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Outokumpu Oyj Stock exchange release July 24, 2008 at 1.00 pm Second quarter highlights
- Operating profit totaled EUR 174 million - Good net cash flow of EUR 103 million from operating activities. - Weaker stainless steel markets as distribution sector postpone purchases due to the nickel price decline and demand from some end-use segments is softer. - Small and gradual base price increases achieved during the beginning of the quarter, decline in base prices started in June. - Production below full capacity due to weaker demand and maintenance breaks in Tornio, stainless deliveries totaled 391 000 tons. - Investment decision of EUR 420 million to expand ferrochrome production at Tornio, Finland.
Group key figures II/08 I/08 II/07 2007 Sales EUR million 1 549 1 689 2 092 6 913 Operating profit EUR million 174 100 406 589 Non-recurring items in operating profit EUR million - - 25 14 Profit before taxes EUR million 166 80 652 798 Non-recurring items in financial income and expenses EUR million - -12 252 252 Net profit for the period from continuing operations EUR million 130 61 553 660 Net profit for the period EUR million 56 63 565 641 Earnings per share from continuing operations EUR 0.72 0.34 3.04 3.63 Earnings per share EUR 0.31 0.35 3.11 3.52 Return on capital employed % 17.2 10.0 35.5 13.9 Net cash generated from operating activities EUR million 103 107 132 676 Capital expenditure, continuing operations EUR million 56 41 75 190 Net interest-bearing debt at end of period EUR million 939 737 1 119 788 Debt-to-equity ratio at end of period % 29.1 23.3 30.8 23.6 Stainless steel deliveries 1 000 tons 391 449 399 1 419 Stainless steel base price 1) EUR/ton 1 307 1 243 1 518 1 304 Personnel at the end of period, continuing operations 2) 8 884 8 137 8 783 8 108
1) Stainless steel: CRU - German base price (2 mm cold rolled 304 sheet). Please note: Between July - October 2007, European prices for some stainless grades were quoted on a transaction price basis, therefore base prices are the calculated value of transaction price minus alloy surcharge for this time period (CRU). 2) End-June figures include summer trainees.
SHORT-TERM OUTLOOK
Underlying demand for stainless steel from most end-use segments is stable. As a result of the increasing uncertainty related to the global economic turmoil, some weakness is evident in consumer-driven segments such as white goods and construction. Demand from investment-driven segments continue generally healthy but some projects have been postponed because of the economic uncertainties.
Distributors are currently postponing their purchases because of the decline in the nickel price and the holiday period in Europe. Inventory levels for standard grades by distributors are at normal levels or somewhat higher. Outokumpu is now selling standard grades for deliveries in August and September.
The slowdown of demand during the holiday season and annual maintenance breaks at the Group's mills as well as the postponement of purchases by distributors will clearly reduce stainless delivery volumes for the third quarter compared to the second quarter.
The current market conditions suggest that there is price pressure up to EUR 100-150/ton for the average base price of the German 2mm cold rolled 304 stainless steel sheet in the third quarter compared to the second quarter.
Outokumpu's operating profit for the third quarter of 2008 is expected to be negative including some EUR 100 million of nickel-related inventory losses at current nickel prices. Underlying operational result is expected to be slightly positive depending on delivery volumes.
CEO Juha Rantanen:
"At the end of the second quarter stainless markets turned softer due to seasonality and declining nickel price. There are, however, good prospects for the distributor markets to improve during this fall: the inventories are normal, imports to Europe are moderate and nickel price has come down substantially from its historical highs. Additionally, most end-use segments are stable. Outokumpu's position in the market is good thanks to Tornio's cost competitiveness and the strength of our specialties business. Our strategy will bring further stability and better profitability in the years to come."
The attachments present Management analysis of the second quarter operating result and the Interim review by the Board of Directors for January-June 2008, the accounts and notes to the interim accounts. This interim report is unaudited.
For further information please contact:
Päivi Lindqvist, SVP - Communications and IR tel. +358 9 421 2432, mobile +358 40 708 5351 paivi.lindqvist@outokumpu.com
Esa Lager, CFO tel: +358 9 421 2516 esa.lager@outokumpu.com
News conference and live web-cast today at 3.00 pm.
A combined news conference, conference call and live webcast concerning the second-quarter 2008 financial results will be held on July 24, 2008 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: UK +44 20 7162 0025 US & Canada +1 334 323 6201 Password Outokumpu
The news conference can be viewed live via Internet at www.outokumpu.com. Stock exchange release and presentation material will be available before the news conference at www.outokumpu.com -> Investors -> Downloads
An on-demand web-cast of the news conference will be available at www.outokumpu.com as of July 24, 2008 after 6.00 pm.
An instant replay service of the conference call will be available until Monday July 28, 2008 on the following numbers:
UK replay number +44 20 7031 4064, access code: 800067 US & Canada replay number +1 954 334 0342, access code: 800067
Exchange rates EUR/USD 1.498 1.562 EUR/SEK 9.400 9.352 EUR/GBP 0.757 0.793 1) Sources of market prices: Stainless steel: CRU - German base price, alloy surcharge and transaction price (2 mm cold rolled 304 sheet), estimates for deliveries during the period. Please note: Between July-October 2007, European prices for some stainless grades were quoted on a transaction price basis, therefore base prices are the calculated value of transaction price minus alloy surcharge for this time period (CRU). Nickel: London Metal Exchange (LME) cash quotation Ferrochrome: Metal Bulletin - Ferrochrome lumpy chrome charge, basis 52% chrome Molybdenum: Metal Bulletin - Molybdenum oxide - Europe Recycled steel: Metal Bulletin - Steel scrap HMS 1&2 fob Rotterdam
Softening demand for stainless steel in Europe
Global growth in demand for stainless steel slowed towards the end of the second quarter and markets moved to oversupply. The quarter's apparent consumption of stainless steel is estimated to have remained almost flat in Europe and globally compared to I/2008. Market conditions were weaker in both Europe and Asia. In the US, demand for stainless continued to be at a low level.
Global production of stainless steel increased by some 2% compared to the first quarter despite strong production cuts in Asia, especially in China. As a result of the decline in the nickel price, buyers started postponing their stainless purchases in expectation of lower transaction prices. Uncertainty about the global economic situation also affected buyer behavior. Demand softened especially in consumer-driven segments, such as construction and white goods.
At the beginning of the second quarter, stainless prices were on a rising trend and the base price for 2mm cold rolled 304 stainless steel sheet in Germany increased to more than 1 300 EUR/ton. As a result of softening demand, base prices began to decline towards the end of the quarter. The base price was 1 275 EUR/ton at the end of June. The average base price in the second quarter was 1 307 EUR/ton (I/2008: 1 243 EUR/ton). Mainly as a result of the increase in the ferrochrome price, the average alloy surcharge for the second quarter increased to 1 888 EUR/ton (I/2008: 1 702 EUR/ton). The average transaction price in the period was 3 195 EUR/ton (I/2008: 2 945 EUR/ton). (CRU)
Among alloying materials, the price of nickel declined from around 31 000 USD/ton to less than 22 000 USD/ton and the average price of nickel was 25 682 USD/ton in II/2008 (I/2008: 28 957 USD/ton). Ferrochrome markets remained tight in the review period because of uncertainty related to South African supply. The quarterly contract price for ferrochrome for the second quarter was 1.92 USD/lb, up by 59% from I/2008. The quarterly contract price for the third quarter has been preliminary settled at 2.05 USD/lb. The average price of molybdenum was mainly unchanged at 33.40 USD/lb. The price of recycled steel increased to 565 USD/ton, 43% up on I/2008.
