Contents
Solidium
Corporate governance
1 2 3 4
Solidium’s year 2010–2011 in brief Review of the Chairman of the Board Managing Director’s review Solidium’s mission and operations
34 36 38 42
Board of Directors Personnel Corporate governance Corporate responsibility in Solidium’s operations
Holdings
Financial reporting
6 10 12 14 16 18 20 22 24 26 28 30 32
Solidium’s portfolio Impact on society Elisa Kemira Metso Outokumpu Rautaruukki Sampo Sponda Stora Enso Talvivaara TeliaSonera Tieto
49 52 59 60
Report of the Board of Directors Financial statements Auditor’s report Sources and comments
PROFIT DISTRIBUTION TO THE STATE EUR
660
NET ASSET VALUE
EUR
8 381 422 15
RECEIVED PROFIT DISTRIBUTION
million EUR
million
PORTFOLIO YIELD
%
million
Contents
Solidium
Corporate governance
1 2 3 4
Solidium’s year 2010–2011 in brief Review of the Chairman of the Board Managing Director’s review Solidium’s mission and operations
34 36 38 42
Board of Directors Personnel Corporate governance Corporate responsibility in Solidium’s operations
Holdings
Financial reporting
6 10 12 14 16 18 20 22 24 26 28 30 32
Solidium’s portfolio Impact on society Elisa Kemira Metso Outokumpu Rautaruukki Sampo Sponda Stora Enso Talvivaara TeliaSonera Tieto
49 52 59 60
Report of the Board of Directors Financial statements Auditor’s report Sources and comments
PROFIT DISTRIBUTION TO THE STATE EUR
660
NET ASSET VALUE
EUR
8 381 422 15
RECEIVED PROFIT DISTRIBUTION
million EUR
million
PORTFOLIO YIELD
%
million
SOLIDIUM IN BRIEF
Solidium’s year 2010–2011 in brief Solidium is a limited company wholly owned by the State of Finland. Its mission is to strengthen and stabilise Finnish ownership in nationally important companies and increase the value of its holdings in the long term. The core of Solidium’s investment strategy is proper, value enhancing asset management of the current holdings. Solidium makes new investments or disposals of its investments based primarily on financial analysis. At the end of the report period, Solidium’s equity portfolio comprised eleven listed companies (Elisa Corporation, Kemira Oyj, Metso Corporation, Outokumpu Oyj, Rautaruukki Corporation, Sampo plc, Stora Enso Oyj, Sponda Plc, Talvivaara Mining Company Plc, TeliaSonera AB and Tieto Corporation), in all of which Solidium has a minority holding. Solidium is the largest or one of the largest owners in its portfolio companies. As a long-term owner, Solidium aims at implementing its strategy for creating value as an owner at each of the companies in which it has a holding. In collaboration with the other owners, Solidium aims at enhancing value creation in the companies by being an active owner. Solidium exercises its influence as an active owner by participating in the selection of board members and in
the preparation of share issues and other decisions of significance to the owners, e.g. mergers and acquisitions.
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• KEY EVENTS DURING SOLIDIUM’S FINANCIAL YEAR 2010–2011: •
•
•
•
•
•
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The equity portfolio’s market value was EUR 8,364 million at the end of the review period In September 2010, Solidium paid EUR 356 million in dividends for the financial period 2009–2010 Solidium’s Board of Directors proposes that a dividend of EUR 660 million be paid for the financial period 2010–2011 Profit distribution received during the financial period totalled EUR 422 million In November 2010, Solidium sold its entire holding in Tikkurila Oyj, or 14.7% of the shares outstanding, for EUR 98 million In November 2010, Solidium sold 19.0% of Sponda Plc’s shares for EUR 176 million In April 2011, Solidium exercised its pro rata entitlement in TeliaSonera AB’s share repurchase offer in full by selling shares worth EUR 152 million to the company
•
•
•
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In June 2011, Solidium acquired 4.3% of Talvivaara Mining Company Plc’s shares for EUR 60 million Solidium’s representatives participated in the nomination boards of nine of Solidium’s portfolio companies Solidium’s extraordinary General Meeting held on 4 March 2011 elected Pekka Ala-Pietilä as Chairman of Solidium’s Board of Directors to replace Keijo Suila Solidium’s extraordinary General Meeting held on 18 April 2011 elected Markku Hyvärinen as a member of Solidium’s Board of Directors to replace Lauri Ihalainen Solidium expanded and deepened its corporate responsibility work in many areas; the key projects included preparing materiality analyses of the portfolio companies, initiating dialogue on corporate responsibility issues with the portfolio companies and starting stakeholder contacting During the financial period, Solidium urged the boards of the portfolio companies to develop their board assessment processes as well as their management succession planning processes.
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| ANNUAL REPORT 2011
Supporting profitability Solidium’s second full operating year consolidated the company’s position as an active Finnish owner. Our operations aim for the profitability of the portfolio companies and supporting its prerequisites. During the past year, we focused in particular on developing board work and corporate responsibility.
Solidium was established at the end of 2008 in extraordinary and challenging conditions as a tool for Finnish ownership. During its two years of operation, the company has adapted to the challenges of its operating environment and consolidated its position as an active Finnish owner. For this, I would particularly like to thank my predecessor Keijo Suila, who laid the cornerstones of Solidium’s operations with his fine work. The company has put together an expert organisation that can operate with versatility in different situations and sectors. The company is steered by an experienced and competent Board, which I have had the honour of joining. During the past year, we consistently developed our own ways of working in relation to our portfolio companies and supported their growth following the financial crisis. Our main themes have been participating in the selection of boards of directors, seeking new
2
investment targets and evaluating current holdings, supporting the financing base and charting corporate responsibility issues. It is characteristic of an investment company such as Solidium that only a part of its work is publicly known. The past year included several major projects. As part of the measures to develop our equity portfolio, we took the decision on the sale of Sponda and Tikkurila shares and the acquisition of Talvivaara shares. We make our decisions based on financial criteria, with a view to long-term profit. Each investment decision, whether yes or no, must be based on thorough and objective analysis. As a new endeavour, we have formed an independent view of the status of corporate responsibility in our portfolio companies and initiated dialogue for its development. Corporate responsibility issues have become an increasingly important part of compa-
nies’ competitiveness, and a professional and active owner should naturally take them into consideration. The long-term development and success of business operations can only be based on profitable operations. Solidium’s mission is to support and require profitability and continuously develop the factors contributing to it. This is done in close cooperation with other owners. A clear strategy that defines the direction of the company, coupled with motivated personnel, an efficient organisation and the necessary financial resources are crucial factors for a company’s success. Solidium supports these aspects using active and good corporate governance. For this work, we use all the means available to an investment company by, among other things, participating in the selection of boards of directors, maintaining close communications with the portfolio companies and supporting the creation of necessary financing structures. Enhancing the long term value of our porfolio companies is the foundation for success for the shareholders and employees, as well as society at large. We believe that by taking care of the prerequisites for profitability, we can best serve our mission to achieve these objectives.
Pekka Ala-Pietilä Chairman of the Board of Directors
REVIEWS
Portfolio being renewed Solidium had a successful financial year, even though the drop in share prices towards the end of the period negated to a large extent the strong rise in share prices early in the period. The two faces of financial growth and the problems related to the European financial system will pose challenges for stock markets this year. Despite fluctuations in the market, we carried out our mission and and systematically adjusted the structure of Solidium’s portfolio. One of the crucial factors for successful operations of Solidium is the composition of the portfolio companies’ boards of directors. Solidium aims to promote the development and diversity of board work. Our actions in this area are strongly based on the companies’ nomination boards and our chance to influence appointments to the boards of directors together with other owners. One of the year’s themes in board appointments was increasing the number of foreign members while seeking the best board compositions for individual companies. During the past year we have emphasised the development of board work, succession planning for management and corporate responsibility as special themes from the owner’s point of view. The boards of Finnish listed companies conduct regular self-assessments of their work, but in my opinion, the boards’ operations could be further developed. The largest listed companies, in particular, could consider switching over to external assessments of their board’s operations, which would be carried out at certain intervals, if these assessments could help develop ways of working and employ the best practices. A key question from the owner’s point of view is how to position the boards out of their comfort zone in the right way so that they would develop their work in the long term. Preparation for changes in the company’s management is one of the key responsibilities of a board of directors. As an owner, we have paid attention to how the succession plannin processes could still be further developed so that changes in the companies’ management could be as controlled as possible in all situations.
During the past year, we have made strong efforts to integrate corporate responsibility into the operations of Solidium. Assessing the status of corporate responsibility issues is part of an owner’s role. The level at which corporate responsibility is handled tells an owner not only about the nature of a company’s business operations but also about the state of its management. If necessary, an owner can also express its views and try to influence in any potential deficiencies that it detects. During the review period, Solidium put more emphasis on corporate responsibility in its agenda as an owner. Our most important project was to form a view of risks and business opportunities related to corporate responsibility issues and assess the way and the level at which corporate responsibility is managed in our portfolio companies. For Solidium, corporate responsibility forms one point of view that is integrated into our other analyses. Solidium’s decision-making structure and own balance sheet will continue to enable active investment operations in the future. Our independent Board of
Directors and solid balance sheet will allow Solidium to remain a key owner in both current and future portfolio companies. We continue our exciting work in the new financial period in a challenging situation for Finnish ownership. Changes in regulations continue to reduce the relative institutional investment in Finnish equities at the same time as savings accounts continue to receive the lion’s share of private households’ investable funds year after year. This is negative for both the national economy and individual investors and, unfortunately, change will not take place soon enough without proper incentives. Therefore we believe that a long-term and active owner like Solidium will continue to occupy the front ranks of Finnish ownership.
Kari A.J. Järvinen Managing Director
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| ANNUAL REPORT 2011
Solidium’s mission and operations GENERAL Solidium is a limited company wholly owned by the State of Finland. Its mission is to strengthen and stabilise Finnish ownership in nationally important companies and increase the value of its holdings in the long term. Solidium’s Articles of Association state that the company’s field of operation comprises ownership and management of shares in companies operating in Finland and exercising shareholder rights in them based on its ownership. In its activities, Solidium complies with the general principles of ownership steering, as confirmed by Government. The company invests in companies that are considered to be of national importance and are expected to be financially sound investments in the long-term. Solidium may invest in Finnish listed companies, foreign listed companies with extensive operations in Finland and companies that are preparing for a listing. The Cabinet Committee on Economic Policy has determined the authority of the Board of Directors of Solidium, and the Board operates independently within the defined framework. SOLIDIUM’S INVESTMENTS Solidium’s investment activities are based on financial analysis and their objective is to increase shareholder value. Solidium is a long-term investor in its portfolio companies. Solidium is actively engageged and it applies measures that are available to an owner in order to promote the further development and growth of the companies in which it has a holding, and to enhance value creation in the long term. The basis and core objective of Solidium’s investment strategy is sound and value enhancing management its current holdings. Solidium’s investment
4
yield target is to increase cost-effectively the value of its equity investments in the long term, using as benchmarks the OMX Hki Cap index and the risk-adjusted return on long-term government bonds. Solidium analyses potential new portfolio companies in accordance with several different investment criteria, the key criteria being: • the investment yield target set for the portfolio company • the investment is justified on national interests • possibities to exercise shareholder influence are available • the size of the investment is adequate in relation to Solidium’s portfolio. Solidium’s investments do not incorporate industrial policy factors, an aid dimension or factors that may distort competition. Solidium does not invest in companies whose activities could be construed to be unethical or whose financial status or ownership structure does not support investment. Solidium may dispose of its holding or reduce its holding in any portfolio company, if there are good economic reasons for the disposal or reduction and the market circumstances are favourable. Solidium may similarly dispose of or reduce its holding in a portfolio company, if Solidium’s mission as a Finnish anchor-owner in the company has been fulfilled or if it can be fulfilled with a smaller holding. Solidium believes that a high-quality corporate responsibility policy is one of the prerequisites for successful business operations and creating long-term financial value. Solidium’s corporate responsibility is described in more detail on pages 42–47.
ACTIVE OWNERSHIP Solidium is the largest or one of the largest owners in its portfolio companies, remaining, however, a minority shareholder in all of the companies. Solidium’s role in its portfolio companies is that of an active owner, and it aims to exercise its influence in any matters concerning it as an owner. As part of active engagement, Solidium creates an owner’s strategy for each of its portfolio companies. This requires in-depth understanding of the companies’ business, operating environment, competitive circumstances and financial standing as well as active interaction between Solidium’s portfolio companies and the other shareholders. The creation of an owner’s strategy provides Solidium with a view of the portfolio companies’ capital requirements and important strategic and structural issues. Furthermore, the owner’s strategy forms the basis for disposal or acquisition of shares in the portfolio companies or subscription for new shares in any share issues. It also contributes to Solidium’s views on reorganisation measures in the companies, when shareholders’ views are sought. One of the most important means of influence in active ownership is participating in the selection of board members. In most of Solidium’s portfolio companies, Solidium’s representatives participate in evaluating the work of board members and in preparing proposals to the shareholders’ general meeting concerning board members and their remuneration. Solidium’s representatives are heard either through nomination committees, consisting of shareholders, or in other connections.
SOLIDIUM’S MISSION AND OPERATIONS
SOLDIUM’S PARTICIPATION IN THE WORK OF THE NOMINATION COMMITTEES, 2010–2011 Kemira
Kari Järvinen, member
Metso
Kari Järvinen, chairman
Outokumpu
Kari Järvinen, chairman
Rautaruukki
Kari Järvinen, chairman
Sponda
Kari Järvinen, chairman
Stora Enso
Keijo Suila, chairman
TeliaSonera
Kari Järvinen, member
Tieto
Kari Järvinen, chairman
Tikkurila
Kari Järvinen, member
Elisa, Sampo and Talvivaara have a nomination committee consisting of board members.
Key considerations when selecting board members include the company’s development needs and the aim to create an effective Board of Directors, whose members have complementary, diverse skills and experience. Board members’ selection criteria include professional competence and skill as well as experience, commitment, impartiality and the opportunity to devote sufficient time to work on the board. As an owner, Solidium aims to promote the further development of how the work of its portfolio companies’ boards is assessed. If necessary, assessment can be developed, for example, by carrying out regular assessments by a professional external party. GOVERNANCE IN SOLIDIUM’S PORTFOLIO COMPANIES Solidium aims to promote good governance practices in its portfolio companies. The companies are governed in line with the provisions of the Companies Act, the Securities Markets Act, other legislation, the Finnish Corporate Governance Code applying to Finnish listed companies as well as the best practices applying to the securities markets. Solidium applies the following principles in the corporate governance of its portfolio companies:
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•
•
•
•
Solidium applies corporate governance principles based on the mutual equality of the owners Solidium acts in cooperation with other significant owners as well as the boards and operational management of its portfolio companies Solidium has an active influence on the board selections of its portfolio companies and on other matters pertaining to owners and it actively monitors the operational development of its portfolio companies Solidium does not, in its role as owner, violate good governance practices by intervening in the decision-making processes of the boards or the operational management of the portfolio companies Solidium discusses with other significant owners key issues relating to business strategy and structural arrangements.
Solidium’s Articles of Association determine that the Annual General Meeting approves the principles of good governance practices to be applied by Solidium in its role as a shareholder of listed companies. The working group tasked with an overall revision of securities markets legislation in Finland released its proposal in February 2011. The working group aimed at clarifying securities markets legislation and increasing its competitiveness. The revision of securities markets legislation will have an effect on Solidium’s operating environment and therefore Solidium will follow the revision process. The corporate governance code for listed companies enacted in Finland on 1 October 2010 increased flexibility in the preparation of nominations to the boards of listed companies. According to the revised corporate governance code, a nomination committee composed of shareholders or their repre-
sentatives that has been formed for preparing the election of a board member is not considered a violation of the code. In addition, the new corporate governance code adds transparency and consistency to the description of remuneration in listed companies. FINANCIAL YEAR 2010–2011 Solidium’s representatives took part in the preparation of proposals concerning the board members and their remunerations in the nomination committees of nine of its portfolio companies. In spring 2011, a total of eight new members were elected to the boards of Solidium’s portfolio companies. Of the eight new members, four (50 per cent) were women. On 16 November 2010, Solidium sold 53 million Sponda shares, corresponding to approximately 19 per cent of the outstanding shares, in an accelerated bookbuilt offering. The execution price was EUR 3.33 per share. Gross sales proceeds from the offering amounted to EUR 176 million, representing a pre-tax exit gain for Solidium of approximately EUR 79 million. On 25 November 2010, Solidium sold all of the approximately 6.5 million shares it held in Tikkurila Oyj, or 14.7% of the shares outstanding, in an accelerated bookbuilt offering. The execution price was EUR 15.10 per share and the gross sales proceeds were EUR 98 million. Solidium reported a capital loss of EUR 5 million on the sale because it received the Tikkurila shares as dividend from Kemira in March 2010 at a book value of EUR 15.80 per share. On 1 June 2011, Solidium acquired the entire holding of Outokumpu’s subsidiary, Outokumpu Mining Oy, in Talvivaara, or approximately 10.5 million shares. The shares acquired represent about 4.3 per cent of Talvivaara’s shares outstanding. The shares were acquired for EUR 60 million.
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| ANNUAL REPORT 2011
Solidium’s portfolio PORTFOLIO YIELD The yield of Solidium’s equity investments was 15.1 per cent in the financial year. The value of the equity investments grew by EUR 450 million, from EUR 7,914 million to EUR 8,364 million. The yield of all of Solidium’s investments (equity and money market investments) was 15.1 per cent in the financial year. Solidium’s net asset value grew by 9 per cent, from EUR 7,715 million to EUR 8,381 million. CAPITAL MARKETS Share prices rose from summer 2010 until February 2011, propelled by growth in emerging markets and supported by economic stimulus policies in developed markets. In the spring, however, the growth levelled off and turned into a decline. The natural catastrophe that hit Japan in March had a negative effect on Asian stock markets in particular, and also globally. In the late spring and early summer share prices were down due to uncertainty about the future of the national economies of some European states. Interest rates, which were low, rose slightly. In order for capital markets to begin to enjoy a favourable trend, debtridden European economies must find some credible savings measures. HELSINKI STOCK EXCHANGE On 30 June 2011, the Helsinki Stock Exchange had a market value of EUR 147 billion. Twelve months earlier, the market value had been EUR 136 billion, translating to a rise of 7.7 per cent in the financial year. The Helsinki OMX weight-restricted Cap return index rose by 16.1 per cent during the financial year. The market value of the Helsinki Stock Exchange was EUR 167 billion at
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the beginning of 2011, which means it has decreased by 12.2 per cent in the first half of the year. Over the same period, the OMX Helsinki Cap return index declined by 6.1 per cent. SOLIDIUM’S HOLDINGS At the end of the financial year, Solidium’s equity portfolio contained shares in eleven listed companies. During the financial year, Solidium sold all the shares it held in Tikkurila and acquired shares in a new portfolio company, Talvivaara Mining Company. The other changes in the portfolio consisted of a reduction in Solidium’s holding in Sponda through the sale of shares, participation in TeliaSonera’s share repurchase offer and the acquisition of Elisa shares from the market. The equity investments’ market value amounted to EUR 8,364 million on 30 June 2011, the biggest holdings by market value being TeliaSonera, Sampo and Rautaruukki. The best performers among the portfolio companies were Sponda (yield of 68.5 per cent in the financial year 1 July 2010–30 June 2011), Metso (yield of 53.7 per cent) and Kemira (yield of 41.4 per cent). PROFIT DISTRIBUTION RECEIVED BY SOLIDIUM Profit distribution received from the portfolio companies during the financial year totalled EUR 422 million. The largest profit distribution was received from TeliaSonera (EUR 187 million) and Sampo (EUR 91 million). Profit distribution received during the previous financial year totalled EUR 458 million (including a dividend of EUR 102 million in Tikkurila shares).
SOLIDIUM’S PORTFOLIO
KEY INVESTMENT RATIOS AS AT 30 JUNE 2011 Yield of total investments (incl. money market investments), % Yield of equity investments, % Yield of benchmark index OMX CAP HKI, % Volatility, % Sharpe Beta Alfa, % Tracking Error, % Information ratio
6 months
12 months
2 years*
-4.2 -4.8 -6.1 16.9 -0.5
15.1 15.1 16.1 16.6 0.9 0.9 -0.2 5.7 -0.2
24.5 24.7 23.7 21.0 1.1 1.0 0.8 6.5 0.1
6 months
12 months
2 years*
-3.5 6.6 -2.5 -32.9 -7.8 16.8 7.7 -3.7
13.9 41.4 53.7 -25.0 34.3 34.9 68.5 23.7
-9.2 -13.2 -4.8
2.2 -9.6 15.1
22.8 74.6 77.6 -12.0 7.9 35.5 46.3 36.9 -9.8 23.4 -10.3 24.7
* Annual figures given for key ratios of over 12 months.
