February 17, 2005
08:35 CET
Rautaruukki Oyj Financial Statements Bulletin 2004
Rautaruukki Oyj Stock Exchange Release 17 Feb 2005 at 9.35
EXCELLENT RESULT - BALANCE SHEET STRENGTHENED SIGNIFICANTLY
- Net sales: EUR 3,569 million (2,953 million in 2003).
- Operating profit: EUR 475 million (128, including non-recurring
items -42).
- Profit before extraordinary items and taxes: EUR 430 million
(70).
- Earnings per share: EUR 2.31 (0.39).
- Gearing: 62 per cent (112).
- Board of Directors' dividend proposal: EUR 0.80 per share.
- The comparable net sales in 2005 are forecast to be higher than
in 2004.
Key figures 2004 2003 2004 2003
10-12 10-12 1-12 1-12
Net sales, Me 1006 759 3569 2953
Operating profit before
non-recurring items, Me 160 42 475 170
Non-recurring items, Me 0 -42 0 -42
Operating profit, Me 160 0 475 128
Operating profit, % of net sales 15.9 0 13.3 4.3
Profit before extraordinary items
and taxes, Me 148 -14 430 70
Earnings per share, e 0.74 -0.02 2.31* 0.39
* includes EUR 0.13 resulting from an EUR 18 million reduction in
the deferred tax liability due to the change in Finnish tax
legislation
Fourth-quarter highlights
- Demand remained good.
- Sales prices rose further.
- Net sales grew clearly from the previous quarter, when delivery
volumes were lower due to seasonality and blast furnace repairs.
- Profitability enhanced by higher prices and by ongoing work to
improve the sales structure and cost-efficiency.
- The weakening of US dollar exchange rate improved operating
profit by around EUR 7 million compared with 2003.
- Velsa Oy was included in reporting from the start of November.
President and CEO Sakari Tamminen:
"Ruukki's net sales in 2004 grew by around 21 per cent compared to
2003 and the company's operating profit rose to EUR 475 million.
Our profitability clearly improved from the previous year owing to
a good market situation, but also due to the company's internal
measures to improve cost-efficiency and the sales structure.
Moreover, raw material costs were lowered by the US dollar
exchange rate, which remained weak. The record result enabled us
to reduce gearing significantly.
The past year was the first full operating year of our new
strategy. The positive market situation provided a good operating
environment for developing the company's operating model. During
the year, we fine-tuned the company's strategy. In the solutions
divisions we will focus in future on construction and mechanical
engineering. In construction, the objective is to strengthen the
company's position at all stages of the construction value chain,
to generate new business and to grow, especially in the Central
Eastern Europe market. In mechanical engineering, the Group will
focus on the lifting, handling and transport equipment industry
with the aim of growing into a significant component and system
supplier in Northern Europe and transferring closer to customers
in the value chain. The core market area was expanded to cover all
the Central Eastern Europe countries in addition to the Nordic
countries and the Baltic states. In traditional metal products,
the goal is to strengthen the company's position as the leading
and most efficient supplier of metal products in the Nordic
countries and the Baltic states. The company's customer
responsible divisions from the beginning of 2005 are Ruukki
Construction, Ruukki Engineering and Ruukki Metals. The operations
of the Ruukki Fabrication division have been incorporated into
these divisions. The Ruukki Production division is responsible for
production. In autumn 2004 we set up the Ruukki United project,
under which all core and support process development projects have
been gathered. We believe that significant cost savings are
achievable through effective harmonisation of operating practices
and eradication of overlapping activities. Our goal is to create a
single unified company that customers can work with simply and
easily. In our chosen solutions sectors, we believe that prospects
for profitable growth are good and that we have the best
opportunities to create a significant competitive advantage.
In the first quarter of the current year, the market situation in
Rautaruukki's core market areas has been good and sales prices
have increased, particularly in flat steel products. We expect
prices in the second quarter to remain the same or to rise
slightly. The Group's comparable net sales for the full year are
expected to be higher than in 2004 and preconditions for strong
profitability exist. The major uncertainty continues to lie in the
demand on Asian markets and its effects on the global steel
product prices."
FURTHER INFORMATION
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 financial
statements on 17 February 2005 at 2.00 p.m. at Adams Hall,
address: Erottajankatu 15-17, 00130, 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, 17
February 2004, at 4.00 p.m. To attend the conference call, please
call to the following telephone number +44 20 7162 0184, password:
Rautaruukki, around 5 - 10 minutes before the conference starts.
