Outokumpu Oyj Annual Report 2016

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Annual report 2016

This interactive report consists of
several parts which are all available at
www.outokumpu.com

Outokumpu Annual report 2016

Contents

CEO’s review

Highlights 2016

Vision & strategy

Market environment

Sustainability review

Financial statements

Corporate Governance

World is in a need for sustainable
alternatives

UN sustainable development goals

NOTHING TO HIDE

Responsible supply chain

Safe and healthy working environment

Towards a high-performing organization

Energy efficiency

Environmental impact

Environmental legal compliance

PAYS FOR ITSELF

Product properties

RECYCLING MAXIMIZED

Resource efficiency in materials

INDISPENSABLE

Climate change

Science based targets

Environmental KPIs

Scope of the report

Independent assurance report

Review by the Board of Directors

Auditor’s report

Corporate Governance in 2016

Remuneration

Risk management

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

Shares and shareholders

Information for investors

Consolidated statement of income

Consolidated statement of financial
position

Consolidated statement of cash flows

Consolidated statement of changes
in equity

Notes to the consolidated financial
statements

KEY FINANCIAL FIGURES

Group key figures

Share related key figures

Definitions of key financial figures

PARENT COMPANY FINANCIAL STATEMENTS,
FAS

Income statement of the parent company 61

Balance sheet of the parent company

Cash flow statement of the parent
company

Statement of changes in equity of the
parent company

Outokumpu Annual report 2016

CEO's review

1/9

CEO’s review

“2016 marks the year
Outokumpu turned back
to profitability. But the
best is yet to come.”

One year ago, as the newly appointed CEO of
Outokumpu, I stated in the annual report that there
was little reason to expect great improvement in the
stainless steel market in 2016, but that Outokumpu
“must and will perform better”. Both statements
proved to be true.

During 2016, only the European average base price
held its ground compared to the levels of 2015.
Everything else, from US average base prices to nickel
and ferrochrome prices lagged behind. And while
the antidumping measures in Europe and the US
supported fair competition and market development,
the global economic uncertainty led to a very
moderate growth in stainless steel demand.

In the face of this market reality, we launched an
ambitious vision for the company: to be the best value
creator in stainless steel by 2020 through customer
orientation and efficiency. We defined six clear battles
that we must win to make the vision a reality: safety,
high performing organization, world class supply chain,
manufacturing excellence, commercial excellence and
the Americas.

Outokumpu’s positive underlying EBIT of 45 million
euros for the full year still leaves us far from our target
of 500 million euro underlying EBIT in 2020. However,
the good progress we made in 2016 puts us firmly on
the right trajectory. Encouraged by the achievements
in debt reduction, we have also set a more ambitious
target for net debt, aiming at below 1.1 billion euro by
the end of 2017.

We entered these battles determined to win and
were hungry for success after eight years of losses.
However, we also knew some short-term measures
were necessary to achieve a step change in our
cost position, and further reduce our net debt.
Although the previous management had already taken
significant steps to improve the balance sheet, our
financial position was still too weak for comfort.

In line with these objectives, we streamlined our
organization and launched a 100-million-euro savings
target on our sales, general and administrative costs
– an initiative that already yielded a 69-million-euro
savings in 2016 compared to 2015. Reaping the
benefits of post-merger industrial restructuring as well
as the new efficiency measures, Europe increased its
underlying EBIT from 85 million euro to 191 million
euro.

In the Americas, we made an improvement of 72
million euro from the previous year. The business
area still recorded an underlying EBIT loss of 91
million euro, but the record deliveries and tremendous
progress quarter after quarter showed the potential of
our team and assets in the Americas.

Our aim to become the best value creator in the
industry is also reflected in our commitment and
contribution to sustainability. In 2016, we continued
our record of no significant environmental incidents.
We also became a member of the Science Based
Targets initiative, committing to developing science-
based targets that contribute to the fight against
climate change and the goals of the 2015 Paris
Climate Conference. Our Mexican operations treat
and recycle 99 percent of the water used in the
manufacturing process and the team was awarded for
their water recycling efforts by International Stainless
Steel Forum (ISSF).

Thanks to the remarkable effort and dedication of
our employees, 2016 marks the year Outokumpu
turned back to profitability. But the best is yet to
come. The commitment, enthusiasm and energy, and
the reignited pride and joy that I sense everywhere in
the company furthers our drive and commitment to
be the best value creator in stainless steel – for our
customers, employees and for our shareholders.

Roeland Baan
CEO at Outokumpu

Outokumpu Annual report 2016

Highlights 2016

2/9

Highlights 2016

In 2016, Outokumpu
returned to profitability

With a new CEO and a new vision to become the best
value creator by 2020, Outokumpu completed its
industrial restructuring in Europe and for the first time
in eight years, recorded a positive underlying EBIT for
the full year. Outokumpu’s units in Finland and Mexico
were renowned for their efforts in the circular economy.
Stainless steel added value to numerous customers in a
variety of applications – from reservoirs and high-speed
trains to spillway gates, sea walls and groynes.

New captain
Roeland Baan took the reins
of Outokumpu in January. By
mid-year, it was clear that
the company was gaining
momentum, with the first
positive underlying result for
the third quarter.

“Outokumpu completed its
industrial restructuring in Europe
and for the first time in eight
years, recorded a positive
underlying EBIT for the full year.”

Fresh water
Outokumpu provides stainless steel dowel bars for the Mega
Reservoirs project in Qatar. Outokumpu stainless steel dowel bars
are used in expansion joints for the movement of lateral loads
and manage stress within the joint. The objective of the project is
to provide seven days’ potable water storage to help to preserve
Qatar’s water quality. The new reservoirs include five primary
reservoir and pumping station packages with a capacity of 100
million gallons each, making them the largest reservoirs in the world.

Closing mill in China
Outokumpu announced the sale
of its remaining stake in Shanghai
Krupp Stainless, its cold rolling mill
in Shanghai, China. The operations
were stopped due to ongoing losses
and pressure in commodity stainless
steel products in China. Outokumpu
focused in its production operations
in Europe and in the Americas, and
continues to serve the Asian and
Pacific market with its specialty
stainless steel products through its
service centres in Australia and China.

Outokumpu Annual report 2016

Highlights 2016

Best value creator 2020
Outokumpu’s vision is to be the best value
creator in stainless steel through customer
orientation and efficiency by 2020. At the
same time, Outokumpu announced long-
term financial targets, short-term targets and
immediate actions for 2016. One of the must-
win battles is high-performing organization,
and accordingly, Outokumpu reorganized
its operations in June with fewer layers of
management and a lighter cost structure, to
enable the company to reach its vision.

3/9

2 decades down, 2 to go
Swedish railway company SJ’s high-
speed X2000 trains were first
launched in the 1990s. Back then,
Outokumpu supplied stainless steel
for the train frames. Currently the
trains are being upgraded, but the
train frames continue to serve. “The
life-time assessment and inspections
determined that the frames were
largely intact. Firstly, upgrading is
about four times cheaper than buying
a new train. Secondly, upgrading the
X2 fleet instead of having to invest
in new vehicles has a significant
positive impact on our environmental
footprint,” comments Carl Jallinder-
Björkman from SJ. Looking at both
costs and environmental impacts,
choosing stainless steel really paid
off.

Kemi-Tornio prime example
of circular economy
The goal of the circular economy is to put an
end to waste through recycling and salvaging
valuable materials from processes. Outokumpu’s
ferrochrome and stainless steel production sites
in Tornio, Finland, have worked systematically
towards a zero-waste-to-landfill production
system for decades. For example in the
Paris Climate Talks, the Kemi-Tornio area of
Northern Finland was presented by research
institute Nordregio as a prime example of an
industrial region implementing the circular
economy approach. Today, Tornio mill is able to
commercialize a full 100% of slag side streams
which can be sold to private companies and
households or reutilized in Outokumpu’s own
processes and construction projects.

99% of water recycled
International Stainless Steel Forum (ISSF) gave
its annual sustainability award to Outokumpu’s
site in Mexico for water recycling. In San Luis
Potosí, Mexico, Outokumpu’s cold rolling mill is
located in a dry, arid area, where groundwater is a
valuable asset for people. The less it is consumed
in the production of stainless steel, the more
can be used for drinking, farming and vegetation.
The monthly consumption of water at the site
is 45,000 m3, of which Outokumpu treats and
recycles 99%. The savings in fresh water usage
is equivalent to the quantity consumed by 1,100
households yearly.

For fair competition
A step in favor of fair competition was
taken in the United States. Together
with other American producers,
Outokumpu had filed for antidumping
duties in the US in February. The
antidumping investigation curbed
the import volumes from China
during the year, and in September
the US Commerce Department
set preliminary antidumping duties
against Chinese imports.

Industrial restructuring completed
The Benrath cold rolling mill produced its last coil in September.
Outokumpu completed the Benrath closure and the transfer of its
operations to the cold rolling mill in Krefeld. The Benrath closure was
made possible by the completion of the investment in the ferritic
production at Krefeld, including a new pickling and bright annealing line,
a new batch annealing facility as well as the upgrading of cold rolling
and skinpass mills. The Benrath closure is a significant step in the
restructuring of Outokumpu’s European operations, which will altogether
bring 100 million euro of annual savings starting from 2017.

Outokumpu Annual report 2016

Highlights 2016

4/9

“The turnaround secured in 2016,
combined with the progress made
in debt reduction and the positive
outlook that starts the year 2017,
presented the right time to start
paying dividends.”

Holding 500 m3 of water
Outokumpu delivered duplex stainless steel for the two
locks, or spillway gates, in the upgraded Lossendammen
dam structure in Central Sweden. One aim of the project was
to secure the management of increasing water flows in the
future in a safe manner. This year, most of the renewed dam
structure is in place after a 3-year project. Lossendammen,
originally built 50 years ago, is part of the critical infrastructure
in Sweden. Harsh climate conditions and constant contact with
flowing water called for robust solutions. The dam can hold an
impressive 500 million cubic meters of water, and it serves 17
hydropower plants along the River Ljusnan.

For generations to come
Outokumpu delivers Forta DX 2304 duplex stainless steel
rebar for the Cromer coast in the UK. Cromer is an English
town located on the stormy North Sea coast, and it needed
to rebuild its sea defences and prepare for rising sea levels.
Stainless steel rebar was chosen to support the concrete
because of its superior corrosion resistance. It is virtually
maintenance-free, has a low life cycle cost and will maintain
its corrosion resistance over the designed life of the sea
defences. Now completed, the coast protection scheme
ensures that Cromer coast beach and sea front are there for
the next generation to enjoy.

Outokumpu turned back to profitability
For the full year, Outokumpu recorded an underlying EBIT of EUR 45 million – our first positive
one in eight years. Improved profitability was driven by significant reduction in costs, as well
as higher delivery volumes especially in the Americas. Outokumpu overachieved its target of
EUR 200 million net working capital reduction by releasing EUR 307 million. The gearing dropped
to 51.4%, and the net debt was reduced to EUR 1.2 billion. The turnaround secured in 2016,
combined with the progress made in debt reduction and the positive outlook that starts the year
2017, presented the right time to start paying dividends.

#Choosestainless
for more stories on the use of stainless steel

Outokumpu Annual report 2016

Vision and strategy

5/9

New vision, clear focus

In April 2016, Outokumpu announced its new vision
and measures to drive competitiveness and further
improve the financial performance of the company.
The new vision has been defined as: to be the best
value creator in stainless steel by 2020 through
customer orientation and efficiency. Outokumpu also
outlined its long-term financial targets connected to
this vision.

Vision:
To be the best
value creator in
stainless steel by 2020
through customer
orientation and efficiency.

The best value in the industry for customers,
shareholders and employees through:

Safety

High-performing
organization

World-class
supply chain

Manufacturing
excellence

Commercial
excellence

Americas

Outokumpu focuses on the following
must win battles to reach its vision:

1. SAFETY: A standardized and disciplined approach
to safety that correlates with improved quality and
operational efficiency, leading to a top decile position
in the industry.

2. HIGH-PERFORMING ORGANIZATION: A lean,
simple and flat organization that takes its lead from
market trends and requirements, and drives a high
level of individual accountability that is enforced
through vigorous performance management.

3. WORLD-CLASS SUPPLY CHAIN: The role of
the supply chain function elevated to drive optimal
matching of market demand and manufacturing
capabilities, managing manufacturing programming
and planning as well as the required resources and
logistics. This will allow our production units to focus
on achieving a benchmark level in cost efficiency.

4. MANUFACTURING EXCELLENCE: Implementing
a standardized operating model to ensure continuous
productivity gains in all the mills across the company,
leading to industry benchmark competitiveness.

5. COMMERCIAL EXCELLENCE: Clear segment-
driven commercial strategy to drive margin growth.
Profitability-driven product strategy to match market
demand and optimal mix.

6. AMERICAS: The single biggest profitability
improvement lever for Outokumpu, with significant
improvement potential in both cost and market
position.

Outokumpu Annual report 2016

Vision and strategy

6/9

Immediate measures for step change
All of these changes required fundamental changes
in the way the company was organized and executed
its business. Therefore Outokumpu launched a set
of immediate measures to force a step change in its
cost and competitive position. The clear targets and
focuses yielded concrete results during the year:

New
organizational
set-up

Contributing to the
overall target of

100
million euro
reduction in sales, general
and administrative costs
(SG&A) by the end of 2017
against the baseline of
400 million euro at the
end of 2015, Outokumpu
reduced its SG&A costs by

69
million euro

As of June 1, Outokumpu
implemented a simplified
organization with three business
areas, fewer management layers
and a lighter cost structure.

200
million euro

cash release from net working
capital by the end of 2016,
particularly through the reduction of
inventory. Outokumpu overachieved
this target and released 307 million
euro from net working capital.

A reduction of net debt to below

1.1
billion euro
by the end of 2017. The target
was updated because of the
good progress made already
in 2016. Since the progress
exceeded the expectations,
Outokumpu has updated its
target to reduce net debt
below 1.1 billion euro.

Long-term financial targets
Connected to its 2020 vision, Outokumpu has defined
long-term financial targets to reflect the progress
of the strategic initiatives and the development in
profitability and further deleveraging:

EBIT of
500
million
euro

ROCE of
12%

Gearing
of
<35%

These group-level targets are expected to be reached by
the end of 2020 at the latest. While the global demand
for stainless steel continues to grow, Outokumpu takes a
conservative approach to the market growth and metal
price assumptions, and expects the targeted profitability
improvement to come primarily through efficiency and
cost improvements in the current scope of business,
supported by further strengthening of Outokumpu’s cost
competitiveness and market position, particularly in the
Americas.

Outokumpu Annual report 2016

Market environment

7/9

Stainless is the perfect solution
to the world’s challenges

Outokumpu produces stainless steel in its mills
in Europe, Mexico and the US. Stainless steel is
used in, for example, construction, transportation,
energy production and in the production, storage
and consumption of food, water and beverages.
Outokumpu is known in the market for its product
quality, excellence in both standard and special
grades and as a global leader in technical expertise
and support as well as research and development.

In 2016, the global crude stainless steel capacity,
including flat and long products, totaled approximately
65.5 million tonnes, of which Outokumpu’s share was
approximately 5%. The total global crude stainless
steel capacity was roughly 4% lower than the capacity
in 2015, mainly as a result of reductions in China. The
largest producers worldwide are Tsingshan, TISCO,
Outokumpu, POSCO, Acerinox, Baosteel, Aperam
and LISCO. Outokumpu had a cold rolled market
share of approximately 30% in Europe, 24% in the
NAFTA region and 7% worldwide in 2016. In Europe,
Outokumpu is the market leader and in the Americas,
the clear no 2 in the market.

Global crude stainless steel production is estimated
to have grown by approximately 5% in 2016 compared
to 2015 and reach 45.2 million tonnes. This was
driven by robust growth of 9% in Asia, mainly on the
back of strong growth in China, and growth of 1% in
Americas, while production in Europe is estimated to
have decreased by 2% in 2016.
L Source: Eurofer and SMR

Need for sustainable solutions
People are moving to cities that are getting bigger
and bigger. Urbanization calls for infrastructure and
solutions in mobility so that people are able to move
around these growing cities. At the moment, people
are using the resources of the world nearly twice per
year. Yet these resources, such as clean water, are
limited. Water scarcity currently affects around 2.8
billion people around the world and more than 1.2
billion people lack access to clean drinking water.
According to estimations, by 2025 two in every three
people on the planet will live in areas that face water
shortages.

And corrosion is an issue with real economic
consequences. According to the World Corrosion
Organization, the cost of corrosion is approximately
3% of the world’s gross domestic product, around
the size of the gross domestic product of India.
One example of the cost of corrosion is the Eiffel
tower, built of carbon steel some 140 years ago.
Over the years, the tower has undergone nearly 20
maintenance operations that have cost 80 million
euro. With the money spent on maintenance, four
stainless steel Eiffel towers could have been built.
There are tonnes of long-term growth possibilities in
the market: in 2016, total global steel production was
1,629 million tonnes of which approximately 3% was
stainless steel.

End-uses of stainless steel in 2016

Consumer Goods & Medicals 48%

Chemical, Petrochemical & Energy 16%

Automotive & Heavy Transport 10%

ABC & Infrastructure 15%

Industrial & Heavy Industry 8%

Others 3%

Source: SMR, stainless steel fi nished products*, January 2017.

* Rolled and forged products excl. 13Cr tubes, profi les.

Major stainless steel producers

million tonnes

Tsingshan

TISCO

Outokumpu

POSCO

Acerinox

Baosteel

Aperam

2016

2017

7.4

4.5

3.3

2.9

2.7

2.0

7.4

4.5

3.1

2.9

2.7

2.1

LISCO
2.0
L Source: Global crude stainless steel capacity, SMR January 2017

2.0

Outokumpu Annual report 2016

Market environment

8/9

Stainless steel is the
fastest growing metal
Outokumpu’s biggest contribution to a sustainable
world is the stainless steel that we produce. Stainless
steel is in many ways the perfect solution to the
challenges the world is facing at the moment. It is
corrosion resistant and strong, with a high strength-
to-weight ratio. It is a hygienic and aesthetic material.
It does not need constant maintenance, if any.
Its strength and corrosion resistance help other
materials, such as concrete, to perform better and
last longer. At the end of its life-cycle, stainless steel
is fully recyclable, without any loss of its quality.

These properties have ensured that stainless steel
consumption has been growing more rapidly than that
of any other metal in recent decades. In the longer
run, the demand for stainless steel is expected to
increase at an annual growth rate of around 4%.

Global real demand of stainless steel products
reached 38.5 million tonnes in 2016, with the
growth picking up to 2.9% compared to 2015, closer
to a long-term average, after the growth of only
0.9% in 2015. Acceleration of the growth was most
pronounced in the APAC region at 4.1%, driven by
China returning to robust growth as a result of solid
infrastructure and property sectors. Meanwhile,
demand in EMEA grew by 1.4%, but decreased by
3.2% in Americas in 2016.

ABC & Infrastructure and Consumer Goods & Medical
were outperforming the other end-use segments in
2016, with the real demand growing by 4.6% and
4.3%, respectively, compared to 2015. Meanwhile,
Industrial & Heavy Industries segment was the
weakest performer with demand declining by 3.8%.
Real demand in Chemical/Petrochemical & Energy
and Automotive & Heavy Transport segments were
growing at 2.0% and 1.2% respectively in 2016
compared to 2015.

Automotive industry is pressured to
innovate components and materials that
are sustainable, safe and cost effi cient.
Outokumpu provides high-performance
stainless steel materials and solutions for the
vehicles and transportation of the future.

Industrial &
Heavy Industries
2.9 million tonnes
(2015: 3.0)
CAGR -2.7%

Current and future demand and conditions will lead
to more highly engineered products that require
careful selection of materials and increasingly
tailored components. Stainless steel pays for itself
in the long term thanks to its durability, strength,
low weight and resistance to corrosion.

Automotive &
Heavy Transport
4.0 million tonnes
(2015: 3.8)
CAGR 2.4%

ABC &
Infrastructure
6.3 million tonnes
(2015: 5.6)
CAGR 5.9%

Expected global
consumption of
stainless steel
products in 2017
40.1
million tonnes
(37.4 in 2015)
CAGR(2015–2017): 3.5%

There is a need for buildings and
infrastructure which are sustainable,
easy to maintain, safe and last for a
lifetime. Outokumpu’s stainless steels
and expertise help to create buildings
and infrastructure that answer both
aesthetic and functional needs.

Chemical,
Petrochemical
& Energy
6.2 million tonnes
(2015: 6.1)
CAGR 1.5%

Others
1.1 million tonnes
(2015: 1.0)
CAGR 2.4%

Consumer Goods
& Medicals
19.6 million tonnes
(2015: 17.9)
CAGR 4.8%

Appliances have become a commodity,
and innovation and production cycles have
shortened. Outokumpu provides optimal
stainless steel to support our customers
their fast innovation and production cycles
in creating appliances for today’s and
tomorrow’s consumers.

Sustainabile stainless steel solutions suit for the most demanding
processes, where failure is not an option. Outokumpu’s stainless
steel serves as the backbone of industries like solar power,
biofuels, wind energy and seawater desalination.

