July 30, 2003
08:01 CET
Rautaruukki Interim Report January - June 2003
Rautaruukki Stock Exchange Release 30 July 2003 at 9 am
Profit before taxes increased substantially and was EUR 43 million.
Prices of steel products rose further. Efficiency-boosting was
continued. The near-term market outlook involves factors of uncertainty.
A change of the Group's business model is under way
Rautaruukki's turnover in the January-June period was EUR 1,472 million
(1,429). Operating profit was EUR 73 million (2) and profit before
extraordinary items and taxes was EUR 43 million (23 million negative).
Second quarter operating profit was EUR 45 million (1).
Rautaruukki Steel improved its operating profit substantially. The Steel
Service Division and Fundia posted operating profit figures on a par
with last year. Metform's operating profit weakened. The Steel Structure
Division reported an operating loss.
Business environment and market
Economic growth remained very slow in the EU countries during the second
quarter. Economic growth in eastern central Europe and eastern Europe
proceeded ahead at a faster rate than in the rest of Europe. Demand for
steel products in Europe was at the level prevailing in the same period
of last year.
In the European Union countries, steel output in January-June was 2 per
cent greater and in the rest of Europe, 8 per cent greater than during
the same period a year earlier.
The European Union's safeguard measures limiting imports of steel
products remained in force. Imports of steel products into the EU
countries grew, and exports contracted slightly. The stock situation was
normal. Prices of steel products rose in Europe in the second quarter.
Demand for steel products in the United States remained at the level
prevailing during the same period of last year. Prices weakened due to
increased supply. Demand in Southeast Asia grew somewhat. In May, China
- which regulates its steel trade by means of import licences - began
purchasing steel products abroad again and prices notched up.
Turnover and financial result
Rautaruukki's turnover was EUR 1,472 million (1,429).
Rautaruukki's deliveries of flat and tubular products were 2 per cent
greater and the average price of deliveries was 7 per cent higher
compared with the same period a year earlier. Deliveries in the second
quarter were up 9 per cent on the first quarter and their average price
was 1 per cent higher.
Deliveries of long steel products were up 8 per cent and their average
price was 3 per cent higher than in the same period of the previous
year. Deliveries in the second quarter were up 6 per cent on the first
quarter and their average price fell by 1 per cent.
The average price of deliveries is affected by the general price trend
as well as by changes in the product range and market areas.
The United States dollar-denominated prices of iron production raw
materials rose, but they were in euros lower than a year earlier due to
the weakening in dollar. The price of electricity and the price of scrap
used by Fundia were higher than in the same period of last year. Owing
to the increase in Rautaruukki Steel's steel output, the use of
purchased slabs was reduced, thereby lowering costs.
The raw material and energy costs of the Group were at the same level as
in the same period of last year. The decrease in raw material prices
contributed to lower costs in Rautaruukki Steel, but the rise in the
prices of electricity and scrap caused higher costs in Fundia.
Operating profit was EUR 73 million (2). The higher operating profit was
attributable to the rise in product prices, the increase in own steel
output and to the measures to improve profitability and competitiveness,
which were launched last year. Sales were focused on more profitable
markets and more profitable products. The efficiency of the production
lines was improved and the costs were reduced. Second-quarter operating
profit was EUR 45 million (1)
Profit before extraordinary items and taxes for the six months ended 30
June was EUR 43 million (23 million negative). Second-quarter profit
before extraordinary items and taxes was EUR 31 million (10 million
negative).
Financing
The Group's net interest expenses totalled EUR 25 million (26),
representing 1.7 per cent of turnover (1.8). Net financial expenses
totalled EUR 30 million (24) including losses on foreign exchange of EUR
3 million (2). The operating profit figure includes EUR 6 million of
foreign exchange losses arising mainly from the intra-Group hedging
measures undertaken by the divisions (7 million negative).
Cash flow from operations was EUR 67 million (13) and cash flow before
financing was EUR 26 million (54 million negative). Interest-bearing net
debt totalled EUR 1,070 million (1,168). During the first half of the
year, working capital increased by EUR 66 million owing to a higher
volume of trade receivables and the seasonal increase in stocks. The
equity ratio was 31.9 per cent (30.4) and the gearing ratio 133 per cent
(145). At the end of June the Group had uncommitted revolving credit
facilities with banks to a total amount of EUR 336 million.
