Outokumpu's second quarter 2010 - return to profits in improved markets
(Thomson Reuters ONE) -
INTERIM REPORT
July 22, 2010 9.00 am EET
Second-quarter 2010 highlights
- Operating profit EUR 71 million (I/2010: EUR -22 million) including some EUR
55 million (I/2010: 10 million) of raw material-related inventory gains,
underlying operational result some EUR 16 million (I/2010: EUR -32 million).
- EBITDA EUR 128 million (I/2010: EUR 34 million), operative cash flow EUR -314
million (I/2010: EUR -86 million) due to increased working capital.
- Improving underlying demand for standard grades, demand for special grades
remained weaker, deliveries of stainless steel totalled 339 000 tonnes (I/2010:
333 000 tonnes).
- Major investment decisions: ferrochrome capacity to be doubled, quarto plate
position to be strengthened, totalling approximately EUR 550 million.
Group key figures
II/10 I/10 II/09 2009
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Sales EUR million 1 110 916 617 2 611
Operating profit EUR million 71 -22 -94 -438
EBITDA EUR million 128 34 -42 -212
Non-recurring items
in operating profit EUR million - - - -20
Profit before taxes EUR million 63 -33 -105 -474
Net profit for the period
from continuing operations EUR million 43 -21 -85 -332
Net profit for the period EUR million 44 -21 -87 -336
Earnings per share
from continuing operations EUR 0.24 -0.12 -0.47 -1.83
Earnings per share EUR 0.24 -0.12 -0.48 -1.86
Return on capital employed % 7.2 -2.4 -11.1 -11.7
Net cash generated from
operating activities 1) EUR million -314 -86 21 198
Capital expenditure,
continuing operations EUR million 40 28 45 245
Net interest-bearing debt
at end of period EUR million 1 683 1 293 926 1 183
Debt-to-equity ratio at
end of period % 67.6 53.5 37.1 48.2
Stainless steel deliveries 1 000 tonnes 339 333 268 1 030
Stainless steel
base price 2) EUR/tonne 1 317 1 235 1 117 1 161
Personnel at the
end of period,
continuing operations 8 617 7 597 7 985 7 606
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1) Cash flows presented for continuing operations.
2) Stainless steel: CRU - German base price (2 mm cold rolled 304 sheet).
SHORT-TERM OUTLOOK
Underlying demand for standard grades continues to recover and this is expected
to continue also after the holiday season. Demand for special grades is still
lagging. However, commercial activity in the investment-driven customer segments
continues and is expected to generate orders within the next 6-12 months.
Currently, the normal seasonality in demand that results from the ongoing
holiday season in Europe is causing some distributors to be hesitant about
placing orders. The declined nickel price is having a similar impact on buying
behaviour. This has led to some destocking among distributors. Inventories in
Europe are estimated to be close to normal level.
Lead times on mill-deliveries for standard grades are normal at 6-8 weeks. The
slowdown of demand during the holiday season and annual maintenance breaks at
the Group's mills will result in stainless delivery volumes for the third
quarter to be 10-20% lower than in the second quarter (339 000 tonnes). Compared
to the second quarter of 2010, Outokumpu's average base prices in the third
quarter are expected to be fairly stable.
The underlying operational result*) in the third quarter is expected to be
somewhat negative. At current metal prices, raw material-related losses of some
tens of millions of euros are expected in the third quarter as a result of the
recent decline in metal prices. Operative cash flow (before investments) in the
third quarter is expected to turn positive subject to metal price development.
*) Underlying operational result= Operating profit without raw material-related
inventory gains and losses and non-recurring items.
CEO Juha Rantanen:
"After several loss-making quarters it is gratifying to present Outokumpu's
return to profits in the second quarter. A clear recovery in the standard grades
business and improved prices have been the main factors, while business in
capital investment-driven special grades is still lagging. As always, the third
quarter is expected to be seasonally weak. We are confident that underlying
demand continues to improve and we are making preparations to take full
advantage of a recovery in demand after the holiday season.
Outokumpu made some major news announcements during the second quarter. The
market recovery and our financial performance enabled us to embark on two
important strategic investments. The expansion in ferrochrome production is not
only about raw material self-sufficiency but also about growth. The investment
in quarto plate production solidifies our leading position in the tailor-made
plate business, strongly supporting our special grades strategy."
The attachments present the Management analysis for the second-quarter operating
result and the Interim review by the Board of Directors for January-June 2010,
the accounts and notes to the interim accounts. This 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(at)outokumpu.com
Ingela Ulfves, VP - Investor Relations and Financial Communications
tel. +358 9 421 2438, mobile +358 40 515 1531
ingela.ulfves(at)outokumpu.com
Esa Lager, CFO
tel. + 358 9 421 2516
esa.lager(at)outokumpu.com
News conference and live webcast today at 1.00 pm
A combined news conference, conference call and live webcast concerning the
second-quarter 2010 results will be held on July 22, 2010 at 1.00 pm EET (12.00
pm CET, 6.00 am US EST, 11.00 am UK time) at Hotel Kämp, conference room Akseli
Gallen-Kallela, address 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 3043 2436
US & Canada +1 866 458 4087
Sweden +46 8 505 598 53
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.
An on-demand webcast of the news conference will be available at
www.outokumpu.com as of July 22, 2010 at around 3.00 pm.
