Outokumpu – an international stainless steel company Outokumpu is a global leader in stainless steel with the vision to be the undisputed number one. Customers in a wide range of industries use our stainless steel and services worldwide. Being fully recyclable, maintenance-free, as well as very strong and durable material, stainless steel is one of the key building blocks for sustainable future. Outokumpu employs some 7 600 people in more than 30 countries. The Group's head office is located in Espoo, Finland. Outokumpu is listed on the NASDAQ OMX Helsinki.
Outokumpu Main products
Cold and hot rolled stainless steel coil Sheet and plate Quarto plate Thin strip Tubular and long products
Grades
Full range of standard and high alloyed austenitic grades Duplex Ferritic Manganese grades
Dimensions
Cold rolled flat products in thickness range from 0.12 mm to 6.5 mm White hot strip and hot rolled plate in varying widths and thicknesses Full range of tubular products from small diameter tubes to heavy walled pipes
Customers
Distributors Re-rollers and further processors Tube makers End-user and project customers in various industrial segments
Typical customer industries using stainless steel
Architecture, building and construction Chemical, petrochemical and energy Transportation Catering and appliances Process industries and resources Various other industries and applications
Main production plants
Tornio (ferrochrome smelter, steel melting shops, hot and cold rolling mills) and Kemi (chromium mine) in Finland
Outokumpu Annual Report 2009 – This is Outokumpu
Avesta (steel melting shop, hot and cold rolling mills), Nyby, Långshyttan (cold rolling mills at both) and Degerfors (hot rolling mill) in Sweden Sheffield (steel melting shop) in the UK New Castle (hot rolling mill) in the US. Long products are manufactured in Sweden, the US and the UK, whereas welded tubes and tube components are produced in Finland, Sweden, Estonia, Canada and the US.
Sales companies and service centres
A comprehensice network of sales companies in some 30 countries and service centres in 12 countries
Our main products are hot and cold rolled stainless steel sheets, plates and strips that are used in numerous applications – such as the construction industry, the automotive industry and equipment for the process industry. Wide and thick individually rolled quarto plates are used in the energy sector, to extract salt from seawater, to transport chemicals and they are widely used in the process industry in pressure cylinders, tanks, thick-walled tubes, bridge structures and process equipment. Our tubes are mainly used by the process industry, i.e. the oil refining industry and the pulp and paper industries; bars are so-called long products, from which i.e. wire and reinforcement bar are manufactured. Our customers include the processing and construction industries, the energy sector the transport sector, the food and electronics industries, and the producers of household and industrial machinery around the world.
Good qualities of stainless steel Fully recyclable
Hygienic
Corrosion resistant
Aesthetic
High-strenght
Low life-cycle costs
Outokumpu Annual Report 2009 – This is Outokumpu
CEO's review
External environment Last year was exceptionally difficult for the stainless steel industry. Having enjoyed continuous annual growth in demand of some 5–7% in recent decades, end-user demand for stainless fell by 9% globally and by 26% in our home market, Europe. This dramatic decline in end-user consumption was further aggravated by the heavy destocking that took place in the first half of the year. This sudden change in our market environment was a clear result of the global recession which had already begun in the second half of 2008. The crisis in the financial sector had a serious adverse effect on basically all end-use sectors for stainless steel. Low levels of consumer confidence in Europe and North America had a negative impact on demand for stainless, especially in white goods. Industrial investments, a typically strong market for stainless steel, weakened even more. This major decline in stainless demand had an impact on all stainless producers. All western producers had to adjust and adapt their operations to the new market conditions. In spite of very low operating rates, producers were able to restore prices to some extent, which partly compensated for the lower production volumes.
Our response I am satisfied that we started making plans for the new external environment already in late 2008. Our focus was on maintaining a strong cash flow and the health of our balance sheet. We therefore put a lot of work into managing working capital, especially reducing inventory volumes. And we did a rather good job, as we were able to reduce working capital by half a billion euros during 2009. This made a major contribution to our positive operating cash flow of some two hundred million euros, enabling us to maintain gearing at 48% at the end of 2009. Another focus area was fixed-cost management. Compared to the previous year, we cut our fixed costs by EUR 185 million during 2009. Regrettably, doing this meant we also had to reduce the number of people working in Outokumpu. We also had to adjust our strategic investment programme by postponing several projects which had already been started or were on-going at the end of 2008. We are continuously evaluating the future of these ‘on-hold' projects. As to our main environmental targets set for 2009, while we did achieve our target for reducing landfill waste, low production volumes meant that we did not reach our target for reducing our energy consumption per tonne produced.
Outokumpu Annual Report 2009 – CEO’s review
Profitability Unfortunately, the very difficult market situation prevented us achieving our financial targets in 2009. In spite of all the actions we took, it was a year of heavy losses. Never before have we experienced operating rates as low as those we saw last year, and the resulting very-low delivery volumes. Declining metal prices also contributed to the poor financial result by causing inventory losses.
Our strategy In spite of the changed market environment, we decided to keep our strategy intact. Our aim is to build a more stable and profitable business model by focusing more on special grades and non-nickel containing ferritic grades in our product mix, and by increasing sales to end-user and project customers while also selling more to our core partner distributors and processor customers. Other key components in our strategy are increasing sales outside Europe and maintaining the cost competitiveness of our standard grades. The main focus in strategy implementation during 2009 was on developing our new commercial and supply chain organisations in the intended manner. We made good progress in both areas, and everyone involved invested a lot of effort – new designs always call for new ways of working. Several investments which support our strategy implementation were also completed, improving our capability to produce ferritic grades and our ability to serve end customers through our improved service centre network. Strategy implementation will continue in the years to come. I strongly believe our strategy to be a compelling one which can and will be implemented even when markets are tough. It will make us ready and fully prepared for the good markets when they return. We remain confident about stainless steel's long-term attractiveness. A sustainable material helping to solve many global challenges: the need for clean water, for reduced emissions and for sources of renewable energy.
People as a priority Motivated and committed people are the key to our future. I recognise that 2009 was a very difficult one for Outokumpu personnel. In situations like this, a company's attitude to its responsibilities is put to the test. As part of the cost-saving efforts, it was also necessary to reduce the number of our employees and this introduced much uncertainty into the organisation. While we can never guarantee a situation that is fully stable, I hope that taking such extensive action in the years to come will not be necessary. Confidence is something that should be built into our organisation. It enables people to focus on their key task – doing a great job every day. It is very regrettable that our stakeholders also were affected by our reduced levels of production, the reductions in valueadded distributed to them, postponed investments and lay-offs, all of them caused by the global recession and its impact on us. Even in these difficult times, we have maintained our focus on improving safety. Although we did not reach the set target of less than five, I am very pleased to see good progress in this area. Our injury frequency rate improved from nine (2008) to six (2009), which is encouraging but not yet world-class. Tougher targets and related plans have been established for this and coming years. Our ultimate target is no injuries at all. With our eyes on the future, we continued with our leadership development plans and actions. In difficult times, inspirational leadership is an essential element in maintaining our organisation's positive spirit.
Outokumpu Annual Report 2009 – CEO’s review
Short-term priorities It looks as the market environment will continue to be difficult in 2010. No quick recovery is to be expected. Outokumpu management is therefore focusing on these key priorities: improving safety restoring profitability implementing our strategy delivering the excellence initiatives Even though issues relating to corporate responsibility are only mentioned here in brief – they are discussed in detail under corporate responsibility section of this report – I want responsibility to be fully integrated into all our operations and all our people to be involved. Outokumpu's aim is to contribute to resolving global challenges such as climate change and the need for clean water and clean energy in two ways – through continuing material development and by improving our own operations. Our efforts to achieve a low-carbon society will continue even when markets are challenging. Finally, I take this opportunity to thank our customers and all our stakeholders for their continued loyalty and valuable comments. Special thanks go to our people for doing a great job in a very tough year.
Juha Rantanen CEO
Outokumpu Annual Report 2009 – CEO’s review
Highlights 2009
Outokumpu Annual Report 2009 – 2009 highlights
Group key figures Key figures 2009
2008
2007
Sales
€ million
2 611
5 474
6 913
EBITDA
€ million
-212
149
790
Operating profit
€ million
-438
-63
589
Non-recurring items in operating profit
€ million
-20
-83
14
Profit before taxes
€ million
-474
-134
798
Non-recurring items in financial income
€ million
-
-21
252
Net profit for the period
€ million
-336
-189
641
Capital employed on Dec. 31
€ million
3 634
3 867
4 125
%
-11.7
-1.6
13.9
Net cash from operating activities
€ million
198
664
658
Capital expenditure
€ million
245
544
190
Net interest-bearing debt on Dec. 31
€ million
1 183
1 072
788
Equity-to-assets ratio
%
50.6
52.4
56.5
Debt-to-equity ratio
%
48.2
38.4
23.6
Earnings per share
€
-1.86
-1.05
3.52
Equity per share
€
13.54
15.50
18.53
Dividend per share
€
0.50
1.20
Share price on Dec. 31
€
13.26
8.28
21.21
7 606
8 471
8 108
398
466
443
1 000 tonnes
1 030
1 423
1 419
€/tonne
1 161
1 185
1 304
€ million
12
18
12
pcs
2
3
3
Return on capital employed
Personnel on Dec. 31, continuing operations 2) Wages, salaries and other employee benefits 4)
Stainless steel deliveries Stainless steel base price 3)
Investments in the environment Patent applications
0.351)
Outokumpu Annual Report 2009 – Key figures
R&D
€ million
19
20
18
%
0.7
0.4
0.3
€ million
46
61
163
6
9
11
0.57
0.87
0.93
R&D (% of sales) Income taxes and social security payments 4) Injury rate, lost-time injuries per million hours worked 5) Carbon dioxide emissions
million tonnes
Notes: 1)
The Board of Directors' proposal to the Annual General Meeting
2)
FTE full-time equivalent
3)
Stainless steel: CRU – German base price (2 mm cold rolled 304 sheet)
4)
Accounting principles have been adjusted to better meet the GRI guidelines. The comparative figures have been restated.
5)
Including contractors
Outokumpu Annual Report 2009 – Key figures
Strategic themes
Outokumpu's strategy is aimed at developing and securing a more stable and profitable business model by reducing cyclical effects on demand for stainless steel standard grades and products. The objective is to expand the Group's product portfolio by increasing the proportion of special grades, value-added products and non-nickel grades. Other aims include increasing the proportion of sales to end-use customers and projects and building stable relationships with key distributors. Growth opportunities that could have a positive effect on both Outokumpu's operations and the company's geographical coverage are also given due consideration.
Outokumpu Annual Report 2009 – Strategic themes
Focus on operational excellence
Vision Outokumpu's vision is to become the undisputed number one in stainless steel with success based on operational excellence. Being the undisputed number one in stainless steel requires: the best financial performance in the industry, being an industry benchmark in customer relationship management, production operations that are the most efficient in the industry, and being viewed as the most attractive employer. Actions taken by Outokumpu to achieve this vision include improving stability over the business cycle, ensuring the competitiveness of the Group's European assets, focusing on management of the customer interface and moving towards growth and a readiness for global consolidation.
Operational excellence Outokumpu focuses on operational excellence by developing and adopting best practices in all of its operations. Commercial Excellence: making Outokumpu the industry benchmark in customer relationships Production Excellence: optimising production of both standard and special grades Supply Chain Management: seeking reliability and predictability throughout the supply chain, securing on-time deliveries and reducing costs via procurement management. Outokumpu has a strong position in stainless steel. The Group's Tornio Works, a fully-integrated and globally costefficient production site in northern Finland, makes Outokumpu one of the global leaders in standard grades. Read more about Tornio Works. Outokumpu also has a leading position in the special grades and products sector and is widely recognised for the high quality of its product and process development. Read more about special grades.
Outokumpu Annual Report 2009 – Operational excellence
Transforming the customer mix
Some two thirds of Group sales are made to distributors or processors of stainless steel. Demand for stainless steel from end-users is more stable as these do not normally engage in speculation regarding nickel prices. Outokumpu's aim is to increase the proportion of direct end-user and project sales from its current level of about one third to at least one half. Other objectives include stabilising sales volumes to key distributors. Increasing sales to end-user and project customers requires an extensive distribution network. The Group has systematically expanded its service centre capabilities in recent years, mainly in Germany and China. In 2008, Outokumpu acquired the SoGePar Group, an independent stainless distributor in Italy.
Outokumpu Annual Report 2009 – Closer to the customer
Expanding the product portfolio
To serve end-users of stainless steel better, Outokumpu is aiming to expand the Group's product portfolio by increasing the proportion of special grades, value-added products and non-nickel grades (ferritics). Outokumpu has a leading market position in duplex grades (low-nickel). A major proportion of Outokumpu's current production consists of nickel-containing standard stainless steel grades (austenitics). Speculative activity by distributors regarding developments in the nickel price leads to cyclicality in the demand for stainless steel and earnings volatility connected with raw material inventories. Outokumpu's objective is to increase production of special grades, value-added products and ferritics from its current level of about one third to one half of total Group sales.
Outokumpu Annual Report 2009 – Diversified product portfolio
Growing outside Europe
Outokumpu's objective is to continue growing outside Europe by entering new growth markets. This will reduce Eurocentricity. In this context, action has been taken in tubular operations in the Middle East and the Group's network of service centres has been expanded to cover the Chinese market.
Outokumpu Annual Report 2009 – Grow outside Europe
Management discussion of financial performance Focus on maintaining financial strength in a loss-making year Actions taken in response to the weak stainless steel market Progress towards a more stable business model Excellence programmes Stainless steel market development in 2009 Severe losses in historically poor market conditions Balance sheet remains relatively strong despite the heavy loss Dividend Economic value added Factors affecting Outokumpu's profitability Outokumpu and stainless steel markets going forward
Outokumpu's financial objectives Outokumpu's overall financial objective is to generate the maximum sustainable economic value added. The specific group-level financial objectives in line with the vision in terms of growth, profitability and financial strength are as follows: To continue growing faster than the market A return of capital employed over 13% and always the best among peers Gearing below 75%
Focus on maintaining financial strength in a loss-making year In the wake of the global economic crisis and the resulting dramatic collapse of demand in the stainless steel market at the end of 2008, Outokumpu's focus at the beginning of 2009 was on cash generation, short-term cost-efficiency and maintaining the company's financial strength. In response to the weak demand that prevailed in 2009, painful actions to adjust capacity and costs were taken throughout the Group, resulting in both temporary and permanent layoffs and other cost-saving measures. At the same time, Outokumpu remained committed to its strategy of achieving a more stable and profitable business model by increasing the proportion of sales to end-user and project customers as well as building more stable relationships with key distributor customers. Other strategic objectives include maintaining cost leadership in standard grades and broadening the product portfolio, as well as increasing the share of special grades, valueadded products and non-nickel containing grades. The ongoing recession limited progress towards these strategic targets in 2009.
Outokumpu Annual Report 2009 – Management discussion on financial performance
The beginning of 2009 was marked by severe losses and very low demand from all major customer segments due to low levels of economic activity and heavy destocking throughout the value chain. Base prices were very low at the beginning of the year and the rapid decline in metal prices resulted in major raw materialrelated inventory losses. Market conditions improved slightly in the summer as increasing raw material prices triggered minor restocking by distributors and base prices started to recover. On the other hand, underlying demand for stainless steel remained extremely poor throughout the year and distributors' buying behaviour was cautious. Markets softened during the fourth quarter of 2009 and base prices declined again before stabilising at the end of the year. Even though Outokumpu's result improved gradually as the yearend approached, it remained disappointingly negative. In line with the company's 2009 focus, cash flow from operations was still positive and the balance sheet remained relatively strong. Cost-cutting measures implemented throughout 2009 had a positive impact of some EUR 185 million on the result. At the beginning of 2010, market conditions remain difficult and challenging, but have stabilised from the total collapse witnessed at the end of 2008. Outokumpu's current focus is on restoring profitability while at the same time maintaining the balance sheet flexibility required to pursue strategic investments when market conditions improve.
Financial development € million
2009
2008
General Stainless
2 065
4 147
Specialty Stainless
1 239
2 705
Other operations
243
258
Intra-group sales
-935
-1 636
2 611
5 474
Cold rolled
545
739
White hot strip
263
330
Quarto plate
67
120
Tubular products
53
70
Long products
40
55
Semi-finished products
63
109
Sales
The Group
1 000 tonnes Stainless steel deliveries
Outokumpu Annual Report 2009 – Management discussion on financial performance
Total deliveries
1 030
1 423
General Stainless
-259
-6
Specialty Stainless
-149
-101
Other operations
-31
38
Intra-group items
1
6
-438
-63
-5
-17
-15
-
-
-66
-20
-83
€ million Operating profit
The Group
€ million Major non-recurring items in operating profit Specialty Stainless Redundancy provisions Write-down of Avesta melt-shop investment Thin Strip restructuring in the UK Total Source: CRU and Outokumpu The figures are estimates and they do not take into account the impact of hedging. They have been calculated on the basis of the average exchange rates in 2009 and highest achieved delivery volumes.
Actions taken in response to the weak stainless steel market In 2009, Outokumpu made a number of difficult decisions in order to prepare for a possible period of prolonged demand weakness and to ensure that cost-efficiency and financial strength are given the highest priority in extremely challenging market conditions. Cost-saving measures included temporary and permanent reductions in the numbers of personnel employed in several countries as well as Group-wide general cost-saving programmes. Actions taken included temporary layoffs affecting more than 2 000 people and some 900 permanent job reductions, with the result that Group fixed costs were reduced by some EUR 185 million in 2009. Approximately half of these savings are expected to be sustainable.
Progress towards a more stable business model Outokumpu's objective is to develop and secure a more stable and profitable business model to balance out the effects of volatility in the market for stainless steel standard grades and products, and to address growth prospects related to the Group's size and geographical coverage. Despite the difficult market situation and the resulting limited progress towards its strategic goals, Outokumpu is committed to its chosen path towards a more stable business model. Read more about Outokumpu's strategy. Increasing the proportion of value-added special products such as low-nickel duplex grades and growth in sales of ferritic (non-nickel-containing) grades will help reduce the earnings cyclicality driven by volatile nickel prices. Margins in special
Outokumpu Annual Report 2009 – Management discussion on financial performance
grades are higher and more stable than in standard grades. By offering special products, Outokumpu can serve endcustomers better and offer tailor-made solutions which deliver higher value and higher performance as well as cost savings.
Supporting the aim of increasing the proportion of special grades, value-added products and non-nickel-containing grades, Outokumpu successfully completed replacement of one of the five annealing and pickling lines at the Group's Tornio Works in Finland during 2009. This investment improves Outokumpu's capabilities in brighter ferritic steel grades and enhances production flexibility. At Nyby in Sweden, the investment to double annual production capacity in special grades from 34 000 tonnes to more than 70 000 tonnes was completed. In order to shift the Nyby plant's product mix towards more value-added special grades, a new grinding line with automated intermediate storage and an entry section to the annealing and pickling line was taken into operation in October 2009. At New Castle (IN) in the US, an investment to upgrade and install equipment that will increase the plant's quarto plate capacity by some 20 000 tonnes to 70 000 tonnes has progressed well and completion is expected in the spring of 2010. With this investment, the Group's quarto plate product mix will shift increasingly towards value-added tailor-made plates and special grades, especially Outokumpu's proprietary lean duplex and other duplex grades. The transformation towards increased end-user and project sales requires investment in the Group's service centre capabilities. In end-user and project sales, steps taken during 2009 include completion of the expansion in stock and processing capacity at the Outokumpu service centre in Willich, Germany. This investment improves and expands the Group's service offering to end-user and project customers in Germany, Europe's largest stainless steel market. The project consisted of expanding the site area, doubling the size of the service centre building and installing new cut-tolength and slitting lines. Annual capacity at the service centre has been increased from 60 000 tonnes to 125 000 tonnes. A new service centre being built in China near Shanghai will have the capacity to stock and process some 30 000 tonnes of mainly special grades when it becomes operational in mid-2010.
Outokumpu Annual Report 2009 – Management discussion on financial performance
In December 2008, Outokumpu decided to postpone almost all elements of the Group's investment programme for at least 12 months. Continuation of any project is subject to a separate decision based on an updated feasibility study. In 2009, Outokumpu decided that the investment to expand melt-shop capacity from 500 000 tonnes to 750 000 tonnes at Avesta in Sweden will not proceed in the foreseeable future as there is no need for additional melting capacity in the medium term. Write-downs of EUR 15 million associated with this investment were booked in the 2009 third-quarter operating result. As originally planned, this investment would have totalled some EUR 200 million. Further decisions regarding other postponed investments will be made by the end of 2010.
Excellence programmes The Operational Excellence programmes launched in 2005 and originally comprising Production and Commercial Excellence were expanded to include Supply Chain Excellence in 2007. While the targeted benefits were achieved in 2008, they were not reached in 2009 with the prime causes being very-low delivery volumes and raw material prices. The targets set for this programme were improving Group performance by EUR 80 million in 2008 and EUR 200 million in 2009 compared to 2005. In 2009, benefits delivered by the Operational Excellence programmes totalled some EUR 150 million (2006: EUR 25 million, 2007: EUR 45 million, 2008: EUR 86 million) compared to 2005. Examples of profitabilityraising improvements achieved through the Operational Excellence programmes include utilising raw materials more efficiently, providing additional capacity to solve production bottlenecks, improved pricing discipline, the release of working capital through shorter payment terms and achieving profitable growth with key customers. Due to the current weak market outlook for stainless steel, the original 2010 target of EUR 300 million in benefits from the Operational Excellence programmes will not be achieved. In the short term, these programmes will focus on working capital reduction, raw material usage and other cost-saving-related projects rather than capacity enhancement. The strong focus placed on Operational Excellence programmes within the Group will lead to the targeted benefits totalling EUR 300 million being achieved in the future.
Outokumpu Annual Report 2009 – Management discussion on financial performance
Stainless steel market development in 2009 2009 began with both very low levels of demand and low base prices as inventories were being reduced throughout the value chain from mills to end-users of stainless steel. Significant production cuts were executed by producers, especially in Europe, and capacity utilisation was at the historically extremely-low levels of 50-55%. Triggered by higher raw material prices, purchasing activity among distributors improved somewhat in the second quarter, and base prices started to increase gradually as the autumn months approached. Towards the end of the fourth quarter, customers became hesitant about building stocks and delayed their purchases over the year-end. Base prices began to decline again during the fourth quarter but stabilised at the end of the year. Compared to 2008, estimates indicate that apparent consumption of stainless steel in 2009 was down by 29% in Europe and down by 8% globally. China, where year-on-year consumption is estimated to have increased by 13%, was the only region in which positive growth was recorded in 2009. Read more about the stainless steel market in 2009. The average German base price for 2mm 304 cold rolled sheet in 2009 was 1 161 EUR/tonne, 2% lower than in 2008. After the collapse of the stainless steel market at the end of 2008, the base price was very low during the first quarter of 2009 at 925 EUR/tonne. The recovery that began in the second quarter lifted the base price to 1 307 EUR/tonne in the third quarter before it fell back to 1 297 EUR/tonne at the end of the year. The transaction price for stainless steel averaged 2 036 EUR/tonne in 2009, 27% lower than in the previous year because of the higher price of nickel in 2008 (CRU). Prices for special grades and project-related products were more stable but weakening demand had a negative impact. Outokumpu's average base prices were somewhat lower than the CRU reference price in 2009. The price of nickel increased from a very low level of 10 000 USD/tonne at the beginning of the year to some 20 000 USD/ tonne after the summer and was at 17 500 USD/tonne at the year-end. The ferrochrome contract price increased gradually during the year, moving from 0.79 USD/lb in the first quarter and 0.69 USD/lb in the second quarter to 1.03 USD/tonne in the fourth quarter. Molybdenum, which is used to make stainless steel acid-resistant, surged from levels of 9 USD/lb at the beginning of the year to 18 USD/lb at the end of the summer, then declined to 11 USD/lb by the end of the year.
Severe losses in historically poor market conditions Lower delivery volumes and lower transaction prices for stainless steel in 2009 resulted in Group sales for the year declining to EUR 2 611 million (2008: EUR 5 474 million). Stainless steel deliveries totalled 1 030 000 tonnes, a significant decline from the previous year (2008: 1 423 000 tonnes).
Outokumpu Annual Report 2009 – Management discussion on financial performance
Operating loss in 2009 was EUR 438 million (2008: EUR 63 million), with net non-recurring costs of some EUR 20 million being included in this figure (EUR 15 million of write-downs resulting from the decision not to proceed with the melt-shop investment in Avesta in Sweden and EUR 5 million of restructuring provisions). In 2008, operating loss included net nonrecurring costs of some EUR 83 million (EUR 66 million of provisions and write-downs related to the closure of the Thin Strip business in Sheffield and some EUR 17 million of provisions related to personnel reductions in Sweden). Raw material-related inventory losses constrained the Group's operating result in 2009 by EUR 78 million (2008: EUR 285 million losses). The underlying operational result for 2009 was EUR 340 million negative (2008: EUR 305 million positive), with the main reason for the decline in operating profit being significantly lower delivery volumes. Lower average base prices also had a negative effect on the result. On the cost side, financial benefits achieved through optimising raw material usage and pricing were reduced in 2009 because of lower metal prices. Cost saving actions implemented in 2009 resulted in EUR 185 million lower fixed costs compared to 2008. Approximately half of these savings are expected to be sustainable. The sharp decline from record-high ferrochrome prices in 2008 and lower delivery volumes due to closure of the Group's mine and ferrochrome production from April to October resulted in a negative year-on-year impact from Outokumpu's own ferrochrome operations in 2009. Net financial income and expenses in 2009 was EUR 25 million negative (2008: EUR 47 million negative). Net financial expenses in 2009 do not include non-recurring items. In 2008, an impairment loss of EUR 21 million (EUR 12 million in the first quarter and EUR 9 million in the fourth quarter) was booked in other financial expenses due to the decline in the share price of Belvedere Resources Ltd, classified as an available-for-sale financial asset. Net interest expenses fell to EUR 22 million (2008: EUR 54 million). Profit before taxes was EUR 474 million negative (2008: EUR 134 million negative). Net profit in 2009 was EUR 336 million negative (2008: EUR 189 million negative) and the net profit from continuing operations was EUR 332 million negative (2008: EUR 110 million negative). Earnings per share was EUR -1.86 (2008: EUR -1.05) and earnings per share from continuing operations was EUR -1.83 (2008: EUR -0.61). The return on capital employed in 2009 was -11.7% (2008: -1.6%).
Balance sheet remains relatively strong despite the heavy loss Due to the significant loss, Outokumpu's return on capital employed of -11.7% in 2009 was a long way from the target of 13.0%. Despite this disappointing result, gearing remained below the target level of 75%, and net cash generated from
Outokumpu Annual Report 2009 – Management discussion on financial performance
operating activities in 2009 was positive at EUR 198 million (2008: EUR 664 million positive). This figure includes a EUR 548 million positive effect from the release of working capital resulting mostly from declining inventory volumes, declining raw material prices and a reduction in accounts receivables. At the end of 2008, Outokumpu decided to postpone investments totalling some EUR 1.5 billion in order to maximise cash flow and maintain balance sheet flexibility in 2009 and afterwards. As a result, capital expenditure in 2009 totalled EUR 245 million compared to the planned level of EUR 850 million. Investments were limited to mandatory maintenance and expansion projects that were close to completion. Major investments in 2009 were the replacement of the No. 2 annealing and pickling line at Tornio Works, the expansion of stock and processing capacity at the Group's service centre in Willich, Germany, the building of a new dispatch hall for quarto plate in Degerfors, Sweden and the doubling of annual special grades production capacity in Nyby, Sweden. Construction of the Group's new service centre in China was also initiated. These investments totalled some EUR 98 million. Outokumpu's financial and liquidity position remains relatively strong. At the end of 2009, the Group's equity-to-assets ratio stood at 50.6%. Net interest bearing debt at the end of 2009 totalled EUR 1 183 million (end of 2008: EUR 1 072 million) with most of the Group's debt maturities extending to the 2010–2013 period. Group cash and cash equivalents stood at EUR 112 million (2008: EUR 224 million) at the end of the year, and committed undrawn credit facilities totalled some EUR 1.1 billion. Committed credit facilities include a three-year EUR 900 million revolving credit facility signed in June 2009. Intended for general corporate purposes, this replaces the comparable five-year EUR 1 billion facility signed in June 2005. The loan agreement includes a financial covenant based on gearing. The facility was fully undrawn at the end of 2009.
Dividend Group earnings per share in 2009 totalled EUR -1.86, with earnings per share from continuing operations EUR -1.83 and earnings per share from discontinued operations EUR -0.02. Total shareholder return (TSR) was 64.4% (2008: -58.6%). TSR is calculated as the annual change in share price plus the dividend, divided by the starting share price for the year. Outokumpu's share price was EUR 8.28 at the beginning of the year and fell to EUR 7.72 on January 23, 2009 before rebounding to EUR 13.26 by the end of the year (respective market capitalisation of EUR 2 400 million). Dividends for 2008 totalling EUR 90 million (EUR 0.50 per share) were paid in 2009. In accordance with the Board of Directors' established dividend policy, the payout ratio over a business cycle should be at least one-third of the Group's profit for the period with the aim of making stable annual payments to shareholders. In its annual dividend proposal, the Board of Directors will, in addition to financial results, take into consideration the Group's investment and development needs. The Board of Directors is proposing to the Annual General Meeting to be held on March 30, 2010 that a dividend of EUR 0.35 per share be paid for 2009. The dividend yield is 2.6% and Outokumpu's average dividend payout ratio over the past five years has been approximately 91%.
Share-related key figures €
2009
2008
Earnings per share
-1.86
-1.05
From continuing operations
-1.83
-0.61
From discontinued operations
-0.02
-0.44
Outokumpu Annual Report 2009 – Management discussion on financial performance
Equity per share
13.54 0.351)
Dividend per share
15.50 0.50
Share price on Dec. 31
13.26
8.28
Market capitalisation Dec. 31, € million
2 400
1 492
1)
Board's proposal to the Annual General Meeting
Economic value added Outokumpu's overall financial objective is to generate the maximum sustainable economic value added on capital invested by its shareholders. Outokumpu uses the weighted average cost of capital (WACC) in defining the capital charge for economic value added (EVA), and applies this when estimating the profitability of investment projects and defining the economic and commercial value of the Group's business operations. In 2009, Outokumpu's WACC after taxes was approximately 6%. This figure was obtained using a target capital structure in which the weight given to equity is 60% and the weight of debt is 40%. The cost of equity was 8.4% and the after-tax cost of debt was 3.3%. Economic value added by Outokumpu's continuing operations in 2009 totalled EUR -547 million (2008: EUR -293 million).
Factors affecting Outokumpu's profitability The stainless steel business is cyclical. In addition to the company's own actions, Group profitability depends on the current stage in the global economic cycle and especially on levels of industrial investment activity. In the long term, demand for stainless steel has been growing at an annual rate of 5–6%. Changes in regional or global production capacity can sometimes have an adverse effect on stainless markets, resulting in temporary imbalances between supply and demand. Increasing stainless steel production capacity in China will continue to have an effect on the global supply situation in future years. A key factor that has a direct effect on Outokumpu's profitability is developments in stainless steel base prices. The level of these prices is linked to both the economic cycle and to levels of industrial investment in the Group's main customer segments. Changes in base prices have also been attributable to strong fluctuations in demand from distributors who are either de-stocking or re-stocking their inventories. Outokumpu's current dependence on traditional nickel-containing standard austenitic grades exposes the Group to demand volatility caused by fluctuations in the nickel price. The distributor sector in particular has postponed placing orders for stainless steel when nickel – and thus stainless steel transaction prices – are expected to fall, resulting in unnecessary demand volatility without any changes in underlying demand. Transaction prices for stainless steel comprise the base price plus an alloy surcharge. The alloy surcharge applied in Europe and North America includes the cost of alloying materials when the prices for these exceed predefined triggerprice levels. The cost of alloying materials for stainless steel – nickel, chrome, molybdenum, iron and titanium – is invoiced to customers by stainless steel producers through the alloy surcharge mechanism, reducing the producer price risk associated with alloying materials. Even so, the price paid for alloying materials feeds through into the amounts tied up in working capital. As Outokumpu's throughput time is longer than the time period applied in the alloy surcharge mechanism, changes in the price of alloying materials may lead to timing differences that have an impact on Group profitability. The alloy surcharge is based on a 30-day average of raw material prices calculated backwards from the 20th day of the preceding month. Outokumpu's operating profit is affected not only by changes in base prices but also by delivery volumes, unit costs and the product mix. When manufacturing stainless steel, capacity utilisation rates also have a major impact on operating profit. Production volumes depend on the demand for stainless, and products are mostly produced to fulfil orders. The product mix also has an impact on profitability – products with higher value added are more profitable.
Outokumpu Annual Report 2009 – Management discussion on financial performance
The Group's chromium mine near Tornio in Finland supplies Outokumpu with the majority of its ferrochrome needs at the cost of production. This has a direct positive impact on Group profitability. Read more about Outokumpu's ferrochrome operations. Stainless steel is fully recyclable. Alloying materials can usually be purchased at a discount when sourced as recycled stainless steel and Outokumpu therefore always attempts to maximise the use of recycled steel in the Group's manufacturing processes. The extent of the discount depends on the prevailing market conditions. When prices for alloying materials are high, the financial benefits of using recycled material can be significant. Some 60% of raw materials used by the Group in production are sourced as recycled stainless steel. As a general rule, currencies in which stainless steel products are priced are determined by the market area: euros in Europe and US dollars in the US and Asia. Price levels in Europe, the US and Asia can differ. Outokumpu is exposed to fluctuations in currency exchange rates primarily because of sales to the Asian and US markets and also because the Group's own ferrochrome production is priced in US dollars. Exchange rates may also impact the relative competitiveness of stainless steel producers on different continents. The majority of Outokumpu's production costs are incurred in euros, Swedish crowns and UK pounds. Prices for raw materials are determined primarily in US dollars, while the alloy surcharge mechanism transfers changes in exchange rates to the euro price in Europe. The table below shows the approximate sensitivity of Outokumpu's operating profit in 2010 to changes in stainless steel base prices, changes in ferrochrome prices and changes in exchange rates between the euro and the main currencies used by the Group. These sensitivities have been calculated on the basis of the average exchange rates in 2009 and the highest achieved delivery volumes.
Outokumpu's sensitivity – effect of sustained change on annual operating profit € million Stainless steel base price, +100 EUR/tonne
180
Ferrochrome price, +5 USc/lb
10
USD/EUR, +10%
30
SEK/EUR, +10%
-40
GBP/EUR, +10%
-8
Outokumpu and stainless steel markets going forward In 2009, the stainless steel industry was hit hard by the ongoing global recession, especially in Europe, and the dramatic decline in demand for stainless steel had a major negative impact on Outokumpu. At the beginning of 2010, although there are still no signs of major improvement in end-user demand for stainless, market conditions have stabilised and are clearly better than they were at the beginning of 2009. Although short-term demand remains depressed and visibility is still relatively poor, long-term prospects for stainless steel demand are robust. The long-term average annual rate of growth in global stainless steel consumption is forecast by SMR (Stainless Market Research) to be 5.5% (CAGR) in the period 2008–2020. Growth is expected to remain strong in Asian markets where capacity has also been increasing rapidly. These significant increases in capacity may cause periods of imbalance when supply exceeds demand, with a consequent impact on the global market and particularly in standard grades.
Outokumpu Annual Report 2009 – Management discussion on financial performance
Despite the external uncertainties in the current operational environment, Outokumpu remains committed to its stated strategy and plans. The Operational Excellence programmes have delivered solid, well-proven results and Outokumpu is focusing strongly on building Operational Excellence in the future. Group-wide cost-cutting actions implemented in 2009 exceeded the original targets and resulted in clear sustainable savings. In the current market situation, Outokumpu's priority is to balance short-term cost and cash flow management with balance sheet flexibility and longer-term strategy implementation. Even though many related investments have been postponed, Outokumpu currently has adequate production capacity available to continue the Group's strategic drive towards a more stable and profitable business model. As a leading producer, Outokumpu is well positioned to capitalise on the world's growing demand for stainless steel.
Outokumpu Annual Report 2009 – Management discussion on financial performance
Operating environment The consumption of stainless steel has during the last decades been growing more rapidly than any other metal in the world. Outokumpu is one of the largest producers of stainless steel and is widely recognised as a world leader in technical support, research and development. According to the current strategic phase, Outokumpu is increasing the share of special grades and special products in its product mix. The global stainless steel market totals 25 million tonnes or some EUR 50 billion. During the last twenty years, consumption has grown at a rate of 4–5% per annum. In Europe (western), the Group's main market area, the market totalled 3.1 million tonnes in 2009. The European consumption has grown by some 2% annually, but declined sharply in 2009 due to the economic slowdown. In recent years, the largest growth globally has occurred in China with an average growth rate of over 10% annually. Outokumpu is one of the world's largest producers of stainless steel with main production facilities located in Finland, Sweden, the UK, the US and the Netherlands. Outokumpu's melting capacity totals 2.55 million tonnes and the finished products capacity for cold rolled material and white hot strip is 1.6 million tonnes. Outokumpu also has annual production capacity of 0.3 million tonnes of long products and plate. In global terms, Outokumpu's biggest site, Tornio Works in Finland, is one of the world's most cost-efficient and the most integrated single-site stainless steel production facilities. At Tornio Works in Finland, Outokumpu produces mainly high volume standard grades of stainless steel while the Avesta integration in Sweden is focusing more on customer tailored special grades and products. Outokumpu has a 18% share of the stainless steel coil market in Europe and a 5% share worldwide. Outokumpu's main markets are Europe (74% of sales in 2009), Asia (14%) and North and South America (10%).
Major stainless steel producers Estimated slab capacity, million tonnes
2009
2011
Acerinox, Spain
3.24
3.32
ArcelorMittal, The Netherlands
3.00
3.00
ThyssenKrupp, Germany
2.90
3.53
POSCO, South Korea
2.80
2.80
TISCO, China
2.60
2.60
Outokumpu, Finland
2.40
2.40
YUSCO, Taiwan
1.98
1.98
Outokumpu Annual Report 2009 – Operating environment
Outokumpu Annual Report 2009 – Operating environment
Market review Stainless steel demand was heavily influenced by the global recession in 2009. The collapse in credit availability had an adverse effect on business conditions and created uncertainty, causing a reduction in business and consumer spending. As a result many stainless steel users were forced to introduce a variety of both temporary and permanent production stoppages and cost reduction measures. These actions in turn reduced stainless steel demand significantly and, subsequently caused the stainless steel industry to operate at relatively-low capacity utilisation rates.
Stainless steel demand was heavily influenced by the global recession in 2009. Global stainless steel end-use consumption fell by 9% in 2009 following a decline of 6% in 2008. China was the only region to register positive growth in 2009 with year-on-year consumption increasing by 18%. Europe was the region that was affected worst, with demand down by 26% following a 3% fall in 2008. Demand in North America was down by 24% following a 19% fall in 2008. Global end-use consumption is expected to grow by 10% in 2010, with positive growth expected to return to all regions. Demand performance in 2009 in industry-led stainless steel consumption segments was poorer than in consumer-related industries – which were harder hit by demand declines in 2008. The largest declines in demand in 2009 were experienced in the industry-related chemical, petrochemical, energy and process & resources end-use clusters. This was a reversal of the situation in 2008 where demand reductions were lowest in industry-led clusters and highest in consumer related industries.
Demand in the chemical, petrochemical and energy segments fell by 23% year-on-year, while demand in process & resources segment fell by 16%. Consumption in all these industries was severely affected by restrictions in the availability of finance and subsequent delays in project approval. In contrast, stainless steel demand in the consumerrelated catering & appliances segment grew by 2%. Compared to industrial and commercial purchasers, consumers were relatively more willing to spend during the year. This was particularly true in China, where demand for stainless steel in catering & appliances grew by 20% in 2009. Global stainless steel consumption in the architectural, building & construction cluster fell by 9% in 2009 following a 7% decline in 2008. Activity in the commercial building construction sector remained at a low level in the developed
Outokumpu Annual Report 2009 – Market review
countries. Although governmental stimulus packages had some positive impact, only a small proportion of this market – products such as re-bars and material for use in bridges – has an effect on demand for stainless steel. Global demand for stainless steel in the transportation cluster declined by 13% in 2009 following a fall of 12% in 2008. In Europe and USA, the wreckage bonus system dampened the negative impact on order intake in the Automotive sector, but there could still be a negative effect on demand in 2010. On the other hand, automotive demand in China and some emerging markets exhibited strong growth in 2009. Long-term prospects for stainless steel demand remain robust. SMR estimates that the average annual growth in worldwide stainless steel consumption will be 5.45% (CAGR) in the 2009–2020 period. Being a leading producer of stainless steel, Outokumpu is well positioned to capitalise on the worldwide growing demand for stainless steel. Source: CRU and Outokumpu
Annual average metal market prices 2009
Change %
2008
2007
2006
2005
Stainless steel Base price
EUR/t
1 161
-2.0
1 185
1 304
1 470
1 174
Alloy surcharge
EUR/t
875
-45.9
1 616
2 534
1 341
942
Outokumpu Annual Report 2009 – Market review
Transaction price
Nickel
Ferrochrome (Cr-content)
Molybdenum
Recycled steel
EUR/t
2 036
-27.3
2 801
3 828
2 811
2 116
USD/t
14 655
-30.6
21 111
37 230
24 254
14 744
EUR/t
10 507
-26.8
14 353
27 161
19 317
11 851
USD/lb
0.85
-51.7
1.76
0.91
0.72
0.74
EUR/kg
1.34
-49.0
2.63
1.46
1.26
1.32
USD/lb
11.42
-61.4
29.56
30.57
25.10
32.51
EUR/kg
18.05
-59.3
44.31
49.17
44.08
57.61
USD/t
223
-44.4
401
280
230
204
EUR/t
160
-41.4
273
204
183
164
Outokumpu Annual Report 2009 – Market review
Risk management Outokumpu operates in accordance with the risk management policy approved by its Board of Directors. The policy defines the objectives, approaches and areas of responsibility of risk management activities. As well as supporting Outokumpu strategy, risk management helps in defining a balanced risk profile from the perspective of shareholders and other stakeholders such as customers, suppliers, personnel and lenders.
Outokumpu has defined risk as anything that could have an adverse impact on activities that the company is undertaking to achieve its objectives.
Definition of risk Outokumpu has defined risk as anything that could have an adverse impact on activities that the company is undertaking to achieve its objectives. Risks can therefore be threats, uncertainties or lost opportunities that relate to current or future Group operations. Outokumpu's appetite for risk, and risk tolerance, are defined in relation to Group earnings, cash flows and capital structure. Risk management is part of the Group's management system and is divided into four stages: identifying risks, risk evaluation, risk control and mitigation, and risk reporting.
