February 8, 2006
08:00 CET
Rautaruukki Corporation Financial Statements Bulletin 2005
Rautaruukki Oyj Stock Exchange Release 8 Feb 2006 at 9.00
Rautaruukki adopted International Financial Reporting Standards (IFRS) from the
beginning of 2005. The comparison figures of this report have been reported
according to IFRS. Additional information and a more detailed discussion of the
effects of the transition on the balance sheet and income statement were given
in the company's stock exchange release published on 26 April 2005.
REPORT OF THE BOARD OF DIRECTORS 2005
Operating environment
The trend in the overall economy remained positive in Rautaruukki's core market
areas in 2005. In the Nordic countries, GDP growth was clearly above the average
for the eurozone, and in central eastern Europe and the Baltic countries,
economic growth was considerably stronger than elsewhere in Europe. Demand held
up well in the Group's most important customer industries. Construction activity
was good throughout Rautaruukki's market area, and especially strong in the
Baltic countries and central eastern Europe. Within the engineering industry,
Rautaruukki's customers saw a very good increase in their order books,
particularly within the lifting, handling and transportation equipment industry
as well as in the offshore and marine industry. Demand was also strong in the
paper, wood-processing and energy industries.
Within standard steel products, the winding down of the excess stocks which
wholesalers had built up towards the end of 2004 and at the beginning of 2005
depressed deliveries, and in the first half of the year this translated into
considerable pressure on spot market prices. The steel industry responded to the
situation by adjusting production in line with profitable demand. The stock
situation normalised during the autumn.
World market prices of the concentrated iron ore, iron pellets and coking coal
used in making steel rose markedly at the beginning of 2005.
The US dollar strengthened by about 13 per cent from the level of 1.35 euro at
the beginning of 2005. The exchange rate of the US dollar against the euro was
1.1797 at 31 December 2005.
Net sales and result for 2005 (comparative figures for 2004)
Consolidated net sales for the full year in 2005, EUR 3,654 million, exceeded
the net sales figure of 3,564 million in 2004, despite the fact that the
businesses that were transferred to Ovako were excluded from the reported
figures as from 1 May 2005. Comparable net sales in 2004 were EUR 3,192 million.
Net sales were lifted by a considerably higher price level than in 2004. The
solutions businesses accounted for 28 per cent of the net sales (20). The
increased share was attributable to the substantially higher volume of the
solutions businesses and the acquisitions that were carried out.
Of net sales, 29 per cent came from Finland (26) and 30 per cent from the other
Nordic countries (28). Central eastern Europe accounted for 12 per cent of net
sales (11), the rest of Europe for 26 per cent (32) and other countries for 3
per cent (3). Sales to the core market areas increased due to the measures that
have been carried out to concentrate sales as well as to the Ovako arrangement.
Delivery volumes declined by 19 per cent. The factors underlying the drop in
delivery volumes were the non-inclusion of the units that were transferred to
Ovako as well as the adjustment of deliveries and production in line with
profitable demand. On a like-for-like basis, delivery volumes were down 7 per
cent.
Operating profit was EUR 618 million (493), or 16.9 (13.8) per cent of net
sales. Comparable operating profit in 2004 was EUR 446 million, or 14.0 per cent
of net sales. Operating profit was lifted by the rise in product prices coupled
with an improvement in the sales structure. The profitability of solutions
businesses improved from 2004 and their share of net sales rose to 29 per cent
(22).
Prices of the raw materials used in manufacturing steel rose markedly compared
with 2004. Higher raw material prices began to affect earnings from the second
quarter on.
Sales and administrative costs increased slightly owing to the change in the
Group structure. The good result also increased the costs of the profit bonus
and share bonus schemes periodised over the financial year.
The average exchange rate of the US dollar remained at the level seen in 2004.
Dollar hedging contributed about EUR 25 million to operating profit compared
with 2004. The net effect of foreign exchange rates on operating profit was a
gain of EUR 16 million (loss of 5).
Net financial expenses amounted to EUR 30 million (51). Net interest expenses
totalled EUR 28 million (46).
The share of associate companies' profit was EUR 23 million (2), of which Ovako
accounted for 18 million.
The result before taxes was EUR 612 million (443).
The Group's taxes amounted to EUR 157 million (114), including a change in
deferred taxes of EUR 1 million (-4). The effective tax rate was 27 per cent
(26).
The minority interest share of the result was EUR 0 million (1). Net profit for
the financial period was EUR 455 million (330).
Diluted earnings per share were EUR 3.31 (2.40).
The return on capital employed was 32.8 per cent (26.0) and the return on equity
34.7 per cent (33.8).
Balance sheet
From the end of 2004, the Group's total assets decreased by EUR 11 million to
EUR 2,701 million. At the year-end, the equity ratio was 56.0 per cent (41.7)
and the gearing ratio 22.8 per cent (68.0).
Cash flow and financing
Cash flow from operations was EUR 652 million (386) and cash flow after
investments was EUR 519 million (268).
Interest-bearing net debt at the end of 2005 totalled EUR 341 million (761).
