Review of the strategy and activities - Outotec
Review of the strategy and activities - Outotec
Review of the strategy and activities - Outotec
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Outokumpu Technology<br />
Capital Market Day<br />
March 8-9, 2007<br />
Market <strong>and</strong> <strong>strategy</strong> update<br />
More out <strong>of</strong> ore!<br />
Tapani Järvinen, President <strong>and</strong> CEO
Management<br />
Executive Committee<br />
Tapani Järvinen<br />
President & CEO<br />
Seppo Rantakari<br />
Deputy CEO<br />
Vesa-Pekka Takala<br />
CFO<br />
Minerals Processing<br />
Jari Rosendal<br />
President<br />
Base Metals<br />
Markku Jortikka<br />
President<br />
Metals Processing<br />
Peter Weber<br />
President<br />
Marketing development<br />
Martti Haario<br />
Senior Vice President<br />
Research & Technology<br />
development<br />
Kari Knuutila<br />
Chief Technology Officer<br />
Human resources<br />
Ari Jokilaakso<br />
Senior Vice President<br />
CMD 2007 | 2
Content<br />
• Outokumpu Technology in brief<br />
• Mining <strong>and</strong> metals market<br />
• Strategy<br />
• Financial highlights<br />
CMD 2007 | 3
Outokumpu Technology in brief<br />
• Develops <strong>and</strong> supplies technologies for mining,<br />
metals <strong>and</strong> related processing industries<br />
• Market leadership in several markets <strong>and</strong><br />
segments<br />
• Expertise covers <strong>the</strong> whole process chain from<br />
mine to metal<br />
• 1,797 employees in 18 countries<br />
• Comprehensive R&D resources<br />
– Two own research centers in Pori, Finl<strong>and</strong>, <strong>and</strong> in<br />
Frankfurt, Germany with a total <strong>of</strong> 167 employees<br />
• Flexible <strong>and</strong> cost-efficient use <strong>of</strong> resources <strong>and</strong><br />
subcontractors in optimal geographical locations<br />
• Global operations <strong>and</strong> presence in all<br />
<strong>the</strong> key markets<br />
800<br />
700<br />
600<br />
500<br />
400<br />
300<br />
200<br />
100<br />
Sales <strong>and</strong> operating pr<strong>of</strong>it development<br />
0<br />
Three business divisions:<br />
• Minerals Processing<br />
• Base Metals<br />
• Metals Processing<br />
Sales, EUR million<br />
366<br />
8<br />
Sales<br />
Operating pr<strong>of</strong>it<br />
426<br />
11<br />
556<br />
24<br />
Operating pr<strong>of</strong>it,<br />
EUR million<br />
740 60<br />
52<br />
2003 2004 2005 2006<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
CMD 2007 | 4
Process value chain from mine to metal<br />
Technology deliveries range from single equipment to turnkey plants<br />
ORE<br />
Minerals<br />
Processing<br />
•Grinding<br />
•Flotation<br />
•Thickening<br />
• Physical separation<br />
• Analyzers & automation<br />
Base Metals<br />
• Copper<br />
• Nickel<br />
• Zinc<br />
• Precious metals<br />
• Ferroalloys<br />
Metals Processing<br />
• Ferrous metals<br />
• Ilmenite<br />
• Alumina <strong>and</strong> aluminum<br />
• Sulfuric acid & <strong>of</strong>f-gas<br />
• Roasting (sulfidic ores)<br />
PURE METAL<br />
The entire process chain from mine to metal<br />
CMD 2007 | 5
Main Project Types<br />
EPC / Turnkey (€ 15-200 million, 15-36 months)<br />
• Basic <strong>and</strong> detail engineering<br />
• Full supply <strong>and</strong> erection<br />
• Training <strong>of</strong> customers’<br />
personnel<br />
• Commissioning <strong>of</strong> <strong>the</strong> plant<br />
• Performance <strong>and</strong> o<strong>the</strong>r<br />
guarantees for OT’s supply<br />
scope<br />
• Typically many subcontractors<br />
<strong>and</strong> third party suppliers<br />
• PRIMA risk assessments<br />
Technology Package (€ 3-70 million, 10-36 months)<br />
• Basic <strong>and</strong> detail engineering<br />
• Typically proprietary <strong>and</strong>/or key<br />
hardware components<br />
• Erection supervision<br />
• Commissioning <strong>of</strong> <strong>the</strong> plant<br />
