7 februari, 2007
08:00 CET
Rautaruukki Corporation Financial Statement Bulletin 2006
Rautaruukki Oyj Stock Exchange Release 7 Feb 2007 at 9.00
REPORT OF THE BOARD OF DIRECTORS 2006
Operating environment
Economic development remained positive in Rautaruukki's core market areas
throughout 2006. GDP growth in the Nordic countries was above the average of
that in the euro zone, and especially in Central Eastern Europe, the Baltics and
Russia, economic growth was considerably stronger than elsewhere in Europe.
Demand held up well in the Group's most important customer industries.
Construction activity was buoyant throughout Rautaruukki's market area, with
particularly strong growth evidenced in commercial and industrial construction
in Eastern Europe. Rautaruukki's engineering industry customers, particularly
those in the lifting, handling and transportation equipment industry, saw a
sizeable increase in their order books. Demand also remained strong in the
shipbuilding and offshore industry, as well as in the paper, wood-processing and
energy industries. The overall costs of raw materials used to make steel were
similar to those at year-end 2005. Good demand for standard steel products was
evidenced in Northern Europe throughout 2006.
Strategy and financial targets
Solutions deliveries within metal-based construction and the engineering
industry now account for a much greater share of Rautaruukki's business. Non-
core businesses have been divested. A marked strengthening of the company's
balance sheet structure gives the company a sound financial platform to continue
forging ahead with its strategy.
In November 2006, the Board of Directors revised the company's financial targets
for the next three years, setting an annual growth target of 10 per cent for net
sales. The operating profit target was raised from seven to twelve per cent of
net sales. Likewise, the target for return on capital employed was upgraded from
15 per cent to 20 per cent. The target for gearing is to keep it below 60 per
cent instead of 80 per cent as earlier.
In the same context, the Board of Directors redefined Rautaruukki's dividend
policy, which is to pay a dividend of 40-60 per cent of the result for the
financial year. The aim is to pay a steadily increasing dividend whilst taking
into account the requirements for business growth.
Net sales and result for 2006 (comparative figures for 2005)
Consolidated net sales for the whole of 2006 were EUR 3,682 million. This result
exceeded net sales of EUR 3,654 million in 2005. Comparable net sales were up by
12 per cent to EUR 3,515 million (3,128m). This figure excludes Oy Ovako Ab,
which has not been reported since 1 May 2005 and the Nordic reinforcing steel
business, which ceased to be reported as of 1 August 2006.
The solutions businesses accounted for 38 per cent (28) of net sales. This
increase is attributable to organic growth and acquisitions. Of net sales, 31
per cent (29) were generated in Finland, 31 per cent (30) from the other Nordic
countries, 17 per cent (12) from Central Eastern Europe, Russia and Ukraine, 19
per cent (26) in the rest of Europe and 2 per cent (3) in other countries.
Operating profit was EUR 529 million (618m), corresponding to 14 per cent (17)
of net sales. The comparable operating profit was EUR 515 million (539m), or 15
per cent (17) of net sales. Profitability of the solutions businesses rose
during the year and accounted for 39 per cent (29) of consolidated operating
profit.
The US dollar weakened around 12 per cent against the euro, falling from an
exchange rate of 1.18 to the euro at the start of 2006 to 1.3170 at 31 December
2006. The average exchange rate of the US dollar was just under one per cent
weaker than in 2005. The impact of the US dollar on the company's operating
profit, including hedging, was approximately EUR 26 million negative compared to
2005. The operating profit includes net foreign exchange differences of EUR 16
million negative.
Net financial expenses amounted to EUR -22 million (-30m). Net interest expenses
were EUR -20 million (-28m).
The share of associated companies' profit was EUR 129 million (23m), of which
Ovako accounted for EUR 125 million. This figure includes a capital gain of EUR
100 million on the divestment of Ovako and includes the share of Ovako's
earnings generated after the end of June.
Profit before taxes was EUR 635 million (612m).
Group taxes totalled EUR 134 million (157m) including a change in deferred taxes
of EUR 1 million negative (1m). The effective tax rate was 26 per cent (27).
Net profit was EUR 501 million (455m).
Diluted earnings per share were EUR 3.65 (3.31), of which the capital gain on
the disposal of Ovako was EUR 0.73. The capital gain also includes the share of
Ovako's earnings generated after the end of June.
The return on capital employed was 31.5 per cent (32.8) and the return on equity
was 30.1 per cent (34.7).
Balance sheet
The consolidated balance sheet total at 31 December 2006 was EUR 3,026 million,
up by EUR 325 million compared to year-end 2005. The equity ratio was 61.6 per
cent (56.0) at year-end 2006 and the gearing ratio 1.2 per cent (22.8).
Cash flow and financing
Cash flow from operations was EUR 396 million (652m) and cash flow after
investments was EUR 536 million (519m). Divestment of Ovako and the reinforcing
steel business contributed EUR 362 million to the company's cash flow.
At year-end 2006, net interest-bearing liabilities were EUR 22 million (341m).
Working capital increased by EUR 76 million (0m) as a result of higher stocks
and trade receivables.
At year-end 2006, the Group had liquid assets of EUR 361 million and a total of
EUR 300 million of unused committed revolving credit facilities with banks.
Interest-bearing liabilities were EUR 383 million at 31 December 2006. The
average interest on loans at the end of the year was 5 per cent and the average
maturity 2.6 years.
At year-end 2006, shareholders' equity was EUR 1,832 million (1,497m),
corresponding to EUR 13.26 per share (10.98).
Efficiency programme delivers savings
Ruukki United, Rautaruukki's programme to harmonise ways of working and improve
efficiency, aims to achieve permanent cost savings of around EUR 150 million by
year-end 2008. EUR 43 million of these cost savings had been achieved by the end
of the period under review. Besides this action, earnings have been considerably
improved by overhauling the sales structure and disposing of poorly performing
businesses.
The Ruukki United programme also seeks to permanently free up some EUR 150
million of capital by year-end 2008. EUR 59 million of this target had been
achieved by the end of the period under review. Additionally, divestments of
non-core businesses during the year released EUR 456 million.