Source: SMR, stainless steel
fi nished products, February 2016
CAGR = Compound Annual Growth Rate

Outokumpu Annual report 2016

Market environment

9/9

Stainless steel price*

Ferrochrome price

Nickel price

EUR/t
5,000

4,000

3,000

2,000

1,000

97 9 8 99

Base price

Alloy surcharge

Source: CRU January 2017

USD/lb
2.0

1.5

1.0

0.5

USD/t
40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

Source: Quarterly contract prices agreed between South African
ferrochrome producers and European buyers, including Q1/2017.

Source: LME settlement, monthly average prices,
including December 2016

08
15
10 11
07
Transaction price

* Stainless steel reference price for cold rolled 304 2mm sheet in Europe.

Total global demand for 2017 is forecast at 40.1
million tonnes, an increase of 4.2% compared to
2016. Growth is expected to be strongest at 4.9% in
APAC, whereas Americas and EMEA are expected to
grow at 2.4% and 2.3%, respectively.

The long-term outlook for stainless steel demand
remains positive. Key global megatrends such as
urbanization, modernization, and increased mobility
combined with growing global demand for energy,
food, and water are expected to support the future
growth of stainless steel demand. Growth in stainless
steel consumption in 2017–2020 is expected
be relatively well-balanced between the end-use
segments. SMR forecast average annual growth rates
of 5.3% in ABC & Infrastructure, 5.1% in Automotive
& Heavy Transport, 4.7% in Consumer Goods &
Medical, 1.9% in Chemical/Petrochemical & Energy
and 0.4% in Industrial & Heavy Industries segments,
respectively, in 2017–2020.

In terms of regions, SMR expects APAC to outperform
other regions with the annual average growth of 4.7%
in 2017–2020. Meanwhile, Americas is expected to
grow at 2.8%, and EMEA at 2.3% per annum.

Price development in 2016
Average market prices in Europe were relatively flat
in 2016 at EUR 1,063 per tonne compared to EUR
1,056 tonne in 2015. The prices were under pressure
during the first half of the year as the distributor
demand was negatively impacted by low nickel prices.
Healthy end-customer demand and higher nickel
prices during the second half of the year resulted in
an uptick in pricing.

In the Americas, the year started with low base prices
and high imports from China. After the US Commerce
Department set preliminary antidumping duties
against imports from China in September, Chinese
import volumes were reduced particularly during

the second half of the year. Together with healthy
underlying stainless steel demand it resulted in
increased base prices towards the year-end. However,
the average market base price of USD 1,286/tonne
in 2016 was clearly lower compared to USD 1,349/
tonne in 2015.

The year started with weak nickel prices, slumping
to a 13-year low due to the result of increasing fears
over global economy and subdued demand amid
oversupplied markets. However, prices rose during
the year due to improving sentiment, concerns over
possible disruption to nickel ore supplies from the
Philippines, as well as the strong stainless steel
production in China. The average price for the year
of USD 9,600/tonne was still 18.7% lower than the
average of USD 11,808/tonne in 2015.

The European benchmark price for ferrochrome
fell clearly below USD 1.0/lb in the first half of the

year as a result of deflated production costs and
soft demand. Subsequently, prices recovered amid
tightening markets. This was a result of slowdown in
South African ferrochrome and chrome ore supply,
as well as strong demand in China. The average
ferrochrome price was USD 0.96/lb in 2016, 10.6%
below the 2015 average of USD 1.07/lb.

Outokumpu Annual report 2016

Sustainability review

1/27

Sustainability
review 2016

Outokumpu Annual report 2016

Sustainability review / World is in a need for sustainable alternatives

2/28

World is in a need for sustainable alternatives

Outokumpu is producing stainless steel to contribute
to the well-being of the society for a world that lasts
forever while making a profit, protecting the resources
of the environment and taking responsibility for social
community. Outokumpu’s product has the potential
to solutions of the world’s challenges taken up by
the UN SDGs. Most contribution by operations can
be given to the goal 12 “Responsible consumption
and production” (indicator recycled content and
energy efficiency) and goal 13 “Climate action”
(indicator carbon profile) and goal 9 “Innovation
and Infrastructure”. In 2016 Outokumpu became a
member of the Science Based Targets initiative and
sent its developed target for checking to the initiative.
The former long-term target on carbon profile will be
replaced by the science based target in 2017.

Outokumpu’s stainless steel has many distinguishing
properties. Outokumpu is the only company who
has an integrated stainless steel production route
including its own chrome mine in Kemi, Finland and
ferrochrome production at its site in nearby Tornio,
Finland. The liquid ferrochrome is directly input to the
stainless operation without losing solidifying heat and
process gas from ferrochrome production can directly
be used in the stainless operation. This saves primary
energy and reduces the CO2 emissions. From life cycle

thinking Outokumpu is an excellent stainless steel
supplier.

Outokumpu operates in a competitive industry where
demand and supply meet in global markets. On the
other hand, our production sites are often located
in relatively small cities or towns. This means that
Outokumpu is significant to the economies of the
small local communities, and often one of very
few private-sector employers in the area. Finding
a balance between global market trends and
responsibility towards communities is sometimes
difficult, especially in economic downturns.

Reporting on sustainability
Outokumpu publishes sustainability review as part of
its Annual Report 2016. Outokumpu’s sustainability
reporting follows the G4 guidelines published by the
Global Reporting Initiative in accordance with the
Core option. Outokumpu reports in this sustainability
review all essential developments in 2016. The
developments in this review have been assured by
an independent third party (see the Independent
Assurance Report on p. 28 in the Sustainability
review). Additional sustainability data and information
as well as the GRI content index are available
at our website

“Outokumpu produces stainless steel that
contributes to a world that lasts for ever,
protecting environmental resources and
taking responsibility for social community.”

“Finding balance between global market
trends and responsibility towards
communities is needed.”

The sustainability review is structured into four
sections – Nothing to hide (supply chain, safety,
personnel, energy efficiency and environmental
impacts), Pays for itself (product properties and
R&D), Recycling maximized (resource efficiency) and
Indispensable (climate change, CO2 intensity and
environmental key performance indicators).

Material issues were elaborated in 2015 and it is
planned to repeat this materiality analysis after 3
years – our latest materiality analysis is available on
our web pages
. In 2016 stakeholder engagements
continued as regular discussion with investors,
exchange on sustainability with several customers
and in dialogue with neighbors and communities.
Employees were asked to give their feedback on
Organizational Health Index (OHI).

Read more of our environmental management and policies

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UN Sustainable development goals

Outokumpu contributes to several United Nations’ sustainable development goals
either through the way we operate or through our products.

3 Working at Outokumpu is

characterized by taking care of
yourself and others. Several health
prevention measures were organized
locally in 2016. They include ultrasonic
testing, glaucoma tests, skin carcinoma
screening and influenza immunization.
Young people are trained on the impacts
of shift work, office workplaces, drugs and
the prevention of addiction.

Products: Outokumpu’s stainless is
used for medical devices, implants and
for hygienic reasons. It is a backbone
for people’s health; its inert behavior
supports safe nutrition used in food
contact materials.

4Outokumpu is a leading expert in

stainless steel, which is why learning,

expertise and talent management are
very important elements in the company’s
performance. Outokumpu develops
employees’ competences, for example,
through job promotion, on-the-job training
as well as training programs. Cooperation
with key universities, research institutes
and technical colleges play a big role
in the future resourcing of talent, and
Outokumpu has a long tradition of offering
summer jobs and traineeships in its major
production locations.

6All production sites operate water

treatment plants for the extensive
use of water cycles and cascade water
use. No water is discharged untreated.
In Mexico, San Luis Potosí, Outokumpu’s
cold rolling mill is located in an arid
region. The less our production consumes
water, the more it can be used for
drinking, farming and vegetation. It is our
social responsibility to prevent potential
problems in water supply.

Products: Because of its hygienic
properties, Outokumpu’s stainless is used
for fresh water pipes and treatment plants
for drinking water.

7Outokumpu follows sustainable

energy supply practices to gain a
secure energy supply with stable and
competitive prices. We participate in low
carbon power plant technologies such as
hydropower, wind mills or nuclear power
plants. Process gas from our ferrochrome
production site in Tornio, Finland, is used
in other own production furnaces.

Products: Stainless steels are used, for
instance, in desulfurization equipment of
waste gas from conventional power plants
and in high temperature power plants,
solar farms and biofuel plants.

8Outokumpu listens to employees’

requests to constantly improve their

work environment. Workplace safety is
one of our top priorities. The company
engages in dialogue with stakeholders
regarding safety and follows measures to
prevent accidents or near miss incidents
to draw attention to safe behavior. We
ensure that we follow our principles, which
are explained in our Code of Conduct and
Ethical Statement.

Products: Stainless steel is used in
airbag husks or handrails. Stainless steel
is also used in staff canteen kitchens or
coffee machines. Population growth calls
for sustainable development.

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9Outokumpu continuously assesses

the environmental impact and
enhances the cost efficiency of its
production processes. New improved
stainless steels are developed and
existing materials are improved
constantly. Outokumpu’s R&D also
closely cooperates with end users of
stainless steel to further work on and find
completely new applications for stainless
steels.

Products: Stainless steel is an important
building block for sustainable industries
and infrastructure. Due to its excellent
properties and long lifetime, stainless
steel provides the most sustainable
material solution for many applications.

11Outokumpu’s most significant

impacts on local communities

include direct and indirect employment as
well as environmental and energy issues.
Outokumpu engages community members
by establishing personal contact,
engaging in regular dialogue also with
residents or other local stakeholders. The
sustainable use of the areas in closed
sites is developed in cooperation with
these communities.

Products: The use of stainless in
buildings extends the lifetime of these
structures and substantially reduces the
need for maintenance.

12 Outokumpu’s business is based

on recycling and is a part of the
circular economy. The company focuses
on resource efficiency through recycled
content, the use of by-products to replace
natural resources, as well as increasing
the energy efficiency in production
processes. This sustainable approach is
supported by several key performance
indicators which focus on efficiency.

13Following the Paris Climate

Agreement, Outokumpu set
a science based target following the
Sectoral Decarbonization Approach for
the steel industry. Outokumpu committed
to further reduce the emission intensity
by 7.5% by 2021 against the baseline
of 2015 to decouple activity growth
and emissions and to contribute to the
2-degree scenario by 2050.

Products: Stainless steel is long lasting,
requires low maintenance and is 100%
recyclable. The main raw material is
recycled steel. This makes stainless
steel products a solution for responsible
consumption.

Products: Stainless steel is needed in
production of solar energy as well as in
fermenter tanks of biofuel plants. The
use of stainless steels in the structures
of trains, trucks or cars helps to reduce
weight, fuel consumption and traffic
emissions compared to existing solutions.

17Outokumpu has a partnership

with the UN Global Compact and

gave a core business example to the
SDG Industry Matrix. The success of the
science based target initiative relies on
participation and global partnership. In
our daily work, we cooperate with our
stakeholders as investors, suppliers and
customers in sustainability development.

Outokumpu has an extensive network of
external R&D partners. The partnerships
give cooperative benefits.

Products: An example from such
partnership is a new battery pack
specifically designed for electric vehicles.

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Nothing
to hide

Buildings &
Infrastructure

Energy &
Heavy industries

Automotive &
Transportation

Home
appliances

The Goldman Sachs Tower in
New York has a Leadership
in Energy and Environmental
Design (LEED) gold
certification. Commitment
to sustainability is echoed in
the choice of fully recyclable
stainless steel cladding.

For many companies,
managing a more transparent
supply chain is a necessity
driven by demand. When
Valmet wanted to prove the
responsibility of its supply
chain, Outokumpu was able
to help.

When it comes to gas road
tankers, every ounce of
weight makes a difference
in terms of fuel consumption
and payload capacity. With
Outokumpu Forta, one-third of
the weight was cut.

Glastonbury Festival wanted
to close the loop on the
thousands of tonnes of
waste. They chose 250,000
reusable stainless pint mugs,
carrying the stamp “Love the
farm, leave no trace.”

#Choosestainless
for more stories on the use of stainless steel

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Responsible supply chain

Outokumpu places the most stringent requirements on itself as a supplier
and also requires the same from its own suppliers.

Outokumpu is a supplier to some of the most
demanding industries, such as building and
construction, energy production, car producers and
appliance manufacturers. Traceability and quality are
of the utmost importance to our customers, many of
whom are leading brands in their field. Outokumpu
places the most stringent requirements on itself as
a supplier and also requires the same from its own
suppliers.

The customers and stakeholders of our customers
expect all the time a more transparent supply chain.
Like Outokumpu, they put high importance on
responsibility, an important part of which is of course
the supply chain. They want to be assured that the
materials for their applications are procured in an
ethical and environmentally responsible manner. To
trace the supply chain of their products through the
entire chain, all the way back to the production of
raw materials, customers need the cooperation of
suppliers.

In 2016, Outokumpu had over 10,000 suppliers in
60 different countries. A vast majority of suppliers
are located in those countries in Europe, USA,
and Mexico, where Outokumpu has its production
units, and there were no major supplier changes.
The proportion on spending on local suppliers at
significant Outokumpu locations of operation was
36% in 2016. Outokumpu started regular compliance
screenings of its suppliers used in key production
facilities in Europe. The target is to implement regular
compliance screenings to cover the majority of
Outokumpu’s suppliers during 2017.

Read more about our customers

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Safe and healthy working environment

At Outokumpu, safety is the number one priority. Anyone who works or visits company
premises – employees, contractors and visitors – has a right to a safe and healthy environment.

Outokumpu believes that all accidents are preventable
and therefore strives towards a goal of zero accidents.
Our philosophy is to continuously improve our safety
practices to ensure that Outokumpu is an industry
leader in safety. Significant improvements have been
made, but opportunities for further development still
exist across the Group.

Safety was recognized as the first must win battle
at Outokumpu in 2016. The goal is to create
standardized and disciplined approach to safety that
correlates with improved quality and operational
efficiency, leading to a top decile position in the
industry. Internal safety audits were executed at
all major production sites during 2016. Detailed
development plans were made at the sites based
on the audit results. Yearly Outokumpu Safety

Week was held in April. Safety Week aims to raise
safety awareness and highlights selected safety
topic during the week. The CEO hosts a Safety Call
every month and reviews every lost time injury and
recognizes positive achievements. Over the year
this forum has led to the development of common
approaches to preventing trapping incidents and
highlighting the importance of lock-out, tag-out,
test-out procedures and improved acid handling
methods.

Safety and health performance
Safety and health statistics were reported to a
common reporting system. Leading and lagging
indicators were required to be reported monthly and
formed part of a company-wide Safety Pyramid. The
definitions follow an internal standard, which was

Workplace accidents by region, accident and employee type

Outokumpu
total

Europe

Americas

Asia and
rest of the
world

TRIFR

LTIFR

TRI [number]

FA [number]

LTI [number]

RWI [number]

MTI [number]

Lost day rate

8.7

2.2

205

103

55.1

10.3

2.9

165

5.4

0.9

0.0

Female

Male

Employees Contractors

0.7

0.3

8.0

2.0

188

8.6

2.1

160

8.9

3.0

61.2

43.5

0.0

17.7

65.3

54.0

63.1

TRIFR (total recordable incidents per million working hours) includes FA, LTI, RWI and MTI.
LTIFR (lost time injuries per million working hours) includes FA and LTI.
TRI includes FA, LTI, RWI and MTI.
FA= fatal accident, LTI= lost time incident, RWI= restrictive work incident, MTI=medically treated incident.

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based on external international standards. Injury
rates and the rate of proactive actions (leading
indicators) were reported per million working hours.

Safety
Year 2016 started with launching a new main
indicator for safety: TRIFR (total recordable incidents
per million working hours). The Group LTIFR (lost time
injuries per million working hours) was 2.2 (2015:
3.0) and reached the target of 2.5. In 2016, the
TRIFR was 8.7 (no comparable data from previous
years available). The rate for all workplace accidents
(total recordable incidents and first aid treated
incidents per million working hours) was 33.0. Lost
day rate (more than one calendar day absence from
the day after the accident per million working hours)
decreased significantly being 55.1 (2015: 63.4).

The reporting of proactive safety actions continued
to be a focus. The frequency of proactive safety
actions (per million working hours) increased
being 3,013.7 (2015: 2,989.6). The total number
of preventive safety actions was 71,189 (2015:
75,600), including near-miss reports, hazard reports,
safety behavioral observations and other preventive
safety actions.

Health
Health activities at Outokumpu focus on improving
working environment and monitoring employee
health using a variety of occupational health
checks and fitness tests. At the production sites,
Outokumpu carries out systematic occupational
hygiene measurements to monitor for instance
work-related exposure to noise and impurities in the

ambient air. Additional surveys were made as well,
for example biomonitoring to investigate chromium
exposure in Tornio.

In improving and monitoring working environment
Outokumpu cooperates with universities, specialist
institutions and external associations.

The number of occupational diseases diagnosed in
the Group increased. There were four occupational
diseases (2015: 1), all occurred in Europe for own
employees. The total absentee rate remained the
same being 4.1% (2015: 4.1%), when in Europe the
rate was 5.6% (2015: 5.5%), in Americas 0.9% (2015:
0.8%) and in Asia and the rest of the world 0.9%
(2015: 1.6%).

Workplace accidents*

Proactive safety action frequency*

Total
recordable
incidents
(TRIFR)
8.7

3,500

3,000

2,500

2,000

1,500

1,000

500

Non-lost-time incident**

Restricted work incident

Lost-time incident

Fatality

Medically treated incident

First-aid treated incident

* Per 1 million working hours.
** Split between non-lost-time incident types is not available before 2016.

* Per 1 million working hours, including near-misses, hazards, SBOs and
other preventive safety actions.

Well-being at work
Outokumpu wants every employee to return home
safely after their work shift. The health of the
personnel and their well-being at work are important
preconditions for Outokumpu’s success in day-to-day
operations as well as in its long-term competitiveness.
At Outokumpu, it is the responsibility of the whole
workforce to foster well-being and to increase
occupational health and safety.

Outokumpu’s production locations promote exercise
and sponsor voluntary wellness programs to ensure
the health of our professionals, and offers various
medical examinations and checks. In Finland, normal
health examinations are done for blue-collar workers
every third and for white-collar workers every fifth
year. For instance Tornio, Finland arranged a project at
cold rolling mill promoting healthy ways of living, doing
fit tests before and after project, health examinations,
information about exercise, healthy eating and so
on. In local information sessions, health – shift work,
stress, cardiovascular diseases and sufficient rest
– is one topic for every shift in quality trainings. For
example in Germany and in Americas, the company
offered several preventive medical care activities such
as glaucoma examinations, skin cancer examinations
and influenza immunization.

Many employees from the company’s sites also
participated in health and well-being actions, and the
company promotes and supports exercise activities.
Tornio for example offers own hours in ice-skating
rink and volleyball as well as campaigns in skiing,
commute cycling and so on.

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Towards a high-performing organization

2016 began with a new CEO, Roeland Baan, taking
the reins of the company. As one of his first tasks in
January, he asked three questions of the employees –
what he should change, what should not be changed
and what important topics he should not overlook.
People answered that the organization was too
complex, involving too much internal work and too
much cost. There was therefore no need to persuade
anybody of the following immediate targets for 2016:
to simplify the organizational set-up with fewer layers
of management and a lighter cost structure and to
make savings of 100 million euros in sales, general
and administrative costs.

While Outokumpu was able to move from the short-
term agenda to mid-term targets, these efficiency
measures were still needed to allow the company
to sustainably develop itself to achieve the new
vision. In order to strengthen the underlying culture
of our company and make the change sustainable,
Outokumpu started to implement the Organizational
Health Index with a survey in the final quarter of
2016. The results set a baseline for the health of our
company and defined the agenda and ambition for
people development for 2017.

“The vision calls for Outokumpu to be
the best value creator in stainless steel
by 2020 through customer orientation
and efficiency, and one of the six
must win battles in Outokumpu’s
new strategy is high-performing
organization.”

Set-up for high-performing organization
In April, the Group announced a new vision and
strategy. The vision calls for Outokumpu to be the
best value creator in stainless steel by 2020 through
customer orientation and efficiency, and one of the six
must win battles in Outokumpu’s new strategy is high-
performing organization. The strategy set clear targets
for 2016 for a radical shift in our business approach
to reduce the debt.

The first steps in achieving the required radical
change were to simplify the organization, streamlining
layers of management and cost, as well as to reduce
sales, general and administrative costs by 100 million
euros. The new organization entered into force in
June, and work is in progress to change the ways of
working.

Improving organizational health
A further sense of direction from the point of view of
organizational development came with Organizational
Health Index, a set of behaviors which strongly
influence the success of an organization. The initial
survey was conducted in the autumn.

Using Organizational Health Index tool allows
Outokumpu to clearly link the day-to-day behavior
and mindset in the organization to its strategy
and must win battles, and to benchmark its score
against 1,300 other companies. The response rate
was extremely high at 70%, showing that employees
care about Outokumpu as their employer, and
employees gave more than 15,000 open comments,
recommendations and opinions. Outokumpu scored
in the bottom quartile after years of restructuring, but
the company has set up ambitious targets to move to

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the next quartile when the next survey is carried out in
2017. Key development areas for the next 12 months
were identified – role clarity, personal ownership,
knowledge sharing, consequence management,
rewards and recognition as well as inspirational
leadership. Actions on these fronts will be closely
monitored in 2017.