• Performance guarantee for OT’s<br />
supply scope<br />
• PRIMA risk assessment<br />
• Training <strong>of</strong> customers personnel<br />
Equipment Deliveries (up to € 10 million)<br />
Delivery <strong>of</strong> proprietary technology is an essential part in all project types<br />
CMD 2007 | 6
Proprietary technology base<br />
Portfolio <strong>of</strong> industry benchmark technologies<br />
• Nearly half <strong>of</strong> <strong>the</strong> world's copper produced with Outokumpu Flash Smelting technology<br />
• Majority <strong>of</strong> <strong>the</strong> world's iron ore pellets produced by Outokumpu Technology's processes<br />
• Market leader in flotation technology, thickeners, on-line analyzers in minerals processing<br />
applications<br />
• Market leader in alumina calcination <strong>and</strong> roasting <strong>of</strong> sulphidic ores<br />
• Forerunner in sulphuric acid plants over decades<br />
• In 2006, R&D expenses totaled EUR 19.2 million (2005: EUR 13.9 million)<br />
Patented technologies<br />
• Extensive IPR portfolio <strong>of</strong> over 400 patent families <strong>and</strong> 2,000 patents<br />
• In 2006, 34 new patent applications have been filed <strong>and</strong> 298 new national patents were<br />
granted.<br />
CMD 2007 | 7
Extensive R&D <strong>and</strong> testing resources<br />
•The most important core competence <strong>and</strong> success<br />
factor <strong>of</strong> Outokumpu Technology is its deep<br />
knowledge <strong>of</strong> metals, metals processing <strong>and</strong><br />
application technologies<br />
•Technology is a key element in <strong>the</strong> company’s<br />
business <strong>and</strong> <strong>the</strong> company is continuously<br />
developing its technological capabilities<br />
Extensive R&D resources<br />
• Two own research centres in Pori, Finl<strong>and</strong>, <strong>and</strong> in Frankfurt,<br />
Germany with a total <strong>of</strong> some 170 employees<br />
• Research facilities:<br />
• 8 laboratories<br />
• 2 bench scale pilots<br />
• Pyro- <strong>and</strong> hydrometallurgical pilot plants<br />
• HydroCopper demonstration plant<br />
• Fluidized bed pilot plants (Circo technologies)<br />
• Agglomeration facilities<br />
• Core competencies in minerals technology, pyro <strong>and</strong><br />
hydrometallurgy <strong>and</strong> ferrous technologies<br />
Staff with high education<br />
Research Centres, some 170 employees<br />
Operators<br />
14 %<br />
Technicians<br />
41 %<br />
University<br />
degree<br />
29 %<br />
Postgraduates<br />
16 %<br />
CMD 2007 | 8
Strong market position<br />
Minerals Processing<br />
Base Metals<br />
Metals Processing<br />
Market<br />
Leader<br />
• Flotation technology<br />
• Analyzers*<br />
• Copper smelting<br />
• Copper anode casting<br />
• Copper solvent extraction<br />
• Ferrochrome technologies<br />
• Precious metals<br />
• Pelletizing & Sintering<br />
technologies for iron ore<br />
• Alumina calcination<br />
technologies<br />
• Syn<strong>the</strong>tic rutile production<br />
• Zinc & Pyrite roasting<br />
technologies<br />
Top-3<br />
• Grinding technology<br />
• Thickener technology*<br />
• Physical separation<br />
• Copper permanent<br />
cathodes<br />
• Stripping machines <strong>and</strong><br />
Anode preparation<br />
machines for copper<br />
tankhouses<br />
• Sulfuric acid<br />
technologies<br />
• Carbon anode paste<br />
plants <strong>and</strong> rodding shops<br />
for aluminum smelters<br />
Niche<br />
Player<br />
• Automation*<br />
• Process Solutions<br />
• Water Technology<br />
* Minerals processing applications<br />
CMD 2007 | 9
Long-term customer relationships<br />
Selected reference customers <strong>of</strong> Outokumpu Technology<br />
Large global mining<br />
companies (seniors)<br />
Small <strong>and</strong> medium sized<br />
companies (juniors)<br />
Local mining <strong>and</strong> metallurgical<br />
companies in emerging<br />
