April 28, 2003
08:00 CET
Rautaruukki Interim Report January - March 2003
Rautaruukki Oyj Stock Exchange Release 28 April 2003 at 9 am
Rautaruukki's turnover in the January-March period was EUR 704 million
(686). Operating profit was EUR 28 million (1) and profit before taxes
was EUR 12 million (12 negative). The result before taxes for the last
quarter of 2002 was EUR 2 million and net of non-recurring income and
expenses it was EUR 15 million. Rautaruukki Steel's earnings improved
substantially. The results of the other divisions were roughly on a par
with the same period a year ago.
Business environment and market
Economic growth in the EU countries remained very slow in the first
quarter of 2003. Economic growth in eastern central Europe and eastern
Europe proceeded ahead at a faster rate than the rest of Europe. Demand
for steel products in Europe was at the level prevailing at the end of
last year.
In the European Union countries steel output was 3 per cent greater and
in the rest of Europe 9 per cent greater than during the corresponding
period a year earlier.
The European Union's protective measures limiting imports of steel
products remained in force. Imports into the EU countries contracted
slightly. Exports from the EU countries were somewhat greater than
imports. The stock situation in Europe was normal. Prices of steel
products strengthened further in Europe during the first quarter.
In the United States demand weakened slightly, the country's own steel
output increased and prices weakened. Demand in Southeast Asia increased,
especially in China. In China prices weakened somewhat owing to the
growth in stocks. In other countries in the region prices were on a par
with the fourth quarter of last year.
Rautaruukki's production and deliveries
Rautaruukki Steel's steel output was 700,000 tonnes (657,000). The steel
output has been at the target level of 2.8 million tonnes a year since
the autumn of last year. Fundia's steel output was 454,000 tonnes
(433,000).
Rautaruukki's deliveries of plate and tubular products were 1 per cent
lower and the average price of deliveries was 8 per cent higher compared
with the same period of 2002. Compared with the fourth quarter of last
year, deliveries were down 7 per cent and their average price was 2 per
cent higher. Delivery volumes were affected by the increase in stocks in
preparation for the Steel Structure Division's summer season as well as
by lower than planned production of cold-rolled and galvanised sheet at
the beginning of the year.
Deliveries of long steel products were up 10 per cent and their average
price was 3 per cent higher than in the same period of 2002. Compared
with the fourth quarter of last year, deliveries were up 4 per cent and
their average price rose by 4 per cent.
The average price of deliveries was affected by the general price trend
as well as by changes in the product range and market areas.
Turnover and financial result
Consolidated turnover was EUR 704 million (686). The growth in turnover
was attributable to the increase in delivery volumes and to stronger
prices.
Because of the weakening in the United States dollar, euro-denominated
unit costs of iron raw materials declined and, taking hedging costs into
account, were 8 per cent lower than during the corresponding period a
year earlier, with coking coal down 4 per cent. The price of purchased
electricity was on average 50 per cent higher and the price of the scrap
used by Fundia was 34 per cent higher than during the corresponding
period of the previous year.
Operating profit was EUR 28 million (1). The improvement in operating
profit was attributable to the strengthening in the prices of steel
products, the increase in the company's own steel production and
efficiency-boosting. Operating profit in the fourth quarter of 2002 was
EUR 17 million and net of non-recurring income and expenses, it totalled
EUR 30 million.
Profit before extraordinary items and taxes was EUR 12 million (loss 12).
The profit before extraordinary items and taxes in the last quarter of
2002 was EUR 2 million.
Improving profitability
The programme of measures that was launched in 2002 at the integrated
flat products units (Rautaruukki Steel, Metform and the Steel Service
Division) with the aim of improving the gross margin and lowering fixed
costs has been continued in line with plans.
In order to improve sales revenue, the customer structure was developed,
market shares were increased in the core markets and the share of
speciality products within total sales was lifted. Stepping up production
efficiency has been continued by improving the capacity utilisation rates
and outputs as well as by reducing error-related costs. Actions to
increase the efficiency of purchasing and logistics have also been
continued. The improvement in the gross margin will begin to lift
earnings right in the current year.
Fixed costs will be lowered by 50 million euros, three quarters of which
will come from lower personnel costs. In accordance with the decisions
taken, the personnel will be cut by about 700 employees during 2003. The
lowering in fixed costs is estimated to kick in during the latter half of
the year and to improve earnings in 2003 by about EUR 20 million. The
measures will feed into earnings to the full extent in 2004. Provision
for the costs arising from redundancies has been made in the 2002
financial statements.