COMPANY-SPECIFIC YIELDS AS AT 30 JUNE 2011 Elisa Kemira Metso Outokumpu Rautaruukki Sampo Sponda Stora Enso Talvivaara TeliaSonera Tieto Total
* Annual figures given for key ratios of over 12 months. If a share has been in the portfolio for less than 2 years, the yield has been calculated since the beginning of the investment.
portfolio companies’ share yields, 1 july 2010–30 june 2011 200
Sponda (68%) Metso (54%) Kemira (41%) Sampo (35%) Rautaruukki (34%) Stora Enso (24%) Elisa (14%) TeliaSonera (2%) Tieto (-10%) Outokumpu (-25%)
180 160 140 120 100 80 60 40
10
.20
.6 30
10
.20
.9 30
0
01
2.2
.1 31
11
20
.3.
31
11
.20
.6 30
Talvivaara was not in the portfolio at the beginning of the financial year.
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| ANNUAL REPORT 2011
EQUITY HOLDINGS AS AT 30 JUNE 2011
Company Elisa Kemira Metso Outokumpu Rautaruukki Sampo A Sponda Stora Enso Stora Enso A* Stora Enso R* Talvivaara Mining Company TeliaSonera Tieto
Number of shares held by Solidium
Proportion of company’s total share capital
Proportion of company’s votes
16,801,000 25,896,087 15,695,287 56,440,597 55,656,599 79,280,080 42,163,745 97,079,438 55,595,937 41,483,501 10,522,366 594,123,642 7,415,418
10.1% 16.7% 10.4% 30.8% 39.7% 14.1% 14.9% 12.3% 31.4% 6.8% 4.3% 13.7% 10.3%
10.1% 16.7% 10.4% 30.8% 39.7% 14.0% 14.9% 25.1% 31.4% 6.8% 4.3% 13.7% 10.3%
* Proportion of total number of shares in series
CHANGES IN EQUITY PORTFOLIO Acquisition Cost of acquisition, Number of shares price per share, EUR EUR
Acquisitions Acquisition of Elisa shares in November 2010 Acquisition of Talvivaara Mining Company shares in June 2011
170,000 10,522,366
15.64 5.71
Acquisitions, total
2,658,346 60,134,425 62,792,772
Disposals Sale of Sponda shares in November 2010 Sale of Tikkurila shares in November 2010 Sale of TeliaSonera shares in April 2011 Disposals, total
Number of shares
Selling price per share, EUR
53,000,000 6,474,021 22,004,579
3.33 15.10 6.93
Weight in portfolio, %
Market value 30 June 2010, EUR million
Selling price, EUR 176,490,000 97,757,717 152,454,222 426,701,939
PORTFOLIO BREAKDOWN Market value 30 June 2011, EUR million TeliaSonera Sampo Rautaruukki Stora Enso Stora Enso A Stora Enso R Metso Outokumpu Kemira Elisa Sponda Tieto Talvivaara Mining Company Tikkurila Total
PORTFOLIO BREAKDOWN TeliaSonera 36% Sampo 21% Rautaruukki 10% Stora Enso 8% Metso 7% Outokumpu 6% Kemira 4% Elisa 3% Sponda 2% Tieto 1% Talvivaara 1%
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3,024.1 1,765.6 867.1 708.5 408.4 300.1 614.8 515.6 309.2 249.5 169.1 86.5 54.3
36.2% 21.1% 10.4% 8.5%
8 364.2
100.0%
7.4% 6.2% 3.7% 3.0% 2.0% 1.0% 0.6%
BREAKDOWN BY SECTOR Telecommunication services 39% Materials 29% Financials 23% Industrials 7% Information technology 1%
Weight in portfolio, %
3,259.3 1,377.1 669.0 589.8 341.9 247.9 416.2 701.6 228.4 236.5 236.0 100.8
41.2% 17.4% 8.5% 7.5%
99.7 7 914.4
1.3% 100.0%
5.3% 8.9% 2.9% 3.0% 3.0% 1.3%
SOLIDIUM’S PORTFOLIO
NET ASSET VALUE CALCULATION EUR million
30 June 2011
Tangible and intangible assets Equity investments Current receivables Money market investments Assets, total Current liabilities Deferred tax liability Liabilities, total Net asset value Change in the financial year, EUR Change in the financial year, %
30 June 2010
0.3 8,364.2 0.4 780.5 9,145.4
0.3 7,914.4 0.6 357.7 8,273.1
-37.7 -727.0 -764.7
-3.8 -554.5 -558.3
8,380.7 665.9 8.6%
7,714.8 1,673.2 27.7%
Publicly listed equities and investment funds have been valued at their last trading price and other balance sheet items have been valued at their carrying amount. The deferred tax liability is 26% of the difference between the market value and book-value.
NET ASSET VALUE DEVELOPMENT
7,715
INCOME FROM PROFIT DISTRIBUTIONS IN THE FINANCIAL YEAR
8,381
187.4
6,042
91.2 33.4 24.3 24.3
30.6.2011
14.1 30.6.2010
30.6.2009
23.4
TeliaSonera Sampo Rautaruukki Metso Stora Enso Elisa Outokumpu Kemira Sponda Tieto
12.4 6.3 5.2
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| ANNUAL REPORT 2011
The impact of Solidium’s portfolio companies on society One of the characteristics of the companies in Solidium’s portfolio is that they are leading European or global companies within their own sectors. Several of the portfolio companies are among the largest Finnish listed companies, and are major employers, product developers, taxpayers and profit distributors in Finland.
The combined market value of Solidium’s portfolio companies accounts for about 27 per cent of the market value of the Helsinki Stock Exchange. The portfolio companies play a significant role in maintaining a well-functioning Finnish capital market that is attractive to international investors. The table below lists figures measuring the impact of the operations of Solidium’s portfolio companies. The companies create a significant number of high added value jobs and substantial tax and dividend income in Finland through their profitable operations. The interest of Finnish small investors towards these companies is evident in their large number of shareholders. It is estimated that about one thousand international institutional investors invest in Finland, so the majority of the companies’ tens of thousands of shareholders are Finnish households. This means Solidium’s portfolio companies have a significant amount of Finnish households’ long-term savings invested in them. The direct and indirect impacts of Solidium’s portfolio companies on Finnish society will continue to largely depend on their ability to remain among the leading players in their sectors. In order for the portfolio companies to maintain their ability to operate profitably, the owner must be aware of the companies’ needs to re-examine their strategy, participate in their sector’s consolidation trend and grow organically. An active and viable owner can, in fact, significantly support the long-term development of operations and the creation of the prerequisites for profitability.
IMPACT ON SOCIETY
DATA ON IMPACT Turnover 2010, EUR million
Turnover generated outside Finland, %
1,463 2,161 5,552 4,229 2,415 5,096 232 10,297 152 11,175 1,714 44,486
8% 87% 95% 94% 73% 62% 10% 92% 8% 85% 54% 81%
Number of employees, 2010
Number of employees outside Finland
Proportion of foreign employees, %
3,665 4,935 28,593 8,104 11,286 6,844 119 26,379 389 28,945 17,757 137,016
303 3,830 19,845 5,352 5,136 4,694 12 19,055 0 24,344 11,981 94,552
8% 78% 69% 66% 46% 69% 10% 72% 0% 84% 67% 69%
Company Elisa Kemira Metso Outokumpu Rautaruukki Sampo Sponda Stora Enso Talvivaara TeliaSonera Tieto Total
Company Elisa Kemira Metso Outokumpu Rautaruukki Sampo Sponda Stora Enso Talvivaara TeliaSonera Tieto Total
Note. Elisa’s number of foreign employees is an estimate by Solidium based on a breakdown of turnover figures. Stora Enso’s number of foreign employees is an estimate based on a breakdown of the average number of employees during the year.
Company Elisa Kemira Metso Outokumpu Rautaruukki Sampo Sponda Stora Enso Talvivaara TeliaSonera Tieto Total market value held by foreign shareholders
Number of shareholders, 30 June 2011
Proportion of foreign shareholders, % of shares
229,355 29,866 45,477 41,568 43,152 86,223 9,246 75,600 43,623 590,429 17,470
25% 15% 51% 18% 25% 51% 51% 67% 29% 81% 42% 34,071
Note. Shareholder numbers are not in aggregate because of possible overlap. Number of Stora Enso shareholders is from the 2010 annual report. The proportion of foreign shareholders is based on the assumption that nominee-registered shareholders are foreign.
Company Elisa Kemira Metso Outokumpu Rautaruukki Sampo Sponda Stora Enso Talvivaara TeliaSonera Tieto Total
Profit distribution, 1 Jan.–30 June 2011, EUR million 140 73 232 45 83 645 42 197 0 1,368 50 2,875
Taxes paid in 2010, Market value on 30 June 2011, EUR million EUR million 53 23 98 2 3 288 3 62 0 629 18 1,179
2,315 1,815 5,861 1,662 2,163 12,500 1,135 5,725 1,268 22,040 834 57,320
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Chairman of the Board of Directors: Risto Siilasmaa
President and CEO: Veli-Matti Mattila
Elisa Corporation
10.1 3.0 249 23.4
Solidium's holding (%) Weight in Solidium's equity portfolio (%) Market value of holding as at 30 June 2011 (EUR million) Profit distribution to Solidium, 1 July 2010–30 June 2011 (EUR million)
BUSINESS OPERATIONS AND STRATEGY Elisa is a Finnish mobile and fixed-line service provider that operates in the Nordic and Baltic countries as well as Russia. The company serves some two million consumer customers regionally and around 150,000 corporate customers internationally. The company offers services under the Elisa and Saunalahti brands. Elisa’s turnover in 2010 was EUR 1.5 billion and operating profit was EUR 268 million. Over 90 per cent of turnover and operating profit was generated in Finland and the rest mostly in Estonia. The corporation employs around 3,800 people. Elisa 12
operates globally in cooperation with Vodafone and Telenor. Elisa provides fixed-line and wireless telecommunications services to consumers and corporate customers. Elisa’s service provision covers mobile and fixed-line subscriber connections, broadband connections as well as ICT and other services. In 2010, consumer customers accounted for 60 per cent of turnover and 62 per cent of the operating profit. Due to Elisa’s corporate history, its fixed-line network is particularly solid in Uusimaa and in the Tampere, Jyväskylä and Joensuu regions. The company’s wireless 3G network covers over 90 per cent of Finland’s population. RECENT DEVELOPMENTS Elisa enjoyed a stable trend in its business operations in 2010 and in early 2011 despite increasing economic uncertainty. Turnover in the first half of 2011 grew by 5 per cent over the previous year to EUR 752 million. The operating profit margin was 18 per cent, i.e. at the same level as in 2010. Turnover grew particularly due to strong sales of smartphones and the favourable trend in the number of subscriptions. By the
end of June 2011, the number of Elisa mobile subscriptions had increased by 200,000 compared to the end of 2010, reaching 4 million subscriptions. The growth in the number of subscriptions was due to the increased use of devices for different purposes and the growing penetration of mobile broadband. The smartphone market in Finland began to grow more vigorously during 2010 as phone selections expanded. However, smartphones are still less widespread in Finland than in the other Nordic countries. In mid-2011, smartphones accounted for about 8 per cent of all Elisa phones. Their proportion is growing rapidly, however, as more than 60 per cent of new phones sold by Elisa in the first half were smartphones, which typically use large amounts of data through various applications, internet browsing and e-mail. The competitive situation in the telecommunications sector has remained relatively intense but stable. Elisa’s churn in subscriptions decreased in the first half of 2011 to about 13 per cent, compared to over 16 per cent for the full year of 2010. Elisa has continued to develop its operations by investing in customer
| ANNUAL REPORT 2011
service, integrating IT-systems and shortening delivery and repair times. As part of its efforts to enhance and diversify customer service, the company opened Omaguru, a technical expertise service for households and small businesses. Elisa will continue to develop new products and services in the Consumer business segment. During 2010, the company launched several new services, including Elisa Vahti and Finland’s largest ebook service, Elisa Kirja. Elisa continued to develop the IPTV entertainment service Elisa Viihde by introducing to it Voddler’s rental and free video selection as well as various sports content and new TV channels. Elisa continued to strengthen its offering to corporate customers by acquiring Appelsiini, a Finnish IT services provider, in November 2010. Earlier in 2010 Elisa acquired a majority holding in Videra Oy, a company specialising in video conferencing solutions, with the
intention of reinforcing its market position and know-how in video conferencing services. In May 2011, Elisa launched Bringio, a mobile video conferencing service designed by Videra for corporate customers. Telecom business has traditionally required significant investments in fixed-line and wireless networks. Elisa forecasts that in the next few years its capex will be around 10–12 per cent of turnover. SOLIDIUM’S VIEW Elisa’s publicly stated medium to long term objective is to grow at a faster rate than the market average, relying on new products and services. Growth will also be fuelled by an increase in the use of data traffic and new services due to a rise in the popularity of smartphones. The majority of Elisa’s business operations are, however, focused in Finland, where the market is fairly
KEY INDICATORS
BREAKDOWN OF TURNOVER
EUR million
Finland
92%
Other countries
8%
SHARE PRICE DEVELOPMENT
Turnover Operating profit Operating profit, % Net profit Return on equity Return on investment Equity ratio Gearing Earnings per share (EUR) Market value Balance sheet total Number of employees Profit distribution Profit distribution to Solidium
1–6/2011
2010
752 134 17.8 48
1,463 268 18.3 178 21% 19% 43% 93% 1.15 2,534 1,972 3,665 140 15
18% 40% 108% 0.56 2,315 1,953 3,809
2009 1,430 267 18.7 177 20% 17% 46% 80% 1.13 2,484 1,965 3,331 221 24
Dividends are indicated under the financial period whose financial statements have been used as the basis for dividend payments.
EUR 25
MAJOR SHAREHOLDERS, 30 JUNE 2011
20
Number of Proportion of shares shares and votes, (%)
15 10 5 0
6
00
.2 1.1
mature with a high density of subscriptions and high fixed-line coverage. In addition, prices are under pressure due to strong competition in the current product and service areas. In Solidium’s view, Elisa’s greatest challenge lies in achieving profitable growth outside traditional operator services and, as a result, increasing its share in customer consumption. Elisa’s financial position remains robust and the company has the potential to generate good results. The company’s indebtedness has constantly been near the lower limit of the longterm target.
7
00
.2 1.1
8
00
.2 1.1
9
00
.2 1.1
0
01
.2 1.1
11
.20
1.1
Solidium Oy Elisa Corporation Varma Ilmarinen State Pension Fund
16,801,000 10,435,023 9,231,976 6,559,787 2,000,000
10.1 6.3 5.6 3.9 1.2
Elisa Dow Jones STOXX 600 Telecommunications Index The development of the sector index has been normalised with reference to the company share.
13
Chairman of the Board of Directors: Pekka Paasikivi
President and CEO: Harri Kerminen
Kemira Oyj
16.7 3.7 309 12.4
Solidium's holding (%) Weight in Solidium's equity portfolio (%) Market value of holding as at 30 June 2011 (EUR million) Profit distribution to Solidium, 1 July 2010–30 June 2011 (EUR million)
BUSINESS OPERATIONS AND STRATEGY Kemira focuses on water management chemicals, offering a wide range of products related to chemical water treatment, water separation technology and fibre chemistry. Kemira provides solutions for the management of both water quality and quantity, which boost customers’ energy, water and raw material efficiency. Kemira’s customers comprise companies operating in water-intensive industries as well as public sector operators involved in water treatment. In 2010 Kemira’s continuing operations (excluding Tikkurila, which was spun off in March 2010) generated turnover of around EUR 2.2 billion, and 14
its operating profit, excluding non-recurring items, was EUR 162 million. In mid2011 the Group employed around 5,000 people in 40 countries. The company’s financial targets are an annual growth of 3 per cent in developed markets and 7 per cent in emerging markets and an operating profit of more than 10 per cent. The target for gearing is less than 60 per cent. Kemira has the following segments focusing on water and fibre treatment chemistry: Paper, Municipal & Industrial and Oil & Mining. Nearly half of the turnover is generated by the Paper segment, i.e. by chemicals for the pulp and paper industry. Globally Kemira is one of the three major operators in this segment. Kemira’s products are used to reduce the amount of water needed in production processes and to maintain the purity of the process. In line with its strategy, Kemira has repositioned the Paper segment by developing and centralising its product offering, manufacturing and processes, focusing its clientele and striving to put more weight on growing markets. The Municipal & Industrial segment generates almost one-third of Kemira’s
turnover. Kemira is the world’s largest provider of coagulants used by local authorities and industry in water treatment. It is also a major producer of polymers. The segment’s products are used for the treatment of drinking and industrial water and sludge. Market growth is based on rapidly increasing demand for clean water and water treatment, in particular in the major cities of the developing world. Kemira’s strategy is to grow the segment both in existing and new market areas. The Oil & Mining segment accounts for around 15 per cent of Kemira’s turnover. Its products are used in oil drilling to prevent coagulation and to fill and pressurise oil deposits. They are also used in various mining industry applications. Kemira is one of the most important operators in the sector. Typically, customers are major companies, but their business operations are fairly local. The company’s strategy focuses on global growth through current and new customers and market areas. The remaining 10 per cent of Kemira’s turnover is generated by a wide range of chemicals produced for, among others, the food, animal feed, drugs and textile industries. Kemira also has a
| ANNUAL REPORT 2011
39 per cent stake in Sachtleben, a producer of titanium dioxide. Kemira views this holding as a financial investment and may dispose of it if the market conditions are favourable.
Despite this, continued cost inflation could weaken the company’s result, particularly in the Municipal & Industrial segment, where the proportion of annual agreements is significant. Kemira’s net debt has decreased sharply from 2009 level as a result of a share issue, strong cash flow and the spin-off of Tikkurila. The company’s net debt in June 2011 was approximately EUR 500 million and gearing was 37 per cent. Moreover, the potential exit from Sachtleben would have a significant impact on reducing net debt.
RECENT DEVELOPMENTS Kemira’s business operations continued to enjoy a positive trend the first half of 2011 as they had in 2010, although rising cost inflation began to burden the company’s eargnings potential particularly in the second quarter. In the first six months of 2011, turnover grew by 4 per cent over the previous year mainly due to an increase in the prices of the company’s products. The operating margin declined from 8.2 per cent to 6.8 per cent, as inflation in raw materials and other expense items could not be fully transferred to prices. The Paper segment’s profitability trend was particularly robust, reaching a historically high level. The Oil & Mining segment’s growth continued to be rapid, and as a result, margin development was fairly positive. Kemira’s readiness to react to fluctuations in the prices of raw materials has improved on previous years and its ability to transfer rises in costs to the prices of its products is relatively good.
SOLIDIUM’S VIEW Kemira’s vision is to be a leading water chemistry company. The company focuses on serving companies in waterintensive industries, where it is important to optimise water quality and consumption. Kemira’s objective is to achieve organic growth in its selected segments; the long-term outlook for market growth bodes well. The company’s financial resources put it in a good position to invest for growth. Paper and pulp chemicals will continue to account for a significant proportion of Kemira’s sales, since even strong organic growth in the other segments
KEY INDICATORS
BREAKDOWN OF TURNOVER
EUR million
Rest of Europe, Middle East and Africa
43% 31%
North America South America
7%
Asia and Pacific
6%
SHARE PRICE DEVELOPMENT
25 20 10 5 0
.2
2009
2,161 162 7.5 121 9%* 8%* 54% 39% 0.76 1,775 2,544 4,935 73 12
1,970 125 6.3 69 9%* 8%* 45%* 53%* 0.48 1,574* 2,817* 8,493* 41 7
10% 55% 37% 0.44 1,815 2,455 5,065
MAJOR SHAREHOLDERS, 30 JUNE 2011
15
1.1
2010
1,106 82 7.4 70
Dividends are indicated under the financial period whose financial statements have been used as the basis for dividend payments. The figures marked with an asterisk include Tikkurila’s figures until its spin-off on 25 March 2010. The distribution of Tikkurila shares as dividend is not taken into account in the profit distribution data.
EUR 30
6 00
1–6/2011
Turnover Operating profit Operating profit, % Net profit Return on equity Return on investment Equity ratio Gearing Earnings per share (EUR) Market value Balance sheet total Number of employees Profit distribution Profit distribution to Solidium
13%
Finland
will not alter the proportions of the segments quickly. Despite the downward trend in demand in mature markets, the segment’s ability to create value has improved thanks to its repositioning. Emerging markets will increase their share in the segment, as the pulp industry is focusing investment in South America and the paper manufacturing industry is growing in Asia. The Municipal & Industrial segment’s growth in demand is based on the increasing need of major, rapidly developing cities for water treatment. On the other hand, the slow development of local infrastructures and the challenges of becoming established in a new market may place obstacles in the way of growth. At the global level, Oil & Mining is a rapidly growing segment even though it still represents a small portion of Kemira’s overall business operations. In Solidium’s view, Kemira has all the prerequisites to gain a globally significant position in the water treatment business sector. The company’s product development activities may produce good new growth opportunities but we expect these to be realised in the slightly longer term.