regions<br />
Repeat business<br />
Multiple technologies for single companies<br />
• The life-cycle customer approach aims at<br />
servicing its customers over <strong>the</strong> full life <strong>of</strong> a<br />
mining site / metallurgical plant<br />
• Outokumpu Technology has a strong track record<br />
for delivering multiple technologies to single<br />
companies<br />
CMD 2007 | 10
Proven track record<br />
Selected example <strong>of</strong> long-term customer<br />
relationship with repeat orders<br />
Typical requirements <strong>and</strong><br />
project characteristics<br />
High reliability in project execution<br />
Companhia Vale do Rio Doce (CVRD), is a leading global diversified<br />
mining company, <strong>and</strong> <strong>the</strong> world’s largest producer <strong>of</strong> iron ore <strong>and</strong> pellets.<br />
Order year Delivered OT technology / solution 1<br />
Large <strong>and</strong> complex projects<br />
1970s<br />
• Seven pelletizing lines (six separate orders)<br />
• Sulphuric acid plant<br />
Capability to operate locally also in<br />
remote locations<br />
1990s<br />
• Two pelletizing lines (two separate orders)<br />
• Two alumina calciners (one order)<br />
Proven technology with high process<br />
performance <strong>and</strong> reliability<br />
2000-<br />
• Three pelletizing lines (two separate orders)<br />
• Five alumina calciners (three separate orders)<br />
• Minerals processing line <strong>and</strong> equipment<br />
Ability to respond to customer needs<br />
1<br />
Deliveries to CVRD or its part owned companies by OT or its licensees<br />
CMD 2007 | 11
CMD 2007 | 12<br />
Mining <strong>and</strong> metals market
Mining <strong>and</strong> metals technology market<br />
Definition<br />
• Develop process technologies for mining <strong>and</strong> metals<br />
industry<br />
• Design, construction, commissioning, maintenance <strong>and</strong><br />
servicing <strong>of</strong> minerals <strong>and</strong> metallurgical processing facilities<br />
• Mining <strong>and</strong> metals technology market is mainly driven by<br />
capital spending in <strong>the</strong> global mining <strong>and</strong> metals industry<br />
Key market<br />
characteristics<br />
• Increasing global consumption <strong>of</strong> metals<br />
• Tight supply <strong>and</strong> dem<strong>and</strong> balance<br />
• Lower grade ore bodies<br />
• Global changes in <strong>the</strong> structure <strong>and</strong> locations <strong>of</strong> capacity<br />
• Increased environmental <strong>and</strong> technological requirements<br />
CMD 2007 | 13
Mining <strong>and</strong> metals capital expenditure<br />
• Capital expenditure in<br />
metals <strong>and</strong> mining sector<br />
driven by dem<strong>and</strong> <strong>and</strong><br />
pricing for underlying<br />
metals<br />
• Capital expenditure levels<br />
tend to peak 2-3 years<br />
after prices<br />
• After several years <strong>of</strong><br />
underinvestment, capital<br />
expenditure levels are<br />
rising rapidly<br />
Capex (US$ million)<br />
40 000<br />
35 000<br />
30 000<br />
25 000<br />
20 000<br />
15 000<br />
10 000<br />
5 000<br />
0<br />
LME Price Index<br />
180<br />
150<br />
120<br />
90<br />
60<br />
30<br />
0<br />
1978 1983 1988 1993 1998 2003<br />
Mining & Metals Capex<br />
LME index<br />
Source: CRU<br />
CMD 2007 | 14
Market development in 2006<br />
• Unprecedented dem<strong>and</strong> for metals from high population<br />
economies<br />
– China currently accounts for more than half <strong>of</strong> global metals dem<strong>and</strong> growth<br />
– Exploration <strong>and</strong> project development began to shift from traditional mining<br />
countries to emerging markets such as India, Kazakhstan, Mongolia, Middle<br />
East, Zambia <strong>and</strong> Congo<br />
• Significant investments required to meet <strong>the</strong> dem<strong>and</strong><br />