The 2004 financial statements bulletin is available on the
company's website.
www.ruukki.com
Rautaruukki Oyj
Taina Kyllönen
VP, Corporate Communications
REPORT OF THE BOARD OF DIRECTORS 2004
Business environment and market
Of Rautaruukki's core market areas, economic growth in Nordic
countries was clearly above the average of the euro zone. In
Central Eastern Europe and the Baltic states, economic growth was
significantly stronger than in the rest of Europe. Strong economic
growth was also reflected in the Group's most important customer
sectors. Construction demand was good during 2004 across
Rautaruukki's entire market area, with the building market in the
Baltic states and Central Eastern European countries growing most
strongly. Growth of mechanical engineering industry output picked
up to some extent in the EU countries last year. In the lifting,
handling and transport equipment industry, demand was very strong
throughout the year.
In traditional steel industry products, demand also grew strongly,
particularly in the Chinese and US markets. Owing to good demand,
the prices of steel products rose strongly. Supply of steel raw
materials, especially coke and coking coal, was unable to keep up
fully with demand. The market prices of raw materials were clearly
higher than prices in 2003.
After strengthening early in the year, the US dollar again began
to weaken in May. At the end of September, the weakening
accelerated and at year end the euro-dollar exchange rate was
1.3621.
Net sales and result 2004 (2003 comparison figure)
The Group's net sales in 2004 were EUR 3,569 million, representing
21 per cent growth from net sales in 2003 (2,953). Net sales were
boosted by a strong rise in steel product prices that began in the
second quarter of 2004. Delivery volumes remained at the level of
2003. Of net sales, 26 per cent (26) comes from Finland and 28 per
cent (26) from the other Nordic countries. Central Eastern Europe
accounted for 11 per cent (11), the rest of Europe 32 per cent
(34) and other countries 3 per cent (3).
Operating profit was EUR 475 million (128, including non-recurring
items -42) and 13.3 per cent (4.3) of net sales.
Operating profit was increased by a rise in product prices and an
improvement in the sales structure. Prices of steel raw materials
rose clearly from 2003. Prices of iron ore and coking coal rose on
average by around 15 per cent and the price of recycled steel used
in steel production rose by around 50 per cent compared with 2003.
An improved sales structure, measures to improve cost-efficiency
and a rise in product prices compensated, however, for increased
raw material costs. Fixed costs rose owing to personnel incentive
schemes, but otherwise remained stable. The change in the exchange
rate of the US dollar improved the operating profit by around
EUR 37 million compared with 2003. A production shutdown at the
Raahe steel works caused by interim repairs on Blast Furnace 2,
which were completed in July, weakened operating profit by around
EUR 25 million.
Net financial expenses totalled EUR -45 million (-58). Net
interest expenses were EUR -40 million (-47) and the net loss on
foreign exchange EUR 3 million (9).
The profit before extraordinary items and taxes was EUR 430
million (70).
Group taxes were EUR 116 million (17), which includes a change in
deferred tax liability of EUR 1 million (9). The taxes decreased
by EUR 18 million due to a reduction in tax liability resulting
from a change in Finnish tax legislation. The effective tax rate
was 27 per cent (24).
The minority interest share of profits was EUR -1 million (1) and
net profit for the financial year was EUR 313 million (53).
Earnings per share were EUR 2.31 (0.39). The effect on earnings
per share of the reduction in tax liability due to the change in
Finnish tax legislation was EUR 0.13.
The return on capital employed was 26.1 per cent (7.1) and the
return on equity was 32.4 per cent (6.5).
Cash flow and financing
Cash flow from operations was EUR 386 million (265) and cash flow
before financing EUR 268 million (176).
Interest-bearing net debt totalled EUR 692 million (922) at the
end of the year. Working capital grew EUR 128 million (0) owing to
an increase in trade receivables and inventories.
The equity ratio was 43.0 per cent (34.6) and the gearing ratio 62
per cent (112). At the end of the year, the Group had liquid funds
amounting to EUR 60 million and unused committed revolving credit
facilities with banks totalling EUR 245 million. The average
interest rate on loans at year end was 4.6 per cent (4.5). The
average maturity of loans at year end was 3.0 years (3.3).
Shareholders' equity at the end of the financial year stood at
EUR 1,127 million, or EUR 8.20 per share (6.07).
Personnel
During 2004 the average number of personnel was 12,273 (12,782).
At the end of the year the total payroll was 12,126 (12,047), a
net addition of 79. The acquisition of Velsa Oy added 396 people
to the Group's payroll.
The profit bonus based on the Group's profit for 2004 is EUR 16
million. The profit bonus scheme covers almost all of the Group's
personnel. Under a share bonus scheme, which acts as a long-term
incentive for the Group's key personnel, 40 per cent of the
maximum amount of bonus was paid for the period 2001-2003. The
share bonus scheme covers around 100 management personnel and
other key employees.