In cooperation with the employees
A new organization to reduce the layers of
management meant that Outokumpu completed
employee negotiations in Finland, Sweden and
Germany in the summer and autumn of 2016 in
line with the local practices in each country. The
reorganization meant that 600 white-collar employees
have left or are leaving Outokumpu.

Outokumpu completed its earlier announced
industrial restructuring in Europe, when the Benrath
site was closed in September and its operations
were transferred to Krefeld, Germany. The vast
majority of more than 200 employees transferred to
other positions in Krefeld. Based on a local social
compensation plan, the remaining employees, some
10%, moved over to a transfer company for training
and new employment opportunities in accordance
with German practice, or retired. There were no
compulsory redundancies in Benrath.

Ongoing cooperation with personnel takes place
in a joint consultative body, Personnel Forum, an
information channel between management and
employees. The Personnel Forum discusses issues of
transnational interest, such as financial performance,
employment issues, reorganization, health and
safety and technology and research. The forum has
33 representatives from European countries and
it appoints the Group Working Committee, which
is responsible for ongoing cooperation between
management and employees. Eight members

represent employees and three represent the
management. In 2016, the Personnel Forum met once
and the working committee convened four times.

Hundreds of people trained, new
talents offered new opportunities
In harmonizing business processes within the
company, that has grown through acquisitions,
important steps were taken in 2016. New common
tools for supply chain management, procurement and
customer relationship management were also taken
into use. A common employee data system was built
up, and it will go live in the beginning of 2017.

As Outokumpu is moving forward with new, common
processes, hundreds of Outokumpu people
participated in training in 2016. Training programs
included an eLearning program for supply chain
management and a pilot O’Leader training for
leadership skills. The Outokumpu Sales Academy was
launched for developing sales competences in field
sales. On site, safety and on-the-job training continued.
Overall, the total number of training days was 11,002
and hours 88,012, and the average number of training
days was 1 and hours 8.5 during the year.

Outokumpu continued its global talent review process
in the Americas and was able to promote some of
the talents spotted earlier in the process in the new
organization. The Outokumpu Talent Council meets
quarterly. During the year, nearly a thousand Outokumpu
employees were given a new challenge or opportunity
through job rotation in the company in connection with
the new organization for example in new global functions
of sales, supply chain management, operations and
human resources, where they started in a new position
or in a new unit. In the process, Outokumpu promoted
27 emerging leaders that had been detected in our
talent review process. Altogether 491 professionals
were recruited from outside the company.

Personnel on December 31

20,000

15,000

10,000

5,000

Our people by region

Germany

Finland

Sweden

The United Kingdom

Other Europe

Europe

The United States

Mexico

South America

Americas

Asia/Rest of the World

Group total

Check all employee data in our reporting tool

2016

3,004

2,363

1,656

513

611

8,147

1,220

1,056

2,364

2015

3,186

2,396

1,760

560

577

8,479

1,216

1,095

2,403

120

2014

3,586

2,408

1,969

541

600

9,104

1,212

1,104

2,410

611

10,600

11,002

12,125

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Majority received a regular
performance review
Outokumpu’s clear target in performance
management is that each and every employee has
a regular performance and development discussion,
called “My performance commitment,” with their
manager.

Since the Inoxum transaction, some of the
employees have been outside the Group’s process for
performance and development discussions, but the
majority of the Group’s personnel received a regular
performance and career development review in 2016.
In 2017, once a common employee data system
is taken into use in the beginning of the year, the
process of performance and development discussions
will be the same across the entire company and easily
monitored in the system.

Outokumpu’s principles and framework for salaries
and incentive plans remained mostly unchanged and
salary increase budgets were limited in 2016. During
the year, Outokumpu launched a matching share plan
in order to emphasize shareholder value creation and
ownership culture and to incentivize the achievement
of the 2020 vision. The participants in the top
management invest 30–120% of their annual gross
base salary in Outokumpu shares, and Outokumpu
will match each share with two gross shares. More on
remuneration on p. 14 in the Corporate Governance
section.

Zero tolerance for any kind
of discrimination
Outokumpu Code Conduct sets the way of operating
in the Group, built on the equal treatment of
all people: there is zero tolerance for any kind
of discrimination, whether it is based on ethnic
origin, nationality, religion, political views, gender,
sexual orientation or age. Outokumpu fosters equal

opportunity and diversity. Employment decisions
will be based solely on business reasons and will be
made according to national employment laws.

In 2016, 6 alleged incidents were recorded in
Outokumpu. The Group reviews and investigates all
incidents. If required, corrective actions are taken
accordingly. Read more on compliance on p. 12 in the
Corporate Governance section and at our website

Outokumpu complies with international, national and
local laws and regulations and respects international
agreements concerning human and labor rights,
such as the United Nations’ Universal Declaration of
Human rights, and condemns the use of forced and
child labor. Outokumpu operates mainly in Europe,
in the US and Mexico, where the risk related to the
human rights is not considered to be high.

Outokumpu’s working hours, minimum notice periods,
vacation times, wages and other working conditions
are consistent with applicable local laws. Outokumpu
maintains a consistent policy of freedom of
association. All Outokumpu employees are free to join
trade unions according to local rules and regulations,
and in 2016 altogether 86.5% of the Group’s
employees were covered by collective agreements.
18,038 hours or 2,254.8 days in 2016 were lost due
to strikes (2015: 6; 2014: 170).

Outlook for 2017
2017 will be about sustaining the new ways of
working set up in the past year. As negotiations in
some countries ended only in the last quarter of
2016, all roles and accountabilities are not yet clear
on every front, and work remains to be done on
taking personal ownership and role clarity. Savings
in sales, general and administration costs need to
be reaped up also in 2017. But in many ways, 2017
will be about preparation for building capabilities

both to sustain the ways of working established in
2016 and to further harmonize business processes
in 2017–2018: training is of course training, but
also common processes and infrastructure need to
be in place. After the first roll-outs in 2016, a new
global employee data system as well as tools and
processes for performance management and learning
will be built and taken into use. Secondly, Outokumpu
will also follow up on the organizational health with
a focus on leadership and performance. Last but
not least, rewards and recognition will be a clear
improvement target, with special focus on linking
rewards to performance and non-financial recognition.

Goals for 2016

Target

Winning behaviors

Status

Goals for 2017

Done and evolving into a next step
now that we have a new strategy
and vision – mission-critical
behaviors to reach our mission

Launch of mission-critical behaviors:
Leadership, Sense of urgency –
execution with speed, Relentless drive
for improvement, Decisiveness
collaboration, and Effective
communication

Learning strategy and common
processes for training

First O’Leader pilot training

Done, continues in 2017

Following up a previous Group-
wide personnel survey and
conducting a new one

Done, actions continued based
on previous survey and new
Organizational Health Index survey
taken in the autumn of 2016

Follow-up on organizational health with
focus on performance management and
leadership

Employer value proposition

Work started

Continues in 2017

Sales competence development
with Sales Academy

This was kicked off in 2016 and
pilots were done in November

Developing sales competence, supply
chain and manufacturing excellence
continue

Diversity, 50/50 in recruiting

Ambition of 50/50 men and
women graduate recruitments in
place

Ongoing

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Energy efficiency

Outokumpu was able to improve energy efficiency by 12.7% in 2016 compared to baseline 2007–2009
mainly by high capacity utilization. Corresponding savings amounts to 1.3 million MWh.

Outokumpu fosters responsible energy use by
realizing the potential of efficiency improvement and
by engaging in low-carbon electricity.

The company’s energy efficiency has significantly
improved in the long term. In recent years this
improvement was mainly driven by the restructuring
process of our operations. In 2016 Outokumpu
concentrated and increased production and capacity
utilization, improved energy efficiency and saved
resources and money. Several energy efficiency
projects supported this remarkable energy efficiency
improvement, the results of which can be seen on
p. 24 in the Sustainability review.

At Outokumpu’s ferrochrome operation in Tornio,
Finland, process gas is produced in the reducing
process step. This CO gas is captured, cleaned and
used as furnace gas in Outokumpu’s other production
processes at the Tornio site. Thus, the use of primary
energy in Tornio site could be further replaced in
2016 saving about 1 Million MWh of primary energy
resources. A small amount is also converted into heat
in the CHP plant in Tornio and the heat is sent back to
Outokumpu.

“The company fosters responsible
energy use by realizing
the potential of efficiency
improvement and by engaging in
low-carbon electricity.”

Sustainable energy supply
Outokumpu centralized energy procurement to secure
sufficient energy supply and to ensure predictable,
competitive and stable energy prices for the Group.
The Energy and Utilities function optimizes the
energy portfolio and manages Outokumpu’s energy
production assets which include participation in low-
carbon energy projects. Outokumpu continues with its
shareholdings in:

Energy used

Electricity, TJ

Carbon monoxid gas, TJ

Natural gas, TJ

Propane, TJ

Diesel, Light and heavy fuel oil, other TJ

2016

16,747

2,405

4,424

4,640

614

2015

16,130

2,241

4,259

4,467

614

2014

17,176

2,272

5,681

4,295

634

Energy, TJ

28,830

27,712

30,056

• Rajakiiri Oy wind power with a capacity of 45 MW in

Energy use in GJ per tonnes crude steel

9.8

10.3

Outokumpu Tornio site, Finland.

• Statkraft hydro power with a capacity of 104 MW in

Rana, Norway

• Fennovoima with holding of 14.1% in the nuclear

project Hanhikivi 1 in Pyhäjoki, Finland, a 1,200 MW
nuclear power plant expected to begin operations in
2024 and has a minor 0.3% holding in the nuclear
power plant Olkiluoto 3

• A combined heat and power (CHP) plant in Tornio

which produced in 2016 328.8 GWh (1,184 TJ) heat
energy for Tornio works

• Manga LNG Oy with holding of 45% in building a LNG
terminal in Tornio harbor, Finland, to replace fossil
fuel use by LNG. The project is supported financially
by the Finnish Government. The delivery is expected
in 2018

Outokumpu uses a small amount of electricity from its
own hydro power plant with a capacity of 330 kW in
Dahlerbrück, Germany. The site gets some 10% of its
electricity from this plant.

With all these measures, the aim is to lower
Outokumpu’s carbon profile.

Electricity of 2015 has been restated

Origin of electricity
%
100

Fossiles

Nuclear

Renewable sources

More information on energy use in our sustainability tool

Outokumpu Annual report 2016

Sustainability review / Nothing to hide

14/28

Environmental impact

Outokumpu reduces the environmental impact at its source by
improving resource efficiency in material and energy use.

The main environmental impacts from stainless steel
production are dust emissions into the air, water
discharges from production plants, use of direct and
indirect energy, and waste created in the production
process.

Outokumpu manages environmental impacts
according to Outokumpu’s policy on Environment,
Health, Safety, Quality and Energy Efficiency

Stainless steel production is a melting process
of recycled steel at over 1,400°C which results in
thermal driven emissions of dust mainly in melt
shops. Dust filtering systems are extremely efficient,
removing 99% of the particles. The total particle
emissions of all production processes was 570 tonnes
in 2016 (328 tonnes in 2015). The increase is caused

by higher production and the particle emissions
mainly come from the ferrochrome operation.

is directed to municipal water treatment systems. The
main water discharges are metals and nitrates.

As Outokumpu has reached a low level of specific
dust emissions from melt shops and fulfills the
required low dust emission concentration emitted
after dedusting, no significant further reduction steps
are expected. Rather, the estimation method based
on measurement campaigns and the operation
conditions during the campaigns influence the figures.

Water is needed in the equipment cooling as well as in
several other processes. Outokumpu reuses the water
as much as possible in water cycles and cascading
use, but some water also evaporates or leaves the
system. All discharged water is treated beforehand by
the company’s own treatment plants except when it

While the water withdrawal increased by about
4% in 2016, Outokumpu was able to improve the
water withdrawal per tonne of crude steel to limit
the environmental impact on bodies of water. The
metal discharges decreased in 2016 compared to
the previous year. A higher nitrate water emission
was caused by the implementation process of the
investment in the cold rolling mill in Krefeld and the
ongoing modification of the municipal water treatment
plant in Dillenburg. The latter will treat the site’s
wastewater nitrate in the future.

Despite all precautionary measures to avoid
radioactive contamination in raw materials by

Melt shop particle emissions

grams/tonne
100

Water withdrawal and discharges

Surface water, million m3

Municipal water, million m3

Groundwater, million m3

Rainwater, million m3

Water withdrawal by source

Water discharges by type and destination
Wastewater out, million m3

Discharge to surface water, million m³

Emissions to water, tonnes

Metal discharges to water, t

Nitrogen in nitrates, t

Water discharge for 2015 is restated.

2016

37.9

1.2

1.4

1.7

42.2

21.6

20.2

2,399

2015

36.6

1.1

1.7

40.5

21.0

19.6

1,767

2014

35.4

1.8

1.4

1.0

39.6

19.2

2,408

radioactive control of all input to our melt shops, one
incident involving radioactive material occurred in
2016. It resulted in slightly contaminated slag which
was landfilled on a special landfill site according to
authority requirements.

The production of stainless steel does not employ or
reserve large areas of land, or have a significant effect
on biodiversity in the surrounding natural environment.
However, Outokumpu has identified areas of high
biodiversity value that are owned by the company or
adjacent to our sites. More information on
biodiversity

Costs for environment-related activities within
Outokumpu totaled EUR 118 million in 2016, of which
costs associated with operational environmental
management totaled EUR 108 million. Operational
costs include process-related treatment, disposal and
remediation costs for waste and emission reduction
into air and water. 35.6% of the environmental
expenditures are for air and climate change, 30.3% for
water protection, 12.2% for waste management, 5.4%
for waste disposal and 0.5% for soil and groundwater.
All others could not be sorted to one of the above
mentioned groups. EUR 11 million were used to
environmental investments. The biggest investments
were the reconstruction of the Krefeld site and waste
treatment improvement in the Kemi mine. Provisions
and guarantees in connection with environmental
considerations totaled EUR 64 million.

All our invironmental impacts can be seen at our
sustainability reporting tool

Outokumpu Annual report 2016

Sustainability review / Nothing to hide

15/28

Environmental legal compliance

In order to ensure legal compliance, the
Environmental Network follows quarterly
environmental performance, permit status and
legal compliance. Internal environmental site audits
continued in 2016 according to an internal risk list.
During 2016, many of the production sites received
new environmental permits or updates or had a permit
process ongoing.

During 2016 the only administrative fine was SEK
1,000 (some EUR 100) for the late delivery of a
cooling media report in Avesta, Sweden. Outokumpu
units did not receive any non-monetary sanctions
during 2016.

In 2016, emissions and discharges were generally at
normal levels and in compliance with environmental
permits, but some spills and instances of non-
compliances did occur. Environmental compliance
data for 2016 shows that there were a total of
15 environmental non-compliances or breaches
of permitted limits (2015:18). None of them were
significant. On all these occasions, the environmental
authorities were reported to according to local
legislation, permit conditions and Outokumpu’s
internal environmental reporting rules. In these cases,
corrective actions were carried out immediately or
cases resolved otherwise according to the guidance
of the supervising authorities. Related to these, no
environmental damage was reported.

Permit processes were completed in some units.
For example our cold rolling mill in Krefeld, Germany,
received a permit for its revised cold rolling mill and
the Wildwood site in US got a new stormwater permit

and a wastewater pretreatment permit. The Kemi
mine in Finland received a permit for landscaping the
barren rock heaps. Permit process was ongoing in
several sites. For instance, in the US the Calvert plant
is waiting for the new air emission permit for NOx and
SO2 at the melt shop. Tornio site in Finland applied for
some changes regarding its environmental permit and
Sheffield, UK, was undergoing a review of the permit
regarding its landfill.

Outokumpu is not a party into any significant
juridical or administrative proceeding concerning
environmental issues, nor is it aware of any realized
environmental risks that could have a material
adverse effect on the corporation’s financial position.

Working hard to prevent leakage
and soil contamination
Soil and groundwater contamination was investigated
during 2016, for example, in Sweden at the Nyby
site and the closed Kloster site and in Germany
at the closed Bochum and Benrath sites. Planned
remediation work was ongoing at some Group sites in
2016.

Monitoring emerging legislation
as a part of compliance
Many challenges in environmental initiatives
and legislation were followed. In chemical and
environmental areas, the challenges in 2016 were for
example:

• Preparation of next phase from 2020 to 2030 of the

European Emissions Trading Scheme (ETS);

• Linking other regulation to European legislation

related to chemicals (REACH) and product safety
(CLP);

• Implementation of the Industrial Emissions Directive
in the European Union together with binding Best
Available Techniques (BAT) requirements;
• EU resource efficiency and circular economy

initiatives which may have impacts on legislation
and many other areas.

Non-fact based or non-comprehensive definitions
in classification are causing unexpected impacts.
For instance the classification of nickel as potential
carcinogen automatically leads to similar classification
of austenitic stainless steel. It fails to recognize that
stainless steel is a material with its own inherent
properties, which are not the same as those of the
raw material constituents. This situation is analyzed
as part of the Group’s annual environmental risk rating
process and has required intensive communication
from Outokumpu, EUROFER and other associations.

More on compliance on p. 12 in the Corporate
Governance section and our website

Outokumpu Annual report 2016

Sustainability review / Pays for itself

16/28

Pays for itself

Buildings &
Infrastructure

Energy &
Heavy industries

Automotive &
Transportation

Home
appliances

Stainless steel gives Hong
Kong’s landmark, the
Stonecutters Bridge, its striking
appearance and enough
integrity to last through its
designated 120-year life cycle.

Crescent Dunes is the world’s
first solar plant storing sunlight
in a hot nitrate tank using
molten salt. Tanks are made of
Outokumpu Therma stainless
steel, specifically designed for
high temperatures.

Sweden upgrades X2000 trains
but original stainless steel train
frames continue in use. Looking
both costs and environmental
impact, choosing stainless
steel paid off.

Bailey of Sheffield creates
beautiful jewelry in stainless
steel to last more than a
lifetime. It was obvious for
Bailey to source local stainless
steel that comes from
Sheffield.

#Choosestainless
for more stories on the use of stainless steel

Outokumpu Annual report 2016

Sustainability review / Pays for itself

17/28

Product properties

People make things from stainless steel when they need them to last. Stainless steel pays for itself in
the long term, thanks to its durability, strength, low weight and resistance to corrosion.

Not all stainless steels are created equally.
Outokumpu’s customers have access to the best
expertise in the industry, to help them identify the
precise material and grade for any application.
Outokumpu supports its customers by providing
relevant information on the choice and use of
different stainless steel grades.

Selecting Outokumpu’s stainless steel means making
the right choice at the beginning of the life cycle to
make it long-lasting, cost-efficient and sustainable.
As an example, the high-strength stainless steels in
Outokumpu’s portfolio offer economic benefits: less
material is required for a specific level of performance
and fewer resources are therefore consumed in its
production. High-strength steels can also absorb

larger amounts of collision energy, improving safety
levels in vehicles and other structural components
and systems.

Improving product properties like corrosion
resistance and strength is at the heart of our product
development, and successful new products like Supra
316 Plus offer added value to our customers as the
materials get stronger and more long-lasting.

Product, application and
technical market development
The direction of Outokumpu’s product, application
and technical market development is driven by global
trends like economic and population growth, mobility,
urbanization, climate change and limited resources.

We work closely with customers to align our activities
with our customers’ current and future needs. The key
focus is the development of long-lasting, sustainable
material solutions providing advantages over the
entire product life cycle. An excellent example of how
the use of stainless steel extends a product’s life
cycle and reduces the use of natural resources is the
ongoing upgrade of X2000 trains in Sweden

The X2000 train frames were manufactured from
Outokumpu stainless steel in the 1990s. Today, two
and a half decades later, the trains are undergoing
a full technical and interior upgrade. However, the
original stainless steel frames remain intact and are
expected to stay in service for another two decades.
Outokumpu continues to develop even more life
cycle-efficient material solutions for both existing
application areas, and to open completely new
markets for our steels. We also continuously improve
the quality and properties of our existing steel grades.
In recent years, Outokumpu has launched several
new-to-market steel grades. One important milestone
in 2016 was that the new steel grades Outokumpu
Supra 316plus and Outokumpu Core 4622 were
accepted into the European standard EN 10028-7

Our Forta H-series high strength stainless steels have
been developed to open completely new markets
for stainless steels. These materials provide the
automotive industry with a structural material that
exhibits a superior combination of strength, formability
and crash-resistance compared to the currently used
materials. One example of a new application for
H-series materials demonstrated during 2016 was
vehicle seats.

New surface finishes and the optimization of surface
properties of stainless steel is another key focus area
of our product development. Outokumpu offers a
wide range of aesthetically appealing stainless steel
finishes for architectural applications. The latest case
example is the Ping An Finance Center
, the second
largest skyscraper in China, representing the largest
existing stainless steel curtain wall. Outokumpu
delivered 1,700 tonnes of Supra 316L/1.4404 in
Deco Linen finish for this building. Due to the excellent
cooperation and delivered quality, Outokumpu has
been selected also as the supplier for the curtain wall
material of the Ping An South Tower, currently under
construction next to Ping An Tower.

