Outokumpu – an International Stainless Steel Company
This is Outokumpu Outokumpu – an international stainless steel company
Outokumpu is a global leader in stainless steel with the vision to be the undisputed number one. Customers in a wide range of industries use our stainless steel and services worldwide. Being fully recyclable, maintenance-free, as well as very strong and durable material, stainless steel is one of the key building blocks for sustainable future. Outokumpu employs some 7 600 people in more than 30 countries. The Group's head office is located in Espoo, Finland. Outokumpu is listed on the NASDAQ OMX Helsinki.
Outokumpu
Main products Cold and hot rolled stainless steel coil Sheet and plate Quarto plate Thin strip Tubular and long products
Grades Full range of standard and high alloyed austenitic grades Duplex Ferritic Manganese grades
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 tubular products from small diameter tubes to heavy walled pipes
Customers Distributors Re-rollers and further processors Tube makers End-user and project customers in various industrial segments
Typical customer industries using stainless steel Architecture, building and construction Chemical, petrochemical and energy Transportation Catering and appliances Process industries and resources Various other industries and applications
Main production plants Tornio (ferrochrome smelter, steel melting shops, hot and cold rolling mills) and Kemi (chromium mine) in Finland
Outokumpu Annual Report 2009 – This is Outokumpu Avesta (steel melting shop, hot and cold rolling mills), Nyby, Långshyttan (cold rolling mills at both) and Degerfors (hot rolling mill) in Sweden Sheffield (steel melting shop) in the UK New Castle (hot rolling mill) in the US.
Long products are manufactured in Sweden, the US and the UK, whereas welded tubes and tube components are produced in Finland, Sweden, Estonia, Canada and the US.
Sales companies and service centres A comprehensice network of sales companies in some 30 countries and service centres in 12 countries
Our main products are hot and cold rolled stainless steel sheets, plates and strips that are used in numerous applications – such as the construction industry, the automotive industry and equipment for the process industry.
Wide and thick individually rolled quarto plates are used in the energy sector, to extract salt from seawater, to transport chemicals and they are widely used in the process industry in pressure cylinders, tanks, thick-walled tubes, bridge structures and process equipment. Our tubes are mainly used by the process industry, i.e. the oil refining industry and the pulp and paper industries; bars are so-called long products, from which i.e. wire and reinforcement bar are manufactured.
Our customers include the processing and construction industries, the energy sector the transport sector, the food and electronics industries, and the producers of household and industrial machinery around the world.
Good qualities of stainless steel
Fully recyclable Hygienic
Corrosion resistant Aesthetic
High-strenght Low life-cycle costs
Outokumpu Annual Report 2009 – This is Outokumpu CEO’s review CEO's review
External environment
Last year was exceptionally difficult for the stainless steel industry. Having enjoyed continuous annual growth in demand of some 5–7% in recent decades, end-user demand for stainless fell by 9% globally and by 26% in our home market, Europe. This dramatic decline in end-user consumption was further aggravated by the heavy destocking that took place in the first half of the year.
This sudden change in our market environment was a clear result of the global recession which had already begun in the second half of 2008. The crisis in the financial sector had a serious adverse effect on basically all end-use sectors for stainless steel. Low levels of consumer confidence in Europe and North America had a negative impact on demand for stainless, especially in white goods. Industrial investments, a typically strong market for stainless steel, weakened even more.
This major decline in stainless demand had an impact on all stainless producers. All western producers had to adjust and adapt their operations to the new market conditions. In spite of very low operating rates, producers were able to restore prices to some extent, which partly compensated for the lower production volumes.
Our response
I am satisfied that we started making plans for the new external environment already in late 2008. Our focus was on maintaining a strong cash flow and the health of our balance sheet. We therefore put a lot of work into managing working capital, especially reducing inventory volumes. And we did a rather good job, as we were able to reduce working capital by half a billion euros during 2009. This made a major contribution to our positive operating cash flow of some two hundred million euros, enabling us to maintain gearing at 48% at the end of 2009.
Another focus area was fixed-cost management. Compared to the previous year, we cut our fixed costs by EUR 185 million during 2009. Regrettably, doing this meant we also had to reduce the number of people working in Outokumpu.
We also had to adjust our strategic investment programme by postponing several projects which had already been started or were on-going at the end of 2008. We are continuously evaluating the future of these ‘on-hold' projects.
As to our main environmental targets set for 2009, while we did achieve our target for reducing landfill waste, low production volumes meant that we did not reach our target for reducing our energy consumption per tonne produced.
Outokumpu Annual Report 2009 – CEO’s review Profitability
Unfortunately, the very difficult market situation prevented us achieving our financial targets in 2009. In spite of all the actions we took, it was a year of heavy losses. Never before have we experienced operating rates as low as those we saw last year, and the resulting very-low delivery volumes. Declining metal prices also contributed to the poor financial result by causing inventory losses.
Our strategy
In spite of the changed market environment, we decided to keep our strategy intact. Our aim is to build a more stable and profitable business model by focusing more on special grades and non-nickel containing ferritic grades in our product mix, and by increasing sales to end-user and project customers while also selling more to our core partner distributors and processor customers. Other key components in our strategy are increasing sales outside Europe and maintaining the cost competitiveness of our standard grades.
The main focus in strategy implementation during 2009 was on developing our new commercial and supply chain organisations in the intended manner. We made good progress in both areas, and everyone involved invested a lot of effort – new designs always call for new ways of working.
Several investments which support our strategy implementation were also completed, improving our capability to produce ferritic grades and our ability to serve end customers through our improved service centre network.
Strategy implementation will continue in the years to come. I strongly believe our strategy to be a compelling one which can and will be implemented even when markets are tough. It will make us ready and fully prepared for the good markets when they return. We remain confident about stainless steel's long-term attractiveness. A sustainable material helping to solve many global challenges: the need for clean water, for reduced emissions and for sources of renewable energy.
People as a priority
Motivated and committed people are the key to our future. I recognise that 2009 was a very difficult one for Outokumpu personnel. In situations like this, a company's attitude to its responsibilities is put to the test. As part of the cost-saving efforts, it was also necessary to reduce the number of our employees and this introduced much uncertainty into the organisation. While we can never guarantee a situation that is fully stable, I hope that taking such extensive action in the years to come will not be necessary. Confidence is something that should be built into our organisation. It enables people to focus on their key task – doing a great job every day.
It is very regrettable that our stakeholders also were affected by our reduced levels of production, the reductions in value- added distributed to them, postponed investments and lay-offs, all of them caused by the global recession and its impact on us.
Even in these difficult times, we have maintained our focus on improving safety. Although we did not reach the set target of less than five, I am very pleased to see good progress in this area. Our injury frequency rate improved from nine (2008) to six (2009), which is encouraging but not yet world-class. Tougher targets and related plans have been established for this and coming years. Our ultimate target is no injuries at all.
With our eyes on the future, we continued with our leadership development plans and actions. In difficult times, inspirational leadership is an essential element in maintaining our organisation's positive spirit.
Outokumpu Annual Report 2009 – CEO’s review Short-term priorities
It looks as the market environment will continue to be difficult in 2010. No quick recovery is to be expected. Outokumpu management is therefore focusing on these key priorities:
improving safety
restoring profitability
implementing our strategy
delivering the excellence initiatives
Even though issues relating to corporate responsibility are only mentioned here in brief – they are discussed in detail under corporate responsibility section of this report – I want responsibility to be fully integrated into all our operations and all our people to be involved.
Outokumpu's aim is to contribute to resolving global challenges such as climate change and the need for clean water and clean energy in two ways – through continuing material development and by improving our own operations. Our efforts to achieve a low-carbon society will continue even when markets are challenging.
Finally, I take this opportunity to thank our customers and all our stakeholders for their continued loyalty and valuable comments. Special thanks go to our people for doing a great job in a very tough year.
Juha Rantanen CEO
Outokumpu Annual Report 2009 – CEO’s review 2009 highlights Highlights 2009
Outokumpu Annual Report 2009 – 2009 highlights Key figures Group key figures
Key figures
2009 2008 2007
Sales € million 2 611 5 474 6 913
EBITDA € million -212 149 790
Operating profit € million -438 -63 589
Non-recurring items in operating profit € million -20 -83 14
Profit before taxes € million -474 -134 798
Non-recurring items in financial income € million - -21 252
Net profit for the period € million -336 -189 641
Capital employed on Dec. 31 € million 3 634 3 867 4 125
Return on capital employed % -11.7 -1.6 13.9
Net cash from operating activities € million 198 664 658
Capital expenditure € million 245 544 190
Net interest-bearing debt on Dec. 31 € million 1 183 1 072 788
Equity-to-assets ratio % 50.6 52.4 56.5
Debt-to-equity ratio % 48.2 38.4 23.6
Earnings per share € -1.86 -1.05 3.52
Equity per share € 13.54 15.50 18.53
Dividend per share € 0.351) 0.50 1.20
Share price on Dec. 31 € 13.26 8.28 21.21
Personnel on Dec. 31, continuing operations 2) 7 606 8 471 8 108
Wages, salaries and other employee benefits 4) 398 466 443
Stainless steel deliveries 1 000 tonnes 1 030 1 423 1 419
Stainless steel base price 3) €/tonne 1 161 1 185 1 304
Investments in the environment € million 12 18 12
Patent applications pcs 2 3 3
Outokumpu Annual Report 2009 – Key figures R&D € million 19 20 18
R&D (% of sales) % 0.7 0.4 0.3
Income taxes and social security payments 4) € million 46 61 163
Injury rate, lost-time injuries per million hours worked 5) 6 9 11
Carbon dioxide emissions million tonnes 0.57 0.87 0.93
Notes: 1) The Board of Directors' proposal to the Annual General Meeting 2) FTE full-time equivalent 3) Stainless steel: CRU – German base price (2 mm cold rolled 304 sheet) 4) Accounting principles have been adjusted to better meet the GRI guidelines. The comparative figures have been restated. 5) Including contractors
Outokumpu Annual Report 2009 – Key figures Strategic themes Strategic themes
Outokumpu's strategy is aimed at developing and securing a more stable and profitable business model by reducing cyclical effects on demand for stainless steel standard grades and products.
The objective is to expand the Group's product portfolio by increasing the proportion of special grades, value-added products and non-nickel grades. Other aims include increasing the proportion of sales to end-use customers and projects and building stable relationships with key distributors. Growth opportunities that could have a positive effect on both Outokumpu's operations and the company's geographical coverage are also given due consideration.
Outokumpu Annual Report 2009 – Strategic themes Operational excellence Focus on operational excellence
Vision
Outokumpu's vision is to become the undisputed number one in stainless steel with success based on operational excellence. Being the undisputed number one in stainless steel requires:
the best financial performance in the industry,
being an industry benchmark in customer relationship management,
production operations that are the most efficient in the industry, and
being viewed as the most attractive employer.
Actions taken by Outokumpu to achieve this vision include improving stability over the business cycle, ensuring the competitiveness of the Group's European assets, focusing on management of the customer interface and moving towards growth and a readiness for global consolidation.
Operational excellence
Outokumpu focuses on operational excellence by developing and adopting best practices in all of its operations.
Commercial Excellence: making Outokumpu the industry benchmark in customer relationships
Production Excellence: optimising production of both standard and special grades
Supply Chain Management: seeking reliability and predictability throughout the supply chain, securing on-time deliveries and reducing costs via procurement management.
Outokumpu has a strong position in stainless steel. The Group's Tornio Works, a fully-integrated and globally cost- efficient production site in northern Finland, makes Outokumpu one of the global leaders in standard grades. Read more about Tornio Works. Outokumpu also has a leading position in the special grades and products sector and is widely recognised for the high quality of its product and process development. Read more about special grades.
Outokumpu Annual Report 2009 – Operational excellence Closer to the customer Transforming the customer mix
Some two thirds of Group sales are made to distributors or processors of stainless steel. Demand for stainless steel from end-users is more stable as these do not normally engage in speculation regarding nickel prices. Outokumpu's aim is to increase the proportion of direct end-user and project sales from its current level of about one third to at least one half. Other objectives include stabilising sales volumes to key distributors.
Increasing sales to end-user and project customers requires an extensive distribution network. The Group has systematically expanded its service centre capabilities in recent years, mainly in Germany and China. In 2008, Outokumpu acquired the SoGePar Group, an independent stainless distributor in Italy.
Outokumpu Annual Report 2009 – Closer to the customer Diversified product portfolio Expanding the product portfolio
To serve end-users of stainless steel better, Outokumpu is aiming to expand the Group's product portfolio by increasing the proportion of special grades, value-added products and non-nickel grades (ferritics). Outokumpu has a leading market position in duplex grades (low-nickel).
A major proportion of Outokumpu's current production consists of nickel-containing standard stainless steel grades (austenitics). Speculative activity by distributors regarding developments in the nickel price leads to cyclicality in the demand for stainless steel and earnings volatility connected with raw material inventories.
Outokumpu's objective is to increase production of special grades, value-added products and ferritics from its current level of about one third to one half of total Group sales.
Outokumpu Annual Report 2009 – Diversified product portfolio Grow outside Europe Growing outside Europe
Outokumpu's objective is to continue growing outside Europe by entering new growth markets. This will reduce Eurocentricity. In this context, action has been taken in tubular operations in the Middle East and the Group's network of service centres has been expanded to cover the Chinese market.
Outokumpu Annual Report 2009 – Grow outside Europe Management discussion on financial performance Management discussion of financial performance
Focus on maintaining financial strength in a loss-making year
Actions taken in response to the weak stainless steel market
Progress towards a more stable business model
Excellence programmes
Stainless steel market development in 2009
Severe losses in historically poor market conditions
Balance sheet remains relatively strong despite the heavy loss
Dividend
Economic value added
Factors affecting Outokumpu's profitability
Outokumpu and stainless steel markets going forward
Outokumpu's financial objectives
Outokumpu's overall financial objective is to generate the maximum sustainable economic value added. The specific group-level financial objectives in line with the vision in terms of growth, profitability and financial strength are as follows:
To continue growing faster than the market A return of capital employed over 13% and always the best among peers Gearing below 75%
Focus on maintaining financial strength in a loss-making year
In the wake of the global economic crisis and the resulting dramatic collapse of demand in the stainless steel market at the end of 2008, Outokumpu's focus at the beginning of 2009 was on cash generation, short-term cost-efficiency and maintaining the company's financial strength. In response to the weak demand that prevailed in 2009, painful actions to adjust capacity and costs were taken throughout the Group, resulting in both temporary and permanent layoffs and other cost-saving measures. At the same time, Outokumpu remained committed to its strategy of achieving a more stable and profitable business model by increasing the proportion of sales to end-user and project customers as well as building more stable relationships with key distributor customers. Other strategic objectives include maintaining cost leadership in standard grades and broadening the product portfolio, as well as increasing the share of special grades, value- added products and non-nickel containing grades. The ongoing recession limited progress towards these strategic targets in 2009.
Outokumpu Annual Report 2009 – Management discussion on financial performance The beginning of 2009 was marked by severe losses and very low demand from all major customer segments due to low levels of economic activity and heavy destocking throughout the value chain. Base prices were very low at the beginning of the year and the rapid decline in metal prices resulted in major raw material- related inventory losses. Market conditions improved slightly in the summer as increasing raw material prices triggered minor restocking by distributors and base prices started to recover. On the other hand, underlying demand for stainless steel remained extremely poor throughout the year and distributors' buying behaviour was cautious. Markets softened during the fourth quarter of 2009 and base prices declined again before stabilising at the end of the year. Even though Outokumpu's result improved gradually as the year- end approached, it remained disappointingly negative. In line with the company's 2009 focus, cash flow from operations was still positive and the balance sheet remained relatively strong. Cost-cutting measures implemented throughout 2009 had a positive impact of some EUR 185 million on the result.
At the beginning of 2010, market conditions remain difficult and challenging, but have stabilised from the total collapse witnessed at the end of 2008. Outokumpu's current focus is on restoring profitability while at the same time maintaining the balance sheet flexibility required to pursue strategic investments when market conditions improve.
Financial development
€ million 2009 2008
Sales
General Stainless 2 065 4 147
Specialty Stainless 1 239 2 705
Other operations 243 258
Intra-group sales -935 -1 636
The Group 2 611 5 474
1 000 tonnes
Stainless steel deliveries
Cold rolled 545 739
White hot strip 263 330
Quarto plate 67 120
Tubular products 53 70
Long products 40 55
Semi-finished products 63 109
Outokumpu Annual Report 2009 – Management discussion on financial performance Total deliveries 1 030 1 423
€ million
Operating profit
General Stainless -259 -6
Specialty Stainless -149 -101
Other operations -31 38
Intra-group items 1 6
The Group -438 -63
€ million
Major non-recurring items in operating profit
Specialty Stainless
Redundancy provisions -5 -17
Write-down of Avesta melt-shop investment -15 -
Thin Strip restructuring in the UK - -66
Total -20 -83
Source: CRU and Outokumpu
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 2009 and highest achieved delivery volumes.
Actions taken in response to the weak stainless steel market
In 2009, Outokumpu made a number of difficult decisions in order to prepare for a possible period of prolonged demand weakness and to ensure that cost-efficiency and financial strength are given the highest priority in extremely challenging market conditions. Cost-saving measures included temporary and permanent reductions in the numbers of personnel employed in several countries as well as Group-wide general cost-saving programmes. Actions taken included temporary layoffs affecting more than 2 000 people and some 900 permanent job reductions, with the result that Group fixed costs were reduced by some EUR 185 million in 2009. Approximately half of these savings are expected to be sustainable.
Progress towards a more stable business model
Outokumpu's objective is to develop and secure a more stable and profitable business model to balance out the effects of volatility in the market for stainless steel standard grades and products, and to address growth prospects related to the Group's size and geographical coverage. Despite the difficult market situation and the resulting limited progress towards its strategic goals, Outokumpu is committed to its chosen path towards a more stable business model. Read more about Outokumpu's strategy.
Increasing the proportion of value-added special products such as low-nickel duplex grades and growth in sales of ferritic (non-nickel-containing) grades will help reduce the earnings cyclicality driven by volatile nickel prices. Margins in special
Outokumpu Annual Report 2009 – Management discussion on financial performance grades are higher and more stable than in standard grades. By offering special products, Outokumpu can serve end- customers better and offer tailor-made solutions which deliver higher value and higher performance as well as cost savings.
Supporting the aim of increasing the proportion of special grades, value-added products and non-nickel-containing grades, Outokumpu successfully completed replacement of one of the five annealing and pickling lines at the Group's Tornio Works in Finland during 2009. This investment improves Outokumpu's capabilities in brighter ferritic steel grades and enhances production flexibility. At Nyby in Sweden, the investment to double annual production capacity in special grades from 34 000 tonnes to more than 70 000 tonnes was completed. In order to shift the Nyby plant's product mix towards more value-added special grades, a new grinding line with automated intermediate storage and an entry section to the annealing and pickling line was taken into operation in October 2009. At New Castle (IN) in the US, an investment to upgrade and install equipment that will increase the plant's quarto plate capacity by some 20 000 tonnes to 70 000 tonnes has progressed well and completion is expected in the spring of 2010. With this investment, the Group's quarto plate product mix will shift increasingly towards value-added tailor-made plates and special grades, especially Outokumpu's proprietary lean duplex and other duplex grades.
The transformation towards increased end-user and project sales requires investment in the Group's service centre capabilities. In end-user and project sales, steps taken during 2009 include completion of the expansion in stock and processing capacity at the Outokumpu service centre in Willich, Germany. This investment improves and expands the Group's service offering to end-user and project customers in Germany, Europe's largest stainless steel market. The project consisted of expanding the site area, doubling the size of the service centre building and installing new cut-to- length and slitting lines. Annual capacity at the service centre has been increased from 60 000 tonnes to 125 000 tonnes. A new service centre being built in China near Shanghai will have the capacity to stock and process some 30 000 tonnes of mainly special grades when it becomes operational in mid-2010.
Outokumpu Annual Report 2009 – Management discussion on financial performance In December 2008, Outokumpu decided to postpone almost all elements of the Group's investment programme for at least 12 months. Continuation of any project is subject to a separate decision based on an updated feasibility study. In 2009, Outokumpu decided that the investment to expand melt-shop capacity from 500 000 tonnes to 750 000 tonnes at Avesta in Sweden will not proceed in the foreseeable future as there is no need for additional melting capacity in the medium term. Write-downs of EUR 15 million associated with this investment were booked in the 2009 third-quarter operating result. As originally planned, this investment would have totalled some EUR 200 million. Further decisions regarding other postponed investments will be made by the end of 2010.
Excellence programmes
The Operational Excellence programmes launched in 2005 and originally comprising Production and Commercial Excellence were expanded to include Supply Chain Excellence in 2007. While the targeted benefits were achieved in 2008, they were not reached in 2009 with the prime causes being very-low delivery volumes and raw material prices. The targets set for this programme were improving Group performance by EUR 80 million in 2008 and EUR 200 million in 2009 compared to 2005. In 2009, benefits delivered by the Operational Excellence programmes totalled some EUR 150 million (2006: EUR 25 million, 2007: EUR 45 million, 2008: EUR 86 million) compared to 2005. Examples of profitability- raising improvements achieved through the Operational Excellence programmes include utilising raw materials more efficiently, providing additional capacity to solve production bottlenecks, improved pricing discipline, the release of working capital through shorter payment terms and achieving profitable growth with key customers.
Due to the current weak market outlook for stainless steel, the original 2010 target of EUR 300 million in benefits from the Operational Excellence programmes will not be achieved. In the short term, these programmes will focus on working capital reduction, raw material usage and other cost-saving-related projects rather than capacity enhancement. The strong focus placed on Operational Excellence programmes within the Group will lead to the targeted benefits totalling EUR 300 million being achieved in the future.
Outokumpu Annual Report 2009 – Management discussion on financial performance Stainless steel market development in 2009
2009 began with both very low levels of demand and low base prices as inventories were being reduced throughout the value chain from mills to end-users of stainless steel. Significant production cuts were executed by producers, especially in Europe, and capacity utilisation was at the historically extremely-low levels of 50-55%. Triggered by higher raw material prices, purchasing activity among distributors improved somewhat in the second quarter, and base prices started to increase gradually as the autumn months approached. Towards the end of the fourth quarter, customers became hesitant about building stocks and delayed their purchases over the year-end. Base prices began to decline again during the fourth quarter but stabilised at the end of the year. Compared to 2008, estimates indicate that apparent consumption of stainless steel in 2009 was down by 29% in Europe and down by 8% globally. China, where year-on-year consumption is estimated to have increased by 13%, was the only region in which positive growth was recorded in 2009. Read more about the stainless steel market in 2009.
The average German base price for 2mm 304 cold rolled sheet in 2009 was 1 161 EUR/tonne, 2% lower than in 2008. After the collapse of the stainless steel market at the end of 2008, the base price was very low during the first quarter of 2009 at 925 EUR/tonne. The recovery that began in the second quarter lifted the base price to 1 307 EUR/tonne in the third quarter before it fell back to 1 297 EUR/tonne at the end of the year. The transaction price for stainless steel averaged 2 036 EUR/tonne in 2009, 27% lower than in the previous year because of the higher price of nickel in 2008 (CRU). Prices for special grades and project-related products were more stable but weakening demand had a negative impact.
Outokumpu's average base prices were somewhat lower than the CRU reference price in 2009.
The price of nickel increased from a very low level of 10 000 USD/tonne at the beginning of the year to some 20 000 USD/ tonne after the summer and was at 17 500 USD/tonne at the year-end. The ferrochrome contract price increased gradually during the year, moving from 0.79 USD/lb in the first quarter and 0.69 USD/lb in the second quarter to 1.03 USD/tonne in the fourth quarter. Molybdenum, which is used to make stainless steel acid-resistant, surged from levels of 9 USD/lb at the beginning of the year to 18 USD/lb at the end of the summer, then declined to 11 USD/lb by the end of the year.
Severe losses in historically poor market conditions
Lower delivery volumes and lower transaction prices for stainless steel in 2009 resulted in Group sales for the year declining to EUR 2 611 million (2008: EUR 5 474 million). Stainless steel deliveries totalled 1 030 000 tonnes, a significant decline from the previous year (2008: 1 423 000 tonnes).
Outokumpu Annual Report 2009 – Management discussion on financial performance Operating loss in 2009 was EUR 438 million (2008: EUR 63 million), with net non-recurring costs of some EUR 20 million being included in this figure (EUR 15 million of write-downs resulting from the decision not to proceed with the melt-shop investment in Avesta in Sweden and EUR 5 million of restructuring provisions). In 2008, operating loss included net non- recurring costs of some EUR 83 million (EUR 66 million of provisions and write-downs related to the closure of the Thin Strip business in Sheffield and some EUR 17 million of provisions related to personnel reductions in Sweden). Raw material-related inventory losses constrained the Group's operating result in 2009 by EUR 78 million (2008: EUR 285 million losses). The underlying operational result for 2009 was EUR 340 million negative (2008: EUR 305 million positive), with the main reason for the decline in operating profit being significantly lower delivery volumes. Lower average base prices also had a negative effect on the result. On the cost side, financial benefits achieved through optimising raw material usage and pricing were reduced in 2009 because of lower metal prices. Cost saving actions implemented in 2009 resulted in EUR 185 million lower fixed costs compared to 2008. Approximately half of these savings are expected to be sustainable. The sharp decline from record-high ferrochrome prices in 2008 and lower delivery volumes due to closure of the Group's mine and ferrochrome production from April to October resulted in a negative year-on-year impact from Outokumpu's own ferrochrome operations in 2009.
Net financial income and expenses in 2009 was EUR 25 million negative (2008: EUR 47 million negative). Net financial expenses in 2009 do not include non-recurring items. In 2008, an impairment loss of EUR 21 million (EUR 12 million in the first quarter and EUR 9 million in the fourth quarter) was booked in other financial expenses due to the decline in the share price of Belvedere Resources Ltd, classified as an available-for-sale financial asset. Net interest expenses fell to EUR 22 million (2008: EUR 54 million). Profit before taxes was EUR 474 million negative (2008: EUR 134 million negative). Net profit in 2009 was EUR 336 million negative (2008: EUR 189 million negative) and the net profit from continuing operations was EUR 332 million negative (2008: EUR 110 million negative). Earnings per share was EUR -1.86 (2008: EUR -1.05) and earnings per share from continuing operations was EUR -1.83 (2008: EUR -0.61). The return on capital employed in 2009 was -11.7% (2008: -1.6%).
Balance sheet remains relatively strong despite the heavy loss
Due to the significant loss, Outokumpu's return on capital employed of -11.7% in 2009 was a long way from the target of 13.0%. Despite this disappointing result, gearing remained below the target level of 75%, and net cash generated from
Outokumpu Annual Report 2009 – Management discussion on financial performance operating activities in 2009 was positive at EUR 198 million (2008: EUR 664 million positive). This figure includes a EUR 548 million positive effect from the release of working capital resulting mostly from declining inventory volumes, declining raw material prices and a reduction in accounts receivables. At the end of 2008, Outokumpu decided to postpone investments totalling some EUR 1.5 billion in order to maximise cash flow and maintain balance sheet flexibility in 2009 and afterwards. As a result, capital expenditure in 2009 totalled EUR 245 million compared to the planned level of EUR 850 million. Investments were limited to mandatory maintenance and expansion projects that were close to completion. Major investments in 2009 were the replacement of the No. 2 annealing and pickling line at Tornio Works, the expansion of stock and processing capacity at the Group's service centre in Willich, Germany, the building of a new dispatch hall for quarto plate in Degerfors, Sweden and the doubling of annual special grades production capacity in Nyby, Sweden. Construction of the Group's new service centre in China was also initiated. These investments totalled some EUR 98 million.
Outokumpu's financial and liquidity position remains relatively strong. At the end of 2009, the Group's equity-to-assets ratio stood at 50.6%. Net interest bearing debt at the end of 2009 totalled EUR 1 183 million (end of 2008: EUR 1 072 million) with most of the Group's debt maturities extending to the 2010–2013 period. Group cash and cash equivalents stood at EUR 112 million (2008: EUR 224 million) at the end of the year, and committed undrawn credit facilities totalled some EUR 1.1 billion. Committed credit facilities include a three-year EUR 900 million revolving credit facility signed in June 2009. Intended for general corporate purposes, this replaces the comparable five-year EUR 1 billion facility signed in June 2005. The loan agreement includes a financial covenant based on gearing. The facility was fully undrawn at the end of 2009.
Dividend
Group earnings per share in 2009 totalled EUR -1.86, with earnings per share from continuing operations EUR -1.83 and earnings per share from discontinued operations EUR -0.02. Total shareholder return (TSR) was 64.4% (2008: -58.6%). TSR is calculated as the annual change in share price plus the dividend, divided by the starting share price for the year. Outokumpu's share price was EUR 8.28 at the beginning of the year and fell to EUR 7.72 on January 23, 2009 before rebounding to EUR 13.26 by the end of the year (respective market capitalisation of EUR 2 400 million). Dividends for 2008 totalling EUR 90 million (EUR 0.50 per share) were paid in 2009.
In accordance with the Board of Directors' established dividend policy, the payout ratio over a business cycle should be at least one-third of the Group's profit for the period with the aim of making stable annual payments to shareholders. In its annual dividend proposal, the Board of Directors will, in addition to financial results, take into consideration the Group's investment and development needs. The Board of Directors is proposing to the Annual General Meeting to be held on March 30, 2010 that a dividend of EUR 0.35 per share be paid for 2009. The dividend yield is 2.6% and Outokumpu's average dividend payout ratio over the past five years has been approximately 91%.
Share-related key figures
€ 2009 2008
Earnings per share -1.86 -1.05
From continuing operations -1.83 -0.61
From discontinued operations -0.02 -0.44
Outokumpu Annual Report 2009 – Management discussion on financial performance Equity per share 13.54 15.50
Dividend per share 0.351) 0.50
Share price on Dec. 31 13.26 8.28
Market capitalisation Dec. 31, € million 2 400 1 492
1) Board's proposal to the Annual General Meeting
Economic value added
Outokumpu's overall financial objective is to generate the maximum sustainable economic value added on capital invested by its shareholders. Outokumpu uses the weighted average cost of capital (WACC) in defining the capital charge for economic value added (EVA), and applies this when estimating the profitability of investment projects and defining the economic and commercial value of the Group's business operations. In 2009, Outokumpu's WACC after taxes was approximately 6%. This figure was obtained using a target capital structure in which the weight given to equity is 60% and the weight of debt is 40%. The cost of equity was 8.4% and the after-tax cost of debt was 3.3%. Economic value added by Outokumpu's continuing operations in 2009 totalled EUR -547 million (2008: EUR -293 million).
Factors affecting Outokumpu's profitability
The stainless steel business is cyclical. In addition to the company's own actions, Group profitability depends on the current stage in the global economic cycle and especially on levels of industrial investment activity. In the long term, demand for stainless steel has been growing at an annual rate of 5–6%. Changes in regional or global production capacity can sometimes have an adverse effect on stainless markets, resulting in temporary imbalances between supply and demand. Increasing stainless steel production capacity in China will continue to have an effect on the global supply situation in future years.
A key factor that has a direct effect on Outokumpu's profitability is developments in stainless steel base prices. The level of these prices is linked to both the economic cycle and to levels of industrial investment in the Group's main customer segments. Changes in base prices have also been attributable to strong fluctuations in demand from distributors who are either de-stocking or re-stocking their inventories. Outokumpu's current dependence on traditional nickel-containing standard austenitic grades exposes the Group to demand volatility caused by fluctuations in the nickel price. The distributor sector in particular has postponed placing orders for stainless steel when nickel – and thus stainless steel transaction prices – are expected to fall, resulting in unnecessary demand volatility without any changes in underlying demand.
Transaction prices for stainless steel comprise the base price plus an alloy surcharge. The alloy surcharge applied in Europe and North America includes the cost of alloying materials when the prices for these exceed predefined trigger- price levels. The cost of alloying materials for stainless steel – nickel, chrome, molybdenum, iron and titanium – is invoiced to customers by stainless steel producers through the alloy surcharge mechanism, reducing the producer price risk associated with alloying materials. Even so, the price paid for alloying materials feeds through into the amounts tied up in working capital. As Outokumpu's throughput time is longer than the time period applied in the alloy surcharge mechanism, changes in the price of alloying materials may lead to timing differences that have an impact on Group profitability. The alloy surcharge is based on a 30-day average of raw material prices calculated backwards from the 20th day of the preceding month.
Outokumpu's operating profit is affected not only by changes in base prices but also by delivery volumes, unit costs and the product mix. When manufacturing stainless steel, capacity utilisation rates also have a major impact on operating profit. Production volumes depend on the demand for stainless, and products are mostly produced to fulfil orders. The product mix also has an impact on profitability – products with higher value added are more profitable.
Outokumpu Annual Report 2009 – Management discussion on financial performance The Group's chromium mine near Tornio in Finland supplies Outokumpu with the majority of its ferrochrome needs at the cost of production. This has a direct positive impact on Group profitability. Read more about Outokumpu's ferrochrome operations.
Stainless steel is fully recyclable. Alloying materials can usually be purchased at a discount when sourced as recycled stainless steel and Outokumpu therefore always attempts to maximise the use of recycled steel in the Group's manufacturing processes. The extent of the discount depends on the prevailing market conditions. When prices for alloying materials are high, the financial benefits of using recycled material can be significant. Some 60% of raw materials used by the Group in production are sourced as recycled stainless steel.
As a general rule, currencies in which stainless steel products are priced are determined by the market area: euros in Europe and US dollars in the US and Asia. Price levels in Europe, the US and Asia can differ. Outokumpu is exposed to fluctuations in currency exchange rates primarily because of sales to the Asian and US markets and also because the Group's own ferrochrome production is priced in US dollars. Exchange rates may also impact the relative competitiveness of stainless steel producers on different continents. The majority of Outokumpu's production costs are incurred in euros, Swedish crowns and UK pounds. Prices for raw materials are determined primarily in US dollars, while the alloy surcharge mechanism transfers changes in exchange rates to the euro price in Europe.
The table below shows the approximate sensitivity of Outokumpu's operating profit in 2010 to changes in stainless steel base prices, changes in ferrochrome prices and changes in exchange rates between the euro and the main currencies used by the Group. These sensitivities have been calculated on the basis of the average exchange rates in 2009 and the highest achieved delivery volumes.
Outokumpu's sensitivity – effect of sustained change on annual operating profit
€ million
Stainless steel base price, +100 EUR/tonne 180
Ferrochrome price, +5 USc/lb 10
USD/EUR, +10% 30
SEK/EUR, +10% -40
GBP/EUR, +10% -8
Outokumpu and stainless steel markets going forward
In 2009, the stainless steel industry was hit hard by the ongoing global recession, especially in Europe, and the dramatic decline in demand for stainless steel had a major negative impact on Outokumpu. At the beginning of 2010, although there are still no signs of major improvement in end-user demand for stainless, market conditions have stabilised and are clearly better than they were at the beginning of 2009. Although short-term demand remains depressed and visibility is still relatively poor, long-term prospects for stainless steel demand are robust. The long-term average annual rate of growth in global stainless steel consumption is forecast by SMR (Stainless Market Research) to be 5.5% (CAGR) in the period 2008–2020. Growth is expected to remain strong in Asian markets where capacity has also been increasing rapidly. These significant increases in capacity may cause periods of imbalance when supply exceeds demand, with a consequent impact on the global market and particularly in standard grades.
Outokumpu Annual Report 2009 – Management discussion on financial performance Despite the external uncertainties in the current operational environment, Outokumpu remains committed to its stated strategy and plans. The Operational Excellence programmes have delivered solid, well-proven results and Outokumpu is focusing strongly on building Operational Excellence in the future. Group-wide cost-cutting actions implemented in 2009 exceeded the original targets and resulted in clear sustainable savings. In the current market situation, Outokumpu's priority is to balance short-term cost and cash flow management with balance sheet flexibility and longer-term strategy implementation. Even though many related investments have been postponed, Outokumpu currently has adequate production capacity available to continue the Group's strategic drive towards a more stable and profitable business model. As a leading producer, Outokumpu is well positioned to capitalise on the world's growing demand for stainless steel.
Outokumpu Annual Report 2009 – Management discussion on financial performance Operating environment Operating environment
The consumption of stainless steel has during the last decades been growing more rapidly than any other metal in the world. Outokumpu is one of the largest producers of stainless steel and is widely recognised as a world leader in technical support, research and development.
According to the current strategic phase, Outokumpu is increasing the share of special grades and special products in its product mix.
The global stainless steel market totals 25 million tonnes or some EUR 50 billion. During the last twenty years, consumption has grown at a rate of 4–5% per annum. In Europe (western), the Group's main market area, the market totalled 3.1 million tonnes in 2009. The European consumption has grown by some 2% annually, but declined sharply in 2009 due to the economic slowdown. In recent years, the largest growth globally has occurred in China with an average growth rate of over 10% annually.
Outokumpu is one of the world's largest producers of stainless steel with main production facilities located in Finland, Sweden, the UK, the US and the Netherlands. Outokumpu's melting capacity totals 2.55 million tonnes and the finished products capacity for cold rolled material and white hot strip is 1.6 million tonnes. Outokumpu also has annual production capacity of 0.3 million tonnes of long products and plate.
In global terms, Outokumpu's biggest site, Tornio Works in Finland, is one of the world's most cost-efficient and the most integrated single-site stainless steel production facilities. At Tornio Works in Finland, Outokumpu produces mainly high volume standard grades of stainless steel while the Avesta integration in Sweden is focusing more on customer tailored special grades and products.
Outokumpu has a 18% share of the stainless steel coil market in Europe and a 5% share worldwide. Outokumpu's main markets are Europe (74% of sales in 2009), Asia (14%) and North and South America (10%).
Major stainless steel producers
Estimated slab capacity, million tonnes 2009 2011
Acerinox, Spain 3.24 3.32
ArcelorMittal, The Netherlands 3.00 3.00
ThyssenKrupp, Germany 2.90 3.53
POSCO, South Korea 2.80 2.80
TISCO, China 2.60 2.60
Outokumpu, Finland 2.40 2.40
YUSCO, Taiwan 1.98 1.98
Outokumpu Annual Report 2009 – Operating environment Outokumpu Annual Report 2009 – Operating environment Market review Market review
Stainless steel demand was heavily influenced by the global recession in 2009. The collapse in credit availability had an adverse effect on business conditions and created uncertainty, causing a reduction in business and consumer spending. As a result many stainless steel users were forced to introduce a variety of both temporary and permanent production stoppages and cost reduction measures. These actions in turn reduced stainless steel demand significantly and, subsequently caused the stainless steel industry to operate at relatively-low capacity utilisation rates.
Stainless steel demand was heavily influenced by the global recession in 2009.
Global stainless steel end-use consumption fell by 9% in 2009 following a decline of 6% in 2008. China was the only region to register positive growth in 2009 with year-on-year consumption increasing by 18%. Europe was the region that was affected worst, with demand down by 26% following a 3% fall in 2008. Demand in North America was down by 24% following a 19% fall in 2008. Global end-use consumption is expected to grow by 10% in 2010, with positive growth expected to return to all regions.
Demand performance in 2009 in industry-led stainless steel consumption segments was poorer than in consumer-related industries – which were harder hit by demand declines in 2008. The largest declines in demand in 2009 were experienced in the industry-related chemical, petrochemical, energy and process & resources end-use clusters. This was a reversal of the situation in 2008 where demand reductions were lowest in industry-led clusters and highest in consumer related industries.
Demand in the chemical, petrochemical and energy segments fell by 23% year-on-year, while demand in process & resources segment fell by 16%. Consumption in all these industries was severely affected by restrictions in the availability of finance and subsequent delays in project approval. In contrast, stainless steel demand in the consumer- related catering & appliances segment grew by 2%. Compared to industrial and commercial purchasers, consumers were relatively more willing to spend during the year. This was particularly true in China, where demand for stainless steel in catering & appliances grew by 20% in 2009.
Global stainless steel consumption in the architectural, building & construction cluster fell by 9% in 2009 following a 7% decline in 2008. Activity in the commercial building construction sector remained at a low level in the developed
Outokumpu Annual Report 2009 – Market review countries. Although governmental stimulus packages had some positive impact, only a small proportion of this market – products such as re-bars and material for use in bridges – has an effect on demand for stainless steel.
Global demand for stainless steel in the transportation cluster declined by 13% in 2009 following a fall of 12% in 2008. In Europe and USA, the wreckage bonus system dampened the negative impact on order intake in the Automotive sector, but there could still be a negative effect on demand in 2010. On the other hand, automotive demand in China and some emerging markets exhibited strong growth in 2009.
Long-term prospects for stainless steel demand remain robust. SMR estimates that the average annual growth in worldwide stainless steel consumption will be 5.45% (CAGR) in the 2009–2020 period. Being a leading producer of stainless steel, Outokumpu is well positioned to capitalise on the worldwide growing demand for stainless steel.
Source: CRU and Outokumpu
Annual average metal market prices
2009 Change % 2008 2007 2006 2005
Stainless steel
Base price EUR/t 1 161 -2.0 1 185 1 304 1 470 1 174
Alloy surcharge EUR/t 875 -45.9 1 616 2 534 1 341 942
Outokumpu Annual Report 2009 – Market review Transaction price EUR/t 2 036 -27.3 2 801 3 828 2 811 2 116
Nickel USD/t 14 655 -30.6 21 111 37 230 24 254 14 744
EUR/t 10 507 -26.8 14 353 27 161 19 317 11 851
Ferrochrome (Cr-content) USD/lb 0.85 -51.7 1.76 0.91 0.72 0.74
EUR/kg 1.34 -49.0 2.63 1.46 1.26 1.32
Molybdenum USD/lb 11.42 -61.4 29.56 30.57 25.10 32.51
EUR/kg 18.05 -59.3 44.31 49.17 44.08 57.61
Recycled steel USD/t 223 -44.4 401 280 230 204
EUR/t 160 -41.4 273 204 183 164
Outokumpu Annual Report 2009 – Market review Risk management Risk management
Outokumpu operates in accordance with the risk management policy approved by its Board of Directors. The policy defines the objectives, approaches and areas of responsibility of risk management activities. As well as supporting Outokumpu strategy, risk management helps in defining a balanced risk profile from the perspective of shareholders and other stakeholders such as customers, suppliers, personnel and lenders.
Outokumpu has defined risk as anything that could have an adverse impact on activities that the company is undertaking to achieve its objectives.
Definition of risk
Outokumpu has defined risk as anything that could have an adverse impact on activities that the company is undertaking to achieve its objectives. Risks can therefore be threats, uncertainties or lost opportunities that relate to current or future Group operations.
Outokumpu's appetite for risk, and risk tolerance, are defined in relation to Group earnings, cash flows and capital structure. Risk management is part of the Group's management system and is divided into four stages: identifying risks, risk evaluation, risk control and mitigation, and risk reporting.
Risk management organisation
The Outokumpu Board of Directors is ultimately responsible for risk management within the Group. The CEO and The Group Executive Committee are responsible for defining and implementing risk management procedures, and for ensuring that risks are both properly addressed and taken into account in strategic and business planning. Business units and Group functions are responsible for managing risks connected with their own operations.
External auditors and Internal Audit monitor the risk management process, while the Group Executive Committee, the Audit Committee and the Board of Directors review key risks and actions taken to manage risk on a regular basis. The Treasury and Risk Management function supports implementation of the Group's risk management policy, facilitates and coordinates risk management, and prepares quarterly reports on risk for the company's management and auditors.
Outokumpu Annual Report 2009 – Risk management Focus areas Focus areas
Risk management was developed into a more dynamic direction during 2009 by adding quarterly risk reviews and updates to the agenda of Group Executive Committee meetings and by providing regular risk management updates for both the Board of Directors and the Audit Committee.
Risk workshops
The management teams of most Business units and several Group functions attended risk workshops in 2009. These workshops covered risk identification, risk evaluation and risk mitigation, and the connections with current strategy planning and performance management processes.
Crisis management
Outokumpu initiated a systematic programme of crisis management in 2009. Crisis management teams at corporate level received training in handling different crisis situations and cooperation with internal and external stakeholders.
Credit risks
The reduction of insured credit limits by credit insurers has led to an increase in the proportion of uninsured sales. The current shortage of credit limits is expected to continue and the risk of defaults by customers is expected to continue, setting increased requirements for credit management of the Group. Following the Group's new financial risk policy, a development programme aimed at enhancing the organisation's ability to make timely, accurate and high-quality credit decisions was initiated in 2009.
Security and fire safety
Security and safety arrangements in fire situations were further improved at several Group sites in 2009. Related development and change initiatives were based on local self-assessment at sites as well as on systematic audits and Group-wide instructions.
Realised risks
No major damage to Group property or business interruptions occurred in 2009. The most significant risks realised during the year were related to structural issues in stainless steel markets and to the global recession, with the latter having an impact on stainless markets and the Group's ability to implement planned investment projects.
Outokumpu Annual Report 2009 – Focus areas Strategic and business risks Strategic and business risks
Strategic risks for Outokumpu are related to the company's business portfolio, the market situation and major investments. Business risks are connected with the company's operating environment, customer behaviour and the economic outlook. Volatility in demand has an almost simultaneous impact on all or almost all strategic and business risks.
Structural overcapacity in stainless markets
Demand for stainless steel remained depressed in Outokumpu's main markets in 2009. Increased stainless steel production capacity, especially in China, has led to gradually developing global overcapacity, while lack of demand in Europe has resulted in regional overcapacity. Consequently this development has led to global overcapacity in stainless steel production, and this could limit the Group's growth. Actions taken by Outokumpu to address overcapacity in production include improving cost-efficiency and delivery reliability in the Group's operations, developing distribution channels and increasing sales to end-users.
Eurocentricity of operations
Although Outokumpu's sales and distribution network is global, the company's main production facilities are located in Europe. Outokumpu's main market area is also Europe, and depressed levels of demand have had a major impact on stainless steel markets. Minor changes in price levels, periodic demand growth or currency rates in specific market areas and regions can also affect Outokumpu's competitive position and financial performance. Outokumpu has identified operations that are overly Eurocentric as a possible risk to the Group's strategy implementation, even though Eurocentricity can also be seen as an opportunity. Ensuring profitable business operations in Europe requires the company to have a strong foothold with cost-efficient, local operations. Outokumpu will study ways of strengthening its position outside Europe.
Competition in stainless steel focused on the Asian market
As growth prospects for stainless steel demand are better in Asia than in Europe, a lot of new production capacity has been built in the region. These significant investments have resulted in cold rolled stainless steel production capacity in China currently exceeding demand. As high levels of stainless steel capacity among Asian producers currently exceed demand from their domestic markets there is a risk that this overcapacity will also affect European markets. While Asian producers are competitive in standard products and basic offerings, business opportunities for Outokumpu in special products and service offerings in Asia are likely to remain. In 2009, Outokumpu expanded its operations in China by investing in a new service centre facility in Kunshan, Shanghai, which will focus on special products and grades.
Continuing weak market situation
As the global economic downturn had a clear impact on stainless steel demand, the market for stainless steel remained weak during 2009. Visibility regarding market development was poor during the first half. If challenging global economic conditions continues long, the weak market situation will have an impact on both demand for stainless steel and on prices. Outokumpu has made preparations for a market of this type with readiness plans, operational action to reduce fixed costs, and cost savings programmes. Concerns about related risks resulted in Outokumpu postponing major investment projects in 2009.
Outokumpu Annual Report 2009 – Strategic and business risks Operational risks Operational risks
Operational risks are related to inadequate or failed internal processes, employee actions, systems, or other events such as natural catastrophes and misconduct/crime. These types of risk are often connected with production operations, logistics, financial processes, projects or information technology and, should they materialise, can lead to personal injury, liabilities, the loss of property, suspension of operations or environmental impacts. Outokumpu's operational risks are partly covered by insurance.
Corporate culture and One Company approach
Outokumpu's objective is to achieve a strong and unified corporate culture throughout the company's organisation. To further this aim, the "One Outokumpu" concept has been created, but this kind of a significant culture change takes time. The change can be seen as an opportunity to increase operational effectiveness in operations by cross-cultural cooperation between people. Even so, country-based or overly independent corporate cultures can restrict operational progress and achievement of strategic goals. Implementation of strong Group-level functions such as Supply Chain Management and Group Sales and Marketing play a vital role in furthering the One Company approach.
Investment projects
Outokumpu's announced major investment programme was postponed almost entirely at the end of 2008 due to the global financial crisis and weakened markets for stainless steel. Some investments such as the service centre expansion in Willich, Germany and the new plate service centre in China are however being carried out. As preparation for the future, Outokumpu is aiming to further develop project management methods to support the implementation of investment projects and manage risks related to the whole of the Group's project portfolio. The proposed investment in additional melting capacity at Avesta, Sweden was permanently cancelled at the end of the third quarter of 2009, resulting in an asset write-down of EUR 15 million.
Variations and lack of flexibility in production performance
Outokumpu has systematically developed the Group's operative performance through excellence initiatives, with a significant number of the company's personnel being trained to implement these improvement measures in both commercial and production operations. However, risks associated with not being able to adapt capacity to meet fluctuating levels of demand and experiencing excessive variations in production performance can have an impact on the Group's business operations. For example, if the Group is not able to ramp up its production to meet fluctuating demand due to delays in product output resulting in reduced delivery reliability, this might have negative financial impact. As mitigation against such risks, Outokumpu is expanding the Group's Operational Excellence programmes and enhancing strategy implementation by strengthening Group-level functions such as Supply Chain Management and Group Sales and Marketing.
Major fire or accident
Most of the Group's production is located in large industrial areas and comprises a number of separate buildings and production lines. Stainless steel production by Outokumpu also involves the integration of production and logistics between the Group's facilities in Tornio (Finland), Terneuzen (the Netherlands), Avesta (Sweden), Sheffield (the UK) and other locations. Production is capital intensive and a large part of the Group's operating capital is tied up in these facilities. Fire or a serious mechanical breakdown can lead to major damage to property or the loss of production, or have other indirect adverse effects on Group operations. Outokumpu monitors such risks by continuously evaluating its
Outokumpu Annual Report 2009 – Operational risks production facilities and processes from a risk management perspective and by arranging insurance coverage for a large proportion of these risks.
Corporate security
Outokumpu continued to develop the Group's corporate security in 2009 with a focus on crisis management. Systematic auditing of site security continued at numerous sites and the audit results generated many initiatives to enhance security levels. Outokumpu also has a fire-safety audit programme linked to the company's insurances. In 2009, approximately 40 audits were carried out using the Group's own resources, and on many occasions these were conducted jointly with technical experts from the company's insurers and insurance brokers. With the aim of harmonising different practices within the Group, a significant number of Group-wide instructions relating to fire safety and security were reviewed and updated in 2009. These instructions were prepared in cooperation with the Outokumpu Security Working Group (OSWG), the operational body for personnel at Outokumpu sites whose responsibilities include safety and security.
Outokumpu Annual Report 2009 – Operational risks Financial risks Financial risks
Financial risks comprise market, liquidity, refinancing, country and credit risks. As nickel is used as an alloying material in stainless steel production, one of the main market risks for Outokumpu is the nickel price.
Financial risk management within the Group is further described in Note 20 to the consolidated financial statements.
Outokumpu Annual Report 2009 – Financial risks Corporate responsibility risks Corporate responsibility risks
Protecting the Group's personnel, assets and reputation against a wide range of potential losses is an essential component in our operations. In all areas of risk management, the key element is having a good overview of any underlying risks. Risk workshops were arranged in business units and key Group functions in 2009, and development work with top management was continued in order to institute frequent risk reporting and follow-up procedures. As instability in the financial and economic environment increased during the year, the emphasis in this work was on the management of strategic and financial risks connected with the weaker market situation, the nickel price and customer credit.
Read more about corporate responsibility risks here.
Outokumpu Annual Report 2009 – Corporate responsibility risks Business Operations Outokumpu's business and business units
Outokumpu's product range covers both standard and special grades and products. The Group's main production facilities are efficient integrated stainless steel mills located in Tornio, Finland and Avesta, Sweden. There is also a production route from the Sheffield melt shop in the UK to several long product and plate production units in Sweden, the UK and the US.
Outokumpu is one of the top players in the global stainless steel market with a European market share of 17%.
Outokumpu's organisation serves customers in an optimal way. Group Sales and Marketing is organised into customer industry-based groups, and Group production operations are organised into two divisions based on the type of product: General Stainless and Specialty Stainless. Group Sales and Marketing, a cross-organisational function, is responsible for the Group's commercial targets while Supply Chain Management is responsible for end-to-end delivery performance. The Group also has a comprehensive network of sales companies, service centres and sales agents in some 70 countries.
Outokumpu's strategy aims at achieving a more stable and profitable business model by increasing the share of sales to end-user and project customers. Read more about strategy.
A significant share of the Group's sales is going to distributors, re-rollers and tubemakers. These segments continue to be essential for the Group's total business, while Outokumpu is looking for growth in value-adding end-user segments such as various industrial uses, construction, and catering and appliances. As a supplier for project applications, market segments such as pulp and paper, desalination plants, and oil and gas are central to the Group's development.
Stainless steel deliveries
1 000 tonnes 2009 2008 2007
Cold rolled 545 739 703
Outokumpu Annual Report 2009 – Business Operations White hot strip 263 330 314
Quarto plate 67 120 146
Tubular products 53 70 65
Long products 40 55 54
Semi-finished products 63 109 137
Total deliveries 1 030 1 423 1 419
Three main types of stainless steel
Stainless steel is made of iron by adding chromium. All stainless steel grades contain a minimum of 10.5% of chromium. Chrome gives stainless steel its corrosion resistance. The main grades of stainless steel are:
Austenitic (typically 18% chromium and 8% nickel) Ferritic (chromium up to 24%, no nickel) Ferritic-austenitic (1.5–5% nickel)
Outokumpu's duplex steel grades are ferritic-austenitic, contain only small amounts of nickel, and are very strong and corrosion resistant.
Outokumpu Annual Report 2009 – Business Operations General Stainless General Stainless – high-quality standard stainless steel
Outokumpu's General Stainless division produces high-quality standard stainless steel in the form of coil, sheet and long products. The main market is Europe. In this standard high-volume market segment, cost efficiency, high quality and delivery reliability are key competitive advantages. Outokumpu aims to maintain its cost leadership in standard stainless steel grades through the advantages offered by the Group's integrated stainless steel plant in Tornio, Finland.
The main applications for General Stainless products are in industrial segments such as chemicals and petrochemicals, construction and energy-related industries, pulp and paper, catering and households. Customers are mainly distributors and processors who stock and process stainless steel to serve end customers.
General Stainless consists of Tornio Works and Long Products. The majority of the Group's stock and processing units and its sales companies are also reported under General Stainless.
General Stainless key figures
€ million 2009 2008 2007
Sales 2 065 4 147 5 321
of which Tornio Works 1 292 2 701 3 468
Operating profit -259 -6 220
of which Tornio Works -183 66 178
Non-recurring items in operating profit - - -
Operating capital on Dec. 31 2 421 2 663 2 607
Return on operating capital, % -10.2 -0.2 8.1
Capital expenditure 129 332 57
Depreciation 141 135 133
Outokumpu Annual Report 2009 – General Stainless Personnel on Dec. 31 3 753 3 938 3 571
1 000 tonnes
Deliveries of main products
Cold rolled 486 628 587
White hot strip 248 297 270
Semi-finished products 196 340 383
Total deliveries of the division 929 1 265 1 240
Outokumpu Annual Report 2009 – General Stainless Tornio Works Efficient integrated single-site operation
Located in northern Finland, Tornio Works is one of the largest stainless steel mills in the world and also the world's most integrated single-site operation. The main products are cold rolled and hot rolled 300-series austenitic stainless steel coils and sheets, ferritic grades are also part of the product portfolio. The integrated production process starts at the nearby Kemi chromite mine, continues in the Tornio ferrochrome smelter and proceeds through two stainless steel melt shops, a hot rolling mill and cold rolling lines. The majority of finishing operations are carried out in Terneuzen in the Netherlands.
Annual production capacities at Tornio Works are:
1.65 million tonnes of melting
1.6 million tonnes of hot rolling
1.2 million tonnes of finished products from the cold rolling mills
Majority of stainless steel produced in Tornio is standard austenitic stainless containing nickel in addition to chrome and iron. Outokumpu also produces 400-series ferritic stainless steel in Tornio. As ferritic grades do not contain nickel, prices for these products have traditionally been less volatile than those of the Group's main product, 300-series austenitic stainless steel. Outokumpu's production capacity in ferritic grades totals some 180 000 tonnes.
Some black hot band material from Tornio is also delivered to both internal and external customers.
Research and development activities carried out at the Tornio Research Centre focus on process, product and application development. Read more about R&D.
Outokumpu Annual Report 2009 – Tornio Works Tornio Works’ competitive edge Tornio Works' competitive edge
Tornio Works is the Group's largest production unit and one of the world's most cost-efficient stainless steel operations.
Integration into chrome and ferrochrome
Outokumpu's unique backward integration into chromium and ferrochrome production offers the Group significant competitive advantages. Having its own chromium supply is both a significant cost advantage and a way of mitigating risk. Chromite ore is mined at the Kemi underground mine and converted into ferrochrome at Tornio Works. For Outokumpu, the primary benefit is the ability to source the material at cost while selling it at prevailing market prices. As Outokumpu's ferrochrome smelter is located at the same site as the integrated stainless steel mill, ferrochrome can be transferred to the stainless steel melt shop in liquid form, an exceptional advantage in terms of energy and logistics costs. Read more about ferrochrome.
Tornio Works is one of the world's most cost-efficient stainless steel operations.