Capital expenditures
Gross capital expenditures on fixed assets amounted to EUR 43 million
(66) and consisted of development and replacement investments. Over the
full year, gross capital expenditures are estimated to be EUR 130
million (142).
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,
for which EUR 14,737,093 has been paid in consideration. The Board of
Directors does not have an authorisation to increase the share capital
or to purchase the company's own shares.
The company issued for subscription by Rautaruukki Group employees and
the Rautaruukki Personnel Fund an EUR 3.5 million bond with warrants,
which was subscribed to the full amount. 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.
Change in the Group's business model
On 29 July 2003 Rautaruukki's Board of Directors approved a new Group
business model and the new organisation in accordance with it, which
will become effective as from 1 September 2003.
The aim of the customer-oriented business model is to further clarify
and enhance interaction between customers and the Group, create the
basis for new growth and improve profitability.
Growth in the years ahead will be based on integrated value-added
solutions for selected customer industries, these being complemented
with products and services provided by the Group's network of partners.
The customer sectors are construction, the engineering industry,
including shipbuilding, and the metal fabrication industry.
The Group will comprise four divisions with customer accountability:
Metal Products, Building and Construction Solutions, Mechanical
Engineering Solutions and Metal Fabrication Solutions. The three last-
mentioned divisions in particular - which now account for one third of
the Group's turnover - are expected to grow strongly in the years ahead.
The efficiency of the Metal Products Division's distribution system will
be boosted and growth will be sought through the sale of new materials.
Steel and rolling production will be organised into a single cost-
effective and integrated division.
The business model is based on Group's strengths: a strong position
within the clientele of the Nordic and Baltic markets, in-depth
materials know-how, efficient production and flexible logistics.
The Group is seeking to improve profitability by lowering fixed costs
and eliminating overlapping, especially within sales, distribution and
administration.
The objective for production activities is high cost-effectiveness and
continual improvements in it. The effects of fluctuations in demand will
be alleviated through better control of capacity and by lowering fixed
production costs.
Further development of the Group's strategy and the Group structure will
be based on the chosen customer segments, ranges of solutions arising
from customers' needs and on market area emphasis.
Near-term outlook
Demand for steel products in Europe is estimated to reach last year's
level, at the best. Of the industries using the Group's products,
residential construction is estimated to continue ahead at a
satisfactory pace in the Group's main markets, but commercial
construction is likely to remain slack. Demand in the engineering
industry is estimated to remain low, except for industries connected
with energy production. Demand in the shipbuilding and offshore industry
remain at a low level. Demand in the automotive and home appliance
industry is estimated to weaken.
Imports of steel products into the EU countries are estimated to grow,
but the growth in imports will be curtailed by the EU's safeguard
measures that are currently in force. Exports from the EU countries will
be hampered by the appreciation of the euro against the United States
dollar. The level of the EU countries' own steel output during the
latter part of the year will have an essential impact on whether balance
is maintained between the supply of and demand for steel products.
In the third quarter, prices of steel products are forecast to be on a
par with the second quarter.
According to the agreements currently in effect, dollar-denominated
prices of steel raw materials have risen by about 11 per cent and prices
of coking coal by 2 per cent. Owing to the weakening in the dollar, unit
costs in euros at the annual level are estimated to be markedly lower
than they were last year. The price of electricity is expected to remain
at a substantially higher level than it was at last year. The price of
scrap is estimated to rise again and the full-year average price is
likely to be higher than it was a year ago.
A principal factor determining the Group's earnings in the latter part
of the year is the trend in product prices. Earnings will also be
affected by efficiency-boosting and cuts in fixed costs, which are
estimated to bring an increase in earnings of about EUR 20 million in
2003.
Turnover in 2003 is estimated to be about 3 billion euros. The earnings
trend is estimated to continue positive. Owing to the weak business
cycle in customer industries, the latter part of the year will be
fraught with factors of uncertainty.
Helsinki 29 July 2003
Rautaruukki Oyj
Board of Directors
DIVISIONS
Rautaruukki Steel
Demand for strip products and heavy plates remained satisfactory in the
second quarter and product prices strengthened further. Rautaruukki
Steel's deliveries of steel products in January-June totalled 1,422,000
tonnes (1,393,000).