Working capital remained unchanged (grew by 152 million in the previous year).
In calculating the change in working capital, the effect of acquired companies
and the units that were transferred to Ovako have been removed.
At the end of the year the Group's liquid funds amounted to EUR 163 million and
it had a total of EUR 300 million of committed unused revolving credit
facilities with banks. The average interest rate on loans at the end of the year
was 5.2 per cent (4.6), owing to old bonds with a high interest rate. The
average maturity of loans at the end of the year was 3.5 years (3.0).
At the end of the financial year, shareholders' equity stood at EUR 1,498
million (1,127), or EUR 10.98 per share (8.29).
Improving cost-effectiveness
In October 2005 Rautaruukki announced savings targets for the Ruukki United
programme for unifying ways of working and boosting efficiency. By the end of
2008 the cost savings are expected to add about 150 million euros to the Group's
operating profit. It is also estimated that the efficiency-boosting programme
will free up about 150 million euros of capital by the end of 2008, especially
by optimising stocks and stepping up the working capital turnover ratio. The
effects on staffing levels will be ascertained on a project-specific basis, and
the reductions are expected to be made primarily by way of retirement and
relocation. The non-recurring costs for the projects have been taken into
account in setting the above-mentioned savings targets. The investments required
for the projects will be about EUR 30 million.
Personnel
During 2005 the Group had an average payroll of 11,684 employees (12,273). At
the end of 2005 the entire payroll was 11,374 employees (12,126). The change in
the number of employees was a decrease of 752 people. The Metalplast acquisition
increased the Group's payroll by 726 employees and the Syneco Industri AB
acquisition by 587 employees. During the report period, 1,900 Group staff
transferred to the employ of Ovako.
The Group's profit bonus that is calculated on earnings for 2005 is EUR 19
million (15). This bonus system covers nearly the entire personnel. In
accordance with the share bonus scheme that is part of the long-term incentive
system for key Group personnel, the bonuses paid for the period 2002-2004 were
the maximum amounts. The portion of bonuses paid for 2005 was EUR 13 million.
The portion of schemes falling due subsequently and periodised to the financial
year was EUR 23 million. On the accounting period, the total costs arising from
share bonus schemes was EUR 36 million (11) The share bonus scheme covers 94
senior executives or other persons who are classified as key employees.
Research and development
Research and development expenditure in 2005 amounted to EUR 22 million (17),
representing 0.6 per cent of net sales (0.5). R&D activities centred on the
development of customer applications and solutions for selected business areas.
Process development focused on improving productivity, achieving greater
production flexibility and reducing environmental impacts.
In 2005 the Group increased its product development co-operation with customers
and end users. The construction business area expanded its integrated deliveries
of frame and envelope structures that are used in building industrial, retail
and logistics facilities. By means of new technical solutions, Rautaruukki will
be able to respond to an ever greater range of architectonic requirements, to
speed up implementation at the site and to raise the cost-effectiveness of
construction projects. Within the engineering business area R&D work centres on
developing customised cabins for mobile machines. Efficiency was enhanced by
emphasising the development of welded components in the division's own and
customers' production. Within steel products, the focus of development work was
on new special products and coatings. An example of such a product that reached
completion during the year was high-strength galvanised steels which have good
formability characteristics and meet Euronorm requirements. Development work on
dirt resistant and antibacterial coatings was continued together with VTT
Technical Research Centre of Finland. Together with customers, technology and
materials solutions were developed, particularly for demanding component
applications, in which the critical factor is the forming processes for sheet
steel and tubes as well as the techniques for joining components.
M&A arrangements completed
The long steel products business was spun off into Oy Ovako Ab, which is owned
jointly by Rautaruukki, SKF and Wärtsilä. The company began operations in May.
The units that were transferred from Rautaruukki to Ovako were Fundia Special
Bar, Fundia Wire and Fundia Bar & Wire Processing, including their subsidiaries.
Rautaruukki has a 47 per cent stake in Ovako. Ovako has been included as an
associate company in Rautaruukki's consolidated financial statements as from 1
May 2005. The capital invested by Rautaruukki in Ovako at 1 May 2005 amounted to
about EUR 278 million. Of this amount, an EUR 80 million shareholder loan was
repaid to Rautaruukki in its entirety during the report period. Additional
information on the effects of the arrangement on Rautaruukki's balance sheet and
income statement was given in the company's stock exchange release of 6 June
2005.
In order to strengthen its position in the building systems market in central
eastern Europe, Rautaruukki Corporation raised its holding in Metalplast
Oborniki Holding Sp. z o.o in June from 16.6 per cent to 99.8 per cent. The
shares were bought for a price of about EUR 19 million, in addition to which
Rautaruukki assumed about 7 million euros of interest-bearing liabilities. The
remaining 0.2 per cent of the shares are held by individual shareholders.
Metalplast has been included in Rautaruukki's consolidated financial statements
as from 1 June 2005.
