Financial Statements Review January-December 2010
(Thomson Reuters ONE) -
OUTOTEC OYJ FINANCIAL STATEMENTS RELEASE FEBRUARY 8, 2011
AT 8:00 AM
Financial Statements Review January-December 2010
Strong order intake and service sales growth
Board of Directors' dividend proposal: EUR 0.75 per share
January-December 2010 in brief (2009):
* Order intake: EUR 1,394.7 million (EUR 557.1 million), +150.4%
* Sales: EUR 969.6 million (EUR 877.7 million), +10.5%
* Services sales: EUR 282.5 million (EUR 148.6 million), +90.1%
* Operating profit excluding one-time items and purchase price allocation
amortizations: EUR 74.7 million (EUR 58.6 million), +27.4%
* Operating profit: EUR 41.6 million (EUR 58.6 million), -29.1%
* Earnings per share: EUR 0.59 (EUR 1.01), -41.8%
* Order backlog: EUR 1,393.1 million (EUR 867.4 million), +60.6%
* Net cash flow from operating activities: EUR 87.5 million (EUR -28.8
million)
October-December 2010 in brief (Q4/2009):
* Order intake: EUR 356.6 million (EUR 110.5 million), +222.7%
* Sales: EUR 330.3 million (EUR 219.8 million), +50.3%
* Operating profit excluding one-time items and PPA amortizations: EUR 33.4
million (EUR 13.3 million), +151.0%
* Operating profit: EUR 28.1 million (EUR 13.3 million), +111.0%
* Net cash flow from operating activities: EUR -4.8 million (EUR -43.9
million)
New Segment reporting started on April 1, 2010.
Financial guidance for 2011
Based on a strong opening order backlog and active market, in 2011:
* order intake is expected to continue to grow,
* sales are expected to grow to approximately EUR 1.25-1.35 billion, and
* operating profit is expected to improve from 2010 and operating profit
margin from business operations is expected to be approximately 8-9%.
Operating profit is dependent on exchange rates, product mix, timing of new
orders and project completions.
President and CEO Pertti Korhonen:
"2010 was eventful for Outotec. The year began with us having a low order
backlog and limited market visibility. Thus, our first priority was to win new
orders and to secure our profitability. Thanks to excellent order intake, solid
project execution, strong Services business growth and cost efficiency
improvement measures, we achieved the targets that we had set for 2010. The
growing demand for metals and materials to meet the needs of the emerging
economies drove companies to invest in new technologies and services. I am very
satisfied with the excellent development in our order intake and backlog during
last year. In addition to a strong basic demand, we received several large
orders particularly from the emerging markets. Well over half of our sales came
from the emerging markets and the strong copper, iron and gold prices were
reflected in strong growth in related investments, accounting for some 40% of
our last year's sales. Sales grew due to the technology and service businesses
of four acquisitions. The integration of these companies progressed well and
some synergies were already realized. We successfully launched our new global
operational model as a platform for future growth, defined our strategy for the
coming years and announced new long term financial targets. In addition, we
achieved the targeted EUR 25 million annualized savings in fixed operational
costs and plan to reinvest a substantial amount in R&D and building our global
operational platform and respective tools to ensure long term growth and
profitability improvement going forward. At year-end, our order backlog was once
again on a healthy level, which, together with a positive market outlook, has
given us a good start for 2011."
Summary of key figures Q4 Q4 Q1-Q4 Q1-Q4 Change
2010 2009 2010 2009 %
--------------------------------------------------------------------------------
Sales, EUR million 330.3 219.8 969.6 877.7 +10.5
Gross margin, % 26.9 24.1 26.2 21.7
Operating profit excluding one-time items
and PPA amortizations, EUR million 33.4 13.3 74.7 58.6 +27.4
Operating profit margin excluding one-time
items and PPA amortizations, % 10.1 6.1 7.7 6.7
Operating profit including PPA
amortizations, excluding one-time items,
EUR million 31.6 13.3 65.3 58.6 +11.3
Operating profit margin including PPA
amortizations, excluding one-time items, % 9.6 6.1 6.7 6.7
Operating profit, EUR million 28.1 13.3 41.6 58.6 -29.1
Operating profit margin, % 8.5 6.1 4.3 6.7
Profit before taxes, EUR million 25.0 13.3 37.1 60.9 -39.1
Net cash from operating activities, EUR
million -4.8 -43.9 87.5 -28.8
Net interest-bearing debt at the end of
period, EUR million -200.9 -191.0 -200.9 -191.0 +5.2
Gearing at the end of period, % -56.2 -55.8 -56.2 -55.8
Equity-to-assets ratio at the end of the
period, % 41.2 45.1 41.2 45.1
Working capital at the end of period, EUR
million -113.5 -62.8 -113.5 -62.8 +80.8
Return on investment, % 26.7 18.0 9.2 20.9
Return on equity, % 21.4 12.4 7.6 14.9
Order backlog at the end of period, EUR
million 1,393.1 867.4 1,393.1 867.4 +60.6
Order intake, EUR million 356.6 110.5 1,394.7 557.1 +150.4
Personnel, average for the period 3,124 2,744 3,151 2,612
Earnings per share, EUR 0.40 0.21 0.59 1.01 -41.8
Dividend per share, EUR - - 0.75* 0.70 +7.14
--------------------------------------------------------------------------------
*) Board of Directors proposal for dividend per share
FINANCIAL STATEMENTS REVIEW JANUARY-DECEMBER 2010
OPERATING ENVIRONMENT
The overall market conditions continued to further strengthen throughout 2010.
The mining and metals industry continued on the recovery path supported by a
positive long term outlook for metals demand in the emerging economies. The
production capacity utilization rate increased and investments in new production
were commenced which also increased equipment and service sales. Following the
recession, companies had an accumulated need to invest in their existing
operations and investment plans were revitalized. In 2010, the customer
negotiation activity was especially strong in copper, gold and iron projects,
but activity around other metals was also recovering. The mining and metals
industry benefitted from strong metals prices; however, the uncertainty that
still prevailed in the financial markets continued to have an impact on the
investment activities of some companies. Decision-making, particularly regarding
major projects involving construction of new capacity, took time. Drive for
sustainable solutions continued strong and the requirements on the technology
were getting stricter, which is positive for Outotec.