Financing
The Group's net interest expenses totalled EUR 13 million (12),
representing 1.8 per cent of turnover (1.8). Net financial expenses
totalled EUR 16 million (13) including EUR 2 million of losses on foreign
exchange (1). The operating result includes EUR 2 million of losses on
foreign exchange (gain 1).
Cash flow from operations was EUR 19 million (4 negative) and cash flow
before financing was EUR 1 million negative (33 negative). Interest-
bearing net debt totalled EUR 1,094 million (1,129). Working capital
increased by EUR 35 million during the first quarter. The equity ratio
was 30.6 per cent (30.7) and the gearing ratio was 139 per cent (140). At
the end of March the Group had uncommitted revolving credit facilities
with banks to a total amount of EUR 366 million.
Capital expenditures
Gross capital expenditures on fixed assets amounted to EUR 19 million
(28) and consisted of ordinary development and replacement investments.
Over the full year, gross capital expenditures are estimated to be EUR
130 million (142).
Resolutions of the AGM
Rautaruukki's Annual General Meeting held on 2 April 2003 re-elected Turo
Bergman chairman of Rautaruukki's Supervisory Board and Jouko Skinnari
vice chairman. Re-elected as members were Ole Johansson, Tuula Haatainen,
Kyösti Karjula, Inkeri Kerola, Bertel Langenskiöld and Tauno Matomäki.
Members of Parliament Martin Saarikangas and Lasse Viren were elected as
new members.
The Annual General Meeting re-elected Jukka Viinanen chairman of the
Board of Directors and Georg Ehrnrooth vice chairman. Re-elected to seats
on the Board were Maija-Liisa Friman, Christer Granskog and Pekka
Timonen. Elected as new members were Pirkko Juntti, LL.M., of PCA
Corporate Finance Oy, and Maarit Toivanen-Koivisto, chair of the Board of
Directors of Onninen Oy.
Rautaruukki's president and CEO
President and CEO Mikko Kivimäki will retire on 1 January 2004. Sakari
Tamminen, who has been elected the new president and CEO, joined the
company on 22 April 2003 as executive vice president and the CEO's
deputy. Executive Vice President Tamminen will be responsible for the
Group's operational management and will also take part in the meetings of
the Board of Directors.
Share capital and shares
The company has in its possession 3,270,000 treasury shares, representing
2.35 per cent of the company's entire shares outstanding. The company has
paid EUR 14,737,093 in consideration for them. The Board of Directors
does not have an authorisation to increase the share capital or to
purchase the company's own shares.
The Annual General Meeting approved the Board of Directors' proposal for
issuing EUR 3.5 million of bonds with warrants. The bonds with warrants
will be offered for subscription by Rautaruukki Group personnel and the
Rautaruukki Employee Fund and they will be part of the incentive scheme
for the personnel. As a consequence of share subscriptions through the
exercise of warrants, the company's share capital can be increased by a
maximum of EUR 2,380,000, which corresponds to about 1.0 per cent of the
share capital.
Full-year outlook
Economic forecasts point to very slow growth in the EU countries.
Economic growth in eastern central Europe and eastern Europe is estimated
to be proceeding ahead at a faster rate than the rest of Europe.
Demand for steel products is estimated to grow somewhat in Europe. The
protective measures restricting EU imports are still in force. Exports of
steel products from the EU countries are estimated to remain higher than
imports. In the United States and Southeast Asia demand for steel
products is estimated to grow somewhat.
Prices of flat steel products have strengthened in Europe in the second
quarter. Prices of long steel products have risen further in the second
quarter owing to the strong rise in the price of scrap, which is used as
a raw material.
The price in dollars of coking coal will rise by about 2 per cent from
last year's level in accordance with the agreements that have been made.
Negotiations on the prices of iron raw materials in 2003 are still in
progress. About 75 per cent of the Group's electricity purchases in 2003
have been hedged. The price of purchased electricity is estimated to
remain substantially higher than it was last year. The price of scrap is
estimated to fall from the high level of the early months of the year but
to remain at a markedly higher level than last year.