• Record pr<strong>of</strong>its by metals <strong>and</strong> mining companies<br />
– Pressure <strong>and</strong> means to invest for future growth<br />
• Market situation favorable for all Outokumpu Technology divisions<br />
CMD 2007 | 15
Consumption growth expected to continue<br />
Global Production <strong>and</strong> Consumption <strong>of</strong> Aluminium<br />
2.0<br />
1.5<br />
1.0<br />
0.5<br />
0.0<br />
-0.5<br />
-1.0<br />
Global Production <strong>and</strong> Consumption <strong>of</strong> Copper<br />
mn tons mn tons mn tons mn tons<br />
3.0<br />
45 3.0<br />
22<br />
2.5<br />
40 2.5<br />
20<br />
1990<br />
1991<br />
1992<br />
1993<br />
1994<br />
1995<br />
1996<br />
1997<br />
1998<br />
1999<br />
2000<br />
2001<br />
Surplus / Deficit (Left) Consumption (Right) Production (Right)<br />
2002<br />
2003<br />
2004<br />
2005E<br />
2006E<br />
2007E<br />
2008E<br />
2009E<br />
2010E<br />
35<br />
30<br />
25<br />
20<br />
15<br />
10<br />
5<br />
2.0<br />
1.5<br />
1.0<br />
0.5<br />
0.0<br />
-0.5<br />
-1.0<br />
-1.5<br />
1990<br />
1991<br />
1992<br />
1993<br />
1994<br />
1995<br />
1996<br />
1997<br />
1998<br />
1999<br />
2000<br />
2001<br />
2002<br />
2003<br />
2004<br />
2005E<br />
2006E<br />
2007E<br />
2008E<br />
2009E<br />
Surplus / Deficit (Left) Consumption (Right) Production (Right)<br />
2010E<br />
18<br />
16<br />
14<br />
12<br />
10<br />
8<br />
6<br />
4<br />
mn tons<br />
0.30<br />
0.25<br />
0.20<br />
0.15<br />
0.10<br />
0.05<br />
0.00<br />
-0.05<br />
-0.10<br />
Global Production <strong>and</strong> Consumption <strong>of</strong> Nickel<br />
1990<br />
1991<br />
Source: CRU<br />
1992<br />
1993<br />
1994<br />
1995<br />
1996<br />
1997<br />
1998<br />
1999<br />
2000<br />
2001<br />
2002<br />
2003<br />
2004<br />
2005E<br />
2006E<br />
2007E<br />
2008E<br />
2009E<br />
2010E<br />
mn tons<br />
1.8<br />
Surplus / Deficit (Left) Consumption (Right) Production (Right)<br />
1.6<br />
1.4<br />
1.2<br />
1.0<br />
0.8<br />
0.6<br />
0.4<br />
0.2<br />
mn tons<br />
3.0<br />
2.5<br />
2.0<br />
1.5<br />
1.0<br />
0.5<br />
0.0<br />
-0.5<br />
-1.0<br />
1990<br />
Global Production <strong>and</strong> Consumption <strong>of</strong> Zinc<br />
1991<br />
1992<br />
1993<br />
1994<br />
1995<br />
1996<br />
1997<br />
1998<br />
1999<br />
2000<br />
2001<br />
2002<br />
2003<br />
2004<br />
2005E<br />
2006E<br />
2007E<br />
2008E<br />
2009E<br />
2010E<br />
mn tons<br />
14<br />
12<br />
10<br />
8<br />
6<br />
4<br />
2<br />
Surplus / Deficit (Left) Consumption (Right) Production (Right)<br />
CMD 2007 | 16
Chinese dem<strong>and</strong> for commodities anticipated<br />
to grow considerably<br />
• Urbanisation trend in China is very energy<br />
<strong>and</strong> metals intensive – 10-20 million Chinese<br />
citizens moving to <strong>the</strong> cities each year<br />
• Despite strong dem<strong>and</strong> growth in recent<br />
years, per capita consumption <strong>of</strong> most<br />
commodities is still low in China<br />
• China’s GDP currently growing at a rate <strong>of</strong><br />
10%, is anticipated to continue to grow at a<br />
rapid rate pace for a extended period<br />
Source: CRU<br />
Chinese GDP as a % Global GDP<br />
1980 0.9%<br />
1990 1.5%<br />
2000 3.1%<br />
2010 5.2%<br />
2020 7.9%<br />
2030 10.4%<br />
Development <strong>of</strong> Aluminium Consumption<br />
25<br />
Aluminium consumption,<br />
20<br />
kg/capita<br />
15<br />
10<br />
5<br />
0<br />
0 10 000 20 000 30 000 40 000 50 000<br />
Real GDP per capita,<br />
United States China Japan S.Korea<br />
US$, 1980 - 2004<br />
CMD 2007 | 17
Metals price environment<br />
• The current metals price<br />
cycle is one <strong>of</strong> <strong>the</strong> largest<br />
<strong>and</strong> strongest on record<br />
• Current strong price<br />
environment supported by<br />
• Strong dem<strong>and</strong> for<br />
commodities from<br />
China in particular<br />
• Strong economic<br />
recovery in major<br />