Operating profit improved with lower delivery volumes
Group sales in the second quarter totaled EUR 1 549 million, 8% down on I/2008. Production was below full capacity and stainless steel deliveries were down by 13% to 391 000 (I/2008: 449 000 tons). Main reasons for the lower level of deliveries were weakening demand towards the end of the quarter and maintenance breaks at Tornio Works in April.
Operating profit improved to EUR 174 million (I/2008: EUR 100 million) and included net raw material-related inventory gains of some EUR 20 million (I/2008: loss of some EUR 60 million). The main reasons for the profit improvement were inventory losses turning into gains, a higher ferrochrome price, higher base prices and an improved product mix compared to the first quarter. Lower deliveries had a negative impact on operating profit.
Return on capital employed was 17.2% (I/2008: 10.0%). Earnings per share totaled EUR 0.31 (I/2008: EUR 0.35) and earnings per share from continuing operations totaled EUR 0.72 (I/2008: EUR 0.34).
Sales by General Stainless in the second quarter totaled EUR 1 222 million (I/2008: EUR 1 304 million) and deliveries totaled 359 000 tons, down by 10% on I/2008. Operating profit rose by 54% to EUR 125 million (I/2008: EUR 81 million) of which Tornio Works posted EUR 114 million (I/2008: 67 million). The higher ferrochrome price had a clearly positive impact on Tornio Works' operating profit.
Sales by Specialty Stainless totaled EUR 778 million (I/2008: EUR 786 million) and deliveries were down by 5% to 153 000 tons (I/2008: 161 000 tons). Operating profit was stable at EUR 44 million (I/2008: EUR 42 million).
Operating profit by Other operations was EUR 4 million (I/2008: EUR 20 million loss).
Investment projects
Outokumpu will expand the Group's ferrochrome production capacity in Tornio, Finland by an investment totaling some EUR 420 million. This investment will double the plant's annual capacity to 530 000 tons and the additional capacity is scheduled to be available during the first quarter of 2011. The expansion of ferrochrome capacity will make Outokumpu comfortably self-sufficient in its primary chromium needs. The investment will support Outokumpu's strategy realization, maintain cost leadership, secure the sourcing of raw materials and capitalize on the Group's own chromium mine in Kemi.
Outokumpu is investing some EUR 10 million in Long Products' finishing facilities in Sheffield in the UK. The new equipment is scheduled to be operational in mid 2009. The investment creates an integrated manufacturing route for small bar and rebar complementing the existing melt shop and the wire rod mill, both in Sheffield.
Due to delays in land purchasing, the start-up of the service center in Poland has been rescheduled from planned end of 2008 until the end of 2009.
The coil service center being built in India is to be expanded from the original plan to become a combined coil and plate service-center, first of its kind in India. This service center is expected to be operational in the first quarter of 2010.
Additional capital expenditure for all service center investments (France, Germany, Poland, India and China) of EUR 60 million has been approved as a result of changes in scope and increasing costs (mainly related to construction and equipment purchase). As a result, capital expenditure for service center network expansion, excluding the acquisition of the Italian distributor SoGePar, will total approximately EUR 220 million.
The feasibility study on building a cold rolling mill in India has been finalized. Outokumpu has decided not to proceed with the investment at this point. Other options for strengthening Outokumpu's presence in the growing Indian market are currently being explored.
Acquisitions and divestments
In April, Outokumpu signed an agreement to acquire the SoGePar Group, an Italian distributor of stainless steel from the Borromeo family, its current owners. Outokumpu will pay EUR 215 million in cash and take on company debt totaling some EUR 120 million. Details on the transaction were filed with the EU Commission on June 19, 2008 and the acquisition is expected to be closed by the end of July 2008. The total consideration is subject to final review once the closing balance sheet, expected by the end of the third quarter, has been approved.
SoGePar operates stainless steel service centers in Castelleone in Italy and in Rotherham in the UK. SoGePar also has stock operations in Italy, the UK, Belgium, Finland, France and Ireland, as well as a commercial office in Germany and a representative office in Turkey. Sales by the SoGePar Group in 2007 totaled EUR 560 million, with an operating profit of EUR 44 million and deliveries totaling 134 000 tons.
In June, Outokumpu signed an agreement to acquire the operations of Avesta Klippcenter AB in Avesta, Sweden. Transfer of ownership in connection with this transaction took place on July 1, 2008.
Discontinued operations
In April, Outokumpu signed an agreement whereby the Group's remaining copper tube assets were sold to Cupori Group Oy. This transaction was closed on June 3, 2008 and Outokumpu received EUR 56 million as consideration for the sale. A capital loss of EUR 66 million was booked on this transaction in the second quarter. Both these figures are subject to final review once the closing balance sheet, expected by the end of the third quarter of 2008, has been approved.
The transaction has no effect on either Group sales or operating profit as the business in question has been reported as a discontinued operation in Outokumpu's accounts. In the income statement, the capital loss on the transaction is included in "Net profit from discontinued operations".
Assets divested comprise the copper plumbing installation and industrial tube manufacturing companies in Pori (Finland), Zaratamo (Spain), Västerås (Sweden) and Liège (Belgium), as well as copper tube sales companies in France, Germany and Italy. In 2007, these businesses generated sales totaling EUR 510 million, a net loss of EUR 5 million and employed 730 personnel.
The remaining part of the Group's Copper Tube and Brass business consists of brass rod business. The brass rod plant is located in Drünen in The Netherlands and the unit also has a 50% stake in a brass rod company in Gusum, Sweden. Outokumpu Brass employs some 170 personnel. It is Outokumpu's intention to also divest its brass rod business.
Events after the period
In July, Outokumpu signed a deal with Vattenfall relating to electricity deliveries in Finland and Sweden totaling some fifteen terawatt hours (TWh) over a ten-year period. In addition to these extensive deliveries of electrical power, Vattenfall and Outokumpu also agreed on electricity portfolio management services to be provided by Vattenfall, as well as on co-operation to achieve improved efficiency in the use of energy. Outokumpu is currently expanding its stainless steel operations in Finland and Sweden and this has generated a need for additional electricity supply. This deal with Vattenfall covers an important share of the Group's electricity needs until the possible Fennovoima nuclear project will start delivering. INTERIM REVIEW BY THE BOARD OF DIRECTORS JANUARY - JUNE 2008 (Unaudited)
Demand for stainless steel at a good level
Demand for stainless steel was at a good level during the first half of 2008. However, after a solid first quarter, demand for stainless steel weakened during the second quarter as the global economic growth slowed down in all regions, except China, where the national economy grew by some 9%. The price of nickel price started to decline, and distributors began postponing their orders. Compared to the very strong first half of 2007, demand for stainless steel was significantly lower in the second quarter. Compared to 2007, apparent consumption of stainless steel decreased in Europe by 8% and globally by 2%. The average German base price for 2mm 304 cold rolled sheet was 1 275 EUR/ton in I-II/2008, 37% lower than in I-II/2007. The transaction price for stainless steel averaged 3 070 EUR/ton in I-II/2008 and was 29% lower than in I-II/2007. (CRU) Good operating profit
Group sales in the first half of 2008 declined by 23% to EUR 3 238 million (I-II/2007: EUR 4 221 million) due to lower transaction prices. Stainless steel deliveries were higher at 840 000 tons (I-II/2007: 829 000 tons).
