Interim Report p January y – June 2009 C O Tapani CEO apa Järvinen Jä e CFO Vesa-Pekka Takala Group p Lunch, Pohjola j Bank July 27, 2009
Outotec in brief Technology developer and provider for mining, metals and related processing i d industries i Strong market positions across the whole value chain from mine to metal O Own RTD
Sales and operating profit development
€ million
€ million
• investing some EUR 20 million yearly • According to OECD definitions, some 70% of 2008 (2007: 80%) of order intake is classified as environmental goods and services (EGS) • some 4,500 patents or applications, 500 t t families, f ili 60 ttrademarks d k patent
Global operations
• Some 2,550 employees in 21 countries Flexible Fl ibl use off own global l b l resources, subcontractors and temporary employees Asset light business model 2
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30
Technology and service offering
Competition is fragmented:
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FLSmidth (GL&V), Metso Minerals, Polysius AG, Bgrimm, Bateman Engineering (process solution), Delkor, WesTech, Eriez Manufacturing, Roche Mining, Thermo Electron
Aker Kvaerner, Bateman Litwin, Falconbridge, Mitsubishi, Xstrata, SNC-Lavalin, Ausmelt, Bateman Engineering, Bateman Litwin, SNC-Lavalin, Dynatec, Tecnicas Reunidas, Xstrata, Brochot SA, FLSmidth, Solios SA, SMS Demag, Kobe Steel, Siemens, Midrex Technologies, MMC
© Outotec Oyj Sources: Metal Bulletin, Macquarie Research, Outotec
Markets Investment activity within the mining and metals industryy continues to be low. Customers are experiencing difficulties in funding their projects and there is idle capacity in the production plants plants. Consolidation of assets continues.
Price development of metals and long-term average prices
Kuparincopper pitkän ä Long-term aikavälin hinta price USD 4,400/t 4 400 USD /t
Prices for most metals have further climbed, which has improved the financial position of many mining companies. Developing countries need more metals. There is continuous need for energyefficient and sustainable technologies and various services. There are new opportunities in the energy sector t and d industrial i d t i l water t ttreatment. t t 4
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Long-term aluminum price USD 2,425 /t
China continues to need metals
From 2005-2025, Chinese cities will add more than 350 million people; More than 200 Chinese cities will have more than 1 million residents; Up to 50,000 new skyscrapers; Up tp 170 new mass transit systems (70 in Europe today); By 2025, two-thirds of China’s citizens will live in cities
Source: Macquarie
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Large mining projects in pipeline Mine construction projects: total CAPEX USD 37bn, 84 projects Mine feasibility projects: total CAPEX USD 112bn 246 projects 112bn, Mine prefeasibility projects: total CAPEX USD 86bn, 225 projects
Source: Raw Materials Group
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Mine conceptual projects: total CAPEX USD 99bn 183 projects 99bn,
Global capex and LME prices Metals and Mining Global Capex 130
300
120
275
110
250
100
225 200
80
175
70 150
125
60
125
100
50 40
100
78
75
30
55
20 10 10 10
11
14 19
21
21 22
18
15 19
25
27 30
45
38 27
23 22
22
23 26
27
25
0
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Metals & Mining Capex (lhs)
LME metals index, LMEX, 2000=100 (rhs)
2010 0e
2009 9e
2008 8e
200 07
200 06
200 05
200 04
200 03
200 02
200 01
200 00
199 99
199 98
199 97
199 96
199 95
199 94
199 93
199 92
199 91
199 90
198 89
198 88
198 87
198 86
198 85
198 84
0
Sources: CRU, UBS, McKinsey, EcoWin
7
50
LMEX index
US$ billion
90
Declining ore feed grades Declining ore feed grades provide continuous opportunities for technology developer; With cutting-edge tti d research h centers, t new iinnovations ti are possible; ibl Metallurgical innovations take decades to emerge.