Personnel
The Group employed an average of 13,121 people (11,684) during 2006 and had
13,303 employees (11,374) at the end of the year. Acquisitions completed during
2006 saw Rautaruukki take aboard 1,980 new employees, whereas divestments
resulted in 1,031 persons leaving the company.
Staff salaries and other employee benefits totalled EUR 448 million (454m), of
which EUR 22 million (36m) was expenses relating to the share bonus scheme and
EUR 8 million (19m) expenses relating to the profit sharing scheme. Nearly all
Ruukki's personnel belong to the profit sharing scheme.
A total of EUR 22 million (36m) was booked for the year under review as expenses
in respect of the share bonus scheme serving as a long-term incentive for the
Group's key personnel. Under the Share Bonus Scheme 2000, maximum bonuses were
paid for the period 2003-2005. Expenses of EUR 4 million for the 2006 financial
year were booked in the income statement. Under the Share Bonus Scheme 2004,
maximum bonuses were as well paid for 2005. Expenses of EUR 8 million for the
2006 financial year were booked in the income statement. Expenses of EUR 10
million were booked in the income statement in respect of periods maturing later
under existing schemes. Share bonus schemes cover around 120 senior executives
or persons classified as key personnel.
Research and development
Group R&D expenditure in 2006 totalled EUR 22 million (22m), representing 0.6
per cent (0.6) of net sales. Product development resources were strengthened
and, in keeping with Rautaruukki's chosen strategy, increasingly aimed at
innovating solutions that generate value added to customers. Towards the end of
the year, the company launched an extensive project to explore the use of laser
technology. New generation steel solutions for construction and engineering
industry customers will be developed within the framework of this project.
Two thirds of the money spent on R&D was on developing solutions and one third
on developing production methods and processes. Rautaruukki doubled the number
of new patent applications during 2006 in the wake of a streamlined, more
systematic approach to its quest for and development of new innovations.
Within construction solutions, Rautaruukki is addressing the development of new
technology to rationalise the construction process. Particular areas of
development are construction industrialisation and the optimisation of total
deliveries. The aim is to rationalise the customer's business by cutting
construction times and by reducing the work done and number of persons required
on site. Work continued on the development of integrated frame and envelope
structures to this end. A new system was innovated for the foundations of single-
storey buildings to enable work on erecting the frame to get under way earlier
than before.
Within engineering industry solutions, product development is based on strong
excellence in materials technology, complemented by product design, an insight
into manufacturing technology and industrial design. Additional resources and
acquisitions enable us to provide total solutions comprising welded components
and ready systems for manufacturers of mobile machines.
In cabin product development, new projects were launched for existing customers
and products developed for new customers were added to the product range. The
focus was on the use of ultra-strength steels in welded structures. These will
help to considerably improve the performance and transfer capacity of lifting
equipment and mobile machines.
Work continued to forge ahead on the development of high-strength hot rolled
steels and their applications to strengthen the product base. Higher strength
translates into lighter structures, greater bearing capacity, more efficient use
of space and a longer life span and the safety of end products.
Coatings development is driven by coating durability, appearance and
environmental aspects. A promising new field is functional coatings, to which
more resources were directed.
M&A arrangements completed
Acquisition of PPTH Steelmanagement Oy, the leading steel frame constructor in
the Nordic countries, considerably expanded Rautaruukki's construction design
and project know-how. In the same context, it also established a skills base to
support Rautaruukki's growth in construction solutions also in Central Eastern
Europe. The deal was completed in January 2006 and took Rautaruukki's holding in
the company from 20 per cent to 100 per cent. The shares were acquired for
around EUR 7 million. As part of the deal, Rautaruukki assumed EUR 24 million of
interest-bearing liabilities. PPTH has been accounted for in Rautaruukki's
consolidated financial statements since 1 January 2006.
Acquisition of Slovak steel constructor Steel-Mont a.s. for around EUR 10
million in March increased Rautaruukki's strategically important steel structure
production and installation capacity. The company was debt-free. Steel-Mont has
been accounted for in Rautaruukki's consolidated financial statements since 1
April 2006. Together with a new plant opened in Hungary in spring 2006, the
acquisition greatly increased Rautaruukki's total deliveries capacity in Central
Eastern Europe.
In May, Rautaruukki sold the non-core business of its operations in Poland in an
MBO. Metalplast Systems Sp z o.o's business included hot-dip galvanising and
container businesses. The debt-free price was EUR 2.6 million.
Also in May, Rautaruukki acquired AZST-Kolor CJSC to safeguard delivery
reliability and a competitive source of high-quality raw materials, especially
in Russia and Ukraine. AZST-Kolor has a coating line in Ukraine. The shares were
acquired at a cost of EUR 5 million and the company was debt-free. AZST-Kolor
has been accounted for in Rautaruukki's consolidated financial statements since
1 June 2006.
In June, Rautaruukki completed the acquisition of Russian steel constructor OOO
Ventall, thereby strengthening the Group's position in the dynamically growing
Russian construction market. Ventall also brings Rautaruukki a local
manufacturing presence within steel structures and sandwich panels. Ventall has
been accounted for in Rautaruukki's consolidated financial statements since 30
June 2006. The shares were bought for EUR 99 million. The company was debt-free.
Under the terms of the agreement, a possible additional purchase price,
contingent on earnings in 2006 and subject to a maximum of EUR 27.5 million, has
been booked in the cost of acquisition.
Withdrawal from the Nordic reinforcing steel business in conjunction with the
divestment of Ovako in August marked the end of Rautaruukki's disengagement from
the long steel business. In July, Rautaruukki Corporation, AB SKF and Wärtsilä
Corporation signed an agreement on the sale of the operating companies owned by
Oy Ovako Ab to a company owned by Hombergh Holdings BV's shareholders, WP de
Pundert Ventures BV and Pampus Industrie Beteiligungen GmbH & Co. KG.
Rautaruukki had a 47 per cent interest in Ovako and received EUR 311 million as
its share of the selling price. The tax-exempt capital gain on the transaction
and the share of Ab Ovako's result generated after 30 June 2006 is presented in
share of results of associated companies. The capital gain on the sale was EUR
100 million. Divestment of Ovako was completed in November.
