0016EN. Miltton / Libris, Helsinki, Finland. March 2009.

www.outokumpu.com Annual Report 2008 OUTOKUMPU’S ANNUAL REPORT 2008

AIMING FOR SUSTAINABLE

Outokumpu is a global leader in stainless steel. Our vision is to be the undisputed number one in stainless, with success based on operational BALANCE excellence. 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. OUR CHALLENGES

MAINTAIN COST LEADERSHIP IN STANDARD GRADES Tornio Works is a global leader in cost efficiency in high-volume standard grades due to its integrated production from chrome to stainless steel melting, cold rolling and hot rolling. ROUTE TO MARKET A majority of Outokumpu’s sales is reaching the end-user of stainless steel through distributors and further processors.

DEPENDENCE ON NICKEL The Group’s current product portfolio consists to a large extent of nickel containing stainless steel grades. As nickel price is very volatile, demand for these grades and products also tends to vary a lot. EUROCENTRIC The majority of Outokumpu’s sales and almost all production sites are located in Europe.

DESIGN AND PRODUCTION Miltton Oy

PHOTOS Tomi Parkkonen (cover and pages 1, 3, 9, 27, 53, 60–63, 69) Voith Paper (page 32) Loders Crocklaan (page 36) MHI (page 40) Outokumpu

PRINTING HOUSE Libris Oy

PAPER Invercote Albato 290 g/m² (cover) Edixion Offset 120 g/m² (pages 1–80)

>> OUTOKUMPU 2008 2 >> BUSINESS OPERATIONS 26 Made of paper granted the EU Ecolabel, reg.nr FI/11/1. OUR MOVES

FOCUS ON OPERATIONAL EXCELLENCE Our excellence programs are aiming at an improved overall efficiency in production and supply chain. We have a tight cost control and active cost saving measures ongoing. Also the investment program has been optimized to master the difficult market situation. CLOSER TO THE CUSTOMER In order to create a more stable business environment we intend to increase the share of sales to end-user customers & projects and to key distributors with more predictable order volumes. Our sales organization has been aligned and our service center network has been strengthened with the aim to better serve the different industries using stainless steel. DIVERSIFIED PRODUCT PORTFOLIO In order to have a more balanced product portfolio, we are increasing our sales of special grades and entering the market for non-nickel containing grades. Focus is also on optimizing the utilization of existing production capacity. GROWTH OUTSIDE OF EUROPE Outokumpu is a market leader in special grades and we aim to expand the global market for special grades and products further. We are establishing service centers and increasing our production outside of Europe.

>> CORPORATE GOVERNANCE STATEMENT 52 >> SHAREHOLDER INFORMATION 68 >> OUTOKUMPU 2008

4 Outokumpu in brief 6 Outokumpu’s market position 8 CEO’s review 10 Vision and strategic direction 14 Highlights in 2008 16 Market review 19 Management discussion on financial performance Our move

FOCUS ON OPERATIONAL EXCELLENCE 4 >> OUTOKUMPU 2008 / OUTOKUMPU IN BRIEF OUTOKUMPU ANNUAL REPORT 2008 Outokumpu in brief

OPERATING PROFIT RETURN ON CAPITAL EMPLOYED DEBT-TO-EQUITY RATIO

€ million % % 1 000 25 100

800 20 80

600 15 60 400 10 40 200 5 20 0 0

-200 -5 0 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08

OUTOKUMPU – AN INTERNATIONAL STAINLESS STEEL COMPANY

Sales (2008) EUR 5 474 million

OUTOKUMPU is a global leader in stainless steel. Our Stainless steel deliveries (2008) 1 423 thousand tons vision is to be the undisput- ed number one in stainless, Personnel (Dec. 31, 2008) 8 471 with success based on opera- tional excellence. Customers Main products Cold and hot rolled stainless steel coil, sheet and plate, quarto plate, thin in a wide range of industries strip, tubular and long products. worldwide use our stainless steel and services. Being ful- Grades Full range of standard and high alloyed austenitic grades, as well as ferritic ly recyclable, maintenance- duplex, and manganese grades. free, as well as very strong and durable material, stain- Dimensions Cold rolled flat products in thickness range from 0.12 mm to 6.5 mm. White hot strip and hot rolled plate in varying widths and thicknesses. Full range of less steel is one of the key tubular products from hygienic tubes to heavy walled pipes. building blocks for sustain- able future. Customers Distributors, re-rollers and further processors, tube makers as well as end- Outokumpu operates in user and project customers in different industrial segments. some 30 countries and em- Typical customer industries using stainless steel Architecture, Building and Construction, Chemical, Petrochemical and Energy, ploys more than 8 000 peo- Transportation, Catering and Appliances, Process Industries and Resources ple. The Group’s head office and various other industries and applications. is located in Espoo, Finland. Outokumpu has been listed Main production facilities Finland, Sweden, the UK, the US, the Netherlands on the NASDAQ OMX Helsin- ki since 1988. Sales companies and service centers A comprehensive network of sales companies and service centers in some 30 countries. www.outokumpu.com 5 OUTOKUMPU ANNUAL REPORT 2008 OUTOKUMPU IN BRIEF / OUTOKUMPU 2008 >>

Stainless steel is used in various end-user industries

Process Industries Chemical, Architectural, Building and and Resources Petrochemical Construction and Energy

Catering Transportation and Appliances

STAINLESS STEEL The consumption of stainless less typically contains nickel in addi- AS A MATERIAL steel has been growing faster than tion to chromium. Ferritic stainless Stainless steel is corrosion resistant, any other metal in the world. Con- steel does not contain nickel. The strong, hygienic and fully recyclable. sumption of stainless steel increases 300-series stainless steel accounted These properties make it an ideal with economic growth as both its for some 58 of the global stainless choice for a variety of demanding in- properties and its aesthetic image steel market in 2008. dustrial and consumer applications. are highly competitive. The stain- The unique properties of stainless Several life-cycle studies indicate that less business covers both austenitic steel make it difficult to find substi- in many applications the total cost (300-series) and ferritic (400-series) tutes. of stainless steel is lower than that of grades. All stainless steel grades competing materials, since stainless contain chromium which makes steel hardly needs any maintenance. the steel stainless. Austenitic stain- 6 >> OUTOKUMPU 2008 / OUTOKUMPU’S MARKET POSITION OUTOKUMPU ANNUAL REPORT 2008 Outokumpu’s market position

The global stainless steel market to- GROUP KEY FIGURES tals 27 million tons or some eur 80 billion. During the last twenty years, 2008 2007 consumption has grown at a rate of Sales € million 5 474 6 913 5–6 per annum. In Europe, the Operating profit € million -63 589 Group’s main market area, the mar- Non-recurring items in operating profit € million -83 14 ket totals 4.2 million tons and con- Profit before taxes € million -134 798 sumption has grown by 2 annually. Non-recurring items in financial income € million -21 252 In recent years, the largest growth Net profit for the period from continuing operations € million -110 660 globally has occurred in China with Net profit for the period from discontinued operations € million -79 -18 a growth rate of some 15 annually. Net profit for the period € million -189 641 Outokumpu is one of the world’s largest producers of stainless steel Capital employed on Dec. 31 € million 3 867 4 125 with main production facilities locat- Return on capital employed % -1.6 13.9 ed in Finland, Sweden, the uk, the us and the Netherlands. Outokumpu’s Net cash generated from operating activities € million 656 676 melting capacity totals 2.55 million Capital expenditure € million 544 190 tons and the finished products capac- Net interest-bearing debt on Dec. 31 € million 1 072 788 ity for cold rolled material and white Equity-to-assets ratio % 52.4 56.5 hot strip is 1.6 million tons. Outo- Debt-to-equity ratio % 38.4 23.6 kumpu also has annual production capacity of 0.3 million tons of long Earnings per share € -1.05 3.52 products and plate. Earnings per share from continuing operations € -0.61 3.63 In global terms, Outokumpu’s big- Earnings per share from discontinued operations € -0.44 -0.10 gest site, Tornio Works in Finland, is Equity per share € 15.50 18.53 one of the world’s most cost-efficient Dividend per share € 0.50 1) 1.20 and the most integrated single-site Share price on Dec. 31 € 8.28 21.21 stainless steel production facili- Market capitalization on Dec. 31 € million 1 502 3 845 ties. At Tornio Works in Finland, THE CONSUMPTION of stain- Outokumpu produces mainly high Stainless steel deliveries 1 000 tons 1 423 1 419 less steel has been growing volume standard grades of stainless Stainless steel base price 2) € /ton 1 185 1 304 more rapidly than any oth- steel while the Avesta integration in Personnel on Dec. 31, continuing operations 8 471 8 108 er metal in the world. Outo- Sweden is focusing more on customer kumpu is one of the largest tailored special grades and products. 1) 2008: The Board of Directors’ proposal to the Annual General Meeting.

producers of stainless steel Outokumpu has a 18 share of 2) Stainless steel: CRU – German base prices (2 mm cold rolled 304 sheet). Please note: Between and is widely recognized the stainless steel coil market in July–October 2007, European prices for some stainless grades were quoted on a transaction price basis, therefore base prices are the calculated value of transaction price minus alloy surcharge for this time as a world leader in techni- Europe and a 6 share worldwide. period (CRU). cal support, research and Outokumpu’s main markets are Eu- development. rope (78 of sales in 2008), Asia (8) According to the current and North and South America (11). strategic phase, Outokum- pu is increasing the share of special grades and special products in its product mix. 7 OUTOKUMPU ANNUAL REPORT 2008 OUTOKUMPU’S MARKET POSITION / OUTOKUMPU 2008 >>

Sales and Service Centres Sales and Stock Sales Offices Production facilities

END-USES OF STAINLESS STEEL MAJOR STAINLESS STEEL PRODUCERS

Catering and Estimated slab capacity, million tons 2008 2011 Households 32% ArcelorMittal, The Netherlands 3.16 3.16 Industrial equipment 27% Acerinox, Spain 2.90 3.23 ThyssenKrupp, Germany 2.90 3.14 Transport 15% TISCO, China 2.60 2.60 POSCO, South Korea 2.60 2.80 Building and Construction 16% Outokumpu, Finland 2.55 2.55 Welded tubes 6% Source: CRU and Outokumpu

Source: CRU. Global consumption of cold Others 4% rolled flat products 2008.

RAW MATERIALS of the ferrochrome are purchased on Avesta in Sweden and Sheffield in Recycled stainless and carbon steel the open market. Britain. as well as ferrochrome and nickel See the table on raw material use are the main raw materials used on page 42. in producing stainless steel. Ferro- chrome, and especially nickel, are ENERGY the most valuable of the raw mate- Electrical energy accounts for some rials. Outokumpu operates its own 4 of total production costs. The chromite mine at Kemi and a fer- largest consumers of electrical en- rochrome smelter at Tornio, both in ergy in the Group are the Tornio fer- Finland. Recycled stainless and car- rochrome smelter and the stainless bon steel as well as nickel and some steel meltshops in Tornio in Finland, 8 >> OUTOKUMPU 2008 / CEO’S REVIEW OUTOKUMPU ANNUAL REPORT 2008 CEO’s review

THE YEAR 2008 turned out to be maximizing our short-term cashflow increasing our business activity with Low volumes and prices during the very exceptional. During the first and ensuring financial flexibility. The end-user customers. The acquisition second half of the year and collapsing part of the year the stainless steel key actions are: brought us a large customer base and alloy prices were the main reasons markets were rather normal with sta- high-quality service center operations for this. ble demand and healthy prices. The t
Cost reductions: both variable and in Italy and the uk, both of which second half of the year, however, was fixed costs are reduced. The target are strategically important markets THE WAY AHEAD anything but normal – very weak de- for fixed cost savings is in the for Outokumpu. Although visibility into the future mand and falling alloy and product range of eur 100 million for 2009. The strategy to develop a more sta- is poor, it seems likely that markets prices, which resulted in a very dif- ble business model remains valid even will remain difficult in both the short ficult operating environment. t
Efficient management of inven- though some of the related, earlier and medium term. I am confident The reason behind the drastic tories and procurement to ensure decided investments are now post- that Outokumpu will perform rela- change in business environment was working capital reduction. poned. Currently, we have enough tively well even in these challenging the turmoil in global financial mar- available capacity to sell more special conditions. Our key strengths will kets. This had a major impact on the t
Postponement of investments in products and ferritic grades, and to demonstrate their importance now behavior of stainless steel customers. 2009. The investment program is increase both end-user and project more than ever: Shortage of financing and the overall limited to some eur 300 million business. Our new organization is uncertainty caused several companies in 2009, a reduction of more than well suited for this challenge. t
Cost efficiency at our biggest pro- to cancel or postpone their invest- eur 500 million compared to the duction plant, Tornio Works ments, consumers to avoid spending original plan. THE YEAR OF CORPORATE and many customers to reduce their RESPONSIBILITY t
A strong market position in special inventories. This behavior led to very STRATEGY REMAINS VALID To highlight its importance, we grades weak demand for stainless steel in Outokumpu’s strategy aims at cre- named year 2008 the year of cor- the latter part of the year. Financially ating a more stable and predictable porate responsibility. We started t
Strive for Operational Excellence the situation was made worse by the business model. Some of the key the year by setting some clear and collapse in the price of some of the components in this strategy are in- tangible goals for all of corporate re- t
Customer-focused organization alloying materials, mainly nickel and creasing sales to end-users and proj- sponsibility’s three dimensions. molybdenum, resulting in very poor ect customers, creating more stable In the environmental dimension, Our strengths and our short-term financial results for us during the deliveries to distributors, and raising targets were established for e.g. re- actions will enable us to manage the third and fourth quarter of the year. sales of special products and ferritic ducing wastes and improving energy tough times and come out even stron- (non-nickel containing) grades. efficiency, both in production and ger once markets return to normal. SHORT-TERM ACTIONS To support the realization of these in offices. Some of the related targets Finally, I want to thank our cus- It is very difficult to make reliable strategic goals, a new commercial or- became less relevant due to reduced tomers for their support and loy- forecasts for the short-term future, ganization structure was introduced. volumes during the latter part of the alty and our shareholders for their but one has to assume that markets A key concept in this new structure year. However, clear progress was patience in these turbulent times. I will remain challenging. Outokumpu is the creation of customer segment made especially in waste reduction. also want to thank the Outokumpu is facing this situation from a strong teams whose main tasks are to under- In the social dimension, encour- people for their excellent contribu- financial position: we have a healthy stand the needs of different customer aging improvements were made in tion and continuing commitment to balance sheet, our debt maturity industries and to tailor our offering safety. Lost-time accident frequency high quality work. profile is balanced and our cash flow accordingly. The segment teams was improved from a level of 11 in is good. As a company, however, we combine the expertise of customer 2007 to a level of 9 in 2008. Even have to be prepared for a scenario and product knowledge, r&d sup- more demanding targets are set for in which markets will remain weak port and supply chain competence. 2009, with the ultimate aim of zero for some time ahead. Thus we made The acquisition of the Italian dis- accidents in the future. Juha Rantanen some decisions on decisive actions in tributor SoGePar during the summer In the economic dimension, the ceo December and January that aim at of 2008 was a major step forward in year 2008 was a clear disappointment. 9 OUTOKUMPU ANNUAL REPORT 2008 CEO’S REVIEW / OUTOKUMPU 2008 >> 10 >> OUTOKUMPU 2008 / VISION AND STRATEGIC DIRECTION OUTOKUMPU ANNUAL REPORT 2008 Vision and strategic direction

2005 UP TO 5 YEARS UP TO 10 YEARS

TODAY The undisputed number one in stainless Achieving global leadership

Ensuring No. 1 position in stainless in Europe Delivering promises and setting new ambitions

STRATEGIC OBJECTIVES suring the number one position in in standard grades. Furthermore, To direct our way of becoming the Europe by multiplying operational Outokumpu’s long history and undisputed number one, we have de- excellence, and thirdly, achieving comprehensive knowledge as well fined three key strategic objectives: global leadership in stainless. The as well-tailored production facilities ultimate goal is to secure a signifi- in Sweden give the Group a leading t
Value creation through building cant and sustained increase in share- position in specialized stainless steel superior production and distribu- holder value. products. In accordance with the tion capabilities in all major mar- In the first phase of the Group’s plan, the emphasis was on internal kets in the world strategic development, focus was improvements and strengthening on simplifying Outokumpu’s busi- of financial performance, as well t
Value realization through commer- ness portfolio, strengthening the as on improving the quality of the cial and production excellence Group’s balance sheet and financial current asset base. During this first flexibility, and improving internal phase also the Group’s Excellence t
Sustaining value by continuously efficiency and competitiveness by programs were initiated and are OUTOKUMPU is an interna- developing our people and put- building and strengthening op- currently proceeding at full speed. tional stainless steel com- ting customers at the heart of ev- erational excellence. Outokumpu’s Outokumpu is today a pure-play pany. Our vision is to be the erything we do position in the stainless steel in- stainless steel company with a strong undisputed number one in dustry is already strong. In Tornio balance sheet and is well positioned stainless steel, with suc- The path to achieving our vision in Finland, Outokumpu has one to accelerate its profitable growth. cess based on operational is divided into three main phases: of the world’s most cost-efficient excellence. firstly, delivering our promises and and the most integrated produc- setting new ambitions, secondly, en- tion sites ensuring cost leadership 11 OUTOKUMPU ANNUAL REPORT 2008 VISION AND STRATEGIC DIRECTION / OUTOKUMPU 2008 >>

BEING THE UNDISPUTED NUMBER ONE IN STAINLESS STEEL OUTOKUMPU’S KEY STRENGHTS

t
Best financial performance in the industry t
Fully-integrated and globally cost-competitive production t
Industry benchmark in customer relationship site in Tornio management t
A leading position in specialty products t
Most efficient production operations t
Strong customer orientation t
Most attractive employer t
Highly-recognized product and process development t
Focus on continuous improvement and excellence

Outokumpu’s position in the stainless steel industry is already strong.

OUTOKUMPU’S STRATEGY AIM- t
stabilizing sales volumes to key earnings cyclicality that is driven by steel in 2008, the Group’s investment ING FOR A MORE STABLE AND distributors volatile nickel prices. program was reviewed at the end of PROFITABLE BUSINESS MODEL In 2007 and 2008, a major invest- the year and a decision was made to In 2007, Outokumpu moved into t
increasing the proportion of value- ment program of some eur 2 billion postpone the investment program the next phase in its strategy de- added special products and ferritic supporting the strategy development almost entirely. Projects totaling velopment, with the aim to ensure (non-nickel) grades from one third was announced. Initiatives included some eur 1.5 billion were postponed the number one position in Europe. to a half investment in the expansion of the for a period of at least 12 months. In this phase, focus is on develop- stock and processing network by ex- Outokumpu’s target of balancing ing and securing a more stable and t
maintaining cost leadership in panding existing service centers and the Group’s product mix can still be profitable business model in order standard grade volume produc- establishing new ones in both Europe achieved in coming years by higher to balance out the effects of volatil- tion and Asia. The program also included utilization of current production ca- ity in the market for stainless steel a broadening of the Group’s prod- pacity and by making some changes standard products. Growth opportu- Shifting Outokumpu’s production uct range by investing in produc- to the existing product mix. nities related to both the Group’s size capacity into more value-added tion capacity for value-added special The transformation towards in- and geographical coverage will also special products will include both a products, especially duplex grades creased end-user and project cus- be considered. This second phase in broadening in the range of products and ferritic non-nickel grades. In tomer sales requires expansion of Outokumpu’s strategy aims at and grades produced and an increase addition to these, an investment to the Group’s stock and processing in the production of duplex grades expand ferrochrome production in capabilities. In 2008, Outokumpu t
increasing the proportion of direct with low nickel content. Growth tar- Tornio was part of the program. As acquired the SoGePar Group, an end-user and project sales from gets also include a scaling up of the a result of the turmoil in the global independent distributor in Italy. As the current level of 35 to at least Group’s production capacity in fer- financial markets and consequently synergy benefits from the acquisi- 50 over the next five years ritic grades to assist in reducing the the weakening market for stainless tion turned out to be greater than 12 >> OUTOKUMPU 2008 / VISION AND STRATEGIC DIRECTION OUTOKUMPU ANNUAL REPORT 2008

LEADERSHIP PRINCIPLES

Outokumpu has defined Group-wide leadership principles. The main principles are: Outokumpu is moving forward t
Making sound decisions on the path towards the vision of t
Achieving ambitious targets becoming the undisputed number t
Creating a winning team t
Inspiring to perform one in stainless. t
Building trust and respect

expected, Outokumpu was able to coming the undisputed number one t
A return on capital employed mitments it has made. Furthermore, postpone the majority of its planned in stainless. As a result of the eco- of over 13 and always the best Outokumpu condemns corruption organic service center investments. nomic market outlook, the Group among peers and bribery and complies strictly Currently, the only investments has to prepare for a weak market with competition legislation. which are continuing are the expan- and focus on profitability and cash t
Gearing below 75 A healthy and positive work- sion of a service center in Willich, generation in the short term. Actions place is a source of strength for all Germany, and the establishment of decided on cover the priority areas DIVIDEND POLICY employees, and benefits families, a new plate service center in China of developing stability over the busi- The dividend policy established by friends and colleagues as well. and the investment into produc- ness cycle, ensuring the competitive- the Board of Directors states that the tion capacity of quarto plate in New ness of the Group’s European asset dividend payout ratio over a business Castle in the us. base, focusing further on managing cycle should be at least one-third of In 2007, the longer-term Opera- the customer interface and on steps the company’s net profit for that pe- tional Excellence programs launched towards growth and readiness for riod with the aim to have stable an- in 2005 and originally comprising global consolidation. Outokumpu’s nual payments to shareholders. In its Commercial and Production Excel- operational strength makes it well annual dividend proposal, the Board lence, were expanded to include also positioned to make progress in its will, in addition to financial results, Supply Chain Excellence. By the end pursuit of global leadership. take into consideration the Group’s of 2008, the combined cumulative investment and development needs. benefits achieved totaled some eur FINANCIAL OBJECTIVES 86 million compared to 2005 cost Outokumpu’s overall financial objec- ETHICAL PRINCIPLES levels. The benefit target of eur 200 tive is to generate the maximum sus- Outokumpu honors human dignity million for 2009 from the programs tainable economic value added. The and diversity and condemns discrim- will not be reached with the current Group’s financial objectives in line ination and intolerance of all kinds. market outlook as benefits are highly with the vision in terms of growth, In all its operations, Outokumpu depending on delivery volumes and profitability and financial strength strives to achieve sustainable human, raw material prices. However, Outo- are as follows: economic, social and ecological de- kumpu aims at reaching these tar- velopment. The Group observes geted benefits, but with a delay. t
To continue growing faster than the laws and other regulations of Outokumpu is moving forward the market countries in which it operates, and on the path towards the vision of be- complies with agreements and com- 13 OUTOKUMPU ANNUAL REPORT 2008 VISION AND STRATEGIC DIRECTION / OUTOKUMPU 2008 >> 14 >> OUTOKUMPU 2008 / HIGHLIGHTS IN 2008 OUTOKUMPU ANNUAL REPORT 2008 Highlights in 2008 Q1

In the first quarter of 2008, demand from distributors and end-user segments is healthy and stable. Base prices increase during the quarter and average 1 243 EUR/t. Delivery volumes are at a good level, close to full production capacity. The nickel price is around 30 000 USD/t. Operating profit totals EUR 100 million including nickel-related inventory losses of some EUR 60 million. The decision is made to invest in high-quality ultra-clean ferritic and austenitic production capacity in Tornio. Q2

Base prices peak at 1 325 EUR/t and average 1 307 EUR/t in the second quarter. In May, the nickel price starts to fall resulting in weakening demand especially from distributors. Operating profit totals EUR 174 mil- lion including net raw material- related inventory gains of some EUR 20 million. To enable increased sales to end-user and project customers, Outokumpu acquires the SoGePar Group, an Italian distributor of stainless steel. Outokumpu decides to invest in a doubling of ferrochrome production. 15 OUTOKUMPU ANNUAL REPORT 2008 HIGHLIGHTS IN 2008 / OUTOKUMPU 2008 >>