Operating profit for the first half of 2008 totaled EUR 274 million (I-II/2007: EUR 830 million), significantly lower than in the corresponding period of 2007. Primary reasons for the decline in operating profit were the significantly higher base prices in 2007 and nickel-related inventory gains of some EUR 100 million in I-II/2007 compared to losses of some EUR 40 million in I-II/2008. Profit before taxes totaled EUR 247 million (I-II/2007: EUR 1 068 million).
Net financial income and expenses in the first six months of 2008 were EUR 16 million negative excluding non-recurring items (I-II/2007: EUR 20 million negative excluding non-recurring gains). In I/2008, an impairment loss of EUR 12 million was booked in other financial expenses due to the decline in the share price of Belvedere Resources Ltd, classified as available-for-sale financial asset. Financial income in 2007 included a EUR 142 million non-recurring gain from the sale of the remaining 12% holding in Outotec Oyj and a EUR 110 million non-recurring gain from the Talvivaara transaction. Net profit for the period from continuing operations totaled EUR 191 million (I-II/2007: EUR 864 million). Earnings per share totaled EUR 0.66 (I-II/2007: EUR 4.80) and earnings per share from continuing operations totaled EUR 1.06 (I-II/2007: EUR 4.75). The return on capital employed for I-II/2008 was 13.2% (I-II/2007: 36.4%).
Net cash generated from operating activities totaled EUR 209 million (I-II/2007: EUR 217 million). Net interest-bearing debt totaled EUR 939 million at the end of June (June 30, 2007: EUR 1 119 million). Outokumpu's gearing at the end of June was 29.1% (June 30, 2007: 30.8%). Investment projects
Capital expenditure for the first half of 2008 totaled EUR 97 million (I-II/2007: EUR 101 million). The new investment projects approved for 2008-2011 are detailed below.
In January, a decision was made to invest EUR 370 million over three years to broaden the product range of Tornio Works. Outokumpu will start producing high-quality ultra-clean ferritic stainless steel grades, as well as bright-annealed austenitic and ferritic stainless products. This investment, together with the on-going replacement of the No. 2 annealing and pickling line, will increase Tornio Works' total installed capacity for finished products by 100 000 tons to some 1.3 million tons by the end of 2010. The investment also includes a service center (from 2010-) located near Stuttgart in Southern Germany which will have an annual processing capacity of 60 000 tons especially for bright-annealed austenitic and ferritic products.
In February, Outokumpu decided to expand and relocate its stock and processing capability in central France by investing some EUR 14 million over a two-years period. Combined annual coil and plate processing capacity in standard and special stainless steel grades will be 40 000 tons and is scheduled to be in place by the end of 2009.
In February, Outokumpu OSTP and the Saudi Arabian tube manufacturer Armetal, a company of Al-Hejailan Group, agreed to form Outokumpu Armetal Stainless Pipe Co., Ltd., a 51/49 stainless steel tubular joint venture, in Riyadh.
In June, Outokumpu's Board of Directors approved plans to expand the Group's ferrochrome production capacity in Tornio, Finland. This EUR 420 million investment will double the plant's annual capacity to 530 000 tons and the additional capacity is scheduled to be available during the first quarter of 2011. The expansion of ferrochrome capacity will make Outokumpu comfortably self-sufficient in its primary chromium needs. The investment will support Outokumpu's strategy realization, maintain cost leadership, secure the sourcing of raw materials and capitalize on the Group's own chromium mine in Kemi.
In June, Outokumpu announced an investment of some EUR 10 million in Long Products' finishing facilities in Sheffield in the UK. The new equipment is scheduled to be in operational in mid 2009. This investment creates an integrated manufacturing route for small bar and rebar complementing the existing melt shop and wire rod mill, both in Sheffield.
Due to delays in land purchasing, start-up of the service center in Poland has been rescheduled from the end of 2008 to the end of 2009.
The coil service center being built in India is to be expanded from the original plan to become a combined coil and plate service center, first of its kind in India. This service center is expected to be operational in the first quarter of 2010.
Additional capital expenditure for all service center investments (France, Germany, Poland, India and China) of EUR 60 million has been approved as a result of changes in scope and increasing costs (mainly related to construction and equipment purchase). As a result, capital expenditure for service center network expansion, excluding the acquisition of the Italian distributor SoGePar, will total approximately EUR 220 million.
The feasibility study on building a cold rolling mill in India has been finalized. Outokumpu has decided not to proceed with the investment at this point. Other options for strengthening Outokumpu's presence in the growing Indian market are currently being explored. Acquisitions and divestments
In April, Outokumpu signed an agreement to acquire the SoGePar Group, an Italian distributor of stainless steel from the Borromeo family, its current owners. Outokumpu will pay EUR 215 million in cash and take on company debt totaling some EUR 120 million. Details on the transaction were filed with the EU Commission on June 19, 2008 and the acquisition is expected to be closed by the end of July 2008. The total consideration is subject to final review once the closing balance sheet, expected by the end of the third quarter, has been approved.
SoGePar operates stainless steel service centers in Castelleone in Italy and in Rotherham in the UK. SoGePar also has stock operations in Italy, the UK, Belgium, Finland, France and Ireland, as well as a commercial office in Germany and a representative office in Turkey. Sales by the SoGePar Group in 2007 totaled EUR 560 million, with an operating profit of EUR 44 million and deliveries totaling 134 000 tons.
In June, Outokumpu signed an agreement to acquire the operations of Avesta Klippcenter AB in Avesta, Sweden. Transfer of ownership in connection with this transaction took place on July 1, 2008. Discontinued operations In April, Outokumpu signed an agreement whereby the Group's remaining copper tube assets were sold to Cupori Group Oy. This transaction was closed on June 3, 2008 and Outokumpu received EUR 56 million as consideration for the sale. A capital loss of EUR 66 million was booked on the transaction. Both these figures are subject to final review, once the closing balance sheet, expected by the end of the third quarter of 2008, has been approved. Assets divested comprise the copper plumbing installation and industrial tube manufacturing companies in Pori (Finland), Zaratamo (Spain), Västerås (Sweden) and Liège (Belgium), as well as the copper tube sales companies in France, Germany and Italy. In 2007, these businesses generated sales totaling EUR 510 million, a net loss of EUR 5 million and employed 730 personnel. Risks and uncertainties
Outokumpu's operations are conducted in accordance with the Board-approved risk management policy which defines the objectives, approaches and areas of responsibility in risk management. Outokumpu categorizes risks as strategic/business, operational or financial. Risks and uncertainties may, if materialized, substantially impact on earnings and cash flows in the current year. Key risks are being assessed regularly.
