October 22, 2003
08:01 CET
Rautaruukki's Interim Report January - September 2003
Rautaruukki Oyj Stock Exchange Release 22 October 2003 at 9 am
Profit before taxes increased substantially and was EUR 84 million. The
rise in prices of steel products evened out in the third quarter. No
major change is expected to take place in the market situation in the
near term. The change in the Group's business model is moving ahead
Rautaruukki's turnover in the January-September period was EUR 2,194
million (2,132). Operating profit was EUR 128 million (11 loss) and
profit before extraordinary items and taxes was EUR 84 million (48
loss). Third-quarter operating profit was EUR 55 million (12 loss).
Rautaruukki Steel improved its operating profit substantially compared
with last year. The operating profit figures reported by Metform, the
Steel Structure Division and the Steel Service Division weakened.
Fundia's operating loss diminished.
Business environment and market
Economic growth in the EU countries remained slow and was outpaced by
growth in eastern central Europe and eastern Europe. Demand for steel
products in Europe was nearly at last year's level.
In the EU countries, steel output in January-September was at the same
level, and in the rest of Europe, 8 per cent greater than last year. In
the third quarter, steel production in the EU countries was 3 per cent
lower than a year ago.
Imports of steel products to the European Union countries grew, but
exports from the EU countries increased somewhat more than imports. At
the beginning of October, the EU extended its import-limiting safeguard
measures by 12 months. The level of stocks was slightly lower than
normal. In the third quarter, prices of steel products were largely on
a par with the previous quarter.
In the United States, demand for steel products was at the level of the
same period of last year. Prices strengthened moderately owing to a
contraction in supply. Demand remained very strong in China, and this
has had a significant effect on the balance in supply and demand world
wide. Prices strengthened in the markets of Southeast Asia.
Turnover and financial result
Rautaruukki's turnover was EUR 2,194 million (2,132).
Rautaruukki's deliveries of plate and tubular products were at the same
level as in the corresponding period a year earlier and the average
price of deliveries was 5 per cent higher. Deliveries in the third
quarter were down 11 per cent on the second quarter due to the summer
holidays and their average price was 1 per cent higher.
Deliveries of long steel products were up 8 per cent and their average
price was 2 per cent higher than in the same period of the previous
year. Deliveries in the third quarter were down 13 per cent on the
second quarter owing to the summer holidays and their average price
rose 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.
US dollar-denominated prices of raw materials used in iron manufacture
rose, but in euro terms they were lower than last year due to the
depreciation of the dollar. Prices of electricity and scrap were higher
than last year. Owing to the increase in Rautaruukki Steel's steel
output, the use of purchased slabs was reduced, thereby lowering costs.
Operating profit was EUR 128 million (11 loss). Operating profit was
improved by the rise in product prices, the increase in the Group's own
steel production as well as the measures that were started last year
with the aim of improving profitability and competitiveness.
Contributions to the Rautaruukki Pension Fund were EUR 16 million less
than in the same period of last year. Third-quarter operating profit
was EUR 55 million (12 loss).
Rautaruukki posted a profit before extraordinary items and taxes of EUR
84 million (48 loss). Third-quarter profit before extraordinary items
and taxes was EUR 41 million (25 loss).
Financing
The Group's net interest expenses totalled EUR 37 million (38),
representing 1.7 per cent of turnover (1.8). Net financial expenses
totalled EUR 44 million (37), including EUR 6 million of losses on
foreign exchange (3 gain).
Cash flow from operations was EUR 173 million (62) and cash flow before
financing was EUR 109 million (42 negative). Interest-bearing net debt
totalled EUR 990 million (1,155). Working capital grew by EUR 46
million in January-September, mainly owing to the increase in trade
debtors, but working capital contracted by EUR 21 million in the third
quarter. The equity ratio was 33.2 per cent (30.8) and the gearing
ratio 119 per cent (147). At the end of September, the Group had unused
binding credit facilities with banks to a total amount of EUR 364
million.
Capital expenditures
Gross capital expenditures on fixed assets amounted to EUR 75 million
(107) and consisted of development and replacement investments. Over
the full year, gross capital expenditures are estimated to be EUR 110
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.
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 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 in May. 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
The Group is going over to a new business model with the aim of
clarifying and enhancing interaction between customers and the Group
and creating the basis for the Group to achieve new growth and improve
its profitability. Growth in the years ahead will be based on
integrated value-added solutions for selected customer industries,
these being rounded out with products and services provided by the
Group's network of partners.
Under the new business model, as from 1 September 2003 the Group will
have four divisions with customer accountability: Metal Products,
Building and Construction Solutions, Mechanical Engineering Solutions
and Metal Fabrication Solutions as well as a Production Division.
