OUTOKUMPU S THIRD QUARTER 2011 PROFITABILITY SEASONALLY WEAK, SIGNIFICANT IMPROVEMENT IN CASH FLOW

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1 OUTOKUMPU OYJ INTERIM REPORT 20 October 2011 at 9.00 am EET 1 (30) OUTOKUMPU S THIRD QUARTER 2011 PROFITABILITY SEASONALLY WEAK, SIGNIFICANT IMPROVEMENT IN CASH FLOW Third-quarter 2011 highlights - Underlying operational result some EUR -15 million (II/2011: EUR -5 million). - Operating loss EUR -53 million (II/2011: EUR -169 million) including raw material-related inventory losses of some EUR -38 million (II/2011: some EUR -26 million), no non-recurring items (II/2011: EUR -138 million). - Financial expenses of EUR 77 million reported under net financial income and expenses as a result of the fair valuation of the Group s stake in Talvivaara Sotkamo. - Very strong operational cash flow of EUR 282 million (II/2011: EUR -66 million). - Deliveries at tonnes (II/2011: tonnes). - Change in corporate organisation and Group Executive Committee, job reductions planned. Group key figures III/11 II/11 III/ Sales EUR million EBITDA EUR million Operating profit EUR million excluding non-recurring items EUR million underlying operational result 1) EUR million Profit before taxes EUR million excluding non-recurring items EUR million Net profit for the period EUR million excluding non-recurring items EUR million Earnings per share EUR excluding non-recurring items EUR Return on capital employed % excluding non-recurring items % Net cash generated from operating activities EUR million Capital expenditure EUR million Net interest-bearing debt at end of period EUR million Debt-to-equity ratio at end of period % Stainless steel deliveries tonnes Stainless steel base price 2) EUR/tonne Personnel at the end of period 3) ) Operating profit excluding raw material-related inventory gains/losses and non-recurring items. 2) Stainless steel: CRU - German base price (2 mm cold rolled 304 sheet). 3) Personnel reported as head count. Up to 31 December 2010 reported as full-time equivalent, comparative figures restated. Riihitontuntie 7 B, P.O. Box 140, FIN Espoo, Finland Tel , Fax , Domicile Espoo, Finland, Business ID , VAT FI

2 2 (30) SHORT-TERM OUTLOOK During the summer, demand for standard grades of stainless steel in Europe was impacted by the normal seasonal slowdown. Following the summer period, both global economic uncertainty and lower metal prices weakened underlying demand for stainless steel. Distributors are currently hesitant about placing orders. Inventories among distributors are however lower than normal. Lead times for standard grades continue to be 6 8 weeks. Due to the weakened demand for stainless, Outokumpu expects the Group s delivery volumes in the fourth quarter of 2011 to be below the level achieved in the third quarter. As the conditions in the stainless markets softened, base prices declined towards the end of the third quarter but seem to have stabilised currently. Outokumpu expects its average base prices in the fourth quarter to be somewhat lower than the average for the third quarter. Lower delivery volumes and lower average base prices are expected to lead to a somewhat negative underlying operational result *) in the fourth quarter. At current metal prices, declined metal prices are expected to result in raw material-related inventory losses resulting in a clearly negative operating result for the fourth quarter. In addition, Outokumpu s operating result in the fourth quarter is expected to be affected by the Group s planned cost saving and restructuring programmes. *) Underlying operational result= Operating profit/loss excluding raw material-related inventory gains/losses and non-recurring items. CEO Mika Seitovirta: Since the global economic sentiment has worsened after the summer and the stainless markets consequently have weakened, it is of extreme importance for us to take actions to improve our financial performance in every part of the company. In the current environment we will keep strong focus on continuing to improve our cash flow. Therefore we have announced new restructuring and cost cutting plans and introduced a new organisation structure.

3 3 (30) The attachments present the Management analysis for the third quarter operating result and the Interim review by the Board of Directors for January September 2011, the accounts and notes to the interim accounts. This report is unaudited. For further information, please contact: Ingela Ulfves, VP Investor Relations and Financial Communications tel , mobile ingela.ulfves@outokumpu.com Esa Lager, CFO tel esa.lager@outokumpu.com News conference and live webcast today at 1.00 pm A combined news conference, conference call and live webcast concerning the third-quarter 2011 financial results will be held on 20 October at 1.00 pm EET (6.00 am US EST, am UK time, pm CET) at Restaurant Bank, meeting rooms 12-14, address Unioninkatu 20, Helsinki, Finland. To participate via a conference call, please dial in 5-10 minutes before the beginning of the event: UK US & Canada Sweden Password Outokumpu The news conference can be viewed live via Internet. The stock exchange release and the presentation material will be available before the news conference at An on-demand webcast of the news conference will be available as of 20 October 2011 at around 3.00 pm EET at Link to the webcast