1.1
.2
7 00
1.1
.2
8 00
1.1
.2
9 00
1.1
.2
0 01
1
1 .20
1.1
Kemira FTSE EUROFIRST 300 Chemicals The development of the sector index has been normalised with reference to the company share.
Oras Invest Ltd Solidium Oy Varma Ilmarinen Kemira Oyj
Number of shares
Proportion of shares and votes (%)
28,278,217 25,896,087 11,585,836 8,073,495 3,292,659
18.2 16.7 7.5 5.2 2.1
15
Chairman of the Board of Directors: Jukka Viinanen
President and CEO: Matti Kähkönen
Metso Corporation
10.4 7.4 615 24.3
Solidium's holding (%) Weight in Solidium's equity portfolio (%) Market value of holding as at 30 June 2011 (EUR million) Profit distribution to Solidium, 1 July 2010–30 June 2011 (EUR million)
BUSINESS OPERATIONS AND STRATEGY Metso supplies technologies and services to the mining, construction, power generation, metal recycling and pulp and paper industries. Metso operates in more than 50 countries and employs around 30,000 people worldwide. Metso Corporation has three reporting segments: Mining and Construction Technology, Energy and Environmental Technology and Paper and Fibre Technology. Metso’s operations comprise product and project business activities and a services business. Demand for new devices and processes currently comes mostly from 16
Asia, South and Central America, Eastern Europe and Africa and the Middle East. Last year, all four BRIC countries (Brazil, Russia, India and China) were among the seven largest countries in terms of orders received, and for the first time ever, more than half of all orders received by Metso came from emerging markets. The relative proportion of Metso personnel working in emerging markets has also increased. Metso has created a global sales and service network in order to maintain a presence in the target markets and to secure optimal service standards for its customers. The company’s main competitors in the supply of new equipment and entire production plants are global companies whose products and services partly match those of Metso. However, the number of competitors with capabilities to provide total solutions is relatively small. The services business is playing an increasingly larger role in Metso’s offering. The company’s goal is to grow the volume of the service sector each year. The target level for the service sector’s share in turnover is 40–60 per cent. In addition to organic growth, the service sector can be expanded through corpo-
rate acquitions that are typically small and local. A special focus is placed on bolstering the position of the services business in emerging markets. As the demand for metals and other raw materials continues to grow and raw material reserves to dwindle, the mining and construction sectors represent promising growth opportunities for Metso. In the Paper and Fibre Technology segment, Metso is a world leader and is able to exploit its cutting-edge technology and its competence in process technology, especially in the growing paper and fibre markets of emerging economies. The energy and environmental technology business focuses on developing products and solutions for cleaner energy as well as automation products for a wide range of customer sectors. RECENT DEVELOPMENTS After the summer of 2010, Metso has focused on seeking growth and acquiring new customer relationships as demand in customer sectors began to pick up. Thanks to its significant costsaving measures, the company was in a good position when demand began to recover.
| ANNUAL REPORT 2011
Matti Kähkönen, who had served as President of the Mining and Construction Technology segment, was appointed President and CEO of Metso Corporation in March 2011 following the retirement of Jorma Eloranta. Metso’s CFO also retired in the spring. New presidents were appointed to all the business segments once the new Executive Team took over in spring 2011. The first signs of a revival in demand in the market was the growth in demand for Metso’s services business as customers’ rate of capacity utilisation increased. In fact, the growth in demand for Metso’s services business was vigorous during the first half of 2011. Turnover generated by the services business increased by 19 per cent year-on-year and was EUR 1,331 million, accounting for 46 per cent of the company’s turnover. Early in the year, almost all of Metso’s customer industries and geographical areas had continued to recover, although global uncertainty may reflect in customers’ purchasing behaviour. Recovery is still partly fragile and the general economic situation may quickly affect demand. Metso received
a record-high number of orders, driven by major project orders. Delivery times have become longer but there have not been any bottlenecks in production. Cost inflation may result in profitability pressure if customer demand dwindles rapidly. Price pressures experienced during the period of lower demand have eased, and Metso’s pricing power will support the company’s profitability in the sale of new equipment in the current year. Emerging markets are an increasingly important market area for Metso. Demand in emerging markets has been good throughout the first half of the year, particularly in the mining equipment business. A number of major pulp and tissue paper mill projects, in which Metso participated, were carried out early in the year, which strongly boosted the Paper and Fibre Technology segment’s result. SOLIDIUM’S VIEW Metso has three strong business segments which complement each other. As the economic cycles in the customer sectors of these business segments vary from each other, this tends to balance
BREAKDOWN OF TURNOVER
Metso’s performance trends. Metso occupies a strong position in its main market areas. During the past year, the Paper and Fibre Technology segment has managed to improve its result significantly and has all the prerequisites to maintain a strong flow of orders. Competition in Metso’s sectors may increase in the future as companies from emerging economies attempt to grow their market share. This can have an impact particularly on the mining equipment market. Metso, however, is in a good competitive position thanks to its strong technological and process expertise. Metso’s service network, which is based on having a presence near the customer, will continue to give the company a competitive edge in the future. Metso is a global operator in its main sectors. Factors that will have a positive impact on Metso’s business in the long term are the need for new infrastructure and the replacement of old infrastructure, the development of new forms of energy, the increasing role played by the services business and the economic growth in emerging markets.
KEY INDICATORS EUR million
Turnover Operating profit Operating profit, % Net profit Return on equity Return on investment Equity ratio Gearing Earnings per share (EUR) Market value Balance sheet total Number of employees Profit distribution Profit distribution to Solidium
5%
Finland
7%
Other Nordic countries
24%
Rest of Europe North and South America
31%
Asia and Pacific
28% 5%
Other countries
SHARE PRICE DEVELOPMENT
40 30 20 10
6
00
2009
5,552 426 7.7 246 13% 13% 37% 35% 1.65 6,255 6,232 28,593 232 24
5,016 271 5.4 135 8% 9% 35% 47% 0.90 3,693 5,715 27,166 105 11
MAJOR SHAREHOLDERS, 30 JUNE 2011
50
.2 1.1
2010
3,011 234 7.8 143 15% 11% 37% 24% 0.94 5,861 6,198 30,072 -
Dividends are indicated under the financial period whose financial statements have been used as the basis for dividend payments.
EUR 60
0
1–6/2011
7
00
.2 1.1
8
00
.2 1.1
9
00
.2 1.1
0
01
.2 1.1
11
.20
1.1
Solidium Oy Cevian Capital * Ilmarinen Varma OP Funds
Number of shares
Proportion of shares and votes (%)
15,695,287 7,440,060 5,951,943 5,148,682 1,625,924
10.4 5.0 4.0 3.4 1.1
* Based on the situation on 1 November 2010.
Metso Bloomberg Europe Machinery-Diversified Index The development of the sector index has been normalised with reference to the company share.
17
Chairman of the Board of Directors: Ole Johansson
President and CEO: Mika Seitovirta
Outokumpu Oyj
30.8 6.2 516 14.1
Solidium's holding (%) Weight in Solidium's equity portfolio (%) Market value of holding as at 30 June 2011 (EUR million) Profit distribution to Solidium, 1 July 2010–30 June 2011 (EUR million)
BUSINESS OPERATIONS AND STRATEGY Outokumpu is one of Europe’s biggest stainless steel producers. The company produces hot and cold rolled, precision strip, tubular and long products for the construction, process and chemicals industries as well as for transportation and catering appliances. Outokumpu has its main production sites in Finland, Sweden, Great Britain and the United States. There are service centres in 12 countries and operations in more than 30 countries. Stainless steel accounts for a small proportion of steel used worldwide, but demand for it grows more rapidly than 18
for other steel types. Stainless steel is used in products whose demand is increasing with the growth of urbanisation and higher consumption of energy and water. Alongside the general steel grades, Outokumpu has developed its own products (duplex grades). Their use is expected to grow, with Outokumpu the global market leader. Stainless steel is manufactured using ferrochrome. Outokumpu has its own chrome mine in Kemi, Finland. The chromite from the mine is taken to Outokumpu’s own ferrochrome smelter in nearby Tornio, where it is enriched to produce ferrochrome. The proximity of its own ferrochrome production has served to make the Tornio plant one of the most efficient in the world in the production of stainless steel. Currently around two-thirds of Outokumpu’s ferrochrome requirement is met by its own production. The investment in the expansion of ferrochrome production capacity, which was announced in June 2010, will make Outokumpu self-sufficient in ferrochrome and enable the company to produce ferrochrome to be sold on the global market. The investment project has been launched and is proceeding according to timetable.
Outokumpu aims to complete the project during 2013. Fluctuations in the prices of nickel and molybdenum, used as alloying elements in stainless steel, influence the price of and demand for stainless steel. Outokumpu is exposed to the price fluctuations of these raw materials in the course of its production process. These fluctuations are reflected in the company’s financial result as part of normal business operations. It is part of Outokumpu’s strategy to increase sales of low nickel containing grades and also increase sales directly to end-users. These measures are expected to counter the significant fluctuations in demand and profitability that have been experienced previously. Outokumpu’s goal is to be the leading producer of stainless steel in the world while enjoying the highest degree of financial success. This can be achieved through having the best record in customer satisfaction, efficiency and environmental friendliness and by being the most attractive employer. Currently, the company’s production capacity is the sixth largest worldwide, with three-quarters of production sold
| ANNUAL REPORT 2011
in Europe. Part of the strategy is to increase sales outside Europe.
Meanwhile, imports from China have grown to cover about one-fifth of sales in Europe. This will curb the rise in the product prices and weaken the ability of European operators to raise their capacity utilisation rates. There has been a tendency in Outokumpu’s sector in Europe to separate the production of stainless steel, which is rather cyclical, and the production of carbon steel into separate companies. The French-Luxembourgeoise ArcelorMittal Group spun off its stainless steel business into a separate listed company, Aperam SA. The German ThyssenKrupp AG announced in May 2011 its plans to spin off its stainless steel business using one of various possible options, including the sale of the new company’s shares or a stock exchange listing. These developments will improve Outokumpu’s ability to monitor its competitors.
RECENT DEVELOPMENTS The sector’s weak profitability in Europe has taken its toll on Outokumpu’s balance sheet, and the company is above its target for gearing. The Group has initiated measures to boost efficiency, sold non-core assets and started the reorganisation of unprofitable units. At the same time, the company booked impairments and reorganisation expenses in its second quarter results in 2011. The net effect of capital gains and, on the other hand, write-downs and reorganisation expenses was EUR 91 million in the second quarter of 2011. The company foresees weak financial performance for the third quarter. Outokumpu obtained new financing in June 2011 by signing a three-year EUR 750 million revolving credit facility. Europe has a structural overcapacity in the production of stainless steel.
KEY INDICATORS
BREAKDOWN OF TURNOVER
EUR million
Europe
13%
10%
North America
Other countries
2%
SHARE PRICE DEVELOPMENT
20 10
6
00
2009
4,229 -66 -1.6 -110 -5% -1% 42% 97% -0.61 2,525 5,633 8,431 45 14
2,641 -421 -15.9 -321 -12% -9% 51% 65% -1.78 2,400 4,850 7,754 64 20
MAJOR SHAREHOLDERS, 30 JUNE 2011
30
.2 1.1
2010
2,653 -136 -5.1 67 6% -7% 40% 82% 0.37 1,662 5,702 9,474
Dividends are indicated under the financial period whose financial statements have been used as the basis for dividend payments.
EUR 40
0
1–6/2011
Turnover Operating profit Operating profit, % Net profit Return on equity Return on investment Equity ratio Gearing Earnings per share (EUR) Market value Balance sheet total Number of employees Profit distribution Profit distribution to Solidium
75%
Asia and Australia
SOLIDIUM’S VIEW Stainless steel producers are continuing their measures to boost efficiency in Europe in order to improve the sector’s profitability. Corporate restructuring arrangements carried out and planned by competitors will clarify the position of stainless steel producers and their profitability and value creation. This may also help trim down capacity in the sector. With imports from outside Europe on the rise, only the most cost-efficient production units will be able to compete profitably. In Solidium’s view the ferrochrome investment and recent efficiency-boosting measures will improve Outokumpu’s cost-competitiveness. The sector, however, must find a solution to the problem of overcapacity in Europe if the industry’s profitability is to be significantly improved.
7
00
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8
00
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9
00
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0
01
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11
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1.1
Solidium Oy Social Insurance Institution of Finland Ilmarinen Varma State Pension Fund
Number of shares
Proportion of shares and votes (%)
56,440,597
30.8
14,652,666 7,421,927 6,076,778 2,815,634
8.0 4.1 3.3 1.5
Outokumpu Bloomberg Europe Steel Index The development of the sector index has been normalised with reference to the company share.
19
Chairman of the Board of Directors: Reino Hanhinen
President and CEO: Sakari Tamminen
Rautaruukki Corporation
39.7 10.4 867 33.4
Solidium's holding (%) Weight in Solidium's equity portfolio (%) Market value of holding as at 30 June 2011 (EUR million) Profit distribution to Solidium, 1 July 2010–30 June 2011 (EUR million)
BUSINESS OPERATIONS AND STRATEGY Rautaruukki supplies metal-based components, systems and integrated systems to the construction and mechanical engineering industries. The company also offers a wide selection of metal products and related services, and operates in 27 countries. The company’s main customer sectors are infrastructure, commercial and industrial construction; the lifting and transportation equipment industry; and the heavy and light engineering industries. Rautaruukki operates under three business areas: Construction, Engineering and Metals. Geographically, Rautaruukki Metals has a strong position in 20
the Nordic countries. It is also a major player in Central and Eastern Europe, Russia and the Nordic countries in the mechanical engineering industry, commercial and office and industrial construction and the supply of roofing products for residential construction. The company’s focus for long-term growth is on Central and Eastern Europe, Russia, Ukraine and selected emerging markets, such as China. By developing the three business areas and becoming highly specialised, Rautaruukki aims to minimise the impact of sharp cyclical fluctuations in demand for standard steel products. The share of the solutions businesses (Construction and Engineering segments) will be increased to 60 per cent of the Group’s turnover. The share of special steel products will be increased to 60 per cent of the company’s Metals business. Rautaruukki aims to generate 50 per cent of its sales in emerging markets. In the Metals business area, Rautaruukki’s goal is to develop high-strength and wear-resistant steel grades, which sell for prices that are higher than those of standard steel products. Special steel grades offer customers added value thanks to their durability and light
weight, thereby extending the product’s life and giving the customer savings in i.a. fuel consumption. Special steel grades have good demand prospects. In the Construction business area Rautaruukki’s strategic priority is the growth markets of Eastern Europe. The construction needs in this region open good prospects for Rautaruukki’s concept of erecting industrial buildings time and cost-efficiently. For end users of engineering products, Rautaruukki develops and manufactures both individual components and integrated systems. It is Rautaruukki’s intent to get a more in-depth insight into the customer’s design process, in order to be able to fully exploit Rautaruukki’s expertise in special grade steels. RECENT DEVELOPMENTS Rautaruukki’s market standing improved during 2010. Orders received by the company increased by about one-third on the previous year, with the number of orders growing in all business areas. Despite the improved market situation, the company generated a loss on the year. Profitability has improved in 2011, with full-year profitability expected to
| ANNUAL REPORT 2011
be significantly better than the previous year. The delivery volumes and capacity utilisation rate of steel production have grown, fuelled by a rise in demand for carbon steel in all of Rautaruukki’s market areas. The raw material costs of carbon steel continue to rise but steel manufacturers have mostly managed to transfer the increased production costs to product prices. The positive profitability trend is partly due to an increase in the sales of special steel products. They now account for 33 per cent of sales and typically their selling prices are higher than those of standard products. Profitability remains weak in the Construction and Engineering business areas. Construction of residential and business premises remained low until spring 2011, and the low capacity utilisation rate adversely affected the profitability of the Construction business area. The Engineering business area also suffered from a low capacity utilisation rate. Product prices generally rose but Rautaruukki’s sales came mainly from
products with lower margins, the prices of which did not increase considerably. The prices of iron ore and coal, the main raw materials used in Rautaruukki’s steel production, increased on the world market. Rautaruukki had an annual agreement on the delivery prices of iron ore and therefore was not exposed to the rise in its price on raw materials exchanges in 2010. Among the factors contributing to the price hike in coal were the delivery problems caused by floods in Australia and increased demand as steel production recovered. Rautaruukki entered into new price negotiations in early summer 2011, agreeing to prices in line with the world market and higher than the previous year. Raw materials costs will begin to impact profitability in the second half of 2011. Rautaruukki intends to counter this by raising the selling prices of its products. Rautaruukki carried out a major renovation of the Raahe blast furnace 2 in summer 2011. The company prepared for this by accumulating a steel slab inventory. The capacity utilisation rate
EUR million
Turnover Operating profit Operating profit, % Net profit Return on equity Return on investment Equity ratio Gearing Earnings per share (EUR) Market value Balance sheet total Number of employees Profit distribution Profit distribution to Solidium
27%
Finland Other Nordic countries
34%
Central and Eastern Europe, Russia and Ukraine
18% 13% 6%
Other countries
SHARE PRICE DEVELOPMENT
1
EUR 70 60 50 40 30 20 10 0 6 00 .1.2
SOLIDIUM’S VIEW Rautaruukki intends to focus its business operations on special steel products and to increase sales to emerging markets. The majority of turnover is still generated in the Nordic and Eastern European markets. Expanding the sales network to selected emerging markets will require time and financial investment. The situation in Rautaruukki’s customer sectors has improved. Steel production has topped its previous peak in 2008 and demand is forecast to have a steady upward trend, mainly driven by demand from emerging markets. The continuation of economic growth in emerging markets will have an impact on Rautaruukki’s growth prospects.
KEY INDICATORS
BREAKDOWN OF TURNOVER
Rest of Europe
was more than 90 per cent and stocks are now at a higher level than usual. Production will return to normal in autumn 2011. The investment programme for the renovation of the Raahe blast furnaces, the cost of which was EUR 265 million, was carried out in 2010–11.
1–6/2011
2010
2009
1,405 93 6.6 52 -1% 4% 49% 58% 0.38 2,163 2,794 12,539 -
2,415 -12 -0.5 -79 -6% 0% 55% 45% -0.57 2,431 2,539 11,286 83 33
1,950 -323 -16.6 -275 -16% -14% 60% 22% -1.98 2,264 2,532 11,648 62 25
Dividends are indicated under the financial period whose financial statements have been used as the basis for dividend payments.
MAJOR SHAREHOLDERS, 30 JUNE 2011
7
00
.2 1.1
8
00
.2 1.1
9
00
.2 1.1
0
01
.2 1.1
11
.20
1.1
Rautaruukki Bloomberg Europe Steel Index The development of the sector index has been normalised with reference to the company share.
Solidium Oy Capital Research and Management Company * Varma Ilmarinen OP Funds
Number of shares
Proportion of shares and votes (%)
55,656,599
39.7
7,297,852 3,514,322 2,809,210 1,635,000
5.2 2.5 2.0 1.2
* Based on flagging notice, 15 January 2010.
21
Chairman of the Board of Directors:
Group CEO:
Björn Wahlroos
Kari Stadigh
Sampo plc
14.1 21.1 1 766 91.2
Solidium's holding (%) Weight in Solidium's equity portfolio (%) Market value of holding as at 30 June 2011 (EUR million) Profit distribution to Solidium, 1 July 2010–30 June 2011 (EUR million)
BUSINESS OPERATIONS AND STRATEGY Sampo Group’s operations are divided into two business areas: property and casualty insurance and life insurance. The parent company, Sampo plc, has an associated company, Nordea Bank AB, with Nordic banking operations, of which Sampo’s share was 21.3% on 30 June 2011. If P&C Insurance Company is the leading property and casualty insurance company in the Nordic countries. It also operates in the Baltic countries and Russia. If’s strategic long-term goals are better profitability and a higher degree of customer satisfaction than its competitors as well as a high level of credit22
worthiness. The financial targets include achieving a combined ratio of less than 95 per cent and a return on equity of at least 17.5 per cent. Mandatum Life is responsible for life insurance operations and asset management under an insurance wrapper. Its primary operating area is Finland, and it also has a subsidiary in the Baltic countries. The majority of the company’s total technical provisions comprise a with-profit insurance portfolio, but new business focuses on unitlinked insurance, risk products and voluntary corporate pension schemes. Mandatum Life’s financial target is to generate a return on equity of at least 17.5 per cent. Nordea is the biggest financial services group in the Nordic and Baltic regions. Measured in market value, the company figures among the largest in the Nordic countries. In addition to the Nordic countries, Nordea operates in Russia, Poland and the Baltic countries. Nordea has approximately 11 million customers and around 1,400 branches. Nordea’s long-term goal is to double the risk-adjusted result (around EUR 2 billion) achieved in 2006 by the year 2013.
