October 26, 2004
08:00 CET
Rautaruukki Interim Report January - September 2004
Rautaruukki Oyj Stock Exchange Release 26 October 2004, 9.00 a.m.
THE MARKET SITUATION REMAINED STRONG - PROFITABILITY IMPROVED
SUBSTANTIALLY
- Net sales: EUR 2,563 million (2,194 million in Jan-Sep 2003)
- Operating profit: EUR 315 million (128)
- Profit before extraordinary items and taxes: EUR 282 million (84)
- Earnings per share: EUR 1.57 (0.41).
- Gearing: 73 per cent (119)
Key figures 2004 2003 2004 2003 2003
7-9 7-9 1-9 1-9 1-12
Net sales, MEUR 855 722 2,563 2,194 2,953
Operating profit before
non-recurring items, MEUR 123 55 315 128 170
Non-recurring items, MEUR -42
Operating profit, MEUR 123 55 315 128 128
Operating profit margin, % 14.4 7.6 12.3 5.8 4.3
Profit before extraordinary
items and taxes, MEUR 115 41 282 84 70
Earnings per share, EUR 0.59 0.19 1.57* 0.41 0.39
* The EUR 18 million reduction in the deferred tax liability
resulting from the change in Finnish tax legislation increased
earnings per share by EUR 0.13.
Third-quarter highlights
- The good market for steel products continued, and sales prices of
both flat and long products were on an upward trend.
- Net sales fell compared with the previous quarter owing to
seasonality and a lower volume due to blast furnace repairs.
- Profitability remained at a high level. Higher selling prices
offset high raw materials costs, and the sales mix was improved
further.
- The interim repairs on Blast Furnace 2 that were carried out at
the Raahe steel works in July weakened operating profit by about
EUR 25 million.
President and CEO Sakari Tamminen:
'The favourable trend in the steel product markets has had a
positive effect on the Group's net sales growth during the first
part of the year. Our profitability has risen markedly compared
with last year thanks to the good market situation and the internal
measures that the company has carried out.
During the third quarter we have sharpened the focus of the company
strategy. Since development of our solutions business will require
substantial resources, we are faced with the need to make certain
choices. In the future we'll concentrate on the construction and
the mechanical engineering industries, where we believe we have
good prospects for profitable growth and the best opportunities to
create a significant competitive edge. We aim to offer our
customers a new dimension in cost-efficiency and innovation that
supports their business.
As we see it, the market situation within steel products will
remain positive, at least for the remainder of 2004. Higher cost-
structure efficiency coupled with an improved sales mix in line
with our present operational model lays a stronger foundation for
enhanced long-term profitability. We estimate that there will be a
favourable trend in demand within both construction and engineering
industry.'
FOR ADDITIONAL INFORMATION, CONTACT
President and CEO Sakari Tamminen, tel. +358 20 592 9075
CFO Mikko Hietanen, tel. +358 40 579 4359
Press conference
Rautaruukki will arrange a press conference on the Interim Report
on 26 October 2004 at 10.30 a.m. at the company's head office in
Herttoniemi at the address: Suolakivenkatu 1, Helsinki.
Webcast and conference call
The webcast and conference call for investors and analysts can be
viewed live on the company's website at www.ruukki.com today 26
October 2004, at 2.00 p.m. Those desiring to participate in the
conference call can phone +44 207 162 0183, password: Rautaruukki,
about 5-10 minutes before the conference starts.
The Interim Report for January-September 2004 is available on the
company's website.
www.ruukki.com
Rautaruukki Oyj
Taina Kyllönen
VP, Corporate Communications
Rautaruukki Interim Report, January-September 2004
January-September 2004 Results (compared with the same period in
2003)
Net sales in the January-September period were EUR 2,563 million
(2,194), up 16.8 per cent on the same period a year earlier. Net
sales were boosted by the sharp rise in the prices of steel
products that got under way in the second quarter of the current
year and has continued in the third quarter. Of net sales, 26 per
cent came from Finland, 28 per cent from the other Nordic
countries, 11 per cent from the CEE countries, 32 per cent from the
rest of Europe and 3 per cent from other countries. The net sales
breakdown by division was: Ruukki Construction 12 per cent, Ruukki
Engineering 8 per cent, Ruukki Fabrication 6 per cent and Ruukki
Metals 73 per cent.