The sale of the Nordic reinforcing steel business to BT Norway AS was completed
in August. The reinforcing steel business was part of the Ruukki Metals division
and included the Fundia Armeringsstål AS melt shop and rolling mill in Mo i
Rana, Norway and the following companies specialising in steel reinforcement
fabrication and distribution: Fundia Betoniteräkset Oy in Finland, Fundia
Armering AB in Sweden, Fundia Armering AS in Norway and Fundia Armering A/S in
Denmark. The selling price was around EUR 125 million, including the dividend
paid to Rautaruukki, and corresponds to the carrying value of the companies
sold.
Ruukki Metals is in the Central and Southern European markets focusing on
selling special products and on developing the supporting distribution channels.
As part of business model development, Rautaruukki sold the operations, related
fixed assets and inventories of the Duisburg service centre in Germany, which
mainly upgraded sheet products. The buyer assumed responsibility for the centre
and its staff of around 75 persons on 1 September 2006.
To strengthen Ruukki Engineering's position in the lifting, handling and
transportation equipment industry customer segment, Rautaruukki signed an
agreement in December 2006 to acquire the company's entire share capital of AB
Omeo Mekaniska Verkstad from its five owners for a debt-free price of around EUR
3.73 million. The transaction was closed in January 2007.
Capital expenditure
Capital expenditure in tangible and intangible assets in 2006 totalled EUR 147
million (103m). During the period under review, disposals of property, plant and
equipment amounted to EUR 28 million (16m). During the 2006 financial year, EUR
112 million (31m) was spent on M&A arrangements less the cash and cash
equivalents of companies purchased at the time of acquisition. Acquisitions
increased the Group's net interest-bearing liabilities by EUR 24 million.
Tangible and intangible assets, excluding goodwill, obtained through
acquisitions rose by EUR 120 million, working capital by EUR 17 million and
goodwill by EUR 58 million.
Investment projects worth EUR 50 million were launched in Ukraine and Romania
during 2006. On completion, these investments will enable Rautaruukki to
considerably increase deliveries for commercial and industrial construction to
customers in Ukraine, Romania and Bulgaria. Investment in a new plant in Hungary
strengthened the delivery and service capacity in total deliveries of
Rautaruukki's main construction components.
Cabin manufacturing capacity was increased in response to greater demand in the
lifting, handling and transportation equipment industry and to streamline
production. Summer 2006 saw a new cabin assembly plant come on stream at Kurikka
in Finland. Cabin frame production was also launched in the Wroclaw unit in
Poland.
The second stage of upgrading the automation system at Ruukki Production's hot
strip mill was carried out in July. The direct quenching system for plates began
operating for certain sizes in the autumn. Progress was made as planned with the
second stage of the project and the entire system is scheduled to be up and
running in summer 2007.
In November, Rautaruukki decided to embark on a EUR 20-million investment to
expand its St Petersburg service centre to respond to the growing demand for
materials and pre-treatment services by western and local customers.
Environmental and safety issues
The Group's environment policy governs the environmental management of
Rautaruukki's operations. Steel production at the Raahe Works, which received a
new environmental permit in 2006, accounts for the Group's most significant
environmental impacts.
All Rautaruukki's main production sites operate in accordance with ISO 14001
environmental management systems, which covered 95 (96) per cent of production
in 2006. An ISO 9001 quality system is in place to manage quality issues. During
2006, systems that had been earlier certified locally were brought together
under Ruukki Production and Ruukki Construction's certificates.
Rautaruukki is committed to the principles of sustainable development. The
environmental risks arising from operations are assessed as part of planning
when modernising production processes or building new ones. Internal
environmental risks were mapped at 30 operating sites during 2006. Environmental
due diligence studies to assess the standard of environmental protection were
carried out at sites acquired in conjunction with acquisitions.
Environmental investments in 2006 totalled EUR 8 million.
At year-end 2006, the Raahe Works and steam boilers at the Hämeenlinna Works
fell within the scope of EU emissions trading as regards Rautaruukki's
operations. The Mo i Rana rolling mill comes under the Norwegian emissions
trading scheme. In 2006, the company sold emissions allowances for a total of
EUR 3 million. These allowances arose following market acclimatisation of
production at the Raahe Works in 2005.
The EU's new REACH Regulation (Registration, Evaluation and Authorisation of
Chemicals) was adopted in December 2006. For Rautaruukki, the Regulation will
mean the registration of many substances and increased communication along the
supply chain. The EU's Directive on the Restriction on the Use of Certain
Hazardous Substances in Electrical and Electronic Equipment (RoHS Directive)
also entered into force during 2006. At Rautaruukki, this marked the end of
using hexavalent chromium to protect galvanised products against corrosion and
to pre-treat coatings in products for the electronics industry.
Safety management training and the development of safety issues continued in
2006, when the accident frequency rate was 21 (24) accidents per million working
hours. The aim is to achieve a further marked improvement in the accident
frequency rate. Safety management is part of operative management and the
responsibility for ensuring safety rests with everyone. The goal is to work pro-
actively to prevent the occurrence of hazardous situations and accidents.
The company reports environmental issues in more detail in the Corporate
Responsibility Report and in site environmental reports.
Risks and risk management
Risk management is an integrated part of Ruukki's management system. The risk
management policy approved by the Board of Directors defines the operating
principles and process of the Group's risk management. The President & CEO is
responsible for the proper arrangement of the Group's risk management and the
Group's CFO for defining the risk management framework and for arranging
reporting. Heads of the divisions and support functions are responsible for
identifying risks, managing risks and developing risk management in their own
area. Risks which require special expertise, such as credit and environmental
risk management, have been centralised. The Group's risk management function
supports the divisions and other functions to develop risk management and is
responsible for issuing instructions, reporting and insurance programmes at
Group level.
Critical risks jeopardising implementation of the strategy and target
achievement relate to new businesses and growth management. Growth management is
assisted by existing management and control systems and by a defined acquisition
process, which takes into account integration issues in respect of acquired
companies. Internationalisation of the organisation and the recruitment and
development of experts are essential ways to control growth.