Research and development
Research and development expenditure totalled EUR 17 million (17)
in 2004. This is equivalent to 0.5 per cent (0.6) of net sales.
The emphasis of product development was on coated flat products
and extra high-strength steel products. In production process
development, the objectives were improving cost-efficiency as well
as the accuracy and quality of deliveries.
Environmental matters
The Finnish Government announced the free initial allocation of
emissions allowances in December. On the basis of this
announcement, Rautaruukki's Raahe and Koverhar steel works will
receive in the free initial allocation emissions allowances based
on the need for 2005-2007 less an adjustment factor of -5.39%. The
need for the period 2005-2007 has been defined using production
estimates and the level of specific emissions for the period 1998-
2002, based on national emission trading law. In the first period
of emissions trading, 2005-2007, direct purchases of emissions
rights are not expected to form a major cost burden on the
business.
As part of its management of the carbon dioxide emissions balance
management, Rautaruukki Oyj has signed an agreement to join the
World Bank's CDCF fund with a commitment of four million dollars
to the fund. CDCF generates certified emission reductions as laid
down in the Kyoto Protocol that can be converted in the EU
emissions trading system to emissions rights.
Capital expenditures and structural changes
Gross capital expenditures in 2004 totalled EUR 149 million (102).
Of this sum, fixed assets accounted for EUR 108 million (102) and
acquisitions EUR 41 million (0). The largest fixed asset items
were the building of a walking beam furnace that began at the
Raahe steel works, automation of the hot strip rolling mill, and
interim repairs to Blast Furnace 2 in July. The most significant
acquisition was Velsa Oy. Fixed assets amounting to EUR 29 million
were sold during the year. Net capital expenditure in 2004
amounted to EUR 118 million.
During the financial year, Ruukki Construction restructured its
Russian operations by discontinuing production at Taldom, near
Moscow. Personnel reductions affected 44 people.
In March 2004 Rautaruukki Oyj purchased the business operations of
TP-Teräskeskus Oy from the Finnish company TP-Yhtiöt. In
connection with the acquisition, 18 employees transferred to
Rautaruukki. The annual net sales of TP-Teräskeskus are around
EUR 4.5 million. The company has operated as a contract
manufacturer and its business activities consist of pre-processing
of steel sheets and plates, such as flame cutting and edging.
In March 2004 Rautaruukki signed an agreement to set up Sheet
Metal Innovations SMI Oy with sheet metal specialists Relicomp Oy
and GT-Systems Oy and the venture capital company Midinvest.
Rautaruukki has a 24% holding in the joint venture.
In March 2004 Rautaruukki sold its Technology Sales unit to the
Austrian company Voest-Alpine Industrieanlagenbau GmbH&Co.
Technology Sales has sold steel industry process automation
systems for blast furnaces, sintering plants, steel mills and
coking plants. In 2003 the unit's net sales were more than EUR 3
million.
Star Tubes (UK) Ltd, a precision tube wholesaler with operations
in Great Britain, was sold to the British wholesaler Barrett Steel
Ltd in April. Star Tubes net sales totalled around EUR 15 million
and it had 50 employees.
Rautaruukki sold its welding wire production in Dalsbruk to ESAB
in June. The welding wire production employed around 30 people
from a total workforce of 300 in the rolling and drawing
activities in Dalsbruk. ESAB will continue the production of
welding wire at the current premises in Dalsbruk.
During 2004, the company simplified the company structure by
reducing the number of legal companies in Finland and abroad. In
Finland the merger of the following companies into Rautaruukki Oyj
was entered in the Trade Register: Rannila Steel Oy, Asva Oy, Oy
JIT-Trans Ltd, August Lindberg Oy and SKJ-yhtiöt Oy.
In October Rautaruukki announced that the Ruukki Construction
division will concentrate its production in Finland on the
processing units in the Ostrobothnia region (Alajärvi, Vimpeli)
and in Sweden on the Anderslöv processing unit. Co-determination
negotiations on the concentration of production were concluded in
November. The number of personnel will be reduced by 40 in Finland
and by 60 in Sweden at the business units affected by the
negotiations. Production operations will cease by summer 2005 at
Kaarina in Finland and at Gävle in Sweden, apart from the colour
coating line.
In October, Rautaruukki signed an agreement on acquiring the
entire share stock of Velsa Oy from Kalmar Industries, which is a
subsidiary of Kone Corporation's Kone Cargotec business unit. The
deal came into effect on 1 November 2004.
Rautaruukki Oyj increased its holding in Presteel Oy by purchasing
Presteel shares from Metso Corporation in December. Presteel is a
joint venture established by Rautaruukki and Metso in 1997 to
which the manufacture of roll blanks for Metso was transferred. As
a result of the transaction, Rautaruukki's interest increased from
55 per cent to 80.1 per cent.
