July 23, 2008
Outotec - interim report January-June 2008
OUTOTEC OYJ STOCK EXCHANGE RELEASE JULY 23, 2008 AT 9:00 AM
INTERIM REPORT JANUARY-JUNE 2008
Record-high order backlog - strong net cash flow from operations
Reporting period Q1-Q2/2008 in brief (2007 corresponding figures in
parentheses):
- Sales: EUR 501.0 million (EUR 438.8 million)
- Operating profit: EUR 43.8 million (EUR 37.1 million)
- Profit before taxes: EUR 50.0 million (EUR 39.9 million)
- Earnings per share: EUR 0.83 (EUR 0.64)
- Order intake: EUR 774.2 million (EUR 660.9 million)
- Order backlog: EUR 1,548.4 million (EUR 1,110.8 million)
- Net cash flow from operating activities: EUR 124.2 million (EUR
22.3 million)
Q2/2008 in brief (2007 corresponding figures in parentheses):
- Sales: EUR 275.5 million (EUR 227.1 million)
- Operating profit: EUR 22.9 million (EUR 23.4 million)
- Profit before taxes: EUR 26.8 million (EUR 24.6 million)
- Order intake: EUR 475.4 million (EUR 492.9 million)
- Net cash flow from operating activities: EUR 83.6 million (EUR 1.2
million)
Outlook unchanged: the company reiterates its full-year 2008 outlook
regarding sales, operating profit and closing backlog
CEO Tapani Järvinen:"Activity in the served markets continued on high level in the first
half of 2008. Our business developed favorably despite of the
continued uncertainty in the general economic conditions. We were
able to achieve an all-time high order backlog. I am pleased with the
large orders for the copper solvent extraction and electrowinning
plant in Peru and the sulfuric acid plant from a fertilizer producer
in Venezuela. Our operating profit continued to grow although in the
second quarter it remained at the previous year's level because of
different timing of project completions and changes in foreign
exchange rates, as well as one-time cost items.
Growing service and after sales business, strong order backlog and
good financial performance during the reporting period support our
full-year outlook for 2008."
Summary of key
figures
Q2 Q2 Q1-Q2 Q1-Q2 Q1-Q4
2008 2007 2008 2007 LTM *) 2007
Sales, EUR million 275.5 227.1 501.0 438.8 1,062.4 1,000.1
Gross margin, % 20.3 21.9 20.3 20.5 20.3 20.4
Operating profit, EUR
million 22.9 23.4 43.8 37.1 102.8 96.1
Operating profit in
relation to sales, % 8.3 10.3 8.7 8.5 9.7 9.6
Profit before taxes,
EUR million 26.8 24.6 50.0 39.9 114.9 104.8
Net cash from
operating activities,
EUR million 83.6 1.2 124.2 22.3 245.0 143.0
Net interest-bearing
debt at the end of
period, EUR million -358.5 -176.3 -358.5 -176.3 -358.5 -292.9
Gearing at the end of
period, % -180.4 -110.3 -180.4 -110.3 -180.4 -136.4
Working capital at
the end of period,
EUR million -240.3 -105.5 -240.3 -105.5 -240.3 -153.9
Return on investment,
% 60.0 64.0 50.1 54.8 64.9 59.8
Return on equity, % 39.6 42.6 33.8 35.6 47.7 43.3
Order backlog at the
end of period, EUR
million 1,548.4 1,110.8 1,548.4 1,110.8 1,548.4 1,317.2
Order intake, EUR
million 475.4 492.9 774.2 660.9 1,576.3 1,463.0
Personnel average for
the period 2,545 1,990 2,365 1,925 2,251 2,031
Earnings per share,
EUR 0.44 0.40 0.83 0.64 2.04 1.85
*)Last twelve months
OUTLOOK FOR 2008
Outotec's market outlook is expected to remain good in 2008. The
mining and metals industry's outlook continues robust, and the
tightness in the supply of metals encourages Outotec's customer
industry to invest extensively in new plants, modernization projects,
and expansions. Driven by the favorable market situation, the demand
for Outotec's process technologies and services is expected to
continue on a strong level in 2008.
Outotec reiterates its full-year outlook in terms of sales, operating
profit and closing order backlog. Based on the strong existing order
backlog, new order prospects, and second-half-year-loaded sales and
operating profit generation the management expects that in 2008:
- sales will grow over 25% compared to 2007,
- operating profit will improve from 2007 and the operating profit
margin will be moderately above the 2007 level, depending on the mix
of new orders received and the timing of project completions, and
that
- the closing order backlog for 2008 will exceed that of the previous
year-end.
INTERIM REPORT JANUARY-JUNE 2008
MARKETS
During the reporting period, the positive sentiment and strong
investment activity in the mining and metallurgical industry
continued, driven by healthy global industrial production and
consumption of metals. Customer industry consolidation has continued,
and these mergers may also have an effect on individual project
developments and new investment decisions. However, as long as the
underlying demand for and consumption of metals continues to grow,
there will be a need to invest in new capacity. At the same time,
lower-grade and more complex ore bodies need to be mined,
environmental regulations are tightening, and requirements for more
energy-efficient processes are growing. All these factors provide new
opportunities for Outotec and its advanced technologies.
In the reporting period, Outotec's customers initiated projects
related to technologies applicable to ferrous metals, base metals and
sulfuric acid. Strong demand was seen also in aluminum and
ferroalloys technologies. Opportunities for cross-selling of the
existing technologies to other process industries continued to
emerge, particularly in the fertilizer industry.
New potential projects continued to emerge in the rapidly developing
economies such as India and China, as well as in traditional mining
countries like Australia, Chile and Russia. Market activity in the
Middle East also continued robust.
In June, Outotec and Kazgiprotsvetmet of Kazakhstan signed a
strategic cooperation agreement on the marketing and providing of
minerals processing and metallurgical plants along with related
services, in Kazakhstan and its neighboring countries. This new
partnership agreement further strengthens Outotec's presence in the
area.