4 4 (30) MANAGEMENT ANALYSIS THIRD QUARTER OPERATING RESULT Group key figures EUR million I/10 II/10 III/10 I-III/10 IV/ I/11 II/11 III/11 I-III/11 Sales General Stainless *) of which Tornio Works Specialty Stainless *) Other operations Intra-group sales *) The Group Operating profit General Stainless *) of which Tornio Works Specialty Stainless *) Other operations Intra-group items *) The Group *) Kloster operations, in 2010 under Specialty Stainless, are now reported under General Stainless. Comparative figures restated. Stainless steel deliveries tonnes I/10 II/10 III/10 I-III/10 IV/ I/11 II/11 III/11 I-III/11 Cold rolled White hot strip Quarto plate Tubular products Long products Semi-finished products Total deliveries Market prices and exchange rates I/10 II/10 III/10 IV/ I/11 II/11 III/11 Market prices *) Stainless steel Base price EUR/t Alloy surcharge EUR/t Transaction price EUR/t Nickel USD/t EUR/t Ferrochrome (Cr-content) USD/lb EUR/kg Molybdenum USD/lb EUR/kg Recycled steel USD/t EUR/t Exchange rates EUR/USD EUR/SEK EUR/GBP *) Sources of market prices: Stainless steel: CRU - German base price, alloy surcharge and transaction price (2 mm cold rolled 304 sheet), estimates for deliveries during the period; Nickel: London Metal Exchange (LME) cash quotation; Ferrochrome: Metal Bulletin - Quarterly contract price, Ferrochrome lumpy chrome charge, basis 52% chrome; Molybdenum: Metal Bulletin - Molybdenum oxide - Europe; Recycled steel: Metal Bulletin - Steel scrap HMS 1&2 fob Rotterdam

5 5 (30) Normal seasonality in Europe, weakening demand towards the end of the third quarter Markets for stainless steel remained soft in the third quarter. Global economic uncertainty led to weaker demand and distributors were hesitant about placing orders. The continuing downward trend was strengthened by the nickel price decline resulting in further destocking by distributors as well as the normal seasonality which results from the European holiday season. Compared to the second quarter, apparent consumption of flat products in the third quarter is estimated to have decreased by 4% globally and by 21% in Europe. In China, apparent consumption was down by 3%. Compared to the second quarter, third-quarter production of stainless steel is estimated to have been down by 4% globally, down by 17% in Europe and 2% lower in China. According to CRU, the average base price for 2mm cold rolled 304 stainless steel sheet in Germany decreased to EUR/tonne in the third quarter (II/2011: EUR/tonne). Primarily as a result of the decline in the nickel price, the alloy surcharge decreased to EUR/tonne (II/2011: EUR/tonne) during the review period. The average transaction price during the third quarter declined to EUR/tonne (II/2011: EUR/tonne). Compared to the second quarter, the difference between Chinese and European transaction prices diminished somewhat mainly as a result of the appreciation of the US dollar against the euro. (CRU) The nickel price was volatile and fluctuated in the range USD/tonne in the third quarter. The average nickel price in the third quarter was USD/tonne (II/2011: USD/tonne), down by 9% compared to the second quarter. The nickel price declined from a level of USD/tonne in July and even moved below USD/tonne at the end of September. It has increased somewhat since then and it stood at approximately USD/tonne in mid-october. As one result of the softening demand for stainless, ferrochrome consumption in the third quarter was 10% lower than in the second quarter. The quarterly contract price for ferrochrome in the third quarter was 1.20 USD/lb (II/2011: 1.35 USD/lb) and has preliminarily been settled unchanged at 1.20 USD/lb for the fourth quarter. The price of molybdenum in the third quarter was down by 13% compared to the second quarter and averaged USD/lb (II/2011: USD/lb). The price of recycled steel increased marginally compared to the preceding quarter and averaged 439 USD/tonne (II/2011: 432 USD/tonne) in the third quarter. Underlying operational result negative, operational cash flow very strong Group sales in the third quarter totalled EUR million, down by 4% (II/2011: EUR million). Deliveries of stainless steel were down marginally and totalled tonnes (II/2011: tonnes). Demand in Europe was adversely affected by normal seasonality and Outokumpu held its annual maintenance breaks at Group sites. Capacity utilisation in Group operations was slightly above 75% during the third quarter. The underlying operational result in the third quarter declined to EUR -15 million (II/2011: EUR -5 million). The negative impact of somewhat lower base prices and a somewhat weaker mix was partly offset by a positive impact from metal hedging activities. Operating loss in the third quarter was EUR -53 million (II/2011: EUR -169 million). This figure includes some EUR -38 million of raw materialrelated inventory losses and inventory write-downs as a result of lower metal prices (II/2011: EUR -26 million) but no non-recurring items (II/2011: EUR -138 million). Outokumpu s average base prices for all flat products realised in the third quarter were 50 EUR/tonne lower than in the previous quarter, and below the base prices reported by CRU for German 304 sheet. Net financial income and expenses in the third quarter totalled EUR -102 million (II/2011: EUR 191 million). As a result of the decline in the Talvivaara share price in the third quarter, the fair valuation of