RAP line
The integrated rolling, annealing and pickling (RAP) line provides additional production flexibility as production can be shifted between hot rolled (white hot strip) and cold rolled products in accordance with market demand. As well as yielding a clear cost advantage, the RAP line requires less working capital than traditional cold rolling processes in which the annealing and pickling operations are carried out on separate lines.
Efficient logistics
Tornio Works is located by the sea and has its own harbour. This allows finished products to be shipped to Europe for further distribution in a highly efficient manner.
Outokumpu Annual Report 2009 – Tornio Works’ competitive edge Ferrochrome Ferrochrome
Chromium provides stainless steel with its corrosion resistance. Some 90% of the chromite mined around the world is converted into different grades of ferrochrome and used by the metals industry. The stainless steel industry consumes about 90% of globally produced ferrochrome (mainly high-carbon and charge grade). Global ferrochrome production in 2009 declined significantly due to global production cut backs and totalled 5.6 million tonnes (2008: 7.7 million tonnes). Major producers of ferrochrome are South Africa (41%), China (21%), Kazakhstan (16%) and Finland (2%).
Outokumpu is 60–65% self-sufficient in ferrochrome.
Outokumpu's unique position – a wholly-owned chromite mine in Kemi in northern Finland with its own ferrochrome production located, at the same site as the Tornio Works stainless steel plant – gives the Group a clear competitive edge. The main benefits of this integrated production chain are: Sourcing of raw material at cost while pricing chromium contained in stainless steel products at the prevailing market price
Transfer of ferrochrome to the Tornio Works stainless steel melt shop in liquid form (savings in energy, transportation and logistics costs)
The use of carbon monoxide gas emanating from the ferrochrome process as fuel in the stainless steel mill (reducing the need for external energy supplies)
Outokumpu is 60–65% self-sufficient in ferrochrome and able to satisfy the Tornio Works' needs internally. Recycled stainless steel provides most of the balance, but primary ferrochrome is also purchased on the global market.
According to a seismic research report produced by the Geological Survey of Finland in late 2009, the mineral resources at the Kemi Mine could turn out to be significantly greater than earlier estimates. The intrusion containing chromium ore extends to a depth of 2–3 kilometres, possibly to four kilometres and the chromitite layer possibly extends to a depth of at least 2–2.5 kilometres or more.
Proven ore reserves at the Kemi Mine total some 37 million tonnes and the quantity of mineral resources totals some 87 million tonnes (estimated to a depth of 1 kilometre). The new information indicates the existence of resources sufficient to allow centuries of mining activity even with doubled annual production volumes (the previous estimate was 70–80 years). Outokumpu's mineral resources will not be updated based on these findings.
Kemi Mine and Tornio ferrochrome smelter
Production 2009 2008 2007
Ore excavated, million tonnes 0.5 1.3 1.2
Chromite concentrates, 1 000 tonnes 247 614 556
Ferrochrome, 1 000 tonnes 123 234 242
Ore reserves and mineral resources
Dec. 31, 2009 Million tonnes Grade
Outokumpu Annual Report 2009 – Ferrochrome Ore reserves
Proven 37 26% Cr2O3
Mineral resources
Indicated 13 30% Cr2O3
Inferred 73 29% Cr2O3
Outokumpu Annual Report 2009 – Ferrochrome Long Products Long Products
Sheffield
The Sheffield melt shop in the UK has an annual operational production capacity of some 400 000 tonnes. With current- manning, production capacity is some 250–300 000 tonnes. The melt shop produces both slabs for flat stainless steel production and billets and blooms for the production of long products.
Investment in Long Products' finishing facilities in Sheffield began in 2008 and is being finalised in the first quarter of 2010. Totalling some EUR 10 million, the investment has resulted in an integrated manufacturing route for small bar and reinforcing bar that complements Sheffield's existing melt shop and wire rod mill.
Degerfors
The hot rolling mill in Degerfors, Sweden produces rolled billets and heavy bars from blooms cast in Sheffield. Annual operational rolling capacity at Degerfors is some 50 000 tonnes.
Other production
Outokumpu's wire rod operations in Sheffield and bar production in Richburg, S.C. in the United States have an annual delivery capacity of some 80 000 tonnes of long products. The Group also has a 50% stake in Fagersta Stainless, a company located in Sweden that manufactures and sells stainless steel wire rod and wire products.
Outokumpu Annual Report 2009 – Long Products Specialty Stainless Specialty Stainless – special grades and products
Outokumpu's Specialty Stainless division supplies both flat and stainless tubular products for tailored solutions and demanding customer applications. Project orders form an important part of the business, supported by a strong R&D function and extensive, long-term experience in delivering tailored solutions.
End-users
Specialty Stainless serves customers with very high requirements for steel grade, shape, thickness and surface finish in the oil and gas, chemical and petrochemical and pulp and paper industries as well as nuclear power plants.
Products, production and R&D
The main products produced by Specialty Stainless are hot and cold rolled sheet, quarto plate, tubes and a variety of fittings, and precision strip. Most of the stainless steel slabs supplied to Specialty Stainless units come from Outokumpu's melt shops in Avesta, Sweden and Sheffield, the UK.
In terms of finished products, Specialty Stainless units have a production capacity of:
500 000 tonnes of cold rolled and white hot strip and plate
170 000 tonnes of quarto plate
100 000 tonnes of tubular products
The focus of operations in Specialty Stainless is on differentiation and further specialisation in special grades and products, with development opportunities being offered to meet specific customer needs. Duplex grades in particular are an effective response to the increasing competition from standard grades of stainless steel. Outokumpu is a market leader in duplex grades with a global market share of some 50%. Read more about duplex.
At the Group's Avesta Research Centre in Sweden, the focus of R&D is on developing new grades of stainless steel, new applications and identifying the best solutions for each Outokumpu customer. Read more about R&D.
Specialty Stainless key figures
€ million 2009 2008 2007
Sales 1 239 2 705 3 456
Outokumpu Annual Report 2009 – Specialty Stainless Operating profit -149 -101 337
Non-recurring items in operating profit -20 -83 14
Operating capital on Dec. 31 1 035 1 174 1 513
Return on operating capital, % -13.5 -7.5 21.7
Capital expenditure 93 170 69
Depreciation 62 63 63
Personnel on Dec. 31 3 361 4 006 4 099
1 000 tonnes
Deliveries of main products
Cold rolled 86 154 174
White hot strip 92 142 135
Quarto plate 71 126 151
Tubular products 47 66 63
Long products 38 52 52
Total deliveries of the division 335 541 574
Outokumpu Annual Report 2009 – Specialty Stainless Special Coil and Plate Special Coil and Plate
Special Coil and Plate offers a wide range of special grades and products in a variety of dimensions.
Production facilities
Special Coil and Plate consists of the integrated Avesta production facility (coil and continuously produced plate) and Hot Rolled Plate (quarto plate) production in Degerfors, Sweden and New Castle, IN, in the US.
Products and production
Avesta is a world-class supplier to the process industry of two-metre-wide, thick cold rolled and white hot rolled products and continuously produced plate. The integrated Avesta production facility covers the entire production chain from melt shop through hot rolling to cold rolling. Approximate annual operational production capacities at Avesta are:
500 000 tonnes for melting with the current mix
450 000 tonnes for hot rolling (current manned capacity)
250 000 tonnes of finished products
Avesta supplies the Nyby and Kloster cold rolling mills with black hot band material. Slabs and steckel hot rolled plate are supplied to hot rolled plate operations.
Outokumpu is the market leader with a 20% global market share in hot rolled plate (quarto plates). Thick, wide, and individually rolled quarto plates are used in demanding applications in the pulp and paper, oil and gas, power plant and desalination segments, and in chemical tankers. Outokumpu produces quarto plates at Degerfors, Sweden and in New Castle, IN, in the US. Production capacity of quarto plates at Degerfors is 110 000 tonnes, at New Castle it is 70 000 tonnes. The Group's plate service centres in Europe complement these facilities.
In accordance with Outokumpu strategy, the product mix at both Avesta and Degerfors, and quarto plate production at New Castle, is being shifted from standard grades towards increased production of value-added, tailor-made special grades – especially duplex – to offer end user and project customers the Group's full product range.
Outokumpu Annual Report 2009 – Special Coil and Plate Thin Strip Thin Strip
The Group's Thin Strip operations consist of the cold rolling mills at Nyby and Kloster in Sweden. These mills have a combined annual delivery capacity of approximately 145 000 tonnes (Nyby some 100 000 tonnes and Kloster some 45 000 tonnes). Thin strip products are mainly used in plate heat exchangers, domestic heaters and heating elements, flexible tubes, automotive head gaskets.
In the first quarter 2009, the Thin Strip operations at Sheffield Special Strip, SSS, in the UK were closed.
At the beginning of October 2009, a new grinding line and with an automated storage and an entry section to the annealing and pickling line was taken into operation in Nyby. This investment is doubling the annual production capacity of special grades to over 70 000 tonnes.
Outokumpu Annual Report 2009 – Thin Strip OSTP OSTP (Outokumpu Stainless Tubular Products)
Products and production
OSTP manufactures and markets welded stainless steel tubes and pipes as well as butt-welded and threaded fittings. With an 18% market share in the process-pipe segment, Outokumpu is one of Europe's largest producers of stainless steel tubes. Tubular products are manufactured in Sweden, Finland, Estonia, the US and Canada. The main products – process pipes and fittings, heavy-wall pipes and heat-exchanger pipes – are used in most segments of the process industry: pulp and paper, oil and gas, chemical and petrochemical, automotive, and construction. Annual delivery capacity at OSTP totals some 100 000 tonnes.
As part of the restructuring of OSTP, the operation producing structural hollow sections in Pietarsaari, Finland was sold to Stalatube Oy, a Finnish company, in 2009. Closure of the OSTP site in Veteli, Finland is scheduled to take place during the first quarter of 2010. Production will be moved to Jakobstad in Finland and Örnsköldsvik in Sweden.
In Saudi Arabia, OSTP's joint venture with the tube manufacturer Armetal is creating the largest local producer of process pipe. Investments made during the past year have expanded the product range substantially.
Outokumpu Annual Report 2009 – OSTP Duplex grades Duplex grades
Demand for ferritic-austenitic duplex grades is growing significantly faster than demand for standard stainless grades. In addition to low nickel content, duplex stainless steel is characterised by good corrosion resistance and high strength, enabling the use of thinner gauges in a variety of applications such as tanks, pressure vessels, piping, transportation, building and construction, and desalination plants. Considerable savings in material costs are the result. Outokumpu is a clear market leader in duplex grade stainless with a global market share of some 50%. Avesta Works has a long and successful track record in duplex production, a very demanding process.
Outokumpu has developed and patented LDX 2101®, a Lean Duplex grade with a nickel content of only 1.5%, a feature which makes its price less dependent on the volatile price of nickel. In terms of corrosion resistance, the performance of LDX is similar to that of standard austenitic 304 grade (8% nickel), but Outokumpu's Lean Duplex is twice as strong and has met with great success in demanding applications. To facilitate its market penetration, Outokumpu has awarded manufacturing licences to a number of stainless steel producers in Europe and Asia.
Outokumpu Annual Report 2009 – Duplex grades Group level functions Group level functions
Outokumpu's main Group level functions include
Group Sales and Marketing,
Supply Chain Management and
Research and development.
Outokumpu Annual Report 2009 – Group level functions Group Sales and Marketing Group Sales and Marketing
Customers in a wide range of industries – from catering and appliances to building and construction, transportation and chemical, petrochemical and energy, as well as process and resources – use the Group's stainless steel and its services worldwide. Fully-recyclable, maintenance-free, strong and durable; stainless steel is one of the key building blocks for a sustainable future.
What makes Outokumpu special is its total customer focus from R&D to delivery. Outokumpu offers world-class stainless steel, technical know-how and support to activate its customers' ideas.
Commercial organisation based on industry groups
Launched in April 2008, Group Sales and Marketing, the Group's new commercial organisation, completed its first full year of operation in 2009. Sales and marketing is organised into customer specific industry groups in order to best understand the needs of different customers and to provide them with the best possible service. Group Sales and Marketing consists of two global sectors:
end-users and projects,
distributors and processors, as well as
regions and stock & processing operations.
Each sector is divided into clusters, enabling Outokumpu to offer customers the whole range of products and services, to specialise in customer industries and identify optimal solutions. Regions and stock & processing operations comprise Outokumpu's network of sales companies and the Group's service centres.
Headquarters located in Belgium
Outokumpu's commercial headquarters are located in Zaventem, Belgium, close to Brussels. The Brussels office is the central working and meeting location for cluster teams, and houses also Group Sales and Marketing management as well as other central commercial functions.
Outokumpu Annual Report 2009 – Group Sales and Marketing End-user and project customers End-user and project customers – business expected to grow
Outokumpu's objective is to increase the relative share of end-user and project business to support the company's strategy of developing a more stable and profitable business model. By building on the Group's customer service, technical expertise, product development and international reach, Outokumpu is aiming to increase this share to more than half of Group sales. A number of initiatives are being implemented to achieve this objective.
Broadening the product mix
Outokumpu is broadening its product mix. In addition to production of austenitic and various special grades, ferritic (400 series) grades were introduced to the Group's product portfolio in 2009. Manganese (200 series) grades are also produced according to market demand.
Organisation
Outokumpu's end-user and project business is organised into five clusters of segments according to customer industry:
Architectural, building and construction
Transportation
Catering and appliances
Chemical, petrochemical and energy
Process and resources
In addition to serving key account customers, a significant amount of segment effort is targeted towards developing new business. Each segment is managed by dedicated teams consisting of key account managers, application and product experts, R&D and supply chain specialists, as well as the Group's sales force in all the countries supplied by Outokumpu. Although Western Europe is Outokumpu's main market from a geographical perspective, the company is also seeking significant growth in China, Eastern Europe and India.
A key component in Outokumpu's end-user and project customer business is the service provided for all key accounts. Dedicated key account managers and their teams serve key accounts in a personalised manner, offering the Group's full product portfolio and tailor-made solutions to customers globally.
Outokumpu Annual Report 2009 – End-user and project customers Distributor and process customers Distributors and process customers – a focus on stable and long-term relationships
A significant proportion of the stainless steel market is served by distributors and service centres. These customers make up a large part of the Group's customer base and continue to be the company's key business partners. Outokumpu is aiming to strengthen its relationships with stable long-term distributor and processor customers to support the Group's strategy of developing a more stable and profitable business model. This is of particular importance in high-volume standard products.
Large-volume re-rollers and tube makers also represent an important market for Outokumpu. As with distributors, close and stable relationships with these customers are of particular importance, enabling the Group to develop products, processes and working methods that benefit customers in the long term.
Organisation
Outokumpu's distributor and processor business is organised into two clusters:
Distributors
Re-rollers, tube-makers and further processors
Some members of the Group's sales teams focus exclusively on these customers, enabling Outokumpu to respond to the specific needs of distributors and large-volume processors.
Outokumpu Annual Report 2009 – Distributor and process customers Sales offices and service centres Sales offices and service centres – regions and stock & processing
A focus on daily sales
Outokumpu's network of sales companies and the Group's service centres are managed through the Regions and stock & processing operations function. The company's more than 30 sales companies are divided into six regions. Outokumpu has sales personnel in almost 40 countries with another 30 countries being served through dedicated agents.
Service centres operate as part of the sales company in the country in which they are located. A central team is responsible for the processing and supply-chain efficiency of the service centre network.
Expansion of service centre network
Outokumpu's service centre network has a central role in serving end-user and project customers. The Group expanded capacity at its service centre in Willich, Germany in 2009. A greenfield service centre that will process mainly special grades is being built near Shanghai in China, with operations scheduled to start in the first half of 2010.
Outokumpu Annual Report 2009 – Sales offices and service centres Supply Chain Management Supply Chain Management
Supply Chain Management strategy
Outokumpu's Supply Chain function supports the Group strategy of offering customers technically superior products and services. The aim of Supply Chain Management is to increase sales to end-users and projects while maintaining a focus on the distributor and processor sector. The objective of Supply Chain Management is to optimise the flow of products from raw materials through production to final delivery to the customer, enhancing production stability and improving the efficiency of inventory management while simultaneously developing the Group's ability to deliver to its customers on time. Supply Chain Management includes the Production Excellence programme (OK>1) and covers raw material and general procurement, logistics and supply chain operations.
Achievements in 2009
In many industries, 2009 was a very difficult year due to the impact from the global economic recession. Outokumpu, however, will be better positioned to meet and adapt to current and future challenges with its renewed organisation and more efficient processes within supply chain. Focus was on developing and creating uniform ways of working within Outokumpu's production sites and business units. This enables the Group to optimise the entire material flow creating shorter and more stable lead times for both internal and external customers. In 2009, the Group's delivery performance improved for the third consecutive year and total inventories were reduced by approximately 25%.
Outokumpu Annual Report 2009 – Supply Chain Management Production Excellence Production Excellence
Outokumpu's Production Excellence programme (OK>1) made good progress in 2009. Total benefits from the Group-wide Operational Excellence programmes, which include Commercial Excellence, Production Excellence and Supply Chain Excellence, totalled EUR 150 million. Targeted benefits for OK>1 in 2009 were realised and the number of improvement teams increased by more than 75%. Annual audits of the Group's manufacturing plants also showed an improvement in the average audit score. Most of the work done in 2009 was carried out using internal resources, minimising external consulting costs.
Understanding losses
The purpose of the Production Excellence programme is to reduce waste, i.e. to indentify and take advantage of improvement opportunities. Work on developing a good understanding of operational losses has continued. This allows local management teams to prioritise the necessary improvement activities. This process will allow more focused activities to be undertaken in 2010 and consequently increase the achieved benefits.
The purpose of the Production Excellence programme is to reduce waste.
Deploying resources
Dedicated improvement teams have investigated and addressed the prioritised losses. The number of improvement teams increased by 75% in 2009, achieving significant cost and inventory savings. The number of people involved in workplace improvements increased significantly and enabled the development of autonomous maintenance and safety activities. Approximately 60% of all employees have now been involved in providing support for improvement activities in 2009.
Sustainable achievement
Sustaining the gains is proof of the improvement work. Although temporary and permanent layoffs in 2009 caused some operational difficulties, OK>1 tools and techniques were used to identify and resolve issues and restore operational capability. The development of improved daily management, performance control and autonomous maintenance activities continued to provide a good platform to maintain operational improvements.
Training and development
Training of Outokumpu personnel involved in Production Excellence continued in 2009. Investment in training continued in the form of the 15-month Production Excellence Change Agent training programme. More than 150 change agents have now been trained or are currently in training. Further training and development took place to support Outokumpu's autonomous maintenance activities in most plants.
Outokumpu Annual Report 2009 – Production Excellence A development platform
The OK>1 programme supports development of supply chain improvements at most of Outokumpu's large production units. Safety improvements using OK>1 tools were also introduced in 2009 and a number of production units enjoyed a full year without lost-time accidents. This will also be a focus area in 2010.
Sharing of best practices and the development of improved corporate standards will also continue in Outokumpu in 2010.
Outokumpu Annual Report 2009 – Production Excellence Procurement Procurement Excellence
Procurement Excellence programme
Under the pressure of the global recession, cost control has become more crucial than ever. Outokumpu's Procurement Excellence programme (PEX), part of Supply Chain Excellence, is the Group's key driver in reducing purchasing costs. Procurement Excellence aims at building capabilities for continuous improvement in procurement and reducing Outokumpu's total cost of purchasing by eliminating the losses that result from fragmented purchasing volumes, a lack of alternative sources, untapped supplier know-how, non-value-added activities and uncontrolled expenditure. Procurement Excellence is not a short-term project but a key driver for continuous improvement in procurement function. Procurement Excellence is based on a category management approach which leverages knowledge of suppliers, products and services, development of professional procurement capabilities, optimal use of materials, products and services, and leverage of Group purchasing power.
The OUPEX programme
The Outokumpu Procurement Excellence programme (OUPEX) is a Group-wide procurement development programme for implementing a common way of working and a common SAP system as well as raw materials purchasing and inventory management. The system is based on a common template jointly designed by several business units within the Group. Implementation will take place in phases: OUPEX will first be taken into use at Tornio Works before being rolled out at other sites.
The Quick Wins project
Launched at the beginning of 2009, Quick Wins, a special project targeting short-term savings through the renegotiation of terms and conditions with selected suppliers, achieved significant Group-wide savings.
Outokumpu Annual Report 2009 – Procurement Raw materials Raw materials optimisation
Following an assessment of the market situation in 2009, a decision was made that Outokumpu would not cover all its primary metal needs through long-term contracts. As there was a surplus of raw material on the market and the associated terms and conditions were attractive, this proved to be a wise move. The Group continued using a very high proportion of its raw material consumption in the form of recycled steel and the use of these environmentally friendly raw materials resulted in lower raw material costs.
Very good progress was made in optimising the Group's use of raw materials in 2009, with significant cost benefits being achieved. Raw materials optimisation will continue to be a focus area in 2010.
Outokumpu's raw material stocks were considerably reduced in 2009. Close monitoring of the stocks will continue in 2010 with the aim of achieving optimal stock levels.
Outokumpu Annual Report 2009 – Raw materials Research and development Research and development
Avesta focuses on special grades
Tornio develops ferritic grades
Application development focus is on process industries
Active participation in international associations
Development of efficient and environmental friendly production processes
The Outokumpu research centres in Tornio, Finland and Avesta, Sweden focus on process, product and application development. Some process and technology development work is also carried out in production units. The R&D function operates in close cooperation with the Group's commercial organisation and customers, and direct feedback regarding customer needs serves as input for further product development. In 2009, the R&D function employed almost 200 professionals and investments in R&D totalled EUR 19 million.
Avesta focuses on special grades
At the Avesta Research Centre, the focus is on special grades including duplex grades, high-alloyed corrosion-resistant austenitic grades and heat-resistant alloys. Much effort has gone into developing duplex grades, which offer a good combination of strength and corrosion resistance with lower nickel content. Ideal applications for the use of duplex grades are large heavy-wall tanks where weight savings of some 20% can be achieved. Customers have shown a growing interest in LDX 2101®, Outokumpu's own development of Lean Duplex. New applications are continually being developed and related production technology has been improved.
In high-alloyed corrosion-resistant austenitic and heat resistant grades, Group R&D has also been actively involved in technical marketing aspects of older developments such as 254 SMO® and 253 MA®.
Outokumpu research centres in Finland and Sweden focus on process, product and application development.
Tornio develops ferritic grades
The Tornio Research Centre develops non-nickel-containing ferritic grades which offer the biggest opportunity to reduce the effects of varying nickel prices on raw material costs. The R&D function at Tornio has investigated optimum process parameters and product properties for standard ferritic grades at production scale, with the primary focus being on surface quality, formability and corrosion resistance. Four different grades, mostly for use in indoor applications, kitchen utensils, domestic appliances and the transportation segment, are now part of the Group's product portfolio.
Manganese-alloyed grades (200-series) are the third opportunity to reduce the quantities of nickel used and also represent an interesting alternative in many applications. The most common product of this type is commodity grade 201, whose chemistry has been modified by Outokumpu. With corrosion-resistant properties almost equal to those of standard austenitic 304 (Cr-Ni), other properties of this grade include higher strength and good formability.
Outokumpu Annual Report 2009 – Research and development Application development focus is on process industries
The traditional focus of application development has been the process industries, where stainless steel plays a dominant role in the manufacture of industrial equipment used in the pulp and paper, oil and gas, desalination and chemicals segments. Outokumpu's R&D experts provide advice to the Group's commercial organisation and customers on product properties and material selection.
Stainless steel's high strength and good formability have resulted in its use as a construction material being investigated in the architectural, building and construction and transportation sectors - its lower weight and low life-cycle costs make it an excellent substitute for many other materials. Potential new automotive application were studied is the Next Generation Vehicle project, a cooperative project involving European stainless steel producers, car manufacturers and engineering companies which was completed in 2009. In crash tests, passenger-car components made of high-strength stainless steel have yielded very promising results.
Active participation in international associations
In addition to participating in EU cooperation projects, Outokumpu experts are active members of many international associations such as ISSF and EuroInox. Together with other steel and engineering companies and universities, the Group is also actively involved in new FIMECC (Finnish Metal and Engineering Competence Cluster) research programmes in Finland. During 2009, Outokumpu experts gave several presentations at international conferences on stainless steel manufacturing, material properties and the selection criteria for different applications.
The 10th edition of the Outokumpu Corrosion Handbook was published in 2009. Regarded as an authentic guide to the corrosion resistance of stainless steel for more than 60 years, the handbook provides essential information for metallurgists, design engineers and fabricators all over the world, as well as serving the needs of stainless steel users, academics and students.
Development of efficient and environmental friendly production processes
In addition to new products and new applications for stainless steel, the Group's R&D operations focus on innovative and energy-efficient manufacturing processes that reduce costs, result on lower emissions, shorten lead times and improve quality levels. The main subject of environmental research in 2009 was slag utilisation, and studies on both the properties of different slag products and the development of applications continued.
Outokumpu Annual Report 2009 – Research and development Corporate Responsibility Raising levels of corporate responsibility in a changing world
Improvement of Outokumpu's performance and reporting on corporate responsibility issues continued in a more challenging world. Stated simply, our development concept involves listening to stakeholders, moving from words to actions and turning actions into results step-by-step. Our objective is to listen to our key stakeholders, achieve sustainable competitiveness, combat climate change and improve the well-being and safety of Outokumpu people.
Environmental and health and safety (EHS) issues are – and have always been – subjects of primary importance for the Group's profitability and competitiveness and for the well-being of our personnel. We make no compromises in Outokumpu regarding these issues, and there is always room for improvement. Developments in occupational safety are monitored via regular reports at corporate management meetings. All management committees and equivalent bodies throughout the Group begin each meeting with a safety review, and safety is a top priority at all times even when producing lower volumes. As in 2005, to ensure an exceptionally strong focus on safety issues, 2010 has been named a Safety theme year. We pay particular attention to the well-being of Group personnel, our suppliers and the wishes of our customers. As a listed company, Outokumpu is committed to generating profit for its shareholders.
During the current global downturn, acting responsibly and attempting to keep the three aspects of corporate responsibility in balance is more important than ever. The very sharp decline in demand for stainless steel products in 2008 and 2009 forced us to take heavy actions with impact on us and on our stakeholders.
Outokumpu Annual Report 2009 – Corporate Responsibility Outokumpu in many indices and initiatives
DJSI STOXX and World ASPI Eurozone® index
UN Global Compact Ethibel Excellence Europe
Kempen SRI Storebrand SRI
SAM Sector Mover 2010
Main corporate responsibility goals
1. Corporate responsibility becomes an integral aspect of all our activities and decision-making process, from procuring materials through to production and sales. Economic, environmental and social responsibility issues are in balance. Compliance with legislation constitutes the bedrock of our operations. Continually improving our corporate responsibility performance puts us on the path towards a higher level of achievement.
2. Our business partners, subcontractors and suppliers become familiar with our principles and apply the same high standards in their own activities.
3. To enhance transparency, we aim to establish continuous, systematic and open dialogue on corporate responsibility issues with our key stakeholders, such as shareholders, employees, customers, suppliers and non- governmental organisations. This co-operation contributes towards developing and dutifully reporting our corporate responsibility performance.
Observations by PricewaterhouseCoopers
Outokumpu is in the process of integrating corporate responsibility into business operations. The integration should be further continued to ensure the effectiveness of CR across all functions, e.g. Group Sales and Marketing, and along the whole value chain.
Outokumpu Annual Report 2009 – Corporate Responsibility Corporate responsibility highlights 2009 Corporate responsibility highlights
Outokumpu Annual Report 2009 – Corporate responsibility highlights 2009 Management committed to corporate responsibility Making responsibility an integral part of all our activities
Even though our main focus was on cost reduction and cash flow generation during the historically difficult year of 2009, we kept our vision in corporate responsibility – to be the most responsible company within our industry – firmly in mind. We continued our step-by-step development approach, and I believe that awareness of corporate responsibility issues has improved among our employees.
Difficult times test a company's attitude to its responsibilities
The year 2009 was very difficult for all stainless steel producers and an exceptional year for Outokumpu with heavy losses but fortunately strong cash flow. Our financial result is discussed in detail in the first part of this online report, here we take the corporate responsibility viewpoint. I believe that acting responsibly in difficult times is of particular importance, as is maintaining a balance between the environmental, economic and social aspects of corporate responsibility.
The economic value distributed to our key stakeholders decreased due to the dramatic drop in demand for stainless steel and the resulting impact on our sales. We continued our efforts to reach the targets set for 2009: reducing energy consumption, waste, and injuries, and improving our employees' well-being. Unfortunately, as part of our cost saving efforts, personnel reductions could not be avoided, and some 900 jobs were lost permanently.
Our levels of production were clearly lower than in the previous year, and our energy consumption therefore also decreased, by 25%. We did not however reach the target of a 2% decrease per processed tonne. We did achieve our target of further 10% reduction in landfill waste per processed tonne – an impressive achievement. The injury rate fell from 9.0 to 5.9 injuries per million working hours, our target was below five. We will continue our efforts – the target figure for 2010 is a challenging four, a good level by global standards. The year 2010 has been named Safety Theme Year, meaning we will be placing additional emphasis on our safety performance. Our long-term target for both injuries and waste is zero. No serious injuries occurred in 2009. In these difficult times the well-being of our personnel remained unchanged; the improvement target was not reached.
We take climate change seriously
Climate change, carbon dioxide emissions and energy consumption continue to be areas of concern for both us and our stakeholders. We take these issues seriously and are doing our share in the shift towards a low-carbon society. Published at the beginning of 2010, our Energy and low-carbon programme includes a commitment to reduce our direct and indirect carbon dioxide emissions by 20% per produced tonne by 2020. In 2009, our direct carbon dioxide emissions totalled 540 000 tonnes, 35% less than in the previous year, primarily because of lower production volumes. Most of our emissions in 2009 remained within permitted limits but some incidents did occur.
I am proud to say that according to a study made by PE International, our stainless products have the smallest carbon footprint in our industry in the EU. Key drivers in our business are that our products have a higher percentage of recycled material than the global industry average, and that our ferrochrome production is a world leader in both energy efficiency and curbing carbon dioxide emissions.
Internal improvement initiatives such as our Operational Excellence programmes are important tools in further improving our operations and our profits. Production excellence focuses on safety and operational efficiency and also concerns eliminating waste and losses. It has an impact on both the economic and the environmental performance of the supply chain. The sustainability of our supply chain is an important issue, especially in challenging new markets. Our goal is that
Outokumpu Annual Report 2009 – Management committed to corporate responsibility our suppliers apply ethical standards which are as high as ours. Supplier audit processes will be finalised and gradually adopted in 2010, first in our raw material purchases then in general purchases.
Investigations of our export practices to Russia that were initiated by the Finnish Customs authorities in 2007 have been completed. The prosecuting authorities' process of considering possible charges is to be completed in the spring of 2010.
Awards for our sustainability performance and reporting
I am really pleased that the efforts we are making to improve our corporate responsibility performance and our reporting have been recognised once again. We maintain our position in the sustainability indices in which we already featured and were included in one new one. For achieving the largest improvement in sustainability performance among the top eight sustainable steel companies, we won the SAM Sector Mover 2010 award. In addition, Outokumpu was again selected as Finland's best reporter on corporate responsibility issues.
And the work continues. The valuable feedback we receive from stakeholders is very useful in working towards our vision. There is still much to do and to improve.
Juha Rantanen CEO
Outokumpu Annual Report 2009 – Management committed to corporate responsibility Corporate responsibility governance Corporate governance, commitments and engagement
The Group's parent company, Outokumpu Oyj, is a public limited liability company incorporated and domiciled in Finland.
In its corporate governance and management, Outokumpu Oyj complies with Finnish legislation, the Company's Articles of Association and the Corporate Governance Policy resolved and approved by the Board of Directors. Outokumpu observes the Finnish Corporate Governance Code, which came into force on January 1, 2009, by the Securities Market Association and approved by the NASDAQ OMX Helsinki as part of its regulations. As one exception to this code, Outokumpu has both a Board Nomination and Compensation Committee and a Shareholders' Nomination Committee appointed by the Annual General Meeting of Shareholders. Furthermore, Outokumpu complies with all other regulations and recommendations issued by NASDAQ OMX Helsinki.
The governing bodies of the parent company Outokumpu Oyj, i.e. the General Meeting of Shareholders, the Board of Directors and the CEO, have ultimate responsibility for Group management and Group operations. Outokumpu's corporate governance and the duties and responsibilities of the company's governing bodies and the control system are presented in detail here.
Outokumpu Annual Report 2009 – Corporate responsibility governance Corporate responsility organisation Management of corporate responsibility issues
Corporate responsibility in Outokumpu is the responsibility of the CEO. A corporate responsibility team formed by representatives of different business functions is headed by VP – Corporate Responsibility. The team's task is to provide advice on corporate responsibility issues. VP – Corporate Responsibility is responsible for coordinating and developing all aspects of corporate responsibility throughout the Group. Each business unit and function is responsible for ensuring that its own operations are conducted in a responsible manner and that monitoring, data collection and reporting operations are executed in the required manner. We have three overall objectives in corporate responsibility. In addition, every year we set concrete measurable targets at Group-level for environmental and social issues. Local targets are in line with these Group-level targets. The results are reported and monitored.
Outokumpu Annual Report 2009 – Corporate responsility organisation Management systems We have a clear vision
Outokumpu's vision is to become the undisputed number one in stainless steel, with success based on Operational Excellence. Being the number one producer in stainless steel means we strive to be the most successful company, the most efficient producer, the most popular employer and to have the best customer relationships in our business. We intend to gain the number one position by engaging in responsible business practices, helped and supported by our key stakeholders.
Outokumpu's strategic goals
The aim of Outokumpu's strategic goals is to achieve the number one position in stainless steel. We create value through superior production and distribution capabilities, realising this through our excellence programmes. Becoming number one in stainless steel also requires that we maintain our focus on customer needs and continuously develop the skills and know-how of our personnel. Read more about strategic themes here.
Policies are the backbone of our operations
While the underlying principle in Group operations is compliance with local legislation everywhere we operate, we are however willing to raise the responsibilities we accept to a higher level. Our operations are governed by corporate policies and also recommendations published by the United Nations (Global Compact). These include Outokumpu's Ethical Principles, our Corporate Responsibility policy, our Code of Conduct and our Quality, Environment and Health & Safety policy. The Group's ethical principles are also an integral part of our leadership principles. Individual locations have detailed practical guidelines to support their operations.
Outokumpu's leadership principles
Outokumpu's leadership principles shown below are concrete recommended practices.
Making sound decisions Achieving ambitious targets Creating a winning team Inspiring to perform Building trust and respect We act consistently in accordance with clear ethics and values We encourage and require others to adhere to ethical values We demonstrate honesty, loyalty and integrity in our everyday work
More information on the policies followed:
Corporate Governance
Environmental responsibility
Guidance from management systems and Group policies
Economic responsibility
Policies and principles guide us
Outokumpu Annual Report 2009 – Management systems Social responsibility
People are most important
Towards equality
Outokumpu Annual Report 2009 – Management systems Internal audit Internal audit monitoring compliance
The mission of the Group's internal audit remained unchanged in 2009: providing consultative auditing on targets and issues separately identified by the Board Audit Committee and the Group Executive Committee. The focus is on distributing information and on identifying and controlling potential business risks. Internal audits are carried out in close cooperation with the Group's finance and risk management functions, with financial administration bodies and external auditors. Internal audit reports to the Audit Committee, which approves its operational plan.
In 2009, 27 individual units or functions were audited either independently or in cooperation with external service providers. Internal audit monitors compliance with Outokumpu's Ethical Principles, Corporate Responsibility policy and Code of Conduct, and the ways in which these principles and policies are incorporated into general operational procedures in Group companies and units. Although no major risks were identified, two cases of suspected infringement and embezzlement within the Group were investigated and the police were notified where this was necessary. The current understanding is that the scale of any possible wrongdoing was not significant.
A confidential Helpline has been set up on the company intranet and on the Internet, and this can be used anonymously to report to our internal audit any action that contravenes the Group's Corporate Responsibility principles. Three cases of discrimination reported during 2009 were handled at local level. Two cases of misconduct were reported through other channels. In one of these the police were involved and the employment of the person in question was terminated. The other case involved interpersonal relations and was handled at local level.
Outokumpu Annual Report 2009 – Internal audit Compliance Compliance with Corporate Responsibility policies
Outokumpu's CEO is charged by the Board of Directors with formulating and implementing any measures necessary to safeguard systematic compliance with the Group's Corporate Responsibility policy and Ethical Principles. At least once each year, based on a report by the CEO, the Board of Directors carried out an assessment of corporate responsibility issues within Outokumpu. Company management and all company personnel are expected to comply with the Group's Corporate Responsibility principles.
Suspected misconduct
The Finnish customs authorities has been investigating exports to Russia by Outokumpu Tornio Works since the beginning of 2007. The preliminary investigation has now been completed and the case has been forwarded to the prosecuting authorities. The process, and the announcement of any possible consequences, are scheduled to be completed in the spring of 2010. Investigations initiated by the Group have not revealed any evidence that either Outokumpu employees or the company are guilty of any of the crimes suspected by the customs authorities. According to Roschier Attorneys Ltd, a leading law firm based in Helsinki, no evidence of wrongdoing by Outokumpu employees exists, and KMPG Oy Ab, the Group's auditor, has stated that all suspicions are groundless.
Misconduct in businesses sold
Class actions involving the fabricated copper products business sold in 2005 comprised, among others, Outokumpu Copper (USA), Inc, which was served with one individual damage claim associated with ACR tubes under US antitrust laws. Outokumpu believes that the allegations made are groundless. When this business was sold to Nordic Capital, Outokumpu agreed to indemnify and hold harmless Nordic Capital with respect to this claim.
In 2003, the European Commission issued its judgement on Outokumpu's participation in a European price-fixing and market-sharing cartel involving copper air-conditioning tubes during 1988–2001. A fine of EUR 18 million was imposed. In 2004, Outokumpu lodged an appeal with the Court of First Instance for Europe regarding the basis of the calculation and the level of the fine. In 2009 the court announced that the amount is to remain unchanged.
In a cartel investigation concerning copper sanitary tubes, the European Commission issued a judgement in 2004 and imposed a EUR 36 million fine on the Group for participation in cartel activities. Outokumpu subsequently lodged an appeal regarding the level of this fine, which was paid in 2009. The court's final decision is expected to be that the amount of the fine is unchanged.
Honouring the rules of competition
Outokumpu expects all its employees to honor and respect the rules associated with competition. Since the mid 1990's the Legal Affairs has trained sales and marketing personnel on competition rules and legislation. The aim of this training is to alert participants to problematic situations to make sure they will seek professional advice and guidance to avoid possibly illegal arrangements. Training sessions are organised when they are needed.
An e-learning programme was launched in 2009 and is currently in progress within Outokumpu Group. The main purpose of the programme is to train our personnel in competition law. Upon completion of the programme in the end of 2010,
Outokumpu Annual Report 2009 – Compliance some 500 participants in the commercial organisation will have been reached and duly trained. The follow-up system ascertains that each participant is able to complete the course successfully.
As mentioned in our Ethical Principles and Code of Conduct Outokumpu condemns corruption and bribery and complies strictly with competition legislation. Outokumpu obtains business in a legal and ethical way. Offering bribes and kickbacks is prohibited.
Outokumpu's internal audit monitors compliance with our policies and Code of Conduct. Read more about internal audit and Helpline here.
Outokumpu Annual Report 2009 – Compliance Risk management of corporate responsibility Security and risk management
Protecting the Group's personnel, assets and reputation against a wide range of potential losses is an essential component in our operations. In all areas of risk management, the key element is having a good overview of any underlying risks. Risk workshops were arranged in business units and key Group functions in 2009, and development work with top management was continued in order to institute frequent risk reporting and follow-up procedures. As instability in the financial and economic environment increased during the year, the emphasis in this work was on the management of strategic and financial risks connected with the weaker market situation, the nickel price and customer credit.
Group risk management strategy was put into practice by issuing operational instructions in connection with personnel security, project security and fire safety as well as by carrying out regular audits and certain special programmes at individual sites. The Outokumpu Security Working Group (OSWG) continued its work on improvements at specific sites. A systematic crisis management programme was instituted during 2009, with crisis management teams being trained in handling challenging situations. Communication during crisis situations was a subject that received particular attention.
Fire safety and security levels in the Group were monitored through a total of more than 40 regular site audits executed using Outokumpu's own resources and, to a certain extent, jointly with the Group's insurance experts and insurance brokers. Fire audits and security audits were merged first time.
Activities initiated in 2008 in connection with risk management in the Outokumpu supply chain continued in 2009. One of the year's main goals was preparation for forthcoming changes in customs practices and the achievement of authorised economic operator (AEO) status, which will significantly ease the burden of customs processes and thus shorten lead times. Much effort was put into improving supply chain security as achievement of the authorised economic operator status (AEO). Work related to AEO status continues at certain Group sites in the EU.
Outokumpu's business is capital intensive and the degree of integration in key production processes is quite high. Other interdependencies also exist. To cover related risks, Outokumpu has a comprehensive and global property damage and business interruption (PD/BI) insurance programme. As the Group's most important form of insurance, PD/BI accounts for a substantial proportion of the insurance premiums paid by the Group. Other global insurance programmes which play a significant role include transport, credit and liability insurances. The renewal date for most Group-wide annual insurances is April 1.
More on risk management can be found here.
Outokumpu Annual Report 2009 – Risk management of corporate responsibility Our stakeholders Stakeholder dialogue promotes understanding
To enhance transparency, we strive for open and regular dialogue with our key stakeholder groups. Awareness of the expectations held by others is essential for development.
Our wish is that information is shared openly. We meet our stakeholders face-to-face in many forums – at seminars, workshops and discussion panels, during road shows, and at fairs and exhibitions. We offer local stakeholders visiting opportunities and "open house" days. We also maintain ongoing dialogues, especially with analysts, investors, employees, customers, goods suppliers and service providers. Our other key stakeholders are NGOs, local communities, authorities as well as industry and business associations. Our stakeholders' involvement in what we do and the trust they have in us are fundamental elements of our business operations.
The main function of the Outokumpu Corporate Responsibility network during 2009 was to distribute information to stakeholders about the Group's corporate responsibility achievements. Feedback from stakeholders proved useful in developing our operations. Plans for 2010 include a webinar for key stakeholders on corporate responsibility issues. In 2009, webinars were organised to provide information and training to our customers and non-customers.The first meeting with Finnish environmental NGOs at corporate level took place during the year, and close interaction with both investors and analysts continued the trend established in earlier years.
In this section the focus is on dialogue with our external stakeholders. The very important interaction with internal stakeholders – our employees – can be found in the social responsibility section.
Stakeholder expectations
Stakeholders Outokumpu
Customers They want high quality, safe products and services We need them to buy our products – at a competitive price, reliable deliveries, flexibility we also need them to trust us, be responsible and willing to cooperate with us
Suppliers They want to cooperate with us and expect us to be We need raw materials, other responsible, be their partners and engage in open consumables and services; we expect discussion them to be responsible
Personnel They expect us to be responsible and give them We need their professional skills – we challenging tasks, security, occupational safety and expect them to be responsible, well-being, development opportunities, recognition motivated and committed for their work
Future They expect competitive benefits, challenging We will need them to work for us in employees tasks, development opportunities, responsibility, the future and expect them to be work-life balance motivated, responsible and seek to improve themselves
Associations and They expect active participation, joint efforts to We expect them to provide equal federations promote the industry's interests support to us, oversee our interests and our business opportunities
Outokumpu Annual Report 2009 – Our stakeholders Local They expect us to participate, interact, provide We need their approval, confidence, communities support, be responsible, provide jobs willingness to cooperate
Shareholders They expect us to be profitable, provide a return on We hope they consider us as good, their investment, and be responsible attractive investment – we hope they have confidence in us
NGOs They expect us to be responsible, transparent and We want their understanding, to have joint efforts to promote environmental and willingness to cooperate in promoting social issues environmental and social issues
How do we meet stakeholder expectations?
Ethical operations Open and regular communications and dialogues, interaction A culture that stresses corporate responsibility Open and transparent CR reporting Operating as one company Safe working environment Personnel development, job rotation Development of products and processes, R&D Stainless steel is a safe and sustainable material
Outokumpu Annual Report 2009 – Our stakeholders Customers Successes through the "One face to the customer" approach
The Group Sales and Marketing function established in April 2008 was developed and improved during 2009. New Key Account Managers were trained and appointed. Even though the adverse effects of the economic crisis on global activity in the stainless steel sector made the second half of the year particularly difficult, several successes resulted from collaborative initiatives and a "One face to the customer" approach.
A customer survey covering more than 120 Key Accounts is being conducted. Topics covered by the survey include levels of customer satisfaction, Outokumpu's ability to identify the right solution for a customer application and open feedback. The results of the survey will be available during the first quarter of 2010 and the conclusions will provide a solid foundation for developing the Group's customer services. A similar survey is planned for 2010 together with development of a new system for the regular implementation of Group-wide surveys. The results from these ongoing surveys will be linked directly to Outokumpu's operational activities. Although the details have not been finalised, objectives include understanding operational successes and identifying critical areas for further development.
In April 2009, Outokumpu hosted the first in a series of webinars. Open to customers and non-customers who are interested in learning more about Outokumpu and stainless steel, webinars offer the Group a method of providing training and technical information that does not involve travelling and its associated environmental impacts. The first webinar focused on stainless steel fabrication and there were more than 40 participants. The six webinars arranged during 2009 covered a wide selection of topics and the total number of participants exceeded 200. In 2010, the target is to raise both the number of webinars and the range of topics covered.
Webinars enable training and technical information without travelling and its associated environmental impacts.
Outokumpu's sales companies and service centres provide local support, training opportunities and connections with customers. Each location is adopting initiatives that will be of local interest. For example in Japan an annual seminar for over 120 special grade customers was organised for the fifth time to receive quantitative and qualitative feedback, and to find better and lasting solutions for local applications together with customers. A customer day was held for the first time for the Nordic key tubular product customers. In total some 1000 customers in Estonia, Brazil, Chile, Thailand, Malaysia, Singapore and India received training. Customer visits have been organised in Finland often with tailor-made training on mechanical properties, formability, weldability and corrosion resistance. In Sweden there is a plan to start two-day- training in design in stainless steel for Nordic customers, designers and fabricators. Based on the positive feedback received more technical training will be given to customers in the future. On-site customer training is an essential component when handling certain technical topics. Customers seem to be more and more interested also in steel's carbon footprint. The carbon footprint of Outokumpu's products is presented in the environmental responsibility section. Read about product safety issues here.
The Group's Hungarian sales company organised a conference with the Budapest University of Technology (BME) at which the topics included cost-efficient solutions and the environmental friendliness of stainless steel.
Outokumpu Annual Report 2009 – Customers Suppliers of goods and services A focus on suppliers' environmental impact
As the global financial crisis put pressure on Outokumpu and everyone in the industry, cost control became increasingly important. We bore in mind, though, corporate responsibility issues in supplier evaluations and product development. It is our goal to do business with responsible partners.
General material purchasing
The Procurement Excellence programme launched in 2008 was the key driver in cost reduction and the cumulative savings achieved from the programme increased from the previous year. At the beginning of 2009, a special project Quick Wins, was launched targeting at short-term savings through renegotiating terms and conditions with selected suppliers, as well as a logistics Procurement Excellence programme. The Quick Wins programme has already achieved significant Group-wide savings.
Product development with suppliers
In addition to cost savings, product development was carried out with selected suppliers:
The protective film team has been able to reduce the thickness of the product employed from 80µm to 70µm. Suppliers require less plastic for their production and impact on the environment is thus reduced.
The interleaving paper team will start to recycle all the paper used in the Group's production processes.
The electric motor team is working with suppliers to improve production efficiency and consume less energy.
We have advised all our suppliers to consider using modes of transportation that are the most environmentally friendly. If trucks are used, we favour eco-friendly driving techniques.
In the long-term, we believe that the most innovative ideas for optimising total cost ownership result from creative cooperation with our suppliers and partners.
We highly appreciate suppliers who maintain the highest ethical standards, respect human rights and the environment. In 2006, we started a project called Sustainable Supply Chain Management Tool to develop a questionnaire to be used for evaluating our suppliers' sustainability. The project was ended in 2008, but the work continues. Read more about Responsible sourcing in the Social responsibility section.
The Procurement Excellence programme will be expanded by establishing more teams, deepening cross-functional and cross-business unit cooperation, training additional skilled professionals to lead these teams and working more closely with selected suppliers with the aim to increase achieved savings compared to previous year. In the long-term, we believe that the most innovative ideas for optimising total cost ownership result from creative cooperation with our suppliers and partners. The key to sustainable development is sharing mutual benefits with responsible suppliers who take economic, environmental, and social responsibilities into account in their daily operations.
Outokumpu Annual Report 2009 – Suppliers of goods and services Outokumpu's Procurement Development programme reached an important milestone in May 2009 when the first purchase orders and inventory transactions were registered by Tornio Works in a common Outokumpu SAP system built specifically for general materials purchasing and inventory management. We are now one step further along the path of building a common purchasing information system inside Outokumpu. The focus of the Procurement Development programme is now on raw materials purchasing in Tornio.
Outokumpu Annual Report 2009 – Suppliers of goods and services Employees Employees – Important internal stakeholders
Outokumpu's success is based on the company's most important asset, our personnel. The Group's renewed People strategy aims to attract, retain and develop Outokumpu people globally, enhancing both their motivation and their ability to support the Group in its vision of becoming the undisputed number one in stainless steel.
The very important interaction with internal stakeholders – our employees – can be found in the social responsibility section.
Outokumpu Annual Report 2009 – Employees Future employees We listen to our future professionals' expectations
We believe that securing future talent is an essential element in ensuring progress towards our vision of becoming the global number one in stainless steel – and being the most popular employer in the stainless steel business. We maintain an active dialogue with potential future employees by visiting universities, hosting visits for school groups and attending recruitment fairs – we attended three fairs in Finland, six in Sweden and two in the UK in 2009. The Outokumpu research centres in Avesta and Tornio are engaged in running technical research projects together with these institutions.
As in 2008, Group CEO Juha Rantanen participated in a panel discussion at a student event together with other CEOs from the leading companies in Finland's metal industry. More than 150 students from several Finnish universities took part. The positive feedback received included requests for the event to be repeated in 2010.
Outokumpu has close contacts with many comprehensive and upper secondary schools. Goals of this cooperation include raising awareness of the steel industry among children and students and encouraging them to learn more about the sector. Outokumpu has adopted schools in many of the Group's operational locations and also awards annual scholarships and stipends to local schools in both Finland and Sweden.
In 2009 Outokumpu improved its ranking among Finnish engineering students in an annual employer branding survey conducted by Universum. The survey tracks both young people's expectations regarding companies and the way they perceive certain individual companies. In the 2009 survey, Outokumpu was placed 22nd in the ideal employer ranking list in Finland and 81st in Sweden. Among Finnish business students, Outokumpu was ranked 85th.
According to a 2009 survey of graduates, Finnish students appear to have confidence in companies even though companies have no open vacancies. All students are in a similar situation. Comments made included general opinions about workplace conditions and job options, and no specific comments were made on Outokumpu.
Outokumpu Annual Report 2009 – Future employees Associations and federations Industry and business associations – networking
Outokumpu is an active and responsible actor in society. As the world's sixth largest stainless steel producer and Finland's twelfth largest company (2008), Outokumpu has a significant influence in various issues and the company's opinion is voiced in many forums. In 2009, our experts and top management continued to maintain effective liaisons with the authorities and different organisations. Top management participated in dialogue concerning issues such as the challenges of climate change, the global financial situation and stainless steel business in the future. Our aim is to broaden the Group's comprehension of approaches to corporate responsibility by engaging actively with different companies and organisations.
Outokumpu's CEO Juha Rantanen was an active participant in energy-related discussions, especially in connection with the issue of nuclear power plants in Finland. Outokumpu supports nuclear power being one of the owners of Fennovoima which plans to build a nuclear power plant in Finland by 2020.
Outokumpu is a member of international organisations and confederations including the World Economic Forum, Eurofer, EuroInox, and the International Chromium Development Association. Outokumpu is also an associate member of the World Steel Association (previously the International Iron and Steel Institute IISI, now also known as worldsteel) and a member of the International Stainless Steel Forum (ISSF), a stainless-steel-specific suborganisation.
Outokumpu participates in the Climate Change Policy Group.
As a member of worldsteel, Outokumpu participates in the Climate Change Policy Group whose aim is to influence global mitigation of greenhouse gas emissions by the iron and steel industry. In this forum, members share best practices, obtain benchmark data relating to occupational safety from the Safety and Health Committee and contribute their own data to the World Steel Association Sustainability Report. TU Bergakademie Freiberg made a survey in 2009 to investigate stakeholders' perceptions on sustainability issues related to steel and the steel industry in order to help improve the sustainability and worldsteel reporting efforts. The most significant issues pointed out were climate change, efficient use of energy and water resources, protecting the environment, as well as education and recycling.
In Europe, Outokumpu is member of several federations and associations in Finland, Sweden, the UK and the Netherlands. National lobbying and cooperation organisations advance industry views and contribute to legislation in Europe through national representatives in EU governing bodies. Outokumpu is also a member of different business associations in North America.
Eurofer is a lobbying and collaboration organisation for the European iron and steel industry. Outokumpu contributes at presidency level to commercial and trade issues, in committees handling statistics, research and the environment, and in working groups whose focus is climate change and industrial benchmarking. Eurofer conveys opinions to EU governing bodies such as the European Commission, the European Parliament and the European Council, and promotes measures such as Renewal of the Integrated Pollution Prevention and Control IPPC Directive, the implementation of REACH (Registration, Evaluation and Authorisation of Chemicals) and continuation of the European Emissions Trading Scheme (EU ETS) after 2013.
Outokumpu Annual Report 2009 – Associations and federations In Finland, Outokumpu is active in corporate responsibility networks. To develop both our expertise in corporate responsibility and the Group's performance, we are an active member of the Finnish Business & Society enterprise network and CSR Europe. To combat corruption and bribery, we are a participant in Transparency Finland, a national chapter of Transparency International. Outokumpu is a signatory to the International Chamber of Commerce (ICC) charter, follows and supports the United Nations Global Compact, and is a member of the UN's Global Compact Nordic Network. To demonstrate the Group's support for sustainability, Outokumpu has also signed the worldsteel Sustainable Development Charter.
Outokumpu Annual Report 2009 – Associations and federations Local communities Cooperation with local communities
As one of the leading companies in the stainless steel sector, Outokumpu seeks an active presence in the local communities in which it operates. The Group is already the largest industrial employer in communities such as Avesta, Degerfors, Långshyttan (Kloster) and Storfors in Sweden, in New Castle in the US, and in the Kemi-Tornio region in Finland. Our decisions to invest, to postpone planned investments or possibly close operations have a major influence at local level.
Although the 12-month postponement of almost all Group investments announced in December 2008 has clearly had an impact on our production sites and the surrounding communities in Sweden and Finland, Outokumpu's strategy has not changed and all these investments continue to be of strategic importance to us.
As in previous years, numerous visits by stakeholder groups to Group facilities were organised at many of our production sites to further improve relationships with local communities. As defined in Outokumpu's Communications policy, the Group sponsors sports, culture and a variety of events at local level, and also charity work. In 2009, however, lay-offs and redundancies have meant that the level of this input has been reduced, sometimes to zero. For this reason, information concerning Group-wide donations which would normally be reported in the economic responsibility section has not been collected.
Outokumpu Annual Report 2009 – Local communities Shareholders Active contacts with investors and analysts continue
We maintained an active dialogue and contacts with our global investor and analyst networks in 2009. Major investor relations events included Outokumpu's annual Capital Markets Day in London for analysts, investors and bankers, 12 road shows in Europe and the US, in connection with the quaterly result announcements. A live webcast was arranged at each result announcement. Outokumpu's Annual General Meeting was held in March in Helsinki, Finland.
In addition to the main events, Outokumpu hosted a total of 13 breakfasts and luncheons for institutional investors in Helsinki, New York, London, Paris, Stockholm and Oslo, and also attended eight industry seminars arranged by different brokers. We also arranged a site visit to Degerfors in Sweden for some institutional investors.
Approximately 300 one-on-one meetings, conference calls and video conferences with investors were arranged during 2009.
To improve the Group's operations, surveys of Outokumpu's performance carried out by external research organisations are monitored on a regular basis. According to the Regi Research & Strategi Ab 2009 survey of investor relations in which areas such as content, functionality, openness and trustworthiness are evaluated, Outokumpu improved its overall ranking significantly, increasing from position number 12 to being ranked number three in Finland.
Outokumpu Annual Report 2009 – Shareholders NGOs A dialogue with environmental NGOs has started
To establish a positive and continuing dialogue with non-governmental organisations, we initiated round table discussions with environmental non-governmental organisations (NGOs) located in the Helsinki area in Finland. The dialogue concept will be expanded and used by the Group in other countries in the future.
At the first meeting, the objectives included getting to know each other, free discussion and a listing of possible areas or themes of common interest. The organisations present explained their strategies, objectives and methods of operation. We reported on our activities in the area of corporate responsibility and especially in the field of environmental responsibility. The meeting represented a good start, and the process will continue. While comments made by the NGOs on Group reporting were useful and also complimentary, additional and less complicated material covering future development trends, life-cycle information and carbon footprint data was requested.
