OUTOKUMPU S FIRST QUARTER 2012 IMPROVED DEMAND AND PROFITABILITY

Transcription

1 OUTOKUMPU OYJ INTERIM REPORT 27 April 2012 at 9.00 am EET 1 (27) OUTOKUMPU S FIRST QUARTER 2012 IMPROVED DEMAND AND PROFITABILITY First-quarter 2012 highlights - Underlying operational result improved to some EUR 2 million (IV/2011: EUR -34 million) - Operating profit was EUR 3 million (IV/2011: EUR -71 million) including raw material-related inventory gains of some EUR 14 million (IV/2011: EUR -24 million) and net non-recurring items of EUR -13 million (IV/2011: EUR -13 million) - Strong operating cash flow of EUR 116 million (IV/2011: EUR 132 million) - Total external deliveries at tonnes (IV/2011: tonnes) - Acquisition of Inoxum, ThyssenKrupp s stainless business, announced - EUR 1 billion rights offering successfully implemented - Plans for new Outokumpu Leadership Team - Plans for further personnel reductions in General Stainless Group key figures I/12 IV/11 I/ Sales EUR million EBITDA EUR million Adjusted EBITDA 1) EUR million Operating result EUR million excluding non-recurring items EUR million underlying operational result 2) EUR million Result before taxes EUR million excluding non-recurring items EUR million Net result 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 the end of period EUR million Debt-to-equity ratio at the end of period 3) % External deliveries tonnes Stainless steel external deliveries tonnes Stainless steel base price 4) EUR/tonne Personnel at the end of period ) EBITDA excluding raw -material related inventory gains/losses and non-recurring items, unaudited. 2) Operating result excluding raw material-related inventory gains/losses and non-recurring items, unaudited. 3) 31 March 2012 adjusted to exclude the effect of the rights issue. 4) Stainless steel: CRU - German base price (2 mm cold rolled 304 sheet). Raw -material related inventory gains or losses The realised timing gain or loss per tonne of stainless steel is estimated based on the difference betw een the purchase price and invoice price of each metal in EUR per tonne times the average metal content in stainless steel. The unrealised timing impact consists of the change in net realisable value NRV during each quarter. If there is a significant negative change in metal prices during the quarter, inventories are w ritten dow n to NRV at the end of the period to reflect low er expected transaction prices for stainless steel in the future. As this timing impact is expected to be realised in the cash flow of Outokumpu only after the raw material has been sold, it is referred to as being unrealised at the time of the booking. Riihitontuntie 7 B, P.O. Box 140, FIN Espoo, Finland Tel , Fax , Domicile Espoo, Finland, Business ID , VAT FI

2 2 (27) SHORT-TERM OUTLOOK Improved demand for standard grades of stainless steel in the first quarter was supported by restocking among distributors. In the beginning of the second quarter, underlying demand has remained relatively stable. Restocking appears to have slowed as the nickel price declined and distributor inventories are estimated to be at normal levels. As a result of the recent decline in the nickel price and a weaker product and geographic mix in the second quarter, Outokumpu s average base prices for stainless steel in the second quarter are expected to be flat or slightly lower than in the first quarter. Based on the current level of order intake, Outokumpu s external delivery volumes (stainless and ferrochrome) in the second quarter of 2012 are expected to be approximately at the same level as in the first quarter. Despite the higher quarterly contract price for ferrochrome in the second quarter, the profitability of the Group s ferrochrome operations is expected to weaken temporarily in the second quarter due to planned shut-downs at the concentration plant in Kemi connected with the Group s ongoing ferrochrome investment project. Outokumpu s underlying operational result *) in the second quarter is expected to be at breakeven or slightly negative. At current metal prices, marginal raw material-related inventory losses are expected as a result of the decline in the nickel price. Outokumpu s operating result in the second quarter could be impacted by non-recurring items associated with the Inoxum acquisition and the Group s ongoing cost-cutting and turnaround programmes. *) Underlying operational result=operating result excluding raw material-related inventory gains/losses and non-recurring items. CEO Mika Seitovirta: We made significant progress in many important strategic areas in the first quarter. Implementation of our short-term turnaround programmes to improve profitability and cash flow continued. While profitability still remains unsatisfactory, the breakeven result confirms that the Group is moving in the right direction. I m very pleased with our strong cash flow during the quarter. The Inoxum acquisition is of enormous strategic importance as it positions Outokumpu as a new global leader in stainless steel with a balanced production structure and a broad product offering and customer base. The success of our EUR 1 billion rights issue shows that Outokumpu shareholders share our view of the significant potential offered by this acquisition. To protect the Group s profitability and cash flow, implementation of the planned cost saving programmes will continue in the second quarter. I am confident that we are in a good strategic position to drive our business forward with solid results.