6 6 (30) Outokumpu s remaining 16% holding in Talvivaara Sotkamo Ltd had a EUR 77 million negative impact on financial income and expenses (II/2011: EUR 10 million negative). As a consequence, the Group s net loss in the third quarter totalled EUR -135 million (II/2011: net profit of EUR 50 million) and earnings per share totalled EUR (II/2011: EUR 0.28). Return on capital employed in the third quarter was -5.3% (II/2011: -2.9% excluding non-recurring items). Net cash from operating activities in the third quarter improved significantly and totalled EUR 282 million (II/2011: EUR -66 million). The main reasons for the very strong cash flow were the reduction in working capital which resulted from lower metal prices and inventories being at lower levels than in the second quarter. EUR 331 million of cash was released from working capital (II/2011: EUR 89 million tied up) in the third quarter. Outokumpu s gearing at the end of the third quarter decreased marginally to 79.7% (30 June 2011: 82.0%), but remained above the Group s target maximum of 75%. In terms of reducing gearing, the positive impact of strong cash flow was somewhat offset by the net loss, which was negatively affected by the fair valuation of Outokumpu s stake in Talvivaara Sotkamo. Net interest-bearing debt fell to EUR million (30 June 2011: EUR million). Capital expenditure in the third quarter totalled EUR 67 million (II/2011: EUR 50 million) with the majority of costs being connected with the Group s ferrochrome expansion project at the Tornio Works in Finland. Sales by General Stainless in the third quarter totalled EUR 954 million (II/2011: EUR million), and deliveries declined to tonnes (II/2011: tonnes). Operating loss for the third quarter totalled EUR -30 million (II/2011: EUR -82 million) and included about half of the Group s raw materialrelated inventory losses. The operating loss posted by Tornio Works in the third quarter totalled EUR -20 million (II/2011: EUR -14 million) and the operating loss posted by the Kloster thin strip unit totalled EUR -5 million (II/2011: EUR -67 million). Sales by Specialty Stainless in the third quarter totalled EUR 495 million (II/2011: EUR 564 million) and deliveries totalled tonnes (II/2011: tonnes). Operating loss in the third quarter totalled EUR -41 million (II/2011: EUR -71 million). The operating loss posted by Outokumpu s tubular business, OSTP, in the third quarter totalled EUR -7 million (II/2011: EUR -54 million). Other operations posted an operating profit of EUR 17 million (II/2011: EUR -20 million) in the third quarter, primarily as a result of positive outcome of metal hedging activities. Implementation of Outokumpu s short-term agenda continued In April, Outokumpu launched a short-term agenda focused on improving the Group s cash flow, improving balance sheet flexibility and addressing the most critical factors burdening profitability. Functional efficiency improvement In April, Outokumpu initiated statutory personnel negotiations to improve profitability, gain more efficiency as well as remove overlapping activities in the Group s sales, supply chain and supporting functions in Europe. As a result, a total of 350 jobs are being reduced in sales, supply-chain and supporting functions in Europe by the end of Job reductions in Finland and Sweden will total some 170, the remainder will take place in other European countries. Annual cost savings are expected to total EUR 27 million from 2012 and related non-recurring provisions of EUR 13 million were booked in the second quarter. In the third quarter, the planned outsourcing of some IT-services was further developed. A final agreement on the planned outsourcing is expected to be reached by the end of The ongoing implementation of functional efficiency improvements is progressing well.

7 7 (30) Outokumpu signs final agreement on OSTP joint venture In September, the final agreement on a joint venture involving Outokumpu s tubular unit (OSTP) was signed by Outokumpu and Tubinoxia, an Italian company controlled by Andrea Gatti. In the first phase, Tubinoxia will own 36% of the shares in OSTP with an option to acquire shares up to 51% over a threeyear time period. Outokumpu has an option to redeem any shares initially acquired at their original value if Tubinoxia does not purchase a majority holding. It has also been agreed that Outokumpu will continue to be the primary supplier of raw materials to OSTP. The initial sale of shares did not impact the Group result. Outokumpu will initially be responsible for financing the business. Any future sales of shares will be executed at prices which reflect OSTP s then-prevailing financial performance. OSTP will be managed through a board of directors. While Outokumpu is the majority shareholder, the majority of the board s members, including the chairman, will be appointed by Outokumpu. Andrea Gatti has been appointed OSTP s managing director and Kalle Luoto has been appointed CFO. OSTP produces welded stainless steel process pipes and tubes as well as threaded and butt-weld fittings. The company has 10 production sites in Sweden, Finland, Saudi Arabia, Estonia and Canada and employs some 850 people. The unit in Wildwood in Florida, USA that was previously part of OSTP is not part of the joint venture and remains wholly-owned of Outokumpu. OSTP has been a loss-making operation for the last three years. The operating loss in 2010 was close to EUR 40 million. OSTP will continue to be consolidated in Outokumpu financial accounts as subsidiary and Tubinox non-controlling shareholding is presented separately from the net profit and disclosed as a separate item in the equity. Events after the review period OSTP turnaround plan announced In October, the OSTP joint venture began its operations and the company s new board of directors held its first meeting confirming OSTP s corporate strategy and plans to improve the company s performance. The focus will be on process pipes and butt-weld fittings, consolidating the company s production structure and reducing costs by streamlining its organisation. Production of process pipes are planned to be consolidated in Pietarsaari in Finland and Riyadh in Saudi Arabia while butt-weld fittings to the main part are planned to be produced in Pietarsaari and Örnsköldsvik in Sweden. The production of process pipes and heat exchanger tubes at OSTP s Nyby site in Sweden is planned to be closed down by the end of this year. Some of the production is planned to be transferred to Pietarsaari. OSTP has initiated negotiations with trade union representatives in Nyby. Approximately 100 people are currently employed at the Nyby site. In addition to streamlining the company s production operations, OSTP is also planning to reduce other cost, such as overhead costs. At OSTP s other operations with focus on threaded fittings, heavy wall pipes and pressure vessels, work on improving short-term financial performance will continue. OSTP plans to divest these businesses by the end of 2012 to release capital and avoid the need for future investment. The planned measures are expected to result in a visible turnaround in OSTP s financial performance in 2012 and an operating profit in In the second quarter of 2011, a total of EUR 65 million of impairments related to OSTP were booked by Outokumpu. Depending on the outcome of the planned statutory personnel negotiations, there might be some marginal negative impact on Outokumpu s operating profit in the fourth quarter of 2011.