Outotec delivers advanced technology solutions which enable customers to
minimize their processes' life time costs and environmental impacts. This has
helped in winning new orders with normal gross margins and customary payment
terms despite intensive competition.
ORDER INTAKE
Order intake in 2010 amounted to EUR 1,394.7 million (2009: EUR 557.1 million)
including large plant deliveries, technology and equipment deliveries as well as
services. In the reporting period, orders from South America represented roughly
one-fourth and Southern Africa one-fifth of the total order intake. The rest of
the orders came from various market areas such as Asia-Pacific, Europe, the
Middle East and North America. The orders received in the fourth quarter of
2010 totaled EUR 356.6 million (Q4/2009: EUR 110.5 million).
Major new orders in the fourth quarter:
* Sintering and ferrochrome smelting technology for Outokumpu, Finland (EUR
45 million);
* Drinking water supply scheme to the Ampara District, Sri Lanka (EUR 70
million); and
* Integrated digestion and evaporation facility for Ma'aden Aluminium project
in Saudi Arabia together with Hatch (total EUR 50 million, with roughly
equal share of the work between Outotec and Hatch). Small portion became
effective in the order backlog in 2010 and the rest by project milestones in
2011 and 2012.
Major new orders in the third quarter:
* Copper concentrator technology for IRASCO, Italy, project in Iran (EUR 40
million);
* Iron ore sintering plant for Steel Authority of India Ltd, India (value not
disclosed but typically technology solutions with corresponding scope range
from EUR 20 to 25 million); and
* Electric furnace and related services for Konkola Copper Mines, Zambia (EUR
13 million).
Major new orders in the second quarter:
* Copper solvent extraction and electrowinning plant for Minera Lumina Copper,
Chile (EUR 65 million);
* Flotation circuit and filtration technology for Australia's Karara Iron Ore
project (over EUR 28 million);
* Flotation technology for First Quantum Minerals, Finland and Zambia (EUR 20
million);
* Chromite sintering technology for Xstrata Merafe, South Africa (EUR 17
million); and
* Kaldo furnace technology for Boliden's Rönnskär copper smelter, Sweden
(value not disclosed).
Major new orders in the first quarter:
* Sinter plant for Kalagadi Manganese, South Africa (EUR 119 million);
* Copper roasting, off-gas and sulfuric acid plants for Codelco, Chile (EUR
116 million);
* Copper smelter technology for Tongling Non-Ferrous Metals Group, China (EUR
15 million);
* Precious metal plant for Baiyin Non Ferrous Group, China (EUR 6 million);
* Pelletizing technology for Bhushan Power & Steel Plant, India (value not
disclosed); and
* Sintering technology for JSW Steel Limited, India (value not disclosed).
ORDER BACKLOG
The order backlog at the end of 2010 totaled EUR 1,393.1 million, which is 61%
higher than at the previous year-end (December 31, 2009: EUR 867.4 million).
At the end of 2010, Outotec's order backlog included 25 projects with an order
backlog value in excess of EUR 10 million, accounting for 67% of the total
backlog. Management estimates that roughly 69% (approximately EUR 960 million)
of the current backlog value will be delivered in 2011 and the rest in 2012 and
beyond. The order backlog at the end of 2010 included roughly EUR 50 million
(September 30, 2010: EUR 60 million) in suspended projects.
SALES AND FINANCIAL RESULT
Outotec's sales in 2010 totaled EUR 969.6 million (2009: EUR 877.7 million). The
growth in sales came from acquisitions. Underlying sales were affected by the
low order backlog in the beginning of the year and because revenue recognition
from large orders received in 2010 was slow in the early phases. Sales for the
fourth quarter of 2010 were EUR 330.3 million (Q4/2009: EUR 219.8 million),
which was 50% higher than in the comparison period due to the higher order
backlog and increased equipment and service sales.
The Services business, which is included in the sales figures of the three other
business areas, totaled EUR 282.5 million in 2010 (2009: EUR 148.6 million), up
90% from the comparison period and accounting for 29% of sales (2009: 17%). The
sales of the Services business in the fourth quarter totaled EUR 100.5 million
(Q4/2009: EUR 45.2 million) accounting for 30% of sales. The service business
sales grew both organically and through acquisitions. Supported by the Larox and
Millteam acquisitions, Outotec achieved its service business sales target of EUR
250-300 million by the end of 2010 which was set in the beginning of 2008.
In the reporting period, the operating profit excluding one-time items and
purchase price allocation (PPA) amortizations was EUR 74.7 million, representing
7.7% of sales. The increase in operating profit before one-time items and PPA
amortizations resulted from a higher sales volume, better gross margin of 26.2%
(2009: 21.7%) and improvement of fixed cost structure compared to the comparison
period. One-time costs related to restructuring in the reporting period amounted
to EUR 26.5 million, approximately half of which came from asset write-offs and
the rest from costs and provisions caused by personnel reductions and one-time
items related to the integration of acquired companies. PPA amortizations for
the reporting period were EUR 9.4 million.
Operating profit was EUR 41.6 million (2009: EUR 58.6 million). The unrealized
and realized exchange gains related to currency forward contracts improved
profitability by EUR 1.9 million (2009: unrealized and realized loss of EUR 0.1
million). The result for the reporting period also included EUR 2.2 million net
positive effect from the Ausmelt acquisition including EUR 3.3 million
revaluation gain and EUR 1.1 million acquisition costs.
The profitability continued to improve in the fourth quarter of 2010 due to
increased sales. The operating profit before one-time items and PPA
amortizations was EUR 33.4 million, representing 10.1% of sales. The operating
profit in the fourth quarter was EUR 28.1 million (Q4/2009: EUR 13.3 million).
Successful project completions and high proportion of service business were the
main reasons for the high 26.9% gross margin in the fourth quarter 2010
(Q4/2009: 24.1%). The unrealized and realized exchange losses related to
currency forward contracts decreased profitability by EUR 1.4 million (Q4/2009:
unrealized and realized loss of EUR 1.6 million).
