
EUR/SEK 9.184 9.150 9.150 9.013 9.124 9.074 9.208 9.366
EUR/GBP 0.680 0.667 0.672 0.695 0.679 0.694 0.679 0.683
1) The treatment of internal raw material pricing has been changed
and the division of the operating profit between General
Stainless,
Specialty Stainless and Other operations has been restated for the
first and second quarter of 2005.
2) Sources of market prices:
Stainless steel: CRU - German transaction and base prices (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.
Iron Scrap: Metal Bulletin - Iron scrap HMS1 fob Rotterdam.
Markets third quarter weak, challenging in the short-term and
robust in the longer-term
World economic growth continued at a rate of about 3.5% during the
third quarter, with the US and China as the main driving force. In
Europe, growth remained modest. Although the rise in the oil price
has increased uncertainty, global economic growth is estimated to
stay relatively stable in the near future.
During the seasonally low third quarter global demand for cold
rolled stainless steel decreased by some 4% compared to the second
quarter but was 5% higher than in the third quarter of 2004 mainly
driven by China. Markets were oversupplied due to the continuing
de-stocking phase and the roll-out of new hot rolling capacity in
China. Growth in demand slowed especially in Europe and Asia but
held up better in the US. According to Eurofer, the European third
quarter cold rolled shipments were nearly 16% lower than in the
previous year. The European base price for CR 304 sheet fell by
100 EUR/tonne in the third quarter and stood at 1 070 EUR/tonne at
the end of September. However, it now seems that base price
erosion has stopped. US prices remained higher than prices in
Europe and Asia. Producers responded to the weakening markets by
cutting production. In the third quarter total announced cutbacks
globally were some 900 000 tonnes.
Prices of alloying materials for stainless steel declined in the
third quarter, as demand from stainless steel producers was
weaker. The price of nickel averaged 14 567 USD/tonne in the third
quarter,
11% lower than in the second quarter and has fallen from more than
15 000 USD/tonne in early September to just over 12 000 USD/tonne
in mid-October. The ferrochrome market moved into oversupply. The
contract price for the quarter was at 0.73 USD/lb, 6% below the
second quarter. In the near future, the ferrochrome market is
expected to remain oversupplied and the contract price for the
fourth quarter was settled at 0.68 USD/lb. The market for
molybdenum was slightly oversupplied in the period and the price
fell by 11% compared to the second quarter, though remaining at a
historically very high level. The price of iron scrap rose by 13%
in the third quarter, but fell back during October to the level it
was in the second quarter. The alloy surcharge for stainless steel
rose to a record high in July and August, but fell in September
and will decline further in October and November.
In certain European markets, the stainless steel inventories seem
to have fallen sharply during the third quarter, presumably
because of production cutbacks. According to CRU estimates, de-
stocking will be over by the second quarter 2006, allowing
deliveries to recover to trend levels.
Longer-term stainless steel demand is expected to remain robust,
supported by good growth prospects among Outokumpus key customer
segments. However, the key issue is the growth in global capacity,
mainly in China, and this makes exporting from Europe to Asia more
and more difficult.
Weak result in depressed market conditions
During the third quarter Outokumpu cut back production by some 150
000 tonnes including the effect of maintenance stoppages. Group
sales totaled EUR 1 191 million, a decrease of 25% from the second
quarter but an increase of 4% compared with the corresponding
period in 2004. Stainless steel deliveries were 27% lower than in
the previous quarter and 11% lower than in July-September 2004.
Oversupply and low stainless steel base prices mainly affected
Outokumpus standard grade volume products. Lower deliveries of
stainless steel and lower base prices turned the third quarter
negative. Group operating loss in the quarter totaled EUR 21
million compared to operating profits of
EUR 157 million in the second quarter and EUR 77 million during
July-September 2004. The results achieved by General Stainless in
particular, but also by Specialty Stainless, deteriorated
considerably. The operating loss in General Stainless totaled EUR
49 million, while Specialty Stainless posted an operating profit
of EUR 8 million. The operating profit in Technology improved to
EUR 6 million.
Outokumpu Stainless Tubular Products has been transferred from
General Stainless to Specialty Stainless from the beginning of
October. In financial reporting the change will be implemented in
the fourth quarter and comparative figures will be restated
accordingly.
Decisive actions to improve performance and profitability
Ceasing of the loss making operation of Coil Products Sheffield,
announced today, will confirm the ability of the Tornio Works, the
most cost-efficient and largest single-site stainless operation
globally,
to be operated with full load as of the fourth quarter 2005 and to
deliver the full benefits of its low cost base. Consequently, the
improvement of Groups future operating profit level is estimated
to be some EUR 50 million annually from the second half of 2006
onwards, compared to continuing business as usual within the
current structure, and with the prevailing price and loading
levels.
A program to improve profitability and cash flow was initiated
already in September. This program has three components: fixed
cost reduction, reduced capital expenditure and tight working
capital management. The targeted 10% reduction in fixed costs at
each unit will result in an improvement of some EUR 100 million in
Group-level operating profit on an annual basis. The plan is for
reduced fixed-cost running rates to be in place during the second
half of 2006, with full effect achieved in 2007.
The longer-term operational excellence programs launched in April
this year are progressing well and financial targets for the
programs have been confirmed. Total combined benefits from the
commercial and production excellence programs are expected to
amount to EUR 40 million in 2007, EUR 80 million in 2008 and to
thereafter total EUR 160 million on an annual basis.
General Stainless posts operating loss due to weak demand and low
prices
General Stainless
EUR million I/04 II/04 III/04 IV/04 2004 I/05 II/05 III/05
Sales 1 080 1 178 1 014 1 213 4 485 1 342 1 223 878
of which Tornio 522 578 471 613 2 183 699 657 476
Works
Operating profit 88 81 46 80 295 73 99 (49)
of which Tornio 70 67 47 57 241 59 74 (36)
Works
Operating capital
at the end of period 2 734 2 854 2 928 2 988 2 988 3 029 3 026 2 955
Deliveries of main
products (1 000
tonnes)
Cold rolled 215 195 195 191 796 205 180 161
White hot strip 77 72 54 116 320 97 82 37
Other 238 251 173 198 860 251 206 118
Total deliveries
of the division 529 518 422 506 1 976 553 468 316
Sales by General Stainless in the third quarter were 28% lower
than in the April-June period. Deliveries were down by 32%
compared to the second quarter and 25% lower than during June-
September 2004. Together with lower base prices this weakend the
third quarter result and the operating loss totaled EUR 49
million, a sharp decline of EUR 148 million from the second
quarter. To compensate for weak levels of demand, production at
the melt shops, including the Avesta melt shop within Specialty
Stainless, was cut back by some 150 000 tonnes during the period.
