Annual report 2019 Review by the Board Sustainability of Directors and Annual review review Financial statements Governance In brief ..................................... 4 Sustainability at Outokumpu .............. 2 REVIEW BY THE BOARD OF DIRECTORS .. 2 Corporate Governance Statement ........ 2 Key figures 2019 .......................... 5 Sustainable performance in 2019 ........ 3 Group key figures .......................... 11 Key risks ................................... 17 CEO’s review ............................... 6 Safety is our highest priority .............. 4 Alternative performance measures ........ 12 Remuneration .............................. 23 Vision and strategy ........................ 8 Organizational health continues to Share-related key figures .................. 15 Shares and shareholders .................. 26 improve .................................... 6 Stainless steel market .................... 10 FINANCIAL STATEMENTS .................. 17 Information for shareholders .............. 28 Sustainability in the supply chain ......... 10 Customers and expertise .................. 12 Consolidated statement of income ....... 18 Mitigating climate change with Consolidated statement of stainless steel ............................. 12 comprehensive income .................... 18 Focus on energy efficiency improvements 14 Consolidated statement of Operating at the heart of the financial position ........................... 19 circular economy .......................... 16 Consolidated statement of cash flows .... 20 Minimizing environmental impacts ........ 18 Contents Consolidated statement of Outokumpu and society ................... 20 changes in equity .......................... 21 Scope of the report ........................ 22 Notes to the consolidated financial statements ........ 22 This Annual report combines Independent assurance report ............ 24 Outokumpu’s sustainability Parent company financial statements .... 65 Income statement of the parent company 65 and financial reporting Balance sheet of the parent company .... 66 for 2019. Outokumpu’s Cash flow statement of Sustainability review has the parent company ....................... 67 been assured and the Statement of changes in equity of the parent company ....................... 68 Financial statements have Commitments and contingent liabilities of been audited. the parent company ....................... 68 AUDITOR’S REPORT ........................ 69 Outokumpu Annual report 2019 | Annual review 2 / 3 Stainless steel is an amazing material that makes modern society Annual possible by providing unmatched durability, longevity and recyclability. It is at the heart of moving society from quick fixes towards a world review 2019 that lasts forever. In brief Working towards a world that lasts forever Outokumpu is the global leader in stainless steel. We aim to be the best value creator in stainless steel, through our competitive edge of customer orientation and efficiency. In 2019, Outokumpu’s sales amounted to 6.4 billion euros and stainless steel deliveries to 2.2 million tonnes. Outokumpu is the clear market leader in Europe and the second largest in the Americas market. Outokumpu is listed 10,390 on Nasdaq Helsinki. employees Outokumpu’s business is divided into four business areas: Europe, Americas, Long Products and Ferrochrome. We have production in Finland, Germany, Sweden, the UK, the USA and Mexico, and we serve our customers through a Operations in Net debt reduced global sales and service center network. Outokumpu’s own to EUR chromite mine in Kemi, Finland is the source of the key raw Over 85% material for stainless steel. of recycled over 30 1,155 The foundation of our business is our ability to tailor stain- content countries less steel into any form and for almost any purpose. Our million customers use it to create society’s basic structures and its most famous landmarks as well as products for households EUR and various industries. Our legacy as the inventor of CO emissions stainless steel compels us to drive the development of the 2 material further. 263 * million Stainless steel is sustainable, durable and long-lasting. At –13.8% the end of its life cycle, stainless steel is 100% recyclable. adjusted EBITDA We work together with our customers and partners to look beyond the short term and create advanced materials that * Compared to the baseline of 2014–2016 help us to build a world that lasts forever. n Outokumpu Annual report 2019 | Annual review 4 / 13 In brief Adjusted EBITDA, € million Key figures 2019 700 600 In 2019, we kept our focus on enhancing our operational efficiency and 500 securing our competitiveness. Our ongoing operational excellence efforts 400 delivered a 4% productivity improvement. Furthermore, we were able 300 to release almost EUR 220 million from net working capital, and most 200 importantly we reduced our net debt to EUR 1,155 million. 