In 2010, Outotec's fixed costs were EUR 188.5 million (2009: EUR 131.6 million).
The increase was primarily due to the fixed costs of acquired companies and due
to higher sales and marketing expenses reflecting the strong market and related
tendering and quotation activity.
Outotec's profit before taxes for the reporting period was EUR 37.1 million
(2009: EUR 60.9 million). It included net finance expense of EUR 4.5 million
(2009: net finance income EUR 2.2 million). The net finance expense increased
primarily due to low interest rates and fees related to the new financing credit
facilities. Profit for the period was EUR 26.7 million (2009: EUR 42.3 million),
impacted by one-time costs related to restructuring and PPA amortizations. Taxes
totaled EUR 10.4 million (2009: EUR 18.6 million). Earnings per share were EUR
0.59 (2009: EUR 1.01).
Outotec's return on equity for the reporting period was 7.6% (2009: 14.9%), and
return on investment was 9.2% (2009: 20.9%).
Sales and Operating Profit by Segment Q4 Q4 Q1-Q4 Q1-Q4 Change
EUR million 2010 2009 2010 2009 %
-------------------------------------------------------------------------------
Sales
Non-ferrous Solutions 223.9 115.9 623.3 482.6 +29.2
Ferrous Solutions 43.2 49.9 131.5 146.7 -10.3
Energy, Light Metals and Environmental Solutions 65.3 56.3 222.8 258.7 -13.9
Unallocated items*) and intra-group sales -2.2 -2.3 -8.0 -10.3
-------------------------------------------------------------------------------
Total 330.3 219.8 969.6 877.7 +10.5
Operating profit
Non-ferrous Solutions 23.2 7.9 26.1 35.1 -25.6
Ferrous Solutions 8.2 5.1 11.3 9.5 +19.7
Energy, Light Metals and Environmental Solutions 11.4 6.8 26.8 27.6 -3.0
Unallocated**) and intra-group items -14.7 -6.5 -22.6 -13.5
-------------------------------------------------------------------------------
Total 28.1 13.3 41.6 58.6 -29.1
*) Unallocated items primarily include invoicing of group management and
administrative services.
**) Unallocated items primarily include group management and administrative
services.
Major Non-recurring Items in Operating Q4 Q4 Q1-Q4 Q1-Q4
Profit
EUR million 2010 2009 2010 2009
--------------------------------------------------------------------------------
One-time costs related to restructuring
Non-ferrous Solutions 0.3 - -18.3 -
Ferrous Solutions 0.0 - -1.2 -
Energy, Light Metals and Environmental 0.0 - -1.8 -
Solutions
Unallocated items -4.5 - -5.2 -
Net effect from acquisition costs and revaluation of Ausmelt Ltd.
Shares
Non-ferrous Solutions - - 2.2 -
Impairment loss from Pacific Ore Ltd's
shares
Unallocated items - - - -2.5
Arbitration settlement
Non-ferrous Solutions - - - 2.4
--------------------------------------------------------------------------------
PPA amortizations related to acquisitions, which mainly affected the operating
profit of the Non-ferrous Solutions business area, were EUR 9.4 million in 2010
and EUR 1.8 million in Q4/2010.
Non-ferrous Solutions
Sales in the Non-ferrous Solutions business area in 2010 increased by 29% from
the comparison period and totaled EUR 623.3 million (2009: EUR 482.6 million).
The increase in sales was due to acquisitions. Operating profit excluding one-
time items and PPA amortizations was EUR 50.6 million and operating profit was
EUR 26.1 million (2009: EUR 35.1 million). The unrealized and realized exchange
losses related to currency forward contracts decreased profitability by EUR 0.8
million (2009: unrealized and realized loss of EUR 2.0 million).
Ferrous Solutions
Sales in the Ferrous Solutions business area in 2010 totaled EUR 131.5 million
(2009: EUR 146.7 million). The 10% decrease in sales compared to 2009 was due to
fewer projects in the active delivery phase. The operating profit excluding one-
time items was EUR 12.6 million and operating profit was EUR 11.3 million (2009:
EUR 9.5 million). In the second half of 2010, project completions and final
acceptances by customers improved business area's profitability. Higher sales
and marketing expenses and one-time items related to the savings program had a
negative impact on the operating profit.
Energy, Light Metals and Environmental Solutions
Sales in the Energy, Light Metals and Environmental Solutions business area in
2010 totaled EUR 222.8 million (2009: EUR 258.7 million). The 14% decline in
sales was mainly due to a lower order intake in 2009 as well as to the fact that
fewer projects were in a phase where major deliveries are carried out and
therefore revenue recognition was lower. In addition, some large projects
progressed slower than scheduled due to factors outside Outotec's project scope.
Operating profit excluding one-time items and PPA amortizations was EUR 28.9
million and operating profit was EUR 26.8 million (2009: EUR 27.6 million).
Although sales were lower the operating profit margin remained on a high level
of 12% due to successful project completions. The unrealized and realized
exchange gains related to currency forward contracts increased profitability by
EUR 2.2 million (2009: unrealized and realized gain of EUR 2.9 million).
Sales by destination, % 2010 2009
-----------------------------------------
Europe (including CIS) 20 22
Africa 12 9
Asia 22 31
Australia and Pacific countries 12 6
North America 11 5
South America 23 27
-----------------------------------------
Total 100 100
Sales by metals, % 2010 2009
------------------------------------------------------------
Copper 25 20
Iron 12 17
Aluminium 7 10
Ferroalloys 3 3
Precious metals 11 15
Zinc 5 5
Nickel 7 6
Sulfuric acid 8 16
Other metals 6 -
Other (including energy, water, chemical industry) 16 8
------------------------------------------------------------
Total 100 100
BALANCE SHEET, FINANCING AND CASH FLOW
The consolidated balance sheet total was EUR 1,068.0 million (December
31, 2009: EUR 909.6 million) at the end of 2010. The equity to shareholders of
the parent company was EUR 356.7 million (December 31, 2009: EUR 315.0 million),
representing EUR 7.87 (2009: EUR 7.09) per share.