Shares and share capital
Rautaruukki Oyj shares worth EUR 912 million (207) were traded on
the Helsinki Stock Market in 2004. The highest quotation was
EUR 9.19 in November and the lowest EUR 5.67 in May. The average
price was EUR 7.16. The price of the share on 30 December 2004 was
EUR 8.74 and the company had a market capitalisation of EUR 1,214
million.
The company's registered share capital on 31 December 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
the transfer of the company's own shares. Pursuant to this
authorisation the company transferred, on 30 August 2004, 197,040
of its own Series K shares (treasury shares) to persons covered by
the Group's share bonus scheme. Following the transfer, the
company has 3,072,960 treasury shares. The book value of treasury
shares is EUR 13.6 million and the market value on 31 December
2004 was EUR 26.9 million. The Board of Directors does not have a
current authorisation to increase the share capital or to purchase
the company's own shares.
Share bonus scheme 2004
In December the Board of Directors of Rautaruukki Oyj decided on a
new share bonus scheme for key personnel. The new scheme covers
around 60 company management staff and other key personnel. The
incentive scheme is based on three performance periods, which are
the years 2005, 2006 and 2007. The payment of any bonus is based
on the achievement of financial targets, which are measured using
earnings per share (EPS) and return on capital employed (ROCE).
Possible bonuses will be paid in a combination of Rautaruukki
shares and cash. Any shares earned through the plan must be held
for a minimum of two years after the date of each payment. The
President and CEO and members of the Management Group, however,
must keep any Rautaruukki Oyj shares that they have obtained
through the scheme at least to the value of their annual gross
salary for as long as they are employed as President and CEO or
are members of the Management Group. The 2004 share bonus scheme
replaces the share bonus scheme introduced in Feb 2000, the final
performance period of which will end in 2006.
New unified Ruukki
In autumn 2004 the Rautaruukki Group's product brands and
marketing were concentrated under the single Ruukki marketing
name. The new brand and visual image will support the development
of Ruukki into a unified company that customers can work with
simply and easily. The company has previously used several product
brands, which will now be merged as part of Ruukki. This will
bring clarity to marketing and cost-efficiency.
As of 1 September 2004, all the companies in the Rautaruukki Group
adopted a common marketing name, Ruukki. The marketing name is
used by all of the Group's companies in all market areas. The
parent company's legal name will remain as before, but the names
of foreign subsidiaries will be changed to the form Ruukki +
country name + company name. Holding companies will take the form
Ruukki Holding + company name.
Strategy fine-tuning
As set out in the strategy launched in summer 2003, the
Rautaruukki's aim is to be the most desired supplier of metal-
based solutions in selected customer segments by 2008-2010. The
past year was the first full operating year of the new strategy.
During the year the company's strategy was further fine-tuned. In
future the Group will concentrate on being a solutions supplier to
construction and the mechanical engineering industry. In
construction, the objective is to strengthen the company's
position at all stages of the construction value chain, to
generate new business and to grow, especially in the Central
Eastern Europe market. In mechanical engineering, the Group will
focus on the lifting, handling and transport equipment industry
with the aim of growing into a significant component and system
supplier in Northern Europe and transferring closer to customers
in the value chain. In traditional metal products the Group's
objective is to strengthen its position as a leading supplier in
the Nordic countries and the Baltic states. In connection with
strategy fine-tuning, Rautaruukki's core market area was expanded
to cover all the Central Eastern Europe countries in addition to
the Nordic countries and the Baltic states. The growth and
development of the solutions business and the accumulation of
expertise will be supported through the acquisition of financially
sound, growth-oriented companies. Non-core business operations
will be disposed of.
The company's customer-focused divisions from the beginning of
2005 are Ruukki Construction, Ruukki Engineering and Ruukki
Metals. The operations of the Ruukki Fabrication division have
been incorporated into these divisions. The Ruukki Production
division is responsible for production.
To support the implementation of the strategy, in autumn 2004 the
Group set up the Ruukki United project, under which all core and
support process development projects have been gathered. The
objective is to achieve significant cost savings through the
development of efficient operating practices. The goal of
development work is to create a single unified company that
customers can work with simply and easily. Concentrating on the
chosen solutions sectors will present good prospects for
profitable growth and opportunities to create a significant
competitive advantage.
The long-term financial targets set in autumn 2003 remain
unchanged: return on capital employed 15 per cent, operating
profit more than 7 per cent of net sales, gearing below 80 per
cent.
Group management
Sakari Tamminen took over as the Group's new President and CEO on
1 January 2004. Tamminen joined the company on 22 April 2003 as
Executive Vice President and deputy to the CEO, with
responsibility for the Group's operational management. Mikko
Kivimäki, the Group's long-serving President & CEO, retired on 31
December 2003.