RECENT DEVELOPMENTS If, Mandatum Life and Nordea have had a positive trend early in the year, and the Sampo Group’s profit before taxes in the first half of 2011 rose to EUR 756 million, increasing by 22 per cent over the year-on-year figure. The winter was again a challenging one for P&C insurance. Despite this, If’s combined ratio, 92.7 per cent, was below the long-term target of 95 per cent. The full-year combined ratio is expected to be between 92 and 94 per cent. Measured in local currencies, If’s premiums written grew by more than 3 per cent compared to the same period a year earlier. In May 2011, If increased its holding in the Danish company Topdanmark to over 20 per cent, as a result of which the latter became an associated company of If. Mandatum Life’s profit before taxes rose by 22 per cent during the first half of the year compared to the same period last year, reaching EUR 84 million. Unit-linked products still accounted for a low percentage of the profits, or less than one million euros. In June 2011, Mandatum Life and Sampo Bank agreed to continue their
| ANNUAL REPORT 2011
cooperation in the sale of life insurances. Under this agreement, Sampo Bank will continue to sell Mandatum Life’s life and pension insurance policies through its service network until the end of 2016. In a response to new regulations and the challenges of an altered market situation, Nordea unveiled its New Normal Plan programme with which the company aims to remain one of the best banks in Europe. The programme will enhance the employment of capital, boost cost-efficiency and increase return on equity. As a result of this programme, the company believes it will achieve a return on equity of about 15 per cent. In the first half of the year, Nordea’s loan loss ratio was at a overthe-cycle level of 23 basis points. During the same period last year, the loan loss ratio was 36 basis points. In February 2011, the State of Sweden reduced its ownership in Nordea by selling 6.3 per cent of Nordea’s shares
for approximately SEK 19 billion. Following the sale, the State of Sweden owns 13.5 per cent of Nordea. The State of Sweden has announced its intention to continue its sale of Nordea shares. In connection with the sale of the shares in February, Sampo increased its holding in Nordea by 0.7 percentage points to 21.3 per cent. SOLIDIUM’S VIEW In the insurance business, a significant share of the profit is generated by underwriting and investment activities, and in recent years Sampo has displayed exemplary competence in both fields. In the current market, organic growth will be moderate, so Sampo’s focus will remain on cost-efficiency and success in underwriting. Currently there are major plans afoot to amend the regulation targeting both insurance and banking business operations. The final format of the new regulations remained open in summer
KEY INDICATORS
BREAKDOWN OF TURNOVER
EUR million
Premiums written Profit before taxes Net profit Earnings per share (EUR) Net asset value per share (EUR) Return on assets Return on equity Market value Balance sheet total Number of employees Profit distribution Profit distribution to Solidium
38%
Finland Norway
29% 23%
Sweden Denmark
6%
Baltic countries
4%
2011, and due to the serious problems in the eurozone economies it is possible that the implementation of new regulations will be postponed. Some European states are considering tougher national solvency requirements for banks than those set in the general framework. In Solidium’s view, potentially tighter regulations do not pose a problem for If because the company already meets solvency requirements in order to achieve the credit rating that is a condition for the conduct of business. Solidium also believes that the solvency capital of Mandatum Life is on a stable basis at the moment. In Solidium’s opinion Nordea is well-equipped to succeed in its goal of raising its return on equity close to the highest level of European banks. This will require boosting the efficiency of the employment of capital and cost management, in addition to growth in business operations.
15 10 5
6
4,479 825 641 1.14 14.63 19% 56% 9,553 26,635 7,087 561 79
Number of shares
20
00
2009
5,096 1,320 1,104 1.97 17.79 10% 22% 11,254 29,851 6,844 645 91
MAJOR SHAREHOLDERS, 30 JUNE 2011
EUR 25
.2 1.1
2010
2,947 756 634 1.13 16.24 5% 9% 12,500 29,736 6,928
Dividends are indicated under the financial period whose financial statements have been used as the basis for dividend payments.
SHARE PRICE DEVELOPMENT
0
1–6/2011
7
00
.2 1.1
8
00
.2 1.1
9
00
.2 1.1
0
01
.2 1.1
11
.20
1.1
Solidium Oy Varma Capital Research and Management Company * Ilmarinen Björn Wahlroos
Proportion of shares Proportion (%) of votes(%)
79,280,080 47,709,421
14.1 8.5
14.0 8.4
27,804,264 12,243,068 11,758,555
5.0 2.2 2.1
4.9 2.2 2.1
* Based on flagging notice, 13 October 2010.
Sampo OMX Nordic Financials The development of the sector index has been normalised with reference to the company share.
23
Chairman of the Board of Directors: Lauri Ratia
President and CEO: Kari Inkinen
Sponda Plc
14.9 2.0 169 6.3
Solidium's holding (%) Weight in Solidium's equity portfolio (%) Market value of holding as at 30 June 2011 (EUR million) Profit distribution to Solidium, 1 July 2010–30 June 2011 (EUR million)
BUSINESS OPERATIONS AND STRATEGY Sponda is a real estate investment company that specialises in commercial properties. The company operates in the Helsinki metropolitan area and other large Finnish cities as well as St Petersburg and Moscow in Russia. The leasable area of Sponda’s investment properties is around 1.5 million square metres, consisting of office and retail premises and logistics properties. The fair value of the investment properties is EUR 3.1 billion. Office and retail premises accounted for 52 per cent, shopping centres for 18 per cent, logistics premises for 16 per cent, real estate funds for 3 per cent 24
and the Russia Business Unit for 11 per cent of the company’s net income in the first six months of 2011. The company has four business units: Investment Properties, Property Development, Real Estate Funds and Russia. Sponda’s objective is the ongoing development of the property portfolio by selling, constructing and acquiring real estate investment properties. Sponda puts a great emphasis on reducing the environmental footprint of properties as well as improving their energy efficiency and environmental friendliness in accordance with its corporate responsibility targets and vision. All new investment properties are built according to a low-energy concept, and environmental certificates are sought for them. Environmental friendliness and sustainable development are taken into consideration in all processes, from the design of commercial properties all the way to the ownership strategy. Sponda has real estate properties in Russia, in desirable market areas in the heart of Moscow and St Petersburg. Currently, investments by the Russia Business Unit account for around 7 per cent of the company’s real estate invest-
ment portfolio, but Sponda is looking to increase that figure. RECENT DEVELOPMENTS The business environment in Sponda’s main market areas in Finland and Russia improved during the first six months of 2011. The Finnish real estate market has picked up in terms of completed real estate transactions, and leasing activity has been more vigorous. Finland’s relatively robust economic growth is driving demand for properties through, among other things, growth in industrial production. Global economic uncertainty, however, may have an adverse effect on companies’ need for commercial premises. In the Russian market, the values of properties have started to rise, especially in the Moscow region, with rents expected to continue to increase this year. Russian economic growth was mostly due to the rise in the price of oil, a drop in unemployment and improved consumer confidence. In the first six months of 2011, Sponda’s net income increased slightly more than one percent compared to the same period last year. The vacancy rate in Sponda’s real estate portfolio was
| ANNUAL REPORT 2011
11.8 per cent at the end of the first half of 2011, a year-on-year reduction of around 0.9 percentage points. The drop in the vacancy rate can be mainly attributed to the improved occupancy rate in the logistics segment and the improvement in the market situation in Russia. The vacancy rate for office premises has declined compared with the same period a year ago. In April, Sponda acquired the Fennia block located in Helsinki city centre for EUR 122 million. The main lessees in the block are RAY Casino, the City of Helsinki and the Finnkino cinema. Of the transaction price, EUR 22 million was paid in Sponda’s own shares. In the spring, Sponda sold its 45 per cent stake in Ovenia Oy, a provider of property management services. The second stage of Sponda’s major development project in the heart of Helsinki, City-Center, was
completed according to timetable at the end of the summer. Sponda successfully met its refinancing need in autumn 2010 and in early 2011, so the company will have large freedom in planning its refinancing for 2012. In spring 2011, Sponda issued a SEK 650 million bond in order to broaden its bond investor base, thus meeting its refinancing needs for the current year. The company’s net assets per share have risen steadily, reaching EUR 3.92 by the end of June. Durind the first six months of 2011, Sponda made revaluations of EUR 28 million to its real estate portfolio, equivalent to about one percent of the portfolio’s value. The revaluations came as a result of lower yield requirements for properties and the rise in market rents in Finland and Russia.
BREAKDOWN OF TURNOVER
SOLIDIUM’S VIEW Due to the post-cyclic nature of the real estate investment business, the vacancy rate of office premises did not begin to decline in the Helsinki metropolitan area and market rents to slightly rise until early in 2011, even though the economy had been enjoying an upward trend for over a year. Interest rates have remained at a historically low level, which means that yield requirements for properties may still decline to a certain degree. This, combined with a rise in market rents (due to fairly high inflation and good demand for commercial properties), gives Sponda a good opportunity to revaluate its real estate portfolio. Sponda’s operational potential to generate good results will also increase the company’s net assets per share.
KEY INDICATORS EUR million
90%
Finland
Russia
10%
SHARE PRICE DEVELOPMENT
1
EUR 14 12 10 8 6 4 2 0 6 00 .1.2
1–6/2011
2010
2009
120 107 89.4 59 38% 139% 0.19 1,135 3,284 123 -
232 216 93.1 120 10% 8% 39% 131% 0.40 1,077 3,087 119 42 6
243 -13 -5.5 -82 -8% 0% 37% 141% -0.35 758 2,990 134 33 11
Turnover Operating profit Operating profit, % Net profit Return on equity Return on investment Equity ratio Gearing Earnings per share (EUR) Market value Balance sheet total Number of employees Profit distribution Profit distribution to Solidium
Dividends are indicated under the financial period whose financial statements have been used as the basis for dividend payments.
MAJOR SHAREHOLDERS, 30 JUNE 2011
7
00
.2 1.1
8
00
.2 1.1
9
00
.2 1.1
0
01
.2 1.1
11
.20
1.1
Solidium Oy Ilmarinen Varma Suomi Mutual Life Assurance Company State Pension Fund
Number of shares
Proportion of shares and votes (%)
42,163,745 27,052,730 24,956,617
14.9 9.6 8.8
5,500,000 1,906,111
1.9 0.7
Sponda EPRA real estate investment index The development of the sector index has been normalised with reference to the company share.
25
Chairman of the Board of Directors: Gunnar Brock
Chief Executive Officer: Jouko Karvinen
Stora Enso Oyj
12.3 8.5 708 24.3
Solidium's holding (%) Weight in Solidium's equity portfolio (%) Market value of holding as at 30 June 2011 (EUR million) Profit distribution to Solidium, 1 July 2010–30 June 2011 (EUR million)
BUSINESS OPERATIONS AND STRATEGY Stora Enso is one of the biggest forest industry companies in the world. Its main products are consumer and industrial packaging, newsprint and book paper, magazine and fine paper, and wood products. The company also sells market pulp. The Group employs some 26,000 people and runs 85 mills and production plants in more than 35 countries. Around 7,600 of its employees work in Finland. In terms of turnover, a good one-third of production originates in Finland. Stora Enso’s customers include publishers, printing houses, paper merchants as well as the packaging, joinery and construction 26
industries. The company’s turnover in 2010 was EUR 10.3 billion and the operating profit, excluding non-recurring items and impairments, was EUR 754 million. Stora Enso is increasingly focusing on growing markets, with emphasis on South America and China. Both production and consumption will grow significantly in these markets, driven by growth in standards of living and a resulting increase in the per capita consumption of paper and board. In pulp production, the company will focus on low cost plantation-based pulp. This offers a significant cost benefit thanks to the rapid growth of pulpwood. Stora Enso currently has a joint venture pulp mill in Brazil and another one being constructed in Uruguay. In addition, the company has notable areas of plantations that can be utilised in pulp production in the future. Fibre-based packaging is set to take a significantly larger role in the company’s operations. Even at present, Stora Enso is globally a major manufacturer of consumer packaging board and a dominant producer of board used in the packaging of liquids. Fibre-based packaging overall is a globally growing
segment and is likely to replace part of the plastic packaging used at present, not least because it is an environmentally friendly solution. The M&A transaction carried out between UPM and Myllykoski in July and the potential closing of facilities as a result will significantly facilitate consolidation in the magazine paper market. Following this transaction, the greatest need for consolidation in the paper segment will be in newsprint paper, which is suffering the most from dwindling demand, and in uncoated fine paper, the market of which is very fragmented. Stora Enso has expressed in its strategy that instead of the current wide product range, it will focus on selected paper grades. The aim is to concentrate on product areas where there is potential to achieve a notable market position and competitive edge, and a sufficient level of return. Increasingly, investments will be specifically allocated in accordance with long-term outlooks. RECENT DEVELOPMENTS During the first half of 2011, Stora Enso mostly managed to maintain the
| ANNUAL REPORT 2011
positive business trend it enjoyed in 2010 despite increased uncertainty. Turnover grew by 11 per cent thanks to improved volumes and price levels. However, volumes remain below the pre-economic downturn level and the outlook for the rest of the year is uncertain. The sharp increase in the cost of raw materials, particularly recycled fibres, energy and chemicals, burdened profitability, although hikes in selling prices and the company’s own actions minimised the impact of rising costs. Stora Enso’s balance sheet is robust thanks to its continued strong cash flow. Gearing has dropped to nearly 40 per cent and the ratio of net debt to EBITDA was below 2.0. The company’s strong balance sheet puts it in a good position to carry out growth investments. The market situation improved during the past two years in all segments, but has weakened again in recent months, especially in fine paper. Demand for paper products is not likely
to return to its pre-economic downturn level. Product prices are higher but the sector faces a challenging long-term outlook owing to declining demand. During the past year, Stora Enso has announced several major investments, the majority of which (about 80 per cent) will be spent this year on growth projects. The company is constructing a EUR 1.3 million pulp mill in Uruguay together with its partner Arauco. Production at the mill is slated to start at the beginning of 2013. Moreover, Stora Enso invested approximately EUR 300 million in industrial packaging production in Ostroleka, Poland. The investment will substantially improve the mill’s cost-efficiency and increase Stora Enso self-sufficiency in raw materials for corrugated board. In line with its strategy for fibre-based packaging, Stora Enso also acquired a majority holding in the Chinese consumer packaging company Inpac.
BREAKDOWN OF TURNOVER
SOLIDIUM’S VIEW After a period of major structural change and developing of operational efficiency, Stora Enso has switched over to carrying out growth investments. The company is successfully transforming itself from a global forest industry conglomerate to a focused paper and pulp and packaging company. Solidium believes that the company’s strategy is the right one and will considerably improve its competitiveness and value creation in the long run. The business potential in Latin America and China is promising, and the ground gained by the company in fibre-based packaging and particularly in liquid packaging boards may lead to significant value creation. In addition, wood-based biorefinery products, as well as products used in wood building, for example, may offer notable business opportunities in the future. In Solidium’s view, Stora Enso is in a good position to participate in the structural transformation of the forest industry in Europe.
KEY INDICATORS EUR million
Turnover Operating profit Operating profit, % Net profit Return on equity Return on investment Equity ratio Gearing Earnings per share (EUR) Market value Balance sheet total Number of employees Profit distribution Profit distribution to Solidium
15%
Germany Sweden
10%
Finland
8%
Rest of Europe
45% 23%
Other countries
SHARE PRICE DEVELOPMENT
1
EUR 16 14 12 10 8 6 4 2 0 6 00 .1.2
1–6/2011
2010
5,544 422 7.6 292 9% 11% 49% 41% 0.37 5,725 12,969 27,019
10,297 754 7.3 627 11% 9% 48% 42% 0.79 6,109 13,037 26,379 197 24
2009 8,945 321 3.6 153 3% 6% 45% 55% 0.19 4,020 11,593 27,390 158 19
Dividends are indicated under the financial period whose financial statements have been used as the basis for dividend payments.
MAJOR SHAREHOLDERS, 30 JUNE 2011 Number of A series shares
1.1
.2
7 00
1.1
.2
8 00
1.1
.2
9 00
1.1
.2
0 01
1
1 .20
1.1
Stora Enso Bloomberg World Forest Products & Paper Index The development of the sector index has been normalised with reference to the company share.
Solidium Oy Foundation Asset Management Social Insurance Institution of Finland Ilmarinen Varma
Number of Proportion Proportion R series of shares of votes shares (%) (%)
55,595,937 41,483,501
12.3
25.1
63,123,386 17,000,000
10.1
27.2
23,825,086 2,775,965 3,492,740 21,649,108 15,572,117 140,874
3.4 3.2 2.0
10.1 2.4 6.5
27
Chairman of the Board of Directors: G. Edward Haslam
Chief Executive Officer: Pekka Perä
Talvivaara Mining Company Plc
4.3 0.6 54 0.0
Solidium's holding (%) Weight in Solidium's equity portfolio (%) Market value of holding as at 30 June 2011 (EUR million) Profit distribution to Solidium, 1 July 2010–30 June 2011 (EUR million)
BUSINESS OPERATIONS AND STRATEGY Talvivaara mainly engages in the business of developing mining operations and exploiting the polymetallic deposits in Sotkamo using bioheap-leaching technology. Talvivaara’s Kuusilampi and Kolmisoppi deposits form one of the largest sulphide nickel resources in Europe, with measured and indicated mineral resources totalling 1,121 million tonnes. These reserves will support planned production for at least 46 years. Commercial production was started in early 2009, and once the production ramp-up is completed, the company will produce around 50,000 tonnes of nickel annually. Moreover, the 28
metals recovery process at the mine is expected to produce around 90,000 tonnes of zinc, 15,000 tonnes of copper, 1,800 tonnes cobalt and 350 tonnes of uranium as by-products. Talvivaara delivers metal intermediates to companies that process them further into metals. Talvivaara has signed a ten-year off-take agreement with Norilsk Nickel on the sale of the mine’s entire nickel and cobalt output to the latter at market prices. Talvivaara has also signed a long-term zinc in concentrate streaming agreement with Nyrstar NV. Under the terms of the agreement, Talvivaara will deliver all of its zinc in concentrate production to Nyrstar until a total of 1.25 million tonnes of zinc in concentrate have been delivered. Talvivaara plans to initiate the recovery and exploitation of uranium, obtained as a by-product of other metals, in the form of a uranium intermediate, yellow cake. Talvivaara’s metal production method is bioheapleaching, which is used widely for the extraction of other metals, particularly copper and gold, from ore. Talvivaara’s ore is excavated using open pit mining because overburden in the area is thin, the geometry
of the resources is favourable to open pit mining and the waste to ore ratio is low. Even though the ore’s metal content is relatively low, it is well-suited for bioheapleaching because its sulphide content is high. Talvivaara’s production process comprises four main stages: mining, crushing, bioheapleaching and metals recovery. Talvivaara’s mining method is open pit mining, with a targeted mining rate of 24 million tonnes of ore per annum. The ore is crushed, agglomerated into particles with a consistent size and stacked in heaps 8 metres high, where it is leached using bacteria for slightly over a year. After the primary leaching, the heap is moved onto a secondary heap pad, where leaching is continued until metals can be recovered from the poorly leached parts of the heap. In the metal recovery process, nickel, copper, zinc and cobalt are precipitated from the solution containing metals, producing metal sulphides that can be sold. Once the valuable metals have been removed, the solution is purified and returned for the irrigation of heaps.
| ANNUAL REPORT 2011
RECENT DEVELOPMENTS Talvivaara continues to ramp up its production. The production target for 2011 is 22,000–28,000 tonnes of nickel. In connection with the publication of its financial results for the second quarter, Talvivaara announced that its full-year production will only come close to the lower end of the target. This will be below the production target set earlier, owing to upgrades and maintenance carried out at the metal recovery plant in order to repair problems encountered in metals recovery. The first maintenance stoppage was in April and a second one is scheduled for autumn 2011, when the rest of the necessary new equipment will be delivered. Talvivaara signed a uranium off-take agreement with Cameco Corporation in February 2011. Cameco is to invest a maximum of USD 60 million to cover the construction costs of the uranium extraction circuit. Talvivaara will repay Cameco’s investment through deliveries
of uranium concentrate during the initial years of the agreement. Talvivaara continued its studies concerning increasing its production capacity, the objective of which is to raise the annual production of nickel to over 50,000 tonnes. A special emphasis was put on starting the assessment of environmental impacts towards the end of 2011 and initiating the application process for necessary permits. Preliminary technical studies are based on a plan under which the annual production of nickel would be doubled to about 100,000 tonnes. The company is also considering investing in refining capacity for nickel and possibly cobalt. The first investment decisions must be made during 2012 in order to start the expansion of production from 2016 onwards. If the expansion project is carried out to its planned extent, the mine would directly employ 1,100–1,200 people. The employment effect of the project stage is estimated at 6,000 man-years.