3 The attachments present the Management analysis for the first quarter 2012 operating result and the Interim Review by the Board of Directors for January-March 2012, the accounts and notes to the interim accounts. The report is unaudited. For further information, please contact: Ingela Ulfves, Investor Relations tel , mobile ingela.ulfves@outokumpu.com Kari Tuutti, Communications, IR and Marketing tel , mobile kari.tuutti@outokumpu.com 3 (27) News conference and live webcast today at 1.00 pm EET A combined news conference, conference call and live webcast concerning the first-quarter 2012 financial results will be held on 27 April 2012 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 USA & Canada Sweden Password Outokumpu The news conference can be viewed live via Internet. Please find a direct link to the webcast at the end of this page. The stock exchange release and presentation material will be available before the news conference at An on-demand webcast of the news conference will be available at as of 27 April 2012 at around 3.00 pm EET. Link to the webcast OUTOKUMPU OYJ

4 4 (27) MANAGEMENT ANALYSIS FIRST QUARTER OPERATING RESULT Group key figures EUR million I/11 II/11 III/11 IV/ I/12 Sales General Stainless Specialty Stainless Ferrochrome Other operations Intra-group sales The Group EBITDA Adjusted EBITDA 1) Operating result Underlying operating result 2) Non-recurring items in operating result ) EBITDA excluding raw -material related inventory gains/losses and non-recurring items, unaudited. 2) Operating result excluding raw material-related inventory gains/losses and non-recurring items, unaudited. External Deliveries tonnes I/11 II/11 III/11 IV/ I/12 Cold rolled White hot strip Quarto plate Long products Semi-finished products Stainless steel 3) Ferrochrome Tubular products Total external deliveries Stainless steel external deliveries ) Black hot rolled, slabs, billets and other stainless steel products Market prices and exchange rates I/11 II/11 III/11 IV/ I/12 Market prices 4) 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 Exchange rates EUR/t 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 (27) Stainless steel markets Markets for stainless steel clearly improved in the first quarter. Supported by the increasing nickel price and low levels of distributor inventories, restocking by distributors began after the year end. According to CRU, the average base price for 2mm cold rolled 304 stainless steel sheet in Germany increased to EUR/tonne in the first quarter (IV/2011: EUR/tonne). Primarily as a result of the higher nickel price, the alloy surcharge increased to EUR/tonne (IV/2011: EUR/tonne) in the review period. The average transaction price during the first quarter increased to EUR/tonne (IV/2011: EUR/tonne). Compared to the fourth quarter, the difference between Chinese and European transaction prices increased somewhat in the first quarter. (CRU) The average nickel price in the first quarter was USD/tonne (IV/2011: USD/tonne), up by 7% compared to the fourth quarter. The quarterly contract price for ferrochrome in the first quarter was 1.15 USD/lb (IV/2011: 1.20 USD/lb) and was settled at 1.35 USD/lb for the second quarter of The price of molybdenum in the first quarter averaged USD/lb and was up by 6% compared to the fourth quarter (IV/2011: USD/lb). The price of recycled steel in the first quarter averaged 414 USD/tonne (IV/2011: 402 USD/tonne). Operating result improved but was still unsatisfactory Group sales in the first quarter totalled EUR million (IV/2011: EUR 1 125), up by 16% compared to the fourth quarter. Outokumpu s external deliveries increased by 25% to tonnes (IV/2011: tonnes) of which stainless steel deliveries totalled tonnes (IV/2011: tonnes) and ferrochrome deliveries totalled tonnes (IV/2011: tonnes). Outokumpu s underlying operational result in the first quarter improved from the fourth quarter and was EUR 2 million (IV/2011: EUR -34 million). The improvement in profitability was primarily a result of higher delivery volumes but a somewhat weaker mix had an adverse effect. Certain technical issues at the ferrochrome and stainless operations in Tornio resulted in some short production stoppages in the first quarter. Outokumpu s operating profit in the first quarter totalled EUR 3 million (IV/2011: EUR -71 million) and includes some EUR 14 million of raw material-related inventory gains (IV/2011: EUR -24 million) as a result of higher metal prices and EUR 13 million of non-recurring costs (IV/2011: EUR -13 million). The non-recurring costs in the first quarter relate to the Inoxum transaction. Excluding nonrecurring items, operating profit totalled EUR 15 million (IV/2011: EUR -58 million). Outokumpu s average base prices for all flat products realised in the first quarter were 15 EUR/tonne higher than in the fourth quarter 2011, and below the base prices reported by CRU for German 304 sheet. Net financial income and expenses in the first quarter totalled EUR 4 million (IV/2011: EUR -62 million). This figure includes positive impact of EUR 20 million (IV/2011: EUR -20 million) from the fair valuation of Outokumpu s remaining 16% stake in Talvivaara Sotkamo Ltd as a consequence of the increase in the Talvivaara share price in the first quarter. In June 2011, Outokumpu granted an option to Talvivaara Mining Company Plc to purchase this 16% stake. The option was not taken up and expired at the end of the first quarter. Group net profit totalled EUR 12 million (IV/2011: EUR -118 million) in the first quarter and earnings per share totalled EUR 0.06 (IV/2011: EUR -0.62). Excluding non-recurring items, earnings per share totalled EUR 0.13 (IV/2011: EUR -0.48). Return on capital employed in the first quarter was 0.3% (IV/2011: -7.4%). Excluding non-recurring items, return on capital employed was 1.6% (IV/2011: -6.1%).