ORDER INTAKE
Order intake in the reporting period amounted to EUR 774.2 million
(Q1-Q2/2007: EUR 660.9 million), representing 17% growth from the
previous year's corresponding figure. The orders received in the
second quarter of 2008 came to EUR 475.4 million (Q2/2007: EUR 492.9
million).
Major new orders in the second quarter included:
- grinding technology for a major international mining company (EUR
75 million);
- grinding technology, including spare parts and services for Nordic
Mines of Sweden for the Laiva gold project in Finland and for
Polymetal Trading of Russia for the Albazino and Dukat projects (EUR
25 million);
- new environmentally sound technology for Shougang Jingtang United
Iron & Steel for Shougang's iron ore pelletizing plant project in
Caofeidan, China (EUR 29 million);
- engineering and equipment delivery for a new sulfuric acid plant in
Moron, Venezuela for Petroquimica de Venezuela (EUR 90 million);
- flotation and thickening technology for Salobo Metais in Brazil
(EUR 9 million); and
- a copper solvent extraction and electrowinning plant for Southern
Peru Copper Corporation in Peru (USD 150 million, or over EUR 90
million, out of which USD 90 million is already included in the
second quarter order backlog).
Major new orders in the first quarter included:
- the basic engineering and proprietary and special equipment for two
iron ore sinter plants for Bhushan Steel in Orissa State, India (EUR
18 million);
- several aluminum technology orders in China, among them a sow
casting system for Huomei Hongjun Aluminium-Power Company, a
vibrocompactor and rodshop process equipment for China Aluminium
International Trading, and a sow casting system and key rodshop
equipment for Yellow River Hydropower Development Company (EUR 17
million);
- minerals processing technology for Mirabela Mineração of Brazil for
a new nickel sulfide concentrator and a slag concentrator for Umicore
Med for the Pirdop copper smelter in Bulgaria (EUR 21 million);
- modernization of a copper flash smelting furnace for KGHM Polska
Miedz in Poland (over EUR 10 million);
- a chromite ore pelletizing plant and preheating kilns for ASA
Metals in South Africa (EUR 25 million); and
- three-year service agreements with Boliden's Harjavalta and Kokkola
plants and with Norilsk Nickel's Harjavalta plants in Finland.
ORDER BACKLOG
The order backlog at the end of the reporting period totaled EUR
1,548.4 million (June 30, 2007: EUR 1,110.8 million), representing
growth of 39% from the 2007 corresponding figure, further
strengthening from the first quarter 2008 level.
At the end of the reporting period, Outotec's order backlog included
33 projects with a value in excess of EUR 10 million, accounting for
62% of the total backlog. The management estimates that 46% of the
current backlog will be delivered in 2008 and the rest in 2009 and
beyond.
The drinking water treatment facility project for the eastern coastal
towns of Ampara District in Sri Lanka (USD 100 million) is pending
the customer's financing agreement. It is not included in the order
backlog on June 30, 2008.
SALES AND FINANCIAL RESULT
Outotec's sales in the reporting period totaled EUR 501.0 million
(Q1-Q2/2007: EUR 438.8 million), representing 14% growth from the
previous year's corresponding figure. Sales for the second quarter
were EUR 275.5 million (Q2/2007: EUR 227.1 million). The growth
resulted from increased delivery volumes and the higher percentage of
completion in certain projects.
Services and after sales business, which is included in the
divisions' sales figures, contributed EUR 51.6 million to sales
during the reporting period (Q1-Q2/2007: EUR 33.0 million), up 56%
from the corresponding 2007 level. The sales volume of the Services
and After Sales business in the second quarter of 2008 totaled EUR
30.8 million (Q2/2007: EUR 17.7 million).
The operating profit for the reporting period was EUR 43.8 million
(Q1-Q2/2007: EUR 37.1 million), representing 8.7% of sales
(Q1-Q2/2007: 8.5%).
The realized and unrealized exchange gains related to currency
hedging, mainly between the euro and the U.S. dollar, which are not
included in the hedge accounting, improved the profitability by EUR
2.3 million in the reporting period (Q1-Q2/2007: EUR 2.7 million). In
the reporting period, Outotec's fixed costs were EUR 4.8 million
higher than in the corresponding period of 2007. The increase was
mainly because of higher administration costs relating to business
growth, recruiting of new personnel worldwide, management and
employee bonuses as well as information technology (IT) costs.
Increase in IT costs was caused by Outotec's independent status,
purchasing of IT licenses and tools because of the business growth
and increased personnel numbers as well as IT infrastructure costs
for the newly established companies in India and Kazakhstan.
For the second quarter of 2008, the operating profit was EUR 22.9
million (Q2/2007: EUR 23.4 million), and the corresponding profit
margin was 8.3% (Q2/2007: 10.3%). During the second quarter, there
were no major final project completions. The realized and unrealized
exchange losses amounted to EUR 1.0 million (Q2/2007: gains of EUR
2.6 million). Operating profit included also a one-time EUR 1.0
million cost provision related to the impairment of receivables and
investment in Intune Circuits Ltd.
Outotec's profit before taxes for the reporting period was EUR 50.0
million (Q1-Q2/2007: EUR 39.9 million). Profit before taxes was
effected favorably by the net interest income from the high net cash
position. Net profit for the period was EUR 34.9 million (Q1-Q2/2007:
EUR 27.0 million). Earnings per share were EUR 0.83 (Q1-Q2/2007: EUR
0.64).
Outotec's return on equity for the reporting period was 33.8%
(Q1-Q2/2007: 35.6%), and return on investment was 50.1% (Q1-Q2/2007:
54.8%).
Sales and operating profit by segment
Q2 Q2 Q1-Q2 Q1-Q2 Q1-Q4
EUR million 2008 2007 2008 2007 2007
Sales
Minerals Processing 92.7 64.6 152.8 119.7 302.9
Base Metals 72.0 64.5 132.0 124.6 274.2
Metals Processing 109.2 100.9 213.9 198.4 432.3
Other Businesses 16.7 8.9 25.8 15.6 37.8
Unallocated items*) and intra-group
sales -15.0 -11.7 -23.4 -19.5 -47.0
Total 275.5 227.1 501.0 438.8 1,000.1
Operating profit
Minerals Processing 3.2 3.3 7.3 5.3 25.2
Base Metals 11.9 13.2 18.2 22.5 43.9
Metals Processing 11.8 10.5 24.1 15.1 38.1
Other Businesses 1.2 0.6 1.6 0.6 2.2
Unallocated**) and intra-group items -5.1 -4.1 -7.3 -6.5 -13.3
Total 22.9 23.4 43.8 37.1 96.1
*) Unallocated items primarily include invoicing of internal
management and administrative services.