Q3

The financial crisis hits globally and markets weaken Q4 further. Demand for stainless steel from both distri- butors and end-user segments, especially construction and white goods, slows significantly. The nickel price falls to levels around 16 000 USD/t. In the seasonally weak Q3, stainless steel delivery volumes are low and base prices decline to 1 143 EUR/t. Outokumpu Global financial markets collapse and demand for stain- reports an operating loss of EUR 66 million including less steel weakens further with base prices declining raw material-related inventory losses of some EUR to historically low levels around 1 000 EUR/t. Delivery 60 million and non-recurring costs of EUR 66 million. volumes correspond to some 60% of full production An announcement is made that the Group intends capacity. Outokumpu issues a downward revision of its to close its thin strip business in Sheffield in the UK. Q4 guidance. Operating loss in Q4 is EUR 271 million, The increasing financial turmoil results in a review of including some EUR 185 million of raw material-related most of the elements in Outokumpu’s EUR 2 billion inventory losses and EUR 17 million of non-recurring investment program. provisions. Prices for all raw materials decline and the nickel price drops below 10 000 USD/t. Almost the entire investment program is being postponed for at least 12 months and Group-wide cost-saving measu- res, including personnel reductions, are announced. 16 >> OUTOKUMPU 2008 / MARKET REVIEW OUTOKUMPU ANNUAL REPORT 2008 Market review

STAINLESS STEEL DEMAND NICKEL PRICE FERROCHROME PRICE NEGATIVELY AFFECTED BY FINANCIAL CRISIS USD/t USD/lb Stainless steel demand and prices 60 000 2.50 during the course of 2008 were heav- 50 000 ily influenced by the global financial 2.00 crisis. The first part of 2008 was rea- 40 000 sonably good – European stainless 1.50 steel production for instance in- 30 000 1.00 GLOBAL ECONOMIC creased by 4.7 year-on-year during 20 000 GROWTH DECLINES the first three quarters of 2008. Busi- 0.50 Following four consecutive ness conditions deteriorated signifi- 10 000 years of strong global growth cantly from September due to the 0 0.00 in GDP, 2008 marked a down- financial crisis, the abrupt reduction 04 05 06 07 08 09 04 05 06 07 08 09 ward step in the fortunes of in credit, and subsequent impact on the world economy. During stainless steel demand. The uncer- Source: LME. Including January 2009. Source: Metal Bulletin. September 2008, a year af- tainty over the length, magnitude Including January 2009. ter the initial onset of the fi- and real impacts of the financial nancial crisis, the global fi- crisis also severely clouded busi- nancial system suffered a ness conditions. This uncertainty, series of shocks with a va- combined with the deterioration of riety of banks and financial consumer spending and household during the first half of the year. (London Metals Exchange) nickel institutions filing for bank- purchases caused many stainless steel Base prices moderated during the price declined to 21 111 usd/t in ruptcy. This in turn created consumers to introduce a variety of seasonally slow summer period 2008, down 43 from 37 230 usd/t concern over the capitaliza- temporary and permanent produc- and were impacted further by the in 2007. The monthly price was on tion of many other finan- tion stoppages and cost reduction financial crisis in q4, ending 2008 an increasing trend during the first cial institutions. A credit and measures. These actions obviously at 1 045 eur/t. The cold rolled 304 three months of 2008, but then confidence crisis then en- impacted the stainless steel demand transaction price decreased by 27 posted declines throughout the re- sued which threatened the and the industry was operating at year-on-year to 2 801 eur/t, down maining months of the year. Nickel stability of the world bank- low capacity utilization rates during from 3 828 eur/t in 2007. The al- stocks held in lme warehouses ing system. Governments the fourth quarter. loy surcharge component of the ended the year at 78 000 tons, up around the world acted to Worldwide stainless steel flat transaction price declined by 36 63 year-on-year. Nickel produc- stem the crisis by providing products apparent consumption de- year-on-year from 2 534 eur/t in tion and refining capacity increased massive lending and finan- clined by 5.9 in 2008 to a level of 2007 to 1 616 eur/t in 2008, due in during the course of 2008, however cial support to the banking 17.9 million tons (cru Feb. 2009). particular to the decline in the cost due to demand side limitations pro- sector, in an attempt to alle- Global production of stainless steel of nickel which occurred during the duction and consumption declined viate the effects on the real decreased by 4.8 in 2008. course of the year. Towards the end year-on-year. World production of economy. However, the col- The benchmark average annual of the year also prices for molyb- nickel declined by 5 year-on-year lapse in credit availability German cold rolled 304 base price denum and recycled steel declined in 2008 and consumption by 3.2 severely impacted business (cru) declined 9 year-on-year significantly. (cru Jan. 2009). The imbalance of conditions and industrial pro- from 1 304 eur/t in 2007 to 1 185 capacity and demand caused many duction, and confidence indi- eur/t in 2008. From a level of 1 125 RAW MATERIAL PRICES nickel producers to implement tem- cators plummeted in the last eur/t at the end of 2007, monthly DECLINED IN 2008 porary and permanent production quarter of 2008. base prices increased to 1 275 eur/t Following six consecutive years of cutbacks or stoppages during the in June 2008 due to good demand increase, the average annual lme course of the year. 17 OUTOKUMPU ANNUAL REPORT 2008 MARKET REVIEW / OUTOKUMPU 2008 >>

MOLYBDENUM PRICE MARKET PRICE COMPARISON STAINLESS STEEL PRICE WITH COMPETING MATERIALS

USD/lb Index EUR/t 100 40 500 4 500 4 000 400 30 3 500 3 000 300 2 500 20 2 000 200 1 500 10 100 1 000 500 0 0 0 04 05 06 07 08 09 04 05 06 07 08 09 9495969798 99 00 01 02 03 04 05 06 07 08 09 Stainless steel Aluminium Zinc Carbon steel Base price Alloy surcharge Transaction price Source: CRU. Source: Metal Bulletin. Carbon steel cold rolled coil Including January 2009. galvanized sheet Copper Including January 2009. Note: Between July–October 2007, European prices for some stainless steel grades were quoted Source: CRU, LME and Metal Bulletin. on a transaction price basis, therefore base prices are the calculated value of transaction price Including January 2009. minus alloy surcharge for this time period (CRU).

Stainless steel demand and prices during the course of 2008 were heavily influenced by the global financial crisis.

Average annual ferrochrome con- strengthen ferrochrome prices. Price price declined by 3.3 year-on-year molybdenum declined by 0.6 in tract prices advanced by 93 in increases were however exacerbated to 29.56 usd/lb. This small annual 2008, whereas supply increased by 2008 to 1.76 usc/lb, following a 26 at the end of 2007 and during the decline does not highlight however 3.4. (cru Jan. 2009.) increase in 2007. Quarterly contract first half of 2008 by limitations in the the steep reduction in prices which Recycled steel prices increased by prices (agreed between South Afri- capability to produce ferrochrome in occurred at the end of the year. 43 year-on-year to 401 usd/t in can producers and European con- South Africa, caused by the curtail- After being stable at the level of 2008, following a 22 increase in sumers) were on a continual rising ment of energy usage as a result of 33–34 usd/lb during the first nine 2007. Monthly average prices ended trend from the second quarter of the country’s energy supply shortage. months of the year, the molybde- 2007 at 299 usd/t and advanced to 2006 to the third quarter of 2008, Global consumption of ferrochrome num price declined steeply in the 596 usd/t in June 2008. Prices then rising 1.42 usc/lb or 225 over the declined by 9 in 2008. Supply de- months proceeding the 2008 finan- trended down to a low of 151 usd/t period. Growing demand from creased by 5. (cru Jan. 2009.) cial crisis, and finished the year at in November before recovering to stainless steel production helped to The average annual molybdenum 10 usd/lb. Global consumption of 200 usd/t in December. 18 >> OUTOKUMPU 2008 / MARKET REVIEW OUTOKUMPU ANNUAL REPORT 2008

OUTLOOK FOR STAINLESS STEEL in 2008 and 2009, a period of above Stainless steel also continues to be make positive contributions to the DEMAND CONTINUES BRIGHT trend growth can be expected when an important part in the solutions world’s future development. Given the gloomy economic outlook the global economy recovers from its to address the world’s growing ap- and remaining challenges within the recession. petite for energy and water. Two of financial sector, 2009 is expected to Stainless steel will continue to the world’s key challenges in the fu- be a challenging year for industrial play an important role in the devel- ture will be to meet the growing de- activity and as a consequence stain- opment of the world’s infrastructure mand for energy and potable water. less demand and prices. – buildings, bridges, airports, metro Stainless steel is used extensively in The long term prospects for stain- and train stations – areas that will energy production industries such less steel demand however remain receive significant fiscal stimulus by as Oil and Gas as well as renewable robust. The long term average an- governments over the next years. sources such as bio-fuels. Stainless nual growth of stainless steel con- Stainless steel continues to be a steel is also a key material within sumption has been 5–6 (cagr hygienic and aesthetic solution in the desalination processes. Outokum- over the period 1988–2008) and this production of foods, beverages, and pu’s leading position in austenitic long term growth rate is expected to various chemicals, as well as highly (nickel-containing) and special continue. With growth expected to desired in domestic appliances, ca- grades of stainless steel will ensure undershoot this long term average tering equipment and utensils. that the Group will continue to

ANNUAL AVERAGE METAL MARKET PRICES

2008 Change % 2007 2006 2005 2004 Stainless steel Base price EUR/t 1 185 -9.1 1 304 1 470 1 174 1 424 Alloy surcharge EUR/t 1 616 -36.2 2 534 1 341 942 828 Transaction price EUR/t 2 801 -26.8 3 828 2 811 2 116 2 252

Nickel USD/t 21 111 -43.3 37 230 24 254 14 744 13 852 EUR/t 14 353 -47.2 27 161 19 317 11 851 14 649

Ferrochrome (Cr-content) USD/lb 1.76 93.4 0.91 0.72 0.74 0.69 EUR/kg 2.63 80.1 1.46 1.26 1.32 1.22

Molybdenum USD/lb 29.56 -3.3 30.57 25.10 32.51 16.39 EUR/kg 44.31 -9.9 49.17 44.08 57.61 29.05

Recycled steel USD/t 401 43.2 280 230 204 219 EUR/t 273 33.8 204 183 164 176

Sources: Stainless steel: CRU – German base price, alloy surcharge and transaction price (2 mm cold rolled 304 sheet), estimates for deliveries during the period. Please note: Between July–October 2007, European prices for some stainless grades were quoted on a transaction price basis, therefore base prices are the calculated value of transaction price minus alloy surcharge for this time period (CRU). Nickel: London Metal Exchange (LME) cash quotation. Ferrochrome: Metal Bulletin – 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. 19 OUTOKUMPU ANNUAL REPORT 2008 MANAGEMENT DISCUSSION ON FINANCIAL PERFORMANCE / OUTOKUMPU 2008 >> Management discussion on financial performance

A YEAR LABELED BY A fixed costs in 2009. Outokumpu is ity throughout the Group whereas SALES, 5 474 € MILLION DISAPPOINTING LOSS AND prepared to face the difficult times overall costs increased, primarily as ACTIONS PREPARING FOR but is at the same time maintaining a result of higher energy and oil-re- DIFFICULT TIMES a readiness to make strategic invest- lated prices. There was an increase in Outokumpu’s strategy is aiming at ments when confidence on the mar- the number of personnel employed, achieving a more stable and profit- ket returns. mainly as a consequence of the able business model by increasing the SoGePar acquisition. share of sales to end-user and project STEPS TOWARDS A MORE There was limited progress in the customers as well as to stable key dis- STABLE BUSINESS MODEL increase of sales directly to end-users General tributors. Increasing the share of val- In July, Outokumpu took a major and in sales of non-nickel containing Stainless 58% ue-added special products and non- step towards a more stable business grades in the turbulent year of 2008. Specialty nickel containing grades is of equal model by acquiring SoGePar Group, Outokumpu’s newly-established Stainless 38% importance. The very difficult market an independent European stainless joint venture in Saudi-Arabia selling Other Operations 4% conditions in 2008 limited progress steel distributor. The acquired oper- tubular products and the service cen- towards these strategic targets. The ations include stainless steel service ter to be opened in China are expect- modest recovery of the stainless steel centers in Castelleone in Italy and in ed to increase sales outside Europe. OPERATING CAPITAL, market in the beginning of the year Rotherham in the uk. SoGePar also With these measures and a renewed 4 046 € MILLION turned into a dramatic collapse as a has stock operations in Italy, the uk, organization, Outokumpu has taken consequence of the global economic Belgium, Finland, France and Ire- some important actions towards a crisis. Despite the satisfactory result land, as well as a commercial office more stable business model. in the first half of 2008, the annual in Germany and a representatives result turned negative as a conse- office in Turkey. The acquisition of GOOD PROGRESS IN THE quence of very low levels of deliveries SoGePar enables Outokumpu to bet- OPERATIONAL EXCELLENCE and base prices, and significant raw- ter serve its customers through the PROGRAMS General material-related inventory losses re- expanded service center network, ex- The Operational Excellence programs, Stainless 66% sulting from declining metal prices. pand its customer base and positively launched in 2005 and originally com- Specialty Good progress was however made in develop end-user and project sales prising Production and Commercial Stainless 29% the Group’s Excellence programs. which in turn should bring more Excellence were expanded to in- Others 5% In late 2008, Outokumpu de- stability. It will also significantly clude also Supply Chain Excellence cided to postpone almost its entire strengthen Outokumpu’s position in 2007. The targeted benefits have investment program designed to in stainless steel distribution in Italy, been achieved in both 2007 and 2008. increase production capacity in spe- which, together with Germany, are The targets set were to improve the PERSONNEL AT YEAR-END, 8 471 cial grades and products and expand Europe’s largest markets for stain- Group’s performance by eur 40 mil- the Group’s service center network. less steel. SoGePar was operationally lion in 2007 and by eur 80 million Steps that are less capital-intensive fully integrated into Outokumpu by in 2008 compared to 2005. In 2008, will now be taken to implement the end of 2008 and was consolidat- the Production and Commercial Ex- Group strategy, with profitability ed into Outokumpu’s accounts as of cellence programs delivered benefits and cash flow being given priority August 1, 2008, contributing sales of totaling some eur 86 million (2006: in the short-term. With support of eur 143 million and a net loss of eur eur 25 million, 2007: eur 45 million) strong cash flow from operations in 37 million, mainly due to raw mate- compared to 2005. More efficient uti- General Stainless 47% 2008, Outokumpu’s balance sheet re- rial related inventory losses. lization of raw materials, additional Specialty mained strong. Several cost-cutting Cost efficiency remains a con- capacity in production bottlenecks, Stainless 47% actions including personnel adjust- tinuous priority. The Operational better pricing discipline, release of ments have been taken with the aim Excellence programs made posi- working capital due to shorter pay- Others 6% of saving some eur 100 million in tive contributions to the profitabil- ment terms and profitable growth 20 >> OUTOKUMPU 2008 / MANAGEMENT DISCUSSION ON FINANCIAL PERFORMANCE OUTOKUMPU ANNUAL REPORT 2008

being achieved with key customers estimated to have decreased by 4 in FINANCIAL DEVELOPMENT are some examples of profitability Europe and by 6 globally. improvements achieved from the The average German base price for € million 2008 2007 Excellence programs. 2mm 304 cold rolled sheet in 2008 Sales As improvements resulting from was 1 185 eur/t, 9 lower than in General Stainless 4 147 5 321 the Excellence programs are highly 2007. The recovery of the base price Specialty Stainless 2 705 3 456 dependent on delivery volumes and started in early 2008 from the level of Other operations 258 237 raw material prices, the 2009 tar- 1 000 eur/t, but prices did not hold Intra-group sales -1 636 -2 101 get of eur 200 million in benefits and turned to a decline after reach- The Group 5 474 6 913 from all three programs (including ing 1 325 eur/t in May. By the end of

Supply Chain Excellence) will not the year, the price had again fallen 1 000 tons be reached with the current mar- to around 1 000 eur/t. The transac- Stainless steel deliveries ket outlook. In the short term, the tion price for stainless steel averaged Cold rolled 739 703 Operational Excellence program will 2 801 eur/t in 2008, 27 lower than White hot strip 330 314 focus on working capital reduction, in the previous year because of the Quarto plate 120 146 on raw materials and other cost- much higher nickel price in 2007 Tubular products 70 65 saving related projects instead of on (cru). Prices for special grades and Long products 55 54 capacity enhancement. Outokumpu project-related products were more Semi-finished products 109 137 will proceed the Excellence programs stable but weakening demand had Total deliveries 1 423 1 419 even with a stronger focus and aims a negative impact on these as well. at reaching the targeted benefits but While Outokumpu’s average base € million with a delay. prices exceeded the cru reference Operating profit price in 2007, the cru price indica- General Stainless -6 220 TURBULENCE IN STAINLESS tion in 2008 was somewhat higher Specialty Stainless -101 337 STEEL MARKETS compared to Outokumpu’s average Other operations 38 21 2008 was an exceptional year for realized base prices. Intra-group items 6 11 the stainless steel industry in many Prices of alloying materials were The Group -63 589 ways. It began with the stainless steel very volatile in 2008. The nickel market recovering from the collapse price fell from a level of 30 000 usd/t € million seen in 2007. During the first quar- in the beginning of the year to some Major non-recurring items in operating profit ter, Outokumpu’s delivery volumes 10 000 usd/t, lowest since 2003. Specialty Stainless reached normal levels and base prices The ferrochrome contract price was Thin Strip restructuring in the UK -66 -11 were approaching the long term aver- boosted to an all-time high of 1.93 Redundancy provisions -17 - age. This development was however usd/lb because of a shortage of elec- Other operations interrupted in the spring by signs of tricity in South Africa. However, due Gain on the sale of Hitura mine in Finland - 25 weakening demand. The deteriora- to the collapse in the stainless steel Tot al -83 14 tion in market sentiment was acceler- market, the contract price declined ated by the decline in the nickel price, to 0.79 usd/lb by early 2009. Mo- € million which caused a continuous incentive lybdenum, which is used in certain Major non-recurring items in financial income for customers, especially distributors, stainless steel grades to improve the Impairment of Belvedere shares -21 - to postpone their purchases. The corrosion resistance even further, col- Gain on the sale of Outotec shares - 142 global financial crisis hit the stain- lapsed from the levels of 30 usd/lb to Gain on the Talvivaara transaction - 110 less steel market hard in the autumn. one third in just few weeks. Tot al -21 252 Compared to 2007, apparent con- sumption of stainless steel in 2008 is 21 OUTOKUMPU ANNUAL REPORT 2008 MANAGEMENT DISCUSSION ON FINANCIAL PERFORMANCE / OUTOKUMPU 2008 >>

SHARE-RELATED KEY FIGURES OUTOKUMPU’S SENSITIVITY – EFFECT OF SUSTAINED CHANGE ON ANNUAL OPERATING PROFIT € 2008 2007 Earnings per share -1.05 3.52 € million - From continuing operations -0.61 3.63 Stainless steel base price, +100 EUR/ton 180 - From discontinued operations -0.44 -0.10 Ferrochrome price, +5 USc/lb 10 Equity per share 15.50 18.53 USD/EUR, +10% 30 Dividend per share 0.50 1) 1.20 SEK/EUR, +10% -50 Share price on Dec. 31 8.28 21.21 GBP/EUR, +10% -15

Market capitalization Dec. 31, € million 1 492 3 820 Source: CRU and Outokumpu

1) Board’s proposal to the Annual General Meeting The figures are estimates and they do not take into account the impact of hedging. They have been calculated on the basis of the average exchange rates in 2008 and highest achieved delivery volumes.

OUTOKUMPU’S PRODUCTION STRUCTURE

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LONG PRODUCTS & PLATE 0.3 million tons

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OUTOKUMPU’S FINANCIAL OBJECTIVES cline in the share price of Belvedere capital resulting from the declining Resources Ltd which is classified as nickel price. Capital expenditure to- an available-for-sale financial asset. taled eur 544 million. The largest in- Outokumpu’s overall financial objective is to generate the Financial income in 2007 included vestment in 2008 was the acquisition maximum sustainable economic value added. The specific a eur 142 million non-recurring of the SoGePar Group for eur 224 group-level financial objectives in line with the vision in gain from the sale of the remaining million. Other major investments terms of growth, profitability and financial strength are as 12 holding in Outotec Oyj and a during 2008 were the replacement of follows: eur 110 million non-recurring gain the No.2 annealing and pickling line t
To continue growing faster than the market from the Talvivaara transaction. Net in Tornio and the started expansion interest expenses fell slightly to eur of quarto plate production capacity. t
A return of capital employed of over 13% and always the 54 million (2007: eur 58 million). Despite the Group’s disappoint- best among peers Profit before taxes was eur 134 mil- ing financial performance in 2008, t
Gearing below 75% lion negative (2007: eur 798 million Outokumpu’s financial and liquid- positive). ity position remains strong. At the Net profit in 2008 was eur 189 end of 2008, the Group’s equity-to- million negative (2007: eur 641 mil- assets ratio stood at 52.4. Net in- A DISAPPOINTING LOSS IN 230 million). The underlying opera- lion positive) and the net profit from terest bearing debt totaled eur 1 072 SEVERE MARKET CONDITIONS tional result for 2008 was some eur continuing operations was eur 110 million (2007: eur 788 million) with Due to lower transaction prices for 305 million (2007: eur 800 million). million negative (2007: eur 660 mil- most of the Group’s debt maturities stainless steel in 2008, Group sales for The primary reason for the decline lion positive). The net loss includes extending to the 2009–2013 period. the year declined to eur 5 474 million in operating profit was clearly lower a capital loss of eur 66 million from Group cash and cash equivalents (2007: eur 6 913 million). Stainless base prices. Exceptionally high base the sale of the Group’s remaining stood at eur 224 million (2007: eur steel deliveries totaled 1 423 000 tons, prices and relatively good deliveries copper tube assets (Discontinued 86 million) at the end of the year, almost at the same level as in the pre- in early 2007 boosted Outokumpu’s operations) to Cupori Group in June and committed undrawn credit fa- vious year (2007: 1 419 000 tons). average prices compared to 2008. 2008. Earnings per share was eur cilities totaled some eur 1.0 billion. Operating profit in 2008 was Variable costs were also somewhat 1.05 negative (2007: eur 3.52) and To maximize cash flow and maintain eur 63 million negative (2007: eur higher in 2008, mainly due to high- earnings per share from continu- balance sheet flexibility, investments 589 million positive). In 2008, net er energy and oil-related expenses. ing operations was eur 0.61 nega- totaling some eur 1.5 billion have non-recurring costs of some eur 83 In addition, there were less financial tive (2007: eur 3.63 positive). The been postponed. million are included in the operat- benefits from optimising raw mate- return on capital employed in 2008 ing loss (eur 66 million of provisions rial use and pricing because of clearly was -1.6 (2007: 13.9). A REASONABLE DIVIDEND and writedowns related to the closure lower metal prices in 2008. Record DESPITE LOSSES of the Thin Strip business in Sheffield high ferrochrome price improved PROFITABILITY TARGETS WERE Group earnings per share in 2008 and some eur 17 million of provi- Group profitability in 2008, but the NOT MET, BUT BALANCE SHEET totaled eur -1.05, with earnings sions related to personnel reductions full potential did not materialize as REMAINS STRONG per share from continuing opera- in Sweden). In 2007, operating profit delivery volumes were low. Even though Outokumpu’s return tions eur -0.61 and from discon- included net non-recurring gains of Excluding non-recurring items, on capital employed of -1.6 failed tinued operations eur -0.44. Total eur 14 million (eur 11 million of net financial income and expenses in to meet the target of 13, gearing at shareholder return (tsr) was -58.6 costs related to restructuring at Thin 2008 were eur 47 million negative 38.4 stayed clearly below the tar- (2007: -24.8). tsr is calculated as Strip in the uk and eur 25 million (2007: eur 39 million negative). In get level of 75. Net cash generated the annual change in share price plus gains on the sale of the Hitura mine 2008, an impairment loss of eur 21 from operating activities in 2008 the dividend, divided by the starting in Finland). Raw material-related million (eur 12 million in the first was good and totaled eur 656 mil- share price for the year. Outokumpu’s inventory losses of some eur 285 quarter and eur 9 million in the lion (2007: eur 676 million). This share price reached an all-time high million are included in the 2008 fourth quarter) was booked in other includes a eur 370 million positive of eur 33.99 in May 19, 2008, but operating profit (2007: some eur financial expenses due to the de- effect from the release of working declined to eur 8.28 by the end of 23 OUTOKUMPU ANNUAL REPORT 2008 MANAGEMENT DISCUSSION ON FINANCIAL PERFORMANCE / OUTOKUMPU 2008 >>