Risk management organisation The Outokumpu Board of Directors is ultimately responsible for risk management within the Group. The CEO and The Group Executive Committee are responsible for defining and implementing risk management procedures, and for ensuring that risks are both properly addressed and taken into account in strategic and business planning. Business units and Group functions are responsible for managing risks connected with their own operations. External auditors and Internal Audit monitor the risk management process, while the Group Executive Committee, the Audit Committee and the Board of Directors review key risks and actions taken to manage risk on a regular basis. The Treasury and Risk Management function supports implementation of the Group's risk management policy, facilitates and coordinates risk management, and prepares quarterly reports on risk for the company's management and auditors.
Outokumpu Annual Report 2009 – Risk management
Focus areas Risk management was developed into a more dynamic direction during 2009 by adding quarterly risk reviews and updates to the agenda of Group Executive Committee meetings and by providing regular risk management updates for both the Board of Directors and the Audit Committee.
Risk workshops The management teams of most Business units and several Group functions attended risk workshops in 2009. These workshops covered risk identification, risk evaluation and risk mitigation, and the connections with current strategy planning and performance management processes.
Crisis management Outokumpu initiated a systematic programme of crisis management in 2009. Crisis management teams at corporate level received training in handling different crisis situations and cooperation with internal and external stakeholders.
Credit risks The reduction of insured credit limits by credit insurers has led to an increase in the proportion of uninsured sales. The current shortage of credit limits is expected to continue and the risk of defaults by customers is expected to continue, setting increased requirements for credit management of the Group. Following the Group's new financial risk policy, a development programme aimed at enhancing the organisation's ability to make timely, accurate and high-quality credit decisions was initiated in 2009.
Security and fire safety Security and safety arrangements in fire situations were further improved at several Group sites in 2009. Related development and change initiatives were based on local self-assessment at sites as well as on systematic audits and Group-wide instructions.
Realised risks No major damage to Group property or business interruptions occurred in 2009. The most significant risks realised during the year were related to structural issues in stainless steel markets and to the global recession, with the latter having an impact on stainless markets and the Group's ability to implement planned investment projects.
Outokumpu Annual Report 2009 – Focus areas
Strategic and business risks Strategic risks for Outokumpu are related to the company's business portfolio, the market situation and major investments. Business risks are connected with the company's operating environment, customer behaviour and the economic outlook. Volatility in demand has an almost simultaneous impact on all or almost all strategic and business risks.
Structural overcapacity in stainless markets Demand for stainless steel remained depressed in Outokumpu's main markets in 2009. Increased stainless steel production capacity, especially in China, has led to gradually developing global overcapacity, while lack of demand in Europe has resulted in regional overcapacity. Consequently this development has led to global overcapacity in stainless steel production, and this could limit the Group's growth. Actions taken by Outokumpu to address overcapacity in production include improving cost-efficiency and delivery reliability in the Group's operations, developing distribution channels and increasing sales to end-users.
Eurocentricity of operations Although Outokumpu's sales and distribution network is global, the company's main production facilities are located in Europe. Outokumpu's main market area is also Europe, and depressed levels of demand have had a major impact on stainless steel markets. Minor changes in price levels, periodic demand growth or currency rates in specific market areas and regions can also affect Outokumpu's competitive position and financial performance. Outokumpu has identified operations that are overly Eurocentric as a possible risk to the Group's strategy implementation, even though Eurocentricity can also be seen as an opportunity. Ensuring profitable business operations in Europe requires the company to have a strong foothold with cost-efficient, local operations. Outokumpu will study ways of strengthening its position outside Europe.
Competition in stainless steel focused on the Asian market As growth prospects for stainless steel demand are better in Asia than in Europe, a lot of new production capacity has been built in the region. These significant investments have resulted in cold rolled stainless steel production capacity in China currently exceeding demand. As high levels of stainless steel capacity among Asian producers currently exceed demand from their domestic markets there is a risk that this overcapacity will also affect European markets. While Asian producers are competitive in standard products and basic offerings, business opportunities for Outokumpu in special products and service offerings in Asia are likely to remain. In 2009, Outokumpu expanded its operations in China by investing in a new service centre facility in Kunshan, Shanghai, which will focus on special products and grades.
Continuing weak market situation As the global economic downturn had a clear impact on stainless steel demand, the market for stainless steel remained weak during 2009. Visibility regarding market development was poor during the first half. If challenging global economic conditions continues long, the weak market situation will have an impact on both demand for stainless steel and on prices. Outokumpu has made preparations for a market of this type with readiness plans, operational action to reduce fixed costs, and cost savings programmes. Concerns about related risks resulted in Outokumpu postponing major investment projects in 2009.
Outokumpu Annual Report 2009 – Strategic and business risks
Operational risks Operational risks are related to inadequate or failed internal processes, employee actions, systems, or other events such as natural catastrophes and misconduct/crime. These types of risk are often connected with production operations, logistics, financial processes, projects or information technology and, should they materialise, can lead to personal injury, liabilities, the loss of property, suspension of operations or environmental impacts. Outokumpu's operational risks are partly covered by insurance.
Corporate culture and One Company approach Outokumpu's objective is to achieve a strong and unified corporate culture throughout the company's organisation. To further this aim, the "One Outokumpu" concept has been created, but this kind of a significant culture change takes time. The change can be seen as an opportunity to increase operational effectiveness in operations by cross-cultural cooperation between people. Even so, country-based or overly independent corporate cultures can restrict operational progress and achievement of strategic goals. Implementation of strong Group-level functions such as Supply Chain Management and Group Sales and Marketing play a vital role in furthering the One Company approach.
Investment projects Outokumpu's announced major investment programme was postponed almost entirely at the end of 2008 due to the global financial crisis and weakened markets for stainless steel. Some investments such as the service centre expansion in Willich, Germany and the new plate service centre in China are however being carried out. As preparation for the future, Outokumpu is aiming to further develop project management methods to support the implementation of investment projects and manage risks related to the whole of the Group's project portfolio. The proposed investment in additional melting capacity at Avesta, Sweden was permanently cancelled at the end of the third quarter of 2009, resulting in an asset write-down of EUR 15 million.
Variations and lack of flexibility in production performance Outokumpu has systematically developed the Group's operative performance through excellence initiatives, with a significant number of the company's personnel being trained to implement these improvement measures in both commercial and production operations. However, risks associated with not being able to adapt capacity to meet fluctuating levels of demand and experiencing excessive variations in production performance can have an impact on the Group's business operations. For example, if the Group is not able to ramp up its production to meet fluctuating demand due to delays in product output resulting in reduced delivery reliability, this might have negative financial impact. As mitigation against such risks, Outokumpu is expanding the Group's Operational Excellence programmes and enhancing strategy implementation by strengthening Group-level functions such as Supply Chain Management and Group Sales and Marketing.
Major fire or accident Most of the Group's production is located in large industrial areas and comprises a number of separate buildings and production lines. Stainless steel production by Outokumpu also involves the integration of production and logistics between the Group's facilities in Tornio (Finland), Terneuzen (the Netherlands), Avesta (Sweden), Sheffield (the UK) and other locations. Production is capital intensive and a large part of the Group's operating capital is tied up in these facilities. Fire or a serious mechanical breakdown can lead to major damage to property or the loss of production, or have other indirect adverse effects on Group operations. Outokumpu monitors such risks by continuously evaluating its
Outokumpu Annual Report 2009 – Operational risks
production facilities and processes from a risk management perspective and by arranging insurance coverage for a large proportion of these risks.
Corporate security Outokumpu continued to develop the Group's corporate security in 2009 with a focus on crisis management. Systematic auditing of site security continued at numerous sites and the audit results generated many initiatives to enhance security levels. Outokumpu also has a fire-safety audit programme linked to the company's insurances. In 2009, approximately 40 audits were carried out using the Group's own resources, and on many occasions these were conducted jointly with technical experts from the company's insurers and insurance brokers. With the aim of harmonising different practices within the Group, a significant number of Group-wide instructions relating to fire safety and security were reviewed and updated in 2009. These instructions were prepared in cooperation with the Outokumpu Security Working Group (OSWG), the operational body for personnel at Outokumpu sites whose responsibilities include safety and security.
Outokumpu Annual Report 2009 – Operational risks
Financial risks Financial risks comprise market, liquidity, refinancing, country and credit risks. As nickel is used as an alloying material in stainless steel production, one of the main market risks for Outokumpu is the nickel price. Financial risk management within the Group is further described in Note 20 to the consolidated financial statements.
Outokumpu Annual Report 2009 – Financial risks
Corporate responsibility risks Protecting the Group's personnel, assets and reputation against a wide range of potential losses is an essential component in our operations. In all areas of risk management, the key element is having a good overview of any underlying risks. Risk workshops were arranged in business units and key Group functions in 2009, and development work with top management was continued in order to institute frequent risk reporting and follow-up procedures. As instability in the financial and economic environment increased during the year, the emphasis in this work was on the management of strategic and financial risks connected with the weaker market situation, the nickel price and customer credit. Read more about corporate responsibility risks here.
Outokumpu Annual Report 2009 – Corporate responsibility risks
Outokumpu's business and business units Outokumpu's product range covers both standard and special grades and products. The Group's main production facilities are efficient integrated stainless steel mills located in Tornio, Finland and Avesta, Sweden. There is also a production route from the Sheffield melt shop in the UK to several long product and plate production units in Sweden, the UK and the US.
Outokumpu is one of the top players in the global stainless steel market with a European market share of 17%. Outokumpu's organisation serves customers in an optimal way. Group Sales and Marketing is organised into customer industry-based groups, and Group production operations are organised into two divisions based on the type of product: General Stainless and Specialty Stainless. Group Sales and Marketing, a cross-organisational function, is responsible for the Group's commercial targets while Supply Chain Management is responsible for end-to-end delivery performance. The Group also has a comprehensive network of sales companies, service centres and sales agents in some 70 countries. Outokumpu's strategy aims at achieving a more stable and profitable business model by increasing the share of sales to end-user and project customers. Read more about strategy.
A significant share of the Group's sales is going to distributors, re-rollers and tubemakers. These segments continue to be essential for the Group's total business, while Outokumpu is looking for growth in value-adding end-user segments such as various industrial uses, construction, and catering and appliances. As a supplier for project applications, market segments such as pulp and paper, desalination plants, and oil and gas are central to the Group's development.
Stainless steel deliveries 1 000 tonnes Cold rolled
2009
2008
2007
545
739
703
Outokumpu Annual Report 2009 – Business Operations
White hot strip
263
330
314
Quarto plate
67
120
146
Tubular products
53
70
65
Long products
40
55
54
Semi-finished products
63
109
137
1 030
1 423
1 419
Total deliveries
Three main types of stainless steel Stainless steel is made of iron by adding chromium. All stainless steel grades contain a minimum of 10.5% of chromium. Chrome gives stainless steel its corrosion resistance. The main grades of stainless steel are: Austenitic (typically 18% chromium and 8% nickel) Ferritic (chromium up to 24%, no nickel) Ferritic-austenitic (1.5–5% nickel) Outokumpu's duplex steel grades are ferritic-austenitic, contain only small amounts of nickel, and are very strong and corrosion resistant.
Outokumpu Annual Report 2009 – Business Operations
General Stainless – high-quality standard stainless steel Outokumpu's General Stainless division produces high-quality standard stainless steel in the form of coil, sheet and long products. The main market is Europe. In this standard high-volume market segment, cost efficiency, high quality and delivery reliability are key competitive advantages. Outokumpu aims to maintain its cost leadership in standard stainless steel grades through the advantages offered by the Group's integrated stainless steel plant in Tornio, Finland. The main applications for General Stainless products are in industrial segments such as chemicals and petrochemicals, construction and energy-related industries, pulp and paper, catering and households. Customers are mainly distributors and processors who stock and process stainless steel to serve end customers. General Stainless consists of Tornio Works and Long Products. The majority of the Group's stock and processing units and its sales companies are also reported under General Stainless.
General Stainless key figures € million
2009
2008
2007
Sales
2 065
4 147
5 321
of which Tornio Works
1 292
2 701
3 468
Operating profit
-259
-6
220
of which Tornio Works
-183
66
178
-
-
-
Operating capital on Dec. 31
2 421
2 663
2 607
Return on operating capital, %
-10.2
-0.2
8.1
Capital expenditure
129
332
57
Depreciation
141
135
133
Non-recurring items in operating profit
Outokumpu Annual Report 2009 – General Stainless
Personnel on Dec. 31
3 753
3 938
3 571
Cold rolled
486
628
587
White hot strip
248
297
270
Semi-finished products
196
340
383
Total deliveries of the division
929
1 265
1 240
1 000 tonnes Deliveries of main products
Outokumpu Annual Report 2009 – General Stainless
Efficient integrated single-site operation Located in northern Finland, Tornio Works is one of the largest stainless steel mills in the world and also the world's most integrated single-site operation. The main products are cold rolled and hot rolled 300-series austenitic stainless steel coils and sheets, ferritic grades are also part of the product portfolio. The integrated production process starts at the nearby Kemi chromite mine, continues in the Tornio ferrochrome smelter and proceeds through two stainless steel melt shops, a hot rolling mill and cold rolling lines. The majority of finishing operations are carried out in Terneuzen in the Netherlands. Annual production capacities at Tornio Works are: 1.65 million tonnes of melting 1.6 million tonnes of hot rolling 1.2 million tonnes of finished products from the cold rolling mills Majority of stainless steel produced in Tornio is standard austenitic stainless containing nickel in addition to chrome and iron. Outokumpu also produces 400-series ferritic stainless steel in Tornio. As ferritic grades do not contain nickel, prices for these products have traditionally been less volatile than those of the Group's main product, 300-series austenitic stainless steel. Outokumpu's production capacity in ferritic grades totals some 180 000 tonnes. Some black hot band material from Tornio is also delivered to both internal and external customers. Research and development activities carried out at the Tornio Research Centre focus on process, product and application development. Read more about R&D.
Outokumpu Annual Report 2009 – Tornio Works
Tornio Works' competitive edge Tornio Works is the Group's largest production unit and one of the world's most cost-efficient stainless steel operations.
Integration into chrome and ferrochrome Outokumpu's unique backward integration into chromium and ferrochrome production offers the Group significant competitive advantages. Having its own chromium supply is both a significant cost advantage and a way of mitigating risk. Chromite ore is mined at the Kemi underground mine and converted into ferrochrome at Tornio Works. For Outokumpu, the primary benefit is the ability to source the material at cost while selling it at prevailing market prices. As Outokumpu's ferrochrome smelter is located at the same site as the integrated stainless steel mill, ferrochrome can be transferred to the stainless steel melt shop in liquid form, an exceptional advantage in terms of energy and logistics costs. Read more about ferrochrome.
Tornio Works is one of the world's most cost-efficient stainless steel operations.
RAP line The integrated rolling, annealing and pickling (RAP) line provides additional production flexibility as production can be shifted between hot rolled (white hot strip) and cold rolled products in accordance with market demand. As well as yielding a clear cost advantage, the RAP line requires less working capital than traditional cold rolling processes in which the annealing and pickling operations are carried out on separate lines.
Efficient logistics Tornio Works is located by the sea and has its own harbour. This allows finished products to be shipped to Europe for further distribution in a highly efficient manner.
Outokumpu Annual Report 2009 – Tornio Works’ competitive edge
Ferrochrome Chromium provides stainless steel with its corrosion resistance. Some 90% of the chromite mined around the world is converted into different grades of ferrochrome and used by the metals industry. The stainless steel industry consumes about 90% of globally produced ferrochrome (mainly high-carbon and charge grade). Global ferrochrome production in 2009 declined significantly due to global production cut backs and totalled 5.6 million tonnes (2008: 7.7 million tonnes). Major producers of ferrochrome are South Africa (41%), China (21%), Kazakhstan (16%) and Finland (2%).
Outokumpu is 60–65% self-sufficient in ferrochrome. Outokumpu's unique position – a wholly-owned chromite mine in Kemi in northern Finland with its own ferrochrome production located, at the same site as the Tornio Works stainless steel plant – gives the Group a clear competitive edge. The main benefits of this integrated production chain are: Sourcing of raw material at cost while pricing chromium contained in stainless steel products at the prevailing market price Transfer of ferrochrome to the Tornio Works stainless steel melt shop in liquid form (savings in energy, transportation and logistics costs) The use of carbon monoxide gas emanating from the ferrochrome process as fuel in the stainless steel mill (reducing the need for external energy supplies) Outokumpu is 60–65% self-sufficient in ferrochrome and able to satisfy the Tornio Works' needs internally. Recycled stainless steel provides most of the balance, but primary ferrochrome is also purchased on the global market. According to a seismic research report produced by the Geological Survey of Finland in late 2009, the mineral resources at the Kemi Mine could turn out to be significantly greater than earlier estimates. The intrusion containing chromium ore extends to a depth of 2–3 kilometres, possibly to four kilometres and the chromitite layer possibly extends to a depth of at least 2–2.5 kilometres or more. Proven ore reserves at the Kemi Mine total some 37 million tonnes and the quantity of mineral resources totals some 87 million tonnes (estimated to a depth of 1 kilometre). The new information indicates the existence of resources sufficient to allow centuries of mining activity even with doubled annual production volumes (the previous estimate was 70–80 years). Outokumpu's mineral resources will not be updated based on these findings.
Kemi Mine and Tornio ferrochrome smelter Production
2009
2008
2007
Ore excavated, million tonnes
0.5
1.3
1.2
Chromite concentrates, 1 000 tonnes
247
614
556
Ferrochrome, 1 000 tonnes
123
234
242
Million tonnes
Grade
Ore reserves and mineral resources Dec. 31, 2009
Outokumpu Annual Report 2009 – Ferrochrome
Ore reserves Proven
37
26% Cr2O3
Indicated
13
30% Cr2O3
Inferred
73
29% Cr2O3
Mineral resources
Outokumpu Annual Report 2009 – Ferrochrome
Long Products Sheffield The Sheffield melt shop in the UK has an annual operational production capacity of some 400 000 tonnes. With currentmanning, production capacity is some 250–300 000 tonnes. The melt shop produces both slabs for flat stainless steel production and billets and blooms for the production of long products. Investment in Long Products' finishing facilities in Sheffield began in 2008 and is being finalised in the first quarter of 2010. Totalling some EUR 10 million, the investment has resulted in an integrated manufacturing route for small bar and reinforcing bar that complements Sheffield's existing melt shop and wire rod mill.
Degerfors The hot rolling mill in Degerfors, Sweden produces rolled billets and heavy bars from blooms cast in Sheffield. Annual operational rolling capacity at Degerfors is some 50 000 tonnes.
Other production Outokumpu's wire rod operations in Sheffield and bar production in Richburg, S.C. in the United States have an annual delivery capacity of some 80 000 tonnes of long products. The Group also has a 50% stake in Fagersta Stainless, a company located in Sweden that manufactures and sells stainless steel wire rod and wire products.
Outokumpu Annual Report 2009 – Long Products
Specialty Stainless – special grades and products Outokumpu's Specialty Stainless division supplies both flat and stainless tubular products for tailored solutions and demanding customer applications. Project orders form an important part of the business, supported by a strong R&D function and extensive, long-term experience in delivering tailored solutions.
End-users Specialty Stainless serves customers with very high requirements for steel grade, shape, thickness and surface finish in the oil and gas, chemical and petrochemical and pulp and paper industries as well as nuclear power plants.
Products, production and R&D The main products produced by Specialty Stainless are hot and cold rolled sheet, quarto plate, tubes and a variety of fittings, and precision strip. Most of the stainless steel slabs supplied to Specialty Stainless units come from Outokumpu's melt shops in Avesta, Sweden and Sheffield, the UK. In terms of finished products, Specialty Stainless units have a production capacity of: 500 000 tonnes of cold rolled and white hot strip and plate 170 000 tonnes of quarto plate 100 000 tonnes of tubular products The focus of operations in Specialty Stainless is on differentiation and further specialisation in special grades and products, with development opportunities being offered to meet specific customer needs. Duplex grades in particular are an effective response to the increasing competition from standard grades of stainless steel. Outokumpu is a market leader in duplex grades with a global market share of some 50%. Read more about duplex. At the Group's Avesta Research Centre in Sweden, the focus of R&D is on developing new grades of stainless steel, new applications and identifying the best solutions for each Outokumpu customer. Read more about R&D.
Specialty Stainless key figures € million
2009
2008
2007
Sales
1 239
2 705
3 456
Outokumpu Annual Report 2009 – Specialty Stainless
Operating profit
-149
-101
337
-20
-83
14
Operating capital on Dec. 31
1 035
1 174
1 513
Return on operating capital, %
-13.5
-7.5
21.7
Capital expenditure
93
170
69
Depreciation
62
63
63
3 361
4 006
4 099
Cold rolled
86
154
174
White hot strip
92
142
135
Quarto plate
71
126
151
Tubular products
47
66
63
Long products
38
52
52
335
541
574
Non-recurring items in operating profit
Personnel on Dec. 31
1 000 tonnes Deliveries of main products
Total deliveries of the division
Outokumpu Annual Report 2009 – Specialty Stainless
Special Coil and Plate Special Coil and Plate offers a wide range of special grades and products in a variety of dimensions.
Production facilities Special Coil and Plate consists of the integrated Avesta production facility (coil and continuously produced plate) and Hot Rolled Plate (quarto plate) production in Degerfors, Sweden and New Castle, IN, in the US.
Products and production Avesta is a world-class supplier to the process industry of two-metre-wide, thick cold rolled and white hot rolled products and continuously produced plate. The integrated Avesta production facility covers the entire production chain from melt shop through hot rolling to cold rolling. Approximate annual operational production capacities at Avesta are: 500 000 tonnes for melting with the current mix 450 000 tonnes for hot rolling (current manned capacity) 250 000 tonnes of finished products Avesta supplies the Nyby and Kloster cold rolling mills with black hot band material. Slabs and steckel hot rolled plate are supplied to hot rolled plate operations. Outokumpu is the market leader with a 20% global market share in hot rolled plate (quarto plates). Thick, wide, and individually rolled quarto plates are used in demanding applications in the pulp and paper, oil and gas, power plant and desalination segments, and in chemical tankers. Outokumpu produces quarto plates at Degerfors, Sweden and in New Castle, IN, in the US. Production capacity of quarto plates at Degerfors is 110 000 tonnes, at New Castle it is 70 000 tonnes. The Group's plate service centres in Europe complement these facilities. In accordance with Outokumpu strategy, the product mix at both Avesta and Degerfors, and quarto plate production at New Castle, is being shifted from standard grades towards increased production of value-added, tailor-made special grades – especially duplex – to offer end user and project customers the Group's full product range.
Outokumpu Annual Report 2009 – Special Coil and Plate
Thin Strip The Group's Thin Strip operations consist of the cold rolling mills at Nyby and Kloster in Sweden. These mills have a combined annual delivery capacity of approximately 145 000 tonnes (Nyby some 100 000 tonnes and Kloster some 45 000 tonnes). Thin strip products are mainly used in plate heat exchangers, domestic heaters and heating elements, flexible tubes, automotive head gaskets. In the first quarter 2009, the Thin Strip operations at Sheffield Special Strip, SSS, in the UK were closed. At the beginning of October 2009, a new grinding line and with an automated storage and an entry section to the annealing and pickling line was taken into operation in Nyby. This investment is doubling the annual production capacity of special grades to over 70 000 tonnes.
Outokumpu Annual Report 2009 – Thin Strip
OSTP (Outokumpu Stainless Tubular Products) Products and production OSTP manufactures and markets welded stainless steel tubes and pipes as well as butt-welded and threaded fittings. With an 18% market share in the process-pipe segment, Outokumpu is one of Europe's largest producers of stainless steel tubes. Tubular products are manufactured in Sweden, Finland, Estonia, the US and Canada. The main products – process pipes and fittings, heavy-wall pipes and heat-exchanger pipes – are used in most segments of the process industry: pulp and paper, oil and gas, chemical and petrochemical, automotive, and construction. Annual delivery capacity at OSTP totals some 100 000 tonnes. As part of the restructuring of OSTP, the operation producing structural hollow sections in Pietarsaari, Finland was sold to Stalatube Oy, a Finnish company, in 2009. Closure of the OSTP site in Veteli, Finland is scheduled to take place during the first quarter of 2010. Production will be moved to Jakobstad in Finland and Örnsköldsvik in Sweden. In Saudi Arabia, OSTP's joint venture with the tube manufacturer Armetal is creating the largest local producer of process pipe. Investments made during the past year have expanded the product range substantially.
Outokumpu Annual Report 2009 – OSTP
Duplex grades Demand for ferritic-austenitic duplex grades is growing significantly faster than demand for standard stainless grades. In addition to low nickel content, duplex stainless steel is characterised by good corrosion resistance and high strength, enabling the use of thinner gauges in a variety of applications such as tanks, pressure vessels, piping, transportation, building and construction, and desalination plants. Considerable savings in material costs are the result. Outokumpu is a clear market leader in duplex grade stainless with a global market share of some 50%. Avesta Works has a long and successful track record in duplex production, a very demanding process. Outokumpu has developed and patented LDX 2101®, a Lean Duplex grade with a nickel content of only 1.5%, a feature which makes its price less dependent on the volatile price of nickel. In terms of corrosion resistance, the performance of LDX is similar to that of standard austenitic 304 grade (8% nickel), but Outokumpu's Lean Duplex is twice as strong and has met with great success in demanding applications. To facilitate its market penetration, Outokumpu has awarded manufacturing licences to a number of stainless steel producers in Europe and Asia.
Outokumpu Annual Report 2009 – Duplex grades
Group level functions Outokumpu's main Group level functions include Group Sales and Marketing, Supply Chain Management and Research and development.
Outokumpu Annual Report 2009 – Group level functions
Group Sales and Marketing Customers in a wide range of industries – from catering and appliances to building and construction, transportation and chemical, petrochemical and energy, as well as process and resources – use the Group's stainless steel and its services worldwide. Fully-recyclable, maintenance-free, strong and durable; stainless steel is one of the key building blocks for a sustainable future. What makes Outokumpu special is its total customer focus from R&D to delivery. Outokumpu offers world-class stainless steel, technical know-how and support to activate its customers' ideas.
Commercial organisation based on industry groups Launched in April 2008, Group Sales and Marketing, the Group's new commercial organisation, completed its first full year of operation in 2009. Sales and marketing is organised into customer specific industry groups in order to best understand the needs of different customers and to provide them with the best possible service. Group Sales and Marketing consists of two global sectors: end-users and projects, distributors and processors, as well as regions and stock & processing operations. Each sector is divided into clusters, enabling Outokumpu to offer customers the whole range of products and services, to specialise in customer industries and identify optimal solutions. Regions and stock & processing operations comprise Outokumpu's network of sales companies and the Group's service centres.
Headquarters located in Belgium Outokumpu's commercial headquarters are located in Zaventem, Belgium, close to Brussels. The Brussels office is the central working and meeting location for cluster teams, and houses also Group Sales and Marketing management as well as other central commercial functions.
Outokumpu Annual Report 2009 – Group Sales and Marketing
End-user and project customers – business expected to grow Outokumpu's objective is to increase the relative share of end-user and project business to support the company's strategy of developing a more stable and profitable business model. By building on the Group's customer service, technical expertise, product development and international reach, Outokumpu is aiming to increase this share to more than half of Group sales. A number of initiatives are being implemented to achieve this objective.
Broadening the product mix Outokumpu is broadening its product mix. In addition to production of austenitic and various special grades, ferritic (400 series) grades were introduced to the Group's product portfolio in 2009. Manganese (200 series) grades are also produced according to market demand.
Organisation Outokumpu's end-user and project business is organised into five clusters of segments according to customer industry: Architectural, building and construction Transportation Catering and appliances Chemical, petrochemical and energy Process and resources In addition to serving key account customers, a significant amount of segment effort is targeted towards developing new business. Each segment is managed by dedicated teams consisting of key account managers, application and product experts, R&D and supply chain specialists, as well as the Group's sales force in all the countries supplied by Outokumpu. Although Western Europe is Outokumpu's main market from a geographical perspective, the company is also seeking significant growth in China, Eastern Europe and India. A key component in Outokumpu's end-user and project customer business is the service provided for all key accounts. Dedicated key account managers and their teams serve key accounts in a personalised manner, offering the Group's full product portfolio and tailor-made solutions to customers globally.
Outokumpu Annual Report 2009 – End-user and project customers
Distributors and process customers – a focus on stable and long-term relationships A significant proportion of the stainless steel market is served by distributors and service centres. These customers make up a large part of the Group's customer base and continue to be the company's key business partners. Outokumpu is aiming to strengthen its relationships with stable long-term distributor and processor customers to support the Group's strategy of developing a more stable and profitable business model. This is of particular importance in high-volume standard products. Large-volume re-rollers and tube makers also represent an important market for Outokumpu. As with distributors, close and stable relationships with these customers are of particular importance, enabling the Group to develop products, processes and working methods that benefit customers in the long term.
Organisation Outokumpu's distributor and processor business is organised into two clusters: Distributors Re-rollers, tube-makers and further processors Some members of the Group's sales teams focus exclusively on these customers, enabling Outokumpu to respond to the specific needs of distributors and large-volume processors.
Outokumpu Annual Report 2009 – Distributor and process customers
Sales offices and service centres – regions and stock & processing A focus on daily sales Outokumpu's network of sales companies and the Group's service centres are managed through the Regions and stock & processing operations function. The company's more than 30 sales companies are divided into six regions. Outokumpu has sales personnel in almost 40 countries with another 30 countries being served through dedicated agents. Service centres operate as part of the sales company in the country in which they are located. A central team is responsible for the processing and supply-chain efficiency of the service centre network.
Expansion of service centre network Outokumpu's service centre network has a central role in serving end-user and project customers. The Group expanded capacity at its service centre in Willich, Germany in 2009. A greenfield service centre that will process mainly special grades is being built near Shanghai in China, with operations scheduled to start in the first half of 2010.
Outokumpu Annual Report 2009 – Sales offices and service centres
Supply Chain Management Supply Chain Management strategy Outokumpu's Supply Chain function supports the Group strategy of offering customers technically superior products and services. The aim of Supply Chain Management is to increase sales to end-users and projects while maintaining a focus on the distributor and processor sector. The objective of Supply Chain Management is to optimise the flow of products from raw materials through production to final delivery to the customer, enhancing production stability and improving the efficiency of inventory management while simultaneously developing the Group's ability to deliver to its customers on time. Supply Chain Management includes the Production Excellence programme (OK>1) and covers raw material and general procurement, logistics and supply chain operations.
Achievements in 2009 In many industries, 2009 was a very difficult year due to the impact from the global economic recession. Outokumpu, however, will be better positioned to meet and adapt to current and future challenges with its renewed organisation and more efficient processes within supply chain. Focus was on developing and creating uniform ways of working within Outokumpu's production sites and business units. This enables the Group to optimise the entire material flow creating shorter and more stable lead times for both internal and external customers. In 2009, the Group's delivery performance improved for the third consecutive year and total inventories were reduced by approximately 25%.
Outokumpu Annual Report 2009 – Supply Chain Management
Production Excellence Outokumpu's Production Excellence programme (OK>1) made good progress in 2009. Total benefits from the Group-wide Operational Excellence programmes, which include Commercial Excellence, Production Excellence and Supply Chain Excellence, totalled EUR 150 million. Targeted benefits for OK>1 in 2009 were realised and the number of improvement teams increased by more than 75%. Annual audits of the Group's manufacturing plants also showed an improvement in the average audit score. Most of the work done in 2009 was carried out using internal resources, minimising external consulting costs.
Understanding losses The purpose of the Production Excellence programme is to reduce waste, i.e. to indentify and take advantage of improvement opportunities. Work on developing a good understanding of operational losses has continued. This allows local management teams to prioritise the necessary improvement activities. This process will allow more focused activities to be undertaken in 2010 and consequently increase the achieved benefits.
The purpose of the Production Excellence programme is to reduce waste.
Deploying resources Dedicated improvement teams have investigated and addressed the prioritised losses. The number of improvement teams increased by 75% in 2009, achieving significant cost and inventory savings. The number of people involved in workplace improvements increased significantly and enabled the development of autonomous maintenance and safety activities. Approximately 60% of all employees have now been involved in providing support for improvement activities in 2009.
Sustainable achievement Sustaining the gains is proof of the improvement work. Although temporary and permanent layoffs in 2009 caused some operational difficulties, OK>1 tools and techniques were used to identify and resolve issues and restore operational capability. The development of improved daily management, performance control and autonomous maintenance activities continued to provide a good platform to maintain operational improvements.
Training and development Training of Outokumpu personnel involved in Production Excellence continued in 2009. Investment in training continued in the form of the 15-month Production Excellence Change Agent training programme. More than 150 change agents have now been trained or are currently in training. Further training and development took place to support Outokumpu's autonomous maintenance activities in most plants.
Outokumpu Annual Report 2009 – Production Excellence
A development platform The OK>1 programme supports development of supply chain improvements at most of Outokumpu's large production units. Safety improvements using OK>1 tools were also introduced in 2009 and a number of production units enjoyed a full year without lost-time accidents. This will also be a focus area in 2010. Sharing of best practices and the development of improved corporate standards will also continue in Outokumpu in 2010.
Outokumpu Annual Report 2009 – Production Excellence
Procurement Excellence Procurement Excellence programme Under the pressure of the global recession, cost control has become more crucial than ever. Outokumpu's Procurement Excellence programme (PEX), part of Supply Chain Excellence, is the Group's key driver in reducing purchasing costs. Procurement Excellence aims at building capabilities for continuous improvement in procurement and reducing Outokumpu's total cost of purchasing by eliminating the losses that result from fragmented purchasing volumes, a lack of alternative sources, untapped supplier know-how, non-value-added activities and uncontrolled expenditure. Procurement Excellence is not a short-term project but a key driver for continuous improvement in procurement function. Procurement Excellence is based on a category management approach which leverages knowledge of suppliers, products and services, development of professional procurement capabilities, optimal use of materials, products and services, and leverage of Group purchasing power.
The OUPEX programme The Outokumpu Procurement Excellence programme (OUPEX) is a Group-wide procurement development programme for implementing a common way of working and a common SAP system as well as raw materials purchasing and inventory management. The system is based on a common template jointly designed by several business units within the Group. Implementation will take place in phases: OUPEX will first be taken into use at Tornio Works before being rolled out at other sites.
The Quick Wins project Launched at the beginning of 2009, Quick Wins, a special project targeting short-term savings through the renegotiation of terms and conditions with selected suppliers, achieved significant Group-wide savings.
Outokumpu Annual Report 2009 – Procurement
Raw materials optimisation Following an assessment of the market situation in 2009, a decision was made that Outokumpu would not cover all its primary metal needs through long-term contracts. As there was a surplus of raw material on the market and the associated terms and conditions were attractive, this proved to be a wise move. The Group continued using a very high proportion of its raw material consumption in the form of recycled steel and the use of these environmentally friendly raw materials resulted in lower raw material costs. Very good progress was made in optimising the Group's use of raw materials in 2009, with significant cost benefits being achieved. Raw materials optimisation will continue to be a focus area in 2010. Outokumpu's raw material stocks were considerably reduced in 2009. Close monitoring of the stocks will continue in 2010 with the aim of achieving optimal stock levels.
Outokumpu Annual Report 2009 – Raw materials
Research and development Avesta focuses on special grades Tornio develops ferritic grades Application development focus is on process industries Active participation in international associations Development of efficient and environmental friendly production processes The Outokumpu research centres in Tornio, Finland and Avesta, Sweden focus on process, product and application development. Some process and technology development work is also carried out in production units. The R&D function operates in close cooperation with the Group's commercial organisation and customers, and direct feedback regarding customer needs serves as input for further product development. In 2009, the R&D function employed almost 200 professionals and investments in R&D totalled EUR 19 million.
Avesta focuses on special grades At the Avesta Research Centre, the focus is on special grades including duplex grades, high-alloyed corrosion-resistant austenitic grades and heat-resistant alloys. Much effort has gone into developing duplex grades, which offer a good combination of strength and corrosion resistance with lower nickel content. Ideal applications for the use of duplex grades are large heavy-wall tanks where weight savings of some 20% can be achieved. Customers have shown a growing interest in LDX 2101®, Outokumpu's own development of Lean Duplex. New applications are continually being developed and related production technology has been improved. In high-alloyed corrosion-resistant austenitic and heat resistant grades, Group R&D has also been actively involved in technical marketing aspects of older developments such as 254 SMO® and 253 MA®.
Outokumpu research centres in Finland and Sweden focus on process, product and application development.
Tornio develops ferritic grades The Tornio Research Centre develops non-nickel-containing ferritic grades which offer the biggest opportunity to reduce the effects of varying nickel prices on raw material costs. The R&D function at Tornio has investigated optimum process parameters and product properties for standard ferritic grades at production scale, with the primary focus being on surface quality, formability and corrosion resistance. Four different grades, mostly for use in indoor applications, kitchen utensils, domestic appliances and the transportation segment, are now part of the Group's product portfolio. Manganese-alloyed grades (200-series) are the third opportunity to reduce the quantities of nickel used and also represent an interesting alternative in many applications. The most common product of this type is commodity grade 201, whose chemistry has been modified by Outokumpu. With corrosion-resistant properties almost equal to those of standard austenitic 304 (Cr-Ni), other properties of this grade include higher strength and good formability.
Outokumpu Annual Report 2009 – Research and development
Application development focus is on process industries The traditional focus of application development has been the process industries, where stainless steel plays a dominant role in the manufacture of industrial equipment used in the pulp and paper, oil and gas, desalination and chemicals segments. Outokumpu's R&D experts provide advice to the Group's commercial organisation and customers on product properties and material selection. Stainless steel's high strength and good formability have resulted in its use as a construction material being investigated in the architectural, building and construction and transportation sectors - its lower weight and low life-cycle costs make it an excellent substitute for many other materials. Potential new automotive application were studied is the Next Generation Vehicle project, a cooperative project involving European stainless steel producers, car manufacturers and engineering companies which was completed in 2009. In crash tests, passenger-car components made of high-strength stainless steel have yielded very promising results.
Active participation in international associations In addition to participating in EU cooperation projects, Outokumpu experts are active members of many international associations such as ISSF and EuroInox. Together with other steel and engineering companies and universities, the Group is also actively involved in new FIMECC (Finnish Metal and Engineering Competence Cluster) research programmes in Finland. During 2009, Outokumpu experts gave several presentations at international conferences on stainless steel manufacturing, material properties and the selection criteria for different applications. The 10th edition of the Outokumpu Corrosion Handbook was published in 2009. Regarded as an authentic guide to the corrosion resistance of stainless steel for more than 60 years, the handbook provides essential information for metallurgists, design engineers and fabricators all over the world, as well as serving the needs of stainless steel users, academics and students.
Development of efficient and environmental friendly production processes In addition to new products and new applications for stainless steel, the Group's R&D operations focus on innovative and energy-efficient manufacturing processes that reduce costs, result on lower emissions, shorten lead times and improve quality levels. The main subject of environmental research in 2009 was slag utilisation, and studies on both the properties of different slag products and the development of applications continued.
Outokumpu Annual Report 2009 – Research and development
Raising levels of corporate responsibility in a changing world Improvement of Outokumpu's performance and reporting on corporate responsibility issues continued in a more challenging world. Stated simply, our development concept involves listening to stakeholders, moving from words to actions and turning actions into results step-by-step. Our objective is to listen to our key stakeholders, achieve sustainable competitiveness, combat climate change and improve the well-being and safety of Outokumpu people. Environmental and health and safety (EHS) issues are – and have always been – subjects of primary importance for the Group's profitability and competitiveness and for the well-being of our personnel. We make no compromises in Outokumpu regarding these issues, and there is always room for improvement. Developments in occupational safety are monitored via regular reports at corporate management meetings. All management committees and equivalent bodies throughout the Group begin each meeting with a safety review, and safety is a top priority at all times even when producing lower volumes. As in 2005, to ensure an exceptionally strong focus on safety issues, 2010 has been named a Safety theme year. We pay particular attention to the well-being of Group personnel, our suppliers and the wishes of our customers. As a listed company, Outokumpu is committed to generating profit for its shareholders. During the current global downturn, acting responsibly and attempting to keep the three aspects of corporate responsibility in balance is more important than ever. The very sharp decline in demand for stainless steel products in 2008 and 2009 forced us to take heavy actions with impact on us and on our stakeholders.
Outokumpu Annual Report 2009 – Corporate Responsibility
Outokumpu in many indices and initiatives DJSI STOXX and World
ASPI Eurozone® index
UN Global Compact
Ethibel Excellence Europe
Kempen SRI
Storebrand SRI
SAM Sector Mover 2010
Main corporate responsibility goals 1. Corporate responsibility becomes an integral aspect of all our activities and decision-making process, from procuring materials through to production and sales. Economic, environmental and social responsibility issues are in balance. Compliance with legislation constitutes the bedrock of our operations. Continually improving our corporate responsibility performance puts us on the path towards a higher level of achievement. 2. Our business partners, subcontractors and suppliers become familiar with our principles and apply the same high standards in their own activities. 3. To enhance transparency, we aim to establish continuous, systematic and open dialogue on corporate responsibility issues with our key stakeholders, such as shareholders, employees, customers, suppliers and nongovernmental organisations. This co-operation contributes towards developing and dutifully reporting our corporate responsibility performance.
Observations by PricewaterhouseCoopers Outokumpu is in the process of integrating corporate responsibility into business operations. The integration should be further continued to ensure the effectiveness of CR across all functions, e.g. Group Sales and Marketing, and along the whole value chain.
Outokumpu Annual Report 2009 – Corporate Responsibility
Corporate responsibility highlights
Outokumpu Annual Report 2009 – Corporate responsibility highlights 2009
Making responsibility an integral part of all our activities Even though our main focus was on cost reduction and cash flow generation during the historically difficult year of 2009, we kept our vision in corporate responsibility – to be the most responsible company within our industry – firmly in mind. We continued our step-by-step development approach, and I believe that awareness of corporate responsibility issues has improved among our employees.
Difficult times test a company's attitude to its responsibilities The year 2009 was very difficult for all stainless steel producers and an exceptional year for Outokumpu with heavy losses but fortunately strong cash flow. Our financial result is discussed in detail in the first part of this online report, here we take the corporate responsibility viewpoint. I believe that acting responsibly in difficult times is of particular importance, as is maintaining a balance between the environmental, economic and social aspects of corporate responsibility. The economic value distributed to our key stakeholders decreased due to the dramatic drop in demand for stainless steel and the resulting impact on our sales. We continued our efforts to reach the targets set for 2009: reducing energy consumption, waste, and injuries, and improving our employees' well-being. Unfortunately, as part of our cost saving efforts, personnel reductions could not be avoided, and some 900 jobs were lost permanently. Our levels of production were clearly lower than in the previous year, and our energy consumption therefore also decreased, by 25%. We did not however reach the target of a 2% decrease per processed tonne. We did achieve our target of further 10% reduction in landfill waste per processed tonne – an impressive achievement. The injury rate fell from 9.0 to 5.9 injuries per million working hours, our target was below five. We will continue our efforts – the target figure for 2010 is a challenging four, a good level by global standards. The year 2010 has been named Safety Theme Year, meaning we will be placing additional emphasis on our safety performance. Our long-term target for both injuries and waste is zero. No serious injuries occurred in 2009. In these difficult times the well-being of our personnel remained unchanged; the improvement target was not reached.
