26 april, 2004
13:00 CET
Clear improvement in Rautaruukki's earnings
Rautaruukki Oyj Stock Exchange Release 26 April 2004 at 2 pm
Rautaruukki's Board of Directors decided to publish the interim report
today instead of the original schedule due to the fact that the result
is clearly better than market expectations.
RAUTARUUKKI'S INTERIM REPORT JANUARY - MARCH 2004
Net sales increased and the result improved considerably. Prices of
steel products rose sharply. The rise in raw material prices will start
to have an impact on the financial performance in the second quarter.
Implementation of the new business model is progressing according to
plan
Rautaruukki's net sales in the January-March period were EUR 795 million
(EUR 704 million in January-March 2003). Operating profit was EUR 73
million (28) and profit before taxes was EUR 63 million (12). The
divisions providing solutions for selected customer sectors had a
combined operating profit of EUR 16 million (9). Metal Products Division
had an operating profit of EUR 63 million (26).
Financial reporting in 2004 is in accordance with the business model
introduced on 1 September 2003. The figures for individual divisions for
2003 are based on pro forma figures.
Business environment and market
The steel product market was in an exceptional state due to the
continuing strong demand in China. Exports of steel products to China
rose extremely sharply and supply declined in Europe. The prices of raw
materials used in steel production have risen considerably. In
consequence, prices of steel products have also risen significantly from
their level at the end of last year.
Demand for steel products and for stainless steel and aluminium products
grew slightly in Europe due to the acceleration in economic growth.
Among Rautaruukki's key customer sectors, the volume of construction
grew in European Union countries compared to the corresponding period
last year. The growth in construction volumes was somewhat faster in the
Group's core market area - the Nordic and Baltic countries - than in EU
countries.
Mechanical engineering output increased slightly in the EU countries,
but the situation varied considerably between different sectors.
Shipbuilding output fell short of last year's level in Rautaruukki's
core market area.
Metal fabrication output in the EU countries was at the same level as in
the corresponding period last year.
Finnish authorities made a proposal for allocating carbon dioxide
emission allowances to companies. The initial allocation for 2005-2007
will be made free of charge and it is estimated that Rautaruukki will
obtain the allowance it needs.
Net sales and result
Rautaruukki had net sales of EUR 795 million (704). The growth in net
sales was due to the increase in delivery volumes and to higher prices.
The divisions concentrating on solutions for selected customer sectors -
Construction Solutions, Mechanical Engineering Solutions and Metal
Fabrication Solutions - accounted for 24 per cent of net sales.
The Group's operating profit was EUR 73 million (28). The rise in
product prices and reduction in fixed costs improved the operating
profit. The increase in raw material prices still did not have a full
impact on the Group's costs. The change in the US dollar exchange rate
improved the operating profit by EUR 16 million compared to the
corresponding period last year.
The profit before extraordinary items and taxes was EUR 63 million (12).
The return on capital employed was 9.3per cent (1.9)
Financing
The Group's net interest expenses totalled EUR 11 million (13). Net
financial expenses totalled EUR 10 million (16), including a foreign
exchange profit of EUR 3 million (loss 2).
Cash flow from operations was EUR 36 million (19) and cash flow before
financing was EUR 26 million (-1). Interest-bearing net debt totalled
EUR 900 million (1094). Working capital grew by EUR 61 million in
January-March, mainly due to the increase in trade receivables arising
from increased sales.
The equity ratio stood at 33.7 per cent (30.6) and the gearing ratio at
107 per cent (139). At the end of March, the Group had liquid funds of
EUR 89 million and committed unused revolving credit facilities with
banks to a total of EUR 283 million.
Capital expenditure
Gross capital expenditure on fixed assets amounted to EUR 24 (19)
million and consisted of normal development and replacement investments.
Decisions of Annual General Meeting
Rautaruukki's Annual General Meeting held on 23 March 2004 re-elected Mr
Turo Bergman as Chairman and Mr Jouko Skinnari as Vice Chairman of
Rautaruukki's Supervisory Board. Mr Ole Johansson, Ms Inkeri Kerola, Mr
Tauno Matomäki and Mr Lasse Virén were re-elected as members of the
Supervisory Board. Mr Heikki Allonen, Ms Miapetra Kumpula, Mr Petri
Neittaanmäki and Mr Tapani Tölli were elected as new members.