SALES OPERATING PROFIT EARNINGS PER SHARE RETURN ON CAPITAL EMPLOYED

€ million € million € % 8 000 1 000 6 25 5 7 000 800 20 4 6 000 600 3 15 5 000 2 4 000 400 10 1 3 000 200 0 5 2 000 -1 0 0 1 000 -2 0 -200 -3 -5 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08

OPERATING CAPITAL AND RETURN ON OPERATING CAPITAL 2008 EXCHANGE RATES DEBT-TO-EQUITY RATIO

% Operating profit margin, % EUR/USD 100 EUR/GBP EUR/SEK 100 26 1.60 11.0 22 80 18 ROOC 13% 1.32 10.25 14 60 10 6 1.05 9.5 40 ROOC 8% 2 General Stainless 20 -2 0.78 8.75 Specialty Stainless -6 0 -10 0.50 8.0 04 05 06 07 08 0.80 1.20 1.60 2.00 2.40 2.80 04 05 06 07 08 09 Capital turnover ratio The return on operating capital (ROOC) in the chart above comprises two components: the operating profit EUR/USD EUR/GBP margin and the capital turnover ratio. There are two curves for ROOC. Each point on the upper curve gives a 13% capital invested by its shareholders. target return on operating capital and, similarly, the lower curve indicates the Group’s calculatory 8% weighted EUR/SEK Outokumpu uses the weighted aver- average cost of capital before taxes. If a division does not cover the weighted average cost of capital, it gener- ates negative economic value added. The higher the capital turnover ratio, the smaller change in operating profit age cost of capital (wacc) in defin- Including January 2009. margin will impact ROOC. The size of the circle reflects the amount of operating capital tied up into a division. ing the capital charge for economic value added (eva), and applies this the year (respective market capital- with the aim to have stable annual share be paid for 2008. The dividend when estimating the profitability of ization of eur 1 520 million). Divi- payments to shareholders. In its an- yield is 6.0, and Outokumpu’s av- investment projects and defining the dends totaling eur 216 million (eur nual dividend proposal, the Board of erage dividend payout ratio over the economic and commercial value of 1.20 per share) were paid in 2008 for Directors will, in addition to finan- past five years has been appr. 47. the Group’s business operations. In the year of 2007. cial results, take into consideration 2008, Outokumpu’s wacc after taxes In accordance with the Board of the Group’s investment and devel- ECONOMIC VALUE ADDED was approximately 6. This figure Directors’ established dividend pol- oping needs. The Board of Directors NEGATIVE was obtained using a target capital icy, the payout ratio over a business is proposing to the Annual General Outokumpu’s overall financial ob- structure in which the weight given cycle should be at least one-third Meeting to be held on March 24, jective is to generate the maximum to equity is 60 and the weight of of the Group’s profit for the period 2009 that a dividend of eur 0.50 per sustainable economic value added on debt 40. The cost of equity was 24 >> OUTOKUMPU 2008 / MANAGEMENT DISCUSSION ON FINANCIAL PERFORMANCE OUTOKUMPU ANNUAL REPORT 2008

8.4 and the after-tax cost of debt – and thus stainless steel transaction process. The size of the discount operating profit in 2009 to changes was 3.3. In 2008, economic value prices – are expected to fall, resulting varies based on the tightness of the in stainless steel base prices, in ferro- added by Outokumpu’s continu- in unnecessary volatility without any market. When prices of alloying ma- chrome prices and in exchange rates ing operations was eur -293 million changes in the underlying demand. terials are high, financial benefits of between the main currencies and the (2007: eur 152 million). The transaction price of stain- using recycled material can thus be euro. These sensitivities have been less steel comprises the base price significant. Some 60 of raw materi- calculated on the basis of the average FACTORS AFFECTING plus the alloy surcharge. The alloy als used by the Group are sourced as exchange rates in 2008 and highest OUTOKUMPU’S PROFITABILITY surcharge applied in Europe and recycled stainless steel. achieved delivery volumes. The stainless steel business is cycli- North America includes the cost of Outokumpu’s operating profit is cal. In addition to the company’s alloying materials when the prices of affected not only by changes in base OUTOKUMPU AND STAINLESS own actions, the Group’s profitabil- these exceed predefined trigger-price prices but also by unit costs, delivery STEEL MARKETS GOING ity depends on the economic cycle levels. The cost of alloying materials volumes and the product mix. When FORWARD in the world economy and especially for stainless steel – nickel, chrome, manufacturing stainless steel, capac- Despite the short-term turbulence, on levels of industrial investment ac- molybdenum, iron and titanium – is ity utilization rates also have a major long-term annual growth in con- tivity. In the long term, demand for invoiced by stainless steel producers impact on operating profit. Produc- sumption of stainless steel is ex- stainless steel has been growing at a to customers through the alloy sur- tion volumes depend on demand for pected to continue at a rate of 5–6. rate of 5–6 per annum. Changes in charge mechanism thus reducing the stainless, and products are mostly Capacity increases taking place in regional or global production capac- alloying materials price risk for the produced to fulfill orders. The prod- growing Chinese markets are signifi- ity can sometimes have an adverse ef- stainless steel producers. Even so, uct mix also has an impact on profit- cant. There may be periods of imbal- fect on stainless markets, resulting in the price paid for alloying materi- ability. Higher value added products ance when supply exceeds demand temporary imbalances between sup- als feeds through into the amounts are more profitable. in China, having an impact on the ply and demand. Increasing stainless of capital tied up as working capital. As a general rule, currencies in global market situation including steel production capacity in China As Outokumpu’s throughput time is which stainless steel products are Europe. will continue to have an effect on longer than the time period applied priced are determined by the market Visibility in stainless steel markets the global supply situation in com- in the alloy surcharge mechanism, areas: euros in Europe and us dol- has been poor in early 2009, and the ing years. changes in the price of alloying ma- lars in the us and Asia. Price levels in deepening of the global financial cri- A key factor directly affecting terials may lead to timing differences Europe, the us and Asia may differ. sis has had a clear negative impact Outokumpu’s profitability is the that impact profitability. The alloy Outokumpu is exposed to fluctua- on stainless steel consumption in the development of stainless steel base surcharge is based on 30-day aver- tions in currency exchange rates pri- short term. The Group’s Operational prices. The price level is linked to the age of raw material prices calculated marily because of sales to the Asian Excellence programs have delivered economic cycle, and to the level of backwards from the 20th day of the and us markets and the Group’s own strong, well-proven results. With industrial investment in the Group’s preceding month. ferrochrome production, which is the addition of Supply Chain Excel- main customer segments. Changes in The Group’s chromium mine near priced in us dollars. Exchange rates lence in 2008, Outokumpu remains the base prices have also been attrib- Tornio supplies Outokumpu with may also impact the relative compet- dedicated to building Operational utable to strong fluctuations in de- the majority of its needs for ferro- itiveness of stainless steel producers Excellence in the future. Despite mand from distributors who are ei- chrome at the cost of production. on different continents. For the most the postponement of the investment ther de-stocking or re-stocking their This has a direct positive impact on part, Outokumpu’s production costs program and the short-term focus inventories. Outokumpu’s current Group profitability. are in euros, Swedish crowns and being on cashflow, securing a more dependence on traditional nickel- Stainless steel is fully recyclable. British pounds. Prices of raw mate- stable and profitable business model containing standard austenitic grades Alloying materials can usually be rials are determined primarily in us continues to be the main focus in exposes the Group to demand vola- bought at a discount when sourced dollars, the alloy surcharge mecha- Outokumpu’s strategic development tility caused by fluctuations in the as recycled stainless steel and nism transfers changes in exchange going forward. Outokumpu is in a nickel price. The distributor sector Outokumpu is therefore constantly rates to the euro price in Europe. good position within the stainless in- in particular has postponed placing maximizing it’s usage of recycled The table on page 21 shows the ap- dustry to pursue a global leadership orders of stainless steel when nickel steel in the Group’s manufacturing proximate sensitivity of Outokumpu’s position. 25 OUTOKUMPU ANNUAL REPORT 2008 MANAGEMENT DISCUSSION ON FINANCIAL PERFORMANCE / OUTOKUMPU 2008 >> >> BUSINESS OPERATIONS

28 Outokumpu’s business and business units 30 General Stainless 34 Specialty Stainless 38 Other operations, Discontinued operations 39 Group Sales and Marketing 42 Supply Chain Management 46 Research & development 47 Energy 48 Human Resources 50 Environment, Health and Safety Our move CLOSER TO THE CUSTOMER 28 >> BUSINESS OPERATIONS / OUTOKUMPU’S BUSINESS AND BUSINESS UNITS OUTOKUMPU ANNUAL REPORT 2008 Outokumpu’s business and business units

MAIN ROUTES TO Outokumpu MARKET TRANSFORMING stock & A significant share of the Group’s processing sales is going to distributors, re-rollers and tubemakers. These segments continue to be essential OUTOKUMPU’S for the Group’s total business, while BUSINESS Outokumpu is looking for growth END-USERS in value-adding end-user segments UNITS & such as various industrial uses, & SALES Construction, and Catering and NETWORK PROJECTS Appliances. As a supplier for project applications, market segments such as Pulp and Paper, desalination Distributors, plants, and Oil and Gas are central to further the Group’s development. processing

The Group’s product range covers ers, the service center network is be- groups that are served by dedicated standard as well as special grades ing strengthened in existing markets. teams. Outokumpu’s production and products. Outokumpu’s main In 2008, Outokumpu acquired an operations are organized into busi- production facilities are two efficient Italian distributor, SoGePar Group, ness units that are grouped in two integrated stainless steel mills – in with service center operations in Italy divisions based on the type of prod- Tornio in Finland and in Avesta in and the uk. A new service center will uct produced: General Stainless and Sweden – as well as a production be established in China with the aim Specialty Stainless. In the integrated route from the Sheffield meltshop in to serve the Chinese market with organization the business units are in Britain to several long products and mainly special grades and products. charge of product strategy and have plate production units in Sweden, To increase the share of value-added accountability for overall profitabil- the uk and the us. special grades sales, Outokumpu will ity. The cross-organizational Group Outokumpu’s strategy is aiming at optimize the utilisation of existing Sales and Marketing is responsible delivering a more stable and profit- production capacity by increasing for delivery of the Group’s com- able business model by increasing the the production of special grades and mercial targets, and Supply Chain share of value-added special grades’ products, such as duplex stainless Management for the end-to-end de- sales and by increasing the share of steel as well as by entering the mar- livery performance. sales to end-user and project custom- ket for non-nickel containing ferritic The Group also has a comprehen- ers in relation to the share of sales to stainless. The successful Operational sive network of sales companies, ser- transactional customers, whilst also Excellence programs have been ex- vice centers and sales agents in some OUTOKUMPU is one of the addressing the most attractive growth panded and are today covering also 70 countries. top players in the global stain- opportunities. To facilitate this devel- Supply Chain Management in addi- Outokumpu’s business units and less steel market. Outokum- opment, Outokumpu has also aligned tion to Production and Commercial cross-organizational functions are pu’s main product is stainless its organization into an integrated Excellence. described in more detail in the fol- steel coil, in which it has a model emphasizing the one-company The renewed organization model lowing sections. market share of about 18% in approach towards customers. is designed to serve customers in an Europe and 6% worldwide. In order to increase the share of optimal way. Sales have been orga- sales to end-user and project custom- nized into customer industry based 29 OUTOKUMPU ANNUAL REPORT 2008 OUTOKUMPU’S BUSINESS AND BUSINESS UNITS / BUSINESS OPERATIONS >>

FOUR MAIN TYPES OF STAINLESS STEEL OUTOKUMPU STAINLESS STEEL DELIVERIES Different grades and compositions of stainless steel are developed for different end-user purposes. The four main grades are austenitic, ferritic, ferritic-auste- 1 000 tons 2008 2007 nitic, and martensitic steel. All grades of stainless steel contain a minimum of Cold rolled 739 703 10.5 of chromium. Outokumpu’s main product is austenitic stainless steel, White hot strip 330 314 which typically contains 8 nickel in addition to 18 chromium. Ferritic stain- Quatro plate 120 146 less steel does not contain nickel, but chromium up to 24. Martensitic stain- Tubular products 70 65 less steel contains 11–13 chromium. Ferritic-austenitic grades contain 1.5–5 Long products 55 54 nickel, and they are very strong and corrosion resistant. Outokumpu’s duplex Semi-finished products 109 137 steel grades are ferritic-austenitic, containing only small amounts of nickel. Total deliveries 1 423 1 419 30 >> BUSINESS OPERATIONS / GENERAL STAINLESS OUTOKUMPU ANNUAL REPORT 2008 General Stainless

GENERAL STAINLESS KEY FIGURES

€ million 2008 2007 Sales 4 147 5 321 of which Tornio Works 2 701 3 468

Operating profit -6 220 of which Tornio Works 66 178 Non-recurring items in operating profit - - Operating capital on Dec. 31 2 663 2 607 Return on operating capital, % -0.2 8.1 Capital expenditure 332 57 Depreciation 135 133

Personnel on Dec. 31 3 938 3 571

1 000 tons Deliveries of main products Cold rolled 628 587 White hot strip 297 270 Semi-finished products 340 383 Total deliveries of the division 1 265 1 240

GENERAL STAINLESS pro- Currently, the main product appli- most integrated single-site opera- products from the cold rolling mills. duces high-quality standard cations of General Stainless are in tion. The main products coming Tornio also delivers some black hot stainless steel in the form of industrial segments such as Pulp and from Tornio are cold rolled and hot band material to both internal and coil, sheet and long products. Paper, Chemicals and Petrochemi- rolled austenitic stainless steel coils external customers. The main market for these cals, Construction and Energy-relat- and sheets. Ferritic grades are also products is Europe. Cost ef- ed industries as well as Catering and being produced. Tornio’s integrated TORNIO WORKS’ COMPETITIVE ficiency, high quality and de- Households. Customers are both production process starts at the EDGE livery reliability are the key end-users and distributors who also neighboring Kemi chromite mine, Tornio Works is the Group’s biggest competitive advantages re- stock and process stainless steel to continues in the Tornio ferrochrome production unit and, following the quired for success in this serve end-customer needs. smelter and proceeds through two expansion carried out in 2000–2005, standard high-volume market General Stainless consists of Tornio stainless steel melt shops, a hot roll- one of the world’s most cost-efficient segment. By exploiting the Works and Long Products. In addi- ing mill and cold rolling lines. To stainless steel operations. The inno- advantages offered by the in- tion, the majority of the Group’s stock provide customers in the Group’s vative rolling, annealing and pickling tegrated Tornio facility, the and processing units as well as its sales main markets with even better ser- line (rap) provides additional flex- Group’s Operational Excel- companies are reported under General vice, a significant proportion of ibility in production. Production on lence programs and reduced Stainless. finishing operations are carried out the rap-line can be shifted between fixed costs, Outo kumpu aims in Terneuzen in the Netherlands. hot rolled (white hot strip) and cold to maintain its cost leader- TORNIO WORKS Tornio’s current annual production rolled products in accordance with ship in standard stainless Located in Northern Finland, Tornio capacities are: 1.65 million tons of market demand. As an integrated steel grades. Works is one of the world’s largest melting, 1.6 million tons of hot roll- cold rolling line, the rap-line also stainless steel mills and the world’s ing and 1.2 million tons of finished has a clear cost advantage over tra- 31 OUTOKUMPU ANNUAL REPORT 2008 GENERAL STAINLESS / BUSINESS OPERATIONS >>

Ferrochrome

GENERAL STAINLESS GENERAL STAINLESS Chrome is what makes stainless steel stainless. Around 90% of global- SALES BY MARKET AREA PERSONNEL BY COUNTRY ly mined chromite ore is converted into different grades of ferrochrome used by the metallurgical industry. The stainless steel industry consu- mes about 90% of globally produced ferrochrome (mainly high-carbon Europe 84% Finland 59% (Finland 4%) and charge grade). In 2008, global ferrochrome production totaled 7.3 Britain 12% million tons. Ferrochrome is being produced mainly in South Africa North and South America 4% Italy 8% (45%), Kazakhstan (13%), China (17%), India (10%) and Finland (3%). Asia 9% Netherlands 5% Outokumpu is in a unique position and has a clear competitive edge due to its captive chromite mine in Kemi in Northern Finland and Australia and Sweden 4% Oceania 2% nearby its own ferrochrome production located at the same site as the Germany 3% stainless steel plant, Tornio Works. France 2% Main benefits from this integration are: Others 8% t
Sourcing of raw material at cost and pricing the chromium in the final stainless steel product at market price t
Transfer of ferrochrome to the stainless steel melt shop in liquid form at Tornio Works (energy, transport and logistics cost savings) t
Use of carbon monoxide emanating from the ferrochrome process as fuel in the stainless steel mill (reduced need for external Tornio Works is the world’s most energy) integrated single-site operation. Today, Outokumpu is 60–65% self-sufficient in ferrochrome and can supply the need for Tornio Works internally. The balance is mainly being sourced in the form of recycled stainless steel but also as primary ferrochrome from the global market. ditional cold rolling processes where steel. Tornio has a competitive cost annealing and pickling operations advantage in producing 400-series are carried out on separate lines. products as liquid ferrochrome from Integrating these two process steps its own ferrochrome smelter can be KEMI MINE AND TORNIO FERROCHROME SMELTER results in lower costs and reduces utilized in the manufacturing process, working capital. The rap-line can reducing melting costs. Outokumpu’s Production 2008 2007 also be used to produce rap™2e, a current production capacity for fer- Ore excavated, million tons 1.3 1.2 semi-cold rolled product. This prod- ritic grades, after commissioning of Chromite concentrates, 1 000 tons 614 556 uct is mainly used in the stainless the new annealing and pickling line Ferrochrome, 1 000 tons 234 242 steel tube industry, where it can re- No. 2, is around 180 000 tons. place cold rolled stainless steel in a The investment project of eur 90 Ore reserves and mineral resources variety of applications. million to replace the No. 2 annealing Dec. 31, 2008 Million tons Grade To expand the Group’s product and pickling line (ap-line) in Tornio Ore reserves offering, Outokumpu initiated pro- was completed in 2008. The new ap- Proven 37 26% Cr²O³ duction of 400-series ferritic stainless line has an annual capacity of 300 000 Mineral resources steel in Tornio during 2007. As fer- tons and allows the production of Indicated 13 29% Cr²O³ ritic grades do not contain any nickel, austenitic and ferritic products with Inferred 72 29% Cr²O³ prices for 400-series products have a minimum set-up time. This invest- A mineral resource is a concentration or occurrence of material of intrinsic economic interest in or on the Earth’s crust in such form, quality and quantity that there are reasonable prospects for eventual economic traditionally been less volatile than ment will increase the capacity of extraction. An ore reserve is the economically mineable part of the measured and/or indicated mineral those of Outokumpu’s main prod- Tornio cold rolling mill by 75 000 resource. Ore reserves are not included in the mineral resources. Cr2O3 = chromium oxide. uct, 300-series austenitic stainless tons by the end of 2009. 32 >> BUSINESS OPERATIONS / GENERAL STAINLESS OUTOKUMPU ANNUAL REPORT 2008 Case A RECORD-SETTING PAPER MACHINE IN CHINA – HAINAN PM2 Photo courtesy of Voith Paper. Voith Photo courtesy of Paper machine by Voith Paper.

Voith Paper is building the world’s largest paper machine for Peter Meuter, The Voith key account manager at Outokumpu, Hainan Jinhai Pulp & Paper Industry Co. Ltd. of China with a describes the relationship between Voith and Outokumpu as a “close total package of stainless steel products from Outokumpu. partnership”. Petra Copparini, a Voith procurement representative, says that the process with Outokumpu has been good, and that Outokumpu’s Hainan Jinhai Pulp & Paper Industry Co. Ltd., a subsidiary of Indonesian high level of product quality and reliability brings added value to the Asia Pulp & Paper, operates the world’s largest pulp mill on the island of relationship. Hainan and is in the process of building another leading industry facility: Hainan PM2 offered the partners an opportunity to test a new form of Hainan PM2 will be the largest machine, supplied by Voith Paper of cooperation: Voith has trusted the entire supply of stainless flat products, Heidenheim, Germany, a comprehensive operation from stock preparation tubes and fittings to Outokumpu. Such a comprehensive package is the to finishing, spanning in length. It will have capacity for one million metric first in the partnership’s history. The arrangement means that Voith has tons per year once in production from May 2009. benefited considerably through the simplification of stainless procure- The wet and high-chloride process conditions in paper machines requi- ment, avoiding the need to source smaller packages from a large number re large amounts of stainless steel. Approximately 2 000 tons of stainless of different suppliers. steel flat products, tubes and fittings are needed in a machine the size of Hainan PM2. Voith Paper is a world leading technology supplier to the pulp and paper industry. To source stainless steel, Voith has a long partnership with Outokumpu, relying on the full range of Outokumpu products. 33 OUTOKUMPU ANNUAL REPORT 2008 GENERAL STAINLESS / BUSINESS OPERATIONS >>

As a result of the global financial ber 2008 as part of the decision to DECLINING METAL PRICES AND crisis, Outokumpu decided to post- postpone Outokumpu’s investment GLOBAL ECONOMIC CRISIS pone investments worth some eur program almost entirely. AFFECTED PROFITABILITY 1.5 billion in December 2008. The The very turbulent year in stain- earlier announced investment in pro- LONG PRODUCTS less steel was very much reflected duction of high-quality ultra-clean The Sheffield melt shop in the uk, in General Stainless’ result. During ferritic stainless steel grades as well as part of Long Products, has an an- the first half of the year, demand for bright annealed austenitic and ferritic nual operational production capac- stainless was healthy but as the nickel stainless products was part of that ity of some 400 000 tons. The melt price started to decline in May, dis- postponement decision. shop produces both slabs for flat tributors began to postpone their Chromite ore mined at the Kemi stainless steel production and billets purchases in expectation of lower underground mine and converted and blooms for production of long stainless steel prices. After the sum- into ferrochrome at Tornio Works is products. mer demand for stainless weakened used in stainless steel production. As The hot rolling mill in Degerfors further as a result of the global finan- chrome is the alloying component in Sweden produces rolled billets cial crisis, destocking continued and that gives stainless steel its corrosion and heavy bars from blooms cast in base prices declined to very low levels resistance, owning a supply of this Sheffield. The annual operational at the end of 2008. The price for fer- material is both a significant cost rolling capacity at Degerfors is some rochrome was increasing through- advantage and a risk mitigation fac- 50 000 tons. out the year and reached historically tor for Outokumpu. The majority of Outokumpu’s Long Products rod high price levels in the second half global ferrochrome production takes operations also consist of wire rod of 2008. General Stainless’ delivery place in South Africa and Kazakhstan. production in Europe and bar and volumes were almost unchanged at Outokumpu’s backward integration rod production in the us. Manufac- 1 265 000 tons compared to 2007 into chrome and ferrochrome offers turing units for long products are (2007: 1 240 000 tons). Due to the significant advantages. The main located in Sheffield in the uk and lower nickel price, sales declined by benefit for Outokumpu is its ability in Richburg, s.c. in the us. Annual 22 and totaled eur 4 147 million. to source the material at cost while delivery capacity for long products Operating loss was eur 6 million selling it at prevailing market prices. totals some 80 000 tons. The Group (2007: eur 220 million profit). As a The pricing mechanism of stainless is also involved (50 ownership) in result of the decline in nickel, molyb- steel allows stainless steel producers to Fagersta Stainless in Sweden, a long denum and recycled steel prices, the charge for all raw materials at market products company which manufac- Group booked some eur 285 million prices. Additionally, the ferrochrome tures and sells stainless steel wire rod of net raw material-related inventory smelter is located at the same site as and wire products. losses in 2008. Most of these were re- the integrated stainless steel mill in An investment of some eur 10 lated to General Stainless mainly as Tornio, and thus ferrochrome can be million is being made in Long Prod- a result of nrv (net realizable value) transferred to the stainless steel melt ucts’ finishing facilities in Sheffield write-downs. Since General Stainless shop in liquid form, giving an excep- in the uk. The new equipment is comprise the Group’s ferrochrome tional cost advantage as the material scheduled to be operational in mid production, positive impact from the does not need to be re-melted. 2009. This investment is creating an high ferrochrome price contributed In 2008, Outokumpu decided to integrated manufacturing route for to the result. expand the Group’s ferrochrome pro- small bar and rebar, complementing duction capacity in Tornio, Finland. the existing melt shop and wire rod This eur 420 million investment mill in Sheffield. to double the annual ferrochrome capacity was postponed in Decem- 34 >> BUSINESS OPERATIONS / SPECIALTY STAINLESS OUTOKUMPU ANNUAL REPORT 2008 Specialty Stainless

