July 28, 2004
08:00 CET
Interim Report January - June 2004
Rautaruukki Oyj Stock Exchange Release 28.7.2004 at 9.00
THE MARKET SITUATION REMAINED GOOD - PROFITABILITY IMPROVED
SUBSTANTIALLY
Net sales: EUR 1,708 million (1,472 million in January-June 2003)
Operating profit: EUR 192 million (73)
Profit before extraordinary items and taxes: EUR 167 million (43)
Earnings per share: EUR 0.98 (0.22)
Gearing ratio: 86 per cent (133)
Net sales were up in step with increased deliveries and a rise in
prices. The improvement in operating profit was driven not only by
the rise in product prices but also by cutting down less
profitable sales.
Full-year net sales are estimated to exceed EUR 3.3 billion. The
operating profit margin for the full year is forecast to come in
substantially above the company's target 7 per cent.
Key figures 2004 2003 2004 2003 2003
4-6 4-6 1-6 1-6 1-12
Net sales, mEUR 913 768 1708 1472 2953
Operating profit before
non-recurring items, mEUR 119 45 192 73 170
Non-recurring items, mEUR - - - - -42
Operating profit, mEUR 119 45 192 73 128
- as percentage of net sales 13.1 5.9 11.2 5.0 4.3
Profit before extraordinary
items and taxes, mEUR 104 31 167 43 70
Earnings per share, EUR 0.67* 0.18 0.98* 0.22 0.39
* includes EUR 0.13 resulting from an EUR 18 million reduction in
the deferred tax liability due to the change in Finnish tax
legislation
Business environment and market
The market situation was impacted by the continued strong demand
for steel products in China. Demand for steel products as well as
stainless steel and aluminium products also grew somewhat in
Europe as the economy picked up. The supply of steel products did
not grow in the EU countries because imports declined and exports
grew.
Of the raw materials for steel manufacture, the price of coal
continued to rise sharply, but the price of recycled steel
temporarily headed downward. The rise in raw material prices
coupled with a shortage of some steel products from time to time
led to a significant strengthening in the prices of flat steel
products in Europe. The rise in the prices of some long steel
products tailed off because of China's reduced imports and a drop
in the price of recycled steel. The exchange rate of the US dollar
remained at a low level.
Of Rautaruukki's most important customer sectors, the volume of
construction grew somewhat in the EU countries compared with the
same period a year ago. The growth in volumes in the Nordic
countries and in the new EU countries was faster than in the
region's other countries.
The growth in the engineering industry's output accelerated
somewhat in the EU countries compared with the first quarter.
Within the metal fabrication industry, production swung to growth
in the second quarter.
Net sales and financial result
Rautaruukki's net sales grew by 16 per cent and were EUR 1,708
million (1,472). The growth in net sales was attributable to the
increase in delivery volumes and stronger prices. The solutions
divisions accounted for 25 per cent of net sales (26).
Consolidated operating profit was EUR 192 million (73). Operating
profit was boosted by the rise in product prices and an
improvement in the structure of deliveries. The rise in the prices
of steel products has offset higher raw material costs. Despite
strong volume growth, Rautaruukki has been able to hold fixed
costs stable. In an exceptional market situation, every effort has
been made to ensure that the needs of customers of long standing
are met. The change in the exchange rate of the US dollar added
EUR 25 million to operating profit compared with the same period a
year earlier.
Operating profit reported by the solutions divisions totalled EUR
54 million (19). The Metal Products Division reported operating
profit of EUR 168 million (65).
Profit before extraordinary items and taxes was EUR 167 million
(43). The return on capital employed was 13.4 per cent (4.1).
Earnings per share were EUR 0.98 (0.22).
In accordance with the reform of Finnish tax legislation, the
corporate income tax rate will fall from 29 per cent to 26 per
cent from the beginning of 2005. An EUR 18 million reduction in
the deferred tax liability resulting from the change in tax
legislation has been entered in the profit and loss account for
the report period. The effect in earnings per share is EUR 0.13.
Financing
The Group's net interest expenses amounted to EUR 21 million (25).