8 Planned cost reductions, negotiations on planned job reductions, new organisation and new Executive Committee On 20 October, Outokumpu announced plans for taking further steps in its transition towards sustainable profitability, improved cash generation and building a solid platform for future growth. The company s target is to reduce costs by EUR 100 million by the end of 2012 and working capital by EUR 250 million by mid Cost reductions and negotiations on planned job reductions 8 (30) To achieve sustainable profitability, Outokumpu plans to initiate a cost-reduction programme aimed at achieving savings of EUR 100 million by the end of Planned measures include reducing the number of production shifts, restructuring the organisation, and outsourcing of some support functions as well as improvements in overall efficiency. The planned measures correspond to a reduction of up to jobs in global terms, with most of the reductions taking place in Finland (up to 300) and in Sweden (up to 600). Negotiations with personnel representatives will begin as soon as possible in all the affected units and functions. The outcome of the planned employee negotiations and consultation processes may result in negative financial impact on Outokumpu s operating profit in the coming quarters, with some impacts already in the fourth quarter Reduction of EUR 250 million in working capital To reduce Outokumpu s working capital by EUR 250 million, the inventory turnover in the Group s entire supply chain needs to be improved. Compared to the number of inventory days of approximately 110 during the second quarter 2011, Outokumpu intends to bring inventory days closer to 90 days by mid Streamlining and consolidating the Group s captive distribution network in Europe will contribute to this inventory reduction target and facilitate identification of the most cost-efficient routes to market which match customer needs. Outokumpu plans to consolidate stocking operations into a smaller number of locations in Europe, serve the markets from these key locations, and utilise its existing processing capacity in the markets efficiently. Outokumpu currently maintains stocks in more than 20 European countries and has coil-processing capability at six locations. The Group also has six plate service centres in Europe. In parallel with the Group s own network, Outokumpu relies on independent distributors whose role is of growing importance in delivering Group products to end customers. Streamlining captive stocking operations may generate opportunities for deepening cooperation with independent distributors in some markets. 3. New organisation Outokumpu s business is based on the unique nature of the Group s integrated stainless steel operations. Outokumpu s planned business model will be based on three Business Areas, each with full accountability for sales, profit and assets. The aims of the new organisation are simplicity, clarity, accountability, and cost efficiency. According to plan, Business Areas will be responsible for their own sales as well as production and supply chain operations. The three Business Areas will be: General Stainless: stainless steel operations in Tornio and the finishing plant in Terneuzen, Specialty Stainless: Special Coil, Special Plate, Kloster and Long Products including the Sheffield meltshop, and Ferrochrome: the Kemi Chrome Mine and ferrochrome production in Tornio.

9 9 (30) Outokumpu has specified APAC (Asia Pacific) as a Focus Area for future growth. According to plans, Business Areas and Focus Area will be supported by Group-wide functions when such centralisation or coordination yields synergies. The new organisation is planned to become effective as of 1 January New Executive Committee With effect from 1 January 2012, the composition of Outokumpu s Executive Committee and the areas reporting will be: Mika Seitovirta, CEO and Chairman of the Executive Committee: in addition to Executive Committee members; APAC; and certain Group Functions Hannu Hautala, Executive Vice President General Stainless Jarmo Tonteri, Executive Vice President Specialty Stainless Kari Parvento, Executive Vice President Ferrochrome, Group Research & Development Esa Lager, Executive Vice President and CFO; certain Group Functions Pii Kotilainen, Executive Vice President Human Resources Hannu Hautala, currently the head of Outokumpu s Tornio Works business unit, will become a member of the Group Executive Committee as of 1 November Mr Hautala has been in charge of Tornio Works since April Jamie Allan, EVP Supply Chain Management, will leave his position on the Group Executive Committee on 31 December He will act as Senior Advisor and report to the CEO until the end of Karri Kaitue, Deputy CEO and Outokumpu have jointly agreed that Mr Kaitue will leave his position in the Group Executive Committee as of 1 November His employment by Outokumpu will end on 30 June Outokumpu will also be appointing Mr Austin Lu as Senior Vice President, APAC Focus Area. He will join Outokumpu on 1 January 2012 at the latest.