SPECIALTY STAINLESS KEY FIGURES

€ million 2008 2007 Sales 2 705 3 456

Operating profit -101 337 Non-recurring items in operating profit -83 14 Operating capital on Dec. 31 1 174 1 513 Return on operating capital, % -7.5 21.7 Capital expenditure 170 69 Depreciation 63 63

Personnel on Dec. 31 4 006 4 099

1 000 tons Deliveries of main products Cold rolled 154 174 White hot strip 142 135 Quarto plate 126 151 Tubular products 66 63 Long products 52 52 SPECIALTY STAINLESS is Total deliveries of the division 541 574 strong in tailored solutions and demanding customer ap- plications in flat products and in stainless tubular products. Growth in high-performance seg- in the uk. In finished products, in a variety of applications, yield- Specialty Stainless serves ments and applications is expected to Specialty Stainless units have a ca- ing considerable savings in material customers – for example in continue buoyant. As part of Outo- pacity of some 500 000 tons of cold costs. The excellent properties and the Oil and Gas industry, the kumpu’s strategy, Specialty Stain- rolled and white hot strip and plate, competitive pricing of both Lean Chemical and Petrochemi- less focuses on both differentiation 170 000 tons of quarto plate, and Duplex and other duplex grades are cal industry, nuclear power and further specialization in special 100 000 tons of tubular products. resulting in increased market share plants and the Pulp and Pa- grades and products, especially of- An increasing proportion of pro- compared to more traditional grades per industry – who have very fering excellent development oppor- duction by Specialty Stainless con- in applications such as tanks, pres- high requirements for stain- tunities for duplex grades, which sists of a variety of special grades, sure vessels, piping, transportation, less steel properties such as provide protection from continually mainly duplex grades that have been building and construction, and de- steel grade, shape, thickness, increasing competition in the market developed in response to specific cus- salination plants. Outokumpu is a surface finish or other specif- for standard stainless steel grades. tomer requirements. A good example market leader in duplex grades with ic properties. Project orders The main products produced in of Outokumpu’s steel grade develop- a global market share of some 50. form an important part of the Specialty Stainless are hot and cold ments is Lean Duplex, ldx 2101®, a The growth rate for duplex grades is business, which is supported rolled sheet, quarto plate, tubes and patented low-nickel, high-strength clearly above the growth rate in the by a strong R&D function and various fittings and precision strip. stainless steel with good corrosion market for standard grades. long-term experience in deliv- Stainless steel is supplied to Specialty resistance properties corresponding While the Group’s business units ering tailored solutions that Stainless units mainly from the di- to those of austenitic grades. The are pursuing further specialization match customers’ needs. vision’s own melt shop in Avesta in high strength of this material en- and increasing focus on more value- Sweden and the Sheffield melt shop ables thinner gauges to be employed added solutions that provide higher 35 OUTOKUMPU ANNUAL REPORT 2008 SPECIALTY STAINLESS / BUSINESS OPERATIONS >>

Duplex grades

Demand for ferritic-austenitic duplex grades grows significantly faster SPECIALTY STAINLESS SPECIALTY STAINLESS SALES BY MARKET AREA PERSONNEL BY COUNTRY than that of standard stainless grades. Duplex stainless steel is cha- racterized with good corrosion resistance and high strength, as well as low nickel content. The high strength of the material enables the use Europe 70% Sweden 71% (Finland 5%) of thinner gages in a variety of applications such as tanks, pressure The US 10% vessels, piping, transportation, civil engineering and structures, thus North and South America 22% Finland 7% bringing considerable savings in material costs. Outokumpu is a clear market leader in duplex grade stainless deliveries with a global market Asia 6% United Kingdom 6% share of some 50%. Avesta Works has a long and successful track Others 2% Germany 2% record in the demanding production process of duplex. Outokumpu has developed and patented the Lean Duplex grade Others 5% (LDX 2101®) which contains only 1.5% of nickel, making its price less dependent of the volatility of the nickel price. Standard austenitic 304 grade contains 8 % of nickel. The corrosion resistance of LDX is similar to that of the 304 grade, but its strength is about twice as high. Outokumpu’s Lean Duplex was introduced in 2002 and has met with great success in demanding applications. To further facilitate the market penetration of Lean Duplex, Outokumpu has awarded Demand for duplex grades grows manufacturing licenses to several other stainless steel producers in significantly faster than that of Europe and Asia. standard stainless grades.

and more stable returns, a very im- plate) production in Degerfors in portant focus of attention is the Sweden and New Castle in the us. DUPLEX OFFERS SUBSTANTIAL ADVANTAGES maintenance of a competitive cost Avesta in Sweden is a world-class structure. supplier of two-meter-wide, thick Strength Research and development activ- cold rolled and white hot rolled ity, especially at the Avesta Research products and continuously produced Center in Sweden, focuses on the plate to the process industry. The in- development of new grades, identify- tegrated Avesta production facility ing and promoting new applications covers the entire process chain from and finding the right solutions for melt shop through hot rolling to customers. cold rolling. Annual operational pro- The following business units duction capacities at Avesta total ap- are part of the Specialty Stainless proximately 500 000 tons for melting division. with the current mix, 450 000 tons for hot rolling (current manned ca- Corrosion resistance SPECIAL COIL AND PLATE pacity) and 250 000 tons for finished Duplex stainless steel grades Special Coil and Plate consists of the products. integrated Avesta production facil- Avesta supplies the Nyby and Austenitic stainless steel grades ity (coil and continuously produced Kloster cold rolling mills with black Ferritic stainless steel grades plate) and Hot Rolled Plate (quarto hot band material and hot rolled 36 >> BUSINESS OPERATIONS / SPECIALTY STAINLESS OUTOKUMPU ANNUAL REPORT 2008

ue) write-downs due to the collapse in Casethe nickel price. DUPLEX LDX 2101® FOR PALM-OIL STORAGE TANKS Photo courtesy of Loders Croklaan. Photo courtesy of Loders Loders Croklaan’s existing tank farm.

A palm-oil tank farm at the Port of Rotterdam is to be Like all duplex grades, LDX 2101® features almost twice the expanded by adding 41 tanks constructed from Outokumpu’s mechanical strength of austenitic grades, allowing thinner material to be LDX 2101® duplex grade. employed. Duplex materials enable weight savings of up to 50% in some sections of storage tanks, and normal savings are in the 20–30% range. Palm oil, currently the most widely produced edible oil, plays a major role Weight savings achieved by Siemerink in tank construction for Loders in world food production. Loders Croklaan is a major player in the palm-oil Croklaan averaged 30%. industry, running Europe’s largest palm-oil refinery and fraction plant on a Pleased by the performance of its LDX® storage tanks, Loders man-made peninsula in the Port of Rotterdam. An essential component in Croklaan will be using the same grade exclusively in a major upcoming this facility, which processes 2 500–3 000 tons of palm oil daily, is a large expansion of the tank farm. Construction of the 41 new tanks being tank farm located by the company dock. added will consume 1 300 tons of LDX 2101®. When the farm was being planned in 2003, both Loders Croklaan and Two tank fabricators, Siemerink and Oostwouder, will be involved in the Dutch tank fabricator Siemerink investigated alternatives to austenitic the expansion contract. Fabricating at the company plant, Siemerink will stainless steel, the material normally used to fabricate storage tanks for be using 2-meter-wide duplex coil, a product available exclusively from edible oils. With the help of local assistance provided by Outokumpu, both Outokumpu, benefiting from the fact that less welding is required than companies were satisfied that LDX 2101®, the Group’s recently-introduced when using conventional, narrower coil widths. proprietary duplex grade, offered significant competitive advantages. The 17 tanks that make up the farm were completed in 2004, with 716 tons of LDX 2101® being used in constructing the tank walls and roofs. 37 OUTOKUMPU ANNUAL REPORT 2008 SPECIALTY STAINLESS / BUSINESS OPERATIONS >>

plate operations with slabs and Duplex and other duplex grades – in OSTP (OUTOKUMPU STAINLESS GLOBAL FINANCIAL CRISIS AND steckel hot rolled plate. order to serve end-user and proj- TUBULAR PRODUCTS) WEAKENING DEMAND TURNED Outokumpu is the market leader ect customers with the Group’s full With an 18 market share in the PROFITS NEGATIVE IN THE with a 20 global market share in product range. process pipe segment, Outokumpu SECOND HALF OF 2008 hot rolled plate or quarto plates. is one of Europe’s largest produc- Both declining metal prices and Thick, wide and individually rolled, THIN STRIP ers of stainless steel tubes. ostp weaker demand because of the quarto plates are used in demand- Outokumpu’s Thin Strip operations (Outokumpu Stainless Tubular global financial crisis had an impact ing applications in segments such as consist of the cold rolling mills at Products) manufactures and sells on Specialty Stainless in 2008. Spe- Pulp and Paper, Oil and Gas, power Nyby and Kloster in Sweden. Cur- welded stainless steel tubes and pipes cialty Stainless’ deliveries declined plants, desalination and chemi- rently, these mills have a combined as well as butt-welded and threaded somewhat to 541 000 tons (2007: cal tankers. Outokumpu produces annual delivery capacity totaling ap- fittings. Tubular products are manu- 574 000 tons). Sales totaled eur quarto plate at Degerfors in Swe- proximately 175 000 tons. The Shef- factured in Sweden, Finland, Esto- 2 705 million (2007: eur 3 456 mil- den and in New Castle in the us. field Special Strip (sss) in the uk, nia, the us and Canada. The main lion) mainly due to the lower nickel The Group’s European plate service focused on precision strip rolling, products consist of process pipes price in 2008. Operating profit centers complement these facilities. was closed during the first quarter and fittings, heavy wall pipes, heat turned negative and was eur -101 Outokumpu’s current annual deliv- of 2009 and some of the produc- exchanger pipes as well as structural million (2007: eur 337 million) in- ery capacity for hot rolled plate and tion has been transferred to Kloster. hollow sections. These products are cluding some eur 83 million of non- quarto plate totals some 160 000 Thin strip products are mainly used used in most segments of the pro- recurring provisions related to the tons. in plate heat exchangers, heating el- cess industry such as Oil and Gas, closure of Thin Strip in Sheffield in In 2007, a decision was made to ements, flexible tubes, head gaskets Chemical and Petrochemical, Auto- the uk and some provision related to invest a total of eur 770 million and telecom applications. motive and Construction. With the personnel redundancies in Sweden. in production capacity for special An investment program completed ambition of creating customer value The decline in metal prices also had grades in Specialty Stainless. These at Kloster, which allows the produc- and increasing sales in its duplex a negative impact on the result. Spe- investments comprised special grades tion of thinner and wider as well as range, ostp has assembled a team of cialty Stainless inventory turnover is capacity, mainly duplex grades, in bright-annealed products, has more application engineers that specializes slower than the time period applied Avesta in Sweden as well as produc- than doubled annual production ca- in tubular products. ostp’s annual in the alloy surcharge calculation tion capacity for quarto plate capac- pacity at Kloster to 45 000 tons. delivery capacity totals some 100 000 method and this resulted in timing ity in Degerfors in Sweden and New At Nyby, eur 27 million has been tons. difference losses and some nrv (net Castle in the us. Due to the global invested in equipment for surface At the ostp unit in Nyby, Sweden, realizable value) write downs mainly financial crisis, a decision was made grinding and automatic storage. a second lap (Laser welding-Anneal- from declining nickel and molybde- in December 2008 to postpone the This investment will, at the expense ing-Pickling) line started production num prices. majority of these investments for at of standard grades, increase finished in the autumn of 2008. This invest- least 12 months. Only the investment products capacity in special grades ment totaled some eur 8 million. in New Castle, some eur 40 mil- by 30 000 tons to 64 000 tons. The ostp has also strengthened its lion, is continuing and will increase new capacity will become available global presence through a joint ven- the Group’s production capacity of in the second quarter 2009. The sec- ture with the Saudi Arabian tube quarto plate from 160 000 tons to ond phase of the investment, eur 23 manufacturer Armetal in the Middle 170 000 tons in 2010. million, comprises a new entry sec- East, creating the largest local pro- In accordance with Outokumpu’s tion for the annealing and pickling ducer of process pipe. strategy, the product mix at both line and will be operational in the Avesta and Degerfors, as well as quar- autumn of 2009 bringing the overall to plate production at New Castle, is annual capacity of special grades in being shifted from standard grades Nyby to 70 000 tons. more towards value-added tailor- made special grades – especially Lean 38 >> BUSINESS OPERATIONS / OTHER OPERATIONS OUTOKUMPU ANNUAL REPORT 2008 Other operations

OTHER OPERATIONS consists of ac- in Talvivaara Project Ltd. owned by OTHER OPERATIONS KEY FIGURES tivities outside the Group’s primary the Talvivaara Mining Company. businesses, industrial holdings and Outokumpu’s other industrial € million 2008 2007 available-for-sale financial assets. holdings include a 16 stake in Ok- Sales 258 237 Corporate Management and busi- metic Oyj, a company manufacturing ness development expenses, as well silicon wafers, and a 15 stake in the Operating profit 38 21 as costs associated with Group func- Swedish steel distributor Tibnor ab. Non-recurring items in operating profit - 25 tions and services that are not allo- At the end of 2008, the market Operating capital on Dec. 31 214 236 cated to businesses, are also reported value of Outokumpu’s holdings in Capital expenditure 42 64 under Other operations. the Talvivaara Mining Company Depreciation 8 8 Outokumpu’s most significant Ltd. (listed on the London Stock Ex- industrial holding is a 33 stake in change) and Okmetic Oyj (listed on Personnel on Dec. 31 527 439 Rapid Power, a company providing the nasdaq omx Helsinki) totaled hydropower from Norway. At the some eur 13.6 million and some eur end of 2008, a major available-for- 6.5 million respectively. sale financial asset was a 4.9 stake in The operating profit reported by the Talvivaara Mining Company Ltd. Other operations in 2008 was eur 38 Outokumpu also holds a 20 stake million (2007: eur 21 million).

Discontinued operations

IN ACCORDANCE with ifrs princi- tion. Assets divested comprise the in a brass rod company in Gusum ples, discontinued operations are re- copper plumbing installation and (Sweden). Outokumpu Brass em- ported separately from Outokumpu’s industrial tube manufacturing com- ploys some 170 people. The assets continuing operations. Currently, panies in Pori (Finland), Zaratamo and liabilities of the brass rod busi- the Group’s discontinued operations (Spain), Västerås (Sweden) and Lié- ness are presented as held for sale, comprise Outokumpu Brass (avail- ge (Belgium) as well as copper tube Outokumpu’s intention is to also able-for-sale). sales companies in France, Germany divest this business. In April 2008, Outokumpu signed and Italy. In 2008, the net loss from discon- a sale and purchase agreement under After the divestment, the Group’s tinued operations totaled eur 79 which the Group’s remaining copper discontinued operations consist of million (2007: loss eur 18 million). tube assets were sold to the Cupori Outokumpu Brass, which produces In 2008, sales by discontinued opera- Group. The transaction was closed brass rods for applications in the tions totaled eur 267 million with in June 2008. Outokumpu received construction, electrical and automo- an operating loss of eur 2 million. eur 56 million as consideration for tive industries. The brass rod plant Operating capital at the end of De- the sale and a capital loss of eur 66 is located in Drünen in the Nether- cember 2008 totaled eur 13 million. million was booked on the transac- lands and the unit has a 50 stake 39 OUTOKUMPU ANNUAL REPORT 2008 GROUP SALES AND MARKETING / BUSINESS OPERATIONS >> Group Sales and Marketing

THE GROUP’S SALES (5 474 € MILL.) COLD ROLLED STAINLESS STEEL DEMAND OUTLOOK BY MARKET AREA 2008

Million tons Europe 78% CAGR (Finland 4%) 25 North and South 20 America 11% 11.3%

Asia 8% 15 4.2% Australia and 9.5% Oceania 2% 10 OUTOKUMPU’S target of Others 1% 5.3% achieving the number one 5 5.7%

position in stainless steel 8.3% 0 is based on building supe- 2008 2013 rior relationships with the Industrial equipment Other Source: CRU. Group’s customers. Among A new commercial organization – Transport Welded tubes Cold rolled flat products, other things, this will require Group Sales and Marketing – was Construction Catering and Household November 2008. a broader product mix, a cus- launched on April 1, 2008. Sales and tomer base to whom a broad marketing is organized in customer range of products and servic- industry groups in order to best un- es can be offered on a long- derstand the needs of different cus- BUSINESS WITH END-USER AND Outokumpu’s end-user and project term basis, and the ability to tomers and provide them with the PROJECT CUSTOMERS IS SET business is organized into five clusters serve each customer as one best possible service. Group Sales TO GROW of segments according to customer company, making dealing and Marketing comprises three sec- End-user and project customers industry: with Outokumpu easy. tors: (i) End-users and Projects, (ii) represented some 35 of Group The Commercial Excel- Distributors and Processors, and (iii) business in 2008. By building on t
Architectural, Building and lence program, started in Stock & Processing Operations and Outokumpu’s customer service, Construction late 2005 and completed at Retail Sales. These in turn are divided technical expertise, product devel- the end of March 2008, has into clusters of industry segments, en- opment and international reach, t
Transportation launched the Group-wide Key abling Outokumpu to offer custom- the aim is to increase this figure to Account Management and ers in different industries the whole more than 50 of sales by 2012. A t
Catering and Appliances uniform pricing practices. It of the Group’s range of products and number of initiatives are needed to has also improved internal services, specialize in customer indus- achieve this goal. t
Chemical, Petrochemical and transparency regarding finan- tries, and identify optimal solutions. Outokumpu is broadening its prod- Energy cial performance with a vari- In July 2008, a commercial office uct mix by moving into ferritic (400 ety of customers. This makes was established in Zaventem in Bel- series) grades as well as manganese t
Process Industries and Resources it easier to understand cus- gium, close to Brussels airport. The (200 series) grades. Now that the new tomer relationships at a deep- Brussels office is part of Outokumpu’s annealing and pickling line No. 2 that Each cluster is managed by dedicated er level than before, and also new Sales and Marketing strategy and replaces the old line in Tornio has teams made up of key account man- improves comprehension of will be the central workplace and been commissioned, Outokumpu agers, application and product ex- the Group’s total offering to meeting location for the new cluster has the capacity to produce 180 000 perts, r&d and supply chain special- large international customers teams. It also houses Group Sales & tons of ferritic products. Manganese ists, as well as members of the sales who operate in a number of Marketing management as well as grades will be produced according to force in all countries supplied by the countries. other central functions of the Group’s market demand. Group. Although Western Europe is commercial organization. Outokumpu’s main market from a 40 >> BUSINESS OPERATIONS / GROUP SALES AND MARKETING OUTOKUMPU ANNUAL REPORT 2008 Case CLEAN COAL TECHNOLOGY IN COOPERATION WITH OUTOKUMPU Photo courtesy of MHI. Photo courtesy of MHI. Torrevaldaliga Nord in Civitavecchia. The first of Torrevaldaliga Nord’s three absorber towers under construction.

With its ideal product, one of Outokumpu’s super-austenitic In these towers, the process environment is extremely harsh becau- grades, for flue-gas scrubbing at coal-fired power stations, se of the high levels of acidity and the presence of chlorides. To withstand Outokumpu facilitates 88% capture of the sulfur dioxide at these challenges at Torrevaldaliga Nord, Enel selected Outokumpu’s Enel’s state-of-the-art power station in Italy, a facility de- super-austenitic 1.4565, a grade of stainless steel specifically developed signed to put coal power on a sustainable course. for such conditions. The core of each absorber tower is built entirely from 1.4565 plate supplied by the Group. July 30, 2008 marked a major advance in Italy’s power market. Enel, the Enel’s decision to choose Outokumpu as a supplier was based country’s largest power utility, inaugurated the first of three units at its re- on positive experience with super-austenitic 1.4565 used earlier in a furbished Torrevaldaliga Nord power plant in Civitavecchia, north of Rome. similar application at two of Enel’s Italian plants. Similar absorber towers Torrevaldaliga Nord is a pointer to the future of coal-fired power constructed using the same Outokumpu material are under construction generation. Employing the most advanced technologies available, the plant at Torrevaldaliga Nord’s other two units – the second unit is scheduled will be the most efficient in its class and one of the cleanest in the world. for completion in six months and the third 10 months later. A similar but Compared to the previous oil-fired operation, sulfur dioxide and particulate smaller facility is operated from end 2007 by Enel in Fusine near Venice, emissions are both down by 88% and nitrogen oxide emissions are down again employing the same material. by 61%. In overall terms, emissions will be 50% below the limits set by EU legislation. When released into the earth’s atmosphere, sulfur dioxide is a severe pollutant, guilty of acid rain. At the refurbished Torrevaldaliga Nord plant, sulfur dioxide is scrubbed from flue gases in absorber towers that use calcium carbonate as a neutralizing agent. 41 OUTOKUMPU ANNUAL REPORT 2008 GROUP SALES AND MARKETING / BUSINESS OPERATIONS >>

geographical perspective, the Group en relationships with long-term dis- exclusively. In this way, Outokumpu centers. Outokumpu is currently is seeking significant growth in areas tributor partners. This is of particu- will be able to service the specific expanding capacity at the Group’s such as China, India and Eastern lar importance in standard products, needs of distributors and large-volume service center in Willich, Germany, Europe. A key component of the where volumes being supplied to the processors in ways that serve these with the expanded capacity coming Group’s business with end-user and market are large. customers in an optimal manner. on stream in 2009. A greenfield ser- project customers is the service pro- Large-volume re-rollers and tube The geographic focus of the Group’s vice center being built in Shanghai, vided to Key Accounts. Key Account makers also represent an important distributor and processor business is China, to process mainly special Managers and their teams are being market for Outokumpu. As with Europe. grades will be operational in 2010. provided with the level and quality distributors, close relationships with Other service center projects planned of resources required to serve Key these customers are a particular target SERVICE CENTERS AND RETAIL (Poland, Southern Germany, France Accounts in a personalized manner, as this enables the Group to develop SALES TAKE OUTOKUMPU and India) have been temporarily providing tailor-made solutions to products, processes and ways of work- CLOSER TO END-USER postponed because of the global fi- customers globally. ing that benefit customers over the CUSTOMERS nancial crisis and the weaker stainless long term. As of January 1, 2009, Outokumpu’s steel market. In 2008, Outokumpu BUSINESS WITH DISTRIBUTOR Outokumpu’s business with dis- service centers and retail sales has completed the acquisition of AND PROCESSOR CUSTOMERS tributors and processors is organized been organized as a third sector in SoGePar, a distributor based in Italy, FOCUSES ON STABLE, into two clusters: Group Sales and Marketing: which increased the Group’s service LONG-TERM RELATIONSHIPS center capacity by some 160 000 tons A significant part of the stainless t
Distributors t
Stock & Processing Operations annually. The SoGePar units were in- steel market is served by distributors tegrated into the Group’s commercial and service centers. These customers t
Re-rollers, Tube-makers and Fur- t
Retail Sales organization on January 1, 2009. make up a large part of Outokumpu’s ther Processors Retail Sales serves a large number customer base and continue to be A key channel in serving end-user of smaller local customers of service key business partners. One of the Some members of the Group’s sales and project customers is the Group’s centers who have not been allocated Group’s strategic aims is to strength- force will focus on these customers network of stainless steel service to End-user and Project clusters. 42 >> BUSINESS OPERATIONS / SUPPLY CHAIN MANAGEMENT OUTOKUMPU ANNUAL REPORT 2008 Supply Chain Management