Operating profit was EUR 315 million (128), representing 12.3 per
cent of net sales (5.8). The shutdown caused by the interim repairs
on Blast Furnace 2 at the Raahe steel works in July cut into
operating profit by about EUR 25 million.
Compared with last year, operating profit was lifted by both the
rise in product prices and an improved sales mix. During the report
period the prices of raw materials used in steel manufacture were
at a markedly higher level than at the same time last year. Raising
product prices and an improved sales mix have nevertheless offset
higher raw material costs. Despite the strong growth in sales,
fixed costs have also remained stable. The change in the exchange
rate of the US dollar added EUR 30 million to operating profit
compared with the same period a year earlier.
Net financial expenses amounted to EUR -34 million (-44). Net
interest expenses totalled EUR -31 million (-37) and the net effect
of foreign exchange gains and losses was EUR 0 million (-6).
Profit before extraordinary items and taxes was EUR 282 million
(84).
The proportion of estimated taxes for the year, weighted by the
profit for the report period, amounted to EUR 77 million (19). The
change in the deferred tax liability booked for the report period,
EUR 8 million (-10), includes a reduction of EUR 18 million in the
tax liability resulting from the change in Finnish tax legislation.
The minority interest share of profits was EUR -1 million (1) and
net profit for the report period was EUR 212 million (56).
Earnings per share were EUR 1.57 (0.41). The effect on earnings per
share of the reduction in the tax liability due to the change in
Finnish tax legislation was EUR 0.13.
The return on capital employed over the past 12 months was 17.1 per
cent (7.7) and the return on equity 22.8 per cent (7.2).
Financing
Cash flow from operations was EUR 270 million (173) and cash flow
before financing was EUR 207 million (109).
Interest-bearing net debt totalled EUR 741 million at the end of
September (990). Working capital grew by EUR 109 million in January-
September (46) owing to the increase in trade receivables and
inventories.
The equity ratio was 40.0 per cent (33.2) and the gearing ratio was
73 per cent (119). At the end of September the Group's liquid funds
amounted to EUR 84 million and it had a total of EUR 245 million of
committed unused revolving credit facilities with banks.
Shareholders' equity stood at EUR 1,026 million, or EUR 7.45 per
share (6.12).
Personnel
The average number of personnel in the January-September period was
12,330 people (12,959). At the end of September the total payroll
was 12,026 employees (12,395), a net decrease in personnel of 369.
Capital expenditures and structural changes
Gross capital expenditures in January-September amounted to EUR 82
million (75). The largest items were the building of a walking beam
furnace that was started at the Raahe steel works, automation of
the hot strip rolling mill and interim repairs on Blast Furnace 2
in July. During the report period fixed assets were sold to an
amount of about EUR 17 million. Full-year net capital expenditures
in 2004 are expected to come to about EUR 100 million.
During the report period, the company continued measures aimed at
simplifying the company structure and trimming fixed costs. As part
of these measures, the following companies were merged with
Rautaruukki Oyj: Rannila Steel Oy, Asva Oy, Oy JIT-Trans Ltd,
August Lindberg Oy and SKJ-yhtiöt Oy.
Fundia Wire's business as part of Ruukki Production and Ruukki
Metals divisions has been profitable. The study of alternative
options for developing Fundia Wire's operations is continuing
ahead.
Shares
Rautaruukki Oyj shares worth about EUR 639 million (111) were
traded on the Helsinki Stock Exchange in January-September. The
highest quotation was EUR 7.86 in September and the lowest, EUR
5.67, in May. The average share price was EUR 6.73. The price of
the share at the end of the report period on 30 September 2004 was
EUR 7.85 and the company had a market capitalisation of EUR 1,090
million.