BREAKDOWN OF TURNOVER
SOLIDIUM’S VIEW Investment projects in the mining sector are spread out over several years but, on the other hand, income flows can be expected for decades. Annual income is largely dependent on the world market prices of raw materials and, in the early years of operation, the risks of a production ramp-up will affect a company’s value. These factors make the mining sector a rather fluctuating investment in the short term. Investors in this sector should, however, be willing to assess yields in the long term and carry the investment risk. In Finland, the mining sector is growing in importance. Many mines are being opened as the mining of metals is becoming financially viable due to new technologies or applications. Thanks to its experience and expertise, Talvivaara is in a good position to become the leading developer in its sector in Finland.
KEY INDICATORS EUR million
92%
Finland
Other countries
8%
SHARE PRICE DEVELOPMENT
3
EUR 8 7 6 5 4 3 2 1 0 07 20 .1 5.
1–6/2011
2010
2009
104 10 10.0 8 2% 3% 30% 125% 0.02 1,268 1,119 481
152 25 16.7 -13 -4% 1% 31% 83% -0.05 1,698 1,216 389 0 0
8 -55 Nm. -45 -12% -6% 44% 111% -0.19 1,067 879 308 0 0
Turnover Operating profit Operating profit, % Net profit Return on equity Return on investment Equity ratio Gearing Earnings per share (EUR) Market value Balance sheet total Number of employees Profit distribution Profit distribution to Solidium
MAJOR SHAREHOLDERS, 30 JUNE 2011
07
20
. .11 30
3
08
20
. 1.5
08
20
3
11. 0.
3
09
20
. 1.5
09
20
3
11. 0.
3
10
20
. 1.5
10
20
. .11 30
11
.20
.5 31
Talvivaara Bloomberg World Mining Index The development of the sector index has been normalised with reference to the company share.
Pekka Perä Varma BlackRock Ilmarinen Norilsk Nickel
Number of shares
Proportion of shares and votes (%)
56,168,460 21,106,093 14,710,994 13,194,775 12,173,770
22.9 8.6 6.0 5.4 5.0
Note. BlackRock’s holding is based on the informtion in Talvivaara’s 2010 annual report. According to the flagging notice on 1 August 2011, BlackRock’s holding was 4.99%.
29
Chairman of the Board of Directors: Anders Narvinger
President and CEO: Lars Nyberg
TeliaSonera AB
13.7 36.2 3024 187.4
Solidium's holding (%) Weight in Solidium's equity portfolio (%) Market value of holding as at 30 June 2011 (EUR million) Profit distribution to Solidium, 1 July 2010–30 June 2011 (EUR million)
BUSINESS OPERATIONS AND STRATEGY TeliaSonera is the fifth largest telecommunications operator in Europe. In the Nordic and Baltic countries, TeliaSonera is the biggest provider of telecommunications services. It also operates in the Eastern European and Asian mobile communications markets and in Spain. The company’s operations (including associated companies) span 19 countries, with a total of 450 million inhabitants. TeliaSonera’s main products are mobile and fixed-network services. The company’s headquarters are in Stockholm, Sweden, and it employs a total of around 29,000 people.
30
In the Nordic region, TeliaSonera is the market leader in Sweden in both mobile communications and broadband services. In Finland and Norway, TeliaSonera is the second largest market operator, whilst in Denmark the company’s position is that of a challenger. In the Baltic countries, TeliaSonera is the biggest operator in both mobile communications and broadband services. The priority in these mature markets is to optimise profitability and cash flow. A significant proportion of TeliaSonera’s value is generated by two associated companies: Turkcell, which is a Turkish enterprise, and MegaFon, a Russian company. Turkcell is by far the biggest mobile operator in Turkey. MegaFon is the second largest provider of mobile services in Russia. TeliaSonera’s goal is to expand operations in the emerging markets of Eurasia, where the penetration of mobile devices is still low. In these markets, the fixed networks are not up to western standards and the use of communications devices relies on mobile station networks. TeliaSonera’s subsidiaries are the market leaders in Kazakhstan, Azerbaijan, Tajikistan,
Georgia and Nepal and the second biggest in Uzbekistan and Moldova. RECENT DEVELOPMENTS The competitive situation in the mobile business has remained tight in the Nordic countries. The Mobility Services segment’s growth of over 5 per cent in the first six months of the year was due to good performance in Sweden and Spain. In Sweden, the EBITDA margin rose to almost 45 per cent. In Spain, EBITDA turned positive at the end of 2010, and TeliaSonera’s goal is to achieve a positive cash flow towards the end of 2011. Measured in local currencies, turnover (excluding M&A trans-actions) generated by fixed network operations continued to decline in the first half, dropping almost 7 per cent year-on-year. The ownership disputes concerning the associated companies MegaFon and Turkcell are still unresolved, and partly for this reason, Turkcell’s business has had a weak trend during the past year. Due to Turkcell’s decreased profitability, the losses incurred by Turkcell’s subsidiary in Belarus as a result of a devaluation of the country’s currency and a write-down on MegaFon’s
| ANNUAL REPORT 2011
inventory, returns from the associated companies in the first half of 2011 dropped by 26 per cent compared to the same period last year. For this reason, TeliaSonera’s operating result and net result decreased significantly compared to the same period a year ago, although profitability remained at last year’s level when measured in terms of EBITDA. Responding to rising costs, TeliaSonera announced in February 2011 that it will initiate restructuring measures in Sweden and Finland, with the objective of cutting around 550 jobs in Sweden and around 170 jobs in Finland. Growth and profitability in Eurasia have remained at an excellent level. Measured in local currencies, turnover increased 20 per cent in the first half (excluding M&A transactions) compared to the previous year, and the EBITDA margin remained over 50 per cent. The fastest growth was in Nepal, where turnover more than doubled over the previous year. In December 2010, TeliaSonera increased its shareholding in TeliaSonera Asia Holding B.V. from
51 per cent to 75 per cent. As a result, TeliaSonera’s holding in the Nepalese NCell rose from 41 per cent to 60 per cent. The transaction price for the shares was approximately SEK 1,100 million. TeliaSonera decided to return surplus capital to its shareholders in spring 2011 through an offer to repurchase its own shares. The company repurchased shares worth a total of SEK 9,943 million. In addition, it paid SEK 12,349 million in ordinary dividend. Solidium exercised its pro rata entitlement in the share repurchase offer in full, so its holding in TeliaSonera was not altered. The employment contract of President and CEO Lars Nyberg was extended through the end of December 2013. Under his previous contract, Nyberg would have retired at the end of 2011. SOLIDIUM’S VIEW The Eurasia business area will continue to be a source of growth for TeliaSonera, as the region’s profitability will remain strong in the coming years. In
KEY INDICATORS
BREAKDOWN OF TURNOVER
SEK million
Turnover Operating profit Operating profit, % Net profit Return on equity Return on investment Equity ratio Gearing Earnings per share (SEK) Market value Balance sheet total Number of personnel Profit distribution Profit distribution to Solidium
34%
Sweden
Finland
15%
9%
Norway
41%
Other countries
SHARE PRICE DEVELOPMENT Swedish krona (SEK) 80 70 60 50 40 30 20 10 0 7 6 00 00 .1 1.2 .1 1.2
mature markets, the mobile businesses in Sweden and Spain have been the only growth markets of note for the company. As organic growth is slow, cost-effectiveness will remain the priority in the future. The increasing popularity of data services, declining revenues from voice services and a rapidly changing operating environment will put pressure on teleoperators to enhance their pricing models. It will remain to be seen whether teleoperators will be able to also invoice content providers for using capacity on telecommunications networks in the future. TeliaSonera’s strong balance sheet puts it in a position to carry out growth investments and corporate acquisitions in line with strategy. In Solidium’s view, the company’s management has been disciplined in its assessment of M&A transactions in recent years. Profit distribution to shareholders will most likely remain at a good level in coming years.
1–6/2011
2010
2009
50,619 13,699 27.1 8,506 18% 17% 46% 62% 1.93 200,916 241,011 29,280
106,979 31,935 29.9 21,189 16% 16% 53% 37% 4.72 239,341 250,551 28,945 12,349 1,694
109,550 31,597 28.8 19,775 15% 15% 53% 34% 4.40 232,830 269,670 29,734 10,104 1,386
Dividends are indicated under the financial period whose financial statements have been used as the basis for dividend payments.
MAJOR SHAREHOLDERS, 30 JUNE 2011
8
00
.2 1.1
9
00
.2 1.1
0
01
.2 1.1
11
.20
1.1
State of Sweden Solidium Oy Capital Group Funds Swedbank Robur Funds Alecta
Number of shares
Proportion of shares and votes (%)
1,614,513,748 594,123,642 122,600,700 114,971,130 99,781,251
37.3 13.7 2.8 2.7 2.3
TeliaSonera Dow Jones STOXX 600 Telecommunications Index The development of the sector index has been normalised with reference to the company share.
31
Chairman of the Board of Directors: Markku Pohjola
President and CEO as from 1 November 2011: Kimmo Alkio
Tieto Corporation
10.3 1.0 87 5.2
Solidium's holding (%) Weight in Solidium's equity portfolio (%) Market value of holding as at 30 June 2011 (EUR million) Profit distribution to Solidium, 1 July 2010–30 June 2011 (EUR million)
BUSINESS OPERATIONS AND STRATEGY Tieto is an IT services company, providing information technology, product development and consultancy services. The company is one of the largest IT services companies in Northern Europe and a global market leader in selected segments. Tieto aims to become the leading IT services company in northeastern Europe. Its main market area is the Nordic countries, in addition to which Russia and Poland offer good prospects for new growth. Tieto’s turnover in 2010 was around EUR 1.7 billion, while its operating profit, excluding non-recurring items, came to 32
EUR 110 million. At the end of June 2011, the Group employed a total of 18,100 people in 26 countries, of which 5,700 were in Finland. Tieto adopted a new organisational structure from the beginning of 2011. In financial reporting under the new structure, slightly less than 40 per cent of turnover is generated by Managed Services, which include application management, i.e. the maintenance, development and improvement of existing applications, and ICT infrastructure services. The segment’s business is usually based on long-term agreements and is not particularly susceptible to cyclical fluctuations in the economy. The Industry Solutions service segment generates about 30 per cent of turnover. Its solutions are tailored to meet the demands of customer sectors and are typically implemented in-house by Tieto. Enterprise Solutions (13 per cent of turnover) are used in processes shared by several sectors. They include products or components developed by Tieto or a third party and various services, such as IT consultancy, integration, application development and maintenance. The length and scope of projects
implemented by Industry Solutions and Enterprise Solutions vary considerably, and their business operations are characterised by cycles that follow the general economic trends. Tieto’s fourth service area, Product Engineering Solutions (20 per cent of turnover), covers the design, development and maintenance of software for customers’ products. Tieto is Europe’s largest supplier of telecom R&D services and a major supplier to mobile device manufacturers and the automotive industry. Tieto’s most significant customer clusters are in the finance, telecommunications and media sectors, which combined generate around half of Tieto’s turnover. Other important sectors include healthcare, along with the rest of the public sector, the forest industry, the energy sector, logistics and trade. Tieto’s headcount has developed differently between countries with high costs and those with a lower cost structure. The company is recruiting employees in countries with low levels of costs, where 40 per cent of Tieto’s employees are already located. In these global operating centres, the number of employees has risen by 55 per cent over
| ANNUAL REPORT 2011
the last two years, to around 7,000 people. Increasing human resources in these offshoring countries is essential in order to safeguard competitiveness. The shift in personnel decreases turnover because of lower invoicing levels, but conversely it boosts relative profitability thanks to the affordable level of costs.
as lower price levels, the use of external labour and unsuccessful project management. In the first half of 2011, the company’s operating margin, excluding non-recurring items was 5.2 per cent, compared to 5.6 per cent a year earlier. The company forecasts that the full-year operating profit, excluding non-recurring items, will exceed that of 2010. Tieto revised its organisational structure at the beginning of 2011. The new streamlined operating model is based on market segments and service areas. The market segments conduct sales to customers and markets that are their responsibility. The service areas develop and deliver Tieto’s products to the customers, are responsible for the efficiency of deliveries and participate in sales. Tieto’s Leadership Team saw some major changes early in the year, as both the President and CEO and the Chief Financial Officer were replaced. This, together with the organisational change, may cause delays in the development of operations and burden profitability in the short term.
RECENT DEVELOPMENTS Thanks to the recovery in the market situation, Tieto’s turnover grew briskly by 8 per cent in the first six months of 2011. Relatively speaking, the volume of hours invoiced increased significantly more than turnover, indicating lower unit prices. Tieto’s hourly rates decreased due to continued stiff competition and agreements signed at lower price levels during the economic downturn. This was partially compensated by lower labour unit costs as the offshoring degree rose to almost 40 per cent by the end of June 2011. Tieto’s financial performance has been modest. Profitability was burdened by non-recurring expenses from the reorganisation of operations, as well
KEY INDICATORS
BREAKDOWN OF TURNOVER
EUR million
Finland
Turnover Operating profit Operating profit, % Net profit Return on equity Return on investment Equity ratio Gearing Earnings per share (EUR) Market value Balance sheet total Number of personnel Profit distribution Profit distribution to Solidium
46%
Sweden
26%
28%
Other countries
SHARE PRICE DEVELOPMENT
1
EUR 40 35 30 25 20 15 10 5 0 6 00 .1.2
SOLIDIUM’S VIEW Tieto’s main focus in the near future will be on enhancing its operations and improving profitability. The Northern European IT services market has begun to grow moderately, which will help improve profitability. Tough competition and price pressures, however, will pose challenges. Tieto will continue to make efforts to boost its competitiveness by utilising its delivery resources in offshoring countries. Thanks to Tieto’s relatively strong balance sheet, growth investments and corporate acquisitions in line with the company’s strategy may be possible in selected markets in the long term. The company has a long-term customer base and a strong market position in the Finnish IT services markets and it has a good competitive edge. In Sweden, Tieto has managed to boost the efficiency of its operations and to slightly strengthen its position. The company’s reorganisation measures have been prolonged in certain markets, negatively affecting the Group’s profitability.
1–6/2011
2010
924 43 4.6 24 10% 15% 46% 26% 0.35 834 1,225 18,071
1,714 110 6.4 85 14% 17% 48% 9% 1.18 1,020 1,241 17,757 50 5
7
00
8
00
.2 1.1
1,706 108 6.3 80 16% 16% 46% 13% 1.13 1,036 1,195 16,663 36
Dividends are indicated under the financial period whose financial statements have been used as the basis for dividend payments.
MAJOR SHAREHOLDERS, 30 JUNE 2011
.2 1.1
2009
9
00
.2 1.1
0
01
.2 1.1
11
.20
1.1
Tieto BE500 Computer service index The development of the sector index has been normalised with reference to the company share.
Solidium Oy Cevian Capital * Swedbank Robur Funds Varma Ilmarinen
Number of shares
Proportion of shares and votes (%)
7,415,418 5,546,191 3,375,093 2,859,749 2,528,367
10.3 7.7 4.7 4.0 3.5
* Based on the situation on 14 March 2011. According to the flagging notice on 15 August 2011, the holding has increased to 10.2 per cent.
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Board of Directors
PEKKA ALA-PIETILÄ, CHAIRMAN
EIJA AILASMAA, VICE CHAIRMAN
JOUNI HAKALA
ANTTI HERLIN
born 1957, M.Sc. (Econ.), D.Sc. (Econ.) h.c., D.Sc. (Tech.) h.c. 2006–2011 Blyk Services Ltd, CEO and Co-founder, 1992‒– 2005 Nokia Corporation, President, Head of Customer and Market Operations and President of Nokia Mobile Phones, 2002‒–present SAP AG, member of the Supervisory Board, 2006‒–present Pöyry PLC, member of the Board
born 1950, M.Sc. (Pol. Sc.) 2003–present Sanoma Magazines B.V., President & CEO, 2001–2003 Sanoma Magazines Finland Ltd, CEO, 2000–2001 Helsinki Media, CEO, 2010–present Outotec Oyj, member of the Board, 2004–present Huhtamäki Oyj, member of the Board
born 1961, LL.M, MBA 2011–present State Secretary, Ministry of Employment and the Economy, 2008–2011 Finnish Industry Investment Ltd, Fund Director, member of Management Group, 2007–2008 Special Adviser to the Minister, Ownership Steering Department, 2005–2007 European Investment Fund, Deputy Head of Equity Investments, 2003–2005 European Investment Bank Group, Adviser to Vice President
born 1956, D.Sc. (Econ.) h.c., D.Arts h.c. 2003–present Kone Corporation, Chairman of the Board, 1996–2006 Kone Corporation, President & CEO, 1996–2003 Kone Corporation, Deputy Chairman of the Board, 1991–present Kone Corporation, member of the Board, 2007–2008 Confederation of Finnish Industries, Chairman, 2005– 2006 Federation of Finnish Technology Industries, Chairman, 1996–present Federation of Finnish Technology Industries, member of the Board, 2004–present YIT Corporation, member of the Board, 2004–present Ilmarinen Mutual Pension Insurance Company, Deputy Chairman of the Supervisory Board
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BOARD OF DIRECTORS
MARKKU HYVÄRINEN
MARKETTA KOKKONEN
ANNI VEPSÄLÄINEN
born 1948, student of natural sciences 1998–2008 Varma Mutual Pension Insurance Company, Vice President, 1996–1998 Pension-Sampo, Managing Director, 1991–1996 The Finnish Social Democratic Party, Secretary General, 2011–present Tectus Series International, member of the Board, 2008–present Tradeka Group, Chairman of the Board, 2003–present Palkansaajasäätiö, Chairman of the Board, 1998–present Finnish Nature Conservation Foundation, member of the Board
born 1946, M.A., D.Sc. (Tech.) h.c., Kaupunkineuvos (honorary title) 1995–2010 City of Espoo, Mayor, 1992–1995 Vihti municipality, Mayor, 1991–1992 Savings Banks service companies, Head of Department, 1988–1990 SKOP, Head of Department, 1986– 1987 Finnish Real Estate Bank, Head of Department, 2005–present FCG Finnish Consulting Group Ltd, member of the Board, 2005–2006 Efeko Oy, Vice Chairman of the Board, 2003–2004 Technopolis Plc, member of the Board, 1996–2001 Municipal Guarantee Board, Chaiman of the Board, 1993–2009 Association of Finnish Local and Regional Authorities, member of the Board
born 1963, M.Sc. (Eng.) 2009–present Diacor Oy, Managing Director, 2006– 2008 HRM Partners Ltd., Managing Director, 2003– 2005 TeliaSonera Finland Oyj, Managing Director, 1987–2003 Sonera Oyj and TeliaSonera Oyj, various management positions, 2011–present State Security Networks Ltd., member of the Board, 2011–present Finn Church Aid, Chairman of the Board, 2010–present Lääkäripalveluyritykset ry (LPY), Chairman of the Board
Pekka Merilampi acts as the secretary to the Board of Directors.