Meeting the growing demand for stainless steel as
curtain wall material, development activities in 2016
aimed to offer new surface finishes featuring a non-
directional characteristic. The non-directionality is
becoming a more popular characteristic of curtain
wall materials, because it gives architects more
flexibility on positioning the panels on the building.
Five new non-directional patterns have been designed
and developed, and are currently being evaluated by
architects.

Outokumpu’s R&D teams work closely together with
our customers and sales organization. Our R&D
experts provide our customers with technical support
and advice related to material selection, fabrication
and material performance in customers’ applications.
An excellent example of the value our R&D knowledge
generates to our customers was the cooperation with
Jyväskylä Energy Group
helped our customer in the selection and use of
superaustenitic Outokumpu Ultra 254 SMO material.

, where our R&D experts

Outokumpu Annual report 2016

Sustainability review / Pays for itself

18/28

“Continuous development of our stainless-steel
production processes and technologies is at the
core of our R&D.”

Stainless steel from Outokumpu has for several years
been used in bridges. Outokumpu has recently, in
collaboration with the consultancy and engineering
company Arup, made an inventory of duplex stainless
steel bridges that have been in use for up to more
than fifteen years. The inventory confirms that duplex
stainless steel is a very sustainable selection for all
kinds of bridges, and that there are suitable duplex
stainless steels for different corrosion environments.
The bridges visited could all be used as exemplar
cases of the successful structural use of stainless
steel.

Process and technology development
Continuous development of our stainless steel
production processes and technologies is at the core
of our R&D. Process and technology development
focuses on the reduction of the environmental impact
and the improvement of the cost efficiency of our
production processes, and on the optimization of
stainless steel quality. For instance, during 2016, the
improvement of the slab grinding process enabled by
the results of the collaborative R&D program DIMECC
SIMP (System Integrated Metals Processing) resulted
in a substantial reduction in the grinding loss of ferritic
grades in Tornio, without affecting product quality.

An important part of our R&D mission is to develop
and share technological knowhow on stainless
steel making. Therefore, the job rotation program
for technical experts was continued, to facilitate
the transfer of technological knowhow between our
production sites. The Core Technology Competence
groups, group-wide expert teams on process
development, continued to deliver excellent results
by sharing best practices and executing joint
development projects between Outokumpu production
sites.

A digitalization team was established in our Tornio
R&D center to even more efficiently utilize data
analysis, new measurements and process models in
process optimization and process control.

External R&D collaboration
Outokumpu has an extensive network of external
R&D partners, and participates in both national
and international research programs to supplement
Outokumpu’s own R&D capabilities. Outokumpu is a
member of the European Steel Technology Platform
(ESTEP). Outokumpu collaborates with various top-
class universities and research institutes. Examples of
collaboration forums in which Outokumpu is involved
include the Finnish Digital, Internet, Materials &
Engineering Co-Creation platform (DIMECC), Research
Fund for Coal and Steel (RFCS) and Jernkontoret (the
Swedish Steel Producers’ Association). In Germany,
we collaborate with the Fraunhofer Institute and the
Max-Planck-Institut für Eisenforschung. Furthermore,
Outokumpu has recently put more focus on the EU’s
research and innovation program Horizon 2020 and
on other European-level programs.

An example of recent successful cooperation
is the project in which Outokumpu’s material
experts are working on future-oriented stainless
steel solutions in cooperation with scientists from
Fraunhofer Institute
for Laser Technology ILT, in
Germany. Another good case example is the two-
year collaborative project with Professor Levente
Vitos from the KTH Royal Institute of Technology in
Stockholm, enabled by a strategic mobility award
from the Swedish Foundation for Strategic Research.
The project has focused on investigating in detail
the applicability and future possibilities of ab-initio
calculations in our product development.

Outokumpu Annual report 2016

Sustainability review / Recycling maximized

19/28

Recycling
maximized

Buildings &
Infrastructure

Energy &
Heavy industries

Automotive &
Transportation

Home
appliances

Waste for one industry can
be a valuable resource
for another. By-products
of the melting processes
of stainless steel industry
find new use replacing
virgin crushed rock in road
foundations.

A next-generation bio product
mill in Finland, producing
tall oil, turpentine, wood fuel
and bioelectricity, relies on
Outokumpu stainless steel
in its reactors and storage
tanks, vital to the pulp mill’s
operations.

Car fuel tank made in
stainless steel weighs
almost half of its plastic
alternative, gains three liters
of volume, and provides
serious advantages to its
crashworthiness. And it is
fully recyclable.

Stala aims to create
products, like sinks, that are
high quality, well-functioning
and efficient at every stage of
their life cycle. Since stainless
steel can be recycled after
use, it even exceeds Stala’s
requirements.

#Choosestainless
for more stories on the use of stainless steel

Outokumpu Annual report 2016

Sustainability review / Recycling maximized

20/28

“Our slags are, for instance, used
in road construction, refractory
and concrete production, or for
water treatment.”

Resource efficiency in materials

Outokumpu’s business is based on recycling. The recycled content of our
stainless steel is 87.1%, among the highest in the industry.

Outokumpu aims to maximize the use of secondary
raw material steel scrap. 2.45 million tonnes of
recycled steel was used in 2016 (2015: 2.20 million
tonnes). In addition to this Outokumpu follows a
circular economy approach by recycling waste metals
from outside the melt shop in the steel melt as far as
reasonable. The recycled content is reported as total
recycled metal input to melt shops in correlation to
crude steel production. It is calculated according to
ISO standard 14021. Recycled content remains on a
high level of 87.1% in 2016 (87.2% in 2015).

Outokumpu also aims to reduce landfill waste. In 2016
we were able to further increase the share of recycled
and recovered waste. The trend of higher percentage
of waste recycled and recovered continues. The landfill
waste increased by 7% compared to the previous
year mainly caused by higher production and by less
amount of used slags. Landfilled waste could be
limited by improvement in the mining process. The
amount of tailings at Kemi mine has decreased in

relation to concentrate amounts due to increased
recovery in the concentrator plant. Total recovery
of concentrator plant has continuously increased to
totally 6.6% since 2013.

The total amount of waste was 1.8 million tonnes and
increased by 17% at the same time as the production
increased by 12% compared to last year and the use
of slag decreased.

Slags are the main by-product of Outokumpu’s
production, including ferrochrome production. In
2016 the company produced 1.1 million tonnes of
stainless steel and ferrochrome slag (1.2 million
tonnes in 2015). Our slags are, for instance, used in
road construction, refractory and concrete production,
or for water treatment. The use rate (use, recycling
and recovery) of all slags in 2016 was 90% (92% in
2015). The use rate depends on the local market
for construction materials and the acceptance of
secondary mineral material instead of virgin minerals.

The new European initiative on the circular economy
should support companies in utilizing by-products and
recycled material. However, some definitions in the
debate are counterproductive and generate the risk
that the use of the secondary materials is put at a
disadvantage compared to virgin materials in spite of
the same, or even superior properties. If, for example,
slag by-products would become waste and had to
be landfilled, new deposits would be needed for the
slag and at least the same amount of virgin materials
would have to be mined.

More information on raw materials and waste is in our
sustainability reporting tool

Total waste development
%
100

Total and hazardous waste in tonnes

Tailing sand

Other waste

thereof hazardous waste

recycled

recovered

landfilled

2016

856,245

966,281

139,224

13,224

43,521

82,485

2015

2014

830,874

1,029,332

732,342

127,007

14,337

44,900

67,769

630,182

147,586

16,817

48,300

78,344

Landfi lled

Recovered

Recycled

d
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a
s

g
n

i
l
i

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d
n
a
s

g
n

i
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i

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a
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a
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Outokumpu Annual report 2016

Sustainability review / Indispensable

21/28

Indispensable

Buildings &
Infrastructure

Energy &
Heavy industries

Automotive &
Transportation

Home
appliances

Thousands of bridges
worldwide are in need of
repair years ahead of their
scheduled lifespan. Using
stainless steel they can be
renovated in a cost-efficient
way with a long lifespan and
low maintenance.

Can desalination fix the
growing problem of water
scarcity? The processes are
complex and highly corrosive,
calling for durable solutions.

Metaklett is the first hook
and loop fastener made
of metal and used in car
engines. It offers all the
advantages of Velcro system
combined with the strength of
stainless steel.

Creating customized
laboratory equipment for
a hospital environment
is not simple. There are
strict hygiene requirements
for materials. Outokumpu
stainless steel met these
requirements.

#Choosestainless
for more stories on the use of stainless steel

Outokumpu Annual report 2016

Sustainability review / Indispensable

22/28

Climate change

Outokumpu uses resources sustainably. The company works constantly to improve the material and
energy efficiency of its own operations and aims to contribute to a low-carbon energy sector.

Outokumpu is committed to reducing the greenhouse
gas (GHG) emissions from all operations. The primary
GHG emitted during stainless steel production is
carbon dioxide (CO2). Our target to improve resource
efficiency calls for less energy and less virgin
materials. This results in lower CO2 emissions.

Carbon profile
Since 2010 Outokumpu has been working towards its
target to reduce the Group’s specific carbon profile
in stainless steel production by 20% by 2020, with
baseline figures from the 2007–2009 period. The
carbon profile is calculated thus:

• For direct CO2 emissions, as the sum of the

carbon efficiency of each process such as melting,
hot rolling and cold rolling, and the weighted
contribution of ferrochrome production

• For indirect CO2 emissions, by electricity use

and the weighted average CO2 emission factor of
Outokumpu’s electricity suppliers

• For transport and travel emissions, by distances

for material and product transportation and
transportation type with the correlating emission
factors and business travel emissions provided by
airlines and business car leasing companies

This year the carbon profile could be reduced by
13.3% compared to baseline. The profile is on the
expected track of the 2020 target. This good result
was caused by an improvement in energy efficiency
and a significant reduction in the electricity emission
factor of Outokumpu’s electricity mix.

In 2016 Outokumpu committed to a science based
target on CO2 intensity. Corresponding reporting on
this science based target will replace carbon profile
monitoring in 2017.

European Union Emissions
Trading Scheme
Besides voluntary commitments, Outokumpu’s
European operation sites fall under the European
Union Emissions Trading Scheme. In total almost
0.94 million tonnes of total 1.22 million tonnes of CO2
emissions are covered by the system. The input of
raw materials such as recycled steel and ferroalloys
as well as the use of electrodes in the electric
arc furnace in melting processes during stainless
steel production contains carbon, which is followed
by process-related CO2 emissions. Further direct
emissions come from the use of primary energy for
process heat.

The global economic crisis at the end of the last
decade resulted in very low production and therefore
low emissions. As allocation is based on historical
production data and benchmarks, not all allowances
were needed but could be transferred to the ongoing
period. By the end of the ongoing phase the total
allocation for period 2013–2020 will not cover the
forecasted emission needs. It is of high importance to
note how the system develops in the future.

The main risk of this emissions trading system to
Outokumpu involves the pass-through costs to the
electricity price, which also depend on the allowance

trading price. As the next trading phase intends to
shorten the allowances market, a price increase in
allowances is expected and intended. As Outokumpu
commits to CO2 emission reduction and contributes
to reduction target of the Paris Agreement, the Group
needs the emission trading scheme to establish
fair conditions. This means full electricity price
compensation of pass-through costs caused by
allowances on a harmonized European base, free
allocation at the level of real actualized benchmarks
from the 10% most efficient installations without

a flat rate, and no cross sectoral correction factor
to the benchmark emission amount. The company
communicates this position in cooperation with
various steel industry associations.

Investments in recent years in terms of restructuring
have made Outokumpu’s production sites highly
efficient. This is also an opportunity to stay
competitive under the emissions trading system.

All climate change data is available in our
reporting tool

“Our target to improve resource
efficiency calls for less energy
and less virgin material. This
results in lower CO2 emissions.”

Carbon profi le of Outokumpu’s steel

tonnes CO2/tonnes product

1.5

1.2

0.9

0.6

0.3

Reduction
13.3%

Target
2020
-20%

Baseline

Direct emissions

Indirect emissions, electricity

Indirect emissions,
Transport & business travel

2016 data are for continuing production sites compared to baseline,
electricity profi le for 2015 was restated.

Outokumpu Annual report 2016

Sustainability review / Indispensable

23/28

Science based targets on CO2 intensity

Outokumpu is committed to reducing the direct and indirect CO2 intensity
by a further 7.5% by 2021 against the baseline of 2015.

In April 2016 Outokumpu became a member of
the Science Based Targets initiative. The members
commit to contribute to the climate change goal of
COP 21 held in Paris, November 2015. The parties
set a goal to decouple growth and emissions and to
limit the temperature increase in the atmosphere to
2 degrees compared to the pre-industrial era, called
the 2 Degree Scenario (2DS). The most suitable
method for Outokumpu to follow is the Sectoral
Decarbonization Approach (SDA) for the steel industry
as the long-term CO2 target.

Greenhouse gas emissions of stainless steel
production are limited to CO2 caused by direct
emissions and indirectly from electricity use.
Emissions of all Outokumpu’s production sites are
included in the target setting. Outokumpu operates its
own chromium mine and ferrochrome production in
Finland; these are also enclosed. Our own generated
emissions from transport and business travel are not
included in the steel sector target. They count for
some 9.3% of total emissions and will be monitored.
According to the science based target approach,
upstream emissions of input materials are counted in
the corresponding sectors.

Outokumpu’s scenario
To exclude restructuring changes, the scenario
is developed against the baseline of 2015 under
conditions of the steel SDA. To take into account
the electricity driven production route, the indirect
emissions from electricity was estimated on the
development of the energy supply sector intensity
target (90% reduction by 2050). The development of
the electricity sector highly influences the result of
Outokumpu’s CO2 emissions.

Steel industry approach
In the iron and steel sector, the target of direct
emission intensity is a decrease by 55% to 0.891 t
CO2/t crude steel and the target of indirect emission
intensity is estimated at 0.025 t CO2/t crude steel
by 2050 based on 2010. The whole sector’s total
emissions result is expected to decrease by 31%
although an activity growth of 55% is assumed by
2050.

The steel industry approach reports the potential
for efficiency increases coming from the phasing
out of open hearth furnaces and improving blast
furnaces as well as carbon capture, storage or use of
direct CO2 emissions from these processes. Further

improvements are correlated to increased electric
arc furnace steelmaking on a scrap basis. All these
reported potentials are based on processes that are
not used in stainless steel production and, therefore,
cannot be applied to stainless steelmaking.

Principle
Each company in a homogeneous industry sector will
converge with the sectoral intensity in 2050. SDA sets
homogeneous sectors physical activity indicators. The
activity indicator for the iron and steel sector and also
for Outokumpu is crude steel production in tonnes.
Outokumpu’s forecast of direct and indirect emission
intensity will end up better than the convergence
criteria of steel sector.

Outokumpu’s reduction in 2016
The direct and indirect CO2 intensity could be reduced
by some 16% to 0.72 tonnes CO2 per tonne steel
which corresponds to 398,000 tonnes of CO2 savings.
This high reduction is driven by the improvement
of energy efficiency (see p. 13 in the Sustainability
review), and by the over-proportional reduction
of some 15% of emission factor for electricity in
Outokumpu’s electricity mix in 2016. As the capacity
use was very high in 2016, and it was the first year
of picking the fruits of restructuring, this result is
expected to be exceptional.

All climate change data is available on our
reporting tool

SDA

1.80

1.60

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00

Science Based Target

1.5

1.0

0.5

7.5% reduction

26% reduction

45% reduction

2010 2015 2020 2025 2030

2035

2040 2045 2050

15 16

2050

Activity index

Scope 1 emissions index

Scope 1 carbon intensity index

Direct and indirect (electricity) CO2 intensity
Direct and indirect CO2 emissions
Steel sector carbon intensity

Outokumpu Annual report 2016

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Environmental KPIs

Outokumpu has set challenging goals and environmental key performance indicators for 2020.

Check all figures in the sustainability reporting tool

Recycled
content in steel
Target 2016:

88%

Result 2016:

87.1%

Outokumpu aims to raise the
recycled content in stainless
steel to 90% by 2020. This
year the recycled content was
kept on the same high level
as in 2015. The 2016 target
could not be reached as the
decision on material input has
to be in balance with economic
decisions and therefore depends
on the raw material market.

Decrease of
Outokumpu’s
stainless steel
direct CO2 profile
Target 2016:

12.7%

Result 2016:

13.3%

The yearly target is embedded in
the long-term carbon profile target:
In 2010 Outokumpu committed
to reduce the Group’s specific
carbon emissions in stainless steel
production by 20% by 2020. This
target will be replaced by science
based target on direct and indirect
CO2 intensity from 2017 onward.

No significant
environmental incident
Target 2016:

Zero

Result 2016:

Zero

Outokumpu has had no
significant environmental
incident for many years.
Certified environment
management systems that are
implemented in all operation
sites help to reduce all kinds
of environmental risk.

Improved
energy efficiency
Target 2016:

9.4%
(cumulative increase)
Result 2016:

12.7%

Outokumpu aims to improve
the energy efficiency of all
operations by 1% yearly until
2020 compared to the baseline
of 2007–2009 which adds up to
a reduction of 13% in 2020. The
achieved reduction corresponds
to an energy saving of
4.7 million GJ. A good utilization
of capacity after implementation
of the investments during the
restructuring process led to
this positive performance.

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Examples of projects

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Improvement of energy use
in hot rolling, Tornio
Specific energy consumption of primary energy and electricity
has decreased by more than 8% at the hot rolling mill in Tornio
compared to the previous year. This counts for a comparable
energy savings of 35,800 MWh in 2016. This improvement was
driven by a better use of production capacity, oxygen enrichment
in furnaces and an increased use of Tornio Works’ own CO
gas, which replaced propane use. Oxygen is produced as a by-
product of onsite argon manufacturing plant from air fractioning
which is needed in the melt shop. CO gas is a by-product in
ferrochrome production, which is further used as fuel in the
processes after treatment. A more active control of CO gas
delivery and furnaces support energy efficiency improvements.

Improvement of energy
use in melt shop, Calvert
The specific energy consumption of the melt
shop in Calvert could be improved by 13% in
2016 compared to 2015. Comparable energy
savings are calculated to be over 81,000 MWh
in 2016. As the use of production capacity
could be significantly increased, less natural
gas for heating the production facilities was
needed. But main savings were achieved
in electricity use for melting. This could be
reached by matching the needed power to the
kind of steel in the melt, and by training all
employees about the new way of operation.

Improvement of neutralization
wastewater treatment plant, Sheffield

The Sheffield long products rolling mill ASR instigated a program with the aim of reducing
the total chromium content in the acid neutralization wastewater plant discharge. This
program used daily management and monitoring techniques to measure and correct
the dosing in the neutralization process. As a result of this, ASR has reduced the annual
total chromium discharge by 91% in 2016 compared to last year. This is a remarkable
achievement that has not only had a positive environmental benefit, but has also
totally eliminated ferrous iron contamination of the Descale 1 final rinse tank. The
result of which is a direct improvement of the surface quality on the finished product.

Goals for 2017

Goal 1:

No significant
environmental incident

Goal 2:

Increase recycled
content to 88.5%

Goal 3:

Increase long-term
energy efficiency by
further 1% resulting in
10.3% energy efficiency
improvement compared
to baseline 2007–2009

Goal 4:

Decrease CO2 intensity
of direct and indirect
emissions by 1.5% to
0.845 tonnes CO2 per ton
steel compared to 2015

Outokumpu Annual report 2016

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Scope of the report

Outokumpu has published its sustainability report as
part of the Annual Report 2016 and information is also
made available at www.outokumpu.com
Outokumpu’s reporting follows the Global Reporting
Initiative G4 Guidelines in accordance with the Core
option. The materiality assessment from 2015 was
the basis for the decision on material issues and
relevant indicators. The full GRI index
is available
at Outokumpu’s website. Outokumpu reports on the
material developments and changes in 2016 as part
of the Annual Report, and additional information is
published on its website
. The Sustainability and
Annual Reports for 2015 were published on March 7,
2016.

This independent practitioner’s assurance report on
the limited assurance conclusion on the Sustainability
Reporting is available on p. 28 in the Sustainability
review. The Financial statements 2016 have been
audited.

Measurement/
Estimation methods

Economic responsibility
Most figures relating to economic responsibility
presented in this report are based on consolidated
financial statements issued by the Outokumpu
Group and collected through Outokumpu’s
internal consolidation system. Financial data has
been prepared in accordance with International
Financial Reporting Standards (IFRS). Outokumpu’s
accounting principles for the Group’s consolidated
financial statements are available in note 2 to the
consolidated financial statements.

All financial figures presented have been rounded,
and consequently the sum of individual figures may
deviate from the presented aggregate figure. Key
figures have been calculated using exact figures. Using
the GRI guidelines as a basis, economic responsibility
figures have been calculated as follows:

Direct economic value generated
Direct economic value generated includes all
revenues received by Outokumpu during the financial
year. The sources of revenue include sales invoiced
to customers, net of discounts and indirect taxes,
revenues reported as other operating income
(including gains from the disposal of Group assets),
and revenues reported as financial income, mainly
dividend and interest income.