USE OF RAW MATERIAL procurement function is to leverage the Group’s buying power and procure- ment excellence to reduce costs and improve operational efficiency, and Nickel, the Production Excellence team will continue to train Group employees primary 2.9% through the Production Excellence Change Agent Training Program (pecat) Molybdenum, while also targeting and eliminating waste, losses and inefficiencies in pro- primary 0.4% duction operations. Chrome, primary 7.8% SUPPLY CHAIN MANAGEMENT STRATEGY Stainless steel, The primary aims of the new Supply Chain Management (scm) function are: BY VOLUME recycled 58.9% Carbon steel, t
To create value as perceived by the customer through improving and recycled 20.0% stabilizing the Group’s delivery performance; Others 10.2% t
to improve the management of inventories as these account for a very high proportion of Group costs; In line with this, Outokumpu has made changes to its organizational t
levering Procurement activities via a new Procurement Excellence program; structure, aligning it with the new continuing the development and sustainability of the Production Excel- strategic aims. At the beginning of lence program; EMPHASIS ON SUPPLY 2008, a new executive position with CHAIN MANAGEMENT responsibility for managing the t
and improving forecasting and the Group’s ability to adapt rapidly to As part of Outokumpu’s stra- Group Supply Chain was created changes in the business environment. tegic review and in pursuit of to develop efficiency and reliability the Group’s vision to be the in the operational supply chain and The scm function is also responsible for linking the Group Sales & Marketing undisputed number one in to ensure that end-user customers forecasting process with material flows, plant loading, inventory targeting stainless steel, a decision has are attracted and retained. The new and raw material planning to ensure that the Group’s objectives are met. The been made to focus on the supply chain function includes order Supply Chain is being transformed into a lean system that enables improved development of customer- and demand management, procure- flows, better delivery reliability, shorter lead times and lower inventories than oriented supply chain think- ment, production management, dis- in the past, resulting in a more agile system capable of matching customer ing and development of end- tribution management and support- needs. to-end management of the ing systems. During 2008, the scm team has focused on understanding the current state internal value chain. The This function has been focused on of the Group Supply Chain, performing a gap analysis to the ‘future state’ and background for this decision management of supply chain opera- determining the strategy to deliver the capability to meet the needs. In es- was detailed analysis and de- tions at Group level, procurement sence, Outokumpu is embarking upon a three-phases to improve the Group’s velopment of Outokumpu’s (including raw materials and gener- supply chain efficiency (i.e. delivery performance and inventory control) by sales and marketing strate- al procurement), and Outokumpu’s ‘stabilizing’ (cleaning the system), ‘decoupling’ (controlling the system), and gy. This has been developed Production Excellence program. The finally reducing lead times (improving the system). to focus the Group’s com- overall objective of supply chain op- mercial operations on growth erations is to deliver value for cus- PROCUREMENT in the end-user and projects tomers through quality products Launched in May 2008, the Procurement Excellence program (pex) targets customer base, with the ob- and on-time services while optimiz- the building of capabilities for continuous procurement improvement, and jective of creating increased ing the efficient flow of products reductions in Outokumpu’s total cost of procurement by eliminating losses stability in both sales and fi- through Group operations all the such as purchase-volume fragmentation, the lack of alternative sources, un- nancial performance. way from raw material receipt to tapped supplier know-how, non value-added activities, and losses generated customer deliveries. The aim of the by uncontrolled spending. 43 OUTOKUMPU ANNUAL REPORT 2008 SUPPLY CHAIN MANAGEMENT / BUSINESS OPERATIONS >>

The hunt for procurement losses i.e. opportunities for improvement, starts level contracts with suppliers. All of the existing category teams are global, with analyzing and categorizing the Group’s purchase spend and evaluating i.e. all of Outokumpu’s major plants are involved in the teams which focus the losses and levers in the main purchasing categories. The input to the next on supplies from global markets. phase is a list of the categories that have the highest potential for savings. The third phase of the pex program will launch more category teams and The key theme in the second phase of the program is introduction of cross- implement so-called procurement pillars. A pillar is a small, cross-functional functional and cross-business unit category teams, and in-depth analysis and team responsible for analyzing losses, providing problem-solving know-how, elimination of the procurement losses in the selected categories. managing improvement work and setting standards. Three different pillars These category teams follow a structured method for eliminating procure- will be implemented on Group-level. Later on, similar kind of pillars will be ment losses. They pool the Group’s purchasing volumes, search systematically implemented also regionally and locally. for new ideas, question the needs and utilize suppliers’ creative capacity from In 2009, the target is to launch the first Group-level pillar and 13 new the total-cost perspective. The Group level purchase agreements in a certain category teams. The five category teams that are currently active will also category are concrete results of the category teams’ work. finalize their activities. While most of the new category teams will be global, There are currently eleven different category teams, five of them active. Six some will concentrate only on regional supplier markets. Training is an im- teams have already successfully concluded their activities and signed Group- portant element in all steps of pex implementation. The target is to start a 44 >> BUSINESS OPERATIONS / SUPPLY CHAIN MANAGEMENT OUTOKUMPU ANNUAL REPORT 2008 Case NEW NUCLEAR REACTORS IN CHINA – A GOOD RESULT OF TEAMWORK

People from Outokumpu’s global Sales and Marketing: Timo Levoranta, Chang-Ching Sun works for Sales and Marketing in Asia Pacific. Chang-Ching Sun, Ola Svensson, Bela Leffler and Kenneth Ng.

International teamwork achieves good results – Outokumpu’s LDX 2101 also acts as a corrosion-resistant leak barrier, in the unlikely LDX 2101 to be used in new nuclear reactors in Sanmen, event that leaks should occur inside the modules. China. This project is good example of international teamwork at Outokumpu. Personnel from several countries participated. Operations Shandong Nuclear Power Equipment Manufacturing Company (SNPEMC) extended from the USA to China to Sweden, involving Group resources and engineering company Westinghouse will be using Outokumpu’s LDX on three continents and a number of local teams, each of which built on 2101 in new nuclear reactors being built in Sanmen, near Shanghai in and added to the efforts of the other teams. China. The AP1000 is a generation III+ nuclear reactor. It is the latest de- Teamwork like this is an important step towards Outokumpu’s goal of velopment by Westinghouse and represents a state-of-the-art Pressurized becoming the undisputed number one in stainless steel. Light Water Reactor. It is designed to provide an economic and efficient design that will operate at the highest standards of safety. To reduce construction risks the plant is built on a modular construc- tion design that ensures better quality and reduces construction costs. Some of the modules require stainless steel as cooling waters for the reactor might come into contact with them. Outokumpu’s LDX 2101 is used for the walls and floors of modules containing different types of equipment. Each module is built according to the same principle: inner walls of LDX 2101 and outer walls of painted carbon steel and the intermediate space filled with concrete. The steel walls serve as both outer reinforcement and radiation shields, and the 45 OUTOKUMPU ANNUAL REPORT 2008 SUPPLY CHAIN MANAGEMENT / BUSINESS OPERATIONS >>

Category Manager training program in 2009, and to train also the first pillar used is applied on improvement teams, in pillars and finally in whole plants team members. in the form of an audit scheme executed by management. Training is an inte- Implementation of a tool for reporting financial benefits achieved through gral component in all steps of implementation. pecat is the most demanding the pex program is under way and will be fully implemented during 2009. training, and it takes a year. Today Outokumpu has about 70 trained pecats Results achieved by the initial category projects have been promising and the and a further 50 in training. These pecats are Outokumpu’s internal resources Group’s pex program is delivering significant financial savings. making the program and the development of the use of the tools and tech- At Group level, the share of materials accounted for by recycled raw ma- niques sustainable. Implementation of the Production Excellence program is terials has grown compared with primary raw materials. Recycled raw ma- clearly delivering a new, sustainable, process-led way of working that is well terials represent nearly 60 of the value of nickel used in production. The understood and is becoming the Group’s preferred problem-solving tool. Production Excellence programs have yielded further improvement in the During the course of 2009 focus will continue to be on reducing losses, and use of recycled steel, and as this is the cheapest source of nickel, chrome and will additionally seek to use the ok>1 tools and techniques to support the molybdenum used in alloying stainless steel, the total cost of raw materials Supply Chain strategy roll out, the Procurement Excellence programs and per melt has declined significantly. All raw material procurement contracts safety development. are made at Group level, and the raw materials volume supplied to meltshops are agreed on a joint basis.

COMMON ERP SYSTEM TO SUPPORT PROCUREMENT AND INVENTORY PROCESSES Launched in April 2007, the objective of the oupex Program (Outokumpu Procurement Excellence Program) is to develop a common way of working in procurement. A common Outokumpu erp (Enterprise Resource Plan- ning) system will also be implemented to support the common processes. The target is to implement the first part of the program in 2009. Employing common processes and the erp system will allow coordination between pro- curement and inventory processes to be improved and provide better visibility of Group-level information.

PRODUCTION EXCELLENCE IS THE PREFERRED PROBLEM-SOLVING TOOL The purpose of the Production Excellence program (ok>1) is to reduce waste i.e. to identify and take advantage of improvement opportunities. The quest against losses, and the first phase of ok>1 implementation, begins with achieving an understanding of how these losses occur through detailed and systematic analyses of operations e.g. the following: quality, cost, volume, delivery, innovation, safety, motivation and environment. Input to the next phase is a plan of defining problems to be solved, and the aim of the phase is to train problem solving and to introduce improvement teams as a way of solving problems. Further in-depth analysis and the need for problem-solving know-how then triggers the third phase of implementation, in which the key theme is the introduction and building up of so-called pillars. There are currently ten different types of pillars, with specific types being deployed in similar ways in several of the Group’s plants, making communication between these pillars uncomplicated. Pillar leaders also make up a forum called the Master Pillar at Group level. Strict follow-up of how well ok>1 is being implemented and 46 >> BUSINESS OPERATIONS / RESEARCH AND DEVELOPMENT OUTOKUMPU ANNUAL REPORT 2008 Research and development

At Avesta, special grades including in many applications. Outokumpu of high-strength stainless steels have duplex, high-alloyed corrosion-resis- is today capable of producing and yielded very promising results. tant austenitic and heat-resistant al- selling also these grades. The most Outokumpu’s experts are actively loys are a key focus area. Much effort common product is the commodity engaged in many international asso- has been put into the development grade 201, the chemistry of which has ciations such as issf and EuroInox, as of duplex grades, which offer a good been modified by Outokumpu. The well as in eu cooperation projects. In combination of strength and corro- corrosion-resistant properties of this Finland, together with other steel com- sion resistance. The ideal application grade are almost equal to those of panies and universities, Outokumpu is for duplex grades is large heavy-wall standard austenitic 304 (Cr-Ni), and participating in the New Pro program, tanks, where weight savings of some it features higher strength. in which some of the sub-projects are 20 can be achieved. Demand for The traditional focus for applica- handling new products and applica- these grades has been strong in re- tion development has been on process tions for stainless steel. Outokumpu sponse to the high price of nickel. industries, where stainless steel plays is also actively involved in the prepa- Customers have also shown growing a dominant role in the manufacture ration of new research programs interest in ldx 2101®, Outokumpu’s of industrial equipment used in for fimecc (the Finnish Metal and own development of Lean Duplex, the Pulp and Paper, Oil and Gas, Engineering Competence Cluster). and license agreements to produce Desalination and Chemical segments. In 2008, Outokumpu’s researchers this grade have been made with Outokumpu’s r&d experts work in made several presentations at interna- some partners. New applications close cooperation with the commercial tional conferences on material prop- for ldx 2101® are continually being organization and provide advice for erties and the selection criteria for developed and related production both sales personnel and customers different applications. For example, technology has been improved. on product properties and material Outokumpu ‘s contribution to the 6th Non-nickel containing ferritic selection. The valuable direct feedback European Stainless Steel Conference grades provide the biggest opportunity received concerning customer needs in Helsinki in June was a significant to reduce the variation of the nickel serves as input for further product one: Outokumpu experts contributed price on raw material costs. r&d teams development activity. to some 20 papers. at Tornio Works have continued to The high strength and good form- The main subject of environmental work with and develop ferritic grades. ability of stainless steels has made it research in 2008 was slag utilization. Optimum process parameters and the subject of further study for use as Studies of the properties of different product properties for standard ferritic construction material in the Architech- slag products and the development of grades have been studied intensively tural, Building & Construction and applications continued. When treated OUTOKUMPU GROUP has re- at production scale, with the main Transport segments. Lower weight in an optimal manner, slag from steel search centers in Tornio and focus on surface quality, formability and low life-cycle costs of stainless meltshops is a suitable material for Avesta, and the main objec- and corrosion resistance. Four differ- steel make it an excellent substitute filling asphalt and concrete blocks and tives in R&D are process, ent grades have been launched com- for many other materials. The insap- can be a substitute for virgin material. products and application de- mercially and the volumes sold are trans project highlights potential Development of the Hydroflux process velopment. Some process increasing. These grades are mostly applications for high-strength stainless to utilize processed pickling sludge in and technology develop- used for indoor applications, kitchen steels in trains and buses. Activities steel meltshops also continued. ment work is also carried utensils, domestic appliances and in within the Automotive segment have In 2008, Outokumpu’s r&d costs out in production units, and the transportation segment. continued in the Next Generation totaled eur 20 million and the r&d there are links between the Manganese grades (200-series) Vehicle project, a co-operative proj- function employed almost 200 pro- Group’s R&D operations and containing chrome, manganese and ect between some European stainless fessionals. the Production Excellence nickel are the third opportunity to steel producers, car manufacturers and program. reduce the use of nickel and these also engineering companies. In crash tests, represent an interesting alternative components for passenger cars made 47 OUTOKUMPU ANNUAL REPORT 2008 ENERGY / BUSINESS OPERATIONS >> Energy

OUTOKUMPU’S ENERGY supplies services to be provided by Vattenfall, NORDIC DAILY SPOT PRICES are based on long-term supply agree- as well as on co-operation in using ments and investments in power-gen- energy more efficiently. €/MWH eration capacity. During 2008, the Fennovoima 80 The primary task of the Group’s nuclear power project proceeded as 70 Energy function is to procure electri- planned, with the main milestones cal energy for Outokumpu’s Nordic being the acquisition of land at three 60 sites at favorable and stable prices, optional site locations and comple- 50 and to hedge against future price tion of the Environmental Impact 40 changes. The Energy function also Assessment Report in October, as 30 supports Group companies in their well as submission of the applica- 20 energy-related activities. tion for the Decision-in-Principle in 10 During the first half of 2008, pric- January 2009. Co-owned by Finnish 0 es in the Nordic electricity market industrial and utilities groups (66) 1/08 2/08 3/08 4/08 5/08 6/08 7/08 8/08 9/08 10/08 11/08 12/08 continued to increase and featured and the German utility company high levels of volatility. Prices in e.on (34), Fennovoima plans to Source: Nord Pool long-term power contracts contin- license and build a state-of-the-art ued to rise as a result of actions to 1 500–2 500 mw nuclear power plant 03OUTOKUMPU’S PLANNED POWER PROCUREMENT MODEL (INDICATIVE) combat climate change, and of high in Finland by 2020. Outokumpu has

fuel prices. However, the global fi- a 9 stake in Fennovoima, with the MW 100 nancial crisis that started in the sec- aim of obtaining 150 mw of electric- 450 ond half of 2008 also affected the ity from the new plant at the cost of 400 Nordic power market. Power prices production, an amount representing 350 in future years fell significantly, more than half of Tornio Work’s cur- 300 mainly as a result of the reduction rent needs. 250 in fuel prices. Outokumpu’s policy Outokumpu’s long-term hy- 200 is to price hedge electrical power for dropower lease, which provides 150 at least the next 3–5 years so that a Outokumpu with some 100 mw minimum of 80 of anticipated con- of the Rana hydropower facility in 100 sumption is covered. The indicative Norway, performed normally during 50 0 diagram on this page illustrates the 2008. Deliveries under the 15-year 123456789101112131415 mix of energy sources used by the agreement began on January 1, 2006. Years Group over time. Rajakiiri Oy, a company in which Short to medium-term agreements Strategic long-term agreements In July 2008, Outokumpu signed Outokumpu has a minority stake, a deal with Swedish Vattenfall con- is planning to build a wind farm at Own power producting resources. cerning electricity deliveries totaling Cape Röyttä near Tornio. The first Including potential new projects. some 15 twh (terawatt hours) in Fin- investment decisions in connection land and Sweden over a ten-year pe- with this project are expected in the ment to take over Fortum’s heat business in Tornio will result in better op- riod. Unique in its scope, this deal is first quarter of 2009. timization of the chp plant, improvements in energy efficiency and reduced viewed as a powerful contribution to The Tornio chp (combined emissions in the Tornio region. Nordic co-operation. In addition to heat and power) plant, in which In 2008, Outokumpu’s consumption of electrical power totaled some the extensive deliveries of electricity Outokumpu also has a minor- 3.2 twh, of which the Group’s Nordic operations consumed some 2.8 twh. that will commence in 2010, Vatten- ity stake, delivers heat to the Tornio fall and Outokumpu have also agreed Works and has been fully operational on electricity portfolio management during 2008. Tornion Voima’s agree- 48 >> BUSINESS OPERATIONS / HUMAN RESOURCES OUTOKUMPU ANNUAL REPORT 2008 Human Resources

PERSONNEL BY COUNTRY KEY FIGURES AT YEAR-END

2008 2007 Sweden 38% Sales/person, € million 0.6 0.8 Finland 33% Incentives of total remuneration costs, % 4.9 5.6 The UK 8% Training costs of total remuneration costs,% 1.4 1.4 Training days/person 2.8 3.3 The United States 5% Days lost due to strikes 4 1 235 Personnel turnover, % 7. 0 6.1 Italy 4% The Netherlands 3% LISTENING TO PERSONNEL Seven new trainees started the pro- Germany 3% The O’People personnel survey gram in September 2008. During the was conducted for the fourth time two-year program, trainees are given Others 6% in 2008. The survey’s purpose is to the opportunity to work in different understand the needs and opinions Outokumpu business units. ing co-operation between personnel of Group personnel with the aim of Training costs in 2008 totaled and management. During 2008, the developing organization and person- 1.4 of total salaries (2007: 1.4). committee held seven meetings with nel as well as the workplace. The re- The Group provided 2.8 training days the Group’s senior management. sponse rate in 2008 was 75.5 (2007: per employee (2007: 3.3). 64). The O’People survey 2008 was THE NUMBER OF EMPLOYEES a follow up to the 2007 survey to as- PERFORMANCE AND DEVELOP- INCREASED sess if the actions taken in 2008 to MENT DIALOGUES FOR ALL In December 2008, the Group em- improve well-being had been suc- In 2008 almost all employees partici- ployed 8 471 people in some 30 coun- cessful. Scores in all main categories pated in performance and develop- tries (2007: 8 108). The average length improved. ment dialogues. During these discus- of service was 15 years. Personnel sions, the subordinate’s performance turnover in 2008 amounted to 7 TRAINING AND DEVELOPMENT during the past year is reviewed and the average age of the Group’s Continuous personnel training and and new targets are set for the year permanent employees was 43.3. development is one of the key pri- ahead. ority areas of Outokumpu’s human OUTOKUMPU’S aim to be- resources agenda. The Group offers CO-OPERATION BETWEEN MAN- come the undisputed number a number of development programs AGEMENT AND PERSONNEL one in stainless steel com- and opportunities which focus on The forum dedicated to co-operation prises the aim to be the most developing skills and competence. between personnel and management Outokumpu and our environment 2008 attractive employer in stain- To maintain its position as the cost is called Outokumpu Personnel less. Outokumpu’s aim is also leader in the stainless steel industry, Forum. It includes 21 personnel rep- TURNING to be an important and vis- ACTIONS Outokumpu has been running so- resentatives from around the world, INTO ible player in the local com- called Operational Excellence programs in addition to representatives from RESULTS munities where the Group is since 2005. These programs consist of Human Resources and senior man- located. The Human Resourc- theoretical training, real project work agement. The forum’s 17th annual es function continued its ef- and leadership training. meeting was held in Cremona, Italy, More information on social responsibility can forts to meet these objec- Stainless Pro, an international pro- in 2008. be found in Outokumpu and our environment 2008, the Group’s corporate responsibility tives in 2008. gram for graduates with a university A working committee appointed report (based on the Global Reporting Initiative level degree, was initiated in 2007. by the forum is responsible for ongo- guidelines G3). www. outokumpu.com 49 OUTOKUMPU ANNUAL REPORT 2008 HUMAN RESOURCES / BUSINESS OPERATIONS >>

Mari Tuomaala works at Tornio Works. 50 >> BUSINESS OPERATIONS / ENVIRONMENT OUTOKUMPU ANNUAL REPORT 2008 Environment

The greatest burdens placed on the based management systems; 22 of PARTICLE EMISSIONS TO AIR environment by stainless steel pro- the Group’s 26 sites have iso 14001 duction result from emissions of dust certification. These types of manage- Tons and particulates into the air, waste ment systems help avoid spills and 500 streams/landfilled wastes, high levels accidents that can be harmful to hu- of direct and indirect energy con- mans and/or the environment. 400 sumption which contribute to global Some spills and non-compliances 300 warming, intake of cooling water, were reported in 2008 at Tornio, and discharges from plants that may Sheffield and Richburg in the us. 200 cause water and soil contamination. Appropriate actions were taken fol- lowing all these incidents. In overall 100 MAXIMIZING VALUE WHILE terms, emissions and discharges at MINIMIZING ENVIRONMENTAL the Group’s sites during 2008 were 0 BURDEN at normal levels and complied with 04 05 06 07 08 Outokumpu’s vision is to become existing environmental permits.

the undisputed number one in stain- INJURIES less steel and this goal includes being EMISSIONS INTO THE AIR (EMPLOYEES AND CONTRACTORS) the industry leader in environmen- Although dust emissions have tra- Sick leave days Injuries STAINLESS STEEL is 100% tal issues. To ensure maximizing of ditionally been the most significant 400 25 recyclable, corrosion-resis- the economic value created with the class of emission from the steel indus- tant and hygienic. The envi- least resources possible, a project try, emissions of dust by Outokumpu 320 20 ronmental impact resulting called eno (Environmentally Num- have decreased in the past years de- from its use is minimal. The ber One) was initiated to develop an spite an increase in production levels. 240 15 production process, howev- internal environmental value chain. The majority of particulate emissions er, does have an impact on In this project, every value-creating by Outokumpu originate from the 160 10 the environment. Outokumpu phase is evaluated in terms of its steel mills in Tornio and Avesta and 80 5 makes every effort to mini- environmental consequences and the hot-rolling mill in New Castle in mize the impact of its opera- material requirements by grade and the us. 00 tions on the environment, as by process, allowing Outokumpu to In 2008, Outokumpu’s carbon diox- 04 05 06 07 08 much as economically and maximize the eco-efficiency of the ide emissions totaled 871 000 tons technically feasible. The year Group’s production. eno includes (2007: 932 000 tons). Injuries per million hours worked 2008 was declared Outokum- analyses and evaluations of specific pu’s Corporate Responsibili- WASTE Sick leave days due to injuries emissions, side-streams and the en- per million hours worked ty Theme Year, with concrete vironmental costs of different steel The major waste streams from Outo- and measurable environmen- grades and product phases. kumpu’s stainless steel operations are tal and social goals being set The first phase in the eno project slags, sludges, dusts and scales. Wher- for both plants and offices. was carried out at Tornio Works in ever practicable, wastes are collected byproduct utilization, investing Outokumpu’s environmen- 2007. During 2008–2009, the eno and recycled to recover valuable al- in new recycling technologies and tal goals target reductions in project second phase is carried out loying elements such as nickel, chro- solutions and cutting the amount of the Group’s energy consump- at Avesta Works in Sweden. mium and molybdenum. non-classified waste produced in the tion, cutting the amounts of As part of the Corporate Respon- Group’s offices by 5. This goal was waste sent to landfill, and SPILLS AND NON-COMPLIANCES sibility Theme Year, Outokumpu set not reached on Group level. contributing to reductions in All of Outokumpu’s larger produc- targets of reducing the amounts of

global CO2 emissions. tion sites have an environmental waste sent to landfill by 10. This management system (ems) or risk- target was reached, mainly due to 51 OUTOKUMPU ANNUAL REPORT 2008 HEALTH AND SAFETY / BUSINESS OPERATIONS >>

BY-PRODUCTS for an automatic steel slag analyzer in 5 million in an environmental target ation, with the final decision being The amount of waste generated by Tornio to help ensure that the new to be decided through a Group-wide announced by the end of April 2009. the steel industry can be reduced by steel slag products satisfy necessary competition to combat climate change. Direct environmental investments modifying the melting process so that environmental and technical require- Proposals were supposed to present in- in 2008 were eur 18 million includ- slag which would otherwise be sent to ments. These products are mainly used novative solutions for either lowering ing a carbon monoxide gasholder at landfill is turned into a by-product. as construction materials. Outokumpu’s carbon dioxide emis- Tornio, refractory and linings recy- Outokumpu has during 2003–2008 sions or reducing the amount of waste cling process at Tornio, Hydroflux invested several million euros in de- ENVIRONMENTAL INVESTMENTS generated. On December 8, it was an- campaign at Avesta, gas cleaning veloping slag-based products, for ex- At the beginning of 2008, Outokumpu nounced that seven proposals would scrubber at New Castle. ample a one million euro investment announced that it would invest eur be put forward for further consider- Health and Safety