Rautaruukki aims at reducing vulnerability to market disruptions caused by
fluctuations in the demand for and supply of standard steel products by growing
the share of the customer-focused solutions business, developing the operations
of our own service centres and enhancing customer service. The prices, including
freight charges, of iron ore, coal and other raw materials used in steel
production are determined on the world market. Depending on the business cycle,
the cost of raw materials can be very volatile and their sourcing changed from
time to time. Electricity and zinc derivatives are used in managing the price
risk over the next three years. To keep availability risks under control,
Rautaruukki makes long-term agreements to source the main raw materials and
energy used in steel production.
The principle in managing risk of damage is to adequately protect the Group's
earnings ability and financial position against any damage or loss. Maintaining
proper insurance cover against property damage and business interruption is an
essential part of managing risks of damage. Work forged ahead with occupational
safety training to eliminate injuries.
Rautaruukki's financing operations and financing and credit risk management are
dealt with centrally by the parent company's Corporate Treasury function in
accordance with the financing and credit policy approved by the Board of
Directors. The Group's most significant risk arises from the fact that the main
raw materials are priced in US dollars. This risk is hedged through forward
contracts and options.
A more detailed account of the Group's risk management is given in the Annual
Report.
Shares and share capital
During 2006, Rautaruukki Oyj shares were traded for a total of EUR 4,628 million
(2,041m) on the Helsinki Stock Exchange. The highest price quoted was EUR 33.31,
in March, and the lowest was EUR 19.00, in June. The volume weighted average
share price was EUR 25.70 and the share closed on the year at EUR 30.15.
Rautaruukki had a market capitalisation of EUR 4,220 million.
The company's registered share capital at 31 December 2006 was EUR 237.9
million. There were 139,957,418 Series K shares issued. At year-end 2006, the
company held 1,785,381 treasury shares, corresponding to 1.28 per cent of the
company's shares and votes. The treasury shares had an acquisition cost of EUR 7
million and a market value at 31 December 2006 of EUR 53.8 million.
Rautaruukki Corporation's 2006 Annual General Meeting authorised the Board of
Directors to buy back a maximum of 11,000,000 of the company's own shares on the
Helsinki Stock Exchange at the market price. The authorisation is valid for one
year from 23 March 2006, the date of the Annual General Meeting. To date, no
shares have been acquired pursuant to this authorisation.
Rautaruukki Corporation's 2006 Annual General Meeting authorised the Board of
Directors to decide on the transfer of treasury shares. Under this
authorisation, during 2006, the company transferred 810,316 Series K treasury
shares to persons covered by the Group's share bonus scheme.
A total of 1,070,973 Series K shares were subscribed between 24 May and 31
December 2006 through the exercise of warrants issued under the 2003 employee
bond with warrants. Rautaruukki Corporation's Board of Directors approved the
subscriptions, which resulted in an increase of EUR 1,820,654 in the company's
share capital.
Rautaruukki Corporation's Board of Directors has no valid authorisations to
issue convertible bonds or bonds with warrants or to increase the company's
share capital.
Corporate governance and auditors
Rautaruukki Corporation's Annual General Meeting appointed the company's Board
of Directors for a term of office expiring at the end of the 2007 Annual General
Meeting. Jukka Viinanen, President & CEO of Orion Corporation, and Georg
Ehrnrooth were reappointed as chairman and deputy chairman of the Board of
Directors respectively. Maarit Aarni-Sirviö, Vice President, Phenol Business
Unit, Borealis Group, Christer Granskog, President & CEO, Kalmar Industries AB,
Pirkko Juntti LLM, Kalle J. Korhonen, Director-General, Ministry of Trade and
Industry, and Kiuru Schalin, Managing Director, Oy Aga Ab, were reappointed as
Board members. Reino Hanhinen, chairman of the Board of Directors of YIT
Corporation was appointed as a new member to the Board.
Rautaruukki Corporation's Annual General Meeting reappointed Turo Bergman
LicPolSc and Jouko Skinnari MP as chairman and deputy chairman respectively of
the Supervisory Board for a term of office expiring at the end of the 2007
Annual General Meeting. Heikki Allonen, President & CEO, Fiskars Oyj Abp,
members of the Finnish Parliament Inkeri Kerola, Miapetra Kumpula-Natri, Petri
Neittaanmäki, Tapani Tölli and Lasse Virén were all reappointed to the
Supervisory Board. Markku Tynkkynen, Executive Vice President Resources, UPM-
Kymmene Corporation was appointed as a new member to the Supervisory Board.
Members of the Board of Directors' Audit Committee during the 2006 financial
year were Pirkko Juntti (chairwoman), Maarit Aarni-Sirviö, Christer Granskog and
Reino Hanhinen. Members of the Board of Directors' Compensation Committee during
the 2006 financial year were Jukka Viinanen (chairman), Georg Ehrnrooth and
Kiuru Schalin.
The Annual General Meeting reappointed the firm of independent public
accountants Ernst & Young Oy as the company's auditors, with Pekka Luoma,
Authorised Public Accountant, as the principal auditor.
Resolutions of the Annual General Meeting
Rautaruukki Corporation's Annual General Meeting held on 23 March 2006 approved
the Board of Directors' proposals concerning the transfer of treasury shares and
buy back of own shares within one year of the close of the meeting. The Annual
General Meeting passed a resolution to set up a Nomination Committee to prepare
proposals concerning members of the Board of Directors and their emoluments for
presentation to the next Annual General Meeting.
The Annual General Meeting decided to pay a dividend of EUR 1.40 per share, a
total of EUR 191 million, for the financial year ending 31 December 2005.
Post balance sheet events
In January 2007, the competition authorities approved the agreement signed by
Rautaruukki in December 2006 to purchase AB Omeo Mekaniska Verkstad. The shares
were acquired debt-free for EUR 3.7 million. The transaction strengthens Ruukki
Engineering's position in the lifting, handling and transportation equipment
customer segment.
On 29 January 2007, Rautaruukki Corporation and LKAB of Sweden signed a long-
term contract for the supply of iron ore pellets used as raw material in iron
production at the Raahe Works. Deliveries will commence as of 1 April 2007. This
long-term contract will ensure the availability of high-quality iron ore raw
material at the Raahe Works.
