2013 INTERIM REPORT Q2 Luossavaara-Kiirunavaara AB (publ) Org. nr. 556001-5835 Financial information from LKAB is available in Swedish and English and can be obtained from: LKAB Communications, Box 952, SE-971 28 Luleå, Sweden. Phone: +46 (0)771 76 00 00, Fax: +46 (0)771 76 00 01. Financial information is also available on LKAB’s website: www.lkab.com. APRIL–JUNE JANUARY–JUNE • NET sales DECREASED by 13 percent • NET sales DECREASED by 22 percent to MSEK 5,460 (6,259). to MSEK 10,783 (13,900). • DELIVERIES OF iron ORE totalled 5.8 (5.6) MT. • DELIVERIES OF iron ORE totalled 12.1 (12.3) MT. • Operating profit AMOUNTED to MSEK 1,367 (2,297). • Operating profit AMOUNTED to MSEK 2,896 (6,415). • Profit BEFORE tax totalled MSEK 1,391 (2,339). • Profit BEFORE tax totalled MSEK 2,958 (6,698). • Profit FOR THE PERIOD AMOUNTED to MSEK 1,056 (1,713). • Profit FOR THE PERIOD AMOUNTED to MSEK 2,294 (4,944). • Operating CASH floW WAS MSEK 554 (1,311). • Operating CASH floW WAS MSEK 254 (3,767). • A DIVIDEND OF MSEK 5,500 (5,000) WAS paid to THE OWNER. • A DIVIDEND OF MSEK 5,500 (5,000) WAS paid to THE OWNER. COMMENTS BY THE PRESIDENT AND CEO Global production of crude steel increased in the Achieving the growth target will require increased NET SALES AND OPERATING PROFIT MSEK second quarter by 1.9 percent, compared with access to iron ore. In May, Kiruna’s new main level the same period last year, largely in Asia and the was inaugurated at 1,365 metres underground. 9,000 8,000 Middle East. Demand for steel was weak in China, One of Sweden’s biggest industrial enterprises is 7,000 6,000 which resulted in lower steel prices. This, com- thereby ready to begin production and will gradu- 5,000 bined with credit constraints, has led to less iron ally increase to full production by 2017. 4,000 3,000 ore being purchased on the seaborne spot mar- The planned growth program at LKAB (LKAB 2,000 ket, which, in turn, led to the spot price falling by 37), which entails a production increase to 37 Mt 1,000 0 10–15 percent over the period. The spot price for annually, is subject to investments being made in -1,000 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 iron ore (Platts IODEX 62 percent Fe CFR North the three new surface mines: Mertainen, Gruv- 2010 2011 2012 2013 China) continued to be highly volatile in the se- berget and Leveäniemi. On 3 July, the Land and Net sales Operating profit cond quarter. Environment Court issued a separate judgment on The lowering of the market price of iron ore the execution authorisation for Mertainen, which during the quarter influenced LKAB’s operating meant that the company could undertake prepa- RETURN ON SHAREHOLDERS EQUITY profit and cash flow substantially, which indicates ratory work. On 8 August, the Land and Environ- 40% LKAB’s sensitivity to market price changes. ment Superior Court ruled to inhibit the execution Demand for LKAB’s pellet products remai- authorisation for Mertainen, which meant that 30% ned high during the quarter. Deliveries of iron ore LKAB immediately halted the ongoing preparatory 20% products totalled 5.8 Mt (5.6) in the second quar- work. The planned production increase is now in ter, an increase of 4 percent. Production for the jeopardy since Mertainen’s surface mine is an im- 10% quarter was 5.7 (5.8) Mt, a decrease of 2 percent. portant part of LKAB’s ongoing growth program. During the second quarter, production disruptions The LKAB 37 growth program is crucial to LKAB’s 0% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2010 2011 2012 2013 in the pelletizing plants in Kiruna and Svappavaa- efforts to enhance its competitiveness. Higher Rolling 12-month Target return on equity ra affected production levels negatively. An action production volumes are a condition for lower cost program has been initiated that will reduce dis- per ton, which is a critical factor in achieving the ruptions in the pelletizing plants. results necessary for LKAB to attain its long term OPERATING CASH FLOW MSEK Net sales totalled MSEK 5,460 (6,259) and goals. operating profit totalled MSEK 1,367 (2,297). Lo- Demand for LKAB’s products is expected to be 6,000 5,000 wer sales and earnings were mainly due to lower good for the remainder of 2013. 