Important strategic and business risks include overcapacity in stainless steel production, product substitution and the cyclical nature of stainless steel demand. New stainless steel production capacity is being built in China and this may lead to overcapacity in cold rolled stainless production. To mitigate risks related to the cyclical nature of the stainless steel business and the risk of product substitution, Outokumpu is aiming to increase sales to end-users and to widen the Group's product offering. The strategy is supported by the Group's new organization, which ensures that customers are served in an optimal way.
Operational risks arise as a consequence of inadequate or failed internal processes, employee actions, systems or other events such as natural catastrophes, and misconduct or crime.
Property damage and business interruption caused by fire at some major site is a key risk concern for the Group. Outokumpu has systematic fire and security audit programs in place and part of the hazard risk is covered by insurances.
Outokumpu has a number of investment and change projects underway and failures or delays in these projects may negatively impact strategy implementation and achievement of financial targets. Outokumpu manages these risks by having dedicated resources for overall project support and for monitoring the whole project portfolio. During the second quarter, project management and support personnel have been strengthened in order to meet the challenges and risks with the ongoing projects.
Financial risks include exposure to market prices, the ability to maintain adequate liquidity and exposure to the risk of default. The most important financial market risks for Outokumpu include variations in the price of nickel, variations in the exchange rate between the Swedish krona and the euro, and the value of the US dollar. Outokumpu also has significant exposure to equity and loan security prices. Part of the Group's market risk is mitigated through the use of financial derivative contracts. Liquidity and refinancing risk are taken into account in capital management decisions. It is Outokumpu's aim to mitigate significant part of credit risk with insurances and other arrangements.
Outokumpu has continued to monitor the turbulence in global financial markets. Management's assessment is that the current market situation is not likely to impose significant restrictions on implementation of the Group's current decisions and plans. The increases in credit margins have not had any major impact on Outokumpu's funding costs.
In the second quarter, Outokumpu completed an assessment of the principles and processes related to nickel price risk management. Based on this analysis, some changes will be implemented during this year, one of the key objectives being reduced variations in the Group's operating profit.
Environment, health and safety
In the European Union, the carbon dioxide allowances allocated to Outokumpu's installations in Sweden and Finland for the Kyoto-period 2008-2012, are estimated as being sufficient for the Group's planned production. Actions have been taken to apply for allowances to also cover the expansion of ferrochrome production in Tornio. Emissions to air and discharges to water in the review period remained mostly within permitted limits and the breaches that occurred were temporary, were identified quickly and caused only minimal environmental impact. Outokumpu is not a party in any significant juridical or administrative proceeding concerning environmental issues, nor is it aware of any environmental risks that could have a material adverse effect on the Group's financial position.
Because of the Group's new investment projects, several applications for environmental permits have been submitted mostly in Finland and Sweden.
Environmental and energy-saving targets for the Group's Corporate Responsibility theme year are: for energy saving: a 2% reduction in energy consumed per ton of processed steel; and for materials efficiency, a 10% reduction in land fill waste per ton of processed steel. A review of progress is expected to take place in August. Some units have already reported excellent progress in relation to the established targets.
Occupational safety is a major focus area within the Group. In I-II/2008, the lost-time injury rate (i.e. lost-time accidents per million working hours) was 10 (I-II/2007: 10). The rate for the whole year of 2008 is still behind the target, which is less than 8 in 2008. In 2009, the target is less than five. Personnel Outokumpu's continuing operations employed an average of 8 362 people during January-June 2008 (I-II/2007: 8 285) and there were 8 884 employees at the end of June (June 30, 2007: 8 783). These figures include some 800 summer trainees employed in the Group's units. Class actions regarding the sold fabricated copper products business
The fabricated copper products business sold in 2005, comprised among others Outokumpu Copper (USA), Inc. This company has been served with several complaints in cases filed in federal district courts and state courts in the US by various plaintiffs. The complaints allege claims and damages under US antitrust laws and purport to be class actions on behalf of all direct and indirect purchasers of copper plumbing tubes and ACR tubes in the US. Except for one individual ACR Tube claim, all these class actions and claims have been now ended and the latest dismissals in Outokumpu's favor remain final. Outokumpu believes that the allegations in the remaining 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 these class actions.
Customs investigation of exports to Russia by Outokumpu Tornio Works
In March 2007, Finnish Customs authorities initiated a criminal investigation into the Group's Tornio Works' export practices to Russia. The preliminary investigation is connected with another preliminary investigation concerning a forwarding agency based in South-eastern Finland. It is suspected that defective and/or forged invoices have been prepared at the forwarding agency as regards export of stainless steel to Russia. The preliminary investigation is focusing on possible complicity by Outokumpu Stainless Oy in the preparation of defective and/or forged invoices by the forwarding agency in question. The investigation is expected to last until the autumn 2008. Directly after the Finnish Customs authorities started their investigations, Outokumpu initiated its own investigation into the trade practices connected with stainless steel exports from Tornio to Russia. In June 2007, after carrying out its investigation, the leading Finnish law firm Roschier Attorneys Ltd., concluded that it had not found evidence that any employees of Tornio Works or the Company had committed any of the crimes alleged by the Finnish Customs. Organizational changes and appointments Outokumpu has re-aligned its organization using an integrated model, which is designed to serve the Group's customers in an optimal way. The new organizational structure became fully operational on April 1, 2008. Jamie Allan was appointed Executive Vice President - Supply Chain Management and a member of Outokumpu's Group Executive Committee with effect of January 1, 2008. Annual General Meeting
The Annual General Meeting (AGM) on March 27, 2008 approved a dividend of EUR 1.20 per share for 2007. Dividends totaling EUR 216 million were paid on April 8, 2008.
The AGM also authorized the Board of Directors to decide to repurchase the Company's own shares as follows the maximum number of shares to be repurchased is 18 000 000, currently representing 9.93% of the Company's total number of registered shares. Based on earlier authorizations, the Company currently holds 1 218 603 of its own shares. The AGM authorized the Board of Directors to decide to issue shares and grant special rights entitling to shares. The maximum number of new shares to be issued through the share issue and/or by granting special rights entitling to shares is 18 000 000, and, in addition, the maximum number of treasury shares to be transferred is 18 000 000. The authorization includes the right to resolve upon a directed share issue. These authorizations are valid until the next Annual General Meeting, however no longer than May 31, 2009. To date the authorizations have not been used.
The AGM decided on the number of the Board members, including the Chairman and Vice Chairman, to be eight. Evert Henkes, Ole Johansson, Victoire de Margerie, Anna Nilsson-Ehle, Leo Oksanen and Leena Saarinen were re-elected as members to the Board of Directors, and Jarmo Kilpelä and Anssi Soila were elected as new members. The Annual General Meeting elected Ole Johansson as Chairman and Anssi Soila as Vice Chairman of the Board. 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 re-elected as the Company's auditor for the term ending at the close of the next AGM.