Tornio Works operating loss amounted to EUR 36 million and it was
also burdened by higher costs incurred during annual maintenance
stoppages. Weakened demand also meant reduced production volumes
in Outokumpu Stainless Tubular Products.
Ceasing of the loss making operation of Coil Products Sheffield
(CPS), announced today, will confirm the ability of the Tornio
Works, the most cost-efficient and largest single-site stainless
operation globally, to be operated with full load as of the fourth
quarter 2005 and to deliver the full benefits of its low cost
base. Coil Products Sheffield is a medium-scale, high-cost
operation with complicated logistics that cannot compete with the
clearly more cost-efficient integrated operations. Its annual
capacity is 300 000 tonnes of cold rolled products and it employs
some 570 people. In addition to ceasing the operation of CPS, the
operational capacity of the Sheffield melt shop, already part of
the September initiative, will be adjusted from 500 000 tonnes to
300 000 tonnes to provide feedstock only for the long products and
plate operations in Britain, Sweden and the US.
In the near future, the market for stainless steel standard
products looks challenging. Global capacity is rising dramatically
in China, and this is already weakening the scope for European
exports into China.
Specialty Stainless profit pushed down by low deliveries
Specialty Stainless
EUR million I/04 II/04 III/04 IV/04 2004 I/05 II/05 III/05
Sales 570 638 531 670 2 409 718 750 517
Operating profit 41 38 33 42 154 51 59 8
Operating capital
at the end of period 1 038 1 107 1 094 1 143 1 143 1 137 1 232 1 174
Deliveries of main
products (1 000
tonnes)
Cold rolled 51 50 33 45 178 46 57 45
White hot strip 65 61 42 62 231 65 50 34
Other 133 138 121 126 517 132 132 73
Total deliveries
of the division 249 249 195 233 926 243 239 152
Sales in the third quarter by Specialty Stainless were 31% lower
than in the April-June period. Deliveries were 36% down on the
second quarter and 22% lower than in July-September 2004. While
low demand for stainless steel undermined performance in Specialty
Stainless, the resulting effects were less than in the case of
General Stainless standard grade volume products. Even though
deliveries and price levels of special products, such as special
grade and project-related products were satisfactory, Specialty
Stainless units were also affected by weak demand for the more
standard products. Pressure on base prices mostly affected the
more standard products, but profitability was stabilized by the
special product part of the volume bringing the operating profit
to EUR 8 million.
As a consequence of ceasing the operation of Coil Products
Sheffield, the operational hot rolling capacity in Avesta, which
has been hot rolling slabs from Sheffield melt shop (SMACC) for
CPS, will be adjusted to 450 000 tonnes to reflect the new
operational structure. This will result in a review of shift
levels in the Avesta hot rolling mill, and in this respect, union
negotiations will start in due course.
Demand for special products is estimated to continue to be
reasonable. Decline in the prices of the alloying materials is
expected to improve project sales, although customers are still
postponing their decision-making.
Technologys profitability good order backlog strong and
expected to strengthen
Technology
EUR million I/04 II/04 III/04 IV/04 2004 I/05 II/05 III/05
Sales 81 104 91 146 423 65 158 144
Operating profit 9 (1) 2 20 30 (8) 4 6
Operating capital
at the end of period 27 45 29 39 39 40 32 60
Order backlog
at the end of period 390 336 423 458 458 490 520 524
Sales by Outokumpu Technology totaled EUR 144 million in the third
quarter. Operating profit improved from the second quarter to EUR
6 million. During January-September 2005, sales have increased by
33 % compared with the previous year.
Technologys order backlog was strong at EUR 524 million which is
14% higher than at the end of 2004. Order intake in the third
quarter was good at EUR 141 million. The cumulative order intake
stands at EUR 419 million. Some of the most significant new orders
booked are destined for Chinas growing copper production markets.
Outokumpu Technology announced a contract with the Yanggu
Xiangguang Copper Company for a greenfield copper-production plant
to be built in Shangdong province. The value of this contract
exceeds EUR 50 million and Outokumpu Technologys scope of supply
includes licenses, basic engineering and proprietary equipment for
both flash smelting and flash converting, delivery of an anode
casting shop, all tankhouse machinery with Outokumpu stainless
permanent cathodes, as well as engineering and key equipment for a
sulphuric acid plant.
The investment boom in the iron and steel industry continues and
Outokumpu Technologys position as the industrys leading supplier
of technology was once again confirmed by the announcement of the
contract with Tata Iron and Steel Co. (TISCO, India) to deliver an
iron ore sintering plant, the fourth sinter plant contract in
India. The good market situation in minerals processing also
continued in the third quarter and several orders for grinding
technology were received. These included OneSteels Project Magnet
in Australia for processing magnetite iron ore, the Lihir gold
mine project in Papua New Guinea and the Anglo Platinum´s and
Xstrata Alloy´s Motolo project in South Africa for processing
palladium and platinum.
The market situation continues to be good. Investment activity
within the metals and mining industry is expected to remain robust
and Outokumpu Technologys order backlog is expected to remain
strong throughout the year. Investment activity is strong in all
customer markets. Based on the strong order backlog operating
profit, is expected to improve from last year, excluding the non-
recurring gains in 2004.
Other operations
Other operations
EUR million I/04 II/04 III/04 IV/04 2004 I/05 II/05 III/05
Sales 55 50 56 57 218 55 64 58
Operating profit (4) (10) (4) (14) (33) 6 (7) 8
Operating capital
at the end of period 89 83 113 58 58 34 44 37
Other operations consists of activities outside the Groups
primary businesses as well as industrial holdings. Business
development costs and Corporate Management expenses not allocated
to the businesses are also reported under Other operations.
Operating profit for the first quarter included a EUR 25 million
capital gain on the sale of a 10.4% stake in Boliden. In the third
quarter the operating profit included a EUR 10 million capital
gain on the sale of the remaining 16.1% holding in Boliden.
The attachments present the interim review by the Board of
Directors as well as the accounts.
For further information, please contact:
Kari Lassila, SVP IR and Communications, tel. +358 9 421 2555,
kari.lassila@outokumpu.com
Vesa-Pekka Takala, SVP Corporate Controller, tel. +358 9 421
4134,
vesa-pekka.takala@outokumpu.com
Eero Mustala, SVP Corporate Communications, tel. +358 9 421
2435,
eero.mustala@outokumpu.com
News conference and live web cast today at 3.00 pm
A combined news conference, conference call and live webcast
concerning the third-quarter interim report will be held today on
October 25, 2005 at 3.00 pm Finnish time (8.00 am US EST, 1.00 pm
UK time, 2.00 pm CET) at Hotel Kämp, conference room Akseli Gallen-
Kallela, Pohjoisesplanadi 29, 00100 Helsinki, Finland.