**) Unallocated items primarily include management and administrative
services and share of the result of associated companies.
Minerals Processing
The Minerals Processing division's sales grew 28% in the reporting
period from the previous year's figure and totaled EUR 152.8 million
(Q1-Q2/2007: EUR 119.7 million). Operating profit was EUR 7.3 million
(Q1-Q2/2007: EUR 5.3 million). The growth in sales and the higher
proportion of process solution projects under execution improved the
division's operating profit. In addition, the division's operating
profit included a EUR 2.1 million gain related to the fair valuation
of the unrealized currency hedging contracts. Because of the
seasonality within a fiscal year, profit generation for the Minerals
Processing division is typically weaker in the first half of the year
and stronger in the second half.
Base Metals
The Base Metals division's sales grew 6% in the reporting period from
the previous year's figure, totaling EUR 132.0 million (Q1-Q2/2007:
EUR 124.6 million). The operating profit was EUR 18.2 million
(Q1-Q2/2007: EUR 22.5 million). The sales increased from the
corresponding period of 2007 despite of lengthening lead-times in the
construction phases of the projects and slow new order intake. These
impacted also the operating profit during the reporting period.
Metals Processing
The Metals Processing division's sales in the reporting period grew
8% from the previous year's figure to EUR 213.9 million (Q1-Q2/2007:
EUR 198.4 million). The growth came from the aluminum and sulfuric
acid plant projects as well as roasting plant projects. Operating
profit improved significantly and was EUR 24.1 million (Q1-Q2/2007:
EUR 15.1 million). The positive effects came from the volume growth,
license fee income, project margin improvements, and profitable
change orders.
BALANCE SHEET, FINANCING AND CASH FLOW
Net cash flow from operating activities in the reporting period was
strong at EUR 124.2 million (Q1-Q2/2007: EUR 22.3 million). Compared
to the corresponding period in 2007, the first half of 2008 saw an
improvement of over EUR 100 million in net cash flow from operating
activities. The main reasons for the improvement were the good
result, the significant decrease in working capital, and interest
income created by the strong cash position. The parent company paid
EUR 39.9 million (Q2/2007: EUR 14.7 million) in dividends in April
2008.
Outotec's working capital amounted to EUR -240.3 million on June 30,
2008 (June 30, 2007: EUR -105.5 million). The working capital
improved because of advances received from the customers and low
inventory levels.
The balance sheet structure remained strong. Net interest-bearing
debt on June 30, 2008 came to EUR -358.5 million (June 30, 2007: EUR
-176.3 million). The advances received at the end of the reporting
period totaled EUR 298.1 million (June 30, 2007: EUR 189.3 million),
representing an increase of more than 57% from the corresponding
period. Outotec's gearing at the end of the reporting period was
-180.4% (June 30, 2007: -110.3%), and the equity-to-assets ratio was
40.0% (June 30, 2007: 39.8%).
The company's capital expenditure in the reporting period was EUR 6.3
million (Q1-Q2/2007: EUR 7.0 million), which consisted mainly of
investments in information technology, intellectual property rights,
and machinery in the Outotec Turula workshop. In 2007, capital
expenditure included one-time costs related to the separation from
the ex-parent company.
Guarantees for commercial commitments, including advance payment
guarantees issued by the parent and other Group companies, came to
EUR 415.6 million at the end of the reporting period, showing an
increase from the previous year's level relative to business growth
(June 30, 2007: EUR 273.7 million).
Outotec has entered into an agreement with a third-party service
provider concerning administration and hedging of the share-based
incentive program for key personnel. As part of this agreement, for
hedging of the underlying cash flow risk, the service provider has
purchased 250,000 Outotec shares that have been funded by Outotec and
accounted as treasury shares in Outotec's consolidated balance sheet.
RESEARCH AND TECHNOLOGY DEVELOPMENT
Outotec's research and technology development expenses for the
reporting period totaled EUR 9.9 million (Q1-Q2/2007: EUR 10.3
million), representing 2.0% of sales (Q1-Q2/2007: 2.3%). Outotec
filed 20 new priority patent applications (Q1-Q2/2007: 16), and 119
new national patents (Q1-Q2/2007: 121) were granted during the
reporting period.
In April 2008, Outotec agreed with Zangezur Copper-Molybdenum Combine
CJSC upon continuous test runs to be performed with Zangezur's
concentrate at Outotec's HydroCopper® demonstration plant in Pori,
Finland. Outotec has completed successful batch leaching tests with
Zangezur copper concentrate. The companies have also signed Heads of
Agreement for the basic engineering and implementation of a
HydroCopper® plant in Armenia.
In April 2008, Outotec joined the energy research program of Helsinki
University of Technology. One of the research topics is minimization
of energy losses in combustion processes.
In June 2008, Outotec granted 22 employees a technology award for
their innovative work in developing new and existing technologies.
The awards totaled EUR 96,000.
In the first quarter of 2008, the Outotec and the Geological Survey
of Finland reached a partnership agreement for enhancing
collaboration in research and development of mineral technology.
PERSONNEL
At the end of the reporting period, Outotec had a total of 2,667
employees (June 30, 2007: 2,042). For the same period, Outotec had on
average, 2,365 employees (Q1-Q2/2007: 1,925). The average number of
personnel increased by 440 persons from that of the corresponding
period in 2007 through business growth and the accompanying active
recruitment. Temporary employees accounted for some 25% of the total
number of employees, including seasonal trainees.