Source: Brook Hunt
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Actions to secure topline Development of operations • New local management and employees hired for Outotec India • New managers hired in China and the CIS countries Internal transfers of personnel from projects and R&D to sales, proposal work and services S lli existing Selling i ti ttechnologies h l i tto new customer t industries Development of offerings for industrial water treatment and the energy sector Further development of the Services business
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Opportunities for Outotec New players need advanced technology, metallurgical experience and environmental regulations tightened. China – a major driver for most metals - pace of urbanization rate (40 bn m2 of floor space built, 5 million buildings) and industrial production to support domestic demand and export targets targets. India – Large natural resource base for coal, steel raw materials (Fe, Mn, Cr), capability to grow in aluminium production chain (Bx-Alm-Alu) and a significant increase in base metals (Cu, Zn) production. Developing into global major source of R&D. Russia – Country Country’ss huge and still largely untapped natural resource base (fossil fuels, base metals, gold, steel raw materials, industrial minerals, gems) will support Russia’s development in long-term into a major producer of most metals subject to government’s ability to lead infrastructure and accessibility networks. CIS – Major country is Kazakhstan which has a strong natural resource base for most minerals and especially for chromite, iron ore, base metals (cu, zn), uranium and gold. Ukraine has a large iron ore base and steel production and dK Kyrgystan, t U b ki t and Uzbekistan dT Tadjikistan djiki t h have llarge gold ld d development l t potential. t ti l Brazil – Key growth areas in iron ore production (direct shipping, pelletizing) and bauxite-alumina production, large base metals resources still to be exploited (esp. Cu, Ni) and growth opportunities in gold production. Africa – South Africa will continue to lead MinMet industry developments (Steel and its raw material, coal, gold, diamonds PGMs). PGMs) Central African countries (Zambia producers growth potential diamonds, (Zambia, DRC) to develop into major copper producers, in nickel production and gold production to increase in West African countries (Ghana, Guinea, Mali) Middle East – Untapped resource base for base metals and gold. Iran and Saudi Arabia being the key countries. Lately emerged major transformation need from oil-gas industry to metals production. Energy and work force availability (and financing) supporting large scale metals processing industry developments e.g. for aluminium, steel, base metals (copper). Others – South East Asia has developed into an important future development region for the MinMet industry. The leading countries are Indonesia (tin, gold, mineral sands, nickel), Philippines (nickel, copper, gold) and Laos (copper, gold). Lately Vietnam has also shown interesting growth potential (bauxite, coal, iron ore, nickel, copper, chromite).
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Services business The Services business is included in the sales figures of Outotec’s business divisions and Other businesses businesses, and it is reported as a total on the Group level. The target is to grow the service business to the annual level of EUR 250-300 250 300 million illi b by th the end d off 2010 2010. Sales of the Services business in Q1-Q2 were EUR 73.4 million ((Q1-Q2/2008: EUR 51.6 million), ) representing p g some 16% of Outotec’s sales. Part of the growth came from Outotec Auburn acquired in late 2008 2008. Sales of Services
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Energy business g for the energy gy sector cover oil shale Outotec’s offerings and oil sand processing, coal charring, gasification and combustion technologies, heat recovery systems as well as process for producing bio-energy from forestry and sawmill residues. Accomplishments so far • Flotation cell deliveries for oil sand processing in Canada • Joint venture with Eesti Energia g for selling g new oil shale technology (Outotec’s ownership 40%)
• Contract (EUR 110 million) for the first oil shale processing plant to be built in Narva Narva, Estonia
• Joint venture GreenExergy AB with Skellefteå Kraft AB for the development, marketing and delivery of technologies for bioenergy production (Outotec (Outotec’s s ownership 45%) 12
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Water business Outotec s offerings for the industrial water treatment Outotec’s include solutions for concentrators, hydrometallurgical plants, non-ferrous and ferrous smelters and refineries, sulfuric acid plants plants, alumina plants plants, closed mines and old tailings ponds. Business plan and marketing being developed
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Actions to adjust cost structure Number of contract workers has been reduced byy 170 since end of March 2009 and by 210 since year-end. • Insourcing of standard engineering work Number of own personnel has been reduced by 125 since year-end. • Internal transfers Other measures taken • Voluntary replacement of the holiday compensation with off-time in Finland ¾
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Cost-saving C t i measures will ill b be iincreased d according di tto market conditions.