We take climate change seriously Climate change, carbon dioxide emissions and energy consumption continue to be areas of concern for both us and our stakeholders. We take these issues seriously and are doing our share in the shift towards a low-carbon society. Published at the beginning of 2010, our Energy and low-carbon programme includes a commitment to reduce our direct and indirect carbon dioxide emissions by 20% per produced tonne by 2020. In 2009, our direct carbon dioxide emissions totalled 540 000 tonnes, 35% less than in the previous year, primarily because of lower production volumes. Most of our emissions in 2009 remained within permitted limits but some incidents did occur. I am proud to say that according to a study made by PE International, our stainless products have the smallest carbon footprint in our industry in the EU. Key drivers in our business are that our products have a higher percentage of recycled material than the global industry average, and that our ferrochrome production is a world leader in both energy efficiency and curbing carbon dioxide emissions. Internal improvement initiatives such as our Operational Excellence programmes are important tools in further improving our operations and our profits. Production excellence focuses on safety and operational efficiency and also concerns eliminating waste and losses. It has an impact on both the economic and the environmental performance of the supply chain. The sustainability of our supply chain is an important issue, especially in challenging new markets. Our goal is that
Outokumpu Annual Report 2009 – Management committed to corporate responsibility
our suppliers apply ethical standards which are as high as ours. Supplier audit processes will be finalised and gradually adopted in 2010, first in our raw material purchases then in general purchases. Investigations of our export practices to Russia that were initiated by the Finnish Customs authorities in 2007 have been completed. The prosecuting authorities' process of considering possible charges is to be completed in the spring of 2010.
Awards for our sustainability performance and reporting I am really pleased that the efforts we are making to improve our corporate responsibility performance and our reporting have been recognised once again. We maintain our position in the sustainability indices in which we already featured and were included in one new one. For achieving the largest improvement in sustainability performance among the top eight sustainable steel companies, we won the SAM Sector Mover 2010 award. In addition, Outokumpu was again selected as Finland's best reporter on corporate responsibility issues. And the work continues. The valuable feedback we receive from stakeholders is very useful in working towards our vision. There is still much to do and to improve.
Juha Rantanen CEO
Outokumpu Annual Report 2009 – Management committed to corporate responsibility
Corporate governance, commitments and engagement The Group's parent company, Outokumpu Oyj, is a public limited liability company incorporated and domiciled in Finland. In its corporate governance and management, Outokumpu Oyj complies with Finnish legislation, the Company's Articles of Association and the Corporate Governance Policy resolved and approved by the Board of Directors. Outokumpu observes the Finnish Corporate Governance Code, which came into force on January 1, 2009, by the Securities Market Association and approved by the NASDAQ OMX Helsinki as part of its regulations. As one exception to this code, Outokumpu has both a Board Nomination and Compensation Committee and a Shareholders' Nomination Committee appointed by the Annual General Meeting of Shareholders. Furthermore, Outokumpu complies with all other regulations and recommendations issued by NASDAQ OMX Helsinki. The governing bodies of the parent company Outokumpu Oyj, i.e. the General Meeting of Shareholders, the Board of Directors and the CEO, have ultimate responsibility for Group management and Group operations. Outokumpu's corporate governance and the duties and responsibilities of the company's governing bodies and the control system are presented in detail here.
Outokumpu Annual Report 2009 – Corporate responsibility governance
Management of corporate responsibility issues Corporate responsibility in Outokumpu is the responsibility of the CEO. A corporate responsibility team formed by representatives of different business functions is headed by VP – Corporate Responsibility. The team's task is to provide advice on corporate responsibility issues. VP – Corporate Responsibility is responsible for coordinating and developing all aspects of corporate responsibility throughout the Group. Each business unit and function is responsible for ensuring that its own operations are conducted in a responsible manner and that monitoring, data collection and reporting operations are executed in the required manner. We have three overall objectives in corporate responsibility. In addition, every year we set concrete measurable targets at Group-level for environmental and social issues. Local targets are in line with these Group-level targets. The results are reported and monitored.
Outokumpu Annual Report 2009 – Corporate responsility organisation
We have a clear vision Outokumpu's vision is to become the undisputed number one in stainless steel, with success based on Operational Excellence. Being the number one producer in stainless steel means we strive to be the most successful company, the most efficient producer, the most popular employer and to have the best customer relationships in our business. We intend to gain the number one position by engaging in responsible business practices, helped and supported by our key stakeholders.
Outokumpu's strategic goals The aim of Outokumpu's strategic goals is to achieve the number one position in stainless steel. We create value through superior production and distribution capabilities, realising this through our excellence programmes. Becoming number one in stainless steel also requires that we maintain our focus on customer needs and continuously develop the skills and know-how of our personnel. Read more about strategic themes here.
Policies are the backbone of our operations While the underlying principle in Group operations is compliance with local legislation everywhere we operate, we are however willing to raise the responsibilities we accept to a higher level. Our operations are governed by corporate policies and also recommendations published by the United Nations (Global Compact). These include Outokumpu's Ethical Principles, our Corporate Responsibility policy, our Code of Conduct and our Quality, Environment and Health & Safety policy. The Group's ethical principles are also an integral part of our leadership principles. Individual locations have detailed practical guidelines to support their operations.
Outokumpu's leadership principles Outokumpu's leadership principles shown below are concrete recommended practices. Making sound decisions Achieving ambitious targets Creating a winning team Inspiring to perform Building trust and respect We act consistently in accordance with clear ethics and values We encourage and require others to adhere to ethical values We demonstrate honesty, loyalty and integrity in our everyday work
More information on the policies followed: Corporate Governance Environmental responsibility Guidance from management systems and Group policies Economic responsibility Policies and principles guide us
Outokumpu Annual Report 2009 – Management systems
Social responsibility People are most important Towards equality
Outokumpu Annual Report 2009 – Management systems
Internal audit monitoring compliance The mission of the Group's internal audit remained unchanged in 2009: providing consultative auditing on targets and issues separately identified by the Board Audit Committee and the Group Executive Committee. The focus is on distributing information and on identifying and controlling potential business risks. Internal audits are carried out in close cooperation with the Group's finance and risk management functions, with financial administration bodies and external auditors. Internal audit reports to the Audit Committee, which approves its operational plan. In 2009, 27 individual units or functions were audited either independently or in cooperation with external service providers. Internal audit monitors compliance with Outokumpu's Ethical Principles, Corporate Responsibility policy and Code of Conduct, and the ways in which these principles and policies are incorporated into general operational procedures in Group companies and units. Although no major risks were identified, two cases of suspected infringement and embezzlement within the Group were investigated and the police were notified where this was necessary. The current understanding is that the scale of any possible wrongdoing was not significant. A confidential Helpline has been set up on the company intranet and on the Internet, and this can be used anonymously to report to our internal audit any action that contravenes the Group's Corporate Responsibility principles. Three cases of discrimination reported during 2009 were handled at local level. Two cases of misconduct were reported through other channels. In one of these the police were involved and the employment of the person in question was terminated. The other case involved interpersonal relations and was handled at local level.
Outokumpu Annual Report 2009 – Internal audit
Compliance with Corporate Responsibility policies Outokumpu's CEO is charged by the Board of Directors with formulating and implementing any measures necessary to safeguard systematic compliance with the Group's Corporate Responsibility policy and Ethical Principles. At least once each year, based on a report by the CEO, the Board of Directors carried out an assessment of corporate responsibility issues within Outokumpu. Company management and all company personnel are expected to comply with the Group's Corporate Responsibility principles.
Suspected misconduct The Finnish customs authorities has been investigating exports to Russia by Outokumpu Tornio Works since the beginning of 2007. The preliminary investigation has now been completed and the case has been forwarded to the prosecuting authorities. The process, and the announcement of any possible consequences, are scheduled to be completed in the spring of 2010. Investigations initiated by the Group have not revealed any evidence that either Outokumpu employees or the company are guilty of any of the crimes suspected by the customs authorities. According to Roschier Attorneys Ltd, a leading law firm based in Helsinki, no evidence of wrongdoing by Outokumpu employees exists, and KMPG Oy Ab, the Group's auditor, has stated that all suspicions are groundless.
Misconduct in businesses sold Class actions involving the fabricated copper products business sold in 2005 comprised, among others, Outokumpu Copper (USA), Inc, which was served with one individual damage claim associated with ACR tubes under US antitrust laws. Outokumpu believes that the allegations made are groundless. When this business was sold to Nordic Capital, Outokumpu agreed to indemnify and hold harmless Nordic Capital with respect to this claim. In 2003, the European Commission issued its judgement on Outokumpu's participation in a European price-fixing and market-sharing cartel involving copper air-conditioning tubes during 1988–2001. A fine of EUR 18 million was imposed. In 2004, Outokumpu lodged an appeal with the Court of First Instance for Europe regarding the basis of the calculation and the level of the fine. In 2009 the court announced that the amount is to remain unchanged. In a cartel investigation concerning copper sanitary tubes, the European Commission issued a judgement in 2004 and imposed a EUR 36 million fine on the Group for participation in cartel activities. Outokumpu subsequently lodged an appeal regarding the level of this fine, which was paid in 2009. The court's final decision is expected to be that the amount of the fine is unchanged.
Honouring the rules of competition Outokumpu expects all its employees to honor and respect the rules associated with competition. Since the mid 1990's the Legal Affairs has trained sales and marketing personnel on competition rules and legislation. The aim of this training is to alert participants to problematic situations to make sure they will seek professional advice and guidance to avoid possibly illegal arrangements. Training sessions are organised when they are needed. An e-learning programme was launched in 2009 and is currently in progress within Outokumpu Group. The main purpose of the programme is to train our personnel in competition law. Upon completion of the programme in the end of 2010,
Outokumpu Annual Report 2009 – Compliance
some 500 participants in the commercial organisation will have been reached and duly trained. The follow-up system ascertains that each participant is able to complete the course successfully. As mentioned in our Ethical Principles and Code of Conduct Outokumpu condemns corruption and bribery and complies strictly with competition legislation. Outokumpu obtains business in a legal and ethical way. Offering bribes and kickbacks is prohibited. Outokumpu's internal audit monitors compliance with our policies and Code of Conduct. Read more about internal audit and Helpline here.
Outokumpu Annual Report 2009 – Compliance
Security and risk management Protecting the Group's personnel, assets and reputation against a wide range of potential losses is an essential component in our operations. In all areas of risk management, the key element is having a good overview of any underlying risks. Risk workshops were arranged in business units and key Group functions in 2009, and development work with top management was continued in order to institute frequent risk reporting and follow-up procedures. As instability in the financial and economic environment increased during the year, the emphasis in this work was on the management of strategic and financial risks connected with the weaker market situation, the nickel price and customer credit. Group risk management strategy was put into practice by issuing operational instructions in connection with personnel security, project security and fire safety as well as by carrying out regular audits and certain special programmes at individual sites. The Outokumpu Security Working Group (OSWG) continued its work on improvements at specific sites. A systematic crisis management programme was instituted during 2009, with crisis management teams being trained in handling challenging situations. Communication during crisis situations was a subject that received particular attention. Fire safety and security levels in the Group were monitored through a total of more than 40 regular site audits executed using Outokumpu's own resources and, to a certain extent, jointly with the Group's insurance experts and insurance brokers. Fire audits and security audits were merged first time. Activities initiated in 2008 in connection with risk management in the Outokumpu supply chain continued in 2009. One of the year's main goals was preparation for forthcoming changes in customs practices and the achievement of authorised economic operator (AEO) status, which will significantly ease the burden of customs processes and thus shorten lead times. Much effort was put into improving supply chain security as achievement of the authorised economic operator status (AEO). Work related to AEO status continues at certain Group sites in the EU. Outokumpu's business is capital intensive and the degree of integration in key production processes is quite high. Other interdependencies also exist. To cover related risks, Outokumpu has a comprehensive and global property damage and business interruption (PD/BI) insurance programme. As the Group's most important form of insurance, PD/BI accounts for a substantial proportion of the insurance premiums paid by the Group. Other global insurance programmes which play a significant role include transport, credit and liability insurances. The renewal date for most Group-wide annual insurances is April 1. More on risk management can be found here.
Outokumpu Annual Report 2009 – Risk management of corporate responsibility
Stakeholder dialogue promotes understanding To enhance transparency, we strive for open and regular dialogue with our key stakeholder groups. Awareness of the expectations held by others is essential for development. Our wish is that information is shared openly. We meet our stakeholders face-to-face in many forums – at seminars, workshops and discussion panels, during road shows, and at fairs and exhibitions. We offer local stakeholders visiting opportunities and "open house" days. We also maintain ongoing dialogues, especially with analysts, investors, employees, customers, goods suppliers and service providers. Our other key stakeholders are NGOs, local communities, authorities as well as industry and business associations. Our stakeholders' involvement in what we do and the trust they have in us are fundamental elements of our business operations. The main function of the Outokumpu Corporate Responsibility network during 2009 was to distribute information to stakeholders about the Group's corporate responsibility achievements. Feedback from stakeholders proved useful in developing our operations. Plans for 2010 include a webinar for key stakeholders on corporate responsibility issues. In 2009, webinars were organised to provide information and training to our customers and non-customers.The first meeting with Finnish environmental NGOs at corporate level took place during the year, and close interaction with both investors and analysts continued the trend established in earlier years. In this section the focus is on dialogue with our external stakeholders. The very important interaction with internal stakeholders – our employees – can be found in the social responsibility section.
Stakeholder expectations Stakeholders
Outokumpu
Customers
They want high quality, safe products and services at a competitive price, reliable deliveries, flexibility
We need them to buy our products – we also need them to trust us, be responsible and willing to cooperate with us
Suppliers
They want to cooperate with us and expect us to be responsible, be their partners and engage in open discussion
We need raw materials, other consumables and services; we expect them to be responsible
Personnel
They expect us to be responsible and give them challenging tasks, security, occupational safety and well-being, development opportunities, recognition for their work
We need their professional skills – we expect them to be responsible, motivated and committed
Future employees
They expect competitive benefits, challenging tasks, development opportunities, responsibility, work-life balance
We will need them to work for us in the future and expect them to be motivated, responsible and seek to improve themselves
Associations and federations
They expect active participation, joint efforts to promote the industry's interests
We expect them to provide equal support to us, oversee our interests and our business opportunities
Outokumpu Annual Report 2009 – Our stakeholders
Local communities
They expect us to participate, interact, provide support, be responsible, provide jobs
We need their approval, confidence, willingness to cooperate
Shareholders
They expect us to be profitable, provide a return on their investment, and be responsible
We hope they consider us as good, attractive investment – we hope they have confidence in us
NGOs
They expect us to be responsible, transparent and to have joint efforts to promote environmental and social issues
We want their understanding, willingness to cooperate in promoting environmental and social issues
How do we meet stakeholder expectations? Ethical operations Open and regular communications and dialogues, interaction A culture that stresses corporate responsibility Open and transparent CR reporting Operating as one company Safe working environment Personnel development, job rotation Development of products and processes, R&D Stainless steel is a safe and sustainable material
Outokumpu Annual Report 2009 – Our stakeholders
Successes through the "One face to the customer" approach The Group Sales and Marketing function established in April 2008 was developed and improved during 2009. New Key Account Managers were trained and appointed. Even though the adverse effects of the economic crisis on global activity in the stainless steel sector made the second half of the year particularly difficult, several successes resulted from collaborative initiatives and a "One face to the customer" approach. A customer survey covering more than 120 Key Accounts is being conducted. Topics covered by the survey include levels of customer satisfaction, Outokumpu's ability to identify the right solution for a customer application and open feedback. The results of the survey will be available during the first quarter of 2010 and the conclusions will provide a solid foundation for developing the Group's customer services. A similar survey is planned for 2010 together with development of a new system for the regular implementation of Group-wide surveys. The results from these ongoing surveys will be linked directly to Outokumpu's operational activities. Although the details have not been finalised, objectives include understanding operational successes and identifying critical areas for further development. In April 2009, Outokumpu hosted the first in a series of webinars. Open to customers and non-customers who are interested in learning more about Outokumpu and stainless steel, webinars offer the Group a method of providing training and technical information that does not involve travelling and its associated environmental impacts. The first webinar focused on stainless steel fabrication and there were more than 40 participants. The six webinars arranged during 2009 covered a wide selection of topics and the total number of participants exceeded 200. In 2010, the target is to raise both the number of webinars and the range of topics covered.
Webinars enable training and technical information without travelling and its associated environmental impacts. Outokumpu's sales companies and service centres provide local support, training opportunities and connections with customers. Each location is adopting initiatives that will be of local interest. For example in Japan an annual seminar for over 120 special grade customers was organised for the fifth time to receive quantitative and qualitative feedback, and to find better and lasting solutions for local applications together with customers. A customer day was held for the first time for the Nordic key tubular product customers. In total some 1000 customers in Estonia, Brazil, Chile, Thailand, Malaysia, Singapore and India received training. Customer visits have been organised in Finland often with tailor-made training on mechanical properties, formability, weldability and corrosion resistance. In Sweden there is a plan to start two-daytraining in design in stainless steel for Nordic customers, designers and fabricators. Based on the positive feedback received more technical training will be given to customers in the future. On-site customer training is an essential component when handling certain technical topics. Customers seem to be more and more interested also in steel's carbon footprint. The carbon footprint of Outokumpu's products is presented in the environmental responsibility section. Read about product safety issues here. The Group's Hungarian sales company organised a conference with the Budapest University of Technology (BME) at which the topics included cost-efficient solutions and the environmental friendliness of stainless steel.
Outokumpu Annual Report 2009 – Customers
A focus on suppliers' environmental impact As the global financial crisis put pressure on Outokumpu and everyone in the industry, cost control became increasingly important. We bore in mind, though, corporate responsibility issues in supplier evaluations and product development. It is our goal to do business with responsible partners.
General material purchasing The Procurement Excellence programme launched in 2008 was the key driver in cost reduction and the cumulative savings achieved from the programme increased from the previous year. At the beginning of 2009, a special project Quick Wins, was launched targeting at short-term savings through renegotiating terms and conditions with selected suppliers, as well as a logistics Procurement Excellence programme. The Quick Wins programme has already achieved significant Group-wide savings.
Product development with suppliers In addition to cost savings, product development was carried out with selected suppliers: The protective film team has been able to reduce the thickness of the product employed from 80µm to 70µm. Suppliers require less plastic for their production and impact on the environment is thus reduced. The interleaving paper team will start to recycle all the paper used in the Group's production processes. The electric motor team is working with suppliers to improve production efficiency and consume less energy. We have advised all our suppliers to consider using modes of transportation that are the most environmentally friendly. If trucks are used, we favour eco-friendly driving techniques.
In the long-term, we believe that the most innovative ideas for optimising total cost ownership result from creative cooperation with our suppliers and partners. We highly appreciate suppliers who maintain the highest ethical standards, respect human rights and the environment. In 2006, we started a project called Sustainable Supply Chain Management Tool to develop a questionnaire to be used for evaluating our suppliers' sustainability. The project was ended in 2008, but the work continues. Read more about Responsible sourcing in the Social responsibility section. The Procurement Excellence programme will be expanded by establishing more teams, deepening cross-functional and cross-business unit cooperation, training additional skilled professionals to lead these teams and working more closely with selected suppliers with the aim to increase achieved savings compared to previous year. In the long-term, we believe that the most innovative ideas for optimising total cost ownership result from creative cooperation with our suppliers and partners. The key to sustainable development is sharing mutual benefits with responsible suppliers who take economic, environmental, and social responsibilities into account in their daily operations.
Outokumpu Annual Report 2009 – Suppliers of goods and services
Outokumpu's Procurement Development programme reached an important milestone in May 2009 when the first purchase orders and inventory transactions were registered by Tornio Works in a common Outokumpu SAP system built specifically for general materials purchasing and inventory management. We are now one step further along the path of building a common purchasing information system inside Outokumpu. The focus of the Procurement Development programme is now on raw materials purchasing in Tornio.
Outokumpu Annual Report 2009 – Suppliers of goods and services
Employees – Important internal stakeholders Outokumpu's success is based on the company's most important asset, our personnel. The Group's renewed People strategy aims to attract, retain and develop Outokumpu people globally, enhancing both their motivation and their ability to support the Group in its vision of becoming the undisputed number one in stainless steel. The very important interaction with internal stakeholders – our employees – can be found in the social responsibility section.
Outokumpu Annual Report 2009 – Employees
We listen to our future professionals' expectations We believe that securing future talent is an essential element in ensuring progress towards our vision of becoming the global number one in stainless steel – and being the most popular employer in the stainless steel business. We maintain an active dialogue with potential future employees by visiting universities, hosting visits for school groups and attending recruitment fairs – we attended three fairs in Finland, six in Sweden and two in the UK in 2009. The Outokumpu research centres in Avesta and Tornio are engaged in running technical research projects together with these institutions. As in 2008, Group CEO Juha Rantanen participated in a panel discussion at a student event together with other CEOs from the leading companies in Finland's metal industry. More than 150 students from several Finnish universities took part. The positive feedback received included requests for the event to be repeated in 2010. Outokumpu has close contacts with many comprehensive and upper secondary schools. Goals of this cooperation include raising awareness of the steel industry among children and students and encouraging them to learn more about the sector. Outokumpu has adopted schools in many of the Group's operational locations and also awards annual scholarships and stipends to local schools in both Finland and Sweden. In 2009 Outokumpu improved its ranking among Finnish engineering students in an annual employer branding survey conducted by Universum. The survey tracks both young people's expectations regarding companies and the way they perceive certain individual companies. In the 2009 survey, Outokumpu was placed 22nd in the ideal employer ranking list in Finland and 81st in Sweden. Among Finnish business students, Outokumpu was ranked 85th. According to a 2009 survey of graduates, Finnish students appear to have confidence in companies even though companies have no open vacancies. All students are in a similar situation. Comments made included general opinions about workplace conditions and job options, and no specific comments were made on Outokumpu.
Outokumpu Annual Report 2009 – Future employees
Industry and business associations – networking Outokumpu is an active and responsible actor in society. As the world's sixth largest stainless steel producer and Finland's twelfth largest company (2008), Outokumpu has a significant influence in various issues and the company's opinion is voiced in many forums. In 2009, our experts and top management continued to maintain effective liaisons with the authorities and different organisations. Top management participated in dialogue concerning issues such as the challenges of climate change, the global financial situation and stainless steel business in the future. Our aim is to broaden the Group's comprehension of approaches to corporate responsibility by engaging actively with different companies and organisations. Outokumpu's CEO Juha Rantanen was an active participant in energy-related discussions, especially in connection with the issue of nuclear power plants in Finland. Outokumpu supports nuclear power being one of the owners of Fennovoima which plans to build a nuclear power plant in Finland by 2020. Outokumpu is a member of international organisations and confederations including the World Economic Forum, Eurofer, EuroInox, and the International Chromium Development Association. Outokumpu is also an associate member of the World Steel Association (previously the International Iron and Steel Institute IISI, now also known as worldsteel) and a member of the International Stainless Steel Forum (ISSF), a stainless-steel-specific suborganisation.
Outokumpu participates in the Climate Change Policy Group. As a member of worldsteel, Outokumpu participates in the Climate Change Policy Group whose aim is to influence global mitigation of greenhouse gas emissions by the iron and steel industry. In this forum, members share best practices, obtain benchmark data relating to occupational safety from the Safety and Health Committee and contribute their own data to the World Steel Association Sustainability Report. TU Bergakademie Freiberg made a survey in 2009 to investigate stakeholders' perceptions on sustainability issues related to steel and the steel industry in order to help improve the sustainability and worldsteel reporting efforts. The most significant issues pointed out were climate change, efficient use of energy and water resources, protecting the environment, as well as education and recycling. In Europe, Outokumpu is member of several federations and associations in Finland, Sweden, the UK and the Netherlands. National lobbying and cooperation organisations advance industry views and contribute to legislation in Europe through national representatives in EU governing bodies. Outokumpu is also a member of different business associations in North America. Eurofer is a lobbying and collaboration organisation for the European iron and steel industry. Outokumpu contributes at presidency level to commercial and trade issues, in committees handling statistics, research and the environment, and in working groups whose focus is climate change and industrial benchmarking. Eurofer conveys opinions to EU governing bodies such as the European Commission, the European Parliament and the European Council, and promotes measures such as Renewal of the Integrated Pollution Prevention and Control IPPC Directive, the implementation of REACH (Registration, Evaluation and Authorisation of Chemicals) and continuation of the European Emissions Trading Scheme (EU ETS) after 2013.
Outokumpu Annual Report 2009 – Associations and federations
In Finland, Outokumpu is active in corporate responsibility networks. To develop both our expertise in corporate responsibility and the Group's performance, we are an active member of the Finnish Business & Society enterprise network and CSR Europe. To combat corruption and bribery, we are a participant in Transparency Finland, a national chapter of Transparency International. Outokumpu is a signatory to the International Chamber of Commerce (ICC) charter, follows and supports the United Nations Global Compact, and is a member of the UN's Global Compact Nordic Network. To demonstrate the Group's support for sustainability, Outokumpu has also signed the worldsteel Sustainable Development Charter.
Outokumpu Annual Report 2009 – Associations and federations
Cooperation with local communities As one of the leading companies in the stainless steel sector, Outokumpu seeks an active presence in the local communities in which it operates. The Group is already the largest industrial employer in communities such as Avesta, Degerfors, Långshyttan (Kloster) and Storfors in Sweden, in New Castle in the US, and in the Kemi-Tornio region in Finland. Our decisions to invest, to postpone planned investments or possibly close operations have a major influence at local level. Although the 12-month postponement of almost all Group investments announced in December 2008 has clearly had an impact on our production sites and the surrounding communities in Sweden and Finland, Outokumpu's strategy has not changed and all these investments continue to be of strategic importance to us. As in previous years, numerous visits by stakeholder groups to Group facilities were organised at many of our production sites to further improve relationships with local communities. As defined in Outokumpu's Communications policy, the Group sponsors sports, culture and a variety of events at local level, and also charity work. In 2009, however, lay-offs and redundancies have meant that the level of this input has been reduced, sometimes to zero. For this reason, information concerning Group-wide donations which would normally be reported in the economic responsibility section has not been collected.
Outokumpu Annual Report 2009 – Local communities
Active contacts with investors and analysts continue We maintained an active dialogue and contacts with our global investor and analyst networks in 2009. Major investor relations events included Outokumpu's annual Capital Markets Day in London for analysts, investors and bankers, 12 road shows in Europe and the US, in connection with the quaterly result announcements. A live webcast was arranged at each result announcement. Outokumpu's Annual General Meeting was held in March in Helsinki, Finland. In addition to the main events, Outokumpu hosted a total of 13 breakfasts and luncheons for institutional investors in Helsinki, New York, London, Paris, Stockholm and Oslo, and also attended eight industry seminars arranged by different brokers. We also arranged a site visit to Degerfors in Sweden for some institutional investors. Approximately 300 one-on-one meetings, conference calls and video conferences with investors were arranged during 2009. To improve the Group's operations, surveys of Outokumpu's performance carried out by external research organisations are monitored on a regular basis. According to the Regi Research & Strategi Ab 2009 survey of investor relations in which areas such as content, functionality, openness and trustworthiness are evaluated, Outokumpu improved its overall ranking significantly, increasing from position number 12 to being ranked number three in Finland.
Outokumpu Annual Report 2009 – Shareholders
A dialogue with environmental NGOs has started To establish a positive and continuing dialogue with non-governmental organisations, we initiated round table discussions with environmental non-governmental organisations (NGOs) located in the Helsinki area in Finland. The dialogue concept will be expanded and used by the Group in other countries in the future. At the first meeting, the objectives included getting to know each other, free discussion and a listing of possible areas or themes of common interest. The organisations present explained their strategies, objectives and methods of operation. We reported on our activities in the area of corporate responsibility and especially in the field of environmental responsibility. The meeting represented a good start, and the process will continue. While comments made by the NGOs on Group reporting were useful and also complimentary, additional and less complicated material covering future development trends, life-cycle information and carbon footprint data was requested.
Outokumpu Annual Report 2009 – NGOs
Policies guide us As a listed company governed by the Finnish Companies Act, Outokumpu is responsible for making a profit for its shareholders. The Group's overall financial objective is to generate the maximum sustainable amount of added value. This means that in targeting long-term profits, Outokumpu develops and maintains competitive and profitable operations founded on ethical business practices while also taking into account the environmental and social implications of any decisions that are made. The Group's Ethics Statement, Leadership Principles, Corporate Responsibility Policy and Code of Conduct also guide the company in commercial matters. Outokumpu observes the principles of good corporate governance and transparent financial reporting and its actions are guided by: the rules and regulations that apply to listed companies, international accounting standards, a declaration of competition policy, rules concerning insider trading, and the Group's dividend policy. The Group's financial targets and results are detailed in Outokumpu's financial statements. This section of the report concentrates on the Group's economic impacts on its stakeholders.
Outokumpu Annual Report 2009 – Economic responsibility
Challenges brought by the global economic situation The on-going global economic downturn has had a significant effect on the stainless steel industry, Outokumpu's customers and also the Group. The market situation at the beginning of 2009 was uncertain and difficult. The crash in the financial markets at the end of 2008 and the resulting economic downturn reduced demand for stainless steel substantially and, in common with other stainless steel producers, Outokumpu had to cut back production. During the first half of 2009, destocking activities by distributors led to reduced production levels. After the summer, purchasing activity recovered somewhat due to reduced production, increases in metal prices and an end to destocking among distributors. Some softening in market was visible towards the end of the year. Since production remained at unsatisfactory levels until the end of the year, deliveries by Outokumpu declined 28% to 1 030 000 tonnes (2008: 1 423 000 tonnes). Return on capital employed in 2009 was negative at 11.7% and the Group's 13% target for this was not achieved. Despite a difficult year, Outokumpu's debt-to-equity ratio remained at a relatively good level of 48.2%, below the Group target of a maximum of 75%.
Good cashflow also guarantees uninterrupted business with the company's suppliers and adds value for other stakeholder groups. Outokumpu's current financial priority is to restore profitability by managing price and grade mix, optimising loading at mills and ensuring cost efficiency. In a volatile market situation, a strong balance sheet ensures flexible access to financing. Good cashflow also guarantees uninterrupted business with the company's suppliers and adds value for other stakeholder groups.
Facing the situation Group's cashflow from operating activities weakened compared to 2008 but remained strong amounting to EUR 198 million (2008: EUR 664 million). Main contributors were the reduction of working capital and lower metal prices. To guarantee necessary levels of liquidity and long-term financing, Outokumpu signed a three-year Revolving Credit Facility of EUR 900 million in 2009 to replace the previous five-year facility of EUR 1 billion. At the end of the year, in addition to cash reserves, the Group had some EUR 1.1 billion of previously-negotiated loans and binding loan commitments from its debtors. Secured financing will help us to live through the financial crisis relatively unscathed while continuing to add value for all our stakeholders.
Outokumpu Annual Report 2009 – Economic goals and results
Strategy unchanged despite the economic downturn In 2007, Outokumpu launched a new strategic phase with the aim of building a more stable and profitable business model. Even though a number of investments were announced in late 2007 and early 2008, one consequence of the global economic downturn was that in December 2008, the Group decided to postpone almost its entire investment programme for a period of at least 12 months. In 2009, a decision was made not to proceed with the melt shop expansion investment at Avesta in Sweden in the foreseeable future as no need for additional melting capacity exists in the medium term. While adverse financial conditions prevail, continuation of any investment project is subject to separate decision based on an updated feasibility study. Further decisions regarding postponed investments will be made by the end of 2010. Regrettably, delays in investments and cancellation of the melt shop expansion at Avesta mean that the positive financial effects through creation of new jobs both in Outokumpu units and indirectly in the local communities will not now occur in the areas where the investments were planned to take place. Outokumpu's fundamental strategy, however, remains unchanged. The Group is committed to balancing its product mix by increasing the proportion of end-user and project sales, and stabilising the volumes of product purchased by key distributors and growth outside Europe. In accordance with this strategy, expansion of stock and processing capacity at the Group's Service Centre in Willich in Germany was completed in 2009. Outokumpu is also establishing a new service centre at Kunshan in China. These expansions support the strengthening of the Group's network of service centres to increase sales to end-users and project customers. Specialty Stainless production capabilities at Nyby in Sweden and in New Castle in the US have also been expanded. All of these investments will have a positive financial effect on local communities through increased salary payments and the indirect creation of jobs. The Group's Production and Supply Chain Management Excellence programmes are important tools in further improving Outokumpu's operations and profitability in a challenging market environment and in implementing Group strategy. Financial benefits totalling EUR 150 million were achieved through the Group's Excellence programmes in 2009 compared to 2005.
Outokumpu Annual Report 2009 – Economic impact on our stakeholders
Dividend to shareholders The two largest shareholders in Outokumpu are the Finnish state (31.0% through Solidium Oy) and the Finnish Social Insurance Institution (8.1%). One result of the global economic downturn has been that the Group's share price suffered a dramatic decline of 61% in 2008. Stock exchanges worldwide recovered in 2009 from very low levels at the beginning of the year. Outokumpu's share price increased by over 60% to 13.26 euros on December 31, 2009. The dividend of EUR 0.50 per share for 2008 resulted in payments totalling EUR 90 million. The dividend proposal for 2009 is EUR 0.35 per share and the effective dividend yield is 2.6%. Over the last five years, dividends distributed by Outokumpu have averaged 80% of the net profits from continuing operations. More investor information can be found here.
Outokumpu Annual Report 2009 – Dividends to shareholders
Salary payments At the end of 2009, Outokumpu employed 7 606 people in over 30 countries (2008: 8 471 people). The number of employees was lower than in the previous year because personnel had to be adjusted to take account of lower delivery volumes that are clearly below the Group's maximum production capacity. The closure of Sheffield Special Strip, reduced melting capacity and other adjustments at Sheffield in the UK resulted in the loss of some 350 jobs. In Sweden, personnel adjustments at a number of sites led to approximately 400 jobs being lost. Adjustments also had to be made in other countries including temporary layoffs. Salary payments including pensions and other benefits paid by Outokumpu in 2009 reduced by 15% to EUR 398 million (2008: EUR 466 million). Bonuses received by Group staff in 2009 were based on both some financial results achieved and key performance indicators defined in 2008. The Group's benefit plans for employees vary by country.
Wages, salaries and other employee benefits by country 1) € million
2009
2008
2007
Finland
147
163
163
Sweden
128
168
152
The UK
37
49
44
Other Europe
57
53
45
Other countries
31
33
38
398
466
443
Total Notes: 1)
Accounting principles have been adjusted to better meet the GRI guidelines. The comparative figures have been restated.
Outokumpu Annual Report 2009 – Wages and salaries
Sales decreased due to low deliveries Outokumpu's sales and marketing know-how has been combined into a single entity called Group Sales and Marketing. During 2009, the new organisation launched in 2008, has continued to serve customers in the best possible ways. Delivery volumes of stainless steel in 2009 totalled 1 030 000 tonnes, clearly lower than in the previous year (2008: 1 423 000 tonnes). Group sales in 2009 were 52% lower at EUR 2 611 million (2008: EUR 5 474 million). The main reason for the clearly lower sales in 2009 was the extremely low delivery volumes. Because of lower metal prices transaction prices for stainless steel declined and also affected sales.
Outokumpu Annual Report 2009 – Customer impact
Reduced purchases The majority of Outokumpu's costs are associated with the purchase of raw materials. The primary raw materials used in stainless steel production – nickel, ferrochrome, recycled stainless and carbon steel, – are purchased on the open market, but a proportion of the Group's ferrochrome needs are sourced internally. The economic downturn and consequently low demand for stainless steel meant that raw material prices remained at a low level in 2009 – the average nickel price was 14 655 USD/tonne, 31% lower than in 2008. As demand for stainless steel was weak, the volumes of raw material purchased by Outokumpu in 2009 were reduced in order to avoid excessive inventories. The reduction in purchases and the low raw material prices reduced the economic value we added for our suppliers. The cost of goods and services purchased in 2009 declined by 51% to EUR 2 388 million. Since we recognise our responsibilities towards such businesses and the communities in which we operate, our objective is that no single supplier should be too dependent on its business partnership with Outokumpu. The actual number of our raw material suppliers is quite low and most of the Group's raw materials are sourced globally rather than locally. This makes our procurement processes more efficient. Read more about responsible sourcing here.
Cost of goods and services € million
2009
2008
2007
Raw material and merchandise
1 522
3 602
4 556
Fuels and supplies
245
364
325
Energy expenses
161
221
189
Freights
133
192
187
Maintenance
75
113
106
Hire processing
27
38
48
Rents and leases
25
26
24
200
271
229
2 388
4 826
5 662
Other expenses Total
Outokumpu Annual Report 2009 – Business with suppliers
The direct and indirect effects of taxes on societal well-being Outokumpu contributes to the well-being of local, national and international communities through tax payments, through direct and indirect employment and by participating in other societal activities. In 2009, taxes and social security contributions paid by the Group totalled EUR 46 million, lower than in the preceding year (2008: EUR 61 million). In 2009, Outokumpu received EUR 1 million net tax return payment (2008: taxes of EUR 6 million was paid).
Taxes and social dues by country 1) € million
2009
2008
2007
Finland
10
11
34
Sweden
24
29
88
Other Europe
15
20
21
Other countries
-3
0
19
Total
46
61
163
Notes: 1)
Accounting principles have been adjusted to better meet the GRI guidelines. The comparative figures have been restated.
Outokumpu Annual Report 2009 – Taxes distributing wealth
The impacts of climate change are taken seriously Climate change has attracted increasing attention in Outokumpu in recent years. Both responding to the challenges set by emissions reduction targets and taking these into account in the Group's longterm strategy are important. Outokumpu views climate change as a matter for serious concern and wishes to contribute to targets set by the European Union. While preparations must be made for economic challenges that the Group may face in the future in connection with reducing carbon dioxide emissions, climate change will also present financial opportunities.
Regulatory risks The greatest regulatory uncertainty for Outokumpu stems from the EU's Emissions Trading Scheme (EU ETS). It creates a financial incentive for companies to restrict their emissions of carbon dioxide as emission allowances that remain unused can be sold on financial markets. Conversely, if the level of a company's emissions exceeds its emission rights, allowances have to be purchased. Our sites in Finland, Sweden and the UK fall within the scheme. While the Group has been granted allowances at no cost in the current trading period (2008–2012), it is highly probable that in the future the Emissions Trading Scheme will mainly be based on auctioning of allowances. This could lead to Outokumpu being placed at a competitive disadvantage compared to stainless steel producers located outside Europe. To dissuade companies currently operating inside the EU from moving to countries without emission reduction targets, industries within the EU that are exposed to high carbon leakage will continue to receive free emission allowances. The iron and steel industry has been identified as a sector that is vulnerable to the risk of carbon leakage and Outokumpu sites will therefore probably receive free allowances even during the 2013–2020 period. In the future, emission reduction targets will most probably be more stringent and we will have to make preparations for operating in a more restricted environment in connection with carbon dioxide emissions. To manage such risks and prepare for expected developments in the Emissions Trading Scheme, an Emission Management Committee has been established with representatives from different Group functions. The committee's responsibilities include assisting in defining Outokumpu's emissions management strategy and coordinating its implementation.
Price risks For the Group it is important to secure the cost of compliance for emission allowances. The realised and forecast emissions as well as the granted allowances are monitored regularly. The Group has also aimed at decreasing the cost of compliance by entering into financial transactions such as swapping EU emission allowances to CERs and investing into a carbon fund. As steel manufacturing is energy intensive, the Group is sensitive to changes in the price of electricity. Power companies transfer the cost of their emission allowances to the prices they charge for electricity, and marginal cost pricing means that all forms of power production are therefore affected by the price of emission allowances. Even though the electricity purchased by Outokumpu is mostly low-carbon, costs of this type have an impact on the Group. The risk related to the future cost of emitting carbon dioxide also adds an element of uncertainty to the planning of new investments and can affect future investment decisions.
Outokumpu Annual Report 2009 – Impact of climate change
As steel manufacturing is energy intensive, the Group is sensitive to changes in the price of electricity.
Physical risks Climate change could also have a less direct impact on Group operations as it may exacerbate physical risks such as damage to property or loss of production resulting from floods, hurricanes and/or drought. The normal measures required to mitigate these risks have however been incorporated into our risk management and associated policies. Currently, Outokumpu's production facilities include only one tube mill in Florida in an area defined as a "regional hotspot".
Opportunities Even though climate change represents a significant challenge for the Group, it also opens up new business opportunities. Stainless steel, a sustainable material, is often specified as a construction material in projects whose aim is to improve efficiency in transportation, buildings and production, and in building the low-carbon society. Outokumpu can also help in resolving global challenges such as need for clean water. In 2009, the temporary shutdown of the ferrochrome plant and production levels that were significantly lower than normal resulted in Outokumpu having a surplus of emission allowances. The Group took the opportunity to use the financial markets for efficient risk management of these allowances. One example was the EUA-CER swap contract in which more-expensive EU emission allowances (EUA) were exchanged for cheaper Certified Emission Reduction (CER) units, a type of Kyoto credit. To optimise the cost of compliance with the EU Emissions Trading Scheme, Outokumpu has also invested EUR 1.5 million in the Testing Ground Facility (TGF), a Nordic carbon fund managed by the Nordic Environmental Finance Corporation. Aims of the fund include purchasing Emission Reduction Units for its investors at financially attractive terms from projects that bring down carbon dioxide emissions. The Group expects to start receiving these allowances in early 2010.
Outokumpu Annual Report 2009 – Impact of climate change
Grants and community support given, public sector support received Due to the financial downturn and resulting personnel reductions and lay-offs, our sponsoring activities and donations have been reduced in 2009. Therefore, we have not collected corresponding data from our organisation. Sponsorship of local events and support for charities provided in accordance with Outokumpu's Communications policy totalled some EUR 0.7 million in 2008. Outokumpu does not take part in or otherwise support political activities whether they are local, communal or national. Outokumpu does not make donations to any political parties or groups. In 2009, Outokumpu and other member companies of the Association of Finnish Steel and Metal Producers founded a fund to promote university-level research, teaching and studies of technology and business issues concerning the metals production and covering the entire production chain. The fund awarded grants totalling EUR 0.3 million in 2009. Outokumpu was also one of the founding members and a corporate partner in the biennial Millennium Technology Prize, the world's largest technology award. The prize of almost EUR 1 million is awarded to a technological innovation that significantly improves quality of life. The Outokumpu Oyj Foundation did not grant any awards in 2009. Outokumpu's Swedish Stainless Steel Research Foundation donated EUR 30 000 to Oulu's University Fund. The donation was meant for the research work on stainless steels and it supports future metallurgical research work carried out in the Oulu University. In 2009, Outokumpu received EUR 0.7 million from the public sector to support Group research and the development of new technologies, products and applications (2008: EUR 0.7 million).