SAFETY Measures to improve safety on the new Occupational Safety Committee 6.2). A total of 5 occupational dis- Outokumpu believes that each em- workplace include the Safety Log data comprising safety experts from dif- eases were diagnosed during the year ployee has the right to a safe work- management system introduced in ferent business units and members (2007: 4 cases diagnosed). ing environment. As well as being January 2008 at all of the Group’s of the corporate management was responsible for the safety of its own business units and service centers, as established and it held its first meeting employees, the Group is responsible well as the head office. Sales companies in September 2008. for the safety of subcontractors and joined the system at the beginning of suppliers when they are working at 2009. In addition to facilitating the HEALTH Outokumpu’s production plants monitoring of Outokumpu’s safety The occupational health services pro- and other facilities. The injury rate status in real time, the system allows vided by Outokumpu at its operat- in 2008 fell to 9 (2007: 11). One of different units in the Group to make ing locations comply with national the goals set by Outokumpu for the comparisons of reported data. Safety legislation and local needs. Focus is Corporate Responsibility Theme Log is based on international standards on improving working environment Outokumpu and our environment 2008 Year was to reduce the number of of the International Labor Organiza- and employees’ health is monitored injuries by one-third to 8 injuries tion (ilo) and the International Orga- by a variety of occupational health TURNING ACTIONS per million hours worked. There nization for Standardization (iso). checks and fitness tests. Industrial INTO was a clear improvement, however To further improve safety, a com- hygiene measurements are carried RESULTS this goal was not met. Injuries are prehensive safety management evalu- out at the Group’s production plants

reported in accordance with defi- ation was conducted consisting of an to monitor work-related exposures to More information on Outokumpu’s Environmental, Health and Safety per- nitions issued by the World Steel internal survey of safety perceptions issues such as noise and dust. formance can be found in Outokumpu Association (in previous reports and field assessments at 18 Group In 2008, an average of 5.6 of work- and our environment 2008, the Group’s corporate responsibility report (based on the they have been referred to as “ac- sites. The evaluation was conducted ing time of the Group’s employees was Global Reporting Initiative guidelines G3). cidents”). by DuPont Safety Resources. Also, a lost due to sickness or injuries (2007: www.outokumpu.com >> CORPORATE GOVERNANCE STATEMENT

54 Corporate governance 60 Board of Directors 62 Group Executive Committee 64 Risk management Our move DIVERSIFIED PRODUCT PORTFOLIO 54 >> CORPORATE GOVERNANCE STATEMENT / CORPORATE GOVERNANCE OUTOKUMPU ANNUAL REPORT 2008 Corporate governance

TASKS AND RESPONSIBILITIES early enough to allow the matter to of the Company no later than on OF GOVERNING BODIES be placed on the agenda included in October 31, 2008. The ultimate responsibility for the the notice announcing that a Gen- The representatives of the share- Group management and Group eral Meeting is being convened. Ac- holders in the committee were: The operations lies with the govern- cording to its Articles of Association, Finnish State, The Finnish Social ing bodies of the parent company Outokumpu has only a single class Insurance Institution, Ilmarinen Outokumpu Oyj: the General of shares. All shares therefore have Mutual Pension Insurance Com- Meeting of Shareholders, the Board equal voting power at General Meet- pany and OP-Delta Mutual Fund. of Directors and the President and ings of Shareholders. These shareholders chose the follow- REGULATORY FRAMEWORK Chief Executive Officer (ceo). The ing persons as their representatives The Group’s parent com- Group Executive Committee oper- SHAREHOLDERS’ NOMINATION on the Shareholders’ Nomination pany, Outokumpu Oyj, is a ates within the authorities of the ceo COMMITTEE Committee: Jarmo Väisänen, Senior public limited liability com- and has been formed for the efficient Outokumpu’s Annual General Financial Counsellor, Prime Min- pany incorporated and do- management of the Group. Meeting 2008 decided, based on a ister’s Office (The Finnish State); miciled in Finland. proposal by the Company’s largest Jorma Huuhtanen, Director Gen- In its corporate gover- GENERAL MEETING OF shareholder, the Finnish State, to eral (The Finnish Social Insurance nance and management, Out- SHAREHOLDERS establish a Shareholders’ Nomina- Institution); Harri Sailas, Chief Ex- okumpu Oyj complies with The General Meeting of Sharehold- tion Committee to prepare propos- ecutive Officer (Ilmarinen Mutual Finnish legislation, the Com- ers normally convenes once a year. als for the following General Meet- Pension Insurance Company) and pany’s Articles of Associa- Under the Finnish Companies Act, ing of Shareholders on the composi- Reijo Karhinen, Executive Chair- tion and the Corporate Gov- certain important decisions fall tion of the Board of Directors and man, OP-Pohjola Group (OP-Delta ernance Policy resolved and within the exclusive domain of the director remuneration. The Annual Mutual Fund). approved by the Board of Di- General Meeting of Shareholders. General Meeting 2008 also decided The Chairman of Outokumpu’s rectors. Outokumpu follows These decisions include the approval that the Shareholders’ Nomination Board Ole Johansson served as an the Finnish Corporate Gover- of financial statements, decisions on Committee should consist of the expert member and Jarmo Väisänen nance Code, which was pub- dividends and increasing or decreas- representatives of Outokumpu’s as the Chairman of the Committee. lished on October 20, 2008 ing of share capital, amendments to four largest registered shareholders The Committee submitted its pro- by the Securities Market As- the Articles of Association and elec- in the Finnish book-entry securities posals on Board composition and di- sociation and approved by tion of the Board of Directors and system on November 3, 2008, who rector remuneration to the Board of the NASDAQ OMX Helsinki auditors. accept the assignment. The Chair- Directors. The Outokumpu Board to be a part of their regula- The Board of Directors convenes man of Outokumpu’s Board of Di- has incorporated these propos- tions. As one exception to a General Meeting of Shareholders. rectors acts as an expert member of als into the notice announcing the this code, Outokumpu has The Board can decide to convene the Committee. Annual General Meeting of Share- both a Board Nomination and a General Meeting on its own ini- The largest shareholders are de- holders 2009. Compensation Committee tiative, but is obliged to convene a termined based on their registered and a Shareholders’ Nomi- General Meeting if the auditor or shareholdings in the Finnish book- BOARD OF DIRECTORS nation Committee appointed shareholders holding at least 10 entry system. However, holdings by The general objective of the Board of by the Annual General Meet- of the Company’s shares so request. a shareholder, who under the Finn- Directors is to direct the Company’s ing of Shareholders. Further- Furthermore, each shareholder has ish Securities Markets Act has the business in a manner that secures a more, Outokumpu complies the right to bring a matter that falls obligation to disclose changes in significant and sustained increase with the other regulations within the domain of the General shareholdings (flagging obligation), in the value of the Company for its and recommendations is- Meeting before a General Meeting e.g. divided into a number of funds, shareholders. To this end the mem- sued by the NASDAQ OMX of Shareholders, provided that a may be combined provided that the bers of the Board offer their expert- Helsinki. written request to do this has been owner presents a written request to ize and experience for the benefit of received by the Board of Directors that effect to the Board of Directors the Company. The tasks and respon- 55 OUTOKUMPU ANNUAL REPORT 2008 CORPORATE GOVERNANCE / CORPORATE GOVERNANCE STATEMENT >>

ORGANIZATION

CORPORATE MANAGEMENT

GENERAL STAINLESS SPECIALTY STAINLESS

GROUP SALES & MARKETING

SUPPLY CHAIN MANAGEMENT

OTHER GROUP FUNCTIONS

sibilities of the Company’s Board of of Directors are as follows: ital expenditure frames and have a t
To decide on any other commit- Directors are determined on the ba- value exceeding eur 20 million, as ments by any of the Group com- sis of the Finnish Companies Act as With respect to directing the Com- well as on other major and strate- panies that are out of the ordinary well as other applicable legislation. pany’s business and strategies: gically important investments; either in terms of value or nature, The Board has general authority to taking into account the size, struc- decide and act in all matters not re- t
To decide on the Group’s basic t
To decide on any individual busi- ture and field of operation of the served for other corporate governing strategies and monitor their im- ness acquisitions and divestments Group. bodies by law or under the provisions plementation; within the current scope of busi- of the Company’s Articles of Associa- ness, having a value exceeding eur With respect to organizing the Com- tion. The Board’s general task is to t
To decide on annual author- 10 million; pany’s management and operations: organize the Company’s management ity frames for the Group’s capital and operations. In all situations, the expenditure, monitor their im- t
To decide on any financing ar- t
To nominate and dismiss the ceo Board must act in accordance with plementation, review such plans rangements by any Group com- and his deputy, and to decide on the Company’s best interests. quarterly and decide on changes; pany which either exceed eur 150 their terms of service, including The Board of Directors has es- million, are organized by way of incentive schemes, on the basis tablished rules of procedure, which t
To decide on individual invest- public offerings, or which are oth- of a proposal made by the Board define its tasks and operating prin- ments or items of expenditure that erwise out of the Group’s normal Nomination and Compensation ciples. The main duties of the Board are included in the authorized cap- course of business; and Committee; 56 >> CORPORATE GOVERNANCE STATEMENT / CORPORATE GOVERNANCE OUTOKUMPU ANNUAL REPORT 2008

t
To nominate and dismiss members With respect to financial control and Under the Articles of Association, the Group’s risks. In addition, the of the Group Executive Committee, risk management: the Board shall have a minimum of Committee prepares a recommenda- to define their areas of responsibil- five and a maximum of twelve mem- tion to the Company’s largest share- ity, and to decide on terms of serv- t
To discuss and approve interim re- bers. The Company’s largest share- holders concerning the election of an ice, including incentive schemes, on ports and annual accounts; holders have confirmed that they are external auditor and auditing fees. The the basis of a proposal by the Board in favor of a principle according to Audit Committee met two times dur- Nomination and Compensation t
To monitor significant risks relat- which members of the Company’s ing 2008 and the average attendance Committee; ed to the Group’s operations and Board of Directors should, as a rule, rate of the members was 100. management of such risks; and be qualified experts from outside the The Nomination and Compen- t
To monitor the adequacy and allo- Company. According to the Articles of sation Committee comprises the cation of the Group’s top manage- t
To ensure that adequate procedures Association, a person who has reached Chairman of the Board and two ment resources; concerning risk management are in the age of 68 years cannot be elected as other Board members, who are all place. a member to the Board of Directors. independent of the Company and t
To decide on any significant chang- In the Annual General Meeting 2008 the main shareholders. See Board of es to the Group’s business organi- The Board of Directors also assesses a board consisting of eight members Directors on page 60–61. The tasks of zation; its own activities on a regular basis. was elected. Seven of the members are the Committee do not comply in all The Board of Directors is quorate independent of the Company and six respects with the Finnish Corporate t
To define the Group’s ethical values when more than half of its members are independent of both the Company Governance Code published by the and methods of working; are present. A decision by the Board and its main shareholders. Securities Market Association in co- of Directors shall be the opinion sup- The Board of Directors shall meet operation with the Confederation of t
To ensure that policies outlining ported by more than half the mem- at least five times a year. In 2008, the Finnish Industries (ek), nasdaq omx the principles of corporate govern- bers present at a meeting. In the event Board met ten times. The average at- Helsinki and the Central Chamber ance are in place; of a tie, the Chairman shall have the tendance rate of members at board of Commerce of Finland. The task of casting vote. meetings was 96. the Nomination and Compensation t
To ensure that policies outlining the The Annual General Meeting elects See Board of Directors on page 60–61. Committee is to prepare proposals principles of managing the Compa- the chairman, the vice chairman and for the Board of Directors concerning ny’s insider issues are in use; and the other members of the Board of BOARD COMMITTEES appointment of the company’s top Directors for a term expiring at the The Board of Directors has set up two management – excluding the Board t
To ensure that the Company has close of the following Annual General permanent committees from among of Directors – and the principles of other guidelines concerning mat- Meeting. The entire Board is there- its members and confirmed rules of their compensation. The Committee ters which the Board deems neces- fore elected at each Annual General procedure for these committees. The is authorized to determine the terms sary and fall within the scope of the Meeting. A Board member may be committees report on their work to of service and benefits of the Group Board’s duties and authority. removed from office at any time by a the Board of Directors. Executive Committee members other resolution passed by a General Meet- The Audit Committee comprises than the ceo and the Deputy ceo. With respect to the preparation of ing of Shareholders. Proposals to the four Board members, who are all in- The Nomination and Compensation matters to be resolved by General Annual General Meeting concerning dependent of the Company and three Committee met four times during Meetings of Shareholders: the election of Board members which members are independent of the main 2008 and the average attendance rate have been made known to the Board shareholders. See Board of Directors of the members was 100. t
To establish a dividend policy and prior to the Annual General Meeting on page 60–61. The task of the Audit For attending to specific tasks, issue a proposal on dividend distri- will be made public if a given proposal Committee is to deal with matters re- the Board of Directors can also set bution; and is supported by shareholders holding lating to financial statements, auditing up temporary working groups from a minimum of 10 of all the Com- work, internal controls, the scope of among its members. These working t
To make other proposals to Gen- pany’s shares and voting rights and if internal and external audits, billing by groups report to the Board. During eral Meetings of Shareholders. the person proposed has consented to auditors, the Group’s financial policies 2008 no such working groups were such nomination. and other procedures for managing set up. 57 OUTOKUMPU ANNUAL REPORT 2008 CORPORATE GOVERNANCE / CORPORATE GOVERNANCE STATEMENT >>

FEES, SALARIES AND EMPLOYEE BENEFITS PAID

2008 € Salaries and fees with employee benefits Performance/project-related bonuses Options Total Board of Directors Chairman of the Board, Johansson 67 800 - - 67 800 Vice Chairman of the Board, Soila 37 050 - - 37 050 Board member, Henkes 45 500 - - 45 500 Board member, Härmälä 15 000 - - 15 000 Board member, Kilpelä 29 700 - - 29 700 Board member, de Margerie 44 300 - - 44 300 Board member, Nilsson-Ehle 47 700 - - 47 700 Board member, Oksanen 37 900 - - 37 900 Board member, Saarinen 37 800 - - 37 800 Board member, Turunen 8 200 - - 8 200

CEO 758 573 402 052 930 512 2 091 137 Deputy CEO 390 774 162 512 - 553 286 Other Group Executive Committee members 1 516 205 585 052 394 428 2 495 685

2007 € Salaries and fees with employee benefits Performance/project-related bonuses Options Total Board of Directors Chairman of the Board, Härmälä 61 000 - - 61 000 Vice Chairman of the Board, Johansson 42 000 - - 42 000 Board member, Henkes 40 300 - - 40 300 Board member, Lohiniva 8 200 - - 8 200 Board member, de Margerie 29 600 - - 29 600 Board member, Nilsson-Ehle 41 300 - - 41 300 Board member, Oksanen 25 600 - - 25 600 Board member, Saarinen 35 300 - - 35 300 Board member, Suonoja 8 200 - - 8 200 Board member, Turunen 34 800 - - 34 800

CEO 683 039 354 517 140 876 1 178 432 Deputy CEO 347 503 186 025 - 533 528 Other Group Executive Committee members 1 302 743 543 781 621 645 2 468 169

Shares and options received through share-related schemes are also included in the tables regarding shareholdings and options. 58 >> CORPORATE GOVERNANCE STATEMENT / CORPORATE GOVERNANCE OUTOKUMPU ANNUAL REPORT 2008

CEO AND DEPUTY CEO SHARES AND OPTIONS OF THE MEMBERS OF The ceo is responsible for the Company’s day-to-day operations with the objec- THE BOARD OF DIRECTORS tive of securing significant and sustainable growth in the value of the Company to its shareholders. The ceo prepares the matters for the Board of Directors’ February 3, 2009 decision-making, develops the Group in line with the targets agreed with the Member Shares Board and ensures proper implementation of the Board’s decisions. It is further Ole Johansson 1 789 the ceo’s responsibility to make sure that existing laws and regulations are ob- Anssi Soila 5 500 served throughout the Group. The ceo chairs meetings of the Group Executive Victoire de Margerie 500 Committee. The Deputy ceo is responsible for attending to the ceo’s duties in Evert Henkes 0 the event that the ceo is prevented from attending to them. Jarmo Kilpelä 300 Anna Nilsson-Ehle 800 GROUP EXECUTIVE COMMITTEE Leo Oksanen 2 387 The role of the Group Executive Committee is to manage Outokumpu’s main Leena Saarinen 1 495 business, stainless steel, as a whole. The committee members have extensive Tot al 12 771 authorities in their individual areas of responsibilities and have the duty to develop the Group’s operations in line with the targets set by the Board of Directors and the ceo. The Group Executive Committee consists of eight ness units are consolidated into two divisions according to the types of product members appointed by the Board of Directors. The members of the com- produced; General Stainless (Tornio Works and Long Products) and Specialty mittee are the ceo and his Deputy, Executive Vice President – General Stain- Stainless (Special Coil and Plate, Thin Strip and ostp). less, Executive Vice President – Specialty Stainless, Executive Vice President As a discontinued operation, Outokumpu Brass is managed separately from – Supply Chain Management, Executive Vice President – Group Sales & the Group through the Outokumpu Brass’s Board of Directors. Marketing, Executive Vice President – Chief Financial Officer, and Executive Vice President – Human Resources. The Group Executive Committee meets REMUNERATION 1–2 times a month. See Executive Committee on pages 62–63. Annual fees for members of the Board of Directors as confirmed by the Annual General Meeting 2008 are the following: Chairman eur 70 000, Vice Chair- GROUP MANAGEMENT man eur 43 000, other members eur 34 000. All members of the Board of Outokumpu’s Corporate Management consists of the Chief Executive Officer, Directors are to be paid a meeting fee of eur 600 (eur 1 200 for non-Finnish members of the Group Executive Committee, and managers and experts members). The meeting fee is also paid for meetings of Board committees. who assist the ceo and the Group Executive Committee members. The task The period of notice for the ceo is six months on both sides. If the Com- of Corporate Management is to manage the Group as a whole, and its du- pany terminates the ceo’s employment for a reason or reasons unconnected ties include coordination and execution work in the areas of strategy and with his performance or events interpreted as him having failed in his du- planning, business development, financial control, internal audit, human ties, the Company will make a compensation payment. The amount of this resources, environment, health and safety, communications and investor re- payment will total the ceo’s basic salary in the preceding 24 months plus lations, legal affairs as well as treasury and risk management. In addition to the monetary value of his employee benefits at the moment of termination. the Corporate Management tasks, Outokumpu’s functional steering across The performance-related bonus paid to the ceo and members of the Group the businesses has been organized into Sales and Marketing functions and Executive Committee in addition to their salary and employee benefits for Supply Chain Management. Certain support functions have been centralized the year 2009 is determined on the basis of achieving Group’s roce (Return at Group level. The Outokumpu Group is managed in accordance with its on capital employed) target, operating profit margin compared with a peer business organization, in which the legal company structure of the Group group, operational (safety and delivery reliability and increase of deliveries provides the legal framework for operations. Clear financial and operational to projects and end-users customers) targets and separately set individual targets have been defined for all the Group’s operational businesses. targets. The maximum amount of this bonus is for the ceo 75 and for the Outokumpu’s businesses are organized into five business units: Tornio other members of the Group Executive Committee 60 of the annual base Works, Special Coil and Plate, ThinStrip, ostp (Outokumpu Stainless salary. Tubular Products) and Long Products. The business units report directly to No separate remuneration is paid to the ceo or members of the Group individual Group Executive Committee members. In the reporting, the busi- Executive Committee for membership of the Committee or the other internal 59 OUTOKUMPU ANNUAL REPORT 2008 CORPORATE GOVERNANCE / CORPORATE GOVERNANCE STATEMENT >>

SHARES AND OPTIONS OF THE GROUP EXECUTIVE COMMITTEE MEMBERS

February 3, 2009 Shares-base Shares-base Shares-base Options Options Options incentive program incentive program incentive program Member Shares 2003A 2003B 2003C 2006–2008 2007–2009 2008–2010 Juha Rantanen 20 000 - - 17 500 30 000 15 500 16 500 Karri Kaitue 4 880 - 19 320 15 000 15 000 7 500 8 000 Jamie Allan ----4 0002 1005 500 Bo Annvik - - - 10 000 - 5 300 5 500 Pekka Erkkilä 9 000 - - 15 000 10 000 5 300 5 500 Andrea Gatti 10 263 - - 10 000 10 000 5 300 5 500 Esa Lager 13 000 - - 10 000 10 000 5 300 5 500 Timo Vuorio 3 500 - - 10 000 10 000 5 300 5 500 Total 60 643 - 19 320 87 500 89 000 51 600 57 500 governing bodies of the Group. Members of the Group Executive Committee AUDITORS are entitled to retire at the age of 60. Pension benefits of Finnish members of Under the Articles of Association, the Company shall have a minimum of one the Group Executive Committee amount to 60 of the total average annual and a maximum of two auditors who are auditors or firms of independent pub- salary in the last five full years of service. The Company has not given any guar- lic accountants authorized by the Central Chamber of Commerce of Finland. antees or other similar commitments on behalf of the members of the Board of The Annual General Meeting elects the auditors to a term of office ending at Directors or the Group Executive Committee. Neither members of the Board the close of the next Annual General Meeting. Proposals to the Annual General of Directors or the Group Executive Committee, or closely related persons or Meeting concerning the election of auditors which have been made known institutions, have any significant business relationships with the Company. to the Board prior to the Annual General Meeting will be made public if the proposal is supported by shareholders holding a minimum of 10 of all the MANAGING OF INSIDER ISSUES Company’s shares and voting rights and if the person or company proposed Outokumpu’s Insider Rules are based on and comply with the Guidelines for has consented to such nomination. The Company’s auditors submit the statu- Insiders by nasdaq omx Helsinki. The Company’s permanent insiders with a tory auditor’s report to the Company’s shareholders in connection with the duty to declare consist of the members of the Board of Directors, the Auditor in Company’s financial statements. The auditors also report their findings to the Charge, the ceo and his deputy, as well as the other members of the Group Ex- Board of Directors on a regular basis. The parent company, Outokumpu Oyj, ecutive Committee. Outokumpu maintains a public register on the permanent is audited by kpmg Oy Ab, and the Auditor in charge is Mauri Palvi, Autho- insiders with the duty to declare. Employees of the Group who receive inside rized Public Accountant. kpmg Oy Ab is also responsible for overseeing and information on a regular basis due to their positions or tasks are registered in a coordinating the auditing of all Group companies. non-public register of permanent company specific insiders. Permanent insiders Both Outokumpu and kpmg Oy Ab highlight the requirement for an must not purchase or sell securities issued by the Company in the 14 days prior to auditor to be independent of the company being audited. In its global in- publication of interim reports or annual accounts (the so called closed window). dependence policy, kpmg Oy Ab has stated its commitment to applying the Separate non-public project-specific insider registers are maintained for Code of Ethics of the International Federation of Accountants (ifac). insider projects. Persons defined as project-specific insiders are those who in Outokumpu’s Board Audit Committee continuously monitors the global the course of their duties in connection with a project receive information level of non-audit services purchased by the Group from kpmg Oy Ab. In concerning the Group which, when realized, is likely to have a significant 2008, auditors were paid fees totaling eur 3 million, of which non-auditing effect on the value of the company’s publicly traded securities. services accounted for eur 1 million. Outokumpu’s General Counsel is responsible for coordinating and super- vising insider issues. Up-to-date information on holdings by Outokumpu’s permanent insiders with a duty to declare can be found on the Outokumpu website, www.outokumpu.com. 60 >> CORPORATE GOVERNANCE STATEMENT / BOARD OF DIRECTORS OUTOKUMPU ANNUAL REPORT 2008 Board of Directors

Chairman Vice Chairman OLE JOHANSSON ANSSI SOILA EVERT HENKES JARMO KILPELÄ b. 1951, Finnish citizen b. 1949, Finnish citizen b. 1943, Dutch citizen b. 1957, Finnish citizen B.Sc. (Econ.) M.Sc. (Eng.), B.Sc. (Econ.) B.Sc. (Ag. Econ.) M.Sc. (Econ.)