The divisional structure has been fine-tuned and the Group has for the
most part gone over to an organisation in line with the new business
model. The divisions have launched operational planning in accordance
with the new business model. Measures aimed at streamlining the Group
structure and harmonising information systems have been started with
the objective of lowering fixed costs and raising the efficiency of
capital employed.
The Group's financial reporting in 2003 will still be made according to
the divisional structure effective until 31 August 2003.
Near-term outlook
In the months ahead, demand for steel products in western Europe is
estimated to remain unchanged, with full-year demand at nearly last
year's level. Of the Group's main customer industries, residential
construction is estimated to remain satisfactory, whereas the outlook
for commercial construction is weak. Within the engineering industry,
the order books in both the shipbuilding and offshore industries are
still low. Demand in the automotive and home appliance industry is
estimated to remain weak. Demand in customer industries is estimated to
improve somewhat in the first half of next year.
Imports of steel products into the EU countries are not estimated to
grow appreciably owing to the import-limiting safeguard measures that
are in force. The level of the EU countries' own steel output during
the latter part of the year will have an essential impact on whether
the supply and demand balance for steel products is maintained. The
world wide balance between supply and demand is estimated to hold up
thanks to continuing strong demand in China. In the fourth quarter,
prices of steel products are estimated to be largely unchanged.
On an annual level, euro-denominated average prices of iron raw
materials are estimated to be lower than last year in spite of the rise
in dollar-denominated prices. The average prices of electricity and
scrap over the year are estimated to be higher than they were a year
ago.
The Group's earnings will also be affected by the profitability-
boosting programme that was launched last year and is estimated to
lower fixed costs in 2003 by about 20 million euros and thereafter
about 50 million euros a year.
Fundia Wire is carrying out special measures aiming to enable the
division to post an operating profit in the last quarter. The measures
will be seen to completion during the last quarter, after which Fundia
Wire's operations will be re-evaluated.
Turnover in 2003 is estimated to be about 2.95 billion euros. The
positive earnings trend is expected to continue.
Helsinki, 22 October 2003
Rautaruukki Oyj
Board of Directors
DIVISIONS
Rautaruukki Steel
Demand for strip products and heavy plates held up satisfactorily in
the third quarter. Selling prices remained unchanged. Rautaruukki
Steel's deliveries of steel products in January-September totalled
2,089,000 tonnes (2,079,000 tonnes). The product mix was improved
further.
In the construction industry, demand for colour-coated sheet used in
building single-family houses and in renovation work was satisfactory.
Within industrial and commercial construction, demand fell below last
year's level. Demand for special products used in project construction
in the oil industry and in building the frame structures of wind energy
plants held up well.
Weak demand in the engineering industry coupled with the exceptionally
low level of orders from domestic shipyards cut into the demand for hot-
rolled products. In spite of weak demand in the automotive industry,
deliveries of speciality products were up, particularly for safety
structures. Demand in the electrical and electronics industry was
weaker than last year.
Rautaruukki Steel's turnover was EUR 1,005 million (963). Operating
profit improved substantially and rose to EUR 144 million (4 loss). The
improvement in operating profit was attributable to the rise in product
prices, lower raw material costs and improved operational efficiency.
Rautaruukki Steel's production was in line with targets. Steel output
in January-September was at the target level of 2,095,000 tonnes
(1,852,000).
The demand and price situation for plate and strip products is
estimated to remain largely unchanged in the fourth quarter.
Metform
The market situation for tubular products varied by market area and
product group. Product prices remained by and large at the previous
quarter's level.
Demand in Finland was better than a year ago. In Sweden, Denmark and
continental Europe, however, demand weakened. The slack demand in the
furniture industry led to lower volumes of precision tubes delivered.
Demand for hollow sections and line pipes weakened somewhat. Demand for
products used in foundation construction remained robust. There was
also continued good demand for gas, oil and water main pipes. In the
automotive industry, demand was weaker than last year.
The Metform Division's deliveries in January-September amounted to
407,000 tonnes (434,000). Turnover was EUR 266 million (274) and
operating profit totalled EUR 8 million (17). Earnings were weakened by
the poor demand for precision tubes in the main market areas, the rise
in raw material costs and the adjustment made in the bases of internal
pricing.
Measures aiming to improve profitability were continued. The production
of precision tubes will be reorganised by closing down the Nordisk
Simplex A/S operations in Denmark and offsetting the shortfall through
deliveries from the company's other tube works. The arrangement will
not have any effect on customer deliveries or an essential impact on
the Group's result.