Distribution of personnel by country
June 30, 2008 June 30, 2007 Change, %
Finland 934 848 10.1
Germany 350 301 16.3
Rest of Europe 241 210 14.8
Americas 809 369 119.2
Australia 205 212 -3.3
Rest of the world 128 102 25.5
Total 2,667 2,042 30.6
The most notable increase in personnel was in South America where
large projects are in the commissioning phase. At the end of June, in
addition to the personnel on Outotec's payroll, the company had more
than 600 full-time-equivalent contracted people working in project
execution. The number of contracted workers at any given time changes
with the active project mix, local legislation and regulations, and
seasonal fluctuations.
In the reporting period, salaries and other employee benefits totaled
EUR 76.7 million (Q1-Q2/2007: EUR 62.3 million).
SHARE-BASED INCENTIVE PROGRAMS
Outotec has two share-based incentive programs for the company's key
personnel: Incentive Program 2007-2008 and Incentive Program
2008-2010.
Share-based Incentive Program 2007-2008
Some 20 key employees participate in the two-year incentive program.
The program started on January 1, 2007, and ends on December 31,
2008. The reward paid to the key personnel is determined by the
achievement of the targets set for the development of the company's
net profit and order backlog. The reward is paid in shares and as a
cash payment. The shares will be allocated to the key personnel in
the spring of 2009. The maximum reward of the incentive program is
EUR 6.7 million.
Share-based Incentive Program 2008-2010
Incentive program comprises three earning periods: calendar years
2008, 2009, and 2010. For the 2009 and 2010 earning periods, the
incentive program covers approximately 60 key employees. The number
of shares granted as incentive depends on the achievement of the
annual corporate growth targets defined and set by the Board of
Directors for earnings per share, order backlog, and the company's
services and after sales business. The potential incentives for the
2008 earning period will be paid in 2009. Approximately half of the
incentives will be paid as Outotec shares and half in cash.
In the 2008 earning period, the incentive program covers
approximately 30 key employees. Those approximately 20 key employees
who belong to Share-based Incentive Program 2007-2008 are not
included in the new, 2008-2010 program in the 2008 earning period.
The maximum gross value of the incentive program (2008-2010) will
equal approximately 500,000 Outotec shares (including the proportion
to be paid in cash), of which for the 2008 earning period the maximum
amount will equal 80,000 shares. With the February 29, 2008,
quotation for a share in the company (EUR 36.83), the incentives for
the 2008 earning period would be some EUR 3 million, but the maximum
value for the incentive in the 2008 earning period may not be more
than doubled.
RESOLUTIONS OF THE 2008 ANNUAL GENERAL MEETING
The Outotec Annual General Meeting was held on March 18, 2008, in
Espoo, Finland.
Dividend
The Annual General Meeting decided that a dividend of EUR 0.95 per
share be paid for the financial year that ended on December 31, 2007.
The dividends, totaling EUR 39.9 million, were paid on April 1, 2008.
The Board of Directors
The Annual General Meeting decided that the number of Board members,
including the Chairman and Vice Chairman, should be five. Mr.
Carl-Gustaf Bergström, Mr. Karri Kaitue, Mr. Hannu Linnoinen, Mr.
Anssi Soila, and Mr. Risto Virrankoski were re-elected as members of
the Board of Directors for the term expiring at the end of the next
Annual General Meeting. The Annual General Meeting re-elected Mr.
Risto Virrankoski as the Chairman of the Board of Directors, and in
its assembly meeting the Board of Directors elected Mr. Karri Kaitue
as its Vice Chairman.
The Annual General Meeting confirmed the remuneration of Board
members as follows: Chairman EUR 5,000 per month, and other Board
members EUR 3,000 per month each, Vice Chairman and Chairman of the
Audit Committee in addition EUR 1,000 per month each. In addition,
each Board member will be paid EUR 500 for attendance of each Board
and Committee meeting, as well as reimbursement for direct costs
arising from Board work.
Auditors
KPMG Oy Ab, Authorized Public Accountants, was re-elected as the
company's auditor, with Mr. Mauri Palvi as Auditor in charge.
Board's authorizations
The Annual General Meeting authorized the Board of Directors to
resolve upon issues of shares as follows:
- The authorization includes the right to issue new shares,
distribute own shares held by the company, and the right to issue
special rights referred to in Chapter 10, Section 1 of the Companies
Act. However, this authorization to the Board of Directors does not
entitle the Board of Directors to issue share option rights as an
incentive to the personnel.
- The total number of new shares to be issued and own shares held by
the company to be distributed under the authorization may not exceed
4,200,000 shares.
- The Board of Directors is entitled to decide on the terms of the
share issue, such as the grounds for determining the subscription
price of the shares and the final subscription price as well as the
approval of the subscriptions, the allocation of the issued new
shares and the final amount of issued shares.
The Annual General Meeting authorized the Board of Directors to
resolve upon the repurchase of the company's own shares as follows:
- The company may repurchase the maximum number of 4,200,000 shares
using free equity and deviating from the shareholders' pre-emptive
rights to the shares, provided that the number of own shares held by
the company will not exceed ten (10) percent of all shares of the
company.
- The shares are to be repurchased in public trading at the OMX
Nordic Exchange Helsinki at the price established in the trading at
the time of acquisition.
The above-mentioned authorizations shall be in force until the next
Annual General Meeting.
The authorizations had not been exercised as of July 23, 2008.
SHARES AND SHARE CAPITAL
Outotec's shares are listed on the OMX Nordic Exchange Helsinki
(OTE1V). Outotec's share capital is EUR 16.8 million, consisting of
42.0 million shares. Each share entitles its holder to one vote at
general meetings of shareholders of the company.
TRADING AND MARKET CAPITALIZATION
In the reporting period, the volume-weighted average price for a
share in the company was EUR 36.21, the highest quotation for a share
being EUR 45.76 and the lowest EUR 27.06. The trading of Outotec
shares in the reporting period exceeded 61.8 million shares, with a
total value of over EUR 2,239 million. On June 30, 2008, Outotec's
market capitalization was EUR 1,700 million and the last quotation
for the share was EUR 40.48.
