February 10, 2004
08:01 CET
Clear improvement in Rautaruukki's result - fourth quarter burdened by Fundia Wire's write-downs
Rautaruukki Stock Exchange Release 10 February 2004 at 9am
Steel product prices strengthened. Profit before extraordinary
items was EUR 70 million (loss 46 million in 2002). Profit before
extraordinary items excluding non-recurring costs was EUR 112
million. Gearing fell to 112 per cent (138). Earnings per share
was EUR 0.39 (-0.26). Operations according to new business model
began.
Rautaruukki changed its business model and organisation on 1
September 2003. The financial statements for 2003 have been
prepared on the basis of the previous divisional structure.
Financial reporting in 2004 will take place according to the new
organisation.
Rautaruukki's turnover in 2003 was EUR 2,953 million (2,884).
Operating profit was EUR 128 million (6) and profit before
extraordinary items and taxes was EUR 70 million (-46). Non-
recurring financial expenses totalled EUR 42 million (27), which
included EUR 30 million write-downs on fixed assets of Fundia
Wire. Cash flow before financing was EUR 176 million (23).
Rautaruukki Steel improved its operating profit considerably.
Fundia, which was clearly loss-making previously, achieved a
slightly positive operating result excluding non-recurring costs.
The operating profits of Metform and the Steel Service Division
weakened. The Steel Structure Division's operating result was a
slight loss.
Operating result for the fourth quarter was EUR 0 million (17).
Excluding non-recurring costs, the fourth quarter operating profit
was EUR 42 million (29).
The Board of Directors proposes to the Annual General Meeting that
a dividend of EUR 0.20 per share be distributed for 2003.
Business environment and market
During 2003 economic growth was slow in the countries of the
European Union. In the countries of eastern Central Europe and
Eastern Europe, economic growth continued to be faster than in the
rest of Europe. Economic growth accelerated in the United States
and continued to be very strong in China.
Demand for steel products in Europe was at the same level as in
2002 and in the United States slightly higher than the previous
year. In China demand for steel products grew strongly and this
had a positive impact on the balance of supply and demand in the
world market.
In December, the United States, the EU and China revoked their
protective measures against imports of steel products. For 2004
the EU has in force bilateral agreements restricting imports with
Russia, Ukraine and Kazakhstan.
Imports of steel products into the EU grew, but imports and
exports were in balance in EU countries. Stocks in Europe were
lower than normal at the end of the year.
In the last quarter of the year, prices of steel products in
Europe remained at the level of the previous quarter. Average
prices for the year were clearly higher than the previous year.
In the United States the prices of steel products strengthened
during the latter part of the year and average prices for the year
were higher than the previous year. In China and the countries of
Southeast Asia the prices of steel products strengthened.
World steel output grew by 7 per cent compared with 2002, of which
nearly all was due to strong growth in steel production in China.
Steel output in European Union countries was at the previous
year's level, but in the rest of Europe it grew by 7 per cent.
Turnover and financial result
Consolidated turnover was EUR 2,953 million (2,884).
The Group's deliveries of flat and tubular products were at the
same level as in 2002. The average price of deliveries was 4 per
cent higher than the previous year. In the final quarter of the
year, product prices remained mainly at the previous quarter's
level, but due to product mix and market area changes the average
prices of deliveries was 2 per cent lower than in the previous
quarter.
Deliveries of long steel products grew by 8 per cent. The average
price of long steel product deliveries was 2 per cent higher than
in 2002. In the final quarter of the year, product prices remained
mainly at the previous quarter's level, but due to product mix and
market area changes the average prices of deliveries was 3 per
cent lower than in the previous quarter.
Rautaruukki Steel's output of steel was 2,798,000 tonnes
(2,562,000). Since autumn 2002, steel output has been at the
target level of 2.8 million tonnes per year. Fundia's steel output
was 1,774,000 tonnes (1,688,000).
US dollar prices of raw materials used in the manufacture of iron
rose, but euro-denominated prices were lower than in 2002 due to
the weakening of the dollar. Unit costs of iron raw materials were
on average 8 per cent and of coking coal 10 per cent lower. The
price of electricity was on average 23 per cent higher and the
price of scrap 22 per cent higher than in 2002.
Operating profit was EUR 128 million (6). Operating profit was
improved by a rise in product prices, growth in own steel
production, measures initiated in 2002 to improve profitability
and a reduction in the operational loss at Fundia Wire.