OUTOKUMPU OYJ
Corporate Management
MANAGEMENT ANALYSIS - SECOND-QUARTER OPERATING RESULT
Group key figures
EUR million I/09 II/09 III/09 IV/09 2009
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Sales
General Stainless 476 501 496 592 2 065
Specialty Stainless 371 278 258 332 1 239
Other operations 66 58 56 62 243
Intra-group sales -233 -220 -224 -259 -935
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The Group 679 617 587 728 2 611
Operating profit
General Stainless -157 -52 -38 -12 -259
Specialty Stainless -82 -37 -21 -10 -149
Other operations -12 -5 -4 -9 -31
Intra-group items 2 0 -3 2 1
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The Group -249 -94 -65 -29 -438
EUR million I/10 II/10
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Sales
General Stainless 754 962
Specialty Stainless 367 469
Other operations 89 86
Intra-group sales -295 -407
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The Group 916 1 110
Operating profit
General Stainless -2 75
Specialty Stainless -21 22
Other operations 2 -15
Intra-group items -1 -10
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The Group -22 71
Stainless steel
deliveries
1 000 tonnes I/09 II/09 III/09 IV/09 2009
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Cold rolled 133 145 124 143 545
White hot strip 59 69 66 69 263
Quarto plate 19 18 14 16 67
Tubular products 16 13 12 12 53
Long products 10 9 11 10 40
Semi-finished
products 10 14 12 27 63
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Total deliveries 247 268 238 277 1 030
1 000 tonnes I/10 II/10
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Cold rolled 171 182
White hot strip 82 75
Quarto plate 21 21
Tubular products 13 14
Long products 13 15
Semi-finished
products 33 32
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Total deliveries 333 339
Market prices and
exchange rates
I/09 II/09 III/09 IV/09 2009
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Market prices 1)
Stainless steel
Base price EUR/t 925 1 117 1 307 1 297 1 161
Alloy surcharge EUR/t 893 634 923 1 049 875
Transaction price EUR/t 1 818 1 751 2 229 2 346 2 036
Nickel USD/t 10 471 12 920 17 700 17 528 14 655
EUR/t 8 036 9 478 12 375 11 860 10 507
Ferrochrome
(Cr-content) USD/lb 0.79 0.69 0.89 1.03 0.85
EUR/kg 1.34 1.12 1.37 1.54 1.34
Molybdenum USD/lb 9.15 9.41 15.36 11.76 11.42
EUR/kg 15.49 15.22 23.67 17.54 18.05
Recycled steel USD/t 207.00 199.00 236.00 250.00 223.00
EUR/t 159.00 146.00 165.00 169.00 160.00
Exchange rates
EUR/USD 1.303 1.363 1.430 1.478 1.395
EUR/SEK 10.941 10.781 10.424 10.351 10.619
EUR/GBP 0.909 0.879 0.872 0.905 0.891
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I/10 II/10
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Market prices 1)
Stainless steel
Base price EUR/t 1 235 1 317
Alloy surcharge EUR/t 1 094 1 701
Transaction price EUR/t 2 329 3 018
Nickel USD/t 19 959 22 476
EUR/t 14 433 17 686
Ferrochrome
(Cr-content) USD/lb 1.01 1.36
EUR/kg 1.61 2.36
Molybdenum USD/lb 16.19 16.45
EUR/kg 25.81 28.53
Recycled steel USD/t 323 346
EUR/t 234 272
Exchange rates
EUR/USD 1.383 1.271
EUR/SEK 9.946 9.631
EUR/GBP 0.888 0.852
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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.
Nickel: London Metal Exchange (LME) cash quotation
Ferrochrome: Metal Bulletin - Quarterly contract price,
Ferrochrome lumpy chrome charge, basis 52% chrome
Molybdenum: Metal Bulletin - Molybdenum oxide - Europe
Recycled steel: Metal Bulletin - Steel scrap HMS 1&2 fob Rotterdam
Stainless steel markets in the second quarter
Stainless steel markets continued to be healthy in the beginning of the second
quarter of 2010. Negative economic reports had an adverse effect on market
activity in May and demand for stainless steel weakened as the nickel price
started to decline. Compared to the first quarter of 2010, apparent consumption
of stainless steel flat products in the second quarter is estimated to have been
almost unchanged in Europe and 10% higher globally. While in China, apparent
consumption is estimated to have increased by 16%. Both in Europe and globally,
production of stainless steel is estimated to have been at almost the same level
compared to the first quarter of 2010. In China, production of stainless steel
was up by 5%.
The average base price for 2mm cold rolled 304 stainless steel sheet in Germany
increased by 7% and was 1 317 EUR/tonne in the second quarter (I/2010: 1 235
EUR/tonne). The alloy surcharge increased by 55% and was 1 701 EUR/tonne
(I/2010: 1 094 EUR/tonne). The average transaction price during the second
quarter was 3 018 EUR/tonne (I/2010: 2 329 EUR/tonne). (CRU)
Among alloying elements, the price of nickel was on a rising trend at the
beginning of the second quarter and reached a level of 27 000 USD/tonne in
mid-April. It then began to decline and was some 18 000 USD/tonne at the
beginning of June before rebounding to around 20 000 USD/tonne in late-June. The
average nickel price during the second quarter was 22 476 USD/tonne (I/2010:
19 959 USD/tonne). Ferrochrome markets were close to balance in the second
quarter. The quarterly contract price for ferrochrome in the second quarter was
1.36 USD/lb (I/2010: 1.01 USD/lb) and has preliminarily been settled at 1.30
USD/lb for the third quarter. The average price of molybdenum was 16.45 USD/lb
in the second quarter (I/2010: 16.19 USD/lb) while the price of recycled steel
increased by 7% and averaged 346 USD/tonne (I/2010: 323 USD/tonne).