With the construction season in full swing, demand in the Building
business area has picked up. Owing to subdued commercial construction,
however, demand was weaker than last year. Within the Construction
business area there was weak demand for products used in heavy steel
structures, but there was good demand within project construction for
the oil industry. Demand for products used in building the frame
structures of wind energy plants held up satisfactorily.
Within the Electro business area the weak intake of orders from the
electrical and electronics industry was again reflected in the demand
for cold-rolled products. The Automotive business area reported
satisfactory demand, whereas demand for Litec products used in safety
structures held up well.
The low backlog of orders in the engineering industry reduced the demand
for the hot-rolled products within the Engineering business area. The
Marine business area faced a lower level of demand within the offshore
and shipbuilding industry than it did last year.
Rautaruukki Steel's turnover was EUR 676 million (632). Operating profit
improved substantially and was EUR 88 million (8 million negative). The
improvement in operating profit was attributable to the rise in product
prices, lower raw material costs, the growth in delivery volumes and
improved operational efficiency. Rautaruukki Steel's output in January-
June was 1,410,000 tonnes of steel (1,337,000).
Profitability-improving measures are moving ahead as planned and their
effects are expected to show up within earnings partly in the second
half of the year and to the full extent in 2004.
Prices of plate and strip products in the third quarter are estimated to
remain largely unchanged. Owing to the weak business cycle in customer
industries, demand for steel products involves a number of factors of
uncertainty.
Metform
Demand for tubular products varied a great deal in different market
areas across different customer and product groups. All in all, the
market situation was satisfactory. Prices strengthened somewhat.
Deliveries of tubular products to the Nordic countries and the Baltic
area grew in the second quarter and Metform's market position
strengthened. Deliveries to continental Europe and Great Britain were
markedly smaller than during the same period a year earlier owing to
weak demand.
Demand for gas, oil and water pipeline projects was brisker than last
year. Deliveries to the construction industry remained satisfactory.
Deliveries to the automotive industry diminished due to weaker demand.
Demand was weak in the furniture industry too, and this cut into the
volumes of precision tubes delivered. Within foundation construction,
there was brisk demand, especially in the Baltic countries.
Metform's deliveries in January-June totalled 291,000 tonnes (305,000).
Turnover was EUR 189 million (192) and operating profit totalled EUR 7
million (15). Earnings were weakened by the poor demand for precision
tubes in the main market areas, the rise in raw material costs and the
change made in the bases of internal pricing.
The market situation for tubular products is estimated to remain
unstable in the latter part of the year, with the price trend evening
out. The division is continuing to improve the product mix and cut
costs.
Steel Structure Division
Demand for the Steel Structure Division's roofing products has remained
satisfactory. By contrast, demand for products used in commercial
construction has trailed behind last year in the Nordic countries and in
Central Europe.
Sales of the Steel Structure Division's products were roughly on a par
with the same period of last year in nearly all market areas. The fall
in prices in some market areas has slowed down turnover growth. Demand
for engineering products held steady.
The Steel Structure Division's turnover was EUR 136 million (140) and
the division reported a loss of EUR 6 million (0). The earnings trend
has been weakened by the appreciation of the euro and the fall in
product prices. The result includes a 1 million euro capital loss
connected with ownership arrangements at the companies in Central
Europe. Because of the seasonal fluctuations in the construction
industry, the Steel Structure Division generates the bulk of its
earnings in the latter half of the year.
The Steel Structure division divested its 49 per cent holding in Rannila
Centrostal Bydgoszcz and increased its holding in Rannila Slovakia to
100 per cent. The aim of the measures is to step up the efficiency of
the division's operations in Central Europe. Costs have been pared down
at many of the division's units.
Demand for roofing products is estimated to hold up satisfactorily, but
demand for products used in commercial construction is expected to be
weaker than last year. Price competition will most likely remain tight,
especially in eastern Europe, owing to the higher euro.
Fundia
The market situation for long steel products weakened slightly in the
second quarter. There were considerable differences in the demand for
products within different product groups and market areas. During the
first part of the year, prices of long steel products were increased by
5-10 per cent in step with the rise in raw material costs.