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Interim Report p January y – June 2009 Figures in brief
Profitability remained at a good level in Q1-Q2 Q1-Q2 2009
Q1-Q2 2008
Change%
Last 12 months
2008
469.2
501.0
- 6.4
1,186.1
1,217.9
Gross margin, %
19.3
20.3
- 5.0
21.1
21.5
Operating profit
30 2 30.2
43 8 43.8
- 31.1 31 1
106 6 106.6
120 2 120.2
6.4
8.7
- 26.4
9.0
9.9
Profit before taxes
31.6
50.0
- 36.8
117.9
136.3
Earnings per share, EUR
0.53
0.83
- 36.7
1.94
2.25
Order intake
245.1
774.2
- 68.3
624.7
1,153.8
Order backlog at the end of the period
966.6
1,548.4
- 37.6
966.6
1,176.7
Net cash from operating activities
12.6
124.2
- 89.8
- 5.0
106.6
Return on investment, %
30.9
50.1
- 38.5
56.8
61.6
Return on equity, %
19.6
33.8
- 42.0
38.7
42.6
EUR million Sales
Operating profit margin, %
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Largest orders in Q1-Q2 Order intake EUR 245.1 million (Q1-Q2/2008: EUR 774.2 million) • Order O d intake i t k in i Q2 EUR 105.8 105 8 million illi (Q2/2008 (Q2/2008: EUR 475 475.4 4 million) illi ) •
Flotation cells and thickeners for Polymetal, Russia
Several service contracts in Chile and Canada € 15 million
Sulfuric acid plant technology for Noracid, Chile € 51 million
Outotec offices
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Order intake and backlog development EUR million
18
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Sales and operating profit by division
19
Minerals Processing Base Metals Metals Processing
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• Excluding Other businesses, which had a negative operating profit • Excludingg unallocated items and intragroup sales
Capital structure EUR million Net cash from operating activities
Q1-Q2 2008
Q2 2009
Q2 2008
2008
12.6
124.2
23.4
83.6
106.6
- 278.3
- 358.5
- 278.3
- 358.5
- 314.6
219.0
198.7
219.0
198.7
226.4
40.2
40.0
40.2
40.0
35.0
Gearing, %*)
-127.1
-180.4
-127.1
-180.4
-139.0
Working capital*)
-150.7
-240.3
-150.7
-240.3
-171.2
ROI % ROI,
30 9 30.9
50 1 50.1
30 8 30.8
60 0 60.0
61 6 61.6
ROE, %
19.6
33.8
17.9
39.6
42.6
Net interest-bearing debt*) Equity*) Equity-to assets ratio, %*)
*) At the end of the period 20
Q1-Q2 2009
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Personnel An average of 2,569 employees (Q1 Q2/2008: 2 (Q1-Q2/2008: 2,365) 365) 9% increase was due to business growth, acquisition of Auburn and active recruitment in 2008. A reduction of 125 employees since the year-end 2008 Temporary personnel accounted for 8% of the total number of employees employees. Additionally some 350 FTE contracted people for engineering, construction and project management – a reduction of 210 since the year-end 2008
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Number of employees at the end of the period
New CEO as of January 1, 2010 Mr. Pertti Korhonen, M. Sc. Eng., will join Outotec on September 1, 2009, begin as Chief Operating Officer on October 1 1, 2009 and then assume the duties of CEO on January 1, 2010. Current CEO Tapani Järvinen will retire at the end of 2009. Previous positions: • CEO of Elektrobit Corporation Plc in Finland, 2006 – 2009 • Chief Technology Officer of Nokia, Executive Vice President, • • 22
Nokia Technology Platforms, 2004 – 2006 Member of the Nokia Group Executive Board, 2002 – 2006 Various management positions in Nokia Nokia, 1990 – 2003
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Events after the reporting period In July, Outotec agreed with Eesti Energia for the design, delivery and construction of a new oil shale processing plant to be built in Narva, Estonia. The contract is valued at approximately EUR 110 million. million Outotec and Eesti Energia entered into a joint venture for the commercialization of new sustainable oil shale processing technology. Eesti Energia has a 60% stake in the new company with Outotec owning the remaining 40%. The goal is to become a significant supplier of oil shale technology solutions, benefiting from Eesti Energia's experience in oil shale mining and processing and Outotec's expertise in fluidized bed technologies, engineering and p project j implementation. p
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M Market ts
The investments in the mining and metals industry will fall from the previous year ear beca because se of the uncertainty ncertaint in the worldwide orld ide economic conditions conditions. There are feasibility studies in progress, which may turn into new orders, but the decision-making process takes time. Many customers are evaluating project p j scopes p and p prices,, but they y still face difficulties in arranging g g financing packages.