To participate via a conference call, please dial in 5-10 minutes
before the beginning of the event:
+44 20 7162 0125 (UK) or +1 866 779 1135 (US & Canada). The
password is 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 October 25, 2005 at approximately 5.00 pm.
An instant reply service of the conference call will be available
until Friday, October 28, 2005 in the following numbers: +44 20
7031 4064 (UK) or +1 888 365 0240 (US & Canada). The access code
is 679899.
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
Weak market conditions reduced profitability
The Group´s sales in January-September 2005 was 17% higher than in
January-September 2004 and amounted to EUR 4 236 million (I-
III/2004: EUR 3 622 million). Delivery volumes of stainless steel
were marginally lower than in the corresponding period in 2004.
The European transaction prices of standard grade volume stainless
steel products fell slightly compared to the previous year despite
an increase in prices for alloying materials. Prices of stainless
steel special products were higher than in January-September 2004.
Sales by Outokumpu Technology was 33% higher than in previous
year.
The Group´s operating profit totaled EUR 253 million (I-III/2004:
EUR 325 million). The primary reasons for the deterioration in
profit were lower base prices and lower deliveries during the
third quarter of 2005. Non-recurring items in the nine-month
period totaled EUR 35 million (I-III/2004: EUR 17 million) and
comprise capital gains from the sale of Boliden shares. The non-
recurring gain recorded in 2004 related to the sale of Outokumpu
Technologys filter business. The share of results in associated
companies was EUR 0 million (I-III/2004: EUR 55 million). In 2004
Boliden was still being accounted for as an associated company.
Net interest expenses in January-September 2005 totaled EUR 49
million (I-III/2004: EUR 49 million) and market price gains and
losses reported under financial income and expenses were positive
at EUR 7 million (I-III/2004: EUR 3 million negative). Net profit
for the nine-month period from continuing operations totaled EUR
163 million (I-III/2004: EUR 264 million) and net loss from
discontinued operations totaled EUR 346 million. Earnings per
share from continuing operations amounted to EUR 0.89 and from
discontinued operations EUR 1.91 negative. Return on capital
employed was 7.6% (I-III/2004: 9.6%).
The Group´s net cash generated from operating activities in
January-September 2005 totaled
EUR 253 million (I-III/2004: EUR 302 million negative). The
contribution by continuing operations totaled EUR 318 million. The
Group´s working capital increased by EUR 85 million during January-
September. Net interest-bearing debt fell to EUR 1 744 million
(Dec. 31, 2004: EUR 2 435 million). Divestiture of the Groups
fabricated copper products business reduced indebtedness. In June,
Outokumpu signed a five-year revolving credit facility of EUR 1
billion. This is a committed credit facility, which replaces the
comparable EUR 875 million facility of May 2003.
In January-September 2005, capital expenditure amounted to EUR 117
million (I-III/2004: EUR 300 million). The expansion project at
the stainless steel cold rolling mill in Kloster, Sweden, is
proceeding on schedule. Group capital expenditure in 2005 is
expected to be below EUR 250 million.
At the end of September, the Groups equity-to-assets ratio stood
at 38.7% (Dec. 31, 2004: 35.8%) and the gearing ratio was 77.9%
(Dec. 31, 2004: 97.2%).
Boliden holding sold
In March, Outokumpu sold 30 million Boliden shares and Outokumpus
stake in the company was reduced to 16.1%. Proceeds from the
divestment totaled EUR 115 million and resulted in a capital gain
of EUR 25 million. The remaining holding was sold in September
2005. Proceeds totaled EUR 180 million and resulted in a capital
gain of EUR 10 million.
Discontinued operations
The sale of the Groups fabricated copper products business to
Nordic Capital was finalized on June 7, 2005. After final
adjustments, total consideration was EUR 612 million and loss
resulting from the disposal totaled EUR 245 million. Sales in 2004
by the sold businesses amounted to EUR 1 664 million and the
number of personnel employed at the end of the year was 6 400.
The Tube and Brass business that was excluded from this
transaction comprises European sanitary and industrial tubes,
including air-conditioning and refrigeration tubes in Europe, and
brass rod.
The EUR 346 million loss resulting from discontinued operations
comprises the result recorded by the fabricated copper products
business in the first quarter, the EUR 245 million loss from sale
of assets to Nordic Capital, the impairment loss of EUR 83 million
recognized in the Tube and Brass business and the result recorded
by this business in January-September 2005. The assets and
liabilities of the Tube and Brass business have been presented as
held for sale. Tube and Brass posted an operating loss of EUR 7
million in January-September 2005 and the operating capital at the
end of September 2005 was EUR 121 million.
As earlier announced, Outokumpu Copper (USA), Inc. has been served
with a complaint in a case filed in federal district court in
Memphis, Tennessee, the US by plaintiff American Copper & Brass,
Inc. The complaint alleges claims and damages under the US
antitrust laws and purports to be a class action on behalf of all
direct purchasers of copper plumbing tubes in the US from 1988 to
March 31, 2001. Outokumpu believes that the allegations in this
case are groundless and will defend itself in any such proceeding.
In connection with the transaction to sell the fabricated copper
products business to Nordic Capital, Outokumpu has agreed to
indemnify and hold harmless Nordic Capital with respect to this
class action.
Stainless Welding business sold
In July, Outokumpu signed an agreement to sell Avesta Welding, the
Stainless Welding business, and its distribution channels to
Böhler-Uddeholm of Austria. Sales recorded in 2004 by this
business, which employs some 160 people, totaled EUR 38 million.
Closing of the transaction is subject to customary regulatory
clearances. The deal has no significant impact on the Outokumpu
result.
Transformation to improve performance and profitability
In September 2005, Outokumpu announced that to counter the current
market situation it would fill in Tornio capacity by transferring
new orders from Coil Products Sheffield (CPS). Today, the Board
has concluded that it is the intention of Outokumpu to cease the
300 000 tonnes per year operation of its Coil Products Sheffield
business unit in Britain, and in addition to this, the operational
capacity of the Sheffield melt shop (SMACC) will be adjusted from
500 000 tonnes to 300 000 tonnes. The intention is subject to
consultation that will immediately commence with the Sheffield
workforce and the appropriate trade unions. This will confirm the
ability of the Tornio Works, the most cost-efficient and largest
single-site stainless operation globally, to be operated with full
load as of the fourth quarter 2005 and to deliver the full
benefits of its low-cost base. The loss-making CPS is a medium-
scale, high-cost operation with complicated logistics that cannot
compete with the clearly more cost-efficient integrated
operations.