On June 30, 2008, the company did not hold any treasury shares for
trading purposes. In the first quarter, Outotec entered into an
agreement with a third-party service provider concerning the
administration and hedging of the share-based incentive program for
key personnel. As part of this agreement, in order to hedge the
underlying cash flow risk, the service provider has purchased 250,000
Outotec shares that have been funded by Outotec and accounted (IFRS)
as treasury shares in Outotec's consolidated balance sheet.
On June 30, 2008, shares held in 13 nominee registers accounted for
some 82% of all Outotec shares. On April 25, 2008, Morgan Stanley's
group holding in shares of Outotec Oyj fell under 5% and amounted to
2,062,917 shares, which represented 4.91% of the share capital and
votes in the company. On March 25, 2008, Morgan Stanley's group
holding in shares of Outotec Oyj exceeded 5% and amounted to
3,517,978 shares, which represented 8.37% of the share capital and
votes in the company.
EVENTS AFTER THE REPORTING PERIOD
Outotec signed a five-year agreement with Boliden concerning
consulting, engineering and project services for Boliden's mines and
smelters in Sweden and Tara mine in Ireland.
Outotec won a significant order (EUR 75 million, included in Q2 order
backlog) for the delivery of grinding technology to a major
international mining company.
Outotec agreed with Southern Peru Copper Corporation (SPCC) for the
delivery of a copper solvent extraction and electrowinning plant for
the Tia Maria project in Peru. The contract value is USD 150 million
(over EUR 90 million), out of which USD 90 million is already
included in Outotec's 2008 second quarter order backlog.
Outotec sold its 17.9 % holding of Intune Circuits Ltd, an RFID
(radio frequency identification) antenna producer, to Savcor Group
Ltd.
SHORT-TERM RISKS AND UNCERTAINTIES
Development in the global economy and uncertainty in the financial
markets in the short term may have an impact on Outotec's business
prospects in the future; however, these market uncertainties have not
stopped any of the ongoing negotiations between Outotec and its
customers. In particular, uncertainty in the market may effect the
timing and implementation of the larger customer projects and the
availability and price development of raw materials and components.
In connection with Outotec's risk assessment for the second quarter,
all unfinished projects under the method of the percentage of
completion and completed contracts were monitored and evaluated, and
contingencies were updated. Projects in which the stage of completion
was close to 100%, were evaluated and provisions for performance
guarantees and warranty period guarantees and possible provisions for
project losses were updated. There were no material increases in the
total project risk provisions.
More than half of Outotec's total cash flow is denominated in euros,
and the rest is divided among various currencies, which include the
Australian dollar, Brazilian real, Canadian dollar, South African
rand, and U.S. dollar. In new projects the weight of any given
currency can fluctuate substantially, but the majority of
cash-flow-related risks are hedged in the short and long term. The
forecast and probable cash flows are hedged selectively and always on
the basis of separate decisions and risk analysis. The cost of
hedging is taken into account in project pricing.
Because of the shortage of skilled personnel in certain regions, the
company may face wage inflation and limited growth potential.
Therefore, the company continuously develops its global subcontractor
network. Rising costs, issues of quality and shortage of certain
components and equipment as well as global challenges in recruiting
skilled people and finding suitable subcontractors may effect sales
growth, delivery times, and timing of project completions and
subsequent profit recognition.
Outotec is involved in a few legal and arbitration proceedings. The
management believes that the outcome of the pending proceedings will
not have a material effect on Outotec's financial result.
OUTLOOK FOR 2008
Outotec's market outlook is expected to remain good in 2008. The
mining and metals industry's outlook continues robust, and the
tightness in the supply of metals encourages Outotec's customer
industry to invest extensively in new plants, modernization projects,
and expansions. Driven by the favorable market situation, the demand
for Outotec's process technologies and services is expected to
continue on a strong level in 2008.
Outotec reiterates its full-year outlook in terms of sales, operating
profit and closing order backlog. Based on the strong existing order
backlog, new order prospects, and second-half-year-loaded sales and
operating profit generation the management expects that in 2008:
- sales will grow over 25% compared to 2007,
- operating profit will improve from 2007 and the operating profit
margin will be moderately above the 2007 level, depending on the mix
of new orders received and the timing of project completions, and
that
- the closing order backlog for 2008 will exceed that of the previous
year-end.
Espoo, on July 23, 2008
Outotec Oyj
Board of Directors
For further information, please contact:
Outotec Oyj
Tapani Järvinen, President and CEO
tel. +358 20 529211
Vesa-Pekka Takala, CFO
tel. +358 20 529211, mobile +358 40 5700074
Eila Paatela, Vice President - Corporate Communications
tel. +358 20 5292004, mobile +358 400 817198
Rita Uotila, Vice President - Investor Relations
tel. +358 20 5292003, mobile +358 400 954141
Format for e-mail addresses: firstname.lastname@outotec.com
INTERIM FINANCIAL STATEMENTS (unaudited)
Income statement
Q2 Q2 Q1-Q2 Q1-Q2 Q1-Q4
EUR million 2008 2007 2008 2007 2007
Sales 275.5 227.1 501.0 438.8 1,000.1
Cost of sales -219.6 -177.3 -399.1 -348.8 -796.4
Gross profit 55.9 49.8 101.9 90.0 203.8
Other operating income 0.0 2.6 3.4 2.8 5.9
Selling and marketing expenses -11.0 -11.4 -21.9 -22.7 -44.6
Administrative expenses -14.7 -11.4 -27.6 -21.6 -47.0
Research and development
expenses -5.3 -5.2 -9.9 -10.3 -19.9
Other operating expenses -2.0 -0.5 -2.1 -0.5 -0.7
Share of results of associated
companies - -0.4 - -0.7 -1.4
Operating profit 22.9 23.4 43.8 37.1 96.1
Financial income and expenses
Interest income and expenses 3.9 2.8 7.6 5.4 12.4
Market price gains and losses 0.9 -0.7 0.4 -0.4 0.2
Other financial income and
expenses -0.8 -1.0 -1.9 -2.2 -3.9
Total financial income and
expenses 4.0 1.1 6.1 2.8 8.7
Profit before taxes 26.8 24.6 50.0 39.9 104.8
Income taxes -8.2 -7.8 -15.0 -12.8 -27.2
Net profit for the period 18.7 16.8 34.9 27.0 77.6
Attributable to:
Equity holders of the Company 18.7 16.8 35.0 27.1 77.6
Minority interest - -0.0 -0.0 -0.0 0.0
Earnings per share for profit attributable to the equity
holders of the Company:
Earnings per share, EUR 0.44 0.40 0.83 0.64 1.85
Diluted earnings per share,
EUR 0.44 0.40 0.83 0.64 1.85
All figures in the tables have been rounded; consequently, the sum of
individual figures may deviate from that presented. Key figures have
been calculated using exact figures.