At its first meeting, the Board of Directors of Outokumpu appointed two permanent committees consisting of Board members. Leena Saarinen (Chairman), Jarmo Kilpelä, Victoire de Margerie and Anssi Soila were elected as members of the Board Audit Committee. Ole Johansson (Chairman), Evert Henkes and Anna Nilsson-Ehle were elected as members of the Board Nomination and Compensation Committee. Shares and shareholders According to the Nordic Central Securities Depository, Outokumpu's shareholders by group at the end of June 2008 were the Finnish State (31.1%), foreign investors (45.1%), Finnish public sector institutions (13.0%), Finnish private households (6.1%), Finnish financial and insurance institutions (1.8%), Finnish corporations (1.5%) and Finnish non-profit organizations (1.4%). The list of largest shareholders is updated daily on Outokumpu's internet pages www.outokumpu.com.
At the end of June, Outokumpu's closing share price was EUR 22.25. The average share price during I-II/2008 was EUR 25.86 (I-II/2007: EUR 27.14). At the end of June, the market capitalization of Outokumpu Oyj shares totaled EUR 4 010 million (June 30, 2007: EUR 4 531 million). During the first half of 2008, 260.6 (I-II/2007: 253.8) million Outokumpu shares were traded on the Nasdaq OMX Nordic Exchange Helsinki. At the end of June, Outokumpu's fully paid share capital totaled EUR 308.4 million and consisted of 181 440 810 shares. The average number of shares outstanding during I-II/2008 was 180 141 997.
Events after the review period
In July, Outokumpu signed a deal with Vattenfall relating to electricity deliveries in Finland and Sweden totaling some fifteen terawatt hours (TWh) over a ten-year period. In addition to these extensive deliveries of electrical power, Vattenfall and Outokumpu also agreed on electricity portfolio management services to be provided by Vattenfall, as well as on co-operation to achieve improved efficiency in the use of energy. Outokumpu is currently expanding its stainless steel operations in Finland and Sweden and this has generated a need for additional electricity supply. This deal with Vattenfall covers an important share of the Group's electricity needs until the possible Fennovoima nuclear project will start delivering.
Short term outlook
Underlying demand for stainless steel from most end-use segments is stable. As a result of the increasing uncertainty related to the global economic turmoil, some weakness is evident in consumer-driven segments such as white goods and construction. Demand from investment-driven segments continue generally healthy but some projects have been postponed because of the economic uncertainties.
Distributors are currently postponing their purchases because of the decline in the nickel price and the holiday period in Europe. Inventory levels for standard grades by distributors are at normal levels or somewhat higher. Outokumpu is now selling standard grades for deliveries in August and September.
The slowdown of demand during the holiday season and annual maintenance breaks at the Group's mills as well as the postponement of purchases by distributors will clearly reduce stainless delivery volumes for the third quarter compared to the second quarter.
The current market conditions suggest that there is price pressure up to EUR 100-150/ton for the average base price of the German 2mm cold rolled 304 stainless steel sheet in the third quarter compared to the second quarter.
Outokumpu's operating profit for the third quarter of 2008 is expected to be negative including some EUR 100 million of nickel-related inventory losses at current nickel prices. Underlying operational result is expected to be slightly positive depending on delivery volumes.
In Espoo, July 24, 2008
Board of Directors
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Condensed income statement Jan- Jan- April- April- Jan- June June June June Dec EUR million 2008 2007 2008 2007 2007 Continuing operations: Sales 3 238 4 221 1 549 2 092 6 913 Other operating income 2 49 1 40 82 Costs and expenses -2 956 -3 431 -1 373 -1 717 -6 364 Other operating expenses -11 -9 -4 -9 -43 Operating profit 274 830 174 406 589
Share of results in associated companies 1 7 1 4 4 Financial income and expenses Interest income 10 12 5 7 25 Interest expenses -34 -43 -18 -22 -82 Market price gains and losses -2 2 5 4 0 Other financial income 11 263 1 254 268 Other financial expenses -14 -3 -1 -1 -5 Profit before taxes 247 1 068 166 652 798
Income taxes -56 -205 -36 -100 -138 Net profit for the period from continuing operations 191 864 130 553 660
Discontinued operations: Net profit for the period from discontinued operations -72 9 -74 12 -18
Net profit for the period 119 872 56 565 641
Attributable to: Equity holders of the Company 119 868 56 563 638 Minority interest - 4 - 2 4
Earnings per share for profit attributable to the equity holders of the Company: Earnings per share, EUR 0.66 4.80 0.31 3.11 3.52 Diluted earnings per share, EUR 0.66 4.77 0.31 3.09 3.50
Earnings per share from continuing operations attributable to the equity holders of the Company: Earnings per share, EUR 1.06 4.75 0.72 3.04 3.63
Earnings per share from discontinued operations attributable to the equity holders of the Company: Earnings per share, EUR -0.40 0.05 -0.41 0.07 -0.10
Condensed balance sheet June 30 June 30 Dec 31 EUR million 2008 2007 2007 ASSETS Non-current assets Intangible assets 469 485 475 Property, plant and equipment 1 971 2 010 1 980 Non-current financial assets Interest-bearing 454 457 453 Non interest-bearing 80 82 77 2 974 3 033 2 986 Current assets Inventories 1 605 2 298 1 630 Current financial assets Interest-bearing 63 62 50 Non interest-bearing 1 146 1 431 975 Cash and cash equivalents 77 82 86 2 892 3 873 2 740
Assets held for sale 30 239 184
Total assets 5 895 7 146 5 910
EQUITY AND LIABILITIES Equity Equity attributable to the equity holders of the Company 3 227 3 634 3 337 Minority interest - 0 - 3 227 3 634 3 337 Non-current liabilities Interest-bearing 988 1 222 1 046 Non interest-bearing 338 350 337 1 327 1 572 1 382 Current liabilities Interest-bearing 565 668 464 Non interest-bearing 767 1 203 675 1 332 1 871 1 139
Liabilities related to assets held for sale 9 68 52
Total equity and liabilities 5 895 7 146 5 910
Consolidated statement of changes in equity Attributable to the equity holders of the Company Share Unregister- Share Other Fair value capital ed share premium reserves reserves EUR million capital fund Equity on December 31, 2006 308 0 701 11 144 Cash flow hedges - - - - 1 Fair value changes on available-for-sale financial assets - - - - 12 Available-for-sale financial assets recognized through P&L - - - - -99 Net investment hedges - - - - - Change in translation differences - - - - - Items recognised directly in equity - - - - -85 Net profit for the period - - - - - Total recognised income and expenses - - - - -85 Transfers within equity 0 -0 - - - Dividends - - - - - Shares subscribed with options 0 - 0 - - Management stock option program: value of received services - - - - - Acquisition of minority in OSTP - - - - - Equity on June 30, 2007 308 - 701 11 59
Equity on December 31, 2007 308 - 701 16 57 Cash flow hedges - - - - -0 Fair value changes on available-for-sale financial assets - - - - 9 Available-for-sale financial assets recognized through P&L - - - - 5 Net investment hedges - - - - - Change in translation differences - - - - -0 Items recognised directly in equity - - - - 13 Net profit for the period - - - - - Total recognised income and expenses - - - - 13 Dividends - - - - - Shares subscribed with options 0 - 0 - - Management stock option program: value of received services - - - - - Equity on June 30, 2008 308 - 702 16 70 Attributable to the equity holders of the Company Treasury Cumulative Retained Minority Total shares translation earnings interest equity EUR million differences Equity on December 31, 2006 -2 -35 1 927 17 3 071 Cash flow hedges - - - - 1 Fair value changes on available-for-sale financial assets - - - - 12 Available-for-sale financial assets recognized through P&L - - - - -99 Net investment hedges - 2 - - 2 Change in translation differences - -8 - 0 -8 Items recognised directly in equity - -6 - 0 -91 Net profit for the period - - 868 4 872 Total recognised income and expenses - -6 868 4 781 Tranfers within equity - - - - - Dividends - - -199 - -199 Shares subscribed with options - - - - 0 Management stock option program: value of received services - - 2 - 2 Acquisition of minority in OSTP - - - -21 -21 Equity on June 30, 2007 -2 -41 2 598 0 3 634