Outokumpu Annual Report 2009 – NGOs Economic responsibility Policies guide us
As a listed company governed by the Finnish Companies Act, Outokumpu is responsible for making a profit for its shareholders. The Group's overall financial objective is to generate the maximum sustainable amount of added value. This means that in targeting long-term profits, Outokumpu develops and maintains competitive and profitable operations founded on ethical business practices while also taking into account the environmental and social implications of any decisions that are made. The Group's Ethics Statement, Leadership Principles, Corporate Responsibility Policy and Code of Conduct also guide the company in commercial matters. Outokumpu observes the principles of good corporate governance and transparent financial reporting and its actions are guided by: the rules and regulations that apply to listed companies, international accounting standards, a declaration of competition policy, rules concerning insider trading, and the Group's dividend policy.
The Group's financial targets and results are detailed in Outokumpu's financial statements. This section of the report concentrates on the Group's economic impacts on its stakeholders.
Outokumpu Annual Report 2009 – Economic responsibility Economic goals and results Challenges brought by the global economic situation
The on-going global economic downturn has had a significant effect on the stainless steel industry, Outokumpu's customers and also the Group. The market situation at the beginning of 2009 was uncertain and difficult. The crash in the financial markets at the end of 2008 and the resulting economic downturn reduced demand for stainless steel substantially and, in common with other stainless steel producers, Outokumpu had to cut back production.
During the first half of 2009, destocking activities by distributors led to reduced production levels. After the summer, purchasing activity recovered somewhat due to reduced production, increases in metal prices and an end to destocking among distributors. Some softening in market was visible towards the end of the year. Since production remained at unsatisfactory levels until the end of the year, deliveries by Outokumpu declined 28% to 1 030 000 tonnes (2008: 1 423 000 tonnes). Return on capital employed in 2009 was negative at 11.7% and the Group's 13% target for this was not achieved. Despite a difficult year, Outokumpu's debt-to-equity ratio remained at a relatively good level of 48.2%, below the Group target of a maximum of 75%.
Good cashflow also guarantees uninterrupted business with the company's suppliers and adds value for other stakeholder groups.
Outokumpu's current financial priority is to restore profitability by managing price and grade mix, optimising loading at mills and ensuring cost efficiency. In a volatile market situation, a strong balance sheet ensures flexible access to financing. Good cashflow also guarantees uninterrupted business with the company's suppliers and adds value for other stakeholder groups.
Facing the situation
Group's cashflow from operating activities weakened compared to 2008 but remained strong amounting to EUR 198 million (2008: EUR 664 million). Main contributors were the reduction of working capital and lower metal prices. To guarantee necessary levels of liquidity and long-term financing, Outokumpu signed a three-year Revolving Credit Facility of EUR 900 million in 2009 to replace the previous five-year facility of EUR 1 billion. At the end of the year, in addition to cash reserves, the Group had some EUR 1.1 billion of previously-negotiated loans and binding loan commitments from its debtors. Secured financing will help us to live through the financial crisis relatively unscathed while continuing to add value for all our stakeholders.
Outokumpu Annual Report 2009 – Economic goals and results Economic impact on our stakeholders Strategy unchanged despite the economic downturn
In 2007, Outokumpu launched a new strategic phase with the aim of building a more stable and profitable business model. Even though a number of investments were announced in late 2007 and early 2008, one consequence of the global economic downturn was that in December 2008, the Group decided to postpone almost its entire investment programme for a period of at least 12 months.
In 2009, a decision was made not to proceed with the melt shop expansion investment at Avesta in Sweden in the foreseeable future as no need for additional melting capacity exists in the medium term. While adverse financial conditions prevail, continuation of any investment project is subject to separate decision based on an updated feasibility study. Further decisions regarding postponed investments will be made by the end of 2010. Regrettably, delays in investments and cancellation of the melt shop expansion at Avesta mean that the positive financial effects through creation of new jobs both in Outokumpu units and indirectly in the local communities will not now occur in the areas where the investments were planned to take place.
Outokumpu's fundamental strategy, however, remains unchanged. The Group is committed to balancing its product mix by increasing the proportion of end-user and project sales, and stabilising the volumes of product purchased by key distributors and growth outside Europe. In accordance with this strategy, expansion of stock and processing capacity at the Group's Service Centre in Willich in Germany was completed in 2009. Outokumpu is also establishing a new service centre at Kunshan in China. These expansions support the strengthening of the Group's network of service centres to increase sales to end-users and project customers. Specialty Stainless production capabilities at Nyby in Sweden and in New Castle in the US have also been expanded. All of these investments will have a positive financial effect on local communities through increased salary payments and the indirect creation of jobs. The Group's Production and Supply Chain Management Excellence programmes are important tools in further improving Outokumpu's operations and profitability in a challenging market environment and in implementing Group strategy. Financial benefits totalling EUR 150 million were achieved through the Group's Excellence programmes in 2009 compared to 2005.
Outokumpu Annual Report 2009 – Economic impact on our stakeholders Dividends to shareholders Dividend to shareholders
The two largest shareholders in Outokumpu are the Finnish state (31.0% through Solidium Oy) and the Finnish Social Insurance Institution (8.1%). One result of the global economic downturn has been that the Group's share price suffered a dramatic decline of 61% in 2008. Stock exchanges worldwide recovered in 2009 from very low levels at the beginning of the year. Outokumpu's share price increased by over 60% to 13.26 euros on December 31, 2009. The dividend of EUR 0.50 per share for 2008 resulted in payments totalling EUR 90 million. The dividend proposal for 2009 is EUR 0.35 per share and the effective dividend yield is 2.6%. Over the last five years, dividends distributed by Outokumpu have averaged 80% of the net profits from continuing operations. More investor information can be found here.
Outokumpu Annual Report 2009 – Dividends to shareholders Wages and salaries Salary payments
At the end of 2009, Outokumpu employed 7 606 people in over 30 countries (2008: 8 471 people). The number of employees was lower than in the previous year because personnel had to be adjusted to take account of lower delivery volumes that are clearly below the Group's maximum production capacity. The closure of Sheffield Special Strip, reduced melting capacity and other adjustments at Sheffield in the UK resulted in the loss of some 350 jobs. In Sweden, personnel adjustments at a number of sites led to approximately 400 jobs being lost. Adjustments also had to be made in other countries including temporary layoffs.
Salary payments including pensions and other benefits paid by Outokumpu in 2009 reduced by 15% to EUR 398 million (2008: EUR 466 million). Bonuses received by Group staff in 2009 were based on both some financial results achieved and key performance indicators defined in 2008. The Group's benefit plans for employees vary by country.
Wages, salaries and other employee benefits by country 1)
€ million 2009 2008 2007
Finland 147 163 163
Sweden 128 168 152
The UK 37 49 44
Other Europe 57 53 45
Other countries 31 33 38
Total 398 466 443
Notes: 1) Accounting principles have been adjusted to better meet the GRI guidelines. The comparative figures have been restated.
Outokumpu Annual Report 2009 – Wages and salaries Customer impact Sales decreased due to low deliveries
Outokumpu's sales and marketing know-how has been combined into a single entity called Group Sales and Marketing. During 2009, the new organisation launched in 2008, has continued to serve customers in the best possible ways. Delivery volumes of stainless steel in 2009 totalled 1 030 000 tonnes, clearly lower than in the previous year (2008: 1 423 000 tonnes). Group sales in 2009 were 52% lower at EUR 2 611 million (2008: EUR 5 474 million). The main reason for the clearly lower sales in 2009 was the extremely low delivery volumes. Because of lower metal prices transaction prices for stainless steel declined and also affected sales.
Outokumpu Annual Report 2009 – Customer impact Business with suppliers Reduced purchases
The majority of Outokumpu's costs are associated with the purchase of raw materials. The primary raw materials used in stainless steel production – nickel, ferrochrome, recycled stainless and carbon steel, – are purchased on the open market, but a proportion of the Group's ferrochrome needs are sourced internally. The economic downturn and consequently low demand for stainless steel meant that raw material prices remained at a low level in 2009 – the average nickel price was 14 655 USD/tonne, 31% lower than in 2008. As demand for stainless steel was weak, the volumes of raw material purchased by Outokumpu in 2009 were reduced in order to avoid excessive inventories. The reduction in purchases and the low raw material prices reduced the economic value we added for our suppliers. The cost of goods and services purchased in 2009 declined by 51% to EUR 2 388 million.
Since we recognise our responsibilities towards such businesses and the communities in which we operate, our objective is that no single supplier should be too dependent on its business partnership with Outokumpu. The actual number of our raw material suppliers is quite low and most of the Group's raw materials are sourced globally rather than locally. This makes our procurement processes more efficient. Read more about responsible sourcing here.
Cost of goods and services
€ million 2009 2008 2007
Raw material and merchandise 1 522 3 602 4 556
Fuels and supplies 245 364 325
Energy expenses 161 221 189
Freights 133 192 187
Maintenance 75 113 106
Hire processing 27 38 48
Rents and leases 25 26 24
Other expenses 200 271 229
Total 2 388 4 826 5 662
Outokumpu Annual Report 2009 – Business with suppliers Taxes distributing wealth The direct and indirect effects of taxes on societal well-being
Outokumpu contributes to the well-being of local, national and international communities through tax payments, through direct and indirect employment and by participating in other societal activities. In 2009, taxes and social security contributions paid by the Group totalled EUR 46 million, lower than in the preceding year (2008: EUR 61 million). In 2009, Outokumpu received EUR 1 million net tax return payment (2008: taxes of EUR 6 million was paid).
Taxes and social dues by country 1)
€ million 2009 2008 2007
Finland 10 11 34
Sweden 24 29 88
Other Europe 15 20 21
Other countries -3 0 19
Total 46 61 163
Notes: 1) Accounting principles have been adjusted to better meet the GRI guidelines. The comparative figures have been restated.
Outokumpu Annual Report 2009 – Taxes distributing wealth Impact of climate change The impacts of climate change are taken seriously
Climate change has attracted increasing attention in Outokumpu in recent years. Both responding to the challenges set by emissions reduction targets and taking these into account in the Group's long- term strategy are important. Outokumpu views climate change as a matter for serious concern and wishes to contribute to targets set by the European Union. While preparations must be made for economic challenges that the Group may face in the future in connection with reducing carbon dioxide emissions, climate change will also present financial opportunities.
Regulatory risks
The greatest regulatory uncertainty for Outokumpu stems from the EU's Emissions Trading Scheme (EU ETS). It creates a financial incentive for companies to restrict their emissions of carbon dioxide as emission allowances that remain unused can be sold on financial markets. Conversely, if the level of a company's emissions exceeds its emission rights, allowances have to be purchased. Our sites in Finland, Sweden and the UK fall within the scheme. While the Group has been granted allowances at no cost in the current trading period (2008–2012), it is highly probable that in the future the Emissions Trading Scheme will mainly be based on auctioning of allowances. This could lead to Outokumpu being placed at a competitive disadvantage compared to stainless steel producers located outside Europe. To dissuade companies currently operating inside the EU from moving to countries without emission reduction targets, industries within the EU that are exposed to high carbon leakage will continue to receive free emission allowances. The iron and steel industry has been identified as a sector that is vulnerable to the risk of carbon leakage and Outokumpu sites will therefore probably receive free allowances even during the 2013–2020 period.
In the future, emission reduction targets will most probably be more stringent and we will have to make preparations for operating in a more restricted environment in connection with carbon dioxide emissions. To manage such risks and prepare for expected developments in the Emissions Trading Scheme, an Emission Management Committee has been established with representatives from different Group functions. The committee's responsibilities include assisting in defining Outokumpu's emissions management strategy and coordinating its implementation.
Price risks
For the Group it is important to secure the cost of compliance for emission allowances. The realised and forecast emissions as well as the granted allowances are monitored regularly. The Group has also aimed at decreasing the cost of compliance by entering into financial transactions such as swapping EU emission allowances to CERs and investing into a carbon fund.
As steel manufacturing is energy intensive, the Group is sensitive to changes in the price of electricity. Power companies transfer the cost of their emission allowances to the prices they charge for electricity, and marginal cost pricing means that all forms of power production are therefore affected by the price of emission allowances. Even though the electricity purchased by Outokumpu is mostly low-carbon, costs of this type have an impact on the Group. The risk related to the future cost of emitting carbon dioxide also adds an element of uncertainty to the planning of new investments and can affect future investment decisions.
Outokumpu Annual Report 2009 – Impact of climate change As steel manufacturing is energy intensive, the Group is sensitive to changes in the price of electricity.
Physical risks
Climate change could also have a less direct impact on Group operations as it may exacerbate physical risks such as damage to property or loss of production resulting from floods, hurricanes and/or drought. The normal measures required to mitigate these risks have however been incorporated into our risk management and associated policies. Currently, Outokumpu's production facilities include only one tube mill in Florida in an area defined as a "regional hotspot".
Opportunities
Even though climate change represents a significant challenge for the Group, it also opens up new business opportunities. Stainless steel, a sustainable material, is often specified as a construction material in projects whose aim is to improve efficiency in transportation, buildings and production, and in building the low-carbon society. Outokumpu can also help in resolving global challenges such as need for clean water.
In 2009, the temporary shutdown of the ferrochrome plant and production levels that were significantly lower than normal resulted in Outokumpu having a surplus of emission allowances. The Group took the opportunity to use the financial markets for efficient risk management of these allowances. One example was the EUA-CER swap contract in which more-expensive EU emission allowances (EUA) were exchanged for cheaper Certified Emission Reduction (CER) units, a type of Kyoto credit.
To optimise the cost of compliance with the EU Emissions Trading Scheme, Outokumpu has also invested EUR 1.5 million in the Testing Ground Facility (TGF), a Nordic carbon fund managed by the Nordic Environmental Finance Corporation. Aims of the fund include purchasing Emission Reduction Units for its investors at financially attractive terms from projects that bring down carbon dioxide emissions. The Group expects to start receiving these allowances in early 2010.
Outokumpu Annual Report 2009 – Impact of climate change Public sector support Grants and community support given, public sector support received
Due to the financial downturn and resulting personnel reductions and lay-offs, our sponsoring activities and donations have been reduced in 2009. Therefore, we have not collected corresponding data from our organisation. Sponsorship of local events and support for charities provided in accordance with Outokumpu's Communications policy totalled some EUR 0.7 million in 2008. Outokumpu does not take part in or otherwise support political activities whether they are local, communal or national. Outokumpu does not make donations to any political parties or groups.
In 2009, Outokumpu and other member companies of the Association of Finnish Steel and Metal Producers founded a fund to promote university-level research, teaching and studies of technology and business issues concerning the metals production and covering the entire production chain. The fund awarded grants totalling EUR 0.3 million in 2009. Outokumpu was also one of the founding members and a corporate partner in the biennial Millennium Technology Prize, the world's largest technology award. The prize of almost EUR 1 million is awarded to a technological innovation that significantly improves quality of life.
The Outokumpu Oyj Foundation did not grant any awards in 2009.
Outokumpu's Swedish Stainless Steel Research Foundation donated EUR 30 000 to Oulu's University Fund. The donation was meant for the research work on stainless steels and it supports future metallurgical research work carried out in the Oulu University.
In 2009, Outokumpu received EUR 0.7 million from the public sector to support Group research and the development of new technologies, products and applications (2008: EUR 0.7 million).
Observations by PricewaterhouseCoopers
Economic responsibility
As part of CR reporting, Outokumpu discloses data on sponsoring activities and donations. Recording and reporting amounts for sponsoring and donation should be further developed to ensure systematic collection of data throughout the organisation.
Outokumpu Annual Report 2009 – Public sector support Environmental responsibility Longterm commitment shows
Stainless steel is 100% recyclable, hygienic and corrosion-resistant and the environmental impacts resulting from its use are almost non-existent. On the other hand, its production – the manufacturing and reprocessing stages – do have an impact on the environment.
Our main environmental impacts
The most substantial environmental impacts resulting from the stainless steel production process are: dust and particulate emissions into the air; discharges of water from production plants; and the high levels of direct and indirect energy consumption during production. Landfill waste is also created during the production process.
Outokumpu's way to manage environmental issues
Guided by our Environmental and Corporate Responsibility Policies and Ethical Principles, Outokumpu's firm objective is to minimise the environmental burden of our operations as much as this is economically and technically feasible.
Local guidelines and environmental management systems complying with the ISO 14001 standard provide more detailed models for the Group's actions. Environmental issues are an essential part of the management systems employed in Outokumpu's plants and units, and the functioning of these systems is monitored by both internal and external audits. We also provide the relevant authorities with reports on our operations in all the countries in which we operate. At the Group level, operations are managed and best practices are applied through our environment network, whose working groups and environment committee meet once during each quarter.
Observations by PricewaterhouseCoopers
Environmental responsibility
The CR reporting system is used to consolidate unit level environmental data at group level. The production units prepare reports for local environmental authorities by separate, parallel systems. It would enhance consistency and data accuracy, if the CR reporting system was used also for local reporting needs.
Outokumpu Annual Report 2009 – Environmental responsibility Environmental goals and results Aiming at ambitious targets
Annual routines at all Outokumpu production locations include the setting and monitoring of independent environmental targets. These processes are built into the Group's environmental management systems and there are also key targets for 2010 at the Group level. Having concrete, measurable targets for our operations is a way of focusing attention on specific environmental and energy aspects throughout the Group.
Group indirect and direct CO2 emissions per tonne produced to be reduced by 20% by 2020.
Outokumpu is committed to the long-term target of reducing its carbon emissions profile (indirect and direct emissions) by 20% per produced tonne by 2020. The setting of this challenging target is a clear demonstration of Outokumpu's desire to improve the Group's energy efficiency, contribute to reducing global emissions of carbon dioxide, and participate in the transformation to a low-carbon society. Outokumpu's Energy & low-carbon programme can be found here.
Outokumpu Annual Report 2009 – Environmental goals and results Site-specific environmental targets Site-specific targets
Goals for 2009
Water protection Avesta: reduce nitrate discharges to water by 10% and achieve 1 kg/tonne as a monthly average.
Wildwood: Improve wastewater recycling by reusing some in the pickling process.
Waste management Avesta: Complete 3 000 tonne Hydrosludge recycling test.
Sheffield melt shop: Reduce waste to landfill by 10% compared to 2008 volumes, through recycling.
Örnsköldsvik tube mill: Analysis of most optimal future waste reduction possibilities will be done in 2009.
Air protection Tornio: Achieve usage level of dust reduction units to more than 98% per month.
Soil protection Sheffield melt shop: Complete and install additional landfill leachate pump.
Use of materials Kemi Mine: Reuse 250 000 tonnes of lumpy rock and side rock from the Kemi concentrating plant to the underground mine
Tornio: Produce steel slag products amounting to 10% of steel production tonnages.
Sheffield melt shop: Find a way to return Filter press Slab Caster Backwash rejection sludge to the electronic arc furnace and use it as raw material.
Energy efficiency Avesta: Reduce electricity consumption by 3% from 980 to 950 kWh per tonne. Reduce consumption of liquid petroleum gas (LPG) by 3% from 66 to 64 kg per tonne.
Sheffield melt shop: Reduce specific energy consumption by 2% against reference year 2007.
Richburg: Reduce electricity consumption per million tonnes by 10% using 2008 as basis.
Management The process of integrating management systems that comply with the EN-14001, systems EN-9001 and BS-18001 standards and relevant energy management systems
Outokumpu Annual Report 2009 – Site-specific environmental targets into a single environment, health and safety, and quality system has been initiated. The target is to start implementation during 2009.
Results 2009
Water protection Avesta: The goal to reduce nitrate discharges to water by 10% and achieve 1 kg/ tonne as a monthly average, was not achieved.
Wildwood: The goal to improve wastewater recycling by reusing some in the pickling process, was not achieved. The project was postponed.
Waste management Avesta: To complete 3 000 tonne Hydrosludge recycling test was not met.
Sheffield melt shop: The target to reduce waste to landfill by 10% compared to 2008 volumes was not met.
Örnsköldsvik tube mill: Analysis of most optimal future waste reduction possibilities was postponed.
Air protection Tornio: Not fully achieved. In steel melting shop the goal was not achieved in September due to a fire accident in the dust reduction unit.
Soil protection Sheffield melt shop: The goal to complete and install additional landfill leachate pump was achieved.
Use of materials Kemi Mine: The goal to reuse 250 000 tonnes of lumpy rock and side rock was not reached. The result was 120 000 tonnes. It was not possible to reach the target due to the temporary production stop.
Tornio: The target was achieved. 83 350 tonnes of steel slag products were produced, which means over 10% of steel production.
Sheffield melt shop: Trials to return Filter press Slab Caster Backwash rejection sludge to the electronic arc furnace were not succesfull, work continues.
Energy efficiency Avesta: The goals to reduce electricity consumption by 3% from 980 to 950 kWh per tonne and to reduce consumption of liquid petroleum gas (LPG) by 3% from 66 to 64 kg per tonne were not reached.
Sheffield melt shop: The target to reduce specific energy consumption by 2% against reference year 2007, was not met.
Outokumpu Annual Report 2009 – Site-specific environmental targets Richburg: The target was not met. Due to current difficult economic situation, low capacity utilisation and temporary stops generally, all energy efficiency targets were not met.
Management The Integrated Management System project proceeded and the IMS Manual was systems drafted. Implementation was not started during 2009.
Goals for 2010
Water protection Sheffield melt shop: To reduce water consumption by 5% against 2007 usage.
Waste management Tornio: Produce steel slag products amounting to 32% of total slag production.
Degerfors hot rolling: Waste to land fill target 2kg per tonne
Air protection Tornio Works: Achieve usage level of dust reduction units to more than 98% per month.
Soil protection Sheffield melt shop: Complete hydrological assessment for the Tinsley Park landfill.
Use of materials Kemi mine: Reuse 250 000 tonnes of lumpy rock and side rock from the Kemi concentrating plant to the underground mine.
Richburg Bar: Reduction of hydraulic oil consumption by 50%
Energy efficiency Avesta: Reduction of specific energy consumption by 3%
Management IMS Manual to be published and IMS implementation to start from the business systems units Tornio Works and tubular products. IMS internal audit system starts to operate.
Outokumpu Annual Report 2009 – Site-specific environmental targets Group-wide environmental targets Group-wide environmental targets
Goals for 2009
Group-wide reporting tool taken into use in 2009.
Energy efficiency: Uniform energy efficiency plans ready at all production sites by the end of 2009. Identification of most important energy efficiency investments at corporate level by the end of 2009 – based on site-specific energy efficiency plans. Reducing specific energy consumption per processed tonne by 2% – base year 2007.
Material efficiency: Reducing waste to landfill per processed tonne – base year 2007 and further reductions of 10%. Identification of most feasible material efficiency investments at corporate level by the end of 2009 – based on site-specific plans.
Results 2009
The target was fully achieved. Group wide reporting tool was taken into use. Energy and environmental reporting 2009 was successfully carried out with the new system.
Energy efficiency: The energy efficiency targets were not met. Most of the production sites have energy efficiency plans and mappings ready but not yet uniformly reported by the end of 2009. Specific energy reduction target was not met due to low production levels.
Material efficiency: Further 10% reduction of waste to landfill per tonne processed achieved. Most of the sites have material efficiency or waste reduction schemes. However the most feasible material efficiency plans were not identified at Group level.
Goals for 2010
Zero significant environmental incidents
Reduction of our direct and indirect CO2 emissions in line with the long term target of 20% by 2020.
Energy efficiency: Reducing specific energy consumption per processed tonne by 1% – base year 2007.
Material efficiency: Further reduction of waste to landfill per tonne.
Outokumpu Annual Report 2009 – Group-wide environmental targets Materials efficiency The recycled content of Outokumpu's steel is 90%
For Outokumpu, the most important raw materials used in producing stainless steel are recycled stainless steel and recycled carbon steel. Together with metals recovered from waste and by-products of the production process, they raise the recycled content of stainless steel produced by the Group. The recycled content of Outokumpu stainless steel is approximately 90%, and higher than the global industry average of 60% (according to the International Stainless Steel Forum ISSF). In addition to the recycled steel, alloying elements are also required. These include iron-containing alloys and other metals such as chromium, nickel and molybdenum.
Slag and dust are produced as by-products of the steelmaking process. Considerable research and development effort has been invested by Outokumpu in methods of retrieving valuable metals from this slag and dust as these can be recycled as raw materials in the Group's melt shops. For example, to minimise emissions into the environment, filters collect more than 99% of the dust generated by the Group's production operations. All of the dust generated by the company's melt shops is recycled. Dust fractions with the highest metal content are recycled directly, and the remainder of the collected dust is recycled following metal recovery. In the Nordic region this residue is sent to an external facility in Sweden which treats the dust to recover the metals it contains. In the UK, there is a metal recovery facility on site.
There are many phases in the life-cycle of stainless steel products. It is Outokumpu's aim to improve the sustainability of each phase – from production to re-use. Outokumpu's sustainable supply chain from supplier of recycled steel to production of stainless steel productions.
Improved waste utilisation and less landfill waste
Outokumpu has the twofold aim of improving levels of efficiency in using materials and reducing the quantities of waste sent to landfills. By paying special attention to waste management and segregation techniques, many waste fractions are now recycled and the amount of waste sent to landfills has been reduced.
In Tornio, a full-scale process involving a local contractor has been established to recycle refractories and linings from melt shops by crushing and reprocessing them. The reprocessed material is used as a substitute for virgin material such
Outokumpu Annual Report 2009 – Materials efficiency as lime in the melt shop. This technique also reduces the amount of waste sent to landfill and improves metal recovery rates.
Outokumpu's melt shop in Sheffield continues to increase the quantities of stabilised and solid slag sold as roadstone. During 2009, some 84% of all slag from the melt shop was recycled in this manner.
Hydroflux, a product developed by Outokumpu, is made using descaling waste generated on the Group's stainless steel annealing and pickling lines. It can be used to replace the calcium fluoride used as a flux in stainless steel slag management. The aim is to enable full scale utilisation.
Entire life-cycle taken into account, 20% increase in recycled
content corresponds avoidance of CO2 emissions of 1.2 tonnes per tonne of stainless produced.
Maximising economic value while minimising the environmental burden
Achieving the Outokumpu vision of being the undisputed number one in stainless steel, means in environmental matters creating the highest possible amount of economic value using the lowest possible levels of resources while reducing any resulting ecological burden to an absolute minimum. With this in mind, the Group has bult up a model to develop an internal environmental value chain. Environmental costs and the resources employed in running processes and manufacturing products are evaluated from a value creation perspective, with aim that resources are employed in the most efficient ways possible.
Assessing each value creation phase by comparing it with the environmental consequences and material requirements by grade and by process allows Outokumpu to maximise the eco-efficiency of the Group's production. This model was created under a project called ENO (Environmentally number one) during 2007–2009. Although the project was ended in the beginning of 2009, the model is still valid. Adopting a value added approach has provided extremely useful information about material flows and streams. Since the model is able to provide a measurement of the eco-efficiency of Outokumpu's commercial value creation processes, the ENO approach is viewed as one of the best ways to encourage sustainable production. It is also very helpful when deciding the most efficient environmental investments.
A good example is the recycled content in stainless steel. Raising this from an average of 70% to an average of 90% drastically reduces the environmental burden which results from manufacturing stainless steel. Recycled input replaces the virgin materials that would otherwise have been required, and this affects the whole supply chain. If the entire life- cycle is taken into account, a 20% increase in recycled content corresponds to the avoidance of carbon dioxide emissions totalling 1.2 tonnes per tonne of stainless steel. At the 2009 production level of 1.2 million tonnes, the tonnage of carbon dioxide emissions avoided in this way would equal 1.4 million tonnes.
Outokumpu Annual Report 2009 – Materials efficiency Material balance Material balance
Material balance
2009 2008 2007
Material used, tonnes
Recycled steel 1 131 144 1 367 858 1 480 332
Recovered metals 45 513 97 463 105 480
Ferrochrome 168 600 265 412 282 001
Nickel alloys 63 837 100 654 105 697
Other alloys 63 272 86 564 100 274
Additives, tonnes
Slag formers 191 190 227 302 237 454
Melt shop process gases 155 978 179 851 181 048
Pickling acids bought 10 106 13 220 11 322
Pollution prevention materials 25 715 27 216 17 365
Packaging materials used for final products 10 876 14 885 11 797
Energy, million GJ
Electricity 7.4 9.9 10.5
Propane 3.7 4.5 4.4
Carbon monoxide gas 0.7 1.4 1.7
Natural gas 0.5 0.7 0.6
Light and heavy fuel oil 0.7 0.8 1.4
Output, tonnes
Steel slabs, billets 1 245 532 1 650 068 1 718 704
Emissions to air, tonnes
Carbon dioxide 568 000 871 000 932 000
Nitrogen oxides 1 207 1 925 1 653
Sulphur oxides 179 277 451
Dust 134 216 265
Ozone-depleting substances 0 19 20
Outokumpu Annual Report 2009 – Material balance Emissions to water, tonnes
Metals (Cr, Ni, Mo, Zn) 14.9 15.5 17.2
Nitrates 438 578 575
Hazardous waste, tonnes
Oily sludge to the treatment 5 907 4 978 4 834
Hydroxide sludge landfilled 38 444 49 646 44 967
Steel making dust to recovery 25 265 37 240 39 000
Waste and by-products, tonnes
Slag, total 324 832 593 777 547 620
Slag utilised 185 576 443 517 220 000
Outokumpu Annual Report 2009 – Material balance By-products Material efficiency and by-products
The efficiency of using materials within the Group is also continually being improved. The input per tonne of steel produced has been reduced as the recycled content has increased. Unavoidable by- products such as slag have been successfully utilised as substitute for other virgin materials. All these measures result in substantial environmental benefits.
Material efficiency is a cornerstone in Outokumpu's environmental responsibility thinking. The Group has completed many materials-related research and development projects in recent years and a number of schemes to reduce waste volumes have been implemented. One of the most important ways of reducing the quantities of waste generated in the steel industry is to modify melting shop processes so that slag is produced as a product.
Outokumpu has invested several million euros in developing slag-based products for construction and neutralising purposes.
Until the beginning of 2009, steel melting slag from the Tornio Works was processed in a grinding metal-separation process to retrieve and then reuse the valuable materials it contained. The problem was that slag treated in this way becomes a very fine powder which is difficult to utilise. During 2009, the process was modified to retrieve the metal content just as effectively but allow the slag to remain in a coarser form, making it easier to use as construction material. The new process will be launched in 2010.
Practically all significant waste streams are studied in order to reduce environmental impact. For example Outokumpu's Tornio Research coordinated following environment related research projects during 2009:
1. ISSF-project GRASCA – FINCON (Granulation of Slag under Controlled Atmosphere and Use of Stainless Steel Slag as Filler in Concrete)
2. Tests with fine steel slag as neutralising material for acidic mine waters.
3. Reuse of OPAR acid regeneration salts from Tornio in nickel production.
4. Bioleaching processes to treat metallurgical wastes to more inert and less harmful (PROBIO) and to create new, remote monitoring systems for ground and waste waters (MONIWATER).
5. Dust treatment study
6. Recover the metals from mill scale sludge, oily sludge and steel dusts.
7. Use of oil containing waste waters in ferrochrome sintering plant.
Outokumpu Annual Report 2009 – By-products In the UK Alloy Steel Rod unit worked with a Thermal Recovery plant to look at the possibility of treating and reuse the mill scale. The melt shop started a project to recover metallic finds from the caster open water systems.
More than 84% of all the slag produced at the Sheffield melt shop is being used as an additive in asphalt used in road construction. Roads built using stainless steel slag are considered to be safer for drivers as the slag provides additional grip during braking (Source: MiMer 2003, Minerals and Metals recycling centre, Luleå University, Sweden and Recmix 2008 Belgium). In Avesta, a test road has been built in which slag has been used as a construction material. Avesta, Nyby and Degerfors are also engaged in a project to develop ways of reusing hydroxide flux instead of sending it to landfill.
The Sheffield melt shop is licensed by the UK Environment Agency as an accredited packaging reprocessor, an important and vital component in the UK's packaging compliance and waste reduction policies. Packaging waste from Sheffield is recycled to be used in the production of new packaging materials.
Outokumpu Annual Report 2009 – By-products Energy and climate change Energy efficiency a key priority
The steel industry is energy intensive and Outokumpu's steelmaking and rolling processes are no exception. We do however recognise the need for energy to be used efficiently. Hard work has given the Group a very good record in reducing energy consumption, and Outokumpu processes are considered to be Best Available Techniques (BAT) as defined in the EU's integrated pollution prevention and control directive. Energy consumption in our ferrochrome production in Tornio, for example, is very close to the theoretical minimum and only two thirds of the level in traditional processes. Process heat is recovered and used for heating.
Outokumpu sites use a range of fuels including direct energy sources such as natural gas, propane, heavy fuel oil and electricity. Direct energy use by the Group totalled 13 million gigajoules (GJ) in 2009. Electricity consumption totalled 7.4 million GJ (2.1 million megawatt hours), which is in practice some 25% of the annual capacity of a modern 1600 MW nuclear power plant.
Outokumpu Annual Report 2009 – Energy and climate change Combating climate change Combating climate change – Outokumpu's Energy & low-carbon programme
Being a global player in an energy-intensive industry means that our targets are ambitious. Outokumpu's long-term efforts and results in the field of energy and material efficiency, R&D and product stewardship – and the results achieved – have reinforced our leadership position and provide a solid base in our way towards a low-carbon society.
The Outokumpu Energy and low-carbon programme presents both the Group's ambitious targets and the actions
required to reach them. In the last ten years Outokumpu has managed to reduce its direct carbon dioxide (CO2 ) emissions by 25% per tonne of stainless steel produced. Outokumpu's target is a 20% reduction in the Group's specific
carbon emissions profile (indirect and direct CO2 emissions) in stainless steel production by 2020.
Emissions are calculated per tonne of stainless steel produced hence highlighting not only the actual reductions but also production efficiency.
Outokumpu carbon profile consists of:
direct emissions from production operations,
indirect emissions from purchased electricity as well as
emissions resulting from transport of products and business travel.
The targeted annual reduction is approximately 370 000 tonnes of CO2 emissions totalling 2 200 000 tonnes during the programme period 2010–2020, calculated against current capacity and products.
The primary actions within the programme consist of further improvements in energy efficiency, increasing the share of low-carbon electricity and targeting for efficient and optimal production levels. Additionally, air travel offsetting will be implemented for business travelling, and sustainable aspects will be integrated when planning logistics and transportation. These actions cover our operations in all countries and business units. Progress in the different plans will be monitored and reported on an annual basis. The full report can be read here.
Participation in life-cycle studies
Outokumpu recognises the importance of life-cycle data, both for internal use in highlighting areas for improvement and for communications purposes in the supply chain. Outokumpu participated in a project to collect and update European Life Cycle Inventory (LCI) data for the production of stainless steel during 2007–2008. The results were
published in 2009. Compared to a similar exercise in the late 90s, the carbon efficiency (CO2 efficiency) of stainless steel manufacturing had improved dramatically. According to the study the carbon footprint of austenitic stainless steel was now more than 40% lower than a decade ago. This is possible through better process efficiency, higher input of recycled stainless steel and better electricity mix today.
Outokumpu Annual Report 2009 – Combating climate change Carbon footprints of Outokumpu products are smaller than EU average.
Outokumpu's production sites are well positioned when it comes to carbon efficient steel manufacturing. All Outokumpu products had smaller carbon footprints than the average EU stainless steel. The carbon footprint of quarto plate products was almost 20% smaller than the average European values. Austenitic flat products were about 10 times more carbon efficient than average. Also the ferritic grade 430 performed well compared to average. Outokumpu ferritic data was updated with new information since ferritic production was almost non existing when this study was started.
Outokumpu has also actively participated in the Swedish Steel Eco-Cycle research project. The project is the first large and coherent research effort with an environmental focus in the steel industry in Sweden. It is looking for areas to improve in all stages of steel's life-cycle, from mining to steel products and recycling. Projects involving life-cycle assessment, recycling and slag utilisation have been of special interest to Outokumpu. The first phase of the project that started in 2004 has now been successfully completed. The second phase, stretching from 2009 to 2012 has been initiated.
Outokumpu Annual Report 2009 – Combating climate change Energy efficiency A long-term approach to energy efficiency
Outokumpu takes a long-term approach to energy efficiency and the target is continuous improvement. Energy efficiency is a component in the environmental management systems at most of the Group's mills. Major production sites have also had long-term, prioritised energy efficiency investment plans since 2009. In general terms, the largest energy saving potential lies in recovering waste heat, improving process integration and improved efficiency in using raw materials.
Improvements in energy efficiency are not however only associated with large, energy specific investments. The systematic monitoring and analysis of energy consumption is very important, as is life-cycle analysis when purchasing new electrical equipment. The Group provides energy efficiency training for production personnel.
Voluntary agreements to improve energy efficiency
Outokumpu has participated in voluntary national energy efficiency agreements in Finland, Sweden and the UK for many years. The Tornio Works joined the Finnish programme at the beginning of the 1990s. Achieved energy savings in electricity, heat and fuel sum up to total of 650 GWh during 2009. To continue these systematic improvements in energy efficiency, Outokumpu sites in Finland signed new energy efficiency agreements in December 2007. These new agreements are valid from 2008 to 2016. In Sweden, the first round of the PFE (Programmet för energieffektivisering i energiintensiv industri) agreement ended in the summer of 2009 having achieved annual savings in electricity consumption totalling 8 GWh rather than the agreed 4 GWh. The Group has now applied for the second period between 2009 and 2014. In connection with energy issues, Outokumpu usually works closely with the authorities – with Motiva in Finland and by participating in the Jernkontoret forum in Sweden.
Outokumpu has participated in voluntary national energy efficiency agreements in Finland, Sweden and the UK for many years.
Continuous improvement, efficient operations and maintenance are essential part of our energy efficiency work. In our Avesta Works measures for improvements during 2009 were:
New routines for maintenance shut downs to shut down motors when not used.
Improved control system of flameless combustion in the annealing line, which resulted in fuel savings and lower emissions.
New pressurised air control system installed and work started to find leakage to improve compressor utilisation and save energy.
New industrial water pump station installed with increased capacity. frequency controlled pumps save energy and improve regulation.
Amount of free cooling from the water increased by replacing a larger power supplied compressor.
Energy and data collection system developed and better analysing tools prepared.
Outokumpu Annual Report 2009 – Energy efficiency Sustainable power solutions
Outokumpu is protected against price volatility in the Nordic electricity market by having its own electricity production facilities and long-term electricity purchasing agreements. In addition to reasonable and stable electricity prices, one of the Group's aims is to purchase environmentally sustainable electrical power. Outokumpu has acquired low-carbon nuclear, hydropower and windpower production assets.
Nuclear power
Outokumpu has a 20 MW share in the new Olkiluoto 3 nuclear power project currently under construction in Finland. As one of the shareholders in Fennovoima, a company planning to build a new 1500–2500 MW nuclear power plant in Finland by 2020, Outokumpu's aim is to have access to an additional 150 MW of low-carbon electrical power.
Hydropower
Through a long-term lease agreement, Outokumpu has access to 104 MW of Norwegian hydropower capacity in Rana, Norway until 2020.
Windpower
Outokumpu is a minority shareholder in Rajakiiri Oy, a company building a wind farm in Tornio. The first investment decisions regarding eight shoreline wind generators were made in 2009. Rajakiiri is also drawing up plans for an offshore wind farm that will produce up to 200 MW.
The winning proposal of Outokumpu's internal EUR 5 million competition was to invest in power generation by wind turbines to reduce CO2 emissions. The investment will be made in Rajakiiri. More about the competion can be found at Outokumpu's website.
Combined Heat and Power (CHP)
The Group has a minority stake in a Combined Heat and Power (CHP) plant in Tornio. This plant delivers heat to the Tornio Works, and a proportion of the fuel used is carbon monoxide gas created as a by-product of the ferrochrome production process. The CHP plant has also acquired a local heating business in Tornio. This acquisition will lead to better optimisation of the CHP plant, improvements in energy efficiency and a reduction in the level of carbon dioxide emissions in the Tornio-Haparanda region.
Outokumpu Annual Report 2009 – Energy efficiency Emissions trading Energy and emissions trading
Energy needed in processes is the main source of Outokumpu's carbon dioxide emissions. Outokumpu's carbon dioxide emissions in 2009 totalled 568 000 tonnes. Outokumpu's emissions trading activities fully comply with the relevant EU laws and regulations, with agreed procedures and with the Group's trading and risk policies. Carbon dioxide emissions under EU Emissions Trading Scheme were at a very low level in 2009 due to reduced levels of production, approximately 540 000 tonnes (2008: 820 000 tonnes). Outokumpu's carbon dioxide allowances in the UK, Sweden and Finland were sufficient for the Group's planned production.
The EU Emissions Trading Scheme after 2012
The European Commission (EC) and the European Parliament have agreed that the EU Emissions Trading Scheme (ETS) will continue, with the next trading period being 2013–2020. The most important issue for Outokumpu has been to qualify for a free allocation of emissions allowances during 2013–2020 by being part of an industry sector where there is a significant risk of carbon leakage. According to an EC decision, all of Outokumpu's ETS operations are qualified.
Free allocations of emissions are to be distributed according to efficiency based product benchmarks which will be finalised by the end of 2010. The renewed ETS directive states that member states can offer companies compensation for carbon dioxide related increases in electricity prices. As Outokumpu has three electricity intensive installations in three different EU countries, this is an important issue.
More information on climate change can be found here.
Outokumpu Annual Report 2009 – Emissions trading Energy sources Outokumpu's energy
Energy supplies of Outokumpu are based on long-term supply agreements and investments in power-generation capacity.
The primary tasks of the Group's Energy function are to procure electrical energy for Outokumpu's Nordic sites at favourable and stable prices and to hedge against future changes in price. The Energy function also supports Group companies in their energy related activities.
Energy used 2009
Unit Electricity (GWh) Fuel energy (GWh) Total (GWh)
Tornio 1 398 913 2 311
Avesta 318 319 637
Sheffield 134 90 224
Other 205 216 421
Total 2 055 1 538 3 593
Origin of Electricity (figures based on estimates)
2009
Renewable sources 45%
Nuclear 35%
Fossils and turf 20%
Final figures are available in May 2010.
Outokumpu Annual Report 2009 – Energy sources Outokumpu Annual Report 2009 – Energy sources Water Water – a natural resource for cooling
Steel manufacturing requires high temperatures. Whenever large amounts of heat are generated or used, cooling is required to protect people and equipment. As in most industrial processes, water is the natural resource used for cooling. Outokumpu's main production operations also use large volumes of water for rinsing and cleaning tasks. To minimise the risk of pollution that could affect local resources, water used in the Group's production processes is recirculated.
All Outokumpu's melt shops are situated in areas where the intake or use of cooling water does not place an unreasonable burden on the water resource environment.
At Avesta, for example, the Group's water intake is less than 0.05% of the total volume of the Dalälven river which runs past the site. Environmental impacts in this location are further reduced by the fact that most of the water used is only employed in cooling processes and then returned to the river (source: Dalälvens Vattenvårdsförening).
Water withdrawal and discharges
2009 2008 2007
Water withdrawal by source
Surface water, million m³ 17.2 19.3 20.3
Municipal water, million m³ 0.9 1.1 1.1
Water discharges by type and destination
Cooling water out, million m³ 8.1 11.5 10.6
Waste water out, million m³ 7.3 7.8 8.6
Metal discharges to water, tonnes 9.9 15.5 17.2
Nitrogen in nitrates, tonnes 437 578 574
High levels of water recycling
Cooling water is used either directly in contact with steel or indirectly via a heat exchanger in which fresh cold water is used to reduce the temperature of a continuously circulating stream of cooling water. In the latter case, the only contamination associated with the outgoing water is that it has a higher temperature than incoming water when it is pumped back into the water system from which it was extracted. The percentage of water recycled at each Outokumpu site varies, but the average is above 90%.
High levels of recycling of cooling and process waters are achieved at many of the Group's sites by employing recirculating cooling systems and water treatment programmes. The actual recycling rate varies from season to season. In Tornio in winter, for example, cooling water is only partially recycled – after it has been used for cooling, some water is pumped into the Tornio harbour basin to help reduce the amount of ice. In a cold climate, preventing ice formation in the harbour is more energy efficient than operating ice breakers. Even though cooling water is used in this way, considerable reductions in overall water use have been achieved as can be seen in the above mentioned table.
Outokumpu Annual Report 2009 – Water Responsible treatment of rainwater
Significant volumes of rainwater fall on Outokumpu sites. At Avesta, for example, where the works cover a total area of 2.4 square kilometres, at least a million cubic metres of water falls as rain or snow each year. While some of this water evaporates, a large proportion is collected and combined with used cooling water. All of this water is channelled through oil separation facilities before being discharged into watercourses.
At Tornio, rainwater that has filtered through the landfill is collected. These filtrates are alkaline and also contain small amounts of hexavalent chromium, a harmful form of chromium that can not be released without further treatment. An automated reducing and neutralisation station has therefore been constructed. In the neutralisation process, ferrosulphate is used to reduce the hexavalent chromium to a harmless oxidised state and also neutralise the water before it is discharged.
Outokumpu Annual Report 2009 – Water Biodiversity Surroundings at stainless steel sites remain unharmed
Stainless steel production does not employ or reserve large areas of land or have a significant effect on biodiversity in surrounding natural areas. Outokumpu production sites are not located in sensitive areas such as Unesco World Heritage Sites, Ramsar Sites or Unesco Biosphere Reserves. During recent decades, the Group sites have not been found to disturb biodiversity in any unacceptable manner.
Regular evaluations of impacts on biodiversity
None of the species included on the International Union for the Conservation of the Nature and Natural Resources (IUCN) Red List, a list reviewing the conservation status of species, are known to be affected by Outokumpu's activities. Although the Group does not have any significant operations in ecologically sensitive areas, impacts on biodiversity at Outokumpu production sites are evaluated on a regular basis as part of environmental management.
The environmental authorities have evaluated the EU Natura areas located near our Tornio site. Reports and statements indicate that the Group's activities do not exert a negative impact or threaten biodiversity in these areas.
At the Outokumpu site in Sheffield in the UK, an area has been established to provide protection for wading birds who nest there during the spring. Measures are taken to ensure that the nesting birds are not disturbed, and ornithologists ring birds as part of a programme to monitor breeding and migration patterns.
During recent decades, the Group sites have not been found to disturb biodiversity in any unacceptable manner.
Former production sites returned to their natural state
Outokumpu takes care to return areas that have been subjected to production operations to their natural state. At the Group's Kemi Mine, waste rock extracted from the mine is now being utilised and intermediate rock storage locations are being used for underground construction and gallery fillings.
At the Kemi Mine, the use of one 22.5 hectare concentrating sand bond in production processes ceased in 2008. Drying out has commenced and landscaping and reafforestation will be carried out in accordance with the remediation plan. Bonds that are still in active use support a rich waterfowl population which includes rare species.
Pöyry, a consulting company, has produced a summary report concerning the effects of wastewaters from the Group's Tornio Works on local sea areas. No significant effects on fish, bottom feeding animals, vegetation or algae were observed. The overall condition of the local sea areas was judged to have improved over the last 10 years.
Decommissioning of earlier closed production sites Meadowhall and Stockbridge in the UK is proceeding according to plans with local authorities. No environmental issues have emerged.
Outokumpu Annual Report 2009 – Biodiversity Emissions, effluents and waste BAT technology for emission control
It is an Outokumpu principle that best available techniques (BAT) be employed to reduce emissions and minimise harmful environmental impacts which may result from the Group's operations. BAT means economically and technically best available pollution prevention technology that is agreed and published by the EU. Using BAT means that Group emissions are kept at the lowest achievable level by using the latest technology. To maintain good levels of emission control in the future, Outokumpu is continually developing its processes and pollution prevention techniques and is also an active participant in the process of updating the reference documents (BREF) which define the technologies, helping to set high standards which are applicable all over the EU.
Efficient systems help in preventing spills and non-compliances
Safety first with radiation sources
Investments in technology reduce dust emissions
Efficient systems help in preventing spills and non-compliances
All Outokumpu's larger production sites employ Environmental Management Systems (EMS) or risk based management systems which help to avoid spills and accidents that could be harmful to the environment or to humans. All of these systems operate in accordance with ISO 14001, the international standard for environmental management systems. We aim to achieve one group-wide certification, currently 91% of the production sites have separate certification.
Emissions and discharges were generally at normal levels and in compliance with environmental permits in 2009, but some spills and non-compliances did take place.
There was a fire in the steel melting shop at Tornio. Hot combustion gases penetrated one bag filter and melted some of the filter tubes. Even though quick and effective measures were taken, 2.3 tonnes of dust was released into the air. This amount corresponds to 15% of annual emissions by the steel melting shop.
At the ferrochrome plant in Tornio, the operation time ratio for the dust filtering unit in the feed silo was 93% in January (permitted level: 97%). Dust emissions to the air totalled three tonnes during this period. Because of the difficulties being experienced with the cleaning units, the supervising authority requested an action plan to resolve the malfunctions. Among other items, the action plan included a timetable for installing continuous measurement instruments in outlets whose significance was higher. The action plan was approved in March 2009 and the dust cleaning units have been working without any difficulties.
At the Nyby site small acid leakage occurred. At Sheffield there have been minor emission breaches from the Direct Current Arc Furnace extraction system. Långshyttan (Kloster), Sweden, and Meadowhall site, the UK, reported incidents of discharges to the local brooks. The environmental authorities were informed on all occasions and no environmental damage was reported.
Safety first with radiation sources
The source of radioactive material may enter the stainless steel production chain via the recycled stainless steel used in the process. Such radiation is usually from natural occurring sources. In some cases, the source of radiation is old measuring equipment extensively used in heavy industry. Such items of equipment contain small amounts – a maximum measured in grams – of radioactive isotopes. These are normally detected before they enter the Group's production process.
Outokumpu Annual Report 2009 – Emissions, effluents and waste Three incidents occurred at Outokumpu's Tornio facilities in 2009 during which radioactive material entered the electric arc furnace despite the presence of alarm systems. The radioactive material concerned was identified as americium 241, an isotope employed in measurement instruments. All dusts and slag from the melt affected were separated and measured, and the radioactive materials were stored separately in accordance with guidelines provided by the national authorities.
The dose rate associated with the radioactive material in these Tornio cases was approximately 10 times the dose rate of the background radiation that humans are exposed to in their everyday lives. By way of comparison, travelling by air involves exposure to a dose rate 50 times higher than the dose rate of background radiation.
Investments in technology reduce dust emissions
Dusts have traditionally been the most significant type of emission by the steel industry. The majority of Outokumpu's particle emissions originate from the Tornio, Avesta and Sheffield steel mills and the New Castle hot rolling mill. In the 2002–2006 period, the Group's steel plants invested more than EUR 20 million to improve their environmental performance and minimise dust emissions. Even though total production of stainless steel has increased during that period, levels of dust emissions by Outokumpu have declined significantly in recent years.
Close monitoring of emissions
The steel melting shop in Tornio has been monitoring dust particle emissions with a continuous emissions measurement system since the beginning of 2007. Having daily emissions data helps in detecting potential filter leakages quickly.
The impacts of emissions by the Group on local air quality at major Outokumpu production sites are regularly assessed. At the Avesta Works, specific measurements of mercury emissions from the steel melting shop were performed and reported to the authorities in 2009.
Reductions in emissions
Dust emissions from the Group's operations typically contain small quantities of metals (including iron, chromium and nickel) and these are mainly present in a harmless form. Chromium, for example, is usually found in its trivalent form and not as the hazardous hexavalent form. In recent years, Outokumpu has supported many studies investigating the effects of metal emissions on both the environment and human health.
Emissions of nitrogen oxides have also declined. Reductions have been achieved by investing in new technology and abatement plants. To minimise their emissions, Outokumpu production sites in Tornio, Avesta and Nyby are employing the latest burner technology and selective catalytic reduction (SCR) technologies for certain processes.
Outokumpu Annual Report 2009 – Emissions, effluents and waste The primary origin of the Group's sulphur dioxide emissions is the district heating unit at Tornio Works which is used only occasionally during the cold winter season.
Recovering heat from waste furnace gases at the Tornio and Avesta Works also reduces the Group's energy consumption. Emissions of nitrogen oxides, carbon dioxide and sulphur dioxide are correspondingly lower as fuel does not need to be combusted to produce heat. The energy efficiency measures that have been implemented have reduced Outokumpu's specific carbon dioxide emissions.
In general terms, ambient air quality in the Tornio and Haparanda communities is equivalent to that in other communities of similar size in Finland and Sweden. The most significant impacts on air quality in these locations come from traffic and dust in the streets. Studies made in cooperation with local municipalities and authorities in recent years indicate that the effects that operations at Tornio Works have on air quality are very local.
Outokumpu Annual Report 2009 – Emissions, effluents and waste Waste Ongoing developments in waste handling bring results
Dust and scale collected from stainless steel manufacturing operations are considered by Outokumpu to be significant waste streams. Wherever practicable, these waste materials are collected and recycled to recover the valuable alloying elements they contain – these include nickel, chromium and molybdenum. Where necessary, specialist recovery techniques are employed such as the Group's DC arc furnace at the melt shop in Sheffield or external treatment facilities operated by other companies. The total quantity of dusts and scale collected and treated by Outokumpu in 2009 was 47 000 tonnes.
Wastes from Outokumpu production units are sent to appropriate treatment facilities or to landfill sites licensed to accept such materials. Both hazardous and non-hazardous wastes are involved, and pre-treatment of the waste material is completed when this required. Hazardous wastes (oily wastes and hydroxide sludge) generated by the Group's operations in 2009 totalled 44 351 tonnes. All hazardous wastes are treated, reused or disposed of in accordance with current legislation and best practices.
Outokumpu owns and manages landfill sites at some production sites in Finland, Sweden and the UK. In Tornio a new 5 hectare landfill site for hazardous waste has been prepared, but an older one is still in use. The closure process has been initiated with completion scheduled in 2012. Both landfill sites fulfil all high requirements and standards set by European legislation.
Material efficiency a cornerstone of our strategy.
As material efficiency is a cornerstone of Outokumpu strategy, an investigation of waste material flow at Tornio Works has been launched. The aim is to establish the most cost effective ways of recycling, reusing, treating or disposing of waste materials and minimising the amounts produced by the Group.
A good example of the results emerging from this project is the sludge produced by water treatment in the Group's ferrochrome plant. Previously, this was disposed of as landfill. Technical investigations revealed that the material's properties make it a very effective barrier to water flow. Results obtained from an experimental installation carried out at a landfill site in the City of Oulu in Northern Finland were very promising, and the material is now employed in Outokumpu's own landfill area, with approximately 100 000 tonnes of ferrochrome water treatment sludge being used as a mineral sealing layer in the surface structure. The Group's ultimate target is zero waste production plants.
At Outokumpu sites Richburg and New Castle in the US continued a waste programme that has reduced the monthly tonnage of waste produced. The broad spectrum action plan includes cardboard recycling, sending shot blast grits and baghouse dust to recycling, the recycling of cardboard and office paper, and chipping of waste wood to produce mulch.
Outokumpu Annual Report 2009 – Waste Water discharges Working towards reductions in water discharges
From an environmental perspective, the most significant components in water discharges from stainless steel production processes are metal compounds and nitrates resulting from the neutralisation of acidic waste generated in cold rolling units. Effluent discharges at all of Outokumpu's production units are controlled in order to minimise their impact on the environment. At Tornio Works, for example, levels of metals in the main discharges from the plant are much lower according to external studies, than the natural loading of metals in local rivers that flow into the Gulf of Bothnia.
Action to reduce nitrate loads
Nitrate loadings originate in the pickling acids used in descaling stainless steels. A number of different techniques are employed by the Group to reduce the nitrate load in effluent discharges from these operations, including pickling acid recycling technologies. Outokumpu is working on the development of discharge handling techniques to further reduce effluent loadings.
At the Group's Kemi Mine, the main source of nitrates is explosives. A small proportion of the explosive charges used remains and washes out into the water circulation system. Passage through three large ponds (a total of almost 200 hectares) located upstream of the point at which discharges into the recipient water system take place results in the water's nitrate content being reduced by some 60%. These water ponds are natural removal units and there are no negative impacts on the recipient water system, the Iso-Ruonaoja.
R&D to reduce water discharges
Several research projects aimed at reducing nitrate discharges have been carried out at a number of Outokumpu's production sites in Sweden. At Avesta, this has resulted in the investment of EUR 28 million in a new acid recycling system. Installation will take place during 2010 and process start-up is scheduled for early 2011. Discharges of nitrates will be reduced drastically through the recycling of acids. As the process also produces a metal oxide that can be used as a raw material in the steel melting process, the new system will also reduce the amount of sludge sent to landfill.
The oil separation station at the Avesta site used for purifying cooling water and rainwater converted into a modern lamella filter unit. The process control ensures that oil is separated from the water stream. At Tornio, plans have been made to use the large dredging pond near the harbour as a post treatment area for process waste waters with the aim of further reducing concentrations of nitrogen and suspended solids.
Outokumpu Annual Report 2009 – Water discharges Impacts of water discharges and runoff Reducing water discharges to protect marine ecosystems
Located in the estuary of the Tornionjoki river on the coast of the Gulf of Bothnia and close to nature reserves, the Tornio Works in Finland is probably Outokumpu's most ecologically-sensitive production site. Many studies monitoring the biological, physical and chemical conditions have been carried out near the Tornio site since the 1970s. In 2008, the results of voluntary research concerning the impact of nitrates on recipient water at the Tornio site and the Kemi Mine were published. These showed that impacts are restricted to the immediate proximity of the discharge points at Tornio and cause slight eutrophication. At the Kemi Mine, the impacts on sea areas are in practice negligible.
Pollution prevention techniques being employed by Outokumpu mean that increases in emissions can be avoided, and further reductions from previous levels will be achieved in many cases even at higher than current production levels. Annual studies carried out by Pöyry, a consulting company, have shown that impacts on the sea areas close to the Group's production plants have diminished during the last decade and that the marine ecosystem is in good health.