In October, Rautaruukki Corporation purchased the entire shares outstanding in
Syneco Industri AB from AB Pehrson & Lindgren of Sweden with the aim of
expanding its component offerings, especially for the lifting, handling and
transportation equipment industry. The shares were bought for a price of about
EUR 15 million, in addition to which Rautaruukki assumed about 1 million euros
of interest-bearing liabilities. Syneco Industri has been included in
Rautaruukki's consolidated financial statements as from 1 October 2005.
Ruukki Engineering's Halikko Works business was sold to Halikko Works Oy in an
MBO deal in October. Halikko Works had net sales in 2004 of EUR 13 million and a
payroll of just over 100 employees.
The vacuum cleaner tube business of Rautaruukki's subsidiary Froh House Tech was
sold to FON Telescopic Systems GmbH in September. The divested business had
annual net sales of about EUR 10 million and it had a payroll of 54 employees.
M&A agreements
In the latter part of the year, Rautaruukki Corporation announced two
acquisitions that will round out its capabilities of deliveries for integrated
systems in the construction industry, whilst strengthening the company's project
know-how.
In September, Rautaruukki announced it was increasing its shareholding in PPTH
Steelmanagement Oy from 20 per cent to 100 per cent. The shares were purchased
from funds managed by CapMan, a private equity firm, and from the company's
management for a price of about EUR 7 million. As part of the deal, Rautaruukki
assumed EUR 24 million of interest-bearing liabilities. The competition
authorities gave their approval for the arrangement on 22 December 2005, and the
acquisition was completed after the end of the report period. PPTH had net sales
in 2005 of just over EUR 100 million and it had a payroll of about 500 employees
at the end of the year.
In December, Rautaruukki signed an agreement on purchasing a 100 per cent
holding in Steel-Mont a.s. from the company's management and other private
individuals. Completion of the acquisition is contingent upon approval by the
competition authorities. The acquisition is expected to be completed by the end
of March 2006. Steel-Mont's net sales in 2005 is forecast to be EUR 25 million.
The company's customers are international and Slovak investors and construction
companies that are erecting industrial and retail facilities in Slovakia. The
company had a payroll of 129 employees at the end of 2004. The total purchase
price was EUR 10 million.
Capital expenditure
Investments in tangible and intangible assets in 2005 totalled EUR 103 million
(108). Disposals of property, plant and equipment during the report period
amounted to EUR 16 million (24). During the financial year, EUR 31 million (35)
was spent on M&A arrangements, less the cash and cash equivalents of the
purchased companies at the time of acquisition. The acquisitions increased the
Group's interest-bearing net liabilities by EUR 8 million. Via the acquisitions,
property, plant and equipment increased by EUR 18 million, working capital by
EUR 8 million and goodwill by EUR 13 million.
Ruukki Engineering operates in the lifting, handling and transportation
equipment industry, which has grown robustly over the past years. To support
these operations, the company took a decision in the second quarter to modernise
the direct quenching equipment at the Raahe steel mill. The investment will also
raise the proportion of ultra high strength steels within Rautaruukki's steel
products and thereby also bolster Ruukki Metals' special product strategy. The
capital expenditure is expected to reach completion in 2007. The estimated cost
of the investment is about EUR 24 million.
Environmental and safety issues
All Rautaruukki's main production sites operate in accordance with ISO 14001
environmental systems. When modernising production processes or building new
processes, environmental risks are assessed as part of the plant's design and
planning process. Rautaruukki operates in accordance with the principles of
sustainable development. Environmental investments in 2005 came to EUR 5
million.
The most important initiative within environmental protection in 2005 was the
start-up of the EU scheme for emissions trading in greenhouse gases. Of
Rautaruukki's plants, Raahe and Hämeenlinna in Finland fall within the scope of
the EU's emissions trading. A similar system has been developed in Norway, and
it will be linked to the EU's emissions trading. The Norwegian system will apply
to the Mo i Rana Works. In the initial allocation of emissions rights,
Rautaruukki received a total of about 18.6 million tonnes of emission rights, of
which about 6.2 million tonnes were for 2005. Of these, the portion for the
units that were transferred to Ovako amounted to a total of 3.2 million tonnes,
and the portion of emission rights allocated for 2005 about 1.08 million tonnes.
The Group sets up a provision for emission rights to cover the difference
between actual emissions and emission allowances. The provision is marked to
market price. During the three-year period from 2005 to 2007, it is not
estimated that the purchase of emission rights will result in significant costs
to the company's steel production from the standpoint of overall operations.
Improving occupational safety was the company's theme of the year. The aim is to
achieve a marked improvement in occupational safety. A pilot scheme for safety
management was launched at Ruukki Production, and the operational models
developed will be employed across the entire Group. In 2005 the accident
frequency decreased clearly and was 24 accidents per million working hours (32).
Risks and risk management
The Board of Directors is responsible for the Group's risk management policy and
oversees its implementation. The President and CEO ensures that risk management
has been arranged duly and appropriately. During 2005, Rautaruukki unified its
methods of identifying and prioritising the Group's exposure to risks. On the
basis of a unified operational model, the level of risk management within the
Group was assessed, the risk management policy was defined and the principles of
risk reporting were formulated. According to the frame of reference that was
defined, risk management is a part of the day-to-day operations and decision-
making of the support functions of the divisions and the entire Group.