Supervisory Board, Board of Directors and auditors
The Annual General Meeting of Rautaruukki Oyj, held on 23 March
2004, re-elected Turo Bergman, Lic. (Pol. Sc.) as Chairman, and
Member of Parliament Jouko Skinnari as Deputy Chairman. Re-elected
as members were Members of Parliament Inkeri Kerola and Lasse
Virén, as well as Mr Ole Johansson, President & CEO, Wärtsilä
Corporation, and Tauno Matomäki, former President & CEO, UPM-
Kymmene Corporation. Heikki Allonen, President & CEO, Fiskars
Corporation, as well as Members of Parliament Miapetra Kumpula,
Petri Neittaanmäki and Tapani Tölli were elected as new members of
the Supervisory Board.
The Annual General Meeting re-elected Jukka Viinanen, President &
CEO, Orion Group, as Chairman of the Board, and Georg Ehrnrooth,
Former President & CEO, Metra Corporation as Deputy Chairman. Re-
elected to the Board were Christer Granskog, President & CEO,
Kalmar Industries AB, Pirkko Juntti, LL.M., Pekka Timonen, Senior
Advisor, Ministry of Trade and Industry and Maarit Toivanen-
Koivisto, Chair of the Board, Onninen Oy. Maarit Aarni, Vice
President, Phenol Business Unit, Borealis Group, was elected as a
new member of the Board.
Members of the Audit Committee set up by the Board for financial
year 2004 were Pirkko Juntti, Chairman, Maarit Aarni and Christer
Granskog. Members of the Compensation Committee set up by the
Board for financial year 2004 were Jukka Viinanen, Chairman, Georg
Ehrnrooth and Maarit Toivanen-Koivisto.
The Annual General Meeting re-elected Authorised Public Accounting
Firm Ernst & Young Oy as auditor, with Pekka Luoma, Authorised
Public Accountant, acting as responsible auditor.
Resolutions of the Annual General Meeting
Rautaruukki Oyj's Annual General Meeting, held on 23 March 2004,
approved Board proposals relating to the transfer, within one year
of the Annual General Meeting, of treasury shares belonging to the
company. The Annual General Meeting decided to establish a
Nomination Committee to prepare proposals for the following Annual
General Meeting regarding the composition of the Board of
Directors and director remuneration.
The Annual General Meeting decided to pay a dividend of EUR 0.20
per share, a total of EUR 27 million, for the financial year
ending 31 December 2003.
Events after the end of the financial year
Rautaruukki Oyj announced in January that it was exercising a pre-
emption clause in the company's Articles of Association to acquire
the 50 per cent holding of an international private equity
investor group in the Polish company Metalplast-Oborniki Holding
Sp. z o.o., which is Poland's leading manufacturer of metal-based
construction elements. On completion the acquisition will increase
Rautaruukki's holding to 66.7 per cent. The authorities must give
their approval before the transaction is finalised. Rautaruukki
has also made an offer to purchase the 31% holding of the Polish
State and is committed to making an offer for the shares owned by
the company's management and personnel, with the objective of
raising its holding in Metalplast to 100%. Metalplast had
estimated net sales in 2004 of EUR 65 million and had 685
employees at the end of 2004.
Restructuring of long steel products
On February 17, 2005, Rautaruukki Corporation, AB SKF and Wärtsilä
Corporation signed a Memorandum of Understanding expressing their
intention to combine long steel businesses into a jointly owned
new company ("NewCo"). Rautaruukki's long products subsidiaries
Fundia Special Bar, Fundia Wire and Fundia Bar & Wire Processing
will be transferred to NewCo. The Group's reinforcing business
remains as part of Ruukki Metals division. Rautaruukki, SKF and
Wärtsilä will own 47.0 per cent, 26.5 per cent and 26.5 per cent
of NewCo, respectively. NewCo shall be independent and
financially strong. The shareholders have agreed that NewCo
initially will be capitalised to a net gearing of 37.5 per cent.
Definitive agreements are expected to be signed by June 30, 2005.
The transaction supports Rautaruukki's strategy to focus on
solution business in defined customer segments and on core market
area. The aim is to replace NewCo's interest-bearing debts from
shareholders with external financing, which would then mean for
Rautaruukki a capital release of approximately EUR 90 million and
an improvement of gearing by approximately 8 per centage points.
Pro forma book value of Rautaruukki's investment is approximately
EUR 180 million following the refinancing. NewCo is expected to
create significant potential for profit and value enhancement
through the annual cost savings which are estimated to be EUR 30-
40 million. Annual net sales (pro forma) of the contributed long
products business in 2004 were EUR 633 million. The effect of the
transaction on the Group's net income is almost neutral. From 2006
onwards the synergy effects will be EPS enhancing. NewCo will be
accounted for as an associated company in Rautaruukki Group's
consolidated accounts.