6 6 (27) Strong operating cash flow Net cash from operating activities in the first quarter remained strong and totalled EUR 116 million (IV/2011: EUR 132 million). The main contributor to the good cash flow was further reductions in levels of working capital. EUR 87 million was released from working capital in the first quarter (IV/2011: EUR 161 million). Outokumpu s gearing at the end of the first quarter decreased to 78.4% (IV/2011: 82.5%), slightly above Outokumpu s maximum target level of 75%. Net interest-bearing debt declined by EUR 225 million to EUR million (IV/2011: EUR million) at the end of the quarter. EUR 148 million of proceeds from the EUR 1 billion rights offering conducted in March-April were booked in the first quarter and including the rights offering proceeds, gearing was 66.6% at the end of the first quarter. Capital expenditure in the first quarter totalled EUR 79 million (IV/2011: EUR 95 million) with the majority of costs being connected with the Group s ferrochrome expansion project at Tornio in Finland. The ferrochrome expansion project proceeded as planned in the first quarter. In addition to continued construction and installation work, preparations for executing temporary shut-downs at the concentration plant in Kemi in the second quarter were made. These shut-downs are expected to last for a few months until ramp-up of the new concentration plant will start in the third quarter of In the meantime, raw material from existing inventories will be used in ferrochrome production. Turnaround of loss making units is progressing as planned Additional measures to return the Group s thin and precision strip mill in Kloster in Sweden to sustainable profitability were taken in the first quarter. Actions included reductions in production shifts, and the optimisation of both the product mix and material flows. Overall price increases were also implemented in the first quarter. Operating loss at the Kloster thin strip unit in the first quarter totalled EUR 2 million (IV/2011: EUR -9 million). Further progress in OSTP (Outokumpu s tubular operations) restructuring and related turnaround actions was made in the first quarter. Production at OSTP s Nyby site in Sweden was discontinued and selected production lines were moved to Pietarsaari in Finland. Ramp-up of production on these lines will take place in the second quarter. To date, the restructuring programme has reduced the overall headcount by more than 100. Cost savings are showing a gradual impact throughout the year 2012 with full effect expected at the end of the year. As a result of the restructuring measures, reduced overhead costs and increased sales, OSTP s operating profit in the first quarter was EUR 2 million (IV/2011: EUR -12 million). Ongoing cost cutting and working capital reduction programmes Initiated in the fourth quarter of 2011, further actions to reach sustainable profitability, improve cash generation and strengthen the balance sheet are being implemented. The Group s target is to cut costs by EUR 100 million by the end of 2012 and to reduce working capital by EUR 250 million by mid-2013 compared to the situation in mid As planned, further progress was achieved in the cost cutting programme in the first quarter. Measures include reduction of production shifts, streamlining of Outokumpu s organisation, the divestment of stock locations and the outsourcing of some support functions, corresponding to a reduction of up to jobs in global terms. Statutory negotiations already concluded in connection with shift reductions at the Group s Swedish units, efficiency improvements at Tornio, the simplification of sales and marketing and supply chain functions and sales companies will result in a total of approximately 800