Compared with last year, Rautaruukki's earnings will be improved by the
increase in Rautaruukki Steel's steel output, whereby the use of
purchased slabs will decrease and the manufacturing costs of rolled
products will decline. In addition, earnings will be lifted by the
programme of measures that is under way at the integrated flat products
units with the aim of improving the gross margin and lowering fixed
costs. In 2003 the lowering of fixed costs is estimated to add about EUR
20 million to earnings.
Fundia Wire's earnings are estimated to improve during the latter part of
the year but to remain in the red. The earnings trend of Fundia's other
divisions will be held back by the high price of scrap.
Rautaruukki's turnover in 2003 is estimated to be about 3 billion euros.
The operating environment for the steel industry is estimated to be
somewhat better than it was last year but it involves factors of
uncertainty. The essential factor from the standpoint of the earnings
trend is the trend in the price of steel products. A central factor
affecting this is the EU countries' steel output and the level of
imports.
Helsinki, 28 April 2003
Rautaruukki Oyj
Board of Directors
DIVISIONS
Rautaruukki Steel
Demand for heavy plate and strip products remained satisfactory in the
first quarter. Prices of strip products strengthened further and the
price level of heavy plates remained stable. Rautaruukki Steel's
deliveries of steel products in January-March totalled 688,000 tonnes
(682,000).
The Building business area faced slack demand owing to the cold winter.
Within the Construction business area there was weak demand for products
used in heavy steel structures, but the demand for products used in
making the frame structures of wind energy plants held up well.
Within the Electro business area the weakened order book for the
electrical and electronics industry was again reflected in the demand for
cold-rolled products.
The low backlog of orders reduced the demand for the hot-rolled products
within the Engineering business area. Within the Marine business area,
demand in the offshore and shipbuilding industry quickened somewhat but
is still exceptionally low. This is reflected, notably, in the weak
demand for profiles.
The Automotive business area had to contend with weakened demand, but
there was an increase in demand for speciality products such as very high
strength formable Litec products.
Rautaruukki Steel's turnover was EUR 324 million (304). Operating profit
improved substantially and was EUR 40 million (2). The improvement in
operating profit stemmed from the rise in product prices as well as
smoothly running production. Since the autumn of last year, steel
production has operated at the target level of 2.8 million tonnes a year.
The measures set out in the profitability improvement programme for
lowering fixed costs moved ahead as planned. Their effects will begin to
show up in earnings in the third quarter of 2003 and to the full extent
in 2004. The measures for improving the gross margin also continued
according to plans.
Prices have strengthened in the second quarter in all product groups. It
is estimated that demand in the main markets will remain satisfactory.
Metform
Demand for tubular products was good in the first quarter. The demand for
upgraded tubular products, however, began to weaken. Prices of tubular
products strengthened somewhat.
In the Nordic countries and the Baltic area, demand for tubular steel
products was good and deliveries grew slightly compared with the same
period a year ago. In continental Europe demand weakened.
In the construction and household appliance industry there was good
demand for steel tubes and deliveries increased. Demand in the
engineering industry fell. Deliveries to the automotive industry were at
last year's level. Demand for gas, oil and water pipeline projects was
slack in the first part of the year, but it is expected to pick up in the
latter part of the year.
Metform's deliveries were 137,000 tonnes (140,000). Turnover was EUR 90
million (90) and operating profit totalled EUR 2 million (5). The result
was weakened by the rise in steel raw material prices, which outstripped
product prices. In order to lower fixed costs, it was decided to reduce
the personnel of Metform's units in Finland by about 50 employees.
Measures for improving the gross margin continued in line with plans.
Prices of tubular products have risen further in the second quarter. The
market outlook for the latter part of the year is uncertain. Demand for
tubular products is estimated to weaken.
Steel Structure Division
Demand for the Steel Structure Division's products remained satisfactory
within the roofing business. Demand strengthened in the Baltic countries
and Scandinavia. Within industrial and office construction, demand
weakened in Finland and in continental Europe.
Sales by the Steel Structure Division were roughly on a par with the
first quarter of last year in nearly all market areas. The trend in
turnover was slowed down by the exceptionally hard winter in eastern
Europe. Sales of light engineering products increased.
The Steel Structure Division's turnover was EUR 58 million (58) and the
division reported an operating loss of EUR 5 million (4). The earnings
trend was weakened by the appreciation of the euro and declining prices
in certain market areas. The division's earnings trend is closely tied to
the seasonal variation in the construction business. The division's
earnings are generated mainly in the latter half of the year.