Observations by PricewaterhouseCoopers Economic responsibility As part of CR reporting, Outokumpu discloses data on sponsoring activities and donations. Recording and reporting amounts for sponsoring and donation should be further developed to ensure systematic collection of data throughout the organisation.
Outokumpu Annual Report 2009 – Public sector support
Longterm commitment shows Stainless steel is 100% recyclable, hygienic and corrosion-resistant and the environmental impacts resulting from its use are almost non-existent. On the other hand, its production – the manufacturing and reprocessing stages – do have an impact on the environment.
Our main environmental impacts The most substantial environmental impacts resulting from the stainless steel production process are: dust and particulate emissions into the air; discharges of water from production plants; and the high levels of direct and indirect energy consumption during production. Landfill waste is also created during the production process.
Outokumpu's way to manage environmental issues Guided by our Environmental and Corporate Responsibility Policies and Ethical Principles, Outokumpu's firm objective is to minimise the environmental burden of our operations as much as this is economically and technically feasible. Local guidelines and environmental management systems complying with the ISO 14001 standard provide more detailed models for the Group's actions. Environmental issues are an essential part of the management systems employed in Outokumpu's plants and units, and the functioning of these systems is monitored by both internal and external audits. We also provide the relevant authorities with reports on our operations in all the countries in which we operate. At the Group level, operations are managed and best practices are applied through our environment network, whose working groups and environment committee meet once during each quarter.
Observations by PricewaterhouseCoopers Environmental responsibility The CR reporting system is used to consolidate unit level environmental data at group level. The production units prepare reports for local environmental authorities by separate, parallel systems. It would enhance consistency and data accuracy, if the CR reporting system was used also for local reporting needs.
Outokumpu Annual Report 2009 – Environmental responsibility
Aiming at ambitious targets Annual routines at all Outokumpu production locations include the setting and monitoring of independent environmental targets. These processes are built into the Group's environmental management systems and there are also key targets for 2010 at the Group level. Having concrete, measurable targets for our operations is a way of focusing attention on specific environmental and energy aspects throughout the Group.
Group indirect and direct CO2 emissions per tonne produced to be reduced by 20% by 2020. Outokumpu is committed to the long-term target of reducing its carbon emissions profile (indirect and direct emissions) by 20% per produced tonne by 2020. The setting of this challenging target is a clear demonstration of Outokumpu's desire to improve the Group's energy efficiency, contribute to reducing global emissions of carbon dioxide, and participate in the transformation to a low-carbon society. Outokumpu's Energy & low-carbon programme can be found here.
Outokumpu Annual Report 2009 – Environmental goals and results
Site-specific targets Goals for 2009 Water protection
Avesta: reduce nitrate discharges to water by 10% and achieve 1 kg/tonne as a monthly average. Wildwood: Improve wastewater recycling by reusing some in the pickling process.
Waste management
Avesta: Complete 3 000 tonne Hydrosludge recycling test. Sheffield melt shop: Reduce waste to landfill by 10% compared to 2008 volumes, through recycling. Örnsköldsvik tube mill: Analysis of most optimal future waste reduction possibilities will be done in 2009.
Air protection
Tornio: Achieve usage level of dust reduction units to more than 98% per month.
Soil protection
Sheffield melt shop: Complete and install additional landfill leachate pump.
Use of materials
Kemi Mine: Reuse 250 000 tonnes of lumpy rock and side rock from the Kemi concentrating plant to the underground mine Tornio: Produce steel slag products amounting to 10% of steel production tonnages. Sheffield melt shop: Find a way to return Filter press Slab Caster Backwash rejection sludge to the electronic arc furnace and use it as raw material.
Energy efficiency
Avesta: Reduce electricity consumption by 3% from 980 to 950 kWh per tonne. Reduce consumption of liquid petroleum gas (LPG) by 3% from 66 to 64 kg per tonne. Sheffield melt shop: Reduce specific energy consumption by 2% against reference year 2007. Richburg: Reduce electricity consumption per million tonnes by 10% using 2008 as basis.
Management systems
The process of integrating management systems that comply with the EN-14001, EN-9001 and BS-18001 standards and relevant energy management systems
Outokumpu Annual Report 2009 – Site-specific environmental targets
into a single environment, health and safety, and quality system has been initiated. The target is to start implementation during 2009.
Results 2009 Water protection
Avesta: The goal to reduce nitrate discharges to water by 10% and achieve 1 kg/ tonne as a monthly average, was not achieved. Wildwood: The goal to improve wastewater recycling by reusing some in the pickling process, was not achieved. The project was postponed.
Waste management
Avesta: To complete 3 000 tonne Hydrosludge recycling test was not met. Sheffield melt shop: The target to reduce waste to landfill by 10% compared to 2008 volumes was not met. Örnsköldsvik tube mill: Analysis of most optimal future waste reduction possibilities was postponed.
Air protection
Tornio: Not fully achieved. In steel melting shop the goal was not achieved in September due to a fire accident in the dust reduction unit.
Soil protection
Sheffield melt shop: The goal to complete and install additional landfill leachate pump was achieved.
Use of materials
Kemi Mine: The goal to reuse 250 000 tonnes of lumpy rock and side rock was not reached. The result was 120 000 tonnes. It was not possible to reach the target due to the temporary production stop. Tornio: The target was achieved. 83 350 tonnes of steel slag products were produced, which means over 10% of steel production. Sheffield melt shop: Trials to return Filter press Slab Caster Backwash rejection sludge to the electronic arc furnace were not succesfull, work continues.
Energy efficiency
Avesta: The goals to reduce electricity consumption by 3% from 980 to 950 kWh per tonne and to reduce consumption of liquid petroleum gas (LPG) by 3% from 66 to 64 kg per tonne were not reached. Sheffield melt shop: The target to reduce specific energy consumption by 2% against reference year 2007, was not met.
Outokumpu Annual Report 2009 – Site-specific environmental targets
Richburg: The target was not met. Due to current difficult economic situation, low capacity utilisation and temporary stops generally, all energy efficiency targets were not met.
Management systems
The Integrated Management System project proceeded and the IMS Manual was drafted. Implementation was not started during 2009.
Goals for 2010 Water protection
Sheffield melt shop: To reduce water consumption by 5% against 2007 usage.
Waste management
Tornio: Produce steel slag products amounting to 32% of total slag production. Degerfors hot rolling: Waste to land fill target 2kg per tonne
Air protection
Tornio Works: Achieve usage level of dust reduction units to more than 98% per month.
Soil protection
Sheffield melt shop: Complete hydrological assessment for the Tinsley Park landfill.
Use of materials
Kemi mine: Reuse 250 000 tonnes of lumpy rock and side rock from the Kemi concentrating plant to the underground mine. Richburg Bar: Reduction of hydraulic oil consumption by 50%
Energy efficiency
Avesta: Reduction of specific energy consumption by 3%
Management systems
IMS Manual to be published and IMS implementation to start from the business units Tornio Works and tubular products. IMS internal audit system starts to operate.
Outokumpu Annual Report 2009 – Site-specific environmental targets
Group-wide environmental targets Goals for 2009 Group-wide reporting tool taken into use in 2009.
Energy efficiency: Uniform energy efficiency plans ready at all production sites by the end of 2009. Identification of most important energy efficiency investments at corporate level by the end of 2009 – based on site-specific energy efficiency plans. Reducing specific energy consumption per processed tonne by 2% – base year 2007.
Material efficiency: Reducing waste to landfill per processed tonne – base year 2007 and further reductions of 10%. Identification of most feasible material efficiency investments at corporate level by the end of 2009 – based on site-specific plans.
Results 2009 The target was fully achieved. Group wide reporting tool was taken into use. Energy and environmental reporting 2009 was successfully carried out with the new system.
Energy efficiency: The energy efficiency targets were not met. Most of the production sites have energy efficiency plans and mappings ready but not yet uniformly reported by the end of 2009. Specific energy reduction target was not met due to low production levels.
Material efficiency: Further 10% reduction of waste to landfill per tonne processed achieved. Most of the sites have material efficiency or waste reduction schemes. However the most feasible material efficiency plans were not identified at Group level.
Goals for 2010 Zero significant environmental incidents Reduction of our direct and indirect CO2 emissions in line with the long term target of 20% by 2020.
Energy efficiency: Reducing specific energy consumption per processed tonne by 1% – base year 2007.
Material efficiency: Further reduction of waste to landfill per tonne.
Outokumpu Annual Report 2009 – Group-wide environmental targets
The recycled content of Outokumpu's steel is 90% For Outokumpu, the most important raw materials used in producing stainless steel are recycled stainless steel and recycled carbon steel. Together with metals recovered from waste and by-products of the production process, they raise the recycled content of stainless steel produced by the Group. The recycled content of Outokumpu stainless steel is approximately 90%, and higher than the global industry average of 60% (according to the International Stainless Steel Forum ISSF). In addition to the recycled steel, alloying elements are also required. These include iron-containing alloys and other metals such as chromium, nickel and molybdenum. Slag and dust are produced as by-products of the steelmaking process. Considerable research and development effort has been invested by Outokumpu in methods of retrieving valuable metals from this slag and dust as these can be recycled as raw materials in the Group's melt shops. For example, to minimise emissions into the environment, filters collect more than 99% of the dust generated by the Group's production operations. All of the dust generated by the company's melt shops is recycled. Dust fractions with the highest metal content are recycled directly, and the remainder of the collected dust is recycled following metal recovery. In the Nordic region this residue is sent to an external facility in Sweden which treats the dust to recover the metals it contains. In the UK, there is a metal recovery facility on site.
There are many phases in the life-cycle of stainless steel products. It is Outokumpu's aim to improve the sustainability of each phase – from production to re-use. Outokumpu's sustainable supply chain from supplier of recycled steel to production of stainless steel productions.
Improved waste utilisation and less landfill waste Outokumpu has the twofold aim of improving levels of efficiency in using materials and reducing the quantities of waste sent to landfills. By paying special attention to waste management and segregation techniques, many waste fractions are now recycled and the amount of waste sent to landfills has been reduced. In Tornio, a full-scale process involving a local contractor has been established to recycle refractories and linings from melt shops by crushing and reprocessing them. The reprocessed material is used as a substitute for virgin material such
Outokumpu Annual Report 2009 – Materials efficiency
as lime in the melt shop. This technique also reduces the amount of waste sent to landfill and improves metal recovery rates. Outokumpu's melt shop in Sheffield continues to increase the quantities of stabilised and solid slag sold as roadstone. During 2009, some 84% of all slag from the melt shop was recycled in this manner. Hydroflux, a product developed by Outokumpu, is made using descaling waste generated on the Group's stainless steel annealing and pickling lines. It can be used to replace the calcium fluoride used as a flux in stainless steel slag management. The aim is to enable full scale utilisation.
Entire life-cycle taken into account, 20% increase in recycled content corresponds avoidance of CO2 emissions of 1.2 tonnes per tonne of stainless produced.
Maximising economic value while minimising the environmental burden Achieving the Outokumpu vision of being the undisputed number one in stainless steel, means in environmental matters creating the highest possible amount of economic value using the lowest possible levels of resources while reducing any resulting ecological burden to an absolute minimum. With this in mind, the Group has bult up a model to develop an internal environmental value chain. Environmental costs and the resources employed in running processes and manufacturing products are evaluated from a value creation perspective, with aim that resources are employed in the most efficient ways possible. Assessing each value creation phase by comparing it with the environmental consequences and material requirements by grade and by process allows Outokumpu to maximise the eco-efficiency of the Group's production. This model was created under a project called ENO (Environmentally number one) during 2007–2009. Although the project was ended in the beginning of 2009, the model is still valid. Adopting a value added approach has provided extremely useful information about material flows and streams. Since the model is able to provide a measurement of the eco-efficiency of Outokumpu's commercial value creation processes, the ENO approach is viewed as one of the best ways to encourage sustainable production. It is also very helpful when deciding the most efficient environmental investments. A good example is the recycled content in stainless steel. Raising this from an average of 70% to an average of 90% drastically reduces the environmental burden which results from manufacturing stainless steel. Recycled input replaces the virgin materials that would otherwise have been required, and this affects the whole supply chain. If the entire lifecycle is taken into account, a 20% increase in recycled content corresponds to the avoidance of carbon dioxide emissions totalling 1.2 tonnes per tonne of stainless steel. At the 2009 production level of 1.2 million tonnes, the tonnage of carbon dioxide emissions avoided in this way would equal 1.4 million tonnes.
Outokumpu Annual Report 2009 – Materials efficiency
Material balance Material balance 2009
2008
2007
1 131 144
1 367 858
1 480 332
45 513
97 463
105 480
Ferrochrome
168 600
265 412
282 001
Nickel alloys
63 837
100 654
105 697
Other alloys
63 272
86 564
100 274
Slag formers
191 190
227 302
237 454
Melt shop process gases
155 978
179 851
181 048
Pickling acids bought
10 106
13 220
11 322
Pollution prevention materials
25 715
27 216
17 365
Packaging materials used for final products
10 876
14 885
11 797
Electricity
7.4
9.9
10.5
Propane
3.7
4.5
4.4
Carbon monoxide gas
0.7
1.4
1.7
Natural gas
0.5
0.7
0.6
Light and heavy fuel oil
0.7
0.8
1.4
1 245 532
1 650 068
1 718 704
Carbon dioxide
568 000
871 000
932 000
Nitrogen oxides
1 207
1 925
1 653
Sulphur oxides
179
277
451
Dust
134
216
265
0
19
20
Material used, tonnes Recycled steel Recovered metals
Additives, tonnes
Energy, million GJ
Output, tonnes Steel slabs, billets
Emissions to air, tonnes
Ozone-depleting substances
Outokumpu Annual Report 2009 – Material balance
Emissions to water, tonnes Metals (Cr, Ni, Mo, Zn)
14.9
15.5
17.2
Nitrates
438
578
575
Oily sludge to the treatment
5 907
4 978
4 834
Hydroxide sludge landfilled
38 444
49 646
44 967
Steel making dust to recovery
25 265
37 240
39 000
Slag, total
324 832
593 777
547 620
Slag utilised
185 576
443 517
220 000
Hazardous waste, tonnes
Waste and by-products, tonnes
Outokumpu Annual Report 2009 – Material balance
Material efficiency and by-products The efficiency of using materials within the Group is also continually being improved. The input per tonne of steel produced has been reduced as the recycled content has increased. Unavoidable byproducts such as slag have been successfully utilised as substitute for other virgin materials. All these measures result in substantial environmental benefits. Material efficiency is a cornerstone in Outokumpu's environmental responsibility thinking. The Group has completed many materials-related research and development projects in recent years and a number of schemes to reduce waste volumes have been implemented. One of the most important ways of reducing the quantities of waste generated in the steel industry is to modify melting shop processes so that slag is produced as a product. Outokumpu has invested several million euros in developing slag-based products for construction and neutralising purposes. Until the beginning of 2009, steel melting slag from the Tornio Works was processed in a grinding metal-separation process to retrieve and then reuse the valuable materials it contained. The problem was that slag treated in this way becomes a very fine powder which is difficult to utilise. During 2009, the process was modified to retrieve the metal content just as effectively but allow the slag to remain in a coarser form, making it easier to use as construction material. The new process will be launched in 2010. Practically all significant waste streams are studied in order to reduce environmental impact. For example Outokumpu's Tornio Research coordinated following environment related research projects during 2009: 1. ISSF-project GRASCA – FINCON (Granulation of Slag under Controlled Atmosphere and Use of Stainless Steel Slag as Filler in Concrete) 2. Tests with fine steel slag as neutralising material for acidic mine waters. 3.
Reuse of OPAR acid regeneration salts from Tornio in nickel production.
4. Bioleaching processes to treat metallurgical wastes to more inert and less harmful (PROBIO) and to create new, remote monitoring systems for ground and waste waters (MONIWATER). 5. Dust treatment study 6. Recover the metals from mill scale sludge, oily sludge and steel dusts. 7. Use of oil containing waste waters in ferrochrome sintering plant.
Outokumpu Annual Report 2009 – By-products
In the UK Alloy Steel Rod unit worked with a Thermal Recovery plant to look at the possibility of treating and reuse the mill scale. The melt shop started a project to recover metallic finds from the caster open water systems. More than 84% of all the slag produced at the Sheffield melt shop is being used as an additive in asphalt used in road construction. Roads built using stainless steel slag are considered to be safer for drivers as the slag provides additional grip during braking (Source: MiMer 2003, Minerals and Metals recycling centre, Luleå University, Sweden and Recmix 2008 Belgium). In Avesta, a test road has been built in which slag has been used as a construction material. Avesta, Nyby and Degerfors are also engaged in a project to develop ways of reusing hydroxide flux instead of sending it to landfill. The Sheffield melt shop is licensed by the UK Environment Agency as an accredited packaging reprocessor, an important and vital component in the UK's packaging compliance and waste reduction policies. Packaging waste from Sheffield is recycled to be used in the production of new packaging materials.
Outokumpu Annual Report 2009 – By-products
Energy efficiency a key priority The steel industry is energy intensive and Outokumpu's steelmaking and rolling processes are no exception. We do however recognise the need for energy to be used efficiently. Hard work has given the Group a very good record in reducing energy consumption, and Outokumpu processes are considered to be Best Available Techniques (BAT) as defined in the EU's integrated pollution prevention and control directive. Energy consumption in our ferrochrome production in Tornio, for example, is very close to the theoretical minimum and only two thirds of the level in traditional processes. Process heat is recovered and used for heating. Outokumpu sites use a range of fuels including direct energy sources such as natural gas, propane, heavy fuel oil and electricity. Direct energy use by the Group totalled 13 million gigajoules (GJ) in 2009. Electricity consumption totalled 7.4 million GJ (2.1 million megawatt hours), which is in practice some 25% of the annual capacity of a modern 1600 MW nuclear power plant.
Outokumpu Annual Report 2009 – Energy and climate change
Combating climate change – Outokumpu's Energy & low-carbon programme Being a global player in an energy-intensive industry means that our targets are ambitious. Outokumpu's long-term efforts and results in the field of energy and material efficiency, R&D and product stewardship – and the results achieved – have reinforced our leadership position and provide a solid base in our way towards a low-carbon society. The Outokumpu Energy and low-carbon programme presents both the Group's ambitious targets and the actions required to reach them. In the last ten years Outokumpu has managed to reduce its direct carbon dioxide (CO 2 ) emissions by 25% per tonne of stainless steel produced. Outokumpu's target is a 20% reduction in the Group's specific carbon emissions profile (indirect and direct CO2 emissions) in stainless steel production by 2020. Emissions are calculated per tonne of stainless steel produced hence highlighting not only the actual reductions but also production efficiency. Outokumpu carbon profile consists of: direct emissions from production operations, indirect emissions from purchased electricity as well as emissions resulting from transport of products and business travel. The targeted annual reduction is approximately 370 000 tonnes of CO2 emissions totalling 2 200 000 tonnes during the programme period 2010–2020, calculated against current capacity and products. The primary actions within the programme consist of further improvements in energy efficiency, increasing the share of low-carbon electricity and targeting for efficient and optimal production levels. Additionally, air travel offsetting will be implemented for business travelling, and sustainable aspects will be integrated when planning logistics and transportation. These actions cover our operations in all countries and business units. Progress in the different plans will be monitored and reported on an annual basis. The full report can be read here.
Participation in life-cycle studies Outokumpu recognises the importance of life-cycle data, both for internal use in highlighting areas for improvement and for communications purposes in the supply chain. Outokumpu participated in a project to collect and update European Life Cycle Inventory (LCI) data for the production of stainless steel during 2007–2008. The results were published in 2009. Compared to a similar exercise in the late 90s, the carbon efficiency (CO2 efficiency) of stainless steel manufacturing had improved dramatically. According to the study the carbon footprint of austenitic stainless steel was now more than 40% lower than a decade ago. This is possible through better process efficiency, higher input of recycled stainless steel and better electricity mix today.
Outokumpu Annual Report 2009 – Combating climate change
Carbon footprints of Outokumpu products are smaller than EU average. Outokumpu's production sites are well positioned when it comes to carbon efficient steel manufacturing. All Outokumpu products had smaller carbon footprints than the average EU stainless steel. The carbon footprint of quarto plate products was almost 20% smaller than the average European values. Austenitic flat products were about 10 times more carbon efficient than average. Also the ferritic grade 430 performed well compared to average. Outokumpu ferritic data was updated with new information since ferritic production was almost non existing when this study was started. Outokumpu has also actively participated in the Swedish Steel Eco-Cycle research project. The project is the first large and coherent research effort with an environmental focus in the steel industry in Sweden. It is looking for areas to improve in all stages of steel's life-cycle, from mining to steel products and recycling. Projects involving life-cycle assessment, recycling and slag utilisation have been of special interest to Outokumpu. The first phase of the project that started in 2004 has now been successfully completed. The second phase, stretching from 2009 to 2012 has been initiated.
Outokumpu Annual Report 2009 – Combating climate change
A long-term approach to energy efficiency Outokumpu takes a long-term approach to energy efficiency and the target is continuous improvement. Energy efficiency is a component in the environmental management systems at most of the Group's mills. Major production sites have also had long-term, prioritised energy efficiency investment plans since 2009. In general terms, the largest energy saving potential lies in recovering waste heat, improving process integration and improved efficiency in using raw materials. Improvements in energy efficiency are not however only associated with large, energy specific investments. The systematic monitoring and analysis of energy consumption is very important, as is life-cycle analysis when purchasing new electrical equipment. The Group provides energy efficiency training for production personnel.
Voluntary agreements to improve energy efficiency Outokumpu has participated in voluntary national energy efficiency agreements in Finland, Sweden and the UK for many years. The Tornio Works joined the Finnish programme at the beginning of the 1990s. Achieved energy savings in electricity, heat and fuel sum up to total of 650 GWh during 2009. To continue these systematic improvements in energy efficiency, Outokumpu sites in Finland signed new energy efficiency agreements in December 2007. These new agreements are valid from 2008 to 2016. In Sweden, the first round of the PFE (Programmet för energieffektivisering i energiintensiv industri) agreement ended in the summer of 2009 having achieved annual savings in electricity consumption totalling 8 GWh rather than the agreed 4 GWh. The Group has now applied for the second period between 2009 and 2014. In connection with energy issues, Outokumpu usually works closely with the authorities – with Motiva in Finland and by participating in the Jernkontoret forum in Sweden.
Outokumpu has participated in voluntary national energy efficiency agreements in Finland, Sweden and the UK for many years. Continuous improvement, efficient operations and maintenance are essential part of our energy efficiency work. In our Avesta Works measures for improvements during 2009 were: New routines for maintenance shut downs to shut down motors when not used. Improved control system of flameless combustion in the annealing line, which resulted in fuel savings and lower emissions. New pressurised air control system installed and work started to find leakage to improve compressor utilisation and save energy. New industrial water pump station installed with increased capacity. frequency controlled pumps save energy and improve regulation. Amount of free cooling from the water increased by replacing a larger power supplied compressor. Energy and data collection system developed and better analysing tools prepared.
Outokumpu Annual Report 2009 – Energy efficiency
Sustainable power solutions Outokumpu is protected against price volatility in the Nordic electricity market by having its own electricity production facilities and long-term electricity purchasing agreements. In addition to reasonable and stable electricity prices, one of the Group's aims is to purchase environmentally sustainable electrical power. Outokumpu has acquired low-carbon nuclear, hydropower and windpower production assets.
Nuclear power Outokumpu has a 20 MW share in the new Olkiluoto 3 nuclear power project currently under construction in Finland. As one of the shareholders in Fennovoima, a company planning to build a new 1500–2500 MW nuclear power plant in Finland by 2020, Outokumpu's aim is to have access to an additional 150 MW of low-carbon electrical power.
Hydropower Through a long-term lease agreement, Outokumpu has access to 104 MW of Norwegian hydropower capacity in Rana, Norway until 2020.
Windpower Outokumpu is a minority shareholder in Rajakiiri Oy, a company building a wind farm in Tornio. The first investment decisions regarding eight shoreline wind generators were made in 2009. Rajakiiri is also drawing up plans for an offshore wind farm that will produce up to 200 MW. The winning proposal of Outokumpu's internal EUR 5 million competition was to invest in power generation by wind turbines to reduce CO2 emissions. The investment will be made in Rajakiiri. More about the competion can be found at Outokumpu's website.
Combined Heat and Power (CHP) The Group has a minority stake in a Combined Heat and Power (CHP) plant in Tornio. This plant delivers heat to the Tornio Works, and a proportion of the fuel used is carbon monoxide gas created as a by-product of the ferrochrome production process. The CHP plant has also acquired a local heating business in Tornio. This acquisition will lead to better optimisation of the CHP plant, improvements in energy efficiency and a reduction in the level of carbon dioxide emissions in the Tornio-Haparanda region.
Outokumpu Annual Report 2009 – Energy efficiency
Energy and emissions trading Energy needed in processes is the main source of Outokumpu's carbon dioxide emissions. Outokumpu's carbon dioxide emissions in 2009 totalled 568 000 tonnes. Outokumpu's emissions trading activities fully comply with the relevant EU laws and regulations, with agreed procedures and with the Group's trading and risk policies. Carbon dioxide emissions under EU Emissions Trading Scheme were at a very low level in 2009 due to reduced levels of production, approximately 540 000 tonnes (2008: 820 000 tonnes). Outokumpu's carbon dioxide allowances in the UK, Sweden and Finland were sufficient for the Group's planned production.
The EU Emissions Trading Scheme after 2012 The European Commission (EC) and the European Parliament have agreed that the EU Emissions Trading Scheme (ETS) will continue, with the next trading period being 2013–2020. The most important issue for Outokumpu has been to qualify for a free allocation of emissions allowances during 2013–2020 by being part of an industry sector where there is a significant risk of carbon leakage. According to an EC decision, all of Outokumpu's ETS operations are qualified. Free allocations of emissions are to be distributed according to efficiency based product benchmarks which will be finalised by the end of 2010. The renewed ETS directive states that member states can offer companies compensation for carbon dioxide related increases in electricity prices. As Outokumpu has three electricity intensive installations in three different EU countries, this is an important issue. More information on climate change can be found here.
Outokumpu Annual Report 2009 – Emissions trading
Outokumpu's energy Energy supplies of Outokumpu are based on long-term supply agreements and investments in power-generation capacity. The primary tasks of the Group's Energy function are to procure electrical energy for Outokumpu's Nordic sites at favourable and stable prices and to hedge against future changes in price. The Energy function also supports Group companies in their energy related activities.
Energy used 2009 Unit
Electricity (GWh)
Fuel energy (GWh)
Total (GWh)
Tornio
1 398
913
2 311
Avesta
318
319
637
Sheffield
134
90
224
Other
205
216
421
Total
2 055
1 538
3 593
Origin of Electricity (figures based on estimates) 2009 Renewable sources
45%
Nuclear
35%
Fossils and turf
20%
Final figures are available in May 2010.
Outokumpu Annual Report 2009 – Energy sources
Outokumpu Annual Report 2009 – Energy sources
Water – a natural resource for cooling Steel manufacturing requires high temperatures. Whenever large amounts of heat are generated or used, cooling is required to protect people and equipment. As in most industrial processes, water is the natural resource used for cooling. Outokumpu's main production operations also use large volumes of water for rinsing and cleaning tasks. To minimise the risk of pollution that could affect local resources, water used in the Group's production processes is recirculated. All Outokumpu's melt shops are situated in areas where the intake or use of cooling water does not place an unreasonable burden on the water resource environment. At Avesta, for example, the Group's water intake is less than 0.05% of the total volume of the Dalälven river which runs past the site. Environmental impacts in this location are further reduced by the fact that most of the water used is only employed in cooling processes and then returned to the river (source: Dalälvens Vattenvårdsförening).
Water withdrawal and discharges 2009
2008
2007
17.2
19.3
20.3
0.9
1.1
1.1
Cooling water out, million m³
8.1
11.5
10.6
Waste water out, million m³
7.3
7.8
8.6
Metal discharges to water, tonnes
9.9
15.5
17.2
Nitrogen in nitrates, tonnes
437
578
574
Water withdrawal by source Surface water, million m³ Municipal water, million m³
Water discharges by type and destination
High levels of water recycling Cooling water is used either directly in contact with steel or indirectly via a heat exchanger in which fresh cold water is used to reduce the temperature of a continuously circulating stream of cooling water. In the latter case, the only contamination associated with the outgoing water is that it has a higher temperature than incoming water when it is pumped back into the water system from which it was extracted. The percentage of water recycled at each Outokumpu site varies, but the average is above 90%. High levels of recycling of cooling and process waters are achieved at many of the Group's sites by employing recirculating cooling systems and water treatment programmes. The actual recycling rate varies from season to season. In Tornio in winter, for example, cooling water is only partially recycled – after it has been used for cooling, some water is pumped into the Tornio harbour basin to help reduce the amount of ice. In a cold climate, preventing ice formation in the harbour is more energy efficient than operating ice breakers. Even though cooling water is used in this way, considerable reductions in overall water use have been achieved as can be seen in the above mentioned table.
Outokumpu Annual Report 2009 – Water
Responsible treatment of rainwater Significant volumes of rainwater fall on Outokumpu sites. At Avesta, for example, where the works cover a total area of 2.4 square kilometres, at least a million cubic metres of water falls as rain or snow each year. While some of this water evaporates, a large proportion is collected and combined with used cooling water. All of this water is channelled through oil separation facilities before being discharged into watercourses. At Tornio, rainwater that has filtered through the landfill is collected. These filtrates are alkaline and also contain small amounts of hexavalent chromium, a harmful form of chromium that can not be released without further treatment. An automated reducing and neutralisation station has therefore been constructed. In the neutralisation process, ferrosulphate is used to reduce the hexavalent chromium to a harmless oxidised state and also neutralise the water before it is discharged.
Outokumpu Annual Report 2009 – Water
Surroundings at stainless steel sites remain unharmed Stainless steel production does not employ or reserve large areas of land or have a significant effect on biodiversity in surrounding natural areas. Outokumpu production sites are not located in sensitive areas such as Unesco World Heritage Sites, Ramsar Sites or Unesco Biosphere Reserves. During recent decades, the Group sites have not been found to disturb biodiversity in any unacceptable manner.
Regular evaluations of impacts on biodiversity None of the species included on the International Union for the Conservation of the Nature and Natural Resources (IUCN) Red List, a list reviewing the conservation status of species, are known to be affected by Outokumpu's activities. Although the Group does not have any significant operations in ecologically sensitive areas, impacts on biodiversity at Outokumpu production sites are evaluated on a regular basis as part of environmental management. The environmental authorities have evaluated the EU Natura areas located near our Tornio site. Reports and statements indicate that the Group's activities do not exert a negative impact or threaten biodiversity in these areas. At the Outokumpu site in Sheffield in the UK, an area has been established to provide protection for wading birds who nest there during the spring. Measures are taken to ensure that the nesting birds are not disturbed, and ornithologists ring birds as part of a programme to monitor breeding and migration patterns.
During recent decades, the Group sites have not been found to disturb biodiversity in any unacceptable manner.
Former production sites returned to their natural state Outokumpu takes care to return areas that have been subjected to production operations to their natural state. At the Group's Kemi Mine, waste rock extracted from the mine is now being utilised and intermediate rock storage locations are being used for underground construction and gallery fillings. At the Kemi Mine, the use of one 22.5 hectare concentrating sand bond in production processes ceased in 2008. Drying out has commenced and landscaping and reafforestation will be carried out in accordance with the remediation plan. Bonds that are still in active use support a rich waterfowl population which includes rare species. Pöyry, a consulting company, has produced a summary report concerning the effects of wastewaters from the Group's Tornio Works on local sea areas. No significant effects on fish, bottom feeding animals, vegetation or algae were observed. The overall condition of the local sea areas was judged to have improved over the last 10 years. Decommissioning of earlier closed production sites Meadowhall and Stockbridge in the UK is proceeding according to plans with local authorities. No environmental issues have emerged.
Outokumpu Annual Report 2009 – Biodiversity
BAT technology for emission control It is an Outokumpu principle that best available techniques (BAT) be employed to reduce emissions and minimise harmful environmental impacts which may result from the Group's operations. BAT means economically and technically best available pollution prevention technology that is agreed and published by the EU. Using BAT means that Group emissions are kept at the lowest achievable level by using the latest technology. To maintain good levels of emission control in the future, Outokumpu is continually developing its processes and pollution prevention techniques and is also an active participant in the process of updating the reference documents (BREF) which define the technologies, helping to set high standards which are applicable all over the EU. Efficient systems help in preventing spills and non-compliances Safety first with radiation sources Investments in technology reduce dust emissions
Efficient systems help in preventing spills and non-compliances All Outokumpu's larger production sites employ Environmental Management Systems (EMS) or risk based management systems which help to avoid spills and accidents that could be harmful to the environment or to humans. All of these systems operate in accordance with ISO 14001, the international standard for environmental management systems. We aim to achieve one group-wide certification, currently 91% of the production sites have separate certification. Emissions and discharges were generally at normal levels and in compliance with environmental permits in 2009, but some spills and non-compliances did take place. There was a fire in the steel melting shop at Tornio. Hot combustion gases penetrated one bag filter and melted some of the filter tubes. Even though quick and effective measures were taken, 2.3 tonnes of dust was released into the air. This amount corresponds to 15% of annual emissions by the steel melting shop. At the ferrochrome plant in Tornio, the operation time ratio for the dust filtering unit in the feed silo was 93% in January (permitted level: 97%). Dust emissions to the air totalled three tonnes during this period. Because of the difficulties being experienced with the cleaning units, the supervising authority requested an action plan to resolve the malfunctions. Among other items, the action plan included a timetable for installing continuous measurement instruments in outlets whose significance was higher. The action plan was approved in March 2009 and the dust cleaning units have been working without any difficulties. At the Nyby site small acid leakage occurred. At Sheffield there have been minor emission breaches from the Direct Current Arc Furnace extraction system. Långshyttan (Kloster), Sweden, and Meadowhall site, the UK, reported incidents of discharges to the local brooks. The environmental authorities were informed on all occasions and no environmental damage was reported.
Safety first with radiation sources The source of radioactive material may enter the stainless steel production chain via the recycled stainless steel used in the process. Such radiation is usually from natural occurring sources. In some cases, the source of radiation is old measuring equipment extensively used in heavy industry. Such items of equipment contain small amounts – a maximum measured in grams – of radioactive isotopes. These are normally detected before they enter the Group's production process.
Outokumpu Annual Report 2009 – Emissions, effluents and waste
Three incidents occurred at Outokumpu's Tornio facilities in 2009 during which radioactive material entered the electric arc furnace despite the presence of alarm systems. The radioactive material concerned was identified as americium 241, an isotope employed in measurement instruments. All dusts and slag from the melt affected were separated and measured, and the radioactive materials were stored separately in accordance with guidelines provided by the national authorities. The dose rate associated with the radioactive material in these Tornio cases was approximately 10 times the dose rate of the background radiation that humans are exposed to in their everyday lives. By way of comparison, travelling by air involves exposure to a dose rate 50 times higher than the dose rate of background radiation.
Investments in technology reduce dust emissions Dusts have traditionally been the most significant type of emission by the steel industry. The majority of Outokumpu's particle emissions originate from the Tornio, Avesta and Sheffield steel mills and the New Castle hot rolling mill. In the 2002–2006 period, the Group's steel plants invested more than EUR 20 million to improve their environmental performance and minimise dust emissions. Even though total production of stainless steel has increased during that period, levels of dust emissions by Outokumpu have declined significantly in recent years.
Close monitoring of emissions The steel melting shop in Tornio has been monitoring dust particle emissions with a continuous emissions measurement system since the beginning of 2007. Having daily emissions data helps in detecting potential filter leakages quickly. The impacts of emissions by the Group on local air quality at major Outokumpu production sites are regularly assessed. At the Avesta Works, specific measurements of mercury emissions from the steel melting shop were performed and reported to the authorities in 2009.
Reductions in emissions Dust emissions from the Group's operations typically contain small quantities of metals (including iron, chromium and nickel) and these are mainly present in a harmless form. Chromium, for example, is usually found in its trivalent form and not as the hazardous hexavalent form. In recent years, Outokumpu has supported many studies investigating the effects of metal emissions on both the environment and human health. Emissions of nitrogen oxides have also declined. Reductions have been achieved by investing in new technology and abatement plants. To minimise their emissions, Outokumpu production sites in Tornio, Avesta and Nyby are employing the latest burner technology and selective catalytic reduction (SCR) technologies for certain processes.
Outokumpu Annual Report 2009 – Emissions, effluents and waste
The primary origin of the Group's sulphur dioxide emissions is the district heating unit at Tornio Works which is used only occasionally during the cold winter season. Recovering heat from waste furnace gases at the Tornio and Avesta Works also reduces the Group's energy consumption. Emissions of nitrogen oxides, carbon dioxide and sulphur dioxide are correspondingly lower as fuel does not need to be combusted to produce heat. The energy efficiency measures that have been implemented have reduced Outokumpu's specific carbon dioxide emissions. In general terms, ambient air quality in the Tornio and Haparanda communities is equivalent to that in other communities of similar size in Finland and Sweden. The most significant impacts on air quality in these locations come from traffic and dust in the streets. Studies made in cooperation with local municipalities and authorities in recent years indicate that the effects that operations at Tornio Works have on air quality are very local.
Outokumpu Annual Report 2009 – Emissions, effluents and waste
Ongoing developments in waste handling bring results Dust and scale collected from stainless steel manufacturing operations are considered by Outokumpu to be significant waste streams. Wherever practicable, these waste materials are collected and recycled to recover the valuable alloying elements they contain – these include nickel, chromium and molybdenum. Where necessary, specialist recovery techniques are employed such as the Group's DC arc furnace at the melt shop in Sheffield or external treatment facilities operated by other companies. The total quantity of dusts and scale collected and treated by Outokumpu in 2009 was 47 000 tonnes. Wastes from Outokumpu production units are sent to appropriate treatment facilities or to landfill sites licensed to accept such materials. Both hazardous and non-hazardous wastes are involved, and pre-treatment of the waste material is completed when this required. Hazardous wastes (oily wastes and hydroxide sludge) generated by the Group's operations in 2009 totalled 44 351 tonnes. All hazardous wastes are treated, reused or disposed of in accordance with current legislation and best practices. Outokumpu owns and manages landfill sites at some production sites in Finland, Sweden and the UK. In Tornio a new 5 hectare landfill site for hazardous waste has been prepared, but an older one is still in use. The closure process has been initiated with completion scheduled in 2012. Both landfill sites fulfil all high requirements and standards set by European legislation.
Material efficiency a cornerstone of our strategy. As material efficiency is a cornerstone of Outokumpu strategy, an investigation of waste material flow at Tornio Works has been launched. The aim is to establish the most cost effective ways of recycling, reusing, treating or disposing of waste materials and minimising the amounts produced by the Group. A good example of the results emerging from this project is the sludge produced by water treatment in the Group's ferrochrome plant. Previously, this was disposed of as landfill. Technical investigations revealed that the material's properties make it a very effective barrier to water flow. Results obtained from an experimental installation carried out at a landfill site in the City of Oulu in Northern Finland were very promising, and the material is now employed in Outokumpu's own landfill area, with approximately 100 000 tonnes of ferrochrome water treatment sludge being used as a mineral sealing layer in the surface structure. The Group's ultimate target is zero waste production plants. At Outokumpu sites Richburg and New Castle in the US continued a waste programme that has reduced the monthly tonnage of waste produced. The broad spectrum action plan includes cardboard recycling, sending shot blast grits and baghouse dust to recycling, the recycling of cardboard and office paper, and chipping of waste wood to produce mulch.
Outokumpu Annual Report 2009 – Waste
Working towards reductions in water discharges From an environmental perspective, the most significant components in water discharges from stainless steel production processes are metal compounds and nitrates resulting from the neutralisation of acidic waste generated in cold rolling units. Effluent discharges at all of Outokumpu's production units are controlled in order to minimise their impact on the environment. At Tornio Works, for example, levels of metals in the main discharges from the plant are much lower according to external studies, than the natural loading of metals in local rivers that flow into the Gulf of Bothnia.
Action to reduce nitrate loads Nitrate loadings originate in the pickling acids used in descaling stainless steels. A number of different techniques are employed by the Group to reduce the nitrate load in effluent discharges from these operations, including pickling acid recycling technologies. Outokumpu is working on the development of discharge handling techniques to further reduce effluent loadings. At the Group's Kemi Mine, the main source of nitrates is explosives. A small proportion of the explosive charges used remains and washes out into the water circulation system. Passage through three large ponds (a total of almost 200 hectares) located upstream of the point at which discharges into the recipient water system take place results in the water's nitrate content being reduced by some 60%. These water ponds are natural removal units and there are no negative impacts on the recipient water system, the Iso-Ruonaoja.
R&D to reduce water discharges Several research projects aimed at reducing nitrate discharges have been carried out at a number of Outokumpu's production sites in Sweden. At Avesta, this has resulted in the investment of EUR 28 million in a new acid recycling system. Installation will take place during 2010 and process start-up is scheduled for early 2011. Discharges of nitrates will be reduced drastically through the recycling of acids. As the process also produces a metal oxide that can be used as a raw material in the steel melting process, the new system will also reduce the amount of sludge sent to landfill. The oil separation station at the Avesta site used for purifying cooling water and rainwater converted into a modern lamella filter unit. The process control ensures that oil is separated from the water stream. At Tornio, plans have been made to use the large dredging pond near the harbour as a post treatment area for process waste waters with the aim of further reducing concentrations of nitrogen and suspended solids.
Outokumpu Annual Report 2009 – Water discharges
Reducing water discharges to protect marine ecosystems Located in the estuary of the Tornionjoki river on the coast of the Gulf of Bothnia and close to nature reserves, the Tornio Works in Finland is probably Outokumpu's most ecologically-sensitive production site. Many studies monitoring the biological, physical and chemical conditions have been carried out near the Tornio site since the 1970s. In 2008, the results of voluntary research concerning the impact of nitrates on recipient water at the Tornio site and the Kemi Mine were published. These showed that impacts are restricted to the immediate proximity of the discharge points at Tornio and cause slight eutrophication. At the Kemi Mine, the impacts on sea areas are in practice negligible. Pollution prevention techniques being employed by Outokumpu mean that increases in emissions can be avoided, and further reductions from previous levels will be achieved in many cases even at higher than current production levels. Annual studies carried out by Pöyry, a consulting company, have shown that impacts on the sea areas close to the Group's production plants have diminished during the last decade and that the marine ecosystem is in good health.