CPS has some 570 employees. The SMACC workforce is likely to be
reduced by some
100 employees. In this respect, the consultation process with the
appropriate unions is underway.
As Avesta has been hot rolling SMACC slabs for CPS, the
operational hot rolling capacity in Avesta will be adjusted to 450
000 tonnes and this will result in a review of shift levels in the
Avesta hot rolling mill, and union negotiations in this respect
will start in due course.
The ceasing of the operation of CPS is estimated to result in non-
recurring write-downs of some EUR 100 million and provisions of
some EUR 50 million, which will be recorded in the fourth quarter
accounts in 2005. The effect on the Groups gearing will not be
significant due to released working capital. The improvement of the
Groups future operating profit level is estimated to be some EUR
50 million annually from the second half of 2006 onwards, compared
to continuing business as usual within the current structure, and
with the prevailing price and loading levels.
In the new operational structure Outokumpus melting capacity will
be 2.5 million tonnes, hot rolling mill capacity to match melting
capacity and cold rolling mill capacity 1.6 million tonnes
annually.
Outokumpus vision to be the undisputed number one in stainless
with success based on operational excellence was announced in
January this year. Operational excellence comprises the commercial
and production excellence programs launched in April 2005 when the
Groups new business organization came into effect. The commercial
excellence program, which covers all business units and sales
companies in Outokumpu will help shift the Group increasingly
towards customer orientation and a one-company operating model.
Production excellence is a highly practical program to improve
Outokumpu´s production operations. In this program, the objectives
are to improve health, safety and environmental performance, raw
material and equipment efficiency, benchmarking and the use of
best practices. Total combined benefits from the commercial and
production excellence programs are expected to amount to EUR 40
million in 2007, EUR 80 million in 2008, to thereafter total
EUR 160 million on an annual basis.
Group-wide cost reduction initiatives were commenced in September.
Profitability and cash flow improvement program underway has three
components: fixed cost reduction, reduced capital expenditure and
tight working capital management.
The fixed cost reduction will be implemented in all of the Groups
stainless business units as well as Corporate Management and Group
functions. The targeted 10% reduction of fixed costs in each unit
will result in an improvement of some EUR 100 million in Group-
level operating profit on an annual basis. Units have until the
end of October 2005 to prepare their plans and implementation will
commence immediately once employee negotiations have been
completed. This program is addressing all cost elements, including
personnel costs. The exact implications for personnel will be
defined during local employee and union negotiations. Possible non-
recurring costs related to the implementation of the cost
reduction plans will be provided for when plans are put into
action. The target is to have the reduced fixed-cost running rates
to be in place during the second half of 2006, with full effect
achieved in 2007.
Capital expenditure by the Group in 2006 will be cut to an
absolute minimum and will include only maintenance investments and
other investments to which a commitment has already been made. The
estimated total will be EUR 175 million. Capital expenditure in
2007 will be kept at the same level, i.e. some EUR 40 million
lower than the depreciation level of EUR 210 million after the
cessation of the operation of CPS.
Tight working capital management will continue in order to reduce
inventory levels. At the end of September, some EUR 200 to 300
million of additional finance was tied up because of high raw
material prices.
Environment, health and safety
The EU emissions trading system started in January 2005. In
February, carbon dioxide allowances and associated permits were
granted to the Tornio site in Finland and steel making and casting
plants at Avesta and Degerfors in Sweden. National registers for
allowances have been set up in Finland and in Sweden. The
allowances allocated are sufficient for Outokumpus planned
production in 2005-2007 and preparations for applying allowances
in 2006 for the 2008-2012 Kyoto period have been started. The
Sheffield melt shop utilized the opt-out possibility for the 2005-
2007 period provided by the British Climate Change Levy system. As
a consequence, procedures for the setting and monitoring of energy
saving targets in accordance with the National Climate Change Levy-
system have been modified. At most Group sites, emissions and
discharges were well below permission levels. Some minor breaches
of permitted levels did however occur at Avesta, Sheffield and
Tornio.
The Group-wide safety theme year has continued with a variety of
activities at different locations. A safety target for the Group
of no more than five accidents per million man-hours before 2009
has been set. The accident rate in the Outokumpu Group during
January-September was 21 per million man-hours (I-III/2004: 18).
In the stainless steel business the accident rate was 18 per
million man-hours (I-III/2004: 20). No major accidents were
reported during in January-September 2005.
Current market challenging some positive signals in the market
Long-term market fundaments for stainless steel are expected to
remain robust demand is expected to grow faster than for other
metals. In the short-term, however, the market situation is
weakened by de-stocking and the roll-out of new capacity
especially in China.
There are some positive signals in the market. The base price erosion
in Europe seems to have stopped, which is partly attributable to
the significantly reduced inventories, as well as declining alloy
surcharges. This suggests that de-stocking could come to an end
during the first half of 2006. However, the demand outlook
for the fourth quarter 2005 remains uncertain.
Outokumpus deliveries of finished products for the full year 2005
are estimated to be slightly lower than in the previous year,
despite the fact that the order intake has picked up towards the
end of the third quarter. After cessation of the production at
Coil Products Sheffield, Tornio will be fully loaded as of the
fourth quarter. Outokumpu´s underlying profitability in the fourth
quarter is estimated to be around break-even on operating profit
level. Nevertheless, due to non-recurring write-downs and
provisions, as well as inventory losses the fourth quarter
operating profit will be heavily negative.