Condensed balance sheet
June 30 June 30 Dec 31
EUR million 2008 2007 2007
ASSETS
Non-current assets
Intangible assets 74.3 75.5 74.8
Property, plant and equipment 25.1 25.8 24.6
Non-current financial assets
Interest-bearing 1.7 1.7 3.4
Non interest-bearing 15.2 12.7 17.3
Total non-current assets 116.3 115.7 120.0
Current assets
Inventories *) 93.9 108.8 117.0
Current financial assets
Interest-bearing 0.7 1.0 0.8
Non interest-bearing 225.9 187.4 224.0
Cash and cash equivalents 358.0 178.6 291.0
Total current assets 678.4 475.8 632.8
TOTAL ASSETS 794.7 591.5 752.8
EQUITY AND LIABILITIES
Equity
Equity attributable to the equity holders of
the Company 198.7 159.9 214.7
Minority interest - 0.0 0.1
Total equity 198.7 159.9 214.8
Non-current liabilities
Interest-bearing 1.2 2.0 1.2
Non interest-bearing 57.6 39.1 47.4
Total non-current liabilities 58.8 41.2 48.6
Current liabilities
Interest-bearing 0.7 3.0 1.0
Non interest-bearing **) 536.5 387.5 488.5
Total current liabilities 537.2 390.5 489.5
TOTAL EQUITY AND LIABILITIES 794.7 591.5 752.8
*) Of which advances paid for inventories amounted to EUR 16.7
million at June 30, 2008 (June 30, 2007: EUR 51.2 million and at
December 31, 2007: EUR 34.8 million).
**) Of which gross advances received amounted to EUR 907.8 million at
June 30, 2008 (June 30, 2007: EUR 613.2 million and at December 31,
2007: EUR 589.7 million). Net advances received after percentage of
completion revenue recognition amounted to EUR 298.1 million at June
30, 2008 (June 30, 2007: EUR 189.3 million and at December 31, 2007:
EUR 190.1 million).
Condensed statement of cash flows
Q1-Q2 Q1-Q2 Q1-Q4
EUR million 2008 2007 2007
Cash flow from operating activities
Net profit for the period 34.9 27.0 77.6
Adjustments for
Depreciation and amortization 5.9 5.3 11.3
Other adjustments 9.6 8.3 25.8
Decrease (+) / increase (-) in working capital 86.7 -16.5 29.2
Interest received 7.7 5.0 11.8
Interest paid -0.1 -0.1 -0.2
Income tax paid -20.4 -6.6 -12.6
Net cash from operating activities 124.2 22.3 143.0
Purchases of assets -6.4 -7.0 -11.6
Proceeds from sale of assets 0.1 0.1 0.2
Change in other investing activities - -0.8 -0.6
Net cash from investing activities -6.4 -7.7 -12.1
Cash flow before financing activities 117.9 14.6 131.0
Repayments of long-term debt -0.2 -0.2 -1.0
Increase in current debt - 1.8 -
Dividends paid -39.9 -14.7 -14.7
Purchase of treasury shares *) -9.3 - -
Change in other financing activities 0.1 -0.1 -0.8
Net cash from financing activities -49.3 -13.2 -16.5
Net change in cash and cash equivalents 68.6 1.4 114.5
Cash and cash equivalents at the beginning of the
period 291.0 171.4 171.4
Foreign exchange rate effect on cash and cash
equivalents -1.6 5.8 5.1
Net change in cash and cash equivalents 68.6 1.4 114.5
Cash and cash equivalents at the end of the period 358.0 178.6 291.0
*) Outotec has entered into an agreement with a third-party service
provider concerning administration and hedging of the share-based
incentive program for key personnel. As part of this agreement, for
hedging of the underlying cash flow risk, the service provider has
purchased 250,000 Outotec shares that have been funded by Outotec and
accounted as treasury shares in Outotec's consolidated balance sheet.
Statement of changes in equity
A = Share capital
B = Premium fund
C = Other reserves
D = Fair value reserves
E = Treasury shares
F = Cumulative translation differences
G = Retained earnings
H = Minority interest
I = Total equity
Attributable to the equity holders of
EUR million the Company
A B C D E F G H I
Equity on Jan 1, 2007 16.8 20.2 0.1 - - 5.8 101.1 0.0 144.1
Change in translation
differences - - - - - 3.5 - 0.0 3.5
Items recognized
directly in equity - - - - - 3.5 - 0.0 3.5
Net profit for the
period - - - - - - 27.1 -0.0 27.0
Total recognized income
and expenses - - - - - 3.5 27.1 -0.0 30.5
Dividends paid - - - - - - -14.7 - -14.7
Equity on June 30, 2007 16.8 20.2 0.1 - - 9.3 113.5 0.0 159.9
Equity on Jan 1, 2008 16.8 20.2 0.2 7.9 - 5.7 164.0 0.1 214.8
Cash flow hedges:
Hedge result
deferred to equity - - - 2.2 - - - - 2.2
Deferred tax in
equity - - - -0.6 - - - - -0.6
Available for sale
financial assets:
Fair value changes
recognized in equity - - - -1.9 - - - - -1.9
Change in translation
differences - - - - - -1.8 - -0.0 -1.8
Items recognized
directly in equity - - - -0.4 - -1.8 - -0.0 -2.2
Net profit for the
period - - - - - - 35.0 -0.0 34.9
Total recognized income
and expenses - - - -0.4 - -1.8 35.0 -0.0 32.8
Dividends paid - - - - - - -39.9 - -39.9
Purchase of treasury
shares *) - - - - -9.3 - - - -9.3
Management stock option
program:
value of received
services - - - - - - 0.1 - 0.1
Acquisition of minority
interest - - - - - - - -0.0 -0.0
Other changes - - - - - - 0.2 - 0.2
Equity on June 30, 2008 16.8 20.2 0.2 7.5 -9.3 3.9 159.4 - 198.7
*) Outotec has entered into an agreement with a third-party service
provider concerning administration and hedging of the share-based
incentive program for key personnel. As part of this agreement, for
hedging of the underlying cash flow risk, the service provider has
purchased 250,000 Outotec shares that have been funded by Outotec and
accounted as treasury shares in Outotec's consolidated balance sheet.