Outokumpu shoulders its responsibility for the Baltic Sea.
A number of studies which include the continuous monitoring of discharge levels have shown that discharges of chromium and nickel are now 60–80% below the levels measured ten years ago. These metals are considered to be the most significant metals released into the sea by Group activities at Tornio, current discharge levels of chromium and nickel are only a fraction of the total metal loading which originates in the main from natural sources in the northern part of the Gulf of Bothnia. This is because Tornionjoki and Kemijoki, the two local rivers, carry far greater concentrations of these metals into the sea than the combined amount discharged by Outokumpu's Tornio Works and Kemi Mine. Activity in local fisheries located near the Tornio Works is at healthy levels and commercial fishing is carried out near the production plant. Research indicates that the metals released from the Group's facilities do not accumulate in the marine food chain.
Outokumpu is participating in the Baltic Sea challenge with the practical measures it has already taken in the 2000s and will take in the future to improve the condition of the sea. Outokumpu's action programme can be found here.
Outokumpu Annual Report 2009 – Impacts of water discharges and runoff Impacts on soil and groundwater Working to prevent leakages
Soil contamination mapping or remediation was ongoing at several sites according to plans. Soil surveys were made in Avesta, Fagersta, Molkom and Nyby. Since 2002 open soil contamination issues in Degerfors were positively completed without further action demands. In Meadowhall and Stocksbridge decommissioning of plant continues. The closure of the old landfill areas continued in Tornio and Nyby according to plans. Also the capping of Tinsley Park Landfill, Sheffield, continued. Remediation activity in connection with contaminated groundwater continues at the Outokumpu site in Wildwood, the US. Remediation work also continued with an old oil leakage at Outokumpu's Montreal facility in Canada. During 2009, the system has operated normally. The oil levels are stable to declining.
Outokumpu Annual Report 2009 – Impacts on soil and groundwater Transport Rail transportation significantly improves environmental performance
Outokumpu has been working hard to improve the environmental performance of the Group's transportation networks. Transport of products has been included also in the Group's Energy and low-
carbon programme as well as long-term targets for indirect and direct CO2 emissions.
Outokumpu has signed a five year contract covering the 2008–2012 period with the EuroLink railway system. EuroLink connects Tornio, Avesta, Nyby, Degerfors and Sheffield and is the Group's primary internal, rail based, rail-ship-rail materials transportation solution. Unique equipment is used to transport coil, slab and billet products and raw materials, and as finished material is transported intermodally, products are only handled during loading and offloading operations.
Supply Chain Management goals in system solutions such as EuroLink include maintaining a reliable and frequent service between the Group's different sites throughout Europe. The system has a high capacity and very good reliability with low costs. As it is rail based and most of the engines use electric drive, EuroLink has an excellent environmental profile when compared to alternative methods of transportation such as trucks or ships which are driven by internal combustion engines.
Outokumpu is moving from truck to rail transportation.
To illustrate this, a comparison between rail and truck transportation was made using actual tonnages and mileage figures from 2008 when the system is 100% utilised. The results indicate the potential for radical improvement in Outokumpu's environmental performance that the rail based system offers.
In 2009, carbon dioxide emissions resulting from transportation of finished products by the Group totalled 128 285 tonnes. The proportion of products transported by truck totalled 55% and the proportion transported by ship totalled 28%, while 17% were transported by rail. The volume of products transported in 2009 was lower than in the preceding year at 1.0 million tonnes (2008: 1.4 million tonnes). Thus, the main reason for the significant reduction in the transportation emissions is likely to be the smaller volumes that were transported.
Application for an environmental permit in connection with plans to increase the capacity of Outokumpu's Kemi Mine led to an environmental impact assessment (EIA) being completed during 2009. The only clear impact identified was an increase in levels of traffic between the Kemi mine and the Tornio Works. However, not even a doubling of traffic will cause significant harm to settlements along the route.
Outokumpu Annual Report 2009 – Transport Expenditure and investments Environmental investments further improve sustainability
Operational costs for Outokumpu's environmental activities totalled EUR 58 million in 2009, with costs for the treatment and disposal of waste totalling EUR 3 million. Provisions and guarantees connected with environmental considerations totalled EUR 13.4 million. In addition to this, provisions for the aftercare of old mining sites totalled EUR 0.5 million. Environmental investments by Outokumpu totalled some EUR 11.7 million (2008: EUR 18 million), despite the economic downturn. This shows great commitment from the Group.
Environmental investments despite the economic downturn.
Main environmental investments
In 2009, the Group launched a project to install a new acid regeneration plant at Avesta, an investment of EUR 28 million. The objective of this two year project is to reduce the amount of nitrates discharged into the Dala River by a third.
Other environmental investments in 2009 included the following:
Tubular Products Wildwood in Florida, the US substituted propane for natural gas in its annealing furnaces.
A new acid unloading station at Degerfors, Sweden (EUR 1.5 million).
At the Tornio Works, Finland construction of a new steel recycling facility in cooperation with Refelco Oy. Outokumpu's share of this investment is EUR 5 million and Refelco's share is EUR 1.5 million.
New bulk storage for acids was installed at New Castle, IN, the US.
A new sulphuric acid tank was installed at Alloy Steel Rod plant, in Sheffield in the UK.
Outokumpu Annual Report 2009 – Expenditure and investments Social responsibility People are most important
How we treat people – not only own employees but also various stakeholders – is most important.
Our Ethics Statement, Corporate Responsibility Policy and Code of Conduct define our approach to social responsibility:
People must be treated equally and fairly irrespective of their ethnic origin, nationality, religion, political views, gender, sexual orientation or age.
Outokumpu is completely opposed to the use of forced and child labour, and the Group condemns all forms of corruption and bribery.
Outokumpu Annual Report 2009 – Social responsibility Social goals and results Social goals and results
In 2009, Outokumpu's social responsibility goals were to reduce injuries, to develop the Group's Leader Pool through job rotation, to further develop Human Resources data collection and reporting, to hold performance and development dialogues for all Outokumpu employees, and that the Supply Chain Tool would be taken into use. To measure our success in improving our employees' well-being, the O'People personnel survey was conducted at the end of the year. The target for O'People score was 660, as set in spring 2009.
Group-wide social targets
Goals for 2009
Further SAP HR development to cover more GRI social performance indicators.
Job rotation for 20% of personnel within Leader Pool. Job rotation reported at all levels throughout the Group.
Performance and development dialogues for all.
Decrease injuries to below 5 per million hours worked.
Sustainable Supply Chain Management Tool taken into use.
Results 2009
The target for SAP HR development reached, all but 4 GRI-indicators were reported via SAP HR. SAP HR is now also used as master data source for monthy Full Time Equivalent (FTE) reporting.
The target of job rotation for 20% of personnel within Leader Pool was not achieved as the figure was 9.5%. The target of job rotation reported at all levels throughout the Group was achieved.
The target of performance and development dialogues for all, was not fully achieved. On Group level some 90% of white collars completed the dialogues and some 65% of blue collars. The number of dialogues was affected by e.g. lay-offs.
The injury rate fell from 9.0 to 5.9 injuries per million working hours, but the target below five was not achieved.
The goal to take the Sustainable Supply Chain Management Tool into use was not achieved. Supplier audit template is being developed.
Goals for 2010
To build a global interface for the SAP HR system so that HR data can be fed to other Group systems. In this way to reduce manual work and the possibility of human errors. As the data quality improves the aim is to increase the usage of people-related data in the strategic business decision making.
Outokumpu Annual Report 2009 – Social goals and results To improve job rotation practices and reporting further in SAP HR.
Performance and development dialogues to all (white collars by the end of February and blue collars by the of May) and to improve dialogue reporting.
Reduction of injuries to below four per million hours worked.
Improve employees' well-being. Well-being is measured by O'People employee survey, aim to increase the overall score to 660.
Supplier audit processes finalised in 2010 and gradually taken into use.
Outokumpu Annual Report 2009 – Social goals and results Employees Personnel is important
Outokumpu's success is based on the company's most important asset, our personnel. The Group's renewed People strategy aims to attract, retain and develop Outokumpu people globally, enhancing both their motivation and their ability to support the Group in its vision of becoming the undisputed number one in stainless steel.
At the end of December 2009, Outokumpu employed 7 606 people (2008: 8471, figures as full time equivalent). Approximately 42% of Group's employees are white collar workers, 17.9% are women (2008: 18.8%, 2007: 18.0%), and 82.1% are men. Outokumpu employs people in some 30 countries, with 93% located in Europe (35.5% in Finland, 36.1% in Sweden, and 7.4% in the UK).
In 2009, the number of permanent employees who had worked for Outokumpu for more than 30 years totalled 1 168, and for less than 5 years the number employed was 1814 (6-10 years 1 459 employees). The average age of the Group's permanent employees was 43.6 years and the average length of service 15.8 years. The average length of service at Outokumpu and the average age of employees seem to indicate that a "generation shift" is taking place in the company. Average turnover among permanent employees in 2009 was 7.6% (2008: 7.03%), the hiring rate being 5.2% and the leaving rate 10.0%. 198 employees had fixed-term contracts.
Outokumpu Annual Report 2009 – Employees Personnel figures
2009 2008 2007
Sales/person, € million 0.3 0.6 0.8
Incentives of total personnel costs, %1) 2.3 4.9 5.6
Training costs of total personnel costs, %1) 2) 4.2 1.4 1.4
Training days/person 2.4 2.8 3.3
Days lost due to strikes 911 4 1 235
Personnel turnover, % 7.6 7.0 6.1
1) Accounting principles of total personnel costs have been changed from previous year, and thus the figures from previous years are not comparable. 2009 figure includes social security expenditure and other employee benefits that have not been included in previous year figures.
2) Accounting principles of and the way of collecting data for training costs have been changed from previous year, and thus the figures from previous years are not comparable.
Personnel by country, Dec.311)
2009 2008 2007
Europe
Sweden 2 749 3 211 3 070
Finland 2 703 2 798 2 759
The UK 564 717 862
Italy 292 340 141
The Netherlands 240 260 253
Germany 197 214 194
Other European countries 342 388 321
7 087 7 928 7 600
North and South America
The US 321 403 394
Canada 29 38 34
Brazil 4
354 441 428
Asia 137 72 51
Australia 24 25 25
Africa 5 5 5
Outokumpu Annual Report 2009 – Employees Group total 7 606 8 471 8 108
1) FTE full time equivalent.
Observations by PricewaterhouseCoopers
HR
Outokumpu reports HR figures in full-time equivalent instead of headcount. In the corporate responsibility context, headcount figures would be more descriptive of Outokumpu's human resources.
Further improvements in HR data collection and management
In May 2009, a two-year project to implement a global SAP HR system was successfully concluded. Our target for 2009 was to develop HR data collection and reporting in SAP HR. Data concerning all Outokumpu employees is now stored in a single HR system and standard SAP functionality is in place to support the most mature People Processes such as Performance and Development Dialogues. All Group managers and employees can now use a portal to access, view and execute HR-related tasks.
The SAP HR development plan has been completed and the system will be developed in accordance with the priorities allocated to Outokumpu's People Strategy and People Processes. In 2010, the first major activity is to build a global interface for the SAP HR system so that HR data can be fed to other Group systems. In this way to reduce manual work and the possibility of human errors. As the data quality improves the aim is to increase the usage of people-related data in the strategic business decision making.
Outokumpu Annual Report 2009 – Employees Safe working environment Everyone deserves a safe working environment
Outokumpu is committed to providing its personnel with safe and healthy working environments. The Group is also accountable for the safety of contractors and suppliers while they are working in Outokumpu's production plants and other Group facilities. Development of occupational safety is monitored via regular reporting to corporate management meetings, and all management committees and equivalent bodies throughout Outokumpu start each meeting with a safety review. Safety is a key performance indicator linked to our bonus system.
The importance attached to safety has been highlighted by making it a separate function in Outokumpu's organisation, increasing the personnel resources available, and developing a new safety vision and principles for the Group. Our new Occupational Safety Committee has begun developing Group-wide safety standards. The learning of DuPont Safety Resources evaluation at 2008 was enforced.
We have clear targets: injury prevention and hazard awareness
In 2005, the Group's Occupational Safety Theme Year set a target of reducing the injury rate to less than five per million hours worked by 2009. As the rate in 2009 was 5.9 lost-time injuries per million hours worked (including contractors), the target was not achieved in full. The target has been tightened. Efforts within the Group to reach it will be strengthened. We believe all injuries are avoidable. Our ultimate target is no injuries at all.
Although we did not reach our goal, the 2009 figure is an improvement over the previous year (2008: nine injuries per million hours worked). Injuries resulted in 120 sick leave days per million hours worked (including contractors) in 2009 and a total of 92 individual lost-time injuries occurred (including contractors), none of which were fatal. The EU average of stainless steel producers for the World Steel Association member companies in 2008 was 8 injuries per million hours worked.
Outokumpu employees are encouraged to report all the near-miss situations they encounter in the workplace. Reporting activity has slightly improved from previous year, but we are still far below the 2007 figure. A total of 2898 reports (including contractors) were received in 2009 (2008: 2521 and 2007: 4 480).
Safety Log, a Group-wide occupational safety system for data collection and management was launched in 2008 at all Outokumpu's business units and service centers as well as in the Group's head office. Sales companies joined the system at the beginning of 2009. Development of the system was conducted in 2009. This tool allows us to log and monitor our safety status in real time and also compare reports and data received from all Outokumpu units.
Group top management is strongly committed to achieving improved levels of safety. Year 2010 has been designated Safety Theme Year. The aim is to discuss the Group's new safety vision and principles with everyone working in Outokumpu.
Outokumpu Annual Report 2009 – Safe working environment Staying healthy in the workplace
Occupational health services provided by the Group at operating locations are in line with national legislation and local needs. Activities focus on improving working environments and employees' health is monitored through a variety of occupational health checks and fitness tests. Industrial hygiene measurements are carried out at Group production plants to monitor work-related exposure to, for example, noise and dust. Issues relating to the work environment are also studied through joint research projects carried out in collaboration with universities and specialist institutions.
It is vital to listen to our employees on a regular basis. Feedback helps us when further improving our performance. At the Group's headquarters in Espoo, for instance, regular satisfaction surveys on occupational health are carried out. In 2009, the study was made by the Finnish Institute of Occupational Health. A link to the survey was sent to all 150 persons who visited the occupational health unit during September. The unit serves 750 employees of nine companies operating at the campus area in Espoo, 25 percent of which work for Outokumpu. The response percentage was good, 69 percent, and overall feedback positive. Our occupational health unit was better than the reference group in communicating in different ways the necessary measures to prevent adverse work related health effects. The unit promotes workplace safety and improves the work environment, co-operates with the employer and employees to improve well-being at work. Development areas were also pointed out and proposals for improvement received. They will be studied in detail and discussed with the personnel. Possible measures to be taken will be considered case by case.
In 2009, an average of 5 900 days per million hours worked of own employees (2008: 7 445) in the Group were lost as a result of sickness or injury. The number of cases of occupational disease diagnosed in 2009 was 9 (2008: five cases).
"Stop Flu" Research Project
In the early months of 2009 and well before the "swine flu" virus appeared in April, Finland's National Institute for Health and Welfare and four major international companies whose head offices and integrated occupational health services are located in the Helsinki area, one of which was Outokumpu , launched an 18-month follow-up and intervention study. The aim is to obtain scientific evidence to support recommendations for hand hygiene routines to be used when making preparations to cope with serious pandemics. The study will continue until June 2010 and preliminary results will be available later in 2010. The study programme is a global spearhead initiative which will benefit all workplaces.
Study of occupational exposure and respiratory health effects in Tornio
Outokumpu has been studying exposure to chromium compounds in the stainless steel production chain and their long- term effects on respiratory health since 1985. The latest research programme - a joint venture between Outokumpu and the Finnish Institute of Occupational Health co-sponsored by The Finnish Work Environment Fund – is a logical continuation of these studies.
A total of 350 Group employees participated in the clinical studies carried out in 2009. Levels of occupational exposure were studied using very sophisticated methods including chromium speciation and measurements of ultrafine particles. A preliminary report will be published in 2010, and scientific articles will follow.
Observations by PricewaterhouseCoopers
Occupational health and safety
Outokumpu should streamline the reporting practices for occupational safety and well-being, and further improve implementation of reporting systems locally in order to avoid manual work and thus reduce risks of errors.
Outokumpu Annual Report 2009 – Safe working environment Training and development Attracting and developing talent through continuous training
Outokumpu's People strategy highlights the need to proactively develop the Group's resource and competence base and leadership capabilities to meet the rapidly evolving requirements of the sector in which we operate. Part of this work is continuing personnel development and training. During individual performance and development dialogues, managers and personnel together identify future development needs.
Outokumpu has different types of internal development and training programmes for developing competences and skills at different stages of individual's career. The planning and implementation of competence development takes place at Group level as well as at functional and business-unit levels.
In 2009, training costs in Outokumpu amounted to 4.2% of total personnel costs (2008: 1.4%, 2007: 1.4% and 2006: 1.1%). In 2009 the training costs have been reported more thoroughly since the reporting practices and guidelines have been clarified. Thus the previous training cost figures are not comparable to 2009 figures and due to this it seems that the costs have tripled. The Group provided 2.4 training days per employee (2008: 2.8, 2007: 3.3 and 2006: 2.9). Incentive bonuses in 2009 totalled 2.3% of total personnel costs (2008: 4.9%, 2007: 5.6%, 2006: 4.2%).
Development programmes motivate and increase capabilities
Outokumpu's Group level development programmes focus on leadership development and supporting the Group's strategy implementation. One of the key principles in our People strategy is that all Outokumpu leaders regard themselves as accountable for people management. The backbone of leadership development in Outokumpu is our Leadership Principles. To bring these principles to life, two Leadership Excellence programmes were arranged during 2009. The programmes had altogether 37 participants.
In 2009 Outokumpu started a new development programme called High Potential Development Programme. Through this programme Outokumpu identifies individuals with ability, aspiration, engagement and potential to move from their current roles to more demanding positions. For these individuals the programme offers a structured way to develop themselves and build their career in Outokumpu according to their personal long-term development plan. One development method for them is a possibility to participate in a Reference Group, which target's to enhance the dialogue between the employees and the Group Executive Committee. The first Reference Group has six members and they meet the Group Executive Committee three times during September 2009-April 2010 in order to change views and work on given assignments.
Also Outokumpu's internal Coaching Programme started in 2009. The aim of the programme is to train certified internal coaches in Outokumpu. Coaching not only helps individuals in improving their performance and motivation, it also supports Outokumpu managers who face challenging situations. The programme is designed for managers and specialists who wish to develop themselves and are especially motivated to help others develop their abilities. Two Internal Coaching Programmes were arranged in 2009. When these two programmes have been completed, the Group will have some 30 certified internal coaches.
Outokumpu's Stainless Pro International Graduate Programme has proved to be a good way of attracting young talents, as it gives us a concrete way to cooperate with universities, to tell students about Outokumpu and what we have to offer, and also to hear what they expect from us. This two-year programme for recent university graduates was launched in 2007. In 2009, the first eight Stainless Pro graduates transferred to new positions such as Business Analyst, Development engineer and Manager –BU Strategy, within Outokumpu. Seven new Stainless Pro Graduates started the
Outokumpu Annual Report 2009 – Training and development programme in September 2008, and are set to finish the programme in August 2010. The next programme for 6 new talents will start in September 2010.
Outokumpu Annual Report 2009 – Training and development Employees' voices Employees' opinions are heard
To increase the motivation of Outokumpu's employees and their level of job satisfaction, open and interactive dialogue is vital. To understand employees' needs better, O'People, the Group's personnel survey, was conducted for the fifth time in 2009.
One aim was to increase the survey response rate to 80%. As the response rate was 72.1% (2008: 75.5%, 2007: 64%) the desired level was not achieved, but as this was higher than 60%, the results can be considered reliable.
The overall O'People index for 2009 stood at 617 (2008: 621, 2007: 595) when our target for 2009 was 660. Even though our score declined slightly, it is encouraging to see that the index figure has remained almost unchanged during difficult times – a sign of the commitment and professionalism of Outokumpu people. The Leadership Index improved to 64 points in 2009 (2008: 63, 2007: 53).
Ideas for fast action – survey to engage personnel
In order to get employees' ideas and creativity in use a web-based survey was organized in the spring. Focus was on concrete ideas on how to get through the difficult times, on ways to cut costs and to improve overall performance. Ultimately, how we can be even stronger in the long-term. Altogether 8 613 improvement ideas and comments were received. The ideas ranged from big to smaller concrete improvements concerning energy savings, increasing videoconferencing, limiting travelling, cutting use of consultants and reviewing service level of health station. During the summer all units went through the ideas concerning their respective units and made their action plans. Actions and achieved results are reported to the Group Executive Committee, and successes and best practices are also presented on the intranet.
Spontaneous comments from employees
It seems that the awareness of corporate responsibility issues within our personnel has grown. Questions and spontaneous comments have arisen on issues such as air travel carbon offsetting, selling stainless steel to risk industries or eating tuna fish. Internal corporate responsibility updating sessions were started in management team meetings in Finland and in Sweden. These sessions will continue in 2010. Towards the end of the year, our personnel also got the possibility to comment on internal news on the intranet. This has been quite actively used and useful comments have been received through this channel as well.
Performance management supports our strategic goals
Becoming the undisputed number one in stainless steel requires clear direction, world-class operations and motivated people. High-quality leadership and a strong Performance Management process help the Group achieve this.
Performance Management, a 365-day process based on dialogue, focuses on improving business performance by enhancing employees' performance and levels of competence. The Performance and Development Dialogue is an important component in Performance Management. The dialogues consist of a formal annual review of each individual's performance and development against established targets in the preceding 12 months, together with development of a new Performance and Development plan for the next 12 months. Almost all Group employees participated in Performance and Development Dialogues in 2009, but the goal of 100% coverage was not achieved.
Both the Performance Management and the Performance and Development Dialogue processes were revised in 2009. The improved approach to Performance Management will be applied from 2010.
Outokumpu Annual Report 2009 – Employees' voices Cooperation between management and personnel
Outokumpu's Personnel Forum is a joint consultative body which provides an information channel between company personnel and management. Established in 1994 in response to a European Works Council Directive, it includes 21 personnel representatives from the Group's European operations, people representing the HR function and members of Outokumpu's senior management teams. Usually convened once each year, the 2009 Personnel Forum was held in Espoo, Finland. Topics included the renewed People strategy and the processes of culture change involved in operating as "one company".
The Personnel Forum appoints a working committee which is responsible for ongoing cooperation between Group personnel and management. During 2009, this committee held six meetings with members of the senior management team, including the CEO.
Outokumpu Annual Report 2009 – Employees' voices Diversity and equal rights Towards equality
Outokumpu's Ethical Principles require that every individual is treated equally, discrimination is prohibited and the Group has zero tolerance regarding the use of forced and child labour. Since January 2009, we have officially supported the ten principles of the United Nations Global Compact. These are derived from The Universal Declaration of Human Rights, The International Labour Organization's (ILO) Declaration on Fundamental Principles and Rights at Work, The Rio Declaration on Environment and Development, and the United Nations Convention Against Corruption.
Outokumpu maintains a consistent freedom of association policy, meaning that personnel in all the Group's operating locations are free to join trade unions in line with the rules and regulations that apply in local labour markets. In 2009, approximately 6586 Outokumpu employees were covered by collective agreements. There were 911 strike days in 2009 (2008: 4, 2007: 1 235 and 2006: 15).
The overall percentage of women permanently employed by Outokumpu is 17.9 (2008 18.8%) – this low proportion is typical of heavy industries. The Group's aim is to address diversity issues e.g. when renewing Outokumpu's Recruitment Policy. Three members of the Outokumpu Board of Directors are female, one of the Group Executive Committee and 53 women hold key positions in the Group.
Outokumpu Annual Report 2009 – Diversity and equal rights Redundancies Hard times also for personnel
As a response to the very weak demand for stainless steel Outokumpu took a number of actions to adjust to the poor market conditions. Production was cut back heavily and consequent adjustments of personnel numbers through both temporary and permanent layoffs were implemented.
In Finland, the low order load resulted in temporary layoffs for most employees at the Tornio Works. Some 250 employees at the Kemi Mine and the ferrochrome plant were temporarily laid off from March until the end of September. Approximately 1 600 employees working on other steel production lines, maintenance and support functions were temporarily laid off in sequences starting from March. In September, some 700 employees were taken back and the remaining 900 who had been laid off temporarily returned to work in October. All head office employees (some 150) located in Finland were temporarily laid-off for ten days during the spring 2009. Some 50 permanent job reductions were made in Finland in 2009.
In Sweden, a total of some 400 job reductions were made in 2009. The number of working shifts was reduced and related temporary lay-offs were implemented. In the UK, the closure of Sheffield Special Strip, reduced production in the Sheffield melt-shop and actions taken in the service centre and the sales company resulted in approximately 350 job reductions and temporary adjustments due to reduced working shifts. Approximately 150 job reductions were implemented in other countries.
Altogether actions taken included temporary lay-offs affecting more than 2 000 people and some 900 permanent job reductions, being the main contributor to the Group fixed costs being reduced by some EUR 185 million in 2009. Outokumpu follows local laws and regulations also in job reductions and lay-offs.
Outokumpu Annual Report 2009 – Redundancies Research Close involvement with research
Outokumpu invested EUR 19 million in research and development in 2009 (2008: EUR 20 million and 2007: EUR 18 million). Research activities are conducted by the Group in collaboration with customers, research institutes and universities as well as independently. Both research and students are also supported by two Outokumpu-related foundations, the Outokumpu Stainless Research Foundation in Sweden and the Technology Industries of Finland Centennial Foundation Fund for the Association of Finnish Steel and Metal Producers.
Joint R&D projects with research institutes and universities are conducted within national and European research programmes. Outokumpu is a shareholder in two Finland-based strategic centres for science, technology and innovation: the Finnish Metals and Engineering Competence Cluster (FIMECC Ltd) and the Cluster for Energy and Environment (CLEEN Ltd). During 2009, Outokumpu had an active role in launching first research programmes of FIMECC, and is now participating in three extensive five-year research programmes: Light and Efficient Solutions, Demanding Applications, and Energy & Life-cycle Efficient Metal Processes. The focus in these programmes is on long-term research into life-cycle-efficient and sustainable steel products, applications and production processes.
Two patent applications for new inventions associated with stainless steel raw materials and welding were submitted by the Group during 2009.
Working with other stainless steel producers in the ISSF (International Stainless Steel Forum) Outokumpu contributes to global statistics, runs joint research programmes in pre-competitive product and application development areas and produces data and evidence regarding the environmental effects of stainless steel. In recent years, a substantial amount of effort has been put into proving that the levels at which constituent elements of stainless steel are released into foodstuffs and human body fluids is extremely low. The use of slag products and improvements in the properties of such materials have also been topical subjects. Working together with associations of key raw material producers, the use of new production routes that would result in reduced quantities of greenhouse gases being emitted has been investigated.
As a ferrochromium producer, Outokumpu is a member of the International Chromium Development Association (ICDA). In addition to producing statistics, the focus of associated activities has been firmly on demonstrating that the production and use of both metallic chromium and chromium-containing alloys results in no harmful effects on human health or the natural environment. ICDA made an extensive contribution by establishing a consortium for ferrochromium which produced data for REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals regulations).
Tornio is currently engaged in a research project titled "Respiratory symptoms caused by chromium compounds, ultra- fine particles and other exposures in the workplace air in the stainless steel production chain".
More about Outokumpu's research and development can be found here.
Outokumpu Annual Report 2009 – Research Responsible sourcing Suppliers of raw materials to be evaluated
One of our overall goals is that our suppliers and contractors adhere to ethical standards that are as high as the ones we follow within Outokumpu. In 2006, we started to develop a Supply Chain Management Tool, a questionnaire together with one of our raw material suppliers and the Helsinki University of Technology. Our raw material suppliers represent a vast majority of our total purchasing volume. The idea behind this project was to screen human rights issues together with matters that affect social, environmental and economic sustainability. The project was completed in 2008.
In 2009, we continued to develop further the questionnaire, the supplier audit template. The aim was to assess how our raw material suppliers behave in different contexts. A trial was carried out with our biggest external supplier of recycled stainless steel, our biggest supplier of ferrochrome and a major supplier of nickel. Feedback received from these companies will be used to amend the template before it is distributed to all Outokumpu suppliers. Work to finalise the form of this audit template should be completed in April 2010. Our aim is to assess first 80% of our main raw material suppliers and then continue with our general materials suppliers. There is still some way to go before we can claim that the majority of our suppliers (or the suppliers who make most deliveries, either in financial or volume terms) have been assessed.
Outokumpu Annual Report 2009 – Responsible sourcing Product safety and liability A focus on product safety from product development to recycling
Taking health and safety issues into account is important not only during the manufacturing of stainless steel, but also when Outokumpu customers are processing the material further, when stainless steel products are being used, and when it is returned for re-melting.
As stainless steel is an inert material and non-reactive when employed correctly, its potential impacts on people's health and safety are very limited. This is why stainless steel is so widely used in both medical appliances and in equipment used in the food processing industry. Outokumpu manufactures stainless steel grades that are standardised and proven safe for their recommended uses. All Outokumpu's main production sites are certified according to the ISO 9001 quality standard to ensure that all products produced comply with the specified requirements. All our service centres have ISO 9 001 quality sertificate and about half of them also ISO 14 001 environmental management system.
Careful testing and compliance to ensure safety
When new stainless steel grades are developed they are carefully tested for safety. One recent example is Outokumpu's new LDX duplex grade. In addition to internal test programmes the steel grade was tested in contact with water and acetic acid by an external laboratory and approved according to the Italian requirements for materials in contact with food. In the US LDX 2101 has been tested and approved for incorporation in the NSF-ANSI 61 standard for components in contact with drinking water and the same grade has also received a food equipment acceptance certificate according to the 3A sanitary standard.
Outokumpu takes account of specific end-use concerns. Outokumpu does not use metal compounds such as lead, cadmium, mercury and hexavalent chromium in its manufacturing process, as there are restrictions for their use in the electronic and automotive industries.
The Group works actively with REACH to ensure that all substances used and produced are registered correctly and on time. Products sold by Outokumpu do not contain any SVHC (Substances of Very High Concern) as defined by the European Chemicals Agency (ECHA).
Most stainless steels contain nickel that has been classified as harmful in the EU. However, since stainless steel is inert there is no risk to either human beings or environment from normal use of stainless steel products. This has been demonstrated both in laboratory studies and through a long history of use. Unfortunately, the fact that steel is a very different material from its components is sometimes not well understood by regulators. For example, in an effort to simplify the EU Ecolabel Directive, all substances classified as harmful were excluded, regardless of real risk to man or environment. Since nickel is banned from receiving the Ecolabel, it automatically means that stainless steel products cannot receive the label either, although stainless steel has very different properties compared to nickel.
Since stainless steel is inert there is no risk to either human beings or environment from normal use of stainless steel products.
Outokumpu Annual Report 2009 – Product safety and liability Extensive product information
Outokumpu provides health and safety information on materials supplied by the Group. Technical data sheets offer detailed information on the chemical and technical properties of each stainless steel grade. Information on topics such as Occupational Exposure Limits for substances contained in stainless steel is also provided in Safety Data sheets, as well as safety measures to be employed during operations that involve welding.
Reports on the health and environmental impacts associated with the use of stainless steel are issued by the industry's marketing organisations such as EuroInox. Information is also available from the product safety bulletin issued by international nickel, chromium and molybdenum organisations.
Outokumpu Annual Report 2009 – Product safety and liability Reporting principles Reporting provides information for stakeholders
The overarching objective in Outokumpu's corporate responsibility reporting is to support an open dialogue between the Group and its stakeholders. Our aim is to address the needs of our current and future personnel, shareholders, customers and other parties who are interested in Outokumpu and its business. We pay special attention to addressing the concerns of these stakeholders. Read about our stakeholder dialogues here.
We utilise reporting as an opportunity to illustrate what Outokumpu has done to ensure the sustainability of its business operations, and what actions we hope to take in the future to enhance the well-being of people and the natural environment that surrounds us. The Group has a long history of responsible business practices and we hope to make our operations even more sustainable. We report on matters considered important and relevant to our business operations, such as stainless steel – our product and the material of sustainable development. We also cover current global themes that have an effect on us, our operations and our stakeholders.
Valuable feedback was received during 2009 from the reporting competition in Finland, from analyst reports and from our assurance providers. Our first Group-level meeting with environmental NGOs was very useful in this connection. Feedback helps us as we seek to further improve our reporting – we believe that thorough reporting promotes development of our way of working and our operations.
Contact details for questions regarding the contents of this report can be found here.
Scope of the report
Outokumpu's corporate responsibility report is published annually. The reporting period is the same as our financial reporting period i.e. a calendar year. Our previous report "Outokumpu and our environment 2008" was published on March 13, 2009 together with Annual Report 2008.
This 2009 online report is a natural progression from our previous, printed sustainability reports in 2005–2008. Since 2004, Outokumpu's reporting has been based on the widely recognised and applied Global Reporting Initiative (GRI) guidelines (G3 from 2007), and follows the recommended tripartite division into economic, environmental and social responsibility. We also reflect on the impacts of Group operations on different stakeholders. A comparison of Outokumpu reporting with the GRI guidelines and the 10 principles of the UN Global Compact can be found here.
Economic and social information is covered from the perspective of Outokumpu's entire stainless steel operations. Environmental indicators include all Outokumpu Stainless Steel production plants.
While Outokumpu still has brass bar operations (a total of 149 employees and net sales of some EUR 31 million), the Group has announced that these are being divested. Information concerning this business is not included in this or previous corporate responsibility reports.
Comparability of statistics
Even though major changes have taken place in Outokumpu's organisational structure, the statistics provided in the Group's 2005, 2006, 2007, 2008 and 2009 reports are comparable as the reporting focuses solely on the Group's stainless steel operations, our main business today. As mentioned in our previous reports, we have closed some smaller stainless steel units in Sweden and the UK. However, their impact on our emissions or other figures is insignificant.
Outokumpu Annual Report 2009 – Reporting principles Figures for copper and brass businesses divested in 2005–2008 have not been included. We have not noticed nor are aware of any errors in the data provided in our earlier reports. Since 2007, Outokumpu reports have included an assurance report that has been submitted by independent external assurance providers. This independent assurance report is available here. The data based on the financial statements has been audited.
Measurement techniques
Economic responsibility
All the economic figures in the Corporate Responsibility section only cover our stainless steel operations ie. excluding our so-called discontinued operations (non-core operations).
Accounting principles have been adjusted to better meet the GRI guidelines.The comparative figures have been restated in the tables: Wages, salaries and other employee benefits by country and Taxes and social dues by country.
Environmental responsibility
Environmental expenditure
Financial information related to environmental investments is collected according to group wide unified guidance in line with GRI and World Steel Association principles. Data is aggregated through our EER reporting system, which also has group guidance integrated.
Water
Water use reporting is based on measured and calculated consumption and information is collected according to group wide unified guidance in line with GRI and World Steel Association principles. Water balance information is aggregated through our Energy and Environment Reporting System, which also has group guidance integrated.
Social responsibility
Lost Time Injury
(Worldsteel Association's principle) Injuries per million hours worked
Any work-related injury, resulting in the Company or Third Party Contractor employee not being able to return to work the next scheduled work day. Returning to work with work restrictions does not constitute lost time injury status, no matter how minimal or severe the restrictions.
EU average LTI
From statistics supplied by Worldsteel Association which is followed by all member companies.
Near miss incidents
Come from our own hyperion system, where number of incidents is collected at business unit level. Source of information is Safety log, but also other reporting sources as not all units use Safety log.
Sick leave days
Outokumpu Annual Report 2009 – Reporting principles Business units report data on sickness absence and occupational diseases on a monthly basis together with financial reporting. In the future sick leave days will be reported per million hours worked, not in percentages which is slightly controversial as there are differing ways in different countries.
Personnel figures
We use, as in previous years, the full-time equivalent (FTE) to calculate our personnel. This will, however, be changed as of 2010, when we start using actual headcount figures, as recommended by our assurance providers.
Total personnel costs
The figure includes wages, salaries, bonuses, social costs or other personnel expenses and fringe benefits paid during the reporting year 2009. The 2008 total personnel costs were calculated without social costs or other personnel expences and fringe benefits.
Training costs
External and internal training costs (in euros) are counted from the specific account assigned to training costs per company. Costs also include the salaries of internal trainers. Wages and salaries of the participant are not included.
Training days per employee
The number of actual internal and external training days in which 8 hours equals one day (actual training day = training hours/8).
Incentive bonuses
Amount of bonuses (in euros) is counted from the specific account assigned to bonuses per company without social costs or other personnel costs or personnel expenses and without fringe benefits.
Personnel turnover (termination and recruitment turnover separately)
(new hired + leavers)/(2 x average headcount)
Days lost due to strikes
Number of employees, who have been on strike multiplied by scheduled working days. The count begins the day the strike has started.
Outokumpu Annual Report 2009 – Reporting principles GRI & UN Global Compact GRI & UN Global Compact
Comparison with GRI guidelines and Global Compact
Global GRI Content Included Section Compact Principles
1 Strategy and Analysis
1.1 CEO's statement Yes Management committed to corporate responsibility
1.2 Key impacts, risks Yes Management committed to corporate and opportunities responsibility Corporate responsibility Risk management of corporate responsibility 2009 highlights
2 Organisational profile
2.1 Name of the Yes organisation
2.2 Primary brands, Yes This is outokumpu products and Business Operations services
2.3 Operational Yes Business Operations structure Corporate Governance
2.4 Location of Yes This is Outokumpu organisation's headquarters
2.5 Number of Yes This is Outokumpu countries and Operating environment location of operations
2.6 Nature of Yes Corporate responsibility governance ownership and Shares and shareholders legal form
2.7 Markets served Yes General Stainless Specialty Stainless
2.8 Scale of the Yes Key figures reporting organisation
Outokumpu Annual Report 2009 – GRI & UN Global Compact 2.9 Significant Yes Review by the Board of Directors changes regarding size, structure or ownership
2.10 Awards received Yes Management committed to corporate in the reporting responsibility period
3 Report parameters
3.1 Reporting period Yes Reporting principles
3.2 Date of most Yes Reporting principles recent report
3.3 Reporting cycle Yes Reporting principles
3.4 Contact point for Yes Contact us questions regarding the report
3.5 Process for Yes Reporting principles defining report (The report addresses the needs of Outokumpu's content stakeholders. Outokumpu reports on matters considered relevant to its business operations and current global themes that have an effect on Outokumpu, its operations and stakeholders. The reporting is based on GRI G3 Guidelines).
3.6 Boundary of the Yes Reporting principles report
3.7 Limitations on the Yes Reporting principles report's scope or boundary
3.8 Basis for reporting Yes Reporting principles subsidiaries and joint ventures
3.9 Data Yes Reporting principles measurement (More information on accounting principles are techniques and reported in connection with the figures in question) bases of calculations
3.10 Explanation of re- Yes Reporting principles statements
3.11 Significant Yes Reporting principles changes from previous reporting periods in the
Outokumpu Annual Report 2009 – GRI & UN Global Compact scope, boundary or measurement methods
3.12 GRI content index Yes GRI & UN Global Compact
3.13 Assurance policy Yes Independent assurance report and practice Reporting principles
4 Governance, Commitments and Engagement
Governance
4.1 Governance Yes Governance 2009 structure of the organisation
4.2 Position of the Yes Board of Directors Chairman of the Board of Directors Board
4.3 Independence of Yes Board of Directors the Board members
4.4 Mechanism for Yes General meeting on shareholders shareholder and Shareholders' nomination committee employee consultation
4.5 Executive Yes Remuneration compensation and linkage to organisation's performance
4.6 Processes for Yes Board of Directors avoiding conflicts of interest
4.7 Processes for Yes Board Committees determining Board of Directors expertise
4.8 Implementation of Yes Corporate responsibility governance mission and Operational Excellence values statements, Management systems code of conduct and other principles
4.9 Procedures of the Yes Compliance Board for Board of Directors overseeing management of
Outokumpu Annual Report 2009 – GRI & UN Global Compact sustainability performance, including risk management
4.10 Processes for Yes Board of Directors evaluating the Board's performance
Commitments to External Initiatives
7 4.11 Addressing Yes Risk managements of corporate responsibility precautionary Risk management approach
1–10 4.12 Voluntary charters Yes Associations and federations and other Corporate Responsibility initiatives
1–10 4.13 Memberships in Yes Associations and federations associations
Stakeholder Engagement
4.14 List of stakeholder Yes Our stakeholders groups
4.15 Identification and Yes Our stakeholders selection of stakeholders
4.16 Approaches to Yes Our stakeholders stakeholder engagement
4.17 Key topics raised Yes Our stakeholders through Employees voices stakeholder engagement
5 Management Approach and Performance Indicators
1, 4, 6, 7 Management Yes Economic responsibility approach to Economic goals and results economic Strategic themes responsibility
Outokumpu Annual Report 2009 – GRI & UN Global Compact 7, 8, 9 Management Yes Management systems approact to Environmental responsibility environmental Environmental goals and results responsibility Emissions, effluents and waste
1, 3, 6 Management Yes Management systems approach to social Social goals and results responsibility Diversity and equal rights
Economic Performance Indicators
Economic Performance
EC1* Direct economic Yes Economic impact on our stakeholders value generated Public sector support and distributed
7 EC2* Risks and Yes Impact of climate change opportunities due Emissions trading to climate change
EC3* Coverage of Yes Remuneration defined benefit (Pension benefits for Group Executive Committee) plan obligations
EC4* Significant Yes Public sector support subsidies received from government
Market presence
1 EC5 Entry level wage No compared to minimum wage
EC6* Spending on local No suppliers
6 EC7* Local hiring No
Indirect Economic Impacts
EC8* Infrastructure No investments provided for public benefit
EC9 Significant indirect No economic impacts
Outokumpu Annual Report 2009 – GRI & UN Global Compact Environmental Performance Indicators
Materials
8 EN1* Materials used by Yes Material balance weight or volume
8, 9 EN2* Recycled Yes Materials efficiency materials used
Energy
8 EN3* Direct energy Yes Energy and climate change consumption Material balance
8 EN4* Indirect energy Partly Energy sources consumption (Electricity consumption)
8, 9 EN5 Energy saved due Yes Energy efficiency to conservation and efficiency improvements
8 EN6 Initiatives to Yes Energy efficiency provide energy- efficient or renewable energy based products and services
8 EN7 Initiatives to Partly Corporate responsibility highlights 2009 reduce indirect Transport energy consumption
Water
8 EN8* Total water Yes Water withdrawal
8 EN9 Water sources Yes Water significantly affected by withdrawal of water
8, 9 EN10 Percentage and Yes Water total volume of (Average percentage of water recycled) water recycled and reused
Biodiversity
8 EN11* Location and size Yes Biodiversity of land holdings in
Outokumpu Annual Report 2009 – GRI & UN Global Compact areas of high biodiversity
8 EN12* Description of Yes Biodiversity significant impact of activities, products, and services on biodiversity
8 EN13 Habitats protected Yes Biodiversity or restored
8 EN14 Managing impacts Yes Biodiversity on biodiversity
8 EN15 Species with Yes Biodiversity extinction risk with habitats in areas affected by operations
Emissions, Effluents and Waste
8 EN16* Total direct and Yes Material balance indirect greenhouse gas emissions
8 EN17* Other relevant Yes Combating climate change indirect greenhouse gas emissions
7, 8, 9 EN18 Initiatives to Yes Combating climate change reduce Transport greenhouse gas emissions
8 EN19* Emissions of Yes Material balance ozone-depleting substances
8 EN20* NOx, SOx, and Yes Material balance other significant Emissions, effluents and waste air emissions
8 EN21* Total water Yes Water discharge Water discharges
8 EN22* Total amount of Yes Waste waste Material balance
8 EN23* Significant spills Yes Emissions, effluents and waste
8 EN24 Transported, No imported,
Outokumpu Annual Report 2009 – GRI & UN Global Compact exported, or treated hazardous waste
8 EN25 Water bodies and Yes Impacts of water discharges and runoff habitats affected by discharges of water
Products and Services
7, 8, 9 EN26* Mitigating Yes Materials efficiency environmental impacts of products and services
8, 9 EN27* Reclaimable No products and reuse
Compliance
8 EN28* Significant fines Partly Emissions, effluents and waste and sanctions for non-compliance with environmental regulations
Transport
8 EN29 Environmental Yes Transport
impacts of (CO2 emissions of transportation) transportation
Overall
7, 8, 9 EN30 Total Yes Expenditure and investments environmental protection expenditures and investments
Social Performance Indicators
Labor Practices and Decent Work
Employment
LA1* Total workforce by Yes Employees employment type, employment
Outokumpu Annual Report 2009 – GRI & UN Global Compact contract and region
6 LA2* Total number and Yes Employees rate of employee Redundancies turnover (Turnover among permanent employees)
LA3 Employee No benefits
Labor/ Management Relations
1, 3 LA4* Coverage of Yes Diversity and equal rights collective bargaining agreements
3 LA5* Minimum notice Yes Redundancies period regarding (Outokumpu follows local laws and regulations also operational in job reductions and lay-offs). changes
Occupational Health and Safety
1 LA6 Representation in No joint health and safety committees
1 LA7* Rates of injury, Yes Safe working environment occupational diseases, lost days, fatalities and absenteeism
1 LA8* Education and Yes Safe working environment prevention programmes regarding serious diseases
1 LA9 Health and safety No topics covered in formal agreements with trade unions
Training and Education
LA10* Average training Yes Training and development hours per year (Training days per employee)
Outokumpu Annual Report 2009 – GRI & UN Global Compact LA11 Programmes for Yes Training and development skills management (Description of development and training and lifelong programmes) learning
LA12 Employees Yes Employees voices receiving regular performance and career development reviews
Diversity and Equal Opportunity
1, 6 LA13* Composition of Yes Diversity and equal rights governance (Breakdown of total workforce by gender, age and bodies and education. Composition of governance bodies by breakdown of gender). employees
1, 6 LA14* Ratio of basic No salary of men to women by employee category
Human Rights
1–6 HR1* Investment No agreements with human rights clauses or that have undergone human rights screening
1–6 HR2* Suppliers and Partly Responsible sourcing contractors that have undergone human rights screening
1–6 HR3 Human rights No related training for employees
1, 2, 6 HR4* Incidents of Yes Internal audit discrimination and Management systems actions taken
1, 2, 3 HR5* Supporting right to Partly Diversity and equal rights freedom of association and
Outokumpu Annual Report 2009 – GRI & UN Global Compact collective (Ethics Statement, Corporate Responsibility Policy bargaining in risk and Code of Conduct) areas
1, 2, 5 HR6* Measures taken to Partly Diversity and equal rights eliminate child Social responsibility labour in risk (Ethics Statement, Corporate Responsibility Policy areas and Code of Conduct)
1, 2, 4 HR7* Measures taken to Partly Diversity and equal rights eliminate forced Social responsibility labour in risk (Ethics Statement, Corporate Responsibility Policy areas and Code of Conduct)
1, 2 HR8 Human rights No (not relevant) related training for security personnel
1, 2 HR9 Incidents involving No (not relevant) rights of indigenous people and actions taken
Society
Community
SO1* Managing impacts Partly Local communities of operations on communities
Corruption
10 SO2* Business units Partly Compliance analysed for Management systems corruption risks Social responsibility (Ethics Statement, Corporate Responsibility Policy and Code of Conduct)
10 SO3* Anti-corruption Partly Compliance training Management systems Social responsibility (Ethics Statement, Corporate Responsibility Policy and Code of Conduct)
10 SO4* Actions taken in Partly Compliance response to Management systems incidents of Social responsibility corruption
Outokumpu Annual Report 2009 – GRI & UN Global Compact (Ethics Statement, Corporate Responsibility Policy and Code of Conduct)
Public Policy
1–10 SO5* Public policy Partly Associations and federations positions and Management systems participation in (Code of Conduct) public policy development and lobbying
10 SO6 Contributions to Yes Public sector support political parties (Code of Conduct) and related institutions
SO7 Legal actions for Yes Compliance anti-competitive behaviour, anti- trust, and monopoly
Compliance
SO8* Fines and Yes Compliance sanctions for non- compliance with laws and regulations
Product Responsibility
Customer Health and Safety
1 PR1* Assessment of Yes Product safety and liability health and safety Research impacts of products
1 PR2 Non-compliance No with regulations concerning health and safety impacts of products
Product and Service Labeling
8 PR3* Product Yes Product safety and liability information required by procedures
Outokumpu Annual Report 2009 – GRI & UN Global Compact 8 PR4 Non-compliance No with regulations concerning product information and labelling
PR5 Customer Yes Customers satisfaction
Marketing Communications
PR6* Adherence to No marketing communications laws, standards and voluntary codes
PR7 Non-compliance No with marketing communications regulations and voluntary codes
Customer Privacy
1 PR8 Complaints No regarding breaches of customer privacy
Compliance
PR9* Fines for non- No compliance concerning the provision and use of products and services
* GRI Core indicator
Based on its own assessment, Outokumpu has followed the B+ application level of the GRI guidelines. The application level has been checked by a third party, PricewaterhouseCoopers Oy.
Outokumpu Annual Report 2009 – GRI & UN Global Compact Independent assurance report Independent Assurance Report
To Outokumpu Oyj's Management
At the request of Outokumpu Oyj's Management we have performed the procedures agreed with you and detailed below concerning the limited assurance engagement on the Outokumpu Oyj's Corporate Responsibility section in online Annual Report 2009 (the Report) consisting of the economic, social and environmental information (Subject Matter) within reporting period 1.1.-31.12.2009.
Management's Responsibility Outokumpu Oyj's Management has prepared the Report, and is responsible for the collection and presentation of information within the Report in accordance with the reporting criteria as set out in Global Reporting Initiative (GRI) Sustainability Reporting Guidelines G3 version together with Outokumpu Oyj's own reporting guidelines (Criteria).
Practitioner's Responsibility Our responsibility is to express an independent conclusion on the Subject Matter based on our limited assurance engagement. Our assurance report has been made in accordance with the terms of our engagement. We do not accept, or assume responsibility to anyone else, except to Outokumpu Oyj for our work, for this report, or for the conclusions that we have reached.
We conducted our work in accordance with the International Standard on Assurance Engagements (ISAE) 3000 applicable to assurance engagements other than audits or reviews of historical financial information. This Standard requires that we comply with ethical requirements and plan and perform the assurance engagement to obtain limited assurance whether any matters come to our attention that causes us to believe that the Subject Matter does not provide a balanced and reasonable representation of Outokumpu Oyj's corporate responsibility performance based on the Criteria.
In a limited assurance engagement the evidence-gathering procedures are more limited than for a reasonable assurance engagement, and therefore less assurance is obtained than in a reasonable assurance engagement. We have planned and performed our evidence gathering procedures to obtain sufficient appropriate evidence on which to base our conclusion. We have performed amongst others the following procedures:
Interviewing five (5) persons in Group Management in order to ascertain the current targets for Outokumpu Oyj's corporate responsibility as part of the business strategy and operations;
Interviewing persons responsible for corporate responsibility at Outokumpu Group;
Reviewing management and reporting systems relating to information disclosed in the Report;
Assessing the data management procedures used in compiling and reporting the quantitative data;
Interviewing persons responsible for the practices and procedures used for data generation, recording, compilation and consolidation both at the Group Head Office and at two sites (Tornio, Avesta);
Testing existency of reported information on a sample basis from primary documentation at two sites (Tornio, Avesta);
Testing the completeness, accuracy and comparability of the quantitative data presented in the Report on a sample basis of primary documentation at two sites (Tornio, Avesta) as well as performing recalculations at Group level;
Reviewing the content and quality of information presented in the Report.
Outokumpu Annual Report 2009 – Independent assurance report Our conclusions Based on our work described above, nothing has come to our attention that causes us to believe that the Report in all material respects, based on the aforementioned Criteria, is not providing a balanced and reasonable representation of Outokumpu Oyj's corporate responsibility performance.
Our assurance report should be read in conjunction with the inherent limitations of accuracy and completeness for corporate responsibility information.This independent assurance report should not be used on its own as a basis for interpreting Outokumpu Oyj's performance in relation to its policies of corporate responsibility.
Espoo, 24 February 2010 PricewaterhouseCoopers Oy
Marko Korkiakoski Partner
Sirpa Juutinen Director, Sustainable Business Solutions
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Outokumpu Annual Report 2009 – Independent assurance report Corporate Governance Regulatory framework
The Group's parent company, Outokumpu Oyj, is a public limited liability company incorporated and domiciled in Finland.
In its corporate governance and management, Outokumpu Oyj complies with Finnish legislation, the company's Articles of Association and the Corporate Governance Policy resolved and approved by the Board of Directors. Outokumpu follows the Finnish Corporate Governance Code (publically available on www.cgfinland.fi), effective as of January 1, 2009, issued by the Securities Market Association and adopted by NASDAQ OMX Helsinki. As one exception to this code, Outokumpu has both a Board Nomination and Compensation Committee and a Shareholders' Nomination Committee appointed by the Annual General Meeting of Shareholders. Outokumpu complies with the other regulations and recommendations issued by NASDAQ OMX Helsinki.
The Corporate Governance Statement is presented as a separate report.
Outokumpu Annual Report 2009 – Corporate Governance Governance 2009 Tasks and responsibilities of governing bodies
The governing bodies of the parent company Outokumpu Oyj, i.e. the General Meeting of Shareholders, the Board of Directors, and the President and Chief Executive Officer (CEO), have ultimate responsibility for Group management and Group operations. The Group Executive Committee reports to the CEO and is responsible for the efficient management of the Group.
Outokumpu Annual Report 2009 – Governance 2009 General Meeting of Shareholders General Meeting of Shareholders
The General Meeting of Shareholders normally convenes once a year. Under the Finnish Companies Act, certain important decisions such as the approval of financial statements, decisions on dividends and increases or decreasing of share capital, amendments to the Articles of Association, and election of the Board of Directors and auditors fall within the exclusive domain of the General Meeting of Shareholders.
The Board of Directors convenes a General Meeting of Shareholders. The Board can decide to convene a General Meeting on its own initiative, but is obliged to convene a General Meeting if the auditor or shareholders holding at least 10% of Outokumpu's shares so request. In addition, each shareholder has the right to bring a matter before a General Meeting of Shareholders that falls within the domain of the General Meeting, provided that a written request to do this has been received by the Board of Directors early enough to allow the matter to be placed on the agenda included in the notice announcing the General Meeting. According to its Articles of Association, Outokumpu has only a single class of shares and all shares have equal voting power at General Meetings of Shareholders.
Outokumpu Annual Report 2009 – General Meeting of Shareholders Shareholders’ Nomination Committee Shareholders' Nomination Committee
Based on a proposal by Solidium Oy (the Finnish State), Outokumpu's largest shareholder, the Outokumpu 2009 Annual General Meeting decided to establish a Shareholders' Nomination Committee to prepare proposals on the composition of the Board of Directors and director remuneration for the following General Meeting of Shareholders. The 2009 Annual General Meeting also decided that the Shareholders' Nomination Committee should consist of representatives of Outokumpu's three largest shareholders as registered in the Finnish book-entry securities system on November 2, 2009, who accept the assignment. The Chairman and another member of the Outokumpu Board of Directors act as expert members of the Committee.
Outokumpu's largest shareholders are determined on the basis of shareholdings registered in the Finnish book-entry system. However, holdings of a shareholder who, under the Finnish Securities Markets Act, has the obligation to disclose changes in shareholdings (the flagging obligation) which are divided among a number of funds, may be combined provided that the owner presents a written request to that effect to the company's Board of Directors no later than October 30, 2009.
Shareholder representatives on the committee were: Solidium Oy (the Finnish State), The Finnish Social Insurance Institution, and Ilmarinen Mutual Pension Insurance Company. These shareholders chose the following persons as their representatives on the Shareholders' Nomination Committee: Kari Järvinen, Chief Executive Officer (Solidium Oy), Jorma Huuhtanen, Director General (The Finnish Social Insurance Institution) and Harri Sailas, Chief Executive Officer (Ilmarinen Mutual Pension Insurance Company). Kari Järvinen was elected Chairman of the Committee. Ole Johansson, Chairman of the Outokumpu Board of Directors and Board member Evert Henkes served as expert members. The Committee submitted its proposals on Board composition and director remuneration to the Board of Directors. The Outokumpu Board has incorporated these proposals into the notice announcing the 2010 Annual General Meeting of Shareholders.
Outokumpu Annual Report 2009 – Shareholders’ Nomination Committee Board of Directors Board of Directors
The general objective of the Board of Directors is to direct Outokumpu's business in a manner that secures a significant and sustained increase in the value of the company for its shareholders. Board members offer their expertise and experience for the benefit of the company. The tasks and responsibilities of the company's Board of Directors are determined on the basis of the Finnish Companies Act as well as other applicable legislation. The Board has general authority to decide and act in all matters not reserved for other corporate governing bodies by law or under the provisions of the company's Articles of Association. The Board's general task is to organise the company's management and operations. In all situations, the Board must act in accordance with the company's best interest. The Board of Directors has established rules of procedure which define its tasks and operating principles. The main duties of the Board of Directors are as follows:
With respect to directing the company's business and strategies:
To decide on the Group's basic strategy and monitor its implementation;
To decide on annual limits for the Group's capital expenditure, monitor their implementation, review quarterly plans and decide on changes;
To decide on individual investments or expenditure that are within the authorised capital expenditure limits and have a value exceeding EUR 20 million, as well as on other major and strategically important investments;
To decide on any individual business acquisitions and divestments within the current scope of business that have a value exceeding EUR 10 million;
To decide on any financing arrangements by any Group company which either exceed EUR 150 million, are organised by way of public offerings, or which are otherwise out of the Group's normal course of business; and
To decide on any other commitments by any of the Group's companies that are out of the ordinary either in terms of value or nature, taking into account the size, structure and field of operation of the Group.
