2012 INTERIM REPORT Luossavaara-Kiirunavaara AB (publ) Corp. ID No. 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. OCTOBER–DECEMBER JANUARY–DECEMBER • NET sales DECREASED 27 PER CENT to MSEK 6,378 (8,675). • NET sales DECREASED 13 PER CENT to MSEK 26,971 (31,122). • Operating proFIT WAS MSEK 863 (3,140). • Operating proFIT WAS MSEK 10,595 (14,705). • ProFIT BEFORE taX WAS MSEK 953 (3,269). • ProFIT BEFORE taX WAS MSEK 11,023 (14,801). • ProFIT FOR THE PERIOD totalled MSEK 1,370 (2,440). • ProFIT FOR THE PERIOD totalled MSEK 8,789 (10,960). • Operating CASH FloW totalled MSEK 1,484 (3,168). • Operating CASH FloW totalled MSEK 5,471 (8,639). • SHIPMENTS OF iron ORE prodUcts FOR THE QUarter • YEAR-to-date SHIPMENTS OF iron ORE prodUcts totalled totalled 7.6 (6.8) MT. 26.3 (25.7) MT. • THE Board OF Directors proposes to THE ANNUAL GENERAL MEETING that AN ordinary DIVIDEND OF SEK 5,000 (7,143) PER share, totalling MSEK 3,500 (5,000), AND ALSO AN ADDITIONAL diVIDEND OF MSEK 2,000 CORRESPONDING to SEK 2,857 PER share TO BE paid. COMMENTS BY THE PRESIDENT AND CEO NET SALES AND OPERATING PROFIT MSEK LKAB’s production and shipments reached record pelletizing plant, KK4 in Kiruna, caused a produc- 9 000 high levels in the fourth quarter, while lower iron tion drop-off in May, and a ten-day district traffic 8 000 7 000 ore prices had a negative impact on sales and controller strike on the Ofotbanen Railway in Nor- 6 000 earnings. The global supply of iron ore increased way in late May and early June resulted in stock 5 000 4 000 slightly during the year due to increased capac- build-up at the Malmfälten production sites. Our 3 000 2 000 ity in Australia. Steel producers in Europe are still ability to transport these volumes to port was lim- 1 000 producing at reduced capacity, while uncertainty ited by the capacity of the Ore Railway. Stock vol- 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011 2012 about developments in China resulted in large umes returned to normal by the end of the year. Net sales Operating profit fluctuations in iron ore prices during the autumn Capital expenditures for the year totalled and at the end of the year. Long-term demand for MSEK 5,808 (5,126), of which MSEK 2,176 con- RETURN ON SHAREHOLDERS’ EQUITY iron ore is expected to continue to be strong. cerned expenditures for the new main level in 40% Net sales totalled MSEK 6,378 (8,675) and Kiruna’s underground mine. During the year, envi- operating profit totalled MSEK 863 (3,140). Low- ronmental investments of just over MSEK 1,500 in 30% er sales and earnings were chiefly due to lower flue gas treatment installations for three pelletiz- iron ore prices over the period. The decrease was ing plants were determined and initiated. 20% counteracted to some extent by increased deliv- LKAB’s planned increase in shipments of 10% ery volume. The quarterly operating profit was circa 35 per cent by 2015 remains unchanged. At encumbered by a provision of MSEK 1,057 (1,234) the end of the quarter, mining in the Gruvberget 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011 2012 for costs incurred due to the effects of mining on open pit was resumed after a six-month produc- Rolling 12-month Target return on equity the mining communities. tion interruption pending a lengthy court process Consolidated full year sales were MSEK for environmental permits. The Gruvberget restart OPeratinG CASH FloW MSEK 26,971 (31,122), a 13 per cent decrease. Operating provides the extra mining capacity necessary for profit for the full year was MSEK 10,595 (14,705). optimal utilisation of existing pelletizing plants. The 6 000 5 000 The lower earnings were mainly due to lower iron water-filled Leveäniemi open pit is being drained 4 000 ore prices during the year, which were offset by and is scheduled to be operational in 2014, and 3 000 increased volume and an improved exchange rate. the permit process for the Mertainen open pit con- 2 000 1 000 Shipments of iron ore products totalled 7.6 tinues with a view to starting production by 2015. 