Outlook for 2007
Demand is expected to hold up in well in Rautaruukki's core market areas. It is
anticipated good economic growth will continue in the Nordic countries and
economic growth will be much faster in Eastern Europe than in the rest of
Europe. Construction activity is expected to remain good across our market area,
especially in Eastern Europe. Strong growth is envisaged in commercial and in
infrastructure construction, on which Rautaruukki has focused. Customers in the
engineering industry have strong order books. The good market for steel products
is expected to continue in Rautaruukki's core market areas.
Comparative net sales in 2007 are expected to develop in line with growth
targets set. Operating profit for 2007 is anticipated to markedly exceed the
comparative figure for last year.
Board of Directors' proposal for the disposal of distributable funds
The Group's distributable equity at 31 December 2006 was EUR 1,060 million. The
parent company's distributable equity was EUR 664 million.
The Board of Directors has decided to propose to the Annual General Meeting to
be held on 20 March 2007 that a dividend of EUR 1.50 per share (EUR 1.40) be
paid for 2006 together with an additional dividend of EUR 0.50 arising from the
profit of Ovako divestment. This brings the total dividend proposed to EUR 276
million. The proposed dividend payout date is 4 April 2007.
Helsinki, 6 February 2007
Board of Directors
DIVISIONAL BUSINESS REVIEW 2006
Ruukki Construction
EUR million I/05 II/05III/05IV/05 2005 I/06 II/06III/06 IV/06 2006
Net sales 88 137 170 155 550 133 181 244 271 829
Operating profit 9 22 39 17 86 8 21 33 39 101
as % of net sales 10 16 23 11 16 6 12 14 14 12
Ruukki Construction's net sales in 2006 were up by 51 per cent to reach EUR 829
million (550m). Operating profit was EUR 101 million (86m). The division
accounted for 23 per cent (15) of consolidated net sales. Net sales and
operating profit rose as a result of major acquisitions, organic growth,
increasing construction activity in our core markets bolstered by a healthy
market, as well as rationalised business processes. Development measures
launched during 2006 improved PPTH's profitability during the second half of the
year.
Construction activity remained brisk throughout the year, with unseasonably warm
weather prolonging the construction season. Extremely good demand for
components, systems and integrated systems increased deliveries in all market
areas. In the Nordic countries and Baltics, sales of components held up well and
there was a steady growth in the volume of integrated solutions. Deliveries rose
for infrastructure construction projects in the Nordic countries. Bolstered
significantly by acquisitions and new investment projects, growth, especially in
integrated systems, has held up well in Central Eastern Europe. Delivery volumes
in Russia and Ukraine showed were up sharply towards the end of the year, with
systems and integrated systems accounting for a higher share of sales.
M&A arrangements effected during the year under review added to the Group's
design and project know-how, delivery accuracy and the availability of high-
quality raw materials, especially in the growing Central Eastern European and
Eastern European markets. PPTH, the leading steel constructor in the Nordic
countries, was integrated into Ruukki Construction as of 1 January 2006.
Likewise, Slovakia's leading steel constructor, Steel-Mont, was integrated into
the division as of 1 April 2006. In May, Rautaruukki acquired AZST-Kolor's
coating line in Ukraine. The acquisition of Russia's leading steel constructor,
OOO Ventall, was completed in June and Ventall was integrated into Ruukki
Construction as of 30 June 2006. Rautaruukki opened eight new sales offices in
Russia last year. In June, the Group started up a new plant in Hungary to
strengthen delivery capability for the main components and integrated systems
used in construction when making total deliveries.
September saw the launch of major investment projects totalling EUR 50 million
in Central Eastern Europe. The total investment in the plant to be built in
Ukraine is put at around EUR 15 million and production is expected to come on
stream during the first quarter of 2008. The total investment in the plant to be
built in Romania is put at EUR 35 million and production is expected to commence
in late 2007. On completion, these investments will enable Rautaruukki to
considerably increase deliveries of components and integrated systems for
commercial and industrial construction to customers in Ukraine, Romania and
Bulgaria.
Ruukki Engineering
EUR million I/05 II/05III/05IV/05 2005 I/06 II/06III/06 IV/06 2006
Net sales 124 114 101 137 476 132 142 127 157 557
Operating profit 22 23 23 27 96 25 21 28 33 106
as % of net sales 18 21 23 20 20 19 15 22 21 19
Ruukki Engineering's net sales in 2006 were up 17 per cent to EUR 557 million
(476m). Operating profit was EUR 106 million (96m). The division accounted for
15 per cent (13) of consolidated net sales. Higher net sales were fuelled by
good demand, investments and increased capacity.
The market remained good in all Ruukki Engineering's business sectors in 2006.
Extremely healthy demand continued in the lifting, handling and transportation
equipment industry, with systems deliveries accounting for a higher share of
sales than in 2005. Deliveries were up, particularly to manufacturers of
container handling equipment and also manufacturers of equipment used in the
mining industry and construction.
Further growth was witnessed in the market for wind farms. A start was made on
pilot deliveries of new components for the frames of wind farms to customers in
the energy industry. Demand held up well in the shipbuilding and offshore
industry, where customers reported bigger order books. Likewise, customers in
the paper and wood processing industry had thicker order books than a year
earlier.
Ruukki Engineering strengthened its position as a supplier of frames and booms
in the lifting, handling and transportation equipment industry through an
agreement signed in December 2006 to acquire AB Omeo Mekaniska Verkstad of
Sweden. The competition authorities gave the green light to the transaction in
January 2007.
Cabin manufacturing capacity was increased in response to greater demand in the
lifting, handling and transportation equipment industry and to streamline
production. Summer 2006 saw a new cabin assembly plant come on stream at Kurikka
in Finland. This move has increased manufacturing capacity by around one third.
Cabin frame production was also launched in the Wroclaw unit in Poland, where
welded components are made for the lifting, handling and transportation
equipment industry. In the wake of increased demand, the Wroclaw production
facilities were enlarged and a new paintshop was built. This began operating in
January 2007. Ruukki Engineering supports the business of selected customers by
establishing an effective operations network in Northern Europe and Central
Eastern Europe.