Return to profits in the second quarter
Group sales in the second quarter increased to EUR 1 110 million (I/2010: EUR
916 million). Deliveries of stainless steel increased marginally to 339 000
tonnes (I/2010: 333 000 tonnes). Capacity utilisation at Group operations was
approximately 75% with Tornio Works running at a higher rate than the Group
average during the second quarter.
After several loss-making quarters, the Group turned to profits with an
operating profit in the second quarter totalling EUR 71 million (I/2010: EUR -22
million). This figure includes some EUR 55 million (I/2010: EUR 10 million) of
raw-material related inventory gains which resulted primarily from higher nickel
prices. Higher base prices and a higher ferrochrome price also had an effect and
the underlying operational result in the second quarter turned positive at EUR
16 million (I/2010: EUR -32 million). Outokumpu's average base prices for flat
products realised in the second quarter increased by some 60 EUR/tonne but were
below base prices reported by CRU for German 304 sheet.
Return on capital employed in the second quarter was 7.2% (I/2010: -2.4%).
Earnings per share totalled EUR 0.24 (I/2010: EUR -0.12).
Net cash generated from operating activities in continuing operations remained
negative and amounted to EUR -314 million (I/2010: -86 million). In the second
quarter, EUR 402 million of cash was tied up in working capital as a result of
increased purchase of raw materials as well as higher metal prices. Inventories
were increased in the second quarter in order to compensate for the lost
production during the planned maintenance breaks in order to meet the expected
increase in demand after the holiday period.
Outokumpu's gearing at the end of the second quarter was 67.6% (Mar
31, 2010: 53.5%), still below the Group's target level of <75%. Net-interest
bearing debt increased by EUR 390 million to EUR 1 683 million (I/2010: EUR
1 293 million) in the second quarter. The dividend for 2009 totalling EUR 64
million was paid in the second quarter. In June, Outokumpu issued a EUR 250
million domestic five-year bond. The bond improved the structure of the Group's
debt portfolio and will be used for general corporate purposes.
Capital expenditure totalled EUR 40 million (I/2010: EUR 28 million) in the
second quarter.
Sales by General Stainless in the second quarter totalled EUR 962 million
(I/2010: EUR 754 million), and deliveries increased to 309 000 tonnes (I/2010:
304 000 tonnes). General Stainless returned to profits with an operating profit
of EUR 75 million (I/2010: EUR -2 million) and Tornio Works posted a profit of
EUR 63 million (I/2010: EUR -7 million).
Sales by Specialty Stainless in the second quarter totalled EUR 469 million
(I/2010: EUR 367 million) and deliveries totalled 119 000 tonnes (I/2010:
111 000 tonnes). Operating profit was positive at EUR 22 million (I/2010: EUR
-21 million).
Other Operations posted an operating loss of EUR 15 million (I/2010: EUR 2
million) in the second quarter.
Finalised investment projects
Outokumpu has established a service centre in China, the world's fastest-growing
market for stainless steel. The new facility supports the Group strategy of
expanding operations in Asia and serving end-user and project customers with
value-added special products. In the main, Outokumpu's offering to the Chinese
market consists of special grades, especially duplex grades, employed in the
most demanding applications in the energy, petrochemical, transportation and
pulp and paper sectors. The new Kunshan service centre has an annual capacity of
some 30 000 tonnes of stainless steel and employs approximately 50 people and
represents an investment by the Group of some EUR 20 million.
A new stainless steel bar and rebar facility was opened in June in Sheffield,
UK. The new plant broadens the Group's product range and can offer stainless
steel rebar in straight lengths or formed components as well as produce
cold-drawn bar. Outokumpu can now serve its long products customers from a
fully-integrated production route in Sheffield. This investment totalled some
EUR 10 million.
New investment decisions
In June, based on the results of the updated feasibility study, the decision was
made to invest EUR 440 million in doubling ferrochrome production capacity at
Tornio in Finland. The original decision on this investment was made in June
2008 but the financial crisis and uncertain market conditions resulted in it
being put on hold in December 2008. Annual ferrochrome production in Tornio will
be doubled to 530 000 tonnes enabling the Group to meet its internal needs and
also supply the global market with more than 200 000 tonnes of ferrochrome
annually. Implementation of the project will begin immediately and the
additional production capacity is expected to be operational in 2013 and ramped
up in 2015. The main capital expenditure cash outflows will take place in 2011
and 2012.
The decision to invest EUR 104 million in increasing quarto plate production
capability and capacity in Degerfors in Sweden was also made in June. This
investment strengthens Outokumpu's position as a world-leading producer of these
thick, wide and individually rolled plates and will increase the Group's annual
quarto plate production capacity to more than 200 000 tonnes. The majority of
the new production capacity is scheduled to be available in 2014. Capital
expenditure will be spread over five years with the majority of cash out-flows
taking place in 2012 and 2013.
Domestic bond issued
In June, Outokumpu issued a EUR 250 million five-year domestic bond. The funds
will be used for general corporate purposes. The bond is listed on the NASDAQ
OMX Helsinki exchange.
Events after the review period
At the beginning of July, the Finnish Parliament voted on decisions-in-principle
to build two new nuclear power plants in Finland. The voting was positive for
Fennovoima, in which Outokumpu has a stake of some 10%. Once the new nuclear
power plant is operational, Outokumpu will be able to obtain approximately one
third of its current electricity needs at the cost of production from 2020
onwards.