Contributions to the Rautaruukki Pension Fund were EUR 16 million
lower than in 2002.
Non-recurring costs totalled EUR 42 million (27), which included
write-downs on fixed assets and provisions made for agreed
personnel reductions and pension costs. The Group's other
operating income was EUR 9 million (15).
Operating result for the final quarter of 2003 was EUR 0 million
(17). The operating profit for the final quarter was weakened by
non-recurring costs of EUR 42 million and by longer than normal
production shutdowns at the turn of the year.
The profit before extraordinary items and taxes was EUR 70 million
(-46). Return on net assets was 7.1 per cent (0.6).
The profit before taxes and minority interest was EUR 70 million (-
46).The profit for the financial year was EUR 53 million (-35).
Operating profit of Rautaruukki Steel was improved by a rise in
product prices, growth in own steel production, lower raw material
costs and measures initiated in 2002 to improve profitability.
Metform's operating profit was weakened by an adjustment made to
internal transfer pricing principles as well as by non-recurring
costs. The Steel Structure Division's operating loss was caused by
a fall in product prices and non-recurring costs. Fundia's
operating result was improved by a reduction in the loss at Fundia
Wire, but the operating result was loss-making due to non-
recurring costs. The Steel Service Division's operating profit was
nearly at the previous year's level, when a non-recurring capital
gain on the sale of fixed assets in 2002 is taken into account.
Financing
Rautaruukki's gearing ratio was 112 per cent (138) and equity
ratio was 34.6 per cent (31.1). Equity per share at the end of the
year was EUR 6.07 (5.81) per share. Total assets were EUR 2,403
million (2,561).
Cash flow from operations was EUR 265 million (152) and cash flow
before financing EUR 176 million (23). The Group's interest-
bearing net debt stood at EUR 922 million (1,092). The short-term
position of interest-bearing loans was EUR 204 million (205) and
the long-term position EUR 768 million (943).
On 2 December 2003 Rautaruukki issued two senior notes with a
total nominal value of EUR 130 million.
Working capital was at the level of 2002. The ratio of financial
assets and inventories to short-term liabilities at the end of the
year was 1.9 (1.9). At the end of 2003 the Group had uncommitted
revolving credit facilities with banks totalling EUR 310 million.
Net interest expenses were EUR 47 million (50) and their
proportion of turnover was 1.6 per cent (1.7). Net financial
expenses totalled EUR 58 million (52) and included a loss on
foreign exchange of EUR 9 million (gain 1). The average interest
on the Group's net debt at the end of the year was 4.9per cent
(4.9).
CAPITAL EXPENDITURE
Gross expenditure on fixed assets totalled EUR 102 million (142)
and net capital expenditure EUR 89 million (129). Capital
expenditure mainly consisted of normal development and maintenance
investments.
Change in the Group's business model
Rautaruukki's Board of Directors decided to establish a new
business model and related organisation, which came into effect on
1 September 2003.
The aim of the business model is to clarify and enhance
interaction between the Group and its customers and to create the
basis for the Group to achieve new growth and improve its
profitability. Growth in the years ahead will be based on
integrated value-added solutions for selected customer industries,
complemented by products and services provided by the Group's
network of partners. The customer sectors are construction, the
engineering industry, including shipbuilding, and the metal
fabrication industry.
As of 1 September 2003, the Group has comprised four divisions
with customer accountability: Metal Products, Building and
Construction Solutions, Mechanical Engineering Solutions and Metal
Fabrication Solutions. The three last-mentioned divisions in
particular are expected to grow strongly in the years ahead. The
efficiency of the Metal Products Division's distribution system
will be enhanced and growth will be sought through the sale of new
materials. Steel and rolling production has been organized into a
single Production Division.
The divisional structure has been fine-tuned and operational
planning in accordance with the new business model has been
launched. Measures aimed at streamlining the Group structure and
harmonising information systems have been initiated with the
objective of lowering fixed costs and boosting the efficiency of
capital employed. As of 1 January 2004, management systems have
been adjusted in accordance with the new business model.
In 2004 the solution divisions will implement customer-oriented
total solutions, develop the component elements necessary for them
and strengthen their solutions-based expertise. The objective of
the Metal Products Division is to improve the cost-effectiveness
of sales and distribution by cutting fixed costs and eliminating
overlaps, and to use working capital more efficiently. Deliveries
with poor profitability will be discontinued. The aim of the
Production Division is also to improve cost-effectiveness by
lowering fixed costs, through better control of capacity and by
boosting the punctuality and quality of deliveries. The use of
working capital tied up in production will also be enhanced.