Outokumpu shoulders its responsibility for the Baltic Sea. A number of studies which include the continuous monitoring of discharge levels have shown that discharges of chromium and nickel are now 60–80% below the levels measured ten years ago. These metals are considered to be the most significant metals released into the sea by Group activities at Tornio, current discharge levels of chromium and nickel are only a fraction of the total metal loading which originates in the main from natural sources in the northern part of the Gulf of Bothnia. This is because Tornionjoki and Kemijoki, the two local rivers, carry far greater concentrations of these metals into the sea than the combined amount discharged by Outokumpu's Tornio Works and Kemi Mine. Activity in local fisheries located near the Tornio Works is at healthy levels and commercial fishing is carried out near the production plant. Research indicates that the metals released from the Group's facilities do not accumulate in the marine food chain. Outokumpu is participating in the Baltic Sea challenge with the practical measures it has already taken in the 2000s and will take in the future to improve the condition of the sea. Outokumpu's action programme can be found here.
Outokumpu Annual Report 2009 – Impacts of water discharges and runoff
Working to prevent leakages Soil contamination mapping or remediation was ongoing at several sites according to plans. Soil surveys were made in Avesta, Fagersta, Molkom and Nyby. Since 2002 open soil contamination issues in Degerfors were positively completed without further action demands. In Meadowhall and Stocksbridge decommissioning of plant continues. The closure of the old landfill areas continued in Tornio and Nyby according to plans. Also the capping of Tinsley Park Landfill, Sheffield, continued. Remediation activity in connection with contaminated groundwater continues at the Outokumpu site in Wildwood, the US. Remediation work also continued with an old oil leakage at Outokumpu's Montreal facility in Canada. During 2009, the system has operated normally. The oil levels are stable to declining.
Outokumpu Annual Report 2009 – Impacts on soil and groundwater
Rail transportation significantly improves environmental performance Outokumpu has been working hard to improve the environmental performance of the Group's transportation networks. Transport of products has been included also in the Group's Energy and lowcarbon programme as well as long-term targets for indirect and direct CO2 emissions. Outokumpu has signed a five year contract covering the 2008–2012 period with the EuroLink railway system. EuroLink connects Tornio, Avesta, Nyby, Degerfors and Sheffield and is the Group's primary internal, rail based, rail-ship-rail materials transportation solution. Unique equipment is used to transport coil, slab and billet products and raw materials, and as finished material is transported intermodally, products are only handled during loading and offloading operations. Supply Chain Management goals in system solutions such as EuroLink include maintaining a reliable and frequent service between the Group's different sites throughout Europe. The system has a high capacity and very good reliability with low costs. As it is rail based and most of the engines use electric drive, EuroLink has an excellent environmental profile when compared to alternative methods of transportation such as trucks or ships which are driven by internal combustion engines.
Outokumpu is moving from truck to rail transportation. To illustrate this, a comparison between rail and truck transportation was made using actual tonnages and mileage figures from 2008 when the system is 100% utilised. The results indicate the potential for radical improvement in Outokumpu's environmental performance that the rail based system offers. In 2009, carbon dioxide emissions resulting from transportation of finished products by the Group totalled 128 285 tonnes. The proportion of products transported by truck totalled 55% and the proportion transported by ship totalled 28%, while 17% were transported by rail. The volume of products transported in 2009 was lower than in the preceding year at 1.0 million tonnes (2008: 1.4 million tonnes). Thus, the main reason for the significant reduction in the transportation emissions is likely to be the smaller volumes that were transported. Application for an environmental permit in connection with plans to increase the capacity of Outokumpu's Kemi Mine led to an environmental impact assessment (EIA) being completed during 2009. The only clear impact identified was an increase in levels of traffic between the Kemi mine and the Tornio Works. However, not even a doubling of traffic will cause significant harm to settlements along the route.
Outokumpu Annual Report 2009 – Transport
Environmental investments further improve sustainability Operational costs for Outokumpu's environmental activities totalled EUR 58 million in 2009, with costs for the treatment and disposal of waste totalling EUR 3 million. Provisions and guarantees connected with environmental considerations totalled EUR 13.4 million. In addition to this, provisions for the aftercare of old mining sites totalled EUR 0.5 million. Environmental investments by Outokumpu totalled some EUR 11.7 million (2008: EUR 18 million), despite the economic downturn. This shows great commitment from the Group.
Environmental investments despite the economic downturn.
Main environmental investments In 2009, the Group launched a project to install a new acid regeneration plant at Avesta, an investment of EUR 28 million. The objective of this two year project is to reduce the amount of nitrates discharged into the Dala River by a third. Other environmental investments in 2009 included the following: Tubular Products Wildwood in Florida, the US substituted propane for natural gas in its annealing furnaces. A new acid unloading station at Degerfors, Sweden (EUR 1.5 million). At the Tornio Works, Finland construction of a new steel recycling facility in cooperation with Refelco Oy. Outokumpu's share of this investment is EUR 5 million and Refelco's share is EUR 1.5 million. New bulk storage for acids was installed at New Castle, IN, the US. A new sulphuric acid tank was installed at Alloy Steel Rod plant, in Sheffield in the UK.
Outokumpu Annual Report 2009 – Expenditure and investments
People are most important How we treat people – not only own employees but also various stakeholders – is most important. Our Ethics Statement, Corporate Responsibility Policy and Code of Conduct define our approach to social responsibility: People must be treated equally and fairly irrespective of their ethnic origin, nationality, religion, political views, gender, sexual orientation or age. Outokumpu is completely opposed to the use of forced and child labour, and the Group condemns all forms of corruption and bribery.
Outokumpu Annual Report 2009 – Social responsibility
Social goals and results In 2009, Outokumpu's social responsibility goals were to reduce injuries, to develop the Group's Leader Pool through job rotation, to further develop Human Resources data collection and reporting, to hold performance and development dialogues for all Outokumpu employees, and that the Supply Chain Tool would be taken into use. To measure our success in improving our employees' well-being, the O'People personnel survey was conducted at the end of the year. The target for O'People score was 660, as set in spring 2009.
Group-wide social targets Goals for 2009 Further SAP HR development to cover more GRI social performance indicators. Job rotation for 20% of personnel within Leader Pool. Job rotation reported at all levels throughout the Group. Performance and development dialogues for all. Decrease injuries to below 5 per million hours worked. Sustainable Supply Chain Management Tool taken into use.
Results 2009 The target for SAP HR development reached, all but 4 GRI-indicators were reported via SAP HR. SAP HR is now also used as master data source for monthy Full Time Equivalent (FTE) reporting. The target of job rotation for 20% of personnel within Leader Pool was not achieved as the figure was 9.5%. The target of job rotation reported at all levels throughout the Group was achieved. The target of performance and development dialogues for all, was not fully achieved. On Group level some 90% of white collars completed the dialogues and some 65% of blue collars. The number of dialogues was affected by e.g. lay-offs. The injury rate fell from 9.0 to 5.9 injuries per million working hours, but the target below five was not achieved. The goal to take the Sustainable Supply Chain Management Tool into use was not achieved. Supplier audit template is being developed.
Goals for 2010 To build a global interface for the SAP HR system so that HR data can be fed to other Group systems. In this way to reduce manual work and the possibility of human errors. As the data quality improves the aim is to increase the usage of people-related data in the strategic business decision making.
Outokumpu Annual Report 2009 – Social goals and results
To improve job rotation practices and reporting further in SAP HR. Performance and development dialogues to all (white collars by the end of February and blue collars by the of May) and to improve dialogue reporting. Reduction of injuries to below four per million hours worked. Improve employees' well-being. Well-being is measured by O'People employee survey, aim to increase the overall score to 660. Supplier audit processes finalised in 2010 and gradually taken into use.
Outokumpu Annual Report 2009 – Social goals and results
Personnel is important Outokumpu's success is based on the company's most important asset, our personnel. The Group's renewed People strategy aims to attract, retain and develop Outokumpu people globally, enhancing both their motivation and their ability to support the Group in its vision of becoming the undisputed number one in stainless steel. At the end of December 2009, Outokumpu employed 7 606 people (2008: 8471, figures as full time equivalent). Approximately 42% of Group's employees are white collar workers, 17.9% are women (2008: 18.8%, 2007: 18.0%), and 82.1% are men. Outokumpu employs people in some 30 countries, with 93% located in Europe (35.5% in Finland, 36.1% in Sweden, and 7.4% in the UK). In 2009, the number of permanent employees who had worked for Outokumpu for more than 30 years totalled 1 168, and for less than 5 years the number employed was 1814 (6-10 years 1 459 employees). The average age of the Group's permanent employees was 43.6 years and the average length of service 15.8 years. The average length of service at Outokumpu and the average age of employees seem to indicate that a "generation shift" is taking place in the company. Average turnover among permanent employees in 2009 was 7.6% (2008: 7.03%), the hiring rate being 5.2% and the leaving rate 10.0%. 198 employees had fixed-term contracts.
Outokumpu Annual Report 2009 – Employees
Personnel figures 2009
2008
2007
Sales/person, € million
0.3
0.6
0.8
Incentives of total personnel costs, %1)
2.3
4.9
5.6
Training costs of total personnel costs, %1) 2)
4.2
1.4
1.4
Training days/person
2.4
2.8
3.3
Days lost due to strikes
911
4
1 235
Personnel turnover, %
7.6
7.0
6.1
1)
Accounting principles of total personnel costs have been changed from previous year, and thus the figures from previous years
are not comparable. 2009 figure includes social security expenditure and other employee benefits that have not been included in previous year figures. 2)
Accounting principles of and the way of collecting data for training costs have been changed from previous year, and thus the
figures from previous years are not comparable.
Personnel by country, Dec.311) 2009
2008
2007
Sweden
2 749
3 211
3 070
Finland
2 703
2 798
2 759
The UK
564
717
862
Italy
292
340
141
The Netherlands
240
260
253
Germany
197
214
194
Other European countries
342
388
321
7 087
7 928
7 600
The US
321
403
394
Canada
29
38
34
354
441
428
137
72
51
24
25
25
5
5
5
Europe
North and South America
Brazil
Asia Australia Africa
4
Outokumpu Annual Report 2009 – Employees
Group total 1)
7 606
8 471
8 108
FTE full time equivalent.
Observations by PricewaterhouseCoopers HR Outokumpu reports HR figures in full-time equivalent instead of headcount. In the corporate responsibility context, headcount figures would be more descriptive of Outokumpu's human resources.
Further improvements in HR data collection and management In May 2009, a two-year project to implement a global SAP HR system was successfully concluded. Our target for 2009 was to develop HR data collection and reporting in SAP HR. Data concerning all Outokumpu employees is now stored in a single HR system and standard SAP functionality is in place to support the most mature People Processes such as Performance and Development Dialogues. All Group managers and employees can now use a portal to access, view and execute HR-related tasks. The SAP HR development plan has been completed and the system will be developed in accordance with the priorities allocated to Outokumpu's People Strategy and People Processes. In 2010, the first major activity is to build a global interface for the SAP HR system so that HR data can be fed to other Group systems. In this way to reduce manual work and the possibility of human errors. As the data quality improves the aim is to increase the usage of people-related data in the strategic business decision making.
Outokumpu Annual Report 2009 – Employees
Everyone deserves a safe working environment Outokumpu is committed to providing its personnel with safe and healthy working environments. The Group is also accountable for the safety of contractors and suppliers while they are working in Outokumpu's production plants and other Group facilities. Development of occupational safety is monitored via regular reporting to corporate management meetings, and all management committees and equivalent bodies throughout Outokumpu start each meeting with a safety review. Safety is a key performance indicator linked to our bonus system. The importance attached to safety has been highlighted by making it a separate function in Outokumpu's organisation, increasing the personnel resources available, and developing a new safety vision and principles for the Group. Our new Occupational Safety Committee has begun developing Group-wide safety standards. The learning of DuPont Safety Resources evaluation at 2008 was enforced.
We have clear targets: injury prevention and hazard awareness In 2005, the Group's Occupational Safety Theme Year set a target of reducing the injury rate to less than five per million hours worked by 2009. As the rate in 2009 was 5.9 lost-time injuries per million hours worked (including contractors), the target was not achieved in full. The target has been tightened. Efforts within the Group to reach it will be strengthened. We believe all injuries are avoidable. Our ultimate target is no injuries at all. Although we did not reach our goal, the 2009 figure is an improvement over the previous year (2008: nine injuries per million hours worked). Injuries resulted in 120 sick leave days per million hours worked (including contractors) in 2009 and a total of 92 individual lost-time injuries occurred (including contractors), none of which were fatal. The EU average of stainless steel producers for the World Steel Association member companies in 2008 was 8 injuries per million hours worked. Outokumpu employees are encouraged to report all the near-miss situations they encounter in the workplace. Reporting activity has slightly improved from previous year, but we are still far below the 2007 figure. A total of 2898 reports (including contractors) were received in 2009 (2008: 2521 and 2007: 4 480). Safety Log, a Group-wide occupational safety system for data collection and management was launched in 2008 at all Outokumpu's business units and service centers as well as in the Group's head office. Sales companies joined the system at the beginning of 2009. Development of the system was conducted in 2009. This tool allows us to log and monitor our safety status in real time and also compare reports and data received from all Outokumpu units. Group top management is strongly committed to achieving improved levels of safety. Year 2010 has been designated Safety Theme Year. The aim is to discuss the Group's new safety vision and principles with everyone working in Outokumpu.
Outokumpu Annual Report 2009 – Safe working environment
Staying healthy in the workplace Occupational health services provided by the Group at operating locations are in line with national legislation and local needs. Activities focus on improving working environments and employees' health is monitored through a variety of occupational health checks and fitness tests. Industrial hygiene measurements are carried out at Group production plants to monitor work-related exposure to, for example, noise and dust. Issues relating to the work environment are also studied through joint research projects carried out in collaboration with universities and specialist institutions. It is vital to listen to our employees on a regular basis. Feedback helps us when further improving our performance. At the Group's headquarters in Espoo, for instance, regular satisfaction surveys on occupational health are carried out. In 2009, the study was made by the Finnish Institute of Occupational Health. A link to the survey was sent to all 150 persons who visited the occupational health unit during September. The unit serves 750 employees of nine companies operating at the campus area in Espoo, 25 percent of which work for Outokumpu. The response percentage was good, 69 percent, and overall feedback positive. Our occupational health unit was better than the reference group in communicating in different ways the necessary measures to prevent adverse work related health effects. The unit promotes workplace safety and improves the work environment, co-operates with the employer and employees to improve well-being at work. Development areas were also pointed out and proposals for improvement received. They will be studied in detail and discussed with the personnel. Possible measures to be taken will be considered case by case. In 2009, an average of 5 900 days per million hours worked of own employees (2008: 7 445) in the Group were lost as a result of sickness or injury. The number of cases of occupational disease diagnosed in 2009 was 9 (2008: five cases).
"Stop Flu" Research Project In the early months of 2009 and well before the "swine flu" virus appeared in April, Finland's National Institute for Health and Welfare and four major international companies whose head offices and integrated occupational health services are located in the Helsinki area, one of which was Outokumpu , launched an 18-month follow-up and intervention study. The aim is to obtain scientific evidence to support recommendations for hand hygiene routines to be used when making preparations to cope with serious pandemics. The study will continue until June 2010 and preliminary results will be available later in 2010. The study programme is a global spearhead initiative which will benefit all workplaces.
Study of occupational exposure and respiratory health effects in Tornio Outokumpu has been studying exposure to chromium compounds in the stainless steel production chain and their longterm effects on respiratory health since 1985. The latest research programme - a joint venture between Outokumpu and the Finnish Institute of Occupational Health co-sponsored by The Finnish Work Environment Fund – is a logical continuation of these studies. A total of 350 Group employees participated in the clinical studies carried out in 2009. Levels of occupational exposure were studied using very sophisticated methods including chromium speciation and measurements of ultrafine particles. A preliminary report will be published in 2010, and scientific articles will follow.
Observations by PricewaterhouseCoopers Occupational health and safety Outokumpu should streamline the reporting practices for occupational safety and well-being, and further improve implementation of reporting systems locally in order to avoid manual work and thus reduce risks of errors.
Outokumpu Annual Report 2009 – Safe working environment
Attracting and developing talent through continuous training Outokumpu's People strategy highlights the need to proactively develop the Group's resource and competence base and leadership capabilities to meet the rapidly evolving requirements of the sector in which we operate. Part of this work is continuing personnel development and training. During individual performance and development dialogues, managers and personnel together identify future development needs. Outokumpu has different types of internal development and training programmes for developing competences and skills at different stages of individual's career. The planning and implementation of competence development takes place at Group level as well as at functional and business-unit levels. In 2009, training costs in Outokumpu amounted to 4.2% of total personnel costs (2008: 1.4%, 2007: 1.4% and 2006: 1.1%). In 2009 the training costs have been reported more thoroughly since the reporting practices and guidelines have been clarified. Thus the previous training cost figures are not comparable to 2009 figures and due to this it seems that the costs have tripled. The Group provided 2.4 training days per employee (2008: 2.8, 2007: 3.3 and 2006: 2.9). Incentive bonuses in 2009 totalled 2.3% of total personnel costs (2008: 4.9%, 2007: 5.6%, 2006: 4.2%).
Development programmes motivate and increase capabilities Outokumpu's Group level development programmes focus on leadership development and supporting the Group's strategy implementation. One of the key principles in our People strategy is that all Outokumpu leaders regard themselves as accountable for people management. The backbone of leadership development in Outokumpu is our Leadership Principles. To bring these principles to life, two Leadership Excellence programmes were arranged during 2009. The programmes had altogether 37 participants. In 2009 Outokumpu started a new development programme called High Potential Development Programme. Through this programme Outokumpu identifies individuals with ability, aspiration, engagement and potential to move from their current roles to more demanding positions. For these individuals the programme offers a structured way to develop themselves and build their career in Outokumpu according to their personal long-term development plan. One development method for them is a possibility to participate in a Reference Group, which target's to enhance the dialogue between the employees and the Group Executive Committee. The first Reference Group has six members and they meet the Group Executive Committee three times during September 2009-April 2010 in order to change views and work on given assignments. Also Outokumpu's internal Coaching Programme started in 2009. The aim of the programme is to train certified internal coaches in Outokumpu. Coaching not only helps individuals in improving their performance and motivation, it also supports Outokumpu managers who face challenging situations. The programme is designed for managers and specialists who wish to develop themselves and are especially motivated to help others develop their abilities. Two Internal Coaching Programmes were arranged in 2009. When these two programmes have been completed, the Group will have some 30 certified internal coaches. Outokumpu's Stainless Pro International Graduate Programme has proved to be a good way of attracting young talents, as it gives us a concrete way to cooperate with universities, to tell students about Outokumpu and what we have to offer, and also to hear what they expect from us. This two-year programme for recent university graduates was launched in 2007. In 2009, the first eight Stainless Pro graduates transferred to new positions such as Business Analyst, Development engineer and Manager –BU Strategy, within Outokumpu. Seven new Stainless Pro Graduates started the
Outokumpu Annual Report 2009 – Training and development
programme in September 2008, and are set to finish the programme in August 2010. The next programme for 6 new talents will start in September 2010.
Outokumpu Annual Report 2009 – Training and development
Employees' opinions are heard To increase the motivation of Outokumpu's employees and their level of job satisfaction, open and interactive dialogue is vital. To understand employees' needs better, O'People, the Group's personnel survey, was conducted for the fifth time in 2009. One aim was to increase the survey response rate to 80%. As the response rate was 72.1% (2008: 75.5%, 2007: 64%) the desired level was not achieved, but as this was higher than 60%, the results can be considered reliable. The overall O'People index for 2009 stood at 617 (2008: 621, 2007: 595) when our target for 2009 was 660. Even though our score declined slightly, it is encouraging to see that the index figure has remained almost unchanged during difficult times – a sign of the commitment and professionalism of Outokumpu people. The Leadership Index improved to 64 points in 2009 (2008: 63, 2007: 53).
Ideas for fast action – survey to engage personnel In order to get employees' ideas and creativity in use a web-based survey was organized in the spring. Focus was on concrete ideas on how to get through the difficult times, on ways to cut costs and to improve overall performance. Ultimately, how we can be even stronger in the long-term. Altogether 8 613 improvement ideas and comments were received. The ideas ranged from big to smaller concrete improvements concerning energy savings, increasing videoconferencing, limiting travelling, cutting use of consultants and reviewing service level of health station. During the summer all units went through the ideas concerning their respective units and made their action plans. Actions and achieved results are reported to the Group Executive Committee, and successes and best practices are also presented on the intranet.
Spontaneous comments from employees It seems that the awareness of corporate responsibility issues within our personnel has grown. Questions and spontaneous comments have arisen on issues such as air travel carbon offsetting, selling stainless steel to risk industries or eating tuna fish. Internal corporate responsibility updating sessions were started in management team meetings in Finland and in Sweden. These sessions will continue in 2010. Towards the end of the year, our personnel also got the possibility to comment on internal news on the intranet. This has been quite actively used and useful comments have been received through this channel as well.
Performance management supports our strategic goals Becoming the undisputed number one in stainless steel requires clear direction, world-class operations and motivated people. High-quality leadership and a strong Performance Management process help the Group achieve this. Performance Management, a 365-day process based on dialogue, focuses on improving business performance by enhancing employees' performance and levels of competence. The Performance and Development Dialogue is an important component in Performance Management. The dialogues consist of a formal annual review of each individual's performance and development against established targets in the preceding 12 months, together with development of a new Performance and Development plan for the next 12 months. Almost all Group employees participated in Performance and Development Dialogues in 2009, but the goal of 100% coverage was not achieved. Both the Performance Management and the Performance and Development Dialogue processes were revised in 2009. The improved approach to Performance Management will be applied from 2010.
Outokumpu Annual Report 2009 – Employees' voices
Cooperation between management and personnel Outokumpu's Personnel Forum is a joint consultative body which provides an information channel between company personnel and management. Established in 1994 in response to a European Works Council Directive, it includes 21 personnel representatives from the Group's European operations, people representing the HR function and members of Outokumpu's senior management teams. Usually convened once each year, the 2009 Personnel Forum was held in Espoo, Finland. Topics included the renewed People strategy and the processes of culture change involved in operating as "one company". The Personnel Forum appoints a working committee which is responsible for ongoing cooperation between Group personnel and management. During 2009, this committee held six meetings with members of the senior management team, including the CEO.
Outokumpu Annual Report 2009 – Employees' voices
Towards equality Outokumpu's Ethical Principles require that every individual is treated equally, discrimination is prohibited and the Group has zero tolerance regarding the use of forced and child labour. Since January 2009, we have officially supported the ten principles of the United Nations Global Compact. These are derived from The Universal Declaration of Human Rights, The International Labour Organization's (ILO) Declaration on Fundamental Principles and Rights at Work, The Rio Declaration on Environment and Development, and the United Nations Convention Against Corruption. Outokumpu maintains a consistent freedom of association policy, meaning that personnel in all the Group's operating locations are free to join trade unions in line with the rules and regulations that apply in local labour markets. In 2009, approximately 6586 Outokumpu employees were covered by collective agreements. There were 911 strike days in 2009 (2008: 4, 2007: 1 235 and 2006: 15). The overall percentage of women permanently employed by Outokumpu is 17.9 (2008 18.8%) – this low proportion is typical of heavy industries. The Group's aim is to address diversity issues e.g. when renewing Outokumpu's Recruitment Policy. Three members of the Outokumpu Board of Directors are female, one of the Group Executive Committee and 53 women hold key positions in the Group.
Outokumpu Annual Report 2009 – Diversity and equal rights
Hard times also for personnel As a response to the very weak demand for stainless steel Outokumpu took a number of actions to adjust to the poor market conditions. Production was cut back heavily and consequent adjustments of personnel numbers through both temporary and permanent layoffs were implemented. In Finland, the low order load resulted in temporary layoffs for most employees at the Tornio Works. Some 250 employees at the Kemi Mine and the ferrochrome plant were temporarily laid off from March until the end of September. Approximately 1 600 employees working on other steel production lines, maintenance and support functions were temporarily laid off in sequences starting from March. In September, some 700 employees were taken back and the remaining 900 who had been laid off temporarily returned to work in October. All head office employees (some 150) located in Finland were temporarily laid-off for ten days during the spring 2009. Some 50 permanent job reductions were made in Finland in 2009. In Sweden, a total of some 400 job reductions were made in 2009. The number of working shifts was reduced and related temporary lay-offs were implemented. In the UK, the closure of Sheffield Special Strip, reduced production in the Sheffield melt-shop and actions taken in the service centre and the sales company resulted in approximately 350 job reductions and temporary adjustments due to reduced working shifts. Approximately 150 job reductions were implemented in other countries. Altogether actions taken included temporary lay-offs affecting more than 2 000 people and some 900 permanent job reductions, being the main contributor to the Group fixed costs being reduced by some EUR 185 million in 2009. Outokumpu follows local laws and regulations also in job reductions and lay-offs.
Outokumpu Annual Report 2009 – Redundancies
Close involvement with research Outokumpu invested EUR 19 million in research and development in 2009 (2008: EUR 20 million and 2007: EUR 18 million). Research activities are conducted by the Group in collaboration with customers, research institutes and universities as well as independently. Both research and students are also supported by two Outokumpu-related foundations, the Outokumpu Stainless Research Foundation in Sweden and the Technology Industries of Finland Centennial Foundation Fund for the Association of Finnish Steel and Metal Producers. Joint R&D projects with research institutes and universities are conducted within national and European research programmes. Outokumpu is a shareholder in two Finland-based strategic centres for science, technology and innovation: the Finnish Metals and Engineering Competence Cluster (FIMECC Ltd) and the Cluster for Energy and Environment (CLEEN Ltd). During 2009, Outokumpu had an active role in launching first research programmes of FIMECC, and is now participating in three extensive five-year research programmes: Light and Efficient Solutions, Demanding Applications, and Energy & Life-cycle Efficient Metal Processes. The focus in these programmes is on long-term research into life-cycle-efficient and sustainable steel products, applications and production processes. Two patent applications for new inventions associated with stainless steel raw materials and welding were submitted by the Group during 2009. Working with other stainless steel producers in the ISSF (International Stainless Steel Forum) Outokumpu contributes to global statistics, runs joint research programmes in pre-competitive product and application development areas and produces data and evidence regarding the environmental effects of stainless steel. In recent years, a substantial amount of effort has been put into proving that the levels at which constituent elements of stainless steel are released into foodstuffs and human body fluids is extremely low. The use of slag products and improvements in the properties of such materials have also been topical subjects. Working together with associations of key raw material producers, the use of new production routes that would result in reduced quantities of greenhouse gases being emitted has been investigated. As a ferrochromium producer, Outokumpu is a member of the International Chromium Development Association (ICDA). In addition to producing statistics, the focus of associated activities has been firmly on demonstrating that the production and use of both metallic chromium and chromium-containing alloys results in no harmful effects on human health or the natural environment. ICDA made an extensive contribution by establishing a consortium for ferrochromium which produced data for REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals regulations). Tornio is currently engaged in a research project titled "Respiratory symptoms caused by chromium compounds, ultrafine particles and other exposures in the workplace air in the stainless steel production chain". More about Outokumpu's research and development can be found here.
Outokumpu Annual Report 2009 – Research
Suppliers of raw materials to be evaluated One of our overall goals is that our suppliers and contractors adhere to ethical standards that are as high as the ones we follow within Outokumpu. In 2006, we started to develop a Supply Chain Management Tool, a questionnaire together with one of our raw material suppliers and the Helsinki University of Technology. Our raw material suppliers represent a vast majority of our total purchasing volume. The idea behind this project was to screen human rights issues together with matters that affect social, environmental and economic sustainability. The project was completed in 2008. In 2009, we continued to develop further the questionnaire, the supplier audit template. The aim was to assess how our raw material suppliers behave in different contexts. A trial was carried out with our biggest external supplier of recycled stainless steel, our biggest supplier of ferrochrome and a major supplier of nickel. Feedback received from these companies will be used to amend the template before it is distributed to all Outokumpu suppliers. Work to finalise the form of this audit template should be completed in April 2010. Our aim is to assess first 80% of our main raw material suppliers and then continue with our general materials suppliers. There is still some way to go before we can claim that the majority of our suppliers (or the suppliers who make most deliveries, either in financial or volume terms) have been assessed.
Outokumpu Annual Report 2009 – Responsible sourcing
A focus on product safety from product development to recycling Taking health and safety issues into account is important not only during the manufacturing of stainless steel, but also when Outokumpu customers are processing the material further, when stainless steel products are being used, and when it is returned for re-melting. As stainless steel is an inert material and non-reactive when employed correctly, its potential impacts on people's health and safety are very limited. This is why stainless steel is so widely used in both medical appliances and in equipment used in the food processing industry. Outokumpu manufactures stainless steel grades that are standardised and proven safe for their recommended uses. All Outokumpu's main production sites are certified according to the ISO 9001 quality standard to ensure that all products produced comply with the specified requirements. All our service centres have ISO 9 001 quality sertificate and about half of them also ISO 14 001 environmental management system.
Careful testing and compliance to ensure safety When new stainless steel grades are developed they are carefully tested for safety. One recent example is Outokumpu's new LDX duplex grade. In addition to internal test programmes the steel grade was tested in contact with water and acetic acid by an external laboratory and approved according to the Italian requirements for materials in contact with food. In the US LDX 2101 has been tested and approved for incorporation in the NSF-ANSI 61 standard for components in contact with drinking water and the same grade has also received a food equipment acceptance certificate according to the 3A sanitary standard. Outokumpu takes account of specific end-use concerns. Outokumpu does not use metal compounds such as lead, cadmium, mercury and hexavalent chromium in its manufacturing process, as there are restrictions for their use in the electronic and automotive industries. The Group works actively with REACH to ensure that all substances used and produced are registered correctly and on time. Products sold by Outokumpu do not contain any SVHC (Substances of Very High Concern) as defined by the European Chemicals Agency (ECHA). Most stainless steels contain nickel that has been classified as harmful in the EU. However, since stainless steel is inert there is no risk to either human beings or environment from normal use of stainless steel products. This has been demonstrated both in laboratory studies and through a long history of use. Unfortunately, the fact that steel is a very different material from its components is sometimes not well understood by regulators. For example, in an effort to simplify the EU Ecolabel Directive, all substances classified as harmful were excluded, regardless of real risk to man or environment. Since nickel is banned from receiving the Ecolabel, it automatically means that stainless steel products cannot receive the label either, although stainless steel has very different properties compared to nickel.
Since stainless steel is inert there is no risk to either human beings or environment from normal use of stainless steel products.
Outokumpu Annual Report 2009 – Product safety and liability
Extensive product information Outokumpu provides health and safety information on materials supplied by the Group. Technical data sheets offer detailed information on the chemical and technical properties of each stainless steel grade. Information on topics such as Occupational Exposure Limits for substances contained in stainless steel is also provided in Safety Data sheets, as well as safety measures to be employed during operations that involve welding. Reports on the health and environmental impacts associated with the use of stainless steel are issued by the industry's marketing organisations such as EuroInox. Information is also available from the product safety bulletin issued by international nickel, chromium and molybdenum organisations.
Outokumpu Annual Report 2009 – Product safety and liability
Reporting provides information for stakeholders The overarching objective in Outokumpu's corporate responsibility reporting is to support an open dialogue between the Group and its stakeholders. Our aim is to address the needs of our current and future personnel, shareholders, customers and other parties who are interested in Outokumpu and its business. We pay special attention to addressing the concerns of these stakeholders. Read about our stakeholder dialogues here. We utilise reporting as an opportunity to illustrate what Outokumpu has done to ensure the sustainability of its business operations, and what actions we hope to take in the future to enhance the well-being of people and the natural environment that surrounds us. The Group has a long history of responsible business practices and we hope to make our operations even more sustainable. We report on matters considered important and relevant to our business operations, such as stainless steel – our product and the material of sustainable development. We also cover current global themes that have an effect on us, our operations and our stakeholders. Valuable feedback was received during 2009 from the reporting competition in Finland, from analyst reports and from our assurance providers. Our first Group-level meeting with environmental NGOs was very useful in this connection. Feedback helps us as we seek to further improve our reporting – we believe that thorough reporting promotes development of our way of working and our operations. Contact details for questions regarding the contents of this report can be found here.
Scope of the report Outokumpu's corporate responsibility report is published annually. The reporting period is the same as our financial reporting period i.e. a calendar year. Our previous report "Outokumpu and our environment 2008" was published on March 13, 2009 together with Annual Report 2008. This 2009 online report is a natural progression from our previous, printed sustainability reports in 2005–2008. Since 2004, Outokumpu's reporting has been based on the widely recognised and applied Global Reporting Initiative (GRI) guidelines (G3 from 2007), and follows the recommended tripartite division into economic, environmental and social responsibility. We also reflect on the impacts of Group operations on different stakeholders. A comparison of Outokumpu reporting with the GRI guidelines and the 10 principles of the UN Global Compact can be found here. Economic and social information is covered from the perspective of Outokumpu's entire stainless steel operations. Environmental indicators include all Outokumpu Stainless Steel production plants. While Outokumpu still has brass bar operations (a total of 149 employees and net sales of some EUR 31 million), the Group has announced that these are being divested. Information concerning this business is not included in this or previous corporate responsibility reports.
Comparability of statistics Even though major changes have taken place in Outokumpu's organisational structure, the statistics provided in the Group's 2005, 2006, 2007, 2008 and 2009 reports are comparable as the reporting focuses solely on the Group's stainless steel operations, our main business today. As mentioned in our previous reports, we have closed some smaller stainless steel units in Sweden and the UK. However, their impact on our emissions or other figures is insignificant.
Outokumpu Annual Report 2009 – Reporting principles
Figures for copper and brass businesses divested in 2005–2008 have not been included. We have not noticed nor are aware of any errors in the data provided in our earlier reports. Since 2007, Outokumpu reports have included an assurance report that has been submitted by independent external assurance providers. This independent assurance report is available here. The data based on the financial statements has been audited.
Measurement techniques Economic responsibility All the economic figures in the Corporate Responsibility section only cover our stainless steel operations ie. excluding our so-called discontinued operations (non-core operations). Accounting principles have been adjusted to better meet the GRI guidelines.The comparative figures have been restated in the tables: Wages, salaries and other employee benefits by country and Taxes and social dues by country.
Environmental responsibility Environmental expenditure Financial information related to environmental investments is collected according to group wide unified guidance in line with GRI and World Steel Association principles. Data is aggregated through our EER reporting system, which also has group guidance integrated. Water Water use reporting is based on measured and calculated consumption and information is collected according to group wide unified guidance in line with GRI and World Steel Association principles. Water balance information is aggregated through our Energy and Environment Reporting System, which also has group guidance integrated.
Social responsibility Lost Time Injury (Worldsteel Association's principle) Injuries per million hours worked Any work-related injury, resulting in the Company or Third Party Contractor employee not being able to return to work the next scheduled work day. Returning to work with work restrictions does not constitute lost time injury status, no matter how minimal or severe the restrictions. EU average LTI From statistics supplied by Worldsteel Association which is followed by all member companies. Near miss incidents Come from our own hyperion system, where number of incidents is collected at business unit level. Source of information is Safety log, but also other reporting sources as not all units use Safety log. Sick leave days
Outokumpu Annual Report 2009 – Reporting principles
Business units report data on sickness absence and occupational diseases on a monthly basis together with financial reporting. In the future sick leave days will be reported per million hours worked, not in percentages which is slightly controversial as there are differing ways in different countries. Personnel figures We use, as in previous years, the full-time equivalent (FTE) to calculate our personnel. This will, however, be changed as of 2010, when we start using actual headcount figures, as recommended by our assurance providers. Total personnel costs The figure includes wages, salaries, bonuses, social costs or other personnel expenses and fringe benefits paid during the reporting year 2009. The 2008 total personnel costs were calculated without social costs or other personnel expences and fringe benefits. Training costs External and internal training costs (in euros) are counted from the specific account assigned to training costs per company. Costs also include the salaries of internal trainers. Wages and salaries of the participant are not included. Training days per employee The number of actual internal and external training days in which 8 hours equals one day (actual training day = training hours/8). Incentive bonuses Amount of bonuses (in euros) is counted from the specific account assigned to bonuses per company without social costs or other personnel costs or personnel expenses and without fringe benefits. Personnel turnover (termination and recruitment turnover separately) (new hired + leavers)/(2 x average headcount) Days lost due to strikes Number of employees, who have been on strike multiplied by scheduled working days. The count begins the day the strike has started.
Outokumpu Annual Report 2009 – Reporting principles
GRI & UN Global Compact Comparison with GRI guidelines and Global Compact Global Compact Principles
GRI Content
Included
Section
1
Strategy and Analysis
1.1
CEO's statement
Yes
Management committed to corporate responsibility
1.2
Key impacts, risks and opportunities
Yes
Management committed to corporate responsibility Corporate responsibility Risk management of corporate responsibility 2009 highlights
2
Organisational profile
2.1
Name of the organisation
Yes
2.2
Primary brands, products and services
Yes
This is outokumpu Business Operations
2.3
Operational structure
Yes
Business Operations Corporate Governance
2.4
Location of organisation's headquarters
Yes
This is Outokumpu
2.5
Number of countries and location of operations
Yes
This is Outokumpu Operating environment
2.6
Nature of ownership and legal form
Yes
Corporate responsibility governance Shares and shareholders
2.7
Markets served
Yes
General Stainless Specialty Stainless
2.8
Scale of the
Yes
Key figures
reporting organisation
Outokumpu Annual Report 2009 – GRI & UN Global Compact
2.9
Significant changes regarding size, structure or ownership
Yes
Review by the Board of Directors
2.10
Awards received in the reporting period
Yes
Management committed to corporate responsibility
3
Report parameters
3.1
Reporting period
Yes
Reporting principles
3.2
Date of most recent report
Yes
Reporting principles
3.3
Reporting cycle
Yes
Reporting principles
3.4
Contact point for questions
Yes
Contact us
regarding the report 3.5
Process for defining report content
Yes
Reporting principles (The report addresses the needs of Outokumpu's stakeholders. Outokumpu reports on matters considered relevant to its business operations and current global themes that have an effect on Outokumpu, its operations and stakeholders. The reporting is based on GRI G3 Guidelines).
3.6
Boundary of the report
Yes
Reporting principles
3.7
Limitations on the report's scope or boundary
Yes
Reporting principles
3.8
Basis for reporting subsidiaries and joint ventures
Yes
Reporting principles
3.9
Data measurement techniques and bases of calculations
Yes
3.10
Explanation of restatements
Yes
Reporting principles
3.11
Significant changes from previous reporting periods in the
Yes
Reporting principles
Reporting principles (More information on accounting principles are reported in connection with the figures in question)
Outokumpu Annual Report 2009 – GRI & UN Global Compact
scope, boundary or measurement methods 3.12
GRI content index
Yes
GRI & UN Global Compact
3.13
Assurance policy and practice
Yes
Independent assurance report Reporting principles
4
Governance, Commitments and Engagement Governance
4.1
Governance structure of the organisation
Yes
Governance 2009
4.2
Position of the Chairman of the
Yes
Board of Directors Board of Directors
Board 4.3
Independence of the Board members
Yes
Board of Directors
4.4
Mechanism for shareholder and employee consultation
Yes
General meeting on shareholders Shareholders' nomination committee
4.5
Executive compensation and linkage to organisation's performance
Yes
Remuneration
4.6
Processes for avoiding conflicts of interest
Yes
Board of Directors
4.7
Processes for determining expertise
Yes
Board Committees Board of Directors
4.8
Implementation of mission and values statements, code of conduct and other principles
Yes
Corporate responsibility governance Operational Excellence Management systems
4.9
Procedures of the Board for overseeing management of
Yes
Compliance Board of Directors
Outokumpu Annual Report 2009 – GRI & UN Global Compact
sustainability performance, including risk management 4.10
Processes for evaluating the Board's performance
Yes
Board of Directors
Commitments to External Initiatives 7
4.11
Addressing precautionary approach
Yes
Risk managements of corporate responsibility Risk management
1–10
4.12
Voluntary charters and other initiatives
Yes
Associations and federations Corporate Responsibility
1–10
4.13
Memberships in associations
Yes
Associations and federations
Stakeholder Engagement
1, 4, 6, 7
4.14
List of stakeholder groups
Yes
Our stakeholders
4.15
Identification and selection of stakeholders
Yes
Our stakeholders
4.16
Approaches to stakeholder engagement
Yes
Our stakeholders
4.17
Key topics raised through stakeholder engagement
Yes
Our stakeholders Employees voices
5
Management Approach and Performance Indicators
Yes
Economic responsibility Economic goals and results Strategic themes
Management approach to economic responsibility
Outokumpu Annual Report 2009 – GRI & UN Global Compact
7, 8, 9
Management approact to environmental responsibility
Yes
Management systems Environmental responsibility Environmental goals and results Emissions, effluents and waste
1, 3, 6
Management approach to social responsibility
Yes
Management systems Social goals and results Diversity and equal rights
Economic Performance Indicators Economic Performance
7
EC1*
Direct economic value generated and distributed
Yes
Economic impact on our stakeholders Public sector support
EC2*
Risks and opportunities due to climate change
Yes
Impact of climate change Emissions trading
EC3*
Coverage of defined benefit plan obligations
Yes
EC4*
Significant subsidies received from government
Yes
Remuneration (Pension benefits for Group Executive Committee)
Public sector support
Market presence 1
6
EC5
Entry level wage compared to minimum wage
No
EC6*
Spending on local suppliers
No
EC7*
Local hiring
No
Indirect Economic Impacts EC8*
Infrastructure investments provided for public benefit
No
EC9
Significant indirect economic impacts
No
Outokumpu Annual Report 2009 – GRI & UN Global Compact
Environmental Performance Indicators Materials 8
EN1*
Materials used by weight or volume
Yes
Material balance
8, 9
EN2*
Recycled materials used
Yes
Materials efficiency
Energy and climate change Material balance
Energy 8
EN3*
Direct energy consumption
Yes
8
EN4*
Indirect energy consumption
Partly
8, 9
EN5
Energy saved due to conservation
Yes
Energy efficiency
Energy sources (Electricity consumption)
and efficiency improvements 8
EN6
Initiatives to provide energyefficient or renewable energy based products and services
Yes
Energy efficiency
8
EN7
Initiatives to reduce indirect energy consumption
Partly
Corporate responsibility highlights 2009 Transport
Water 8
EN8*
Total water withdrawal
Yes
Water
8
EN9
Water sources significantly affected by withdrawal of water
Yes
Water
8, 9
EN10
Percentage and total volume of water recycled and reused
Yes
Water (Average percentage of water recycled)
Biodiversity 8
EN11*
Location and size of land holdings in
Yes
Biodiversity
Outokumpu Annual Report 2009 – GRI & UN Global Compact
areas of high biodiversity 8
EN12*
Description of significant impact of activities, products, and services on biodiversity
Yes
Biodiversity
8
EN13
Habitats protected or restored
Yes
Biodiversity
8
EN14
Managing impacts on biodiversity
Yes
Biodiversity
8
EN15
Species with extinction risk with habitats in areas affected by operations
Yes
Biodiversity
Emissions, Effluents and Waste 8
EN16*
Total direct and indirect greenhouse gas emissions
Yes
Material balance
8
EN17*
Other relevant indirect greenhouse gas emissions
Yes
Combating climate change
7, 8, 9
EN18
Initiatives to reduce greenhouse gas emissions
Yes
Combating climate change Transport
8
EN19*
Emissions of ozone-depleting substances
Yes
Material balance
8
EN20*
NOx, SOx, and other significant air emissions
Yes
Material balance Emissions, effluents and waste
8
EN21*
Total water discharge
Yes
Water Water discharges
8
EN22*
Total amount of waste
Yes
Waste Material balance
8
EN23*
Significant spills
Yes
Emissions, effluents and waste
8
EN24
Transported, imported,
No
Outokumpu Annual Report 2009 – GRI & UN Global Compact
exported, or treated hazardous waste 8
EN25
Water bodies and habitats affected by discharges of water
Yes
Impacts of water discharges and runoff
Materials efficiency
Products and Services 7, 8, 9
EN26*
Mitigating environmental impacts of products and services
Yes
8, 9
EN27*
Reclaimable products and reuse
No
Compliance 8
EN28*
Significant fines and sanctions for non-compliance with environmental regulations
Partly
Emissions, effluents and waste
Transport 8
EN29
Environmental impacts of transportation
Yes
Transport (CO2 emissions of transportation)
Yes
Expenditure and investments
Yes
Employees
Overall 7, 8, 9
EN30
Total environmental protection expenditures and investments
Social Performance Indicators Labor Practices and Decent Work Employment LA1*
Total workforce by employment type, employment
Outokumpu Annual Report 2009 – GRI & UN Global Compact
contract and region 6
LA2*
Total number and rate of employee turnover
Yes
LA3
Employee benefits
No
Employees Redundancies (Turnover among permanent employees)
Labor/ Management Relations 1, 3
LA4*
Coverage of collective bargaining agreements
Yes
3
LA5*
Minimum notice
Yes
period regarding operational changes
Diversity and equal rights
Redundancies (Outokumpu follows local laws and regulations also in job reductions and lay-offs).