The net cash flow from operating activities in 2010 was EUR 87.5 million (2009:
EUR -28.8 million). The net cash flow was positive because of advance payments,
which related to the high order intake. Gearing remained on the same level as
previous year-end and was -56.2% (December 31, 2009: -55.8%).
Outotec's working capital amounted to EUR -113.5 million at the end of 2010
(December 31, 2009: EUR -62.8 million). During the reporting period, working
capital developed positively due to advance payments of the large orders
received.
At the end of 2010, Outotec's cash and cash equivalents totaled EUR 280.3
million (December 31, 2009: EUR 258.5 million). The received large orders and
related advance payments improved the cash position. The change in cash and cash
equivalents was also affected by the dividend payment of EUR 32.0 million in
April 2010 (March 2009: EUR 42.0 million). The company invests its excess cash
in short-term money market instruments such as bank deposits and corporate
commercial papers.
Outotec's financing structure remained strong and liquidity was good. Net
interest-bearing debt at the end of 2010 was
EUR -200.9 million (December 31, 2009: EUR -191.0 million). The advance payments
received at the end of the reporting period totaled EUR 198.7 million (December
31, 2009: EUR 150.9 million), representing an increase of 32% from the
comparison period. Outotec's equity-to-assets ratio was 41.2% (December
31, 2009: 45.1%). The company's capital expenditure in 2010 was EUR 96.7 million
(2009: EUR 98.0 million), of which EUR 77.2 million was related to acquisitions.
Other capital expenditure included investments mainly in information technology,
machinery and intellectual property rights.
At the end of the reporting period guarantees for commercial commitments,
including advance payment guarantees issued by the parent and other Group
companies were EUR 308.1 million (December 31, 2009: EUR 321.3 million). At the
end of the reporting period, the total volume of pledges and mortgages was EUR
0.6 million (December 31, 2009: EUR 33.4 million). The reduction since the year-
end 2009 was due to the repayment of most of Larox's external credit facilities.
On November 25, 2010, Outotec signed two credit facilities; EUR 500 million
Multicurrency Revolving Guarantee Issuance Facility and EUR 50 million
Multicurrency Revolving Credit Facility (The "Facilities"). The 3+1+1 year
Facilities have been put in place to refinance Outotec's existing guarantee and
revolving credit facilities and to provide Outotec guarantees and liquidity for
general corporate purposes.
On April 23, 2010, Outotec established a continuous commercial paper program for
domestic investors consisting of a principal amount of EUR 100 million. By the
end of the reporting period, Outotec had emitted EUR 10.0 million worth of
commercial papers.
COST SAVINGS PROGRAM
Outotec's aim was to achieve EUR 25 million annualized savings in operational
fixed costs, including the fixed costs of sales, by the end of 2010 compared to
the fourth quarter of 2009 with full effect in 2011. Savings were planned to be
achieved through the implementation of the new operational model and synergy
benefits from acquisitions. To achieve these savings, one-time costs were
expected to be approximately EUR 25 million.
In 2010, one-time items related to the cost savings program and the integration
of the acquired businesses totaled EUR 26.5 million. Approximately half of these
items came from asset write-offs and the rest from provisions related to
personnel reductions and other non-personnel related costs. The total personnel
reduction in Finland was 97, including retirements and the termination of
temporary contracts. In 2010, the total personnel reduction globally was 161.
The cost saving program was closed at the end of 2010 and it will lead, with
comparable foreign exchange rates, to EUR 26.2 million annualized operational
fixed costs savings of which EUR 23 million are cash effective. In 2010, the
realized cost savings from operational fixed costs and one-time items totaled
EUR 16.4 million with full effect in 2011.
CORPORATE STRUCTURE
New operational model and reporting segments
As of April 1, 2010 Outotec's businesses were re-organized into four business
areas, three of which are reporting segments. The new reporting segments are:
- Non-ferrous Solutions, consists of businesses related to the processing of
copper, nickel, zinc, lead, gold, silver and platinum group metals as a full
process chain from ore to metal as well as industrial minerals. The acquired
businesses Larox, Ausmelt and Millteam are included in this business area;
- Ferrous Solutions, consists of businesses related to the processing of iron
ores and other ferriferous materials to produce concentrates, pellets, sinter,
direct reduced and hot briquette iron, ferroalloys and titanium feedstock;
- Energy, Light Metals and Environmental Solutions, consists of businesses
related to energy (including oil shale, oil sands and biomass materials),
alumina, aluminum and light metals processing. Business area's environmental
solutions include sulfuric acid plants, applications for gas cleaning and heat
recovery systems, as well as industrial water treatment. The acquisition of
Edmeston is included in the business area.
Services business
The Services business is included in the figures of the three reporting
segments; however, its sales volume is also reported separately. This business
area focuses on developing and growing the service business globally and
providing life cycle services to customers.
The business areas are supported by a global matrix structure including
marketing, sales and local delivery operations in geographical market areas, as
well as shared global functions. Globally shared functions allow for a flexible
and efficient use of company technologies, capabilities and resources.
Reflecting the new operational model, Outotec published restated comparison
figures with allocations of the one-time items by business area on June
30, 2010 for the reporting periods January-December 2009 and January-March
2010. Full year figures for the period 2006 to 2010 are published in the context
of Outotec's Financial Statements 2010.
The Group's cost allocation principles in the new reporting segment structure
have not been changed and the company continues to apply the same accounting
principles as before.
AcquisitionsLarox acquisition
The acquisition of Larox was closed in June 2010. Larox develops and delivers
industrial filters for separating solids from liquids and its filtration
solutions are primarily used in the mining and metallurgical industries
worldwide as well as in chemical processing. With the acquisition, Outotec can
now provide complete solutions covering a wide range of technologies and
services for the entire value chain from ore to metal. Larox recorded sales in
2009 of EUR 150 million; the company had about 550 employees and operated in
over 40 countries. The acquisition price was approximately EUR 90 million, which
was paid mostly with shares. The targeted EUR 7 million synergy benefits from
global sales and service networks as well as administration were partially
realized in 2010 and will have full affect in 2011.
Ausmelt acquisition
The acquisition of Ausmelt was closed in March 2010. Ausmelt develops, designs,
and supplies the Top Submerged Lance (TSL) smelting technology for the
production and recycling of metals and processing of industrial wastes.
