Annual Accounts 2006 February 1, 2007 Juha Rantanen, CEO www.outokumpu.com
Highlights in 2006 Market development Improvement actions update and strategic direction Annual Accounts 2006 Outlook 2 February 1, 2007 Annual Accounts 2006
Highlights in 2006 Outokumpu achieved several records all-time high financial results record high deliveries share price and market capitalization development Sale of shares and listing of Outokumpu Technology Outokumpu practically a pure stainless steel player Short-term performance improvement actions completed Longer-term Operational Excellence programs proceeding well 3 February 1, 2007 Annual Accounts 2006
Highlights in 2006 Market development Improvement actions update and strategic direction Annual Accounts 2006 Outlook 4 February 1, 2007 Annual Accounts 2006
Stainless steel markets in 2006 Excellent year in stainless steel strong demand from end-use industries significant recovery in the distribution sector Apparent consumption of stainless steel (CRU) +15% Y/Y globally +17% Y/Y in Europe European base prices almost doubled 1 030 1 980 EUR/ton (CRU) Rapid rise in nickel price 13 380 34 205 USD/ton Distributor inventories approaching normal levels in Europe 5 February 1, 2007 Annual Accounts 2006
World cold rolled apparent consumption: Growth to revert to long term trend in 2007 1 000 t World CR Apparent Consumption % chg y-on-y 20,000 16% World CR apparent consumption recovered strongly in 2006, following the downturn in 2005 Globally, good demand growth will continue in 2007 18,000 16,000 14,000 12,000 10,000 Data source: CRU JAN 07 Qtrly Forecasts 14% 12% 10% 8% 6% 4% 2% 8,000 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 WORLD CR AC 8,290 8,838 9,618 10,358 10,395 11,215 12,460 13,275 13,430 15,379 16,036 16,291 17,310 18,926 19,577 % chg yr-on-yr 6.6% 8.8% 7.7% 0.4% 7.9% 11.1% 6.5% 1.2% 14.5% 4.3% 1.6% 6.3% 9.3% 3.4% 0% 6 February 1, 2007 Annual Accounts 2006
European cold rolled apparent consumption: Very good consumption level of 2006 expected to edge higher in 2007 5,000 1 000 t Europe CR Apparent Consumption % chg y-on-y Europe=W.Europe+E.Europe+Turkey+CIS Forecasts 20.0 % 17.5 % European CR apparent consumption grew by 18% in 2006, following the 6.6% decline in 2005 4,500 4,000 3,500 Data source: CRU JAN 07 Qtrly 15.0 % 12.5 % 10.0 % 7.5 % 5.0 % Apparent consumption is expected to increase further in 2007 3,000 2,500 2.5 % 0.0 % -2.5 % -5.0 % 2,000 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 EUROPE CR ADC 2,674 2,995 3,111 3,405 3,237 3,421 3,583 3,709 3,465 4,085 4,135 4,000 4,178 4,640 4,762 % chg yr-on-yr 12.0% 3.9% 9.4% -4.9% 5.7% 4.8% 3.5% -6.6% 17.9% 1.2% -3.3% 4.5% 11.1% 2.6% -7.5 % 7 February 1, 2007 Annual Accounts 2006
European cold rolled price development EUR/t 4 400 4 000 3 600 3 200 Cold rolled price development (304 2B German market) December 2006: Transaction price 4 136 EUR/ton Alloy surcharge 2 156 EUR/ton Base price 1 980 EUR/ton Transaction price 2 800 2 400 2 000 1 600 Alloy surcharge 1 200 Base price 800 1994 1996 1998 2000 2002 2004 2006 Source: CRU, December 2006 8 February 1, 2007 Annual Accounts 2006
Nickel price (incl. Jan 31, 2007) USD/t 45 000 40 000 35 000 30 000 25 000 20 000 15 000 Jan05 Feb05 Mar05 Apr05 10 000 May05 Jun05 Jul05 Aug05 Sep05 Oct05 Nov05 Dec05 Jan06 Feb06 Mar06 Apr06 May06 Jun06 Jul06 Aug06 Sep06 Oct06 Nov06 Dec06 Jan07 Source: LME 9 February 1, 2007 Annual Accounts 2006 39 100 USD/t
EU17: Total cold rolled supply EU Mill deliveries + 3 rd country imports CR supply to the EU17 countries increased by approx 22% in 2006 CR imports from 3 rd countries increased strongly during the second half of 2006 The share of EU17 supply represented by 3 rd country imports increased to an estimated 14% in 2006 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 kt CR Supply to EU17 countries % Data sources: Eurofer, ISSB. EU mill delivery data excludes deliveries to integrate tubemills 3rd country imports (LHS) EU mill deliveries (LHS) 3rd imports share of total supply (RHS) 15% 13% 11% 9% 7% 5% 3% 1% 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 Note: 2006 3 rd country import data has been annualised based on actual imports during Jan-Oct -1% 10 February 1, 2007 Annual Accounts 2006