Mr Jukka Viinanen was re-elected as Chairman and Mr Georg Ehrnrooth as
Deputy Chairman of the Board of Directors. Mr Christer Granskog, Ms
Pirkko Juntti, Mr Pekka Timonen and Ms Maarit Toivanen-Koivisto were re-
elected as members. Ms Maarit Aarni was elected as a new member to the
Board.
The Meeting decided that a dividend of EUR 0,20 per share be distributed
for 2003.
The AGM authorized the Board, within one year, to resolve to dispose of
the company's shares acquired by the company. The shares can be disposed
as consideration in acquisitions, in financing investments or as part of
incentive and bonus schemes for company personnel. The Board may also
decide to sell the shares in public trading.
The company has in its possession 3,270,000 treasury shares,
representing 2.35 per cent of the company's entire shares outstanding.
The company has paid EUR 14,737,093 in consideration for them. The Board
of Directors does not have an authorisation to increase the share
capital or to purchase the company's own shares.
Fundia Wire
Fundia Wire's operations were streamlined last year and the unit
recorded a zero operating result in the final quarter of 2003. The
operating result in the first quarter of this year remained at zero.
Fundia Wire's sales were integrated with Metal Products Division and its
production with Production Division.
New business model
Operations in line with the new business model have started up according
to plan. The chosen strategy has been further revised and new financial
targets have been set for the Group. The solutions divisions have worked
with customers to develop new solutions. The first orders based on the
solutions business model were obtained during the review period.
In accordance with the strategy, the company has divested business units
that do not belong to the new business model. Processing and marketing
units outside the core market area have been combined to form larger
units and overlapping functions have been eliminated.
Changes in Group structure
During the review period the company acquired the business of TP-
Teräskeskus Oy, which provides prefabrication services in Finland, and a
24 per cent holding in Sheet Metal Innovations Oy, which provides
services relating to the manufacture of sheet products. The company sold
Star Tubes (UK) Ltd, a precision tube wholesaler with operations in
Great Britain, and the Engineering Technology Sales unit, which designs
process automation for the steel industry. Manufacture of building
products at Taldom in Russia ceased in January 2004 on the expiry of a
leasing agreement. This production will be replaced in part by
production at the St. Petersburg plant and by reinforcing retail sales.
In accordance with the new business model, the organisational structure
was simplified still further and administrative functions were brought
together. The Group will reduce the number of legal companies. Rannila
Steel Oy, Asva Oy, Oy JIT-Trans Ltd, August Lindberg Oy and SKJ-yhtiöt
Oy will merge with Rautaruukki Oyj by 1 August 2004.
Short-term outlook
Residential and infrastructure construction in Rautaruukki's core
markets is expected to remain at a satisfactory level. Growth in
commercial construction will be slower. Economic prospects in the
countries of eastern and eastern Central Europe are encouraging, but
competition is intensifying. Demand in the engineering and off-shore
industries is expected to strengthen slightly but will remain slack in
the Finnish shipbuilding industry. Demand in the electronics, automotive
and household appliance industries is expected to grow somewhat.
Demand for steel products is estimated to grow slightly in the Group's
core markets. The supply of steel products is expected to remain low in
Europe because of continuing strong demand in China. It is estimated
that certain steel products may even be in short supply.
Steel product prices are expected to continue to rise, due to the strong
demand in China and the increase in raw material costs. The rise in raw
material costs has started to affect the Group's costs during the second
quarter. It is planned to carry out interim repairs to the number two
blast furnace at the Raahe Steel Works in July, which will cause output
to decline by some 150,000 tonnes. Developments in US dollar/euro
exchange rates have an impact on raw material costs. Rautaruukki's net
sales for the full year are estimated to rise to EUR 3.1 billion. The
positive earnings trend is expected to continue, but the cost factors
mentioned above will affect the result negatively towards the end of the
year.
Helsinki 26 April 2004
Rautaruukki Oyj
Board of Directors
DIVISIONS
Construction Solutions
Demand in the construction customer sector was satisfactory in
Rautaruukki's market area. Demand for infrastructure construction was
strong and deliveries increased. Deliveries for commercial construction
increased especially in Sweden. Deliveries for residential and
commercial construction increased in eastern Central Europe. In the
current market situation, the availability of the Group's own steel raw
material has ensured better delivery capabilities than competitors.
Net sales were EUR 70 million (61). Operating profit was EUR 1 million
(loss 4). To improve cost-efficiency, production has been combined in
larger units in Russia, Czech Republic and Hungary.