Western economies<br />
• Historic<br />
underinvestment<br />
in mining <strong>and</strong> metals<br />
production capacity<br />
Indexed, low = 100% (nominal money)<br />
350%<br />
300%<br />
250%<br />
200%<br />
150%<br />
Nov 93 -<br />
Jan 95<br />
Jan 99 -<br />
Jan 00<br />
Nov 72 -<br />
Apr 74<br />
Nov 86 -<br />
Jun 88<br />
Apr 78 -<br />
Feb 80<br />
Apr 03 -<br />
Current<br />
100%<br />
0 4 8 12 16 20 24 28 32 36<br />
Months from Trough to Peak<br />
Source: Bloomberg<br />
CMD 2007 | 18
Strong market fundamentals expected to<br />
continue<br />
Aluminium Copper<br />
1000 tons<br />
USD/ton<br />
USD/ton<br />
1 200<br />
3 500<br />
1 000<br />
3 000<br />
800<br />
2 500<br />
2 000<br />
9 000<br />
8 000<br />
7 000<br />
6 000<br />
5 000<br />
600<br />
1 500<br />
4 000<br />
400<br />
1 000<br />
200<br />
500<br />
0<br />
0<br />
1000 tons<br />
3 000<br />
2 500<br />
2 000<br />
1 500<br />
1 000<br />
500<br />
0<br />
3 000<br />
2 000<br />
1 000<br />
0<br />
1000 tons<br />
1 400<br />
1 200<br />
1 000<br />
800<br />
600<br />
400<br />
200<br />
0<br />
USD/ton<br />
30 000<br />
25 000<br />
20 000<br />
15 000<br />
10 000<br />
5 000<br />
0<br />
1000 tons<br />
160<br />
140<br />
120<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
USD/ton<br />
4 000<br />
3 500<br />
3 000<br />
2 500<br />
2 000<br />
1 500<br />
1 000<br />
500<br />
0<br />
2004<br />
2005<br />
2006<br />
1990<br />
1991<br />
1992<br />
1993<br />
1994<br />
1995<br />
1996<br />
1997<br />
1998<br />
1999<br />
2000<br />
2001<br />
2002<br />
2003<br />
2004<br />
2005<br />
2006<br />
1990<br />
1991<br />
1992<br />
1993<br />
1994<br />
1995<br />
1996<br />
1997<br />
1998<br />
1999<br />
2000<br />
2001<br />
2002<br />
2003<br />
2004<br />
2005<br />
2006<br />
1990<br />
1991<br />
1992<br />
1993<br />
1994<br />
1995<br />
1996<br />
1997<br />
1998<br />
1999<br />
2000<br />
2001<br />
2002<br />
2003<br />
2004<br />
2005<br />
2006<br />
1990<br />
1991<br />
1992<br />
1993<br />
1994<br />
1995<br />
1996<br />
1997<br />
1998<br />
1999<br />
2000<br />
2001<br />
2002<br />
2003<br />
Inventory Price<br />
Inventory Price<br />
Nickel<br />
Zinc<br />
Source: Bloomberg<br />
Inventory Price<br />
Inventory Price<br />
CMD 2007 | 19
CMD 2007 | 20<br />
Strategy
Strategy<br />
Sustained pr<strong>of</strong>itable growth<br />
Seek sustainable growth<br />
Maintain <strong>and</strong> improve pr<strong>of</strong>itability<br />
New<br />
technology<br />
•Flash<br />
converting,<br />
HydroCopper<br />
Circoheat,<br />
Circored®,<br />
Circ<strong>of</strong>er®<br />
•Lurec<br />
Cross<br />
selling<br />
•Oil s<strong>and</strong>s<br />
(Flotation<br />
technology)<br />
•Fertilizers<br />
(Sulphuric acid<br />
technology)<br />
Geographical<br />
expansion<br />
•BRICS (Brazil,<br />
Russia, India,<br />
China,<br />
Sou<strong>the</strong>rn<br />
Africa)<br />
•O<strong>the</strong>r<br />
emerging<br />
markets<br />
Increase<br />
after-sales<br />
services<br />
•Automation,<br />
upgrades <strong>and</strong><br />
debottlenecking<br />
•Spare parts<br />
•Operator<br />
training<br />
Selected<br />
acquisitions<br />
Continuously<br />
screening <strong>the</strong><br />
market for<br />
potential<br />
c<strong>and</strong>idates<br />
Procurement<br />
<strong>and</strong><br />
outsourcing<br />
Increasing<br />
sourcing e.g.<br />
from China <strong>and</strong><br />
India as well as<br />
optimizinglocal<br />
supply (e.g.<br />
Brazil)<br />
Optimise cost<br />
efficiency<br />
•Efficient use <strong>of</strong><br />
state <strong>of</strong> <strong>the</strong> art<br />
engineering<br />
tools<br />
•Local task<br />
force approach<br />
with OT<br />
supervision<br />
(e.g. Brazil)<br />
Increase<br />
value-added<br />
component<br />
•R&D efforts,<br />
testing facilities<br />
to guarantee<br />
customer ROI<br />
•Zinc <strong>and</strong><br />
Nickel leaching<br />
technologies;<br />
Circoheat<br />