Espoo October 25, 2005
Board of Directors
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Condensed income statement
Jan- Jan- Jan-
Sept Sept Dec
EUR million 2005 2004 2004
Continuing operations:
Sales 4 236 3 622 5 122
Other operating income 52 53 73
Costs and expenses (4 030) (3 343)(4 733)
Other operating expenses (5) (7) (9)
Operating profit 253 325 453
Share of results in associated 0 55 78
companies
Financial income and expenses
Net interest expenses (49) (49) (66)
Market price gains and losses 7 (3) (29)
Other financial income and expenses 2 2 4
Profit before taxes 213 329 440
Income taxes (51) (65) (61)
Net profit for the period
from continuing operations 163 264 379
Discontinued operations:
Net (loss), profit for the period
from discontinued operations (346) 16 7
Net (loss), profit for the period (183) 280 386
Attributable to:
Equity holders of the Company (185) 277 382
Minority interest 2 3 4
Earnings per share for profit
attributable
to the equity holders of the Company:
Earnings per share, EUR (1.02) 1.54 2.12
Earnings per share, EUR - diluted (1.02) 1.53 2.12
Earnings per share
from continuing operations
attributable to the equity
holders of the Company:
Earnings per share, EUR 0.89 1.45 2.08
Earnings per share from
discontinued operations
attributable to the equity
holders of the Company:
Earnings per share, EUR (1.91) 0.09 0.04
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
Sept Sept Dec
30 30 31
EUR million 2005 2004 2004
ASSETS
Non-current assets
Intangible assets 589 606 620
Property, plant and equipment 2 217 2 732 2 743
Non-current financial assets
Interest-bearing 249 651 409
Non interest-bearing 42 58 55
3 097 4 047 3 827
Current assets
Inventories 1 414 1 739 1 579
Current financial assets
Interest-bearing 46 62 70
Non interest-bearing 832 1 266 1 390
Cash and cash equivalents 257 137 211
2 549 3 204 3 250
Receivables related to assets held 201 - -
for sale
Total assets 5 846 7 251 7 077
EQUITY AND LIABILITIES
Equity
Equity attributable to the
equity holders of the Company 2 221 2 364 2 468
Minority interest 16 40 38
2 237 2 404 2 506
Non-current liabilities
Interest-bearing 1 779 1 987 1 975
Non interest-bearing 387 491 442
2 166 2 478 2 417
Current liabilities
Interest-bearing 637 1 378 1 150
Non interest-bearing 725 992 1 003
1 362 2 370 2 153
Liabilities related to
assets held for sale 80 - -
Total equity and liabilities 5 846 7 251 7 077
Consolidated statement of changes in
equity
Attributable to equity holders of the Company
Unregis-
Share tered Share Fair
Capi share premium Other value
EUR million tal capital fund reservesreserves
Equity on December 31, 2003 304 0 681 14 -
Cash flow hedges - - - - (2)
Fair value gains on
available-for-sale financial - - - - 16
assets
Net investment hedges - - - - -
Change in translation - - - - -
differences
Items recognised directly in - - - - 15
equity
Net profit for the financial - - - - -
year
Total recognised
income and expenses - - - - 15
Dividends paid - - - - -
Transfers from
unregistered share capital 0 (0) - - -
Shares subscribed with options 4 - 15 - -
Converted bonds 1 - 3 - -
Outokumpu Oyj shares
owned by associated companies - - - - -
Management stock option
program:
value of received services - - - - -
Transfer of treasury shares - - 0 - -
Other changes - - 1 (1) -
Equity on December 31, 2004 308 - 700 13 15
Cash flow hedges - - - - 5
Fair value gains on
available-for-sale financial - - - - 0
assets
Net investment hedges - - - - -
Change in translation - - - - -
differences
Items recognised directly in - - - - 5
equity
Net profit for the period - - - - -
Total recognised
income and expenses - - - - 0
Dividends paid - - - - -
Management stock option
program:
value of received services - - - - -
Transfer of treasury shares - - 1 - -
Effect of the sale of the fabricated
copper products business - - - - -
Other changes - - - (1) -
Equity on September 30, 2005 308 - 701 11 20
Attributable to equity holders of the Company
Cumulative
trans- Retai-
Trea- lation ned
sury diffe- Earn- Minority Total
EUR million shares rences ings interest equity
Equity on December 31, 2003 (12) (61) 1 122 35 2 083
Cash flow hedges - - - - (2)
Fair value gains on
available-for-sale financial - - - - 16
assets
Net investment hedges - (2) - - (2)
Change in translation - 4 - 0 4
differences
Items recognised directly in - 2 - 0 17
equity
Net profit for the financial - - 382 4 386
year
Total recognised
income and expenses - 2 382 4 403
Dividends paid - - (36) - (36)
Transfers from
unregistered share capital - - - - 0
Shares subscribed with options - - - - 19
Converted bonds - - - - 4
Outokumpu Oyj shares
owned by associated companies - - 26 - 26
Management stock option
program:
value of received services - - 1 - 1
Transfer of treasury shares 6 - - - 6
Other changes - - 1 (1) 0
Equity on December 31, 2004 (5) (59) 1 496 38 2 506
Cash flow hedges - - - - 5
Fair value gains on
available-for-sale financial - - - - 0
assets
Net investment hedges - 0 - - 0
Change in translation - 19 - 1 20
differences
Items recognised directly in - 19 - 1 25
equity
Net profit for the period - - (185) 1 (184)
Total recognised
income and expenses - 19 (185) 1 (165)
Dividends paid - - (91) - (91)
Management stock option
program:
value of received services - - 2 - 2
Transfer of treasury shares 3 - - - 4
Effect of the sale of the fabricated
copper products business - - - (24) (24)
Other changes - - - - (1)
Equity on September 30, 2005 (2) (39) 1 222 16 2 237
Condensed statement of cash flows
Jan-Sept Jan-Sept Jan-Dec
EUR million 2005 2004 2004
Net profit for the period (183) 280 386
Adjustments 521 94 196
Change in working capital (85) (676) (710)
Net cash generated
from operating activities 253 (302) (128)
Purchases of assets (184) (337) (473)
Proceeds from asset disposal 882 18 327
Change in other investing activities (76) (21) (6)
Cash flow before financing 875 (642) (279)
activities
Net cash generated
from financing activities (833) 544 235
Adjustments 4 5 26
Change in cash and cash equivalents 46 (93) (19)
Key figures
Jan-Sept Jan-Sept Jan-Dec
EUR million 2005 2004 2004
Operating profit margin, % 6.0 9.0 8.8
Return on capital employed, % 7.6 9.6 10.0
Return on equity, % (10.3) 16.7 16.8
Return on equity from
continuing operations, % 9.1 15.7 16.5
Capital employed at end of period 3 981 4 919 4 941
Net interest-bearing debt at end of 1 744 2 515 2 435
period
Equity-to-assets ratio at end of 38.7 33.6 35.8
period, %
Debt-to-equity ratio at end of 77.9 104.6 97.2
period, %
Earnings per share, EUR (1.02) 1.54 2.12
Earnings per share from
continuing operations, EUR 0.89 1.45 2.08
Earnings per share from
discontinued operations, EUR (1.91) 0.09 0.04
Average number of shares
outstanding, in thousands 1) 181 027 179 823 180 057
Fully diluted earnings per share,EUR (1.02) 1.53 2.12
Fully diluted average number
of shares, in thousands 1) 181 149 180 775 180 172
Equity per share at end of period,EUR 12.27 13.08 13.65
Number of shares outstanding
at end of period,
in thousands 1) 181 032 180 752 180 752
Capital expenditure,
continuing operations 117 300 414
Depreciation,
continuing operations 161 141 191
Average personnel for the period,
continuing operations 11 685 11 879 11 787
1) The number of own shares
repurchased is excluded.