With respect to organising the company's management and operations:
To nominate and dismiss the CEO and his deputy, and to decide on their terms of service, including incentive schemes, on the basis of a proposal made by the Board Nomination and Compensation Committee;
To nominate and dismiss members of the Group Executive Committee, to define their areas of responsibility, and to decide on terms of service, including incentive schemes, on the basis of a proposal made by the Board Nomination and Compensation Committee;
To monitor the adequacy and allocation of the Group's top management resources;
To decide on any significant changes to the Group's business organisation;
To define the Group's ethical values and working methods;
To ensure that policies outlining the principles of corporate governance are in place;
To ensure that policies outlining the principles of managing the company's insider issues are in use; and
To ensure that the company has other guidelines for matters which the Board deems necessary and which fall within the scope of the Board's duties and authority.
With respect to the preparation of matters to be resolved by General Meetings of Shareholders:
To establish a dividend policy and issue a proposal on dividend distribution; and
To make other proposals to General Meetings of Shareholders.
Outokumpu Annual Report 2009 – Board of Directors With respect to financial control and risk management:
To discuss and approve interim reports and annual accounts;
To monitor significant risks related to the Group's operations and the management of such risks; and
To ensure that adequate procedures concerning risk management are in place.
The Board of Directors also assesses its own activities on a regular basis.
The Board of Directors is quorate when more than half of its members are present. A decision by the Board of Directors shall be the opinion supported by more than half of the members present at a meeting. In the event of a tie, the Chairman shall have the casting vote.
The Annual General Meeting elects the Chairman, the Vice Chairman and the other members of the Board of Directors for a term expiring at the close of the following Annual General Meeting. The entire Board is therefore elected at each Annual General Meeting. A Board member may be removed from office at any time by a resolution passed by a General Meeting of Shareholders. Proposals to the Annual General Meeting concerning the election of Board members which have been made known to the Board prior to the Annual General Meeting will be made public if a given proposal is supported by shareholders holding a minimum of 10% of all the company's shares and voting rights and if the person proposed has consented to such nomination.
Under the company's Articles of Association, the Board shall have a minimum of five and a maximum of twelve members. The company's largest shareholders have confirmed that they are in favour of a principle according to which members of the company's Board of Directors should, as a rule, be qualified experts from outside the company. According to the Articles of Association, a person aged 68 years or more cannot be elected as a member of the Board of Directors. A Board consisting of eight members was elected at the 2009 Annual General Meeting. All its members are independent of the company and its main shareholders.
The Board of Directors meets at least five times a year. In 2009, the Board met eight times and the average attendance rate of members at board meetings was 95%.
See Board of Directors.
Shares and options of the members of the Board of Directors February 2, 2010
Member Shares
Ole Johansson 1 789
Anssi Soila 5 500
Victoire de Margerie 500
Evert Henkes -
Jarmo Kilpelä 300
Anna Nilsson-Ehle 800
Leena Saarinen 1 495
10 384
Outokumpu Annual Report 2009 – Board of Directors Board committees Board committees
The Board of Directors has set up two permanent committees consisting of Board members and has confirmed rules of procedure for these committees. Both committees report to the Board of Directors.
The Audit Committee comprises three Board members. See Board of Directors. The task of the Audit Committee is to deal with matters relating to financial statements, auditing work, internal controls, the scope of internal and external audits, billing by auditors, the Group's financial policies and other procedures for managing Group risks. In addition, the Audit Committee prepares a recommendation for the company's largest shareholders concerning the election of an external auditor and auditing fees. The Audit Committee met three times during 2009 and the average attendance rate was 80%.
The Nomination and Compensation Committee comprises the Chairman of the Board and three other Board members. See Board of Directors. The tasks of the Committee do not comply in all respects with the Finnish Corporate Governance Code published by the Securities Market Association in cooperation with the Confederation of Finnish Industries (EK), NASDAQ OMX Helsinki and the Central Chamber of Commerce of Finland. The task of the Nomination and Compensation Committee is to prepare proposals for the Board of Directors on appointment of the company's top management, excluding the Board of Directors, and principles regarding their compensation. The Board has authorised the Committee to determine the terms of service and benefits of Group Executive Committee members other than the company's CEO and Deputy CEO. The Nomination and Compensation Committee met three times during 2009 and the attendance rate was 100%.
To handle specific tasks, the Board of Directors can also set up temporary working groups consisting of Board members. These working groups report to the Board. No such working groups were set up in 2009.
Outokumpu Annual Report 2009 – Board committees CEO and Deputy The CEO and Deputy CEO
The Chief Executive Officer (CEO) is responsible for the company's operational management with the objective of securing significant and sustainable growth in the value of the company to its shareholders. The CEO prepares matters for decision by the Board of Directors, develops the Group in line with the targets agreed with the Board, and ensures the proper implementation of Board decisions. The CEO is also responsible for ensuring that existing laws and regulations are observed throughout the Group. The CEO chairs meetings of the Group Executive Committee. The Deputy CEO is responsible for attending to the CEO's duties in the event that the CEO is prevented from attending to them.
Outokumpu Annual Report 2009 – CEO and Deputy CEO Group Executive Committee Group Executive Committee
The task of the Group Executive Committee is overall management of Outokumpu's business. Committee members have extensive authority in their individual areas of responsibility and their duty is 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 seven members appointed by the Board of Directors. The members of the committee hold the positions of the CEO and the Deputy CEO, Executive Vice President – General Stainless, Executive Vice President – Specialty Stainless, Executive Vice President – Supply Chain Management, Executive Vice President – Group Sales & Marketing, Executive Vice President – Chief Financial Officer, and Executive Vice President - Human Resources. By May 1, 2010 the responsibilities of EVP – General Stainless will be distributed among the other Executive Committee members The Group Executive Committee typically meets twice each month.
See Executive Committee.
Shares and options of the Group Executive Committee members February 2, 2010
Share-based Share-based Share-based Share-based inventive incentive incentive incentive Options Options Options programme programme programme programme Shares 2003A 2003B 2003C 2007–2009 2008–2010 2009–2011 2010–2013
Juha Rantanen 35 000 - - 17 500 15 500 16 500 33 000 33 000
Karri Kaitue 12 380 - - 15 000 7 500 8 000 15 500 15 000
Jamie Allan 2 000 - - - 2 100 5 500 10 000 9 000
Bo Annvik - - - 10 000 5 300 5 500 10 000 9 000
Pekka Erkkilä 14 000 - - 15 000 5 300 5 500 10 000 -
Pii Kotilainen 1 500 - - - - - 10 000 9 000
Esa Lager 18 000 - - 10 000 5 300 5 500 10 000 9 000
Kari Parvento 1) ------7 000 9 000
Total 82 880 - - 67 500 41 000 46 500 98 500 84 000
Notes: 1) Employed by Outokumpu as of May 1, 2010 at the latest.
Outokumpu Annual Report 2009 – Group Executive Committee Group management Group management
Outokumpu's corporate management consists of the Chief Executive Officer (CEO), members of the Group Executive Committee, and managers and experts who assist the CEO and the Group Executive Committee. The task of corporate management is to manage the Group as a whole. Duties include the coordination and execution of strategy and plans, business development, financial control, internal audit, human resources, environment, health and safety, communications and investor relations, legal affairs as well as treasury and risk management. In addition to corporate management tasks, Outokumpu's functional steering across Group businesses has been organised into Sales and Marketing functions and Supply Chain Management. Certain support functions have been centralised at Group level. The Outokumpu Group is managed in accordance with the organisation of its business, in which the legal company structure of the Group also provides the legal framework for its operations. Clear financial and operational targets have been defined for all the Group's operational businesses.
Outokumpu's businesses are organised into five business units: Tornio Works, Special Coil and Plate, Thin Strip, OSTP (Outokumpu Stainless Tubular Products) and Long Products. Business units report directly to individual Group Executive Committee members. In this reporting, business units are consolidated into two divisions according to the type of product manufactured; General Stainless (Tornio Works and Long Products) and Specialty Stainless (Special Coil and Plate, Thin Strip and OSTP).
As a discontinued operation, Outokumpu Brass is managed separately from the Group through the Board of Directors of Outokumpu Brass.
Outokumpu Annual Report 2009 – Group management Remuneration Remuneration
As confirmed by the Annual General Meeting 2009, annual fees for members of Outokumpu's Board of Directors are as follows: Chairman EUR 70 000, Vice Chairman EUR 43 000 and other members EUR 34 000. All members of the Board of Directors are to be paid a meeting fee of EUR 600 (EUR 1 200 for non-Finnish members). The meeting fee is also payable for meetings of Board committees.
The period of notice for the CEO is six months on both sides. If Outokumpu terminates the CEO's employment for a reason or reasons unconnected with his performance or events interpreted as him having failed in his duties, the company will make a compensation payment. The amount of this payment will total the CEO's basic salary in the preceding 24 months plus the monetary value of his employee benefits at the moment of termination.
The performance-related incentive paid to the CEO and members of the Group Executive Committee in addition to their salary and employee benefits for the year 2010 is determined on the basis of achieving the Group's ROCE (return on capital employed) target, the operating profit margin compared with a peer group, operational (safety and delivery reliability) targets and individual targets set separately. For the CEO, the maximum amount of this incentive is 75% of annual base salary, for other members of the Group Executive Committee it is 60%. The total amount of short and long- term incentives must not exceed 200% of annual salary. If the limit is exceeded, the share based incentive will be reduced accordingly.
No separate remuneration is paid to the CEO or members of the Group Executive Committee for membership of the Committee or of the Group's other internal governing bodies. Members of the Group Executive Committee are entitled to retire at the age of 60. In December 2009, the Board of Directors confirmed that the retirement age is 63 for new members of the Group Executive Committee. For Finnish members of the Group Executive Committee appointed before January 1, 2007, pension benefits amount to 60% of the total average annual salary in the last five full years of service. For the other Finnish members of the Group Executive Committee, the targeted pension is 60% of annual salary at the age of 60. Earnings from the year of joining, including fringe benefits but not including performance-related incentives, are used as the basis for the insurance premium. The maximum premium is 25% of annual earnings.
The company has not provided any guarantees or other similar commitments on behalf of the members of the Board of Directors. No members of the Board of Directors or the Group Executive Committee, or closely-related persons or institutions, have any significant business relationships with the company.
Fees, salaries and employee benefits paid
2009
Salaries and Performance/ fees with project-related Share-based € employee benefits bonuses payments Total
Board of Directors
Chairman of the Board, Johansson 76 600 - - 76 600
Vice Chairman of the Board, Soila 47 800 - - 47 800
Board memeber, Henkes 44 800 - - 44 800
Board memeber, Kilpelä 40 600 - - 40 600
Board memeber, de Margerie 41 200 - - 41 200
Board memeber, Nilsson-Ehle 44 800 - - 44 800
Outokumpu Annual Report 2009 – Remuneration Board memeber, Oksanen 9 100 - - 9 100
Board memeber, Pesonen 31 933 - - 31 933
Board memeber, Saarinen 40 600 - - 40 600
CEO 740 295 183 300 285 754 1 209 349
Deputy CEO 376 721 101 906 142 877 621 504
Other Group Executive Committee members 1 594 596 302 513 373 467 2 270 576
2008
Salaries and Performance/ fees with project-related € employee benefits 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
Shares and options received through share-related schemes are also included in the tables regarding shareholdings and options.
Outokumpu Annual Report 2009 – Remuneration Insider issues Insider issues
Outokumpu's insider rules are based on and comply with the Guidelines for Insiders issued by NASDAQ OMX Helsinki. The company's permanent insiders with a duty to declare consist of members of the Board of Directors, the Auditor in Charge, the CEO and his deputy, and other members of the Group Executive Committee. Outokumpu maintains a public register of permanent insiders with the duty to declare. Employees of the Group who receive inside information on a regular basis as a result of their position or their duties are registered in a non-public register of permanent company- specific insiders. Permanent insiders must not purchase or sell securities issued by the company in the 14 days prior to publication of interim reports or the annual accounts (the so-called closed window).
Separate non-public project-specific insider registers are maintained for insider projects. Persons defined as project- specific insiders are those who, in the course of their duties in connection with a project, receive information concerning the Group which, when realised, is likely to have a significant effect on the value of the company's publicly-traded securities.
Outokumpu's corporate general counsel is responsible for coordinating and supervising insider issues. For up-to-date information on holdings by Outokumpu's permanent insiders with a duty to declare see permanent insiders at www.outokumpu.com.
Outokumpu Annual Report 2009 – Insider issues Financial reporting Report by the Board of Directors on key aspects of Outokumpu's system for internal controls and risk management in connection with financial reporting
Control environment
Risk identification and assessment
Internal audit
Control activities
Information and communication
Follow-up
According to the Finnish Limited Liability Companies Act and the Finnish Code of Corporate Governance, the Board of Directors is responsible for a company's internal controls. The purpose of this chapter is to provide shareholders and other parties with a description of how internal control and risk management of financial reporting is organised in Outokumpu.
As a listed company, the Group has to comply with a variety of regulations. To ensure that all the stated requirements are met, Outokumpu has introduced principles for financial reporting and internal control and distributed these throughout the company's organisation.
Control environment
The foundation for Outokumpu's control environment is the business culture established within the Group and its associated methods of operation. The basis for the company's control routines is provided by Group policies and principles which define the way in which Outokumpu's organisation operates. These policies and principles are for example the Group's Corporate Responsibility Policy, Ethical Principles and the Outokumpu Leadership Principles. Introduced in 2007, the Outokumpu Code of Conduct describes the Group's basic values and offers standardised, practical guidelines for managers and employees. The Outokumpu performance management process is a key management activity and an important factor in enabling an efficient control environment. In all sections of the Group's operations, planning activities and the setting of both operational and financial targets are executed in accordance with Outokumpu's overall business targets. Management follow-up of related achievements is carried out through monthly management reporting routines and in performance review meetings.
Outokumpu operates in accordance with the risk management policy approved by the Group's Board of Directors. This policy defines the objectives of risk management activities, the approaches to be taken and areas of responsibility. As well as supporting Outokumpu strategy, risk management activities help in defining a balanced risk profile from the perspective of shareholders and other stakeholders such as customers, suppliers, personnel and lenders. The Outokumpu Board of Directors holds ultimate responsibility for risk management within the Group. The CEO and the Group Executive Committee are responsible for defining and implementing risk management procedures, and for
Outokumpu Annual Report 2009 – Financial reporting ensuring that risks are both properly addressed and taken into account in strategic and business planning. Business units and Group functions are responsible for managing risks connected with their own operations. More information on risk management within Outokumpu can be found in the Risk Management chapter in the Group's annual report.
The policies and principles described above are freely available to all Outokumpu employees. All new employees are required to familiarise themselves with the Outokumpu Code of Conduct. In addition, Outokumpu takes an active approach to informing company personnel and communicating the policies and principles within its organisation in order to ensure their dissemination throughout the Group.
Outokumpu's control process for financial reporting is based on Group policies, principles and instructions as well as on the responsibility and authorisation structure used within Outokumpu. Outokumpu Controller's Manual contains financial reporting instructions and policies. Financial reports are prepared in accordance with International Financial Reporting Standards (IFRS). Financial reporting in Outokumpu is carried out in a harmonised manner using a common chart of accounts. Financial statements by the parent company and stand-alone Finnish subsidiaries are prepared in accordance with generally accepted accounting principles in Finland, while foreign subsidiaries follow local accounting principles. Outokumpu also complies with regulations regarding financial reporting issues published by the FinancialSupervisory Authority (FIN-FSA) and NASDAQ OMX Helsinki.
The process of creating internal policies in Outokumpu is based on the Group's authorisation structure. Policies relating to financial reporting are usually owned and approved by the CEO, the CFO or the Corporate Controller.
Risk identification and assessment
Risk management processes connected with the Group's financial reporting are coordinated by the Treasury and Risk Management function. Related risks are classified as operational risks and can arise as a consequence of inadequate or failed internal processes, employee actions, systems or other events such as misconduct or crime. The aim of the Outokumpu risk management process is to identify, evaluate, control and mitigate such risks. Major risks are reported to and evaluated by the Audit Committee on a regular basis.
Internal audit
Outokumpu's Internal Audit function has an independent role and a twofold objective: to provide assurance and to offer consulting services which add value and improve the organisation's operations. Internal Audit's most important task is assisting the Audit Committee and the Executive Committee in fulfilling their control functions. To do this, Internal Audit identifies and monitors significant operational risks within the Group, ascertains the adequacy and effective operation of internal controls and provides the two committees with a direct source of correct and reliable information. Other tasks carried out by Internal Audit include monitoring the Group's principles, controls and policies and follow-up of the audit conclusions by the company's auditors.
The internal auditor reports to the Audit Committee and administratively to the CFO.
Control activities
In addition to the Board of Directors and Audit Committee, operational management teams in Outokumpu are responsible for ensuring that internal controls relating to financial reporting are in place at all Outokumpu units.
The aim of control activities is to discover, prevent and correct potential errors and deviations in financial reporting. Control activities consist of different kind of measures and include reviews of financial reports by Group management and in business unit management teams, the reconciliation of accounts, analyses of the logic behind reported figures, forecasts compared to actual reported figures and analyses on the Group's financial reporting processes. A key
Outokumpu Annual Report 2009 – Financial reporting component is the monitoring of monthly performance against financial and operational targets. These control activities take place at different levels in the organisation.
Outokumpu's risk management process includes arranging workshops on the identification of key risks, including operational risks, for business units and other Group functions. Deliverables include risk maps and risk identification plans.
Information technology and solutions play an important role in guaranteeing that the Group's internal controls have a solid foundation. The harmonisation of IT systems to further improve Outokumpu's internal control environment is on- going.
The Group CFO and the management team in each Outokumpu company are responsible for ensuring that internal controls relating to financial reporting are properly established in each Outokumpu company. The target is to ensure that authorisation structures are designed in a way that prevents combinations which could raise levels of risk (such as one person performing an activity and also being responsible for controlling that activity).
Information and communication
Policies and instructions for financial reporting are reviewed on a regular basis and revised when such action is required. Related instructions are communicated to all the parties involved as necessary. The main communication channels employed are Outokumpu's intranet and other easily-accessible databases. Face-to-face controller meetings are also organised.
Outokumpu has established different networks and communities in which financial reporting and internal control issues such as application, review and revision are discussed and reviewed. These networks usually consist of personnel from business units and other Group functions. The aim of these networks, communities and common instructions is to ensure that unified financial processes and reporting practices are used throughout the Group. The networks and communities play an important role in establishing the effectiveness of internal controls relating to financial reporting and in developing Outokumpu policies, instructions and processes.
Follow-up
Both management in Outokumpu companies and personnel in accounting and controlling functions are responsible for the follow-up and monitoring of internal controls connected with financial reporting. The Internal Audit and Risk Management functions also engage in follow-up and control activities. The findings of the follow-up procedures are reported to the Audit Committee and the Group Executive Committee on a regular basis.
Outokumpu Annual Report 2009 – Financial reporting Auditors Auditors
Under its Articles of Association, the company shall have a minimum of one and a maximum of two auditors who are auditors or firms of independent public accountants authorised by the Central Chamber of Commerce of Finland. The Annual General Meeting elects the auditors to a term of office ending at the close of the next Annual General Meeting. Proposals to the Annual General Meeting on the election of auditors which have been made known 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 company's shares and voting rights and if the person or company proposed has consented to such nomination. The company's auditors submit the statutory auditor's report to the company's shareholders in connection with the company's financial statements. The auditors also report their findings to the Board of Directors on a regular basis. The parent company, Outokumpu Oyj, is audited by KPMG Oy Ab, and the responsible auditor is Mauri Palvi, Authorised Public Accountant. KPMG Oy Ab is also responsible for overseeing and coordinating the auditing of all Group companies.
Both Outokumpu and KPMG Oy Ab highlight the requirement for an auditor to be independent of the company being audited. In its global independence policy, KPMG Oy Ab has stated its commitment to applying the Code of Ethics of the International Federation of Accountants (IFAC).
Outokumpu's Board Audit Committee continuously monitors the global level of non-audit services purchased by the Group from KPMG Oy Ab. In 2009, auditors were paid fees totalling EUR 1 million, of which non-auditing services accounted for EUR 0 million.
Outokumpu Annual Report 2009 – Auditors Board of Directors Board of Directors
Ole Johansson
b. 1951, Finnish citizen B.Sc. (Econ.) Outokumpu Board member 2002– Chairman of the Board 2008– Vice Chairman of the Board 2004–2008 Chairman of the Nomination and Compensation Committee President and CEO: Wärtsilä Corporation 2000– President and CEO at Wärtsilä NSD Corporation 1998–2000 Chairman of the board: Technology Industries of Finland 2007–2009 Vice Chairman of the Board: Varma Mutual Pension Insurance Company, Confederation of Finnish Industries 2007–2009 Board member: Technology Industries of Finland Independent of the company and its significant shareholders.
Outokumpu Annual Report 2009 – Board of Directors Anssi Soila b. 1949, Finnish citizen M.Sc. (Eng.), B.Sc. (Econ.) Outokumpu Board member 2008– Vice Chairman of the Board 2008– Chairman of the Audit Committee CEO: Kone Corporation 1994–1999 Vice Chairman of the Board: Normet Group Oy Board member: Outotec Oyj, Lindström Oy, DNA Oy, Attendo AB, Independent of the company and its significant shareholders.
Outokumpu Annual Report 2009 – Board of Directors Evert Henkes b. 1943, Dutch citizen B.Sc. (Ag. Econ.) Outokumpu Board member 2003– Member of the Nomination and Compensation Committee CEO: Shell Chemicals Ltd. 1998–2003 Board member: Tate & Lyle Plc, SembCorp Industries Ltd, Air Products and Chemicals Inc. Member of International Advisory Board: CNOOC Ltd. 2008–2009 Independent of the company and its significant shareholders.
Outokumpu Annual Report 2009 – Board of Directors Jarmo Kilpelä b. 1957, Finnish citizen M.Sc. (Econ.) Outokumpu Board member 2008– Member of the Audit Committee Senior Financial Counsellor: Prime Minister’s Office, Ownership Steering Department 2007– Senior Financial Counsellor: Ministry of Finance, Ownership Steering Unit 1996–2007 Chairman of the Board: Hansel Ltd Vice Chairman of the Board: HAUS Finnish Institute of Public Management Ltd Independent of the company and its significant shareholders.
Outokumpu Annual Report 2009 – Board of Directors Victoire De Margerie b. 1963, French citizen Ph. D. (Management), LL.M., M.Pol.Sc. Outokumpu Board member 2007– Chairman of the Board: Rondol Technology Ltd. (UK) 2008– Board director and member of the Audit Committee: Ciments Francais (France) 2006– Professor of Strategic Management: Grenoble Graduate School of Business 2003– General Manager: Péchiney Plastic Bottles 2000–2002 Vice President: Sales & Marketing Péchiney Aluminum Canstock 1998–2000 Independent of the company and its significant shareholders.
Outokumpu Annual Report 2009 – Board of Directors Anna Nilsson-Ehle b. 1951, Swedish citizen Ph.D., M.Sc. (Eng.) Outokumpu Board member 2005– Member of the Nomination and Compensation Committee Director: SAFER–National vehicle and traffic safety research center 2006– Managing Director: Universeum AB 1999–2004 Consultant: Ohde & Co 2005–2006 Board member: Svensk Bilprovning AB, Swedish National Space Board Independent of the company and its significant shareholders.
Outokumpu Annual Report 2009 – Board of Directors Jussi Pesonen b. 1960, Finnish citizen M.Sc. (Eng.) Outokumpu Board member 2009– Member of the Nomination and Compensation Committee President and CEO: UPM-Kymmene Corporation 2004– Senior Executive Vice President and COO, Publication Papers: UPMKymmene Corporation 2001–2004 Board member: UPM-Kymmene Corporation, Finnish Forest Industries Federation, Confederation of European Paper Industries (CEPI) Supervisory Board member: Ilmarinen Mutual Pension Insurance Company Independent of the company and its significant shareholders.
Outokumpu Annual Report 2009 – Board of Directors Leena Saarinen b. 1960, Finnish citizen M.Sc. (Food technology) Outokumpu Board member 2003– Member of the Audit Committee President and CEO: Suomen Lähikauppa Oy (formerly Tradeka Ltd.) 2007– President and CEO: Altia Corporation 2005–2007 Managing Director: Unilever Bestfoods Nordic Foodsolution 2003–2005 National Manager 2002–2005 Suomen Unilever Oy and Board member 1999 and 2001–2005 Chairman of the Board: the Finnish Grocery Trade Association Board member: Suomen Lähikauppa Oy, Tuko Logistics Oy, Federation of Finnish Commerce Supervisory Board member: Varma Mutual Pension Insurance Company, Luottokunta Independent of the company and its significant shareholders.
Outokumpu Annual Report 2009 – Board of Directors Group Executive Committee Group Executive Committee
Juha Rantanen
b. 1952, Finnish citizen, M.Sc. (Econ.), MBA CEO 2005– Chairman of the Group Executive Committee 2005– Outokumpu Board member and Vice Chairman 2003–2004 Responsibility: Group management, Communications and IR, corporate social responsibility and as of May 1, 2010 Tornio Works and energy strategy Employed by the Outokumpu Group since 2004 President & CEO: Ahlstrom Corporation 1998–2004 Chairman of the Board of Directors: Fennovoima Oy, Association of Finnish Steel and Metal Producers Vice Chairman of the Board: Moventas Oy Board member: Technology Industries of Finland, Stora Enso Oyj Board member and treasurer: International Stainless Steel Forum ISSF Vice President: European Confederation of Iron and Steel Industries Eurofer Supervisory board member: Varma Mutual Pension Insurance Company
Outokumpu Annual Report 2009 – Group Executive Committee Karri Kaitue b. 1964, Finnish citizen, LL.Lic. Deputy CEO 2005– Member of the Group Executive Committee 2002– Vice Chairman of the Group Executive Committee 2005– Responsibility: Group strategy, business development and M&A, new ventures, legal affairs & IPR, portfolio businesses and as of May 1, 2010 Environment, health and quality Employed by the Outokumpu Group since 1990 Chairman of the Board: Destia Oy Vice Chairman of the Board: Okmetic Oyj, Outotec Oyj Board member: Cargotec Oyj
Outokumpu Annual Report 2009 – Group Executive Committee Jamie Allan b. 1956, British citizen Executive Vice President – Supply Chain Management Member of the Group Executive Committee 2008– Responsibility: Production Excellence, Supply Chain Management operations, procurement and as of May 1, 2010 Energy Procurement and Safety Employed by the Outokumpu Group since 1978 Member of the British Stainless Steel Association
Outokumpu Annual Report 2009 – Group Executive Committee Bo Annvik b. 1965, Swedish citizen, M. Sc. (Econ.) Executive Vice President – Specialty Stainless Acting Executive Vice President – Group Sales and Marketing February 2009–May 2010 Member of the Group Executive Committee 2007– Responsibility: Special Coil and Plate, Thin Strip, OSTP, investment projects and as of May 1, 2010 Long Products and R&D Employed by the Outokumpu Group since 2007 Board member: Scandinavian Automotive Suppliers, Jernkontoret – The Swedish Steel Producer’s Association, MEGAB Metallgruppens Service AB, Employers’ Association of the Swedish Steel and Metal Industry Stål & Metall, Tibnor AB
Outokumpu Annual Report 2009 – Group Executive Committee Pekka Erkkilä b. 1958, Finnish citizen, M.Sc. (Eng.) Executive Vice President – General Stainless Member of the Group Executive Committee 2003– Responsibility: Tornio Works, Long Products, R&D, energy, procurement and enviroment, health, safety and quality Employed by the Outokumpu Group 1983–May 2010 at the latest Board member: Jernkontoret – The Swedish Steel Producer’s Association, Grängesberg Iron AB, Oulun yliopisto
Outokumpu Annual Report 2009 – Group Executive Committee Pii Kotilainen b. 1960, Finnish citizen, M.Sc. (Econ.) Executive Vice President – Human Resources Member of the Group Executive Committee 2009– Responsibility: HR strategy and policy, and key HR processes: performance management (incl. compensation), resource management and HRD and leadership, and head office administration Employed by the Outokumpu Group since 2009
Outokumpu Annual Report 2009 – Group Executive Committee Esa Lager 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 and real estate Employed by the Outokumpu Group since 1990 Board member: Olvi Oyj
Outokumpu Annual Report 2009 – Group Executive Committee Kari Parvento b. 1957, Finnish citizen M.Sc. (Eng.) Executive Vice President – Group Sales and Marketing Member of the Group Executive Committee from May 1, 2010 at the latest Responsibility: Group sales and marketing strategy, customer relationship development, end-user and project sales, distributors and processors sales, stock and processing development and Pricing office Employed by the Outokumpu Group since 2010
Outokumpu Annual Report 2009 – Group Executive Committee Investor Information Investor Information
Outokumpu share basics
Listing NASDAQ OMX Helsinki
Trading symbol OUT1V
Number of shares 182 010 542
2003B stock options OUT1VEW203
2003C stock options not listed
Shares and share capital
On December 31, 2009, Outokumpu Oyj's fully-paid and registered share capital totalled EUR 309 417 921.40 and consisted of 182 010 542 shares. The company has one class of shares and each share entitles its holder to one vote at a General Meeting of Shareholders.
Listing of shares
Outokumpu shares are listed on NASDAQ OMX Helsinki. The trading symbol is OUT1V. Outokumpu's stock options 2003B (trading symbol OUT1VEW203) are also listed on NASDAQ OMX Helsinki. The 2003C stock options are not listed.
Treasury shares
Outokumpu held 1 040 888 of its own shares (treasury shares) at the end of 2009. Repurchases were made between April 9 and November 27, 2001 and November 1 and 6, 2007. The treasury shares correspond to 0.57% of Outokumpu's shares and voting rights.
State ownership
The Finnish State holds 31.0% of Outokumpu shares and voting rights through its wholly-owned company Solidium Oy. According to an act passed by Finland's parliament in December 2007, the state's holding in Outokumpu can be reduced to zero.
Dividend proposal
The Outokumpu Board of Directors proposes a dividend of EUR 0.35 per share for the 2009 financial year. The effective dividend yield is 2.6% and the average dividend payout ratio over the past five years is 92%.
Outokumpu Annual Report 2009 – Investor Information Outokumpu share price development
The closing price of Outokumpu's share on December 30, 2009 was EUR 13.26 (Dec 31, 2008: EUR 8.28), up 60% during the year.
In 2009, the highest share price was 15.67 (2008: EUR 33.99) in August and the lowest share price was EUR 7.72 (2008: EUR 6.33) in January. The average price was EUR 11.49 (2008: EUR 18.99). At year-end 2009, Outokumpu's market capitalisation was EUR 2 413 million (2008: EUR 1 502 million), up by 61% compared to the previous year. Turnover in Outokumpu shares on the NASDAQ OMX Helsinki stock exchange in 2009 totalled 355.1 million shares (2008: 511.1 million) and amounted to EUR 4 079 million (2008: EUR 9 693 million). Average daily turnover during 2009 was 1.44 million shares (2008: 2.03 million shares).
Outokumpu Annual Report 2009 – Investor Information Outokumpu Annual Report 2009 – Investor Information Shares and shareholders Shares and shareholders
Share-related key figures
Principal shareholders on February 2, 2010
Shareholders by group on February 2, 2010
Distribution of shareholdings on February 2, 2010
Share-related key figures
2009 2008 2007 2006 2005
Earnings per share € -1.86 -1.05 3.52 5.31 -2.01
Equity per share € 13.54 15.50 18.53 16.87 11.31
Dividend per share € 0.351) 0.50 1.20 1.10 0.45
Dividend payout ratio % neg. neg. 33.9 20.7 neg.
Dividend yield % 2.6 6.0 5.7 3.7 3.6
Price/ earnings ratio neg. neg. 6.0 5.6 neg.
Development of share price
Average trading price € 11.49 18.99 24.94 19.77 11.89
Lowest trading price € 7.72 6.33 18.48 12.60 9.63
Highest trading price € 15.67 33.99 31.65 30.39 14.72
Trading price at the end of the period € 13.26 8.28 21.21 29.66 12.55
Outokumpu Annual Report 2009 – Shares and shareholders Change during the period % 60.1 -61.0 -28.5 136.3 -4.6
Change in the OMXH index during the period % 19.5 -53.4 20.5 17.9 31.1
Market capitalisation at the end of the period 2) € million 2 400 1 492 3 820 5 369 2 272
Development in trading volume
Trading volume 1 000 shares 355 102 511 080 516 489 319 345 179 289
In relation to weighted average number of shares % 196.4 283.6 285.5 176.4 99.0
Adjusted average number of shares 2) 180 825 569 180 184 845 180 922 336 181 033 168 181 031 415
Number of shares at the end of the period 2) 180 969 654 180 233 280 180 103 193 181 031 952 181 031 952
2003A stock options were listed on the NASDAQ OMX Helsinki from Sept. 1, 2006, until March 1, 2009 and 2003B stock options have been listed since Sept. 3, 2007. 2003C stock options are not listed.
Notes: 1) The Board of Directors' proposal to the Annual General Meeting 2) Excluding treasury shares
Principal shareholders on February 2, 2010
Shareholder Shares %
Solidium Oy 56 440 597 31.0
The Finnish Social Insurance Institution 14 652 666 8.1
Outokumpu Annual Report 2009 – Shares and shareholders Ilmarinen Mutual Pension Insurance Company 6 721 927 3.7
Finnish State Pension Fund 2 431 600 1.3
Varma Mutual Pension Insurance Company 1 600 317 0.9
OP-Delta Investment Fund 1 268 706 0.7
Outokumpu Oyj 1 040 888 0.6
Suomi Mutual Life Insurance Company 1 000 000 0.6
Mandatum Life Insurance Company 922 324 0.5
Investment fund OP-Suomi Arvo 785 000 0.4
Nominee accounts held by custodian banks 47 890 998 26.3
Other shareholdes 47 255 519 26.0
Total number of shares 182 010 542 100.0
Shareholders by group on February 2, 2010
Shareholder group Shares %
Finnish corporations 6 238 570 3.4
Financial and insurance institutions 11 418 383 6.3
The public sector and public organisations
Solidium Oy 56 440 597 31.0
Finnish State Pension Fund 14 652 666 8.1
Other 14 586 375 8.0
Non-profit organisations 4 535 355 2.5
Households/private persons 24 205 114 13.3
Foreign investors 49 933 482 27.4
Total 182 010 542 100.0
Shares not transferred to the book-entry securities system 812
Distribution of shareholdings on February 2, 2010
Number of Number of Average shares shareholdes % of shareholders Total shares % of share capital shareholding
1–100 8 673 24.4 563 150 0.3 65
101–1 000 20 646 58.2 8 787 289 4.8 426
1 001–10 000 5 753 16.2 15 166 627 8.3 2 636
Outokumpu Annual Report 2009 – Shares and shareholders 10 001–100 000 363 1.0 9 376 499 5.2 25 831
100 001–1 000 000 50 0.1 16 069 278 8.8 321 386
> 1 000 000 7 0.0 84 156 701 46.2 12 022 386
Shares in nominee accounts held by custodian banks - - 47 890 998 26.3 -
35 492 100.0 182 010 542 100.0
Shares not transferred to book-entry securities system 812
Outokumpu Annual Report 2009 – Shares and shareholders Board authorisations Board authorisations
Board authorisation to decide to issue shares and grant special rights entitling to shares
The Annual General Meeting of Outokumpu authorised the Board of Directors on March 24, 2009 to decide to issue shares and grant special rights entitling to shares as detailed below.
Pursuant to the authorisation, the Board of Directors has the right to issue a maximum of 36 000 000 shares through one or several share issues or by granting special rights entitling to shares as specified in Chapter 10, Section 1 of the Finnish Companies Act, excluding option rights for Outokumpu management and personnel in accordance with an incentive plan.
Through the share issue and/or by granting special rights entitling to shares, a maximum of 18 000 000 new shares may be issued, which at the time of the Annual General Meeting represented approximately 9.92% of the total number of registered shares. In addition, a maximum of 18 000 000 treasury shares may be transferred, which at the time of the Annual General Meeting represented approximately 9.92% of the company's total number of registered shares.
The authorisation includes the right to decide on all other terms and conditions of the share issue and special rights entitling to shares, including the subscription price and to whom shares or special rights may be issued. The Board of Directors has the right to issue shares and special rights in deviation of the pre-emptive subscription right of shareholders.
The authorisation is valid until the next Annual General Meeting, however no later than until May 31, 2010. It has not been exercised by the Board.
Board authorisation to repurchase the company's own shares
The Annual General Meeting of Outokumpu authorised the Board of Directors on March 24, 2009 to repurchase the company's own shares (treasury shares).
The maximum number of shares to be repurchased is 18 000 000, which at the time of the Annual General Meeting represented approximately 9.92% of Outokumpu's total number of registered shares. Based on this and earlier authorisations, the company currently holds 1 040 888 of its own shares. The aggregate number of treasury shares held by the company and its subsidiaries may not, however, exceed 10% of the total number of registered shares.
The price payable for these shares shall be based on the prevailing price of Outokumpu's shares in public trading at the time of repurchase. The shares can be repurchased in deviation from the proportional shareholdings of current shareholders. The Board of Directors has the right to decide on other matters and measures related to repurchasing of the company's shares.
The authorisation is valid until the next Annual General Meeting, however no later than until May 31, 2010. It has not been exercised by the Board.
Outokumpu Annual Report 2009 – Board authorisations 2003 stock option programme 2003 stock option programme
The Outokumpu Annual General Meeting held in 2003 passed a resolution on a stock option programme for the company's management personnel. The total number of share options that may be issued is 5 100 000, entitling holders of stock options to subscribe for 5 100 000 new Outokumpu shares during the period 2006-2011. Based on a decision by the Board of Directors and in deviation from shareholders' pre-emptive rights, stock options marked 2003A, 2003B and 2003C were distributed to key persons in the Outokumpu Group in 2004, 2005 and 2006. When deciding on the total number of stock options to be distributed annually and to each individual, the Board of Directors assessed the Group's earnings trend and performance by comparing, among other items, the trend in Group earnings per share to trends in the same key ratio in peer companies.
The subscription price for shares subscribed for with 2003B stock options is the traded volume-weighted average price of Outokumpu shares on NASDAQ OMX Helsinki from December 1, 2004 to February 28, 2005 (EUR 9.81), for stock options 2003C it is the trading volume-weighted average price of Outokumpu shares on NASDAQ OMX Helsinki from December 1, 2005 to February 28, 2006 (EUR 10.44). On each dividend record date, the share subscription price of stock options will be reduced by the amount of dividends to be decided after the close of the period for determining the subscription price and prior to the share subscription. The subscription period for stock option 2003A ended on March 1, 2009 and the subscription period for stock option 2003B will end on March 1, 2010.
Following the subscriptions for 2003 stock options, Outokumpu's share capital may be increased by a maximum of EUR 1 916 784 and the number of shares by a maximum of 1 127 520. The number of shares that can be subscribed for on the basis of the stock options corresponds to 0.62% of Outokumpu's shares and voting rights.
2003 stock option programme
Dividend adjusted Number of participants Subscription Share Subscription Price Stock Option Dec. 31, 2009 period Dec. 31, 2009
2003 B 39 Sep. 1, 2007–Mar. 1, 2010 9.81 €
2003 C 7 Sep. 1, 2008–Mar. 1, 2011 10.44 €
An aggregate maximum of shares The number of shares that can be subscribed The number of stock subscribed by with the remaining options annulled by Dec. 31, 2009 stock options Dec. 31, 2009
2003 B 804 805 224 015 671 180
2003 C 18 200 80 500 1 601 300
Increases in share capital 2005–2009
Number of shares Share capital €
Share capital on Jan. 1, 2005 181 250 556 308 125 943.50
Shares subscribed with 2003A options
Oct. 14 – Dec. 29, 2006, registered on Jan. 11, 2007 +33 323 308 182 592.60
Outokumpu Annual Report 2009 – 2003 stock option programme 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 – 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 – Feb. 29, 2008, registered on Mar. 13, 2008 +11 955 308 269 756.70
Shares subscribed with 2003B options
Jan. 3 – Feb. 29, 2008, registered on Mar. 13, 2008 +10 187 308 287 074.60
Shared subscribed with 2003A options
Mar. 1 – May 5, 2008, registered on May 16, 2008 +38 208 308 352 028.20
Shares subscribed with 2003B options
Mar. 1 – May 5, 2008, registered on May 16, 2008 +57 264 308 449 377.00
Shares subscribed with 2003A options
May 6 – Jul. 7, 2008, registered on Jul. 18, 2008 +380 308 450 023.00
Shares subscribed with 2003A options
Jul. 8 – Sep. 8, 2008, registered on Sep. 19, 2008 +693 308 451 201.10
Shares subscribed with 2003C options
Jul. 9 – Sep. 8, 2008, registered on Sep. 19, 2008 +5 000 308 459 701.10
Shares subscribed with 2003C options
Sep. 9 – Oct. 24, 2008, registered on Nov. 3, 2008 +5 000 308 468 201.10
Shares subscribed with 2003A options
Jan. 1 – Feb. 9, 2009, registered on Feb. 18, 2009 +126 910 308 683 948.10
Shares subscribed with 2003A options
Feb. 10 – Mar. 1, 2009, registered on Mar. 11, 2009 +415 473 309 390 353.20
Shares subscribed with 2003C options
Apr. 29 – Jun. 4, 2009, registered on Jun. 16, 2009 +10 000 309 407 252.20
Shares subscribed with 2003B options
Oct. 30 – Dec. 17, 2009, registered on Dec. 31, 2009 +6 276 309 417 921.40
Share capital on Dec. 31, 2009 182 010 542 309 417 921.40
Outokumpu Annual Report 2009 – 2003 stock option programme Share capital on Feb. 2, 2010 182 010 542 309 417 921.40
Treasury shares on Dec. 31, 2009 1 040 888 1 769 509.60
Number of shares outstanding on Dec. 31, 2009 180 969 654 307 648 411.80
Outokumpu Annual Report 2009 – 2003 stock option programme Share-based incentive programmes Share-based incentive programmes
Outokumpu's Board of Directors has confirmed that share-based incentive programmes are part of the incentive and commitment scheme for the company's key personnel. The objectives are to reward key personnel for good performance and support Outokumpu's strategy while at the same time directing management attention to increasing shareholder value over the long term. The programmes offer the possibility of receiving both Outokumpu shares and cash (an amount equal to taxes not exceeding 1.5 times the value of the shares at the time they are distributed) as an incentive, provided that the targets set by the Board for each earning period are achieved.
Share-based incentive programme
Earnings period The number of people in scope on Dec. 31, 2009
2007–2009 129
2008–2010 155
2009–2011 139
Share-based incentive programme 2006–2010
On February 2, 2006, the Outokumpu Board of Directors confirmed a five-year share-based incentive programme comprising three earnings periods, each lasting three calendar years. These earnings periods commenced on January 1, 2006, January 1, 2007 and January 1, 2008. The aggregate number of shares to be distributed during each earnings period cannot exceed 500 000. In accordance with targets confirmed for the earnings periods, the reward is based on the relative development in Total Shareholder Return (TSR) (amounting to 50% of the maximum reward) and achieving targets set for Operational Excellence programmes (amounting to 50% of the maximum reward). The aggregate annual total payment of rewards (shares and cash) under the programme, together with other short-term and long-term incentives, must not exceed 200% of a participant's annual salary at the end of the earnings period. Rewards allocated under the programme for the earnings period (both shares and cash) will be reduced accordingly if the above limit is exceeded. Under the programme, participants must retain the shares in their possession for a period of at least two years from the date of distribution.
On February 2, 2010, the Outokumpu Board of Directors confirmed that the set targets for the earnings period 2007–2009 were not met for either earning criteria. Therefore, no reward will be paid to the participants for the earning period 2007–2009.
If participants in the remaining earnings period 2008–2010 receive the maximum number of shares as a reward (a total of 240 430 shares), the shareholding they obtain via the programme will amount to 0.13% of the Company's shares and the voting rights.
Share-based incentive programme 2009–2013
On February 3, 2009, Outokumpu's Board of Directors confirmed a new share-based incentive programme which will last five years and comprise of three earnings periods, each lasting three calendar years and commencing on January 1, 2009, January 1, 2010 and January 1, 2011. The Board of Directors decides on the persons who are entitled to participate in the programme for each earnings period. The aggregate number of shares to be distributed for each earning period cannot exceed 500 000.
On February 2, 2010, 134 people were confirmed as participants in the programme for the 2010–2012 earnings period. In accordance with targets confirmed for the 2010–2012 earnings period, the reward is based on the relative
Outokumpu Annual Report 2009 – Share-based incentive programmes development in Total Shareholder Return (TSR, 2/3 of the maximum reward) over the three-year earnings period and Earnings per share (EPS, 1/3 of the maximum reward). The aggregate annual total payment of rewards (shares and cash) under the programme, together with other short-term and long-term incentives, must not exceed 200% of the participant's annual salary at the end of the earnings period. Rewards allocated under the programme for the earnings period (both shares and cash) will be reduced accordingly if the above limit is exceeded. Under the programme, participants must retain the shares in their possession for a period of at least one year from the date of distribution.
If participants in the 2009–2011 and 2010–2012 earnings periods receive the maximum number of shares as a reward (a total of 824 900 shares), the shareholding obtained via the programme will amount to 0.45% of the Company's shares and voting rights.
Share ownership plan
In accordance with the share ownership plan of the Outokumpu Group, members of the Outokumpu Group Executive Committee have an obligation to purchase Outokumpu shares with 10% of the income they receive from stock options. Members of the Group Executive Committee are also obliged to hold Outokumpu shares acquired or received under incentive programmes that correspond to the value of their annual gross base salary.
Outokumpu Annual Report 2009 – Share-based incentive programmes Management shareholding Management shareholding
On January 31, 2010, members of the Outokumpu Board of Directors and the Group Executive Committee held a total of 93 264 Outokumpu shares, corresponding to 0.051% of shares and voting rights.
If all the 2003B and 2003C options are exercised and if the remaining earning period in the 2006–2010 share-based incentive programme and the 2009–2011 and 2010–2012 earning periods in the 2009–2013 share-based inventive programme yield the maximum number of shares, shareholdings and aggregate voting rights held by the memberd of the Group Executive Committee will increase by 0.047 percentage points on the basis of stock options, and by 0.11 percentage points on the basis of the share-based incentive programme.
Details of management shareholdings can be found at Board of Directors and Group Executive Committee.
Outokumpu Annual Report 2009 – Management shareholding Information to shareholders Information to shareholders
Annual General Meeting 2010
Outokumpu Oyj's 2010 Annual General Meeting (AGM) will be held on Tuesday, March 30, 2010 at 12 pm (EET) at the Marina Congress Center in Helsinki, Finland. In order to attend the Annual General Meeting a shareholder must be registered in the Company's shareholders' register maintained by Euroclear Finland Ltd on March 18, 2010.
Nominee-registered shareholders who wish to attend the AGM should temporarily re-register the shares under their own name. Such re-registration must be made no later than March 18, 2010. In order to arrange a temporary re-registration, nominee registered shareholders should contact their bank or other custodian.
Shareholders who wish to attend the AGM must notify Outokumpu by no later than March 24, 2010 at 4 pm (EET). Notification can be made by on the internet at www.outokumpu.com/agm, email to [email protected], by telephone to +358 9 421 5519 or by fax to +358 9 421 2223.
Notification can also be made in person or by a letter addressed to Outokumpu Oyj Share Register, PO. Box 140 02201 Espoo Finland.
The letter must reach Outokumpu on March 24, 2010 at the latest.
A shareholder may attend and vote at the meeting in person or by proxy.
However, in accordance with Finnish practice, Outokumpu does not send proxy forms to its shareholders. Shareholders wishing to vote by proxy should submit their own proxy forms to Outokumpu during the registration period.
Additional information on the AGM is available on the company's website: www.outokumpu.com/agm.
Dividends in 2010
The Board of Directors proposes to the AGM 2010 that a dividend of EUR 0.35 per share be paid for the financial year 2009.
Financial reports in 2010
Investor information is available at Outokumpu's website www.outokumpu.com. The website also covers annual reports, interim reports, as well as stock exchange and press releases, which are published mainly in English and Finnish.
Alternatively financial reports can be obtained from Outokumpu Oyj/Corporate Communications Riihitontuntie 7 b, PO Box 140 02201 Espoo Finland tel. +358 9 421 4070 or email [email protected].
Outokumpu Annual Report 2009 – Information to shareholders Subscriptions to the emailing list for stock exchange and press releases can be made on the website www.outokumpu.com or via the above-mentioned e-mail address.
Shareholder mailings are made on the basis of the contact information in the shareholders' register maintained by Euroclear Finland Oy. A shareholder should inform his/her account operator, or in case of a nominee-registered shareholder the relevant bank or other custodian, about changes in contact details.
Investor Relations
The main task of Outokumpu's Investor Relations function is to support the correct valuation of the Outokumpu share by providing information about the company's business and strategy, activities, financial position, thus enabling the markets to form a true and fair view of Outokumpu as an investment prospect.
Our aim is to communicate in open, timely and clear manner and to treat all parties equally.
Outokumpu observes a three-week silent period prior to the publication of financial statements and interim reports. During these periods, we do not arrange meetings with investors and analysts or comment on performance and market developments.
Should you require further information about Outokumpu, please contact one of the following:
Päivi Laajaranta IR Assistant Tel. +358 9 421 4070, Send e-mail to Päivi Laajaranta Päivi Laajaranta coordinates meeting requests.
Ingela Ulfves Vice President – Investor Relations and Financial Communications Tel. +358 9 421 2438, Send e-mail to Ingela Ulfves
Päivi Lindqvist Senior Vice President – Communications and IR Tel. +358 9 421 2432, Send e-mail to Päivi Lindqvist
AGM and dividend
Annual General Meeting March 30
Ex-dividend date March 31
Record date for dividend April 6
Dividend payout April 13
Financial calendar
Financial Statements Bulletin February 3
Annual Report week starting February 22
Outokumpu Annual Report 2009 – Information to shareholders First-quarter interim report April 27
Second-quarter interim report July 22
Third-quarter interim report October 21
Outokumpu Annual Report 2009 – Information to shareholders Stock exchange releases 2009 Stock exchange releases 2009
3.2.2009 Outokumpu takes further actions in response to the weak stainless steel market
3.2.2009 Outokumpu Annual Accounts bulletin 2008 – operating loss in difficult market conditions
3.2.2009 Notice of Annual General Meeting – Outokumpu's AGM to convene on March 24, 2009
3.2.2009 Outokumpu establishes a new long-term share-based incentive program
18.2.2009 Shares subscribed with the Outokumpu Oyj 2003 A stock options and the increase in share capital
24.2.2009 Outokumpu – change in the Executive Committee
2.3.2009 Outokumpu's Annual Report 2008
9.3.2009 Outokumpu's Board of Directors confirmed the share-based incentive reward for the earning period 2006–2008
11.3. 2009 Shares subscribed with the Outokumpu Oyj 2003A stock options and the increase in share capital
24.3.2009 Statutory negotiations in Outokumpu result in temporary lay-offs in Finland
24.3.2009 Resolutions of Outokumpu Oyj's Annual General Meeting 2009
24.3.2009 Outokumpu Board decisions at their first meeting
15.4.2009 Outokumpu – publishing of the first-quarter 2009 financial results
23.4.2009 Outokumpu's first quarter 2009 interim report – significant operating loss, very strong cash flow
7.5.2009 European Commission's fine for Outokumpu related to copper air-conditioning tube cartel remains unchanged
13.5.2009 Outokumpu – Financial reporting schedule for the year 2010
16.6.2009 Shares subscribed with the Outokumpu Oyj 2003C stock options and the increase in share capital
25.6.2009 Outokumpu to adjust production capability due to higher order intake
29.6.2009 Outokumpu Oyj signed EUR 900 million revolving credit facility
9.7.2009 Outokumpu – publishing of the second-quarter 2009 financial results
23 .7.2009 Outokumpu's second quarter 2009 interim report – difficult market with some signs of improvement, operating loss declining
13.10.2009 Outokumpu – publishing of the third-quarter 2009 financial results
22.10.2009 Outokumpu's third quarter 2009 interim report – Financial performance on improving trend in weak markets
22.10.2009 Outokumpu – listing timetable of the stock options 2003B and 2003C
Outokumpu Annual Report 2009 – Stock exchange releases 2009 1.12.2009 Shareholders' Nomination Committee at Outokumpu
11.12.2009 Outokumpu appoints Kari Parvento Executive Vice President – Group Sales and Marketing
31.12.2009 Shares subscribed with the Outokumpu Oyj 2003B stock options and the increase in share capital
Outokumpu Annual Report 2009 – Stock exchange releases 2009 Review by the Board of Directors Review by the Board of Directors for 2009
Determined actions taken as stainless steel markets hit by the global recession
2009 was an exceptional year for the stainless steel industry in many ways. The global recession had a significant impact on the industry, especially in Europe. During the first part of 2009, demand was extremely weak and stainless steel markets were characterised by heavy destocking. Some recovery occurred in the summer but markets softened again towards the end of the year. In 2009, China was the only market in which demand grew and production significantly increased.
The very difficult market conditions in 2009 forced Outokumpu to take drastic short-term measures to cut costs and secure its balance sheet and liquidity. Cost-cutting actions included production cuts and personnel adjustments. The ongoing recession limited progress towards strategic targets and the Group postponed the majority of its planned investment programme. Outokumpu's strategy is aimed at achieving a more stable and profitable business model by increasing the share of sales to end-user and project customers as well as building more stable relationships with key distributor customers. Other objectives include increasing the proportion of value-added special grades and products as well as non-nickel containing grades of stainless steel.
Group sales for 2009 totalled EUR 2 611 million (down by 52% from the previous year) and stainless steel deliveries were 1 030 000 tonnes, down by 28% from the level in 2008. Operating loss totalled EUR 438 million (2008: EUR -63 million) and underlying operational result was EUR -340 million (2008: EUR 305 million positive). Net cash from operating activities was good at EUR 198 million (2008: EUR 664 million).
Return on capital employed was -11.7% (2008: EUR -1.6%) and gearing was 48.2% (2008: 38.4%). Although Outokumpu's financial target of a return on capital employed higher than 13% was not reached, gearing remained below the Group's target of less than 75%. Earnings per share totalled EUR -1.86 (2008: EUR -1.05). The Board of Directors is proposing to the Annual General Meeting 2010 that a dividend of EUR 0.35 per share be paid for 2009 (2008: EUR 0.50).
Very weak stainless steel markets with historically low deliveries in Europe
The global recession resulted in demand for stainless steel being very weak at the beginning of the year. Heavy destocking along the whole value chain resulted in significant production cuts by producers especially in Europe with capacity utilisation at the historically extremely-low levels of 50–55%. Demand for stainless steel mainly from distributors, recovered somewhat in the summer and stabilised towards the end of the year. Metal prices were at very low levels at the beginning of the year but began to rise after the spring, mainly as a result of improving demand in China. Base prices, which had fallen to very low levels in historical terms, began to recover after the first quarter. Compared to 2008, apparent consumption of stainless steel in 2009 is estimated to have decreased by 29% in Europe and by 8% globally. In China, however, apparent consumption is estimated to have increased by 31%. The average German base price for 2mm 304 cold rolled sheet in 2009 was 1 161 EUR/tonne, 2% lower than in 2008. The transaction price for stainless
Outokumpu Annual Report 2009 – Review by the Board of Directors steel averaged 2 036 EUR/tonne in 2009, 27% lower than in the previous year. The main reason for this was the much lower metal prices in 2009. (CRU)
Sales and deliveries
Sales
€ million 2009 2008 2007
General Stainless 2 065 4 147 5 321
Specialty Stainless 1 239 2 705 3 456
Other operations 243 258 237
Intra-group sales -935 -1 636 -2 101
The Group 2 611 5 474 6 913
Stainless steel deliveries
1 000 tonnes 2009 2008 2007
Cold rolled 545 739 703
White hot strip 263 330 314
Quarto plate 67 120 146
Tubular products 53 70 65
Long products 40 55 54
Semi-finished products 63 109 137
Total deliveries 1 030 1 423 1 419
Group sales for 2009 declined to EUR 2 611 million (2008: EUR 5 474 million) due to the very low delivery volumes and lower transaction prices for stainless steel. Delivery volumes declined to 1 030 000 tonnes (2008: 1 423 000 tonnes). Sales by General Stainless were down by 50% and sales by Specialty Stainless were down by 54%.
The European share of Group sales was 74% in 2009 (2008: 78%). Asia and the Americas accounted for 14% (2008: 8%) and 10% (2008: 11%), respectively.