Rautaruukki's earnings trend is affected significantly by the changes occurring
in the business operations of its main customer industries. Part of the Group's
products are standard steel products, the prices of which track the trend in
world market prices.
The Group's production can be disturbed if the availability of certain raw
materials and energy weakens due to snags in production processes or because of
accidents. To cope with disturbances of this kind, the company has anti-accident
systems, standby systems and appropriate insurance cover.
Fluctuations in foreign exchange rates can lead to significant fluctuations in
earnings. Hedging of currency risks, interest rate risks in financing activities
and credit risks is handled in accordance with the treasury policy approved by
the Board of Directors.
Shares and share capital
In 2005 the trade volume of Rautaruukki Corporation's share on the Helsinki
Stock Exchange was EUR 2,041 million (912). The share registered a high of EUR
21.15 in December and a low of EUR 8.02 in January. The volume weighted average
share price was EUR 12.90. The closing price of the share on 30 December 2005
was EUR 20.55 and the Group had a market capitalisation of EUR 2,854 million.
The company's registered share capital at 31 December 2005 stood at EUR 236.1
million. The number of Series K shares issued was 138,886,445. Rautaruukki
Corporation's Annual General Meeting, held on 23 March 2005, authorised the
Board of Directors to decide on transferring treasury shares. Under this
authorisation, on 29 August 2005 the company transferred 480,263 of its own
Series K shares (treasury shares) without consideration to persons covered by
the Group's share bonus scheme. At the end of the year the company held
2,592,697 treasury shares, corresponding to 1.87 per cent of the company's
shares outstanding and the votes conferred by the shares. The treasury shares
had an acquisition cost of EUR 11 million and a market value at 31 December 2005
of EUR 53.3 million.
Rautaruukki Corporation's Board of Directors does not have a valid authorisation
to issue convertible bonds and/or bonds with warrants or to increase the
company's share capital.
Corporate governance and auditors
Rautaruukki Corporation's Annual General Meeting, held on 23 March 2005, re-
elected, Turo Bergman, Lic. (Pol. Sc.) as chairman of the Supervisory Board and
Member of Parliament Jouko Skinnari as deputy chairman. The following persons
were re-elected to seats on the Supervisory Board: Heikki Allonen, President and
CEO, Fiskars Oyj Abp; Ole Johansson, President and CEO, Wärtsilä Corporation;
Tauno Matomäki, former President & CEO, UPM-Kymmene Corporation; as well as
Members of Parliament Inkeri Kerola, Miapetra Kumpula, Petri Neittaanmäki,
Tapani Tölli, and Lasse Virén.
The Annual General Meeting re-elected Jukka Viinanen, President & CEO, Orion
Group, as chairman of the company's Board of Directors and Georg Ehrnrooth,
former President and CEO, Metra Corporation, as deputy chairman. Re-elected to
seats on the Board of Directors were Christer Granskog, President and CEO,
Kalmar Industries AB, Ms. Pirkko Juntti, LL.M. and Ms. Maarit Aarni, Vice
President, Phenol Business Unit, Borealis Group. The new members elected were
Kalle J. Korhonen, Director General, Ministry of Trade and Industry, and Kiuru
Schalin, Senior Vice President, AGA, Region Europe North.
The members of the Board-appointed Audit Committee during the 2005 financial
year were Pirkko Juntti (chairwoman), Maarit Aarni and Christer Granskog. The
members of the Board-appointed Compensation Committee during the 2005 financial
year were Jukka Viinanen (chairman), Georg Ehrnrooth and Kiuru Schalin.
The Annual General Meeting re-elected as auditors the firm of independent public
accountants Ernst & Young Oy, with Pekka Luoma, Authorised Public Accountant,
acting as principal auditor.
Resolutions of the Annual General Meeting
Rautaruukki Corporation's Annual General Meeting on 23 March 2005 approved the
Board of Directors' proposals concerning the transfer and buy-back of treasury
shares for a period of one year from the close of the meeting. The Annual
General Meeting passed a resolution to set up a Nomination Committee to prepare
proposals concerning the members of the Board of Directors and their emoluments
for presentation to subsequent Annual General Meeting. In addition, the Annual
General Meeting passed a resolution to amend the Articles of Association such
that henceforth a person who has reached the age of 68 may not be elected as a
member of the Board of Directors and Supervisory Board.
The Annual General Meeting resolved to pay a dividend of EUR 0.80 per share for
the financial year ended 31 December 2004, or EUR 109 million in total amount.
Events after the balance sheet date
The purchase of PPTH Steelmanagement Oy from funds managed by CapMan, a private
equity firm, and from the company's management was completed on 18 January 2006.