Economic value distributed
Operating costs include the cost of goods and
services purchased by Outokumpu during the
financial year. Employee benefit expenses include
wages and salaries, termination benefits, social
security expenses, pension and other post-
employment and long-term employee benefits,
expenses from share-based payments and other
personnel expenses. Taxes paid to government
include income taxes. Deferred taxes are excluded
from figure. Payments to providers of capital include
interest costs on debt and other financial expenses
during the financial year. Capitalized interest is
deducted from this figure. The dividend payout is
included in the payments to providers of capital
according to the proposal by Outokumpu’s Board of
Directors.

Community investments consist of donations to and
investments in beneficiaries external to the company.

Local suppliers
In this report vendors are defined as local if they
are located in the same city or municipality as the
Outokumpu location. Significant locations for suppliers
are production units that have a melt shop, that is
Avesta, Calvert, Sheffield and Tornio.

Environmental responsibility
Outokumpu’s climate change target of specific
carbon emissions in stainless steel production will
be replaced by the science based target on CO2
intensity of direct and indirect emissions. This report
includes both targets. The ambitious 7.5% reduction
target by 2021 in CO2 intensity is comparable to a
25% reduction of the climate change target on the
company’s carbon profile for steel.

Social responsibility

Health and safety figures
Health and safety figures reflect the scope of
Outokumpu’s operations as they were in 2016.

Safety indicators (accidents and preventive safety
actions) are expressed per million hours worked
(frequency). Safety indicators include Outokumpu
employee, a person employed by a third party
(contractor) or a visitor accidents and preventive
safety actions. A workplace accident is the direct
result of a work-related activity and it has taken place
during working hours at the workplace.

Accident types
• Lost time incident (LTI) is an accident that caused at
least one day of sick leave (excluding the day of the
injury or accident), as the World Steel Association
defines it. One day of sick leave means that the
injured person has not been able to return to work
on the next scheduled working day or shift. Lost
day rate is defined as more than one calendar day
absence from the day after the accident per million
working hours.

• Restrictive work incident (RWI) didn’t cause the
individual to be absent, but has resulted in that
person being restricted in their capabilities so that
they are unable to undertake their normal duties.
• Medically treated incident (MTI) has to be treated by

a medical professional.

• First aid treated incident (FTI), where the injury

is very minor and is treated by a person himself/
herself or by colleague trained to administer first aid.

• Total recordable incident (TRI) includes fatalities,

LTIs, RWIs and MTIs, but FTIs are excluded.

Proactive safety actions
Near-miss incidents and hazards refer to events that
could have led to an accident, but where no injury
occurred. Preventive actions have been taken after
the report. Safety behavior observations (SBOs) are
safety-based discussions between an auditor and the
person being audited. Other preventive safety action
includes proactive measures that are not part of
previously mentioned categories.

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Hiring rate = New Hires / total number of permanent
employees by year-end

Average turnover rate = (Turnover + New Hires) / (total
number of permanent employees by year-end * 2)

Days lost due to strikes
The number of days lost due to strikes is calculated
by multiplying the number of Outokumpu employees
who have been on strike by the number of scheduled
working days lost. The day on which a strike starts is
included.

All personnel figures of 2013 include Outokumpu
personnel in the continuing operations and do not
therefore include divested sites/assets, such as Terni
and other remedy assets, or VDM – except for the
personnel by countries of 2013, which is counted
including discontinued operations. All figures from
2013 and 2014 include former Outokumpu and
Inoxum employees, unless otherwise stated.

Sick leave hours and absentee rate
Sick leave hours reported are total sick leave hours
during a reporting period. Reporting units provide data
on absence due to illness, injury and occupational
diseases on a monthly basis. The absentee rate (%)
includes the actual absentee hours lost expressed as
a percentage of total hours scheduled.

Total personnel costs
This figure includes wages, salaries, bonuses, social
costs or other personnel expenses, as well as fringe
benefits paid and/or accrued during the reporting period.

Training costs
Training costs include external training-related
expenses such as participation fees. Wages, salaries
and daily allowances for participants in training
activities are not included, but the salaries of internal
trainers are included.

Training days per employee
The number of days spent by an employee in training
when each training day is counted as lasting eight
hours. (Since 2013: employee figures = FTE)

Bonuses
A bonus is an additional payment for good
performance. These figures are reported without
social costs or fringe benefits.

Personnel figures
Rates are calculated using the total employee numbers
at the end of the reporting period. The calculations
follow the requirements of GRI G4 Guidelines. The
following calculation has been applied e.g.

Outokumpu Annual report 2016

Sustainability review / Independent assurance report

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Independent assurance report

To the Management of Outokumpu Oyj

We have been engaged by the Management of
Outokumpu Oyj (hereafter Outokumpu) to provide
limited assurance on Outokumpu‘s Sustainability
Review 2016 presented in Outokumpu´s Annual
Report for the reporting period from January 1, 2016
to December 31, 2016 (hereafter Sustainability
Information).

Global Reporting Initiative’s Sustainability Reporting
Guidelines G4 was used as the assurance criteria
(hereafter GRI G4)

Inherent limitations on the
engagement
The inherent limitations on accuracy and
completeness of data related to the Sustainability
Information are to be taken into account when reading
our assurance report. The presented Sustainability
Information is to be considered in connection with
the explanatory information on data collection,
consolidation and assessments provided by
Outokumpu.

The Management of Outokumpu is responsible for
the measuring, preparation and presentation of the
Sustainability Information in accordance with the
GRI G4.

Our responsibility is to express an independent
conclusion on the Sustainability Information. We have
conducted the engagement in accordance with ISAE
3000 (Revised). To the fullest extent permitted by law,
we accept no responsibility to any party other than
Outokumpu for our work, for this assurance report, or
for the conclusions we have reached.

We are independent from the company according
to the ethical requirements in Finland and we have
complied with other ethical requirements, which apply
to the engagement conducted.

We apply the International Standard on Quality Control
1 (ISQC 1) and accordingly maintain a comprehensive
system of quality control including documented
policies and procedures regarding compliance with
ethical requirements, professional standards and
applicable legal and regulatory requirements.

Summary of the work performed
A limited assurance engagement consists primarily
of making inquiries of persons responsible for
the preparation of the Sustainability Information
presented, and applying analytical and other
appropriate evidence gathering procedures. The
procedures performed in a limited assurance
engagement vary in nature and timing from and
are less in extent than for a reasonable assurance
engagement and consequently the level of assurance
obtained in a limited assurance engagement is
substantially lower.

In our engagement we have performed
the following procedures:
Interviews with Outokumpu Senior Management;

An assessment of data management processes,
information systems and working methods used to
gather and consolidate the Sustainability Information;

A review of the presented Sustainability Information
with an assessment of information quality and
reporting boundary definitions;

An assessment of data accuracy and completeness
through a review of the original documents and
systems on a sample basis;

One site visit and two video conferences conducted to
Outokumpu subsidiaries.

Conclusions
Based on the assurance procedures performed,
nothing has come to our attention that causes us to
believe that the information subject to the assurance
engagement is not prepared in accordance with the
GRI G4 in all material respects.

Helsinki, 20 February 2017

KPMG Oy Ab

Virpi Halonen
Authorised Public Accountant, KHT

An assessment of conformity with the reporting
principles of GRI G4 in the presentation of the
Sustainability Information;

Nathalie Clément
Senior Manager, Advisory

An assessment of coverage of the material aspects
selected for the Sustainability Information and the
definition of reporting boundaries in the context of
Outokumpu’s business operations and sector;

Outokumpu Annual report 2016

Financial statements

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Financial
statements
2016

Outokumpu Annual report 2016

Financial statements

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Review by the Board of Directors

The year 2016 was a year of change for Outokumpu. The year started with a
new CEO taking the lead. In April the company announced its new vision to
become the best value creator in stainless steel by 2020 through customer
orientation and efficiency. In addition to the vision and financial targets, the
company launched a number of immediate measures in order to improve its
cost position and profitability. With the new focus, ambitious targets and drive
to turn the company around, Outokumpu reached a positive underlying EBIT
in 2016. The improved performance was primarily a result of reduced costs,
driven by the new, efficient organization. Furthermore, the business area
Americas started heading in right direction as the business area reduced its
losses clearly with increased delivery volumes and reduction in costs. Business
area Europe, in turn, achieved its targets with EMEA restructuring program and
successfully decreased SG&A costs. Outokumpu over-achieved its target to
reduce net working capital by EUR 200 million in 2016: the release of EUR 307
million supported the cash flow, and Outokumpu was able to reduce its net debt
significantly during the year. Outokumpu has now returned to profitability, but
the clear expectation is that the company will deliver EUR 500 million EBIT in
2020 and every effort must be made to reach this goal.

Outokumpu strategy

In April 2016, Outokumpu announced its new vision and measures to
drive competitiveness and further improve the financial performance of
the company. The vision has been defined as: to be the best value creator
in stainless steel by 2020 through customer orientation and efficiency.
Simultaneously, Outokumpu outlined its long-term financial targets
connected to this vision.

Outokumpu focuses on the following six areas to reach its vision:
1. Safety: a standardized and disciplined approach to safety that correlates
with improved quality and operational efficiency, leading to a top decile
position in the industry.

2. High performing organization: a lean, simple and flat organization that takes
its lead from market trends and requirements, and drives a high level of

individual accountability that is enforced through vigorous performance
management.

3. Word-class supply chain: the role of the supply chain function elevated to
drive optimal matching of market demand and manufacturing capabilities,
managing manufacturing programming and planning as well as the required
resources and logistics. This will allow our production units to focus on
achieving a benchmark level in cost efficiency.

4. Manufacturing excellence: implementing a standardized operating model

to ensure continuous productivity gains in all the mills across the company,
leading to industry benchmark competitiveness.

5. Commercial excellence: Clear segment-driven commercial strategy to drive

margin growth. Profitability driven product strategy to match market demand
and optimal mix.

6. Americas: the single biggest profitability improvement lever for Outokumpu,
with significant improvement potential in both cost and market position.

Long-term financial targets
In alignment with the vision, Outokumpu’s long-term financial targets reflect
the progress of the strategic initiatives and the development in profitability and
further deleveraging:

· EBIT of EUR 500 million
· ROCE of 12%
· Gearing of <35%

These group-level targets are expected to be reached by the end of 2020
at the latest. While the global demand for stainless steel continues to grow,
Outokumpu takes a conservative approach to market growth and metal
price assumptions, and expects the targeted profitability improvement to
come primarily through efficiency and cost improvements in the current
scope of business, supported by further strengthening of Outokumpu’s cost
competitiveness and market position particularly in the Americas.

Short-term actions
To achieve an immediate step change in profitability, Outokumpu has set a
series of short term initiatives.

· New organizational set-up: a simplified organization with three business areas,
less management layers and a lighter cost structure. The new organization
was implemented in June and the related personnel reductions have
developed according to plans.

· A reduction of EUR 100 million in sales, general and administrative costs

(SG&A) by the end of 2017 against the baseline of EUR 400 million at the end
of 2015. A reduction of EUR 69 million was achieved by the end of 2016.
· A cash release of at least EUR 200 million from net working capital by the

end of 2016, particularly through the reduction of inventories. The target was
exceeded with a net working capital reduction of EUR 307 million at the end
of the year.

Strengthening of the balance sheet remains top priority at Outokumpu.
Outokumpu’s stated target has been to reduce net debt to EUR 1.2 billion
by the end of 2017. However, with the progress in 2016 exceeding the
expectations, the company updates its target to reduce net debt to below EUR
1.1 billion by the end of 2017.

Market development

Stainless steel demand
Global apparent stainless steel consumption increased by 6.1% in 2016
compared to the previous year. APAC contributed with a growth of 7.2% followed
by growth of 4.4% in EMEA and 1.2% in the Americas.

Global real demand for stainless steel products reached 38.5 million tonnes in
2016, an increase of 2.9% from 37.4 million tonnes in 2015. Overall demand
growth recovered from a very low level in 2015 but still stood behind the
average annual demand growth of about 8% in 2011–2014. Acceleration of
the growth was most pronounced in the APAC region at 4.1%, driven by China

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Financial statements

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returning to robust growth as a result of solid infrastructure and property
sectors. Meanwhile, demand in EMEA grew by 1.4%, but decreased in the
Americas by 3.2% in 2016.

USD 0.96/lb in 2016, 10.6% below the 2015 average of USD 1.07/lb. For the
first quarter of 2017, the benchmark price followed higher prices in China and
soared further to USD 1.65/lb.

Sales, 5,690 € million

ABC & Infrastructure and Consumer Goods & Medical outperformed other
end-use segments in 2016, with real demand growing by 4.6% and 4.3%,
respectively, compared to 2015. The Industrial & Heavy Industries segment
was the weakest performer with demand declining by 3.8%. Real demand in
Chemical, Petrochemical & Energy and Automotive & Heavy Transport segments
grew at 2.0% and 1.2%, respectively.

EU cold rolled imports from third countries are expected to have reached a
level of 23.9% of the total consumption in 2016, down from the average level of
24.6% in 2015. While imports from Taiwan and South Korea increased, imports
from other main exporting countries, namely China, India and the US, decreased
in 2016. (Source: EUROFER January 2017)

Average cold rolled imports into the US are expected to have reached a level
of 23.3% of the total consumption in 2016, lower than the average of 26.6% in
2015. Chinese imports decreased significantly, while imports from almost all
other main exporting countries increased compared to 2015. (Source: Foreign
Trade Statistics January 2017)

Price development of alloying metals
The year started with nickel prices on a weak note that slumped to a 13-
year low below USD 8,000/tonne in early February as a result of increasing
fears over global economy and subdued demand amid oversupplied markets.
However, prices continued to rise throughout the year due to improving
sentiment, concerns over possible disruption to nickel ore supplies from the
Philippines, as well as the strong stainless steel production in China. Prices hit
the highest level of the year of USD 11,735/tonne in early November, before
retreating to USD 10,000/tonne levels at the end of the year. The average price
of the year of USD 9,600/tonne was 18.7% lower than the average of USD
11,808/tonne in 2015.

The European benchmark price for ferrochrome fell from USD 1.04/lb in the
fourth quarter of 2015 to USD 0.92/lb in the first quarter of 2016 and further
down to USD 0.82/lb in the second quarter, as a result of deflated production
costs and soft demand. Subsequently, prices recovered to USD 0.98/lb in the
third quarter and to USD 1.10/lb in the fourth quarter amid tightening markets.
This was a result of slowdown in South African ferrochrome and chrome ore
supply, as well as strong demand in China. The average ferrochrome price was

Business areas

Europe
For the year 2016, the CRU reported average market base price was relatively
flat at EUR 1,063/tonne compared to EUR 1,056/tonne in 2015. The prices
were under pressure during the first half of the year as the distributor demand
was negatively impacted by low nickel prices. However, healthy end customer
demand and higher nickel prices during the second half of the year resulted in
an uptick in pricing.

Europe’s 2016 stainless steel deliveries increased by 3.0% to 1,625,000
tonnes compared to 1,578,000 tonnes in 2015. However, sales decreased
to EUR 3,924 million (2015: EUR 4,316 million) due to lower base and metal
prices. The average base price in business area Europe’s coil product deliveries
decreased by EUR 30/tonne compared to the previous year. Ferrochrome
production amounted to 469,000 tonnes in 2016 (2015: 457,000 tonnes).

Europe’s underlying EBIT increased to EUR 191 million in 2016 compared to
EUR 85 million in 2015 driven by higher volumes and significantly decreased
costs. The business area achieved its targets with its EMEA restructuring
program and successfully decreased its SG&A costs. Furthermore, the variable
costs per tonne were also clearly reduced. These more than offset lower base
prices. Adjustments in 2016 amounted to EUR -27 million, mainly related to
redundancy costs.

Americas
The 2016 stainless steel market was volatile in the US. The year started with
low base prices and high import from China. In February, Outokumpu joined
other US stainless steel producers and filed antidumping and countervailing
duty petitions against Chinese importers. In September, the US Commerce
Department set preliminary antidumping duties against imports from China.
These measures resulted in significantly reduced import volumes from China
particularly during the second half of the year, which, together with healthy
underlying stainless steel demand, resulted in increased base prices towards
the end of the year. However, the CRU reported average market base price for
the year was clearly lower on average at USD 1,286/tonne compared to USD
1,349/tonne in 2015.

Europe 66%

Americas 23%

Long Products 6%

Other operations 5%

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Business area Americas’ stainless steel deliveries went up by 29.5% to
690,000 tonnes in 2016 compared to 533,000 tonnes in 2015 due to
strong commercial development. The average base price2 in the business
area Americas’ coil product deliveries decreased by USD 10/tonne in 2016
compared to the previous year. Sales increased to EUR 1,325 million (2015:
EUR 1,214 million).

The business area’s underlying EBIT amounted to EUR -91 million (2015: EUR
-163 million). The improved financial performance was primarily a result of
significantly higher deliveries and 25% reduction in variable costs per tonne. The
positive impacts were partly offset by lower base prices. Adjustments in 2016
amounted to EUR 31 million.

Long Products
In 2016, the long products market was challenging. Prices were under
pressure as import volumes remained at high levels in both Europe and the
US. Furthermore, the Oil&Gas related investment activities remained subdued
throughout the year.

Deliveries increased to 245,000 tonnes in 2016 (2015: 213,000 tonnes) driven
by higher customer deliveries and increased internal slab deliveries. Despite
higher deliveries, Long Products’ underlying EBIT deteriorated to EUR -7 million
(2015: EUR 7 million). The weakening performance was a result of lower long
product prices, partly offset by cost reductions. The second-quarter derivative
losses of approximately EUR 5 million impacted the business area’s profitability
but were offset by improved cost competitiveness as a result of weaker GBP
during the second half of the year. Adjustments in 2016 amounted to EUR 18
million.

Financial performance

Deliveries
For 2016, stainless steel deliveries increased to 2,444,000 tonnes compared
to 2,381,000 tonnes in 2015. The increase was mainly driven by significantly
higher deliveries in the Americas. Deliveries in 2016 were higher also in Europe
and Long Products compared to the previous year.

Deliveries

1,000 tonnes
Cold rolled

White hot strip

Quarto plate

Long products

Semi-finished products

Stainless steel 1)

Ferrochrome

Tubular products

Total deliveries

Stainless steel deliveries

2016

1,731

425

100

247

121

126

2,570

2,444

2015

1,767

346

102

222

128

2,509

2,381

2014

1,880

373

271

138

133

2,686

2,554

1) Black hot rolled, slabs, billets and other stainless steel products.
2014 presented for continuing operations.

Sales and profitability
Sales amounted to EUR 5,690 million in 2016, 11.0% lower than EUR 6,384
million in 2015. The decrease was a result of lower base prices in both Europe
and the US, partly offset by higher deliveries.

Sales

€ million
Europe

Americas

Long Products

Other operations

Intra-group sales

The Group

2016

3,924

1,325

487

571

-618

2015

4,316

1,214

551

979

-676

5,690

6,384

2014

4,685

1,290

651

1,037

-820

6,844

Other operations’ figures for 2015 and 2014 include the divested SKS operations.

Outokumpu’s profitability improved significantly in 2016 with positive underlying EBIT
of EUR 45 million compared to EUR -101 million in 2015. This was driven by significant
reduction in costs, as well as higher delivery volumes particularly in the Americas.

EBIT

€ million
800

600

400

200

-200

-400

-600

-800

Underlying EBIT

€ million
50

-50

-100

-150

-200

-250

-300

-350

Outokumpu Annual report 2016

Financial statements

5/64

Profitability

€ million
Underlying EBIT

Europe

Americas

Long Products

Other operations and intra-group items 1)

Group underlying EBIT

Adjustments

EBIT

Share of results in associated companies
and joint ventures

Financial income and expenses

Result before taxes

Income taxes

Net result for the financial year from
continuing operations

Net result for the financial year from
discontinued operations

Net result for the financial year

EBIT margin, %

Return on capital employed, % 2)

Earnings per share, EUR

Earnings per share, continuing operations,
EUR

Earnings per share, discontinued
operations, EUR

2016

2015

2014

191

-91

-7

-48

103

-121

-13

156

144

1.8

2.6

0.35

-163

-30

-101

330

228

-149

127

-41

3.6

5.3

0.23

-91

-61

-88

-155

-243

-223

-459

-450

-439

-3.6

-5.8

-1.24

-1.27

0.03

Net cash generated from operating
activities 3)

389

-34

-126

1) Other operations’ figures for 2015 and 2014 include the divested SKS
operations.
2) Key figure definition changed in 2016 and figure for 2015 has been restated.
2014 figure has not been restated.
3) Year 2014 reported for continuing operations.

Income taxes for 2016 include deferred tax income of EUR 189 million related
to previously unrecognized deferred tax assets from losses in Finland and
Sweden in prior years. Impacted by the tax income, the net result for 2016 was
EUR 144 million compared to EUR 86 million in 2015. Earnings per share was
EUR 0.35 in 2016 (2015: EUR 0.23).

Additionally, Outokumpu has unutilized tax loss carry forwards of EUR 2,546
million, mainly in Germany and the US. Those can be recognized as deferred tax
income when the company starts generating sufficient taxable income in these
countries.