0 (6.8) million tonnes (Mt) in the fourth quarter, All open pit mines are located in Svappavaara. A Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011 2012 which is a record, and represents an annual ca- prerequisite for the planned increase in delivery pacity of more than 30 Mt. Production for the capacity is that the Ore Railway expansion in Swe- quarter was 6.7 (6.8) Mt. Total shipments for the den is accompanied by a corresponding increase year were 26.3 (25.7) Mt of iron ore products, of in capacity on the Ofotbanen Railway in Norway. In which 22.0 (21.0) Mt were pellets. LKAB’s ability 2012, LKAB launched a cost reduction program to to move volumes between continents from the ensure future competitiveness. weaker northern European market to the Middle Demand is high, particularly for direct reduc- East and China was instrumental in reaching this tion pellets, in countries with access to natural gas. record high delivery volume. The market outlook for 2013 continues to be fa- The production volume for 2012 was slight- vourable for LKAB’s products, despite considerable ly better than 2011 at 26.2 (26.1) Mt. That is the uncertainty, especially on highest volume of finished products in more than the European market. 35 years. A total of 23.8 (22.9) Mt of pellets were Lars-Eric Aaro produced. A production stop in LKAB’s largest President and CEO 2 LKAB INTERIM REPORT JANUARY-DECEMBER 2012 LUOSSAVAARA-KIIRUNAVAARA AB (PUBL) • Corp. ID NO. 556001-5835 THE LKAB GROUP IN SUMMARY OCtober–DECEMBER totalling MSEK 1,748 (1,467) were dominated by expendi- Production of iron ore products in the Mining Division to- tures on the new main level in Kiruna. talled 6.8 (6.8) Mt. Shipments for the period totalled 7.6 (6.8) Mt, of which 6.3 (5.5) Mt were pellets. The proportion January–DECEMBER of pellets in the fourth quarter of 2012 was 84% (81). At Production of iron ore products in the Mining Division to- the end of December, stocks of iron ore products totalled talled 26.2 (26.1) Mt. Shipments for the period totalled 1.2 (1.6) Mt. 26.3 (25.7) Mt, of which 22.0 (21.0) Mt were pellets. Net sales decreased 27% to MSEK 6,378 (8,675). Consolidated net sales decreased 13.3% to MSEK Within the iron ore operation, the decrease is broken 26,971 (31,122). Within the iron ore operation, the de- down into these factors: volume/mix +11.8%, price crease was broken down into these factors: volume/ -38.6% and currency +2.1%. Without any hedging in USD, mix +2.8%, price -17.5% and currency 3.4%. Without any the currency effect would have been +0.5%. hedging in USD, the currency effect would have been Operating profit decreased 73% to MSEK 863 (3,140). +2.8%. Lower iron ore prices entailed a gross profit margin de- Consolidated operating profit decreased 28% to cline of circa 22 percentage points to 18% (40%) for the MSEK 10,595 (14,705). Lower iron ore prices led to a fall period. In comparison with the same period last year, in the gross profit margin of 7 percentage points to 44%. costs are essentially unchanged. Quarterly earnings Lower iron ore prices were offset by increased volume were also encumbered by a provision of MSEK 1,057 and an improved exchange rate. In comparison with the (1,234) for costs incurred due to the effects of mining on same period last year, costs were essentially unchanged. the mining communities. The negative effects of margin The operating profit was also encumbered by a provision erosion and provisions were partly offset primarily by in- of MSEK 1,094 (1,234) for costs incurred due to the ef- creased delivery volumes. fects of mining on the mining communities. Earnings from financial items were MSEK 90 (129). Earnings from financial items were MSEK 428 (96). Exchange gains/losses totalled MSEK 38 (-36). Net inter- Exchange losses totalled MSEK -52 (-29). Net interest in- est income was MSEK -45 (43). The year’s net interest come was MSEK -23 (50). The year’s net interest income income includes interest on debts for urban transfor- includes interest on debts for urban transformation in mation in the amount of MSEK -87 (0). Return on mar- the amount of MSEK -87 (0). Return on market portfo- ket portfolios and interest-bearing investments totalled lios and interest-bearing investments totalled MSEK 533 MSEK 120 (146). Net pension expense amounted to MSEK (105). Net pension expense amounted to MSEK -77 (-75). -17 (-24). Dividends from quoted shares totalled MSEK Dividends from quoted shares totalled MSEK 56 (54). In 0 (0). In the fourth quarter, due to decreased corporate the year, due to decreased corporate income tax, an ef- income tax, an effect is included by MSEK 719.