Rannila brought out on the market new Rannila Panel 3Lock and Liberta
Grande facade systems. Gasell introduced superpolyester as a new coating
as well as the new Gasell Kultur roofing product.
Demand for construction products is estimated by and large to grow in the
division's market areas.
Fundia
The market situation for long steel products remained satisfactory in the
first quarter. The new owners of the competing manufacturers who
discontinued their operations in Denmark and Great Britain last year have
not yet started up their production. Prices of long steel products rose
further in the first quarter. Profitability was nevertheless weakened by
the strong rise in the price of scrap that got under way at the turn of
the year, causing a sizeable need to raise prices.
Owing to the hard winter, there was weak demand for reinforcing bars in
the Nordic countries. Deliveries to other markets were increased, mainly
to Great Britain and Ireland. Demand for bar products was good and the
order backlogs grew further. Demand for wire products also improved
further. Demand for upgraded products remained weak.
Fundia's total deliveries in January-March amounted to 494,000 tonnes
(446,000). The average price of deliveries of long rolled products was 2
per cent higher than it was a year earlier.
Fundia had turnover of EUR 202 million (178) and posted an operating loss
of EUR 2 million (1). In the first quarter the average price of the scrap
used by Fundia was 34 per cent higher than during the corresponding
period of last year. The rise in product prices has not offset the rise
in the price of scrap so far in the first quarter.
The results of Fundia Reinforcing and Fundia Special Bar weakened due to
the rise in the price of scrap and electricity. Fundia Wire's result was
still in the red owing to production disturbances resulting from the
start-up of new production lines. The capacity utilisation rates of the
lines have nevertheless improved markedly compared with the level at the
end of last year.
Bar & Wire Processing's result weakened owing to lower demand. The
operations of Fundia Mandal, which manufactures wires used in reinforcing
electrical cables, will be discontinued by the end of August. A provision
for the termination costs was made in 2002 financial statements.
Demand for long steel products is estimated to remain unchanged. Prices
of products have strengthened further in the second quarter. Fundia Wire
is estimated to achieve the planned production level and capacity
utilisation rate by the end of the second quarter. Fundia's restructuring
programme that was seen to completion last year will improve
profitability. The strong rise in the price of scrap and electricity will
weaken Fundia's earnings in the first half of the year.
Steel Service
In Finland, demand for the products of the Steel Service Division
remained subdued owing to the lower order books within customer
industries, causing a decline in the division's deliveries. Despite the
weaker market situation, sales of prefabricated products accounted for an
increased share of deliveries.
In the other Nordic countries, demand was markedly weaker than it was
last year, and deliveries decreased. In Russia, deliveries grew thanks to
stepped up sales efforts. Deliveries in the Baltic countries were on a
par with last year.
Prices of steel products and stainless steels were higher than in the
same period a year ago. Prices of aluminium products were markedly lower.
The Steel Service Division delivered a total of 122,000 tonnes of steel
products manufactured by the Rautaruukki Group (108,000). The division
had turnover of EUR 157 million (162) and reported operating profit of
EUR 4 million (2). The growth in the share of prefabricated products sold
and the rise in the prices of steel products improved operating profit.
Efficiency-boosting will be continued further with the aim of improving
profitability. In Norway measures were launched to adjust operations to
the demand situation.
Demand for the products of the Steel Service Division is estimated to
remain slack. The prices of steel products and stainless steels have
risen further in the second quarter. Prices of aluminium products have
fallen slightly.