World stainless capacity - high proportion of Chinese CR expansions not yet considered definite Slab Capacity Cold Rolling Capacity 2010 2009 2008 2007 2006 2005 CHINA R.O.W CHINA R.O.W CHINA R.O.W CHINA R.O.W CHINA R.O.W CHINA R.O.W 'Definite' capacity 'Likely' capacity 2010 2009 2008 2007 2006 2005 CHINA R.O.W CHINA R.O.W CHINA R.O.W CHINA R.O.W CHINA R.O.W CHINA R.O.W 'Definite' capacity 'Likely' capacity 0 500 1000 1500 2000 2500 0 250 500 750 1000 Additional capacity ( 000 tpy) Additional capacity ( 000 tpy) Source: Outokumpu. Data refers to flat products only. 11 February 1, 2007 Annual Accounts 2006 China Rest of World
Global utilisation - slab rates under pressure over the next few years Utilisation rate % 95 90 85 80 75 Slab utilisation (actual) CR utilisation (actual) Slab utilisn. (projection 5%) CR utilisn. (projection 5%) 70 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Source: Outokumpu, CRU. 2007-2010 projections based on 5% growth per year in shipments/production assumption. Capacity data includes both definite and likely projects 12 February 1, 2007 Annual Accounts 2006
Highlights in 2006 Market development Improvement actions update and strategic direction Annual Accounts 2006 Outlook 13 February 1, 2007 Annual Accounts 2006
Outokumpu s path towards the vision Started in 2005 Delivering promises and setting new ambitions Up to 5 years Ensuring No. 1 stainless position in Europe Up to 10 years Achieving global leadership in stainless The undisputed number one in stainless Building and strengthening operational excellence Multiplying operational excellence 14 February 1, 2007 Annual Accounts 2006
Short-term actions update Sheffield coil products unit closed in April EUR 50 million profitability improvement from 2007 onwards, started to materialize during H2/06 Group s fixed-cost reduction program program completed by the end of 2006 total reduction of fixed-costs of EUR 100 million reduced fixed-cost running rate in full effect from 2007 onwards, started to materialize gradually during H2/06 15 February 1, 2007 Annual Accounts 2006
Operational Excellence programs Production Excellence Commercial Excellence Benefit follow-up procedures have been established Financial targets confirmed to be: 2007 2008 2009-> EUR 40 million EUR 80 million EUR 160 million 16 February 1, 2007 Annual Accounts 2006
Production Excellence program A total of 18 plants currently involved Each plant running several improvement projects of varying size To date, some 220 improvement teams have completed or have a project ongoing (nearly 1 000 people involved) 17 February 1, 2007 Annual Accounts 2006
Commercial Excellence program Common pricing methodology and associated tools are being developed Training of key account managers continues To date, some 170 members of Outokumpu s sales staff have participated in training 18 February 1, 2007 Annual Accounts 2006
Outokumpu s priorities for 2007 Increased customer focus Commercial Excellence Competitiveness of our operations Production Excellence selective investments within EUR 175 million frame Growth seeking attractive opportunities 19 February 1, 2007 Annual Accounts 2006
Highlights in 2006 Market development Improvement actions update and strategic direction Annual Accounts 2006 Outlook 20 February 1, 2007 Annual Accounts 2006
Highest-ever quarterly operating profit in Q4/06 EUR million Q4/06 Q3/06 Q4/05 Sales 1 907 1 447 1 117 Operating profit 378 231 (202) EPS, 3.33 0.94 (0.99) ROCE, % 36.5 24.3 (21.4) Stainless steel deliveries, 1 000 tons 445 393 370 Operating profit at record level higher base prices and deliveries somewhat higher nickel related inventory gains Q/Q support from internal performance improvement actions Deliveries +13% Q/Q Capital gain from sale of Outokumpu Technology EUR 328 million 21 February 1, 2007 Annual Accounts 2006
Record financial performance in 2006 EUR million 2006 2005 Sales 6 154 5 016 Operating profit EPS, 824 5.31 57 (2.01) DPS, 1.10 1) ROCE, % 20.7 0.45 1.3 Stainless steel deliveries, 1 000 tons 1 815 1 647 1) Board s proposal to the AGM Operating profit highest-ever in Group s history Targets for profitability and financial strength reached Deliveries +10% Y/Y Dividend proposal EUR 1.10 per share 22 February 1, 2007 Annual Accounts 2006