Demand for reinforcing bars in the Nordic countries was satisfactory,
but demand for prefabricated reinforcements was weaker. Deliveries
outside the Nordic countries grew.
Demand for bar products fell off in the second quarter after a good
start to the year. The order book for bar products remained high.
The good demand for wire products weakened markedly in the second
quarter due to the increase in customers' stocks and increased imports
into the EU countries. The market situation for more demanding grades of
wire was more stable.
The market situation for upgraded wire products remained weak, with
demand for upgraded bars also beginning to slip.
Fundia's total deliveries in January-June amounted to 1,021,000 tonnes
(933,000). The average price of deliveries of long rolled products was 4
per cent higher than it was a year earlier. In the second quarter,
prices of rolled products rose compared with the first quarter, but
prices of upgraded products declined. Fundia's steel output was 912,000
tonnes (861,000).
Fundia had turnover of EUR 415 million (373) and posted an operating
result of EUR 0 million (0). The operating result was attributable to
the rise in prices of scrap and electricity, which could not yet be
fully offset by increases in product prices.
Fundia Reinforcing improved its operating profit, but Fundia Special Bar
reported a weaker operating profit than in the same period of last year.
Bar & Wire Processing's operating loss was due to the weak market
situation.
Fundia Wire posted an operating loss, though it was somewhat smaller
than a year earlier. At the end of June special measures were launched
at Fundia Wire with the objective of ensuring that Fundia Wire will be
able to post an operating profit in the last quarter of 2003.
The market situation for long steel products is not expected to change
significantly during the latter part of the year. The price increases
that have been put through are expected to be implemented to the full
extent in third-quarter deliveries.
Steel Service Division
In Finland demand for the products of the Steel Service Division
remained weak and deliveries fell 6 per cent short of last year's
figure. The biggest decrease came in deliveries of steel products used
in construction.
In Sweden the pickup in the export markets increased demand for the
division's products, but in June demand began to weaken. In Norway
demand declined further.
The division's deliveries to the Baltic countries grew. In Russia
deliveries were up substantially on the low level of the previous year.
Prices of steel products and stainless steels were higher than in the
same period a year ago. Prices of aluminium products fell further.
The Steel Structure Division's turnover was EUR 320 million (330) and
the division reported operating profit of EUR 7 million (7). The Steel
Service Division delivered a total of 244,000 tonnes of steel products
manufactured by Group units (217,000), accounting for 58 per cent of
total deliveries (48).
The division's operations were was adjusted in line with lower demand.
It was decided to wind up operations of the Steel Service Centre in
Kouvola and to move them to the Steel Service Centre in Hyvinkää. This
will improve cost-effectiveness. The arrangement resulted in a capital
loss of 1 million euros.
Demand for the products of the Steel Service Division during the latter
part of the year is estimated to remain slack.
(unaudited)
Individual figures and sums have been rounded off from the exact
figures. This may lead to minor discrepancies upon addition or
subtraction.
Profit and loss account 2003 2002 2003 2002 2002
EUR million 4-6 4-6 1-6 1-6 1-12
Turnover 768 743 1472 1429 2884
Other operating income 1 2 2 3 15
Operating expenses -682 -701 -1317 -1344 -2716
Depreciation -42 -44 -84 -86 -177
Operating profit 45 1 73 2 6
Financing income and expenses -14 -11 -30 -24 -52
Profit/loss before
extraordinary items 31 -10 43 -23 -46