INTERIM REVIEW BY THE BOARD OF DIRECTORS - JANUARY-JUNE 2010
Recovery in stainless steel markets
Stainless steel markets started to recover from the beginning of 2010 with
demand especially for standard grades improving significantly compared to the
beginning of 2009. In May, negative economic reports in Europe resulted in a
softening market conditions for stainless steel and the decline of the nickel
price from its year-high levels led to some destocking by distributors. Compared
to the first half of 2009, apparent consumption of stainless steel during the
first half of 2010 is estimated to be up by 53% in Europe and 35% globally. The
average German base price for 2mm cold rolled 304 stainless steel sheet was
1 276 EUR/tonne during the first six months of 2010 (I-II/2009: 1 021 EUR/tonne)
and the average transaction price during the period was 2 674 EUR/tonne
(I-II/2009: 1 784 EUR/tonne).
During the first half of 2010, the nickel price averaged 21 217 USD/tonne
(I-II/2009: 11 696 USD/tonne) and the average contract price for ferrochrome was
1.19 USD/lb (I-II/2009: 0.74 USD/lb). The average price of molybdenum during the
first six months of 2010 was 16.32 USD/lb (I-II/2009: 9.28 USD/lb) and the
average price of recycled steel was 335 USD/tonne (I-II/2009: 203 USD/tonne).
(CRU)
Profitability improved with higher delivery volumes
Group sales in the first half of 2010 increased by 56% to EUR 2 026 million
(I-II/2009: EUR 1 296 million) as a result of both higher transaction prices and
higher delivery volumes. Deliveries of stainless steel increased by 30% to
672 000 tonnes (I-II/2009: 515 000 tonnes). Group production facilities were
operating at 75% capacity utilisation in the first half of 2010.
Operating profit for the first half of 2010 totalled EUR 49 million (I-II/2009:
EUR -343 million). This result includes some EUR 65 million of raw
material-related gains (I-II/2009: EUR -110 million) with the underlying result
being some EUR -16 million (I-II/2009: EUR -228 million). The main contributors
to the improved result were higher base prices and higher delivery volumes. The
operating profit in the first six months of 2010 did not include any
non-recurring items. In the first half of 2009 the operating loss included EUR
5 million of redundancy provisions.
Net financial income and expenses in the first half of 2010 totalled EUR -10
million (I-II/2009: EUR -10 million). Net profit for the review period totalled
EUR 23 million (I-II/2009: EUR -274 million) and earnings per share totalled EUR
0.13 (I-II/2009: EUR -1.52). Return on capital employed during the first six
months of 2010 was 2.5% (I-II/2009: -18.8%).
Net cash generated from operating activities totalled EUR -401 million
(I-II/2009: EUR 316 million) in the first six months of 2010. Some EUR 445
million (I-II/2009: release of EUR 640 million) was tied up in working capital
as a result of higher metal prices and higher inventory levels. Net
interest-bearing debt increased by EUR 757 million and totalled EUR 1 683
million at the end of June 2010 (Jun 30, 2009: EUR 926 million). Gearing
increased to 67.6% (Jun 30, 2009: 37.1%) approaching the Group's target of a
maximum of 75%. In June, Outokumpu issued a EUR 250 million five-year domestic
bond, which was listed on the NASDAQ OMX Helsinki exchange in July. The funds
will be used for general corporate purposes.
Capital expenditure and investments
Capital expenditure in the first half of 2010 totalled EUR 68 million
(I-II/2009: EUR 107 million) and covered the finalising of ongoing investment
projects and maintenance. Capital expenditure by the Group in 2010 including the
new investment projects announced in 2010 is expected to total approximately EUR
200 million.
Investment projects in China and the UK were completed in June. Now open, the
Group's service centre in Kunshan represents an investment of some EUR 20
million, employs approximately 50 people and has an annual capacity of some
30 000 tonnes of stainless steel. In Sheffield in the UK, a new stainless steel
bar and rebar facility was opened. This investment totalled some EUR 10 million.
In June, based on the results of an updated feasibility study, the decision was
made to invest EUR 440 million in doubling ferrochrome production capacity at
Tornio in Finland. The original decision on this investment was made in June
2008, but the financial crisis and uncertain market conditions resulted in it
being put on hold in December 2008. Annual ferrochrome production in Tornio will
be doubled to 530 000 tonnes enabling the Group to meet its internal needs and
also supply the global market with more than 200 000 tonnes of ferrochrome
annually. Implementation of the project will begin immediately and the
additional production capacity is expected to be operational in 2013 and ramped
up in 2015. The main capital expenditure cash outflows will take place in 2011
and 2012.
The decision to invest EUR 104 million in increasing quarto plate production
capability and capacity in Degerfors in Sweden was also made in June. This
investment strengthens Outokumpu's position as a world-leading producer of these
thick, wide and individually rolled plates and will increase the Group's annual
quarto plate production capacity to more than 200 000 tonnes. The majority of
the new production capacity is scheduled to be available in 2014. Capital
expenditure will be spread over five years with the majority of cash out-flows
taking place in 2012 and 2013.
Risks and uncertainties
Outokumpu operates in accordance with the risk management policy approved by its
Board of Directors. This policy defines the objectives, approaches and areas of
responsibility in risk management. Risks and uncertainties may, if they
materialise, have a substantial impact on earnings and cash flows. Key risks are
assessed and updated on a regular basis.
Important strategic and business risks include structural overcapacity in
stainless steel production, competition in stainless steel markets, the
Euro-centricity of the Group's operations and weakening of the market situation
affecting utilisation of the Group's stainless steel production capacity. To
mitigate risks related to structural overcapacity and fierce competition in
stainless steel markets, Outokumpu aims to maintain the cost-efficiency of its
operations, broaden the Group's product offering and increase sales to end-users
by, for example, developing distribution channels. This strategy is supported by
the Group Sales and Marketing function, which ensures that customers are served
in an optimal way. To mitigate impact of Euro-centricity, Outokumpu is also
aiming to grow outside Europe.
