Annual report 2018 working towards a world that lasts forever Contents Annual review Sustainability review Review by the Board Governance of Directors and Working towards a world that lasts Sustainability at Outokumpu .............. 2 Corporate Governance statement ........ 2 forever ..................................... 4 Financial statements Materiality ................................. 3 Key risks ................................... 17 Key figures 2018 .......................... 5 Sustainable performance in 2018 ........ 4 REVIEW BY THE BOARD OF DIRECTORS .. 2 Remuneration .............................. 21 CEO’s review ............................... 6 Sustainability highlights in 2018 ......... 5 Group key figures .......................... 10 Shares and shareholders .................. 24 Our year 2018 ............................ 7 Safe and healthy working environment ... 6 Reconciliation of key financial figures ..... 11 Information for shareholders .............. 26 Vision and strategy ........................ 8 Improving organizational health and Share-related key figures .................. 13 Stainless steel market .................... 10 people development ....................... 8 Definitions of share-related key figures ... 14 Research and development ............... 13 Responsibility throughout the FINANCIAL STATEMENTS .................. 15 supply chain ............................... 11 Consolidated statement of income ....... 16 Energy efficiency ........................... 13 Consolidated statement of Environmental impacts to a minimum .... 14 comprehensive income .................... 16 Resource efficiency and the Consolidated statement of circular economy .......................... 16 financial position ........................... 17 Protecting the climate ..................... 17 Consolidated statement of cash flows .... 18 Long-lasting customer relations ........... 19 Consolidated statement of This Annual report Sustainable stainless ...................... 20 changes in equity .......................... 19 combines Outokumpu’s Scope of the report ........................ 21 Notes to the consolidated financial statements ................................. 20 sustainability and Independent assurance report ............ 23 financial reporting for Income statement of the parent company 63 2018. Outokumpu’s Balance sheet of the parent company .... 64 Cash flow statement of the parent Sustainability review company .................................... 65 has been assured and Statement of changes in equity of the Financial statements have parent company ............................ 66 Commitments and contingent liabilities been audited. of the parent company ..................... 66 AUDITOR’S REPORT ........................ 67 Outokumpu Annual report 2018 | Annual review 2 / 13 Annual review 2018 Stainless steel is an amazing material that makes modern society possible by providing unmatched durability, longevity and recyclability. It is at the heart of moving society from quick fixes towards a world that lasts forever. In brief Working towards a world that lasts forever Outokumpu is one of the global leaders in stainless steel. We aim to be the best value creator in stainless steel by 2020 through customer orientation and efficiency. In 2018, Outokumpu’s sales amounted to 6.9 billion euros and stainless steel deliveries to 2.4 million tonnes. Outokumpu is the clear market leader in Europe and the second largest in the Americas market. Outokumpu is listed on Nasdaq Helsinki. Reflections on stainless steel 10,449 – CEO Roeland Baan, watch video Outokumpu’s business is divided into four business areas: Europe, employees the Americas, Long Products and Ferrochrome. We have produc- tion in Finland, Germany, Sweden, the UK, the USA and Mexico, and we serve our customers through a global sales and service Sales by area, € 6,872 million center network. Outokumpu’s own chromite mine in Kemi, Finland is the source of the key raw material for stainless steel. Operations in Our most important raw material is recycled steel, which is either scrap from the market or recycled steel from our downstream G Europe 61% operations and other recycled metal material. The recycled over 30 G Americas 24% content in our products is exceptionally high in the industry: over countries G Long Products 8% 85%. G Ferrochrome 3% Stainless steel is a versatile material with superior durability, G Other operations 4% longevity and recyclability. Customer needs and our legacy as the inventor of stainless steel drive us to develop this material further. Over There is a powerful need for sustainable and lasting solutions that use the world’s natural resources sparingly. Around the 85% Stainless steel deliveries by business