NOTES TO THE INCOME STATEMENT AND BALANCE SHEET
This report is prepared in accordance with IAS 34 (Interim
Financial Reporting). Outokumpu has applied the following new
International Financial Reporting Standards (IFRS) as of January
1, 2005: IFRS 2 (Share-based Payment) and IFRS 5 (Discontinued
Operations). IFRS 5 has been applied to Outokumpu Copper and it is
specified in a separate note: Discontinued operations and assets
held for sale. Based on the revised IAS 1 standard, Outokumpu has
presented from second quarter 2005 onwards market price gains and
losses above operating profit instead of financial income and
expenses. Furthermore, application of International Financial
Reporting Interpretation Committee's (IFRIC) interpretation IFRIC
3 (Emission Rights) has been reversed in June 2005.
Share-based payment
IFRS 2 has been applied for the 2003 option program and
comparative figures have been restated. The terms and conditions
of the option program are described in detail in the annual report
2004 and below under the note Shares and share capital. The
options are valued at fair value on the grant date by using the
Black-Scholes-Merton option pricing model. The total estimated
value of the program is EUR 7.2 million. This value is recognized
as an expense in the income statement during the vesting periods.
Grant date is the date at which the entity and another party agree
to a share-based payment arrangement, being when the entity and
the counter party have a shared understanding of the terms and
conditions of the arrangement. Grant dates for the option program
are as follows: 2003A June 12, 2003, 2003B February 10, 2004 and
2003C March 22, 2005.
Vesting period is the period during which all the specified
vesting conditions of a share-based payment arrangement are to be
satisfied. The vesting periods of the option program are: for
2003A June 12, 2003 to August 31, 2006, for 2003B February 10,
2004 to August 31, 2007 and for 2003C March 22, 2005 to August 31,
2008. Applying the IFRS 2 has reduced operating profit by EUR 0.4
million in 2003, EUR 1.7 million in 2004 and EUR 1.5 million
during January-September 2005.
Reclassification of market price gains and losses
Based on the revised IAS 1 standard, Outokumpu has presented from
the second quarter 2005 onwards gains and losses on derivative
instruments above operating profit, and in financial income and
expenses only when the derivative instrument is assigned to
financial assets or liabilities. Exchange gains and losses from
accounts receivable and payable have also been reclassified from
financial income and expenses above operating profit. The
comparative figures have been restated accordingly. The
reclassification had no effect on the Group´s net profits for the
financial periods.
Emission allowances
As of January 1, 2005 Outokumpu applied IFRIC Interpretation 3 in
accounting for carbon dioxide (CO2) emission allowances. In June
2005, the International Accounting Standards Board (IASB) decided
to withdraw IFRIC 3 with immediate effect. Following the decision
Outokumpu has changed the accounting treatment for emission
allowances. Accounting for CO2 allowances is based on current IFRS
standards where purchased CO2 allowances are accounted for as
intangible assets at cost, whereas CO2 emission allowances
received free of charge are accounted for at nominal value, i.e.
at zero. A provision to cover the obligation to return emission
allowances is recognized provided that emission allowances
received free of charge will not cover the actual emissions.
Consequently the possible effect in operating profit will reflect
the difference between what has been emitted and the received
emission allowances. The effect of IFRIC 3 on the reported first
quarter operating profit was negative EUR 0.2 million. This amount
has been reversed in June 2005. At the end of September, emission
allowances are not reflected in Outokumpu's financial statements
because no allowances have been purchased or sold and because it
is estimated that actual emissions will not exceed the amount of
received allowances in 2005.
Shares and share capital
The total number of Outokumpu Oyj shares was 181 250 555 and the
share capital amounted to EUR 308.1 million on September 30, 2005.
Outokumpu Oyj held 218 603 treasury shares on September 30, 2005
with a total account equivalent value of EUR 0.4 million. This
corresponded to 0.1% of the share capital and the total voting
rights of the Company on September 30, 2005.
The Annual General Meeting held in 2003 passed a resolution on a
stock option program for management. Under the terms and
conditions of the stock option program, a total of 5 100 000 stock
options may be issued, entitling holders thereof to subscribe for
5 100 000 new shares in the Company in the period 2006 to 2011.
In February 2004, the Board of Directors confirmed that a total of
742 988 stock options 2003A be distributed to 116 persons in
management positions of Outokumpu. The maximum number of 2003A
stock options was 1 700 000. Members of the Group Executive
Committee received 62% and other key persons 45.25% of the maximum
number of 2003A stock options. The number of 2003A stock options
distributed was decided on the basis of the earnings criteria
established in June 2003, and which were the Groups earnings per
share and share price performance outperforming the share price
trend of peer companies. The additional earnings criterion for
Group Executive Committee members was the Groups gearing.
Currently altogether 686 454 Outokumpu Oyj shares can be
subscribed for with the 2003A stock options between September 1,
2006 and March 1, 2009. In accordance with the terms and
conditions of the option program, the subscription price for a
stock option was EUR 10.70 per share, with annual dividends being
deducted.
On February 16, 2005, the Board of Directors confirmed that a
total of 1 148 820 stock options 2003B be distributed to 130
persons in management positions in Outokumpu. The maximum number
of 2003B stock options was 1 700 000. Members of the Group
Executive Committee received 55.2% and other key persons 75% of
the maximum number of 2003B stock options. The number of 2003B
stock options distributed was decided on the basis of the earnings
criteria established in February 2004, and which were the Groups
earnings per share and share price performance outperforming the
share price trend of peer companies. The additional earnings
criterion for Group Executive Committee members was the Groups
gearing. Currently altogether 1 111 320 Outokumpu Oyj shares can
be subscribed for with the 2003B stock options between September
1, 2007 and March 1, 2010. In accordance with the terms and
conditions of the option program, the subscription price for a
stock option was EUR 13.56 per share, with annual dividends being
deducted.
In March 2005, the Board of Directors established the earnings
criteria on the basis of which stock options 2003C will be
distributed to 158 key persons of the Outokumpu Group in spring
2006. The earnings criteria comprise the development of the
Groups total shareholders return (TSR) compared to a peer group,
operating profit (EBIT), and additionally gearing for Group
Executive Committee members. A total maximum of 1 700 000
Outokumpu Oyj shares can be subscribed for with the 2003 stock
options between September 1, 2008 and March 1, 2011. The current
maximum number of 2003C stock options to be distributed is 1 180
000 shares. Subscription price for a 2003C stock option will be
the trading volume weighted average of the Outokumpu share on the
Helsinki stock exchange between December 1, 2005 and February 28,
2006.