Equity on December 31, 2007 -27 -82 2 364 - 3 337 Cash flow hedges - - - - -0 Fair value changes on available-for-sale financial assets - - - - 9 Available-for-sale financial assets recognized through P&L - - - - 5 Net investment hedges - 0 - - 0 Change in translation differences - -29 - - -30 Items recognised directly in equity - -29 - - -16 Net profit for the period - - 119 - 119 Total recognised income and expenses - -29 119 - 103 Dividends - - -216 - -216 Shares subscribed with options - - - - 0 Management stock option program: value of received services - - 2 - 2 Equity on June 30, 2008 -27 -111 2 269 - 3 227
Condensed statement of cash flows Jan-June Jan-June Jan-Dec EUR million 2008 2007 2007 Net profit for the period 119 872 641 Adjustments Depreciation and amortization 100 101 204 Impairments 17 2 1 Loss on the sale of copper tube business 66 - - Gain on the sale of Outotec shares - -142 -142 Gain on the Talvivaara transaction - -110 -110 Other adjustments 80 220 199 Change in working capital -94 -565 181 Dividends received 11 11 13 Interests received 3 5 10 Interests paid -38 -44 -83 Income taxes paid -54 -134 -239 Net cash from operating activities 209 217 676 Purchases of assets -106 -60 -163 Purchase of Talvivaara shares - -32 -32 Acquisition of the minority in OSTP - -22 -22 Proceeds from the sale of copper tube business 49 - - Proceeds from the sale of subsidiaries - 1 1 Proceeds from the sale of other assets 3 2 15 Net cash from other investing activities -0 2 4 Net cash from investing activities -54 -109 -197 Cash flow before financing activities 155 108 479 Purchase of treasury shares - - -25 Borrowings of long-term debt - 150 151 Repayment of long-term debt -145 -267 -388 Change in current debt 200 48 -180 Dividends paid -216 -199 -199 Proceeds from the sale of Outotec shares - 158 158 Proceeds from the sale of other financial assets 0 - 6 Other financing cash flow -2 0 1 Net cash from financing activities -163 -110 -477 Net change in cash and cash equivalents -7 -2 2
Cash and cash equivalents at the beginning of the period 86 85 85 Foreign exchange rate effect -1 -0 -1 Net change in cash and cash equivalents -7 -2 2 Cash and cash equivalents at the end of the period 77 82 86
Key figures Jan-June Jan-June Jan-Dec EUR million 2008 2007 2007 Operating profit margin, % 8.4 19.7 8.5 Return on capital employed, % 13.2 36.4 13.9 Return on equity, % 7.2 52.0 20.0 Return on equity from continuing operations, % 11.6 51.5 20.6
Capital employed at end of period 4 166 4 753 4 125 Net interest-bearing debt at end of period 939 1 119 788 Equity-to-assets ratio at end of period, % 54.8 50.9 56.5 Debt-to-equity ratio at end of period, % 29.1 30.8 23.6
Earnings per share, EUR 0.66 4.80 3.52 Earnings per share from continuing operations, EUR 1.06 4.75 3.63 Earnings per share from discontinued operations, EUR -0.40 0.05 -0.10 Average number of shares outstanding, in thousands 1) 180 142 181 055 180 922 Fully diluted earnings per share, EUR 0.66 4.77 3.50 Fully diluted average number of shares, in thousands 1) 181 167 182 117 181 920 Equity per share at end of period, EUR 17.91 20.07 18.53 Number of shares outstanding at end of period, in thousands 1) 180 222 181 082 180 103
Capital expenditure, continuing operations 97 101 190 Depreciation, continuing operations 100 101 204 Average personnel for the period, continuing operations 8 362 8 285 8 270
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). Mainly the same accounting policies and methods of computation have been followed in the interim financial statements as in the annual financial statements for 2007. Inventories are stated at the lower of cost or net realizable value. Outokumpu changed its calculation method for the cost of inventories from first-in, first-out (FIFO) method to weighted average method in 2008. Also, Outokumpu adopted amended standard IAS 23 Borrowing Costs in 2008. These changes have not had any material impact on the interim financial statements.
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 management's best knowledge of current events and actions, actual results may differ from the estimates.
Shares and share capital
The total number of Outokumpu Oyj shares was 181 440 810 and the share capital amounted to EUR 308.4 million on June 30, 2008. Outokumpu Oyj held 1 218 603 treasury shares on June 30, 2008. This corresponded to 0.7% of the share capital and the total voting rights of the Company on June 30, 2008. The Annual General Meeting held in 2003 passed a resolution on a stock option program for management (2003 option program). The stock options have been allocated as part of the Group's incentive programs to key personnel of Outokumpu. Trading with Outokumpu Oyj's stock options 2003A has commenced on the Main List of the Nasdaq OMX Nordic Exchange Helsinki as of September 1, 2006. On June 30, 2008 a total of 107 425 Outokumpu Oyj shares had been subscribed for on the basis of 2003A stock option program. An aggregate maximum of 551 877 Outokumpu Oyj shares can be subscribed for with the remaining 2003A stock options. In accordance with the terms and conditions of the option program, the dividend adjusted share price for a stock option was EUR 7.25 on June 30, 2008. The share subscription period for the 2003A stock options is September 1, 2006 - March 1, 2009. Trading with Outokumpu Oyj's stock options 2003B has commenced on the Main List of the Nasdaq OMX Nordic Exchange Helsinki as of September 3, 2007. On June 30, 2008 a total of 82 830 Outokumpu Oyj shares had been subscribed for on the basis of 2003B stock option program. An aggregate maximum of 945 990 Outokumpu Oyj shares can be subscribed for with the remaining 2003B stock options. In accordance with the terms and conditions of the option program, the dividend adjusted share price for a stock option was EUR 10.31 on June 30, 2008. The share subscription period for the 2003B stock options is September 3, 2007 - March 1, 2010. The current amount that Outokumpu Oyj shares could be subscribed for with the 2003C stock options is 102 500 shares. The subscription period for shares with stock option 2003C is from September 1, 2008 to March 1, 2011. As a result of the share subscriptions with the 2003 stock options, Outokumpu Oyj's share capital may be increased by a maximum of EUR 2 720 624 and the number of shares by a maximum of 1 600 367 shares. This corresponds to 0.9% of the Company's shares and voting rights. Outokumpu's 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 covered by the program were to receive the number of shares in accordance with the maximum reward, currently a total of 861 825 shares, their shareholding obtained via the program would amount to 0.5% of the Company's shares and voting rights. The detailed information of the 2003 option program and of the share-based incentive program for 2006-2010 can be found in the annual report 2007. Acquisitions In June Outokumpu signed an agreement to acquire the operations of Avesta Klippcenter AB in Avesta, Sweden. Avesta Klippcenter's main business is to process stainless steel material from Outokumpu's mills in Sweden for remelting in Avesta's melt shop. Through the acquisition Outokumpu's raw material handling capacity will increase, and it will secure competitive supply for the Avesta stainless steel melt shop. The total consideration is some EUR 8 million. The purchase price allocation is preliminary and is subject to finalization of the fair valuation of the acquired assets. The company's annual sales are some EUR 4.5 million and it has 17 employees. The closing date for the acquisition was July 1, 2008 and the company will be consolidated in Specialty Stainless division from the closing date onwards.