7 job reductions by the end of the year. Related cost savings are showing a gradual impact throughout the year 2012 with full effect expected at the end of the year. Further efficiency improvement actions are currently being implemented. Consolidation of the Group s stocking operations in Europe is ongoing. The overall intention is to efficiently utilise the existing processing capacity and serve the market from selected key locations. Outokumpu also intends to divest its remaining Brass operations in The Netherlands. Actions taken to reduce the levels of working capital are progressing extremely well. Some EUR 340 million has been released from inventory-related working capital over the last nine months and progress in the management of accounts payables and receivables has also been very good. The target to reduce inventory days in the Group s supply chain to a figure closer to 90 days was reached already in the first quarter. As earlier levels were close to 110 days, this represents a significant reduction. The ongoing improvement actions aim to ensure that the reduced level of inventory days is maintained. Outokumpu and ThyssenKrupp to combine their stainless steel operations In January, the proposed combination of Outokumpu and Inoxum was approved by Outokumpu s Board of Directors. Operating under the Outokumpu name, the company will be a new global leader in stainless steel with annualised sales totalling approximately EUR 11.6 billion, around employees, annual cold rolling capacity totalling approximately 3.5 million tonnes and a global market share of 14%. The transaction is expected to yield significant cost synergy savings of approximately EUR million by 2017, with approximately half the related savings being achieved already by the end of (27) Outokumpu and Inoxum have highly complementary product offerings and will have a well-balanced, global customer base covering all key end-use segments in the stainless steel sector. The combination will enable the strategic optimisation of production capacities, production locations and supply routes, allowing for higher utilisation rates at the three primary integrated production facilities in which the focus is on standard stainless steel grades: Tornio in Finland, Terni in Italy and Calvert in Alabama, USA. Plans call for a reduction of approximately 1.4 million tonnes of melting capacity in Germany by closing the Krefeld melt shop in 2013 and the Bochum melt shop in 2016 (pending specific reviews in 2015). The new Outokumpu will also focus on special stainless products and grades such as duplex grades, quarto plate and long products, and also on high performance alloys such as zirconium, titanium and nickel alloys. The combination will enable the new Outokumpu to take full advantage of numerous opportunities for future growth: - The ongoing doubling of the Group s ferrochrome production capacity in Tornio in Finland, - Business expansion in the Americas based on ramping up of the integrated and cost-competitive stainless production facility in Alabama, USA, - Investment in cold rolling and high-quality ferritic grades in Krefeld, Germany, - Expansion in the High Performance Alloys operations, - Expansion of capacity and capability in quarto plate operations at Degerfors in Sweden, - An expanded presence in the rapidly growing Asian market. The consideration for Inoxum comprises a cash payment, certain Inoxum liabilities, a loan note issued to ThyssenKrupp and new shares to be issued to ThyssenKrupp. ThyssenKrupp will hold a 29.9%

8 8 (27) stake in Outokumpu following a directed share issue at the closing of the transaction. Subject to regulatory approval, completion of the transaction is expected by the end of Successful EUR 1 billion rights offering completed As part of the consideration paid to ThyssenKrupp for Inoxum, Outokumpu successfully conducted a fully underwritten rights offering in March April. Total gross proceeds amounted to approximately EUR million. The subscription price was EUR 0.79 per share with every old share entitling the holder to subscribe for seven new shares. The subscription period ran from 15 March to 4 April The rights offering was oversubscribed by 22% and a total of new shares were issued. No underwriting was utilised as result of the oversubscription. Following the rights offering, the total number of Outokumpu s shares is Events after the end of the review period Rights offering completed in April Outokumpu s EUR 1 billion rights offering was completed in April, as described in the previous section of this interim report. New EUR 400 million revolving credit facility In April, Outokumpu signed a EUR 400 million committed multicurrency revolving credit facility to cover working capital requirements. The credit facility will become available after completion of the Inoxum transaction. This credit facility matures in June 2013 and includes a financial covenant based on gearing at the level of 115%. Plans for the new Outokumpu Leadership Team Today Outokumpu announced preliminary plans concerning the new Outokumpu Leadership Team to take effect upon the closing of the business combination of Outokumpu and Inoxum following regulatory approval. The proposed Leadership Team would be composed of the following individuals: Mika Seitovirta, CEO Esa Lager, CFO Ulrich Albrecht-Früh, head of Stainless Coil EMEA Kari Parvento, head of Stainless Coil Americas and head of Ferrochrome Jarmo Tonteri, head of Specialty Stainless and Alloys Austin Lu, head of Stainless Asia Reinhard Florey, head of Strategy and Integration Kari Tuutti, head of Marketing, Communications and IR Head of HR will be nominated at a later stage Ulrich Albrecht-Früh and Reinhard Florey are currently part of the Inoxum management team while the other post-closing Leadership Team members are currently part of the Outokumpu management. Pii Kotilainen, current head of Outokumpu HR, will continue in her current role until the final HR appointment is made. She will continue in another senior role in Outokumpu which will be announced at later stage. Hannu Hautala, member of the Outokumpu Group Executive Committee and Karsten Lork and Frank Brüggestrat, members of the Inoxum management board, are planned to have senior roles in the Stainless Coil EMEA after the closing.

9 9 (27) Until completion of the transaction, Outokumpu and Inoxum will continue to operate as separate and independent business operations. The current Outokumpu Group Executive Committee members continue to operate with full authority in their current roles. Plans for further job cuts in General Stainless Outokumpu continues to improve the efficiency of its operations to reach sustainable profitability. The measures announced today are expected to result in the reduction of jobs in General Stainless and certain functions in Tornio as well as the Group s Terneuzen unit in The Netherlands. Outokumpu expects the majority of the planned personnel reductions to take place in Finland. The statutory negotiations with employee representatives are estimated to start in June, and the planned job reductions are expected to take place by the end of September.