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Personnel
KARI A. J. JÄRVINEN, MANAGING DIRECTOR
NOOMI LEHTOSAARI, EXECUTIVE ASSISTANT
EEVA AHDEKIVI, INVESTMENT DIRECTOR
born 1962, M.Sc. (Eng.), MBA 2003–2007 Mandatum & Co Oy, Managing Director, 1995– 2003 Mandatum Bank Oy and Mandatum & Co Oy, Director, 1992–1995 McKinsey & Company, Consultant, 1987– 1991 Sanoma Group, Development Manager
born 1982, M.Sc. (Pol. Sc.) Previous employment: Ministry of Defence
born 1966, M.Sc. (Econ.) 2007–2009 Ownership Steering Department, Prime Minister’s Office, Senior Financial Analyst, 2004–2006 Pohjola Asset Management Ltd., Director, 1997–2004 Conventum Ltd, Partner, 1988– 1997 Merita Bank/KOP, various positions, 2009–present Tikkurila Oyj, member of the Board, 2008–2009 Patria Plc, member of the Board
36
ANNAREETTA LUMME-TIMONEN, INVESTMENT DIRECTOR born 1967, M.Sc. (Eng.), D.Sc. (Tech.) 2000–2007 3i Nordic plc, Investment Manager, 1997– 2000 SFK Finance Oy, Investment Manager, 1995 & 1997 Visiting Scholar, Wharton Business School, 1995–1996 Kera Oy, Development Manager, 1991–1994 Sitra, the Finnish Innovation Fund, Industry Analyst, 2006–2010 Seed Fund Vera Ltd, member of the Board, 2000–2004 Naps Systems Ltd, member of the Board, 2000–2002 Uniglass Engineering Oy, member of the Board, 1996–2002 MAP Medical Technologies Oy, member of the Board, 2001– 2008 Finnish Venture Capital Association, member of the Board
PERSONNEL
PETTER SÖDERSTRÖM, INVESTMENT DIRECTOR
TIITTA HELSTELÄ, FINANCIAL ASSISTANT
TAPANI VARJAS, CHIEF LEGAL COUNSEL
born 1976, M.Sc. (Econ.) 2008–2009 Leimdörfer Finland Oy, Partner, 2002– 2008 Mandatum & Co Oy, Partner, 2000–2002 PricewaterhouseCoopers Oy, Senior Associate
born 1966, M.Sc. (Econ.) Previous employment: Nokia Corporation, Deutsche Lufthansa AG
born 1970, LL.M 2003–2009 Aventum Partners Ltd, Chief Legal Counsel, 2001– 2003 Mandatum & Co Oy, Chief Legal Counsel, 1998– 2000 Mandatum Bank Oy, Assistant Director, 1997–1998 Mandatum & Co Oy, Analyst, 1996–1997 Law Office Heikki Haapaniemi Oy, Associate
MIKKO HOLOPAINEN, ANALYST
PEKKA TÖLLI, ANALYST
PAULI ANTTILA, ANALYST
born 1978, M.Sc. (Econ.) 2005–2009 Pohjola Corporate Finance Ltd, Analyst, 2003–2005 Deloitte Spain, Junior Analyst
born 1983, M.Sc. (Econ.) 2006–2009 Deloitte Corporate Finance Oy, Associate, 2006 Pöyry Capital Ltd, Summer Analyst
born 1984, M.Sc. (Econ.) 2007–2009 Deloitte Corporate Finance Oy, Associate, 2006 Helsinki School of Economics, Department of Accounting and Finance, various duties
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Corporate governance SOLIDIUM’S CORPORATE GOVERNANCE SYSTEM GENERAL Solidium is a limited company wholly owned by the State of Finland. Its mission is to strengthen and stabilise Finnish ownership in nationally important companies and increase the value of its holdings in the long term.
SOLIDIUM’S MANAGEMENT MODEL
FINNISH GOVERNMENT Operational framework
CABINET COMMITTEE ON ECONOMIC POLICY
MINISTER IN CHARGE
BOARD OF DIRECTORS OF SOLIDIUM OY Operational decision-making
SOLIDIUM OY’S MANAGEMENT Preparation of operations
38
Solidium’s Articles of Association state that the company’s field of operation comprises ownership and management of shares in companies operating in Finland and exercising shareholder rights in them based on its ownership. Solidium invests in companies that are considered to be of national importance. The goal of the company’s activities is to increase shareholder value in the long term and to make economically sound investments. Solidium complies with the Companies Act, the Securities Market Act, other legislation and regulations issued based on them in all of its operations. In accordance with the Companies Act and the Articles of Association, Solidium’s corporate governance has been organised between the Annual General Meeting, the Board of Directors and the Managing Director. In its activities, Solidium complies with the general principles of ownership steering, as confirmed by Government. GENERAL MEETING At Solidium, the highest power of decision is vested in the General Meeting. The Companies Act and Solidium’s Articles of Association contain regulations concerning matters that must be handled by the General Meeting. In addition to the matters belonging to the General Meeting under the Articles of Association and in accordance with the Companies Act, the General Meeting • decides on the principles that the company must follow when disposing of its property or acquiring new shares or other property, and determines the Board of Directors’ authorisations concerning these
•
•
confirms the principles of good corporate governance that the company must comply with when operating as a shareholder of listed companies decides on the company’s reporting obligation and other communications to its owner.
ANNUAL GENERAL MEETING 2010 The 2010 Annual General Meeting of Solidium was held in Helsinki on 27 August 2010. The Annual General Meeting adopted the company’s financial statements for the financial period 1 July 2009 to 30 June 2010 and discharged the members of the Board of Directors and the Managing Director from liability. The General Meeting resolved, in accordance with the proposal of the Board, that a dividend of EUR 356 million be paid for the financial period. It was confirmed that the Board of Directors shall have seven members. The following persons, who gave their consent, were elected to the Board of Directors until the end of the next Annual General Meeting: Chairman Keijo Suila, Vice Chairman Eija Ailasmaa and regular members Jouni Hakala, Antti Herlin, Lauri Ihalainen, Marketta Kokkonen and Anni Vepsäläinen. All of the Board members are independent of the company and its shareholder. Pekka Merilampi shall act as the secretary of the Board of Directors. The Annual General Meeting confirmed that the Chairman of the Board of Directors shall receive a fee of EUR 5,500 per month, the Vice Chairman EUR 3,000 per month and the members EUR 2,500 per month. In addition,
CORPORATE GOVERNANCE
a meeting fee of EUR 600 was confirmed for each meeting. The firm of authorised public accountants KPMG Oy Ab, with APA Sixten Nyman as the principal auditor, was appointed as Solidium Oy’s auditor to serve for a term ending at the end of the next Annual General Meeting. The Annual General Meeting resolved to remunerate the auditors in accordance with their invoice.
•
EXTRAORDINARY GENERAL MEETINGS Solidium held an extraordinary General Meeting in Helsinki on 4 March 2011. The General Meeting elected Pekka Ala-Pietilä as Chairman of the Board of Directors to replace Keijo Suila as from 4 March 2011. Solidium held an extraordinary General Meeting in Helsinki on 19 April 2011. The General Meeting elected Markku Hyvärinen as a member of the Board of Directors to replace Lauri Ihalainen as from 19 April 2011.
•
BOARD OF DIRECTORS The tasks and responsibilities of the Board of Directors are determined in accordance with the Companies Act and the Articles of Association. In accordance with the Companies Act, the Board of Directors is responsible for the proper management of the operations and administration of the company. The Board shall ensure that the company’s accounting and asset management are properly organised. The Board of Directors has approved a charter defining its principles of operation, according to which the Board must attend, among other things, to the following tasks:
•
• •
• • •
deciding on the company’s business strategy, within the limits of the authority granted by the owner deciding on Solidium’s acquisitions or disposals and, in the role of shareholder, on the restructuring of its portfolio companies approving the company’s annual budget being responsible for the appropriate organisation of operations deciding on the capital structure required by the company’s business operations confirming the principles of risk management supervising the company’s solvency, profitability and liquidity electing and discharging the company’s Managing Director and deciding on the terms and conditions of his or her employment relationship
According to the Articles of Association, the Board of Directors consists of a minimum of three and a maximum of eight members. A person who has turned 68 may not be elected to become Chairman, Vice Chairman or a member of the Board. The Board of Directors constitutes a quorum if more than half of its members are present at a meeting. The Board of Directors has appointed a Compensation Committee composed of Keijo Suila (Chairman) (until 4 March 2011), Pekka Ala-Pietilä (Chairman) (from 4 March 2011), Eija Ailasmaa (until 17 June 2011), Markku Hyvärinen (from 17 June 2011) and Jouni Hakala.
The Managing Director participates in the meetings of the Board of Directors as a presenter of agenda items. Solidium’s Chief Legal Counsel is present at the meetings and the other members of the Management Team may participate in the meetings, if necessary, as experts. BOARD WORK 2010–2011 The key areas of the Board’s work included assessing Solidium’s strategy and investment strategy, making decisions on the sale of shares by Solidium, screening possible new investments and analysing potential investments in more detail, making decisions on share acquisitions executed by Solidium, examining corporate responsibility matters in Solidium’s portfolio companies and making decisions required from a shareholder concerning m&a transactions prepared by Solidium’s portfolio companies. The Board of Directors convened ten times during the financial period and the attendance rate of Board members was 96 per cent. The Board of Directors appointed a Compensation Committee during the financial period. The Compensation Committee convened six times during the financial period and the attendance rate of its members was 89 per cent. MANAGING DIRECTOR The Managing Director attends to the day-to-day administration of the company in compliance with the instructions and regulations determined by the Board. The Managing Director shall provide the Board and its members with the information needed for Board work. The Managing Director may adopt
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| ANNUAL REPORT 2011
measures that are uncommon or farreaching in view of the size and quality of the company’s operations only if the Board has granted prior authorisation for such action. The Managing Director of Solidium is Kari Järvinen. MANAGEMENT TEAM The company’s Management Team consists of the Managing Director, the Investment Directors and the Chief Legal Counsel. The company’s Chief Legal Counsel acts as the compliance officer and the person in charge of insider issues. The Chief Legal Counsel participates in monitoring the operations of portfolio companies and in projects concerning potential new investment targets. The company’s Investment Directors monitor designated portfolio companies, report on developments in their strategies, business and financial situation and participate in projects concerning the designated portfolio companies and in analysing new investment targets. In addition, appointed members of the Management Team are responsible for, among other things, the company’s financial administration, financing, investment of cash flows, communications and corporate responsibility issues. SUPERVISION AND RISK MANAGEMENT INTERNAL SUPERVISION The objective of internal supervision is to ensure that the company’s key objectives are achieved; the assessment
40
of the achievement of objectives is largely based on reports obtained from business operations. The Managing Director and the Management Team play a crucial role in generating reports. In the company’s business operations, internal supervision is continuous and forms a part of daily routine, which is used to ensure that operations are in line with the company’s objectives. Internal supervision is carried out using several different methods, such as management, organising operations and organisational culture, identifying and assessing risks, continuous supervision, reporting and communication of information, and monitoring and audits. Internal supervision procedures are directed at all crucial operations and cover all crucial processes and even individual tasks. The scope and nature of the company’s operations are taken into consideration when defining the procedures. The Board of Directors of Solidium is responsible for organising and maintaining adequate and well-functioning internal supervision. The company’s Board of Directors makes sure that internal supervision functions well and is adequate and, based on observations obtained through internal supervision, makes sure that the principles concerning the organisation of operations are met and that control within the company is functioning well. As part of the organisation of internal supervision and risk management, the company’s Board of Directors regularly monitors the company’s operational result, the value performance of investments and risks arising
from the company’s operations, and decides on reporting, procedures and benchmarks measuring quality and quantity, with which the efficiency and profitability of operations are measured. The Board of Directors is also responsible for ensuring the liquidity and funding necessary for the company’s operations. The company’s Board of Directors, Managing Director and Management Team are assisted by external auditors in ensuring that internal supervision is adequate and, in particular, that financial information is correct. RISK MANAGEMENT The company’s internal and external risks that may adversely impact the achievement of business objectives are identified and assessed on a regular basis. Risk management identifies the threats and opportunities that affect the implementation of strategy. The objective of risk management is to support the achievement of objectives set in strategy by making sure that the risks taken are proportionate to the company’s risk-bearing capacity and that the continuity of operations has been adequately ensured. The Chief Legal Counsel, who is responsible for ensuring that regulations are met, works as part of the risk management function. The Chief Legal Counsel’s task is to assist the company’s Board of Directors and active management in managing the risk of non-compliance with regulations. The company does not have a separate internal supervision and risk
CORPORATE GOVERNANCE
management organisation that is independent of business operations. In cooperation with the Chairman of the company’s Board of Directors, the Managing Director and the Investment Directors, the company’s Chief Legal Counsel organises the monitoring of the company’s operational and financial objectives, makes sure that management information is correct and internal regulations are followed, and identifies and assesses key risks related to business operations. EXTERNAL SUPERVISION According to Solidium’s Articles of Association, the Annual General Meeting must elect one auditor for inspecting the company’s accounting, financial statements and corporate governance, and the auditor must be a firm of authorised public accountants certified by the Central Chamber of Commerce of Finland. The term of the auditor shall expire at the end of the Annual General Meeting following the election. The auditors’ task is to inspect the company’s accounting, financial statements and corporate governance in order to ensure that the operations of the company and its administrative bodies comply with the law, and that financial statements have been prepared in accordance with valid rules and regulations and provide shareholders and other stakeholders with sufficient information on the result of the company’s operations and the company’s financial position. The auditors annually supply the Annual General Meeting with an
auditor’s report, in which they provide a statement on the content of the financial statements, the proposal for the distribution of profits and the discharge from liability. In addition, the auditors prepare audit memos based on their observations. If necessary, the auditors may provide oral reports at meetings of the Board of Directors and General Meetings. INTERNAL AUDIT Taking into account the scope of the company’s business operations, the company does not have a separate internal audit function. INSIDER ADMINISTRATION Solidium complies with the insider and trading guidelines approved by the company’s Board of Directors. All securities transactions carried out by personnel require permission. Shares owned by the personnel are recorded in a permanent non-public insider register. The company keeps separate nonpublic project-specific registers for projects that contain insider information. REMUNERATION Solidium complies with the valid statement made by the Cabinet Committee on Economic Policy concerning the remuneration and pension benefits of management in state-owned companies. The General Meeting decides on the remuneration paid to the Board of Directors. The fee paid to the Chairman and members of the Board of Directors
consists of a fixed monthly salary and meeting fees, which are paid in cash. The Board of Directors decides on the remuneration and other terms and conditions of the employment relationship of the Managing Director. The remuneration of the Managing Director consists of a fixed monthly salary and a performance bonus of a maximum of 40 per cent of the fixed salary paid during the year of evaluation. The retirement age of the Managing Director is 63 years. The Managing Director has a defined contribution supplementary pension equivalent to 30.3 per cent of the Managing Director’s annual remuneration. The Managing Director has a period of notice of nine months on the company’s part and six months on the Managing Director’s part and, in the event that he or she is discharged by the company, is entitled to a severance payment equal to the total salary for 12 months. The Board of Directors decides on the remuneration of the Management Team. The remuneration of the Management Team (excluding the Managing Director) consists of a fixed monthly salary and an annual performance bonus of a maximum of 40 per cent of the fixed salary paid during the year of evaluation. The remuneration of other Solidium personnel consists of a fixed monthly salary and an annual performance bonus of a maximum of 40 per cent of the fixed salary paid during the year of evaluation.
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Corporate responsibility Corporate responsibility refers to a company’s responsibility for the effects of its operations on the surrounding society, environment and stakeholders. Corporate responsibility is often divided into three areas: financial, social and environmental responsibility. From the owner’s and investor’s point of view, sound corporate governance is also an important part of corporate responsibility. SOLIDIUM’S POLICY ON CORPORATE RESPONSIBILITY AS AN OWNER Solidium believes that a high-quality corporate responsibility policy is one of the prerequisites for running successful business operations and generating long-term financial value. Good management of corporate responsibility issues provides efficient risk management. The corporate responsibility standpoint can also open attractive business opportunities for companies. It is important to Solidium that the companies in which it has a holding bear a financial, environmental and social responsibility within their own operating environments. SOLIDIUM’S CORPORATE RESPONSIBILITY VISION Solidium’s vision is to be a progressive, professional and responsible owner that implements corporate responsibility on a long-term basis and in a way that enhances value. Solidium wishes to develop its know-how in and attitude towards corporate responsibility issues to a level that is appreciated by its stakeholders. FOCUSES OF SOLIDIUM’S CORPORATE RESPONSIBILITY WORK Solidium’s corporate responsibility work is divided into two main points of view: Solidium as an owner and investor and Solidium as a company and employer.
FOCUSES OF SOLIDIUM’S CORPORATE RESPONSIBILITY WORK AS AN OWNER AND INVESTOR: 1
Obligation to be informed – as an owner and investor, Solidium identifies and manages corporate responsibility issues related to its investment activities
2
As an owner, Solidium identifies and defines the material corporate responsibility issues of its portfolio companies
3
As an active owner, Solidium influences the corporate responsibility issues of its portfolio companies in such a way that their corporate responsibility work generates value for Solidium as an owner
4
Solidium promotes the role of responsible ownership in corporate responsibility issues
FOCUSES OF SOLIDIUM’S CORPORATE RESPONSIBILITY WORK AS A COMPANY AND EMPLOYER: 1
Solidium's corporate responsibility follows an integrated operating model in which corporate responsibility issues have been included in the company's normal operations
2
Solidium identifies and analyses the expectations of its key stakeholders
3
Solidium reports on its corporate responsibility issues regularly both as an owner and as a company
4
Solidium pays attention to the corporate responsibility of service providers and partners in cooperation
5
Solidium is a responsible employer that attends to the well-being of its personnel
CORPORATE RESPONSIBILITY
SOLIDIUM’S OPERATING METHOD IN CORPORATE RESPONSIBILITY ISSUES Solidium attends to its corporate responsibility in the same way as it does to its other strategic ownership work, i.e. by working with a long-term view, as an active owner and in cooperation with other owners. Using the means of active ownership, Solidium strives to express its view as a shareholder and to influence the corporate responsibility affairs of its portfolio companies. This is done in cooperation with other shareholders, utilising suitable and effective channels. To support its views, Solidium conducts independent analyses of the companies’ corporate responsibility issues and their background. Solidium examines and monitors the importance of its portfolio companies’
corporate responsibility issues from the standpoint of risks and business opportunities. Solidium also assesses the handling and management of corporate responsibility by its portfolio companies. As a general rule, Solidium’s portfolio companies are responsible companies. Several of them have been recognised for their corporate responsibility work, which was among the best in their sector, and have performed well on the equity indexes of responsible companies. MANAGEMENT OF CORPORATE RESPONSIBILITY MATTERS Solidium’s Board of Directors is responsible for corporate responsibility. The Managing Director, together with the Management Team, is in charge of corporate responsibility work. The
company’s personnel, each in their own capacity, are responsible for the practical implementation. The Investment Directors and Analysts review the corporate responsibility matters of the portfolio companies for which they are responsible. Solidium’s entire personnel have participated in the planning of the company’s corporate responsibility work. SOLIDIUM’S REPORTING ON CORPORATE RESPONSIBILITY WORK Solidium reports on the progress of its corporate responsibility work in its Annual Reports and on its website. Corporate responsibility reporting will be done from the owner’s standpoint, in a manner suited to the owner’s role.
SOLIDIUM’S OPERATING METHOD IN CORPORATE RESPONSIBILITY issues
INTEGRATED OPERATING MODEL
DIALOGUE
SOUND CORPORATE GOVERNANCE
• Corporate responsibility issues have been included as part of Solidium’s normal operations. • In the management of the investment portfolio, corporate responsibility issues form a crucial examination and analysis point of view.
• Solidium aims towards extensive and active dialogue with various stakeholders. • The corporate responsibility issues of the portfolio companies are managed interactively with the companies.
• Solidium complies with legislation and sound corporate governance when evaluating the corporate responsibility issues of its portfolio companies. • The objective of the listed companies in which Solidium has a holding is to operate in a financially profitable manner, and therefore they cannot be expected to bear a different set of social obligations from other companies.
ACKNOWLEDGING DIFFERENCES BETWEEN COMPANIES
HAVING AN INFLUENCE
WORKING WITH A LONG-TERM VIEW
• Solidium strives to influence the corporate responsibility issues of its portfolio companies using the means available to an active owner. • This is done in cooperation with other shareholders, utilising suitable and effective channels. • Solidium is the largest or one of the largest shareholders of its portfolio companies, and therefore it has a good opportunity to have its views regarding corporate responsibility issues heard. • However, in all of its portfolio companies, Solidium is a minority shareholder whose views are the views of a single investor.
• Since Solidium is a long-term investor, it is not typical for it to dispose of its ownership due to potential corporate responsibility challenges facing its portfolio companies. Instead, Solidium strives to utilise the means available to an active owner to influence corporate responsibility issues. • With regards to potential new investment targets, Solidium evaluates the importance of corporate responsibility issues and the level of their management as part of its preparation for an investment decision.
• Each portfolio company is assessed from the point of view of its sector and its geographical operating environment. • Several of Solidium’s portfolio companies are major companies with international operations, the corporate responsibility issues of which are extensive and multi-faceted.
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STAGES OF SOLIDIUM’S CORPORATE RESPONSIBILITY WORK Solidium started its corporate responsibility work during its first full financial period of 2009–2010. At that point, the focuses and content of corporate responsibility work were defined and the key corporate responsibility issues of the portfolio companies were identified. Solidium also prepared a background study on the best corporate responsibility practices in its operating
environment and reference group to form the basis for its own work. During the 2010–2011 financial period, Solidium expanded and furthered its corporate responsibility work in many areas, the most important of which were the preparation of materiality analyses on the portfolio companies and starting work with stakeholders. Solidium also prepared an action plan for corporate responsibility work for the years 2011–2013. The
action plan covers all the focus areas of Solidium’s corporate responsibility programme, defining the target measures, implementation, timetable and responsible party for each area. The key corporate responsibility measures carried out during the 2010– 2011 financial period and planned for 2011–2012 are presented in the table below, grouped according to their focus.