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, EUR million2003 2002 change 2002
1-3 1-3 % 1-12
Turnover 704 686 +3 2884
Other operating income 1 1 15
Operating expenses -635 -644 -1 -2716
Depreciation -42 -43 -1 -177
Operating profit 28 1 6
Financing income and expenses -16 -13 +19 -52
Profit/loss before extraord. items 12 -12 -46
Extraordinary items 0 0 0
Profit/loss before taxes 12 -12 -46
Taxes* -2 -1 -2
Change in deferred tax -5 1 12
Minority interests 0 0 0
Profit/loss of the period 6 -13 -35
* proportion of estimated taxes for the year weighted by report period's
profit/loss
Balance sheet, EUR million 2003 2002 change 2002
Assets 31 Mar 31 Mar % 31 Dec
Non-current assets 1422 1485 -4 1453
Inventories 530 520 +2 511
Debtors 646 651 -1 597
2597 2656 -2 2561
Liabilities
Capital and reserves 797 821 -3 799
Minority interests 3 3 0 3
Provisions 51 21 58
Non-current creditors 1011 972 +4 1120
Current creditors 736 839 -12 580
2597 2656 -2 2561
Cash flow statement, EUR million 2003 2002 2002
1-3 1-3 1-12
Cash flow before working
capital changes 68 43 196
Change in working capital -35 -32 3
Financing items and taxes -15 -14 -44
Cash flow from extraordinary items 0 0 -3
Cash flow from operations 19 -4 152
Cash flow from investing activities -20 -29 -129
Cash flow before financing -1 -33 23
Key figures 2003 2002 2002
1-3 1-3 1-12
Operating profit, % of turnover 4.0 0.1 0.2
Return on net assets*, % 1.9 2.6 0.6
Return on equity*, % -2.1 -0.9 -4.3
Equity ratio, % 30.6 30.7 31.1
Gearing ratio, % 139 140 138
Interest bearing net debt, me 1,094 1,129 1,092
Earnings per share, e 0.04 -0.09 -0.26
Equity per share, e 5.79 5.95 5.81
Personnel on average 12,690 13,019 13,325
* based on previous 12 months
Turnover by division, 2003 2002 change 2002
EUR million 1-3 1-3 % 1-12
Rautaruukki Steel 324 304 + 7 1308
Metform 90 90 0 367
Steel Structure Division 58 58 0 321
Fundia 202 178 + 13 731
Steel Service 157 162 -3 646
Other units 69 41 + 67 171
less internal invoicing -195 -147 + 33 -660
Consolidated turnover 704 686 + 3 2884
Operating result by division, 2003 2002 2002
EUR million 1-3 1-3 1-12
Rautaruukki Steel 40 2 9
Metform 2 5 17
Steel Structure Division -5 -4 12
Fundia -2 -1 -17
Steel Service 4 2 23
Other units and internal items -11 -4 -36
Consolidated operating result 28 1 6
Contingent liabilities, EUR million Group Rautaruukki Oyj
3/03 12/02 3/03 12/02
Mortgaged real estates 88 86 65 79
Collateral given on behalf of
Group companies 123 128
associated companies 2 2 2 2
others 5 5 4 4
Leasing and rental liabilities 173 176 77 80
Repurchase liabilities 14 14 12 12
Values of derivative contracts, EUR million
31 March 2003 Nominal value Fair value
Interest rate derivatives
Interest rate swaps 696 -7.8
Foreign currency derivatives
Forward contracts 287 -8.0
Options*
Bought 185 -3.3
Sold 140 -5.5
Zinc derivatives**
Forward contracts 37,100 -1.6
Electricity derivatives***
Forward contracts 1,444 4.5
* Risk reversal
** Nominal values in tonnes
*** Nominal values in GWh
Turnover by quarter
(EUR million) I/02 II/02 III/02 IV/02 I/03
Rautaruukki Steel 304 328 331 345 324
Metform 90 102 83 92 90
Steel Structure Division 58 83 93 88 58
Fundia 178 195 169 189 202
Steel Service 162 168 157 159 157
Other units 41 44 36 50 69
less internal invoicing -147 -176 -167 -170 -195
Consolidated turnover 686 743 703 753 704
Operating profit/loss by quarter
(EUR million) I/02 II/02 III/02 IV/02 I/03
Rautaruukki Steel 2 -10 4 13 40
Metform 5 9 2 1 2
Steel Structure Division -4 4 10 2 -5
Fundia -1 1 -18 1 -2
Steel Service 2 5 5 10 4
Other units and internal items -4 -8 -15 -10 -11
Consolidated operating result 1 1 -12 17 28
External deliveries by quarter
(1000 tonnes) I/02 II/02 III/02 IV/02 I/03
Hot rolled plates,
sheets and coils 269 278 267 292 283
Cold rolled sheets and coils 51 44 48 50 43
Coated sheets and coils 167 166 178 179 156
Tubular products 139 166 128 147 137
Profiled sheets and section 50 69 75 67 54
Long steel products 473 516 441 502 520
Rautaruukki Oyj
Esko Lukkari
VP, Corporate Communications
ADDITIONAL INFORMATION
Mikko Kivimäki, President & CEO, tel. +358 9 4177 6200
Seppo Sahlman, CFO, tel. +358 9 4177 6215
DISTRIBUTION
Helsinki Exchanges
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