The division has worked with customers to develop new solutions. The
biggest solutions order, in terms of value, was the delivery of a 100 km
long trunk water pipeline to supply water to the Turku region. In
Rautaruukki's new pipeline solution, the steel pipes are not welded on
site but are joined together with a quick to install joint developed by
the company. For the customer this means a higher quality end result and
cost savings.
Mechanical Engineering Solutions
Investments in the pulp and paper industry took an upward turn in
Europe, but this still did not affect Rautaruukki's deliveries.
Order books in the shipbuilding and marine industries were at a high
level globally. The division's deliveries in Rautaruukki's core market
area declined due to weaker demand, apart from ship profiles.
Deliveries to the lifting and transport equipment industries grew
considerably. Deliveries for wind power construction increased slightly.
Net sales were EUR 64 million (69). Operating profit was EUR 9 million
(10).
New joint solutions development projects with customers are currently
underway in many customer sectors to increase the amount of the
solutions business.
Metal Fabrication Solutions
Rautaruukki's deliveries to the electronics industry were at the same
level as last year. Deliveries to the household appliance industry were
slightly up on last year. Demand in the light engineering industry at
the start of the year was slightly weaker than last year and
Rautaruukki's deliveries declined.
Rautaruukki's deliveries to the automotive industry grew slightly, even
though demand in the automotive industry in Europe remained unchanged
from the corresponding period last year. The division has revised its
priorities in the automotive industry and for this reason deliveries are
estimated to fall slightly short of plan.
Net sales were EUR 55 million (54). Operating profit was EUR 5 million
(3).
Rautaruukki strengthened the partnership network supporting the
solutions business by acquiring a 24 per cent holding in Sheet Metal
Innovations Oy. The company provides services in product design and
product industrialisation relating to the manufacturing of sheet metal
products. In line with the new business strategy, Star Tubes (UK) Ltd, a
precision tube wholesaler with operations in Great Britain, was sold off
since it was not part of the Group's core business. Development
continues of the division's processing units to support the solutions
business.
The division has intensified cooperation with end users in all customer
sectors, and is also looking for growth through this for existing
solutions. The division has started up new product development projects
with customers.
Metal Products
Demand for steel and other metal products in Rautaruukki's core markets
increased slightly. The division's deliveries of steel and other metal
products totalled 1,011,000 tonnes (891,000).
Net sales were EUR 591 million (504). Operating profit was EUR 63
million (25). Growth in delivery volumes and the increase in product
prices contributed to the growth in operating profit.
In line with the new business model, operations were developed with the
aim of clarifying customer-related activities, improving cost-efficiency
and making more effective use of capital.
To enhance sales and distribution, the operations of different Group
companies were combined in Russia, Poland, Denmark and Norway. In
Estonia a new service centre started operations that will improve
logistics and provide a more comprehensive service throughout the Baltic
countries. In Sweden work started on expanding a service centre in order
to improve customer service. In Finland the division expanded its
prefabrication services by acquiring the business of TP-Teräskeskus Oy.
Sales of Fundia Wire's products were merged with the Metal Products
Division at the start of the year.
Production
The focus in Production Division, in line with the new business model,
was on enhancing delivery reliability, management of capacity, cost-
efficiency and use of capital.
Production performed encouragingly and fixed costs also declined. Steel
output was 1,184,000 tonnes (1,154,000).
Fundia Wire's production was merged with the Production Division at the
start of the year. The Engineering Technology Sales unit, which designs
process automation for the steel industry, was sold in March since it
was not part of core business.
Global market prices for the raw materials used in steel production rose
sharply during the review period. The rise in recycled steel prices
already affected production costs for long steel products in the first
quarter. The rise in other raw material prices will affect production
costs later in the year.
Scheduled interim repairs will be carried out to the number two blast
furnace at the Raahe Steel Works in July. This will reduce steel output
by some 150,000 tonnes.
ADDITIONAL INFORMATION
Mikko Hietanen, CFO
tel. +358 20 592 9030
The analyst and press conference will be held on 27 April 2004 at 10 am
at Rautaruukki Headqurters, Suolakivenkatu 1, Helsinki. Sakari Tamminen,
President & CEO will present the interim results.
Conference call will be organised on 27 April 2004 at 15:00 Finnish time
(13:00 UK time). To participate the conference call the details are:
Telephone number +44 207 162 0188, password öRautaruukkiö, 5-10 minutes
before the scheduled start.
(unaudited)
Individual figures and sums have been rounded off from the exact
figures. This may lead to minor discrepancies upon addition or
subtraction.