Net financial expenses totalled EUR 25 million (30), including EUR
1 million of currency exchange losses (3).
Cash flow from operations was EUR 172 million (67) and cash flow
before financing EUR 147 million (26). Interest-bearing net debt
totalled EUR 803 million (1,070). Working capital increased by EUR
66 million in the first half of the year because of the growth in
trade receivables resulting from increased sales.
The equity ratio was 37.7 per cent (31.9) and the gearing ratio 86
per cent (133). At the end of June the Group's liquid funds
amounted to EUR 77 million and it had a total of EUR 283 million
of committed unused revolving credit facilities with banks.
Capital expenditure
Capital expenditures on fixed assets amounted to EUR 51 million
(43) and consisted mainly of ordinary development and replacement
investments.
New business model
Implementation of the new business model has been continued
through internal measures carried out across the Group. The
solutions divisions have boosted their efficiency by divesting
units that do not fit in with the new business model and by
trimming fixed costs. The operational priority for the divisions
is to implement customer-oriented total solutions for selected
customer sectors.
Fundia Wire
Fundia Wire's streamlining program has brought results and the
business was profitable in the report period. The study of
alternative options for developing Fundia Wire's operations is
continuing ahead.
Near-term outlook
Residential and infrastructure construction are estimated to grow
within Rautaruukki's core markets and the outlook for the
commercial construction is also expected to improve. In the new EU
countries and in Russia, the outlook for the construction industry
is good. Within the engineering and offshore industries, demand is
estimated to improve somewhat. Demand in the electronics,
automotive and domestic appliance industries is expected to grow.
The demand for steel products is set to grow, especially in the
United States and Asia. Product supply is not expected to grow
substantially in the EU countries in the third quarter even if
China continues its imports at a lower level than in the first
part of the year.
Rautaruukki has made agreements on raw material supplies for the
rest of 2004. Starting in the third quarter, raw material costs
are estimated to be somewhat higher than in the second quarter.
The market prices of steel products are expected to rise further,
thereby offsetting higher raw material costs. The interim repairs
on the blast furnace that are under way at the Raahe Steel Works
and the normal seasonal variation in the fourth quarter will cut
into earnings, and the operating profit margin in the latter part
of the year is expected to be lower than in the first half. Full-
year net sales are estimated to exceed EUR 3.3 billion. The
operating profit margin for the full year is forecast to come in
substantially above the company's target 7 per cent.
Helsinki, 28 July 2004
Rautaruukki Oyj
Board of Directors
DIVISIONS
Construction Solutions
Demand within residential construction was stronger than last year
and deliveries increased. The most buoyant growth was seen in the
Baltic countries and in Ukraine.
Deliveries for infrastructure construction were also up. There was
strong demand for steel pile solutions, particularly in Finland,
Sweden and Norway.
The growth in commercial construction demand was slightly slower
than within other construction segments. In central Europe there
was good demand for solutions for steel halls to logistics
companies and industrial clients.
The division's net sales totalled EUR 179 million (148). Operating
profit was EUR 18 million (-1).
The division's processing business was enhanced by cutting
overlapping functions and consolidating operations within larger
units. The efficiency of end-product production and the use of
capital are expected to improve.
Mechanical Engineering Solutions
Demand within the shipbuilding and marine industry grew world
wide, but in Finland the shipyards faced exceptionally thin order
books. Deliveries were lower than last year.
The backlog of orders in the paper and wood processing industry
began to strengthen, but deliveries were still lower than last
year.
Demand within the lifting and transport equipment industry picked
up further and deliveries grew substantially.
Net sales were EUR 142 million (137). Operating profit was EUR 24
million (12).
To enhance operational efficiency, synergy advantages will be
sought among different customers' component manufacture of the
same type. The focus in new customer projects will be in solutions
emphasizing design and manufacturability. The development actions
of the division's processing units were directed at improving cost-
effectiveness.
Metal Fabrication Solutions
Demand in the electronics and domestic appliance industries grew
somewhat. Within the automotive industry, demand headed upwards in
the second quarter. The light engineering industry saw a weakening
in demand.