Occupational Health and Safety 1
LA6
Representation in joint health and safety committees
No
1
LA7*
Rates of injury, occupational diseases, lost days, fatalities and absenteeism
Yes
Safe working environment
1
LA8*
Education and prevention programmes regarding serious diseases
Yes
Safe working environment
1
LA9
Health and safety topics covered in formal agreements with trade unions
No
Training and Education LA10*
Average training hours per year
Yes
Training and development (Training days per employee)
Outokumpu Annual Report 2009 – GRI & UN Global Compact
LA11
Programmes for skills management and lifelong learning
Yes
LA12
Employees receiving regular performance and career development reviews
Yes
Training and development (Description of development and training programmes)
Employees voices
Diversity and Equal Opportunity 1, 6
LA13*
Composition of governance bodies and breakdown of
Yes
Diversity and equal rights (Breakdown of total workforce by gender, age and education. Composition of governance bodies by gender).
employees 1, 6
LA14*
Ratio of basic salary of men to women by employee category
No
Human Rights 1–6
HR1*
Investment agreements with human rights clauses or that have undergone human rights screening
No
1–6
HR2*
Suppliers and contractors that have undergone human rights screening
Partly
1–6
HR3
Human rights related training for employees
No
1, 2, 6
HR4*
Incidents of discrimination and actions taken
Yes
Internal audit Management systems
1, 2, 3
HR5*
Supporting right to freedom of association and
Partly
Diversity and equal rights
Responsible sourcing
Outokumpu Annual Report 2009 – GRI & UN Global Compact
collective bargaining in risk areas
(Ethics Statement, Corporate Responsibility Policy and Code of Conduct)
1, 2, 5
HR6*
Measures taken to eliminate child labour in risk areas
Partly
Diversity and equal rights Social responsibility (Ethics Statement, Corporate Responsibility Policy and Code of Conduct)
1, 2, 4
HR7*
Measures taken to eliminate forced labour in risk areas
Partly
Diversity and equal rights Social responsibility (Ethics Statement, Corporate Responsibility Policy and Code of Conduct)
1, 2
HR8
Human rights related training for security personnel
No
(not relevant)
1, 2
HR9
Incidents involving rights of indigenous people and actions taken
No
(not relevant)
Society Community SO1*
Managing impacts of operations on communities
Partly
Local communities
Corruption 10
SO2*
Business units analysed for corruption risks
Partly
Compliance Management systems Social responsibility (Ethics Statement, Corporate Responsibility Policy and Code of Conduct)
10
SO3*
Anti-corruption training
Partly
Compliance Management systems Social responsibility (Ethics Statement, Corporate Responsibility Policy and Code of Conduct)
10
SO4*
Actions taken in response to incidents of corruption
Partly
Compliance Management systems Social responsibility
Outokumpu Annual Report 2009 – GRI & UN Global Compact
(Ethics Statement, Corporate Responsibility Policy and Code of Conduct)
Public Policy 1–10
SO5*
Public policy positions and participation in public policy development and lobbying
Partly
Associations and federations Management systems (Code of Conduct)
10
SO6
Contributions to political parties and related institutions
Yes
Public sector support (Code of Conduct)
SO7
Legal actions for anti-competitive behaviour, anti-
Yes
Compliance
Yes
Compliance
Product safety and liability Research
trust, and monopoly Compliance SO8*
Fines and sanctions for noncompliance with laws and regulations Product Responsibility Customer Health and Safety
1
PR1*
Assessment of health and safety impacts of products
Yes
1
PR2
Non-compliance with regulations concerning health and safety impacts of products
No
Product and Service Labeling 8
PR3*
Product information required by procedures
Yes
Product safety and liability
Outokumpu Annual Report 2009 – GRI & UN Global Compact
8
PR4
Non-compliance with regulations concerning product information and labelling
No
PR5
Customer satisfaction
Yes
Customers
Marketing Communications PR6*
Adherence to marketing communications laws, standards and voluntary codes
No
PR7
Non-compliance
No
with marketing communications regulations and voluntary codes Customer Privacy 1
PR8
Complaints regarding breaches of customer privacy
No
Compliance PR9*
Fines for noncompliance concerning the provision and use of products and services
No
* GRI Core indicator
Based on its own assessment, Outokumpu has followed the B+ application level of the GRI guidelines. The application level has been checked by a third party, PricewaterhouseCoopers Oy.
Outokumpu Annual Report 2009 – GRI & UN Global Compact
Independent Assurance Report To Outokumpu Oyj's Management At the request of Outokumpu Oyj's Management we have performed the procedures agreed with you and detailed below concerning the limited assurance engagement on the Outokumpu Oyj's Corporate Responsibility section in online Annual Report 2009 (the Report) consisting of the economic, social and environmental information (Subject Matter) within reporting period 1.1.-31.12.2009. Management's Responsibility Outokumpu Oyj's Management has prepared the Report, and is responsible for the collection and presentation of information within the Report in accordance with the reporting criteria as set out in Global Reporting Initiative (GRI) Sustainability Reporting Guidelines G3 version together with Outokumpu Oyj's own reporting guidelines (Criteria). Practitioner's Responsibility Our responsibility is to express an independent conclusion on the Subject Matter based on our limited assurance engagement. Our assurance report has been made in accordance with the terms of our engagement. We do not accept, or assume responsibility to anyone else, except to Outokumpu Oyj for our work, for this report, or for the conclusions that we have reached. We conducted our work in accordance with the International Standard on Assurance Engagements (ISAE) 3000 applicable to assurance engagements other than audits or reviews of historical financial information. This Standard requires that we comply with ethical requirements and plan and perform the assurance engagement to obtain limited assurance whether any matters come to our attention that causes us to believe that the Subject Matter does not provide a balanced and reasonable representation of Outokumpu Oyj's corporate responsibility performance based on the Criteria. In a limited assurance engagement the evidence-gathering procedures are more limited than for a reasonable assurance engagement, and therefore less assurance is obtained than in a reasonable assurance engagement. We have planned and performed our evidence gathering procedures to obtain sufficient appropriate evidence on which to base our conclusion. We have performed amongst others the following procedures: Interviewing five (5) persons in Group Management in order to ascertain the current targets for Outokumpu Oyj's corporate responsibility as part of the business strategy and operations; Interviewing persons responsible for corporate responsibility at Outokumpu Group; Reviewing management and reporting systems relating to information disclosed in the Report; Assessing the data management procedures used in compiling and reporting the quantitative data; Interviewing persons responsible for the practices and procedures used for data generation, recording, compilation and consolidation both at the Group Head Office and at two sites (Tornio, Avesta); Testing existency of reported information on a sample basis from primary documentation at two sites (Tornio, Avesta); Testing the completeness, accuracy and comparability of the quantitative data presented in the Report on a sample basis of primary documentation at two sites (Tornio, Avesta) as well as performing recalculations at Group level; Reviewing the content and quality of information presented in the Report.
Outokumpu Annual Report 2009 – Independent assurance report
Our conclusions Based on our work described above, nothing has come to our attention that causes us to believe that the Report in all material respects, based on the aforementioned Criteria, is not providing a balanced and reasonable representation of Outokumpu Oyj's corporate responsibility performance. Our assurance report should be read in conjunction with the inherent limitations of accuracy and completeness for corporate responsibility information.This independent assurance report should not be used on its own as a basis for interpreting Outokumpu Oyj's performance in relation to its policies of corporate responsibility.
Espoo, 24 February 2010 PricewaterhouseCoopers Oy
Marko Korkiakoski Partner
Sirpa Juutinen Director, Sustainable Business Solutions Download PDF
Outokumpu Annual Report 2009 – Independent assurance report
Regulatory framework The Group's parent company, Outokumpu Oyj, is a public limited liability company incorporated and domiciled in Finland. In its corporate governance and management, Outokumpu Oyj complies with Finnish legislation, the company's Articles of Association and the Corporate Governance Policy resolved and approved by the Board of Directors. Outokumpu follows the Finnish Corporate Governance Code (publically available on www.cgfinland.fi), effective as of January 1, 2009, issued by the Securities Market Association and adopted by NASDAQ OMX Helsinki. As one exception to this code, Outokumpu has both a Board Nomination and Compensation Committee and a Shareholders' Nomination Committee appointed by the Annual General Meeting of Shareholders. Outokumpu complies with the other regulations and recommendations issued by NASDAQ OMX Helsinki. The Corporate Governance Statement is presented as a separate report.
Outokumpu Annual Report 2009 – Corporate Governance
Tasks and responsibilities of governing bodies The governing bodies of the parent company Outokumpu Oyj, i.e. the General Meeting of Shareholders, the Board of Directors, and the President and Chief Executive Officer (CEO), have ultimate responsibility for Group management and Group operations. The Group Executive Committee reports to the CEO and is responsible for the efficient management of the Group.
Outokumpu Annual Report 2009 – Governance 2009
General Meeting of Shareholders The General Meeting of Shareholders normally convenes once a year. Under the Finnish Companies Act, certain important decisions such as the approval of financial statements, decisions on dividends and increases or decreasing of share capital, amendments to the Articles of Association, and election of the Board of Directors and auditors fall within the exclusive domain of the General Meeting of Shareholders. The Board of Directors convenes a General Meeting of Shareholders. The Board can decide to convene a General Meeting on its own initiative, but is obliged to convene a General Meeting if the auditor or shareholders holding at least 10% of Outokumpu's shares so request. In addition, each shareholder has the right to bring a matter before a General Meeting of Shareholders that falls within the domain of the General Meeting, provided that a written request to do this has been received by the Board of Directors early enough to allow the matter to be placed on the agenda included in the notice announcing the General Meeting. According to its Articles of Association, Outokumpu has only a single class of shares and all shares have equal voting power at General Meetings of Shareholders.
Outokumpu Annual Report 2009 – General Meeting of Shareholders
Shareholders' Nomination Committee Based on a proposal by Solidium Oy (the Finnish State), Outokumpu's largest shareholder, the Outokumpu 2009 Annual General Meeting decided to establish a Shareholders' Nomination Committee to prepare proposals on the composition of the Board of Directors and director remuneration for the following General Meeting of Shareholders. The 2009 Annual General Meeting also decided that the Shareholders' Nomination Committee should consist of representatives of Outokumpu's three largest shareholders as registered in the Finnish book-entry securities system on November 2, 2009, who accept the assignment. The Chairman and another member of the Outokumpu Board of Directors act as expert members of the Committee. Outokumpu's largest shareholders are determined on the basis of shareholdings registered in the Finnish book-entry system. However, holdings of a shareholder who, under the Finnish Securities Markets Act, has the obligation to disclose changes in shareholdings (the flagging obligation) which are divided among a number of funds, may be combined provided that the owner presents a written request to that effect to the company's Board of Directors no later than October 30, 2009. Shareholder representatives on the committee were: Solidium Oy (the Finnish State), The Finnish Social Insurance Institution, and Ilmarinen Mutual Pension Insurance Company. These shareholders chose the following persons as their representatives on the Shareholders' Nomination Committee: Kari Järvinen, Chief Executive Officer (Solidium Oy), Jorma Huuhtanen, Director General (The Finnish Social Insurance Institution) and Harri Sailas, Chief Executive Officer (Ilmarinen Mutual Pension Insurance Company). Kari Järvinen was elected Chairman of the Committee. Ole Johansson, Chairman of the Outokumpu Board of Directors and Board member Evert Henkes served as expert members. The Committee submitted its proposals on Board composition and director remuneration to the Board of Directors. The Outokumpu Board has incorporated these proposals into the notice announcing the 2010 Annual General Meeting of Shareholders.
Outokumpu Annual Report 2009 – Shareholders’ Nomination Committee
Board of Directors The general objective of the Board of Directors is to direct Outokumpu's business in a manner that secures a significant and sustained increase in the value of the company for its shareholders. Board members offer their expertise and experience for the benefit of the company. The tasks and responsibilities of the company's Board of Directors are determined on the basis of the Finnish Companies Act as well as other applicable legislation. The Board has general authority to decide and act in all matters not reserved for other corporate governing bodies by law or under the provisions of the company's Articles of Association. The Board's general task is to organise the company's management and operations. In all situations, the Board must act in accordance with the company's best interest. The Board of Directors has established rules of procedure which define its tasks and operating principles. The main duties of the Board of Directors are as follows: With respect to directing the company's business and strategies: To decide on the Group's basic strategy and monitor its implementation; To decide on annual limits for the Group's capital expenditure, monitor their implementation, review quarterly plans and decide on changes; To decide on individual investments or expenditure that are within the authorised capital expenditure limits and have a value exceeding EUR 20 million, as well as on other major and strategically important investments; To decide on any individual business acquisitions and divestments within the current scope of business that have a value exceeding EUR 10 million; To decide on any financing arrangements by any Group company which either exceed EUR 150 million, are organised by way of public offerings, or which are otherwise out of the Group's normal course of business; and To decide on any other commitments by any of the Group's companies that are out of the ordinary either in terms of value or nature, taking into account the size, structure and field of operation of the Group. With respect to organising the company's management and operations: To nominate and dismiss the CEO and his deputy, and to decide on their terms of service, including incentive schemes, on the basis of a proposal made by the Board Nomination and Compensation Committee; To nominate and dismiss members of the Group Executive Committee, to define their areas of responsibility, and to decide on terms of service, including incentive schemes, on the basis of a proposal made by the Board Nomination and Compensation Committee; To monitor the adequacy and allocation of the Group's top management resources; To decide on any significant changes to the Group's business organisation; To define the Group's ethical values and working methods; To ensure that policies outlining the principles of corporate governance are in place; To ensure that policies outlining the principles of managing the company's insider issues are in use; and To ensure that the company has other guidelines for matters which the Board deems necessary and which fall within the scope of the Board's duties and authority. With respect to the preparation of matters to be resolved by General Meetings of Shareholders: To establish a dividend policy and issue a proposal on dividend distribution; and To make other proposals to General Meetings of Shareholders.
Outokumpu Annual Report 2009 – Board of Directors
With respect to financial control and risk management: To discuss and approve interim reports and annual accounts; To monitor significant risks related to the Group's operations and the management of such risks; and To ensure that adequate procedures concerning risk management are in place. The Board of Directors also assesses its own activities on a regular basis. The Board of Directors is quorate when more than half of its members are present. A decision by the Board of Directors shall be the opinion supported by more than half of the members present at a meeting. In the event of a tie, the Chairman shall have the casting vote. The Annual General Meeting elects the Chairman, the Vice Chairman and the other members of the Board of Directors for a term expiring at the close of the following Annual General Meeting. The entire Board is therefore elected at each Annual General Meeting. A Board member may be removed from office at any time by a resolution passed by a General Meeting of Shareholders. Proposals to the Annual General Meeting concerning the election of Board members which have been made known to the Board prior to the Annual General Meeting will be made public if a given proposal is supported by shareholders holding a minimum of 10% of all the company's shares and voting rights and if the person proposed has consented to such nomination. Under the company's Articles of Association, the Board shall have a minimum of five and a maximum of twelve members. The company's largest shareholders have confirmed that they are in favour of a principle according to which members of the company's Board of Directors should, as a rule, be qualified experts from outside the company. According to the Articles of Association, a person aged 68 years or more cannot be elected as a member of the Board of Directors. A Board consisting of eight members was elected at the 2009 Annual General Meeting. All its members are independent of the company and its main shareholders. The Board of Directors meets at least five times a year. In 2009, the Board met eight times and the average attendance rate of members at board meetings was 95%. See Board of Directors.
Shares and options of the members of the Board of Directors February 2, 2010 Member
Shares
Ole Johansson
1 789
Anssi Soila
5 500
Victoire de Margerie
500
Evert Henkes
-
Jarmo Kilpelä
300
Anna Nilsson-Ehle
800
Leena Saarinen
1 495 10 384
Outokumpu Annual Report 2009 – Board of Directors
Board committees The Board of Directors has set up two permanent committees consisting of Board members and has confirmed rules of procedure for these committees. Both committees report to the Board of Directors. The Audit Committee comprises three Board members. See Board of Directors. The task of the Audit Committee is to deal with matters relating to financial statements, auditing work, internal controls, the scope of internal and external audits, billing by auditors, the Group's financial policies and other procedures for managing Group risks. In addition, the Audit Committee prepares a recommendation for the company's largest shareholders concerning the election of an external auditor and auditing fees. The Audit Committee met three times during 2009 and the average attendance rate was 80%. The Nomination and Compensation Committee comprises the Chairman of the Board and three other Board members. See Board of Directors. The tasks of the Committee do not comply in all respects with the Finnish Corporate Governance Code published by the Securities Market Association in cooperation with the Confederation of Finnish Industries (EK), NASDAQ OMX Helsinki and the Central Chamber of Commerce of Finland. The task of the Nomination and Compensation Committee is to prepare proposals for the Board of Directors on appointment of the company's top management, excluding the Board of Directors, and principles regarding their compensation. The Board has authorised the Committee to determine the terms of service and benefits of Group Executive Committee members other than the company's CEO and Deputy CEO. The Nomination and Compensation Committee met three times during 2009 and the attendance rate was 100%. To handle specific tasks, the Board of Directors can also set up temporary working groups consisting of Board members. These working groups report to the Board. No such working groups were set up in 2009.
Outokumpu Annual Report 2009 – Board committees
The CEO and Deputy CEO The Chief Executive Officer (CEO) is responsible for the company's operational management with the objective of securing significant and sustainable growth in the value of the company to its shareholders. The CEO prepares matters for decision by the Board of Directors, develops the Group in line with the targets agreed with the Board, and ensures the proper implementation of Board decisions. The CEO is also responsible for ensuring that existing laws and regulations are observed throughout the Group. The CEO chairs meetings of the Group Executive Committee. The Deputy CEO is responsible for attending to the CEO's duties in the event that the CEO is prevented from attending to them.
Outokumpu Annual Report 2009 – CEO and Deputy CEO
Group Executive Committee The task of the Group Executive Committee is overall management of Outokumpu's business. Committee members have extensive authority in their individual areas of responsibility and their duty is to develop the Group's operations in line with the targets set by the Board of Directors and the CEO. The Group Executive Committee consists of seven members appointed by the Board of Directors. The members of the committee hold the positions of the CEO and the Deputy CEO, Executive Vice President – General Stainless, Executive Vice President – Specialty Stainless, Executive Vice President – Supply Chain Management, Executive Vice President – Group Sales & Marketing, Executive Vice President – Chief Financial Officer, and Executive Vice President - Human Resources. By May 1, 2010 the responsibilities of EVP – General Stainless will be distributed among the other Executive Committee members The Group Executive Committee typically meets twice each month. See Executive Committee.
Shares and options of the Group Executive Committee members February 2, 2010
Shares
Options 2003A
Options 2003B
Options 2003C
Share-based inventive programme 2007–2009
Juha Rantanen
35 000
-
-
17 500
15 500
16 500
33 000
33 000
Karri Kaitue
12 380
-
-
15 000
7 500
8 000
15 500
15 000
Jamie Allan
2 000
-
-
-
2 100
5 500
10 000
9 000
Bo Annvik
-
-
-
10 000
5 300
5 500
10 000
9 000
Pekka Erkkilä
14 000
-
-
15 000
5 300
5 500
10 000
-
1 500
-
-
-
-
-
10 000
9 000
18 000
-
-
10 000
5 300
5 500
10 000
9 000
-
-
-
-
-
-
7 000
9 000
82 880
-
-
67 500
41 000
46 500
98 500
84 000
Pii Kotilainen Esa Lager
Share-based incentive programme 2008–2010
Share-based incentive programme 2009–2011
Share-based incentive programme 2010–2013
Kari Parvento 1)
Total Notes: 1)
Employed by Outokumpu as of May 1, 2010 at the latest.
Outokumpu Annual Report 2009 – Group Executive Committee
Group management Outokumpu's corporate management consists of the Chief Executive Officer (CEO), members of the Group Executive Committee, and managers and experts who assist the CEO and the Group Executive Committee. The task of corporate management is to manage the Group as a whole. Duties include the coordination and execution of strategy and plans, business development, financial control, internal audit, human resources, environment, health and safety, communications and investor relations, legal affairs as well as treasury and risk management. In addition to corporate management tasks, Outokumpu's functional steering across Group businesses has been organised into Sales and Marketing functions and Supply Chain Management. Certain support functions have been centralised at Group level. The Outokumpu Group is managed in accordance with the organisation of its business, in which the legal company structure of the Group also provides the legal framework for its operations. Clear financial and operational targets have been defined for all the Group's operational businesses. Outokumpu's businesses are organised into five business units: Tornio Works, Special Coil and Plate, Thin Strip, OSTP (Outokumpu Stainless Tubular Products) and Long Products. Business units report directly to individual Group Executive Committee members. In this reporting, business units are consolidated into two divisions according to the type of product manufactured; General Stainless (Tornio Works and Long Products) and Specialty Stainless (Special Coil and Plate, Thin Strip and OSTP). As a discontinued operation, Outokumpu Brass is managed separately from the Group through the Board of Directors of Outokumpu Brass.
Outokumpu Annual Report 2009 – Group management
Remuneration As confirmed by the Annual General Meeting 2009, annual fees for members of Outokumpu's Board of Directors are as follows: Chairman EUR 70 000, Vice Chairman EUR 43 000 and other members EUR 34 000. All members of the Board of Directors are to be paid a meeting fee of EUR 600 (EUR 1 200 for non-Finnish members). The meeting fee is also payable for meetings of Board committees. The period of notice for the CEO is six months on both sides. If Outokumpu terminates the CEO's employment for a reason or reasons unconnected with his performance or events interpreted as him having failed in his duties, the company will make a compensation payment. The amount of this payment will total the CEO's basic salary in the preceding 24 months plus the monetary value of his employee benefits at the moment of termination. The performance-related incentive paid to the CEO and members of the Group Executive Committee in addition to their salary and employee benefits for the year 2010 is determined on the basis of achieving the Group's ROCE (return on capital employed) target, the operating profit margin compared with a peer group, operational (safety and delivery reliability) targets and individual targets set separately. For the CEO, the maximum amount of this incentive is 75% of annual base salary, for other members of the Group Executive Committee it is 60%. The total amount of short and longterm incentives must not exceed 200% of annual salary. If the limit is exceeded, the share based incentive will be reduced accordingly. No separate remuneration is paid to the CEO or members of the Group Executive Committee for membership of the Committee or of the Group's other internal governing bodies. Members of the Group Executive Committee are entitled to retire at the age of 60. In December 2009, the Board of Directors confirmed that the retirement age is 63 for new members of the Group Executive Committee. For Finnish members of the Group Executive Committee appointed before January 1, 2007, pension benefits amount to 60% of the total average annual salary in the last five full years of service. For the other Finnish members of the Group Executive Committee, the targeted pension is 60% of annual salary at the age of 60. Earnings from the year of joining, including fringe benefits but not including performance-related incentives, are used as the basis for the insurance premium. The maximum premium is 25% of annual earnings. The company has not provided any guarantees or other similar commitments on behalf of the members of the Board of Directors. No members of the Board of Directors or the Group Executive Committee, or closely-related persons or institutions, have any significant business relationships with the company.
Fees, salaries and employee benefits paid 2009 Salaries and fees with employee benefits
Performance/ project-related bonuses
Share-based payments
Total
Chairman of the Board, Johansson
76 600
-
-
76 600
Vice Chairman of the Board, Soila
47 800
-
-
47 800
Board memeber, Henkes
44 800
-
-
44 800
Board memeber, Kilpelä
40 600
-
-
40 600
Board memeber, de Margerie
41 200
-
-
41 200
Board memeber, Nilsson-Ehle
44 800
-
-
44 800
€ Board of Directors
Outokumpu Annual Report 2009 – Remuneration
Board memeber, Oksanen
9 100
-
-
9 100
Board memeber, Pesonen
31 933
-
-
31 933
Board memeber, Saarinen
40 600
-
-
40 600
CEO
740 295
183 300
285 754
1 209 349
Deputy CEO
376 721
101 906
142 877
621 504
1 594 596
302 513
373 467
2 270 576
Salaries and fees with employee benefits
Performance/ project-related bonuses
Options
Total
Chairman of the Board, Johansson
67 800
-
-
67 800
Vice Chairman of the Board, Soila
37 050
-
-
37 050
Board member, Henkes
45 500
-
-
45 500
Board member, Härmälä
15 000
-
-
15 000
Board member, Kilpelä
29 700
-
-
29 700
Board member, de Margerie
44 300
-
-
44 300
Board member, Nilsson-Ehle
47 700
-
-
47 700
Board member, Oksanen
37 900
-
-
37 900
Board member, Saarinen
37 800
-
-
37 800
Board member, Turunen
8 200
-
-
8 200
CEO
758 573
402 052
930 512
2 091 137
Deputy CEO
390 774
162 512
-
553 286
1 516 205
585 052
394 428
2 495 685
Other Group Executive Committee members
2008
€ Board of Directors
Other Group Executive Committee members
Shares and options received through share-related schemes are also included in the tables regarding shareholdings and options.
Outokumpu Annual Report 2009 – Remuneration
Insider issues Outokumpu's insider rules are based on and comply with the Guidelines for Insiders issued by NASDAQ OMX Helsinki. The company's permanent insiders with a duty to declare consist of members of the Board of Directors, the Auditor in Charge, the CEO and his deputy, and other members of the Group Executive Committee. Outokumpu maintains a public register of permanent insiders with the duty to declare. Employees of the Group who receive inside information on a regular basis as a result of their position or their duties are registered in a non-public register of permanent companyspecific insiders. Permanent insiders must not purchase or sell securities issued by the company in the 14 days prior to publication of interim reports or the annual accounts (the so-called closed window). Separate non-public project-specific insider registers are maintained for insider projects. Persons defined as projectspecific insiders are those who, in the course of their duties in connection with a project, receive information concerning the Group which, when realised, is likely to have a significant effect on the value of the company's publicly-traded securities. Outokumpu's corporate general counsel is responsible for coordinating and supervising insider issues. For up-to-date information on holdings by Outokumpu's permanent insiders with a duty to declare see permanent insiders at www.outokumpu.com.
Outokumpu Annual Report 2009 – Insider issues
Report by the Board of Directors on key aspects of Outokumpu's system for internal controls and risk management in connection with financial reporting Control environment Risk identification and assessment Internal audit Control activities Information and communication Follow-up According to the Finnish Limited Liability Companies Act and the Finnish Code of Corporate Governance, the Board of Directors is responsible for a company's internal controls. The purpose of this chapter is to provide shareholders and other parties with a description of how internal control and risk management of financial reporting is organised in Outokumpu. As a listed company, the Group has to comply with a variety of regulations. To ensure that all the stated requirements are met, Outokumpu has introduced principles for financial reporting and internal control and distributed these throughout the company's organisation.
Control environment The foundation for Outokumpu's control environment is the business culture established within the Group and its associated methods of operation. The basis for the company's control routines is provided by Group policies and principles which define the way in which Outokumpu's organisation operates. These policies and principles are for example the Group's Corporate Responsibility Policy, Ethical Principles and the Outokumpu Leadership Principles. Introduced in 2007, the Outokumpu Code of Conduct describes the Group's basic values and offers standardised, practical guidelines for managers and employees. The Outokumpu performance management process is a key management activity and an important factor in enabling an efficient control environment. In all sections of the Group's operations, planning activities and the setting of both operational and financial targets are executed in accordance with Outokumpu's overall business targets. Management follow-up of related achievements is carried out through monthly management reporting routines and in performance review meetings. Outokumpu operates in accordance with the risk management policy approved by the Group's Board of Directors. This policy defines the objectives of risk management activities, the approaches to be taken and areas of responsibility. As well as supporting Outokumpu strategy, risk management activities help in defining a balanced risk profile from the perspective of shareholders and other stakeholders such as customers, suppliers, personnel and lenders. The Outokumpu Board of Directors holds ultimate responsibility for risk management within the Group. The CEO and the Group Executive Committee are responsible for defining and implementing risk management procedures, and for
Outokumpu Annual Report 2009 – Financial reporting
ensuring that risks are both properly addressed and taken into account in strategic and business planning. Business units and Group functions are responsible for managing risks connected with their own operations. More information on risk management within Outokumpu can be found in the Risk Management chapter in the Group's annual report. The policies and principles described above are freely available to all Outokumpu employees. All new employees are required to familiarise themselves with the Outokumpu Code of Conduct. In addition, Outokumpu takes an active approach to informing company personnel and communicating the policies and principles within its organisation in order to ensure their dissemination throughout the Group. Outokumpu's control process for financial reporting is based on Group policies, principles and instructions as well as on the responsibility and authorisation structure used within Outokumpu. Outokumpu Controller's Manual contains financial reporting instructions and policies. Financial reports are prepared in accordance with International Financial Reporting Standards (IFRS). Financial reporting in Outokumpu is carried out in a harmonised manner using a common chart of accounts. Financial statements by the parent company and stand-alone Finnish subsidiaries are prepared in accordance with generally accepted accounting principles in Finland, while foreign subsidiaries follow local accounting principles. Outokumpu also complies with regulations regarding financial reporting issues published by the FinancialSupervisory Authority (FIN-FSA) and NASDAQ OMX Helsinki. The process of creating internal policies in Outokumpu is based on the Group's authorisation structure. Policies relating to financial reporting are usually owned and approved by the CEO, the CFO or the Corporate Controller.
Risk identification and assessment Risk management processes connected with the Group's financial reporting are coordinated by the Treasury and Risk Management function. Related risks are classified as operational risks and can arise as a consequence of inadequate or failed internal processes, employee actions, systems or other events such as misconduct or crime. The aim of the Outokumpu risk management process is to identify, evaluate, control and mitigate such risks. Major risks are reported to and evaluated by the Audit Committee on a regular basis.
Internal audit Outokumpu's Internal Audit function has an independent role and a twofold objective: to provide assurance and to offer consulting services which add value and improve the organisation's operations. Internal Audit's most important task is assisting the Audit Committee and the Executive Committee in fulfilling their control functions. To do this, Internal Audit identifies and monitors significant operational risks within the Group, ascertains the adequacy and effective operation of internal controls and provides the two committees with a direct source of correct and reliable information. Other tasks carried out by Internal Audit include monitoring the Group's principles, controls and policies and follow-up of the audit conclusions by the company's auditors. The internal auditor reports to the Audit Committee and administratively to the CFO.
Control activities In addition to the Board of Directors and Audit Committee, operational management teams in Outokumpu are responsible for ensuring that internal controls relating to financial reporting are in place at all Outokumpu units. The aim of control activities is to discover, prevent and correct potential errors and deviations in financial reporting. Control activities consist of different kind of measures and include reviews of financial reports by Group management and in business unit management teams, the reconciliation of accounts, analyses of the logic behind reported figures, forecasts compared to actual reported figures and analyses on the Group's financial reporting processes. A key
Outokumpu Annual Report 2009 – Financial reporting
component is the monitoring of monthly performance against financial and operational targets. These control activities take place at different levels in the organisation. Outokumpu's risk management process includes arranging workshops on the identification of key risks, including operational risks, for business units and other Group functions. Deliverables include risk maps and risk identification plans. Information technology and solutions play an important role in guaranteeing that the Group's internal controls have a solid foundation. The harmonisation of IT systems to further improve Outokumpu's internal control environment is ongoing. The Group CFO and the management team in each Outokumpu company are responsible for ensuring that internal controls relating to financial reporting are properly established in each Outokumpu company. The target is to ensure that authorisation structures are designed in a way that prevents combinations which could raise levels of risk (such as one person performing an activity and also being responsible for controlling that activity).
Information and communication Policies and instructions for financial reporting are reviewed on a regular basis and revised when such action is required. Related instructions are communicated to all the parties involved as necessary. The main communication channels employed are Outokumpu's intranet and other easily-accessible databases. Face-to-face controller meetings are also organised. Outokumpu has established different networks and communities in which financial reporting and internal control issues such as application, review and revision are discussed and reviewed. These networks usually consist of personnel from business units and other Group functions. The aim of these networks, communities and common instructions is to ensure that unified financial processes and reporting practices are used throughout the Group. The networks and communities play an important role in establishing the effectiveness of internal controls relating to financial reporting and in developing Outokumpu policies, instructions and processes.
Follow-up Both management in Outokumpu companies and personnel in accounting and controlling functions are responsible for the follow-up and monitoring of internal controls connected with financial reporting. The Internal Audit and Risk Management functions also engage in follow-up and control activities. The findings of the follow-up procedures are reported to the Audit Committee and the Group Executive Committee on a regular basis.
Outokumpu Annual Report 2009 – Financial reporting
Auditors Under its Articles of Association, the company shall have a minimum of one and a maximum of two auditors who are auditors or firms of independent public accountants authorised by the Central Chamber of Commerce of Finland. The Annual General Meeting elects the auditors to a term of office ending at the close of the next Annual General Meeting. Proposals to the Annual General Meeting on the election of auditors which have been made known to the Board prior to the Annual General Meeting will be made public if the proposal is supported by shareholders holding a minimum of 10% of all the company's shares and voting rights and if the person or company proposed has consented to such nomination. The company's auditors submit the statutory auditor's report to the company's shareholders in connection with the company's financial statements. The auditors also report their findings to the Board of Directors on a regular basis. The parent company, Outokumpu Oyj, is audited by KPMG Oy Ab, and the responsible auditor is Mauri Palvi, Authorised Public Accountant. KPMG Oy Ab is also responsible for overseeing and coordinating the auditing of all Group companies. Both Outokumpu and KPMG Oy Ab highlight the requirement for an auditor to be independent of the company being audited. In its global independence policy, KPMG Oy Ab has stated its commitment to applying the Code of Ethics of the International Federation of Accountants (IFAC). Outokumpu's Board Audit Committee continuously monitors the global level of non-audit services purchased by the Group from KPMG Oy Ab. In 2009, auditors were paid fees totalling EUR 1 million, of which non-auditing services accounted for EUR 0 million.
Outokumpu Annual Report 2009 – Auditors
Board of Directors
Ole Johansson b. 1951, Finnish citizen B.Sc. (Econ.) Outokumpu Board member 2002– Chairman of the Board 2008– Vice Chairman of the Board 2004–2008 Chairman of the Nomination and Compensation Committee President and CEO: Wärtsilä Corporation 2000– President and CEO at Wärtsilä NSD Corporation 1998–2000 Chairman of the board: Technology Industries of Finland 2007–2009 Vice Chairman of the Board: Varma Mutual Pension Insurance Company, Confederation of Finnish Industries 2007–2009 Board member: Technology Industries of Finland Independent of the company and its significant shareholders.
Outokumpu Annual Report 2009 – Board of Directors
Anssi Soila b. 1949, Finnish citizen M.Sc. (Eng.), B.Sc. (Econ.) Outokumpu Board member 2008– Vice Chairman of the Board 2008– Chairman of the Audit Committee CEO: Kone Corporation 1994–1999 Vice Chairman of the Board: Normet Group Oy Board member: Outotec Oyj, Lindström Oy, DNA Oy, Attendo AB, Independent of the company and its significant shareholders.
Outokumpu Annual Report 2009 – Board of Directors
Evert Henkes b. 1943, Dutch citizen B.Sc. (Ag. Econ.) Outokumpu Board member 2003– Member of the Nomination and Compensation Committee CEO: Shell Chemicals Ltd. 1998–2003 Board member: Tate & Lyle Plc, SembCorp Industries Ltd, Air Products and Chemicals Inc. Member of International Advisory Board: CNOOC Ltd. 2008–2009 Independent of the company and its significant shareholders.
Outokumpu Annual Report 2009 – Board of Directors
Jarmo Kilpelä b. 1957, Finnish citizen M.Sc. (Econ.) Outokumpu Board member 2008– Member of the Audit Committee Senior Financial Counsellor: Prime Minister’s Office, Ownership Steering Department 2007– Senior Financial Counsellor: Ministry of Finance, Ownership Steering Unit 1996–2007 Chairman of the Board: Hansel Ltd Vice Chairman of the Board: HAUS Finnish Institute of Public Management Ltd Independent of the company and its significant shareholders.
Outokumpu Annual Report 2009 – Board of Directors
Victoire De Margerie b. 1963, French citizen Ph. D. (Management), LL.M., M.Pol.Sc. Outokumpu Board member 2007– Chairman of the Board: Rondol Technology Ltd. (UK) 2008– Board director and member of the Audit Committee: Ciments Francais (France) 2006– Professor of Strategic Management: Grenoble Graduate School of Business 2003– General Manager: Péchiney Plastic Bottles 2000–2002 Vice President: Sales & Marketing Péchiney Aluminum Canstock 1998–2000 Independent of the company and its significant shareholders.
Outokumpu Annual Report 2009 – Board of Directors
Anna Nilsson-Ehle b. 1951, Swedish citizen Ph.D., M.Sc. (Eng.) Outokumpu Board member 2005– Member of the Nomination and Compensation Committee Director: SAFER–National vehicle and traffic safety research center 2006– Managing Director: Universeum AB 1999–2004 Consultant: Ohde & Co 2005–2006 Board member: Svensk Bilprovning AB, Swedish National Space Board Independent of the company and its significant shareholders.
Outokumpu Annual Report 2009 – Board of Directors
Jussi Pesonen b. 1960, Finnish citizen M.Sc. (Eng.) Outokumpu Board member 2009– Member of the Nomination and Compensation Committee President and CEO: UPM-Kymmene Corporation 2004– Senior Executive Vice President and COO, Publication Papers: UPMKymmene Corporation 2001–2004 Board member: UPM-Kymmene Corporation, Finnish Forest Industries Federation, Confederation of European Paper Industries (CEPI) Supervisory Board member: Ilmarinen Mutual Pension Insurance Company Independent of the company and its significant shareholders.
Outokumpu Annual Report 2009 – Board of Directors
Leena Saarinen b. 1960, Finnish citizen M.Sc. (Food technology) Outokumpu Board member 2003– Member of the Audit Committee President and CEO: Suomen Lähikauppa Oy (formerly Tradeka Ltd.) 2007– President and CEO: Altia Corporation 2005–2007 Managing Director: Unilever Bestfoods Nordic Foodsolution 2003–2005 National Manager 2002–2005 Suomen Unilever Oy and Board member 1999 and 2001–2005 Chairman of the Board: the Finnish Grocery Trade Association Board member: Suomen Lähikauppa Oy, Tuko Logistics Oy, Federation of Finnish Commerce Supervisory Board member: Varma Mutual Pension Insurance Company, Luottokunta Independent of the company and its significant shareholders.