Key figures
Q2 Q2 Q1-Q2 Q1-Q2 Q1-Q4
2008 2007 2008 2007 LTM*) 2007
Sales, EUR million 275.5 227.1 501.0 438.8 1,062.4 1,000.1
Gross margin, % 20.3 21.9 20.3 20.5 20.3 20.4
Operating profit, EUR
million 22.9 23.4 43.8 37.1 102.8 96.1
Operating profit in
relation to sales, % 8.3 10.3 8.7 8.5 9.7 9.6
Profit before taxes,
EUR million 26.8 24.6 50.0 39.9 114.9 104.8
Profit before taxes
in relation to sales,
% 9.7 10.8 10.0 9.1 10.8 10.5
Net cash from
operating activities,
EUR million 83.6 1.2 124.2 22.3 245.0 143.0
Net interest-bearing
debt at the end of
period, EUR million -358.5 -176.3 -358.5 -176.3 -358.5 -292.9
Gearing at the end of
period, % -180.4 -110.3 -180.4 -110.3 -180.4 -136.4
Equity-to-assets
ratio at the end of
period, % 40.0 39.8 40.0 39.8 40.0 38.2
Working capital at
the end of period,
EUR million -240.3 -105.5 -240.3 -105.5 -240.3 -153.9
Capital expenditure,
EUR million 3.0 2.4 6.3 7.0 11.0 11.6
Capital expenditure
in relation to sales,
% 1.1 1.1 1.3 1.6 1.0 1.2
Return on investment,
% 60.0 64.0 50.1 54.8 64.9 59.8
Return on equity, % 39.6 42.6 33.8 35.6 47.7 43.3
Order backlog at the
end of period, EUR
million 1,548.4 1,110.8 1,548.4 1,110.8 1,548.4 1,317.2
Order intake, EUR
million 475.4 492.9 774.2 660.9 1,576.3 1,463.0
Personnel average for
the period 2,545 1,990 2,365 1,925 2,251 2,031
Net profit for the
period in relation to
sales, % 6.8 7.4 7.0 6.2 8.0 7.8
Research and
development expenses,
EUR million 5.3 5.2 9.9 10.3 19.5 19.9
Research and
development expenses
in relation to sales,
% 1.9 2.3 2.0 2.3 1.8 2.0
Earnings per share,
EUR 0.44 0.40 0.83 0.64 2.04 1.85
Equity per share, EUR 4.73 3.81 4.73 3.81 4.73 5.11
Dividend per share,
EUR - - - - 0.95 0.95
*) Last twelve months
NOTES TO THE INCOME STATEMENT AND BALANCE SHEET
This interim financial report is prepared in accordance with IAS 34
Interim Financial Reporting in keeping with the accounting policies
and methods as in the recent annual financial statements. This
interim financial report is unaudited.
Starting from March 2008, Outotec is applying IFRS 2 Share-based
payment for a new share-based incentive program for Outotec's key
personnel for the period 2008-2010.
Use of estimates
IFRS requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, as well as the
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of income and expenses
during the reporting period. Accounting estimates are employed in the
financial statements review to determine reported amounts, including
the realizability of certain assets, the useful lives of tangible and
intangible assets, income taxes, provisions, pension obligations,
impairment of goodwill. These estimates are based on management's
best knowledge of current events and actions, however, it is possible
that the actual results may differ from the estimates.
Adoption of new interpretations
New interpretations, issued by IASB, for which the effective date is
January 1, 2008, will not have impact on 2008 interim financial
reports or 2008 financial statements.
Major non-recurring items in operating profit for the period
Q1-Q2 Q1-Q2 Q1-Q4
EUR million 2008 2007 2007
Gain from available-for-sale financial assets *) - - 1.9
Impairment of assets **) -1.0 - -
*) The value of shares owned by Outotec in Pacific Ore Ltd. (UK) was
EUR 0.8 million on December 31, 2006. In 2007, the shares were
changed into shares of Trajan Minerals Limited. Trajan Minerals
Limited was listed to Australian stock exchange (ASX) on November 30,
2007. For Outotec, the listing resulted in EUR 1.9 million gain. The
change in the fair value of the shares between the listing and June
30, 2008 EUR -2.2 million (December 31, 2007: EUR -0.3 million) is
booked to the revaluation reserve for available-for-sale assets in
Outotec's equity.
**) Relates to impairment of receivables and investment in Intune
Circuits Ltd. From the beginning of 2008 Intune Circuits Ltd is no
longer an associated company of Outotec Group. The ownership was
decreased to 17.9% as a result of a directed share issue in the last
quarter of 2007 and in the first quarter of 2008. Remaining
investment in the company is accounted as available-for-sale
financial asset in the consolidated balance sheet.