10 10 (27) INTERIM REVIEW BY THE BOARD OF DIRECTORS JANUARY-MARCH 2012 Stainless steel markets Demand for stainless steel improved from the beginning of the year, characterised in the main by restocking among distributors as a result of the increasing nickel price. In the first quarter of 2012, the average base price for 2mm cold rolled 304 stainless steel sheet in Germany was EUR/tonne (I/2011: EUR/tonne). The average transaction price during the review period was EUR/tonne (I/2011: EUR/tonne). (CRU) Prices of all alloying elements during January March 2012 were clearly lower than in the corresponding period in The nickel price averaged USD/tonne in the first three months of 2012 (I/2011: USD/tonne), 27% lower than in the corresponding period in the previous year. The quarterly contract price for ferrochrome in the first quarter of 2012 was 1.15 USD/lb (I/2011: 1.25 USD/lb), the average price of molybdenum was USD/lb (I/2011: USD/lb) and the price of recycled steel was 414 USD/tonne (I/2011: 447 USD/tonne). Underlying profitability improved Compared to the first quarter of 2011, Group sales in the first quarter were down by 5% to EUR million (I/2011: EUR million) impacted by lower transaction prices. Total external deliveries in the first quarter were up by 6% and totalled tonnes (I/2011: tonnes). Underlying operational result improved and totalled EUR 2 million (I/2011: EUR -12 million) in the first quarter. The improvement in profitability compared to the first quarter 2011 was primarily a result of higher delivery volumes and lower fixed costs but was adversely affected by lower base prices. Group operating profit was EUR 3 million (I/2011: EUR 33 million) and included some EUR 14 million of raw material-related inventory gains (I/2011: some EUR 45 million) as well as EUR 13 million of nonrecurring costs (I/2011: none) related to the Inoxum acquisition. Operating profit excluding nonrecurring items totalled EUR 15 million (I/2011: EUR 13 million). Profit before taxes totalled EUR 6 million (I/2011: EUR 17 million). Net financial income and expenses totalled EUR 4 million (I/2011: EUR -14 million). This figure includes positive impact of EUR 20 million from the fair valuation of Outokumpu s remaining 16% stake in Talvivaara Sotkamo Ltd as a result of the increase in the Talvivaara share price in the first quarter. In June 2011, Outokumpu granted an option to Talvivaara Mining Company Plc to purchase this 16% stake. The option was not taken up and expired at the end of the first quarter. Net profit for the period totalled EUR 12 million (I/2011: EUR 16 million) and earnings per share totalled EUR 0.06 (I/2011: EUR 0.09). Return on capital employed in the first quarter was 0.3% (I/2011: 3.1%). Strong operating cash flow Net cash generated from operating activities in the first quarter was clearly positive at EUR 116 million (I/2011: EUR -10 million). Net interest-bearing debt declined by EUR 377 million to EUR million by the end of the first quarter (31 March 2011: EUR million) compared to the end of the first quarter Outokumpu s gearing was 78.4% on 31 March 2012 (31 March 2011: 80.4%), above the Group s target maximum of 75%. EUR 148 million of proceeds from the EUR 1 billion rights offering conducted in March-April were booked in the first quarter and including the rights offering proceeds, the Group s gearing was 66.6% on 31 March 2012.

11 11 (27) Capital expenditure and investment projects Capital expenditure by the Group in the first quarter totalled EUR 79 million (I/2011: EUR 42 million) with majority of costs connected with the ferrochrome expansion project. In addition to annual maintenance, ongoing major investment projects are: the expansion of ferrochrome production in Tornio and Kemi in Finland and increased production capacity and capability of quarto plate at Degerfors in Sweden. In 2012, capital expenditure by the Group including maintenance investments is expected to total EUR 300 million. The ferrochrome expansion project progressed as planned in the first quarter. In addition to continued construction and installation work, preparations for executing temporary shut-downs at the concentration plant in Kemi in the second quarter were made. These shut-downs are expected to last for a few months until ramp-up of the new concentration plant will start in the third quarter of In the meantime, raw material from existing inventories will be used in ferrochrome production. Ongoing cost cutting and working capital reduction programmes Initiated in the fourth quarter of 2011, further actions to reach sustainable profitability, improve cash generation and strengthen its balance sheet are being implemented. The Group s target is to cut costs by EUR 100 million by the end of 2012 and to reduce working capital EUR 250 million by mid-2013 compared to the situation in mid As planned, further progress was achieved in the cost cutting programme in the first quarter. Measures include reduction of production shifts, streamlining of Outokumpu s organisation, the divestment of stock locations and the outsourcing of some support functions, corresponding to a reduction of up to jobs in global terms. Statutory negotiations already concluded in connection with shift reductions at the Group s Swedish units, efficiency improvements at Tornio, the simplification of sales and marketing and supply chain functions and sales companies will result in a total of approximately 800 job reductions. Related cost savings are showing a gradual impact throughout the year 2012 with full effect expected at the end of the year. Actions taken to reduce the levels of working capital are progressing extremely well. Some EUR 340 million has been released from inventory-related working capital over the last nine months and progress in the management of accounts payables and receivables has also been very good. The target to reducing inventory days in the Group s supply chain to a figure closer to 90 days was reached already in the first quarter. Outokumpu and ThyssenKrupp to combine its stainless steel operations In January, the proposed combination of Outokumpu and Inoxum was approved by Outokumpu s Board of Directors. Operating under the Outokumpu name, the company will be a new global leader in stainless steel with annualised sales totalling approximately EUR 11.6 billion, around employees, annual cold rolling capacity totalling approximately 3.5 million tonnes and a global market share of 14%. The transaction is expected to yield significant cost synergy savings of approximately EUR million by 2017, with approximately half the related savings being achieved already by the end of The consideration for Inoxum comprises a cash payment, certain Inoxum liabilities, a loan note issued to ThyssenKrupp and new shares to be issued to ThyssenKrupp. ThyssenKrupp will hold a 29.9% stake in Outokumpu following a directed share issue at the closing of the transaction. Subject to regulatory approval, completion of the transaction is expected by the end of 2012.