Outokumpu Board member 2002– Outokumpu Board member 2008– Outokumpu Board member 2003– Outokumpu Board member 2008– Chairman of the Board 2008– Vice Chairman of the Board 2008– Member of the Nomination and Member of the Audit Committee Vice Chairman of the Board Member of the Audit Committee Compensation Committee Independent of the company. 2004–2008 Independent of the company and Independent of the company and Chairman of the Nomination and its significant shareholders. its significant shareholders. Senior Financial Counsellor, Prime Compensation Committee Minister’s Office, Ownership Independent of the company and ceo: Kone Corporation 1994–1999 ceo: Shell Chemicals Ltd. Steering Department 2007– its significant shareholders. Vice Chairman of the Board: 1998–2003 Chairman of the Board: Hansel Ltd Normet Group Oy Board member: Tate & Lyle Plc, Vice Chairman of the Board: President and ceo: Wärtsilä Board member: Outotec Oyj, SembCorp Industries Ltd, haus Finnish Institute of Public Corporation 2000– Aspocomp Oyj, Lindström Oy, dna Air Products and Chemicals Inc. Management Ltd Chairman of the Board: Oy, Attendo ab, å & r Carton ab Member of International Advisory Technology Industries of Finland Board: cnooc Ltd Vice Chairman of the Board: Confederation of Finnish Industries, Varma Mutual Pension Insurance Company 61 OUTOKUMPU ANNUAL REPORT 2008 BOARD OF DIRECTORS / CORPORATE GOVERNANCE STATEMENT >>

VICTOIRE DE MARGERIE ANNA NILSSON-EHLE LEO OKSANEN LEENA SAARINEN b. 1963, French citizen b. 1951, Swedish citizen b. 1945, Finnish citizen b. 1960, Finnish citizen Ph.D. (Management), ll.m., Ph.D., M.Sc. (Eng.) M.Sc. (Chem.) M.Sc. (Food technology) M.Pol.Sc.

Outokumpu Board member 2007– Outokumpu Board member 2005– Outokumpu Board member 2007– Outokumpu Board member 2003– Member of the Audit Committee Member of the Nomination and Independent of the company’s Chairman of the Audit Committee Independent of the company and Compensation Committee significant shareholders. Independent of the company and its significant shareholders. Independent of the company and its significant shareholders. its significant shareholders. Senior Advisor – Chemical Safety Chairman of the Board: Rondol and Occupational Hygiene President and ceo: Suomen Technology Ltd. (uk) 2008– Director: safer-National vehicle Employed by Outokumpu 1974– Lähikauppa Oy (formerly: Tradeka Board director and member of and traffic safety research center Board member: Outokumpu Oy) 2007– the Audit Committee: Ciments 2006– Stainless Oy 2004–2005, Avesta- President and ceo: Altia Francais (France) 2006– Consultant: Ohde & Co Polarit Stainless Oy 2001 and 2003, Corporation 2005–2007 Professor of Strategic Management: 2005–2006 Outokumpu Polarit Oy 1999–2001 Managing Director: Unilever Grenoble Graduate School of Managing Director: Universeum ab Bestfoods Nordic Foodsolution Business 2003– 1999–2004 2003–2005 General Manager Péchiney Plastic Board member: Svensk Bilprovning National Manager 2002–2005; Bottles 2000–2002 ab, Swedish National Space Board Suomen Unilever Oy and board Vice President Sales & Marketing member 1999 and 2001–2005 Péchiney Aluminum Canstock 1998–2000

Outokumpu shareholding of the members of the Board of Directors is presented on page 58. 62 >> CORPORATE GOVERNANCE STATEMENT / GROUP EXECUTIVE COMMITTEE OUTOKUMPU ANNUAL REPORT 2008 Group Executive Committee

JUHA RANTANEN (1) BO ANNVIK (4) b. 1952, Finnish citizen, b. 1965, Swedish citizen, M.Sc. (Econ.), mba M. Sc. (Econ.) ceo 2005– Executive Vice President – Specialty Stainless Chairman of the Group Executive Committee 2005– Member of the Group Executive Committee 2007– Outokumpu Board member and Vice Chairman 2003–2004 Responsibility: Special Coil and Plate, Thin Strip, ostp Responsibility: Group management, Communications and ir and investment projects and corporate social responsibility Employed by the Outokumpu Group since 2007 Employed by the Outokumpu Group since 2004 Board member: Scandinavian Automotive Suppliers, Jernkontoret – Chairman of the Board of Directors: Fennovoima Oy, Finpro Association, the Swedish Steel Producers’ Association, Employers’ Association of Association of Finnish Steel and Metal Producers the Swedish Steel and Metal Industry Vice Chairman of the Board: Moventas Oy Temporary responsibility for Group Sales and Marketing from Board member: Technology Industries of Finland, Stora Enso Oyj February 24, 2009 Vice President: European Confederation of Iron and Steel Industries Eurofer PEKKA ERKKILÄ (5) Supervisory Board member: Varma Mutual Pension Insurance Company b. 1958, Finnish citizen, M.Sc. (Eng.) KARRI KAITUE (2) Executive Vice President – General Stainless b. 1964, Finnish citizen, Member of the Group Executive Committee 2003– ll.Lic. Responsibility: Tornio Works, Long Products, r&d, energy, and safety, Deputy ceo 2005– environment and quality Vice Chairman of the Group Executive Committee 2005– Employed by the Outokumpu Group since 1983 Member of the Group Executive Committee 2002–, Board member: Jernkontoret – the Swedish Steel Producers’ Association Responsibility: Group strategy, business development and m&a, new ventures, legal affairs & ipr and portfolio businesses ANDREA GATTI (6) Employed by the Outokumpu Group since 1990 b. 1962, Italian citizen, Vice Chairman of the Board: Okmetic Oyj, Outotec Oyj M.Sc. (Econ.) Board member: Cargotec Oyj Executive Vice President – Group Sales and Marketing Member of the Group Executive Committee 2005– JAMIE ALLAN (3) Responsibility: End-user and project sales, distributors and processors sales, b. 1956, British citizen group marketing, European stock and processing development, Executive Vice President – Supply Chain Management pricing office and sales company controlling Member of the Group Executive Committee 2008– Employed by the Outokumpu Group since 2002 Responsibility: Production Excellence, Supply Chain Management Member of the Group Executive Committee until February 23, 2009 operations, procurement Employed by the Outokumpu Group since 1978 ESA LAGER (7) Member of the British Stainless Steel Association b. 1959, Finnish citizen, M.Sc. (Econ.), ll.m. Chief Financial Officer (cfo) Member of the Group Executive Committee 2001– Responsibility: Financial and business control, treasury and risk management, it, change management and projects and real estate Outokumpu shareholding and options of the members of the Employed by the Outokumpu Group since 1990 Group Executive Committee are presented on page 59. Vice Chairman of the Board: Olvi Oyj 63 OUTOKUMPU ANNUAL REPORT 2008 GROUP EXECUTIVE COMMITTEE / CORPORATE GOVERNANCE STATEMENT >>

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TIMO VUORIO (8) PII KOTILAINEN (9) b. 1949, Finnish citizen, b. 1960, Finnish citizen, M.Sc. (Econ.) M.Sc. (Econ.) Executive Vice President – Human Resources Executive Vice President – Human Resources Member of the Group Executive Committee 2005– Member of the Group Executive Committee 2009– Responsibility: hr strategy and policy, and key hr processes: Responsibility: hr strategy and policy, and key hr processes: performance management (incl. compensation), resource management performance management (incl. compensation), resource management and hr Development and leadership, and head office administration and hr Development and leadership, and head office administration Employed by the Outokumpu Group since 2005 Employed by the Outokumpu Group since 2009 Member of the Group Executive Committee until February 28, 2009 Member of the Group Executive Committee from March 1, 2009 64 >> CORPORATE GOVERNANCE STATEMENT / RISK MANAGEMENT OUTOKUMPU ANNUAL REPORT 2008 Risk management

Outokumpu’s appetite for risk and FOCUS AREAS IN RISK the Group’s ability to implement its tolerance to it are defined in relation MANAGEMENT DURING 2008 planned investment projects. to Group’s earnings, cash flows and In 2008 nickel risk management was capital structure. The risk manage- reviewed and revised. Accordingly STRATEGIC AND BUSINESS ment process is part of the Group’s financial risk policy was updated to RISKS management system, and in practi- reflect changes in metal risk man- Strategic risks relate to Outokumpu’s cal terms is divided into four stages: agement. New hedging principles business portfolio, the market situa- the identification of risks; risk evalu- for nickel price risk were gradu- tion and major investments. Business ation; control and mitigation; and ally implemented mainly during the risks are related to the operational reporting. last two quarters and consequently environment, customer behavior The Board of Directors is ultimately hedging gains helped to offset part and the economic outlook. In addi- responsible for the Group’s risk man- of inventory related losses. tion, the volatility in demand tends agement. The ceo and the Group The Group Executive Commit- to be a factor, which impacts all or Executive Committee are respon- tee updated key risks in a workshop most of the strategic and business sible for defining and implementing during the second half of 2008. The risks simultaneously. Outokumpu’s risk management procedures, and results from the workshop were pre- key strategic and business risks are for ensuring that risks are properly sented to the Audit Committee and presented separately below. addressed and taken into account in the Board of Directors in the fourth strategic and business planning. Busi- quarter. Structural overcapacity in stainless OUTOKUMPU operates in ac- ness units are responsible for manag- Security and fire safety were fur- markets cordance with the risk man- ing the risks involved in their own ther improved at several sites during Stainless market demand growth agement policy approved operations. the reporting year. Development and seems to have slowed down in the by the Board of Directors. External auditors and Internal change initiatives have been based on Outokumpu’s main served markets. The risk management pol- Audit monitor the risk manage- local self assessments at sites as well as Increased stainless production capacity, icy defines the objectives, ment process and Group Executive systematic audits and specific Group- especially in China, has created a situ- approaches and areas of re- Committee, Audit Committee and wide instructions. During 2008, there ation of gradually developing global sponsibility of risk manage- the Board of Directors review key was also much co-operation between overcapacity. There is a clear risk that ment. Risk management sup- risks and risk management actions Internal Audit and Corporate Secu- this development results in increas- ports the Group’s strategy on a regular basis. Treasury and Risk rity, in order to implement actions to ing stainless production overcapacity and also helps to define a Management (trm) function supports improve risk management and security globally and leads to lower prices and balanced risk profile from the the implementation of risk manage- at the sites. consequently, limits also Outokumpu’s perspective of shareholders ment policy and prepares quarterly Support for the monitoring of growth and success. Outokumpu has as well as other stakehold- risk report to the management and investment projects and project risk taken actions to address the overcapac- ers such as customers, sup- auditors of the company. The func- management were key focus areas in ity in production by developing dis- pliers, personnel and lenders. tion is also responsible for facilitat- 2008. Foreseeable risks were identi- tribution channels, aiming to increase Outokumpu has defined risk ing and coordinating security and fied, for example, by involving project sales to end-users and widening prod- to be anything that might risk management within the Group. management, insurance and security uct offering. This strategy is supported have an adverse impact on Among other things the role of trm specialists already during the planning by the new organization, which aims activities that the company includes insurance management, and design phases of projects. to ensure that customers are served in has undertaken to achieve corporate security, fire and secu- In 2008, the realized, most signifi- an optimal way, with an optimal prod- its objectives. Risks can thus rity auditing and ownership of the cant risks were related to structural uct offering. be threats, uncertainties or Enterprise Risk Management process. issues in stainless steel markets and lost opportunities relating to to the global financial turmoil, which Eurocentricity in operations present or future operations. had an impact on steel markets, the Outokumpu’s key production facili- availability of finance and also on ties are located in Europe, although 65 OUTOKUMPU ANNUAL REPORT 2008 RISK MANAGEMENT / CORPORATE GOVERNANCE STATEMENT >>

it has a global sales and distribution Competition in stainless steel making preparations for tightening ture throughout its organization. network. Outokumpu’s main mar- focused on the Asian market competition in the stainless market The approach for all personnel is ket area is Europe. The changes that Because of better demand prospects and also for a possible continuation the creation of “One Outokumpu”, occur in different market areas and for stainless steel in Asia than in of this overcapacity situation. but this kind of a significant culture regional differences – such as the pre- Europe, a lot of new production ca- change can take time. This change vailing levels of supply and demand, pacity is being built there. However, OPERATIONAL RISKS can be seen as a great opportunity price levels, demand growth or cur- due to significant investment in the Operational risks arise as a conse- to increase operational effectiveness rency rates – can have an impact on region the capacity to produce cold quence of inadequate or failed inter- in operations by cross-cultural co- Outokumpu’s competitive position rolled stainless steel in China is cur- nal processes, employees’ actions, sys- operation between people. Neverthe- and financial performance. Therefore, rently exceeding demand. The Asian tems or other events such as natural less, country based or too indepen- Outokumpu has identified possible producers’ high stainless capacity at catastrophes and misconduct/crime. dent corporate cultures e.g. within risk of having too eurocentric opera- the moment seems too much for Risks of this kind are often connected the Business units can hold back tions to implement fully the current their domestic market and therefore with production operations, logistics, the progress from an operational strategy. Nevertheless, eurocentricity the risk of impacts also to European financial processes, projects or infor- perspective and thus endanger the could also be seen as an opportunity. markets currently exists. Whereas mation technology, and if they mate- achievement of strategic goals to the To ensure profitable business opera- Asian producers are likely to be com- rialize, can lead to personal injury, li- matter. Outokumpu has taken some tions in Europe, it is required that petitive in standard products and ability, loss of property, suspension of actions to strengthen the personnel the company possesses a strong foot- simple offerings, business opportuni- operations or environmental impacts. to enhance the leadership in order hold with cost-efficient, local opera- ties for Outokumpu in special prod- Parts of Outokumpu’s operational to share common values throughout tions. In addition, Outokumpu will ucts and service offerings are likely to risks are covered by insurances. the Outokumpu Group. also study other ways of strengthen- remain. By maintaining cost-efficient ing its position outside Europe in production, broadening the Group’s Corporate culture and One Company Investment projects future years. product offering, improving deliv- approach Outokumpu’s announced major in- ery reliability and developing dis- Outokumpu is aiming to achieve vestment program was postponed tribution channels, Outokumpu is a strong and unified corporate cul- almost entirely due to the financial 66 >> CORPORATE GOVERNANCE STATEMENT / RISK MANAGEMENT OUTOKUMPU ANNUAL REPORT 2008

market turmoil and the weakened areas and comprises a number of sep- crisis management instructions were stainless steel market at the end of arate buildings and production lines. reviewed and updated during 2008 2008. However, some investments Production of stainless steel also in- with the aim of harmonizing dif- e.g. service center expansions in volves the integration of production ferent practices within the Group. Willich, Germany and an establish- and logistics between the Group’s These instructions were prepared in ment of a new plate service center in facilities in Tornio, Avesta, Sheffield co-operation with the newly-estab- China are being finalised. In prepa- and other locations. Production is lished Outokumpu Security Working ration for the future, Outokumpu capital intensive and a large part of Group (oswg), the operating body aims to further develop project man- the Group’s operating capital is tied for security and safety responsible agement methods to support invest- up in these facilities. For example, persons at Outokumpu sites. oswg’s ment projects’ implementation and a fire or serious mechanical break- primary tasks are the enhancement to manage risks related to Group’s down can lead to major damage to of co-operation in security matters whole project portfolio. property or loss of production, or and knowledge transfer throughout have other indirect adverse effects the organization. Variations in production on Outokumpu’s operations. The performances Group endeavors to guard against FINANCIAL RISKS Outokumpu has been systemati- such risks by continually evaluating Financial risks consist of market, li- cally developing the performance its production facilities and processes quidity and default risks. One of the of its operations through excel- from a risk management perspective main market risks is the price of nick- lence initiatives. Significant part of and by arranging reasonable insur- el, which is used as an alloying mate- the company’s employees has been ance coverage for a large part of these rial in stainless steel production. trained to implement these meth- risks. Financial risk management is fur- ods of continuous improvement ther described in Note 20 to the con- within the Group’s commercial and Corporate security solidated financial statement. production operations. Still, the risk Outokumpu continued developing of having too large variations in pro- the Group’s corporate security cul- duction performances between dif- ture to cover all Business units and ferent production processes can have sites in 2008. A systematic preven- a serious impact on Outokumpu’s tive action program was commenced business operations, for instance in Outokumpu, covering especially adverse financial effects can increase person and material security. The significantly when product outputs systematic auditing of site security are delayed and delivery reliability continued at numerous sites and the decreases. To mitigate against such audit results generated many initia- risks, Outokumpu is expanding the tives to enhance the sites’ security Operational Excellence programs levels. Outokumpu also has a sig- and enhancing strategy implementa- nificant fire-safety auditing program tion by building on strong Group- linked to insurances. During 2008, level functions such as Supply Chain some forty such audits were carried Management and Group Sales and out using the Group’s own resources, Marketing. and were often conducted jointly with the insurers’ and insurance bro- Major fire or accident kers’ technical experts. Great part of The majority of Outokumpu’s pro- the Group wide instructions such as duction is located in large industrial physical security, travel security and 67 OUTOKUMPU ANNUAL REPORT 2008 RISK MANAGEMENT / CORPORATE GOVERNANCE STATEMENT >> >> SHAREHOLDER INFORMATION

70 Shares and shareholders 76 Investor information 77 Stock exchange releases 78 Analysts covering Outokumpu Our move GROWTH OUTSIDE OF EUROPE 70 >> SHAREHOLDER INFORMATION / SHARES AND SHAREHOLDERS OUTOKUMPU ANNUAL REPORT 2008 Shares and shareholders

SHARES AND SHARE CAPITAL of Directors to decide to issue shares BOARD’S AUTHORIZATION TO incentive and commitment building On December 31, 2008, Outokumpu and grant special rights entitling to REPURCHASE THE COMPANY’S system for key employees, and the Oyj’s fully paid and registered share shares, as follows: OWN SHARES objective is to encourage recipients capital totaled eur 308 468 201.10 and Pursuant to the authorization On March 27, 2008 the Annual to work in the long term to increase it consisted of 181 451 883 shares. Each the Board of Directors has the right General Meeting authorized the shareholder value. The reward system share entitles its holder to one vote to resolve to issue a maximum of Board of Directors to repurchase is based on both Group earnings and at General Meetings of Shareholders. 36 000 000 shares through one or the Company’s own shares (treasury relative performance, with rewards several share issues or by granting shares): geared to accomplishments. LISTING OF SHARES special rights entitling to shares, as The maximum number of shares to The total amount of share options Outokumpu Oyj’s shares are listed on specified in Chapter 10, Section 1, of be repurchased is 18 000 000, which that may have been issued was the nasdaq omx Helsinki. The trad- the Finnish Companies Act, exclud- at the time of the Annual General 5 100 000, entitling holders of stock ing symbol is out1v. Outokumpu ing option rights to the Company’s Meeting represented approximately options to subscribe for 5 100 000 Oyj’s stock options 2003a and 2003b management and personnel under 9.93 of the Company’s total num- new shares in the Company in the are also listed on the nasdaq omx an incentive plan. ber of registered shares. Based on period 2006–2011. Stock options Helsinki, the trading symbol for the Through the share issue and/or this and earlier authorizations the have been marked 2003a, 2003b and 2003a stock options is out1vew103 by granting special rights entitling Company currently holds 1 218 603 2003c and have been distributed by and the trading symbol for the 2003b to shares, a maximum of 18 000 000 of its own shares. The aggregate decision of the Board of Directors, stock options is out1vew203. The new shares may be issued, which number of the treasury shares held without additional consideration, in 2003c stock options are not listed. at the time of the Annual General by the Company and its subsidiar- 2004, 2005 and 2006, in deviation Meeting represented approximately ies may not, however, exceed 10 of from shareholders’ pre-emptive rights, TREASURY SHARES 9.93 of the Company’s total num- the Company’s total number of reg- to the key persons employed by the At the end of 2008, the Company ber of registered shares, and addi- istered shares. Outokumpu Group. In deciding on held 1 218 603 treasury shares. The re- tionally a maximum of 18 000 000 The price payable for the shares the number of stock options to be purchases have been made between treasury shares may be transferred, shall be based on the prevailing price distributed annually in total and to April 9 and November 27, 2001 which at the time of the Annual of the Company’s shares in public each individual, the Board of Directors and November 1 and 6, 2007. The General Meeting represented ap- trading at the time of repurchase. assessed the Group’s earnings trend amount corresponds to 0.7 of the proximately 9.93 of the Company’s The shares can be repurchased in de- and performance by comparing, for Company’s shares and voting rights. total number of registered shares. viation from the proportional share- example, the trend in earnings per The authorization includes the right holdings of the current shareholders. share with the trend for the same key STATE OWNERSHIP to resolve upon all other terms and The Board of Directors is authorized ratio in peer companies. In accor- The Finnish State holds 31.1 of the conditions of the share issue and spe- to decide on other matters and mea- dance with the share ownership plan Company’s shares and voting rights cial rights entitling to shares, including sures related to the repurchasing of of the program members of the Group through its wholly-owned company the subscription price and to whom own shares. Executive Committee are obligated called Solidium Oy. According to an shares or special rights may be issued. The authorization is valid until to purchase Outokumpu shares with act passed by Finnish Parliament in Thereby, the Board of Directors have the next Annual General Meeting, 10 of the income they obtain from December 2007, the state’s share- the authority to resolve upon the issue however no later than May 31, 2009. stock options. holding in Outokumpu can be re- of shares and special rights in devia- The Board has not exercised the au- The subscription price for shares duced down to 0. tion of the pre-emptive subscription thorization. through the exercise of stock option right of the shareholders.The autho- 2003a is the trading volume-weighted BOARD’S AUTHORIZATION rization is valid until the next Annual 2003 STOCK OPTION PROGRAM average price of the Outokumpu Oyj TO DECIDE TO ISSUE SHARES General Meeting, however no later Please see the table on page 72. The share on the nasdaq omx Helsinki AND GRANT SPECIAL RIGHTS than May 31, 2009. The Board has Annual General Meeting held in from December 1, 2003 to Febru- ENTITLING TO SHARES not exercised the authorization. 2003 passed a resolution on a stock ary 29, 2004 (eur 7.25), with stock On March 27, 2008 the Annual Gen- option program for the management. option 2003b it is the trading vol- eral Meeting authorized the Board Stock options are part of the Group’s ume-weighted average price of the 71 OUTOKUMPU ANNUAL REPORT 2008 SHARES AND SHAREHOLDERS / SHAREHOLDER INFORMATION >>

Outokumpu Oyj share on the nasdaq SHARE-BASED INCENTIVE last five years, comprising three earning in their possession for at least two years omx Helsinki from December 1, 2004 PROGRAMS periods of three calendar years each. from their receipt. In addition, accord- to February 28, 2005 (eur 10.31) and Outokumpu’s Board of Directors has The aggregate number of shares to ing to the share ownership plan of the with stock options 2003c it is the confirmed share-based incentive pro- be distributed for each of the earn- Outokumpu Group the members of trading volume-weighted average grams as part of the key employee in- ing periods cannot exceed 500 000 the Group Executive Committee are price of the Outokumpu Oyj share centive and commitment system of the shares. In accordance with targets obliged to own Outokumpu shares on the nasdaq omx Helsinki from Company. The objective of the share- confirmed for the earning periods received under the incentive programs December 1, 2005 to February 28, based incentive programs is to reward the reward is based on relative de- for the value of their annual gross 2006 (eur 10.94). On each dividend for good performance, which supports velopment of tsr (Total Shareholder base salary. record date, the share subscription the Company’s strategy and at the Return) (50 of the maximum re- If persons covered by the remaining price of stock options will be reduced same time to direct the management’s ward) and achieving targets set for two earning periods of the share-based by the amount of dividends to be attention to increasing the Company’s Operational Excellence programs incentive program 2006–2010 were to decided after the close of the period shareholder value over a longer period (50 of the maximum award). receive the number of shares in accor- for determining the subscription price of time. The programs offer a possibil- On February 3, 2009, the Board dance with the maximum reward (a and prior to share subscription. ity to receive Outokumpu shares and of Directors confirmed that a total total of 823 760 shares), their sharehold- Following the subscriptions with cash (equaling to the amount of taxes) of 177 715 shares be distributed to 125 ing obtained via the program would 2003 stock options, Outokumpu Oyj’s as an incentive reward, if the targets set persons in management positions in amount to 0.5 of the Company’s share capital may be increased by a by the Board for each earning period Outokumpu for the earning period shares and the voting rights. maximum of eur 2 698 400 and the are achieved. 2006–2008. The maximum number of number of shares by a maximum of shares was 355 430. The people in the SHARE-BASED INCENTIVE 1 587 294. The number of shares that SHARE-BASED INCENTIVE scope received 50 of the maximum PROGRAM FOR 2009–2013 can be subscribed for on the basis PROGRAM FOR 2006–2010 number of shares based on the achieve- On February 3, 2009, Outokumpu’s of the stock options corresponds to On February 2, 2006, Outokumpu’s ment of earnings criteria established in Board of Directors confirmed a 0.9 of the Company’s shares and Board of Directors confirmed a share- February 2006. Under the program, new share-based incentive program, voting rights. based incentive program, which will entitled persons must keep the shares which will last five years, comprising 72 >> SHAREHOLDER INFORMATION / SHARES AND SHAREHOLDERS OUTOKUMPU ANNUAL REPORT 2008