The market situation for tubular products is estimated to hold steady,
and there are not likely to be major changes in prices in the latter
part of the year.
Steel Structure Division
The Steel Structure Division's roofing products enjoyed satisfactory
demand. Sales grew in step with the normal seasonal demand in housing
construction. Demand for products used in industrial and office
construction was still weaker than a year ago in the Nordic countries
and central Europe. Demand for engineering products held steady.
The Steel Structure Division had turnover of EUR 234 million (234).
Turnover remained at the level of the same period a year ago in nearly
all market areas. The fall in prices and a late start to the
construction season exerted a drag on turnover growth.
The division posted operating profit of EUR 1 million (10). Operating
profit was weakened by the fall in product prices and a strengthening
euro. Third-quarter operating profit was EUR 7 million (10). The Steel
Structure Division's earnings are tied closely to the seasonal
variation in the construction business.
The Group's expenses have been adjusted in line with the market
situation. The efficiency of operations in central Europe was raised by
centralising production at the works in Hungary.
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. Keen price competition is expected to continue,
especially in eastern Europe.
Fundia
Demand for long steel products weakened slightly in the third quarter
as customers wound down their stocks. Product prices remained largely
unchanged.
Demand for reinforcing bars in the Nordic countries was satisfactory
and demand for prefabricated reinforcements improved. Supply in the UK
market increased because entrepreneurs restarted factories that had
discontinued their production last year.
Demand for bar products weakened somewhat. The order book of Fundia
Special Bar contracted but remained good.
Demand for wire products weakened further, mainly affecting basic
grades. Demand for higher grade wire products was more stable.
Production was cut back in line with lower demand.
The market situation for upgraded wire products and bar products
remained weak.
Fundia's total deliveries in January-September amounted to 1,475,000
tonnes (1,348,000). The average price of deliveries of long rolled
products was 4 per cent higher than it was a year earlier. Fundia's
steel output was 1,303,000 tonnes (1,207,000).
Fundia's turnover was EUR 600 million (542). The operating result was a
loss of EUR 6 million (19 loss). The earnings trend was weakened by
scrap and energy costs that rose faster than product prices.
Of Fundia's divisions, Fundia Reinforcing reported improved operating
profit, but the operating profit figures of Fundia Special Bar and
Fundia Bar & Wire Processing were down on last year.
Fundia Wire turned in an operating loss, though it was smaller than the
loss a year earlier. Special measures were continued at Fundia Wire
aiming to enable the division to post an operating profit in the last
quarter.
The market situation and prices of long steel products are not expected
to change significantly during the latter part of the year.
Steel Service Division
In Finland, demand for the products of the Steel Service Division
remained weak and deliveries fell 5 per cent short of last year's
figure. The main factor behind this was the reduced order backlog in
the shipbuilding, engineering and electronics industries.
In Sweden, the division's deliveries were up in spite of weaker demand.
Deliveries in Norway contracted due to weak demand.
In the Baltic countries and Poland, the division's deliveries grew
somewhat despite tougher competition. In Russia, deliveries showed
robust growth.
Prices of steel products in the third quarter were by and large on a
par with the previous quarter. Prices of stainless steel products
declined, but prices of aluminium products began to notch up.
The Steel Service Division had turnover of EUR 477 million (487) and
reported operating profit of EUR 9 million (12). The division's weaker
earnings were attributable mainly to the decline in deliveries. The
Steel Service Division delivered a total of 368,000 tonnes of steel
products manufactured by Group units (336,000), accounting for 58 per
cent of total deliveries (51).
At the end of September the Group acquired the metal wholesale
operations of the Norwegian company Vinje Stål AS, thereby
strengthening the Group's position in central and northern Norway.
Demand for the products of the Steel Service Division during the latter
part of the year is estimated to remain unchanged.