Non-current assets held for sale and discontinued operations In April, Outokumpu signed an agreement whereby it sold its remaining copper tube assets to Cupori Group Oy. The assets were classified as discontinued operations. The transaction was closed on June 3, 2008. Outokumpu received EUR 56 million as consideration of the sale. A capital loss of EUR 66 million has been booked on the transaction. Both of these figures are subject to final review when the closing balance sheet, expected by the end of the third quarter, has been approved.
The Assets sold comprise the copper plumbing installation and industrial tube manufacturing companies in Pori in Finland, Zaratamo in Spain, Västerås in Sweden and Liège in Belgium, as well as the copper tube sales companies in France, Germany and Italy. In 2007, these businesses generated sales of EUR 510 million with a net loss of EUR 5 million with a number of personnel of 730.
The remaining part of Copper Tube and Brass business consists of brass rod business, which produces brass rods for applications in the construction, electrical and automotive industries. The brass rod plant is located in Drünen in the Netherlands and the unit also has a 50% stake in a brass rod company in Gusum, Sweden. Outokumpu Brass employs some 170 employees. The assets and liabilities of Outokumpu Brass are presented as held for sale. Outokumpu intends to divest also the brass rod business.
Specification of non-current assets held for sale and discontinued operations
Income statement Jan-June Jan-June Jan-Dec EUR million 2008 2007 2007 Sales 241 332 599 Expenses -240 -318 -607 Operating profit 1 13 -8 Net financial items -2 -3 -6 Profit before taxes -1 10 -15 Taxes -1 -1 -1 Profit after taxes -2 9 -15
Impairment loss recognized on the fair valuation of the Tube and Brass division's assets and liabilities -5 -1 -3 Loss on the sale of copper tube business -66 - - Taxes - - - After-tax result from the disposal and impairment loss -72 9 -18
Minority interest - - - Net profit for the period from discontinued operations -72 9 -18
Balance sheet June 30 June 30 Dec 31 EUR million 2008 2007 2007 Assets Intangible and tangible assets 2 6 6 Other non-current assets 3 3 4 Inventories 14 117 91 Other current non interest-bearing assets 11 113 83 30 239 184 Liabilities Provisions 1 2 4 Other non-current non interest-bearing liabilities 1 5 5 Trade payables 7 47 32 Other current non interest-bearing liabilities 0 15 11 9 68 52
Major non-recurring items in operating profit Jan-June Jan-June Jan-Dec EUR million 2008 2007 2007 Gain on the sale of Hitura mine in Finland - 25 25 Thin Strip restructuring in the UK - - -11 - 25 14
Major non-recurring items in financial income and expenses Jan-June Jan-June Jan-Dec EUR million 2008 2007 2007 Impairment of Belvedere shares -12 - - Gain on the sale of Outotec shares - 142 142 Gain on the Talvivaara transaction - 110 110 -12 252 252
Income taxes Jan-June Jan-June Jan-Dec EUR million 2008 2007 2007 Current taxes -51 -188 -107 Deferred taxes -5 -17 -31 -56 -205 -138
Property, plant and equipment Jan 1, Jan 1, Jan 1, 2008 - 2007 - 2007 - June 30, June 30, Dec 31, EUR million 2008 2007 2007 Historical cost at the beginning of the period 3 984 4 009 4 009 Translation differences -28 -26 -76 Additions 97 47 137 Disposal of subsidiaries - -20 -20 Disposals -15 -2 -67 Reclassifications -2 0 0 Historical cost at the end of the period 4 036 4 007 3 984
Accumulated depreciation at the beginning of the period -2 004 -1 939 -1 939 Translation differences 19 14 47 Disposal of subsidiaries - 19 19 Disposals 12 2 56 Reclassifications 0 0 -0 Depreciation -93 -94 -190 Impairments - - 3 Accumulated depreciation at the end of the period -2 065 -1 998 -2 004
Carrying value at the end of the period 1 971 2 010 1 980 Carrying value at the beginning of the period 1 980 2 069 2 069
Commitments June 30 June 30 Dec 31 EUR million 2008 2007 2007 Mortgages and pledges Mortgages on land 121 132 122 Other pledges 0 0 0
Guarantees On behalf of subsidiaries For commercial commitments 52 88 41 On behalf of associated companies For financing 5 5 5
Other commitments 61 56 64
Minimum future lease payments on operating leases 60 63 56
Group's major off-balance sheet investment commitments totaled EUR 70 million on June 30, 2008 (Dec 31, 2007: EUR 37 million).