Cash flow
Outokumpu’s operating cash flow was EUR 389 million in 2016, compared
to EUR -34 million in 2015. The net working capital release during the year
amounted to EUR 307 million (2015: EUR 223 million).

Financial position
Cash and cash equivalents were at EUR 204 million at the end of the year
(2015: EUR 186 million), and the overall liquidity reserves were approximately
EUR 1.0 billion (2015: EUR 1.1 billion). In addition, EUR 145 million of the
revolving credit facility maturing in February 2017 was available, but as it is
classified as short-term, it was not included in the reported liquidity. The overall
liquidity reserves increased during the fourth quarter due to the reduction
in working capital, the improvement in profitability and the increased use of
commercial paper.

Net debt at the end of 2016 totaled EUR 1,242 million compared to EUR 1,610
million at the end of 2015. Gearing decreased to 51.4%, compared to 69.1%
at the end of 2015, driven by lower net debt and increase in equity which was
impacted by the deferred tax income.

Net financial expenses added up to EUR 121 million in 2016 compared to EUR
149 million in 2015. Interest expenses decreased from EUR 130 million to EUR
105 million in 2016 as a result of the debt reduction.

Earnings per share

€
2

-1

-2

-3

-4

-5

-6

-7

-8

2014 and 2013 calculated based on the rights-issue-adjusted weighted
average number of shares. 2012 has not been restated.

Net debt

€ million
4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

6/64

%
10

Outokumpu Annual report 2016

Financial statements

Key financial indicators on financial position

Debt-to-equity ratio

Capital expenditure and depreciation

€ million
1,000

800

600

400

200

€ million
Net debt

Non-current debt

Current debt

Cash and cash equivalents

Net debt

Shareholders' equity

Return on equity, % 1)

Debt-to-equity ratio, %

Equity-to-assets ratio, %

Interest expenses

2016

2015

2014

987

458

-204

1,242

1,249

547

-186

1,610

2,416

2,329

6.4

51.4

40.4

105

3.9

69.1

39.6

130

1,597

569

-191

1,974

2,132

-21.8

92.6

33.3

141

%
200

175

150

125

100

1) Key figure definition changed in 2016 and figure for 2015 has been restated.
2014 figure has not been restated.

Outokumpu is rated by Moody’s Investors Service. In March 2016, Moody’s
assigned Outokumpu an issuer corporate family rating of B3 and a B3-PD
probability default rating. In addition, Moody’s has assigned a B2 rating to the
EUR 250 million senior secured bond due in 2019 and a B2 rating to the EUR
250 million senior secured bond due in 2021. The outlook on the ratings is
positive.

Capital expenditure
In 2016, capital expenditure was EUR 164 million, slightly higher than EUR 154
million in 2015.

Capital expenditure

€ million
Europe

Americas

Long Products

Other operations

The Group

Depreciation and amortization

2014 presented for continuing operations.

2016

101

164

226

2015

2014

154

302

127

320

Equity-to-assets ratio

%
60

Capital expenditure

Depreciation

16
Capital expenditure, % of sales

Outokumpu Annual report 2016

Financial statements

7/64

Acquisitions and divestments
In February 2016, Outokumpu announced the divestment of its remaining 5%
share in its Chinese subsidiary Shanghai Krupp Stainless which was recognized
in the 2015 consolidated financial statements. In May Outokumpu agreed
on the final terms and conditions of the transaction. The final transaction
price for Outokumpu’s 5% share rose to EUR 92 million, taking into account
all adjustments. As a result, Outokumpu recognized additional gain of EUR 24
million net of taxes on the transaction into its 2016 result. In total, Outokumpu
has recognized a gain of EUR 412 million net of taxes for the sale of its entire
60% share in SKS.

Safety, people and environment

Safety
Outokumpu’s safety focus continues to develop positively. From the beginning
of 2016, the company follows total recordable incident frequency (TRIFR) as
its main indicator for safety performance. TRIFR includes fatal accidents, lost
time incidents, restrictive work incidents, and medically treated incidents. The
TRIFR was 8.7 for the full year 2016 against the target of less than 12.0. In
total, there were four serious incidents during 2016. All of these accidents were
thoroughly investigated and corrective actions were defined.

In April 2016, Outokumpu divested its subsidiary Outokumpu Stainless
International (Guangzhou) Ltd., a service center in China. The gain on the
transaction was EUR 6 million. The effect of the divestment on the Group’s
financial position was immaterial.

In September 2016, Outokumpu acquired Hernandez Edelstahl GmbH, a
stainless steel distributor in Germany, to further optimize the Group’s customer
service in Europe. Prior to the acquisition, Outokumpu held 33.3% of the
company’s shares and it was accounted for as an associated company in
the Group’s consolidated financial statements. Asset acquired and liabilities
assumed in the acquisition included non-current assets of EUR 15 million,
current assets of EUR 21 million and current liabilities of EUR 45 million. The
net amount of consideration and cash and cash equivalents acquired was
EUR 9 million. The goodwill of EUR 19 million arising from the acquisition was
immediately impaired. The impact of the goodwill impairment loss and other
acquisition related expenditure on the Group’s result was offset by the reversal
of EUR 22 million of Outokumpu’s credit loss allowances for Hernandez at the
time of the acquisition.

People

Personnel

Dec 31
Europe

Americas

Long Products

Other operations

The Group

2016

7,428

2,219

628

325

2015

7,778

2,265

658

301

2014

8,415

2,259

651

800

10,600

11,002

12,125

Other operations’ figure for 2014 includes the divested SKS operations.

Outokumpu’s headcount decreased and totaled 10,600 at the end of 2016
(2015: 11,002 and 2014: 12,125) driven by the continued restructuring and
efficiency measures. Overall, the number of employees decreased by 402
during 2016 with the majority of the headcount reduction realized in the
European operations.

In April, Outokumpu announced efficiency measures that are expected to lead
to the reduction of up to 600 jobs globally. In the second quarter, Outokumpu
carried out related consultations with employee representatives in Finland
and in Sweden, resulting in a reduction of approximately 180 jobs in these
countries, and a further 150 jobs globally. In addition, Outokumpu concluded
the negotiations in Germany in the third quarter resulting in a reduction of
approximately 180 jobs. Approximately 90 jobs remain and are expected to be
reduced during 2017. Redundancy costs of EUR 30 million have been booked
related to efficiency measures and job reductions. All in all, Outokumpu plans to
reduce its personnel to a level of 9,300 in the coming years.

Total wages and salaries amounted to EUR 562 million in 2016 (2015: EUR 585
million, 2014: EUR 592 million). Indirect employee benefit expenses totaled
EUR 151 million in 2016 (2015: EUR 177 million, 2014: EUR 262 million). The
reduction in indirect employee benefit expenses primarily resulted from the
changes to Outokumpu’s defined benefit pension scheme in the UK in October
2016. The scheme was closed to future pension accruals and changes were
made to the terms of retirement, which resulted in a EUR 26 million gain in
2016.

Environment
Emissions and effluents remained within permitted limits, and the minor
breaches that occurred were temporary, identified, and had only a minimal
impact on the environment. Outokumpu is not a party to any significant judicial
or administrative proceedings concerning environmental issues, nor is it aware
of any realized environmental risks that could have a material adverse effect on
its financial position.

The EU Emissions Trading Scheme (ETS) is continuing with the third trading
period 2013–2020. Outokumpu’s operations under the EU ETS will continue to
receive free emissions allocations according to efficiency-based benchmarks
and historical activity. The total allocation will be sufficient for the Group’s
operations during 2017.

Shares and shareholders
During 2016, the price of the Outokumpu share peaked at EUR 8.51 and
was EUR 2.08 at its lowest. The share price averaged EUR 4.51 during 2016.
The Outokumpu share price closed at end of the year at EUR 8.51, marking
an increase of 211% from the closing price of 2015. At the end of 2016, the
company’s market capitalization was EUR 3,541 million, compared to EUR
1,138 million at the previous year’s end. In total, 956 million Outokumpu shares
were traded on the Nasdaq Helsinki during 2016, representing a value of EUR
4,302 million.

Outokumpu’s share capital was unchanged at EUR 311 million at the end
of 2016. The total number of Outokumpu shares was 416,374,448 and the
average number of shares outstanding in 2016 was 414,411,287.

Between May 17, 2016 and May 26, 2016, Outokumpu repurchased 2,000,000
its own shares through public trading at Nasdaq Helsinki intending to use them
for the reward under the share-based payment plans. As of December 31,
2016, Outokumpu held 2,513,848 of its own shares, i.e. treasury shares.

Outokumpu Annual report 2016

Financial statements

8/64

Management shareholdings and share
based incentive programs
On December 31, 2016, the members of the Board of Directors and the
members of the Outokumpu Leadership Team held altogether 1,564,043
shares, or 0.4% of the total shares outstanding.

Outokumpu has established share-based incentive programs for the Leadership
Team members and for selected managers and key employees. Outokumpu’s
share based payment programs include Performance Share Plan 2012,
Restricted Share Pool and Matching Share Plans for the CEO and other key
management.

According to the Matching Share Plan, the CEO is entitled to receive in total
1,157,156 gross shares including taxes on the condition that he personally
invested EUR 1 million into Outokumpu shares by February 20, 2016. The
matching shares will be delivered in four equal instalments at the end of 2016,
2017, 2018 and 2019, respectively. The 2016 tranche of 185,077 shares
(net after deduction of taxes) has been delivered. The CEO is required to keep
at least all the shares he acquired and the first vesting portion, i.e. 25% of
the net amount of the received matching shares throughout his service with
Outokumpu.

Besides the CEO, 32 other key employees are taking part in the Matching
Share Plan, according to which the participants have invested 30–120% of
their annual gross base salary into Outokumpu shares by December 31, 2016.
Outokumpu will match each share acquired by the participant with two gross
shares from which applicable taxes will be deducted and the remaining net
number of shares will be delivered in four equal instalments at the end of 2017,
2018, 2019 and 2020, respectively. In order to receive the matching shares,
the participants are required to keep all the shares they acquire until the
vesting of the each matching share tranche.

More details on the share-based incentive programs can be found in note 18
to the financial statements and in Remuneration in the Corporate Governance
section.

Research and development
Outokumpu’s research & development (R&D) involves process, product,
application and technical market development. R&D works closely together
with the customers to align the company’s activities with their current and
future needs. Outokumpu’s R&D operations are concentrated in three research
centers, located at Avesta in Sweden, at Krefeld in Germany and at Tornio
in Finland. Each R&D center has its role and focus areas, which were further
sharpened in 2016. R&D teams work closely together with our sales and
operations. In addition to the R&D centers, R&D activities also take place at the
production sites.

In 2016, Outokumpu’s R&D expenditure totaled EUR 20 million, 0.4% of sales
(2015: EUR 23 million and 0.4%, 2014: EUR 23 million and 0.3%).

During 2016, process development teams continued to focus on transferring
technological knowledge between R&D and production units. A job rotation
program and networking of technical experts was continued. Process
development activities further delivered on the overall goal to ensure cost
and environmental efficiency of Outokumpu’s production processes and high
product quality. Product development activities focused on commercialization
of several recently launched steel grades, involving, for instance, application
development together with customers and standardization activities. Within the
technical market development activities, several successful cases have been
accomplished in close cooperation between Outokumpu sales team and the
customers.

Risks and uncertainties

Outokumpu operates in accordance with the risk management policy approved
by the Board of Directors which defines the objectives, approaches and areas
of responsibility in risk management activities. In addition to supporting
Outokumpu’s strategy, the aim of risk management is to identify, evaluate
and mitigate risks from the perspective of shareholders, customers, suppliers,
personnel, creditors and other stakeholders.

Outokumpu has defined risks as anything that could have an adverse impact on
achieving the Group’s objectives. Risks can therefore be threats, uncertainties
or lost opportunities for the company’s current or future operations. The risk
management process is an integral part of overall management processes, and
it is divided into four stages: risk identification, risk evaluation, risk prioritization
and risk mitigation. Key risks are assessed and updated on a regular basis.

The focus in risk management during 2016 was to secure business plan e.g.
by securing liquidity, reducing costs and improving the efficiency and controls
of Outokumpu’s operations by establishing global business services centers.
Outokumpu continued its systematic fire safety and loss prevention audit
programs, which also focused on machinery breakdown loss prevention during
the last year.

There were no realized material risks in 2016. In the first quarter of 2016,
Outokumpu completed negotiations with its insurance companies regarding the
settlement of the machinery breakdown and business interruption incident at
its Calvert mill in the US in June, 2014. The issue of the new bond maturing in
2021 together with the maturity extension of Finnish pension loans during the
second quarter, as well as strong cash flow clearly improved liquidity and helped
to reduce the refinancing risk particularly for 2017.

Strategic and business risks

Outokumpu’s key strategic and business risks currently include: risks and
uncertainties in implementing the announced vision, including measures to
drive competitiveness and further improve the financial performance; risks and
uncertainties related to developments in the stainless steel and ferrochrome
market and competitor actions; the risk of changes in raw material and metal
prices impacting Outokumpu’s profitability and amounts of cash tied up in
working capital; fluctuations of exchange rates affecting global competitive
environment in stainless; and the risk of litigation or adverse political action
affecting trade or changes that have an impact on environmental legislation.

Operational risks
Operational risks include inadequate or failed internal processes, employee
actions, systems, or events such as natural catastrophes and misconduct or
crime. Risks of these types are often connected with production operations,
logistics, financial processes, major investment projects, other projects or
information technology and, should they materialize, can lead to personal injury,
liability, loss of property, interrupted operations or environmental impacts.
Outokumpu’s operational risks are partly covered by insurance. Key operational
risks for Outokumpu are: a major fire or machinery breakdown and consequent
business interruptions, environmental accidents; IT dependency and cyber
security risks; project implementation risks; risks related to compliance,
crime and reputational harm; risk of fatalities or severe incidents and other
personnel-related risks. To minimize possible damage to property and business
interruptions that could result from a fire occurring at some of its major
production sites, Outokumpu has systematic fire and security audit programs in
place.

Outokumpu Annual report 2016

Financial statements

9/64

Financial risks
Key financial risks for Outokumpu include: changes in the prices of nickel, iron,
molybdenum, power and fuels; currency developments affecting the euro,
the US dollar, the Swedish krona and the British pound; interest rate changes
connected to the US dollar, the euro and the Swedish krona; changes in levels
of credit margins; counterparty risk related to customers and other business
partners, including financial institutions; risks related to liquidity and refinancing;
risk of breaching financial covenants or other loan conditions leading to
an event of default; and risk related to prices of equities and fixed-income
securities invested under defined benefit pension plans and risks related to
valuation parameters, especially long-term interest rates, of defined benefit
plans.

Short-term risks and uncertainties
Outokumpu is exposed to the following risks and uncertainties in the short-
term: risks and uncertainties in implementing the announced vision, including
measures to drive competitiveness and further improve the financial
performance; risks and uncertainties related to market development in
stainless steel and ferrochrome as well as competitor actions; risk of changes
in metal prices impacting amounts of cash tied up in working capital; risks and
uncertainties in implementing the new organizational structure, and the loss
of key personnel; changes in the prices of electrical power, fuels, nickel and
molybdenum; currency developments affecting the euro, US dollar, Swedish
krona and British pound; counterparty risk related to customers and other
business partners, including financial institutions. Possible adverse changes in
the global political and economic environment may have a significant adverse
impact on Outokumpu’s overall business and access to financial markets.

Significant legal proceedings

Dispute over invention rights, Outotec vs. Outokumpu

Outokumpu and Outotec have since 2013 had a dispute relating to innovations
on ferroalloy technology. On January 9, 2017, the companies reached an
agreement whereby both parties withdrew their claims. Outotec was granted
an exclusive right to sell and license the relevant innovations and technology
against an agreed license fee payable to Outokumpu. Outokumpu retains the
right to use the innovations in its own business.

Cartel fine imposed by the European Commission

1998 European Commission finding (the “1998 Finding”) that between 1993
and 1998, certain stainless steel producers, including Inoxum and certain of
its legal predecessors, had violated Article 65 (1) of the European Coal and
Steel Community Treaty by participating in a price-fixing arrangement with other
stainless steel producers. The alleged price-fixing arrangement consisted of
modifying and applying in a concerted fashion the reference values used to
calculate the alloy surcharge to the base price of stainless steel. The 1998
Finding was appealed and subsequently annulled on procedural grounds with
respect to Nirosta’s liability for one of its legal predecessors. Subsequent to
this annulment, the European Commission opened new proceedings, which
resulted in the 2006 Decision. Nirosta’s appeals of the 2006 Decision were
unsuccessful. In April 2011, Nirosta filed a complaint (Verfassungsbeschwerde)
with the German Constitutional Court (Bundesverfassungsgericht) requesting
that the Court declare the 2006 Decision incompatible with certain
fundamental rights under the German Constitution (Grundgesetz). The German
Constitutional Court decided on July 19, 2016 not to accept the complaint.
Outokumpu has decided not to pursue the matter further.

Claim in Spain related to the divested copper companies

Outokumpu divested all of its copper business in 2003–2008. One of
the divested companies domiciled in Spain later faced bankruptcy. The
administrator of the bankruptcy has filed a claim against Outokumpu Oyj and
two other non-Outokumpu companies, for recovery of payments made by the
bankrupt Spanish company in connection with the divestment. The Bilbao court
of first instance in Spain has accepted the claim of EUR 20 million brought
against Outokumpu and the two other companies. Outokumpu and the two
other companies have appealed the court’s decision.

Claim in Italy related to former tax consolidation group

In December 2015, Outokumpu Holding Italia and Acciai Speciali Terni
(AST) entered into a dispute relating to the tax consolidation of the former
ThyssenKrupp Tax Group in Italy. AST claims payment of approximately
EUR 23 million resulting from the former tax consolidation of the Italian tax
group managed by ThyssenKrupp. Outokumpu Holding Italia is the former
ThyssenKrupp holding company and was transferred to Inoxum as part of
the carve-out in 2011. The EUR 23 million claim resulted from former tax
instalments paid by ThyssenKrupp Italia in 2006 which have not been properly
settled towards AST in the following years. The matter is currently pending in
court.

Antitrust investigation in Germany

On September 22, 2016, Outokumpu’s subsidiary in Germany (Outokumpu
Nirosta GmbH) received a letter from the German Federal Cartel Office stating

that the company has been included in an ongoing investigation of possible
infringements of antitrust laws in the past. Following an internal investigation,
Outokumpu’s view is that the official investigation on it is without merit.

Corporate Governance

Outokumpu’s Corporate Governance statement can be found on the Outokumpu
website

and in this report.

Outokumpu Leadership Team
The new organizational set-up connected to Outokumpu’s vision and strategy
came into force on June 1, 2016, and as of that date the Outokumpu
Leadership Team comprises the following persons:

· Roeland Baan, President and CEO & head of business area Europe
· Christoph de la Camp, CFO (as of July 1, 2016)
· Michael S. Williams, head of business area Americas
· Kari Tuutti, head of business area Long Products
· Olli-Matti Saksi, head of Sales Europe
· Liam Bates, head of Supply Chain Europe
· Maciej Gwozdz, head of Operations Europe (as of October 1, 2016)
· Pekka Erkkilä, Chief Technology Officer
· Jan Hofmann, Business Transformation & IT
· Johann Steiner, Human Resources & Organizational Development
· Saara Tahvanainen, Communications & Investor Relations

Annual General Meeting
Outokumpu held its Annual General Meeting on April 6, 2016. The Meeting
approved the financial statements and discharged the management of the
company from liability for the financial year 2015. It was also decided that no
dividend be paid for 2015. The Meeting approved the proposals regarding the
authorization to the Board of Directors to repurchase the company’s own shares
and to decide on the issuance of shares as well as special rights entitling to
shares. The Meeting also approved the proposals of the Nomination Board
regarding the members of the Board of Directors and their remuneration.

The Annual General Meeting decided that the number of the members of Board of
Directors is nine. The Annual General Meeting decided to re-elect Markus Akermann,
Roberto Gualdoni, Stig Gustavson, Heikki Malinen, Saila Miettinen-Lähde, Elisabeth
Nilsson, Jorma Ollila and Olli Vaartimo of the current members and to elect Kati
ter Horst as a new member for the term of office ending at the end of the next
Annual General Meeting. The Annual General Meeting re-elected Jorma Ollila as the
Chairman and Olli Vaartimo as the Vice Chairman of the Board of Directors.

Outokumpu Annual report 2016

Financial statements

10/64

Shareholders’ Nomination Board
Outokumpu’s Shareholders’ Nomination Board consists of the representatives
of the four largest shareholders registered in the shareholders’ register of
the company on October 1 and the Chairman of the Board of Directors as
an expert member. The Nomination Board has been established to annually
prepare proposals on the composition of the Board of Directors and director
remuneration for the Annual General Meeting.

Market and business outlook

Market outlook
Total global demand for 2017 is forecast at 40.1 million tonnes, an increase of
4.2% compared to 2016. Growth is expected to be strongest in the APAC region
with 4.9%, whereas the Americas and the EMEA regions are expected to grow
by 2.4% and 2.3%, respectively.