Deliveries were up on last year in all the division's sectors
except for the light engineering industry, where deliveries fell
short of last year's figure owing to the divestment of the Star
Tubes unit.
Net sales were EUR 108 million (105). Operating profit was EUR 12
million (7).
The division is developing solutions to several customers,
notably, in collaboration with the electronics industry and
manufacturers of home appliances. The division's processing unit
in St Petersburg has increased the contract manufacture of
components.
Metal Products
Demand for steel and other metal products grew and from time to
time orders exceeded the division's ability to fill them.
Deliveries were up across all product groups. Deliveries of steel
and metal products totalled 2,282,000 tonnes (2,161,000).
Net sales were EUR 1,247 million (1,050). Operating profit was EUR
168 million (65). The improvement in operating profit was due
primarily to the rise in product prices.
In an exceptional market situation, the focus has been on
optimising sales, taking into account the needs of the solutions
businesses, whilst ensuring that customers of long standing obtain
the materials they need. Actions to improve the receivables
turnover rate moved ahead with the aim of boosting the efficiency
of capital employed. The welding wire business was sold to ESAB at
the beginning of June.
Production Division
Steel slab output totalled 2,382,000 tonnes (2,322,000). The
company reduced the use of expensive purchased steel thanks to
smoothly running steel production.
The prices of raw materials used in steel manufacture remained
high. The price of coking coal rose further, but the price of
recycled steel temporarily headed downwards. Agreements until the
end of the year have been made to ensure the company's raw
materials supply.
Interim repairs to the second blast furnace were started at the
Raahe Steel Works at the beginning of July and they have
progressed according to plans. The shutdown for repairs is to last
33 days and will result in a production loss of about 150,000
tonnes.
The investments being carried out at the Raahe Steel Works' hot
rolling mill with the aim of improving cost-effectiveness and
quality are moving ahead according to plans.
(unaudited)
Profit and loss account 2004 2003 2004 2003 2003
EUR million 4-6 4-6 1-6 1-6 1-12
Net sales 913 768 1708 1472 2953
Other operating income 1 1 6 2 9
Operating expenses -749 -682 -1435 -1317 -2632
Depreciation -46 -42 -88 -84 -170
Operating profit before
non-recurring items 119 45 192 73 170
Non-recurring items 0 0 0 0 -42
Operating profit 119 45 192 73 128
Financing income and expenses -15 -14 -25 -30 -58
Profit before extraordinary
items and taxes 104 31 167 43 70
Extraordinary items 0 0 0 0 0
Profit before taxes 104 31 167 43 70
Taxes* -26 -7 -44 -9 -26
Change in deferred tax** 13 0 10 -6 9
Minority interests 0 1 0 1 1
Profit of the period 91 24 133 30 53
* Proportion of estimated taxes for the year weighted by report
period's profit
** Figures for 2004 include an EUR 18 million reduction resulting
from the change in Finnish tax legislation.
Balance sheet, EUR million 2004 2003 Change 2003
Assets 30 Jun 30 Jun % 31 Dec
Non-current assets 1277 1395 -8 1329
Inventories 518 531 -2 502
Debtors 705 617 +14 572
2500 2543 -2 2403
Liabilities
Capital and reserves 946 817 +16 838
Minority interests 1 1 1
Provisions 59 50 +19 60
Non-current creditors 738 915 -19 927
Current creditors 756 761 -1 577
2500 2543 -2 2403
Cash flow statement 2004 2003 2003
EUR million 1-6 1-6 1-12
Cash flow before working
capital changes 275 154 332
Change in working capital -66 -66 0
Financing items and taxes -38 -21 -66
Cash flow from extra-
ordinary items 0 0 0