Operating profit by business EUR million 2006 2005 Q4/06 Q3/06 Q4/05 General Stainless 536 (62) 236 166 (170) Specialty Stainless Other operations Intra-group items 338 (35) (15) 110 8 1 171 (16) (13) 81 (13) (3) The Group 824 57 378 231 (23) (8) (1) (202) Following the sale of Outokumpu Technology shares, comparative figures have been restated. Record operating profit solid rise in base prices througout 2006 and increased deliveries significant nickel related inventory gains internal profit improvement measures All units ran at full load during 2006 rising base prices for standard grades realized more rapidly than for more specialised and project-related products 23 February 1, 2007 Annual Accounts 2006
Operating profit by quarter EURm 400 300 200 100 0 (100) (200) (300) I/05 II/05 III/05 IV/05 I/06 II/06 III/06 IV/06 24 February 1, 2007 Annual Accounts 2006
Earnings per share EUR 6,00 5,00 4,00 3,00 2,00 1,00 0,00 (1,00) (2,00) (3,00) 02 03 04 05 06 Continuing operations Discontinued operations As of 2003 according to IFRS, prior to that FAS 25 February 1, 2007 Annual Accounts 2006
Net cash generated from operating activities EURm 500 400 300 200 100 0 (100) (200) 02 03 04 05 06 26 February 1, 2007 Annual Accounts 2006
Capital structure EUR million 2006 2005 Net cash generated from operating activities Net interest-bearing debt (35) 1 300 459 1 537 Equity-to-assets ratio, % 47.9 38.2 Debt-to-equity ratio (gearing), % 42.3 74.5 Increased working capital due to strongly rising nickel price negative cash flow Gearing clearly better than target of below 75% 27 February 1, 2007 Annual Accounts 2006
Return on capital employed % 25 20 15 10 13% 5 0 02 03 04 05 06 As of 2003 according to IFRS, prior to that FAS As of 2005 current continuing operations 28 February 1, 2007 Annual Accounts 2006
Debt-to-equity ratio % 150 125 100 75 75% 50 25 0 02 03 04 05 06 As of 2003 according to IFRS, prior to that FAS. 29 February 1, 2007 Annual Accounts 2006
Working capital nickel a challenge In 2006, EUR 975 million has been tied up in working capital mainly due to the fast increasing and very high nickel price (totaling EUR 1 990 million) Inventory volumes under tight control Average throughput time reduced in 2006 Impact of the nickel price increase still to affect working capital in Q1/07 Working capital management continues to be a focus area 30 February 1, 2007 Annual Accounts 2006
Capital expenditure EURm 2 100 1 800 1 500 1 200 900 600 300 0 02 03 04 05 06 As of 2003 according to IFRS, prior to that FAS As of 2005 current continuing operations 31 February 1, 2007 Annual Accounts 2006
Highlights in 2006 Market development Improvement actions update and strategic direction Annual Accounts 2006 Outlook 32 February 1, 2007 Annual Accounts 2006
Outokumpu s short-term outlook Global economic growth expected to remain solid Confidence in the European manufacturing sector at a high level 2007 in Europe has started with slightly increased price levels better stainless steel availability distributor inventories approaching normal levels Standard volume products: market with the European distributors currently somewhat more cautious than in previous quarters due to high transaction prices and increased imports from Asia Key end-use industries, special grades and project deliveries: demand expected to remain strong underlying demand for stainless is expected to continue firm Current risks: High transaction prices High nickel price and volatility Increased imports from Asia Further stock build-up unlikely 33 February 1, 2007 Annual Accounts 2006
Outlook Small base price increases for deliveries in January and February 100-150 EUR/ton higher base prices in Europe for Q1/07 compared to Q4/06 All the Group`s units are fully booked for Q1/07 order backlogs for standard grades currently somewhat lower than during previous months lead times closer to normal levels The operational profitability will improve in Q1/07 whereas nickel-related inventory gains are likely to be smaller than in Q4 and Q3/06 Outokumpu`s Q1/07 operating profit is estimated to be at the record Q4/06 level 34 February 1, 2007 Annual Accounts 2006
Q & A Session www.outokumpu.com
Annual Accounts 2006 February 1, 2007 Juha Rantanen, CEO www.outokumpu.com