12 12 (27) Extraordinary General Meeting in March 2012 In connection with the Inoxum transaction, an Extraordinary General Meeting (EGM) was held in Helsinki on 1 March The EGM authorised the Board of Directors to decide on both a share issue and a directed share issue. The EGM authorised the Board of Directors to decide to issue a maximum of new shares through a share issue pursuant to shareholders pre-emptive subscription right. Valid until 31 December 2012, this authorisation revoked the share issue authorisation given by the preceding AGM. Based on the authorisation, a EUR 1 billion rights offering was conducted and successfully completed in March-April 2012 and was oversubscribed by 22%. The EGM also authorised the Board of Directors to decide on a directed share issue to ThyssenKrupp AG. Pursuant to this authorisation, the Board of Directors is entitled to decide on the issuance of a maximum of new shares in such manner that ThyssenKrupp AG or its order is entitled to subscribe for new shares in deviation from shareholders pre-emptive subscription right of the shareholders and as a result will hold a maximum of 29.9% of Outokumpu s issued and outstanding shares after completion of the directed share issue. The authorisation for the directed share issue remains in force until 31 December 2013 and does not revoke the above-mentioned share issue authorisation relating to the rights offering. EUR 1 billion rights offering successfully completed As part of the consideration paid to ThyssenKrupp for Inoxum, Outokumpu successfully conducted a fully underwritten rights offering in March-April. Total gross proceeds amounted to approximately EUR million. The subscription price was EUR 0.79 per share with every old share entitling the holder to subscribe for seven new shares. The subscription period ran from 15 March to 4 April The rights offering was oversubscribed by 22% and a total of new shares were issued. No underwriting was utilised as result of the oversubscription. Following the rights offering, the total number of Outokumpu s shares is to People and the environment Outokumpu s personnel headcount fell by 484 to (I/2011: 8 452) in the first quarter of 2012 compared to the first quarter of The average headcount in the first quarter was (I/2011: 8 437). Lost-time injury rate (i.e. lost-time accidents per million working hours) was 8.3 (I/2011: 5.5) in the first quarter and did not meet the Group s 2012 target of less than 4.0. No severe accidents occurred in the first quarter. 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 quarter of 2012 totalled approximately tonnes (I/2011: tonnes). No external trading of emission allowances was conducted during the first quarter. Outokumpu s carbon dioxide allowances in Finland, Sweden and the UK were sufficient for the Group s planned production in the review period.

13 13 (27) Risks and uncertainties Outokumpu operates in accordance with the risk management policy approved by the 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. Strategic risks for Outokumpu are mainly associated with the Group's business portfolio and strategic decision making. Business risks relate to the economic outlook, markets for stainless steel and to the behaviour of customers, suppliers and competitors. Important risks that Outokumpu currently faces include the Group's ability to implement its chosen strategy, structural overcapacity and weak markets for stainless steel; the risk of a steeper economic downturn in Europe; business risks connected with special products; Outokumpu s ability to expand business in growth markets and in the ferrochrome sector; adverse political actions affecting trade or changes that affect environmental legislation and the increased cost of inputs. Operational risks include inadequate or failed internal processes, employee actions, systems, or events such as natural catastrophes and misconduct or crime. Key operational risks for Outokumpu are: a major fire or accident, IT dependency, a lack of harmonised business processes and information systems; project implementation risks and personnel-related risks. No significant operational risks were realised during the first quarter. Outokumpu currently has two big investment projects and cost reduction and restructuring programmes ongoing and failures or delays in these may negatively impact implementation of the Group s strategy, achievement of financial targets and transition towards sustainable profitability. Outokumpu manages these risks by having dedicated resources for overall project management and support to monitor these projects. Key financial risks for Outokumpu include changes in the price of nickel, molybdenum, electricity and fuels; currency risks associated with the euro; the Swedish krona and the US dollar; interest rate risks connected with the Swedish krona and the euro; risks related to certain equity prices; risks associated with a loan receivable from Luvata; other credit risks; limitations on financial flexibility and the risk of financial distress. The Inoxum transaction was announced during the first quarter of Outokumpu is exposed to a number of risks associated with Inoxum s financial and operational performance. Additional risks and uncertainties relate to completion of the transaction, business integration, and the implementation of actions required to achieve the expected synergy benefits. Nickel price development in the first quarter was fairly stable and had a minor positive impact on the Outokumpu s overall financial performance. The change in value of the Group s stake in Talvivaara had a clearly positive impact on earnings. The continuing European debt crisis is a risk for the overall business environment in Europe including the stainless steel industry. Annual General Meeting 2012 The Annual General Meeting (AGM) was held on 14 March 2012 in Helsinki. In accordance with the proposal of the Board of Directors, the AGM decided that no dividend shall be paid for the financial year 2011.