PPTH will be included in Rautaruukki's consolidated financial statements as from
1 January 2006.
Outlook for 2006
Demand is expected to hold up well on Rautaruukki's core market area. In the
Nordic countries, economic growth is expected to be clearly above the average
for the euro zone. GDP growth in eastern Europe is estimated to be a good 5 per
cent. Construction activity is estimated to be good in Rautaruukki's core market
areas and the strong growth in the main business areas within construction is
expected to continue. Customers' order books in the engineering industry are
healthy and there are good prospects for the current year. The European market
situation for standard steel products has normalised and consumption is expected
to increase more than in the previous year.
The market situation in Rautaruukki's core market areas has been good in the
current quarter. Demand is expected to hold up well within construction and the
engineering industry, and prices of steel products are set to strengthen. Net
sales for the full year in 2006 are expected to increase on the comparative
previous year figure, and operating profit in the first half of the year should
come in at the good level reached in the second half of last year. Major factors
of uncertainty relate to the way in which the steel product markets in Asia
develop and to general trend in the world economy.
Board proposal for the disposal of distributable funds
At 31 December 2005, the consolidated distributable equity was EUR 725 million.
The distributable equity of parent company was EUR 557 million.
The Board of Directors has decided to propose to the Annual General Meeting on
23 March 2006 that dividend be paid EUR 1.40 per share (2004: 0.80), totalling
EUR 191 million. It is proposed that the dividend will be paid on 4 April 2006.
Helsinki 8 February 2006
Board of Directors
BUSINESS REVIEW OF THE DIVISIONS
The Ruukki Fabrication functions were made a part of the other divisions as from
1 January 2005. The 2004 figures for the individual divisions have been adjusted
accordingly in line with the new organisational structure.
The Pipelines business was transferred in August 2005 from Ruukki Construction
to Ruukki Metals. The reference figures have been changed consequently.
Ruukki Construction
EUR million I/04 II/04III/04IV/04 2004 I/05 II/05III/05 IV/05 2005
Net sales 61 99 114 103 377 88 137 170 155 550
Operating profit 0 16 24 16 57 9 22 39 17 86
- % of net sales 1 17 21 15 15 10 16 23 11 16
In 2005 Ruukki Construction reported a net sales increase of 46 per cent to EUR
550 million (377). Operating profit was EUR 86 million (57). The division's
share of consolidated net sales was 15 (11) per cent. Net sales and operating
profit were improved by the actions taken in order to expand selected business
areas, coupled with a good market situation, an increased production efficiency
and an improved sales structure.
Demand for industrial, retail and logistics premises grew strongly in central
eastern Europe, Russia and Ukraine. Several traffic infrastructure and harbour
projects were under construction in the Nordic countries, creating good demand
for foundation and traffic structures. The exceptionally cold winter in central
eastern Europe was reflected in demand for roofing products. When the season got
started, the demand for roofing products was good.
In central eastern Europe and Ukraine, total deliveries of frame and envelope
structures for industrial, retail and logistics construction increased
substantially. During the year about a hundred frame and envelope deliveries
were made in the area. The envelope structures include external wall and roofing
structures. In Russia, good progress was made in deliveries of envelope
structures. External wall elements, in which cladding and windows are pre-
installed in the elements at the plant, were well received by customers and
deliveries of them showed an increase in the Nordic countries.
Ready-to-install retaining wall structures were delivered for a number of
harbour projects in the Baltic sea area. The pile delivery to Skandia Harbour of
Gothenburg, the biggest deep-sea harbour of the Nordic countries, was a long-
term and demanding project delivery. In central eastern Europe and Ukraine,
Ruukki received its first orders for component deliveries for bridge projects in
the area. In Finland, a total delivery of noise barriers for the railway line
project Oikorata between Kerava and Lahti got started in the autumn.
The acquisition of Metalplast-Oborniki Holding Sp. z o.o, Poland's leading
manufacturer of metal-based construction panels, has strengthened the division's
delivery and service capability in central eastern Europe and the Baltic
countries. In September Ruukki announced it was acquiring PPTH Steelmanagement
Oy, the leading steel constructor in the Nordic countries. The acquisition was
closed in January 2006. In December, Ruukki announced it was acquiring Steel-
Mont a.s., Slovakia's leading steel constructor. These acquisitions will bring
Ruukki steel structure production knowhow and strengthen significantly knowhow
in construction design and project management.
The enlargement of the plant in Estonia brought a doubling of the production
capacity for external wall elements. The delivery capability in central eastern
Europe was strengthened by adding production capacity for construction
components in the Czech Republic and Poland. In Hungary the construction of a
new plant was started. The actions taken to increase production efficiency were
continued.
Ruukki Engineering
EUR million I/04 II/04III/04IV/04 2004 I/05 II/05III/05 IV/05 2005
Net sales 63 78 74 113 329 124 114 101 137 476
Operating profit 9 15 10 19 53 22 23 23 27 96
- % of net sales 15 19 14 17 16 18 21 23 20 20
In 2005 Ruukki Engineering's net sales were up 45 per cent to EUR 476 million
(329). Operating profit was EUR 96 million (53). The division's share of
consolidated net sales was 13 per cent. Apart from the good market situation,
net sales were lifted by acquisitions. Operating profit was lifted by positive
price development coupled with improved operations and sales structure.