Ausmelt's TSL technology complements Outotec's smelting technology portfolio. As
a result of the acquisition, Outotec now has the industry's strongest non-
ferrous smelting solutions portfolio covering both primary smelting from small
to large-scale plants using a variety of feed materials, such as copper, nickel,
ferrous metals, zinc, lead and tin concentrates and zinc-bearing residues, as
well as the smelting of various secondary and waste materials. An additional
benefit of Ausmelt technology is that it allows the recovery of valuable metals
from by-products. Ausmelt sales in 2009 were approximately EUR 10 million and it
had 40 employees based mainly in Australia and Asia. The acquisition price paid
in cash was approximately AUD 49 million (approximately EUR 30 million).
Edmeston acquisition
Outotec acquired Swedish Edmeston AB in May 2010. The company has unique
capabilities in special stainless steel grades suitable for use in highly
corrosive environments. The acquisition further strengthens Outotec's position
especially in sulfuric acid plant solutions through proprietary equipment and
particularly in services for own and also other installed plants. Edmeston's
sales in 2009 were approximately EUR 10 million and the company employed 10
professionals. The acquisition price, which was paid in cash, was not disclosed.
Millteam acquisition
Outotec acquired Millteam Sweden's service business in March 2010. Millteam
offers maintenance services, complete installations, installation supervision,
maintenance inspections and service of equipment for mining companies and it has
special expertise in grinding mill service. The Millteam acquisition supports
Outotec's strategy to expand its service offerings. With its new service center
in Sweden, Outotec can now provide better life cycle services for its customers
in Europe and the CIS region. The terms and conditions related to the
acquisition were realized on April 1, 2010. Millteam's sales in 2009 were
approximately EUR 4 million and the company employed 35 professionals. The
acquisition price, which was paid in cash, was not disclosed.
Purchase price allocation amortizations related to acquisitions were EUR 9.4
million in 2010 and EUR 1.8 million in Q4/2010 (2011: approximately EUR 4
million).
Other changes in corporate structure
In December, Outotec announced that it had merged its Finnish subsidiary,
Outotec Research Oy, with Outotec (Finland) Oy and transferred the parent
company Outotec Oyj's operative business to Outotec (Finland) Oy from the
beginning of 2011. The change in the company structure does not affect Outotec's
current operational model or reporting structure. The integration of
acquisitions and the simplification of the Outotec legal company structure
worldwide proceeded as planned in 2010 and will continue in 2011.
RESEARCH AND TECHNOLOGY DEVELOPMENT
In the reporting period, Outotec's research and technology development expenses
totaled EUR 28.5 million (2009: EUR 20.5 million), representing 2.9% of sales
(2009: 2.3%). Outotec filed 50 new priority patent applications (2009: 56), and
287 new national patents have been granted (2009: 286).
In December, Outotec commissioned a new CO2 removal pilot plant at its R&D
center in Frankfurt am Main, Germany. It complements Outotec's circulating
fluidized bed (CFB) pilot plant allowing for the cleaning of process gas from
iron ore direct reduction as well as from coal and biomass gasification. The new
pilot plant plays an important role in the development of Outotec's new
offerings for the energy industry providing the testing facilities to reduce the
carbon footprint of coal and biomass-based energy production as well as in the
testing of oil winning from oil shale and oil sand. The pilot installation also
allows Outotec to fully demonstrate its proprietary Circofer® process for the
direct reduction of fine iron ores based on coal.
In December Outotec launched new service products for filters, namely filter
cloths and ceramic plates, which are tailored to perform with Outotec Larox®
filters. Filter media are crucial for filtration efficiency. New Outotec Larox
Filter Cloths enable optimized performance and process results for each
application and filter. The filter cloth collection covers the entire
permeability range.
In September, Outotec joined an industrial research program from the University
of Alberta aimed at fostering sustainable water use in Canadian oil sands
extraction. Outotec is currently collaborating with companies Kemira and Suncor
Energy Services, the Canadian government and the Alberta Water Research
Institute to establish a Natural Science and Engineering Research Council of
Canada (NSERC) industrial research chair titled "Water Quality Management for
Oil Sands Extraction" at the University of Alberta in Edmonton, Canada. The
five-year long research program focuses on water quality management studies to
address water consumption, reuse and recycling by the in situ oil sands
extraction industry.
In September, Outotec and Kemira signed a strategic cooperation agreement to
develop, promote and support the companies' businesses in minerals and oil sands
processing as well as associated industrial water treatment solutions. This
cooperation combines Outotec's capability in minerals and oil sands processing
technology with Kemira's experience in water chemistry and related applications
to offer customers process optimization enabling cost-efficiency, sustainability
and quality improvements.
In October, Outotec announced its cooperation with the National Development
Corporation of Mongolia to conduct a conceptual study for a copper smelter to be
located in Sainshand, Mongolia. The Mongolian government plans to build an
industrial complex in Sainshand to add value to mineral deposits including its
Oyu Tolgoi copper mining project and to diversify its economy.
In November, Outotec announced it would donate EUR 300,000 to Aalto University
Foundation, EUR 150,000 to University of Oulu, EUR 100,000 to Lappeenranta
University of Technology and EUR 50,000 to Åbo Akademi University. This had
originally been decided at Outotec Oyj's Annual General Meeting on March
18, 2010 authorizing the Board of Directors to determine a donation not to
exceed EUR 600,000 to Finnish universities.
SUSTAINABILITY
In December, Outotec signed the United Nations Global Compact initiative and is
committed to its principles of human rights, environment, labor and fighting
corruption. The Global Compact initiative is additional evidence of Outotec's
aim to further advance sustainability and social responsibility principles in
its business practices.
In October, Outotec was ranked third best among Nordic companies by the Carbon
Disclosure Project (CDP) in the Carbon Disclosure Leadership Index, which is a
key component of CDP's annual Nordic 200 Report. Outotec's score in the CDP
ranking was 90/100. Outotec participated in the CDP for the first time in 2009
and was commended for its climate change disclosure.