Profit and loss account 2004 2003 2003
EUR million 1-3 1-3 1-12
Net sales 795 704 2953
Other operating income 5 1 9
Operating expenses -686 -635 -2632
Depreciation -42 -42 -203
Operating profit 73 28 128
Financing income and expenses -10 -16 -58
Profit before extraordinary items 63 12 70
Extraordinary items 0 0 0
Profit before taxes 63 12 70
Taxes* -19 -2 -26
Change in deferred tax -2 -5 9
Minority interests 0 0 1
Profit of the period 42 6 53
* proportion of estimated taxes for the year weighted by report period's
profit
Balance sheet, EUR million 2004 2003 Change 2003
Assets 31 Mar 31 Mar % 31 Dec
Non-current assets 1299 1422 -9 1329
Inventories 487 530 -8 502
Debtors 720 646 +12 572
2507 2597 -3 2403
Liabilities
Capital and reserves 852 797 +7 838
Minority interests 1 3 -72 1
Provisions 56 51 +10 60
Non-current creditors 799 1011 -21 927
Current creditors 799 736 +9 577
Cash flow statement 2004 2003 2003
EUR million 1-3 1-3 1-12
Cash flow before
working capital changes 107 68 332
Change in working capital -61 -35 0
Financing items and taxes -10 -15 -66
Cash flow from extraordinary items 0 0 0
Cash flow from operations 36 19 265
Cash flow from investing activities -10 -20 -89
Cash flow before financing 26 -1 176
Key figures 2004 2003 2003
1-3 1-3 1-12
Operating profit,% of net sales 9.1 4.0 4.3
Return on capital employed*, % 9.3 1.9 7.1
Return on equity*, % 10.9 -2.1 6.5
Equity ratio, % 33.7 30.6 34.6
Gearing ratio, % 107 139 112
Interest bearing net debt, Me 900 1,094 922
Earnings per share, e 0.31 0.04 0.39
Equity per share, e 6.17 5.79 6.07
Personnel on average 11,982 12,690 12,782
* based on previous 12 months
Net sales by division 2004 2003* Change 2003*
EUR million 1-3 1-3 % 1-12
Construction solutions 70 61 +14 357
Mechanical engineering solutions 64 69 -8 258
Metal fabrication solutions 55 54 + 2 201
Metal products 591 504 + 17 2068
Other units 15 15 -4 70
Consolidated net sales 795 704 + 13 2884
* pro forma
Operating profit by division 2004 2003* 2003*
EUR million 1-3 1-3 1-12
Construction solutions 1 -4 31
Mechanical engineering solutions 9 10 29
Metal fabrication solutions 5 3 11
Metal products 63 25 73
Other units -6 -5 -15
Consolidated operating profit 73 28 128
* pro forma
Net sales by quarter*
EUR million I/2003 II/2003III/2003IV/2003 I/2004
Construction solutions 61 86 106 102 70
Mechanical eng. solutions 69 67 60 59 64
Metal fabrication solutions 54 51 46 50 55
Metal products 504 546 493 528 591
Other units 15 18 17 20 15
Consolidated net sales 704 768 722 759 795
* 2003 figures pro forma
Operating profit by quarter*
EUR million I/2003 II/2003III/2003IV/2003 I/2004
Construction solutions -4 4 16 13 1
Mechanical eng. solutions 10 2 10 5 9
Metal fabrication solutions 3 4 4 1 5
Metal products 25 40 28 -15 63
Other units -5 -4 -2 -4 -6
Consolidated operating profit 28 45 55 0 73
* 2003 figures pro forma
Contingent liabilities Group Rautaruukki Oyj
EUR million 3/200412/2003 3/2004 12/2003
Mortgaged real estates 39 39 28 28
Collateral given on behalf of
Group companies 99 109
associated companies 2 2 2 2
others 5 6 4 4
Leasing and rental liabilities 276 292 65 70
Repurchase liabilities 0 2 0 0
Values of derivative contracts, EUR million
31 March 2004 Nominal value Fair value
Interest rate derivatives
Interest rate swaps 620 -10.0
Foreign currency derivatives
Forward contracts 435 -0.2
Options
Bought 100 -2.1
Sold 75 -1.6
Zinc derivatives*
Forward contracts 64,500 10.1
Electricity derivatives**
Forward contract 1,332 5.9
* Nominal values in tonnes
** Nominal values in GWh
Rautaruukki Oyj
Esko Lukkari
VP, Stock Exchange and Media Communications
DISTRIBUTION
Helsinki Exchanges
Principal Media
www.rautaruukki.com