Ruukki Engineering's efforts in product development strengthen our ability to
provide total systems comprising welded components and ready-assembled systems
for manufacturers of mobile machines. Increased quenching capacity for steel
plates improved Rautaruukki's ability to deliver components made of high-
strength steel. These components include booms, grabs and other lifting
equipment.
Working together with partners, Rautaruukki launched product development
projects for the wind power industry. Such projects included the development of
a new generation of wind farm tower. Rautaruukki stepped up deliveries of parts
to the wind power industry and began deliveries of components.
For the offshore industry, Rautaruukki delivered increasingly larger solutions
in collaboration with a partnership network it coordinated. Examples of this
include pile anchors delivered to the North Sea to attach tanker loading and
unloading buoys to the sea bed.
Ruukki Metals
EUR million I/05 II/05III/05IV/05 2005 I/06 II/06III/06 IV/06 2006
Net sales 802 686 541 596 2625 591 604 514 583 2291
Operating profit 180 147 69 91 486 77 87 89 111 364
as % of net sales 22 21 13 15 19 13 12 17 19 16
Ruukki Metals' net sales were down 13 per cent to EUR 2,291 million (2,625m).
Comparable net sales were EUR 2,124 million (2,128m). Operating profit was down
25 per cent to EUR 364 million (486m) and the comparable operating profit for
2006 was EUR 350 million (409m). Higher raw material costs were the main reason
for this fall. The division accounted for 62 per cent (72) of consolidated net
sales.
Good demand for steel products continued in our core markets and product selling
prices rose. Whilst wholesalers had topped up their stocks in the second half of
the year in Southern Europe, stocks were at a normal level in Northern Europe.
August saw Rautaruukki sell its Nordic reinforcing steel business to BT Norway
AS. The business was part of Ruukki Metals and included Fundia Armeringsstål AS
and Fundia Armering AS in Norway, Fundia Betoniteräkset Oy in Finland, Fundia
Armering AB in Sweden and Fundia Armering A/S in Denmark.
The Group's metal products strategy is to further strengthen its position in its
core market through an extensive range of products and services and an
unrivalled supply chain. In the Central and Southern European markets,
Rautaruukki is focusing on the sales of special products and on developing
supporting distribution channels. The division has addressed special products by
investing in ultra high-strength steels.
The delivery capacity of the St Petersburg service centre in Russia was
strengthened with a new combi line that combines cutting to length and slitting.
Year-end 2006 saw the launch of a EUR 20-million investment programme aimed at
enhancing the capacity of the service centre in the immediate term and preparing
for growing demand on the Russian market.
The Hyvinkää service centre in Finland ordered a laser cutting line capable of
handling large structural hollow sections. The line is the only one of its kind
in Finland and is scheduled to come on stream in summer 2007.
In the Central European market, further progress was made with developing the
sales structure and focusing on the deliveries of special products. To improve
logistics, Rautaruukki opened a distribution centre at Biatorbágy in Hungary.
The operations of the Duisburg service centre in Germany were sold: the centre
mainly upgraded sheet products. The buyer assumed responsibility for the centre
and its staff of around 75 persons on 1 September 2006.
The first stage of a project to upgrade and harmonise the company's information
systems was completed in the autumn with the deployment of a SAP-based ERP
system at Rautaruukki's service centre in Finland. Deployment initially resulted
in a marked decline in delivery accuracy, but this had been virtually restored
by the end of the year.
Ruukki Production
1000 tonnes I/05 II/05III/05IV/05 2005 I/06 II/06III/06 IV/06 2006
Steel production 1176 982 765 888 3813 888 860 725 744 3217
Steel production
at Raahe 716 715 614 701 2746 709 693 705 744 2823
Production ran smoothly at all facilities and output totalled 3,217,000 tonnes.
Steel production at Raahe, Finland reached a record high of 2,853,000 tonnes
(2,747,000). Production at the Mo i Rana mills in Norway between January and
July was 365,000 tonnes (687,000 for Jan-Dec). The Mo i Rana mills were divested
in August 2006. The output of plates and coated strip products ran at full
capacity throughout the year.
Overall costs of raw materials were roughly similar to those at year-end 2005,
although raw material costs for the entire 2006 financial year were higher than
in 2005. Whereas the price of iron ore was slightly up, the price of coking coal
fell. Zinc and energy prices rose on the world market. Hedging agreements meant
a more modest impact on the price of zinc than the sharp rise on the world
market. Long-term delivery contracts safeguarded the availability of raw
materials. No steel slabs were purchased from outside suppliers, thus lowering
production costs.
Investments were made at the Raahe Works to increase the capacity of high-
strength steel grades. The second stage of upgrading the automation system at
the hot strip mill was carried out in July. A new hot strip coiler that began
operating at the mill in September enables thicker and high-strength steel
grades to be coiled.
The direct quenching system for plates began operating for certain sizes in the
autumn. Progress was made as planned with the second stage of the project and
the entire system will be up and running in summer 2007. A decision was taken in
the autumn to invest in a new plate cold leveller in the plate mill. Also ladle
metallurgy capacity is to be raised. The investments will increase the
production capacity of demanding special steel grades and are scheduled for
completion during 2008.
In December, a decision was made to increase the capacity of the cutting line at
the hot strip mill and to expand the dimensional range. These projects will take
place over a three-year period. The investments will enable Rautaruukki to step
up production of ultra-strength structural steel and wear resistant steel grades
much faster than originally intended.
The above investments support Ruukki Engineering's business in the lifting,
handling and transportation industry and will grow the share of high-strength
steel in Ruukki Metals' sales.
The coating line acquired in May at Antrazit in Ukraine came on stream in July
and serves Ruukki Construction's customers in the growing Russian and Ukraine
markets. Output has gone to plan.
At the Kankaanpää Works in Finland, the furnace and afterburner of the coating
line and certain other production process equipment were replaced. The
modernised line particularly serves Ruukki Construction customers.