Cash flow from operations 172 67 265
Cash flow from investing
activities -25 -41 -89
Cash flow before financing 147 26 176
Key figures 2004 2003 2004 2003 2003
4-6 4-6 1-6 1-6 1-12
Net sales, mEUR 913 768 1,708 1,472 2,953
Operating profit before
non-recurring items, mEUR 119 45 192 73 170
Non-recurring items, mEUR - - - - -42
Operating profit , mEUR 119 45 192 73 128
- as percentage of net sales 13.1 5.9 11.2 5.0 4.3
Profit before extraordinary
items and taxes, mEUR 104 31 167 43 70
Earnings per share, EUR 0.67* 0.18 0.98* 0.22 0.39
Cash flow bef. financing, mEUR 121 27 147 26 176
Return on capital employed**, % 13.4 4.1 7.1
Return on equity**, % 18.0 1.6 6.5
Equity ratio, % 37.7 31.9 34.6
Gearing ratio, % 86 133 112
Interest bearing net debt, mEUR 803 1,070 922
Equity per share, EUR 6.87 5.93 6.07
Personnel on average 12,280 12,988 12,782
* includes EUR 0.13 resulting from an EUR 18 million reduction in
the deferred tax liability due to the change in Finnish tax
legislation
**based on previous 12 months
Net sales by division 2004 2003* Change 2003*
EUR million 1-6 1-6 % 1-12
Construction solutions 179 148 +21 356
Mechanical engin. solutions 142 137 +4 256
Metal fabrication solutions 108 105 +3 201
Metal products 1247 1050 +19 2071
Other units 33 33 70
Consolidated net sales 1708 1472 +16 2953
* pro forma
Operating profit by division 2004 2003* 2003*
EUR million 1-6 1-6 1-12
Construction solutions 18 -1 31
Mechanical engin.g solutions 24 12 27
Metal fabrication solutions 12 7 16
Metal products 168 65 112
Other units -30 -9 -15
Non-recurring items -42
Consolidated operating profit 192 73 128
* pro forma
Net sales by quarter*
EUR million I/03 II/03 III/03 IV/03 I/04 II/04
Construction solutions 61 86 106 102 70 109
Mechanical engin. solutions 69 67 60 59 64 78
Metal fabrication solutions 54 51 46 50 55 52
Metal products 504 546 493 528 591 655
Other units 15 18 17 20 15 19
Consolidated net sales 704 768 722 759 795 913
* 2003 figures pro forma
Operating profit by quarter*
EUR million I/03 II/03 III/03 IV/03 I/04 II/04
Construction solutions -4 4 16 15 1 17
Mechanical engin. solutions 10 2 10 5 9 15
Metal fabrication solutions 3 4 4 5 5 7
Metal products 25 40 28 19 63 105
Other units -5 -4 -2 -3 - 6 -24
Non-recurring items -42
Consolidated oper. profit 28 45 55 0 73 119
* 2003 figures pro forma
Contingent liabilities Group Rautaruukki Oyj
EUR million 6/04 12/03 6/04 12/03
Mortgaged real estates 39 39 28 28
Collateral given on behalf of
Group companies 118 109
associated companies 2 2 2 2
others 6 6 4 4
Leasing and rental liabilities 266 292 64 70
Repurchase liabilities 0 2 0 0
Values of derivative contracts, EUR million
30 June 2004 Nominal value Fair value
Interest rate derivatives
Interest rate swaps 639 -4.8
Foreign currency derivatives
Forward contracts 386 -0.2
Options
Bought 125 -1.5
Sold 100 -0.1
Zinc derivatives*
Forward contracts 61,950 3.0
Electricity derivatives**
Forward contract 1,912 11.5
* Nominal values in tonnes
** Nominal values in GWh
Rautaruukki Oyj
Esko Lukkari, VP (Stock Exchange and Financial Communications,
Media relations)
ADDITIONAL INFORMATION
Sakari Tamminen, CEO, Tel.+358 20 592 9075
Mikko Hietanen, CFO, Tel. +358 40 579 4359
The analyst and press conference will be held on 28 July 2004 at
10.30 am at Rautaruukki Headquarters, Suolakivenkatu 1, Helsinki.
Sakari Tamminen, President & CEO will present the interim results.
Conference call will be organised on 28 July 2004 at 15:00 Finnish
time (13:00 UK time, 8:00 NY time. To participate the conference
call the details are: Telephone number +44 207 162 0183, password:
Rautaruukki, 5-10 minutes before the scheduled start.
DISTRIBUTION
Helsinki Exchanges
Principal Media
www.rautaruukki.com