Outote ec
Outlook for 2009 reiterated
prevailing g uncertainty y continues to obscure the outlook for the mining g The p and metals industry. On the basis of the first half year result, existing order backlog, and new order prospects, the management expects that in 2009: • Sales will contract by approximately one quarter from 2008 figure, • Gross margin will continue on a healthy level, and • Operating profit margin will be lower than in 2008 because of lower sales volume. O Operating ti profit fit is i dependent d d t on exchange h rates, t product d t mix, i titiming i off new orders, and project completions. Operating profit tends to accrue more toward the year-end.
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Q&A
Interim Report p January y – June 2009 Appendix
Sales by division EUR million
Q1 Q2 Q1-Q2 2008
Q2 2009
Q2 2008
2008
175.6
152.8
91.1
92.7
419.6
74.4
132.0
29.6
72.0
295.3
200 6 200.6
213 9 213.9
103 4 103.4
109 2 109.2
494 7 494.7
38.3
25.8
20.0
16.7
56.0
Unallocated items and intra-group sales
-19.7
- 23.4
-6.5
-15.0
- 47.7
TOTAL
469 2 469.2
501 0 501.0
237 6 237.6
275 5 275.5
1 217 9 1,217.9
Minerals Processing Base Metals Metals Processing Other businesses
27
Q1 Q2 Q1-Q2 2009
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Operating profit by division EUR million
Q1-Q2 2009
Minerals Processing
Q1-Q2 2008
In relation to division sales, %
Q2 2009
In relation to division sales, %
Q2 2008
In relation to division sales, %
14.0
8.0
7.3
4.8
7.9
8.6
3.2
3.4
3.9
5.3
18.2
13.8
- 0.4
- 1.3
11.9
16.5
Metals M t l Processing
18.2
9.1
24.1
11.3
9.3
9.0
11.8
10.8
Other businesses
-0.5
- 1.2
1.6
6.1
- 0.1
- 0.6
1.2
7.1
Unallocated and intra-group items
-5.5
TOTAL
30.2
Base Metals
28
In relation to division sales, %
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- 7.3 6.4
43.8
- 2.7 8.7
13.9
-5.1 5.9
22.9
8.3
Strategy Customers Sustained profitable growth Seek sustainable growth
Maintain and improve profitability
New technology
Cross
Geographical
Increase
Selected
Procurement
Optimise cost
Increase
• Flash
selling
expansion
after-sales after sales
acquisitions
and
efficiency
value-added value added
services
• Complementing
converting
• Oil shale, oil
• BRICS
• Efficient use
component
• HydroCopper™
sands,
(Brazil, Russia,
• Spare parts
technologies
Increasing
of state of the
• R&D efforts,
• Circoheat™,
(Flotation, CFB
India, China,
• Technical
• Geographic
sourcing e.g.
art engineering
testing facilities
Circored®,
technology)
Southern
services
expansion
from China and
tools
to guarantee
Circofer®
• Fertilizers
Africa)
• Upgrades
• Resources
India as well as
• Local task
customer ROI
• Lurec™
(Sulfuric acid
• Other
• Consultation
• Business (after
optimizinglocal
force approach
• Zinc and
• OKTOP™
technology)
emerging
• On-site
sales)
supply (e.g.
with Outotec
Nickel leaching
• Outotec™ Zinc
• Water
markets
services
Brazil)
supervision
technologies;
(e.g. Brazil)
Circoheat™
technologies
Personnel Owners 29
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outsourcing