In April, Outotec and Brazilian alumina producer Alunorte received an energy
efficiency award at the Hannover Messe 2010. Alunorte was presented with the
"Special Recognition" award for using optimization processes in its cyclones to
improve heat transfer and cut down on pressure losses thus resulting in energy
savings and more stable operation. Alunorte uses Outotec® calcining technology
in its production.
New strategic priorities and long term financial targets
In November 2010, Outotec announced new strategic priorities and financial
targets. The company's goal remains continuous profitable growth. Going forward,
Outotec intends to focus on providing sustainable life cycle solutions, which
guarantee the best return on a customer's investment. In addition to further
strengthening its technology portfolio for the entire value chain from ore to
metals, Outotec plans to leverage its core technology assets in expanding to
adjacent industries such as energy and industrial water treatment. The company
also plans to strengthen its presence in emerging markets, and targets to
improve its productivity and scalability.
New long-term financial targets to ensure continuous profitable growth
* Growth: Outotec targets to grow faster than the market resulting in compound
average annual sales growth target in the range of 10-20%.
* Profitability: Outotec's annual operating profit margin from business
operations is targeted to be on average at 10%, excluding one-time costs and
purchase price allocations of acquired businesses.
* Balance sheet: Outotec targets to maintain a strong balance sheet in order
for the company to have operational flexibility and execute acquisitions.
These new targets replace the previous long-term financial targets of annual
average EPS growth exceeding 10% along with a 5% operating profit margin floor,
and a strong balance sheet.
Dividend policy
The Board of Directors adopted a dividend policy in November in which the
company aims to propose for the approval of the company's shareholders dividends
representing at least 40% of the annual net income of Outotec for the preceding
financial year.
The amount of future dividends, if any, will be subject to Outotec's future
earnings, financial, condition, cash flows, and working capital requirements. In
addition, investments in either organic growth or acquisitions as part of
Outotec's growth strategy may impact the level of future dividends.
Though the Board of Directors has no reason to believe that dividend payments
under this policy will not generally be made, there can be no assurance that any
annual dividend will actually be paid, nor can there be any assurance as to the
amount to be paid in any given year.
New service business target
Outotec has also set a new growth target for its service business. The company
aims to grow the sales of its services to an annual level of EUR 500 million by
the end of 2015. Growth is planned to be achieved both organically and through
acquisitions, expanding the scope of deliveries and new life cycle service
offerings.
PERSONNEL
At the end of 2010, Outotec had a total of 3,130 employees (December
30, 2009: 3,128) of which 584 employees came from acquired business. In 2010,
Outotec had on average 3,151 employees (2009: 2,612). The average number of
Outotec's personnel increased by 539 from the comparison period mainly through
acquisitions. Temporary personnel accounted for about 8% of the total number of
employees.
Distribution of Personnel by Country Dec 31, 2010 Dec 31, 2009 change
%
-----------------------------------------------------------------------
Finland 1,056 1,145 -7.8
Germany 444 472 -5.9
Rest of Europe 327 283 15.5
Americas 759 740 2.6
Australia 271 239 13.3
Rest of the world 273 249 9.6
-----------------------------------------------------------------------
Total 3,130 3,128 0.1
At the end of 2010, the company had, in addition to its own personnel,
approximately 328 (December 30, 2009: 250) full-time equivalent, contracted
professionals working in project execution. The number of contracted workers at
any given time changes with the active project mix and project commissioning,
local legislation and regulations as well as seasonal fluctuations.
In 2010, salaries and other employee benefits totaled EUR 224.4 million (2009:
EUR 159.5 million).
In November, Outotec announced that the Board of Directors had decided to
establish a Human Capital Committee and elected Carl-Gustaf Bergström, Chairman
of the Board, as Chairman of the Committee. Other members are Karri Kaitue and
Tapani Järvinen. The Human Capital Committee is to ensure that all human capital
related practices support the strategic aims of the business and enable the
recruitment, development, motivation and retention of key personnel. The
leadership capacity of current and future Outotec leaders is on HCC's special
focus. In addition, HCC is to ensure that compensation arrangements support
achieving long term business objectives and growth in shareholder value. The
committee will also prepare matters pertaining to the appointment of the CEO and
his/her possible deputy and other executives as well as the identification of
their successors.
CHANGES IN TOP MANAGEMENT
In October, Outotec announced the appointment of Mr. Mikko Puolakka, M.Sc.
(Econ.), as chief financial officer and member of the Executive Board as of
December 1, 2010.
In February, Outotec announced that a new executive board had been appointed to
replace its executive and management committees. The new executive board took
charge when Outotec shifted into the new operational model on April 1, 2010. The
members of the executive board with responsibility areas are:
Pertti Korhonen, President and Chief Executive Officer
Mikko Puolakka, Finance and control
Jari Rosendal, Non-ferrous Solutions business
Pekka Erkkilä, Ferrous Solutions business
Peter Weber, Energy, Light Metals and Environmental Solutions business
Kalle Härkki, Services business
Martti Haario, Market Operations
Michael Frei, Supply
Ari Jokilaakso, Human Capital
Tapio Niskanen, Business Infrastructure
Mika Saariaho, Corporate development
SHARE-BASED INCENTIVE PROGRAMS AND EXECUTIVE BOARD SHARE OWNERSHIP PLAN
Outotec has two share-based incentive programs: Share-based incentive program
2008-2010 (announced on March 3, 2008) and Share-based Incentive Program
2010-2012 (announced on April 23, 2010).
Share-based Incentive Program 2008-2010
No shares were allocated for the 2009 earnings period. The board of directors
also decided not to select individuals or earning criteria for the 2010 earning
period since the Incentive Program 2010-2012 replaces the old program.
Share-based Incentive Program 2010-2012
Outotec's board of directors decided to adopt a new share-based incentive
program for the company's key personnel. The program has three earning periods:
calendar years 2010, 2011 and 2012. The board determines the amount of the
maximum reward for each individual, the earning criteria and the targets
established for them separately on an annual basis.