Rautaruukki's reinforcing steel business was sold to BT Norway AS in August. In
November, a decision was taken to divest operations of the production works in
Fredericia, Denmark, which manufactures cold formed sections. Part of the
business was taken over by Ib Andresen Industri A/S on 1 January 2007. These
moves were made as part of the structural reorganisation in accordance with
Rautaruukki's strategy aimed at divesting non-core business units.
CONSOLIDATED FINANCIAL STATEMENT INFORMATION (unaudited)
Individual figures and grand totals have been rounded off to the nearest million
euros. This means they will not always tally when added together or subtracted.
SUMMARY OF CONSOLIDATED PROFIT AND LOSS ACCOUNT
EUR million 10-12/06 10-12/05 2006 2005
Net sales 1013 889 3 682 3654
Other operating income 9 11 32 28
Operating expenses -819 -739 -3037 -2908
Depreciation and value adjustments -36 -38 -148 -156
Operating profit 167 123 529 618
Financing income and charges -3 -6 -22 -30
Share of results of
associated companies 94 4 129 23
Profit before taxes 258 121 635 612
Taxes -44 -27 -134 -157
Net profit 213 93 501 455
Attributable to:
Equity holders of the company 213 93 501 455
Minority interests 0 0 0 0
Diluted earnings per share, € 1.55 0.68 3.65 3.31
Basic earnings per share, € 1.55 0.68 3.66 3.35
Operating profit as % of net sales 16.5 13.8 14.4 16.9
SUMMARY OF CONSOLIDATED BALANCE SHEET
EUR million 31 Dec 2006 31 Dec 2005 Change, %
ASSETS
Non-current assets 1 454 1 476 -2
Current assets
Inventories 586 534 10
Trade and other receivables 624 528 18
Cash and cash equivalents 361 163 122
3 026 2 701 12
EQUITY AND LIABILITIES
Equity
Equity attributable to shareholders
of the company 1 832 1 497 22
Minority interests 1 1
Non-current liabilities
Interest-bearing 218 372 -41
Other 226 194 16
Current liabilities
Interest-bearing 164 132 24
Trade payables and other liabilities 584 505 16
3 026 2 701 12
SUMMARY OF CASH FLOW STATEMENT
EUR million 2006 2005
Profit for the period 501 455
Adjustments 168 333
Cash flow before change
in working capital 669 788
Change in working capital -76 0
Financing items and taxes -197 -137
Cash flow from operating activities 396 652
Cash flow from investing activities 140 -133
Cash flow before financing activities 536 519
Dividends paid -191 -109
Other net cash flow from financing activities -147 -307
Change in cash and cash equivalents 198 103
KEY FIGURES 2006 2005
Net sales, EUR m 3 682 3 654
Operating profit, EUR m 529 618
as % of net sales 14.4 16.9
Profit before taxes, EUR m 635 612
as % of net sales 17.3 16.7
Profit for the period, EUR m 501 455
as % of net sales 13.6 12.5
Return on capital employed, % 31.5 32.8
Return on equity, % 30.1 34.7
Equity ratio, % 61.6 56.0
Gearing ratio, % 1.2 22.8
Net interest-bearing liabilities, EUR m 22 341
Equity per share, EUR 13.26 10.98
Personnel on average 13 121 11 684
Number of shares 139 957 418 138 886 445
- excluding treasury shares 138 172 037 136 293 748
- diluted, average 137 144 515 137 377 120
CHANGES IN EQUITY 2006
EUR million
Attributable to equity holders of the Company
ShareFair value Trans- Re-
Share premium and lation tained Minority
capital account other differ- earn- Total Interest
reserves ences ings
EQUITY at 1 Jan 236 220 31 -5 1016 1497 1
Increase in
share capital 2 2
Cash flow hedging
Transferred to equity 21 21
Share of deferred taxes -6 -6
Cost of share
based payments 4 4
Disposal of
treasury shares -6 7 1
Change in translation
difference 2 2
Dividend distribution -191 -191
Profit for the period 501 501
EQUITY at 31 Dec 238 220 44 -3 1333 1832 1
CHANGES IN EQUITY 2005
EUR million
Attributable to equity holders of the Company
ShareFair value Trans- Re-
Share premium and lation tained Minority
capital account other differ- earn- Total Interest
reserves ences ings
EQUITY at 1 Jan
(adjusted) 236 220 4 -2 670 1126 1
Cash flow hedging
Transferred to equity 32 32
Share of deferred taxes -8 -8
Change in translation
difference -3 -3
Cost of share
based payments 4 4
Dividend distribution -109 -109
Profit for the period 455 455
EQUITY at 31 Dec 236 220 31 -5 1016 1497 1
NET SALES BY DIVISION
EUR million 2006 2005
Ruukki Construction *) 829 550
Ruukki Engineering 557 476
Ruukki Metals *) 2 291 2 625
Group management and other units 4 3
Consolidated net sales 3 682 3 654
OPERATING PROFIT BY DIVISION
EUR million 2006 2005
Ruukki Construction *) 101 86
Ruukki Engineering 106 96
Ruukki Metals *) 364 486
Group management and other units -42 -50
Consolidated operating profit 529 618
QUARTERLY NET SALES
EUR million I/05 II/05 III/05 IV/05 I/06 II/06 III/06 IV/06
Ruukki Construction *) 88 137 170 155 133 181 244 271
Ruukki Engineering 124 114 101 137 132 142 127 157
Ruukki Metals*) 802 686 541 596 591 604 514 583
Group management
and other units 0 2 0 1 0 1 0 2
Consolidated net sales 1014 939 812 889 856 928 885 1013
QUARTERLY OPERATING PROFIT
EUR million I/05 II/05 III/05 IV/05 I/06 II/06 III/06 IV/06
Ruukki Construction *) 9 22 39 17 8 21 33 39
Ruukki Engineering 22 23 23 27 25 21 28 33
Ruukki Metals *) 180 147 69 91 77 87 89 111
Group management
and other units -10 -12 -17 -11 -15 -2 -9 -16
Consolidated
operating profit 201 180 114 123 95 127 140 167
QUARTERLY NET SALES (PRO FORMA) EXCLUDING UNITS TRANSFERRED TO OVAKO
AND NORDIC REINFORCING UNITS
EUR million I/05 II/05 III/05 IV/05 I/06 II/06 III/06 IV/06
Ruukki Construction *) 88 137 170 155 133 181 244 271
Ruukki Engineering 103 107 101 137 132 142 127 157
Ruukki Metals *) 571 561 474 522 521 523 497 583
Group management
and other units 0 2 0 1 0 1 0 2
Consolidated net sales 761 807 745 815 786 848 868 1013
QUARTERLY OPERATING PROFIT (PRO FORMA) EXCLUDING UNITS TRANSFERRED TO OVAKO AND
NORDIC REINFORCING UNITS
EUR million I/05 II/05 III/05 IV/05 I/06 II/06 III/06 IV/06
Ruukki Construction *) 9 22 39 17 8 21 33 39
Ruukki Engineering 21 24 23 27 25 21 28 33
Ruukki Metals *) 135 122 67 85 71 79 90 111
Konsernihallinto
Group management
and other units -10 -12 -17 -11 -15 -2 -9 -16
Consolidated
operating profit 154 156 112 117 89 119 141 167
* The pipelines business was transferred from Ruukki Construction to Ruukki
Metals in August 2005. The reference data has been updated for comparability.