Personnel<br />
Owners<br />
CMD 2007 | 21
Seek sustainable growth<br />
Objective<br />
Examples<br />
New<br />
Technologies<br />
• OT is seeking growth by developing <strong>and</strong> introducing new<br />
technologies <strong>and</strong> new applications for its existing<br />
technologies both independently <strong>and</strong> in cooperation with its<br />
customers<br />
• Flash converting, HydroCopper<br />
• Circoheat, Circored®,<br />
Circ<strong>of</strong>er®<br />
• Lurec<br />
Cross Selling<br />
• OT is seeking to create applications <strong>of</strong> its existing<br />
technologies for new customer industries<br />
• Oil s<strong>and</strong>s (Flotation technology)<br />
• Fertilizers (Sulphuric acid<br />
technology)<br />
Geographical<br />
Expansion<br />
• OT believes it is possible for <strong>the</strong> company to grow in areas<br />
where ore bodies are for <strong>the</strong> first time being brought under<br />
systematic utilization<br />
• BRICS (Brazil, Russia, India,<br />
China, Sou<strong>the</strong>rn Africa)<br />
• O<strong>the</strong>r emerging markets<br />
Increase After<br />
Sale-Services<br />
• OT continuously seeks to be a lifetime partner to its<br />
customers by providing auditing services to evaluate <strong>the</strong><br />
condition <strong>of</strong> <strong>the</strong> customers’ processes <strong>and</strong> maintenance<br />
practices <strong>and</strong> by providing necessary services <strong>and</strong><br />
modifications<br />
• Automation, upgrades <strong>and</strong><br />
debottlenecking<br />
• Spare parts<br />
• Operator training<br />
Selected<br />
Acquisitions<br />
• OT will continue to seek selected opportunities to exp<strong>and</strong><br />
<strong>and</strong> streng<strong>the</strong>n its technology <strong>and</strong> competence base <strong>and</strong> its<br />
market position<br />
• Continuously screening <strong>the</strong><br />
market for potential c<strong>and</strong>idates<br />
CMD 2007 | 22
Maintain <strong>and</strong> improve pr<strong>of</strong>itability<br />
Objective<br />
Examples<br />
Procurement <strong>and</strong><br />
Outsourcing<br />
Optimised Cost<br />
Efficiency<br />
Increase Value-<br />
Added<br />
Component<br />
• In order to enhance it operational cost efficiency OT<br />
continuously reviews <strong>the</strong> possibilities to improve <strong>the</strong><br />
efficiency <strong>of</strong> its global procurement operations <strong>and</strong> to<br />
utilize outsourcing <strong>of</strong> non-core <strong>activities</strong><br />
• In order to enhance its structural cost efficiency<br />
competitive position, OT needs to have tight control on<br />
fixed costs <strong>and</strong> management believes that <strong>the</strong>re is a<br />
possibility to increase <strong>the</strong> flexibility <strong>of</strong> <strong>the</strong> cost base<br />
through outsourcing or insourcing certain tasks<br />
• OT will endeavour to fur<strong>the</strong>r increase <strong>the</strong> share <strong>of</strong> its<br />
proprietary technology <strong>and</strong> value adding services<br />
which will be <strong>the</strong> basis for a fur<strong>the</strong>r developed licensee<br />
<strong>strategy</strong><br />
• Increasing sourcing <strong>of</strong><br />
machinery <strong>and</strong> components<br />
e.g. from China <strong>and</strong> India as<br />
well as optimizing local<br />
supply (e.g. Brazil)<br />
• State <strong>of</strong> <strong>the</strong> art engineering<br />
tools to improve engineering<br />
efficiency<br />
• Local task force approach<br />
with OT key personnel<br />
supervision (e.g. Brazil)<br />
• R&D efforts, testing facilities<br />
to guarantee return on<br />
customer’s investment<br />
• Zinc <strong>and</strong> Nickel leaching<br />
technologies; Circoheat<br />
CMD 2007 | 23
CFO Vesa-Pekka Takala<br />
Financial targets <strong>and</strong> earnings logic<br />
CMD 2007<br />
More out <strong>of</strong> ore!