The board approved 71 individuals in the scope of the Incentive Program
2010-2012 for the 2010 earning period, which began on January 1, 2010. The
reward is based on the achievement of the targets set for cost savings, order
intake and earnings per share. The reward will be paid in 2011 in the company's
shares and as a cash payment which equals income taxes. The individual must hold
the earned shares for at least two years following the end of the earning
period. If the individual's employment ends during this engagement period, (s)he
has to return all or part of the earned shares to the company without
compensation.
The maximum total reward for the 2010 earning period of the Incentive Program
2010-2012 is equal to the value of 361,750 Outotec shares, and the maximum value
of the rewards of the entire Incentive Program 2010-2012 is equal to
approximately 1,000,000 shares, including the cash payment.
Executive Board share ownership plan
On May 21, 2010 Outotec's board of directors determined a new share ownership
plan directed to the members of the Outotec executive board. As part of the
plan, the executive board members established Outotec Management Oy company,
whose entire share capital is owned by them. The purpose of the plan is to
commit executive board members to Outotec by encouraging them to acquire and
hold Outotec shares and thus increase the company's shareholder value in the
long run. They invest a considerable amount of their own funds in company shares
and partly through a loan provided by Outotec. The company's board of directors
granted to Outotec Management Oy an interest-bearing loan at the maximum amount
of EUR 4,980,000 to finance the acquisition of the Outotec shares. The members
of the executive board members hold approximately 0.34% of Outotec shares
through the company.
Outotec has consolidated Outotec Management Oy into the Group's balance sheet.
At the end of 2010, Outotec Management Oy held 191,211 (February
8, 2011: 191,211) Outotec shares which have been accounted as treasury shares in
Outotec's balance sheet. This has decreased the Group's equity by EUR 5.1
million. More detailed information regarding the plan's effects to the Group's
equity are presented in the Consolidated Statement of Changes in Equity table.
RESOLUTIONS OF THE 2010 ANNUAL GENERAL MEETING
Outotec Oyj's annual general meeting was held on March 18, 2010, in Espoo,
Finland. The meeting was opened by the chairman of the board of directors, Mr.
Risto Virrankoski, and chaired by Mr. Tomas Lindholm, attorney-at-law.
Financial Statements
The annual general meeting approved the parent company and the consolidated
financial statements, and they also discharged the board of directors' members
and the CEO from liability for the financial year 2009.
Dividend
The annual general meeting participants decided that a dividend of EUR 0.70 per
share be paid for the financial year ended December 31, 2009. The dividends, EUR
32.0 million, were paid on April 8, 2010.
The Board of Directors
The annual general meeting participants decided on the number of board members,
including chairman and vice chairman, to be six (6). Mr. Carl-Gustaf Bergström,
Mr. Karri Kaitue, Mr. Hannu Linnoinen and Mr. Anssi Soila were re-elected as
members of the board of directors and Ms. Eija Ailasmaa and Mr. Tapani Järvinen
were elected as new board members for the term expiring at the end of the next
annual general meeting. The annual general meeting elected Mr. Carl-Gustaf
Bergström as the chairman of the board of directors.
The annual general meeting participants confirmed the remunerations to the board
members as follows: chairman EUR 5,000 per month and other board members EUR
3,000 per month each, vice chairman and chairman of the audit committee an
additional EUR 1,000 per month each, and each board member EUR 500 for
attendance at each board and committee meeting as well as reimbursement for
direct costs stemming from board work.
During its assembly meeting the Board of Directors elected Mr. Karri Kaitue as
the vice chairman of the board of directors. In addition, the board elected Ms.
Eija Ailasmaa, Mr. Anssi Soila and Mr. Hannu Linnoinen as members of the audit
committee. Mr. Linnoinen acts as the chairman of the audit committee.
Auditors
KPMG Oy Ab, Authorized Public Accountants, was re-elected as the company's
auditor, with Mauri Palvi as auditor in charge.
Board's authorizations
The annual general meeting participants authorized the board of directors to
resolve the repurchase of the company's shares as follows:
- The company may repurchase the maximum number of 4,578,037 shares using free
equity and deviating from the shareholders' pre-emptive rights to the shares,
provided that the number of shares held by the company will not exceed ten (10)
% of all company shares.
- The shares are to be repurchased in public trading at the NASDAQ OMX Helsinki
at the price established in the trading at the time of acquisition.
The authorization shall be in force until the next annual general meeting. This
authorization has not been executed as of February 8, 2011.
The annual general meeting participants authorized the board of directors to
resolve issues of shares and other special rights entitling to shares as
follows:
- The authorization includes the right to issue new shares, distribute shares
held by the company, and the right to issue special rights referred to in
Chapter 10, Section 1 of the Companies Act. This authorization to the board of
directors does not, however, entitle the board of directors to issue share
option rights as an incentive to the personnel.
- The total number of new shares to be issued and shares held by the company to
be distributed under the authorization may not exceed 4,578,037 shares.
- The board of directors is entitled to set the terms of the share issue, such
as the grounds for determining the subscription price of the shares and the
final subscription price as well as the approval of the subscriptions, the
allocation of the issued new shares and the final amount of issued shares.
The authorizations shall be in force until the next annual general meeting. This
authorization has not been executed as of February 8, 2011.
The annual general meeting participants amended Section 9 of the Articles of
Association so that the notice to convene the general meeting shall be issued no
later than 28 days prior to the general meeting.
Participants also authorized the board of directors to decide on a donation to
Finnish universities of their choice from the company's distributable assets.
The amount is not to exceed EUR 600,000. Outotec's board of directors executed
the authorization given by the Annual General Meeting 2009. This authorization
was executed in conjunction with the Larox acquisition. The total number of
shares issued was 3,780,373 (2,763,419 shares in December 2009 and 1,016,954
shares in February 2010).
SHARES AND SHARE CAPITAL
Outotec's shares are listed on the NASDAQ OMX Helsinki (OTE1V). At the end of
the reporting period, Outotec's share capital was EUR 17,186,442.52 consisting
of 45,780,373 shares. Each share entitles its holder to one vote at the
company's general shareholder meetings.