Outokumpu Annual Report 2009 – Board of Directors
Group Executive Committee
Juha Rantanen b. 1952, Finnish citizen, M.Sc. (Econ.), MBA CEO 2005– Chairman of the Group Executive Committee 2005– Outokumpu Board member and Vice Chairman 2003–2004 Responsibility: Group management, Communications and IR, corporate social responsibility and as of May 1, 2010 Tornio Works and energy strategy Employed by the Outokumpu Group since 2004 President & CEO: Ahlstrom Corporation 1998–2004 Chairman of the Board of Directors: Fennovoima Oy, Association of Finnish Steel and Metal Producers Vice Chairman of the Board: Moventas Oy Board member: Technology Industries of Finland, Stora Enso Oyj Board member and treasurer: International Stainless Steel Forum ISSF Vice President: European Confederation of Iron and Steel Industries Eurofer Supervisory board member: Varma Mutual Pension Insurance Company
Outokumpu Annual Report 2009 – Group Executive Committee
Karri Kaitue b. 1964, Finnish citizen, LL.Lic. Deputy CEO 2005– Member of the Group Executive Committee 2002– Vice Chairman of the Group Executive Committee 2005– Responsibility: Group strategy, business development and M&A, new ventures, legal affairs & IPR, portfolio businesses and as of May 1, 2010 Environment, health and quality Employed by the Outokumpu Group since 1990 Chairman of the Board: Destia Oy Vice Chairman of the Board: Okmetic Oyj, Outotec Oyj Board member: Cargotec Oyj
Outokumpu Annual Report 2009 – Group Executive Committee
Jamie Allan b. 1956, British citizen Executive Vice President – Supply Chain Management Member of the Group Executive Committee 2008– Responsibility: Production Excellence, Supply Chain Management operations, procurement and as of May 1, 2010 Energy Procurement and Safety Employed by the Outokumpu Group since 1978 Member of the British Stainless Steel Association
Outokumpu Annual Report 2009 – Group Executive Committee
Bo Annvik b. 1965, Swedish citizen, M. Sc. (Econ.) Executive Vice President – Specialty Stainless Acting Executive Vice President – Group Sales and Marketing February 2009–May 2010 Member of the Group Executive Committee 2007– Responsibility: Special Coil and Plate, Thin Strip, OSTP, investment projects and as of May 1, 2010 Long Products and R&D Employed by the Outokumpu Group since 2007 Board member: Scandinavian Automotive Suppliers, Jernkontoret – The Swedish Steel Producer’s Association, MEGAB Metallgruppens Service AB, Employers’ Association of the Swedish Steel and Metal Industry Stål & Metall, Tibnor AB
Outokumpu Annual Report 2009 – Group Executive Committee
Pekka Erkkilä b. 1958, Finnish citizen, M.Sc. (Eng.) Executive Vice President – General Stainless Member of the Group Executive Committee 2003– Responsibility: Tornio Works, Long Products, R&D, energy, procurement and enviroment, health, safety and quality Employed by the Outokumpu Group 1983–May 2010 at the latest Board member: Jernkontoret – The Swedish Steel Producer’s Association, Grängesberg Iron AB, Oulun yliopisto
Outokumpu Annual Report 2009 – Group Executive Committee
Pii Kotilainen b. 1960, Finnish citizen, M.Sc. (Econ.) Executive Vice President – Human Resources Member of the Group Executive Committee 2009– Responsibility: HR strategy and policy, and key HR processes: performance management (incl. compensation), resource management and HRD and leadership, and head office administration Employed by the Outokumpu Group since 2009
Outokumpu Annual Report 2009 – Group Executive Committee
Esa Lager b. 1959, Finnish citizen, M.Sc. (Econ.), LL.M. Chief Financial Officer (CFO) Member of the Group Executive Committee 2001– Responsibility: Financial and business control, treasury and risk management, IT and real estate Employed by the Outokumpu Group since 1990 Board member: Olvi Oyj
Outokumpu Annual Report 2009 – Group Executive Committee
Kari Parvento b. 1957, Finnish citizen M.Sc. (Eng.) Executive Vice President – Group Sales and Marketing Member of the Group Executive Committee from May 1, 2010 at the latest Responsibility: Group sales and marketing strategy, customer relationship development, end-user and project sales, distributors and processors sales, stock and processing development and Pricing office Employed by the Outokumpu Group since 2010
Outokumpu Annual Report 2009 – Group Executive Committee
Investor Information Outokumpu share basics Listing
NASDAQ OMX Helsinki
Trading symbol
OUT1V
Number of shares
182 010 542
2003B stock options
OUT1VEW203
2003C stock options
not listed
Shares and share capital On December 31, 2009, Outokumpu Oyj's fully-paid and registered share capital totalled EUR 309 417 921.40 and consisted of 182 010 542 shares. The company has one class of shares and each share entitles its holder to one vote at a General Meeting of Shareholders.
Listing of shares Outokumpu shares are listed on NASDAQ OMX Helsinki. The trading symbol is OUT1V. Outokumpu's stock options 2003B (trading symbol OUT1VEW203) are also listed on NASDAQ OMX Helsinki. The 2003C stock options are not listed.
Treasury shares Outokumpu held 1 040 888 of its own shares (treasury shares) at the end of 2009. Repurchases were made between April 9 and November 27, 2001 and November 1 and 6, 2007. The treasury shares correspond to 0.57% of Outokumpu's shares and voting rights.
State ownership The Finnish State holds 31.0% of Outokumpu shares and voting rights through its wholly-owned company Solidium Oy. According to an act passed by Finland's parliament in December 2007, the state's holding in Outokumpu can be reduced to zero.
Dividend proposal The Outokumpu Board of Directors proposes a dividend of EUR 0.35 per share for the 2009 financial year. The effective dividend yield is 2.6% and the average dividend payout ratio over the past five years is 92%.
Outokumpu Annual Report 2009 – Investor Information
Outokumpu share price development The closing price of Outokumpu's share on December 30, 2009 was EUR 13.26 (Dec 31, 2008: EUR 8.28), up 60% during the year. In 2009, the highest share price was 15.67 (2008: EUR 33.99) in August and the lowest share price was EUR 7.72 (2008: EUR 6.33) in January. The average price was EUR 11.49 (2008: EUR 18.99). At year-end 2009, Outokumpu's market capitalisation was EUR 2 413 million (2008: EUR 1 502 million), up by 61% compared to the previous year. Turnover in Outokumpu shares on the NASDAQ OMX Helsinki stock exchange in 2009 totalled 355.1 million shares (2008: 511.1 million) and amounted to EUR 4 079 million (2008: EUR 9 693 million). Average daily turnover during 2009 was 1.44 million shares (2008: 2.03 million shares).
Outokumpu Annual Report 2009 – Investor Information
Outokumpu Annual Report 2009 – Investor Information
Shares and shareholders Share-related key figures Principal shareholders on February 2, 2010 Shareholders by group on February 2, 2010 Distribution of shareholdings on February 2, 2010
Share-related key figures 2009
2008
2007
2006
2005
Earnings per share
€
-1.86
-1.05
3.52
5.31
-2.01
Equity per share
€
13.54
15.50
18.53
16.87
11.31
Dividend per share
€
0.351)
0.50
1.20
1.10
0.45
Dividend payout ratio
%
neg.
neg.
33.9
20.7
neg.
Dividend yield
%
2.6
6.0
5.7
3.7
3.6
neg.
neg.
6.0
5.6
neg.
Price/ earnings ratio
Development of share price Average trading price
€
11.49
18.99
24.94
19.77
11.89
Lowest trading price
€
7.72
6.33
18.48
12.60
9.63
Highest trading price
€
15.67
33.99
31.65
30.39
14.72
Trading price at the end of the period
€
13.26
8.28
21.21
29.66
12.55
Outokumpu Annual Report 2009 – Shares and shareholders
Change during the period
%
60.1
-61.0
-28.5
136.3
-4.6
%
19.5
-53.4
20.5
17.9
31.1
€ million
2 400
1 492
3 820
5 369
2 272
1 000 shares
355 102
511 080
516 489
319 345
179 289
%
196.4
283.6
285.5
176.4
99.0
180 825 569
180 184 845
180 922 336
181 033 168
181 031 415
180 969 654
180 233 280
180 103 193
181 031 952
181 031 952
Change in the OMXH index during the period Market capitalisation at the end of the period 2) Development in trading volume Trading volume In relation to weighted average number of shares
Adjusted average number of shares 2) Number of shares at the end of the period 2)
2003A stock options were listed on the NASDAQ OMX Helsinki from Sept. 1, 2006, until March 1, 2009 and 2003B stock options have been listed since Sept. 3, 2007. 2003C stock options are not listed. Notes: 1)
The Board of Directors' proposal to the Annual General Meeting
2)
Excluding treasury shares
Principal shareholders on February 2, 2010 Shareholder
Shares
%
Solidium Oy
56 440 597
31.0
The Finnish Social Insurance Institution
14 652 666
8.1
Outokumpu Annual Report 2009 – Shares and shareholders
Ilmarinen Mutual Pension Insurance Company
6 721 927
3.7
Finnish State Pension Fund
2 431 600
1.3
Varma Mutual Pension Insurance Company
1 600 317
0.9
OP-Delta Investment Fund
1 268 706
0.7
Outokumpu Oyj
1 040 888
0.6
Suomi Mutual Life Insurance Company
1 000 000
0.6
Mandatum Life Insurance Company
922 324
0.5
Investment fund OP-Suomi Arvo
785 000
0.4
Nominee accounts held by custodian banks
47 890 998
26.3
Other shareholdes
47 255 519
26.0
182 010 542
100.0
Shares
%
6 238 570
3.4
11 418 383
6.3
Solidium Oy
56 440 597
31.0
Finnish State Pension Fund
14 652 666
8.1
Other
14 586 375
8.0
4 535 355
2.5
Households/private persons
24 205 114
13.3
Foreign investors
49 933 482
27.4
182 010 542
100.0
Total number of shares
Shareholders by group on February 2, 2010 Shareholder group Finnish corporations Financial and insurance institutions The public sector and public organisations
Non-profit organisations
Total
Shares not transferred to the book-entry securities system
812
Distribution of shareholdings on February 2, 2010 Number of shares 1–100 101–1 000 1 001–10 000
Number of shareholdes
% of shareholders
Total shares
% of share capital
Average shareholding
8 673
24.4
563 150
0.3
65
20 646
58.2
8 787 289
4.8
426
5 753
16.2
15 166 627
8.3
2 636
Outokumpu Annual Report 2009 – Shares and shareholders
10 001–100 000
363
1.0
9 376 499
5.2
25 831
50
0.1
16 069 278
8.8
321 386
> 1 000 000
7
0.0
84 156 701
46.2
12 022 386
Shares in nominee accounts held by custodian banks
-
-
47 890 998
26.3
-
35 492
100.0
182 010 542
100.0
100 001–1 000 000
Shares not transferred to book-entry securities system
812
Outokumpu Annual Report 2009 – Shares and shareholders
Board authorisations Board authorisation to decide to issue shares and grant special rights entitling to shares The Annual General Meeting of Outokumpu authorised the Board of Directors on March 24, 2009 to decide to issue shares and grant special rights entitling to shares as detailed below. Pursuant to the authorisation, the Board of Directors has the right to issue a maximum of 36 000 000 shares through one or several share issues or by granting special rights entitling to shares as specified in Chapter 10, Section 1 of the Finnish Companies Act, excluding option rights for Outokumpu management and personnel in accordance with an incentive plan. Through the share issue and/or by granting special rights entitling to shares, a maximum of 18 000 000 new shares may be issued, which at the time of the Annual General Meeting represented approximately 9.92% of the total number of registered shares. In addition, a maximum of 18 000 000 treasury shares may be transferred, which at the time of the Annual General Meeting represented approximately 9.92% of the company's total number of registered shares. The authorisation includes the right to decide on all other terms and conditions of the share issue and special rights entitling to shares, including the subscription price and to whom shares or special rights may be issued. The Board of Directors has the right to issue shares and special rights in deviation of the pre-emptive subscription right of shareholders. The authorisation is valid until the next Annual General Meeting, however no later than until May 31, 2010. It has not been exercised by the Board.
Board authorisation to repurchase the company's own shares The Annual General Meeting of Outokumpu authorised the Board of Directors on March 24, 2009 to repurchase the company's own shares (treasury shares). The maximum number of shares to be repurchased is 18 000 000, which at the time of the Annual General Meeting represented approximately 9.92% of Outokumpu's total number of registered shares. Based on this and earlier authorisations, the company currently holds 1 040 888 of its own shares. The aggregate number of treasury shares held by the company and its subsidiaries may not, however, exceed 10% of the total number of registered shares. The price payable for these shares shall be based on the prevailing price of Outokumpu's shares in public trading at the time of repurchase. The shares can be repurchased in deviation from the proportional shareholdings of current shareholders. The Board of Directors has the right to decide on other matters and measures related to repurchasing of the company's shares. The authorisation is valid until the next Annual General Meeting, however no later than until May 31, 2010. It has not been exercised by the Board.
Outokumpu Annual Report 2009 – Board authorisations
2003 stock option programme The Outokumpu Annual General Meeting held in 2003 passed a resolution on a stock option programme for the company's management personnel. The total number of share options that may be issued is 5 100 000, entitling holders of stock options to subscribe for 5 100 000 new Outokumpu shares during the period 2006-2011. Based on a decision by the Board of Directors and in deviation from shareholders' pre-emptive rights, stock options marked 2003A, 2003B and 2003C were distributed to key persons in the Outokumpu Group in 2004, 2005 and 2006. When deciding on the total number of stock options to be distributed annually and to each individual, the Board of Directors assessed the Group's earnings trend and performance by comparing, among other items, the trend in Group earnings per share to trends in the same key ratio in peer companies. The subscription price for shares subscribed for with 2003B stock options is the traded volume-weighted average price of Outokumpu shares on NASDAQ OMX Helsinki from December 1, 2004 to February 28, 2005 (EUR 9.81), for stock options 2003C it is the trading volume-weighted average price of Outokumpu shares on NASDAQ OMX Helsinki from December 1, 2005 to February 28, 2006 (EUR 10.44). On each dividend record date, the share subscription price of stock options will be reduced by the amount of dividends to be decided after the close of the period for determining the subscription price and prior to the share subscription. The subscription period for stock option 2003A ended on March 1, 2009 and the subscription period for stock option 2003B will end on March 1, 2010. Following the subscriptions for 2003 stock options, Outokumpu's share capital may be increased by a maximum of EUR 1 916 784 and the number of shares by a maximum of 1 127 520. The number of shares that can be subscribed for on the basis of the stock options corresponds to 0.62% of Outokumpu's shares and voting rights.
2003 stock option programme Number of participants Dec. 31, 2009
Subscription period
Dividend adjusted Share Subscription Price Dec. 31, 2009
2003 B
39
Sep. 1, 2007–Mar. 1, 2010
9.81 €
2003 C
7
Sep. 1, 2008–Mar. 1, 2011
10.44 €
The number of shares subscribed by Dec. 31, 2009
An aggregate maximum of shares that can be subscribed with the remaining stock options
The number of stock options annulled by Dec. 31, 2009
2003 B
804 805
224 015
671 180
2003 C
18 200
80 500
1 601 300
Stock Option
Increases in share capital 2005–2009
Share capital on Jan. 1, 2005
Number of shares
Share capital €
181 250 556
308 125 943.50
+33 323
308 182 592.60
Shares subscribed with 2003A options Oct. 14 – Dec. 29, 2006, registered on Jan. 11, 2007
Outokumpu Annual Report 2009 – 2003 stock option programme
Shares subscribed with 2003A options Dec. 30, 2006 – Oct. 29, 2007, registered on Nov. 9, 2007
+23 539
308 222 608.90
+14 379
308 247 053.20
+400
308 247 733.20
+1 000
308 249 433.20
+11 955
308 269 756.70
+10 187
308 287 074.60
+38 208
308 352 028.20
+57 264
308 449 377.00
+380
308 450 023.00
+693
308 451 201.10
+5 000
308 459 701.10
+5 000
308 468 201.10
+126 910
308 683 948.10
+415 473
309 390 353.20
+10 000
309 407 252.20
+6 276
309 417 921.40
182 010 542
309 417 921.40
Shares subscribed with 2003B options Sep. 8 – Oct. 29, 2007, registered on Nov. 9, 2007 Shares subscribed with 2003A options Oct. 30, 2007 – Jan. 2, 2008, registered on Jan. 15, 2008 Shares subscribed with 2003B options Oct. 30, 2007 – Jan. 2, 2008, registered on Jan. 15, 2008 Shares subscribed with 2003A options Jan. 3 – Feb. 29, 2008, registered on Mar. 13, 2008 Shares subscribed with 2003B options Jan. 3 – Feb. 29, 2008, registered on Mar. 13, 2008 Shared subscribed with 2003A options Mar. 1 – May 5, 2008, registered on May 16, 2008 Shares subscribed with 2003B options Mar. 1 – May 5, 2008, registered on May 16, 2008 Shares subscribed with 2003A options May 6 – Jul. 7, 2008, registered on Jul. 18, 2008 Shares subscribed with 2003A options Jul. 8 – Sep. 8, 2008, registered on Sep. 19, 2008 Shares subscribed with 2003C options Jul. 9 – Sep. 8, 2008, registered on Sep. 19, 2008 Shares subscribed with 2003C options Sep. 9 – Oct. 24, 2008, registered on Nov. 3, 2008 Shares subscribed with 2003A options Jan. 1 – Feb. 9, 2009, registered on Feb. 18, 2009 Shares subscribed with 2003A options Feb. 10 – Mar. 1, 2009, registered on Mar. 11, 2009 Shares subscribed with 2003C options Apr. 29 – Jun. 4, 2009, registered on Jun. 16, 2009 Shares subscribed with 2003B options Oct. 30 – Dec. 17, 2009, registered on Dec. 31, 2009
Share capital on Dec. 31, 2009
Outokumpu Annual Report 2009 – 2003 stock option programme
Share capital on Feb. 2, 2010
Treasury shares on Dec. 31, 2009 Number of shares outstanding on Dec. 31, 2009
182 010 542
309 417 921.40
1 040 888
1 769 509.60
180 969 654
307 648 411.80
Outokumpu Annual Report 2009 – 2003 stock option programme
Share-based incentive programmes Outokumpu's Board of Directors has confirmed that share-based incentive programmes are part of the incentive and commitment scheme for the company's key personnel. The objectives are to reward key personnel for good performance and support Outokumpu's strategy while at the same time directing management attention to increasing shareholder value over the long term. The programmes offer the possibility of receiving both Outokumpu shares and cash (an amount equal to taxes not exceeding 1.5 times the value of the shares at the time they are distributed) as an incentive, provided that the targets set by the Board for each earning period are achieved.
Share-based incentive programme Earnings period
The number of people in scope on Dec. 31, 2009
2007–2009
129
2008–2010
155
2009–2011
139
Share-based incentive programme 2006–2010 On February 2, 2006, the Outokumpu Board of Directors confirmed a five-year share-based incentive programme comprising three earnings periods, each lasting three calendar years. These earnings periods commenced on January 1, 2006, January 1, 2007 and January 1, 2008. The aggregate number of shares to be distributed during each earnings period cannot exceed 500 000. In accordance with targets confirmed for the earnings periods, the reward is based on the relative development in Total Shareholder Return (TSR) (amounting to 50% of the maximum reward) and achieving targets set for Operational Excellence programmes (amounting to 50% of the maximum reward). The aggregate annual total payment of rewards (shares and cash) under the programme, together with other short-term and long-term incentives, must not exceed 200% of a participant's annual salary at the end of the earnings period. Rewards allocated under the programme for the earnings period (both shares and cash) will be reduced accordingly if the above limit is exceeded. Under the programme, participants must retain the shares in their possession for a period of at least two years from the date of distribution. On February 2, 2010, the Outokumpu Board of Directors confirmed that the set targets for the earnings period 2007–2009 were not met for either earning criteria. Therefore, no reward will be paid to the participants for the earning period 2007–2009. If participants in the remaining earnings period 2008–2010 receive the maximum number of shares as a reward (a total of 240 430 shares), the shareholding they obtain via the programme will amount to 0.13% of the Company's shares and the voting rights.
Share-based incentive programme 2009–2013 On February 3, 2009, Outokumpu's Board of Directors confirmed a new share-based incentive programme which will last five years and comprise of three earnings periods, each lasting three calendar years and commencing on January 1, 2009, January 1, 2010 and January 1, 2011. The Board of Directors decides on the persons who are entitled to participate in the programme for each earnings period. The aggregate number of shares to be distributed for each earning period cannot exceed 500 000. On February 2, 2010, 134 people were confirmed as participants in the programme for the 2010–2012 earnings period. In accordance with targets confirmed for the 2010–2012 earnings period, the reward is based on the relative
Outokumpu Annual Report 2009 – Share-based incentive programmes
development in Total Shareholder Return (TSR, 2/3 of the maximum reward) over the three-year earnings period and Earnings per share (EPS, 1/3 of the maximum reward). The aggregate annual total payment of rewards (shares and cash) under the programme, together with other short-term and long-term incentives, must not exceed 200% of the participant's annual salary at the end of the earnings period. Rewards allocated under the programme for the earnings period (both shares and cash) will be reduced accordingly if the above limit is exceeded. Under the programme, participants must retain the shares in their possession for a period of at least one year from the date of distribution. If participants in the 2009–2011 and 2010–2012 earnings periods receive the maximum number of shares as a reward (a total of 824 900 shares), the shareholding obtained via the programme will amount to 0.45% of the Company's shares and voting rights.
Share ownership plan In accordance with the share ownership plan of the Outokumpu Group, members of the Outokumpu Group Executive Committee have an obligation to purchase Outokumpu shares with 10% of the income they receive from stock options. Members of the Group Executive Committee are also obliged to hold Outokumpu shares acquired or received under incentive programmes that correspond to the value of their annual gross base salary.
Outokumpu Annual Report 2009 – Share-based incentive programmes
Management shareholding On January 31, 2010, members of the Outokumpu Board of Directors and the Group Executive Committee held a total of 93 264 Outokumpu shares, corresponding to 0.051% of shares and voting rights. If all the 2003B and 2003C options are exercised and if the remaining earning period in the 2006–2010 share-based incentive programme and the 2009–2011 and 2010–2012 earning periods in the 2009–2013 share-based inventive programme yield the maximum number of shares, shareholdings and aggregate voting rights held by the memberd of the Group Executive Committee will increase by 0.047 percentage points on the basis of stock options, and by 0.11 percentage points on the basis of the share-based incentive programme. Details of management shareholdings can be found at Board of Directors and Group Executive Committee.
Outokumpu Annual Report 2009 – Management shareholding
Information to shareholders Annual General Meeting 2010 Outokumpu Oyj's 2010 Annual General Meeting (AGM) will be held on Tuesday, March 30, 2010 at 12 pm (EET) at the Marina Congress Center in Helsinki, Finland. In order to attend the Annual General Meeting a shareholder must be registered in the Company's shareholders' register maintained by Euroclear Finland Ltd on March 18, 2010. Nominee-registered shareholders who wish to attend the AGM should temporarily re-register the shares under their own name. Such re-registration must be made no later than March 18, 2010. In order to arrange a temporary re-registration, nominee registered shareholders should contact their bank or other custodian. Shareholders who wish to attend the AGM must notify Outokumpu by no later than March 24, 2010 at 4 pm (EET). Notification can be made by on the internet at www.outokumpu.com/agm, email to
[email protected], by telephone to +358 9 421 5519 or by fax to +358 9 421 2223. Notification can also be made in person or by a letter addressed to Outokumpu Oyj Share Register, PO. Box 140 02201 Espoo Finland. The letter must reach Outokumpu on March 24, 2010 at the latest. A shareholder may attend and vote at the meeting in person or by proxy. However, in accordance with Finnish practice, Outokumpu does not send proxy forms to its shareholders. Shareholders wishing to vote by proxy should submit their own proxy forms to Outokumpu during the registration period. Additional information on the AGM is available on the company's website: www.outokumpu.com/agm.
Dividends in 2010 The Board of Directors proposes to the AGM 2010 that a dividend of EUR 0.35 per share be paid for the financial year 2009.
Financial reports in 2010 Investor information is available at Outokumpu's website www.outokumpu.com. The website also covers annual reports, interim reports, as well as stock exchange and press releases, which are published mainly in English and Finnish. Alternatively financial reports can be obtained from Outokumpu Oyj/Corporate Communications Riihitontuntie 7 b, PO Box 140 02201 Espoo Finland tel. +358 9 421 4070 or email
[email protected].
Outokumpu Annual Report 2009 – Information to shareholders
Subscriptions to the emailing list for stock exchange and press releases can be made on the website www.outokumpu.com or via the above-mentioned e-mail address. Shareholder mailings are made on the basis of the contact information in the shareholders' register maintained by Euroclear Finland Oy. A shareholder should inform his/her account operator, or in case of a nominee-registered shareholder the relevant bank or other custodian, about changes in contact details.
Investor Relations The main task of Outokumpu's Investor Relations function is to support the correct valuation of the Outokumpu share by providing information about the company's business and strategy, activities, financial position, thus enabling the markets to form a true and fair view of Outokumpu as an investment prospect. Our aim is to communicate in open, timely and clear manner and to treat all parties equally. Outokumpu observes a three-week silent period prior to the publication of financial statements and interim reports. During these periods, we do not arrange meetings with investors and analysts or comment on performance and market developments. Should you require further information about Outokumpu, please contact one of the following: Päivi Laajaranta IR Assistant Tel. +358 9 421 4070, Send e-mail to Päivi Laajaranta Päivi Laajaranta coordinates meeting requests. Ingela Ulfves Vice President – Investor Relations and Financial Communications Tel. +358 9 421 2438, Send e-mail to Ingela Ulfves Päivi Lindqvist Senior Vice President – Communications and IR Tel. +358 9 421 2432, Send e-mail to Päivi Lindqvist
AGM and dividend Annual General Meeting
March 30
Ex-dividend date
March 31
Record date for dividend
April 6
Dividend payout
April 13
Financial calendar Financial Statements Bulletin
February 3
Annual Report
week starting February 22
Outokumpu Annual Report 2009 – Information to shareholders
First-quarter interim report
April 27
Second-quarter interim report
July 22
Third-quarter interim report
October 21
Outokumpu Annual Report 2009 – Information to shareholders
Stock exchange releases 2009 3.2.2009 Outokumpu takes further actions in response to the weak stainless steel market 3.2.2009 Outokumpu Annual Accounts bulletin 2008 – operating loss in difficult market conditions 3.2.2009 Notice of Annual General Meeting – Outokumpu's AGM to convene on March 24, 2009 3.2.2009 Outokumpu establishes a new long-term share-based incentive program 18.2.2009 Shares subscribed with the Outokumpu Oyj 2003 A stock options and the increase in share capital 24.2.2009 Outokumpu – change in the Executive Committee 2.3.2009 Outokumpu's Annual Report 2008 9.3.2009 Outokumpu's Board of Directors confirmed the share-based incentive reward for the earning period 2006–2008 11.3. 2009 Shares subscribed with the Outokumpu Oyj 2003A stock options and the increase in share capital 24.3.2009 Statutory negotiations in Outokumpu result in temporary lay-offs in Finland 24.3.2009 Resolutions of Outokumpu Oyj's Annual General Meeting 2009 24.3.2009 Outokumpu Board decisions at their first meeting 15.4.2009 Outokumpu – publishing of the first-quarter 2009 financial results 23.4.2009 Outokumpu's first quarter 2009 interim report – significant operating loss, very strong cash flow 7.5.2009 European Commission's fine for Outokumpu related to copper air-conditioning tube cartel remains unchanged 13.5.2009 Outokumpu – Financial reporting schedule for the year 2010 16.6.2009 Shares subscribed with the Outokumpu Oyj 2003C stock options and the increase in share capital 25.6.2009 Outokumpu to adjust production capability due to higher order intake 29.6.2009 Outokumpu Oyj signed EUR 900 million revolving credit facility 9.7.2009 Outokumpu – publishing of the second-quarter 2009 financial results 23 .7.2009 Outokumpu's second quarter 2009 interim report – difficult market with some signs of improvement, operating loss declining 13.10.2009 Outokumpu – publishing of the third-quarter 2009 financial results 22.10.2009 Outokumpu's third quarter 2009 interim report – Financial performance on improving trend in weak markets 22.10.2009 Outokumpu – listing timetable of the stock options 2003B and 2003C
Outokumpu Annual Report 2009 – Stock exchange releases 2009
1.12.2009 Shareholders' Nomination Committee at Outokumpu 11.12.2009 Outokumpu appoints Kari Parvento Executive Vice President – Group Sales and Marketing 31.12.2009 Shares subscribed with the Outokumpu Oyj 2003B stock options and the increase in share capital
Outokumpu Annual Report 2009 – Stock exchange releases 2009
Review by the Board of Directors for 2009 Determined actions taken as stainless steel markets hit by the global recession 2009 was an exceptional year for the stainless steel industry in many ways. The global recession had a significant impact on the industry, especially in Europe. During the first part of 2009, demand was extremely weak and stainless steel markets were characterised by heavy destocking. Some recovery occurred in the summer but markets softened again towards the end of the year. In 2009, China was the only market in which demand grew and production significantly increased. The very difficult market conditions in 2009 forced Outokumpu to take drastic short-term measures to cut costs and secure its balance sheet and liquidity. Cost-cutting actions included production cuts and personnel adjustments. The ongoing recession limited progress towards strategic targets and the Group postponed the majority of its planned investment programme. Outokumpu's strategy is aimed at achieving a more stable and profitable business model by increasing the share of sales to end-user and project customers as well as building more stable relationships with key distributor customers. Other objectives include increasing the proportion of value-added special grades and products as well as non-nickel containing grades of stainless steel. Group sales for 2009 totalled EUR 2 611 million (down by 52% from the previous year) and stainless steel deliveries were 1 030 000 tonnes, down by 28% from the level in 2008. Operating loss totalled EUR 438 million (2008: EUR -63 million) and underlying operational result was EUR -340 million (2008: EUR 305 million positive). Net cash from operating activities was good at EUR 198 million (2008: EUR 664 million). Return on capital employed was -11.7% (2008: EUR -1.6%) and gearing was 48.2% (2008: 38.4%). Although Outokumpu's financial target of a return on capital employed higher than 13% was not reached, gearing remained below the Group's target of less than 75%. Earnings per share totalled EUR -1.86 (2008: EUR -1.05). The Board of Directors is proposing to the Annual General Meeting 2010 that a dividend of EUR 0.35 per share be paid for 2009 (2008: EUR 0.50).
Very weak stainless steel markets with historically low deliveries in Europe The global recession resulted in demand for stainless steel being very weak at the beginning of the year. Heavy destocking along the whole value chain resulted in significant production cuts by producers especially in Europe with capacity utilisation at the historically extremely-low levels of 50–55%. Demand for stainless steel mainly from distributors, recovered somewhat in the summer and stabilised towards the end of the year. Metal prices were at very low levels at the beginning of the year but began to rise after the spring, mainly as a result of improving demand in China. Base prices, which had fallen to very low levels in historical terms, began to recover after the first quarter. Compared to 2008, apparent consumption of stainless steel in 2009 is estimated to have decreased by 29% in Europe and by 8% globally. In China, however, apparent consumption is estimated to have increased by 31%. The average German base price for 2mm 304 cold rolled sheet in 2009 was 1 161 EUR/tonne, 2% lower than in 2008. The transaction price for stainless
Outokumpu Annual Report 2009 – Review by the Board of Directors
steel averaged 2 036 EUR/tonne in 2009, 27% lower than in the previous year. The main reason for this was the much lower metal prices in 2009. (CRU)
Sales and deliveries Sales € million
2009
2008
2007
General Stainless
2 065
4 147
5 321
Specialty Stainless
1 239
2 705
3 456
Other operations
243
258
237
Intra-group sales
-935
-1 636
-2 101
2 611
5 474
6 913
2009
2008
2007
Cold rolled
545
739
703
White hot strip
263
330
314
Quarto plate
67
120
146
Tubular products
53
70
65
Long products
40
55
54
Semi-finished products
63
109
137
1 030
1 423
1 419
The Group
Stainless steel deliveries 1 000 tonnes
Total deliveries Group sales for 2009 declined to EUR 2 611 million (2008: EUR 5 474 million) due to the very low delivery volumes and lower transaction prices for stainless steel. Delivery volumes declined to 1 030 000 tonnes (2008: 1 423 000 tonnes). Sales by General Stainless were down by 50% and sales by Specialty Stainless were down by 54%. The European share of Group sales was 74% in 2009 (2008: 78%). Asia and the Americas accounted for 14% (2008: 8%) and 10% (2008: 11%), respectively.
Outokumpu Annual Report 2009 – Review by the Board of Directors
Operating profit Profitability € million
2009
2008
2007
General Stainless
-259
-6
220
Specialty Stainless
-149
-101
337
Other operations
-31
38
21
Intra-group items
1
6
11
-438
-63
589
Share of results in associated companies
-12
-2
4
Financial income and expenses
-25
-69
206
-474
-134
798
142
24
-138
-332
-110
660
-4
-79
-18
Net profit for the financial year
-336
-189
641
Operating profit margin, %
-16.8
-1.2
8.5
Return on capital employed, %
-11.7
-1.6
13.9
Earnings per share from continuing operations, €
-1.83
-0.61
3.63
Earnings per share, €
-1.86
-1.05
3.52
Operating profit
Operating profit
Profit before taxes Income taxes Net profit, continuing operations Net profit, discontinued operations
Operating loss in 2009 totalled EUR 438 million (2008: EUR -63 million). In 2009, net non-recurring items of EUR −20 million were included in the operating loss (EUR 5 million of restructuring provisions mainly relating to Sweden and EUR 15 million of write-downs from the cancelled melt-shop capacity expansion in Avesta, Sweden). In 2008, non-recurring costs of some EUR 83 million were included in the operating loss. Raw material-related inventory losses of some EUR 78 million are included in the operating profit (2008: some EUR 285 million). Underlying operational result for 2009 was some EUR -340 million (2008: EUR 305 million). While extremely-low delivery volumes were the primary reason
Outokumpu Annual Report 2009 – Review by the Board of Directors
for the weak result, a somewhat negative price and product mix and a reduced contribution from ferrochrome production also had negative impacts. The cost savings achieved had a mitigating effect. Loss before tax totalled EUR 474 million (2008: EUR -134 million). The Group's cost-saving programmes, initiated in December 2008, delivered more than earlier estimated EUR 150 million. The fixed-cost savings achieved in 2009 totalled EUR 185 million, half of which are expected to be sustainable. Some EUR 20 million of total cost savings are related to the closure of Sheffield Special Strip in the UK.
Capital structure Key financial indicators on financial position € million
2009
2008
2007
1 038
1 219
1 046
705
581
464
1 742
1 800
1 510
Interest-bearing assets
-548
-711
-589
Net assets held for sale
-11
-16
-132
Net interest-bearing debt
1 183
1 072
788
Shareholders' equity
2 451
2 794
3 337
Return on equity, %
-12.8
-6.2
20.0
Debt-to-equity ratio, %
48.2
38.4
23.6
Equity-to assets ratio, %
50.6
52.4
56.5
Net cash generated from operating activities 1)
198
664
658
22
54
5
Net interest-bearing debt
Long-term debt Current debt Total interest-bearing debt
Net interest expenses Notes: 1)
Cash flows presented for continuing operations.
Outokumpu Annual Report 2009 – Review by the Board of Directors
During 2009 Outokumpu's net interestbearing debt increased only marginally by EUR 110 million and totalled EUR 1 183 million at the end of 2009 (Dec 31, 2008: EUR 1 072 million). Outokumpu's balance sheet was relatively strong at the end of the year with gearing at 48.2% (Dec 31, 2008: 38.4%), well below the Group's target of below 75%. At the end of 2009, the Group's equity-to-assets ratio stood at 50.6%. In June 2009, Outokumpu signed a threeyear EUR 900 million revolving credit facility. This committed credit facility for general corporate purposes replaced the five-year EUR 1 billion facility signed in June 2005. At the end of 2009 this facility was undrawn. In addition, two bilateral long-term revolving credit facilities amounting to more than EUR 200 million were signed in 2009. Consequently, Outokumpu has committed undrawn credit facilities totalling EUR 1.1 billion. Net cash generated from operating activities in continuing operations in 2009 was good and totalled EUR 198 million (2008: EUR 664 million). Cash released from working capital as a result of lower metal prices and reductions in inventory levels totalled EUR 548 million. Cash and cash equivalents totalled EUR 112 million (2008: EUR 224 million) at the end of the year.
Capital expenditure and the postponed investment programme Capital expenditure € million
2009
2008
2007
General Stainless
129
332
57
Specialty Stainless
93
170
69
Other operations
23
42
64
The Group
245
544
190
Depreciation
211
206
204
Outokumpu Annual Report 2009 – Review by the Board of Directors
Capital expenditure by the Group in 2009 totalled EUR 245 million. The largest investments in 2009 were the modernisation of the No. 2 annealing and pickling line in Tornio, expansion of the service centre in Willich in Germany, establishment of a service centre in China, the doubling of production capacity in special grades at Nyby in Sweden and the expansion of quarto plate production capacity in New Castle in the US. The service centre in China is planned to start operation in the spring 2010 and the investment at New Castle is planned to be finalised at about the same time. In December 2008 as the global recession had started, Outokumpu decided to postpone almost its entire investment programme worth some EUR 1.5 billion for a period of at least 12 months. The programme included an expansion of ferrochrome production capacity in Finland, investments in bright-annealed production capacity at Tornio Works in Finland, expansion of quarto plate production capacity in Degerfors in Sweden, the expansion of melting capacity in Avesta in Sweden and the construction of service centres in Europe. In October, a decision was made to cancel the investment in expanded melting capacity at Avesta as no need for additional melting capacity is seen in the mediumterm. Continuation of any project in the Group's investment programme is subject to a separate decision based on an updated feasibility study. Further decisions on the postponed investments will be made by the end of 2010. Excluding decisions on any new investment projects, capital expenditure by the Group in 2010 is expected to be below EUR 200 million. This figure includes annual capital expenditure on maintenance and the finalising of some ongoing investment projects.
Personnel adjustments As a response to the very weak demand for stainless steel because of the ongoing recession, Outokumpu took a number of actions to adjust to the poor market conditions. Production was cut back heavily and consequent adjustments of personnel numbers through both temporary and permanent layoffs were implemented. In Finland, the low order load resulted in temporary layoffs for most employees at the Tornio Works. Some 250 employees at the Kemi Mine and the Ferrochrome Works were temporarily laid off from March until the end of September. Approximately 1 600 employees working on other steel production lines, maintenance and support functions were temporarily laid off in sequences starting from March. In September, some 700 employees were taken back and the remaining 900 who had been laid off temporarily returned to work in October. Some 50 permanent job reductions have been made in Finland. In Sweden, a total of some 400 job reductions were made in 2009. The number of working shifts was reduced and related temporary lay-offs were implemented.
Outokumpu Annual Report 2009 – Review by the Board of Directors
In the UK, the closure of Sheffield Special Strip, reduced production in the Sheffield melt-shop and actions taken in the service centre and the sales company resulted in approximately 350 job reductions and temporary adjustments due to reduced working shifts. Approximately 150 job reductions were implemented in other countries.
Operational Excellence programmes Outokumpu's Operational Excellence programme was launched in 2005 and originally comprised Production and Commercial Excellence. In 2007, the programme was expanded to include Supply Chain Excellence. Targets included improving Group performance by EUR 40 million in 2007 and by EUR 80 million in 2008 (compared to 2005). The targeted benefits were achieved in both years and benefits totalling EUR 86 million were delivered in 2008. In 2009, the Operational Excellence programme delivered benefits totalling EUR 150 million compared to 2005. The original target of EUR 200 million by 2009 was not achieved mainly as a consequence of the very low delivery volumes of stainless steel and the lower metal prices. The original target of EUR 300 million of benefits in 2010 will not be reached considering the current run-rate of delivery volumes. However, Outokumpu's Operational Excellence programmes continue to be a high-focus area and the intention is to achieve higher benefits than in 2009 (EUR 150 million).
Class actions regarding the sold fabricated copper products business In 2003, the European Commission issued its judgment on Outokumpu's participation in a European price-fixing and market-sharing cartel involving copper air-conditioning tubes during 1988–2001. A fine of EUR 18 million was imposed on the Group. In 2004, Outokumpu lodged an appeal with the Court of First Instance for Europe regarding the basis for the calculation and the level of the fine. According to a decision issued by the court in May 2009, the amount of the fine remains unchanged. In a cartel investigation concerning sanitary copper tubes, the European Commission issued its judgement in September 2004 and imposed a fine of EUR 36 million on the Group for participation in cartel activities. Outokumpu lodged an appeal with the Court of First Instance for Europe in 2004 regarding the level of the fine. In August 2009, Outokumpu paid the fine of EUR 36 million in advance. The final decision from the Court of First Instance concerning the sanitary tubes case is expected during 2010. In 2003, Outokumpu booked provisions for fines in both of these cases. Fines totalling EUR 54 million and interest totalling EUR 9 million was paid in 2009. Outokumpu exited the copper fabrication business by divesting a major part of the company's business in 2005 and the remainder in April 2008.
Customs investigation of exports to Russia by Tornio Works In March 2007, Finnish Customs authorities initiated a criminal investigation into the Group's Tornio Works' export practices to Russia. It was suspected that a forwarding agency based in south-eastern Finland had prepared defective and/or forged invoices regarding the export of stainless steel to Russia. The preliminary investigation focused on possible complicity by Outokumpu Tornio Works in the preparation of defective and/or forged invoices by the forwarding agent.
Outokumpu Annual Report 2009 – Review by the Board of Directors
In June 2009, the Finnish Customs completed its preliminary investigation and forwarded the matter for consideration of possible charges to the prosecuting authorities. The process of considering possible charges is expected to be completed in the spring of 2010. Immediately after the Finnish Customs authorities began their investigations in 2007, Outokumpu initiated its own investigation into the trade practices connected with stainless steel exports from Tornio to Russia. In June 2007, based on its own investigation, a leading Finnish law firm Roschier Attorneys Ltd. concluded that it had not found evidence that any employees of Tornio Works or the Group had committed any of the crimes alleged by the Finnish Customs. Roschier has subsequently, at Outokumpu's request, examined the preliminary investigation material produced by the Finnish Customs' and concluded that it contains no evidence that any Outokumpu employees committed forgery or the alleged accounting offences by the Finnish Customs. Outokumpu's Auditor, KPMG Oy Ab, has also stated that suspicions related to the making of false financial statements are groundless. Outokumpu has stated that neither the Group nor its personnel have committed any of the crimes alleged by the Finnish Customs.
Risk management Outokumpu operates in accordance with the risk management policy approved by the Board of Directors. The risk management policy defines the objectives, approaches and areas of responsibility in risk management activities. Risk management supports the Group's strategy and also helps to define a balanced risk profile from the perspective of shareholders as well as other stakeholders such as customers, suppliers, personnel and lenders. Outokumpu has defined risk to be anything that might have an adverse impact on activities that the company has undertaken to achieve its objectives. Risks can thus be threats, uncertainties or lost opportunities that relate to present or future operations. In 2009 risk workshops were implemented with management teams from most of the Group's business units and several corporate functions such as Energy and Legal Affairs and IPR. Workshops included the identification of different business, operational and financial risks, the evaluation and mitigation of these risks in connection with strategic planning and performance management processes. During the year, Outokumpu also initiated a systematic crises management programme. Corporate-level crises management teams were trained in the handling of situations presenting different challenges. No major damage to Group property or business interruptions occurred in 2009. The most significant risks realised during the year were connected with structural issues in stainless steel markets and the global recession, with the latter having an impact on steel markets and also on the Group's willingness and ability to implement planned investment projects. Strategic and business risks The most important identified strategic and business risks include structural overcapacity and weak market conditions affecting stainless steel production, fierce competition in stainless steel markets and Euro-centricity of Group operations. Demand for stainless steel remained depressed in Outokumpu's main served markets. Increased stainless steel production capacity, especially in China, is creating a situation of gradually developing global overcapacity. Outokumpu has taken actions to address these strategic and business risks by maintaining cost efficiency and delivery reliability in the Group's operations, developing its distribution channels and aiming to increase sales to end-users and building stable relationships with key distributors. During 2009 Outokumpu also expanded its operations in China by investing in a new service centre in Kunshan in Shanghai. Activities at this new facility will focus on special products and grades and operations will begin in the spring of 2010. Outokumpu continues to study ways of strengthening its position outside Europe in future years.