Outokumpu Annual Report 2009 – Review by the Board of Directors Operating profit
Profitability
€ million 2009 2008 2007
Operating profit
General Stainless -259 -6 220
Specialty Stainless -149 -101 337
Other operations -31 38 21
Intra-group items 1 6 11
Operating profit -438 -63 589
Share of results in associated companies -12 -2 4
Financial income and expenses -25 -69 206
Profit before taxes -474 -134 798
Income taxes 142 24 -138
Net profit, continuing operations -332 -110 660
Net profit, discontinued operations -4 -79 -18
Net profit for the financial year -336 -189 641
Operating profit margin, % -16.8 -1.2 8.5
Return on capital employed, % -11.7 -1.6 13.9
Earnings per share from continuing operations, € -1.83 -0.61 3.63
Earnings per share, € -1.86 -1.05 3.52
Operating loss in 2009 totalled EUR 438 million (2008: EUR -63 million). In 2009, net non-recurring items of EUR −20 million were included in the operating loss (EUR 5 million of restructuring provisions mainly relating to Sweden and EUR 15 million of write-downs from the cancelled melt-shop capacity expansion in Avesta, Sweden). In 2008, non-recurring costs of some EUR 83 million were included in the operating loss. Raw material-related inventory losses of some EUR 78 million are included in the operating profit (2008: some EUR 285 million). Underlying operational result for 2009 was some EUR -340 million (2008: EUR 305 million). While extremely-low delivery volumes were the primary reason
Outokumpu Annual Report 2009 – Review by the Board of Directors for the weak result, a somewhat negative price and product mix and a reduced contribution from ferrochrome production also had negative impacts. The cost savings achieved had a mitigating effect. Loss before tax totalled EUR 474 million (2008: EUR -134 million).
The Group's cost-saving programmes, initiated in December 2008, delivered more than earlier estimated EUR 150 million. The fixed-cost savings achieved in 2009 totalled EUR 185 million, half of which are expected to be sustainable. Some EUR 20 million of total cost savings are related to the closure of Sheffield Special Strip in the UK.
Capital structure
Key financial indicators on financial position
€ million 2009 2008 2007
Net interest-bearing debt
Long-term debt 1 038 1 219 1 046
Current debt 705 581 464
Total interest-bearing debt 1 742 1 800 1 510
Interest-bearing assets -548 -711 -589
Net assets held for sale -11 -16 -132
Net interest-bearing debt 1 183 1 072 788
Shareholders' equity 2 451 2 794 3 337
Return on equity, % -12.8 -6.2 20.0
Debt-to-equity ratio, % 48.2 38.4 23.6
Equity-to assets ratio, % 50.6 52.4 56.5
Net cash generated from operating activities 1) 198 664 658
Net interest expenses 22 54 5
Notes: 1) Cash flows presented for continuing operations.
Outokumpu Annual Report 2009 – Review by the Board of Directors During 2009 Outokumpu's net interest- bearing debt increased only marginally by EUR 110 million and totalled EUR 1 183 million at the end of 2009 (Dec 31, 2008: EUR 1 072 million). Outokumpu's balance sheet was relatively strong at the end of the year with gearing at 48.2% (Dec 31, 2008: 38.4%), well below the Group's target of below 75%. At the end of 2009, the Group's equity-to-assets ratio stood at 50.6%.
In June 2009, Outokumpu signed a three- year EUR 900 million revolving credit facility. This committed credit facility for general corporate purposes replaced the five-year EUR 1 billion facility signed in June 2005. At the end of 2009 this facility was undrawn. In addition, two bilateral long-term revolving credit facilities amounting to more than EUR 200 million were signed in 2009. Consequently, Outokumpu has committed undrawn credit facilities totalling EUR 1.1 billion.
Net cash generated from operating activities in continuing operations in 2009 was good and totalled EUR 198 million (2008: EUR 664 million). Cash released from working capital as a result of lower metal prices and reductions in inventory levels totalled EUR 548 million. Cash and cash equivalents totalled EUR 112 million (2008: EUR 224 million) at the end of the year.
Capital expenditure and the postponed investment programme
Capital expenditure
€ million 2009 2008 2007
General Stainless 129 332 57
Specialty Stainless 93 170 69
Other operations 23 42 64
The Group 245 544 190
Depreciation 211 206 204
Outokumpu Annual Report 2009 – Review by the Board of Directors Capital expenditure by the Group in 2009 totalled EUR 245 million. The largest investments in 2009 were the modernisation of the No. 2 annealing and pickling line in Tornio, expansion of the service centre in Willich in Germany, establishment of a service centre in China, the doubling of production capacity in special grades at Nyby in Sweden and the expansion of quarto plate production capacity in New Castle in the US. The service centre in China is planned to start operation in the spring 2010 and the investment at New Castle is planned to be finalised at about the same time.
In December 2008 as the global recession had started, Outokumpu decided to postpone almost its entire investment programme worth some EUR 1.5 billion for a period of at least 12 months. The programme included an expansion of ferrochrome production capacity in Finland, investments in bright-annealed production capacity at Tornio Works in Finland, expansion of quarto plate production capacity in Degerfors in Sweden, the expansion of melting capacity in Avesta in Sweden and the construction of service centres in Europe. In October, a decision was made to cancel the investment in expanded melting capacity at Avesta as no need for additional melting capacity is seen in the medium- term. Continuation of any project in the Group's investment programme is subject to a separate decision based on an updated feasibility study. Further decisions on the postponed investments will be made by the end of 2010.
Excluding decisions on any new investment projects, capital expenditure by the Group in 2010 is expected to be below EUR 200 million. This figure includes annual capital expenditure on maintenance and the finalising of some ongoing investment projects.
Personnel adjustments
As a response to the very weak demand for stainless steel because of the ongoing recession, Outokumpu took a number of actions to adjust to the poor market conditions. Production was cut back heavily and consequent adjustments of personnel numbers through both temporary and permanent layoffs were implemented.
In Finland, the low order load resulted in temporary layoffs for most employees at the Tornio Works. Some 250 employees at the Kemi Mine and the Ferrochrome Works were temporarily laid off from March until the end of September. Approximately 1 600 employees working on other steel production lines, maintenance and support functions were temporarily laid off in sequences starting from March. In September, some 700 employees were taken back and the remaining 900 who had been laid off temporarily returned to work in October. Some 50 permanent job reductions have been made in Finland.
In Sweden, a total of some 400 job reductions were made in 2009. The number of working shifts was reduced and related temporary lay-offs were implemented.
Outokumpu Annual Report 2009 – Review by the Board of Directors In the UK, the closure of Sheffield Special Strip, reduced production in the Sheffield melt-shop and actions taken in the service centre and the sales company resulted in approximately 350 job reductions and temporary adjustments due to reduced working shifts.
Approximately 150 job reductions were implemented in other countries.
Operational Excellence programmes
Outokumpu's Operational Excellence programme was launched in 2005 and originally comprised Production and Commercial Excellence. In 2007, the programme was expanded to include Supply Chain Excellence. Targets included improving Group performance by EUR 40 million in 2007 and by EUR 80 million in 2008 (compared to 2005). The targeted benefits were achieved in both years and benefits totalling EUR 86 million were delivered in 2008. In 2009, the Operational Excellence programme delivered benefits totalling EUR 150 million compared to 2005. The original target of EUR 200 million by 2009 was not achieved mainly as a consequence of the very low delivery volumes of stainless steel and the lower metal prices.
The original target of EUR 300 million of benefits in 2010 will not be reached considering the current run-rate of delivery volumes. However, Outokumpu's Operational Excellence programmes continue to be a high-focus area and the intention is to achieve higher benefits than in 2009 (EUR 150 million).
Class actions regarding the sold fabricated copper products business
In 2003, the European Commission issued its judgment on Outokumpu's participation in a European price-fixing and market-sharing cartel involving copper air-conditioning tubes during 1988–2001. A fine of EUR 18 million was imposed on the Group. In 2004, Outokumpu lodged an appeal with the Court of First Instance for Europe regarding the basis for the calculation and the level of the fine. According to a decision issued by the court in May 2009, the amount of the fine remains unchanged.
In a cartel investigation concerning sanitary copper tubes, the European Commission issued its judgement in September 2004 and imposed a fine of EUR 36 million on the Group for participation in cartel activities. Outokumpu lodged an appeal with the Court of First Instance for Europe in 2004 regarding the level of the fine. In August 2009, Outokumpu paid the fine of EUR 36 million in advance. The final decision from the Court of First Instance concerning the sanitary tubes case is expected during 2010.
In 2003, Outokumpu booked provisions for fines in both of these cases. Fines totalling EUR 54 million and interest totalling EUR 9 million was paid in 2009.
Outokumpu exited the copper fabrication business by divesting a major part of the company's business in 2005 and the remainder in April 2008.
Customs investigation of exports to Russia by Tornio Works
In March 2007, Finnish Customs authorities initiated a criminal investigation into the Group's Tornio Works' export practices to Russia. It was suspected that a forwarding agency based in south-eastern Finland had prepared defective and/or forged invoices regarding the export of stainless steel to Russia. The preliminary investigation focused on possible complicity by Outokumpu Tornio Works in the preparation of defective and/or forged invoices by the forwarding agent.
Outokumpu Annual Report 2009 – Review by the Board of Directors In June 2009, the Finnish Customs completed its preliminary investigation and forwarded the matter for consideration of possible charges to the prosecuting authorities. The process of considering possible charges is expected to be completed in the spring of 2010.
Immediately after the Finnish Customs authorities began their investigations in 2007, Outokumpu initiated its own investigation into the trade practices connected with stainless steel exports from Tornio to Russia. In June 2007, based on its own investigation, a leading Finnish law firm Roschier Attorneys Ltd. concluded that it had not found evidence that any employees of Tornio Works or the Group had committed any of the crimes alleged by the Finnish Customs.
Roschier has subsequently, at Outokumpu's request, examined the preliminary investigation material produced by the Finnish Customs' and concluded that it contains no evidence that any Outokumpu employees committed forgery or the alleged accounting offences by the Finnish Customs. Outokumpu's Auditor, KPMG Oy Ab, has also stated that suspicions related to the making of false financial statements are groundless.
Outokumpu has stated that neither the Group nor its personnel have committed any of the crimes alleged by the Finnish Customs.
Risk management
Outokumpu operates in accordance with the risk management policy approved by the Board of Directors. The risk management policy defines the objectives, approaches and areas of responsibility in risk management activities. Risk management supports the Group's strategy and also helps to define a balanced risk profile from the perspective of shareholders as well as other stakeholders such as customers, suppliers, personnel and lenders. Outokumpu has defined risk to be anything that might have an adverse impact on activities that the company has undertaken to achieve its objectives. Risks can thus be threats, uncertainties or lost opportunities that relate to present or future operations.
In 2009 risk workshops were implemented with management teams from most of the Group's business units and several corporate functions such as Energy and Legal Affairs and IPR. Workshops included the identification of different business, operational and financial risks, the evaluation and mitigation of these risks in connection with strategic planning and performance management processes. During the year, Outokumpu also initiated a systematic crises management programme. Corporate-level crises management teams were trained in the handling of situations presenting different challenges.
No major damage to Group property or business interruptions occurred in 2009. The most significant risks realised during the year were connected with structural issues in stainless steel markets and the global recession, with the latter having an impact on steel markets and also on the Group's willingness and ability to implement planned investment projects. Strategic and business risks
The most important identified strategic and business risks include structural overcapacity and weak market conditions affecting stainless steel production, fierce competition in stainless steel markets and Euro-centricity of Group operations.
Demand for stainless steel remained depressed in Outokumpu's main served markets. Increased stainless steel production capacity, especially in China, is creating a situation of gradually developing global overcapacity. Outokumpu has taken actions to address these strategic and business risks by maintaining cost efficiency and delivery reliability in the Group's operations, developing its distribution channels and aiming to increase sales to end-users and building stable relationships with key distributors. During 2009 Outokumpu also expanded its operations in China by investing in a new service centre in Kunshan in Shanghai. Activities at this new facility will focus on special products and grades and operations will begin in the spring of 2010. Outokumpu continues to study ways of strengthening its position outside Europe in future years.
Outokumpu Annual Report 2009 – Review by the Board of Directors Operational risks
Operational risks arise as a consequence of inadequate or failed internal processes, employee actions, systematic or other events such as natural catastrophes and misconduct or crime. Key operational risks include major fires or accidents, variations in production performances, unsuccessful project implementation and a lack of progress towards achieving a strong corporate culture and a one-company approach.
To minimise damage to property and business interruptions that could result from fire at Outokumpu's sites, the Group has systematic fire and security audit programmes in place. Part of this type of risk is covered by insurances. In 2009, some 40 security and fire-safety audits were carried out using the Group's own resources, often jointly with technical experts from insurers and insurance brokers. Outokumpu also continued developing its corporate security during 2009 with a focus on crisis management.
Outokumpu has been systematically developing the performance of its operations through excellence initiatives. Even so, risks associated with not being able to adapt production capacity to meet wide fluctuations in demand can have an impact on the company's business. The Group is mitigating these types of risks in two ways: by expanding its Operational Excellence programmes; and by building on strong Group-level functions such as Supply Chain Management and Group Sales and Marketing to enhance strategy implementation.
Outokumpu's aim is to achieve a strong and unified corporate culture throughout its organisation. For all Group personnel, the approach is to create "One Outokumpu", but this type of cultural change can take time. While it provides a great opportunity to increase operational effectiveness by increasing cross-cultural cooperation, corporate cultures that are one-country based or too independent can have an adverse effect on progress from an operational perspective, endangering the achievement of strategic goals. The implementation of strong Group-level functions such as Supply Chain Management and Group Sales and Marketing is a vital component in driving forward the one-company approach.
Due to the global financial crisis and the weakness in stainless steel market almost the entire already-announced investment programme was postponed at the end of 2008. Some investments, such as the service centre expansion in Willich in Germany and the establishment of a new service centre in China are however continuing and will be finalised early in 2010. In preparation for the future, Outokumpu is aiming to further develop its project management methods to support the implementation of investment projects and to manage risks related to the Group's entire project portfolio. At the end of the third quarter, Outokumpu decided to permanently cancel the investment project which would have provided additional melting capacity in Avesta in Sweden.
Financial risks
Financial risks include market, liquidity, refinancing, country and credit risk. One consequence of the global economic crisis is that sales-related credit losses have increased to some extent; but much of these losses are covered by credit insurance. At the end of 2009, Outokumpu updated its principles concerning the management of country and credit risk. Implementation of these principles will take place gradually during 2010.
A weak Swedish krona has been mainly beneficial for the Group because of a significant amount of krona-denominated fixed and variable cost. Changes in the price of nickel and the value of the US dollar have an impact on Group earnings, cash flows and the balance sheet. Outokumpu also has exposure to changes in interest rates, credit risk related to certain loan receivables and risks connected with equity prices.
During 2009 Outokumpu hedged part of the forecast risk associated with cash flow in Swedish krona and sterling, hedged against rises in interest rates associated with fixed part of financing costs and continued nickel risk hedging to reduce the impacts of any price changes on earnings.
Outokumpu Annual Report 2009 – Review by the Board of Directors Liquidity and refinancing risks are taken into account in capital management decisions and, when necessary, in making investment and other business decisions. In 2009, Outokumpu signed a three-year revolving credit facility of EUR 900 million. This facility was fully undrawn at the end of the year.
Environment, Health and Safety
Emissions to air and discharges to water remained within permitted limits and the breaches that occurred were temporary, were identified and caused only minimal environmental impact. Outokumpu is not a party in any significant juridical or administrative proceeding concerning environmental issues, nor is it aware of any realised environmental risks that could have a material adverse effect on the Group's financial position.
At approximately 540 000 tonnes (2008: 820 000 tonnes), carbon dioxide emissions under the EU Emissions Trading Scheme were at a very-low level in 2009 due to reduced levels of production. During the year, the Group sold 454 000 tonnes (2008: 1 022 000 tonnes) of carbon dioxide allowances for EUR 6 million (2008: EUR 22 million). Outokumpu's carbon dioxide allowances in the UK, Sweden and Finland were proved sufficient for the Group's production.
Occupational safety continues to be a major focus area within the Group and Outokumpu has a separate safety function responsible for safety management and development.
In 2009, the lost-time injury rate (i.e. lost-time accidents per million working hours) was 5.9 (2008: 9.0), slightly higher than the Group's 2009 target of less than five. No severe accidents were reported in 2009. The target for 2010 is less than four.
Corporate Responsibility
In March 2009, Outokumpu was selected as a member of the Kempen/SNS Smaller Europe SRI Universe, a concept launched by Kempen Capital Management. Membership is only offered to companies with the very highest standards and codes of practice in three areas: business ethics, human resources and the environment.
In September, the results of the annual review carried out for the Dow Jones World and Dow Jones STOXX Sustainability indexes by the Sustainable Asset Management Group (SAM) were published. Outokumpu retained its membership in both indices and received the highest possible score in two sustainability criteria: environmental reporting and occupational health and safety.
Once again, Outokumpu received an award in 2009 for being Finland's best corporate responsibility reporter.
Research and Development
Group expenditure on research and development in 2009 totalled EUR 19 million or 0.7% of sales (2008: EUR 20 million and 0.4%). Outokumpu has research centres in Tornio in Finland and in Avesta in Sweden. Some process and technology development work is also carried out in production units. R&D operates in close cooperation with the Group's commercial organisation and customers, and direct feedback regarding customer needs serves as input for further product development. The R&D function employed almost 200 professionals in 2009. Outokumpu also conducts research in collaboration with research institutes and universities.
In 2009, the main focus was on further developing new low-nickel and nickel-free stainless steels to reducing the effects of volatile nickel prices. Much effort has been put into developing duplex grades which offer a good combination of strength and corrosion resistance. Ideal applications for duplex grades include large, heavy-wall tanks, where weight savings of as much as 20% can be achieved. Customers have shown growing interest in LDX 2101®. New applications are continually being developed and the production technology has been improved.
Outokumpu Annual Report 2009 – Review by the Board of Directors Non-nickel ferritic grades represent another opportunity to reduce the influence of the nickel price on raw material costs. Optimum process parameters and product properties for standard ferritic grades have been studied intensively at production scale. The primary focus has been on surface quality, formability and corrosion resistance. Four different grades, mostly intended for use in indoor applications, kitchen utensils, domestic appliances and the transportation sector, are now part of the Group's product portfolio.
Cr-Mn-Ni grades (200 series), a third opportunity to reduce the use of nickel, also represent an interesting alternative in many applications. The most common grade is 201, the chemistry of which has been modified by Outokumpu. The corrosion-resistant properties of this grade are almost equal to those of standard austenitic 304 (Cr-Ni), and it also features higher strength and good formability.
In application development, the traditional focus has been on the process industries where stainless steel plays a dominant role in the manufacturing of industrial equipment used in the Pulp and Paper, Oil and Gas, Desalination and Chemical segments. Outokumpu's R&D experts provide both customers and the Group's commercial personnel with advice on product properties and material selection. The 10th edition of the Outokumpu Corrosion Handbook was published in the autumn. For more than 60 years, the handbook has been a reliable source of essential information for metallurgists, design engineers and fabricators around the world.
In addition to new products and new applications for stainless steel, the Group's R&D operations focus on innovative manufacturing processes that reduce costs, result in lower emissions, shorten lead times and improve quality levels. The main subject of environmental research in 2009 was slag utilisation. Studies of the properties of different slag products and the development of new applications continue.
Personnel
Personnel
Dec 31. 2009 2008 2007
General Stainless 3 753 3 938 3 571
Specialty Stainless 3 361 4 006 4 099
Other operations 492 527 439
The Group 7 606 8 471 8 108
In 2009, the Group's continuing operations employed an average of 7 941 people (2008: 8 551) in some 30 countries. At the end of 2009, the number of people employed by the Group was 7 606 (2008: 8 471). The net decrease in the number of people employed was 865 (2008: increase of 363) caused by actions to adjust to the very weak stainless steel markets in 2009. Personnel expenses in 2009 totalled EUR 446 million (2008: EUR 520 million).
Outokumpu's development programmes, including management development programmes and the Production Excellence training programme, continued during 2009. The first eight Stainless Pro Graduates completed their two-year programme and transferred to new positions within the Group. Seven Stainless Pro Graduates are expected to complete their training in August 2010.
Almost all Group employees participated in Performance and Development Dialogues in 2009, but the goal of 100% participation was not achieved.
Outokumpu Annual Report 2009 – Review by the Board of Directors The Outokumpu Personnel Forum (OPF) 2009 held its 18th annual meeting in Espoo, Finland. The Group Working Committee appointed by the OPF - a forum for continuing dialogue between personnel and management - met six times during 2009.
The fifth O'People personnel survey was conducted in 2009. The response rate was 72% (2008: 75%) and the overall O'People index was almost unchanged at 617 (2008: 621).
Ideas for fast actions, a web-based survey for Outokumpu employees, was organised in the spring. Participants were encouraged to contribute concrete ideas on how to get through difficult times, where to cut costs and how to improve overall Group performance.
Organisational change and appointments
In December, Mr Kari Parvento was appointed EVP – Group Sales and Marketing and a member of Outokumpu Group's Executive Committee as of May 1, 2010 at the latest. He will report to CEO Juha Rantanen. Group Sales and Marketing has been headed by Mr Bo Annvik, EVP – Specialty Stainless, on a temporary basis since February 2009 when Mr Andrea Gatti, former EVP – Group Sales and Marketing at Outokumpu, assumed the role of Corporate Vice President outside the Executive Committee. Mr Gatti left Outokumpu in December 2009.
In addition to his current duties, Mr Pekka Erkkilä, EVP – General Stainless, took over management of the Tornio Works in September 2009. At the end of 2009, Mr Erkkilä resigned from Outokumpu Oyj to join Outotec Oyj as of May 1, 2010 at the latest.
Shares and shareholders
According to the Nordic Central Securities Depository, Outokumpu's largest shareholders by group at the end of 2009 were the State of Finland through Solidium Oy (31.0%), foreign investors (27.4%), Finnish public sector institutions (15.4%), Finnish private households (13.6%), Finnish financial and insurance institutions (6.1%), Finnish corporations (3.4%) and Finnish non-profit organisations (2.5%).
Shareholders that have more than 5% of the shares and votes in Outokumpu Oyj are Solidium Oy (31.0%) and the Finnish Social Insurance Institution (8.1%).
At the year-end, Outokumpu's closing share price was EUR 13.26 (2008: EUR 8.28), up 60%. The average share price during the year was EUR 11.49 (2008: EUR 18.99) with EUR 15.67 (2008: EUR 33.99) as the year's highest price and EUR 7.72 (2008: EUR 6.33) as the year's lowest price. At the year-end, the market capitalisation of Outokumpu Oyj shares totalled EUR 2 413 million (2008: EUR 1 502 million). Share turnover in 2009 was significantly lower than in 2008, with 355.1 million shares being traded on the Nasdaq OMX Helsinki Ltd exchange (2008: 511.1 million). The total value of share turnover in 2009 was EUR 4 079 million (2008: EUR 9 693 million).
Outokumpu's fully paid share capital at the year-end totalled EUR 309 million and consisted of 182 010 542 shares. The average number of shares outstanding during 2009 was 180 825 569.
Annual General Meeting 2009
The 2009 Annual General Meeting (AGM) approved a dividend of EUR 0.50 per share for 2008. Dividends totalling EUR 90 million were paid on April 3, 2009.
The AGM authorised the Board of Directors to decide to repurchase the Group's own shares. The maximum number of shares to be repurchased is 18 000 000, currently representing 9.92% of total number of registered shares. Based on
Outokumpu Annual Report 2009 – Review by the Board of Directors earlier authorisations Outokumpu currently holds 1 040 888 of its own shares. The AGM authorised the Board of Directors to decide to issue shares and to grant special rights entitling to shares. The maximum number of new shares to be issued through the share issue and/or by granting special rights entitling to shares is 18 000 000, and, in addition, the maximum number of treasury shares to be transferred is 18 000 000. The authorisation includes the right to resolve upon directed share issues. These authorisations are valid 12 months or until the next AGM, however no longer than May 31, 2010. To date the authorisations have not been used.
The AGM decided on the number of the Board members, including the Chairman and Vice Chairman, to be eight. Evert Henkes, Ole Johansson, Jarmo Kilpelä, Victoire de Margerie, Anna Nilsson-Ehle, Leena Saarinen and Anssi Soila were re-elected as members of the Board of Directors, and Jussi Pesonen was elected as a new member. The AGM re- elected Ole Johansson as Chairman of the Board and Anssi Soila as Vice Chairman of the Board. The AGM also resolved to form a Shareholders' Nomination Committee to prepare proposals on the composition and remuneration of the Board of Directors for presentation to the next AGM.
At its first meeting, the Board of Directors of Outokumpu appointed two permanent committees consisting of Board members. Anssi Soila (Chairman), Jarmo Kilpelä and Leena Saarinen were elected as members of the Board Audit Committee. Ole Johansson (Chairman), Evert Henkes, Anna Nilsson- Ehle and Jussi Pesonen were elected as members of the Board Nomination and Compensation Committee.
KPMG Oy Ab, Authorised Public Accountants, was re-elected as the Company's auditor for the term ending at the close of the next AGM.
Shareholders' Nomination Committee
Outokumpu's Annual General Meeting of March 24, 2009 decided to establish a Shareholders' Nomination Committee to prepare proposals on the composition of the Board of Directors along with director remuneration for the following Annual General Meeting. The representatives of Outokumpu's three largest shareholders registered in the Finnish book-entry securities system on November 2, 2009, which accepted the assignment. The Shareholders' Nomination Committee of Outokumpu consists of the following three shareholders: Solidium Oy (Kari Järvinen, CEO), The Social Insurance Institution of Finland (Jorma Huuhtanen, Director General) and Ilmarinen Mutual Pension Insurance Company (Harri Sailas, CEO). Kari Järvinen acts as Chairman the Committee. Ole Johansson, the Chairman of Outokumpu's Board of Directors, and Evert Henkes, member of Outokumpu's Board of Directors, serve as expert members. The Shareholders' Nomination Committee is required to submit its proposals to the Board of Directors of the company no later than February 1, 2010.
Corporate governance statement
The statement is presented as a separate report and disclosed together with the financial statements and the report by the Board of Directors.
Events after the review period
According to a seismic research report produced by the Geological Survey of Finland in late 2009, the mineral resources at the Kemi Mine could turn out to be significantly greater than earlier estimates. The intrusion containing Kemi chromium ore extends to a depth of 2–3 kilometres, possibly to four kilometres and the chromitite layer possibly extends to a depth of at least 2–2.5 kilometres or more.
Proven ore reserves at the Kemi Mine total some 37 million tonnes and the quantity of mineral resources totals some 87 million tonnes (estimated to a depth of 1 kilometre). The new information indicates the existence of resources
Outokumpu Annual Report 2009 – Review by the Board of Directors sufficient to allow centuries of mining activity even with doubled annual production volumes (the previous estimate was 70–80 years). Outokumpu's mineral resources will not be updated based on these findings.
Short-term outlook
No major improvement in the underlying demand for stainless steel is yet visible. Distributors' cautious buying behaviour continued over the year-end. During the past few weeks, order intake has however been more encouraging. Lead times on standard grades for mill-deliveries are normal at 6-8 weeks. Inventory levels at distributors in Europe are estimated to be at normal levels. Outokumpu's delivery volumes of stainless steel in the first quarter are expected to be at the same level or slightly higher than in the fourth quarter of 2009 (277 000 tonnes). Base prices began to decline during the fourth quarter 2009 but stabilised around the year-end. Thus, Outokumpu's average base prices for all flat products in the first quarter of 2010 are expected to be 50–100 EUR/tonne lower than the average in the fourth quarter. Currently Outokumpu sees potential for some base price increases.
Outokumpu's underlying operational result in the first quarter is expected to be at the same level or somewhat weaker than in the fourth quarter of 2009. If metal prices remain at current levels, no major raw material-related inventory gains or losses are anticipated. Cash flow is expected to remain negative in the first quarter without any major impact on gearing, which will remain well below the Group's set maximum level of 75%.
Board of Directors' proposal for profit distribution
In accordance with the Board of Directors' established dividend policy, the payout ratio over a business cycle should be at least one-third of the Group's profit for the period with the aim to have stable annual payments to shareholders. In its annual dividend proposal, the Board of Directors will, in addition to financial results, take into consideration the Group's investment and developing needs.
The Board of Directors is proposing to the Annual General Meeting to be held on March 30, 2010 that a dividend of EUR 0.35 per share be paid from the parent company's distributable funds on December 31, 2009 and that any remaining distributable funds be allocated to retained earnings. The suggested dividend record date is April 6, 2010 and the dividend will be paid on April 13, 2010.
According to the Group's financial statements on December 31, 2009, distributable funds of the parent company totalled EUR 850 million. No material changes have taken place in the company's financial position after the balance sheet date and the proposed dividend does not compromise the company's financial standing.
In Espoo, February 2, 2010
Board of Directors
Ole Johansson Anssi Soila Evert Henkes Jarmo Kilpelä Victoire de Margerie Anna Nilsson-Ehle Jussi Pesonen Leena Saarinen
Outokumpu Annual Report 2009 – Review by the Board of Directors Auditors’ report To the Annual General Meeting of Outokumpu Oyj
We have audited the accounting records, the financial statements, the report of the Board of Directors, and the administration of Outokumpu Oyj for the year ended on December 31, 2009. The financial statements comprise the consolidated statement of financial position, income statement, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes to the consolidated financial statements, as well as the parent company's balance sheet, income statement, cash flow statement and notes to the financial statements.
The Responsibility of the Board of Directors and the Chief Executive Officer
The Board of Directors and the Chief Executive Officer are responsible for the preparation of the financial statements and the report of the Board of Directors and for the fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the fair presentation of the parent company's financial statements and the report of the Board of Directors in accordance with laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The Board of Directors is responsible for the appropriate arrangement of the control of the company's accounts and finances, and the Chief Executive Officer shall see to it that the accounts of the company are in compliance with the law and that its financial affairs have been arranged in a reliable manner.
Auditors' Responsibility
Our responsibility is to perform an audit in accordance with good auditing practice in Finland, and to express an opinion on the parent company's financial statements, on the consolidated financial statements and on the report of the Board of Directors based on our audit. Good auditing practice requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements and the report of the Board of Directors are free from material misstatement and whether the members of the Board of Directors of the parent company and the Chief Executive Officer have complied with the Limited Liability Companies Act.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the report of the Board of Directors. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements or of the report of the Board of Directors, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements and the report of the Board of Directors in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and the report of the Board of Directors.
The audit was performed in accordance with good auditing practice in Finland. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion on the Consolidated Financial Statements
In our opinion, the consolidated financial statements give a true and fair view of the financial position, financial performance, and cash flows of the group in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
Outokumpu Annual Report 2009 – Auditors’ report Opinion on the Company's Financial Statements and the Report of the Board of Directors
In our opinion, the financial statements and the report of the Board of Directors give a true and fair view of both the consolidated and the parent company's financial performance and financial position in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The information in the report of the Board of Directors is consistent with the information in the financial statements.
Opinion on the discharge from liability and disposal of distributable funds
The consolidated financial statements and the parent company's financial statements can be adopted and the members of the Board of Directors and the Chief Executive Officer of the parent company can be discharged from liability for the period audited by us. The proposal by the Board of Directors regarding the disposal of distributable funds is in compliance with the Limited Liability Companies Act.
Espoo, February 2, 2010 KPMG OY AB
Mauri Palvi Authorised Public Accountant
Outokumpu Annual Report 2009 – Auditors’ report Consolidated income statement Consolidated income statement
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Income statement
€ million Note 2009 2008
Continuing operations
Sales 3 2 611 5 474
Cost of sales 8 -2 764 -5 276
Gross margin -153 199
Other operating income 6 28 57
Selling and marketing expenses 8 -135 -122
Administrative expenses 8 -126 -134
Research and development expenses 8 -19 -20
Other operating expenses 7 -32 -42
Operating profit -438 -63
Share of results in associated companies 15 -12 -2
Financial income and expenses 10
Interest income 17 20
Interest expenses -38 -74
Market price gains and losses -2 -2
Other financial income 5 11
Other financial expenses -6 -24
Total financial income and expenses -25 -69
Profit before taxes -474 -134
Income taxes 11 142 24
Outokumpu Annual Report 2009 – Consolidated income statement Net profit for the financial year from continuing operations -332 -110
Net profit for the financial year from discontinued operations 4 -4 -79
Net profit for the financial year -336 -189
Attributable to
Equity holders of the Company -336 -189
Minority interest -0 -0
Earnings per share for result attributable to the equity holders of the Company
Earnings per share, € 12 -1.86 -1.05
Diluted earnings per share, € -1.86 -1.04
Earnings per share from continuing operations attributable to the equity holders of the Company
Earnings per share, € -1.83 -0.61
Diluted earnings per share, € -1.83 -0.61
Earnings per share from discontinued operations attributable to the equity holders of the Company
Earnings per share, € -0.02 -0.44
Diluted earnings per share, € -0.02 -0.43
Consolidated statement of comprehensive income
€ million Note 2009 2008
Net profit for the financial year -336 -189
Other comprehensive income
Exchange differences on translating foreign operations 29 -75
Available-for-sale financial assets
Outokumpu Annual Report 2009 – Consolidated income statement Fair value changes during the financial year 34 -37
Reclassification adjustments from other comprehensive income to profit - 5
Income tax relating to available-for-sale financial assets -9 8
Cash flow hedges
Fair value changes during the financial year 23 -65
Reclassification adjustments from other comprehensive income to profit 1 -5
Income tax relating to cash flow hedges -6 18
Net investment hedges
Fair value changes during the financial year 1 13
Income tax relating to net investment hedges -0 -3
Share of other comprehensive income of associated companies 5 -
Other comprehensive income for the financial year, net of tax 77 -140
Total comprehensive income for the financial year -259 -329
Attributable to
Owners of the parent -259 -329
Non-controlling interests -1 -0
Outokumpu Annual Report 2009 – Consolidated income statement Consolidated statement of financial position Consolidated statement of financial position
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Consolidated statement of financial position
€ million Note 2009 2008
ASSETS
Non-current assets
Intangible assets 13 566 584
Property, plant and equipment 14 2 097 2 027
Investments in associated companies 1) 15 152 156
Available-for-sale financial assets 1) 18 98 67
Derivative financial instruments 1) 25 7 9
Deferred tax assets 11 42 37
Trade and other receivables 27
Interest-bearing 1) 140 132
Non interest-bearing 55 55
Total non-current assets 3 157 3 067
Current assets
Inventories 26 1 016 1 204
Available-for-sale financial assets 1) 18 14 8
Derivative financial instruments 1) 25 16 92
Trade and other receivables 27
Interest-bearing 1) 9 25
Non interest-bearing 508 701
Cash and cash equivalents 1) 28 112 224
Total current assets 1 674 2 252
Receivables related to assets held for sale 1) 4 20 22
Outokumpu Annual Report 2009 – Consolidated statement of financial position TOTAL ASSETS 4 850 5 341
EQUITY AND LIABILITIES
Equity attributable to the equity holders of the Company
Share capital 309 308
Premium fund 706 702
Other reserves 37 -13
Retained earnings 1 735 1 984
Net profit for the financial year -336 -189
2 451 2 794
Minority interest 0 1
Total equity 29 2 451 2 795
Non-current liabilities
Long-term debt 1) 32 997 1 170
Derivative financial instruments 1) 25 41 48
Deferred tax liabilities 11 100 216
Pension obligations 30 65 64
Provisions 31 17 28
Trade and other payables 33 1 2
Total non-current liabilities 1 221 1 529
Current liabilities
Current debt 1) 32 652 501
Derivative financial instruments 1) 25 45 54
Income tax liabilities 11 3 5
Provisions 31 26 48
Trade and other payables 33
Interest-bearing 1) 7 26
Non interest-bearing 437 378
Outokumpu Annual Report 2009 – Consolidated statement of financial position Total current liabilities 1 170 1 012
Liabilities related to assets held for sale 1) 4 8 6
TOTAL EQUITY AND LIABILITIES 4 850 5 341
Notes: 1. Included in net interest-bearing debt.
Outokumpu Annual Report 2009 – Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of cash flows
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Consolidated statement of cash flows
€ million Note 2009 2008
Cash flow from operating activities
Net profit for the financial year -336 -189
Adjustments for
Taxes 11 -142 -24
Depreciation and amortisation 13, 14 211 206
Impairments 10, 13, 14 15 30
Change in net realisable value in inventory 26 -97 91
Share of results in associated companies 15 12 2
Gain/loss on sale of intangible and tangible assets 6, 7 -13 -1
Interest income 10 -17 -20
Dividend income 10 -3 -10
Interest expense 10 30 75
Net profit for the financial year of discontinued operations 4 4 79
Other adjustments -4 138
-4 565
Change in working capital
Change in trade and other receivables 254 336
Change in inventories 291 418
Change in trade and other payables 41 -358
Change in provisions -38 -23
548 373
Dividends received 3 12
Interest received 8 8
Interest paid -57 -77
Outokumpu Annual Report 2009 – Consolidated statement of cash flows Income taxes paid 36 -29
Net cash from operating activities 198 664
Cash flow from investing activities
Acquisition of subsidiaries, net of cash 5 - -204
Purchases of available-for-sale financial assets 18 -2 -1
Purchases of property, plant and equipment 14 -209 -306
Purchases of intangible assets 13 -21 -9
Proceeds from disposal of subsidiaries, net of cash 4, 5 - 49
Proceeds from sale of property, plant and equipment 14 10 8
Proceeds from sale of intangible assets 13 7 23
Change in other long-term receivables -2 0
Net cash from investing activities -216 -440
Cash flow before financing activities -19 223
Cash flow from financing activities
Share options exercised 4 1
Borrowings of long-term debt 69 341
Repayments of long-term debt -345 -229
Change in current debt 212 24
Borrowings of finance lease liabilities 61 1
Repayments of finance lease liabilities -5 -7
Dividends paid -90 -216
Proceeds from the sale of other financial assets 18 0 0
Other financing cash flow -1 3
Net cash from financing activities -97 -83
Net change in cash and cash equivalents -115 141
Cash and cash equivalents at the beginning of the financial year 224 86
Outokumpu Annual Report 2009 – Consolidated statement of cash flows Foreign exchange rate effect on cash and cash equivalents 3 -5
Net change in cash from discontinued operations 4 0 2
Net change in cash and cash equivalents -115 141
Cash and cash equivalents at the end of the financial year 28 112 224
Cash flows presented for continuing operations.
Outokumpu Annual Report 2009 – Consolidated statement of cash flows Consolidated statement of changes in equity Consolidated statement of changes in equity
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Consolidated statement of changes in equity
Attributable to the equity holders of the Company
Cumulative Non- Share Premium OtherFair value Treasury translation Retained controlling Total € million capital fund reserves reserves shares differences earnings interests equity
Equity on Jan. 1, 2008 308 701 16 57 -27 -82 2 364 - 3 337
Total comprehensive income for the period - - -0 -85 - -56 -189 1 -329
Transfers within equity - - 0 - - - -0 - -
Dividends ------216 - -216
Share-based payments ------2 - 2
Share options exercised 0 1 ------1
Equity on Dec. 31, 2008 308 702 15 -28 -27 -138 1 961 1 2 795
Total comprehensive income for the period - - - 50 - 28 -336 -0 -259
Transfers within equity - - -0 - - - 0 - -
Dividends ------90 - -90
Share-based payments - - - - 2 - -1 - 1
Share options exercised 1 3 ------4
Equity on Dec. 31, 2009 309 706 15 22 -25 -110 1 534 0 2 451
Outokumpu Annual Report 2009 – Consolidated statement of changes in equity Notes to the consolidated financial statement Notes to the consolidated financial statements
Notes to the consolidated financial statements are presented in the PDF file below. Notes are also available in the download centre of this report.
Link to PDF
Link to Download centre
Outokumpu Annual Report 2009 – Notes to the consolidated financial statement Key financial figures of the Group Key financial figures of the Group
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Key financial figures of the Group
2005 2006 2007 2008 2009
Scope of activity
Sales € million 5 016 6 154 6 913 5 474 2 611
- change in sales % -2.1 22.7 12.3 -20.8 -52.3
- exports from and sales outside Finland, of total sales % 94.2 94.4 95.1 95.5 94.6
Capital employed on Dec. 31 € million 3 599 4 371 4 125 3 867 3 634
Operating capital on Dec. 31 € million 3 756 4 553 4 340 4 046 3 692
Capital expenditure € million 164 187 190 544 245
- in relation to sales % 3.3 3.0 2.8 9.9 9.4
Depreciation and amortisation € million 207 221 204 206 211
Research and development costs € million 22 17 18 20 19
- in relation to sales % 0.4 0.3 0.3 0.4 0.7
Personnel on Dec. 31 8 963 8 159 8 108 8 471 7 606
- average for the year 9 579 8 505 8 270 8 551 7 941
Profitability
Operating profit € million 57 824 589 -63 -438
- in relation to sales % 1.1 13.4 8.5 -1.2 -16.8
EBITDA € million 342 1 048 790 149 -212
Share of results of associated companies € million 1 8 4 -2 -12
Outokumpu Annual Report 2009 – Key financial figures of the Group Profit before taxes € million -8 784 798 -134 -474
- in relation to sales % -0.2 12.7 11.5 -2.4 -18.2
Net profit for the period from continuing operations € million -24 606 660 -110 -332
Net profit for the period from discontinued operations € million -339 357 -18 -79 -4
Net profit for the financial year € million -363 963 641 -189 -336
- in relation to sales % -7.2 15.7 9.3 -3.5 -12.9
Return on equity % -15.9 37.5 20.0 -6.2 -12.8
Return on capital employed % 1.3 20.7 13.9 -1.6 -11.7
Return on operating capital % 1.3 19.8 13.2 -1.5 -11.3
Financing and financial position
Liabilities € million 3 355 3 270 2 521 2 541 2 391
Net interest-bearing debt € million 1 537 1 300 788 1 072 1 183
- in relation to sales % 30.6 21.1 11.4 19.6 45.3
Net financial expenses € million 67 48 -206 69 25
- in relation to sales % 1.3 0.8 -3.0 1.3 0.9
Net interest expenses € million 65 62 58 54 22
- in relation to sales % 1.3 1.0 0.8 1.0 0.8
Interest cover 0.9 13.6 14.9 -1.5 -21.0
Share capital € million 308 308 308 308 309
Other equity € million 1 754 2 763 3 029 2 486 2 142
Equity-to-assets ratio % 38.2 47.9 56.5 52.4 50.6
Debt-to-equity ratio % 74.5 42.3 23.6 38.4 48.2
Net cash generated from operating activities 1) € million 465 -22 658 664 198
Outokumpu Annual Report 2009 – Key financial figures of the Group Dividends € million 81 199 216 90 63 2)
Notes: 1. Cash flows presented for continuing operations. 2. The Board of Directors' proposal to the Annual General Meeting
Outokumpu Annual Report 2009 – Key financial figures of the Group Quarterly information Quarterly information
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Quarterly information
Income statement by quarter 1)
€ million I/08 II/08 III/08 IV/08 2008 I/09 II/09 III/09 IV/09 2009
Continuing operations
Sales
General Stainless 1 304 1 222 933 687 4 147 476 501 496 592 2 065
- of which intersegment sales 284 337 216 157 993 97 100 107 117 421
Specialty Stainless 786 778 630 512 2 705 371 278 258 332 1 239
- of which intersegment sales 124 120 85 78 407 75 67 64 87 293
Other operations 64 63 69 62 258 66 58 56 62 243
- of which intersegment sales 57 57 61 61 235 61 52 52 55 221
Intra-group sales -465 -514 -362 -295 -1 636 -233 -220 -224 -259 -935
The Group 1 689 1 549 1 270 966 5 474 679 617 587 728 2 611
Operating profit
General Stainless 81 125 -35 -177 -6 -157 -52 -38 -12 -259
Specialty Stainless 42 44 -63 -123 -101 -82 -37 -21 -10 -149
Other operations -20 4 29 25 38 -12 -5 -4 -9 -31
Intra-group items -3 1 3 4 6 2 0 -3 2 1
The Group 100 174 -66 -271 -63 -249 -94 -65 -29 -438
Share of results in associated companies 0 1 -2 -1 -2 -3 -0 -6 -3 -12
Financial income and expenses -20 -8 -14 -26 -69 0 -11 -11 -4 -25
Profit before taxes 80 166 -82 -298 -134 -252 -105 -81 -36 -474
Income taxes -19 -36 9 71 24 64 20 26 32 142
Net profit for the period from continuing operations 61 130 -73 -228 -110 -188 -85 -55 -4 -332
Outokumpu Annual Report 2009 – Quarterly information Net profit for the period from discontinued operations 2 -74 -1 -5 -79 0 -2 -1 -2 -4
Net profit for the period 63 56 -74 -233 -189 -187 -87 -56 -6 -336
Attributable to:
Equity holders of the Company 63 56 -74 -233 -189 -187 -87 -55 -7 -336
Minority interest - - - -0 -0 -0 -0 -0 0 -0
Stainless steel deliveries by quarter 2)
1 000 tonnes I/08 II/08 III/08 IV/08 2008 I/09 II/09 III/09 IV/09 2009
Cold rolled 228 192 177 141 739 133 145 124 143 545
White hot strip 120 94 64 51 330 59 69 66 69 263
Quarto plate 33 35 27 25 120 19 18 14 16 67
Tubular products 19 19 16 16 70 16 13 12 12 53
Long products 15 15 15 11 55 10 9 11 10 40
Semi-finished products 34 35 25 16 109 10 14 12 27 63
Total deliveries 449 391 323 261 1 423 247 268 238 277 1 030
Notes: 1. Full year figures are audited. 2. Figures are not audited.
Outokumpu Annual Report 2009 – Quarterly information Share-related key figures Share-related key figures
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Share-related key figures
2005 2006 2007 2008 2009
Earnings per share € -2.01 5.31 3.52 -1.05 -1.86
Cash flow per share 1) € 2.57 -0.12 3.64 3.68 1.09
Equity per share € 11.31 16.87 18.53 15.50 13.54
Dividend per share € 0.45 1.10 1.20 0.50 0.35 2)
Dividend payout ratio % neg. 20.7 33.9 neg. neg.
Dividend yield % 3.6 3.7 5.7 6.0 2.6
Price/earnings ratio neg. 5.6 6.0 neg. neg.
Development of share price
Average trading price € 11.89 19.77 24.94 18.99 11.49
Lowest trading price € 9.63 12.60 18.48 6.33 7.72
Highest trading price € 14.72 30.39 31.65 33.99 15.67
Trading price at the end of the period € 12.55 29.66 21.21 8.28 13.26
Change during the period % -4.6 136.3 -28.5 -61.0 60.1
Change in the OMXH index during the period % 31.1 17.9 20.5 -53.4 19.5
Market capitalisation at the end of the period 3) € million 2 272 5 369 3 820 1 492 2 400
Outokumpu Annual Report 2009 – Share-related key figures Development in trading volume
Trading volume 1 000 shares 179 289 319 345 516 489 511 080 355 102
In relation to weighted average number of shares % 99.0 176.4 285.5 283.6 196.4
Adjusted average number of shares 3) 181 031 415 181 033 168 180 922 336 180 184 845 180 825 569 4)
Number of shares at the end of the period 3) 181 031 952 181 031 952 180 103 193 180 233 280 180 969 654
Notes: 1. Cash flows presented for continuing operations. 2. The Board of Directors’ proposal to the Annual General Meeting. 3. Excluding treasury shares. 4. The average number of shares for 2009 diluted with the 2003A, 2003B and 2003C options was 180 970 017. These have a diluting effect of 0.00 euros on earnings per share in 2009.
Outokumpu Annual Report 2009 – Share-related key figures Definitions of key financial reports Definitions of key financial figures
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Definitions of key financial figures
Capital employed = Total equity + net interest-bearing debt
Operating capital = Capital employed + net tax liability
Research and Research and development expenses in the income statement (including expenses = development costs covered by grants received)
EBITDA = Operating profit before depreciation, amortisation and impairments
Total equity (average for the period) Return on equity = × 100 Net profit for the financial year
Return on capital Capital employed (average for the period) = × 100 employed (ROCE) Operating profit
Return on operating Operating profit = × 100 capital (ROOC) Operating capital (average for the period)
Net interest-bearing = Total interest-bearing debt – total interest-bearing assets debt
Profit before taxes + net interest expenses Interest cover = Net interest expenses
Total equity Equity-to-assets ratio = × 100 Total assets – advances received
Net interest-bearing debt Debt-to-equity ratio = × 100 Total equity
Net profit for the financial year attributable to the equity holders Earnings per share = Adjusted average number of shares during the period
Net cash generated from operating activities Cash flow per share = Adjusted average number of shares during the period
Equity attributable to the equity holders Equity per share = Adjusted number of shares at the end of the period
Dividend for the financial year Dividend per share = Adjusted number of shares at the end of the period
Dividend for the financial year Dividend payout ratio = × 100 Net profit for the financial year attributable to the equity holders
Dividend per share Dividend yield = × 100 Adjusted trading price at the end of the period
Price/earnings ratio Adjusted trading price at the end of the period = (P/E) Earnings per share
Average trading price = EUR amount traded during the period
Outokumpu Annual Report 2009 – Definitions of key financial reports Adjusted number of shares traded during the period
Market capitalisation = Number of shares at the end of the period × trading price at the end of the period at end of the period
Number of shares traded during the period, and in relation to the weighted average Trading volume = number of shares during the period
Outokumpu Annual Report 2009 – Definitions of key financial reports Income statement of the parent company Income statement of the parent company
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Income statement of the parent company
€ million 2009 2008
Sales 216 228
Cost of sales -122 -145
Gross margin 94 83
Other operating income 1 19
Selling and marketing expenses -55 -45
Administrative expenses -51 -62
Research and development expenses -2 -3
Other operating expenses -350 -64
Operating profit -364 -71
Financial income and expenses 379 367
Profit before extraordinary items 15 296
Extraordinary items - 40
Profit before appropriations and taxes 15 336
Appropriations
Change in depreciation difference -0 0
Income taxes 1 -2
Outokumpu Annual Report 2009 – Income statement of the parent company Profit for the financial year 16 334
The parent company’s financial statements have been prepared in accordance with Finnish accounting standards (FAS ). The parent company’s complete financial statements (available only in Finnish) can be read on the company’s internet pages www.outokumpu.com.
Outokumpu Annual Report 2009 – Income statement of the parent company Balance sheet of the parent company Balance sheet of the parent company
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Balance sheet of the parent company
€ million 2009 2008
ASSETS
Non-current assets
Intangible assets 19 22
Property, plant and equipment 55 39
Financial assets
Shares in Group companies 3 380 4 046
Loan receivables from Group companies 488 460
Shares in associated companies 18 18
Other shares and holdings 21 19
Other financial assets 137 130
4 044 4 675
Total non-current assets 4 118 4 735
Current assets
Current receivables
Interest-bearing 175 133
Non interest-bearing 89 523
264 656
Cash and cash equivalents 64 164
Total current assets 329 820
TOTAL ASSETS 4 447 5 555
Outokumpu Annual Report 2009 – Balance sheet of the parent company EQUITY AND LIABILITIES
Shareholders' equity
Share capital 309 308
Premium fund 712 709
Retained earnings 834 590
Profit for the financial year 16 334
1 872 1 942
Untaxed reserves
Accumulated depreciation difference 1 0
Liabilities
Non-current liabilities
Interest-bearing 903 1 469
Non interest-bearing 1 2
904 1 470
Current liabilities
Interest-bearing 1 558 1 947
Non interest-bearing 113 195
1 670 2 142
Total liabilities 2 574 3 613
TOTAL EQUITY AND LIABILITIES 4 447 5 555
Outokumpu Annual Report 2009 – Balance sheet of the parent company Cash flow statements of the parent company Cash flow of the parent company
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Cash flow statement of the parent company
€ million 2009 2008
Cash flow from operating activities
Profit for the financial year 16 334
Adjustments for
Taxes -1 2
Depreciation and amortisation 7 7
Impairments 346 2
Profit and loss on sale of property, plant and equipment 0 1
Interest income -33 -55
Dividend income -411 -460
Interest expenses 56 145
Change in provisions 0 0
Group contributions - -40
Exchange gains and losses 25 -41
Loss on the sale of copper tube business - 57
Other adjustments 1 1
-9 -379
Change in working capital
Change in trade and other receivables 80 -88
Change in trade and other payables -57 117
22 29
Dividends received 411 460
Interest received 27 43
Interest paid -80 -143
Income taxes paid 24 14
381 374
Net cash from operating activities 410 358
Outokumpu Annual Report 2009 – Cash flow statements of the parent company Cash flow from investing activities
Acquisition of subsidiaries and other shares and holdings -2 -341
Purchases of property, plant and equipment -2 -11
Purchases of intangible assets -26 -26
Proceeds from disposal of subsidiaries and other disposals 320 57
Disposals of property, plant and equipment 7 0
Disposals of intangible assets 0 22
Change in loan receivables -30 176
Net cash from investing activities 267 -123
Cash flow before financing activities 677 236
Cash flow from financing activities
Borrowings of long-term debt 61 311
Repayments of long-term debt -683 -130
Change in current debt -352 -41
Dividends paid -90 -216
Cash flow from group contributions 326 79
Shares subscribed with options 4 1
Other financing cash flow -42 -115
Net cash from financing activities -776 -113
Net change in cash and cash equivalents -99 123
Net change in cash and cash equivalents in the balance sheet -99 123
Outokumpu Annual Report 2009 – Cash flow statements of the parent company Statement of changes in equity the parent company Statement of the changes in equity of parent company
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Statement of changes in equity of the parent company
€ million Share capital Premium fund Retained earnings Total equity
Equity on Jan. 1, 2008 308 708 807 1 823
Profit for the financial year - - 334 334
Dividends - - -216 -216
Shares subscribed with options 0 1 - 1
Equity on Dec. 31, 2008 308 709 924 1 942
Profit for the financial year - - 16 16
Dividends - - -90 -90
Shares subscribed with options 1 3 - 4
Equity on Dec. 31, 2009 308 712 850 1 872
Distributable funds on Dec. 31
€ million 2009 2008
Retained earnings 834 590
Profit for the financial year 16 334
Distributable funds on Dec. 31 850 924
Outokumpu Annual Report 2009 – Statement of changes in equity of the parent company Contact us Contact Outokumpu
Outokumpu Oyj
Corporate Management Riihitontuntie 7 B / P.O. Box 140 02201 ESPOO Finland
Tel. +358 9 4211 Fax +358 9 421 3888
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Investor relations
Päivi Laajaranta IR Assistant Tel. +358 9 421 4070, Send e-mail to Päivi Laajaranta Päivi Laajaranta coordinates meeting requests.
Ingela Ulfves Vice President – Investor Relations and Financial Communications Tel. +358 9 421 2438, Send e-mail to Ingela Ulfves
Päivi Lindqvist Senior Vice President – Communications and IR Tel. +358 9 421 2432, Send e-mail to Päivi Lindqvist
Corporate responsibility
Liisa Jalanko Vice President – Corporate responsibility Tel. +358 9 421 3265 Send e-mail to Liisa Jalanko
Environmental issues
Juha Ylimaunu Senior Vice President – Environment, health, safety and quality Tel. +358 9 421 2688 Send e-mail to Juha Ylimaunu
Outokumpu Annual Report 2009 – Contact us Human resources issues
Heli Alén Vice President – Human Resources Development Tel. +358 9 421 2603 Send e-mail to Heli Alén
Financial issues
Mika Pyyskänen Senior Vice President – Corporate Controller Tel. +358 421 5512 Send e-mail to Mika Pyyskänen
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Outokumpu Annual Report 2009 – Contact us Notes to the consolidated financial statements
1. Corporate information
Outokumpu Oyj is a Finnish public limited liability company organised in a wide range of industries use our products and services under the laws of Finland and domiciled in Espoo. The parent company, worldwide. In 2009 Outokumpu Oyj and its subsidiaries in continuing Outokumpu Oyj, has been listed on the NASDAQ OMX Helsinki since operations (together “the Outokumpu Group” or “the Group”) have 1988. A copy of the consolidated financial statements is available at the been organised into two segments: General Stainless and Specialty Group’s website www.outokumpu.com, from Outokumpu Oyj / Corporate Stainless. In 2009, Outokumpu operated in more than 30 countries and Communications, Riihitontuntie 7 B, P.O. Box 140, 02201 Espoo, Finland employed some 7 900 people. The Group’s sales amounted to EUR 2.6 or via e-mail [email protected]. billion, of which 95% was generated outside Finland. Outokumpu is an international stainless steel company. Customers
2. Accounting principles for the consolidated accounts
Basis of preparation These changes have not had material impact on Outokumpu’s financial statements for 2009 The consolidated financial statements of Outokumpu have been prepared in accordance with International Financial Reporting Adoption of new and amended standards and interpretations Standards (IFRS) adopted by the European Union. The consolidated financial statements are presented in millions of euros and have been Outokumpu will adopt in 2010 the following new or amended standards prepared under the historical cost conventions, unless otherwise stated and interpretations: in the accounting principles. All figures presented have been rounded and consequently the sum of individual figures can deviate from the Amended IFRS 3 Business Combinations presented sum figure. Key figures have been calculated using exact Changes extended the scope of IFRS 3 and have figures. an impact on the outcome of the business The consolidated financial statements of Outokumpu for 2009 have combinations, for example the amount of goodwill been prepared on going concern basis. to be recognised. Contingent purchase price is valued at fair value and any subsequent change in it Applied amended standards and interpretations in 2009 will be booked to income statement. Expenses relating to the acquisition will be recognised directly Outokumpu has applied the IFRS 8 – Operating segments as of January to income statement instead of capitalisation. 1, 2009. According to IFRS 8, segment information should be based on Amended IAS 27 Consolidated and Separate Financial Statements management’s internal reporting structure and accounting principles. Amendments in the standard have changed the Outokumpu’s segment information has already earlier been based accounting treatment of acquisitions and disposals, on management reporting structure and therefore the operating which take place in stages. segments are the same as they were previously, General Stainless and Amended IAS 39 Financial Instruments: Recognition Specialty Stainless. Otherwise this standard has mainly impacted the and measurement presentation of financial statements. The amendment provides clarification in relation to hedge accounting. It clarifies the hedging of In addition, Outokumpu has adopted the following amended standards one-sided risk and the inflation risk of financial as of January 1, 2009: assets and liabilities. Amended IFRS 2 Share-based payments IFRS 2 Share-based Payments – Vesting Conditions and Amended IFRS 2 provides additional guidance Cancellations (Amendment) on how share-based payments between Group IFRS 7 Financial Instruments: Disclosures (Amendments) companies should be recognised. IAS 1 Presentation of financial statements IFRIC 9 Reassessment of Embedded Derivatives and IAS 27 Consolidated and Separate Financial Statements - IAS 39 Financial Instruments: Recognition and Cost of an Investment in a Subsidiary, Jointly Controlled Measurement – Embedded Derivatives Entity or Associate (Amendments) (Amendments) IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of IFRIC 17 Distribution of Non-cash Assets to owners Financial Statements – Puttable Financial Instruments and IFRIC 18 Transfer of Assets from Customers Obligations Arising on Liquidation (Amendments) In addition, Outokumpu will apply Annual improvements to IFRSs. Amended standard IAS 1 – Presentation of financial statements has impacted the presentation of income statement and statement of Outokumpu will adopt the following amended standards and new changes in equity and thus changed the presentation of financial interpretations in 2011 or later. statements. Other amended standards had no material impact on Outokumpu’s financial statements for 2009. IAS 32 Financial Instruments: Presentation IAS 24 Related party disclosures Outokumpu has adopted the following new interpretations in 2009: IFRS 9 Financial Instruments: Recognition and measurement IFRIC 14 Prepayments of a minimum funding requirement IFRIC 13 Customer Loyalty Programmes IFRIC 19 Extinguishing Financial Liabilities with Equity IFRIC 15 Agreements for the Construction of Real Estate Instruments IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRIC 18 Transfers of Assets from Customers Outokumpu investigates the impacts of the new standards to Annual improvements to IFRSs consolidated financial statements during 2010.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 2. Accounting principles for the consolidated accounts
Use of estimates Segment reporting
The preparation of the financial statements in accordance with IFRS An operating segment is a component of the Group that engages requires management to make estimates and assumptions that affect in business activities from which it may earn revenues and incur the reported amounts of assets and liabilities, as well as the disclosure expenses, and for which discrete financial information is available. of contingent assets and liabilities at the date of the financial statements, Outokumpu’s reportable operating segments are General Stainless and the reported amounts of income and expenses during the reporting and Specialty Stainless. Pricing of inter-segment transactions is based period. Accounting estimates are employed in the financial statements on arm’s length prices. Operating segments are determined based on to determine reported amounts, including the realisability of certain differences in product range and information provided internally to the assets, the useful lives of tangible and intangible assets, income taxes, CEO who is Outokumpu’s Chief Operating Decision Maker. Operating inventories, provisions, pension obligations, impairment of goodwill segments’ operating profit is reported to the CEO regularly in order for and other items. The basis for the estimates is described in more detail him to review its performance and make decisions about resources to in these accounting principles and in connection with the relevant be allocated to the segment. Operating profit is defined in management disclosure to the financial statement. Although these estimates are based reporting in similar way as in these accounting principles. on management’s best knowledge of current events and actions, actual Other operations consist mainly of such business development results may differ from the estimates. and Corporate Management expenses that are not allocated to the businesses.