NET SALES BY REGION
as % of net sales 2006 2005
Finland 31 29
Other Nordic countries 31 30
Central Eastern Europe,
Russia and Ukraine 17 12
Rest of Europe 19 26
Other countries 2 3
CONTINGENT LIABILITIES
EUR million 31 Dec 2006 31 Dec 2005
Mortgaged real estates 26 29
Pledges given 5 19
Collateral
Given on behalf of associates 0 1
Given on behalf of others 5 4
Leasing rental liabilities 100 141
Other financial liabilities 11 4
Subsequent to the divestment of the operating companies of Oy Ovako Ab, both Oy
Ovako Ab and its subsidiary Ovako Svenska AB were put into voluntary liquidation
and most of Oy Ovako Ab's assets were distributed to shareholders as a
disbursement. The shareholders (Rautaruukki Corporation, AB SKF and Wärtsilä
Corporation) have, as required under the Finnish Companies Act, submitted to the
liquidator a directly enforceable guarantee as surety against payment of the
disbursements.
VALUES OF DERIVATIVE CONTRACTS 31 Dec 2006, EUR million
CASH FLOW HEDGES INCLUDED IN HEDGE ACCOUNTING
Nominal value Fair value
Interest rate derivatives
Interest rate swaps 25 0.2
Zinc derivatives
Forward contracts * 30 000 50.9
Electricity derivatives
Forward contracts ** 1 513 4.3
The unrealised result of cash flow hedges is recognised in equity to the extent
the hedge is effective. Other changes in fair value are recorded in the income
statement.
DERIVATIVES NOT INCLUDED IN HEDGE ACCOUNTING
Nominal value Fair value
Interest rate derivatives
Interest rate swaps 100 0.6
Foreign currency derivatives
Forward contracts 788 -6.4
Options
Bought 70 -0.9
Sold 70 0.2
140 -0.8
* nominal amount, tonnes
** nominal amount, GWh
CHANGES IN PLANT, PROPERTY AND EQUIPMENT
EUR million 2006 2005
Carrying value at 1 Jan 1 033 1 192
Increase 130 84
Increase through acquisitions 71 19
Decrease -19 -15
Decrease through divestments -42 -105
Depreciation and value adjustments -130 -144
Translation differences -1 4
Carrying value at 31 Dec 1 043 1 033
TRANSACTIONS WITH RELATED PARTIES (ASSOCIATED COMPANIES)
EUR million 2006 2005
Sales to associated companies 29 51
Purchases from associated companies 27 33
Non-current receivables at 31 Dec 0 39
Trade and other receivables at 31 Dec 10 13
Trade and other creditors at 31 Dec 2 6
INVESTMENT COMMITMENTS*
EUR million after 31 Dec 2006
Maintenance investments 20
Development investments and 143
outlays on special products
Total 163
*Investment commitments include the estimated costs of projects that have
received permission to go ahead.
INFORMATION ABOUT ACQUISITIONS
EUR million Fair values booked Carrying value
on combination before combination
Acquisition cost 149
including conditional purchase price 29
Assets and liabilities of
acquired companies (carrying value)
Non-current assets 114 44
Current assets
Inventories 25 25
Trade and other receivables 34 34
Cash and cash equivalents 8 8
Total assets 181 111
Non-current liabilities
Interest-bearing 30 23
Other 19 2
Current liabilities
Interest -bearing 1 7
Other 42 39
Total liabilities 92 71
Net assets 89 40
Acquisition cost 149 149
Goodwill 60 109
Acquisition cost paid in cash 120 120
Cash and cash equivalents
of the acquired subsidiary 8 8
Impact on cash flow 112 112
Includes information about the following acquisitions: PPTH Steelmanagement Oy,
Steel-Mont a.s.,AZST-Kolor CJSC and OOO Ventall.
Annual General Meeting
The Annual General Meeting of Rautaruukki Corporation will take place in
Helsinki starting at 3pm Finnish time on Tuesday 20 March 2007 at Helsinki Fair
Centre.
Financial reporting in 2007
The 2006 Annual report will be published in March 2007 during week 11.
Rautaruukki Corporation's interim reports will be published as follows:
January to March on 25 April 2007
January to June on 1 August 2007
January to September on 24 October 2007
FURTHER INFORMATION IS AVAILABLE FROM
Sakari Tamminen, President & CEO, tel. +358 20 592 9075
Mikko Hietanen, CFO, tel. +358 20 592 9030
Rautaruukki Corporation
Taina Kyllönen
VP, Corporate Communications
Rautaruukki supplies metal-based components, systems and integrated systems to
the construction and mechanical engineering industries. The company has a wide
selection of metal products and services. Rautaruukki has operations in 23
countries and employs 13,000 people. Net sales in 2006 totalled EUR 3.7 billion.
The company's share is quoted on the Helsinki Exchanges (Rautaruukki Oyj:
RTRKS). The Corporation has used the marketing name Ruukki since 2004.
DISTRIBUTION
Helsinki Exchanges
Principal Media
www.ruukki.com