100 0 2015 2016 2017 2018 2019 2019 2018 2017 2016 2015 Net debt, € million Net sales, € million 6,403 6,872 6,356 5,690 6,384 2,000 Stainless steel deliveries, 1,000 tonnes 2,196 2,428 2,448 2,444 2,381 Adjusted EBITDA, € million 263 485 631 309 165 1,500 Net result for the period, € million –75 130 392 144 86 Operating cash flow 371 214 328 389 –34 Net debt, € million 1,155 1,241 1,091 1,242 1,610 1,000 Debt-to-equity at the year-end, % 45.1 45.1 40.1 51.4 69.1 Personnel at the year-end 10,390 10,449 10,141 10,600 11,002 500 0 Sales by business area, € 6,403 million Stainless steel deliveries by business area, % 2015 2016 2017 2018 2019 Operating cash flow, € million 400 G Europe 63% G Europe 64% Americas 21% G Americas 26% G 300 G Long Products 8% G Long Products 10% G Ferrochrome 2% 200 G Other operations 6% 100 0 –100 2015 2016 2017 2018 2019 Outokumpu Annual report 2019 | Annual review 5 / 13 CEO’s review CEO’s review Increasing protectionism around the world, in the wake of invoking article 232 tariffs in the US, has led to a continuing flood of imports into the European market. The safeguard measures implemented by the European Commission have not had the desired effect due to some fundamental flaws in their design. In 2019, these effects were exacerbated by the global slowdown in manufacturing, especially in the automo- tive industry. The resulting weak demand and historically low prices weighed heavily on Outokumpu’s results. In a testament to the resilience that the company has gained through four years of relentless execution of our must-win battles, we have been able, in spite of this harsh environ- ment, to celebrate important successes. Our sharp focus on cost and cash has resulted in a more than 4% productivity gain year on year, safeguarding our competitiveness and market position. Recognizing that in such an environment cash is even more important than ever, we drove working capital down by almost 220 million euros resulting in a 2019 was a challenging year for the significant reduction of net debt to just over 1.1 billion euros. European steel industry. Weak demand In line with our vision, to be the best value creator in the and historically low prices weighed industry through customer orientation and efficiency, we again improved on customer satisfaction rate. According heavily on our results. In spite of the to the latest customer satisfaction survey, 72% of our harsh environment, we have been able customers are highly satisfied with our products and services to secure our competitiveness and and consider Outokumpu as the partner of choice. market position. Outokumpu Annual report 2019 | Annual review 6 / 13 CEO’s review CEO’s review Going forward, establishing a level playing field for the European gas emissions significantly during the coming decade. Approxi- steel industry is crucial for the long-term health of our industry. mately 90% of our raw material is recycled, and we continuously “Outokumpu We are confident that we can compete with any other stainless develop our processes and energy efficiency to further lower our has always steel company as long as they play with the same rules. Unfair environmental impacts. state subsidies, preferential treatment and illegal tax breaks Four years ago, we set ourselves ambitious targets linked to been a leader are not part of that level playing field. a bold vision – to be the best value creator in stainless steel in sustainability More importantly, with the environmental challenge the world is by 2020. Looking back, it is clear the market environment but we will not facing, everyone must be held to the same environmental stan- has been much more challenging than we predicted in 2016 rest on our dards. To make sure that a level playing field is established, we making us fall short of some of our financial targets. However, work closely with the European Commission, the US government when judging our progress on everything from creating a highly laurels” and other stakeholders. The available toolbox that will help effective and high-performing organization to being one of the restore a fair market includes a variety of measures ranging most efficient operations in the industry, I am extremely proud from tightening the European safeguards to trade investigations of all that has been achieved and we can look to the future with into dumping and other market distorting practices. The the confidence that comes with a strong company. Equally, looking at internal accomplishments, we have for the European Commission is also investigating hot-rolled stainless fourth year in a row improved our safety