TRADING, MARKET CAPITALIZATION AND SHAREHOLDERS
In the reporting period, the volume-weighted average price for a share in the
company was EUR 28.76; the highest quotation for a share was EUR 47.25 and the
lowest EUR 18.85. The trading of Outotec shares in the reporting period exceeded
100 million shares, with a total value of over EUR 2,879 million. At the end of
the reporting period, Outotec's market capitalization was EUR 2,117 million and
the last quotation for the share was EUR 46.24. At the end of the reporting
period, the company did not hold any treasury shares for trading purposes.
Outotec has an agreement with a third-party service provider concerning
administration and hedging of the share-based incentive program for key
personnel. These shares are accounted as treasury shares in Outotec's
consolidated balance sheet. At the end of the reporting period, the amount of
these treasury shares was 332,534. There have been no purchases of Outotec
shares based on this agreement during the reporting period.
Outotec has consolidated Outotec Management Oy (incentive plan for Outotec
executive board members) into the Group's balance sheet. At the end of the
reporting period, Outotec Management Oy held 191,211 (February
8, 2011: 191,211) Outotec shares which have been accounted as treasury shares in
Outotec's balance sheet. This has decreased the Group's equity by EUR 5.1
million. More detailed information regarding the Plan's effects to the Group's
equity are presented in the Consolidated Statement of Changes in Equity table.
At the end of the reporting period, Outotec had 15,114 shareholders. Shares held
in 17 nominee registers accounted for 57.4% and Finnish households held roughly
13.6% of all Outotec shares.
EVENTS AFTER THE REPORTING PERIOD
On January 21, 2011 Outotec signed a contract with SNC-Lavalin, a Canadian
engineering and construction company, to design and deliver a new copper flash
smelting furnace and related services to RTB Bor's smelter in Serbia. The
contract value exceeded EUR 60 million.
SHORT-TERM RISKS AND UNCERTAINTIES
Risks related to the global operating environment
Outotec's global business operations are subject to various political, economic
and social conditions. Operations in global markets may present risks related to
economic and political instability. Conditions may rapidly change and create
delays and changes in order placement and execution.
Risks related to Outotec's business
In the project risk assessment during the reporting period, all unfinished
projects were evaluated and provisions for performance guarantees and warranty
period guarantees were updated. There were no material changes in the Group's
project risk provisions.
Due to the international project business, different interpretations of
international and local tax rules and regulations may cause additional direct or
indirect taxes for Outotec, which would reduce the company's net result.
At the end of the reporting period, Outotec's order backlog included roughly EUR
50 million in suspended projects (September 30, 2010: EUR 60 million). Some of
the suspended projects may be cancelled or renegotiated. In any market
situation, there is a risk of postponement and delays in project business.
Acquisitions are an integral part of Outotec's growth strategy. There is a risk
that the estimated synergy benefits will not materialize as planned.
Outotec is involved in a few arbitral and court proceedings. Outotec management
expects that these cases and their outcome will have no material effect on
Outotec's financial result.
The global economic uncertainty may reduce the demand for Outotec's products and
services. Volatility in sales may affect the operating profit margin as the
adjustments in fixed costs may become effective with a delay. Outotec's gross
margin is also impacted by project mix. Particularly orders which include
license fees have a major impact on the gross margin.
Financial risks
There is a risk that customers and suppliers may experience financial
difficulties and a lack of financing may result in project delays as well as
bankruptcies, which can also result in losses for Outotec. These risks are
reduced by advance and milestone payments and letters of credit. In the
reporting period, there were no material credit losses related to payments by
Outotec's counter-parties and at the year-end all receivables were reviewed and
credit loss provisions were updated.
Outotec's business model is based primarily on customer advance payments and on-
demand guarantees issued by Outotec's relationship banks. Changes in advance
payments received have an impact on the liquidity of Outotec. Exposure to on-
demand guarantees has remained high. Cash held by Outotec is primarily invested
in short-term bank deposits and in Finnish corporate short-term commercial
papers. The lower interest rate levels reduce the interest income generated from
these investments.
More than half of Outotec's total cash flow is denominated in euros. The rest is
divided among various currencies, including the US dollar, Australian dollar,
Brazilian real, Canadian dollar, and South African rand. The weight of any given
currency in new projects can fluctuate substantially, but most cash-flow-related
risks are hedged in the short and long term. In the short-term, currency
fluctuations may create volatility in the operating profit. The forecasted and
probable cash flows are selectively hedged and are always on the basis of
separate decisions and risk analysis. Natural hedging is used as widely as
possible and the remaining open foreign exchange exposures related to committed
cash flows are fully hedged using derivative instruments. The cost of hedging is
taken into account in project pricing.
MARKET OUTLOOK
The International Monetary Fund estimates the global economy will grow at a rate
of 4.4% in 2011. While advanced economies are estimated to grow approximately
2.5%, developing economies are growing at a rate of 6.5%. The purchasing manager
index has globally been above the 50-point index value indicating steady growth
rates in manufacturing, albeit with some trend differences across economies.
These factors in conjunction with strong metals prices imply a good metals
demand for 2011.
Based on market institutes' estimates, demand for the most important metals is
expected to grow by 4 to 7% annually. The greatest demand still comes from
developing countries in which construction is strong and many industries are
rapidly growing. The focus, and the construction, of additional capacity have
shifted considerably over the past decade. The greatest growth potential lies
not only in the emerging markets such as India, China and CIS, but particularly
in countries which are rich in raw materials such as Brazil and Chile, or rich
in energy resources such as the Middle East region, thereby catering to the
growing demand of the emerging markets. In contrast, demand growth for metals in
Europe, North America, Africa and Australia has been flat.
Several drivers can be seen in Outotec's customer industries, with the most
significant involving sustainable technologies, companies focusing on their core
capability areas, networking and emphasis on cooperation, strong growth in
developing countries while the growth in developed countries is evening out. The
progress of globalization as well as urbanization increases the need for metals
but, at the same time, their production brings about further load on the
environment.
Despite the capacity increases implemented over the last few years, metals
production is not sufficient to satisfy the continuously growing demand.
Companies in the mining and metals industries will need to increase their
production and make it more efficient. Tightening efficiency and environmental
requirem
Unternehmensinformation / Kurzprofil:
Datum: 08.02.2011 - 07:01 Uhr
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