The company's registered share capital on 30 September 2004 stood
at EUR 236.1 million. The number of Series K shares issued was
138,886,445. The Annual General Meeting of Rautaruukki Oyj, held on
23 March 2004, authorised the Board of Directors to decide on
transferring company's own shares. Pursuant to this authorisation
the company transferred, on 30 August 2004, 197,039 of its own
Series K shares (treasury shares) to persons covered by the Group's
share bonus system. Following the transfer, the company has
3,072,961 treasury shares. The Board of Directors does not have a
current authorisation to increase the share capital or to purchase
the company's own shares.
Events after the close of the report period
In October, Rautaruukki Oyj announced that the Ruukki Construction
division was consolidating its production at the processing units
in Ostrobothnia in Finland (Alajärvi, Vimpeli) and at the
processing unit in Anderslöv, Sweden. Co-determination negotiations
on consolidating the processing function (production) were started
on 4 October 2004 with the aim of seeing the negotiations to
conclusion by the end of November 2004.
On 11 October 2004, Rautaruukki Oyj signed an agreement on
acquiring the entire share stock in Velsa Oy from Kone Corporation.
Velsa had net sales in 2003 of EUR 43 million and net sales are
expected to top EUR 47 million in 2004. The company had a payroll
of 396 employees at the end of September 2004. The profitability of
the company's business has exceeded Rautaruukki's long-term
profitability targets. Completion of the transaction is still
subject to approval by the Swedish competition authorities. The
transaction is expected to have a slightly positive impact on
earnings right from the start.
Transition to International Financial Reporting Standards (IFRS)
From the beginning of 2005, Ruukki will go over from Finnish
Accounting Standards (FAS) in its financial reporting to
International Financial Reporting Standards (IFRS). The company
will prepare the opening balance sheet in accordance with IFRS
practice at 1 January 2004. According to preliminary calculations,
the adoption of IFRS will have an impact on the asset items in the
company's above-mentioned opening balance sheet as well as on the
amount of shareholders' equity and liabilities as follows:
- Shareholders' equity will decrease by about EUR 90 million
- Net debt will increase by about EUR 80 million
- Gearing will rise by about 20 percentage points
- The equity ratio will fall by about 4 percentage points
- Total assets will grow by about EUR 40 million
The most significant differences between FAS and IFRS result from
changes in the following items: cancelling revaluations of real-
estate property, accounting of leasing agreements and pensions.
Detailed information on the opening balance sheet will be issued
before the first interim report for 2005.
Strategy fine-tuning
As set out in the strategy launched in summer 2003, the company's
aim is to be the most desired supplier of metal-based solutions in
selected customer segments by 2008-2010. To achieve this objective
the company's strategic business choices have been further fine-
tuned. As a solutions provider the Group will concentrate on the
construction and mechanical engineering industries. The primary
market area has been extended to include all the countries in
central-eastern Europe in addition to the Nordic and Baltic
countries. In metal products, the aim is to be the leading metal
products supplier in the Nordic and Baltic countries.
As of 1 September 2004, all the companies in the Rautaruukki Group
adopted a common marketing name, Ruukki. The marketing name will be
used by all of the Group companies in all market areas.
In the construction business, the aim is to strengthen the
company's position at all stages of the construction value chain.
Ruukki Construction will give special priority to system and turn-
key deliveries. Ruukki Construction intends to generate new
business and to grow, notably in the central-eastern European
markets. Acquisitions will be made to accelerate development and
growth of this solutions business.
Ruukki Engineering will concentrate on the lifting and transport
equipment industry. The division is seeking growth to become a
major supplier of components and systems in northern Europe and to
get closer to customers by moving up the value chain. Gaining a
leading position will require new expertise, which will also mean
acquisitions.
Ruukki Fabrication will specialise in supplying parts and
components to selected customer segments in addition to supporting
Ruukki Construction and Ruukki Engineering as they develop their
solutions businesses.
Ruukki Metals's aim is to strengthen its position as the leading
and most efficient provider of metal products in the Nordic and
Baltic countries. Ruukki Metals acts as the Group's sales
organization for standard and special products and parts, its
customers being the key customer managers of other divisions as
well as external customers.