area, % world Outokumpu is meeting this need with stainless steel that is used to build cities and urban infrastructure, water and energy of recycled content plants, factories, consumer goods and medical supplies, as well as transportation machinery and systems. Our stainless steel G Europe 64% can also be found in homes as kitchen sinks, household cutlery G Americas 30% and washing machines. We work together with our customers G Long Products 7% and partners to look beyond the short term and create advanced materials that help us to build a world that lasts forever. n Outokumpu Annual report 2018 | Annual review 4 / 13 In brief Key figures 2018 Thanks to our strong focus on customers, improved reliability and efficiency, we have made a clear step change in our operational and financial performance. Putting aside the prevailing market uncertainties, the long-term growth prospects for stainless steel are sound, and as the market leader, we are well positioned to capture our fair share of this growth. Long-term targets by the end of 2020 2018 2017 2016 2015 2014 Net sales, € million 6,872 6,356 5,690 6,384 6,844 Adjusted Stainless steel deliveries, 1,000 tonnes 2,428 2,448 2,444 2,381 2,544 Adjusted EBITDA, € million 485 631 309 165 263 EBITDA EUR ROCE Gearing Net result for the period, € million 130 392 144 86 –439 Operating cash flow 214 328 389 –34 –126 Net debt, € million 1,241 1,091 1,242 1,610 1,974 750 12% <35% Debt-to-equity at the year-end, % 45.1 40.1 51.4 69.1 92.6 million Personnel at the year-end 10,449 10,141 10,600 11,002 12,125 Adjusted EBITDA, € million Net debt, € million Operating cash flow, € million 700 2,000 400 600 300 1,500 500 200 400 1,000 100 300 0 200 500 100 –100 0 0 –200 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Outokumpu Annual report 2018 | Annual review 5 / 13 CEO’s review CEO’s review Despite recent market turbulence, long-term growth prospects for stainless steel remain healthy. In 2019, we expect the European Union’s permanent safeguards to alleviate the import pressure. The restoration of a healthy market together with decisive execution of our must-win battles are crucial for us in reaching our 2020 targets. Solid underlying Sustainable, durable products such as stainless steel can help to performance in a mitigate climate change and reduce greenhouse gas emissions. tough market. Outokumpu is a recognized world leader in sustainable steel production with high recycled content of more than 85% as well as low energy and CO2 intensity levels compared to the industry. In 2018, we were once again awarded by the International Stainless Steel Forum (ISSF) for our work on increasing material efficiency and reducing environmental impact in stainless steel melting process. To further enhance our competitiveness, we continue to invest in Research & Development to develop new process technologies and to meet our customers’ current and future product needs. We have also increased our focus on digitalization by launching the big theme for the steel industry second in just two years. The response rate in the 2018 a new must-win battle Digital Transformation to establish new In 2018, was the trade disruption caused Organizational Health Index survey was exceptionally high at digital business and manufacturing platforms and to embrace the by the US steel tariffs which led to a surge of steel imports to 86% reflecting our employees’ motivation and commitment to benefits of data-driven operations. In line with this strategy, our Europe and an unprecedented price pressure. become the best value creators in the industry. Tornio site will become the most digitalized stainless steel mill in the world by 2020. Total steel imports were up by 12% as a large share of originally In a very tough market, Outokumpu’s adjusted EBITDA US-bound steel was redirected to Europe due to the US tariffs. amounted to EUR 485 million (EUR 631 million in 2017) When looking back at our progress during the past three years, This coupled with the uncertainty of the global economy had a reflecting the market volatility. Our net debt was higher than I am extremely proud of our achievements. With solid execution notable impact on the European steel industry. targeted at EUR 1.2 billion mainly due to unsatisfactory of our must-win battles, our operational and financial performance inventory management. Reducing net debt is a key priority for have stepped up to a whole new level. The journey has not While the trade environment put a strain on our financial perfor- 2019. always been easy. Our achievements have required a lot of tough mance, our own operations run like clockwork and our underlying decisions and hard work by the whole Outokumpu team. performance remained solid thanks to our strong focus on Business