Outlook for 2005
In Rautaruukki's core market areas, economic prospects for 2005
are positive. Economic growth in the Nordic countries is expected
to remain stronger than in the euro zone. In Central Eastern
Europe economic growth is expected to continue to be clearly
better than in the EU and the euro zone. Forecasts for growth of
industrial output in Central Eastern Europe are also clearly
positive. The strong economic outlook creates a good foundation
for the prospects of Ruukki's most important customer sectors.
Development of the traditional steel industry in Europe is
strongly dependent, among other things, on the Asian and US
markets. The development of Asian demand will play a central role
in terms of market prices. Demand for steel products is expected
to continue to be good in China, but the country's own strongly
expanding output brings uncertainty to the situation. Prices of
raw materials for steel manufacturing are expected to continue to
rise clearly.
In the first quarter of the current year, the market situation in
Ruukki's core market areas has remained good and sales prices have
increased, particularly in flat steel products. Prices in the
second quarter are expected to remain the same or to rise
slightly. The Group's comparable net sales for the full year are
expected to be higher than in 2004 and preconditions for strong
profitability exist. The main uncertainty continues to lie in the
demand on Asian markets and its effects on the global steel
product prices.
Board's proposal for the disposal of distributable funds
On 31 December 2004 the Group's distributable capital and reserves
stood at EUR 311 million. The parent company's distributable
capital and reserves stood at EUR 314 million.
The Board of Directors has decided to propose to the Annual
General Meeting, to be held on 23 March 2005, that a dividend of
EUR 0.80 (2003: EUR 0.20) per share be paid, a total of EUR 109
million. It is proposed that the dividend be paid on 6 April 2005.
Annual General Meeting
The Annual General Meeting of Rautaruukki Oyj will be held on
Wednesday 23 March 2005 at 12 noon in the Marina Congress Center
in Helsinki.
Financial reporting in 2005
The 2004 Annual Report will be published in March 2005, in Week
11.
Rautaruukki Oyj's Interim Reports for the first, second and third
quarters of 2005 will be published on 27 April 2005, 27 July 2005
and 26 October 2005 respectively.
Helsinki, 17 February 2005
Board of Directors
DIVISIONS
Ruukki Construction
In 2004 Ruukki Construction's net sales grew by 18 per cent to 419
million euros (356). Operating profit was 60 million euros (30).
The division's share of net sales for the whole Group was 12 per
cent. Net sales and operating profit improved above all due to the
strengthened demand, the increase in added value and the growth of
production efficiency. The share of net sales for the Baltic and
CEE countries also grew.
Demand for construction during 2004 was good throughout the market
area. Growth was strongest in the construction markets of the
Baltic and CEE countries. Competition grew tighter as the year
went on. There are large, Western concerns and a growing host of
small and medium-sized local companies in the construction product
industry operating in the market area. Demand for commercial
construction was especially good in the CEE area and Scandinavia.
Demand within residential construction was good in Scandinavia
throughout the year. In the Baltic countries and Ukraine demand
grew beyond expectations. In Poland changes to the value-added tax
brought about a powerful demand peak and a growth in the stocks of
retailers at the start of the year, but by the end of the year
demand had quietened down. Demand in infrastructure construction
was increased by the large rail and harbour projects in the Nordic
and Baltic countries as well as the substantial pipeline projects
in Southern and Western Europe.
Demand for fast, customer-specific deliveries grew among
construction clients, which highlighted still further the
importance of logistics management and economies of scale. Ruukki
Construction reorganised production in the first half of 2004 in
Russia, the Czech Republic, Poland, Ukraine and Hungary and
started similar measures in Finland and Sweden in the latter half
of the year. This reorganisation, combined with the growth of
production, improved productivity and strengthened
competitiveness.
Ruukki Engineering
In 2004 Ruukki Engineering's net sales grew by 29 per cent to 330
million euros (256). Operating profit was 51 million euros (27).
The division's share of net sales for the whole Group was 9 per
cent. Net sales were boosted by the rise in steel prices. The
measures to increase efficiency made clear improvements to the
profitability of the processing units.
Demand in the lifting, handling and transport equipment industry
was especially strong throughout the year and deliveries increased
markedly, while total deliveries to the pulp and paper industries
rose slightly. The volume of orders from the marine and offshore
industries were at an all-time global high in 2004. At the end of
the year order logs of Finnish shipyards were improving, too.