The long-term financial targets set in September 2003 continue to
remain in force. These are: return on capital employed (ROCE) 15%,
operating profit margin (EBIT %) more than 7%, and gearing below
80%.
Near-term outlook
The general economic situation in the Nordic countries and central-
eastern Europe is positive. The Group's key customer industries
have good growth prospects in these main markets. Construction is
buoyant, particularly in central-eastern Europe. The European
engineering industry has seen an upswing in order intake, and
industrial production is expected to continue its strong pace of
growth, especially in central-eastern Europe. Next year's outlook
for gross domestic product and industrial output in the main market
areas remains positive.
The European steel markets are expected to keep up their favourable
trend in the remainder of the year thanks to increasing demand for
end-products. It is anticipated that market prices will still keep
notching slightly upward in the last quarter of the year. The
shortage of raw materials supply will also raise their prices.
The good market situation also translates into a positive outlook
for the company's businesses. Net sales in 2004 are expected to top
EUR 3.4 billion. It is estimated that higher product prices in
unison with the company's internal measures aimed at improving
sales mix and cost-structure will keep the full-year profitability
at the same level as in the first nine months of 2004.
This Interim Report has not been audited.
Helsinki, 26 October 2004
Rautaruukki Oyj
Board of Directors
DIVISIONS
Ruukki Construction
Net sales in January-September were EUR 303 million (254), an
increase of 19 per cent on the same period a year ago. Operating
profit was EUR 42 million (15), or 14 per cent of net sales (6).
The strongest growth came from the Baltic area and the other new EU
countries. Value-added solutions accounted for an increased share
of deliveries.
The trend in commercial construction was positive in the entire
market area, with especially buoyant growth in the CEE area and
Scandinavia. The company had rising sales in its selected customer
segments, above all in the area of value-added solutions. It is
believed that this trend will continue. Demand for infrastructure
construction was lifted by the strong market situation for
foundation construction and traffic infrastructure in the Nordic
countries and by major pipeline projects in southern and western
Europe. Within residential construction, demand in the Baltic area
and Ukraine has held up better than anticipated. General demand in
Poland has been low owing to the change in value-added tax
legislation in the spring, which led to large advance purchases and
sped up the rate of construction before the tax change went into
effect.
In order to improve the efficiency of its functions and to
rationalise them, Ruukki Construction is centralising its
production in Finland at the processing units in Ostrobothnia
(Alajärvi, Vimpeli) and at the processing unit in Anderslöv,
Sweden. As part of this measure, production at the units in
Alajärvi, Vimpeli and Anderslöv will be developed with the aim of
strengthening competitiveness.
Ruukki Engineering
Net sales in January-September totalled EUR 216 million (197), up
10 per cent on the same period a year earlier. Sales were lifted
above all by higher prices, but delivery volumes also increased.
Deliveries went mainly to Finland's nearby areas.
Operating profit was EUR 34 million (21), representing 16 per cent
of net sales (11). The change in the sales mix and an improved
price situation boosted operating profit.
The outlook for the engineering industry has improved this year.
The clearest indication of this was the substantial increase in
deliveries to customers in the lifting and transport equipment
industry.
Ruukki Engineering is seeking growth to become a major supplier of
components and systems to the lifting and transport equipment
industry in northern Europe and to get closer to customers by
moving up the value chain. In line with the strategy adopted, on 11
October 2004 Rautaruukki Oyj signed an agreement on acquiring the
entire share capital in Velsa Oy from Kone Corporation. Velsa will
be integrated into the Ruukki Engineering division. Finalisation of
the transaction is still subject to approval by the Swedish
competition authorities. The Velsa acquisition will further
strengthen the development of the Ruukki Engineering business.
Velsa is specialised in delivering highly customised work machine
cabins on a turnkey basis. Velsa also has strong expertise in other
subassemblies for mobile machines, such as frame solutions.
Investment activity in the paper and wood processing industry
increased during the first part of the year, particularly in Asia,
and this was also reflected in the orders received by Ruukki
Engineering's customers.