4,000 iron ore prices. A lower average dollar exchange In the second quarter, through the jointly ow- 3,000 rate, compared with the same period last year, ned venture capital firm Norrskenet AB, LKAB 2,000 was offset by slightly higher delivery volumes. participated in a consortium with Peab, Folksam 1,000 Operating cash flow was MSEK 554 (1,311). and Metso to create a new opportunity for North- 0 -1,000 Compared with the same period last year, cash land Resources to continue developing its mining -2,000 flow for the period was negatively affected by project. Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2010 2011 2012 2013 lower earnings and higher capital expenditures. Capital expenditures on property, plant and equip- ment amounted to MSEK 1,916 (1,477), of which MSEK 600 related to capital expenditures for the new main level in Kiruna’s underground mine, and MSEK 235 related to LKAB’s ongoing growth Lars-Eric Aaro program, LKAB 37. President and CEO 2 LKAB INTERIM REPORT APRIL–JUNE 2013 LUOSSAVAARA-KIIRUNAVAARA AB (PUBL) • Corp. ID NO. 556001-5835 THE LKAB GROUP IN SUMMARY EVENTS DURING THE SECOND QUARTER od was negatively affected by lower earnings and higher Deliveries for the period totalled 5.8 (5.6) Mt, of which 5.0 capital expenditures. Capital expenditures on property, (4.6) Mt were pellets. The proportion of pellets in the se- plant and equipment amounted to MSEK 1,916 (1,477), of cond quarter of 2013 was 86 (82) percent. Production of which MSEK 600 related to capital expenditures for the iron ore products in the Mining Division totalled 5.7 (5.8) new main level in Kiruna’s underground mine, and MSEK Mt. Stocks of iron ore products amounted to 1.0 (1.9) Mt 235 related to LKAB’s ongoing growth program, LKAB 37. at the end of June. Net sales decreased by 13 percent to MSEK 5,460 EVENTS DURING THE FIRST SIX MONTHS (6,259). The decrease is broken down into these factors: Deliveries for the period totalled 12.1 (12.3) Mt, of which volume/mix 3 percent, price -13 percent and currency ef- 10.4 (10.3) Mt were pellets. The proportion of pellets in fect -3 percent. Without any hedging in USD, the currency the first six months of 2013 was 86 (84) percent. Produc- effect would have been -5 percent. tion of iron ore products in the Mining Division totalled The gross profit margin for the period was 30 (43) 11.9 (12.7) Mt. percent as a result of the price decline. The quarterly Net sales decreased 22 percent to MSEK 10,783 operating profit was encumbered by a provision of MSEK (13,900). In the iron ore operation, the decrease is broken 132 (-) for urban transformation costs incurred due to the down into these factors: price -19 percent, currency -2 effects of mining on the communities involved. percent and volume/mix -1 percent. Without any hedging Operating profit decreased 40 percent to MSEK 1,367 in USD, the currency effect would have been -4 percent. (2,297). Lower sales and earnings were mainly due to Operating profit decreased to MSEK 2,896 (6,415), lower iron ore prices. A lower average dollar exchange primarily due to lower iron ore prices, a lower average rate, compared with the same period last year, was offset dollar exchange rate and slightly lower delivery volumes. by slightly higher delivery volumes. Income from financial items was MSEK 62 (283). Income from financial items was MSEK 24 (42). Ex- Exchange losses totalled MSEK -94 (3). Net interest ex- change losses totalled MSEK 2 (-18). Net interest income pense was MSEK -2 (22). Return on market portfolios and was MSEK 4 (6). The year’s net interest income includes interest-bearing investments totalled MSEK 167 (247). interest on debts for urban transformation in the amount Net pension expense amounted to MSEK -45 (-40). Divi- of MSEK -25 (-). Return on market portfolios and interest- dends amounted to MSEK 43 (51). bearing investments totalled MSEK 13 (24). Net pension Operating cash flow for the first half of the year was expense amounted to MSEK -23 (-21). Dividends from se- MSEK 254 (3,767). Cash flow compared with the same curities totalled MSEK 38 (51). period last year was impacted negatively mainly by lower Operating cash flow was MSEK 554 (1,311). Compa- earnings but also by higher capital expenditures. red with the same period last year, cash flow for the peri- THE GROUP IN SUMMARY Q2 Q2 Q1-Q2 Q1-Q2 Full year (MSEK) 2013 2012 2013 2012 2012 Net sales 5,460 6,259 10,783 13,900 26,971 Operating profit 1,367 2,297 2,896 6,415 10,595 Income from financial items 24 42 62 283 428 Profit before tax 1,391 2,339 2,958 6,698 11,023 Profit for the period 1,056 1,713 2,294 4,944 8,789 Operating cash flow 554 1,311 254 3,767 5,471 Capital expenditures 1,916 1,477 3,014 2,746 5,808 3 LKAB INTERIM REPORT APRIL–JUNE 2013 LUOSSAVAARA-KIIRUNAVAARA AB (PUBL) • Corp.