Personnel
The Group's payroll at the close of the year consisted of 12,047
people (12,804) and the parent company employed 4,935 people
(5,472). The Group employed an average of 12,782 (13,325) people
during the year and the parent company 5,413 (5,794).
During 2003 a programme of measures, which reduced personnel
numbers by around 700, was implemented to improve operational
efficiency and reduce fixed costs. Payroll cuts took place mainly
at the Raahe Steel Works and the Hämeenlinna Works. Measures aimed
at reducing the overlapping of functions will continue during
2004.
For 2003 a profit bonus of EUR 0.4 million will be paid to
employees under the Rautaruukki profit bonus scheme.
Wire business development
Fundia Wire's operational loss excluding non-recurring items
decreased significantly in comparison with the previous year and
in the final quarter of 2003 it fell to zero due to an efficiency
programme implemented during the autumn. During the efficiency
programme Fundia Wire has operated as a separate unit outside the
new business organisation.
Now interaction between the Group and its customers will also be
enhanced and clarified in the wire business. Fundia Wire's
production will be incorporated into the Production Division and
business responsibility into the Metal Products Division. Both
internal and other structural options will be investigated for the
further development of the wire business. A write-down of EUR 30
million has been made on Fundia Wire's fixed assets.
Outlook for 2004
In the EU countries demand for steel and other metal products is
forecast to grow slightly. The balance of supply and demand in EU
countries will be influenced mainly by the level of these
countries' own steel output and imports. Demand for steel products
is expected to continue to be strong in China and to grow in the
United States, which will have a positive impact on the balance of
supply and demand world wide and will support the development of
profitability in the European steel industry.
Of Rautaruukki's key customer industries, residential and
infrastructure construction are expected to continue on a
satisfactory trend. Commercial construction is expected to be
reasonable, but in Finland the prospects for office construction
are weak. In the mechanical engineering industry as well as marine
and offshore industry demand is expected to strengthen slightly.
Demand is also expected to grow in the electronics, automotive and
household appliance industries.
Prices of raw materials for steel production will be negotiated at
the first half of 2004. Due to strong growth in demand for steel
industry raw materials, mainly in China, and to a steep rise in
freight costs, raw material costs denominated in US dollars are
expected to rise significantly. Movements in the euro and US
dollar exchange rate have a significant impact on the company's
raw material costs.
The rise in raw material prices will begin to affect Rautaruukki's
costs in the second quarter of 2004, with the main impact coming
in the second half of the year. Costs will also be influenced by
an interim repair to the second blast furnace at the Raahe Steel
Works in July.
The full impact of measures implemented in 2003 to reduce fixed
costs will be felt in 2004. In accordance with the new operating
model, costs will be lowered further e.g. by clarifying the
organisational structure and by centralising administrative
functions. Use of capital will be enhanced, for example, by
removing the divisions' overlapping product stores and by focusing
on core business.
The rise in steel product prices moderated at the end of 2003. In
the first quarter of 2004, prices have begun to pick up once
again. The rise in prices is expected to continue because the
strong increase in raw material costs creates a significant need
to raise prices.
Rautaruukki's turnover is expected grow slightly. Profit
development in the first quarter of the year is expected to
continue on a positive note.
