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