(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 7-9 7-9 1-9 1-9 1-12
Turnover 722 703 2194 2132 2884
Other operating income 4 2 7 5 15
Operating expenses -629 -671 -1946 -2015 -2716
Depreciation -42 -46 -127 -132 -177
Operating profit 55 -12 128 -11 6
Financing income and expenses -14 -13 -44 -37 -52
Profit/loss before extra-
ordinary items 41 -25 84 -48 -46
Extraordinary items 0 0 0 0 0
Profit/loss before taxes 41 -25 84 -48 -46
Taxes* -10 -2 -19 -3 -1
Change in deferred tax -5 8 -10 12 12
Minority interests 0 0 1 0 0
Profit/loss of the period 26 -19 56 -39 -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 Sep 30 Sep % 31 Dec
Non-current assets 1380 1473 -6 1453
Inventories 515 510 +1 511
Debtors 632 601 +5 597
2528 2584 -2 2561
Liabilities
Capital and reserves 845 798 +6 799
Minority interests 1 3 -78 3
Provisions 50 34 +48 58
Non-current creditors 815 1054 -23 1120
Current creditors 817 695 +18 580
2528 2584 -2 2561
Cash flow statement 2003 2002 2002
EUR million 1-9 1-9 1-12
Cash flow before
working capital changes 255 129 196
Change in working capital -46 -35 3
Financing items and taxes -36 -32 -44
Cash flow from extraordinary items 0 0 -3
Cash flow from operations 173 62 152
Cash flow from investing activities -65 -104 -129
Cash flow before financing 109 -42 23
Key figures 2003 2002 2002
1-9 1-9 1-12
Operating profit, % of turnover 5.8 -0.5 0.2
Return on net assets*, % 7.7 -0.9 0.6
Return on equity*, % 7.2 -6.6 -4.3
Equity ratio, % 33.2 30.8 31.1
Gearing ratio, % 119 147 138
Interest bearing net debt, Me 990 1,155 1,092
Earnings per share, e 0.41 -0.28 -0.26
Equity per share, e 6.12 5.78 5.81
Personnel on average 12,959 13,443 13,325
* based on previous 12 months
Turnover by division, 2003 2002 change 2002
EUR million 1-9 1-9 % 1-12
Rautaruukki Steel 1005 963 +4 1308
Metform 266 274 -3 367
Steel Structure Division 234 234 321
Fundia 600 542 +11 731
Steel Service 477 487 -2 646
Other units 201 122 +65 171
less internal invoicing -589 -490 +20 -660
Consolidated turnover 2194 2132 +3 2884
Operating result by division 2003 2002 2002
EUR million 1-9 1-9 1-12
Rautaruukki Steel 144 -4 9
Metform 8 17 17
Steel Structure Division 1 10 12
Fundia -6 -19 -17
Steel Service 9 12 23
Other units&internal items -28 -27 -36
Consolidated operating result 128 -11 6
Contingent liabilities GroupRautaruukki Oyj
EUR million 9/03 12/02 9/03 12/02
Mortgaged real estates 89 86 79 79
Collateral given on behalf of
Group companies 124 128
associated companies 2 2 2 2
others 5 5 4 4
Leasing and rental liabilities166 176 73 80
Repurchase liabilities 14 14 12 12
Values of derivative contracts, EUR million
30 September 2003 Nominal value Fair value
Interest rate derivatives
Interest rate swaps 715 -9.4
Foreign currency derivatives
Forward contracts 424 -3.5
Options*
Bought 175 -2.9
Sold 140 -3.5
Zinc derivatives**
Forward contracts 50,550 1.3
Electricity derivatives***
Forward contracts 1,478 7.4
* 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/03III/03
Rautaruukki Steel 304 328 331 345 324 352 329
Metform 90 102 83 92 90 99 76
Steel Structure Division 58 83 93 88 58 78 99
Fundia 178 195 169 189 202 214 185
Steel Service 162 168 157 159 157 164 156
Other units 41 44 36 50 69 69 63
less internal invoicing -147 -176 -167 -170 -195 -207 -186
Consolidated turnover 686 743 703 753 704 768 722
Operating profit/loss by quarter
(EUR million) I/02 II/02 III/02 IV/02 I/03 II/03III/03
Rautaruukki Steel 2 -10 4 13 40 49 56
Metform 5 9 2 1 2 5 1
Steel Structure Division -4 4 10 2 -5 -2 7
Fundia -1 1 -18 1 -2 1 -6
Steel Service 2 5 5 10 4 3 3
Other units&internal items-4 -8 -15 -10 -11 -11 -6
Consolidated oper. result 1 1 -12 17 28 45 55
External deliveries by quarter
(1000 tonnes) I/02 II/02 III/02 IV/02 I/03 II/03III/03
Hot rolled plates,
sheets and coils 269 278 267 292 283 305 268
Cold rolled sheets&coils 51 44 48 50 43 46 40
Coated sheets and coils 167 166 178 179 156 173 177
Tubular products 139 166 128 147 138 153 116
Profiled sheets§ions 50 69 75 67 55 66 75
Long steel products 473 516 441 502 520 550 480
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
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Rautaruukki produces total solutions for the construction, mechanical
engineering and metal fabrication industries. The group has a wide
selection of products and services for metal products. Rautaruukki is a
listed company that manufactures products in 17 European countries and
employs nearly 13,000 people. The group has a turnover of some EUR 3
billion.