In October Rautaruukki acquired Velsa Oy from the Kone
Corporation's Kalmar Industries. Velsa is a manufacturer of cabins
for mobile machines. Velsa became a part of the Ruukki Engineering
division. It also contributes to Ruukki's solution-based strategy
and movement along the value chain from being a material supplier
to becoming a systems provider. Rautaruukki increased its interest
in Presteel Oy, owned jointly with Metso, to 80.1 per cent.
Presteel supplies roll blanks and other special products.
Ruukki Fabrication
Ruukki Fabrication's net sales grew by 9 per cent to 220 million
euros (201). Operating profit was 20 million euros (15). Net sales
and operating profit were especially boosted by strengthened
product prices. The division's share of net sales for the whole
group was 6 per cent.
Demand in the electronics, domestic appliance and light
engineering industries was good in Finland, Sweden and Russia.
Ruukki Fabrication started up several customer projects in the
electronics and domestic appliance industry, the results of which
are expected later. Deliveries in the light engineering industry
grew as a result of new contracts on parts and components.
Deliveries to the automotive industry rose thanks to a slight
growth in that industry's total production and the emphasis on
deliveries for highly marketable vehicle models. The profitability
of the customer sector was however weaker than the previous year
due to fixed annual contracts and the rise in raw material prices.
The co-operation network that supports the Group's solutions
business was strengthened in March with the acquisition of a 24
per cent holding in Sheet Metal Innovations Oy, who offer product
design and commercialisation services to manufacturers of sheet
products. The UK-based precision tubes wholesaler Star Tubes (UK)
Ltd was sold in April to the English wholesaler Barrett Steel Ltd.
The processing units' development and responsibilities were
continued in line with the needs of the solutions business.
Ruukki Metals
In 2004 Ruukki Metals' net sales grew by 22 per cent to 2593
million euros (2132). Operating profit was 389 million euros
(121). The division's share of net sales for the whole group was
73 per cent. Net sales and operating profit were pushed up by the
already strong demand and prices and increased efficiency of the
operations.
Prices for metal products picked up sharply during 2004 as a
result of increased demand and higher raw material costs. The
price fluctuation of recycled steel was larger compared with other
raw materials and had a particular impact on the prices of
reinforcing steels. The strong demand evident primarily in China
and the United States reflected also in the availability of
materials in Ruukki's market areas. One of the key issues in
Ruukki Metals' operations during the year was to meet and secure
the needs of customers in the core market area. In the Nordic and
Baltic countries demand grew faster in the main customer segments
than in the rest of the EU area.
A new service centre serving the whole Baltic region was opened in
Estonia in 2004. In Norway the market share grew clearly as a
result of the acquisitions made at the end of 2003. The service
centre expansion project begun in Sweden and the March 2004
acquisition of Finnish steel contract manufacturer TP-Teräskeskus'
operations strengthen the market position further. The
consolidation of operations in line with the new business model
was executed in various countries and created clear synergies in
2004, while clarifying customer work and improving cost
efficiency. The focus on special products was continued outside
the core market areas in order to further improve profitability.
The use of capital was enhanced by developing the delivery process
and increasing the turnover of receivables. Ruukki Metals
concluded two significant delivery agreements for the Sakhalin II
project in Russia in the beginning of 2004. The deliveries
comprise of prefabricated steel products for crude oil and gas
tanks.
Ruukki Production
Production progressed well in all plants and was continuously
developed. Total steel production in 2004 was 4,549,000 tonnes
(4,572,000). Blast furnace repair was carried out at BF 2 of the
Raahe steel works over the summer, without technical hitches and
in a shorter time than expected. The shutdown for the repairs
lasted 30 days and reduced steel production by 135,000 tonnes.
In 2004 the prices of the most important raw materials rose
dramatically. Prices for iron ore and coking coal rose on average
about 15 per cent in 2003. Iron ore is brought in from Sweden,
iron pellets from Russia and Sweden, and coking coal from Canada,
Australia and the United States. The price of the recycled steel
used in steel manufacturing in Mo i Rana, Norway, and
Smedjebacken, Sweden, rose about 50per cent. Ruukki Production has
secured the availability of all raw materials with long-term
delivery contracts.
At the start of 2004 the production of tubular products was halted
at Nordisk Simplex A/S in Denmark and transferred to other tube
works within the Group in order to improve production efficiency.
At the hot strip mill a new automation system and slab reheating
furnace are to be introduced in early 2005. These will markedly
improve the quality of the products.