10 10 (30) INTERIM REVIEW BY THE BOARD OF DIRECTORS JANUARY SEPTEMBER 2011 Improving demand for stainless in the beginning of the year turned to destocking and weaker markets Stainless steel markets recovered in the beginning of 2011 but demand began to soften again in the spring as the nickel prices began to decline. This resulted in destocking among distributors. Increasing global economic uncertainty in the summer resulted in further slowing demand. Compared to the first nine months of 2010, apparent consumption of flat products is estimated to have been up by 4% globally and 2% in Europe while production of stainless steel in the first nine months of 2011 is estimated to have increased by 2% globally and decreased by 1% in Europe. The average base price for 2mm cold rolled 304 stainless steel sheet in Germany was at EUR/tonne in the first nine months of 2011 (I-III/2010: EUR/tonne) and the average transaction price during the review period was EUR/tonne (I-III/2010: EUR/tonne). (CRU) Prices of all alloying elements during January-September 2011 were higher than in the corresponding period in The nickel price averaged USD/tonne in the first nine months of 2011 (I-III/2010: USD/tonne), 15% higher than in the corresponding period in the previous year. The quarterly contract price for ferrochrome in the first nine months of 2011 averaged 1.27 USD/lb (I-III/2010: 1.22 USD/lb), the average price of molybdenum was USD/lb (I-III/2010: USD/lb) and the price of recycled steel was 436 USD/tonne (I-III/2010: 337 USD/tonne). Underlying profitability relatively unchanged Compared to the January-September 2010 period, Group sales during the first nine months of 2011 increased by 27% to EUR million (I-III/2010: EUR million) as a result of higher delivery volumes and higher transaction prices. Deliveries of stainless steel in the first nine months of 2011 were up by 9% and totalled tonnes (I-III/2010: tonnes). Capacity utilisation in Group operations was approximately 80% in the review period. The underlying operational result in the first nine months of 2011 was relatively unchanged compared to 2010 and totalled EUR -32 million (I-III/2010: EUR -24 million). Compared to the first nine months of 2010, the positive impact of higher delivery volumes was offset by lower base prices and higher costs. Outokumpu s operating loss totalled EUR -189 million (I-III/2010: profit of EUR 2 million). This figure includes some EUR -19 million of raw material-related inventory losses (I-III/2010: gains of some EUR 26 million) and some EUR -138 million of non-recurring items (I-III/2010: none). The non-recurring items consist of impairment of EUR 65 million connected with Outokumpu s tubular products business, impairment of EUR 60 million connected with the Kloster thin strip unit and EUR 13 million of restructuring provisions connected with the Group s improvements in functional efficiency. Net financial income and expenses in the review period totalled EUR 74 million (I-III/2010: EUR -44 million). Financial income of EUR 242 million was booked in the second quarter of 2011 as a capital gain from the divestment of shareholding in Tibnor AB and Talvivaara and fair valuation of financial assets. Financial expenses in the second quarter include an impairment of EUR 13 million on a loan receivable from Luvata. Outokumpu s remaining 16% stake in Talvivaara Sotkamo Ltd is classified as financial asset valued at fair value through profit and loss. As a result of the decline in the Talvivaara share price after the transaction, the fair value of this stake has been reduced by EUR 87 million and booked as financial expenses. Loss before taxes totalled EUR -119 million (I-III/2010: EUR -57 million). Net loss for the period totalled EUR -68 million (I-III/2010: EUR -33 million) and earnings per share EUR (I-III/2010: EUR -0.18). Return on capital employed in the first nine months of 2011 was -6.2% (I-III/2010: 0.1%).

11 11 (30) Net cash generated from operating activities in January-September 2011 improved significantly and was positive at EUR 206 million (I-III/2010: EUR -515 million) with the primary cause being a reduction in working capital. In the second quarter, cash-flow from financing activities - the divestment of financial assets consisting of holdings in Tibnor and Talvivaara - had a positive impact of EUR 162 million. Net interest-bearing debt fell by EUR 101 million to EUR million by the end of the third quarter (30 September 2010: EUR million) and gearing increased to 79.7% (30 September 2010: 74.9%), above the Group s target maximum of 75%. The positive impact of capital gains resulting from the divestment of holdings in Tibnor AB and Talvivaara was offset by impairments connected with OSTP and the Kloster thin strip unit as well as by the fair valuation of the Group s remaining holding in Talvivaara Sotkamo. Implementation of Outokumpu s short-term agenda is ongoing In April 2011, Outokumpu launched a short-term agenda focused on improving cash flow, improving balance sheet flexibility and addressing the most critical factors burdening Group profitability. Functional efficiency improvement In April, Outokumpu initiated statutory personnel negotiations to improve profitability, gain more efficiency as well as remove overlapping activities in the Group s sales, supply chain and supporting functions in Europe. As a result, a total of 350 jobs are being reduced in sales, supply-chain and supporting functions in Europe by the end of Annual cost savings are expected to total EUR 27 million from 2012 and related non-recurring provisions of EUR 13 million were booked in the second quarter. In the third quarter, the planned outsourcing of some IT-services was further developed. A final agreement on the planned outsourcing is expected to be reached by the end of The ongoing implementation of functional efficiency improvements is progressing well. Disposal of financial assets In May, Outokumpu sold its 15% holding in Tibnor AB to SSAB. The total consideration for this divestment was EUR 44 million in cash and the Group booked a tax-free capital gain of some EUR 36 million as financial income in the second quarter. In June, Outokumpu sold the whole of its stake, 4.3% of total shares, in Talvivaara Mining Company Plc to Solidium Oy for a total consideration of EUR 60 million in cash, recording a capital gain of EUR 28 million as financial income in the second quarter. Outokumpu also sold one-fifth of its 20% holding in the unlisted company Talvivaara Sotkamo Ltd to Talvivaara Mining Company Plc for a total consideration of EUR 60 million. Outokumpu also granted an option to Talvivaara Mining Company Plc to purchase the Group s remaining 16% holding in Talvivaara Sotkamo Ltd by the end of the first quarter of Should this option be exercised in full, the total consideration will amount to EUR 240 million. Outokumpu s 20% holding in Talvivaara Sotkamo Ltd used to be classified in the Group s accounts under Associated companies. Following the change of ownership, Outokumpu no longer has significant influence in Talvivaara Sotkamo Ltd and the remaining 16% holding is classified as a financial asset valued at fair value through profit and loss in Outokumpu s financial statements. Outokumpu also intends to divest the Group s remaining brass operations in Sweden and The Netherlands and its 50% holding in Fagersta Stainless AB, a company producing wire and wire rod.