Demand in the lifting, handling and transportation equipment industry has been
at a very good level all year long and deliveries grew substantially,
particularly to manufacturers of materials handling equipment and forest
machines. Demand in the paper and wood processing industry was strong in 2005
and deliveries were up on the previous year. Roll blanks were delivered for new
applications in the pulp and paper machine industry. The market for wind power
plants grew substantially and there was rising demand for the frame components
for wind power plants. Within the shipbuilding industry, order books were at a
very good level around the world and some customers had orders for several years
ahead. The rise in the price of oil has led to more new offshore projects.
In October 2005 Ruukki acquired Syneco Industri AB, which manufactures frame
structures and other large steel components for the lifting, handling and
transportation equipment industry. The company's clientele includes many of the
world's leading manufacturers of end products, whose products are used in
materials handling, the mining industry and the heavy vehicle industry. The
acquisition of Syneco Industri AB is a follow-up to the purchase of the cabin
manufacturer Velsa Oy that was carried out in 2004. Through these acquisitions,
Ruukki Engineering has speeded up implementation of its strategy of being a
supplier of solutions for the lifting, handling and transportation equipment
industry.
Ruukki Engineering's four service centres occupy a key position in the
division's strategic value chain. The newest of these service centres started up
in Raahe in summer 2005 and it concentrates on delivering parts to the lifting,
handling and transportation equipment industry. Because Ruukki Production has
raised its quenching capacity for steel plates, Ruukki Engineering will be able
to increase its deliveries of components made from high-strength steels. Ruukki
Engineering is building additional capacity in Kurikka in order to be able to
meet increased demand and raise the efficiency of its cabin production. The
additional capacity is set to go into operation in the second quarter of 2006.
During the year, two non-core operations were divested and in May 2005 parts of
Ruukki Engineering were transferred to Ovako, which was established jointly by
Rautaruukki, SKF and Wärtsilä. In October, Ruukki sold the Halikko Works
business that manufactures dished ends for tanks.
Ruukki Metals
EUR million I/04 II/04III/04IV/04 2004 I/05 II/05III/05 IV/05 2005
Net sales 668 733 663 787 2850 802 686 541 596 2625
Operating profit 73 108 105 138 425 180 147 69 91 486
- % of net sales 11 15 16 18 15 22 21 13 15 19
In 2005 Ruukki Metals' net sales fell by 8 per cent to EUR 2,625 million
(2,850). The drop in net sales were largely attributable to the fact that the
units that were transferred to Ovako were no longer included in the division's
reporting as from 1 May 2005 and to the lower volume due to the adjustment of
production. Measured against comparable net sales of EUR 2,522 million in 2004,
growth was 4 per cent. Operating profit grew by 14 per cent to EUR 486 million
(425). Comparable operating profit in 2004 was EUR 385 million. Operating profit
was lifted by higher prices coupled with efficiency-boosting and an improved
sales structure. The division's share of consolidated net sales were 72 per cent
(80).
Demand held up well in the most important customer industries in the Nordic
countries and the Baltic area. In deliveries to central Europe, the volumes of
standard products were trimmed as planned, and the proportion of special
products, such as ultra high-strength steels, was increased. The trend in
project sales in different market areas was also positive. The overstocking by
wholesalers towards the end of 2004 and at the beginning of 2005 decreased
deliveries, and this translated into considerable pressure on spot market
prices. In the third quarter, when the impact of higher raw material prices also
began to be felt to the full extent, destocking together with the holiday season
depressed selling prices somewhat.
The business model was streamlined by organising the division's operations by
customer and market area. Development of the sales structure was continued by
gearing operations towards the core market area. The product range was optimised
with an accent on profitability, and the proportion of standard products was cut
back. As part of the operational streamlining, the non-core Froh HouseTech GmbH
business of vacuum cleaner tubes was sold in September.
During the year the groundwork was laid for expanding the core market area to
Russia and central eastern Europe, where the key emphasis in future will be on
the development of logistics and steel service centres. The delivery process was
stepped up by developing logistics functions. The research and development
effort will focus on customer-oriented special products in co-operation with the
solutions divisions and production.
Ruukki Production
1000 tonnes I/04 II/04III/04IV/04 2004 I/05 II/05III/05 IV/05 2005
Steel production 1184 1198 985 1184 4549 1176 982 765 888 3813
- Excluding Ovako 906 907 735 881 3429 883 897 765 888 3434
Production ran smoothly at all the plants and production flexibility was
increased. Steel production at Raahe was 2,747,000 tonnes (2,719,000) and at Mo
i Rana 687,000 tonnes (710,000). Steel production at the Koverhar and
Smedjebacken works that were transferred to Oy Ovako Ab was 379,000 tonnes in
January-April.
The prices of raw materials used in steel manufacture rose further. The price of
concentrated iron ore was about 60 per cent and the price of coking coal 40 per
cent higher than in 2004. The price of recycled steel stayed almost unchanged.