Outokumpu Annual Report 2009 – Review by the Board of Directors
Operational risks Operational risks arise as a consequence of inadequate or failed internal processes, employee actions, systematic or other events such as natural catastrophes and misconduct or crime. Key operational risks include major fires or accidents, variations in production performances, unsuccessful project implementation and a lack of progress towards achieving a strong corporate culture and a one-company approach. To minimise damage to property and business interruptions that could result from fire at Outokumpu's sites, the Group has systematic fire and security audit programmes in place. Part of this type of risk is covered by insurances. In 2009, some 40 security and fire-safety audits were carried out using the Group's own resources, often jointly with technical experts from insurers and insurance brokers. Outokumpu also continued developing its corporate security during 2009 with a focus on crisis management. Outokumpu has been systematically developing the performance of its operations through excellence initiatives. Even so, risks associated with not being able to adapt production capacity to meet wide fluctuations in demand can have an impact on the company's business. The Group is mitigating these types of risks in two ways: by expanding its Operational Excellence programmes; and by building on strong Group-level functions such as Supply Chain Management and Group Sales and Marketing to enhance strategy implementation. Outokumpu's aim is to achieve a strong and unified corporate culture throughout its organisation. For all Group personnel, the approach is to create "One Outokumpu", but this type of cultural change can take time. While it provides a great opportunity to increase operational effectiveness by increasing cross-cultural cooperation, corporate cultures that are one-country based or too independent can have an adverse effect on progress from an operational perspective, endangering the achievement of strategic goals. The implementation of strong Group-level functions such as Supply Chain Management and Group Sales and Marketing is a vital component in driving forward the one-company approach. Due to the global financial crisis and the weakness in stainless steel market almost the entire already-announced investment programme was postponed at the end of 2008. Some investments, such as the service centre expansion in Willich in Germany and the establishment of a new service centre in China are however continuing and will be finalised early in 2010. In preparation for the future, Outokumpu is aiming to further develop its project management methods to support the implementation of investment projects and to manage risks related to the Group's entire project portfolio. At the end of the third quarter, Outokumpu decided to permanently cancel the investment project which would have provided additional melting capacity in Avesta in Sweden.
Financial risks Financial risks include market, liquidity, refinancing, country and credit risk. One consequence of the global economic crisis is that sales-related credit losses have increased to some extent; but much of these losses are covered by credit insurance. At the end of 2009, Outokumpu updated its principles concerning the management of country and credit risk. Implementation of these principles will take place gradually during 2010. A weak Swedish krona has been mainly beneficial for the Group because of a significant amount of krona-denominated fixed and variable cost. Changes in the price of nickel and the value of the US dollar have an impact on Group earnings, cash flows and the balance sheet. Outokumpu also has exposure to changes in interest rates, credit risk related to certain loan receivables and risks connected with equity prices. During 2009 Outokumpu hedged part of the forecast risk associated with cash flow in Swedish krona and sterling, hedged against rises in interest rates associated with fixed part of financing costs and continued nickel risk hedging to reduce the impacts of any price changes on earnings.
Outokumpu Annual Report 2009 – Review by the Board of Directors
Liquidity and refinancing risks are taken into account in capital management decisions and, when necessary, in making investment and other business decisions. In 2009, Outokumpu signed a three-year revolving credit facility of EUR 900 million. This facility was fully undrawn at the end of the year.
Environment, Health and Safety Emissions to air and discharges to water remained within permitted limits and the breaches that occurred were temporary, were identified and caused only minimal environmental impact. Outokumpu is not a party in any significant juridical or administrative proceeding concerning environmental issues, nor is it aware of any realised environmental risks that could have a material adverse effect on the Group's financial position. At approximately 540 000 tonnes (2008: 820 000 tonnes), carbon dioxide emissions under the EU Emissions Trading Scheme were at a very-low level in 2009 due to reduced levels of production. During the year, the Group sold 454 000 tonnes (2008: 1 022 000 tonnes) of carbon dioxide allowances for EUR 6 million (2008: EUR 22 million). Outokumpu's carbon dioxide allowances in the UK, Sweden and Finland were proved sufficient for the Group's production. Occupational safety continues to be a major focus area within the Group and Outokumpu has a separate safety function responsible for safety management and development. In 2009, the lost-time injury rate (i.e. lost-time accidents per million working hours) was 5.9 (2008: 9.0), slightly higher than the Group's 2009 target of less than five. No severe accidents were reported in 2009. The target for 2010 is less than four.
Corporate Responsibility In March 2009, Outokumpu was selected as a member of the Kempen/SNS Smaller Europe SRI Universe, a concept launched by Kempen Capital Management. Membership is only offered to companies with the very highest standards and codes of practice in three areas: business ethics, human resources and the environment. In September, the results of the annual review carried out for the Dow Jones World and Dow Jones STOXX Sustainability indexes by the Sustainable Asset Management Group (SAM) were published. Outokumpu retained its membership in both indices and received the highest possible score in two sustainability criteria: environmental reporting and occupational health and safety. Once again, Outokumpu received an award in 2009 for being Finland's best corporate responsibility reporter.
Research and Development Group expenditure on research and development in 2009 totalled EUR 19 million or 0.7% of sales (2008: EUR 20 million and 0.4%). Outokumpu has research centres in Tornio in Finland and in Avesta in Sweden. Some process and technology development work is also carried out in production units. R&D operates in close cooperation with the Group's commercial organisation and customers, and direct feedback regarding customer needs serves as input for further product development. The R&D function employed almost 200 professionals in 2009. Outokumpu also conducts research in collaboration with research institutes and universities. In 2009, the main focus was on further developing new low-nickel and nickel-free stainless steels to reducing the effects of volatile nickel prices. Much effort has been put into developing duplex grades which offer a good combination of strength and corrosion resistance. Ideal applications for duplex grades include large, heavy-wall tanks, where weight savings of as much as 20% can be achieved. Customers have shown growing interest in LDX 2101®. New applications are continually being developed and the production technology has been improved.
Outokumpu Annual Report 2009 – Review by the Board of Directors
Non-nickel ferritic grades represent another opportunity to reduce the influence of the nickel price on raw material costs. Optimum process parameters and product properties for standard ferritic grades have been studied intensively at production scale. The primary focus has been on surface quality, formability and corrosion resistance. Four different grades, mostly intended for use in indoor applications, kitchen utensils, domestic appliances and the transportation sector, are now part of the Group's product portfolio. Cr-Mn-Ni grades (200 series), a third opportunity to reduce the use of nickel, also represent an interesting alternative in many applications. The most common grade is 201, the chemistry of which has been modified by Outokumpu. The corrosion-resistant properties of this grade are almost equal to those of standard austenitic 304 (Cr-Ni), and it also features higher strength and good formability. In application development, the traditional focus has been on the process industries where stainless steel plays a dominant role in the manufacturing of industrial equipment used in the Pulp and Paper, Oil and Gas, Desalination and Chemical segments. Outokumpu's R&D experts provide both customers and the Group's commercial personnel with advice on product properties and material selection. The 10th edition of the Outokumpu Corrosion Handbook was published in the autumn. For more than 60 years, the handbook has been a reliable source of essential information for metallurgists, design engineers and fabricators around the world. In addition to new products and new applications for stainless steel, the Group's R&D operations focus on innovative manufacturing processes that reduce costs, result in lower emissions, shorten lead times and improve quality levels. The main subject of environmental research in 2009 was slag utilisation. Studies of the properties of different slag products and the development of new applications continue.
Personnel Personnel Dec 31.
2009
2008
2007
General Stainless
3 753
3 938
3 571
Specialty Stainless
3 361
4 006
4 099
492
527
439
7 606
8 471
8 108
Other operations The Group
In 2009, the Group's continuing operations employed an average of 7 941 people (2008: 8 551) in some 30 countries. At the end of 2009, the number of people employed by the Group was 7 606 (2008: 8 471). The net decrease in the number of people employed was 865 (2008: increase of 363) caused by actions to adjust to the very weak stainless steel markets in 2009. Personnel expenses in 2009 totalled EUR 446 million (2008: EUR 520 million). Outokumpu's development programmes, including management development programmes and the Production Excellence training programme, continued during 2009. The first eight Stainless Pro Graduates completed their two-year programme and transferred to new positions within the Group. Seven Stainless Pro Graduates are expected to complete their training in August 2010. Almost all Group employees participated in Performance and Development Dialogues in 2009, but the goal of 100% participation was not achieved.
Outokumpu Annual Report 2009 – Review by the Board of Directors
The Outokumpu Personnel Forum (OPF) 2009 held its 18th annual meeting in Espoo, Finland. The Group Working Committee appointed by the OPF - a forum for continuing dialogue between personnel and management - met six times during 2009. The fifth O'People personnel survey was conducted in 2009. The response rate was 72% (2008: 75%) and the overall O'People index was almost unchanged at 617 (2008: 621). Ideas for fast actions, a web-based survey for Outokumpu employees, was organised in the spring. Participants were encouraged to contribute concrete ideas on how to get through difficult times, where to cut costs and how to improve overall Group performance.
Organisational change and appointments In December, Mr Kari Parvento was appointed EVP – Group Sales and Marketing and a member of Outokumpu Group's Executive Committee as of May 1, 2010 at the latest. He will report to CEO Juha Rantanen. Group Sales and Marketing has been headed by Mr Bo Annvik, EVP – Specialty Stainless, on a temporary basis since February 2009 when Mr Andrea Gatti, former EVP – Group Sales and Marketing at Outokumpu, assumed the role of Corporate Vice President outside the Executive Committee. Mr Gatti left Outokumpu in December 2009. In addition to his current duties, Mr Pekka Erkkilä, EVP – General Stainless, took over management of the Tornio Works in September 2009. At the end of 2009, Mr Erkkilä resigned from Outokumpu Oyj to join Outotec Oyj as of May 1, 2010 at the latest.
Shares and shareholders According to the Nordic Central Securities Depository, Outokumpu's largest shareholders by group at the end of 2009 were the State of Finland through Solidium Oy (31.0%), foreign investors (27.4%), Finnish public sector institutions (15.4%), Finnish private households (13.6%), Finnish financial and insurance institutions (6.1%), Finnish corporations (3.4%) and Finnish non-profit organisations (2.5%). Shareholders that have more than 5% of the shares and votes in Outokumpu Oyj are Solidium Oy (31.0%) and the Finnish Social Insurance Institution (8.1%). At the year-end, Outokumpu's closing share price was EUR 13.26 (2008: EUR 8.28), up 60%. The average share price during the year was EUR 11.49 (2008: EUR 18.99) with EUR 15.67 (2008: EUR 33.99) as the year's highest price and EUR 7.72 (2008: EUR 6.33) as the year's lowest price. At the year-end, the market capitalisation of Outokumpu Oyj shares totalled EUR 2 413 million (2008: EUR 1 502 million). Share turnover in 2009 was significantly lower than in 2008, with 355.1 million shares being traded on the Nasdaq OMX Helsinki Ltd exchange (2008: 511.1 million). The total value of share turnover in 2009 was EUR 4 079 million (2008: EUR 9 693 million). Outokumpu's fully paid share capital at the year-end totalled EUR 309 million and consisted of 182 010 542 shares. The average number of shares outstanding during 2009 was 180 825 569.
Annual General Meeting 2009 The 2009 Annual General Meeting (AGM) approved a dividend of EUR 0.50 per share for 2008. Dividends totalling EUR 90 million were paid on April 3, 2009. The AGM authorised the Board of Directors to decide to repurchase the Group's own shares. The maximum number of shares to be repurchased is 18 000 000, currently representing 9.92% of total number of registered shares. Based on
Outokumpu Annual Report 2009 – Review by the Board of Directors
earlier authorisations Outokumpu currently holds 1 040 888 of its own shares. The AGM authorised the Board of Directors to decide to issue shares and to grant special rights entitling to shares. The maximum number of new shares to be issued through the share issue and/or by granting special rights entitling to shares is 18 000 000, and, in addition, the maximum number of treasury shares to be transferred is 18 000 000. The authorisation includes the right to resolve upon directed share issues. These authorisations are valid 12 months or until the next AGM, however no longer than May 31, 2010. To date the authorisations have not been used. The AGM decided on the number of the Board members, including the Chairman and Vice Chairman, to be eight. Evert Henkes, Ole Johansson, Jarmo Kilpelä, Victoire de Margerie, Anna Nilsson-Ehle, Leena Saarinen and Anssi Soila were re-elected as members of the Board of Directors, and Jussi Pesonen was elected as a new member. The AGM reelected Ole Johansson as Chairman of the Board and Anssi Soila as Vice Chairman of the Board. The AGM also resolved to form a Shareholders' Nomination Committee to prepare proposals on the composition and remuneration of the Board of Directors for presentation to the next AGM. At its first meeting, the Board of Directors of Outokumpu appointed two permanent committees consisting of Board members. Anssi Soila (Chairman), Jarmo Kilpelä and Leena Saarinen were elected as members of the Board Audit Committee. Ole Johansson (Chairman), Evert Henkes, Anna Nilsson- Ehle and Jussi Pesonen were elected as members of the Board Nomination and Compensation Committee. KPMG Oy Ab, Authorised Public Accountants, was re-elected as the Company's auditor for the term ending at the close of the next AGM.
Shareholders' Nomination Committee Outokumpu's Annual General Meeting of March 24, 2009 decided to establish a Shareholders' Nomination Committee to prepare proposals on the composition of the Board of Directors along with director remuneration for the following Annual General Meeting. The representatives of Outokumpu's three largest shareholders registered in the Finnish book-entry securities system on November 2, 2009, which accepted the assignment. The Shareholders' Nomination Committee of Outokumpu consists of the following three shareholders: Solidium Oy (Kari Järvinen, CEO), The Social Insurance Institution of Finland (Jorma Huuhtanen, Director General) and Ilmarinen Mutual Pension Insurance Company (Harri Sailas, CEO). Kari Järvinen acts as Chairman the Committee. Ole Johansson, the Chairman of Outokumpu's Board of Directors, and Evert Henkes, member of Outokumpu's Board of Directors, serve as expert members. The Shareholders' Nomination Committee is required to submit its proposals to the Board of Directors of the company no later than February 1, 2010.
Corporate governance statement The statement is presented as a separate report and disclosed together with the financial statements and the report by the Board of Directors.
Events after the review period According to a seismic research report produced by the Geological Survey of Finland in late 2009, the mineral resources at the Kemi Mine could turn out to be significantly greater than earlier estimates. The intrusion containing Kemi chromium ore extends to a depth of 2–3 kilometres, possibly to four kilometres and the chromitite layer possibly extends to a depth of at least 2–2.5 kilometres or more. Proven ore reserves at the Kemi Mine total some 37 million tonnes and the quantity of mineral resources totals some 87 million tonnes (estimated to a depth of 1 kilometre). The new information indicates the existence of resources
Outokumpu Annual Report 2009 – Review by the Board of Directors
sufficient to allow centuries of mining activity even with doubled annual production volumes (the previous estimate was 70–80 years). Outokumpu's mineral resources will not be updated based on these findings.
Short-term outlook No major improvement in the underlying demand for stainless steel is yet visible. Distributors' cautious buying behaviour continued over the year-end. During the past few weeks, order intake has however been more encouraging. Lead times on standard grades for mill-deliveries are normal at 6-8 weeks. Inventory levels at distributors in Europe are estimated to be at normal levels. Outokumpu's delivery volumes of stainless steel in the first quarter are expected to be at the same level or slightly higher than in the fourth quarter of 2009 (277 000 tonnes). Base prices began to decline during the fourth quarter 2009 but stabilised around the year-end. Thus, Outokumpu's average base prices for all flat products in the first quarter of 2010 are expected to be 50–100 EUR/tonne lower than the average in the fourth quarter. Currently Outokumpu sees potential for some base price increases. Outokumpu's underlying operational result in the first quarter is expected to be at the same level or somewhat weaker than in the fourth quarter of 2009. If metal prices remain at current levels, no major raw material-related inventory gains or losses are anticipated. Cash flow is expected to remain negative in the first quarter without any major impact on gearing, which will remain well below the Group's set maximum level of 75%.
Board of Directors' proposal for profit distribution In accordance with the Board of Directors' established dividend policy, the payout ratio over a business cycle should be at least one-third of the Group's profit for the period with the aim to have stable annual payments to shareholders. In its annual dividend proposal, the Board of Directors will, in addition to financial results, take into consideration the Group's investment and developing needs. The Board of Directors is proposing to the Annual General Meeting to be held on March 30, 2010 that a dividend of EUR 0.35 per share be paid from the parent company's distributable funds on December 31, 2009 and that any remaining distributable funds be allocated to retained earnings. The suggested dividend record date is April 6, 2010 and the dividend will be paid on April 13, 2010. According to the Group's financial statements on December 31, 2009, distributable funds of the parent company totalled EUR 850 million. No material changes have taken place in the company's financial position after the balance sheet date and the proposed dividend does not compromise the company's financial standing. In Espoo, February 2, 2010 Board of Directors Ole Johansson Anssi Soila Evert Henkes Jarmo Kilpelä Victoire de Margerie Anna Nilsson-Ehle Jussi Pesonen Leena Saarinen
Outokumpu Annual Report 2009 – Review by the Board of Directors
To the Annual General Meeting of Outokumpu Oyj We have audited the accounting records, the financial statements, the report of the Board of Directors, and the administration of Outokumpu Oyj for the year ended on December 31, 2009. The financial statements comprise the consolidated statement of financial position, income statement, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes to the consolidated financial statements, as well as the parent company's balance sheet, income statement, cash flow statement and notes to the financial statements.
The Responsibility of the Board of Directors and the Chief Executive Officer The Board of Directors and the Chief Executive Officer are responsible for the preparation of the financial statements and the report of the Board of Directors and for the fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the fair presentation of the parent company's financial statements and the report of the Board of Directors in accordance with 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 Chief Executive Officer 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.
Auditors' Responsibility Our responsibility is to perform an audit in accordance with good auditing practice in Finland, and to express an opinion on the parent company's financial statements, on the consolidated financial statements and on the report of the Board of Directors based on our audit. Good auditing practice requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance 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 of the parent company and the Chief Executive Officer have complied with the Limited Liability Companies Act. 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 of the financial statements or of the report of the Board of Directors, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements and the report of the Board of Directors in order to design audit procedures that are appropriate in the circumstances. 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. The audit was performed in accordance with good auditing practice in Finland. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion on the Consolidated Financial Statements In our opinion, the consolidated financial statements give a true and fair view of the financial position, financial performance, and cash flows of the group in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
Outokumpu Annual Report 2009 – Auditors’ report
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 both the consolidated and the parent company's financial performance and financial position 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 the discharge from liability and disposal of distributable funds The consolidated financial statements and the parent company's financial statements can be adopted and the members of the Board of Directors and the Chief Executive Officer of the parent company can be discharged from liability for the period audited by us. The proposal by the Board of Directors regarding the disposal of distributable funds is in compliance with the Limited Liability Companies Act. Espoo, February 2, 2010 KPMG OY AB Mauri Palvi Authorised Public Accountant
Outokumpu Annual Report 2009 – Auditors’ report
Consolidated income statement Download excel
Income statement € million
Note
2009
2008
Sales
3
2 611
5 474
Cost of sales
8
-2 764
-5 276
-153
199
Continuing operations
Gross margin
Other operating income
6
28
57
Selling and marketing expenses
8
-135
-122
Administrative expenses
8
-126
-134
Research and development expenses
8
-19
-20
Other operating expenses
7
-32
-42
-438
-63
-12
-2
17
20
-38
-74
-2
-2
5
11
-6
-24
-25
-69
-474
-134
142
24
Operating profit
Share of results in associated companies
15
Financial income and expenses
10
Interest income Interest expenses Market price gains and losses Other financial income Other financial expenses Total financial income and expenses
Profit before taxes
Income taxes
11
Outokumpu Annual Report 2009 – Consolidated income statement
Net profit for the financial year from continuing operations
-332
-110
-4
-79
-336
-189
-336
-189
-0
-0
-1.86
-1.05
-1.86
-1.04
Earnings per share, €
-1.83
-0.61
Diluted earnings per share, €
-1.83
-0.61
Earnings per share, €
-0.02
-0.44
Diluted earnings per share, €
-0.02
-0.43
2009
2008
-336
-189
29
-75
Net profit for the financial year from discontinued operations
4
Net profit for the financial year
Attributable to Equity holders of the Company Minority interest
Earnings per share for result attributable to the equity holders of the Company Earnings per share, €
12
Diluted earnings per share, €
Earnings per share from continuing operations attributable to the equity holders of the Company
Earnings per share from discontinued operations attributable to the equity holders of the Company
Consolidated statement of comprehensive income € million
Note
Net profit for the financial year
Other comprehensive income Exchange differences on translating foreign operations
Available-for-sale financial assets
Outokumpu Annual Report 2009 – Consolidated income statement
Fair value changes during the financial year
34
-37
Reclassification adjustments from other comprehensive income to profit
-
5
Income tax relating to available-for-sale financial assets
-9
8
23
-65
1
-5
-6
18
Fair value changes during the financial year
1
13
Income tax relating to net investment hedges
-0
-3
5
-
77
-140
-259
-329
-259
-329
-1
-0
Cash flow hedges Fair value changes during the financial year Reclassification adjustments from other comprehensive income to profit Income tax relating to cash flow hedges
Net investment hedges
Share of other comprehensive income of associated companies Other comprehensive income for the financial year, net of tax
Total comprehensive income for the financial year
Attributable to Owners of the parent Non-controlling interests
Outokumpu Annual Report 2009 – Consolidated income statement
Consolidated statement of financial position Download excel
Consolidated statement of financial position € million
Note
2009
2008
Intangible assets
13
566
584
Property, plant and equipment
14
2 097
2 027
Investments in associated companies 1)
15
152
156
Available-for-sale financial assets 1)
18
98
67
Derivative financial instruments 1)
25
7
9
Deferred tax assets
11
42
37
Trade and other receivables
27 140
132
55
55
3 157
3 067
ASSETS
Non-current assets
Interest-bearing 1) Non interest-bearing Total non-current assets
Current assets Inventories
26
1 016
1 204
Available-for-sale financial assets 1)
18
14
8
Derivative financial instruments 1)
25
16
92
Trade and other receivables
27 9
25
508
701
112
224
1 674
2 252
20
22
Interest-bearing 1) Non interest-bearing Cash and cash equivalents 1)
28
Total current assets
Receivables related to assets held for sale 1)
4
Outokumpu Annual Report 2009 – Consolidated statement of financial position
TOTAL ASSETS
4 850
5 341
Share capital
309
308
Premium fund
706
702
Other reserves
37
-13
1 735
1 984
-336
-189
2 451
2 794
0
1
29
2 451
2 795
Long-term debt 1)
32
997
1 170
Derivative financial instruments 1)
25
41
48
Deferred tax liabilities
11
100
216
Pension obligations
30
65
64
Provisions
31
17
28
Trade and other payables
33
1
2
1 221
1 529
EQUITY AND LIABILITIES
Equity attributable to the equity holders of the Company
Retained earnings Net profit for the financial year
Minority interest
Total equity
Non-current liabilities
Total non-current liabilities
Current liabilities Current debt 1)
32
652
501
Derivative financial instruments 1)
25
45
54
Income tax liabilities
11
3
5
Provisions
31
26
48
Trade and other payables
33 7
26
437
378
Interest-bearing 1) Non interest-bearing
Outokumpu Annual Report 2009 – Consolidated statement of financial position
Total current liabilities
Liabilities related to assets held for sale 1)
TOTAL EQUITY AND LIABILITIES
4
1 170
1 012
8
6
4 850
5 341
Notes: 1. Included in net interest-bearing debt.
Outokumpu Annual Report 2009 – Consolidated statement of financial position
Consolidated statement of cash flows Download excel
Consolidated statement of cash flows € million
Note
2009
2008
-336
-189
11
-142
-24
13, 14
211
206
10, 13, 14
15
30
Change in net realisable value in inventory
26
-97
91
Share of results in associated companies
15
12
2
6, 7
-13
-1
Interest income
10
-17
-20
Dividend income
10
-3
-10
Interest expense
10
30
75
4
4
79
-4
138
-4
565
Change in trade and other receivables
254
336
Change in inventories
291
418
41
-358
-38
-23
548
373
Dividends received
3
12
Interest received
8
8
-57
-77
Cash flow from operating activities Net profit for the financial year Adjustments for Taxes Depreciation and amortisation Impairments
Gain/loss on sale of intangible and tangible assets
Net profit for the financial year of discontinued operations Other adjustments
Change in working capital
Change in trade and other payables Change in provisions
Interest paid
Outokumpu Annual Report 2009 – Consolidated statement of cash flows
Income taxes paid
36
-29
198
664
5
-
-204
Purchases of available-for-sale financial assets
18
-2
-1
Purchases of property, plant and equipment
14
-209
-306
Purchases of intangible assets
13
-21
-9
4, 5
-
49
Proceeds from sale of property, plant and equipment
14
10
8
Proceeds from sale of intangible assets
13
7
23
-2
0
-216
-440
-19
223
4
1
69
341
-345
-229
212
24
Borrowings of finance lease liabilities
61
1
Repayments of finance lease liabilities
-5
-7
-90
-216
0
0
-1
3
-97
-83
-115
141
224
86
Net cash from operating activities
Cash flow from investing activities Acquisition of subsidiaries, net of cash
Proceeds from disposal of subsidiaries, net of cash
Change in other long-term receivables
Net cash from investing activities
Cash flow before financing activities
Cash flow from financing activities Share options exercised Borrowings of long-term debt Repayments of long-term debt Change in current debt
Dividends paid Proceeds from the sale of other financial assets
18
Other financing cash flow
Net cash from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Outokumpu Annual Report 2009 – Consolidated statement of cash flows
Foreign exchange rate effect on cash and cash equivalents Net change in cash from discontinued operations
4
Net change in cash and cash equivalents Cash and cash equivalents at the end of the financial year
28
3
-5
0
2
-115
141
112
224
Cash flows presented for continuing operations.
Outokumpu Annual Report 2009 – Consolidated statement of cash flows
Consolidated statement of changes in equity Download excel
Consolidated statement of changes in equity Attributable to the equity holders of the Company
€ million Equity on Jan. 1, 2008
Cumulative NonShare Premium Other Fair value Treasury translation Retained controlling capital fund reserves reserves shares differences earnings interests
Total equity
308
701
16
57
-27
-82
2 364
-
3 337
Total comprehensive income for the period
-
-
-0
-85
-
-56
-189
1
-329
Transfers within equity
-
-
0
-
-
-
-0
-
-
Dividends
-
-
-
-
-
-
-216
-
-216
Share-based payments
-
-
-
-
-
-
2
-
2
Share options exercised
0
1
-
-
-
-
-
-
1
308
702
15
-28
-27
-138
1 961
1
2 795
Total comprehensive income for the period
-
-
-
50
-
28
-336
-0
-259
Transfers within equity
-
-
-0
-
-
-
0
-
-
Dividends
-
-
-
-
-
-
-90
-
-90
Share-based payments
-
-
-
-
2
-
-1
-
1
Share options exercised
1
3
-
-
-
-
-
-
4
309
706
15
22
-25
-110
1 534
0
2 451
Equity on Dec. 31, 2008
Equity on Dec. 31, 2009
Outokumpu Annual Report 2009 – Consolidated statement of changes in equity
Notes to the consolidated financial statements Notes to the consolidated financial statements are presented in the PDF file below. Notes are also available in the download centre of this report. Link to PDF Link to Download centre
Outokumpu Annual Report 2009 – Notes to the consolidated financial statement
Key financial figures of the Group Download excel
Key financial figures of the Group 2005
2006
2007
2008
2009
€ million
5 016
6 154
6 913
5 474
2 611
- change in sales
%
-2.1
22.7
12.3
-20.8
-52.3
- exports from and sales outside Finland, of total sales
%
94.2
94.4
95.1
95.5
94.6
Capital employed on Dec. 31
€ million
3 599
4 371
4 125
3 867
3 634
Operating capital on Dec. 31
€ million
3 756
4 553
4 340
4 046
3 692
Capital expenditure
€ million
164
187
190
544
245
%
3.3
3.0
2.8
9.9
9.4
Depreciation and amortisation
€ million
207
221
204
206
211
Research and development costs
€ million
22
17
18
20
19
%
0.4
0.3
0.3
0.4
0.7
8 963
8 159
8 108
8 471
7 606
9 579
8 505
8 270
8 551
7 941
€ million
57
824
589
-63
-438
%
1.1
13.4
8.5
-1.2
-16.8
EBITDA
€ million
342
1 048
790
149
-212
Share of results of associated companies
€ million
1
8
4
-2
-12
Scope of activity Sales
- in relation to sales
- in relation to sales
Personnel on Dec. 31 - average for the year
Profitability Operating profit - in relation to sales
Outokumpu Annual Report 2009 – Key financial figures of the Group
Profit before taxes
€ million
-8
784
798
-134
-474
%
-0.2
12.7
11.5
-2.4
-18.2
Net profit for the period from continuing operations
€ million
-24
606
660
-110
-332
Net profit for the period from discontinued operations
€ million
-339
357
-18
-79
-4
Net profit for the financial year
€ million
-363
963
641
-189
-336
%
-7.2
15.7
9.3
-3.5
-12.9
Return on equity
%
-15.9
37.5
20.0
-6.2
-12.8
Return on capital employed
%
1.3
20.7
13.9
-1.6
-11.7
Return on operating capital
%
1.3
19.8
13.2
-1.5
-11.3
Liabilities
€ million
3 355
3 270
2 521
2 541
2 391
Net interest-bearing debt
€ million
1 537
1 300
788
1 072
1 183
%
30.6
21.1
11.4
19.6
45.3
€ million
67
48
-206
69
25
- in relation to sales
%
1.3
0.8
-3.0
1.3
0.9
Net interest expenses
€ million
65
62
58
54
22
- in relation to sales
%
1.3
1.0
0.8
1.0
0.8
0.9
13.6
14.9
-1.5
-21.0
- in relation to sales
- in relation to sales
Financing and financial position
- in relation to sales
Net financial expenses
Interest cover
Share capital
€ million
308
308
308
308
309
Other equity
€ million
1 754
2 763
3 029
2 486
2 142
Equity-to-assets ratio
%
38.2
47.9
56.5
52.4
50.6
Debt-to-equity ratio
%
74.5
42.3
23.6
38.4
48.2
€ million
465
-22
658
664
198
Net cash generated from operating activities 1)
Outokumpu Annual Report 2009 – Key financial figures of the Group
Dividends
€ million
81
199
216
90
63 2)
Notes: 1. Cash flows presented for continuing operations. 2. The Board of Directors' proposal to the Annual General Meeting
Outokumpu Annual Report 2009 – Key financial figures of the Group
Quarterly information Download excel
Quarterly information
Income statement by quarter 1) € million
I/08
II/08
III/08
1 304 1 222
IV/08
2008
I/09
II/09
III/09
IV/09
2009
933
687 4 147
476
501
496
592 2 065
Continuing operations Sales General Stainless - of which intersegment sales Specialty Stainless - of which intersegment sales Other operations - of which intersegment sales Intra-group sales The Group
284
337
216
157
993
97
100
107
117
421
786
778
630
512 2 705
371
278
258
332 1 239
124
120
85
78
407
75
67
64
87
293
64
63
69
62
258
66
58
56
62
243
57
57
61
61
235
61
52
52
55
221
-465
-514
-362
-295 -1 636
-233
-220
-224
-259
-935
1 689 1 549 1 270
966 5 474
679
617
587
728 2 611
Operating profit General Stainless
81
125
-35
-177
-6
-157
-52
-38
-12
-259
Specialty Stainless
42
44
-63
-123
-101
-82
-37
-21
-10
-149
Other operations
-20
4
29
25
38
-12
-5
-4
-9
-31
Intra-group items
-3
1
3
4
6
2
0
-3
2
1
100
174
-66
-271
-63
-249
-94
-65
-29
-438
0
1
-2
-1
-2
-3
-0
-6
-3
-12
-20
-8
-14
-26
-69
0
-11
-11
-4
-25
80
166
-82
-298
-134
-252
-105
-81
-36
-474
-19
-36
9
71
24
64
20
26
32
142
61
130
-73
-228
-110
-188
-85
-55
-4
-332
The Group
Share of results in associated companies Financial income and expenses Profit before taxes Income taxes Net profit for the period from continuing operations
Outokumpu Annual Report 2009 – Quarterly information
Net profit for the period from discontinued operations
2
-74
-1
-5
-79
0
-2
-1
-2
-4
63
56
-74
-233
-189
-187
-87
-56
-6
-336
63
56
-74
-233
-189
-187
-87
-55
-7
-336
-
-
-
-0
-0
-0
-0
-0
0
-0
1 000 tonnes
I/08
II/08
III/08
IV/08
2008
I/09
II/09
III/09
IV/09
2009
Cold rolled
228
192
177
141
739
133
145
124
143
545
White hot strip
120
94
64
51
330
59
69
66
69
263
Quarto plate
33
35
27
25
120
19
18
14
16
67
Tubular products
19
19
16
16
70
16
13
12
12
53
Long products
15
15
15
11
55
10
9
11
10
40
Semi-finished products
34
35
25
16
109
10
14
12
27
63
449
391
323
261 1 423
247
268
238
Net profit for the period
Attributable to: Equity holders of the Company Minority interest
Stainless steel deliveries by quarter 2)
Total deliveries
277 1 030
Notes: 1. Full year figures are audited. 2. Figures are not audited.
Outokumpu Annual Report 2009 – Quarterly information
Share-related key figures Download excel
Share-related key figures 2005
2006
2007
2008
2009
Earnings per share
€
-2.01
5.31
3.52
-1.05
-1.86
Cash flow per share 1)
€
2.57
-0.12
3.64
3.68
1.09
Equity per share
€
11.31
16.87
18.53
15.50
13.54
Dividend per share
€
0.45
1.10
1.20
0.50
0.35 2)
Dividend payout ratio
%
neg.
20.7
33.9
neg.
neg.
Dividend yield
%
3.6
3.7
5.7
6.0
2.6
neg.
5.6
6.0
neg.
neg.
Price/earnings ratio
Development of share price Average trading price
€
11.89
19.77
24.94
18.99
11.49
Lowest trading price
€
9.63
12.60
18.48
6.33
7.72
Highest trading price
€
14.72
30.39
31.65
33.99
15.67
Trading price at the end of the period
€
12.55
29.66
21.21
8.28
13.26
Change during the period
%
-4.6
136.3
-28.5
-61.0
60.1
Change in the OMXH index during the period
%
31.1
17.9
20.5
-53.4
19.5
€ million
2 272
5 369
3 820
1 492
2 400
Market capitalisation at the end of the period 3)
Outokumpu Annual Report 2009 – Share-related key figures
Development in trading volume Trading volume
1 000 shares
179 289
319 345
516 489
511 080
355 102
%
99.0
176.4
285.5
283.6
196.4
Adjusted average number of shares 3)
181 031 415
181 033 168
180 922 336
180 184 845
180 825 569 4)
Number of shares at the end of the period 3)
181 031 952
181 031 952
180 103 193
180 233 280
180 969 654
In relation to weighted average number of shares
Notes: 1. Cash flows presented for continuing operations. 2. The Board of Directors’ proposal to the Annual General Meeting. 3. Excluding treasury shares. 4. The average number of shares for 2009 diluted with the 2003A, 2003B and 2003C options was 180 970 017. These have a diluting effect of 0.00 euros on earnings per share in 2009.
Outokumpu Annual Report 2009 – Share-related key figures
Definitions of key financial figures Download excel
Definitions of key financial figures Capital employed
=
Total equity + net interest-bearing debt
Operating capital
=
Capital employed + net tax liability
Research and development costs
=
Research and development expenses in the income statement (including expenses covered by grants received)
EBITDA
=
Operating profit before depreciation, amortisation and impairments
Return on equity
=
Return on capital employed (ROCE)
=
Return on operating capital (ROOC)
=
Net interest-bearing debt
=
Interest cover
=
Equity-to-assets ratio
=
Debt-to-equity ratio
=
Earnings per share
=
Cash flow per share
=
Equity per share
=
Dividend per share
=
Dividend payout ratio
=
Dividend yield
=
Price/earnings ratio (P/E)
=
Average trading price
=
Total equity (average for the period) Net profit for the financial year Capital employed (average for the period) Operating profit Operating profit Operating capital (average for the period)
× 100
× 100
× 100
Total interest-bearing debt – total interest-bearing assets Profit before taxes + net interest expenses Net interest expenses Total equity Total assets – advances received Net interest-bearing debt Total equity
× 100
× 100
Net profit for the financial year attributable to the equity holders Adjusted average number of shares during the period Net cash generated from operating activities Adjusted average number of shares during the period Equity attributable to the equity holders Adjusted number of shares at the end of the period Dividend for the financial year Adjusted number of shares at the end of the period Dividend for the financial year Net profit for the financial year attributable to the equity holders Dividend per share Adjusted trading price at the end of the period
× 100
× 100
Adjusted trading price at the end of the period Earnings per share EUR amount traded during the period
Outokumpu Annual Report 2009 – Definitions of key financial reports
Adjusted number of shares traded during the period Market capitalisation at end of the period
=
Number of shares at the end of the period × trading price at the end of the period
Trading volume
=
Number of shares traded during the period, and in relation to the weighted average number of shares during the period
Outokumpu Annual Report 2009 – Definitions of key financial reports
Income statement of the parent company Download excel
Income statement of the parent company € million
2009
2008
216
228
-122
-145
94
83
1
19
Selling and marketing expenses
-55
-45
Administrative expenses
-51
-62
-2
-3
Other operating expenses
-350
-64
Operating profit
-364
-71
379
367
15
296
-
40
15
336
-0
0
1
-2
Sales
Cost of sales
Gross margin
Other operating income
Research and development expenses
Financial income and expenses
Profit before extraordinary items
Extraordinary items
Profit before appropriations and taxes
Appropriations Change in depreciation difference Income taxes
Outokumpu Annual Report 2009 – Income statement of the parent company
Profit for the financial year
16
334
The parent company’s financial statements have been prepared in accordance with Finnish accounting standards (FAS ). The parent company’s complete financial statements (available only in Finnish) can be read on the company’s internet pages www.outokumpu.com.
Outokumpu Annual Report 2009 – Income statement of the parent company
Balance sheet of the parent company Download excel
Balance sheet of the parent company € million
2009
2008
Intangible assets
19
22
Property, plant and equipment
55
39
3 380
4 046
488
460
Shares in associated companies
18
18
Other shares and holdings
21
19
137
130
4 044
4 675
4 118
4 735
175
133
89
523
264
656
64
164
329
820
4 447
5 555
ASSETS
Non-current assets
Financial assets Shares in Group companies Loan receivables from Group companies
Other financial assets
Total non-current assets
Current assets Current receivables Interest-bearing Non interest-bearing
Cash and cash equivalents
Total current assets
TOTAL ASSETS
Outokumpu Annual Report 2009 – Balance sheet of the parent company
EQUITY AND LIABILITIES
Shareholders' equity Share capital
309
308
Premium fund
712
709
Retained earnings
834
590
16
334
1 872
1 942
1
0
903
1 469
1
2
904
1 470
1 558
1 947
113
195
1 670
2 142
Total liabilities
2 574
3 613
TOTAL EQUITY AND LIABILITIES
4 447
5 555
Profit for the financial year
Untaxed reserves Accumulated depreciation difference
Liabilities Non-current liabilities Interest-bearing Non interest-bearing
Current liabilities Interest-bearing Non interest-bearing
Outokumpu Annual Report 2009 – Balance sheet of the parent company
Cash flow of the parent company Download excel
Cash flow statement of the parent company € million
2009
2008
16
334
-1
2
7
7
346
2
0
1
Interest income
-33
-55
Dividend income
-411
-460
56
145
Change in provisions
0
0
Group contributions
-
-40
25
-41
Loss on the sale of copper tube business
-
57
Other adjustments
1
1
-9
-379
80
-88
-57
117
22
29
411
460
27
43
-80
-143
24
14
381
374
410
358
Cash flow from operating activities Profit for the financial year Adjustments for Taxes Depreciation and amortisation Impairments Profit and loss on sale of property, plant and equipment
Interest expenses
Exchange gains and losses
Change in working capital Change in trade and other receivables Change in trade and other payables
Dividends received Interest received Interest paid Income taxes paid
Net cash from operating activities
Outokumpu Annual Report 2009 – Cash flow statements of the parent company
Cash flow from investing activities Acquisition of subsidiaries and other shares and holdings
-2
-341
Purchases of property, plant and equipment
-2
-11
Purchases of intangible assets
-26
-26
Proceeds from disposal of subsidiaries and other disposals
320
57
Disposals of property, plant and equipment
7
0
Disposals of intangible assets
0
22
Change in loan receivables
-30
176
Net cash from investing activities
267
-123
Cash flow before financing activities
677
236
61
311
Repayments of long-term debt
-683
-130
Change in current debt
-352
-41
Dividends paid
-90
-216
Cash flow from group contributions
326
79
4
1
-42
-115
-776
-113
Net change in cash and cash equivalents
-99
123
Net change in cash and cash equivalents in the balance sheet
-99
123
Cash flow from financing activities Borrowings of long-term debt
Shares subscribed with options Other financing cash flow
Net cash from financing activities
Outokumpu Annual Report 2009 – Cash flow statements of the parent company
Statement of the changes in equity of parent company Download excel
Statement of changes in equity of the parent company € million
Share capital
Premium fund
Retained earnings
Total equity
308
708
807
1 823
Profit for the financial year
-
-
334
334
Dividends
-
-
-216
-216
Shares subscribed with options
0
1
-
1
308
709
924
1 942
Profit for the financial year
-
-
16
16
Dividends
-
-
-90
-90
Shares subscribed with options
1
3
-
4
308
712
850
1 872
2009
2008
834
590
16
334
850
924
Equity on Jan. 1, 2008
Equity on Dec. 31, 2008
Equity on Dec. 31, 2009
Distributable funds on Dec. 31 € million Retained earnings Profit for the financial year Distributable funds on Dec. 31
Outokumpu Annual Report 2009 – Statement of changes in equity of the parent company
Contact Outokumpu Outokumpu Oyj Corporate Management Riihitontuntie 7 B / P.O. Box 140 02201 ESPOO Finland Tel. +358 9 4211 Fax +358 9 421 3888 You can also contact us by filling in the form below
Investor relations Päivi Laajaranta IR Assistant Tel. +358 9 421 4070, Send e-mail to Päivi Laajaranta Päivi Laajaranta coordinates meeting requests. Ingela Ulfves Vice President – Investor Relations and Financial Communications Tel. +358 9 421 2438, Send e-mail to Ingela Ulfves Päivi Lindqvist Senior Vice President – Communications and IR Tel. +358 9 421 2432, Send e-mail to Päivi Lindqvist
Corporate responsibility Liisa Jalanko Vice President – Corporate responsibility Tel. +358 9 421 3265 Send e-mail to Liisa Jalanko
Environmental issues Juha Ylimaunu Senior Vice President – Environment, health, safety and quality Tel. +358 9 421 2688 Send e-mail to Juha Ylimaunu
Outokumpu Annual Report 2009 – Contact us
Human resources issues Heli Alén Vice President – Human Resources Development Tel. +358 9 421 2603 Send e-mail to Heli Alén
Financial issues Mika Pyyskänen Senior Vice President – Corporate Controller Tel. +358 421 5512 Send e-mail to Mika Pyyskänen
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Outokumpu Annual Report 2009 – Contact us