12 12 (30) Turnaround of Kloster thin strip unit in Sweden In June, a turnaround plan was prepared for returning the Group s loss-making thin and precision strip mill in Kloster to sustainable profitability. Within the next 12 months, Outokumpu will evaluate whether the turnaround plan is delivering adequate results and make related decisions on possible partnerships, divestment or closure of the business. Joint venture for OSTP, Outokumpu s tubular business In September, the final agreement on a joint venture involving Outokumpu s tubular unit (OSTP) was signed by Outokumpu and Tubinoxia, an Italian company controlled by Andrea Gatti. In the first phase, Tubinoxia will own 36% of the shares in OSTP with an option to acquire shares up to 51% over a threeyear time period. Outokumpu has an option to redeem any shares initially acquired at their original value if Tubinoxia does not purchase a majority holding. It has also been agreed that Outokumpu will continue to be the primary supplier of raw materials to OSTP. The initial sale of shares did not impact the Group result. Outokumpu will initially be responsible for financing the business. Any future sales of shares will be executed at prices which reflect OSTP s then-prevailing financial performance. OSTP will be managed through a board of directors. While Outokumpu is the majority shareholder, the majority of the board s members, including the chairman, will be appointed by Outokumpu. Andrea Gatti, now OSTP s managing director, has more than 25-years' experience in the stainless steel industry and was an Outokumpu executive in Kalle Luoto from Outokumpu is OSTP s Chief Financial Officer. OSTP produces welded stainless steel process pipes and tubes as well as threaded and butt-weld fittings. The company has 10 production sites in Sweden, Finland, Saudi Arabia, Estonia and Canada and employs some 850 people. The unit in Wildwood in Florida, USA that was previously part of OSTP is not part of the joint venture and remains wholly-owned of Outokumpu. OSTP has been a loss-making operation for the last three years. The operating loss in 2010 was close to EUR 40 million OSTP will continue to be consolidated in Outokumpu financial accounts as subsidiary and Tubinox non-controlling shareholding is presented separately from the net profit and disclosed as a separate item in the equity. EUR 750 million revolving credit facility In June, Outokumpu signed a three-year EUR 750 million revolving credit facility, with options to extend it by one year in June 2012 and June This committed credit facility replaces the comparable three-year facility signed in June 2009 and will be used for general corporate purposes. The loan agreement includes a financial covenant based on gearing at a level of 115%. Maintenance functions at Tornio Works In June, a study focusing on the possible outsourcing of sections of the maintenance functions at Tornio Works was concluded. Based on the study results, only marginal outsourcing may take place and Outokumpu will therefore continue to develop maintenance functions as an internal Group resource. The target - an improvement in cost efficiency exceeding 10% - corresponds to savings totalling approximately EUR 30 million in Capital expenditure and investment projects Capital expenditure totalled EUR 159 million (I-III/2010: EUR 113 million) in the first nine months of Including maintenance investments, Group capital expenditure is expected to total EUR million in 2011.