Purchases of raw materials came to approximately EUR 930 million, of which the
share of iron ore and coking coal was about 35 per cent. The volume of steel
slabs purchased from outside suppliers fell to a quarter of the previous year's
amount, thereby lowering production costs.
Two major investments that will improve the quality of products and productivity
went into operation at the hot strip mill in Raahe in early 2005: a new slab
reheating furnace and an upgraded automated system. Commissioning went well. At
the strip rolling mill in Raahe, measures were launched for building new direct
quenching equipment. The investment will bring a significant increase in the
proportion of ultra high-strength steels in production and will support Ruukki
Engineering's business in the fast-growing lifting, handling and transportation
equipment industry. The investment is expected to be completed in 2007 at an
estimated cost of about EUR 24 million.
Ruukki Production has two steel mills and 10 other production plants in Finland,
Norway, Sweden and Denmark. Wire and bar production operations were transferred
to Oy Ovako Ab, which was established at the beginning of May.
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Individual figures and grand totals presented in the tables have been rounded
off to full millions of euros from exact figures, which mean that when added
together or subtracted they will not always tally.
CONSOLIDATED INCOME STATEMENT (CONDENSED)
EUR million 10-12/05 10-12/04 1-12/05 1-12/04
Net sales 889 1 005 3654 3564
Other operating income 11 9 28 19
Operating expenses -739 -801 -2908 -2915
Depreciation -38 -47 -156 -175
Operating profit 123 166 618 493
Financing income and expenses -6 -14 -30 -51
Share of results 4 0 23 2
in associated companies
Profit before taxes 121 152 612 443
Taxes -27 -48 -157 -114
Profit for the period 93 104 455 330
Attributable to:
Equity holders of the company 93 104 455 329
Minority interest 0 0 0 1
EPS, diluted, e 0.68 0.76 3.31 2.40
EPS, basic, e 0.68 0.77 3.35 2.42
Operating profit, % of net sales 13.8 16.5 16.9 13.8
CONSOLIDATED BALANCE SHEET
(CONDENSED) 31.12. 31.12. Change
EUR million 2005 2004 %
ASSETS
Non-current assets 1476 1417 4
Current assets
Inventories 534 651 -18
Trade and other receivables 528 584 -10
Cash and cash equivalents 163 60 173
2701 2712 0
EQUITY AND LIABILITIES
Equity
Capital attributable to
Company's equity holders 1497 1126 33
Minority interest 1 1 0
Non-current liabilities
Interest bearing 372 619 -40
Other 194 215 -10
Current liabilities
Interest bearing 132 203 -35
Other 505 548 -8
2701 2712 0
CASH FLOW STATEMENT (CONDENSED)
EUR million 2005 2004
Profit for the period 455 330
Adjustments 333 331
Cash flow before
working capital changes 788 661
Change in working capital 0 -152
Financing items and taxes -137 -122
Cash flow from operations 652 386
Cash flow from investing activities -133 -118
Cash flow before financing 519 268
Dividends paid -109 -27
Other net cash flow from financing -307 -231
Change in cash and cash equivalents 103 10
KEY FIGURES 10-12/05 10-12/04
Net sales, Me 889 1005
Operating profit, Me 123 166
- % of net sales 13.8 16.5
Profit before taxes, Me 121 152
- % of net sales 13.6 15.1
KEY FIGURES 2005 2004
Net sales, Me 3654 3564
Operating profit, Me 618 493
- % of net sales 16.9 13.8
Profit before taxes, Me 612 443
- % of net sales 16.7 12.4
Net profit, Me 455 330
- % of net sales 12.5 9.2
Return on capital employed, %* 32.8 26.0
Return on equity %* 34.7 33.8
Equity ratio, % 56.0 41.7
Gearing ratio, % 22.8 68.0
Interest bearing net debt, Me 341 761
Equity per share, e 10.98 8.29
Personnel on average 11,684 12,273
Number of shares 138,886,445 138,886,445
- not counting own shares 136,293,748 135,813,485
- diluted 137,377,120 137,213,485
* based on previous 12 months
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2004
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 1.1. 236 220 1 -5 369 820 1
Change in translation difference 3 3
Share based compensation 1 1
Dividend distribution -27 -27
Profit for the period 329 329
EQUITY 31.12. 236 220 2 -2 671 1126 1
CONSOLIDATED STATEMENT OF 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 1.1. 236 220 2 -2 671 1126 1
Changes from
IAS 39 and 32
Cash flow hedging 2 -2 0
ADJUSTED EQUITY 1.1.
236 220 4 -2 670 1126 1
Cash flow hedging
Increase (hedging reserve) 32 32
Deferred taxes' share of
period movements -8 -8
Change in translation difference -3 -3
Share based compensation 4 4
Change in minority interest
Dividend distribution -109 -109
Profit for the period 455 455
EQUITY 31.12. 236 220 31 -5 1016 1497 1
The Pipelines business was transferred in August 2005 from Ruukki Construction
to Ruukki Metals. The reference figures have been changed consequently.