The recovery in stainless steel markets continued during the review period.
Outokumpu monitors the situation continuously and will adjust its operations in
response to possible changes in the market situation. If the market for
stainless steel remains weak for an extended period, this could have an impact
on the Group's strategy implementation.
Operational risks arise as a consequence of inadequate or failed internal
processes, employee actions, systematic or other events such as natural
catastrophes, misconduct or crime. Operational risks also include different
issues related to organisational efficiency. Key operational risks are a major
fire or accident and insufficient ability to adjust production capacity.
Protection of the Group's personnel, assets, processes, information and
reputation against a wide range of potential losses is an essential component in
Outokumpu's operations. These types of risks are primarily mitigated through
preventive actions and insurances. To reduce the risk of property damage and
interruptions to the Group's businesses, Outokumpu conducts systematic fire and
security auditing.
Key financial risk are related to variations in the nickel and electricity
prices, exchange rates for the US dollar and Swedish krona, interest rates and
the value of receivables as well as certain equities. The strengthening of the
US dollar during the second quarter had a slight positive impact on earnings but
also increased Group working capital. Outokumpu issued a EUR 250 million
five-year bond in June, which improved the Group's debt capital structure.
People and the environment
The Group's continuing operations employed an average of 7 900 full-time
personnel during January-June 2010 (I-II/2009: 8 184). Summer-trainees expanded
the number of full-time employees to 8 617 (June 30, 2009: 7 985) at the end of
June. The lost-time injury rate (i.e. lost-time accidents per million working
hours) improved during the second quarter and was 5.0 for the first half of
2010 (I-II/2009: 5.6), but did not reach the Group's 2010 target of less than
four.
Emissions to air and discharges to water remained within permitted limits and
the breaches that occurred were temporary, were identified 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 realised environmental risks that could have a material adverse
effect on the Group's financial position.
Emissions trading activities have been conducted in accordance with obligations,
agreed procedures and the Group's financial risk policy. Emissions under the EU
Emission Trading Scheme during the first half of 2010 totalled approximately
389 000 tonnes (I-II/2009: 282 000 tonnes). The main reason for the low level of
emissions in 2009 was the temporary closure of the Group's ferrochrome
production facilities from April until the end of September. No external trading
of emission allowances was carried out during the first six months of 2010.
Outokumpu's carbon dioxide allowances in Finland, Sweden and the UK proved
adequate for the Group's planned production.
Outokumpu is participating in the construction of a wind farm in Tornio in
Finland. Rajakiiri, a company specialising in wind power technology, has decided
to invest in a 30 MW wind farm at Röyttä, close to the Tornio Works site.
Outokumpu will be allocated 20% of the electrical energy produced. This new wind
power project will meet approximately 0.5% of Outokumpu's total energy needs.
The Life Cycle Inventory Study on Stainless Steel Production in the EU shows
that Outokumpu products have the smallest carbon footprint, 10-20% less than the
EU average for stainless steel producers. Outokumpu also published a new Energy
and Low-carbon Programme.
In 2010, for the second time, Outokumpu was awarded "Sector Mover" status by
Sustainable Asset Management (SAM) for having the largest proportional annual
improvement in sustainability performance within the steel industry compared to
the previous year. Outokumpu also qualified for the OMX GES Sustainability
Nordic index. Calculated by NASDAQ OMX in cooperation with GES Investment
Services, this is a benchmark sustainability index which consists of 50 leading
companies listed on the NASDAQ OMX Copenhagen, Helsinki, Stockholm and Oslo Bors
exchanges.
Civil actions regarding the sold fabricated copper products business
In the autumn of 2004, the European Commission issued its judgment on
Outokumpu's participation in a European price-fixing and market-sharing cartel
involving sanitary copper tubes during 1988-2001 and imposed a fine of EUR 36
million on Outokumpu for participation in the cartel. In 2004, Outokumpu
appealed to the General Court (previously known as the Court of First Instance
for Europe) regarding the level of the fine. According to a Court decision
issued in May 2010 the fine remained unchanged. As Outokumpu paid the fines in
2009, this decision will have no impact on Group profits or cash flow. Outokumpu
exited the copper fabrication business by divesting the major part of the
Group's business in 2005 and the remaining units in 2008.
In connection with the industrial tubes cartel investigation, Outokumpu Oyj has
since 2004 been in the process of addressing several civil complaints raised in
the US against the company and its former fabricated copper products business in
the US. The majority of those complaints have been concluded, but two civil
actions are still pending in the US. The first of these is a class action
brought in the federal court of Tennessee on behalf of certain indirect
purchasers of industrial copper tubing. Outokumpu believes that this class
action lacks merit and is attempting to reach a favourable resolution. The
second pending civil complaint in the US, an individual action filed in 2006 in
the federal district court in Memphis, Tennessee seeks an unstated amount of
damages related to an alleged world-wide price-fixing and market allocation
cartel. The court dismissed this complaint in 2007, and it is the appeal against
that dismissal which is currently pending. In 2010, a third civil action was
brought in the UK courts against Outokumpu Oyj (and two other defendant groups)
by the same claimant group as that in the Memphis suit. The claimants allege
that they suffered loss across Europe as a result of the cartel and are seeking
to recovery from the three main defendant groups either jointly or jointly and
severally. The claimants' initial claim for alleged losses (between the three
defendant groups) is some GBP 20 million excluding interest. Outokumpu will be
challenging the jurisdiction of the UK courts to hear this claim. In any event,
Outokumpu believes that the allegations regarding damages caused by the cartel
are groundless and, if pursued, Outokumpu will defend itself in any proceedings.