Principles of consolidation Foreign currency transactions The consolidated financial statements include the parent company Outokumpu Oyj and all subsidiaries where over 50% of the subsidiary’s Items of each subsidiary included in the consolidated financial statements voting rights are controlled directly or indirectly by the parent company, are measured using the currency that best reflects the economic or the parent company is otherwise in control of the company. substance of the underlying events and circumstances relevant to Associated companies, where Outokumpu holds voting rights of that subsidiary (“the functional currency”). The consolidated financial 20–50% and in which Outokumpu has significant influence, but not statements are presented in euros, which is the functional currency of the control, over the financial and operating policies, are included in the parent company. Group companies’ foreign currency transactions are consolidated financial statements using the equity method. When translated into functional currencies using the exchange rates prevailing Outokumpu’s share of losses exceeds the interest in the associated at the dates of the transactions. Receivables and liabilities in foreign company, the carrying amount is reduced to nil and recognition of currencies are translated into functional currencies at the exchange further losses is discontinued except to the extent that the Group has rates prevailing at the balance sheet date. Foreign exchange gains and incurred obligations in respect of the associated companies. The interest losses resulting from the settlement or translation of monetary interest- in an associated company is the carrying amount of the investment bearing assets and liabilities denominated in foreign currencies and under the equity method together with any long-term interest that, in related derivatives are recognised in financial income and expenses in substance, forms part of the investor’s net investment in the associated the income statement. Foreign exchange differences arising in respect of company. other financial instruments are included in operating profit under sales, Acquired companies are accounted for using the purchase method purchases or other income and expenses. Income statements and cash according to which the assets and liabilities of the acquired company flows of subsidiaries, whose functional and reporting currencies are not are measured at fair value at the date of acquisition. The cost of the euro, are translated into euros at the average exchange rates during goodwill is the excess of the cost of the business combination over the financial period. Their balance sheets are translated at the exchange the acquirer’s interest in the net fair value of the identifiable assets, rates prevailing at the balance sheet date and the translation differences liabilities and contingent liabilities. Subsidiaries acquired during the are entered in other comprehensive income. When a subsidiary is sold, financial year are included in the consolidated financial statements from accumulated translation differences are recognised are reclassified from the date of their acquisition and disposed subsidiaries are included up other comprehensive income to income statement as part of the gain or to their date of sale. loss on the sale. All intra-group transactions, receivables, liabilities and unrealised margins, as well as distribution of profits within the Group, are eliminated. Revenue recognition Minority interest is presented separately from the net profit and disclosed as a separate item in the equity. Sales are recognised after the significant risks and rewards that are connected with ownership have been transferred to the buyer, and the Group retains neither a continuing managerial involvement to the degree Discontinued operations usually associated with ownership, nor effective control of those goods. Usually this means that sales are recorded upon delivery of goods to A discontinued operation results from a decision, pursuant to a single customers in accordance with agreed terms of delivery. disposal plan, to divest an operation comprising a separate major line Outokumpu ships stainless steel products to customers under a of business for which the assets, liabilities and net financial results may variety of delivery terms. The used terms are based on Incoterms 2000, be distinguished physically, operationally and for financial reporting terms of trade published and defined by the International Chamber of purposes. The result from discontinued operations is presented in the Commerce Terms of Trade. income statement as a separate item after the profit from continuing The most common delivery terms used by Outokumpu are “C” terms, operations. Comparative income statement figures are restated whereby the Group arranges and pays for the carriage and certain accordingly. Comparative balance sheet items are not restated but other costs, though the Group ceases to be responsible for the goods presented separately from the assets and liabilities of continuing once they have been handed over to the carrier in accordance with the operations from the date they have been classified as discontinued relevant term. Sale is recognised when goods are handed to the carrier. operations. Less frequently are used “D” terms, under which the Group is obliged
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 2. Accounting principles for the consolidated accounts to deliver the goods to the buyer at the agreed destination, usually the Other intangible assets are amortised on a straight line basis over their buyer’s premises, in which case sales are recognised when the goods expected useful lives. Periods of amortisation used for intangible assets are delivered to the buyer. Also “F” terms, where the buyer arranges and are the following: pays for the carriage, thus sale is recognised when the goods are handed Intangible rights up to 20 years over to the carrier contracted by the buyer, are less frequently used. Software up to 10 years Revenues from services are recorded when the service has been performed. Sales are shown net of indirect sales taxes and discounts. Property, plant and equipment
Research and development Property, plant and equipment acquired by the Group companies are stated at historical cost, except the assets of acquired companies that Research and development costs are expensed as they are incurred, were stated at their fair values at the date of acquisition. The carrying except for qualifying development costs, which are capitalised when it value of the property, plant and equipment in the balance sheet is probable that a development project will generate future economic represents the cost less accumulated depreciation and any impairment benefits, and certain criteria, including commercial and technological charges. Interest costs on borrowings to finance the construction of feasibility, have been met. Capitalised development expenses, property, plant and equipment are capitalised during the period of time comprising materials, supplies, direct labour and related overhead that is required to complete and prepare the asset for its intended use. costs are amortised on a systematic basis over their expected useful Property, plant and equipment are depreciated on a straight line lives. basis over their expected useful lives, which are the following: Buildings 25–40 years Heavy machinery 15–20 years Income taxes Light machinery and equipment 5–15 years
The Group income tax expense includes taxes of the Group Land is not depreciated and mine properties are depreciated using the companies based on taxable profit for the period, together with units-of-production method based on the depletion of ore reserves. tax adjustments for previous periods and the change in deferred Expected useful lives of non-current assets are reviewed at balance income taxes. The income tax effects of items recognised in other sheet date and, where they differ significantly from previous estimates, comprehensive income are similarly recognised. The share of depreciation periods are changed accordingly. Ordinary repairs and results in associated companies is reported in the income statement maintenance costs are charged to the income statement during the as calculated from net profit and thus including the income tax financial year in which they are incurred. The cost of major renovations charge. Deferred income taxes are stated using the balance sheet is included in the asset’s carrying amount when it is probable that the liability method, as measured with enacted tax rates, to reflect the Group will derive future economic benefits in excess of the originally net tax effects of all temporary differences between the financial assessed standard of performance of the existing asset. Major reporting and tax bases of assets and liabilities. The main temporary renovations are depreciated on a straight line basis over the useful differences arise from the depreciation difference on property, plant lives of the related assets. Gains and losses on sales and disposals and equipment, fair valuation of net assets in acquired companies, on property, plant and equipment are determined by comparing the fair valuation of available-for-sale financial assets and derivatives, received proceeds with the carrying amount and are presented in other intra-group inventory profits, pension and other provisions, untaxed operating income or expenses and thus included in operating profit. reserves and tax losses and credits carried forward. Deductible temporary differences are recognised as a deferred tax asset to the extent that it is probable that future taxable profits will be available, Government grants against which the deductible temporary difference can be utilised. Government or other grants are recognised as income on a systematic basis over the periods necessary to match them with the related costs, Goodwill and other intangible assets which they are intended to compensate. Investment grants are recognised as revenue on a systematic basis over the useful life of the asset as a Goodwill arising on an acquisition represents the excess of the cost of reduced depreciation expense. In the balance sheet, investments grants the acquisition over the fair value of the net identifiable assets, liabilities are deducted from the value of the asset they relate to. and contingent liabilities acquired. Goodwill is stated at cost and is not amortised, but tested annually for impairment. In respect of associated companies, the carrying amount of goodwill is included in the carrying Impairments amount of the investment. Other intangible assets include customer relations, capitalised Property, plant and equipment and other non-current assets, including development expenses, patents, copyrights, licenses and software. goodwill and intangible assets, are reviewed for potential impairment Other intangible assets are stated at cost. Other intangible assets whenever events or changes in circumstances indicate that the carrying acquired in a business combination are valued at fair value at the date amount of an asset may not be recoverable. Goodwill is tested at of acquisition. least annually. For the purposes of assessing impairment, assets are Development costs or acquisition costs of new software clearly grouped at the lowest cash generating unit level for which there are associated with an identifiable product, which will be controlled by separately identifiable, mainly independent, cash inflows and outflows. the Group and has probable economic benefit beyond one year, are An impairment loss is the amount by which the carrying amount of recognised as an intangible asset and depreciated over the software’s the assets exceeds the recoverable amount. The recoverable amount expected useful life. An intangible asset is recognised only if it is is the asset’s value in use. The value in use is determined by reference probable that the future economic benefits that are attributable to the to discounted future net cash flows expected to be generated by the asset will flow to the Group, and the cost of the asset can be measured asset. A previously recognised impairment loss is reversed only if there reliably. All other expenditure is expensed as incurred. has been a change in the estimates used to determine the recoverable
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 2. Accounting principles for the consolidated accounts amount. However, the reversal must not cause that the adjusted value is deducted from the carrying value. The impairment shall be based on higher than the carrying amount that would have been determined if no evidence that it is probable that the Group will not be able to collect the impairment loss had been recognised in prior years. Impairment losses loan receivable according to initial terms. Financial assets and liabilities recognised for goodwill are not reversed. at fair value through profit and loss are recognised at the trade date and measured at fair value. All derivatives, including embedded derivatives, are initially recognised Leases at fair value on the trade date, and are subsequently re-measured at fair value. Determination of fair values of the derivatives is based on Leases of property plant and equipment, in which the Group has quoted market prices and rates as well as discounting of cash flows. substantially all the rewards and risks of ownership, are classified Fair values of currency forwards, cross-currency and interest as finance leases. Finance lease liabilities are capitalised at the rate swaps, metal forwards and emission allowance derivatives are commencement of the lease term at the lower of the fair value of the determined by discounting the future nominal cash flows with relevant leased property or the estimated present value of the underlying lease interest rates and then converting the discounted cash flows to the payments. Each lease payment is allocated between the capital liability base currency using spot rates. Fair values of electricity forwards are and finance charges, so as to achieve a constant interest rate on the determined by discounting the base currency denominated values with finance balance outstanding. The corresponding rental obligations, net relevant interest rates. The fair value of currency, interest rate and metal of finance charges, are included in interest-bearing liabilities with the options is determined by utilising commonly applied option valuation interest element of the finance charge being recognised in the income models. Optionalities included in electricity derivatives are measured at statement over the lease period. Property, plant and equipment acquired fair value with own valuation models. under finance lease contracts are depreciated over the shorter of the Part of derivatives and other financial instruments may be designated useful life of the asset or lease period. Leases of assets where the lessor as hedging instruments, in which case hedge accounting is applied. If retains all the risks and benefits of ownership are classified as operating hedge accounting is not applied, fair value changes of derivatives are leases. Payments made there under, and under rental agreements, are recognised in other income and expenses. However, if the derivative is expensed on a straight-line basis over the lease periods. assigned to financing activities, the fair value changes are recognised in Leases of property, plant and equipment where the Group has financial income and expenses. In the case hedge accounting is applied, substantially transferred all the rewards and risks of ownership to the the accounting for hedging instruments is dependent on the particular lessee are classified as finance leases. Upon initial recognition, the nature of the hedging relationship. finance lease asset is measured at the lower of the fair value of the Hedging programmes are documented according to the requirement leased property or the estimated present value of the underlying lease of IAS 39 and designated hedging instruments are subject to prospective payments and recognised in interest-bearing receivables. Interest and retrospective testing of effectiveness. Fair value changes of income from the finance lease asset is booked to income statement derivatives, which are assigned to hedge forecast transactions (cash flow so as to achieve a constant interest rate on the finance balance hedging), are recognised in other comprehensive income to the extent outstanding. that the hedge is effective. Such accumulated fair value changes are released into income in the period when the hedged cash flow affects income. The ineffective portion of the hedging instrument is recognised Financial instruments immediately in income. Fair value changes of financial instruments, which are assigned to Financial instruments are classified as loans and receivables, held- hedge translation risk related to net investments in foreign operations, to-maturity investments, available-for-sale financial assets, financial are recognised in other comprehensive income to the extent that the liabilities at amortised cost and financial assets and liabilities at fair value hedge is effective. Accumulated gains and losses from hedges are through profit and loss. Equity securities are classified as available- recognised as income only if the hedged subsidiary is sold or liquidated. for-sale financial assets and convertible loan receivables are classified The ineffective portion of the gain or loss of the hedging instrument is as financial assets at fair value through profit and loss. Liquid interest- recognised in financial income and expenses. bearing securities are classified as financial assets at fair value and All recognised fair value changes to other comprehensive income are included in cash equivalents. net of tax. Available-for-sale financial assets, as well as financial assets and liabilities at fair value through profit and loss, are measured at fair value and the valuation is based on quoted rates and market prices Cash and cash equivalents as well as appropriate valuation methodologies and models. Unlisted equity securities for which fair value cannot be reliably measured are Cash and cash equivalents comprise cash in hand, deposits held at call recognised at cost less impairment. Fair value changes of available-for- with banks, other short-term liquid investments with original maturities sale financial assets are recognised in other comprehensive income. of three months or less. Investments in liquid fixed income funds are Significant or prolonged decline in the fair value will lead to impairment included in cash equivalents. Bank overdrafts are included in current write-down, which is recognised in profit and loss. In the event available- liabilities in the balance sheet. for-sale asset is disposed of, the accumulated fair value changes are released from other comprehensive income to the income statement. Purchases and sales of available-for-sale financial assets are recognised Emission allowances at the trade date.
Loans and receivables as well as all financial liabilities, except for Emission allowances are intangible assets. Purchased CO2 allowances derivatives, are recognised at the settlement date and measured at are recognised at cost, whereas allowances received free of charge amortised cost using the effective interest rate method. Transaction are recognised at nominal value, i.e. at zero. A provision to cover the costs are included in the initially recognised amount. Material expenses obligation to return emission allowances is recognised provided that relating to revolving credit facilities are recognised as expenses during emission allowances received free of charge will not cover the actual the expected maturity of the loan arrangement. The need for impairment emissions. Revenues from the sale of excess allowances are recognised is assessed separately for each loan receivable and when realised, it is as other operating income in the income statement.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 2. Accounting principles for the consolidated accounts
Inventories period. The stock options have been granted while previous Finnish Limited Liability Companies Act was enacted. The expense of the stock Inventories are stated at the lower of cost or net realisable value. Cost is options determined at the grant date reflects the Group’s estimate of determined by the weighted average method. The cost of finished goods the number of stock options that will ultimately vest. The fair value is and work in progress comprises raw materials, direct labour, other direct determined at the grant date using the Black-Scholes-Merton option costs and related production overheads, but excludes borrowing costs. pricing model and relevant statistical methods. The non-market criteria Net realisable value is the estimated selling price in the ordinary course are not included in the fair value of the option but taken into account in of business, less the estimated costs of completion and the estimated the number of options that are assumed to vest. Outokumpu updates at costs necessary to make the sale. each annual and interim closing the estimate of the final amount of the options that will vest. The share-based incentive programmes are accounted partly as Trade receivables equity-settled and partly as cash-settled. The equity and cash settled parts both include market and non-market based vesting criteria. In Trade receivables are carried at their anticipated realisable value, which determining the fair value of the earning periods at the grant dates, and is the original invoice amount less an estimated valuation allowance for also at later dates in relation to the cash-settled part of the programme, impairment of these receivables. A valuation allowance for impairment statistical models have been applied in addition to market prices. The of trade receivables is made when there is objective evidence that the impact of non-market based vesting criteria is assessed at each annual Group will not be able to collect all amounts due according to the original and interim closing. The programme includes a mechanism to limit the terms of the receivables. payout in certain situations. These conditions have also been taken into account in the valuation. The estimated expenses and changes in the value estimates of all Treasury shares share based incentive schemes are accrued and recognised in the income statement according to IFRS 2. When the options are exercised, Where the company or its subsidiaries purchases the company’s own the proceeds received, net of any transaction costs, are credited to shares, the consideration paid, including any attributable transaction share capital and the share premium reserve. costs net of income taxes, is deducted from equity as treasury shares until they are cancelled. When such shares are subsequently sold or reissued, any consideration received is included in equity. Operating profit
Operating profit is defined as follows: operating profit is the net sum Provisions which is formed by adding other operating income to sales and then deducting the cost of purchase adjusted by change in the inventory and Provisions are recognised in the balance sheet when Outokumpu has a the cost of manufacture for own use, the cost of employee benefits, present legal or constructive obligation as a result of a past event, and depreciation, amortisation, possible impairments, and other operating it is probable that an outflow of economic benefits will be required to expenses. All other items of the income statement are presented below settle the obligation and a reliable estimate can be made of the amount the operating profit. Exchange gains and losses and fair value changes of the obligation. Provisions can arise from restructuring plans, onerous in derivatives are included in operating profit, if they arise from contracts and from environmental, litigation or tax risks. business-related items. Otherwise they are recorded in financial items.
Employee benefits Dividends
Group companies in different countries have various pension plans in The dividend proposed by the Board of Directors is not deducted from accordance with local conditions and practices. The plans are classified distributable equity until approved by the Annual General Meeting of as either defined contribution plans or defined benefit plans. The Shareholders. contributions to defined contribution plans are charged to the income statement in the year to which they relate. The present value of the obligation of defined benefit plans is determined using the projected Earnings per share unit credit method and the plan assets are measured at fair value at the measurement date. In calculating the Group’s obligation with respect Basic earnings per share is calculated by dividing the net profit to a plan, the extent to which the cumulative unrecognised actuarial attributable to the equity holders of the company by the weighted gain or loss exceeds the greater of the present value of the defined average number of shares in issue during the year, excluding shares benefit obligation and the fair value of plan assets by more than 10% purchased by Outokumpu and held as treasury shares. Diluted earnings is identified. That excess portion is recognised in the income statement per share are calculated as if the warrants and options were exercised at over the expected average remaining working lives of the employees the beginning of the period. In addition to the weighted average number participating in the plan. of shares outstanding, the denominator includes the incremental shares obtained through the assumed exercise of the warrants and options. The assumption of exercise is not reflected in earnings per share when the Share-based payment transactions exercise price of the warrants and options exceeds the average market price of the shares during the period. The warrants and options have a The stock options are valued at fair value on the grant date and diluting effect only when the average market price of the share during recognised as an expense in the income statement during the vesting the period exceeds the exercise price of the warrants and options.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 3. Segment information
Outokumpu’s business activities were organised into two reportable Specialty Stainless segments in 2009: General Stainless and Specialty Stainless. The performance of the segments is reviewed based on segment Specialty Stainless comprises three business units: Special Coil and operating profit which is defined in the accounting principles for the Plate, Thin Strip and Outokumpu Stainless Tubular Products (OSTP). consolidated accounts. The review is done regularly by the CEO based The main products are hot and cold rolled sheet, quarto plate, tubes on internal management reports. Outokumpu’s segments were based and various fittings and precision strip. Steel used by the Specialty on management reporting also in 2008 and hence the comparative Stainless units comes mostly from the melt-shops in Avesta, Sweden information has not changed. and Sheffield, the UK, the latter being a part of the General Stainless Demand and consumption of stainless steel grow faster than any segment. other metal in the world. Outokumpu is one of the largest producers of Specialty Stainless is strong in tailored solutions and demanding stainless steel and widely recognised as a leader in technical support customer applications in stainless flat and tubular products. Specialty as well as research and development. End-user industries using Stainless serves customers with high requirements on the stainless stainless steel are, for example: architectural, building and construction steel properties such as steel grade, shape, thickness or surface finish. industries, chemical, petrochemical and energy industries, process industries and resources, transportation as well as catering and appliances. Other operations
Other operations consists of activities outside General Stainless and General Stainless Specialty Stainless segments as well as industrial holdings. Such business development and Corporate Management expenses that General Stainless comprises two business units: Tornio Works and are not allocated to the businesses are also reported under Other Long Products. The main products are hot and cold rolled coil and operations. Sales of Other operations consist of sale of electricity, sheet. Tornio Works is the largest stainless steel integrate in the world, internal commissions and services. including also the Kemi chromite mine and the ferrochrome smelter in Tornio in Finland. Long Products consists of a melt-shop in Sheffield in the UK, a hot rolling mill for long products in Degerfors in Sweden as well as wire rod and bar production in Europe and in the US.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 3. Segment information
Operating segments
Reconciliation 2009 General Specialty Reportable Other € million Stainless Stainless segments total operations Eliminations Group External sales 1 643 946 2 589 22 - 2 611 Inter-segment sales 421 293 715 221 -935 - Sales 2 065 1 239 3 304 243 -935 2 611 Operating profit -259 -149 -408 -31 1 -438 Share of results in associated companies - - - -12 - -12 Financial income - - - - - 22 Financial expenses ------46 Profit before taxes ------474 Income taxes - - - - - 142 Discontinued operations ------4 Net profit for the financial year ------336
Substantial items without payment transaction included in operating profit Write-down of Avesta melt-shop investment - -15 -15 - - -15 Redundancy provision - -5 -5 - - -5 Depreciation -127 -56 -184 -1 - -185 Amortisation -14 -6 -20 -6 - -26
Non interest-bearing assets 2 952 1 326 4 278 304 -340 4 241 Investments in associated companies - - - 152 - 152 Other interest-bearing assets - - - - - 396 Deferred tax assets - - - - - 42 Assets classified as held for sale - - - - - 20 Total assets - - - - - 4 850
Non interest-bearing liabilities 530 291 821 64 -336 549 Interest-bearing liabilities - - - - - 1 742 Deferred tax liabilities - - - - - 100 Liabilities classified as held for sale - - - - - 8 Total liabilities - - - - - 2 399
Operating capital 2 421 1 035 3 457 240 -4 3 692 Net deferred tax liability ------58 Capital employed - - - - - 3 634
Capital expenditure 129 93 222 23 - 245
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 3. Segment information
Reconciliation 2008 General Specialty Reportable Other € million Stainless Stainless segments total operations Eliminations Group External sales 3 153 2 298 5 451 23 - 5 474 Inter-segment sales 993 407 1 400 235 -1 636 - Sales 4 147 2 705 6 852 258 -1 636 5 474 Operating profit -6 -101 -107 38 6 -63 Share of results in associated companies - - - -2 - -2 Financial income - - - - - 32 Financial expenses ------100 Profit before taxes ------134 Income taxes - - - - - 24 Discontinued operations ------79 Net profit for the financial year ------189
Substantial items without payment transaction included in operating profit Thin Strip restructuring in the UK Impairments - -31 -31 - - -31 Items related to personnel adjustments - -35 -35 - - -35 Redundancy provision - -17 -17 - - -17 Depreciation -129 -57 -186 -1 - -188 Amortisation -6 -6 -12 -6 - -18
Non interest-bearing assets 3 121 1 454 4 575 279 -283 4 571 Investments in associated companies - - - 156 - 156 Other interest-bearing assets - - - - - 556 Deferred tax assets - - - - - 37 Assets classified as held for sale - - - - - 22 Total assets - - - - - 5 341
Non interest-bearing liabilities 458 280 738 65 -278 525 Interest-bearing liabilities - - - - - 1 800 Deferred tax liabilities - - - - - 216 Liabilities classified as held for sale - - - - - 6 Total liabilities - - - - - 2 547
Operating capital 2 663 1 174 3 837 214 -5 4 046 Net deferred tax liability ------179 Capital employed - - - - - 3 867
Capital expenditure 332 170 502 42 - 544
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 3. Segment information
Geographical information
Other North Asia and Other Inter € million Finland Sweden The UK Europe America Australia countries area Group 2009 Sales by destination 1) 142 154 147 1 481 251 407 28 - 2 611 Sales by origin 2) 1 449 1 102 457 684 217 85 6 -1 390 2 611 Operating profit 2) -239 - 111 -17 -54 -13 -7 0 2 -438 Non-current assets 2) 3) 1 719 533 76 244 60 31 0 - 2 663 Operating capital 2) 2 140 880 168 381 86 42 1 -5 3 692 Capital expenditure 2) 111 54 12 35 15 18 - - 245
2008 Sales by destination 1) 246 331 250 3 470 562 522 93 - 5 474 Sales by origin 2) 2 880 2 389 1 033 1 031 456 165 13 -2 493 5 474 Operating profit 2) 85 -1 -79 -71 -2 -3 -0 7 -63 Non-current assets 2) 3) 1 736 516 65 235 46 14 0 - 2 612 Operating capital 2) 2 309 972 183 459 90 34 1 -1 4 046 Capital expenditure 2) 120 146 19 226 19 13 - - 544
1) Sales by destination is presented for external sales. 2) Sales, operating profit, non-current assets, operating capital and capital expenditure are presented by the locations of the Group companies. 3) Excluding financial instruments, deferred tax assets and post-employment benefit assets.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 4. Discontinued operations
Outokumpu Brass Outokumpu Copper Tube
Outokumpu Brass rod business produces brass rods for applications In June, 2008 Outokumpu sold its remaining copper tube assets to in the construction, electrical and automotive industries. The brass rod Cupori Group Oy. Outokumpu received EUR 52 million as consideration plant is located in Drünen in the Netherlands and the unit also has a of the sale. A capital loss of EUR 66 million was booked on the 50% stake in a brass rod company in Gusum, Sweden. Outokumpu transaction. The assets sold comprised the copper plumbing installation Brass employs some 150 employees. The assets and liabilities of brass and industrial tube manufacturing companies in Pori in Finland, rod business are presented as held for sale. Outokumpu intends to Zaratamo in Spain, Västerås in Sweden and Liège in Belgium, as well as divest the brass rod business. the copper tube sales companies in France, Germany and Italy.
Specification of discontinued operations and assets held for sale
Income statement
€ million 2009 2008 Sales 31 267 Expenses -31 -269 Operating profit -1 -2 Net financial expenses -1 -4 Profit before taxes -2 -6 Income taxes 0 -0 Profit after taxes -1 -6
Impairment loss recognised on the fair valuation of the Outokumpu Tube and Brass division’s assets and liabilities -3 -6 Loss on the sale of copper tube business - -66 Taxes - - After-tax result from the disposal and impairment loss -3 -73
Minority interest - - Net profit for the financial year from discontinued operations -4 -79
Balance sheet
€ million 2009 2008 Assets Intangible and tangible assets 2 2 Other non-current assets 2 3 Inventories 11 9 Other current, non interest-bearing assets 5 8 20 22 Liabilities Provisions 2 2 Other non-current, non interest-bearing liabilities 1 1 Trade payables 3 2 Other current, non interest-bearing liabilities 2 1 8 6
Cash flows
€ million 2009 2008 Operating cash flow 3 -8 Investing cash flow -3 -9 Financing cash flow 0 19 0 2
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 5. Acquisitions and disposals
Acquisitions
Year 2009
In 2009 Outokumpu made no aqcuisitions.
Year 2008 In the acquisition Outokumpu obtained stainless steel service centers in Castelleone in Italy and in Rotherham in the UK, stock operations In 2008, Outokumpu made three acquisitions, which are presented in in Italy, the UK, Belgium, Finland, France and Ireland, as well as a the paragraphs below. If all these acquisitions had occurred on January commercial office in Germany and a representative office in Turkey. 1, 2008, management estimates that Outokumpu Group consolidated The purchase price has been allocated to the assets, liabilities and sales for 2008 would have been EUR 5 718 million and consolidated contingent liabilities at their fair value. Part of the purchase price has profit EUR -182 million. This estimate is based on the actual transactions been allocated to customer relationships, which are amortised during of the acquired companies with Outokumpu and third parties. their estimated lifetime of four years. The goodwill recognised on the acquisition is attributable mainly to the skills and market knowledge of the acquired business’s work force and to the synergies that are expected SoGePar to be achieved from integrating the company into the Group’s existing sales and marketing organisation. Also synergy benefits are expected In July 2008, Outokumpu acquired all the shares in an Italian distributor when utilising Outokumpu’s own production facilities to supply material of stainless steel SoGePar Group with final purchase price of EUR 224 to the acquired units. million. Outokumpu also took on debt in the company with amount Between August 1 and December 31, 2008, SoGePar sales was EUR of EUR 87 million. SoGePar has been consolidated into Outokumpu’s 143 million and result for the period was EUR 37 million negative. accounts with effect from August 1, 2008.
Purchase price allocation
€ million Purchase price 224 Acquisition related costs 4 Fair value of acquired assets and liabilities -148 Goodwill 79
Acquired cash and cash equivalents -27 Cash impact of the acquisition 200
Acquired assets, liabilities and contingent liabilities
€ million Seller’s book values Fair values Non-current assets Intangible assets 0 47 Property, plant and equipment 33 33 Non-current financial assets 11 11 Current assets Inventories 168 168 Current financial assets Interest-bearing 6 6 Non interest-bearing 156 156 Cash and cash equivalents 27 27 Non-current liabilities Interest-bearing -25 -25 Non interest-bearing -21 -33 Current liabilities Interest-bearing -95 -95 Non interest-bearing -147 -147 114 148
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 5. Acquisitions and disposals
Outokumpu Armetal Stainless Pipe Co., Ltd
In February 2008, Outokumpu Stainless Tubular Products (OSTP) tubular production in October 2008. The purchase price of the business and Saudi Arabian tube manufacturer Armetal, a company in the Al- was EUR 15 million. Purchase price premium has been allocated to Hejailan Group, agreed to form Outokumpu Armetal Stainless Pipe customer relations, contractual intangible rights and buildings. Fair Co., Ltd, a 51/49 stainless steel tubular joint venture located in Riyadh, value allocations are amortised and depreciated in the course of Saudi Arabia. The joint venture company was founded and has been their estimated life time of 5–20 years. Goodwill recognised on the consolidated into Outokumpu’s accounts with effect from October 1, acquisition is mainly attributable to the entry to a new market area and 2008. Minority interest of 49% is presented separately from the net the skills and market knowledge of the acquired business’s work force. profit and disclosed as a separate item in the equity. Outokumpu has Between October 1 and December 31, 2008, Outokumpu Armetal invested in the company EUR 1 million as equity and granted loans Stainless Pipe sales were EUR 1 million and result for the period was for the company. The joint venture acquired Armetal’s stainless steel EUR 0 million negative.
Purchase price allocation
€ million Purchase price 15 Acquisition related costs 0 Fair value of acquired assets and liabilities - 11 Goodwill 4
Acquired cash and cash equivalents - Cash impact of the acquisition 15
Acquired assets, liabilities and contingent liabilities
€ million Seller’s book values Fair values Intangible assets 0 4 Property, plant and equipment 2 3 Inventories 4 4 6 11
Avesta Klippcenter
In July 2008, Outokumpu acquired the operations of Avesta Klippcenter been allocated to customer relations and machinery and equipment. AB in Avesta, Sweden. Avesta Klippcenter’s main business is to Goodwill of EUR 2 million arising from the acquisition consists mainly process stainless steel material from Outokumpu’s mills in Sweden for of synergy benefits when acquired business is united to the operations remelting in Avesta’s melt shop. Through the acquisition Outokumpu’s of Avesta’s melt shop. The company has been consolidated into raw material handling capacity increased, and it secures competitive Outokumpu’s accounts with effect from July 1, 2008. supply for Avesta stainless steel melt shop. The total consideration was Between July 1 and December 31, 2008, Avesta Klippcenter sales some EUR 8 million. Some EUR 1 million of the purchase price has were EUR 2 million and result for the period was EUR 1 million.
Disposals
Year 2009 Year 2008
In September 2009, Outokumpu Stainless Tubular Products (OSTP) sold In June 2008, Outokumpu sold its remaining copper tube assets to its square and rectangular tube business in Jakobstad to the Finnish Cupori Group Oy. See note 4. Discontinued operations. company Stalatube Oy. The sale had no significant impact on Group’s result and cash flow.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 6. Other operating income
€ million 2009 2008 Gains on sale of intangible and tangible assets 14 27 Other income items 14 5 Market price gains and losses from derivative financial instruments - 25 28 57
Market price gains and losses from derivative instruments included a gain of EUR 16 million from ineffective cash flow hedges in 2008.
7. Other operating expenses
€ million 2009 2008 Losses on sale of intangible and tangible assets -1 -26 Impairment of intangible and tangible assets -15 -6 Other expense items -3 -10 Market price gains and losses from derivative financial instruments -13 - -32 -42
Market price gains and losses from derivative instruments included a loss of EUR 8 million from ineffective cash flow hedges in 2009.
8. Function expenses by nature
€ million 2009 2008 Raw materials and merchandise -1 307 -3 090 Fuels and supplies -245 -364 Energy expenses -161 -221 Freights -133 -192 Maintenance -75 - 113 Employee benefit expenses -446 -520 Rents and leases -25 -26 Hire processing -27 -38 Depreciation and amortisation -211 -206 Production for own use 5 9 Change in inventories -221 -521 Other expenses -200 -271 -3 044 -5 552
Expenses by function include cost of sales, selling and marketing, administrative as well as research and development expenses.
In 2009, auditors were paid fees totalling EUR 1 million (2008: EUR 3 million), of which non-auditing services accounted for EUR 0 million (2008: EUR 1 million).
Non-recurring items in operating profit
€ million 2009 2008 Write-down of Avesta melt-shop investment -15 - Redundancy provision -5 -17 Thin Strip restructuring in the UK - -66 -20 -83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 9. Employee benefit expenses
€ million 2009 2008 Wages and salaries -311 -356 Termination benefits -9 -25 Social security costs -47 -54 Pension and other long-term employee benefits Defined benefit plans -19 -10 Defined contribution plans -45 -55 Other long-term employee benefits -3 -6 Expenses from share-based payments -2 -0 Other personnel expenses 1) -8 -14 -446 -520
1) In 2009 (2008: EUR 0 million) no profit-sharing bonuses based on the Finnish Personnel Funds Act were recognised.
10. Financial income and expenses
€ million 2009 2008 Dividend income on available-for-sale financial assets 3 10 Interest income Loans and receivables 14 16 Bank accounts and deposits 3 4 Fair value through profit and loss - 0 Gains on the sale of available-for-sale financial assets 0 0 Other financial income 2 1 Total financial income 22 32
Interest expenses Financial liabilities at amortised cost -37 -77 Finance lease arrangements -2 -3 Derivatives -0 6 Capitalised interests 8 3 Impairment losses on available-for-sale financial assets - -24 Other financial expenses -14 -4 Total financial expenses -44 -99
Exchange gains and losses Derivatives -17 79 Other 25 -71 Other market price gains and losses Derivatives -9 - 11 Other -0 1 Total market price gains and losses -2 -2
Total financial income and expenses -25 -69
Exchange gains and losses in the income statement
€ million 2009 2008 In sales -2 75 In purchases 6 -45 In other income and expenses -7 -10 In financial income and expenses 7 8 4 27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 10. Financial income and expenses
Exchange gains and losses comprise EUR 24 million net exchange loss on derivative financial instruments (2008: EUR 75 million net gains). Exchange gains and losses on derivatives, which are related to financing activities include the ineffective portion from hedges of net investment in foreign operations EUR 0.1 million gain (2008: EUR 0.2 million loss). Market price gains and losses recognised in operating profit including also exchange gains and losses are presented in the notes 6. Other operating income and 7. Other operating expenses.
Non-recurring items in financial income and expenses
In 2009, there were no non-recurring items in financial income and expenses. In 2008, non-recurring loss of EUR 21 million from impairment of Belvedere shares was included in the financial expenses.
11. Income taxes
Income taxes in the income statement
€ million 2009 2008 Current taxes -4 -6 Deferred taxes 146 30 142 24
The difference between income taxes at the statutory tax rate of 26% in Finland and income taxes recognised in the consolidated income statement is reconciled as follows:
€ million 2009 2008 Hypothetical income taxes at Finnish tax rate on consolidated profit before tax 123 35 Difference between Finnish and foreign tax rates 30 20 Tax effect of non-deductible expenses and tax exempt income 6 -7 Tax effect of losses for which no deferred tax benefit is recognised -13 -29 Changes in the carrying amounts of deferred tax assets from prior years 1 1 Taxes for prior years -1 -2 Impact of the changes in the tax rates on deferred tax balances -0 4 Tax effect of net results of associated companies -3 -1 Effects of consolidation and eliminations -0 0 Other items -1 1 Income taxes in the consolidated income statement 142 24
Deferred income taxes in the balance sheet
€ million 2009 2008 Deferred tax assets 42 37 Deferred tax liabilities -100 -216 Net deferred tax liability -58 -179
Deferred taxes have been reported as a net balance of those group companies that file a consolidated tax return or that may otherwise be consolidated for current tax purposes.
The gross movements of the deferred income tax balances
€ million 2009 2008 Net deferred tax liability on Jan. 1 -179 -215 Translation differences -2 9 Recognised in the income statement 146 30 Recognised in other comprehensive income -23 26 Acquired subsidiaries - -29 Net deferred tax liability on Dec. 31 -58 -179
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 11. Income taxes
Movement in deferred tax assets and liabilities during the financial year
Recognised Recognised in in other 2009 Translation the income comprehensive Acquired € million Jan. 1 differences statement income subsidiaries Dec. 31 Deferred tax liabilities Depreciation difference and other untaxed reserves -198 -4 13 - - -189 Fair value adjustments -16 -0 6 -2 - -12 Effects of consolidation and eliminations -1 - -0 - - -1 Other taxable temporary differences -66 -0 18 - - -49 -282 -4 37 -2 - -252
Deferred tax assets Tax losses carried forward 25 3 104 - - 132 Fair value adjustments 8 - 13 -21 - - Pension obligations 9 -0 3 - - 12 Effects of consolidation and eliminations 4 - -1 - - 3 Other tax deductible temporary differences 57 -0 -10 - - 46 103 2 108 -21 - 193
Net deferred tax liability -179 -2 146 -23 - -58
Recognised Recognised in in other 2008 Translation the income comprehensive Acquired € million Jan. 1 differences statement income subsidiaries Dec. 31 Deferred tax liabilities Depreciation difference and other untaxed reserves -230 8 25 - -1 -198 Fair value adjustments -8 - 23 - -31 -16 Effects of consolidation and eliminations -1 - -0 - - -1 Other taxable temporary differences -62 1 -5 - - -66 -301 8 43 - -32 -282
Deferred tax assets Tax losses carried forward 20 -0 5 - - 25 Fair value adjustments 0 - -18 26 - 8 Pension obligations 7 0 2 - - 9 Effects of consolidation and eliminations 10 0 -6 - - 4 Other tax deductible temporary differences 50 1 3 - 3 57 86 1 -14 26 3 103
Net deferred tax liability -215 9 30 26 -29 -179
Aggregate deferred taxes recognised in other comprehensive income
€ million 2009 2008 Cashflow hedging 10 17 Available-for-sale financial assets -4 5 Net investment hedging -6 - Other comprehensive income in associated companies -2 - -1 21
Deferred tax assets of EUR 82 million (2008: EUR 53 million) have not and the rest earliest in 2015. The consolidated balance sheet includes been recognised in the consolidated financial statements because the deferred tax assets of EUR 57 million (Dec. 31, 2008: EUR 23 million) in realisation of the tax benefit included in these assets is not probable. subsidiaries, which have generated losses in current or in prior year. Majority of these unrecognised deferred tax assets relate to tax losses The recognition of these assets is based on result estimates, which amounting to EUR 246 million (2008: EUR 163 million). EUR 6 million of indicate that the realisation of these deferred tax assets is probable. these tax losses (2008: EUR 4 million) will expire within next five years
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 12. Earnings per share
2009 2008 Result attributable to the equity holders of the Company, € million -336 -189
Weighted average number of shares, in thousands 180 826 180 185
Earnings per share for result attributable to the equity holders of the Company, € -1.86 -1.05 Earnings per share, € From continuing operations -1.83 -0.61 From discontinued operations -0.02 -0.44
Diluted earnings per share is calculated by adjusting average number of shares outstanding to assume conversion of all diluting potential shares. The Group has diluting options (2003 option programme). The options have a diluting effect, when the exercise price with an option is lower than the market value of the Company share. The diluting effect is the number of shares that the Company has to issue gratuitously because the received funds from the exercised options do not cover the fair value of the shares. The fair value of the Company’s share is determined as the average market price of the shares during the period.
2009 2008 Result attributable to the equity holders of the Company, € million -336 -189
Weighted average number of shares, in thousands 180 826 180 185 Effect of 2003A share options, in thousands - 340 Effect of 2003B share options, in thousands 137 432 Effect of 2003C share options, in thousands 7 38 Diluted average number of shares, in thousands 180 970 180 995
Diluted earnings per share, € -1.86 -1.04 From continuing operations -1.83 -0.61 From discontinued operations -0.02 -0.43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 13. Intangible assets
Intangible assets, acquired Customer € million Patents Software relationships Other Goodwill Total Historical cost on Jan. 1, 2009 4 38 46 120 482 690 Translation differences - 1 - 2 0 3 Additions 1) 0 1 - 1 - 2 Disposals -0 -0 - -0 - -1 Reclassifications - 2 2 -5 5 5 Historical cost on Dec. 31, 2009 4 41 48 119 488 700
Accumulated amortisation and impairment on Jan. 1, 2009 -2 -31 -4 -63 -6 -106 Translation differences - -1 - -2 - -2 Disposals 0 0 - 0 - 0 Reclassifications - 0 - -0 - -0 Amortisation -0 -3 -12 - 11 - -26 Accumulated amortisation and impairment on Dec. 31, 2009 -2 -34 -16 -75 -6 -134
Carrying value on Dec. 31, 2009 2 7 32 43 482 566 Carrying value on Jan. 1, 2009 2 7 42 57 476 584
Historical cost on Jan. 1, 2008 4 39 - 118 405 566 Translation differences - -2 - -6 -1 -9 Additions 1) 0 3 - 8 - 11 Acquired subsidiaries 0 0 46 0 78 125 Disposals -0 -4 - -1 - -6 Reclassifications - 2 - 1 - 3 Historical cost on Dec. 31, 2008 4 38 46 120 482 690
Accumulated amortisation and impairment on Jan. 1, 2008 -2 -33 - -56 - -91 Translation differences - 2 - 3 - 5 Disposals 0 3 - 0 - 4 Reclassifications - 0 - -0 - 0 Amortisation -0 -3 -4 -10 - -18 Impairments - - - - -6 -6 Accumulated amortisation and impairment on Dec. 31, 2008 -2 -31 -4 -63 -6 -106
Carrying value on Dec. 31, 2008 2 7 42 57 476 584 Carrying value on Jan. 1, 2008 2 6 - 62 405 475
1) Construction work in progress related to intangible assets is presented in the corresponding item of PPE. When the asset is taken into use, it is reclassified to the appropriate asset account.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 13. Intangible assets
Amortisation by function
€ million 2009 2008 Cost of sales -12 -13 Selling and marketing expenses -12 -4 Administrative expenses -2 -2 Research and development expenses -0 -0 -26 -18
Goodwill allocation to the segments
€ million 2009 2008 General Stainless 417 416 Specialty Stainless 65 60 482 476
Impairment testing of goodwill Emission allowances
Goodwill is allocated to the Group’s cash-generating units (CGUs) Outokumpu’s sites covered by EU’s Emissions Trading Scheme (ETS) according to the business organisation. The recoverable amount are the production plants in Tornio (Finland), Avesta, Degerfors and of a CGU is determined based on value-in-use calculations. These Nyby (Sweden) as well as Sheffield (the UK). In the European Union, a calculations are based on the cash flow projections in the strategic new emission trading period started in 2008. Outokumpu will receive plans approved by the management for 2010. Projections for 2011–2014 1.3 million tonnes of emission allowances annually until 2012, which is are based on conservative price and delivery forecasts. Fixed costs estimated to be enough for the current production capacity within the for 2010 are based on 2010 budget and they are planned increase Group’s European production sites. Emissions trading is expected to by inflation rate in the following years. The price of stainless steel continue after 2012 and Outokumpu follows the development of the EU used in the cash flow projections is below its long-term average. The Climate and Energy package, and the renewal of the ETS. In order to deliveries for 2010 are based on Outokumpu’s internal forecast and for decrease the cost of compliance to ETS, Outokumpu has also invested in the following years, deliveries are based on objective external view the Testing Ground Facility (TGF), a Nordic carbon fund managed by the on market development. The change in working capital is driven by Nordic Environmental Finance Corporation. States and companies can volume. invest in the carbon fund, which purchases emission allowances for its Cash flows beyond the five-year period are calculated using the investors from projects that benefit the environment. terminal value method. Growth rate assumption in the terminal value Purchased carbon dioxide allowances are accounted for as intangible calculation is kept conservatively at zero. assets at cost, whereas carbon dioxide emission allowances received Discount rate is the weighted average pre-tax cost of capital (WACC) free of charge are accounted for at nominal value, i.e. at zero. A provision as defined for Outokumpu. The components of WACC are risk-free yield to cover the obligation to return emission allowances is recognised in rate, market risk premium, industry specific beta, cost of debt and case the emission allowances received free of charge will not cover the targeted capital structure. The discount rate has been calculated using actual emissions. The actual carbon dioxide emissions in the units that the same methodology as in 2008. The WACC used in the calculations belong to the Emissions Trading Scheme were some 540 000 tonnes in was 9% in 2009 (2008: 9%). 2009 (2008: 820 000 tonnes). The emissions did not exceed the amount of The most important assumptions in value-in-use calculations allowances received free of charge in 2009 and Outokumpu sold 454 000 are discount rate, the deliveries of stainless steel and margins. In tonnes of emission allowances for EUR 6 million (2008: 22 million). sensitivity analyses, all these assumptions were tested. According to See note 20 for information on the management of the emission the performed sensitivity analysis, it does not appear probable that allowance price risk. a decrease of five percent in stainless steel deliveries or margins for 2010–2014 would lead to impairment write-down. Also, if used discount factor would decrease by one percent point, it would not lead to impairment write-down. If both deliveries and margins would decrease simultaneously by five percent for 2010–2014, the recoverable amounts would decrease marginally below their carrying value as at December 31, 2009. As a result of the performed impairment tests, no impairment losses have been recognised.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 14. Property, plant and equipment
Advances paid and Machinery Other construction Mine and tangible work in € million Land properties Buildings equipment assets progress 1) Total Historical cost on Jan. 1, 2009 39 33 838 2 749 99 262 4 021 Translation differences 1 - 9 52 1 7 69 Additions 7 1 22 104 0 111 246 Disposals - - -1 -22 -0 -0 -23 Reclassifications -0 1 22 100 6 -133 -4 Historical cost on Dec. 31, 2009 47 35 891 2 983 106 247 4 309
Accumulated depreciation and impairment on Jan. 1, 2009 -2 -3 -345 -1 606 -37 -0 -1 994 Translation differences 0 - -5 -32 -0 -1 -38 Disposals - - 0 19 0 - 20 Reclassifications - - 0 -0 0 - 0 Depreciation - -0 -30 -148 -6 - -185 Impairments - - -1 - - -14 -15 Accumulated depreciation and impairment -2 -3 -381 -1 767 -43 -15 -2 212 on Dec. 31, 2009
Carrying value on Dec. 31, 2009 45 32 511 1 215 63 232 2 097 Carrying value on Jan. 1, 2009 37 30 494 1 143 62 262 2 027
Historical cost on Jan. 1, 2008 38 33 830 2 890 98 94 3 984 Translation differences -3 - -26 -154 -1 -6 -190 Additions 1 - 19 54 0 227 301 Acquired subsidiaries 1 - 20 14 0 0 36 Disposals -0 - - 11 -95 -0 -0 -108 Reclassifications 2 0 6 41 2 -53 -2 Historical cost on Dec. 31, 2008 39 33 838 2 749 99 262 4 021
Accumulated depreciation and impairment on Jan. 1, 2008 -2 -2 -341 -1 627 -32 -0 -2 004 Translation differences -0 - 17 98 0 0 115 Disposals - - 9 74 0 - 83 Reclassifications - - 0 -1 -0 -0 -0 Depreciation - -1 -29 -151 -5 - -188 Accumulated depreciation and impairment -2 -3 -345 -1 606 -37 -0 -1 994 on Dec. 31, 2008
Carrying value on Dec. 31, 2008 37 30 494 1 143 62 262 2 027 Carrying value on Jan. 1, 2008 36 31 490 1 263 66 94 1 980
1) Advances paid and construction work in progress includes also intangible assets. When the asset is ready to be taken into use, it is reclassified to appropriate asset account.
Depreciation by function
€ million 2009 2008 Cost of sales -177 -180 Selling and marketing expenses -3 -3 Administrative expenses -4 -4 Research and development expenses -1 -1 -185 -188
Borrowing costs amounting to EUR 8 million was capitalised on investment projects during the financial year (2008: EUR 3 million). Total interest capitalised on Dec. 31, 2009 was EUR 50 million (Dec. 31, 2008: EUR 46 million). Outokumpu determines separate capitalisation rates for each quarter. The average rate used during 2009 was 3.16%.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 14. Property, plant and equipment
Assets leased by finance lease agreements
Machinery and € million Buildings equipment Total Historical cost 9 132 141 Accumulated depreciation -3 -29 -32 Carrying value on Dec. 31, 2009 5 103 109
Historical cost 9 71 80 Accumulated depreciation -2 -22 -24 Carrying value on Dec. 31, 2008 7 49 56
15. Investments in associated companies
€ million 2009 2008 Investments in associated companies at cost Historical cost on Jan. 1 138 139 Translation differences 0 -0 Historical cost on Dec. 31 139 138
Equity adjustment to investments in associated companies on Jan. 1 17 24 Change in translation differences 1 -3 Dividends received during financial year -0 -2 Share of results in associated companies 1) -12 -2 Share of other comprehensive income in associated companies 7 - Equity adjustment to investments in associated companies on Dec. 31 14 17
Carrying value of investments in associated companies on Dec. 31 152 156
Associated companies Domicile Ownership, % ABB Industriunderhåll AB Sweden 49 Fagersta Stainless AB Sweden 50 KDAB i Västerås AB 2) Sweden 50 Outokumpu Nordic Brass AB Sweden 50 Rapid Power Oy Finland 33 Talvivaara Sotkamo Ltd. 3) Finland 20
Principal associated companies
€ million Domicile Assets Liabilities Sales Profit Ownership, % 2009 Fagersta Stainless AB Sweden 68 29 93 -8 50 Rapid Power Oy 4) Finland 201 147 31 1 33 Talvivaara Sotkamo Ltd. 3) 5) Finland 715 624 3 -22 20
2008 Fagersta Stainless AB Sweden 77 32 212 -3 50 Rapid Power Oy Finland 220 166 50 0 33 Talvivaara Sotkamo Ltd. 3) Finland 776 599 0 -6 20
1) In principle, the consolidated results of the associated companies are based on a 12-month calendar period. However, in 2009 Outokumpu’s share of Talvivaara Sotkamo Ltd’s profits is consolidated from the 15-month period ending at September 30, 2009 (June 30, 2008–September 30, 2009). In connection with the aquisition, a fair value of EUR 82 million was allocated to ore reserves. The depreciation of the fair value allocation was started in January 2009 applying a straight-line depreciation method over a period of 24 years, which is the expected excavation time of the ore reserves. The depreciation is presented as part of the share of results in associated companies. 2) Formerly Kopparlunden Development AB 3) Formerly Talvivaara Project Ltd. 4) Rapid Power Oy’s figures for 2009 are based on the information on November 30, 2009. 5) Talvivaara Sotkamo Ltd’s figures for 2009 are based on the information on September 30, 2009. These figures are included in Talvivaara Mining Ltd’s consolidated accounts published for the period ending on September 30, 2009.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 16. Carrying values of financial assets and liabilities by measurement category
Measured at Fair value recognised Fair value Category in in other recognised Carrying 2009 accordance Amortised comprehensive through amount Fair value € million with IAS 39 cost Cost income profit or loss Dec 31, 2009 Dec 31, 2009 Non-current financial assets Available-for-sale financial assets a) - 13 85 - 98 98 Trade and other receivables Interest-bearing b), c) 139 - - 1 140 60 Non interest-bearing b) 55 - - - 55 55 Hedge accounted derivatives e) - - 0 - 0 0 Derivatives held for trading d) - - - 7 7 7
Current financial assets Available-for-sale financial assets a) - 3 11 - 14 14 Trade and other receivables Interest-bearing b) 9 - - - 9 9 Non interest-bearing b) 493 - - - 493 493 Cash and cash equivalents b), c) 99 - - 12 112 112 Hedge accounted derivatives e) - - 0 - 0 0 Derivatives held for trading d) - - - 16 16 16 796 17 96 35 943 863
Non-current financial liabilities Long-term debt f) 997 - - - 997 958 Trade and other payables f) 1 - - - 1 1 Hedge accounted derivatives e) - - 25 - 25 25 Derivatives held for trading d) - - - 16 16 16
Current financial liabilities Current debt f) 652 - - - 652 652 Trade and other payables Interest-bearing f) 7 - - - 7 7 Non interest-bearing f) 438 - - - 438 438 Hedge accounted derivatives e) - - 8 - 8 8 Derivatives held for trading d) - - - 37 37 37 2 095 - 33 53 2 181 2 142
Categories in accordance with IAS 39: a) Available-for-sale financial assets b) Loans and receivables c) Financial assets at fair value through profit and loss d) Derivatives held for trading e) Hedge accounted derivatives f) Other financial liabilities
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 16. Carrying values of financial assets and liabilities by measurement category
Measured at Fair value recognised Fair value Category in in other recognised Carrying 2008 accordance Amortised comprehensive through amount Fair value € million with IAS 39 cost Cost income profit or loss Dec 31, 2008 Dec 31, 2008 Non-current financial assets Available-for-sale financial assets a) - 15 52 - 67 67 Trade and other receivables Interest-bearing b), c) 130 - - 1 132 93 Non interest-bearing b) 55 - - - 55 55 Hedge accounted derivatives e) - - 1 - 1 1 Derivatives held for trading d) - - - 9 9 9
Current financial assets Available-for-sale financial assets a) - 0 7 - 8 8 Trade and other receivables Interest-bearing b) 25 - - - 25 25 Non interest-bearing b) 650 - - - 650 650 Cash and cash equivalents b), c) 205 - - 19 224 224 Hedge accounted derivatives e) - - 11 - 11 11 Derivatives held for trading d) - - - 81 81 81 1 064 15 71 110 1 262 1 223
Non-current financial liabilities Long-term debt f) 1 170 - - - 1 170 1 106 Trade and other payables f) 2 - - - 2 2 Hedge accounted derivatives e) - - 48 - 48 48
Current financial liabilities Current debt f) 501 - - - 501 501 Trade and other payables Interest-bearing f) 26 - - - 26 26 Non interest-bearing f) 378 - - - 378 378 Hedge accounted derivatives e) - - 1 - 1 1 Derivatives held for trading d) - - - 53 53 53 2 077 - 49 53 2 179 2 115
Categories in accordance with IAS 39: a) Available-for-sale financial assets b) Loans and receivables c) Financial assets at fair value through profit and loss d) Derivatives held for trading e) Hedge accounted derivatives f) Other financial liabilities
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 17. Hierarchy of financial assets and liabilities measured at fair value
2009 € million Level 1 Level 2 Level 3 Total Assets Available-for-sale financial assets 60 - 36 96 Trade and other receivables, interest-bearing - 1 - 1 Cash and cash equivalents - 12 - 12 Hedge accounted derivatives - 0 - 0 Derivatives held for trading - 22 - 22 60 35 36 131
Liabilities Hedge accounted derivatives - 33 - 33 Derivatives held for trading - 53 - 53 - 86 - 86
Reconciliation of changes on level 3 1)
€ million Available-for-sale financial assets Carrying value Jan. 1, 2009 39 Translation difference 2 Fair value changes recognised in OCI -5 Carrying balance Dec. 31, 2009 36
1) The calculation is based on closing rates.