NET SALES BY DIVISION
Me 2005 2004
Ruukki Construction 550 377
Ruukki Engineering 476 329
Ruukki Metals 2625 2850
Other units 3 8
Consolidated net sales 3654 3564
OPERATING PROFIT BY DIVISION
Me 2005 2004
Ruukki Construction 86 57
Ruukki Engineering 96 53
Ruukki Metals 486 425
Group management and other units -50 -42
Consolidated operating profit 618 493
NET SALES BY QUARTER
Me I/04 II/04 III/04 IV/04 I/05 II/05 III/05 IV/05
Ruukki Construction 61 99 114 103 88 137 170 155
Ruukki Engineering 63 78 74 113 124 114 101 137
Ruukki Metals 668 733 663 787 802 686 541 596
Other units 1 1 3 2 0 2 0 1
Consolidated net sales 794 911 854 1005 1014 939 812 889
OPERATING PROFIT BY QUARTER
Me I/04 II/04 III/04 IV/04 I/05 II/05 III/05 IV/05
Ruukki Construction 0 16 24 16 9 22 39 17
Ruukki Engineering 9 15 10 19 22 23 23 27
Ruukki Metals 73 108 105 138 180 147 69 91
Group management
and other units -7 -17 -12 -7 -10 -12 -17 -11
Consolidated operating profit76 123 128 166 201 180 114 123
NET SALES BY QUARTER (PRO FORMA)
EXCLUDING UNITS TRANSFERRED TO OVAKO
Me I/04 II/04 III/04 IV/04 I/05 II/05 III/05 IV/05
Ruukki Construction *) 61 99 114 103 88 137 170 155
Ruukki Engineering 48 62 61 95 103 107 101 137
Ruukki Metals *) 556 608 558 647 632 633 541 596
Other units 1 1 3 2 0 2 0 1
Consolidated net sales 667 770 736 846 822 878 812 889
*) Pipelines business transferred from Ruukki Construction to Ruukki Metals in
August 2005.
OPERATING PROFIT BY QUARTER (PRO FORMA)
EXCLUDING UNITS TRANSFERRED TO OVAKO
Me I/04 II/04 III/04 IV/04 I/05 II/05 III/05 IV/05
Ruukki Construction *) 0 16 24 16 9 22 39 17
Ruukki Engineering 8 13 8 16 21 24 23 27
Ruukki Metals *) 71 94 95 119 143 135 69 91
Group management
and other units -7 -17 -12 -7 -10 -12 -17 -11
Consolidated operating profit71 107 115 144 163 169 114 123
*) Pipelines business transferred from Ruukki Construction to Ruukki Metals in
August 2005.
NET SALES BY AREA
% of net sales 2005 2004
Finland 29 26
Other Nordic countries 30 28
Central eastern Europe 12 11
Other western Europe 26 32
Other countries 3 3
CONTINGENT LIABILITIES
Me 12/05 12/04
Mortgaged real estates 29 30
Given as pledges 19 0
Collateral given on behalf of
associated companies 3 2
others 2 2
Leasing and rental liabilities 141 166
Other financial liabilities 4 2
VALUES OF DERIVATIVE CONTRACTS
31.12.2005, Me
CASH FLOW HEDGES INCLUDED
IN HEDGE ACCOUNTING Nominal value Fair value
Interest rate derivatives
Interest rate swaps 70 -0.3
Zinc derivatives
Forward contracts 41,100* 16.9
Electricity derivatives
Forward contracts 2,344** 18.3
CASH FLOW HEDGES NOT INCLUDED
IN HEDGE ACCOUNTING Nominal value Fair value
Interest rate derivatives
Interest rate swaps 309 -1,1
Foreign currency derivatives
Forward contracts 639 1,5
Options
Bought 55 1,2
Sold 55 1,0
110 2,2
*tonnes
**GWh
The unrealised profit/loss of the cash flow hedges are booked to equity, if the
hedge is effective. Other fair value changes are booked to profit and loss.
Annual General Meeting
The Annual General Meeting of Rautaruukki Corporation will be held on Thursday
23 March 2006 at 12.00 midday, in Helsinki at the Marina Congress Center.
Financial reporting in 2006
The Annual report 2005 will be published in March 2006, week 11.
Rautaruukki Corporation will publish the interim report 2006 for the first
quarter on 26 April 2006, for the second quarter on 26 July 2006 and for the
third quarter on 1 November 2006.
ADDITIONAL INFORMATION:
President and CEO Sakari Tamminen, tel. +358 20 592 9075
CFO Mikko Hietanen, tel. +358 20 592 9030
Rautaruukki Corporation
Taina Kyllönen
VP, Corporate Communications
Ruukki 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. Ruukki has operations in 23 countries
and employs 12,000 people. Net sales in 2004 totalled EUR 3.6 billion. The
company's share is quoted on the Helsinki Exchanges (Rautaruukki Corporation:
RTRKS).
DISTRIBUTION
Helsinki Exchanges
Principal Media
www.ruukki.com