MEASURES AS AN OWNER AND INVESTOR
CORPORATE RESPONSIBILITY MEASURES CARRIED OUT DURING THE FINANCIAL PERIOD AND PLANNED FOR THE NEXT FINANCIAL PERIOD Measures carried out in the 2010–2011 financial period
Key planned measures for the 2011–2012 financial period
Solidium carried out a materiality analysis of all the companies in which it has a holding (CASE 1).
Solidium will expand the materiality analyses of the portfolio companies and strengthen its own vision.
Towards the end of the financial period, Solidium began to participate in public debate about corporate responsibility issues. Solidium's views on the role of a responsible owner were also presented during meetings with the media.
Dialogue on corporate responsibility between Solidium and the portfolio companies will be developed; the corporate responsibility viewpoint will be emphasised during meetings with the Chairmen of the companies' Boards.
Solidium organised a stakeholder meeting in which its views on corporate responsibility as an owner were presented to the corporate responsibility directors of the portfolio companies.
Solidium will continue to hold stakeholder meetings with the corporate responsibility directors of its portfolio companies.
Solidium participated in corporate responsibility expert and networking events and held discussions with corporate responsibility experts.
Solidium will participate in corporate responsibility expert and networking events, and projects promoting the role of a responsible owner and investor.
Corporate responsibility information sources were charted. Corporate responsibility themes in Solidium's Business Intelligence system were updated.
Solidium will develop its own approach in corporate responsibility issues by expanding its view on other investors' and owners' corporate responsibility work and operating methods.
Solidium defined its ownership policy in corporate responsibility.
MEASURES AS A COMPANY AND EMPLOYER
Solidium was accepted as a member of Finland’s Sustainable Investment Forum FINSIF ry. Solidium created and introduced an integrated operating model for corporate responsibility issues. Solidium prepared an extensive corporate responsibility action plan for the years 2011–2013.
Stakeholder meetings will be expanded and deepened.
Solidium identified its key stakeholders and assessed their expectations towards Solidium's corporate responsibility work.
Solidium will develop a systematic operating model for continuous interaction with stakeholders.
Solidium's first stakeholder meeting with the corporate responsibility directors of the portfolio companies was held. The event charted the portfolio companies' expectations towards Solidium's corporate responsibility work (CASE 2).
Solidium's will continue to develop its own materiality analysis.
Solidium started an materiality analysis concerning its own operations. The company prepared a survey with which it could identify the key expectations of stakeholders concerning Solidium's business operations. The survey was sent to the portfolio companies' directors of corporate responsibility and Solidium's personnel (CASE 3).
Solidium will assess key corporate responsibility programmes and their usefulness from the point of view of its own operations.
Corporate responsibility was updated into Solidium's corporate governance system.
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CORPORATE RESPONSIBILITY
CASE 1 Materiality analysis of the portfolio companies WHAT: • The objective of the materiality analysis was to create a consistent, common and continuous operating model for identifying and assessing the essential corporate responsibility issues of Solidium’s portfolio companies. • The analysis examined the portfolio companies’ corporate responsibility affairs as part of their business operations, i.e. from the standpoint of risks and opportunities. The materiality of corporate responsibility issues was assessed and their development and effects were compared between the portfolio companies and in relation to comparable companies. • The analysis enhanced Solidium’s competence and increased the company’s vision in the corporate responsibility affairs of its portfolio companies. • The materiality analysis forms one of the crucial points of view in assessing the operations of the portfolio companies.
HOW: • Investment teams made the materiality analyses based on material published by the companies, material from comparable companies and corporate responsibility material concerning the companies’ sectors. • The analyses employed several points of view: the views of management and the boards, other assessments made by the companies themselves and reporting from the sectors and comparable companies. • Using mutual discussions and comparisons between the investment teams, Solidium formed its view on the materiality of each portfolio company’s corporate responsibility issues, any operational risks and opportunities related to them and the governance and performance level of corporate responsibility work. WHAT NEXT: • The materiality analysis will be deepened and updated regularly. • The results of the analysis will be used in interaction with the portfolio companies. Solidium strives to influence the corporate responsibility issues of its portfolio companies using the means available to an active owner.
1. Identifying material corporate responsibility themes
2. Assessing major operational risks and opportunities related to material corporate responsibility themes
3. Assessing the level of governance and performance related to material corporate responsibility themes
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CASE 2 Stakeholder meeting with the corporate responsibility directors of the portfolio companies
WHAT: • Solidium organised its first stakeholder event for the corporate responsibility directors of its portfolio companies in May 2011. • At the event, Solidium discussed its role in corporate responsibility issues as an owner and investor, charted the portfolio companies’ expectations towards Solidium’s corporate responsibility work and presented Solidium’s ways of working. Eight of Solidium’s ten portfolio companies at the time participated in the event. • All portfolio companies were sent a materiality survey in advance, which was answered by nine of the ten companies. The survey’s results were used as a basis for discussion. FEEDBACK RECEIVED FROM THE CORPORATE RESPONSIBILITY DIRECTORS: • An owner’s voice and influence is important. An owner should voice its opinions in corporate responsibility issues, as its task is to pressure the boards of the companies in which it has a holding and strengthen management’s commitment to corporate responsibility. The role of an active investor and owner is to follow corporate responsibility issues and initiate discussions on them regularly.
46
•
•
•
An owner should clearly express its expectations concerning corporate responsibility to the companies. This applies to the owner’s own focus on corporate responsibility objectives and its desired information needs. It is important that Solidium maintain active dialogue with stakeholders. Corporate responsibility presents great business opportunities, giving companies the chance to become stronger. An owner with a long-term agenda can benefit considerably from the corporate responsibility of its companies. Solidium should also maintain a focus on its own corporate responsibility affairs. Clear objectives for Solidium’s own corporate responsibility and strong ability to meet the expectations placed on the portfolio companies are key focuses of Solidium’s corporate responsibility work.
WHAT NEXT: • Feedback from the stakeholder event will be utilised for developing Solidium’s corporate responsibility work. • Dialogue will continue, with the next stakeholder event for the corporate responsibility experts of the portfolio companies to be held during the 2011–2012 financial period.
CORPORATE RESPONSIBILITY
CASE 3 First results of Solidium’s own materiality analysis
Solidium started an materiality analysis of its own business operations in spring 2011 by creating and conducting a materiality survey. The survey follows the structure of Solidium’s corporate responsibility action plan. Its objective is to collect the views of Solidium’s internal and external stakeholders on the importance of different corporate responsibility themes. The importance survey covered 8 subjects, with 36 statements and 9 open questions. The statements were evaluated on a scale of 1 to 5 (1 = not important, 5 = extremely important). Responses were collected from Solidium’s personnel and the corporate responsibility directors of Solidium’s portfolio companies through an online Webropol survey. Solidium received ten responses from its own personnel and nine responses from the corporate responsibility directors of the portfolio companies. The sample is small but extensive among the survey’s target groups. The results of the materiality survey will strengthen the selection of focus areas for Solidium’s corporate responsibility programme. The results highlight the corporate responsibility measures related to Solidium’s role as an investor – identifying and managing the portfolio companies’ corporate responsibility issues. The publication of Solidium’s principles of responsible
investment operations is considered important. The representatives of the portfolio companies also expect a clear indication of the owner’s expectations, even though setting a concrete level of demands for corporate responsibility in the portfolio companies is not completely straightforward. The importance of dialogue with key stakeholders on corporate responsibility issues was emphasised. Responsibility in personnel practices was singled out as the most important of Solidium’s corporate responsibility issues. Solidium’s most important corporate responsibility issues are presented in the illustration below, based on the survey. The materiality analysis of Solidium’s own business operations provides the first outline of the topic and is based on a relatively small number of responses. Solidium’s objective is to find out in more detail about the views and expectations of its external stakeholders concerning corporate responsibility matters. Solidium’s own materiality analysis provides a basis for understanding key corporate responsibility expectations and defining the action plan’s focus areas. Even though the results at this point are only indicative, they are useful for prioritisation purposes.
SOLIDIUM’S MATERIALITY MATRIX 5.
Importance to portfolio companies (corporate responsibility experts)
4.
20 26
3.
29 3130
2.
22 28 21 272523
10 6 11 9 7 18 191615 1312 8 17 14
4 5
2 3
1
24
1.
1.
2.
3.
Importance to Solidium (personnel) SUBJECTS OF THE QUESTIONS Principles of responsible investment Active ownership Corporate responsibility at the portfolio companies Promoting the role of responsible owner Stakeholder interaction Solidium's own corporate responsibility Solidium's corporate responsibility reporting Responsibility at Solidium's partners
4.
5.
1. Solidium identifies key corporate responsibility questions concerning its portfolio companies 2. Solidium pays particular attention to the sound corporate governance of its portfolio companies 3. Solidium defines its principles concerning responsible investment activities 4. As an employer, Solidium pays particular attention to responsible personnel practices 5. Solidium maintains regular dialogue with its key stakeholders 6. Solidium pays particular attention to its portfolio companies’ environmental responsibility 7. Solidium has defined the corporate responsibility operating principles concerning its own operations 8. Solidium strives to find out the expectations of its key stakeholders with regards to corporate responsibility matters 9. Solidium has a view on the operational risks related to the corporate responsibility matters of its portfolio companies 10. Solidium pays particular attention to its portfolio companies’ financial responsibility 11. Solidium publishes its principles concerning responsible investment activities 12. Solidium has a view on the level of management of corporate responsibility matters at its portfolio companies
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Financial statements 2010–2011 Report of the Board of Directors for the period 1 July 2010–30 June 2011 Solidium Oy owns and manages shares in companies operating in Finland and exercises shareholder rights in them based on its ownership. Solidium invests in companies that are considered to be of national importance. The goal of the company’s activities is to increase shareholder value in the long term and to make economically sound investments. The focus during Solidium’s third financial period was on implementing strategy through the acquisition and sale of shares, managing existing holdings, examining new investments and examining projects of the portfolio companies. Solidium is wholly-owned by the State of Finland.
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During the financial period, Solidium sold shares to the value of EUR 427 million and acquired shares for about EUR 63 million. On 16 November 2010, Solidium sold 53 million Sponda Plc shares, corresponding to approximately 19 per cent of the outstanding shares, in an accelerated bookbuilt offering. The execution price was 3.33 euros per share. Solidium invested EUR 71 million in Sponda’s share issue in June 2009 and, through the sale, realised some of the increase in the value of Sponda’s shares following the share issue. A significant portion of the shares placed in the offering were purchased by Ilmarinen Mutual Pension Insurance Company
REPORT OF THE BOARD OF DIRECTORS
and Varma Mutual Pension Insurance Company, with the remainder being placed with institutional investors in Finland and internationally. Gross sales proceeds of the offering amounted to approximately EUR 176 million, representing a pre-tax capital gain for Solidium of approximately EUR 79 million. As a consequence of the sale, Solidium’s holding in Sponda decreased from 34 per cent to 15 per cent of the outstanding shares, but Solidium remains the largest shareholder in Sponda. On 25 November 2010, Solidium sold its entire holding in Tikkurila Plc in an accelerated bookbuilt offering. Tikkurila as an independently listed company was not considered of national importance and therefore did not fulfil Solidium’s investment criteria. Before the disposal, Solidium owned 6,474,021 shares in Tikkurila, corresponding to 14.7 per cent of the outstanding shares. The execution price was EUR 15.10 per share and gross sales proceeds from the offering amounted to approximately EUR 98 million. Finnish institutional investors acquired 74 per cent of the shares, and international institutional investors acquired 24 per cent. Ilmarinen Mutual Pension Insurance Company and Oras Invest were the key investors in the shares offered. Solidium received the Tikkurila shares in March 2010 when Kemira distributed 86 per cent of Tikkurila’s shares to Kemira shareholders in order to facilitate the spin-off and stock exchange listing of the paints manufacturer. Solidium reported a capital loss of EUR 5 million on the sale, since Solidium received the Tikkurila shares as a dividend from Kemira at a book value of EUR 15.80 per share. The strong cash flow and the expected potential corporate acquisitions of TeliaSonera enabled the company to make a capital repayment of approximately EUR 1.1 billion to its shareholders through a share repurchase offer in April 2011, in addition to the payment of a cash dividend. Solidium exercised its pro rata entitlement in TeliaSonera’s share repurchase offer in full by selling 22,004,579 shares to the company. The execution price was EUR 6.93 per share. Sales proceeds amounted to approximately EUR 152 million and Solidium’s pre-tax capital gain was approximately EUR 75 million. Solidium’s holding in TeliaSonera (13.7 per cent) did not change as a result of the sale, since TeliaSonera cancelled all the shares it acquired through the purchase offer. Solidium acquired 4.3 per cent of Talvivaara Mining Company Plc’s shares from Outokumpu Mining Oy in June 2011 for approximately EUR 60 million (EUR 5.71 per share). According to Solidium’s view, Talvivaara is a good investment in the long term, and well-suited to Solidium. Solidium believes that the Finnish mining cluster will enjoy a positive trend in the future, with Finland having the opportunity to become the leading mining country in Europe. Solidium is already involved in the sector through its holdings in Outokumpu and Metso and, by investing in Talvivaara, Solidium will further reinforce its outlook in the mining industry and its associated sectors. Solidium increased its holding in Elisa Corporation to 10.1 per cent by acquiring 170,000 shares from the market in November 2010. The shares were acquired for a total price of EUR 2.7 million, with the average share price amounting to EUR 15.64.
At the close of the financial period on 30 June 2011, Solidium held shares in eleven listed companies: Elisa Corporation, Kemira Oyj, Metso Corporation, Outokumpu Oyj, Rautaruukki Corporation, Sampo plc, Sponda Plc, Stora Enso Oyj, Talvivaara Mining Company Plc, TeliaSonera AB and Tieto Corporation. During the financial period, Solidium received EUR 422 million in profits distributed by the companies in which it owns shares (1 July 2009–30 June 2010: EUR 458 million, of which EUR 102 million was dividends paid in the form of Tikkurila shares). During the financial period, the Chairman of the Board of Directors and the Managing Director of Solidium participated, as part of the nomination committees, in the preparation of proposals concerning the members of the Boards of nine companies and their remuneration. A total of 8 new members were elected to the Boards of companies in which Solidium owns shares (excluding Talvivaara) in spring 2011, of whom 4 were women (50 per cent). Solidium’s investments are equity investments and money market investments. At the close of the financial period, the market value of the equity investments was EUR 8,364 million and the value of money market investments was EUR 780 million. Solidium’s investments yielded 15.1 per cent over the period. Equity investments yielded 15.1 per cent, compared to a rise of 16.1 per cent in the OMX Helsinki Cap GI index. Money market investments yielded 0.8 per cent. The company’s net asset value increased by 9 per cent during the financial period, from EUR 7,715 million to EUR 8,381 million, despite the payment of a dividend of EUR 356 million. Capital gains on the sale of shares amounted to EUR 154.0 million and capital losses to EUR 5.3 million. The management cost ratio, which indicates the cost-efficiency of operations, remained low, amounting to 0.06 per cent (0.05 per cent). Personnel expenses amounted to EUR 2.2 million (EUR 2.1 million). The biggest items in other operating expenses, which amounted to EUR 2.6 million (EUR 1.5 million), were administration expenses and costs for facilities. The company’s operating profit was EUR 143.9 million (EUR -3.7 million). Financial income, which totalled EUR 425.0 million (EUR 401.9 million), mainly consisted of dividend income (EUR 422.1 million) and interest income from money market investments (EUR 2.6 million). Financial expenses, totalling EUR 1.1 million (EUR 0.9 million), consisted of fees related to the EUR 300 million revolving credit facility agreement. Taxes for the period totalled EUR 36.8 million (EUR 0 million) and profit for the period was EUR 531.0 million (EUR 397.3 million). The Tax Administration has ruled that the shares owned by Solidium are considered inventories as defined by Section 10 of the Business Income Tax Act, but in Solidium’s view, the shares owned by it should, for taxation purposes, be classified as fixed assets in accordance with Section 12 of the same Act. Solidium will appeal the Tax Administration’s ruling since this asset type classification will have a crucial effect on the tax treatment of capital gains. The largest item in Solidium’s non-current assets is the equity portfolio, with a cost of acquisition totalling EUR 5,569 million (EUR 5,782 million). Investments, totalling EUR 63 million (EUR 151 million), consisted mainly of share acquisitions. At the end of the financial period, Solidium’s 49
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liquid assets were EUR 780 million (EUR 358 million) and the balance sheet total was EUR 6,350 million (EUR 6,141 million). The period-end equity ratio was 99 per cent (100 per cent) and liquidity was excellent, taking into account the liquid assets of EUR 780 million, the EUR 300 million revolving credit facility and the EUR 300 million commercial paper programme. Solidium renewed its EUR 300 million unsecured revolving credit facility agreement on 30 November 2010. The facility is a committed credit line for general corporate purposes and is a back-up facility for the commercial paper programme. The facility is a one-year arrangement with a one-year extension option subject to agreements between the parties. The size of Solidium’s commercial paper programme is EUR 300 million. The programme permits the company to issue commercial papers with a maturity of less than one year. These financing arrangements enable the company to ensure, in line with its treasury policy, that it has sufficient financial instruments at its disposal for its potential capital requirements. The capital structure of Solidium may be complemented by other financial instruments in the future. At the end of the financial period on 30 June 2011, the revolving credit facility was unused and there were no commercial papers outstanding. The Annual General Meeting of Solidium was held in Helsinki on 27 August 2010. The Annual General Meeting adopted the company’s financial statements for the financial period 1 July 2009 to 30 June 2010 and discharged the members of the Board of Directors and the Managing Director from liability. The General Meeting resolved, in accordance with the proposal of the Board, that a dividend of EUR 356 million be paid for the financial period. The members of the Board of Directors and their remuneration were confirmed. The firm of authorised public accountants KPMG Oy Ab, with APA Sixten Nyman as the principal auditor, was appointed as the company’s auditor to serve for a term ending at the end of the next Annual General Meeting. The Annual General Meeting resolved to remunerate the auditors in accordance with their invoice. Solidium held an extraordinary General Meeting in Helsinki on 4 March 2011. The General Meeting elected Pekka Ala-Pietilä as Chairman of Solidium Oy’s Board of Directors to replace Keijo Suila. Solidium held a second extraordinary General Meeting in Helsinki on 19 April 2011. The General Meeting elected Markku Hyvärinen as a member of Solidium Oy’s Board of Directors to replace Lauri Ihalainen. BOARD OF DIRECTORS The Chairman of the Board of Directors until 4 March 2011 was Mr Keijo Suila, born 1945, and from 4 March 2011, Mr Pekka Ala-Pietilä, M.Sc. (Econ.), born 1957. The Board of Directors consisted of the Vice Chairman, Eija Ailasmaa (b. 1950), as well as regular members Jouni Hakala (b. 1961), Antti Herlin (b. 1956), Marketta Kokkonen (b. 1946), Anni Vepsäläinen (b. 1963), Lauri Ihalainen until 19 April 2011 (b. 1947) and Markku Hyvärinen from 19 April 2011 (b. 1948). All of the Board members are independent of the company and the shareholder. The Board members do not hold company shares, and the company has not adopted any option schemes. 50
The monthly salary of the Board’s Chairman is EUR 5,500, that of the Vice Chairman is EUR 3,000, and that of the regular members is EUR 2,500, in addition to which a meeting fee of EUR 600 is paid for every meeting attended. The monthly salaries and meeting fees paid to the members of Solidium’s Board of Directors totalled EUR 312,092 (EUR 303,000). The Board convened 10 times (10 times) during the financial period and the attendance rate of its members was 96 per cent (96 per cent). Solidium’s Board of Directors has a written charter. It complements the Board’s duties as set forth in the Companies Act and in the Articles of Association by specifying that Solidium’s Board decides on the company’s business strategy within the limits of the authority granted by the owner, decides on share acquisitions and disposals, and confirms the principles of risk management. The charter contains procedural guidelines for meeting preparations, documentation and regularly handled matters. During the financial period, the Board of Directors appointed a Compensation Committee composed of Keijo Suila (Chairman) (until 4 March 2011), Pekka Ala-Pietilä (Chairman) (from 4 March 2011), Eija Ailasmaa (until 17 June 2011), Jouni Hakala and Markku Hyvärinen (from 17 June 2011). The Compensation Committee convened six times during the financial period and the attendance rate of its members was 89 per cent. Solidium Oy complies with the Corporate Governance Code for Finnish listed companies, with certain exceptions due to the nature of the company’s business and ownership structure. PERSONNEL The Managing Director of Solidium is Kari Järvinen, M.Sc. (Eng.), MBA (b. 1962). The Managing Director does not own any company shares or options. During the financial period, the salaries (including fringe benefits) paid to the Managing Director were EUR 345,745 (EUR 338,820), and the performance bonuses paid for the previous financial period were EUR 47,500 (EUR 26,500), totalling EUR 393,245 (EUR 365,320). The performance bonuses of the Managing Director for the period amounted to EUR 69,000 (EUR 47,500), which will be paid after the close of the financial period. The Managing Director has a defined-contribution supplementary pension and may retire at the age of 63. The supplementary pension is equivalent to 30.3 per cent of the Managing Director’s annual remuneration. The expenses of the supplementary pension amounted to EUR 125,668 (EUR 124,084). The Managing Director has a 9-month period of notice and is entitled to a severance payment equal to the total salary for 12 months. Solidium had an average of 11 permanent employees in the financial period and 10 permanent employees at the end of the period. ASSESSMENT OF KEY RISKS AND SOURCES OF UNCERTAINTY The key strategic risks and business risks related to Solidium’s operations consist of fluctuations in market values, which significantly influence changes in the values of the company’s investments and the company’s profits, the availability of
REPORT OF THE BOARD OF DIRECTORS
financing and the achievement of long-term business objectives. Strategic and business risks may also arise from the selection of a wrong strategy, from deficient management and monitoring, or from slow reaction to changes taking place in the market situation and the operating environment. The most significant business risks affecting the company’s operations consist of equity, interest rate, currency and liquidity risks related to investment operations. These marketrelated risks may have a significant impact on the company’s profits and the values of the shares owned by the company as a result of changes in market prices (interest rates, currency exchange rates, share prices, credit risk margins) or changes in price fluctuations. As a general rule, the company does not hedge its equity investments with derivatives or other instruments. The key operational risks are related to deficiencies or errors in the functioning of internal processes and systems, actions of persons or events external to the company, which may cause direct or indirect losses to the company. The company may experience direct or indirect losses due to a counterparty risk, i.e. due to the fact that the company’s contractual parties are not able to fulfil their agreed obligations and the collateral received does not cover the company’s receivables. The counterparty risk also includes the country and clearing risk.