No provisions have been booked in connection with these claims.
Customs investigation of exports to Russia by Tornio Works
In March 2007, Finnish Customs authorities initiated a criminal investigation
into the Group's Tornio Works' export practices to Russia. It was suspected that
a forwarding agency based in south-eastern Finland had prepared defective and/or
forged invoices regarding the export of stainless steel to Russia. The
preliminary investigation focused on possible complicity by Outokumpu Tornio
Works in the preparation of defective and/or forged invoices by the forwarding
agent.
In June 2009, the Finnish Customs completed its preliminary investigation and
forwarded the matter for consideration of possible charges to the prosecuting
authorities. The process of considering possible charges is expected to be
completed in the third quarter of 2010.
Immediately after the Finnish Customs authorities began their investigations in
2007, Outokumpu initiated its own investigation into the trade practices
connected with stainless steel exports from Tornio to Russia. In June 2007,
based on its own investigation, a leading Finnish law firm Roschier Attorneys
Ltd. concluded that it had not found evidence that any employees of Tornio Works
or the Group would have committed any of the crimes alleged by the Finnish
Customs.
Roschier has subsequently, at Outokumpu's request, examined the preliminary
investigation material produced by the Finnish Customs and concluded that it
contains no evidence that any Outokumpu employees would have committed either
forgery or any accounting offences as alleged by the Finnish Customs.
Outokumpu's Auditor, KPMG Oy Ab, has also stated that suspicions related to the
making of false financial statements are groundless.
Outokumpu has stated that neither the Group nor its personnel have committed any
of the crimes alleged by the Finnish Customs.
Organisational changes and appointments
At the beginning of April, Mr Pekka Erkkilä, EVP - General Stainless, left
Outokumpu Oyj and joined Outotec Oyj. Mr Hannu Hautala, SVP - Tornio Works, took
up his duties as head of Tornio Works at the beginning of April.
Mr Kari Parvento, EVP - Group Sales and Marketing, and a member of Outokumpu's
Executive Committee, took up his position at Outokumpu Oyj at the beginning of
April.
Some of the responsibilities of Outokumpu's Executive Committee members will
change from August 1, 2010:
Karri Kaitue, Deputy CEO, will be responsible for the Tornio Works business unit
and Hannu Hautala, SVP - Tornio Works will report to Mr. Kaitue. Starting in
August, Legal Affairs and IPR, currently part of Mr Kaitue's responsibilities,
will report to Juha Rantanen, CEO, and the Group's remaining brass operations
will report to Esa Lager, CFO.
Shares and shareholders
According to the Nordic Central Securities Depository, Outokumpu's largest
shareholders by group at the end of the second quarter were Finnish corporations
(34.94%), foreign investors (21.84%), Finnish public sector institutions
(18.55%), Finnish private households (14.86%), Finnish financial and insurance
institutions (6.91%), and Finnish non-profit organisations (2.89%). The list of
largest shareholders is updated regularly on Outokumpu's Internet pages:
www.outokumpu.com/Investors.
Shareholders that have more than 5% of the shares and votes in Outokumpu Oyj are
Solidium Oy (owned by the State of Finland) (30.85%) and the Finnish Social
Insurance Institution (8.01%).
At the end of June, Outokumpu's closing share price was EUR 12.43 (II/2009: EUR
12.29). The average share price during the first half of 2010 was EUR 14.11
(I-II/2009: EUR 10.37) with EUR 17.88 (I-II/2009: EUR 14.68) as the highest
traded price and EUR 12.03 (I-II/2009: EUR 7.72) as the lowest. At the end of
June, the market capitalisation of Outokumpu Oyj shares totalled EUR 2 274
million (June 30, 2009: EUR 2 237 million) including treasury shares. Share
turnover on the Nasdaq OMX Helsinki exchange during the first half of 2010
amounted to 186.0 million (I-II/2009: 204.5 million) shares. The total value of
shares traded during the first six months was EUR 2 624.3 million (I-II/2009:
EUR 2 119.9 million).
Outokumpu's fully paid-up share capital at the end of June totalled EUR 311.0
million and consisted of 182 956 249 shares. The number of shares outstanding at
the end of the second quarter was 181 915 361 excluding treasury shares.
Annual General Meeting 2010
The 2010 Annual General Meeting (AGM) in March approved a dividend of EUR 0.35
per share for 2009. Dividends totalling EUR 64 million were paid on April
13, 2010.
The AGM authorised the Board of Directors to decide to repurchase the Group's
own shares and to issue shares and grant special rights entitling to shares. The
maximum number of shares to be repurchased is 18 000 000. These authorisations
are valid for 12 months or until the next AGM, but no longer than May 31, 2011.
To date, the authorisations have not been used.
The 2010 Annual General Meeting also decided that Outokumpu would make a
donation (a maximum of EUR 1 million) to the Aalto University Foundation.
The AGM decided on the number of the Board members, including the Chairman and
Vice Chairman, to be eight. The Outokumpu board members are: Evert Henkes, Ole
Johansson (Chairman), Victoire de Margerie, Anna Nilsson-Ehle, Jussi Pesonen,
Leena Saarinen, Anssi Soila (Vice Chairman) and Olli Vaartimo. 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.