The shipbuilding and marine industry continued to enjoy robust
demand in central Europe. The trend in Finland has been more
modest, though the situation appears to have taken a turn for the
better during the third quarter.
Ruukki Fabrication
Net sales in January-September were EUR 161 million (151),
increasing by 7 per cent on the same period a year ago. Sales were
lifted in particular by stronger prices in nearby markets.
Operating profit was EUR 17 million (10), or 11 per cent of net
sales (7). Operating profit was improved above all by stronger
prices.
Demand remained stable in the electronics industry. The trend in
the home appliance industry of moving production to low-cost
countries held steady. Prospects within the light engineering
industry began to turn positive during the third quarter. The
automotive industry continued to enjoy good demand.
Ruukki Metals
Net sales in January-September amounted to EUR 1,877 million
(1,590), an increase of 18 per cent on the same period of last
year. Prices of steel products swung sharply upward in the second
quarter and the upward momentum continued in the third quarter. The
trend in the demand for steel products has also been positive. Net
sales grew primarily thanks to the rise in prices. The focus of
sales efforts has been on the main market areas in the Nordic
countries and the Baltic States. Operating profit was EUR 260
million (101), or 14 per cent of net sales (6). The growth in
operating profit was driven not only by the rise in prices and
increased deliveries, but also by an improved sales structure.
Ruukki Production
Steel output in January-September amounted to 3,367,000 tonnes
(3,398,000). Production ran very smoothly during the report period.
The market prices raw materials used in steel manufacture remained
high. The interim repairs on Blast Furnace 2 that were carried out
at the Raahe steel works in July went well in both technical and
financial terms. The repair shutdown lasted 30 days, which was
somewhat shorter than had been planned. The production loss
resulting from the repair shutdown was about 135,000 tonnes.
The Ruukki Production division is concentrating on improving its
production efficiency and delivery accuracy. The most important of
the ongoing capital expenditures is the building of a walking beam
furnace at the Raahe steel works, which was started in early 2004
and is to reach completion in April 2005. Stage II of the project
for modernising the automation system at the hot strip rolling mill
has got under way.
Key figures 2004 2003 2004 2003 2003
7-9 7-9 1-9 1-9 1-12
Net sales, MEUR 855 722 2563 2194 2953
Operating profit before
non-recurring items, MEUR 123 55 315 128 170
Non recurring items, MEUR - - - - -42
Operating profit, MEUR 123 55 315 128 128
- as percentage of net sales14.4 7.6 12.3 5.8 4.3
Profit before extraordinary
items and taxes, MEUR 115 41 282 84 70
Earnings per share, EUR 0.59 0.19 1.57* 0.41 0.39
Return on capital employed**,% 17.1 7.7 7.1
Return on equity** % 22.8 7.2 6.5
Equity ratio, % 40.0 33.2 34.6
Gearing ratio, % 73 119 112
Interest bearing net debt,MEUR 741 990 922
Equity per share, EUR 7.45 6.12 6.07
Personnel on average 12,330 12,959 12,782
* The EUR 18 million reduction in the deferred tax liability
resulting from the change in Finnish tax legislation increased
earnings per share by EUR 0.13.