SOLIDIUM OY’S KEY FIGURES Operating profit, EUR million Pre-tax profit, EUR million Profit for the period, EUR million Return on equity, % Return on investment, % Return on investment at fair values, % Management cost ratio of operations, % Shareholders’ equity, EUR million Net asset value, EUR million Interest-bearing liabilities, EUR million Equity ratio, % Proposed dividend, EUR million Average number of employees
INTERNAL SUPERVISION AND RISK MANAGEMENT The principles of the company’s internal supervision and risk management are further detailed in the Corporate Governance section on pages 38–41 of the Annual Report. PROPOSED DIVIDEND The distributable unrestricted equity detailed in the financial statements totals EUR 5,980,340,656, including EUR 531,024,547 in profit for the financial period. The Board of Directors proposes that a dividend of EUR 330,000 per share, or a total of EUR 660,000,000 (EUR 356,000,000), be paid for the financial period. EVENTS AFTER THE FINANCIAL PERIOD No significant events have taken place in the company’s operations since the end of the financial period. OUTLOOK Dividend income and proceeds from possible disposals make up the majority of Solidium’s profits. Solidium’s dividend income is expected to be on the same level as or to increase slightly over the financial period 1 July 2010–30 June 2011, when dividend income amounted to EUR 422 million.
1 July 2010–30 June 2011
1 July 2009–30 June 2010
1 May 2009–30 June 2009
143.9 567.8 531.0 8.5 9.1 15.1 0.06 6,311.8 8,380.7 0.0 99.4 660.0 11
-3.7 397.3 397.3 6.7 6.7 34.6 0.05 6,136.8 7,714.8 0.0 99.9 356.0 11
-1.1 -0.7 -0.7 0.0 0.0 1.1 0.11 5,739.5 6,041.6 0.0 100.0 0 7
CALCULATION OF KEY FIGURES Return on equity =
Return on investment =
Profit for the period Shareholders’ equity (average of opening and closing balance)
Pre-tax profit + interest expenses and other financial expenses Balance sheet total – non-interest-bearing liabilities (average of opening and closing balance)
Management cost Personnel expenses + depreciations and impairments + other operating expenses ratio of operations = Net asset value (average of opening and closing balance) Net asset value = Equity ratio =
Assets – liabilities Publicly listed equities and investment funds have been valued at their last trading price, taking into account deferred tax liabilities, and other balance sheet items have been valued at their carrying amount. Shareholders’ equity Balance sheet total – prepayments received
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Income statement Note
1 July 2010–30 June 2011
1 July 2009–30 June 2010
Other operating income
1
148,684,928
78
Personnel expenses Depreciation and impairment Other operating expenses
2
-2,182,989 -84,382 -2,553,892
-2,050,851 -93,764 -1,520,999
143,863,665
-3,665,535
423,923,412
400,983,075
PROFIT (LOSS) BEFORE TAX
567,787,077
397,317,540
Income tax
-36,762,531
0
531,024,547
397,317,540
Note
30 June 2011
30 June 2010
5 6 7
66,820 197,487 5,569,129,207 5,569,393,514
88,251 244,904 5,782,073,131 5,782,406,286
8 9
2,179 951 341,528,450 436,479,975 780,188,375
690,229 317,897,065 39,635,835 358,223,128
6,349,581,889
6,140,629,414
331,500,000 5,124,639,966 324,676,143 531,024,547 6,311,840,656
331,500,000 5,124,639,966 283,358,603 397,317,540 6,136,816,109
37,741,233
3,813,305
37,741,233
3,813,305
6,349,581,889
6,140,629,414
EUR TURNOVER
3
OPERATING PROFIT (LOSS) Financial income and expenses
4
PROFIT (LOSS) FOR THE PERIOD
Balance sheet EUR ASSETS NON-CURRENT ASSETS Intangible assets Tangible assets Investments TOTAL NON-CURRENT ASSETS CURRENT ASSETS Current receivables Financial securities Cash and cash equivalents TOTAL CURRENT ASSETS TOTAL ASSETS EQUITY AND LIABILITIES SHAREHOLDERS’ EQUITY Share capital Reserve for invested non-restricted equity Retained profit (loss) Profit (loss) for the period TOTAL SHAREHOLDERS’ EQUITY LIABILITIES Current liabilities TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES
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10
11
FINANCIAL REPORTING
Cash flow statement 1 July 2010–30 June 2011
1 July 2009–30 June 2010
143,863,665 -148,600,547 422,060,499 1,862,914 0 419,186,531
-3,665,535 93,685 356,119,249 -38,791 0 352,508,608
-1,489,721 -2,834,602 -4,324,324
-330,641 3,214,509 2,883,868
Cash flow from operating activities
414,862,207
355,392,476
Cash flow from investing activities Investments in tangible and intangible assets Investments in shares Gains on sale of shares
-15,534 -62,792,772 424,421,624
-413,797 -150,141,693 1,298
Cash flow from investing activities
361,613,318
-150,554,191
Cash flow from financing activities Dividends paid
-356,000,000
0
Cash flow for the period
420,475,525
204,838,285
Liquid funds at the start of the financial period Liquid funds at the end of the financial period Change in liquid funds
357,532,899 778,008,424 420,475,525
152,694,614 357,532,899 204,838,285
EUR Cash flow from operating activities Operating profit Adjustments to operating profit * Dividends and capital repayments received Other financial items Tax paid
Change in working capital Current receivables: increase (–) / decrease (+) Non-interest-bearing current liabilities: increase (+) / decrease (–)
Liquid funds in the cash flow statement include receivables from banks, bank deposits with a maturity of less than 3 months, short-term commercial papers and certificates of deposit, and units in mutual funds that invest in corresponding financial instruments. * Adjustments to operating profit Depreciation Capital gains Capital losses
84,382 -154,034,497 5,349,569 -148,600,547
93,764 -78 0 93,685
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Notes to the financial statements The financial statements of Solidium Oy have been prepared in compliance with the Finnish Accounting Act, Accounting Ordinance, and Companies Act. Solidium Oy is domiciled in Helsinki. Copies of Solidium Oy’s financial statements are available at the company’s office at Unioninkatu 32 B, 00100 Helsinki. PRINCIPLES OF VALUATION Valuation of non-current assets Tangible and intangible assets are measured at the cost of acquisition less accumulated depreciation. Planned depreciation of machinery and equipment corresponds to 25% of the maximum amount of the residual value, as regulated in the tax legislation. Intangible assets are depreciated on a straight-line basis over 4–5 years. Investments in non-current assets are recognised in the balance sheet at cost of acquisition. Permanent impairment is deducted from the cost of acquisition.
Notes to the income statement € 1 Other operating income Capital gains on the sale of shares Capital losses on the sale of shares Total 2 Personnel expenses Wages and salaries Pension costs Other personnel expenses Total
Valuation of current assets Current assets are measured at the estimated recoverable amount. Financial securities are measured at the lower of the cost of acquisition and market value. Receivables and liabilities denominated in foreign currencies have been measured at the average rate on the balance sheet date as confirmed by the European Central Bank. PENSIONS Pensions are recognised in the income statement in the financial period to which they apply. The pension provisions for the company’s personnel are arranged through statutory TyEL insurance. The Managing Director has a defined-contribution supplementary pension. TAX The tax expense item in the income statement consists of current tax. It is calculated on the basis of the Finnish tax rate and adjusted for any taxes related to previous financial periods.
1 July 2010–30 June 2011
1 July 2009–30 June 2010
154,034,497 -5,349,569 148,684,928
78 0 78
1,742,133 391,305 49,551 2,182,989
1,611,854 389,354 49,644 2,050,851
During the financial period, the salaries (including fringe benefits) paid to the Managing Director were EUR 345,745 (EUR 338,820), and the performance bonuses paid were EUR 47,500 (EUR 26,500). The performance bonuses of the Managing Director for the period were EUR 69,000 (EUR 47,500), which will be paid after the close of the financial period. The costs of the Managing Director’s defined-contribution supplementary pension amounted to EUR 125,668 (EUR 124,084). The 4 persons belonging to the Management Team (excluding the Managing Director) were paid a total of EUR 477,506 (EUR 417,138) in salaries and EUR 115,000 in performance bonuses. The performance bonuses earned by these 4 persons during the financial period totalled EUR 150,000 (EUR 115,000). The Board of Directors received EUR 312,092 (EUR 303,000) in monthly salaries and meeting fees. Average number of employees Employees at period end
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11 10
11 11
FINANCIAL REPORTING
EUR 3 Other operating expenses Administration costs Costs for facilities Other Total Fees paid to authorised public accountants Audit Tax consultation Other services Total 4 Financial income and expenses Income from investments within non-current assets Other interest and financial income Interest and other financial expenses Total financial income and expenses
Notes to the balance sheet €
1 July 2010–30 June 2011
1 July 2009–30 June 2010
2,050,137 221,839 281,916 2,553,892
1,057,091 207,915 255,993 1,520,999
5,387 29,566 0 34,953
17,910 32,500 191,833 242,243
422,060,499 2,940,946 -1,078,032 423,923,412
401,021,866 894,190 -932,981 400,983,075
1 July 2010–30 June 2011
1 July 2009–30 June 2010
5 Intangible assets Intangible rights Cost of acquisition at the start of the financial period Additions Cost of acquisition at the end of the financial period Accumulated depreciation at the start of the financial period Depreciation for the period Accumulated depreciation at the end of the financial period Disposals Carrying amount at the end of the financial period
31,570 1,079 32,649 1,559 7,950 9,509 0 23,140
4,242 27,328 31,570 141 1,418 1,559 0 30,011
Other capitalised long-term expenditure Cost of acquisition at the start of the financial period Additions Cost of acquisition at the end of the financial period Accumulated depreciation at the start of the financial period Depreciation for the period Accumulated depreciation at the end of the financial period Disposals Carrying amount at the end of the financial period
72,801 0 72,801 14,560 14,560 29,120 0 43,680
0 72,801 72,801 0 14,560 14,560 0 58,240
Total intangible assets
66,820
88,252
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1 July 2010– 30 June 2011
Notes to the balance sheet EUR
1 July 2009– 30 June 2010
6 Tangible assets Machinery and equipment Cost of acquisition at the start of the financial period Additions Cost of acquisition at the end of the financial period Accumulated depreciation at the start of the financial period Depreciation for the period Accumulated depreciation at the end of the financial period Disposals Carrying amount at the end of the financial period
311,535 14,129 325,664 78,178 61,872 140,049 0 185,615
9,414 302,121 311,535 392 77,786 78,178 0 233,357
Other tangible assets Cost of acquisition at the start of the financial period Additions Cost of acquisition at the end of the financial period Accumulated depreciation at the start of the financial period Depreciation for the period Accumulated depreciation at the end of the financial period Disposals Carrying amount at the end of the financial period
11,547 326 11,873 0 0 0 0 11,873
0 11,547 11,547 0 0 0 0 11,547
Total tangible assets
197,487
244,904
7 Investments Other shares and equity at the start of the financial period Additions Disposals Other shares and equity at the end of the financial period
Share Elisa Kemira Metso Outokumpu Rautaruukki K Sampo A Sponda Stora Enso A Stora Enso R Talvivaara Mining Company TeliaSonera Tieto Total
Number of shares 16,801,000 25,896,087 15,695,287 56,440,597 55,656,599 79,280,080 42,163,745 55,595,937 41,483,501 10,522,366 594,123,642 7,415,418
Holding 10,1% 16,7% 10,4% 30,8% 39,7% 14,1% 14,9% 31,4% * 6,8% * 4,3% 13,7% 10,3%
5,782,073,131 62,792,772 -275,736,696 5,569,129,207
5,587,030,041 252,431,225 -57,388,135 5,782,073,131
Cost of acquisition on 30 June 2011 164,004,496 163,441,479 140,328,422 455,881,990 679,130,726 1,063,241,009 76,155,628 322,574,298 231,419,859 60,134,425 2,097,256,456 115,560,419 5,569,129,207
Market value on 30 June 2011 249,494,850 309,199,279 614,784,392 515,584,854 867,129,812 1,765,567,382 169,076,617 408,352,157 300,133,130 54,295,409 3,024,089,338 86,537,928 8,364,245,147
* Solidium Oy’s holding of all of Stora Enso Oyj’s shares is 12.3% and of all votes 25.1%.
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FINANCIAL REPORTING
30 June 2011
30 June 2010
4,151 2,175,799 2,179,951
0 690,229 690,229
1,736,582 274,364 164,852
95,479 236,620 358,129
342,470,697 341,528,450 942,247
318,087,092 317,897,065 190,027
331,500,000 0 331,500,000 331,500,000
331,500,000 0 331,500,000 331,500,000
Non-restricted shareholders’ equity Reserve for invested non-restricted equity at the start of the financial period Addition Reserve for invested non-restricted equity at the end of the financial period Retained profit Dividend Profit for the period Total non-restricted shareholders’ equity
5,124,639,966 0 5,124,639,966 680,676,143 -356,000,000 531,024,547 5,980,340,656
5,124,639,966 0 5,124,639,966 283,358,603 0 397,317,540 5,805,316,109
Total shareholders’ equity
6,311,840,656
6,136,816,109
72,674 104,442 37,564,118 37,471,233
66,783 3,049,947 696,575 3,813,305
36,762,531 756,630 44,957
0 646,575 50,000
EUR 8 Current receivables Other receivables Prepayments and accrued income Total Material items in prepayments and accrued income: Interest accruals of money market investments Accruals of staff-related expenses Other items 9 Financial securities Fair value Carrying amount Differential 10 Shareholders’ equity Restricted shareholders’ equity Share capital at the start of the financial period Addition Share capital at the end of the financial period Total restricted shareholders’ equity Solidium Oy has 2,000 shares. The shares have no nominal value.
11 Current liabilities Trade payables Other liabilities Accrued liabilities Total Material items in accrued liabilities: Income tax accrual Accruals of staff-related expenses Other items 12 Other commitments
The company operates in leased facilities. Future minimum lease expenses under lease contracts that cannot be dissolved are distributed as follows: Within 12 months After 12 months but within five years After five years Total
190,187 410,507 0 600,694
185,911 600,694 0 786,605
Following the demerger of the predecessor company, also called Solidium Oy, the company has a joint commitment with Governia Oy. The commitment is based on the statute in Chapter 17, Section 16 of the Companies Act.
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Proposal for the distribution of profit The distributable non-restricted shareholders’ equity recognised in the financial statements totals EUR 5,980,340,656. No material changes have taken place in the company’s financial situation since the end of the financial period and, in the view of the Board of Directors, the proposed dividend will not jeopardise the company’s ability to fulfil its obligations. The Board of Directors proposes to the General Meeting that the distributable non-restricted shareholders’ equity be allocated as follows: – EUR 330,000 per share distributed as dividend for 2,000 shares 660,000,000 – amount retained in non-restricted shareholders’ equity 5,320,340,656 5,980,340,656 If the Board’s proposal is approved, the shareholders’ equity of Solidium Oy will consist of the following: – share capital 331,500,000 – reserve for invested non-restricted equity 5,124,639,966 – retained earnings 195,700,690 5,651,840,656
Signatures for the Report of the Board of Directors and the Financial Statements Helsinki, 22 August 2011
Pekka Ala-Pietilä Chairman
Eija Ailasmaa Vice Chairman
Jouni Hakala
Markku Hyvärinen
Marketta Kokkonen
Anni Vepsäläinen
Kari Järvinen Managing Director
Auditor’s note An auditor’s report has been issued today on the audit performed.
Helsinki, 23 August 2011 KPMG Oy Ab
Sixten Nyman Authorised Public Accountant 58
Antti Herlin
AUDITOR’S REPORT
Auditor’s report TO THE ANNUAL GENERAL MEETING OF SOLIDIUM OY We have audited the accounting records, the financial statements, the report of the Board of Directors, and the administration of Solidium Oy for the financial period 1 July 2010– 30 June 2011. The financial statements comprise the balance sheet, the income statement, the cash flow statement and notes to the financial statements. Responsibility of the board of directors and the managing director The Board of Directors and the Managing Director are responsible for the preparation of financial statements and report of the Board of Directors that give a true and fair view in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The Board of Directors is responsible for the appropriate arrangement of the control of the company’s accounts and finances, and the Managing Director shall see to it that the accounts of the company are in compliance with the law and that its financial affairs have been arranged in a reliable manner. Auditor’s responsibility Our responsibility is to express an opinion on the financial statements and on the report of the Board of Directors based on our audit. The Auditing Act requires that we comply with the requirements of professional ethics. We conducted our audit in accordance with good auditing practice in Finland. Good auditing practice requires that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the report of the Board of Directors are free from material misstatement, and whether the members of the Board of Directors and the Managing Director are guilty of an act or negligence which may result in liability in damages towards the company or have violated the Limited Liability Companies Act or the articles of association of the company. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the report of the Board of Directors. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial statements and report of the Board of Directors that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements and the report of the Board of Directors. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion on the company’s financial statements and the report of the board of directors In our opinion, the financial statements and the report of the Board of Directors give a true and fair view of the financial performance and financial position of the company in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The information in the report of the Board of Directors is consistent with the information in the financial statements. Opinion on discharge from liability and distribution of profit We support that the financial statements should be adopted. The proposal by the Board of the Directors regarding the use of the profit and the retained earnings shown at the balance sheet is in compliance with the Limited Liability Companies Act. We support that the Members of the Board of Directors and the Managing Director should be discharged from the liability for the financial period audited by us.
Helsinki 23 August 2011 KPMG OY AB Sixten Nyman Authorised Public Accountan
This document is an English translation of the Finnish auditor’s report. Only the Finnish version of the report is legally binding.
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Sources and comments The key indicators for Solidium’s portfolio have been calculated by Suomen Sijoitustutkimus Oy, an independent, external service provider. The key indicators of Solidium’s portfolio companies presented in this Annual Report, related to full accounting periods, have been calculated by Solidium. The calculations are based on information published by the companies, such as annual reports, releases and company websites, or on other publicly available information about the companies and their industry. Quarterly or half-year indicators are those released by the companies, because the notes to financial statements available are not sufficient for the calculation of all key ratios. Solidium analyses the financial information about companies in which it has holdings in compliance with generally accepted calculation methods. Key indicators for companies often involve choices made on items to be included in the calculation. Solidium aims to follow a standardised analysis procedure for all of its portfolio companies and assesses the nature of the companies’ cash flow independently. Owing to these interpretations, the key indicators may differ from those presented by the companies. Information for the tables concerning the companies’ largest shareholders has, as a general rule, been obtained from the shareholder lists published by the companies as well as their flagging notifications concerning shareholders that have exceeded the 5 per cent ownership threshold. In the shareholder tables, “Varma” refers to Varma Mutual Pension Insurance Company and “Ilmarinen” to Ilmarinen Mutual Pension Insurance Company.
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