Events after the review period
At the beginning of July, the Finnish Parliament voted on decisions-in-principle
to build two new nuclear power plants in Finland. The voting was positive for
Fennovoima, in which Outokumpu has a stake of some 10%. Once the new nuclear
power plant is operational, Outokumpu will be able to obtain approximately one
third of its current electricity needs at the cost of production from 2020
onwards.
SHORT-TERM OUTLOOK
Underlying demand for standard grades continues to recover and this is expected
to continue also after the holiday season. Demand for special grades is still
lagging. However, commercial activity in the investment-driven customer segments
continues and is expected to generate orders within the next 6-12 months.
Currently, the normal seasonality in demand that results from the ongoing
holiday season in Europe is causing some distributors to be hesitant about
placing orders. The declined nickel price is having a similar impact on buying
behaviour. This has led to some destocking among distributors. Inventories in
Europe are estimated to be close to normal level.
Lead times on mill-deliveries for standard grades are normal at 6-8 weeks. The
slowdown of demand during the holiday season and annual maintenance breaks at
the Group's mills will result in stainless delivery volumes for the third
quarter to be 10-20% lower than in the second quarter (339 000 tonnes). Compared
to the second quarter of 2010, Outokumpu's average base prices in the third
quarter are expected to be fairly stable.
The underlying operational result*) in the third quarter is expected to be
somewhat negative. At current metal prices, raw material-related losses of some
tens of millions of euros are expected in the third quarter as a result of the
recent decline in metal prices. Operative cash flow (before investments) in the
third quarter is expected to turn positive subject to metal price development.
*) Underlying operational result= Operating profit without raw material-related
inventory gains and losses and non-recurring items.
Outokumpu is a global leader in stainless steel with the vision to be the
undisputed number one. Customers in a wide range of industries use our stainless
steel and services worldwide. Being fully recyclable, maintenance-free, as well
as very strong and durable material, stainless steel is one of the key building
blocks for sustainable future. Outokumpu employs some 7 500 people in more than
30 countries. The Group's head office is located in Espoo, Finland. Outokumpu is
listed on the NASDAQ OMX Helsinki.
www.outokumpu.com
CONDENSED FINANCIAL
STATEMENTS (unaudited)
Condensed statement of
comprehensive income
Condensed income statement
Jan- Jan- April- April- Jan-
June June June June Dec
EUR million 2010 2009 2010 2009 2009
----------------------------------------------------------------------------
Continuing operations:
Sales 2 026 1 296 1 110 617 2 611
Cost of sales -1 854 -1 492 -974 -637 -2 764
-----------------------------------
Gross margin 172 -196 137 -21 -153
Other operating income 14 12 8 1 28
Costs and expenses -134 -140 -71 -70 -280
Other operating expenses -3 -19 -2 -4 -32
-----------------------------------
Operating profit 49 -343 71 -94 -438
Share of results in
associated companies -10 -3 -3 -0 -12
Financial income and expenses
Interest income 8 9 5 5 17
Interest expenses -20 -23 -11 -9 -38
Market price gains and losses 13 -0 7 -5 -2
Other financial income 2 3 0 0 5
Other financial expenses -13 -0 -7 -1 -6
-----------------------------------
Profit before taxes 30 -357 63 -105 -474
Income taxes -8 84 -20 20 142
-----------------------------------
Net profit for the period
from continuing operations 22 -272 43 -85 -332
Discontinued operations:
Net profit for the period
from discontinued operations 1 -2 1 -2 -4
Net profit for the period 23 -274 44 -87 -336
Attributable to:
Owners of the parent 23 -274 44 -87 -336
Non-controlling interests -0 -1 0 -0 -0
Earnings per share for profit
attributable to the owners
of the parent:
Earnings per share, EUR 0.13 -1.52 0.24 -0.48 -1.86
Diluted earnings per share, EUR 0.13 -1.52 0.24 -0.48 -1.86
Earnings per share from continuing
operations attributable to the owners
of the parent:
Earnings per share, EUR 0.12 -1.50 0.24 -0.47 -1.83
Earnings per share from discontinued
operations attributable to the owners
of the parent:
Earnings per share, EUR 0.01 -0.01 0.00 -0.01 -0.02
Statement of other
comprehensive income
Jan- Jan- April- April- Jan-
June June June June Dec
EUR million 2010 2009 2010 2009 2009
----------------------------------------------------------------------------
Net profit for the period 23 -274 44 -87 -336
Other comprehensive income:
Exchange differences on translating
foreign operations 38 32 24 15 29
Available-for-sale financial assets
Fair value changes during the period 11 17 -0 17 34
Income tax relating to
available-for-sale financial assets -0 -8 1 -5 -9
Cash flow hedges
Fair value changes during the period 28 2 10 6 23
Reclassification adjustments from other
comprehensive income to profit 2 - 2 - 1
Income tax relating to cash flow hedges -8 -1 -3 -2 -6
Net investment hedges
Fair value changes during the period - 1 - 0 1
Income tax relating
to net investment hedges - -0 - -0 -0
Share of other comprehensive
income of associated companies -2 18 -6 - 5
-----------------------------------
Other comprehensive income for
the period, net of tax 69 61 29 32 77
Total comprehensive income for
the period 92 -213 73 -55 -259
Attributable to:
Owners of the parent 92 -213 73 -55 -259
Non-controlling interests -0 -0 0 -0 -1
Condensed statement
of financial position
June 30 June 30 Dec 31
EUR million 2010 2009 2009
-------------------------------------------------------------------------
ASSETS
Non-current assets
Intangible assets 562 574 566
Property, plant and equipment 2 115 2 051 2 097