**based on previous 12 months
Profit and loss account 2004 2003 2004 2003 2003
EUR million 7-9 7-9 1-9 1-9 1-12
Net sales 855 722 2563 2194 2953
Other operating income 2 4 8 7 9
Operating expenses -694 -629 -2129 -1946 -2623
Depreciation -39 -42 -127 -127 -170
Operating profit before
non-recurring items 123 55 315 128 170
Non-recurring items 0 0 0 0 -42
Operating profit 123 55 315 128 128
Financing income and expenses-9 -14 -34 -44 -58
Profit before extraordinary
items and taxes 115 41 282 84 70
Extraordinary item 0 0 0 0 0
Profit before taxes 115 41 282 84 70
Taxes* -33 -10 -77 -19 -26
Change in deferred tax** -2 -5 8 -10 9
Minority interests 0 0 -1 1 1
Profit of the period 79 26 212 56 53
* Proportion of estimated taxes for the year weighted by report
period's profit
** Figures for 2004 include an EUR 18 million reduction resulting
from the change in Finnish tax legislation
Balance sheet, EUR million 2004 2003 Change 2003
Assets 30 Sep 30 Sep % 31 Dec
Non-current assets 1265 1380 -8 1329
Inventories 587 515 +14 502
Debtors 708 632 +12 572
2560 2528 +1 2403
Liabilities
Capital and reserves 1026 845 +21 838
Minority interests 1 1 1
Provisions 65 50 +30 60
Non-current creditors 711 815 -13 927
Current creditors 757 817 -7 577
2560 2528 +1 2403
Cash flow statement 2004 2003 2003
EUR million 1-9 1-9 1-12
Cash flow before working
capital changes 443 255 332
Change in working capital -109 -46 0
Financing items and taxes -64 -36 -66
Cash flow from extraordinary items 0 0 0
Cash flow from operations 270 173 265
Cash flow from investing activities -63 -65 -89
Cash flow before financing 207 109 176
In the divisional accounts, other units consist of Group
administration and common administrative services. The figures for
divisions have been revised according to this structure. Figures
for 2003 are pro forma figures.
Net sales by division 2004 2003 Change 2003
EUR million 1-9 1-9 % 1-12
Ruukki Construction 303 254 +19 356
Ruukki Engineering 216 197 +10 256
Ruukki Fabrication 161 151 +7 201
Ruukki Metals 1877 1590 +18 2132
Other units 6 3 9
Consolidated net sales 2563 2194 +17 2953
Operating profit by division2004 2003 2003
EUR million 1-9 1-9 1-12
Ruukki Construction 42 15 30
Ruukki Engineering 34 21 27
Ruukki Fabrication 17 10 15
Ruukki Metals 260 101 121
Other units -38 -20 -24
Non-recurring items -42
Consolidated operating profit315 128 128
Net sales by quarter
EUR million I/2003II/2003III/2003IV/2003I/2004II/2004III/2004
Ruukki Construction 61 86 106 102 70 109 124
Ruukki Engineering 69 67 60 59 64 78 74
Ruukki Fabrication 54 51 46 50 55 52 53
Ruukki Metals 518 562 510 542 605 672 600
Other units 1 2 0 6 1 1 3
Consolidated net sales704 768 722 759 795 913 855
Operating profit by quarter
EUR million I/2003II/2003III/2003IV/2003I/2004II/2004III/2004
Ruukki Construction -4 4 16 15 1 17 24
Ruukki Engineering 10 2 10 5 9 15 10
Ruukki Fabrication 3 4 4 5 5 7 5
Ruukki Metals 25 43 33 20 65 98 97
Other units -6 -7 -7 -4 -8 -17 -12
Non-recurring items -42
Consolidated
operating profit 28 45 55 0 73 119 123
Contingent liabilities Group Rautaruukki Oyj
EUR million 9/2004 12/2003 9/2004 12/2003
Mortgaged real estates 38 39 27 28
Collateral given on behalf of
Group companies 130 109
associated companies 2 2 2 2
others 6 6 4 4
Leasing and rental liabilities261 292 247 70
Repurchase liabilities 1 2 1 0
Values of derivative contracts, EUR million
30 September 2004 Nominal value Fair value
Interst rate derivatives
Interest rate swaps 640 -6.6
Foreign currency derivatives
Forward contracts 332 -1.1
Options
Bought 105 -2.0
Sold 95 0.2
Zinc derivatives
Forward contracts 52,350* 6.9
Electricity derivatives
Forward contracts 2,438** 5.4
* tonnes
** GWh
Rautaruukki Oyj
Taina Kyllönen
VP, Corporate Communications
Ruukki delivers total solutions for the construction, mechanical
engineering and metal fabrication industries. The company has a
wide selection of products and services in metal products. Ruukki
has operations in 24 countries and it employs about 12,000 people.
The net sales in 2003 totalled EUR 3 billion. The company is listed
at the Helsinki Exchanges (Rautaruukki Oyj: RTRKS).
DISTRIBUTION
Helsinki Exchanges
Principal Media
www.ruukki.com