Related party tranasactions
Transactions and balances with associated companies June 30 June 30 Dec 31 EUR million 2008 2007 2007 Sales 0 0 0 Purchases -5 -5 -9 Financial income and expenses 0 0 2
Loans and other receivables 9 9 9 Trade and other receivables 1 1 0
Fair values and nominal amounts of derivative instruments June 30 June 30 June 30 Dec 31 June 30 Dec 31 2008 2008 2008 2007 2008 2007 Positive Negative Net Net fair fair fair fair Nominal Nominal EUR million value value value value amounts amounts Currency and interest rate derivatives Currency forwards 19 17 2 8 2 924 1 992 Interest rate swaps 10 - 10 10 282 282 Currency swaps 1 - 1 - 50 - Currency options, bought 0 - 0 - 347 - Currency options, sold - 2 -2 - 199 -
Number Number of of shares, shares, million million Stock options Belvedere Resources Ltd. 1 0 1 3 3.7 3.7 Tons Tons Metal derivatives Forward and futures copper contracts 3 3 -0 -2 13 800 11 775 Forward and futures nickel contracts 1 4 -3 0 3 816 3 114 Forward and futures zinc contracts 0 0 -0 -0 375 1 100 Forward molybdenum contracts - - - -0 - 5 Nickel options, sold 6 - 6 0 6 930 24 Nickel options, bought - 1 -1 - 1 950 -
EUR million I/07 II/07 III/07 IV/07 2007 Sales 1 700 1 670 879 1 073 5 321 of which Tornio Works 1 206 1 038 516 708 3 468
Operating profit 245 188 -224 11 220 of which Tornio Works 227 143 -195 3 178
Operating capital at the end of period 3 047 3 007 2 789 2 607 2 607
Average personnel for the period 3 506 3 794 3 807 3 549 3 682
Deliveries of main products (1 000 tons) Cold rolled 187 151 94 155 587 White hot strip 81 82 41 66 270 Semi-finished products 117 118 64 85 383 Total deliveries of the division 386 350 198 305 1 240
EUR million I/08 II/08 Sales 1 304 1 222 of which Tornio Works 905 833
Operating profit 81 125 of which Tornio Works 67 114
Operating capital at the end of period 2 722 2 671
Average personnel for the period 3 578 4 000
Deliveries of main products (1 000 tons) Cold rolled 196 162 White hot strip 102 85 Semi-finished products 100 113 Total deliveries of the division 398 359
Operating capital at the end of period 1 668 1 871 1 657 1 513 1 513
Average personnel for the period 4 146 4 188 4 185 4 107 4 135
Deliveries of main products (1 000 tons) Cold rolled 51 52 33 38 174 White hot strip 43 38 23 31 135 Quarto plate 41 43 30 38 151 Tubular products 20 17 12 15 63 Long products 16 15 11 11 52 Total deliveries of the division 170 164 109 133 574
EUR million I/08 II/08 Sales 786 778
Operating profit 42 44
Operating capital at the end of period 1 430 1 449
Average personnel for the period 4 115 4 096
Deliveries of main products (1 000 tons) Cold rolled 46 44 White hot strip 45 40 Quarto plate 35 37 Tubular products 19 18 Long products 14 14 Total deliveries of the division 161 153
Share of results in associated companies 2 4 -2 -1 4 Financial income and expenses -10 242 -19 -7 206 Profit before taxes 416 652 -277 7 798 Income taxes -105 -100 67 -0 -138 Net profit for the period from continuing operations 311 553 -210 7 660
Net profit for the period from discontinued operations -4 12 -4 -23 -18 Net profit for the period 307 565 -214 -16 641
Attributable to: Equity holders of the Company 305 563 -214 -16 638 Minority interest 2 2 -0 -0 4
EUR million I/08 II/08 Continuing operations: Sales General Stainless 1 304 1 222 of which intersegment sales 284 337 Specialty Stainless 786 778 of which intersegment sales 124 120 Other operations 64 63 of which intersegment sales 57 57 Intra-group sales -465 -514 Total sales 1 689 1 549
Operating profit General Stainless 81 125 Specialty Stainless 42 44 Other operations -20 4 Intra-group items -3 1 Total operating profit 100 174
Share of results in associated companies 0 1 Financial income and expenses -20 -8 Profit before taxes 80 166 Income taxes -19 -36 Net profit for the period from continuing operations 61 130
Net profit for the period from discontinued operations 2 -74 Net profit for the period 63 56
Attributable to: Equity holders of the Company 63 56 Minority interest - -
Major non-recurring items in operating profit
EUR million I/07 II/07 III/07 IV/07 2007 Specialty Stainless Thin Strip restructuring in the UK - - -11 - -11 Other operations Gain on sale of Hitura mine in Finland - 25 - - 25 - 25 -11 - 14
EUR million I/08 II/08 Specialty Stainless Thin Strip restructuring in the UK - - Other operations Gain on sale of Hitura mine in Finland - - - -
Major non-recurring items in financial income and expenses
EUR million I/07 II/07 III/07 IV/07 2007 Impairment of Belvedere shares - - - - - Gain on the sale of Outotec shares - 142 - - 142 Gain on the Talvivaara transaction - 110 - - 110 - 252 - - 252
EUR million I/08 II/08 Impairment of Belvedere shares -12 - Gain on the sale of Outotec shares - - Gain on the Talvivaara transaction - - -12 -
Key figures by quarter
EUR million I/07 II/07 III/07 IV/07 Operating profit margin, % 19.9 19.4 -20.9 1.0 Return on capital employed, % 38.8 35.5 -22.3 1.4 Return on equity, % 39.3 66.2 -24.3 -2.0 Return on equity, continuing operations, % 39.8 64.8 -23.9 0.8
Capital employed at end of period 4 377 4 753 4 421 4 125 Net interest-bearing debt at end of period 1 189 1 119 1 016 788 Equity-to-assets ratio at end of period, % 47.2 50.9 54.6 56.5 Debt-to-equity ratio at end of period, % 37.3 30.8 29.8 23.6
Earnings per share, EUR 1.69 3.11 -1.19 -0.09 Earnings per share from continuing operations, EUR 1.71 3.04 -1.17 0.04 Earnings per share from discontinued operations, EUR -0.02 0.07 -0.02 -0.13 Average number of shares outstanding, in thousands 1) 181 067 181 082 181 084 180 680 Equity per share at end of period, EUR 17.51 20.07 18.81 18.53 Number of shares outstanding at end of period, in thousands 1) 181 082 181 082 181 084 180 103
Capital expenditure, continuing operations 25 75 47 43 Depreciation, continuing operations 51 50 51 52 Average personnel for the period, continuing operations 8 129 8 441 8 416 8 086
EUR million I/08 II/08 Operating profit margin, % 5.9 11.2 Return on capital employed, % 10.0 17.2 Return on equity, % 7.7 7.0 Return on equity, continuing operations, % 7.5 16.3
Capital employed at end of period 3 899 4 166 Net interest-bearing debt at end of period 737 939 Equity-to-assets ratio at end of period, % 53.2 54.8 Debt-to-equity ratio at end of period, % 23.3 29.1
Earnings per share, EUR 0.35 0.31 Earnings per share from continuing operations, EUR 0.34 0.72 Earnings per share from discontinued operations, EUR 0.01 -0.41 Average number of shares outstanding, in thousands 1) 180 112 180 172 Equity per share at end of period, EUR 17.56 17.91 Number of shares outstanding at end of period, in thousands 1) 180 127 180 222
Capital expenditure, continuing operations 41 56 Depreciation, continuing operations 50 50 Average personnel for the period, continuing operations 8 140 8 583
1) The number of own shares repurchased is excluded.
Definitions of key figures
Total equity + net interest-bearing Capital employed = debt
Operating capital = Capital employed + net tax liability
Return on equity = Net profit for the financial year × 100 Total equity (average for the period)
Return on capital = Operating profit × 100 employed (ROCE) Capital employed (average for the period)
Net interest- Total interest-bearing debt bearing debt = - total interest-bearing assets
Equity-to-assets ratio = Total equity × 100 Total assets - advances received
Debt-to-equity ratio = Net interest-bearing debt × 100 Total equity
Net profit for the financial year Earnings per share = attributable to the equity holders Adjusted average number of shares during the period
Equity attributable to Equity per share = the equity holders Adjusted number of shares at the end of the period