14 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 Based on earlier authorisations Outokumpu currently holds of its own shares. 14 (27) The AGM also authorised the Board of Directors to decide on the issuance of shares as well as other special rights entitling to shares. The AGM authorised the Board of Directors to resolve to issue a maximum of shares through one or several share issues and/or by the granting of special rights entitling to shares, excluding option rights granted to the company s management and personnel under incentive plans. Pursuant to this authorisation, the maximum number of new shares to be issued through any share issue and/or by granting special rights entitling to shares is , and, in addition, the maximum number of treasury shares to be transferred is These authorisations are valid until the end of the next AGM, but 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, be seven. Ole Johansson, Olli Vaartimo, Elisabeth Nilsson and Siv Schalin were re-elected as members of the Board of Directors, and Iman Hill, Harri Kerminen and Heikki Malinen were elected as new members. The AGM re-elected Ole Johansson as Chairman and Olli Vaartimo as Vice Chairman of the Board. As a complementary measure to the above, the AGM also decided that, based on a proposal from Solidium Oy, the number of Board members would be eight and Guido Kerkhoff would be elected as the eight Board member from the day following the completion of the transaction to combine Outokumpu and Inoxum. The AGM also resolved to establish a Nomination Board for an indefinite period to prepare proposals on the composition and remuneration of the Board of Directors for the next AGM. The AGM also adopted a charter for the Shareholders Nomination Board. At its first meeting, the Outokumpu Board of Directors appointed two permanent committees consisting of Board members. Olli Vaartimo (Chairman), Heikki Malinen, Iman Hill and Siv Schalin were elected as members of the Board Audit Committee. Ole Johansson (Chairman), Elisabeth Nilsson and Harri Kerminen were elected as members of the Board Remuneration Committee. KPMG Oy Ab, Authorised Public Accountants, was re-elected as the company s auditor for the period ending at the close of the next AGM. Civil actions regarding the divested fabricated copper products business In connection with the EU investigation into an industrial copper tubes cartel, completed in May 2009, Outokumpu has since 2004 been in the process of addressing several civil complaints raised against the company and its former fabricated copper products business. The last pending civil complaint in the USA, filed by Carrier Corporation in 2006 against and Outokumpu Copper Franklin, Inc. i.e. in the federal district court in Memphis, Tennessee, seeks an unstated amount of damages. This complaint alleges a worldwide price fixing and 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 by Carrier was dismissed. Carrier subsequently filed an appeal. In March 2012, the United States Court of Appeals for the Sixth Circuit reversed the decision dismissing the complaint and referred the case to the United States District Court for the Western District of Tennessee. Outokumpu intends to defend itself in these proceedings as it believes that related allegations are groundless.

15 15 (27) In 2010, certain companies in the Carrier Group brought a civil action in the UK courts against Outokumpu (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 challenged the jurisdiction of the courts of England and Wales to hear the claim. The High Court of Justice, Chancery Division, rejected Outokumpu s applications to contest jurisdiction. All the defendants have filed applications for permission to appeal this judgment to the Court of Appeal. In January 2012, the Court of Appeal granted permission to appeal. Outokumpu believes that the allegations regarding damages caused by the cartel are groundless and, if pursued, Outokumpu will defend itself in any proceedings. In March 2012, the Court announced that Carrier has reached a settlement with one defendant group. Details related to this settlement are unknown. No provisions have been booked in connection with these claims. Shares and shareholders Information regarding shares and shareholders is updated daily on Outokumpu s Internet pages: Largest shareholders 31 March % 2012 Finnish corporations 34.5 Foreign investors 26.9 Finnish private households 21.6 Finnish public sector institutions 13.0 Finnish non-profit organisations 2.2 Finnish financial insurance institutions 1.9 Shareholders with over 5% of shares and voting rights Solidium Oy (owned by the Finnish State) Finnish Social Insurance Institution 8.01 Share information Jan March Jan March 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) 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 2) EUR Average share price 2) EUR Highest price during the period 2) EUR Lowest price during the period 2) EUR Market capitalisation at the end of period 3) EUR million Share turnover 3) million shares Value of shares traded 3) EUR million Source of share information: NASDAQ OMX Helsinki (only includes OMX Helsinki trading) 1) The number of ow n shares repurchased is excluded. There are currently no programmes w ith diluting effect in place. 2) Comparative share prices adjusted regarding the effect of the rights issue. 3) Jan March 2012 figures include the effect of share subsciption rights traded during 15 March 28 March 2012.