Helsinki 10 February 2004
Rautaruukki Oyj
Board of Directors
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 2003 2002 2003 2002
EUR million 10-12 10-12 1-12 1-12
Turnover 759 753 2953 2884
Other operating income 2 10 9 15
Operating expenses -686 -701 -2632 -2716
Depreciation -76 -45 -203 -177
Operating profit 0 17 128 6
Financing income and expenses -14 -15 -58 -52
Profit/loss before extra-
ordinary items -14 2 70 -46
Extraordinary items 0 0 0 0
Profit/loss before taxes -14 2 70 -46
Taxes* -8 1 -26 -1
Change in deferred tax 19 0 9 12
Minority interests 0 0 1 0
Profit/loss of the period -3 3 53 -35
* proportion of the estimated taxes for the year weighted by
report period's profit/loss
Balance sheet, EUR million 2003 2002
Assets 31 Dec 31 Dec
Non-current assets 1,329 1,453
Inventories 502 511
Debtors 572 597
2,403 2,561
Liabilities
Capital and reserves 838 799
Minority interests 1 3
Provisions 60 58
Non-current creditors 927 1,120
Current creditors 577 580
2,403 2,561
Cash flow statement 2003 2002
EUR million 1-12 1-12
Cash flow before
working capital changes 332 196
Change in working capital 0 3
Financing items and taxes -66 -44
Cash flow from extraordinary items 0 -3
Cash flow from operations 265 152
Cash flow from investing activities -89 -129
Cash flow before financing 176 23
Key figures 2003 2002
1-12 1-12
Operating profit, % of turnover 4.3 0.2
Return on net assets, % 7.1 0.6
Return on equity, % 6.5 -4.3
Equity ratio, % 34.6 31.1
Gearing ratio, % 112 138
Interest bearing net debt, Me 922 1,092
Earnings per share, e 0.39 -0.26
Equity per share, e 6.07 5.81
Personnel on average 12,782 13,325
Turnover by division 2003 2002
EUR million 1-12 1-12
Rautaruukki Steel 1349 1308
Metform 352 367
Steel Structure Division 326 321
Fundia 802 731
Steel Service 641 646
Other units 271 171
less internal invoicing -788 -660
Consolidated turnover 2953 2884
Operating profit by division 2003 2002
EUR million 1-12 1-12
Rautaruukki Steel 182 9
Metform 5 17
Steel Structure Division -2 12
Fundia -29 -17
Steel Service 12 23
Other units and internal items -39 -36
Consolidated operating profit 128 6
Turnover by quarter
(EUR million) I/02 II/02III/02 IV/02 I/03 II/03III/03IV/03
Rautaruukki Steel 304 328 331 345 324 352 329 344
Metform 90 102 83 92 90 99 76 86
Steel Structure Division 58 83 93 88 58 78 99 92
Fundia 178 195 169 189 202 214 185 202
Steel Service 162 168 157 159 157 164 156 165
Other units 41 44 36 50 69 69 63 70
-internal invoicing -147 -176 -167 -170 -195 -207 -186 -200
Consolidated turnover 686 743 703 753 704 768 722 759
Operating profit by quarter
(EUR million) I/02 II/02III/02 IV/02 I/03 II/03III/03IV/03
Rautaruukki Steel 2 -10 4 13 40 49 56 38
Metform 5 9 2 1 2 5 1 -3
Steel Structure Division -4 4 10 2 -5 -2 7 -3
Fundia -1 1 -18 1 -2 1 -6 -23
Steel Service 2 5 5 10 4 3 3 2
Other units and
internal items -4 -8 -15 -10 -11 -11 -6 -11
Consolidated oper. profit 1 1 -12 17 28 45 55 0
External deliveries by quarter
(1000 t) I/02 II/02III/02 IV/02 I/03 II/03III/03IV/03
Hot rolled plates,
sheets and coils 269 278 267 292 283 305 268 286
Cold rolled sheets
and coils 51 44 48 50 43 46 40 47
Coated sheets and coils 167 166 178 179 156 173 177 185
Tubular products 139 166 128 147 138 153 116 132
Profiled sheets
and sections 50 69 75 67 55 65 75 70
Long steel products 473 516 441 502 520 550 480 537
Contingent liabilities Group Rautaruukki Oyj
EUR million 12/03 12/02 12/03 12/02
Mortgaged real estates 39 86 28 79
Collateral given on behalf of
Group companies 109 128
associated companies 2 2 2 2
others 6 5 4 4
Leasing and rental liabilities 292 176 70 80
Repurchase liabilities 2 14 0 12
Values of derivative contracts, EUR million
31 Dec 2003 Nominal value Fair value
Interest rate derivatives
Interest rate swaps 714 -5.3
Foreign currency derivatives
Forward contracts 320 1.5
Options
Bought 135 -3.5
Sold 115 -6.5
Zinc derivatives*
Forward contracts 51,600 6.1
Electricity derivatives**
Forward contracts 1,432 4.9
* nominal values in tonnes
**nominal value in GWh
Rautaruukki Oyj
Esko Lukkari, VP
(Stock Exchange and Financial Communications, Media relations)
ADDITIONAL INFORMATION
Sakari Tamminen, President & CEO, tel. +358 9 417 711
Seppo Sahlman, Senior VP, tel. +358 9 4177 6215
DISTRIBUTION
Helsinki Exchages
Principal Media
www.rautaruukki.com