Loan receivables and other interest-bearing assets 427 403 397
Other receivables 56 62 55
Deferred tax assets 39 20 42
-----------------------
Total non-current assets 3 198 3 111 3 157
Current assets
Inventories 1 532 879 1 016
Loan receivables and other interest-bearing assets 49 66 39
Trade and other receivables 782 501 508
Cash and cash equivalents 123 218 112
-----------------------
Total current assets 2 487 1 663 1 674
Receivables related to assets held for sale 34 13 20
TOTAL ASSETS 5 718 4 787 4 850
EQUITY AND LIABILITIES
Equity attributable to the
equity holders of the Company
Equity attributable to the
equity holders of the Company 2 489 2 496 2 451
Non-controlling interests 1 1 0
-----------------------
Total equity 2 490 2 497 2 451
Non-current liabilities
Interest-bearing liabilities 1 581 1 027 1 038
Deferred tax liabilities 98 132 100
Pension obligations 71 65 65
Provisions 18 32 17
Trade and other payables 1 1 1
-----------------------
Total non-current liabilities 1 769 1 256 1 221
Current liabilities
Interest-bearing liabilities 723 593 705
Provisions 20 28 26
Trade and other payables 704 406 439
-----------------------
Total current liabilities 1 447 1 027 1 170
Liabilities related to assets held for sale 12 7 8
TOTAL EQUITY AND LIABILITIES 5 718 4 787 4 850
Statement of changes
in equity
Attributable to the owners of the parent
-------------------------------------------
Share Share Other Fair value
capital premium reserves reserves
EUR million fund
----------------------------------------------------------------------
Equity on December 31, 2008 308 702 15 -28
----------------------------------------------------------------------
Total comprehensive
income for the period - - - 33
Transfers within equity - - 2 -
Dividends - - - -
Share-based payments - - - -
Share options exercised 1 3 - -
----------------------------------------------------------------------
Equity on June 30, 2009 309 705 17 6
----------------------------------------------------------------------
----------------------------------------------------------------------
Equity on December 31, 2009 309 706 15 22
----------------------------------------------------------------------
Total comprehensive
income for the period - - - 33
Dividends - - - -
Share-based payments - - - -
Share options exercised 2 8 - -
Other change - - - -
----------------------------------------------------------------------
Equity on June 30, 2010 311 713 15 55
----------------------------------------------------------------------
Attributable to the
owners of the parent
-------------------------------
Treasury Cumulative Retained Non- Total
shares translation earnings controlling equity
EUR million differences interests
----------------------------------------------------------------------------
Equity on December 31, 2008 -27 -138 1 961 1 2 795
----------------------------------------------------------------------------
Total comprehensive
income for the period - 28 -274 -0 -213
Transfers within equity - - -2 - -
Dividends - - -90 - -90
Share-based payments 2 - -1 - 1
Share options exercised - - - - 4
----------------------------------------------------------------------------
Equity on June 30, 2009 -25 -110 1 594 1 2 497
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Equity on December 31, 2009 -25 -110 1 534 0 2 451
----------------------------------------------------------------------------
Total comprehensive
income for the period - 36 23 -0 92
Dividends - - -64 - -64
Share-based payments - - 1 - 1
Share options exercised - - - - 9
Other change - - - 1 1
----------------------------------------------------------------------------
Equity on June 30, 2010 -25 -74 1 494 1 2 490
----------------------------------------------------------------------------
Condensed statement of cash flows
Jan- Jan- April- April- Jan-
June June June June Dec
EUR million 2010 2009 2010 2009 2009
-------------------------------------------------------------------
Net profit for the period 23 -274 44 -87 -336
Adjustments
Depreciation and amortisation 112 103 57 52 211
Impairments - - - - 15
Other non-cash adjustments -65 -151 3 -82 -230
Change in working capital -445 640 -402 150 548
Dividends received 2 3 0 0 3
Interests received 1 3 1 2 8
Interests paid -22 -34 -12 -20 -57
Income taxes paid -6 26 -3 6 36
----------------------------------
Net cash from
operating activities -401 316 -314 21 198
Purchases of assets -79 -118 -35 -47 -232
Proceeds from the sale of assets 9 7 5 1 17
Net cash from other
investing activities 1 0 0 0 -2
----------------------------------
Net cash from
investing activities -68 -111 -30 -45 -216
Cash flow before
financing activities -469 205 -344 -24 -19
Share options exercised 9 4 0 0 4
Borrowings of long-term debt 654 59 598 50 130
Repayment of long-term debt -100 -283 -49 -274 -350
Change in current debt -18 97 -119 173 212
Dividends paid -64 -90 -64 -90 -90
Proceeds from the sale
of other financial assets - 0 - 0 0
Other financing cash flow -6 1 -0 0 -1
----------------------------------
Net cash from
financing activities 475 -213 366 -141 -97
Net change in cash
and cash equivalents 7 -8 22 -165 -115
Cash and cash equivalents at
the beginning of the period 112 224 100 381 224
Foreign exchange rate effect 5 1 2 1 3
Discontinued operations'
net change in cash effect 0 0 -1 1 0
Net change in cash
and cash equivalents 7 -8 22 -165 -115
Cash and cash equivalents
at the end of the period 123 218 123 218 112
Cash flows p
Unternehmensinformation / Kurzprofil:
Datum: 22.07.2010 - 08:03 Uhr
Sprache: Deutsch
News-ID 24282
Anzahl Zeichen: 0
contact information:
Town:
Espoo
Kategorie:
Business News
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"Outokumpu's second quarter 2010 - return to profits in improved markets"
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