On October 1, 2016, the four largest shareholders of Outokumpu were Solidium
Oy, Varma Mutual Pension Insurance Company, Ilmarinen Mutual Pension
Insurance Company and The Social Insurance Institution of Finland. They have
appointed the following representatives to the Nomination Board:

• Kari Järvinen, Managing Director at Solidium Oy
• Pekka Pajamo, CFO at Varma Mutual Pension Insurance Company
• Timo Ritakallio, President and CEO at Ilmarinen Mutual Pension

Insurance Company

• Tuula Korhonen, Investment Director at The Social Insurance Institution

of Finland

The Nomination Board proposes for the 2017 Annual General Meeting that
the Board of Directors would consist of eight members and Markus Akermann,
Roberto Gualdoni, Kati ter Horst, Heikki Malinen, Saila Miettinen-Lähde, Jorma
Ollila and Olli Vaartimo would be re-elected, and Eeva Sipilä would be elected as
new member for the term of office ending at the end of the next Annual General
Meeting. Jorma Ollila would be re-elected as the Chairman and Olli Vaartimo as
the Vice Chairman of the Board of Directors.

The long-term outlook for stainless steel demand remains positive. Key global
megatrends such as urbanization, modernization, and increased mobility
combined with growing global demand for energy, food, and water are expected
to support the future growth of stainless steel demand. Growth in stainless
steel consumption between 2017 and 2020 is expected to be relatively well-
balanced between the end-use segments. SMR forecast growth rates of 5.3%
in Architecture/ Building/Construction & Infrastructure, 5.1% in Automotive
& Heavy Transport, 4.7% in Consumer Goods & Medical, 1.9% in Chemical/
Petrochemical & Energy and 0.4% in Industrial & Heavy Industries segments.

Business and financial outlook for
the first quarter of 2017
In line with typical seasonality, the stainless steel market is expected to be
strong in the first quarter with healthy underlying demand in both Europe and
the US. Consequently, the first-quarter delivery volumes are expected to be
higher in Europe, and significantly higher in the Americas compared to the
fourth quarter of 2016. Furthermore, the cost-saving initiatives are expected
to continue according to plans and contribute positively in the first quarter. In
addition, the higher ferrochrome contract price will have a significant positive
impact on business area Europe’s profitability.

Therefore, Outokumpu’s adjusted EBITDA is expected to be over EUR 250
million in the first quarter of 2017.

Given the achievements with debt reduction, Outokumpu updates its 2017 net
debt target and expects the net debt to be below EUR 1.1 billion at the end of
2017.

Board of Directors’ proposal
for profit distribution

In accordance with the Board of Directors’ established dividend policy,
the pay-out ratio over a business cycle should be at least one third of the
Group’s profit for the period, with the aim of having stable annual payments
to shareholders. In its annual dividend proposal, the Board of Directors will, in
addition to financial results, take into consideration the Group’s investment and
development needs.

According to the parent company’s financial statements on December 31, 2016
distributable funds totalled EUR 2,247 million, of which retained earnings were
EUR 123 million.

The Board of Directors is proposing to the Annual General Meeting scheduled to
be held on March 21, 2017 a dividend of EUR 0.10 per share is paid for 2016
and the remaining distributable funds are allocated to retained earnings.

Events after the reporting period

Divestment of quarto plate mill in the US

On January 25, 2017, Outokumpu announced the divestment of its quarto
plate mill in New Castle, Indiana, US to D’Orazio Capital Partners, a US-based
private equity company and to the mill’s current management. The cash
consideration of the transaction is expected to be approximately EUR 28
million, depending on the amount of the net working capital at the closing.
The transaction reduces Outokumpu’s net debt with the approximately same
amount. Outokumpu does not consider the financial impact of the transaction
to be material, and reports the transaction as an adjustment in the first-quarter
2017 results. In 2016 financial statements, the New Castle mill is presented as
assets held for sale.

Change in reporting practices

On January 26, 2017, Outokumpu announced that it is changing its financial
reporting practices as of the first quarter 2017 interim report onwards. Going
forward, Outokumpu will consider EBITDA as its main performance indicator.
Furthermore, Outokumpu replaces underlying figures with adjusted figures.

Helsinki, February 2, 2017
Board of Directors

Outokumpu Annual report 2016

Financial statements

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This document is an English translation of the Finnish auditor’s report. Only the Finnish version of the report is legally binding.

Auditor’s report

Valuation of inventories (EUR 1,232 million) – refer to Accounting
principles and Note 21 in the consolidated financial statements

Key audit matter

Our response

· The most important commodity price risk for Outokumpu
is caused by fluctuation in nickel and other alloy prices.
Usually, stainless steel sales contracts include an alloy
surcharge clause which aims to reduce the risk arising
from the time difference between raw material purchase
and product delivery. There is a pricing risk because
the delivery cycle in production is longer than the alloy
surcharge mechanism expects.

· The price for the products to be sold in the near future is
known, however a significant part of the future prices for
the products to be sold is based on management’s best
estimate in Net Realizable Value (NRV) calculations.
· The NRV calculations are the basis for inventory write

downs. Management judgment is required to assess the
recoverability of these assets.

· We have assessed through observation, interview and
sample testing the adequacy of controls over metal
processing and inventory.

· We have carried out testing on controls over inventory

valuation to verify the Group values inventory
appropriately. We have tested the appropriateness
of overhead absorption in the inventory valuation by
analyzing the nature of costs being absorbed and verifying
the level of costs absorbed based on production data.

· We have assessed the provisions for inventory loss

(NRV calculation) compared to current and estimated
commodity prices. We have also assessed the adequacy
of excess and obsolete provisions held against inventory
by understanding management’s future plans to utilize the
inventory.

· We have observed part of physical stock takes to verify

adherence to stock take procedures.

To the Annual General Meeting of Outokumpu Oyj

Report on the Audit of the
Financial Statements

Opinion
We have audited the financial statements of Outokumpu
Oyj (business identity code 0215254-2) for the year ended
31 December, 2016. The financial statements comprise
the consolidated balance sheet, income statement,
statement of comprehensive income, statement of
changes in equity, statement of cash flows and notes,
including a summary of significant accounting policies,
as well as the parent company’s balance sheet, income
statement, statement of cash flows and notes.

In our opinion
· the consolidated financial statements give a true and fair
view of the group’s financial performance and financial
position in accordance with International Financial
Reporting Standards (IFRS) as adopted by the EU

· the financial statements give a true and fair view of the
parent company’s financial performance and financial
position in accordance with the laws and regulations
governing the preparation of financial statements in
Finland and comply with statutory requirements.

Basis for Opinion
We conducted our audit in accordance with good auditing
practice in Finland. Our responsibilities under good
auditing practice are further described in the Auditor’s
Responsibilities for the Audit of the Financial Statements
section of our report.

We are independent of the parent company and of
the group companies in accordance with the ethical
requirements that are applicable in Finland and are
relevant to our audit, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.

Materiality
The scope of our audit was influenced by our application
of materiality. The materiality is determined based on
our professional judgement and is used to determine the
nature, timing and extent of our audit procedures and to
evaluate the effect of identified misstatements on the
financial statements as a whole. The level of materiality
we set is based on our assessment of the magnitude of
misstatements that, individually or in aggregate, could
reasonably be expected to have influence on the economic
decisions of the users of the financial statements. We have
also taken into account misstatements and/or possible
misstatements that in our opinion are material for qualitative
reasons for the users of the financial statements.

Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
financial statements of the current period. These matters
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.

We have also addressed the risk of management override of
internal controls. This includes consideration of whether there
was evidence of management bias that represented a risk of
material misstatement due to fraud.

Outokumpu Annual report 2016

Financial statements

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Valuation of Goodwill (EUR 467 million) – refer to Accounting principles
and Note 11 in the consolidated financial statements

Adequacy and valuation of provisions (EUR 133 million) – refer to Accounting
principles and Note 26 in the consolidated financial statements

Key audit matter

Our response

Key audit matter

Our response

· Goodwill amounts to 8% of the total assets and 19% of

the total equity.

· Irrespective of whether there is any indication of

impairment, goodwill acquired in a business combination
is required to be tested for impairment annually. An
impairment arises when the recoverable amount is less
than the carrying value of the investment.

· The recoverable amount for each cash generating

unit should be calculated based on value-in-use. The
recoverable amounts use discounted future cash flow
forecasts on which the management makes judgments
over the key assumptions such as growth in net sales,
profitability and discount rate. Due to the high level
of management judgment, historical losses and the
significant carrying amounts, this is one of the key areas
for our audit focus.

· We have tested the principles and integrity of the Group’s
discounted future cash flow models, and the accuracy of
the calculation derived from each forecast model. We
have also reviewed the assessment of key assumptions
in the calculations such as profitability level, discount rate
and long-term growth rate, with reference to the medium
term strategic plans and forecasts approved by the Board
and industry data.

· Our valuation specialists have considered the

appropriateness of the discount rate and the long term
growth rates compared to industry data.

· Provisions are a key area of focus for audits. All provisions

· We have discussed with management the rationale and

are subject to management estimate and judgment.

basis for any provision.

· Risks relate to the continuous and accurate validation and

· We have assessed the reasonableness and adequacy of

valuation of recorded and unrecorded liabilities.

material provisions. Where balances are subject to claims
we have made further enquiries and reviewed internal
legal counsel documentation.

Valuation of deferred tax assets (EUR 204 million) – refer to Accounting
principles and Note 9 in the consolidated financial statements

· We have considered the adequacy of the Group’s

Key audit matter

Our response

disclosures in respect of impairment testing, and whether
disclosures in relation to the sensitivity of the outcome
of the impairment assessment to changes in key
assumptions properly reflects the risks inherent in the
valuations.

· The Group has recognized deferred tax assets of EUR 204
million. We focused on this area because the deferred
tax assets primarily arise from historical losses and a key
judgement is whether there is convincing evidence of the
availability of sufficient future taxable profits against which
those losses can be utilized.

· We have considered whether the combination of the

group entities current profitability and the managements
projections provide convincing evidence that sufficient
taxable profits will be available to utilize unused tax
losses.

Valuation of Property, Plant and Equipment (EUR 2,874 million) – refer to
Accounting principles and Note 12 in the consolidated financial statements

Key audit matter

Our response

· Property, Plant and Equipment amount to 48% of the total

assets and 119% of the total equity.

· Due to the historical operative losses there is a risk that
the carrying value of the Property, Plant and Equipment
may not be recoverable, and that possible impairment
may not be accounted for or disclosed appropriately in the
financial statements.

· The recoverable amounts use discounted future cash flow
forecasts on which the management makes judgments
over the key assumptions. Due to the high level of
management judgment and the significant carrying
amounts, this is one of the key areas for our audit focus.

· We have assessed the Group’s method for determining
carrying value of Property, Plant and Equipment and
whether it appropriately reflected financial forecasts and
the past experience of the Group. The method is similar to
methods used for goodwill impairment tests.

· We have utilized our own valuation specialists when

assessing the inputs and methodology in determining the
discount rates, and judgmental areas that our audit is
concentrated on.

Interests in group companies in the parent company’s financial
statements (EUR 4,037 million) – refer to Accounting principles
of the parent company’s financial statements and Note 9

Key audit matter

Our response

· The recoverable amounts for interests in group companies
is tested as part of group impairment testing based on
the discounted cash flow model. Due to the high level
of judgment incorporated in respect of the future cash
flows and the significant carrying amounts involved,
this is considered one of the key areas that our audit is
concentrated on.

· Our valuation specialists have considered the

appropriateness of the discount rate and the long term
growth rates compared to industry data.

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Financial statements

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Responsibilities of the Board of
Directors and the President and
CEO for the Financial Statements
The Board of Directors and the President and CEO are
responsible for the preparation of consolidated financial
statements that give a true and fair view in accordance
with International Financial Reporting Standards (IFRS)
as adopted by the EU, and of financial statements that
give a true and fair view in accordance with the laws
and regulations governing the preparation of financial
statements in Finland and comply with statutory
requirements. The Board of Directors and the President
and CEO are also responsible for such internal control as
they determine is necessary to enable the preparation
of financial statements that are free from material
misstatement, whether due to fraud or error.

In preparing the financial statements, the Board of
Directors and President and CEO are responsible for
assessing the parent company’s and the group’s ability
to continue as going concern, disclosing, as applicable,
matters relating to going concern and using the going
concern basis of accounting. The financial statements
are prepared using the going concern basis of accounting
unless there is an intention to liquidate the parent
company or the group or cease operations, or there is no
realistic alternative but to do so.

Auditor’s Responsibilities for the
Audit of the Financial Statements
Our objectives are to obtain reasonable assurance on
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance
with good auditing practice will always detect a material
misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if,
individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users
taken on the basis of the financial statements.

As part of an audit in accordance with good auditing
practice, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
· Identify and assess the risks of material misstatement

of the financial statements, whether due to fraud
or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or
the override of internal control.

· Obtain an understanding of internal control relevant
to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of
the parent company’s or the group’s internal control.
· Evaluate the appropriateness of accounting policies

used and the reasonableness of accounting estimates
and related disclosures made by management.
· Conclude on the appropriateness of the Board of

Directors’ and the President and CEO’s use of the going
concern basis of accounting and based on the audit
evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast
significant doubt on the parent company’s or the group’s
ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related
disclosures in the financial statements or, if such
disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained
up to the date of our auditor’s report. However, future
events or conditions may cause the parent company or
the group to cease to continue as a going concern.

· Evaluate the overall presentation, structure and content
of the financial statements, including the disclosures,
and whether the financial statements represent the
underlying transactions and events so that the financial
statements give a true and fair view.

· Obtain sufficient appropriate audit evidence regarding

the financial information of the entities or business
activities within the group to express an opinion on the
consolidated financial statements. We are responsible for
the direction, supervision and performance of the group
audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance
regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including
any significant deficiencies in internal control that we
identify during our audit.

We also provide those charged with governance with a
statement that we have complied with relevant ethical
requirements regarding independence, and communicate
with them all relationships and other matters that may
reasonably be thought to bear on our independence, and
where applicable, related safeguards.

From the matters communicated with those charged with
governance, we determine those matters that were of
most significance in the audit of the financial statements
of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about
the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in
our report because the adverse consequences of doing
so would reasonably be expected to outweigh the public
interest benefits of such communication.

Other Reporting Requirements

Other Information
The Board of Directors and the President and CEO are
responsible for the other information. The other information
comprises information included in the report of the Board
of Directors and in the Annual Report, but does not include
the financial statements and our auditor’s report thereon.
We obtained the report of the Board of Directors prior to
the date of this auditor’s report, and the Annual Report is
expected to be made available to us after that date.

Our opinion on the financial statements does not cover
the other information.

In connection with our audit of the financial statements,
our responsibility is to read the other information
identified above and, in doing so, consider whether the
other information is materially inconsistent with the
financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated.
With respect to the report of the Board of Directors,
our responsibility also includes considering whether the
report of the Board of Directors has been prepared in
accordance with the applicable laws and regulations.

In our opinion, the information in the report of the
Board of Directors is consistent with the information in
the financial statements and the report of the Board
of Directors has been prepared in accordance with the
applicable laws and regulations.

If, based on the work we have performed on the report
of the Board of Directors, we conclude that there is a
material misstatement of this other information, we are
required to report that fact. We have nothing to report in
this regard.

Other opinions
We support the adoption of the financial statements. The
proposal by the Board of Directors regarding the treatment
of distributable funds is in compliance with the Limited
Liability Companies Act. We support that the Board of
Directors of the parent company and the President and
CEO be discharged from liability for the financial period
audited by us.

Helsinki 2 February, 2017

KPMG OY AB

Virpi Halonen
Authorised Public Accountant, KHT

Outokumpu Annual report 2016

Financial statements

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Consolidated financial statements, IFRS

Consolidated statement of income

Consolidated statement of comprehensive income

€ million

Sales

Cost of sales

Gross margin

Other operating income

Selling and marketing expenses

Administrative expenses

Research and development expenses

Other operating expenses

EBIT

Share of results in associated companies and joint ventures

Financial income and expenses

Interest income

Interest expenses

Market price gains and losses

Other financial income

Other financial expenses

Total financial income and expenses

Result before taxes

Income taxes

Net result for the financial year

Attributable to

Equity holders of the Company

Non-controlling interests

Note

2016

2015

€ million

5,690

6,384

Net result for the financial year

-5,298

-6,273

Other comprehensive income

392

-90

-221

-20

-46

103

-105

-6

-18

-121

-13

156

144

111

Items that may be reclassified subsequently to profit or loss:

472

-107

-212

-23

-13

Exchange differences on translating foreign operations

Change in exchange differences

Reclassification adjustments from other comprehensive income to profit or loss

Available-for-sale financial assets

Fair value changes during the financial year

228

Reclassification adjustments from other comprehensive income to profit or loss

Cash flow hedges

Fair value changes during the financial year

Income tax relating to cash flow hedges

-130

-29

-149

Items that will not be reclassified to profit or loss:

Remeasurements of defined benefit plans

Changes during the financial year

Income tax relating to remeasurements

127

Share of other comprehensive income in associated companies and joint ventures

-41

-9

Other comprehensive income for the financial year, net of tax

Total comprehensive income for the financial year

Attributable to

Equity holders of the Company

Non-controlling interests

Note

2016

2015

144

-3

-2

-5

-63

-53

-17

-1

-7

-1

142

150

-8

Earnings per share for result attributable to the equity holders of the Company
(basic and diluted), €

0.35

0.23

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Financial statements

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Consolidated statement of financial position

€ million

ASSETS

Non-current assets

Intangible assets

Property, plant and equipment

Investments in associated companies and joint ventures

Available-for-sale financial assets

Investments at fair value through profit or loss

Deferred tax assets

Defined benefit plan assets

Trade and other receivables

Current assets

Inventories

Investments at fair value through profit or loss

Derivative financial instruments

Trade and other receivables

Cash and cash equivalents

Assets held for sale

TOTAL ASSETS

Note

2016

2015

€ million

Note

2016

2015

EQUITY AND LIABILITIES

Equity attributable to the equity holders of the Company

504

2,874

204

498

3,005

Share capital

Premium fund

Invested unrestricted equity reserve

Other reserves

Retained earnings

Total equity

3,750

3,698

Non-current liabilities

Non-current debt

Derivative financial instruments

1,232

1,251

Deferred tax liabilities

687

204

686

186

2,173

2,177

Defined benefit and other long-term employee benefit obligations

Provisions

Trade and other payables

Current debt

Current liabilities

5,990

5,874

Provisions

Derivative financial instruments

Current tax liabilities

Trade and other payables

Liabilities directly attributable to assets held for sale

TOTAL EQUITY AND LIABILITIES

311

714

2,103

-716

311

714

2,103

-810

2,416

2,329

987

356

118

1,249

369

113

1,525

1,805

458

1,459

2,007

547

1,089

1,741

5,990

5,874

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Financial statements

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Consolidated statement of cash flows

€ million

Note

2016

2015

€ million

Note

2016

2015

Cash flow from operating activities

Net result for the financial year

Adjustments for

Taxes

Depreciation and amortization

Impairments

Share of results in associated companies and joint ventures

Gain/loss on sale of intangible assets and property, plant and equipment

Gain/loss on sale of financial assets

Gain/loss on disposal of subsidiaries

Interest income

Interest expense

Exchange rate differences

Other non-cash adjustments

Change in working capital

Change in trade and other receivables

Change in inventories

Change in trade and other payables

Provisions, and defined benefit and other long-term employee benefit obligations paid

Interest received

Interest paid

Income taxes paid

Net cash from operating activities

11, 12

-156

226

-5

-2

-5

-34

-2

-4

134

-17

285

307

-94

-9

389

302

-49

-19

-0

-409

-3

120

-8

-74

-96

121

318

-216

223

-130

-111

-11

-34

Cash flow from investing activities

Acquired businesses, net of cash

144

Investments in associated companies and joint ventures

Purchases of available-for-sale financial assets

Purchases of property, plant and equipment

Purchases of intangible assets

Proceeds from the disposal of subsidiaries, net of cash and tax

Proceeds from sale of property, plant and equipment

Proceeds from sale of intangible assets

Other investing cash flow

Net cash from investing activities

Cash flow before financing activities

Cash flow from financing activities

Capital contribution by the non-controlling interest holder

Treasury share purchase

Borrowings of non-current debt

Repayments of non-current debt

Change in current debt

Repayments of finance lease liabilities

Other financing cash flow

-9

-14

-116

-25

-81

308

-7

369

-656

-13

-28

-7

-15

-120

-10

375

-8

239

205

316

-612

-37

Net cash from financing activities

-291

-213

Net change in cash and cash equivalents

Cash and cash equivalents at the beginning of the financial year

Foreign exchange rate effect on cash and cash equivalents

Net change in cash and cash equivalents

Cash and cash equivalents at the end of the financial year

186

204

-8

191

-8

186

Outokumpu Annual report 2016

Financial statements

Consolidated statement of changes in equity

€ million

Equity on Jan 1, 2015

Net result for the financial year

Other comprehensive income

Total comprehensive income for the financial year

Transactions with equity holders of the Company

Contributions and distributions

Convertible bond

Capital contribution by the non-controlling interest holder

Share-based payments

Changes in ownership interests

Disposal of non-controlling interest

Equity on Dec 31, 2015

Net result for the financial year

Other comprehensive income

Total comprehensive income for the financial year

Transactions with equity holders of the Company

Contributions and distributions

Share-based payments

Treasury share purchase

Other

Equity on Dec 31, 2016

Note

Share
capital

311

Premium
fund

Invested
unrestricted
equity reserve

714

2,103

311

714

2,103

311

714

2,103

Other
reserves

Fair value
reserves

Cumulative
translation
differences

Remeasurements
of defined
benefit plans

Treasury
shares

Other
retained
earnings

Attributable to the
equity holders of
the Company

Non-
controlling
interests

-23

-846

-2

-4

-49

-5

-89

-4

-92

-43

-135

-21

-7

-19

-1

-0

-704

144

-7

2,132

150

2,329

144

-53

-7

-9

-8

-32

-564

2,416

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Total
equity

2,132

142

-32

2,329

144

-53

-7

2,416

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Financial statements

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Notes to the consolidated financial statements

1. Corporate information

Outokumpu Oyj is a Finnish public limited liability company organized
under the laws of Finland and domiciled in Espoo, Finland. The parent
company, Outokumpu Oyj, has been listed on the Nasdaq Helsinki since
1988. A copy of the consolidated financial statements is available at the
Group’s website www.outokumpu.com
, from Outokumpu Oyj/Corporate
Communications, P.O. Box 245, 00181 Helsinki, Finland or via e-mail at
corporate.comms@outokumpu.com

Outokumpu is the global leader in stainless steel and creates advanced
materials that are efficient, long lasting and recyclable – helping to build a
world that lasts forever. Stainless steel is an ideal material to create lasting
solutions in demanding applications from cutlery to bridges, energy to
medical equipment. Stainless steel is 100% recyclable, corrosion-resistant,
maintenance-free, durable and hygienic. Outokumpu employs some 10 000
professionals in more than 30 countries.