As a result of the share subscriptions with the 2003 stock
options, and if the 2003C stock options are fully exercised,
Outokumpu Oyjs share capital may be increased by a maximum of EUR
5 062 216 and the number of shares by a maximum of 2 977 774
shares. The shares that can be subscribed with the 2003 stock
options correspond to 1.7% of the Company's shares and voting
rights.
Authorizations of the Board of Directors
During the first quarter, the Board of Directors utilized once its
authorization to transfer the Companys own shares granted by the
Annual General Meeting in 2004. On February 14, 2005, Outokumpu
Oyj transferred a total of 279 930 of treasury shares to the
persons participating in the share remuneration scheme for the
management.
The Board of Directors has a valid authorizations granted by the
Annual General Meeting of April 5, 2005 to increase the Companys
share capital by issuing new shares, stock options or convertible
bonds. The share capital may be increased on one or several
occasions by no more than EUR 30 800 000 in total. Accordingly, an
aggregate maximum of 18 117 647 shares, having the account
equivalent value of EUR 1.70 each, may be issued. The Board of
Directors is authorized to decide who will have the right to
subscribe for the new shares, stock options or convertible bonds.
The Board of Directors may deviate from the shareholders' pre-
emptive subscription right, provided that such deviation is
justified by an important financial reason for the Company, such
as strengthening the Company's capital structure or financing
corporate acquisitions or restructurings. The Board of Directors
decides the subscription price and the other terms and conditions
of the issue of shares, stock options or convertible bonds. The
Board of Directors may decide that the subscription price for new
shares be paid by means of contribution in kind, set-off or
otherwise subject to specific terms and conditions determined by
the Board of Directors. The authorization is valid until the
Annual General Meeting in 2006, however not longer than one year
from the decision of the General Meeting. By October 25, 2005 the
Board of Directors had not used this authorization.
The Board of Directors has a valid authorizations granted by the
Annual General Meeting of April 5, 2005 to repurchase the
Companys own shares. Shares may be repurchased for improving of
the Company's capital structure or to be used as consideration
when acquiring assets for the Company's business or as
consideration in possible corporate acquisitions, in the manner
and to the extent decided by the Board of Directors. Repurchased
shares may also be used as a part of incentive and bonus schemes
directed to the personnel of the Company. The maximum number of
shares to be repurchased is 9 000 000. The number of own shares in
the Companys possession may not exceed 5 % of the total amount of
the Companys shares. Shares may be repurchased pursuant to a
decision of the Board of Directors through purchases in public
trading at the Helsinki stock exchange at the prevailing market
price. The purchase price shall be paid to the sellers within the
time limit provided in the rules of the Helsinki stock exchange
and the Finnish Central Securities Depository Ltd. The shares
shall be repurchased with distributable funds and accordingly
repurchasing will reduce distributable equity of the Company. As
the number of shares to be repurchased is limited as explained
above and as the Company has only one class of shares, repurchases
of own shares are not likely to have a significant impact on the
relative holdings or voting rights between shareholders of the
Company. Since shares will be repurchased in public trading at the
Helsinki stock exchange without knowledge of the sellers'
identity, it is not possible to determine whether and to what
extent the repurchase could affect the proportionate holdings of
persons that are closely connected to the Company in the meaning
of chapter 1, section 4, subsection 1 of the Finnish Companies
Act. The Board of Directors is authorized to decide on other
matters and measures related to the repurchasing of own shares.
The authorization is valid until the Annual General Meeting in
2006, however not longer than one year from the decision of the
General Meeting. By October 25, 2005 the Board of Directors had
not used this authorization.
The Board of Directors has a valid authorizations granted by the
Annual General Meeting of April 5, 2005 to transfer the Companys
own shares. The maximum number of shares to be transferred is 9
300 000. Shares may be transferred on one or several occasions.
The Board of Directors shall be authorized to decide on the
recipients of the shares and the procedure and terms to be
applied. The Board of Directors may decide to transfer shares in
deviation of the pre-emptive right of the shareholders to the
Companys shares. Shares can be transferred as consideration when
acquiring assets for the Company's business or as consideration in
possible corporate acquisitions, in the manner and to the extent
decided by the Board of Directors. The Board of Directors may
decide to sell shares through public trading at the Helsinki stock
exchange in order to obtain funds for the Company for investments
and possible corporate acquisitions. Shares can also be
transferred as a part of incentive and bonus schemes directed to
the personnel of the Company, including the Chief Executive
Officer and his/her deputy. Except as separately authorized, the
Board of Directors may not deviate from the shareholders' pre-
emptive right to shares in favor of persons that are closely
connected to the Company in the meaning of chapter 1, section 4,
subsection 1 of the Finnish Companies Act. The transfer price may
not be less than the fair market value of the shares at the time
of the transfer set in public trading at the Helsinki stock
exchange. The consideration can be paid by means of contribution
in kind, set-off or otherwise subject to specific terms and
conditions determined by the Board of Directors. The Board of
Directors is authorized to decide on other matters and measures
related to the transfer of own shares. The authorization is valid
until the Annual General Meeting in 2006, however not longer than
one year from the decision of the General Meeting. By October 25,
2005 the Board of Directors had not used this authorization.
Discontinued operations and assets held for sale
On April 5, 2005 Outokumpu and Nordic Capital signed a sales and
purchase agreement according to which Outokumpu 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 divisions and businesses of the Outokumpu
Copper business area: Americas, Europe, Automotive Heat
Exchangers, Appliance Heat Exchanger & Asia, including 100% of
Outokumpu Heatcraft, and the Forming equipment businesses. The
2004 sales of the sold businesses were EUR 1 689 million and the
number of personnel was 6 400 at the end of the year. The Tube and
Brass business that is excluded from the transaction comprises the
European sanitary and industrial tubes, including air-conditioning
and refrigeration tubes in Europe, as well as brass rod.
Outokumpus intention is to divest the business at a later date.
The total consideration for the transaction, EUR 612 million,
comprised a cash component of EUR 512 million and a USD-
denominated long-term subordinated vendor note of EUR 100 million.
Outokumpu recognized a capital loss of EUR 245 million from the
disposal. Furthermore, an EUR 83 million impairment loss on the
remaining Tube and Brass business has been recognized based on the
managements valuation of the business. As a result of the Finnish
participation exemption tax rules, the losses are not tax
deductible. The whole Outokumpu Copper segment was classified as
discontinued operations on March 31, 2005. Loss from discontinued
operations, EUR 346 million, comprise the net result of the sold
fabricated copper products business for the first quarter, the EUR
245 million loss from the sale to Nordic Capital and the
impairment loss of EUR 83 million recognized on the Tube and Brass
business as well as its result for January-September 2005. The
loss from discontinued operations has been recorded in the income
statement on single line after the profit from continuing
operations. The assets and liabilities of Tube and Brass are
reported as held for sale.