Financial targets <strong>and</strong> dividend policy<br />
Outokumpu Technology has defined sustainable pr<strong>of</strong>itable growth as its objective<br />
<strong>and</strong> adopted <strong>the</strong> following financial targets:<br />
EPS growth<br />
• Average annual increase in earnings per share in excess <strong>of</strong> 10%<br />
Minimum<br />
operating pr<strong>of</strong>it<br />
margin<br />
• Annual operating pr<strong>of</strong>it margin always above 5%<br />
Balance sheet<br />
• Strong balance sheet providing operational flexibility <strong>and</strong> enabling<br />
Outokumpu Technology to finance potential acquisitions<br />
Dividends representing approximately 40% <strong>of</strong> <strong>the</strong> annual net income<br />
CMD 2007 | 25
Financial performance in 2006<br />
• Order intake grew by 52% compared to <strong>the</strong> previous year <strong>and</strong><br />
was all-time high EUR 1,032 million<br />
• Strong order backlog (EUR 866 million) was 45% higher than at<br />
year-end 2005<br />
• Sales grew substantially to EUR 740 million<br />
• Operating pr<strong>of</strong>it improved by 112% <strong>and</strong> was EUR 52 million,<br />
representing 7% <strong>of</strong> sales<br />
• Pr<strong>of</strong>it before taxes more than doubled to EUR 57 million<br />
• Balance sheet remained strong<br />
• EPS grew markedly <strong>and</strong> was EUR 0.88 (2005: EUR 0.39)<br />
• BoD will propose a dividend <strong>of</strong> EUR 0.35 per share<br />
CMD 2007 | 26
Business highlights<br />
• Successful listing on <strong>the</strong> Helsinki stock exchange<br />
• All divisions succeeded in selling solutions which create more<br />
value<br />
• Large pelletizing plant orders from <strong>the</strong> Brazilian iron ore<br />
producers<br />
• Extensive investments in R&D continued<br />
• New technologies launched <strong>and</strong> commercialized, for example:<br />
• Atmospheric direct leaching process sold to Cobre Las Cruces, Spain<br />
• Engineering for <strong>the</strong> first HydroCopper plant for Erdenet Mining<br />
Company, Mongolia<br />
• Circo prereduction technologies successfully tested for ilmenite<br />
processing<br />
CMD 2007 | 27
Order intake <strong>and</strong> backlog by quarter<br />
€ million<br />
400<br />
Order intake<br />
• typical quarterly fluctuation in<br />
project business<br />
371<br />
€ million<br />
1000<br />
Order backlog<br />
• good visibility for 2007 <strong>and</strong> beyond<br />
• robust market conditions continue<br />
350<br />
900<br />
879 866<br />
300<br />
250<br />
200<br />
172<br />
260<br />
186<br />
244<br />
235<br />
800<br />
700<br />
600<br />
500<br />
490<br />
520 525<br />
596<br />
634<br />
694<br />
150<br />
141<br />
400<br />
100<br />
106<br />
300<br />
200<br />
50<br />
100<br />
0<br />
Q1/2005<br />
Q2/2005<br />
Q3/2005<br />
Q4/2005<br />
Q1/2006<br />
Q2/2006<br />
Q3/2006<br />
Q4/2006<br />
0<br />
Q1/2005<br />
Q2/2005<br />
Q3/2005<br />
Q4/2005<br />
Q1/2006<br />
Q2/2006<br />
Q3/2006<br />
Q4/2006<br />
CMD 2007 | 28
Strong improvement in sales <strong>and</strong><br />
pr<strong>of</strong>itability<br />
€ million Sales<br />
800<br />
740<br />
€ million Operating pr<strong>of</strong>it<br />
60<br />
700<br />
50<br />
52<br />
600<br />
556<br />
500<br />
426<br />
40<br />
400<br />
366<br />
30<br />
300<br />
20<br />
24<br />
200<br />
100<br />
10<br />
8<br />
11<br />
0<br />
2003 2004 2005 2006<br />
NOTE: The figures based on combined financial information<br />
0<br />
2003 2004 2005 2006<br />
CMD 2007 | 29
Pr<strong>of</strong>it recognition – EPC/turnkey example<br />
100 %<br />
80 %<br />
Project Pr<strong>of</strong>it<br />
60 %<br />
40 %<br />
Releasing <strong>of</strong><br />
provisions<br />
20 %<br />
0 %<br />
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30<br />
Month<br />
Timing <strong>of</strong> large project completions affects quarterly earnings<br />
NOTE: The figures are illustrative <strong>and</strong> vary project by project<br />
CMD 2007 | 30
Sales by region<br />
December 31, 2006<br />
Technology sales by<br />
metal<br />
Australia<br />
14 %<br />