2003 STOCK OPTION PROGRAM

Stock Option Number of participants Subscription Dividend adjusted The number of shares An aggregate The number of stock Dec 31, 2008 period Share Subscription Price subscribed by maximum of shares options annulled by Dec 31, 2008 Dec 31, 2008 that can be subscribed Dec 31, 2008 with the remaining stock options 2003 A 13 Sep. 1, 2006–Mar. 1, 2009 7.25 € 627 854 31 448 1 040 698 2003 B 48 Sep. 1, 2007–Mar. 1, 2010 10.31 € 758 107 270 713 671 180 2003 C 8 Sep. 1, 2008–Mar. 1, 2011 10.94 € 8 200 90 500 1 601 300

INCREASES IN SHARE CAPITAL 2004–2008

Number of shares Share capital, € Share capital on Jan. 1, 2004 178 574 165 303 576 080.50 Share subscription under 1998 option warrants Dec. 20-31, 2003, registered on Jan. 12, 2004 +2 195 303 579 812.00 Share subscription under 1998 option warrants Jan. 1–Mar. 31, 2004 +2 174 244 307 276 026.80 Share subscriptions under 1999 convertible dond Jan. 1–Apr. 5, 2004 +499 951 308 125 943.50 Shares subscribed with 2003A options Oct. 14, 2006–Dec. 29, 2006, registered on Jan. 11, 2007 +33 323 308 182 592.60 Shares subscribed with 2003A options Dec. 30, 2006–Oct. 29, 2007, registered on Nov. 9, 2007 +23 539 308 222 608.90 Shares subscribed with 2003B options Sep. 8, 2007–Oct. 29, 2007, registered on Nov. 9, 2007 +14 379 308 247 053.20 Shares subscribed with 2003A options Oct. 30, 2007–Jan. 2, 2008, registered on Jan. 15, 2008 +400 308 247 733.20 Shares subscribed with 2003B options Oct. 30, 2007–Jan. 2, 2008, registered on Jan. 15, 2008 +1 000 308 249 433.20 Shares subscribed with 2003A options Jan. 3, 2008–Feb. 29, 2008, registered on Mar. 13, 2008 +11 955 308 269 756.70 Shares subscribed with 2003B options Jan. 3, 2008–Feb. 29, 2008, registered on Mar. 13, 2008 +10 187 308 287 074.60 Shares subscribed with 2003A options Mar. 1, 2008–May 5, 2008, registered on May 16, 2008 +38 208 308 352 028.20 Shares subscribed with 2003B options Mar. 1, 2008–May 5, 2008, registered on May 16, 2008 +57 264 308 449 377.00 Shares subscribed with 2003A options May 6, 2008–Jul. 7, 2008, registered on Jul. 18, 2008 +380 308 450 023.00 Shares subscribed with 2003A options Jul. 8, 2008–Sep. 8, 2008, registered on Sep. 19, 2008 +693 308 451 201.10 Shares subscribed with 2003C options Jul. 8, 2008–Sep. 8, 2008, registered on Sep. 19, 2008 +5 000 308 459 701.10 Shares subscribed with 2003C options Sep. 9, 2008–Oct. 24, 2008, registered on Nov. 3, 2008 +5 000 308 458 523.00 Share capital on Dec. 31, 2008 181 451 883 308 468 201.10 Share capital on Feb. 3, 2009 181 451 883 308 468 201.10 Treasury shares on Dec. 31, 2008 1 218 603 2 071 625.10 Number of shares outstanding on Dec. 31, 2008 180 233 280 306 396 576.00 73 OUTOKUMPU ANNUAL REPORT 2008 SHARES AND SHAREHOLDERS / SHAREHOLDER INFORMATION >>

PRINCIPAL SHAREHOLDERS ON FEBRUARY 3, 2009

Shareholder Shares % Solidium Oy (The Finnish State) 56 440 597 31.1 The Finnish Social Insurance Institution 14 652 666 8.1 Ilmarinen Mutual Pension Insurance Company 6 276 927 3.5 Finnish State Pension Fund 1 859 100 1.0 OP-Delta Mutual Fund 1 701 833 0.9 Varma Mutual Pension Insurance Company 1 620 317 0.9 Outokumpu Oyj 1 218 603 0.7 Etera Mutual Pension Insurance Company 960 000 0.5 Investment fund Alfred Berg Finland 594 167 0.3 Investment fund OP-Suomi Arvo 571 680 0.3 Nominee accounts held by custodian banks 60 083 536 33.1 Other shareholders 35 472 457 19.5 Total number of shares 181 451 883 100.0

SHAREHOLDERS BY GROUP ON FEBRUARY 3, 2009

Shareholder group Shares % Finnish corporations 4 488 404 2.5 Financial and insurance institutions 9 058 554 5.0 The public sector and public organizations Solidium Oy (The Finnish State) 56 440 597 31.1 Finnish State Pension Fund 14 652 666 8.1 Other 13 445 421 7.4 Non-profit organizations 4 670 073 2.6 Households/private persons 17 015 968 9.4 International shareholders 61 680 200 34.0 Shares not transferred to book-entry securities system 1 182 0.0 Tot al 181 451 883 100.0

DISTRIBUTION OF SHAREHOLDINGS ON FEBRUARY 3, 2009

Number of shares Number of shareholders % of shareholders Total shares % of share capital Average shareholding 1–100 6 669 26.4 425 544 0.2 64 101–500 10 673 42.2 2 961 749 1.6 277 501–1 000 3 614 14.3 2 819 869 1.6 780 1 001–10 000 4 011 15.9 10 751 874 5.9 2 681 10 001–100 000 256 1.0 6 435 248 3.5 25 138 100 001–1 000 000 60 0.2 15 419 953 8.5 256 999 > 1 000 000 11 0.0 142 637 646 78.6 12 967 059 25 294 100.0 181 451 883 100.0 7 174 Nominee accounts held by custodian banks 17 Shares in nominee accounts held by custodian banks 60 083 536 33.1 Shares not transferred to book-entry securities system 1 182 0.0 Total number of shares 181 451 883 100.0 74 >> SHAREHOLDER INFORMATION / SHARES AND SHAREHOLDERS OUTOKUMPU ANNUAL REPORT 2008

SHAREHOLDERS BY GROUP DIVIDEND/SHARE SHARE-BASED INCENTIVE PROGRAM JANUARY 31, 2009

€ Solidium Oy Earning period The number of people in scope on Dec 31, 2008 (The Finnish 1.2 State) 31.1% 2006–2008 125 1.0 2007–2009 129 Private Finnish Investors 9.4% 2008–2010 139 0.8 The Finnish Social Insurance 0.6 Institution 8.1% possession for at least one year from amount to 0.24 of the Company’s Other Finnish 0.4 their receipt. In addition, according shares and the voting rights. organizations to the share ownership plan of the 17.4% 0.2 Outokumpu Group the members of MANAGEMENT SHAREHOLDING International shareholding 0 the Group Executive Committee are On January 31, 2009 members of the 34.0% 04 05 06 07 08 obliged to own Outokumpu shares Board of Directors and the Group received under the incentive pro- Executive Committee held a total of of three earning periods of three cal- 2009–2011. The aggregate number of grams for the value of their annual 71 027 Company shares, correspond- endar years each. The earning peri- shares distributed for each earning gross base salary. ing to 0.039 of the Company’s ods commence on Jan. 1, 2009, Jan. period cannot exceed 500 000 shares. If persons covered by the earning shares and voting rights. 1, 2010 and Jan. 1, 2011. The Board of In accordance with targets confirmed period 2009–2011 of the share-based The Group Executive Committee Directors decides on the persons en- for the earning period 2009–2011 the incentive program were to receive will receive a total of 44 500 shares on titled to participate in the program reward is based on the relative de- the number of shares in accordance the basis of attainment of the crite- for each earning period. 139 people velopment of tsr (Total Shareholder with the maximum reward (a total ria established for the earning period were confirmed to be in the scope of Return). Under the program, entitled of 433 100 shares), their sharehold- 2006–2008 of the share-based incen- the program for the earning period persons must keep the shares in their ing obtained via the program would tive program 2006–2010. In addition

SHARE PRICE PEER GROUP SHARE PRICE MARKET CAPITALIZATION MONTHLY TRADING VOLUME PERFORMANCE

€ Index € million Million 30 shares 600 6 000 70 25 500 5 000 60

20 400 50 4 000 15 40 300 3 000 30 10 200 2 000 20 5 100 1 000 10 0 0 04 05 06 07 08 09 04 05 06 07 08 09 0 0 04 05 06 07 08 09 04 05 06 07 08 09 Outokumpu Acerinox Source: OMX. Including January 2009. ArcelorMittal ThyssenKrupp Monthly averages. Source: OMX. Including January 2009. Source: OMX. Including January 2009. Posco

Including January 2009. 75 OUTOKUMPU ANNUAL REPORT 2008 SHARES AND SHAREHOLDERS / SHAREHOLDER INFORMATION >>

SHARE-RELATED KEY FIGURES

2008 2007 2006 2005 2004 Earnings per share € -1.05 3.52 5.31 -2.01 2.12 Equity per share € 15.50 18.53 16.87 11.31 13.65 Dividend per share € 0.50 1) 1.20 1.10 0.45 0.50 Dividend payout ratio % neg. 33.9 20.7 neg. 23.6 Dividend yield % 6.0 5.7 3.7 3.6 3.8 Price/earnings ratio neg. 6.0 5.6 neg. 6.2

Development of share price Average trading price € 18.99 24.94 19.77 11.89 12.52 Lowest trading price € 6.33 18.48 12.60 9.63 9.93 Highest trading price € 33.99 31.65 30.39 14.72 14.46 Trading price at the end of the period € 8.28 21.21 29.66 12.55 13.15 Change during the period % -61.0 -28.5 136.3 -4.6 22.1 Change in the OMXH index during the period % -53.4 20.5 17.9 31.1 3.3 Market capitalization at the end of the period 2) € million 1 492 3 820 5 369 2 272 2 377 Development in trading volume Trading volume 1 000 shares 511 080 516 489 319 345 179 289 123 832 In relation to weighted average number of shares % 283.6 285.5 176.4 99.0 68.8

Adjusted average number of shares 2) 180 184 845 180 922 336 181 033 168 181 031 415 180 056 920 Number of shares at the end of the period 2) 180 233 280 180 103 193 181 031 952 181 031 952 180 752 022

1) The Board of Directors’ proposal to the Annual General Meeting.

2) Excluding treasury shares.

to the confirmed amount of shares tee would increase by 0.1 percentage and share-related figures of the Outo- (2007: eur 18.48) in October. The from the earning period 2006–2008 points pursuant to the option war- kumpu share are shown in the table average price was eur 18.99 (2007: of the share-based incentive program rants, and by 0.14 percentage points on page 75. eur 24.94). At year’s end, market 2006–2010 if the 2003a, 2003b and pursuant to the share-based incentive capitalization was eur 1 502 million 2003c options were exercised in their program. Details of management OUTOKUMPU SHARE PRICE (2007: eur 3 845 million), down 60 entirety and if the two earning pe- shareholdings are given on page 59. DEVELOPMENT IN 2008 on the previous year. riods of the share-based incentive On the last day of trading in 2008, Share turnover was 511.1 (2007: program 2006–2010 and the earning DIVIDEND PROPOSAL FOR 2008 the closing price of Outokumpu’s 516.4) million shares being traded on period of 2009–2011 of the share- For the financial year 2008, a dividend share was eur 8.28 (2007: eur 21.21), the nasdaq omx Helsinki exchange based incentive program 2009–2013 of eur 0.50 per share is proposed. The down 61 during the report year. in 2008. The value of share turnover yielded the maximum number of effective dividend yield is 5.7. The The highest share price in 2008, was eur 9 693 million (2007: eur shares, shareholdings and aggregate average dividend payout ratio dur- also the all time high quotation was 12 882 million). Average daily turn- voting rights held by the members ing the past five years is 47. Share eur 33.99 (2007: eur 31.65) quoted over amounted to 2 028 096 (2007: of the Group Executive Commit- price development, trading volume in May and the lowest was eur 6.33 2 065 955) shares. 76 >> SHAREHOLDER INFORMATION / INVESTOR INFORMATION OUTOKUMPU ANNUAL REPORT 2008 Investor information

Outokumpu Oyj’s 2009 Annual at the meeting in person or by proxy. printed annual reports can be made silent period prior to the publication General Meeting will be held on However, in accordance with Finn- on the website www.outokumpu. of financial statements and interim Tuesday, March 24, 2009 at 1 pm ish practice, Outokumpu does not com or via the above-mentioned reports. During these periods, we do (eet) at the Marina Congress Cen- send proxy forms to its sharehold- e-mail address. not arrange meetings with investors ter in Helsinki, Finland. In order to ers. Shareholders wishing to vote by Shareholder mailings are made on and analysts or comment on perfor- attend the Annual General Meeting proxy should submit their own proxy the basis of the contact information mance and market developments. a shareholder must be registered in forms to the Company during the in the shareholders’ register main- Should you require further informa- the Company’s shareholders’ regis- registration period. tained by Euroclear Finland Oy. tion about Outokumpu, please con- ter maintained by Euroclear Finland Additional information on the An- A shareholder should inform his/ tact one of the following: Oy (previously Suomen Arvopaper- nual General Meeting is available on the her account operator, or in case of a ikeskus Oy) on March 13, 2009. internet at www. outokumpu.com/agm. nominee- registered shareholder the Päivi Laajaranta Nominee-registered sharehold- relevant bank or other custodian, ir Assistant ers who wish to attend the Annual ANNUAL GENERAL MEETING about changes in contact details. Tel. +358 9 421 4070, General Meeting 2009 should tem- AND PAYMENT OF DIVIDENDS [email protected] porarily re-register the shares under IN 2009 OUTOKUMPU SHARE BASICS Päivi Laajaranta coordinates meeting their own name. Such re-registration The Board of Directors proposes to Listing nasdaq omx Helsinki requests. must be made no later than March the Annual General Meeting that a Trading symbol out1v 13, 2009. In order to arrange a tem- dividend of eur 0.50 per share be Number of shares 181 578 793 Ingela Ulfves porary re-registration, nominee paid for the financial year 2008. Vice President – Investor Relations registered shareholders should con- 2003a stock options out1vew103 and Financial Communications tact their bank or other custodian. FINANCIAL REPORTS IN 2009 2003b stock options out1vew203 Tel. +358 9 421 2438, Shareholders who wish to attend the Investor information is available at [email protected] Annual General Meeting must no- the Group’s English language web- INVESTOR RELATIONS tify the Company by no later than site www.outokumpu.com. The The main task of Outokumpu’s In- Päivi Lindqvist March 17, 2009 at 4 pm (eet). No- website also covers annual reports, vestor Relations function is to sup- Senior Vice President – tification can be made by e-mail to interim reports, as well as stock ex- port the correct valuation of the Communications and ir [email protected], on the inter- change and press releases, which Outokumpu share by providing Tel. +358 9 421 2432, net at www.outokumpu.com/agm, by are published mainly in Finnish information about the company’s [email protected] telephone to +358 9 421 5519 or by fax and English. Alternatively finan- activities, financial position, goals to +358 9 421 2223. Notification can cial reports can be obtained from and strategy, thus enabling the mar- also be made in person or by a letter Outokumpu Oyj/Corporate Com- kets to form a true and fair view of addressed to Outokumpu Oyj, Share munications, Riihitontuntie 7 b, Outokumpu as an investment pros- Register, p.o. box 140, 02201 Espoo, p.o. box 140, 02201 Espoo, Finland, pect. Our aim is to communicate in Finland. The letter must reach the tel. +358 9 421 4070 and email open, timely and clear manner and Company on March 17, 2009 at the [email protected]. to treat all parties equally. latest. Subscriptions to the emailing list for Outokumpu observes a three-week A shareholder may attend and vote press releases and the mailing list for

AGM AND DIVIDEND FINANCIAL CALENDAR 2009 Annual General Meeting March 24 Financial Statements Bulletin February 3 Ex-dividend date March 25 Annual Report week starting March 2 Record date for dividend March 27 First-quarter interim report April 23 Dividend payout April 3 Second-quarter interim report July 23 Third-quarter interim report October 22 77 OUTOKUMPU ANNUAL REPORT 2008 STOCK EXCHANGE RELEASES 2008 / SHAREHOLDER INFORMATION >> Stock exchange releases 2008

15.1.2008 Shares subscribed with 27.3.2008 Resolutions of 18.7.2008 Shares subscribed 3.11.2008 Shares subscribed with the Outokumpu Oyj 2003a and Outokumpu Oyj’s Annual General with the Outokumpu Oyj 2003a the Outokumpu Oyj 2003c stock 2003b stock options and the increase Meeting 2008 and 2003b stock options and the options and the increase in share in share capital increase in share capital capital 27.3.2008 Outokumpu Board 18.1.2008 Outokumpu – publish- decisions at their first meeting 24.7.2008 Outokumpu’s second 10.11.2008 Outokumpu taking ing of the 2007 Annual Accounts quarter 2008 interim report – action to adjust to the weak stainless 15.4.2008 Outokumpu – pub- improved operating profit in a steel market 31.1.2008 Outokumpu steps up lishing of the first-quarter 2008 softening market ferritic and bright annealed stainless financial results 18.11.2008 Shareholders’ Nomina- steel capability – Over eur 300 mil- 30.7.2008 Outokumpu’s acqui- tion Committee at Outokumpu lion to be invested in Tornio 23.4.2008 Outokumpu steps up sition of Italian stainless steel its service capability by acquiring distributor SoGePar completed 1.12.2008 Outokumpu: temporary 31.1.2008 Outokumpu Annual Italian stainless steel distributor layoffs at Tornio plant avoided, the Accounts Bulletin 2007 – Good SoGePar 19.9.2008 Outokumpu Capital same level of savings achieved by results in a turbulent year i/ii Markets Day 2008 on September other actions 23.4.2008 Outokumpu’s first quar- 24 in London 31.1.2008 Outokumpu Annual ter 2008 interim report – improved 11.12.2008 Outokumpu’s operat- Accounts Bulletin 2007 – Good profits in recovering stainless steel 19.9.2008 Shares subscribed with ing profit in the fourth quarter results in a turbulent year ii/ii markets the Outokumpu Oyj 2003 stock lower than expected, actions taken options and the increase in share to improve profitability, investment 31.1.2008 Share-based incentive 28.4.2008 Outokumpu’s remain- capital programs postponed program for 2006–2010 – Earning ing copper tube assets sold to period 2008–2010 Cupori Group 19.9.2008 Outokumpu intends 12.12.2008 Change in the State of to close its Thin Strip business in Finland’s holding in Outokumpu Oyj 31.1.2008 Outokumpu’s agm to 16.5.2008 Shares subscribed Sheffield convene on March 27, 2008 with the Outokumpu Oyj 2003a and 2003b stock options and the 15.10.2008 Outokumpu – pub- 31.1.2008 Proposals by the Share- increase in share capital lishing of the third-quarter 2008 holders’ Nomination Committee on financial results the composition and remuneration 3.6.2008 Outokumpu to double of Outokumpu’s Board of Directors ferrochrome production capacity in 21.10.2008 The State of Finland Finland receives an exemption related to its 5.3.2008 Notice of Annual General share ownership in Outokumpu Meeting 3.6.2008 Outokumpu Oyj stock options 2003c 23.10.2008 Outokumpu appoints 7.3.2008 Outokumpu’s Annual Pii Kotilainen Executive Vice Report 2007 3.6.2008 Outokumpu – Financial President – Human Resources reporting schedule for the year 2009 13.3.2008 Shares subscribed 23.10.2008 Outokumpu’s third with the Outokumpu Oyj 2003a 14.7.2008 Outokumpu – publish- quarter 2008 interim report – and 2003b stock options and the ing of the second-quarter 2008 strong cash flow in uncertain and increase in share capital financial results weakening markets More information www.outokumpu.com 78 >> SHAREHOLDER INFORMATION / ANALYSTS COVERING OUTOKUMPU OUTOKUMPU ANNUAL REPORT 2008 Analysts covering Outokumpu

The following banks and brokers have prepared investment analysis on Outokumpu.

ABG Sundal Collier +46 8 566 28694 Goldman Sachs International +44 20 7552 2998 Markus Steinby [email protected] Mikko Heiskanen [email protected]

Carnegie +358 9 6187 1232 Handelsbanken Capital Markets +46 8 701 5118 Carl-Henrik Frejborg carl-henrik.frejborg@carnegie.fi Stefan Wård [email protected]

Cazenove +44 20 7155 6408 Icecapital Securities +358 9 6220 5091 Kartik Swaminathan [email protected] Artem Beletski artem.beletski@icecapital.fi

Cheuvreux +33 1 4189 7319 J.P. Morgan +44 20 7325 9744 Raoudha Bouzekri [email protected] Jeffrey Largey largey_jeff[email protected]

Credit Suisse +44 20 7883 8474 Morgan Stanley +44 20 7425 3075 Alessandro Abate [email protected] Carsten Riek [email protected]

Danske Markets +358 10 236 4760 Nordea +358 9 165 59706 Sampsa Karhunen [email protected] Jan Kaijala [email protected]

Deutsche Bank +358 9 2525 2553 Pohjola Bank +358 10 252 4504 Timo Pirskanen [email protected] Jari Räisänen [email protected] eQ Bank +358 9 6817 8402 SEB Enskilda +358 9 6162 8721 Erkki Vesola erkki.vesola@eq.fi Juha Iso-Herttua juha.iso-herttua@enskilda.fi

Evli Bank +358 9 4766 9643 Standard & Poor’s +44 20 7176 7824 Mika Karppinen [email protected] Johnson Imode [email protected]

Exane BNP Paribas +33 1 4299 5052 Swedbank Markets +46 8 5859 2571 Vincent Lepine [email protected] Claes Rasmuson

FIM +358 9 6134 6311 UBS Equity Research +46 8 453 7306 Michael Schröder michael.schroder@fim.com Olof Cederholm [email protected] 79 OUTOKUMPU ANNUAL REPORT 2008 CONTACT DETAILS >> Contact details

OUTOKUMPU OYJ Corporate Management Riihitontuntie 7 B P.O. Box 140 02201 ESPOO FINLAND

Tel. +358 9 4211 Fax +358 9 421 3888 corporate.comms@ outokumpu.com www.outokumpu.com

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OUR CHALLENGES

MAINTAIN COST LEADERSHIP IN STANDARD GRADES Tornio Works is a global leader in cost efficiency in high-volume standard grades due to its integrated production from chrome to stainless steel melting, cold rolling and hot rolling. ROUTE TO MARKET A majority of Outokumpu’s sales is reaching the end-user of stainless steel through distributors and further processors.

DEPENDENCE ON NICKEL The Group’s current product portfolio consists to a large extent of nickel containing stainless steel grades. As nickel price is very volatile, demand for these grades and products also tends to vary a lot. EUROCENTRIC The majority of Outokumpu’s sales and almost all production sites are located in Europe.

DESIGN AND PRODUCTION Miltton Oy

PHOTOS Tomi Parkkonen (cover and pages 1, 3, 9, 27, 53, 60–63, 69) Voith Paper (page 32) Loders Crocklaan (page 36) MHI (page 40) Outokumpu

PRINTING HOUSE Libris Oy

PAPER Invercote Albato 290 g/m² (cover) Edixion Offset 120 g/m² (pages 1–80)

>> OUTOKUMPU 2008 2 >> BUSINESS OPERATIONS 26 Made of paper granted the EU Ecolabel, reg.nr FI/11/1. 0016EN. Miltton / Libris, Helsinki, Finland. March 2009.

www.outokumpu.com Annual Report 2008 OUTOKUMPU’S ANNUAL REPORT 2008

AIMING FOR SUSTAINABLE

Outokumpu is a global leader in stainless steel. Our vision is to be the undisputed number one in stainless, with success based on operational BALANCE excellence. 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.