Specification of discontinued operations
and assets held for sale
Income statement
Jan- Jan- Jan-
Sept Sept Dec
EUR million 2005 2004 2004
Sales 795 1 561 2 050
Expenses (799) (1 508)(1 978)
Operating profit (4) 53 72
Net financial items (8) (22) (35)
Profit before taxes (12) 31 37
Taxes (5) (12) (26)
(Loss), profit after taxes (17) 19 11
Impairment loss recognized
on the fair valuation of
the Tube and Brass division's
assets and liabilities (83) - -
Loss on the sale of the fabricated
copper products business (245) - -
Taxes - - -
After-tax loss recognized on the (328) - -
measurement of
assets and liabilities of the disposal
group
Minority interest (1) (3) (3)
Net (loss), profit for the period
from discontinued operations (346) 16 7
Cash flows
Jan-
Sept
EUR million 2005
Operating cash flows (66)
Investing cash flows (67)
Financing cash flows 114
Total cash flows (19)
Balance sheet
Sept 30
EUR million 2005
Assets
Tangible assets 8
Inventories 90
Other current assets 103
201
Liabilities
Provisions 25
Other non-current liabilities 3
Trade payables 37
Other current liabilities 15
80
Major non-recurring items in operating profit
Jan- Jan- Jan-
Sept Sept Dec
EUR million 2005 2004 2004
Gain/loss on the sale of the Boliden 35 - (19)
shares
Release of the Finnish TEL
disability pension liability - - 22
Gain on the sale of the filter - 17 16
business
35 17 19
Income taxes
Jan- Jan- Jan-
Sept Sept Dec
EUR million 2005 2004 2004
Current taxes (32) (41) (50)
Deferred taxes (19) (24) (11)
(51) (65) (61)
Commitments
Sept 30 Sept 30 Dec 31
EUR million 2005 2004 2004
Mortgages and pledges
To secure borrowings of Group 89 138 112
companies
Guarantees
On behalf of associated companies 4 4 4
On behalf of other parties 68 40 38
72 44 42
Minimum future lease payments
on operating leases 120 149 146
Open derivative instruments
Sept 30 Dec 31 Sept 30 Dec 31
2005 2004 2005 2004
EUR million Net fair values Contract amounts
Currency and interest
rate derivatives
Currency forwards (4) 26 1 377 1 247
Currency options
Purchased - 0 - 7
Written - 0 - 8
Currency swaps - (1) - 21
Interest rate swaps (1) (2) 300 172
Tonnes Tonnes
Metal derivatives
Copper forward and
futures contracts (1) 3 39 550 50 150
Copper options
Purchased - 0 - 20 522
Nickel forward and
futures contracts 0 1 3 720 1 758
Zinc forward and
futures contracts (0) 0 9 550 39 000
Aluminium forward and
futures contracts 0 0 700 2 550
TWh TWh
Electricity derivatives
Traded electricity
forwards and futures 1 0 0.1 0.1
Other financial 7 0 4.6 5.0
contracts
Income statement by
quarter
EUR million I/04 II/04 III/04 IV/04 2004 I/05 II/05 III/05
Continuing operations:
Sales 1 196 1 283 1 143 1 500 5 122 1 456 1 589 1 191
Operating profit 128 121 77 128 453 118 157 (21)
Share of results in
associated companies 16 8 31 24 78 (1) 2 (1)
Financial income and (13) (4) (33) (41) (92) (8) (15) (17)
expenses
Profit before taxes 130 124 75 111 440 108 144 (39)
Income taxes (31) (17) (17) 4 (61) (20) (39) 8
Net profit for the period
from continuing 99 107 58 115 379 89 105 (31)
operations
Net profit, (loss)
for the period
from discontinued 33 (12) (5) (9) 7 (333) (8) (5)
operations
Net profit, (loss)
for the period 132 96 53 106 386 (244) 97 (36)
Attributable to:
Equity holders of the 130 95 52 105 382 (245) 96 (36)
Company
Minority interest 2 1 0 0 4 1 1 0
Major non-recurring items
in operating profit
EUR million I/04 II/04 III/04 IV/04 2004 I/05 II/05 III/05
General Stainless
Release of the Finnish
TEL
disability pension - - - 13 13 - - -
liability
Technology
Release of the Finnish
TEL
disability pension - - - 5 5 - - -
liability
Gain on the sale
of the filter business 18 (1) - (1) 16 - - -
Other operations
Release of the Finnish
TEL
disability pension - - - 4 4 - - -
liability
Gain/loss on the sale
of the Boliden shares - - - (19) (19) 25 - 10
18 (1) - 2 19 25 - 10
Key figures by quarter
EUR million I/04 II/04 III/04 IV/04 I/05 II/05 III/05
Operating profit margin,% 10.7 9.4 6.8 8.5 8.1 9.9 (1.8)
Return on capital 11.8 10.3 6.3 10.4 10.6 15.6 (2.1)
employed, %
Return on equity, % 24.1 16.5 8.9 17.2 (41.0) (26.1) (32.6)
Return on equity,
continuing operations, % 18.1 18.6 9.7 18.7 14.9 18.6 (5.5)
Capital employed
at end of period 4 543 4 839 4 919 4 941 3 953 4 084 3 981
Net interest-bearing
debt at end of period 2 261 2 496 2 515 2 435 1 695 1 822 1 744
Equity-to-assets ratio
at end of period, % 33.1 32.7 33.6 35.8 35.5 37.2 38.7
Debt-to-equity ratio
at end of period, % 99.0 106.5 104.6 97.2 75.0 80.6 77.9
Earnings per share, EUR 0.73 0.52 0.29 0.58 (1.35) 0.53 (0.20)
Earnings per share from
continuing operations,EUR 0.54 0.59 0.32 0.63 0.49 0.57 (0.17)
Earnings per share from
discontinued operations,EUR 0.19 (0.07) (0.03) (0.05) (1.84) (0.04) (0.03)
Average number of shares
outstanding, in thousands 1) 178 081 180 742 180 752 180 752 180 032 181 032 181 032
Equity per share
at end of period, EUR 12.43 12.75 13.08 13.65 12.39 12.41 12.27
Number of shares
outstanding at end of
period,
in thousands 1) 178 180 180 180 181 181 181
914 752 752 752 032 032 032
Capital expenditure,
continuing operations 133 76 91 114 37 41 39
Depreciation,
continuing operations 44 48 48 50 53 54 54
Average personnel
for the period,
continuing operations 11 681 11 997 11 960 11 513 11 475 11 833 11 746
1) The number of own shares repurchased is excluded.