16 16 (27) Events after the end of the review period Rights offering completed in April Outokumpu s EUR 1 billion rights offering was completed in April, as described in the previous section of the interim report. New EUR 400 million revolving credit facility signed In April, Outokumpu signed a EUR 400 million committed multicurrency revolving credit facility to cover working capital requirements. The credit facility will become available after completion of the Inoxum transaction. This credit facility matures in June 2013 and includes a financial covenant based on gearing at the level of 115%. Customs investigation of exports to Russia by Tornio site In March 2007, the Finnish Customs authorities initiated a criminal investigation into export practices to Russia by Outokumpu s Tornio site. 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 case involved charges against Outokumpu and five of its employees for alleged money laundering in connection with export practices to Russia and was heard at the District Court in March In a judgement released in June 2011, all the claims were dismissed and the Finnish State was ordered to pay a total of EUR 1.2 million in compensation. In August 2011, the State Prosecutor lodged an appeal against the District Court judgement. Legal proceedings in the Kouvola Court of Appeal took place in February In April 2012, the Court of Appeal dismissed all charges against Outokumpu and its employees. Plans for new Outokumpu Leadership Team Today Outokumpu announced preliminary plans concerning the new Outokumpu Leadership Team to take effect upon the closing of the business combination of Outokumpu and Inoxum following regulatory approval. The proposed Leadership Team would be composed of the following individuals: Mika Seitovirta, CEO Esa Lager, CFO Ulrich Albrecht-Früh, head of Stainless Coil EMEA Kari Parvento, head of Stainless Coil Americas and head of Ferrochrome Jarmo Tonteri, head of Specialty Stainless and Alloys Austin Lu, head of Stainless Asia Reinhard Florey, head of Strategy and Integration Kari Tuutti, head of Marketing, Communications and IR Head of HR will be nominated at a later stage Ulrich Albrecht-Früh and Reinhard Florey are currently part of the Inoxum management team while the other post-closing Leadership Team members are currently part of the Outokumpu management. Pii Kotilainen, current head of Outokumpu HR, will continue in her current role until the final HR appointment is made. She will continue in another senior role in Outokumpu which will be announced at later stage. Hannu Hautala, member of the Outokumpu Group Executive Committee and Karsten

17 Lork and Frank Brüggestrat, members of the Inoxum management board, are planned to have senior roles in the Stainless Coil EMEA after the closing. Until completion of the transaction, Outokumpu and Inoxum will continue to operate as separate and independent business operations. The current Outokumpu Group Executive Committee members continue to operate with full authority in their current roles. Plans for further job cuts in General Stainless Outokumpu continues to improve the efficiency of its operations to reach sustainable profitability. The measures announced today are expected to result in the reduction of jobs in General Stainless and certain functions in Tornio as well as the Group s Terneuzen unit in The Netherlands. Outokumpu expects the majority of the planned personnel reductions to take place in Finland. The statutory negotiations with employee representatives are estimated to start in June, and the planned job reductions are expected to take place by the end of September. SHORT-TERM OUTLOOK 17 (27) Improved demand for standard grades of stainless steel in the first quarter was supported by restocking among distributors. In the beginning of the second quarter, underlying demand has remained relatively stable. Restocking appears to have slowed as the nickel price declined and distributor inventories are estimated to be at normal levels. As a result of the recent decline in the nickel price and a weaker product and geographic mix in the second quarter, Outokumpu s average base prices for stainless steel in the second quarter are expected to be flat or slightly lower than in the first quarter. Based on the current level of order intake, Outokumpu s external delivery volumes (stainless and ferrochrome) in the second quarter of 2012 are expected to be approximately at the same level as in the first quarter. Despite the higher quarterly contract price for ferrochrome in the second quarter, the profitability of the Group s ferrochrome operations is expected to weaken temporarily in the second quarter due to planned shut-downs at the concentration plant in Kemi connected with the Group s ongoing ferrochrome investment project. Outokumpu s underlying operational result *) in the second quarter is expected to be at breakeven or slightly negative. At current metal prices, marginal raw material-related inventory losses are expected as a result of the decline in the nickel price. Outokumpu s operating result in the second quarter could be impacted by non-recurring items associated with the Inoxum acquisition and the Group s ongoing cost-cutting and turnaround programmes. *) Underlying operational result=operating result excluding raw material-related inventory gains/losses and non-recurring items. In Espoo, 26 April 2012 Board of Directors 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 people in more than 30 countries. The Group s head office is located in Espoo, Finland. Outokumpu is listed on the NASDAQ OMX Helsinki.