Profit and loss account 2004 2003 2004 2003
EUR million 10-12 10-12 1-12 1-12
Net sales 1006 759 3569 2953
Other operating income 8 2 16 9
Operating expenses -809 -728 -2937 -2623
Depreciation -46 -42 -173 -170
Operating profit before
non-recurring items 160 42 475 170
Non-recurring items 0 -42 0 -42
Operating profit 160 0 475 128
Financing income and expenses -12 -14 -45 -58
Profit before extraordinary
items and taxes 148 -14 430 70
Extraordinary items 0 0 0 0
Profit before taxes 148 -14 430 70
Taxes* -41 -8 -118 -26
Change in deferred tax** -7 19 1 9
Minority interests 0 0 -1 1
Profit of the period 101 -3 313 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
Assets 31 Dec 31 Dec %
Non-current assets 1284 1329 -3
Inventories 640 502 27
Debtors 691 572 21
2616 2403 9
Liabilities
Capital and reserves 1127 838 34
Minority interests 1 1 -9
Provisions 58 60 -4
Non-current creditors 712 927 -23
Current creditors 718 577 25
2616 2403 9
Cash flow statement 2004 2003
EUR million 1-12 1-12
Cash flow before working
capital changes 636 332
Change in working capital -128 0
Financing items and taxes -122 - 66
Cash flow from extraordinary items 0 0
Cash flow from operations 386 265
Acquisitions -41 0
Cash flow from other
investing activities -77 - 89
Cash flow before financing 268 176
Key figures 2004 2003 2004 2003
1-12 1-12 1-12 1-12
Net sales, mEUR 1,006 759 3,569 2,953
Operating profit before
non-recurring items, mEUR 160 42 475 170
Non-recurring items, mEUR - -42 - -42
Operating profit , mEUR 160 0 475 128
- as percentage of net sales 15.9 -0.1 13.3 4.3
Profit before extraordinary
items and taxes, mEUR 148 -14 430 70
Earnings per share, EUR 0.74 -0.02 2.31* 0.39
Return on capital employed, % 26.1 7.1
Return on equity, % 32.4 6.5
Equity ratio, % 43 34.6
Gearing ratio, % 62 112
Interest bearing net debt, mEUR 692 922
Equity per share, EUR 8.2 6.07
Personnel on average 12,27312,782
* includes EUR 0.13 resulting from an EUR 18 million reduction in
the deferred tax liability due to the change in Finnish tax
legislation
Net sales by division 2004 2003* Change
EUR million 1-12 1-12 %
Construction solutions 419 356 18
Mechanical engineering solutions 330 256 29
Metal fabrication solutions 220 201 9
Metal products 2593 2132 22
Other units 8 9
Consolidated net sales 3569 2953 21
* pro forma
Operating profit by division 2004 2003*
EUR million 1-12 1-12
Construction solutions 60 30
Mechanical engineering solutions 51 27
Metal fabrication solutions 20 15
Metal products 389 121
Other units -45 -24
Non-recurring items -42
Consolidated operating profit 475 128
* pro forma
Net sales by quarter*
EUR million I/03 II/03III/03 IV/03 I/04 II/04III/04IV/04
Ruukki Construction 61 86 106 102 70 109 124 116
Ruukki Engineering 69 67 60 59 64 78 74 114
Ruukki Fabrication 54 51 46 50 55 52 53 59
Ruukki Metals 518 562 510 542 605 672 600 715
Other units 1 2 0 6 1 1 3 2
Consolidated
net sales 704 768 722 759 795 913 855 1006
* 2003 figures pro forma
Operating profit by quarter*
EUR million 03 II/03III/03 IV/03 I/04 II/04III/04IV/04
Ruukki Construction -4 4 16 15 1 17 24 18
Ruukki Engineering 10 2 10 5 9 15 10 17
Ruukki Fabrication 3 4 4 5 5 7 5 4
Ruukki Metals 25 43 33 20 65 98 97 129
Other units -6 -7 -7 -4 -8 -17 -12 -8
Non-recurring items -42
Consolidated
operating profit 28 45 55 0 73 119 123 160
* 2003 figures pro forma
Steel production I/03 II/03III/03 IV/03 I/04 II/04III/04IV/04
(1000 t) 1154 1168 1076 1174 1184 1198 985 1182
Contingent liabilities Group Rautaruukki Oyj
EUR million 12/2004 12/2003 12/2004 12/2003
Mortgaged real estates 30 39 27 28
Collateral given on behalf of
Group companies 124 109
associated companies 2 2 2 2
others 2 6 0 4
Leasing and rental liabilities 266 292 248 70
Repurchase liabilities 2 2 1 0
Values of derivative contracts, EUR million
31 December 2004 Nominal value Fair value
Interest rate derivatives
Interest rate swaps 580 -6.0
Foreign currency derivatives
Forward contracts 319 0.1
Options
Bought 90 -2,9
Sold 105 -5.4
195 -8.2
Zinc derivatives
Forward contracts 46,350* 8.0
Electricity derivatives
Forward contract 2,560** -2.9
* tonnes
** GWh