Income taxes
Q1-Q2 Q1-Q2 Q1-Q4
EUR million 2008 2007 2007
Current taxes -8.5 -10.8 -24.5
Deferred taxes -6.6 -2.1 -2.7
Total income taxes -15.0 -12.8 -27.2
Property, plant and equipment
June 30 June 30 Dec 31
EUR million 2008 2007 2007
Historical cost at the beginning of the period 81.3 77.4 77.4
Translation differences -1.0 1.0 0.0
Additions 4.7 2.3 5.1
Disposals -0.8 -0.3 -1.5
Reclassifications -0.1 - 0.2
Historical cost at the end of the period 84.1 80.5 81.3
Accumulated depreciation and impairment at the
beginning of the period -56.7 -50.7 -50.7
Translation differences 0.6 -0.6 0.1
Disposals 0.7 0.1 1.1
Reclassifications -0.0 - 0.0
Depreciation during the period -3.6 -3.5 -7.2
Accumulated depreciation and impairment at the
end of the period -59.0 -54.7 -56.7
Carrying value at the end of the period 25.1 25.8 24.6
Commitments and contingent liabilities
June 30 June 30 Dec 31
EUR million 2008 2007 2007
Pledges 1.6 30.1 2.1
Guarantees for commercial commitments 178.1 147.8 185.7
Minimum future lease payments on operating
leases 43.2 48.0 51.4
The above mentioned value of commercial guarantees does not include
advance payment guarantees issued by the parent or other group
companies. The total amount of guarantees for financing issued by
group companies amounted to EUR 4.3 million at June 30, 2008 (June
30, 2007: EUR 5.5 million and at December 31, 2007: EUR 2.8 million)
and for commercial guarantees including advance payment quarantees
EUR 415.6 million at June 30, 2008 (June 30, 2007: EUR 273.7 million
and at December 31, 2007: EUR 391.9 million).
Derivative instruments
Currency forwards
June 30 June 30 Dec 31
EUR million 2008 2007 2007
Net fair values 17.5 (* 4.4 13.9 (**
Number of contracts 382 355 344
(* of which EUR 13.6 million designated as cash flow hedges
(** of which EUR 11.1 million designated as cash flow hedges
Related party transactions
Transactions and balances with associated companies
Q1-Q2 Q1-Q2 Q1-Q4
EUR million 2008 2007 2007
Sales - 1.3 0.0
Financial income and expenses - 0.1 0.2
Loan receivables - 1.9 1.2
Trade and other receivables 0.1 1.0 1.0
As a consequence of a directed share issue in Intune Circuits Ltd. in
the last quarter of 2007 and in the first quarter of 2008, Outotec's
ownership in the company was decreased to 17.9%. Due to this Intune
Circuits Ltd. is no longer accounted as associated company of Outotec
Group starting from 2008. Remaining ownership in the company has been
accounted as available-for-sale financial asset in the consolidated
balance sheet.
Sales and operating profit by quarters
EUR million Q2/06 Q3/06 Q4/06 Q1/07 Q2/07 Q3/07 Q4/07 Q1/08 Q2/08
Sales
Minerals
Processing 57.4 67.5 95.3 55.2 64.6 72.7 110.5 60.1 92.7
Base Metals 50.6 43.3 53.4 60.1 64.5 64.1 85.6 60.1 72.0
Metals
Processing 67.5 71.0 90.8 97.5 100.9 113.0 120.8 104.6 109.2
Other
Businesses 8.1 6.0 11.9 6.7 8.9 11.1 11.1 9.1 16.7
Unallocated
items*) and
intra-group
sales -6.8 -7.9 -11.9 -7.8 -11.7 -15.0 -12.5 -8.3 -15.0
Total 176.8 179.9 239.6 211.7 227.1 245.9 315.5 225.6 275.5
Operating
profit
Minerals
Processing -1.9 5.2 13.1 1.9 3.3 3.6 16.3 4.1 3.2
Base Metals 7.1 4.1 6.7 9.4 13.2 12.1 9.3 6.3 11.9
Metals
Processing 6.1 5.6 5.3 4.7 10.5 11.5 11.5 12.3 11.8
Other
Businesses 0.2 -0.3 1.0 0.0 0.6 1.3 0.3 0.4 1.2
Unallocated
items **) -1.5 -0.2 -3.0 -2.4 -4.1 -2.5 -4.4 -2.2 -5.1
Total 10.0 14.5 23.0 13.6 23.4 26.0 33.0 21.0 22.9
*) Unallocated items primarily include invoicing of internal
management and administrative services.
**) Unallocated items primarily include management and administrative
services and share of the result of associated companies.
Definitions for key financial figures
Net interest-bearing debt = Interest-bearing debt -
interest-bearing assets
Gearing = Net interest-bearing debt × 100
Total equity
Equity-to-assets ratio = Total equity × 100
Total assets - advances received
Return on investment = Operating profit + financial income × 100
Total assets - non interest-bearing
debt (average for the period)
Return on equity = Net profit for the period × 100
Total equity (average for the
period)
Research and development = Research and development expenses
costs in the income statement
(including expenses covered by
grants received)
Earnings per share = Net profit for the financial period attributable to the equity holders
Average number of shares during the
period, as adjusted for stock split
Dividend per share = Dividend for the financial year
Number of shares at the end of the
period, as adjusted for stock split
INTERIM REPORT JANUARY-JUNE 2008 BRIEFING
A briefing, at which CEO Tapani Järvinen and CFO Vesa-Pekka Takala
will present the interim report, will be held in Helsinki, Finland.
BRIEFING
Date: Wednesday, July 23, 2008
Time: 3:00-4:00pm (EEST)
Venue: Hotel Kämp, Meeting room Akseli Gallen-Kallela,
Pohjoisesplanadi 29, Helsinki
JOINING VIA WEBCAST
You may follow the briefing via a live webcast at www.outotec.com.
Please, click in and register approximately 5 to 10 minutes before
the briefing. The webcast will also be recorded and published on
Outotec's Web site for on demand viewing.
JOINING VIA TELECONFERENCE
You may also join the briefing by telephone. To register as a
participant for the teleconference and Q&A session, please dial in 5
to 10 minutes before the beginning of the event:
Finland/UK: +44 20 7162 0025
US/Canada: +1 334 323 6201
Password: Outotec
In addition, an instant replay service for the conference call will
be available until July 26 midnight at the following numbers:
Finland/UK: +44 20 7031 4064
US/Canada: +1 954 334 0342
Access code: 801909
FINANCIAL REPORTING SCHEDULE FOR 2008
Outotec will disclose the following financial information in 2008:
Interim report for January-September 2008, on Thursday, October 23
DISTRIBUTION:
OMX Nordic Exchange Helsinki
Main media
www.outotec.com
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