Europe<br />
<strong>and</strong> CIS<br />
21 %<br />
Precious<br />
metals<br />
6 %<br />
O<strong>the</strong>r<br />
16 %<br />
Copper<br />
25 %<br />
Asia<br />
18 %<br />
Africa<br />
17 %<br />
South<br />
America<br />
22 %<br />
North<br />
America<br />
8 %<br />
Sulfuric<br />
acid 6 %<br />
Ferroalloys<br />
6 %<br />
Nickel<br />
7 %<br />
Aluminum<br />
10 %<br />
Iron <strong>and</strong><br />
steel 24 %<br />
• balanced geographical distribution<br />
• diversified technology portfolio,<br />
processes <strong>and</strong> products for several<br />
metals<br />
CMD 2007 | 31
Largest orders in 2006<br />
Cobre Las<br />
Cruces<br />
Copper plant<br />
€ 45 million<br />
Spain<br />
Aluminij Mostar<br />
Technology for<br />
anode plant<br />
€ 28 million<br />
Bosnia-<br />
Herzegovina<br />
Various<br />
customers in<br />
Australia, Africa,<br />
Americas,<br />
Sweden<br />
Grinding mills<br />
€ 50 million<br />
Denver<br />
Mexico City<br />
Outokumpu<br />
Technology<br />
<strong>of</strong>fices<br />
Lima<br />
Ant<strong>of</strong>agasta<br />
Calama<br />
Santiago<br />
Burlington<br />
Jacksonville<br />
Skellefteå<br />
Smedjebacken<br />
Kil<br />
Oslo<br />
Utrecht<br />
Cologne<br />
Oberursel<br />
Frankfurt<br />
Belo Horizonte<br />
Espoo<br />
Harjavalta<br />
Pori<br />
Warsaw<br />
Outokumpu<br />
Kokkola<br />
St. Petersburg<br />
Moscow<br />
Johannesburg<br />
Norilsk<br />
Almaty<br />
Colombo<br />
Perth<br />
Beijing<br />
Shanghai<br />
Sydney<br />
Melbourne<br />
Aktyubinsk<br />
Copper<br />
Company<br />
Copper-zinc<br />
concentrator<br />
€ 30 million<br />
Kazakhstan<br />
Queensl<strong>and</strong><br />
Alumina<br />
Bauxite residue<br />
neutralization plant<br />
€ 20 million<br />
Australia<br />
MBR<br />
Iron ore pelletizing<br />
plant<br />
€ 110 million<br />
Brazil<br />
CSA<br />
Iron ore sinter plant<br />
€ 160 million<br />
Brazil<br />
KCM<br />
Copper flash<br />
smelter<br />
€ 48 million<br />
Zambia<br />
CMD 2007 | 32
Capital structure<br />
EUR million<br />
Net cash from operating <strong>activities</strong><br />
Net interest-bearing debt *)<br />
Equity<br />
Equity-to-assets ratio, % *)<br />
Gearing, % *)<br />
Working capital *)<br />
*) December 31, 2006<br />
2006<br />
67.8<br />
(170.0)<br />
144.1<br />
36.9<br />
(118.0)<br />
(122.3)<br />
2005<br />
80.2<br />
(116.1)<br />
110.7<br />
36.1<br />
(104.9)<br />
(110.1)<br />
• Cash flow was good despite <strong>the</strong> strong growth <strong>and</strong> that capital<br />
was tied up in project deliveries, inventories <strong>and</strong> receivables<br />
• Working capital continued to be strong due to advance payments<br />
from several large projects<br />
CMD 2007 | 33
Outlook for 2007<br />
Market<br />
• The mining <strong>and</strong> metals industry remains robust <strong>and</strong> <strong>the</strong> underlying supply <strong>and</strong> dem<strong>and</strong> imbalance<br />
encourages <strong>the</strong> industry to invest both in greenfield projects <strong>and</strong> expansions.<br />
Outokumpu Technology<br />
Order intake /<br />
Order backlog<br />
• Strong existing <strong>and</strong> growing order backlog provides a solid base for 2007. Due to <strong>the</strong><br />
timing issues in certain projects, some projects that were assumed to become effective<br />
during <strong>the</strong> fourth quarter <strong>of</strong> 2006, <strong>and</strong> streng<strong>the</strong>n <strong>the</strong> existing backlog even fur<strong>the</strong>r, are<br />
expected to be closed during <strong>the</strong> first quarter <strong>of</strong> 2007.<br />
• Management is confident that <strong>the</strong> company has <strong>the</strong> resources <strong>and</strong> capacity to meet<br />
<strong>the</strong> expected fur<strong>the</strong>r growth in its market in 2007.<br />
Sales • Management expects similar sales growth than during 2006.<br />
Operating pr<strong>of</strong>it • Operating pr<strong>of</strong>it will grow clearly from 2006.<br />
CMD 2007 | 34
More out <strong>of</strong> ore!<br />
www.outokumputechnology.com<br />
CMD 2007 | 35
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