13 13 (30) The EUR 440 million investment project to double the Group s ferrochrome production capacity at Tornio Works in Finland is proceeding as planned, on schedule and on budget. Detailed design planning continued, construction work progressed and several equipment supply contracts were signed during the first nine months of The first long-term customer sales agreements have also been finalised. Installation of equipment began in the third quarter. Total capital expenditure on this investment project in 2011 is expected to be of the order of EUR 150 million. The EUR 104 million investment project to increase quarto plate production capability and capacity in Degerfors in Sweden is proceeding according to plan and budget. In June, a new acid regeneration plant in Avesta in Sweden was inaugurated. This EUR 28 million investment project was launched in Equipment which is very energy efficient is being used to recycle acids used in the annealing and pickling line, significantly reducing the use of new acids in the stainless steel production process. People and the environment Outokumpu s personnel headcount totalled (30 September 2010: 8 370) at the end of September 2011 and averaged (I-III/2010: 8 496) during the first nine months of Full-time employees of the Group totalled (30 September 2010: 8 048) at the end of the third quarter and averaged (I-III/2010: 8 170) during the first nine months of the year. In reporting the number of company personnel, Outokumpu changed from full-time equivalent to headcount reporting in Both figures are being provided in 2011 reports. The lost-time injury rate (i.e. lost-time accidents per million working hours) in the third quarter deteriorated to 6.1 (II/2011: 4.4) and was 5.5 (I-III/2010: 5.3) for the first nine months of This did not meet the Group s 2011 target of less than 3.5. No severe accidents occurred during the first nine months of the year. 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 proceedings concerning environmental issues, nor is it aware of any realised environmental risks that could have an adverse material effect on the Group s financial position. Emissions trading activities have been conducted in accordance with obligations, agreed procedures and the Group s financial risk policy. Emissions under the EU Emission Trading Scheme during the first nine months of 2011 totalled approximately tonnes (I-III/2010: tonnes). Outokumpu s carbon dioxide allowances in Finland, Sweden and the UK were sufficient for the Group s planned production in the review period. qualified for the OMX GES Sustainability Finland index, which consists of 40 leading companies listed on the NASDAQ OMX Helsinki exchange. In May, the International Stainless Steel Forum (ISSF) granted the first ISSF Sustainability Award to Outokumpu. This recognition is based on Outokumpu s determined actions and major achievements in reducing waste sent to landfill and increasing material efficiency at the Group s production facilities in Sheffield in the UK. Outokumpu has established a sustainable route for recovery and re-use of different forms of stainless steel waste. Slag is being re-used in road-making activities and waste refractory material is being employed as a substitute for limestone in the stainless steel production process. Since 2007 more than 80% of all the slag produced at Sheffield has been recovered and re-used as road stone in asphalt production. Fifty per cent of the refractory waste generated at the Group s Sheffield site was re-used as a lime substitute in 2010.

14 Oekom Research AG described Outokumpu as a pioneer in achieving improved levels of energy efficiency in the metals sector. 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. Outokumpu also received the metal sector s highest scores in the environmental dimension achieving the highest possible scores in two sustainability criteria: Climate Strategy and Environmental Policy and Management. Risks and uncertainties 14 (30) Outokumpu operates in accordance with the risk management policy approved by the Group s Board of Directors. This policy defines the objectives, approaches and areas of responsibility in risk management activities. As well as supporting Outokumpu s strategy, risk management aims to identify, evaluate and mitigate risks from the perspective of shareholders, customers, suppliers, personnel, creditors and other stakeholders. Key risks are assessed and updated on a regular basis. A key risk update and review was held by the Group s Executive Committee in the third quarter. Key strategic and business risks faced by Outokumpu include global and European overcapacity and weak markets for stainless steel, the ability to implement the Group s chosen strategy, risks associated with increased input costs and impacts on the Group s cost-competitiveness. During the review period, consequences arising from the main realised business risks were primarily related to the clearly increased levels of economic uncertainty in Europe, particularly in southern Europe. Operational risks include inadequate or failed internal processes, employee actions, systems, or other events such as natural catastrophes, misconduct or crime. Key operational risks for the Group are a major fire or accident, risks related to corporate security and legal affairs, environmental risks, and risks associated with investment projects and company personnel. No significant operational risks were realised during the third quarter. Key financial risks for Outokumpu include: volatility in the price of nickel, molybdenum and fuels; currency risks associated with the euro, the Swedish krona and the US dollar, limitations on financial flexibility (including liquidity and refinancing risk) and risks related to the loan receivable from Luvata and financial investments. The decline in the share price of Talvivaara Mining Company Plc that occurred during the third quarter resulted in a decrease in the fair value of the Group s holding in Talvivaara Sotkamo Ltd, with a corresponding negative impact on Outokumpu s third-quarter earnings and gearing. While the decline in the nickel price in the third quarter had a negative impact on the Group s overall financial performance, this was partly offset by nickel price hedging activities. At the same time, Outokumpu s cash flow improved significantly due to the decline in nickel and molybdenum prices and lower inventory levels. Recent increasing levels of uncertainty in global economic sentiment might have an adverse impact on the Group s business environment in the near future. Civil actions regarding the divested fabricated copper products business In connection with the EU investigation into an industrial copper tubes cartel that was completed in May 2009, Outokumpu has since 2004 addressed several civil complaints raised against the company and its former fabricated copper products business. The last pending civil complaint in the United States, filed by Carrier Corporation in 2006 against and Outokumpu Copper Franklin, Inc. in the federal district court in Memphis, Tennessee, seeks an unstated amount of damages. The complaint alleges a worldwide price fixing and