Extraordinary items 0 0 0 0 0
Profit/loss before taxes 31 -10 43 -23 -46
Taxes* -7 0 -9 -1 1
Change in deferred tax 0 3 -6 4 12
Minority interests 1 0 1 0 0
Profit/loss of the period 24 -7 30 -19 -35
* proportion of estimated taxes for the year weighted by report period's
profit/loss
Balance sheet, EUR million 2003 2002 change 2002
Assets 30 Jun 30 Jun % 31 Dec
Non-current assets 1395 1481 -6 1453
Inventories 531 533 511
Debtors 617 659 -6 597
2543 2672 -5 2561
Liabilities
Capital and reserves 817 817 799
Minority interests 1 3 -79 3
Provisions 50 24 +107 58
Non-current creditors 915 1019 -10 1120
Current creditors 761 809 -6 580
2543 2672 -5 2561
Cash flow statement 2003 2002 2002
EUR million 1-6 1-6 1-12
Cash flow before
working capital changes 154 89 196
Change in working capital -66 -54 3
Financing items and taxes -21 -22 -44
Cash flow from
extraordinary items 0 0 -3
Cash flow from operations 67 13 152
Cash flow from investing
activities -41 -67 -129
Cash flow before financing 26 -54 23
Key figures 2003 2002 2002
1-6 1-6 1-12
Operating profit, % of turnover 5.0 0.1 0.2
Return on net assets*, % 4.1 0.5 0.6
Return on equity*, % 1.6 -3.3 -4.3
Equity ratio, % 31.9 30.4 31.1
Gearing ratio, % 133 145 138
Interest bearing net debt, Me 1,070 1,168 1,092
Earnings per share, e 0.22 -0.14 -0.26
Equity per share, e 5.93 5.92 5.81
Personnel on average 12,988 13,370 13,325
* based on previous 12 months
Turnover by division 2003 2002 change 2002
EUR million 1-6 1-6 % 1-12
Rautaruukki Steel 676 632 +7 1308
Metform 189 192 -1 367
Steel Structure Division 136 140 -3 321
Fundia 415 373 +11 731
Steel Service 320 330 -3 646
Other units 138 85 +62 171
less internal invoicing -402 -323 +24 -660
Consolidated turnover 1472 1429 +3 2884
Operating result by division 2003 2002 2002
EUR million 1-6 1-6 1-12
Rautaruukki Steel 88 -8 9
Metform 7 15 17
Steel Structure Division -6 0 12
Fundia 0 0 -17
Steel Service 7 7 23
Other units and internal items-22 -12 -36
Consolidated operating result 73 2 6
Contingent liabilities Group Rautaruukki Oyj
EUR million 6/03 12/02 6/03 12/02
Mortgaged real estates 89 86 79 79
Collateral given on behalf of
Group companies 129 128
associated companies 2 2 2 2
others 4 5 4 4
Leasing and rental liabilities 162 176 75 80
Repurchase liabilities 14 14 12 12
Values of derivative contracts, EUR million
30 June 2003 Nominal value Fair value
Interest rate derivatives
Interest rate swaps 750 -12.0
Foreign currency derivatives
Forward contracts 328 2.2
Options*
Bought 140 -2.2
Sold 85 -3.6
Zinc derivatives**
Forward contracts 27,150 -0.4
Electricity derivatives***
Forward contracts 1,511 6.1
* 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 II/03
Rautaruukki Steel 304 328 331 345 324 352
Metform 90 102 83 92 90 99
Steel Structure Division 58 83 93 88 58 78
Fundia 178 195 169 189 202 214
Steel Service 162 168 157 159 157 164
Other units 41 44 36 50 69 69
less internal invoicing -147 -176 -167 -170 -195 -207
Consolidated turnover 686 743 703 753 704 768
Operating profit/loss by quarter
(EUR million) I/02 II/02 III/02 IV/02 I/03 II/03
Rautaruukki Steel 2 -10 4 13 40 49
Metform 5 9 2 1 2 5
Steel Structure Division -4 4 10 2 -5 -2
Fundia -1 1 -18 1 -2 1
Steel Service 2 5 5 10 4 3
Other units and internal items-4 -8 -15 -10 -11 -11
Consolidated operating result 1 1 -12 17 28 45
External deliveries by quarter
(1000 tonnes) I/02 II/02 III/02 IV/02 I/03 II/03
Hot rolled plates,
sheets and coils 269 278 267 292 283 305
Cold rolled sheets and coils 51 44 48 50 43 46
Coated sheets and coils 167 166 178 179 156 173
Tubular products 139 166 128 147 137 152
Profiled sheets and section 50 69 75 67 55 67
Long steel products 473 516 441 502 520 550
Rautaruukki Oyj
Esko Lukkari
VP, Corporate Communications
ADDITIONAL INFORMATION
Sakari Tamminen, Deputy to the President
tel. +358 9 4177 6275
Mikko Kivimäki, President & CEO
tel. +358 9 4177 6200
DISTRIBUTION
Helsinki Exchanges
Principal Media
www.rautaruukki.com