Fair value hierarchy is based on source of inputs used in valuations: Valuation of unlisted company is based on realised reported figures. The valuation consists of following parameters: earnings per share of Level 1: Fair values are based on public quatations the company (EPS), P/E ratio of the market, equity per share ratio and Level 2: Fair values are based on market rates and prices, discounted long-term average dividend per share ratio. The only parameter directly future cash flows and, in respect of options, on evaluation tied to any market value is the P/E-ratio, otherwise the value is affected models. by changes in earnings, equity and dividends in the company. Other Level 3: Fair value measurement is not based on observable market parameters remaining unchanged, 10% change in P/E-ratio translates data, as there are no reliable market source available. The approximately 5% change in the fair value. 10% change in the other valuation method is chosen so that information available for parameters do not have material effect on the value. the valuation and the characteristics of the valuation object The fair value calculation of investment in the carbon fund (TGF) can be adequately taken into account. is based on the estimated amounts of Kyoto-credits received from the projects as well as estimated market prices of such credits. Main The fair value of the level three relates to Swedish krona denominated risk factors related to projects have been taken into account in the investment to an unlisted company and an investment to carbon fund. evaluation of amount of the credits received from the fund.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 18. Available-for-sale financial assets
€ million 2009 2008 Carrying value on Jan. 1 75 139 Translation differences 2 -7 Additions 2 1 Disposals 0 -0 Fair value changes 34 -35 Impairment losses - -23 Gains on disposals in the income statement 0 0 Carrying value on Dec. 31 112 75
Less: Non-current listed equity securities -49 -14 Non-current unlisted equity securities -50 -53 Current available-for-sale financial assets 14 8
Listed equity securities 60 21 Unlisted equity securities and other investments, at fair value 36 39 Unlisted equity securities and other investments, at cost 17 15 112 75 Fair value reserve of available-for-sale financial assets
Fair value 112 75 Acquisition value -61 -59 Fair value reserve before tax 51 15 Deferred tax liability -4 5 Fair value reserve 46 20
Listed equity securities are recognised at fair value, which is based on characteristics of the company’s business can be adequately taken into quoted market prices. The significant or prolonged decline in the fair value account. More information on valuation method can be found in note will lead to impairment if the fair value has been below the acquisition 17. Hierarchy of financial assets and liabilities measured at fair value. value by more than predefined percentage during last three quarters. The unlisted equity securities, whose fair value cannot be reliably Valuation methods used for unlisted equity securities have been determined are measured at cost. The amount includes EUR 12 million (2008: chosen so that information available for the valuation and the EUR 10 million) investments in power utility companies on Dec. 31, 2009.
19. Share-based payment plans
Outokumpu has a stock option programme for management (2003 key management of Outokumpu for years 2009–2013. The programme stock option programme) and two share-based incentive programmes. will last five years, comprising three earning periods of three calendar The stock option programme has three parts, 2003A, 2003B and 2003C years each. The earning periods commence on January 1, 2009, and share-based incentive programmes are for years 2006–2010 and January 1, 2010 and January 1, 2011. The Board approves the number 2009–2013. Both stock option programme and share-based payment of participants, final allocations and performance criteria separately programmes are part of the Group’s incentive and commitment- for each earning period. The aggregate number of shares distributed building system for key employees, and the objective is to encourage for each earning period cannot exceed 500 000 shares. The amount of recipients to work in the long-term to increase shareholder value. reward will be determined and paid to the participants on the basis of The objective of the programmes is to reward for good performance, the achievement of performance targets after the financial statements which supports the Group’s strategy and at the same time to direct of the last year of earning period have been prepared. No new shares management’s attention to increasing the Outokumpu’s shareholder will be issued in connection with the programme and therefore the value over a longer period of time. incentive plan will have no diluting effect. The first earning period for 2006–2010 incentive programme was IFRS 2 Share-based payments standard has been applied for the ended on December 31, 2008. Based on the achievement of the above mentioned incentive programmes. The total estimated value of targets, the Board confirmed that the participants would receive 50% the programmes is EUR 21 million at December 31, 2009. This value is of the maximum number of shares. Altogether 177 715 shares were recognised as an expense in the income statement during the vesting distributed to 125 persons in March 2009. Outokumpu used its treasury periods. By December 31, 2009, a total of EUR 16 million has been shares for the reward payment, which means that the total number of recognised as an expense in the income statement, of which shares of the company did not change. EUR 2 million in 2009 (2008: EUR 0 million). On February 3, 2009, the Board of Directors of Outokumpu More information on Outokumpu’s options and share-based approved the second share-based incentive plan to be offered to the incentive programmes can be found in Outokumpu’s annual report.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 19. Share-based payment plans
Share-based payments included in employee benefit expenses
€ million 2009 2008 Equity-settled share-based payment transactions -1 -2 Cash-settled share-based payment transactions -1 2 -2 -0
Total carrying amount of liabilities for cash-settled arrangements on Dec. 31 2 3
Option programme
General terms and conditions of the option programme
2003A 2003B 2003C March 22, 2005 and Grant date June 12, 2003 Feb. 10 and Sept. 15, 2004 April 1–Oct. 1, 2007 The number of options granted 742 988 1 148 820 1 205 000 The maximum number of options granted on Dec. 31 - 939 714 80 500 Exercise price, € 1) 7.25 9.81 10.44 Term of contract June 12, 2003–March 1, 2009 Feb. 10, 2004–March 1, 2010 March 22, 2005–March 1, 2011 Vesting period June 12, 2003–Aug. 31, 2006 Feb. 10, 2004–Aug. 31, 2007 March 22, 2005–Aug 31, 2008 Conditions of the agreement The Group’s earnings per The Group’s earnings per The development of the share in 2003 and share price share in 2004 and share price Group’s operating profit performance outperforming performance outperforming (EBIT), and development of the share price trend of peer the share price trend of peer the Group’s total shareholder companies. The additional companies. The additional return (TSR) compared to a earnings criterion for Group earnings criterion for Group peer group. The additional Executive Committee Executive Committee criterion for Group Executive members was the Group’s members was the Group’s Committee members was the gearing. gearing. Group’s gearing. 1) Paid dividends have been deducted.
The weighted average remaining contractual life for the share options outstanding as at December 31, 2009 was 0.2 years (2008: 0.9 years). In 2009 nor in 2008, no new options were granted.
The fair value of equity-settled share options granted is estimated at the grant date using the Black-Scholes-Merton option pricing model, taking into account the terms and conditions upon which the options were granted.
Number of options and weighted average exercise prices of, and movements in, share options during the year
2009 2008 Weighted average Weighted average exercise price exercise price Options €/share Options €/share Outstanding at the beginning of the year 1 587 294 9.28 1 719 381 10.48 Forfeited during the year - - -2 000 10.94 Exercised during the year -558 659 7.34 -130 087 9.14 Expired during the year -8 421 7.25 - - Outstanding at the end of the year 1 020 214 9.86 1 587 294 9.28 Exercisable at the end of the year 1 020 214 9.86 1 587 294 9.28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 19. Share-based payment plans
Share-based incentive programmes
The general terms and conditions of the share-based incentive programmes Share-based incentive Share-based incentive programme for 2006–2010 programme for 2009–2013 Earning period, 2007–2009 Earning period, 2008–2010 Earning period, 2009–2011 Grant date Feb. 1, 2007 Jan. 31, 2008 Feb. 3, 2009 Vesting period Jan. 1, 2007–Dec. 31, 2009 Jan. 1, 2008–Dec. 31, 2010 Jan. 1, 2009–Dec. 31, 2011 Vesting conditions: Market Share price performance Share price performance Share price performance outperforming share price outperforming share price outperforming share price trend of peer companies. trend of peer companies. trend of peer companies. Non-market Achieving targets set Achieving targets set - for the Excellence for the Excellence programmes. programmes. Other relevant conditions A salary-based limit for A salary-based limit for A salary-based limit for the maximum benefits. the maximum benefits. the maximum benefits.
The fair value of share-based incentive programmes are determined using statistical model.
Inputs of the model Share-based incentive Share-based incentive programme for 2006–2010 programme for 2009–2013 Earning period, 2007–2009 Earning period, 2008–2010 Earning period, 2009–2011 Share price at the grant date, € 28.10 21.01 8.54 Share price at the balance sheet date, € 13.26 13.26 13.26 Reference ratio annualised volatility at the grant date, % p.a. 25.9 28.1 52.3 Reference ratio annualised volatility at the balance sheet date, % p.a. 34.1 34.1 42.7 Estimated forfeit ratio at the grant date, % p.a. 10.0 8.0 6.0 Estimated forfeit ratio at the balance sheet date, % p.a. 5.0 5.0 5.0 Actual forfeit ratio, % p.a. 1.9 4.7 2.6 Estimated outcome of market criteria at the grant date, % 41.1 51.5 62.3 Estimated outcome of non-market criteria at the grant date, % 100.0 50.0 - Estimated outcome of market criteria at the balance sheet date, % 0.0 19.9 50.6 Estimated outcome of non-market criteria at the balance sheet date, % 0.0 0.0 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 20. Financial risk management, capital management and insurances
The objective of financial risk management is to reduce the impact of year there was also a decision to reduce currency hedging of a loan price fluctuations and other factors of uncertainty in financial markets on receivable from Luvata Fabrication Oy. The Group’s fair-value currency earnings, cash flows and balance sheet, as well as to ensure sufficient position is presented on a more detailed level in note 21. Foreign liquidity. The objective of capital management is to secure the ability exchange exposure. to continue as a going concern and to optimise the cost of capital in Outokumpu does not hedge income statement translation risk. The order to enhance value to shareholders. The main objective of insurance total non-euro-denominated equity of the Group’s foreign subsidiaries management is to provide protection against insurable catastrophe risk was EUR 888 million on Dec. 31, 2009 (2008: EUR 1 075 million). Some and to reduce earnings variation caused by hazards. 61% of the total net investment exposure is denominated in Swedish The Board has approved the risk management policy, which defines krona and 14% in British pounds. At the end of the year there were no responsibilities, risk management process and other main principles of hedges related to net investment exposure (2008 hedging ratio: 9.3%). risk management. The Board oversees risk management on a regular basis. In 2009, the CEO approved changes to country and credit risk management principles. The new principles have been embedded in Interest rate risk the Financial Risk Policy. The Chief Financial Officer is responsible for implementation and development of financial risk management. The Group’s interest rate risk is monitored as cash flow risk (impact Financial risks consist of market, country, credit, liquidity and of rate changes on net interest expenses) and fair value risk (impact refinancing risks. Business units and functions hedge their currency and of rate changes on fair value of monetary assets and liabilities). In nickel price risk against Treasury and Risk Management function, which order to manage the balance between risk and cost in an optimal does most of the derivative contracts with banks and other financial way, a significant part of loans have short-term interest rate as a institutions. The function is also responsible for managing liquidity and reference rate. Cash flow risk is reduced with interest rate swaps, where refinancing risk as well as interest rate risk and emission allowance Outokumpu pays fixed rate and receives variable rate. In 2009, interest price risk. Credit risk management is decentralised, but Treasury and rate options were also made with the aim of reducing impacts of Risk Management function monitors this risk as well. The Group’s interest rate increase on earnings. energy function is responsible for managing energy price risk. Swedish krona and euro have substantial contribution to the overall The Treasury and Risk Management function purchases a substantial interest rate risk. Approximately 87% of the Group’s interest-bearing part of Group’s insurances. The most important insurance lines are property liabilities have an interest period of less than one year and the average damage and business interruption, liability, transport and credit. The interest rate of long-term interest bearing debt on Dec. 31, 2009 was Group’s captive insurance company retains a selected part of insurable risk. 2.0%. Interest rate position is presented on a more detailed level in note 22. Currency distribution and re-pricing of outstanding net debt.
Market risk Commodity and energy price risk Market risk is caused by changes in foreign exchange and interest rates, as well as commodity, energy and security prices. These price changes Outokumpu uses a substantial amount of raw materials and energy may have a significant impact on the Group’s earnings, cash flows for which prices are determined in regulated markets, such as London and balance sheet. Sensitivity of financial instruments to market risk is Metal Exchange and Nord Pool ASA. Timing differences between raw described in note 24. material purchase and pricing of products, changes in inventory levels Outokumpu uses derivative contracts to mitigate above-mentioned and the capability to pass on changes in raw material and energy prices impacts of market price changes. Hedge accounting is applied to hedges to end-product prices, all affect hedging requirements and activities. of forecasted electricity purchases of Finnish production sites (electricity Nickel price is the most important commodity price risk for price risk) and committed currency denominated electricity purchases Outokumpu. A majority of stainless steel sales contracts include an alloy (EUR/SEK spot rate risk). Also derivatives, for which hedge accounting surcharge clause, with the aim of reducing the risk arising from the time is not applied, have been entered into for the purpose of reducing difference between raw material purchase and product delivery. The impacts of market price changes on earnings and/or cash flows related Group’s nickel exposure includes price fixed purchase orders, nickel- to business or financing activities. The use of non-hedge-accounted containing material in inventories, price fixed sales orders and forecasted derivatives may cause timing differences between derivative gains/losses but not yet ordered deliveries for the upcoming few weeks. This, typically and the earnings impact of the underlying exposure. Nominal amounts long (surplus), position in nickel is partly reduced with derivatives so and fair values of all derivatives are presented in note 25. that the permanent amount of nickel in business activities (base stock) is being left mainly unhedged. Nickel derivatives are used to reduce the impacts of price changes on earnings. Based on a separate decision, a Foreign exchange rate risk significant part of the base stock was hedged in the end of 2009. Metal price changes have a major impact on the Group’s working capital and A major part of Group’s sales is in euros and US dollars. A significant thus cash flow from operations. This risk is not hedged with derivatives. part of expenses arise in euros, US dollars and Swedish kronas. In Many of Outokumpu’s main sites are participating in the EU Emissions Europe, Outokumpu’s products are priced mainly in euros and therefore Trading Scheme (ETS). Realised and forecasted carbon dioxide emissions production costs in Swedish krona (some 4 billion kronas a year) in and granted emission allowances are monitored and assessed also particular gives rise to a significant foreign exchange risk impacting on centrally. Emission allowance price risk is managed with the aim of earnings. securing the cost of compliance for the current trading period and Outokumpu hedges most of its fair value risk, e.g. risks related reducing the cost of compliance e.g. by investing in a carbon fund and by to currency denominated accounts receivables, accounts payables, swapping EUAs to Kyoto credits within the limits set in ETS. interest-bearing debt, cash and loan receivables. Cash flow risk related The Group has energy intensive production processes using to firm commitments is hedged to a large extent, whereas forecasted electrical energy, liquefied petroleum gas, natural gas and other and probable cash flows can be hedged selectively and with separate fuels. Electrical energy used by the Group’s Nordic production sites is decisions only. In 2009, Outokumpu hedged forecasted cash flows purchased and managed centrally while at other sites electrical energy by purchasing Swedish kronas and British pounds. In the end of the is purchased locally. Electricity price risk is reduced with fixed price
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 20. Financial risk management, capital management and insurances supply contracts, ownerships in energy producers and with the use balanced maturity profile of long-term debt. Efficient cash and liquidity of derivatives. Electricity derivatives are used to manage short- and management is also reducing liquidity risk. medium-term price risk and hedge accounting is applied to part of the In 2009, Outokumpu Oyj agreed on EUR 900 million Revolving contracts. Hedge accounted derivatives are presented in note 25. Fair Credit Facility, which was fully undrawn on Dec. 31, 2009. In the same values and nominal amounts of derivative instruments. connection, a few existing loan agreements were reviewed and changed. On Dec. 31, 2009 the Group had electricity derivatives of 0.8 TWh Other committed credit facilities totaling EUR 246 million were agreed (Dec. 31, 2008: 1.3 TWh). Electricity consumption of the Group’s Nordic on and these facilities were also fully undrawn on Dec. 31, 2009. production sites was 2.1 TWh (2008: 2.7 TWh). Additionally, Outokumpu agreed during 2009 on EUR 50 million pension loan, EUR 61 million finance lease and EUR 38 million in other long-term loans. The domestic commercial paper programme was increased to EUR Security price risk 800 million of which EUR 504 million was used on Dec. 31, 2009. The main funding programmes and standby credit facilities include the Outokumpu has investments in equity securities, loan receivables Finnish Commercial Paper Program totalling EUR 800 million, the Euro- and investment funds. On Dec. 31, 2009 the biggest investment in Commercial Paper Program totalling USD 250 million, the committed listed equity securities was Talvivaara Mining Company Plc and the Revolving Credit Facility of EUR 900 million (maturing in June 2012), a most significant loan receivable was from Luvata Fabrication Oy. Fund committed credit facility of EUR 100 million and a committed credit facility investments were made to two fixed income funds and one money of SEK 1 500 million. On Dec. 31, 2009 the Group had committed and market fund. Apart from currency risk related to loan receivables, available credit facilities, available and undrawn TyEL pension loans in securities have not been hedged with derivatives. Finland, and other agreed and undrawn loans totalling EUR 1 341 million. More information on liquidity and refinancing risk is presented in note 23.
Country and credit risk Capital management Country and credit risk management principles were updated in the end of 2009. According to the new principles many related processes will The Group’s capital management objective is to secure the ability to be harmonised, decision-making related to customer credit risk will be continue as a going concern and to optimise the cost of capital in order moved to sales organisation and capabilities related to credit control to enhance value to shareholders. As part of this objective the Group will be developed further. seeks to maintain access to loan and capital markets at all times despite All external sales must be covered by approved credit limits or the cyclical nature of the industry in which Outokumpu operates. The secured payment terms. Credit control policy applied in 2009 as well Board of Directors reviews the capital structure of the Group on a regular as new credit control principles enable unsecured credit limits but basis. most of the outstanding trade receivables have been covered by Capital structure and debt capacity are taken into account when credit limits granted by insurance companies. Credit insurance policy deciding new investments. Practical tools to manage capital include typically covers some 85% of an insured credit loss. Part of the credit application of dividend policy, share buybacks and share issues. Debt risk related to trade receivables is managed with bank guarantees, capital is managed considering the requirement to secure liquidity and letters of credit and advance payments. Country risk related to the capability to refinance maturing debt. Outokumpu seeks to avoid Outokumpu’s business activities is monitored and reported at the having financial covenants in its debt. Despite this principle, the new Group-level. Revolving Credit Facility and some loans negotiated thereafter include a On Dec. 31, 2009 the maximum exposure to credit risk of trade financial covenant, which is tied to gearing. receivables was EUR 427 million (2008: EUR 571 million). Some 85% of The Group’s internal capital structure is reviewed on a regular trade receivables are covered by insurance or secured payment terms basis with an aim to optimise the structure e.g. by applying internal (2008: 94%). The Group’s trade receivables are generated by a large dividends and equity adjustments. Net investment in foreign entities number of customers. However, there have been some single customer is monitored and the Group has capability to hedge related translation credit risk concentrations during the last year and in Italy Outokumpu risk. had many unsecured limits at the end of the year. The biggest amounts Outokumpu’s captive insurance company, Visenta Försäkrings Ab, of receivables by country were Germany (17%), Italy (12%) and the has to comply with capital adequacy requirements set by authority. United States (9%). Age analysis of accounts receivables is in note 27. During the reporting period Visenta has been well capitalised to meet Loan receivables are typically not insured or secured in any other externally imposed requirements. way. A significant portion of all interest bearing loan receivables was a The management monitors capital structure on the basis of receivable from Luvata Fabrication Oy. gearing ratio, which is calculated as net debt divided by total equity. The Treasury and Risk Management function monitors credit risk Net debt is calculated as total borrowings, including all interest- related to receivables, including receivables related to derivatives, from bearing liabilities, less interest-bearing assets, all marked with 1) in financial institutions. Outokumpu seeks to reduce these risks by limiting the consolidated balance sheet. Other definitions can be found on the counterparties to banks and other financial institutions with good page 68. credit standing. For the derivative transactions, Outokumpu prefers The Group’s financial target is to maintain the gearing ratio below to have ISDA framework agreements in place. Investments related 75%. Financial objectives include also a return on capital employed of to liquidity management are made in short-term deposits and liquid over 13% and always the best among peers. Weighted average cost of financial instruments with, as much as possible, low credit risk. capital (WACC) is defined and applied to monitor efficiency of capital use and to provide market driven guidance for managing capital structure and for making capital allocation decisions. Liquidity and refinancing risk On Dec. 31, 2009 net interest-bearing debt was EUR 1 183 million (2008: EUR 1 072 million), total equity EUR 2 451 million (2008: EUR Outokumpu raises most of its interest-bearing debt centrally. The 2 975 million) and debt-to-equity ratio 48.2% (2008: 38.4%). The increase Group seeks to reduce liquidity and refinancing risk by having in net interest-bearing debt and debt-to-equity ratio during 2009 sufficient amount of cash and credit lines available and by having resulted primarily from net loss for the financial year, investments
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 20. Financial risk management, capital management and insurances and dividend payment. Increase in net debt was limited by significant interdependences as well. Property damage and business interruption reduction in working capital. is the most important insurance line and substantial part of the insurance premiums relate to these types of risks. Other significant insurance lines include transport, credit and liability. Insurances Visenta Försäkrings AB can act as direct insurer and as reinsurer. The company is registered in Sweden and it has assets worth almost EUR 30 Outokumpu’s business is capital intensive and key production million. Visenta underwrites e.g. credit insurance policies and property processes are rather tightly integrated and have other and business interruption insurance policies for Group companies.
21. Foreign exchange exposure
Fair value exposures to currency risk of EUR reporting companies
2009 2008 € million SEK USD GBP Other SEK USD GBP Other Trade receivables and payables 4 16 27 14 3 12 22 12 Loans and bank accounts 1) 801 119 44 -68 579 111 50 -67 Derivatives -450 -66 -65 66 -236 -92 -58 67 Net exposure 355 69 5 12 346 31 14 12
Fair value exposures to currency risk of SEK reporting companies
2009 2008 € million EUR USD GBP Other EUR USD GBP Other Trade receivables and payables 60 30 1 11 100 58 1 19 Loans and bank accounts 1) 23 12 5 2 23 11 3 2 Derivatives -141 -72 -15 -18 -142 -63 -1 -19 Net exposure -58 -30 -8 -5 -19 5 3 2
1) Includes cash, interest-bearing liabilities and receivables.
22. Currency distribution and re-pricing of outstanding net debt
Dec. 31, 2009 € million Average Duration, Rate Currency Net debt 1) Derivatives 2) rate, % year sensitivity 3) EUR 1 277 -692 2.3 1.1 2.5 SEK 251 660 2.2 1.5 5.2 USD -111 102 10.5 > 10 0.8 Others -29 -47 1.8 0.2 -0.6 1 388 23 8.0
Dec. 31, 2008 € million Average Duration, Rate Currency Net debt 1) Derivatives 2) rate, % year sensitivity 3) EUR 1 019 -631 4.2 1.9 0.6 SEK 416 566 4.2 0.7 7. 4 USD -134 62 7. 6 10.1 0.2 Others - 11 -39 3.4 0.2 -0.3 1 291 -42 7. 9
1) Includes cash and cash equivalents, interest-bearing liabilities and receivables. 2) Includes nominal value of interest rate and cross currency swaps, interest rate options and currency forwards earmarked to the interest-bearing net debt. Currency forwards are not included in average rate calculation. Year 2008 table has been changed respectively. 3) The effect of one percentage point increase in interest rates to financial expenses over the following year.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 23. Liquidity and re-financing risk
2009 Balance sheet Contractual cash flows € million Dec. 31 2010 2011 2012 2013 2014 2015– Bonds 225 - 75 150 - - - Loans from financial institutions 615 108 81 157 65 73 130 Pension loans 182 29 40 30 27 15 41 Finance lease liabilities 111 6 8 8 8 14 67 Other liabilities 517 509 1 - - - 7 Interest payments and facility charges 8 41 28 14 10 9 16 Interest rate derivatives 11 6 2 1 -1 3 -0 Trade payables 301 301 - - - - - Other derivative financial instruments 52 28 9 11 5 - - 1 028 243 372 115 114 261
On Dec. 31, 2009 the Group had cash and cash equivalent marketable securities amounting to EUR 112 million and committed and available credit facilities, undrawn TyEL pension loans in Finland, and other agreed and undrawn loans totalling EUR 1 341 million.
2008 Balance sheet Contractual cash flows € million Dec. 31. 2009 2010 2011 2012 2013 2014– Bonds 225 - - 75 150 - - Loans from financial institutions 959 208 275 96 92 162 126 Pension loans 160 29 29 37 24 21 21 Finance lease liabilities 55 4 5 4 4 4 33 Other liabilities 272 260 3 2 - - 7 Interest payments 26 66 37 32 21 12 18 Interest rate derivatives -9 -3 -0 -1 -6 - - Trade payables 236 236 - - - - - Other derivative financial instruments 12 2 4 6 - - - 801 352 251 285 199 205
On Dec. 31, 2008 the Group had cash and cash equivalent marketable securities amounting to EUR 224 million and committed and available credit facilities, undrawn TyEL pension loans in Finland, and other agreed and undrawn loans totalling EUR 1 010 million.
24. Sensitivity of financial instruments to market risks
2009 2008 Other Other Income comprehensive Income comprehensive € million statement income statement income +/-10% change in EUR/USD exchange rate -5/+6 - -2/+3 - +/-10% change in EUR/SEK exchange rate -5/+6 -23/+28 -2/+2 -17/+21 +/-10% change in EUR/GBP exchange rate -0/+0 - -1/+1 - +/-10% change in USD nickel price -4/+3 - -3/+3 - +/-10% change in electricity price +0/-0 +2/-2 +1/-1 +1/-1 +/-10% change in share prices - +8/-8 +0/-0 +6/-6 +/-1% parallel shift in interest rates +8/-8 - -6/+6 -
Sensitivity analyses apply to financial instruments only. Other assets, liabilities and off-balance sheet items such as sales and purchase orders, are not in the scope of these analyses. The flat price variation for nickel, electricity, currency and share prices are assumed to be 10%. The variation of interest rates is assumed to be 1% parallel shift on interest rate curve. The calculations are net tax.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 25. Fair values and nominal amounts of derivative instruments
2009 2009 2009 2008 2009 2008 Negative fair Nominal Nominal € million Positive fair value value Net fair value Net fair value amounts amounts Currency and interest rate derivatives Currency forwards 12 54 -42 0 1 784 1 920 Interest rate swaps - 3 -3 2 199 200 Cross-currency swaps 5 13 -8 7 212 46 Currency options, bought 1 - 1 - 30 - Currency options, sold - 0 -0 - 31 - Interest options, bought 2 - 2 - 78 - Interest options, sold - 2 -2 - 78 -
Tonnes Tonnes Metal derivatives Forward and futures nickel contracts - - - -0 - 4 729 Nickel options, bought 2 - 2 14 13 290 16 758 Nickel options, sold - 4 -4 -14 13 290 11 478 Forward and futures copper contracts 0 1 -0 -0 1 275 4 925 Forward and futures zinc contracts 0 0 -0 -0 400 1 025
Emission allowance derivatives 1 0 0 1 404 000 270 000
TWh TWh Electricity derivatives 1 10 -8 - 11 0.8 1.3
Stock options - - - 0 Total derivatives 22 86 -63 -1
Less long-term derivatives Currency forwards - 20 -20 -37 Interest rate swaps - 2 -2 1 Cross currency swaps 5 13 -8 7 Interest options, bought 2 - 2 - Interest options, sold - 1 -1 - Emission allowance derivatives 0 - 0 0 Electricity derivatives 0 5 -5 -10 Short-term derivatives 16 45 -29 37
Fair values are estimated based on market rates and prices, discounted future cash flows and, in respect of options, on evaluation models.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 25. Fair values and nominal amounts of derivative instruments
Hedges of net investments in foreign entities 2009 2008 Other Other comprehensive comprehensive Fair value, income, Fair value, income, Currency Nominal value € million € million Nominal value € million € million SEK million - - 15 962 11 14 GBP million - - 0 - - 0 - 15 11 15
Net investment in foreign entities is hedged with currency forwards. portion is recognised as gain or loss in financial income and expenses. The effective portion of gains and losses on the hedging instruments, There are no open hedges at the reporting date. net of tax, is recognised in other comprehensive income. The ineffective
Hedge accounted electricity derivatives 2009 2008 Other Other Nominal comprehensive Nominal comprehensive € million amounts, TWh Fair value income amounts, TWh Fair value income Remaining maturity < 1 year 0.2 -4 -3 0.1 -1 -1 Remaining maturity 1–2 years 0.3 -5 -4 0.5 -10 -7 0.6 -8 -6 0.5 - 11 -8
Forecast purchases of electricity for the Finnish production facilities as gain or loss. The effective portion of realised gains and losses on are hedged with electricity forwards. The effective portion of hedges is recognised in income as adjustment to purchases in the unrealised gains and losses on hedges, net of tax is recognised in period when the hedged cash flow affects income. Other realised gains other comprehensive income. Other fair value changes are recognised and losses are recognised in other operating income and expenses.
Hedge accounted cash flow hedges 2009 2008 Other Other comprehensive comprehensive Nominal amounts, Fair value income, Nominal amounts, Fair value income, SEK million € million € million SEK million € million € million Maturity 1–5 years 1 449 -10 -9 1 106 - 11 -12 Maturity 5–10 years 2 047 -13 -14 2 160 -21 -23 Maturity > 10 years 36 0 0 488 -4 -5 3 532 -23 -23 3 755 -37 -39
Outokumpu has hedged currency spot risk related to SEK denominated The ineffective portion of the hedges (year 2009 loss EUR 8 million, year long-term electricity supply agreement for the Finnish production sites. 2008 gain EUR 16 million) is recognised in other operating income and The currency derivatives, which hedge the currency risk, mature in other expenses. Year 2010 electricity deliveries have been postponed to year 2011 periods (years 2010–2013) than the underlying cash flows of electricity due to amendments made in supply agreement in year 2009. Part of the purchases. The derivatives will be prolonged later to mature with the currency hedges have been closed and hedging relationship terminated as underlying cash flows. The effective portion of hedges is recognised in the underlying forecasted cash flow is not expected to occur. After changes other comprehensive income net of tax and will be recognised in income in hedging relationship EUR 1 million loss was transferred from other at the same period as the underlying hedged cash flows affect income. comprehensive income to other operating expenses.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 26. Inventories
€ million 2009 2008 Raw materials and consumables 265 381 Work in progress 340 402 Finished goods and merchandise 410 421 Advance payments 0 0 1 016 1 204
At the end of 2009, EUR 34 million (Dec. 31, 2008: EUR 131 million) was the delivery cycle in production is longer than the alloy surcharge recognised as expense, with which the carrying value of the inventories mechanism expects. Thus only the price for the products to be sold in was written down to reflect its net realisable value (NRV). The most near future is known. That is why a significant part of the coming prices important commodity price risk for Outokumpu is caused by fluctuation for the products to be sold is estimated according to management’s in nickel and other alloy prices. Majority of stainless steel sales best knowledge in NRV calculations. Due to fluctuation in nickel and contracts include an alloy surcharge clause, with the aim of reducing other alloy prices the realised prices can deviate significantly from what the risk arising from the time difference between raw material purchase has been used in NRV calculations on the closing date. and product delivery. However, the risk is remarkable, because
27. Trade and other receivables
€ million 2009 2008 Non-current Interest-bearing Loans receivable 139 130 Financial assets at fair value through profit and loss 1 1 140 132
Non interest-bearing Trade receivables 1 0 Defined benefit pension assets 53 54 Other receivables 1 0 55 55
Current Interest-bearing Loans receivable 9 24 Accrued interest income 0 0 9 25
Non interest-bearing Trade receivables 427 571 Income tax receivable 15 51 Prepaid insurance expenses 7 8 VAT receivable 20 42 Grants and subsidies receivable 1 1 Other accruals 30 16 Other receivables 9 13 508 701
Allowance for impairment of trade receivables Allowance on Jan. 1 6 6 Additions 10 1 Deductions -3 -1 Recovery of doubtful receivables -0 -0 Allowance on Dec. 31 13 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 27. Trade and other receivables
Age analysis of trade receivables
€ million 2009 2008 Neither impaired, nor past due 367 467 Past due 1–30 days 44 72 Past due 31–60 days 8 16 More than 60 days 7 17 427 571
Fair value of interest-bearing non-current loan receivables is estimated to be EUR 49 million (2008: EUR 91 million). Difference between the fair value and the carrying amount relate to a loan receivable from Luvata Fabrication Oy. In determining the fair value of the receivable, the priority position versus other financing, capitalisation of interest, market credit spreds, and level of market interest rates have been considered. Also the scenario of premature repayment has been taken into account in the valuation. Carrying amount on current receivables is reasonable approximation of their fair value. The maximum exposure to credit risk at the reporting date is the carrying amount of the loan and trade receivables. Risks related to trade receivables are presented in more detail in note 20.
28. Cash and cash equivalents
€ million 2009 2008 Cash at bank and in hand 98 203 Short term bank deposits 1 2 Cash equivalent marketable securities 12 19 112 224 Bank overdrafts 1) -12 -5 99 219 1) Presented in current interest-bearing debt on the balance sheet.
Fair value of cash and cash equivalents does not significantly differ from the carrying value. The effective interest rate of cash equivalent marketable securities at the end of 2009 was 0.94% and the average maturity 2 days. Investments in fixed income funds are included in the cash equivalent marketable securities.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 29. Equity
Share capital and premium fund
Number of shares € million 1 000 Share capital Premium fund Total On Jan. 1, 2008 180 103 308 701 1 010 Shares subscribed with 2003A option rights 52 0 0 0 Shares subscribed with 2003B option rights 68 0 1 1 Shares subscribed with 2003C option rights 10 0 0 0 On Dec. 31, 2008 180 233 308 702 1 011 Shares subscribed with 2003A option rights 542 1 3 4 Shares subscribed with 2003B option rights 6 0 0 0 Shares subscribed with 2003C option rights 10 0 0 0 Distribution of treasury shares 178 - - - On Dec. 31, 2009 180 970 309 706 1 015 Treasury shares 1 041 Total number of shares on Dec. 31, 2009 182 011
According to the Articles of Association, the maximum number of Outokumpu Oyj shares is 706 million. Account equivalent value of a share is EUR 1.70, and the maximum share capital is EUR 1.2 billion. No treasury shares have been purchased in 2009 or 2008.
Fair value reserves
€ million 2009 2008 Available-for-sale financial assets reserve 46 20 Cash flow hedge reserve -30 -47 Reserve of other comprehensive income in associated companies 5 - 22 -28
Fair value reserves include movements in the fair values of available-for-sale financial assets and derivative instruments used for cash flow hedging and a share of other comprehensive income in associated companies.
Other reserves
€ million 2009 2008 Reserve fund 12 14 Other reserves 3 1 15 15
Reserve fund includes amounts transferred from the distributable equity under the Articles of Association or by a decision by General Meeting of Shareholders. Other reserves include other items based on the local regulations of the Group companies.
Distributable funds On Dec. 31, 2009 the distributable funds of the parent company totalled EUR 850 million.
Dividend per share The dividends paid in 2010 will be decided at the Annual General Meeting on March 30, 2010. This dividend payable is not reflected in the financial statements.
2010 1) 2009 2008 Dividend per share, € 0.35 0.50 1.20 Total dividends, € million 63 90 216
1) The Board of Directors’ proposal to the Annual General Meeting
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 30. Employee benefit obligations
Outokumpu has established several defined benefit and defined the calculation of obligations and assets by employer from the plan contribution pension plans in various countries. The most significant operators, and therefore these plans have been accounted for as defined benefit plans are in the UK, Germany and in the US. defined contribution plans in the financial statements. ITP-pension plans operated by Alecta in Sweden and plans operated Other long-term employee benefits relate to retirement medical by Stichting Bedrijfspensioenfonds voor de metaalindustrie in the arrangements in the US for retirees and their families and on long-term Netherlands are multi-employer defined benefit pension plans. employment benefits in Finland. In Finland the employees are entitled However, it has not been possible to get sufficient information for to receive an one time indemnity after 20 years of service.
Pension and other long-term employee benefits
Amounts recognised in the income statement
€ million 2009 2008 Defined benefit pension plans -19 -10 Defined contribution pension expenses -45 -55 Other long-term employee benefits -3 -6 -67 -71
By function Defined benefit Other long-term pension plans employee benefits € million 2009 2008 2009 2008 Cost of sales -5 -12 -3 -5 Selling and marketing expenses -2 -2 -0 -0 Administrative expenses -13 3 -0 -1 -19 -10 -3 -6
Defined benefit cost Defined benefit Other long-term pension plans employee benefits € million 2009 2008 2009 2008 Current service cost -5 -7 -1 -1 Interest cost -19 -20 -2 -2 Expected return on plan assets 19 25 - - Recognised net actuarial gains and losses -1 -0 0 -0 Employee contributions 1 2 - - Past service cost -0 -0 0 -3 Gains and losses on curtailments and settlements -14 -9 0 - -19 -10 -3 -6
Actual return on plan assets 39 -51 - -
Amounts recognised in the balance sheet Defined benefit Other long-term pension plans employee benefits € million 2009 2008 2009 2008 Present value of funded obligations 354 281 - - Fair value of plan assets -334 -288 - - Present value of unfunded obligations 24 26 38 34 Unrecognised actuarial gains and losses -67 -42 -4 -1 Unrecognised past service cost -0 -0 1 1 Net liability -22 -24 34 34
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 30. Employee benefit obligations
Balance sheet reconciliation Defined benefit Other long-term pension plans employee benefits € million 2009 2008 2009 2008 Net liability on Jan. 1 -24 -21 34 29 Translation differences -3 7 -1 1 Net periodic cost in income statement 19 10 3 6 Contributions paid into the plans -15 -22 -2 -2 Acquired subsidiaries - 2 - - Net liability on Dec. 31 -22 -24 34 34
€ million 2009 2008 Defined benefit pension and other long-term employee benefits 65 64 Defined benefit pension assets -53 -54 Net liability 12 10
Movement in plan assets
€ million 2009 2008 Fair value of plan assets on Jan. 1 288 398 Translation differences 15 -72 Contributions paid into the plans 14 22 Benefits paid by the plans -21 -14 Expected return on plan assets 19 21 Actuarial gains and losses 20 -66 Curtailments and settlements -2 - Fair value of plan assets on Dec. 31 334 288
The expected contributions to be paid to the plans in 2010 are EUR 13 million.
Historical information
€ million 2009 2008 2007 2006 2005 Present value of the defined benefit obligations 416 341 426 485 515 Fair value of plan assets -334 -288 -398 -414 -375 Deficit in the plan 83 53 28 71 140
Allocation of plan assets
% 2009 2008 Equity securities 41 39 Debt securities 3 43 Real estate 4 5 Bonds 41 - Other (insured plans) 11 13 100 100
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 30. Employee benefit obligations
Actuarial assumptions
Future salary Future benefit increase increase Expected return Medical cost Discount rate expectation Inflation rate expectation on plan assets trend rate % 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 The US 5.50 6.50 3.50 3.50 - 2.00 - - 7.50 8.50 7.20 8.00 Finland 5.00 6.00 3.50 3.50 2.00 2.00 2.10 2.10 5.00 6.00 - - The UK 5.65 6.10 4.95 4.30 3.70 3.05 2.95 2.15 6.42 6.15 - - Germany 5.37 6.00 2.00 2.00 2.00 - 1.00 - - - - - Italy 4.80 4.80 - - 2.00 3.40 4.05 4.05 - - - - Sweden 3.70 3.70 3.50 3.50 2.00 2.00 2.00 2.00 - - - - Austria 5.00 6.00 3.00 3.00 ------Netherlands 5.00 - - - 1.90 ------
Effect of 1% change in medical cost trend rate (other factors remaining unchanged)
€ million Increase Decrease On defined benefit obligations 6 -5 On service cost and intrest cost 1 -1
31. Provisions
Restructuring Environmental Other € million provisions provisions provisions Provisions on Jan. 1, 2009 46 20 10 Translation differences 3 1 1 Increases in provisions 8 0 3 Utilised during the financial year -32 -3 -2 Unused amounts reversed -7 -4 -0 Provisions on Dec. 31, 2009 19 13 12
€ million 2009 2008 Non-current provisions 17 28 Current provisions 26 48 44 76
Provisions are based on best estimates on the balance sheet date. The take place mainly within 2 to 3 years. Majority of environmental provisions restructuring provisions relate to the closures of Coil Products Sheffield are for closing costs of landfill areas and removal of problem waste in and Sheffield Special Strip, the personnel reductions in the Swedish facilities in Finland and in the UK, and the outflow of economic benefits production sites, and the restructuring of Stainless Tubular business in related to these provisions is expected to take place mainly within 2 to 3 Finland. The restructuring provisions in the UK are partly non-current, and years. Other provisions comprise mainly provisions for litigations as well the outflow of economic benefits related to these provisions is expected to as onerous contracts and claims. These are mainly current provisions.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 32. Interest-bearing liabilities
€ million 2009 2008 Non-current Bonds 225 225 Loans from financial institutions 507 751 Pension loans 153 132 Finance lease liabilities 105 51 Other long-term liabilities 7 12 997 1 170
Current Loans from financial institutions 108 208 Pension loans 29 29 Finance lease liabilities 6 4 Other current liabilities 509 260 652 501
The fair value of non-current interest-bearing liabilities is EUR 958 million (2008: EUR 1 106 million). The fair values are determinated by using discounted cash flow method taken into consideration market credit spread. Carrying amount on current interest-bearing liabilities is reasonable approximation of their fair value. Part of the loans have financial covenants.
Finance lease liabilities
Minimum lease payments
€ million 2009 2008 Not later than 1 year 10 8 1–2 years 10 7 2–3 years 10 7 3–4 years 11 7 4–5 years 8 6 Later than 5 years 79 34 Future finance charges -16 -13 Present value of minimum lease payments 111 55
Present value of minimum lease payments
€ million 2009 2008 Not later than 1 year 7 5 1–2 years 7 5 2–3 years 8 4 3–4 years 9 5 4–5 years 6 4 Later than 5 years 75 31 Present value of minimum lease payments 111 55
Finance lease liabilities include lease payments on a building, which has been subleased with a finance lease agreement. Finance lease receivable relating to this agreement is EUR 7 million (2008: EUR 8 million).
Bonds
€ million Interest rate, % In currency 2009 2008 Fixed interest rate 2004–2011 5.000 EUR 75 million 75 75
Floating interest rate 2007–2012 1. 115 EUR 150 million 150 150 225 225
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 33. Trade and other payables
€ million 2009 2008 Non-current Other non interest-bearing liabilities 1 2
Current Interest-bearing Accrued interest expenses 7 26
Non interest-bearing Trade payables 301 236 Advances received 2 4 Accrued employee-related expenses 64 68 VAT payable 2 5 Withholding tax and social security liabilities 15 15 Other accruals 40 33 Other payables 12 16 437 378
34. Commitments and contingent liabilities
Group Parent company € million 2009 2008 2009 2008 Mortgages and pledges on Dec. 31 Mortgages on land 185 189 - - Other pledges 1 5 - -
Guarantees on Dec. 31 On behalf of subsidiaries For financing - - 93 35 For commercial and other guarantees 22 55 19 46 On behalf of associated companies For financing 1 5 1 5
Other commitments 53 59 53 59
The Group has pledged real estate mortgages created in the Tornio million (2008: EUR 144 million), out of which Outokumpu is liable for one third. production plant for a value of EUR 138 million as security for its Outokumpu Oyj is, in relation to its shareholding in Etelä-Pohjanmaan Voima pension loans. Oy, liable for the costs, commitments and liabilities relating to electricity Outokumpu Oyj is, in relation to its shareholding in Kymppivoima Tuotanto provided by Tornion Voima Oy. The net debt of Tornion Voima Oy at the year Oy and Etelä-Pohjanmaan Voima Oy, liable for the costs, commitments and end 2009 amounted to approximately EUR 52 million (2008: EUR 54 million), liabilities relating to electricity provided by Rapid Power Oy. The net debt of out of which Outokumpu is liable for under one fifth. These liabilities are Rapid Power Oy at the year end 2009 amounted to approximately EUR 126 reported under other commitments.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 34. Commitments and contingent liabilities
Present value of minimum lease payments on operating leases
€ million 2009 2008 Not later than 1 year 11 11 1–2 years 8 8 2–3 years 7 6 3–4 years 6 5 4–5 years 5 4 Later than 5 years 25 24 Present value of minimum lease payments 62 59
Operating leases include lease agreements on Group companies’premises. The Group has entered into long-term (15 years) supply agreements The current duration of these agreements vary between 4–13 years. of industrial gases for the production facilities in Tornio, Avesta Group’s off-balance sheet investment commitments totalled and Sheffield. These agreements do not qualify as finance lease EUR 62 million on Dec. 31, 2009 (Dec. 31, 2008: EUR 93 million). agreements.
35. Disputes and litigations
In March 2001, the European Commission initiated an investigation indirect purchasers of copper plumbing tubes. Outokumpu believes that the concerning alleged participation by Outokumpu Oyj and Outokumpu allegations in these proceedings lack merit and continues defending itself. Copper Products Oy in a price and market-sharing cartel with respect to Based on the above-mentioned EU cartel investigations Carrier copper tubes in the European Union. Outokumpu has cooperated fully Corporation filed a lawsuit against Outokumpu Oyj and Outokumpu with the European Commission in connection with the investigation. Copper Franklin, Inc. i.a. in April 2006. The complaint alleges a The investigation involving Outokumpu was subsequently divided into worldwide price fixing and market allocation cartel with respect to two separate proceedings: investigation into alleged price fixing and copper tubing for air conditioning and related applications (ACR market sharing in the industrial copper tubes sector and investigation into Tube) for at least the period from 1989 to 2001. The complaint requests alleged price fixing and market sharing in the sanitary copper tube sector. damages due to alleged overcharges (without specifying a particular Pursuant to its investigations the European Commission has in amount of damages). In July 2007 Carrier’s complaint was dismissed. its decision of 2003, found Outokumpu Oyj and Outokumpu Copper Carrier filed an appeal which is still pending in the Court of Appeals. Products Oy having infringed the applicable EU competition laws by In connection with the transaction to sell the fabricated copper participating in agreements and concerted practices consisting of price products business to Nordic Capital, Outokumpu has agreed to fixing and market sharing in the industrial Copper tubes sector during indemnify and hold harmless Nordic Capital with respect to the above a period between 1988 and 2001. As a result, the European Commission referred US lawsuits. imposed an aggregate fine of EUR 18 million on Outokumpu Oyj and In March 2007, Finnish Customs authorities initiated a criminal Outokumpu Copper Products Oy. In 2004, Outokumpu made an appeal investigation into the Group’s Tornio Works’ export practices to Russia. It to the Court of First Instance for Europe regarding the basis for the was suspected that a forwarding agency based in south-eastern Finland calculation and the amount of the fine. According to decision issued by had prepared defective and/or forged invoices regarding the export the Court in May 2009, the amount of the fine remained unchanged. of stainless steel to Russia. The preliminary investigation focused on In the investigations in the sanitary copper tube sector the European possible complicity by Outokumpu Tornio Works in the preparation of Commission has given its decision in September 2004 and imposed defective and/or forged invoices by the forwarding agent. Outokumpu Oyj and Outokumpu Copper Products Oy an aggregate In June 2009, the Finnish Customs completed its preliminary fine of EUR 36 million on participation to a cartel. Outokumpu lodged investigation and forwarded the matter for consideration of possible an appeal also in this matter in 2004 to the Court of First Instance for charges to the prosecution authorities. The process of considering possible Europe regarding the amount of the fine. In August 2009, Outokumpu charges is estimated to be completed in the course of spring 2010. paid the fine of EUR 36 million in advance. The final decision from the Immediately after the Finnish Customs authorities began their Court of First Instance concerning the sanitary tubes is expected to be investigations in 2007, Outokumpu initiated its own investigation into made during year 2010. the trade practices connected with stainless steel exports from Tornio to In 2003, Outokumpu booked provision for both of these fines. Russia. In June 2007, based on its investigation, a leading Finnish law Outokumpu paid the fines in 2009. Interest totalling EUR 9 million has firm Roschier Attorneys Ltd. concluded that it had not found evidence been paid for both of these cases. that any employees of Tornio Works or the Group had committed any of Outokumpu exited from the copper fabrication business by divesting the crimes alleged by the Finnish Customs. a major part of the business in 2005 and the remainder in 2008. Roschier has subsequently, at Outokumpu’s request, examined the Related to the above cartel investigations of the European preliminary investigation material produced by the Finnish Customs’ and Commission Outokumpu Oyj, Outokumpu Copper Products Oy and concluded that it contains no evidence that any Outokumpu employees Outokumpu Copper (USA), Inc. have been served in October 2004 and committed forgery or the accounting offences alleged by the Finnish Customs. are defendants in class action cases filed in the federal district court in Outokumpu’s Auditor, KPMG Oy Ab, has also stated that suspicions related to California (USA) which alleges that the named Outokumpu companies the making of false financial statements are groundless. have infringed the US antitrust laws. Although Outokumpu considered Outokumpu has stated that neither the Group nor its personnel have that the allegations in all these proceedings lacked merit, a settlement committed any of the crimes alleged by the Finnish Customs. was made in October 2009 whereby the claim was settled with a In addition to the litigations described above, some Group nominal settlement amount. companies are involved in disputes incidental to their business. In addition, there are purported class actions pending against these Management believes that the outcome of such disputes will not have a same companies in the state court of Tennessee, on behalf of so-called material effect on the Group’s financial position.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 36. Related party transactions
Outokumpu has related party transactions with its key management and associated companies. The principal associated companies are listed in note 15. Investments in associated companies. Subsidiaries are presented in note 38. Subsidiaries on Dec. 31, 2009.
Transactions and balances with associated companies
€ million 2009 2008 Sales 0 0 Purchases -8 -13 Dividends received 0 2 Interest income 0 1
Long-term loans receivable 2 - Current receivables 9 7 Current trade payables 1 0
Loans receivable on Jan. 1 7 9 Withdrawals 4 - Other movement 2) -1 2 Loans receivable on Dec. 31 1) 11 7
1) Loans to associated companies include current and non-current receivables.
The interest rates of loans granted to associated companies are based on market rates. EUR 9 million of the loans mature by the end of 2010.
Employee benefits for key management
€ million 2009 2008 Short-term employee benefits 4 4 Post-employment benefits 2 1 Share-based payments 1 1 6 7
Key management consists of the members of the Board of Directors, CEO and other members of the Group Executive Committee. There were no outstanding loans receivable from key management on Dec. 31, 2009 (Dec. 31, 2008: EUR - million). More information on key management’s employee benefits can be found in the Outokumpu annual report.
37. Events after the balance sheet date
According to a seismic research report produced by the Geological and the quantity of mineral resources totals some 87 million tonnes Survey of Finland in late 2009, the mineral resources at the Kemi (estimated to a depth of 1 kilometre). The new information indicates the Mine could turn out to be significantly greater than earlier estimated. existence of resources sufficient to allow centuries of mining activity The intrusion containing chromium ore extends to a depth of 2–3 even with doubled annual production volumes (the previous estimate kilometres, possibly to four kilometres and the chromitite layer possibly was 70–80 years). Outokumpu’s mineral resources will not be updated extends to a depth of at least 2–2.5 kilometres or more. based on these findings. Proven ore reserves at the Kemi Mine total some 37 million tonnes
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009 38. Subsidiaries on Dec. 31, 2009 Group Group Country holding % Country holding %
General Stainless AS Outokumpu Stainless Tubular Products Estonia 100 Outokumpu Stainless Tubular Products AB Sweden 100 Eurotec N.V. Belgium 100 Outokumpu Stainless Tubular Products Ltd. Canada 100 Outokumpu AS Norway 100 Outokumpu Stainless Tubular Products Oy Ab Finland 100 Outokumpu A/S Denmark 100 Polarit Welding, Inc. The US 100 Outokumpu Asia Pacific Ltd China 100 Rullformningscentrum i Fagersta AB 2) Sweden 80 Outokumpu Baltic Oü Estonia 100 SH-Trade Oy Finland 100 Outokumpu Benelux B.V. The Netherlands 100 AB Örnsköldsviks Mekaniska Verkstad Sweden 100 Outokumpu Brasil Comercio de Metais Ltda. Brazil 100 Outokumpu B.V. The Netherlands 100 Other operations Outokumpu Chrome Oy Finland 100 Outokumpu Distribution Oy Finland 100 2843617 Canada Inc. Canada 100 Outokumpu Gebouwen B.V. The Netherlands 100 AvestaPolarit Pension Trustees Ltd The UK 100 Outokumpu Ges.m.b.H Austria 100 GKAB i Västerås Aktiebolag 1) Sweden 100 Outokumpu GmbH Germany 100 Granefors Bruk AB *) Sweden 100 Outokumpu India Private Limited India 100 Orijärvi Oy *) Finland 100 Outokumpu Istanbul Dis Ticaret Limited Sirketi *) Turkey 100 Outokumpu Alueverkko Oy *) Finland 100 Outokumpu Kft. Hungary 100 Outokumpu Exploration Ventures Pty. Ltd. Australia 100 Outokumpu K.K. Japan 100 Outokumpu Metals Off-Take Oy *) Finland 100 Outokumpu, Lda. *) Portugal 100 Outokumpu Mines Inc. *) Canada 100 Outokumpu Ltd Ireland 100 Outokumpu Mining Australia Pty. Ltd. Australia 100 Outokumpu Middle East FZCO UAE 100 Outokumpu Mining Oy Finland 100 Outokumpu Nordic AB Sweden 100 Outokumpu Nickel Resources B.V. The Netherlands 100 Outokumpu N.V. Belgium 100 Outokumpu Stainless Holdings Ltd The UK 100 Outokumpu Pty Ltd Australia 100 Outokumpu Stainless, Inc. The US 100 Outokumpu (Pty) Ltd South Africa 100 Outokumpu Stainless Steel Oy *) Finland 100 Outokumpu Rossija Oy *) Finland 100 Outokumpu Treasury Belgium N.V./SA *) Belgium 100 Outokumpu S.A.S. France 100 Outokumpu Zinc Australia Pty. Ltd. Australia 100 Outokumpu S.A. Spain 100 Outokumpu Zinc B.V. *) The Netherlands 100 Outokumpu (S.E.A.) Pte. Ltd. Singapore 100 Pancarelian Ltd. *) Bermuda 100 Outokumpu Shipping Oy Finland 100 Princeton Gamma-Tech, Inc. The US 100 Outokumpu S.p.A. Italy 100 Viscaria AB *) Sweden 100 Outokumpu Sp. z o.o. Poland 100 Visent Invest AB Sweden 100 Outokumpu S.R.L. Romania 100 Visenta Försäkrings AB Sweden 100 Outokumpu s.r.o. Czech Republic 100 Outokumpu Stainless B.V. The Netherlands 100 Discontinued operations Outokumpu Stainless Coil, Inc. The US 100 Outokumpu Stainless Holding GmbH Germany 100 Outokumpu Copper Brass SA France 100 Outokumpu Stainless Ltd The UK 100 Outokumpu Copper Fabrication AB *) Sweden 100 Outokumpu Stainless Oy Finland 100 Outokumpu Copper Gusum AB Sweden 100 Outokumpu UAB Lithuania 100 Outokumpu Copper HME B.V. The Netherlands 100 Sogepar Ireland Limited Ireland 100 Outokumpu Copper LDM B.V. The Netherlands 100 Sogepar UK Limited The UK 100 Outokumpu Copper Nonferro Metall GmbH Germany 100 ZAO Outokumpu Russia 100 Outokumpu Holding UK Limited The UK 100
Specialty Stainless Foreign branches
Avesta Klippcenter AB Sweden 100 Outokumpu Asia Pacific Ltd., branch office in Republic of Korea Outokumpu Armetal Stainless Pipe Co. Ltd. Saudi Arabia 51 Outokumpu Asia Pacific Ltd., agencies in China and Taiwan Outokumpu Prefab AB Sweden 100 Outokumpu Baltic Oü, branch office in Latvia Outokumpu Press Plate AB Sweden 100 Outokumpu (S.E.A.) Pte. Ltd., agency in Vietnam Outokumpu PSC Benelux B.V. The Netherlands 100 Outokumpu PSC Germany GmbH Germany 100 This list does not include all dormant companies or all holding Outokumpu Stainless AB Sweden 100 companies. The Group holding corresponds to the Group’s share Outokumpu Stainless Bar, Inc. The US 100 of voting rights. Outokumpu Stainless Pipe, Inc. The US 100 Outokumpu Stainless Plate, Inc. The US 100 1) Name change Outokumpu Stainless Steel (China) Co. Ltd. China 100 2) Founded Outokumpu Stainless Trading (Shanghai) Co Ltd China 100 *) Shares and stock held by the parent company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009