15 15 (30) market allocation cartel with respect to copper tubing for air conditioning and heat exchangers and related applications (ACR Tube) for at least the period from 1989 to In July 2007, the complaint raised by Carrier Corporation was dismissed. Carrier subsequently filed an appeal, and this is still pending in the Court of Appeals. In 2010, certain companies in the Carrier Group brought a civil action in the UK courts against (and two other defendant groups). The claimants allege that they suffered losses across Europe as a result of the cartel and are seeking recovery from the three main defendant groups either jointly or jointly and severally. The claimants initial claim for alleged losses is some GBP 20 million excluding interest. Outokumpu will be challenging the jurisdiction of the UK courts to hear this claim. In any event, Outokumpu believes that the allegations regarding damages caused by the cartel are groundless and, if pursued, Outokumpu will defend itself in any proceedings. No provisions have been booked in connection with these claims. 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. In June 2009, the Finnish Customs completed its preliminary investigation and forwarded the matter for consideration of possible charges to the prosecution authorities. The process of considering possible charges was completed in November 2010 and the public prosecutor concluded that the Customs authorities suspicions regarding possible accounting offences and forgery were groundless. The case was nevertheless taken to court in March 2011 as charges were pressed against Outokumpu and five of its employees for alleged money laundering in connection with export practices to Russia by Tornio Works during On behalf of the state, the prosecutor also presented a claim for forfeiture of the funds subject to money laundering. In a judgement delivered in June 2011, the Court dismissed all claims and the Finnish State was ordered to pay a total of EUR 1.2 million in compensation. In August, the State prosecutor lodged an appeal against the District Court verdict and the legal proceedings continue. Organisational changes and appointments In February, Outokumpu s Board of Directors appointed Mr Mika Seitovirta as the Group s new Chief Executive Officer. He joined Outokumpu in March and assumed the position of CEO on 1 April Mr Juha Rantanen, Outokumpu s former CEO, left his position as CEO on 31 March In June, it was agreed that Mr Bo Annvik, EVP Specialty Stainless, would leave his position and resign from the Group Executive Committee by the end of June Mr Annvik s employment by Outokumpu will end on 31 December Jamie Allan, Executive Vice President Supply Chain Management and member of the Group Executive Committee, temporarily assumed Mr Annvik s duties. In July, Mr Jarmo Tonteri was appointed EVP Specialty Stainless and member of the Group Executive Committee with effect from 1 August He reports to CEO Mika Seitovirta.

16 16 (30) Annual General Meeting 2011 The 2011 Annual General Meeting (AGM) approved a dividend of EUR 0.25 per share for Dividends totalling EUR 45 million were paid on 5 April 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 The AGM also 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 and to be transferred is The authorisation includes the right to resolve upon directed share issues. These authorisations are valid for 12 months or until the next AGM, however no longer than 31 May To date the authorisations have not been used. The AGM decided that the number of Board members, including the Chairman and Vice Chairman, should be seven. Evert Henkes, Ole Johansson, Anna Nilsson-Ehle, Jussi Pesonen and Olli Vaartimo were re-elected as members of the Board of Directors, and Elisabeth Nilsson and Siv Schalin were elected as new members. The AGM re-elected Ole Johansson as Chairman and elected Olli Vaartimo as Vice Chairman of the Board. The AGM also resolved to form a Nomination Board 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: the Board Audit Committee and the Board Remuneration Committee. Shares and shareholders Information regarding shares and shareholders is updated daily on Outokumpu s Internet pages:

17 17 (30) Largest shareholders 30 Sept % 2011 Finnish corporations 36.0 Foreign investors 16.1 Finnish public sector institutions 20.5 Finnish private households 17.9 Finnish financial insurance institutions 6.8 Finnish non-profit organisations 2.6 Shareholders with over 5% shareholding Solidium Oy (owned by the Finnish State) Finnish Social Insurance Institution 8.01 Share information Jan Sept Jan Sept Fully paid share capital at the end of the period EUR million Number of shares at the end of the period Average number of shares outstanding 1) Diluted average number of shares 1), 2) Number of shares outstanding at the end of the period 1) Number of treasury shares held at the end of the period Share price at the end of the period EUR Average share price EUR Highest price during the period EUR Lowest price during the period EUR Market capitalisation at the end of period EUR million Share turnover million shares Value of shares traded EUR million ) The number of own shares repurchased is excluded. 2) Outokumpu's stock option programme ended on 1 March Events after the review period OSTP turnaround plan announced In October, the OSTP joint venture began its operations and the company s new board of directors held its first meeting confirming OSTP s corporate strategy and plans to improve the company s performance. The focus will be on process pipes and butt-weld fittings, consolidating the company s production structure and reducing costs by streamlining its organisation. Production of process pipes are planned to be consolidated in Pietarsaari in Finland and Riyadh in Saudi Arabia while butt-weld fittings to the main part are planned to be produced in Pietarsaari and Örnsköldsvik in Sweden. The production of process pipes and heat exchanger tubes at OSTP s Nyby site in Sweden is planned to be closed down by the end of this year. Some of the production is planned to be transferred to Pietarsaari. OSTP has initiated negotiations with trade union representatives in Nyby. Approximately 100 people are currently employed at the Nyby site. In addition to streamlining the company s production operations, OSTP is also planning to reduce other cost, such as overhead costs.