In its meeting on February 2, 2017 the Board of Directors of Outokumpu Oyj
approved the publishing of these consolidated financial statements. According
to the Finnish Limited Liability Companies Act, shareholders have the right to
approve or reject the financial statements in the Annual General Meeting held
after the publication of the financial statements. The Annual General Meeting
also has the right to make a decision to amend the financial statements.

2. Accounting principles for the
consolidated financial statements
Basis of preparation

The consolidated financial statements of Outokumpu have been prepared in
accordance with International Financial Reporting Standards (IFRSs) as adopted
by the European Union. The consolidated financial statements have been
prepared in compliance with the IAS and IFRS standards as well as the SIC and
IFRIC interpretations in force on December 31, 2016. The consolidated financial
statements also comply with the regulations of Finnish accounting and company
legislation complementing the IFRSs.

The consolidated financial statements are presented in millions of euros and
have been prepared under the historical cost convention, unless otherwise
stated in the accounting principles. All figures presented have been rounded,
and consequently the sum of individual figures may deviate from the presented
aggregate figure. Key figures have been calculated using exact figures.

The consolidated financial statements of Outokumpu for 2016 have been
prepared on a going concern basis.

As from January 1, 2016 Outokumpu has applied the following amended
standards.

· Annual Improvements to IFRSs (2012–2014 Cycle): Amendment to IAS
34 Interim financial reporting that impacted the disclosure of information in
Outokumpu’s interim reports.

· Amendment to IAS 1 Presentation of Financial Statements: Disclosure
Initiative. The amendments clarify for example the guidance in relation to
applying the materiality concept in regard with the consolidated financial
statements. The amendments had a minor impact on presentation in
Outokumpu’s consolidated financial statements.

Other new or amended standards and interpretations had no impact on
Outokumpu’s consolidated financial statements.

Adoption of new and amended IFRS
standards and interpretations

Outokumpu has not yet applied the following new and amended standards and
interpretations already issued. The Group will adopt them as of the effective
date or, if the date is other than the first day of the financial year, from the
beginning of the subsequent financial year (* = not yet endorsed by the
European Union as at December 31, 2016).

· IFRS 15 Revenue from Contracts with Customers (effective for financial
years beginning on or after January 1, 2018) and Amendments to IFRS 15
– Clarifications to IFRS 15 Revenue from Contracts with Customers*
(effective for financial years beginning on or after January 1, 2018): IFRS 15
introduces a five-step model to determine when to recognize revenue and
at what amount. Revenue is recognized when a company transfers control
of goods to a customer either over time or at a point in time. The standard
also introduces new disclosure requirements. Outokumpu plans to adopt
IFRS 15 as of January 1, 2018, using the retrospective approach. Outokumpu
has assessed its current accounting policies and based on the assessment
expects that the adoption will have no material impact on the quantitative
information or on the presentation in the consolidated financial statements.

· IFRS 9 Financial Instruments (effective for financial years beginning on
or after January 1, 2018): IFRS 9 replaces the existing guidance in IAS 39
Financial Instruments: Recognition and Measurement. IFRS 9 includes revised
guidance on the classification and measurement of financial instruments,
including a new expected credit loss model for calculating impairment on
financial assets, and the new general hedge accounting requirements. It also
carries forward the guidance on recognition and derecognition of financial
instruments from IAS 39. The new standard’s impact will be dependent on the
financial instruments that the Group holds and economic conditions at that
time. Based on the current assessment, the new standard would impact the
measurement of Group’s available-for-sale financial assets and application of
hedge accounting.

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Financial statements

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· IFRS 16 Leases* (effective for financial years beginning on or after January

1, 2019): The new standard replaces the current IAS 17 standard and
related interpretations. IFRS 16 requires the lessees to recognise the lease
agreements as right-of-use assets and lease liabilities in the statement of
financial position. The accounting model is similar to current finance lease
accounting according to IAS 17. The exceptions available relate to short-term
contacts in which the lease term is 12 months or less and to low value items.
The standard will increase Outokumpu’s non-current assets and non-current
and current debt.

· Amendments to IAS 7 Statement of Cash Flows Disclosure Initiative*
(effective for financial years beginning on or after January 1, 2017). The
changes were made to enable users of financial statements to evaluate
changes in liabilities arising from financing activities, including both changes
arising from cash flow and non-cash changes. The amendments will have an
impact on the disclosures in Outokumpu’s consolidated financial statements.

· Amendments to IAS 12 Income Taxes – Recognition of Deferred Tax
Assets for Unrealised Losses* (effective for financial years beginning on
or after January 1, 2017). The amendments clarify that the existence of
a deductible temporary difference depends solely on a comparison of the
carrying amount of an asset and its tax base at the end of the reporting
period, and is not affected by possible future changes in the carrying
amount or expected manner of recovery of the asset. The amendments
are not assessed to have an impact on Outokumpu’s consolidated financial
statements.

· Amendments to IFRS 2 Share-based payments – Clarification and
Measurement of Share-based Payment Transactions* (effective for
financial years beginning on or after January 1, 2018). The amendments
clarify the accounting for certain types of arrangements. Three accounting
areas are covered: measurement of cash-settled share-based payments;
classification of share-based payments settled net of tax withholdings;
and accounting for a modification of a share-based payment from cash-
settled to equity-settled. The Group is currently assessing the impacts of the
amendments.

Other new or amended standards and interpretations are not expected to have
an impact on Outokumpu’s consolidated financial statements when adopted.

Management judgements
and use of estimates

The preparation of the financial statements in accordance with IFRSs requires
management to make judgements and make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and contingent liabilities at the reporting date, as well as the
reported amounts of income and expenses during the reporting period. The

management estimates and judgements are continuously monitored and they
are based on prior experience and other factors, such as future expectations
assumed to be reasonable considering the circumstances. Although these
estimates are based on management’s best knowledge of the circumstances
at the end of the reporting period, actual results may differ from the estimates
and assumptions. Management believes that the following accounting principles
represent those matters requiring the exercise of judgement where a different
opinion could result in significant changes to reported results.

Inventories
Inventories are stated at the lower of cost and net realizable value (NRV). Net
realizable value is the estimated selling price in the ordinary course of business,
less the estimated costs of completion and the estimated costs necessary
to make the sale. The most important commodity price risk for Outokumpu is
caused by fluctuation in nickel and other alloy prices. The majority of stainless
steel sales contracts include an alloy surcharge clause, with the aim of reducing
the risk arising from the time difference between raw material purchase and
product delivery. However, the risk is significant because the delivery cycle in
production is longer than the alloy surcharge mechanism provides for. Thus,
only the price for the products to be sold in near future is known. That is why
a significant part of the future price for each product to be sold is estimated
according to management’s best knowledge in NRV calculations. Due to
fluctuations in nickel and other alloy prices, the realized prices can deviate
significantly from what has been used in NRV calculations on the closing date.
See note 21.

Property, plant and equipment and
intangible assets and impairments
Management estimates relate to carrying amounts and useful lives of assets
as well as other underlying assumptions. Different assumptions and assigned
lives could have a significant impact on the reported amounts. Management
estimates in relation to goodwill relate to the estimation of the value in use of
the cash-generating units to which goodwill has been allocated. The value in use
calculation requires management to estimate the future cash flows expected
to arise from the cash-generating units and a suitable discount rate in order to
calculate present value. The future projections of cash flows include, among
other estimates, projections of future prices and delivery volumes, production
costs and maintenance capital expenditures.

Carrying amounts of non-current assets are regularly reviewed to determine
whether there is any evidence of impairment as described in these accounting
principles. Preparation of the estimated future cash flows and determining
the discount rates for the impairment testing requires management to make
assumptions relating to future expectations (e.g., future product pricing,
production levels, production costs, market supply and demand, projected

maintenance capital expenditure and weighted average cost of capital). A pre-
tax discount rate used for the net present value calculation of projected cash
flows reflects the weighted average cost of capital. The key assumptions used
in the impairment testing, including sensitivity analysis, are explained further in
note 11 and 12.

Income taxes
Group operates and earns income in numerous countries and is subject to
changing tax laws in multiple jurisdictions within the countries. Significant
judgements are necessary in determining the worldwide income tax liabilities
of the Group. Although management believes they have made reasonable
estimates about the resolution of tax uncertainties, the final outcome of these
uncertainties could have an effect on the income tax liabilities and deferred tax
liabilities in the period.

At the end of reporting period, the management assesses whether the
realization of future tax benefits is sufficiently probable to recognize deferred
tax assets. This assessment requires judgement with respect to, among other
things, benefits that could be realized from future taxable income, available tax
strategies, as well as other positive and negative factors. The recorded amount
of deferred tax assets could be reduced if estimates of taxable income and
benefits from available tax strategies are lowered, or if current tax regulations
are enacted that impose restrictions on the Group’s ability to utilize future tax
benefits. See note 9.

Fair values of derivatives and other
financial instruments
The fair value of financial instruments which cannot be determined based on
quoted market prices and rates are based on different valuation techniques.
The Group uses its judgement to select a variety of methods and make
assumptions that are mainly based on market conditions existing at the end
of each reporting period. Factors regarding valuation techniques and their
assumptions could affect the reported fair values.

The Group has used discounted cash flow analysis for various derivative
contracts and in case of options Black-Scholes-Merton model has been applied.
See note 15.

Employee benefits
The present value of pension obligations is subject to actuarial assumptions
which actuaries use in calculating these obligations. Actuarial assumptions
include, among others, discount rate, the annual rate of increase in future
compensation levels and inflation rate. The assumptions used are presented in
note 25.

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Provisions
The most significant provisions in the statement of financial position relate to
restructuring programs and primarily include termination benefits to employees.
The judgement applied mainly relates to the estimated amounts of termination
benefits.

The Group has also made provisions for known environmental liabilities based
on management’s best estimate of the remediation costs. The precise amount
and timing of these costs could differ significantly from the estimate. See note
26.

Principles of consolidation

Subsidiaries
The consolidated financial statements include the parent company Outokumpu
Oyj and all those subsidiaries where over 50% of the subsidiary’s voting rights
are controlled directly or indirectly by the parent company, or the parent
company is otherwise in control of the company at the end of the reporting
period. The Group controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity. The financial statements of
subsidiaries are included in the consolidated financial statements from the date
on which control commences until the date on which control ceases.

Acquired or established subsidiaries are accounted for by using the acquisition
method. The consideration transferred and the identifiable assets acquired
and liabilities assumed in the acquired company are measured at fair value
at the acquisition date. The consideration transferred includes any assets
transferred by the acquirer, liabilities incurred by the acquirer to former
owners of the acquiree and the equity interests issued by the acquirer. Any
contingent consideration related to the business combination is measured at
fair value at the acquisition date and it is classified as either liability or equity.
Contingent consideration classified as liability is remeasured at its fair value
at the end of each reporting period and the subsequent changes to fair value
are recognized in profit or loss. Contingent consideration classified as equity is
not subsequently remeasured. The consideration transferred does not include
any transactions accounted for separately from the acquisition. All acquisition-
related costs, with the exception of costs to issue debt or equity securities, are
recognized as expenses in the periods in which costs are incurred and services
rendered.

Goodwill arising on an acquisition is recognized as the excess of the aggregate
of the consideration transferred and the amount of any non-controlling interests
or previously held equity interests in the acquiree, over the Group’s share of
the fair value of the identifiable assets acquired and liabilities assumed at

the acquisition date. Non-controlling interest in the acquiree is measured
acquisition-by-acquisition either at fair value or at value, which equals to the
proportional share of the non-controlling interest in the identifiable net assets
acquired. Changes in the parent company’s ownership interest in a subsidiary
are accounted for as equity transactions if the parent company retains control
of the subsidiary.

To those business combinations, which have taken place before January 1,
2010 accounting principles effective at that time have been applied.

All intra-group transactions, receivables, liabilities and unrealized margins, as
well as distribution of profits within the Group, are eliminated in the preparation
of consolidated financial statements. The result for the period and items
recognized in other comprehensive income are allocated to the equity holders
of the company and non-controlling interests and presented in the statement
of income and statement of other comprehensive income. Non-controlling
interests are presented separately from the equity allocated to the equity
holders of the company. Comprehensive income is allocated to the equity
holders of the company and to non-controlling interests even in situations where
the allocation would result in the non-controlling interests’ share being negative,
unless non-controlling interests have an exemption not to meet obligations
which exceed non-controlling interests’ investment in the company.

Associated companies and joint ventures
Companies, where Outokumpu generally holds voting rights of 20–50% and
in which Outokumpu otherwise has significant influence, but not control are
included in the consolidated financial statements as associated companies.
Associated companies are consolidated by using the equity method from the
date that significant influence was obtained until it ceases.

The Group’s share of the associated company’s result for the period is
separately disclosed below EBIT in the consolidated statement of income.
Outokumpu’s share of changes recognized in the associated company’s other
comprehensive income is recognized in the Group’s other comprehensive
income. When Outokumpu’s share of the associated company’s losses exceeds
the carrying amount of the investment, the investment is recognized at zero
value in the statement of financial position and recognition of further losses
is discontinued, except to the extent that the Group has incurred obligations
in respect of the associated company. The interest in an associated company
comprises the carrying amount of the investment under the equity method
together with any long-term interest that, in substance, forms a part of the net
investment in the associated company.

Joint ventures in which Outokumpu has contractually based joint control with a
third party are also accounted for by using the equity method described above.

Non-current assets held for sale

Non-current assets or disposal groups are classified as held for sale if their
carrying amounts are expected to be recovered primarily through sale rather
than through continuing use. Classification as held for sale requires that the
following criteria are met: the sale is highly probable, the asset or disposal
group is available for immediate sale in its present condition subject to usual
and customary terms, the management is committed to the sale and the sale is
expected to be completed within one year from the date of classification.

Prior to classification as held for sale, the assets or assets and liabilities related
to a disposal group in question are measured according to the respective
IFRS standards. From the date of classification, non-current assets or a
disposal group held for sale are measured at the lower of the carrying amount
and the fair value less costs to sell, and the recognition of depreciation and
amortization is discontinued.

Assets included in disposal groups but not in the scope of the measurement
requirements of IFRS 5, as well as liabilities, are measured according to the
related IFRS standards also after the date of classification.

Segment reporting

An operating segment is a component of the Group that engages in business
activities from which it may earn revenues and incur expenses, and for which
discrete financial information is available. Outokumpu has three reportable
operating segments which represent the strategic business areas of the Group.

The operating segments are responsible for sales, profitability, production and
supply chain management. They are managed separately and are reported
separately in internal management reporting to CEO who is Outokumpu’s chief
operating decision maker. Outokumpu’s segment information is based on
the internal management reporting which is prepared according to the IFRS
accounting principles.

Pricing of intersegment transactions is based on arm’s length prices. EBIT of the
operating segments is reported to the CEO regularly in order for him to review
their performance and make decisions about resources to be allocated to the
segments. EBIT is defined correspondingly in management reporting as in these
accounting principles.

Other operations mainly consist of such business development and Corporate
Management expenses that are not allocated to the businesses.

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Foreign currency transactions

Transactions of each subsidiary included in the consolidated financial
statements are measured using the currency that best reflects the economic
substance of the underlying events and circumstances relevant to that
subsidiary (“the functional currency”). The consolidated financial statements
are presented in euros which is the functional and presentation currency of the
parent company. Group companies’ foreign currency transactions are translated
into local functional currencies using the exchange rates prevailing at the
dates of the transactions. Receivables and liabilities in foreign currencies are
translated into functional currencies at the exchange rates prevailing at the
end of the reporting period. Foreign exchange differences arising from interest-
bearing assets and liabilities and related derivatives are recognized in finance
income and expenses in the statement of income. Foreign exchange differences
arising in respect of other financial instruments are included in EBIT under
sales, purchases or other operating income and expenses. The effective portion
of exchange differences arisen from instruments designated as hedges of the
net investments in foreign operations is recognized in other comprehensive
income.

For those subsidiaries whose functional and presentation currency is not
the euro, the income and expenses for the statements of income and
comprehensive income, and the items for statement of cash flows, are
translated into euro using the average exchange rates of the reporting period.
The assets and liabilities for the statement of financial position are translated
using the exchange rates prevailing at the reporting date. The translation
differences arising from the use of different exchange rates explained above are
recognized in Group’s other comprehensive income. Any goodwill arising on the
acquisition of foreign operations and any fair value adjustments to the carrying
amounts of assets and liabilities arising on the acquisition of those foreign
operations are treated as assets and liabilities of those foreign operations. They
are translated into euro using the exchange rates prevailing at the reporting
date. When a foreign operation is sold, or is otherwise partially or completely
disposed of, the translation differences accumulated in equity are reclassified in
profit or loss as part of the gain or loss on the sale.

Revenue recognition

Revenue from the sale of goods is recognized after the significant risks and
rewards of ownership have been transferred to the buyer, and the Group retains
neither a continuing managerial involvement to the degree usually associated
with ownership, nor effective control of those goods. Usually this means that
revenue is recognized upon delivery of goods to customers in accordance with
agreed terms of delivery.

Outokumpu ships stainless steel products to customers under a variety of
delivery terms. The used terms are based on Incoterms collection of delivery
terms, published and defined by the International Chamber of Commerce Terms
of Trade.

The most common delivery terms used by Outokumpu are “C” terms, whereby
the Group arranges and pays for the carriage and certain other costs. The
Group ceases to be responsible for the goods and revenue is recognized once
the goods have been handed over to the carrier to be delivered to the agreed
destination.

Less frequently used are “D” terms, under which the Group is obliged to deliver
the goods to the buyer at the agreed destination, in which case revenue is
recognized when the goods are delivered to the buyer. Also “F” terms are less
frequently used, under which the buyer arranges and pays for the carriage, and
revenue is recognized when the goods are handed over to the carrier contracted
by the buyer.

Income taxes

Current and deferred income taxes are determined in accordance with IAS
12 Income Taxes on entity level to the extent an entity is subject to income
taxation. The Group’s income tax in the statement of income includes current
income taxes of the Group companies based on taxable profit for the period,
together with tax adjustments for previous periods and the change in deferred
income taxes. In several countries (Germany, the UK, Italy, the Netherlands,
Sweden and the USA) Outokumpu companies are included in income tax
consolidation groups / group taxation systems. The share of results in
associated companies is reported in the statement of income based on the net
result and thus including the income tax effect.

Deferred income taxes are stated using the balance sheet liability method
to reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities in the financial statements and the
corresponding tax basis at the reporting date, as well as for unused tax losses
or credits carry forward. Deferred tax assets are recognized for all deductible
temporary differences to the extent that it is probable that future taxable
profits will be available, against which deductible temporary differences can be
utilized. A valuation allowance is recognized against a deferred tax asset if the
realization of the related tax benefit is not probable. The ability to recognize
deferred tax assets is reviewed at the end of each reporting period. Deferred
tax liabilities are usually recognized in the statement of financial position in full
except to the extent that the deferred taxes arise from the initial recognition of
an asset or liability in a transaction which is not a business combination and at
the time of the transaction, affects neither accounting profit nor taxable profit.

Deferred taxes are calculated at the enacted or substantially enacted tax
rates that are expected to apply by the end of the reporting period. Generally,
deferred tax is recognized to the statement of income, except if the taxes are
related to items of other comprehensive income or to transactions or other
events recognized directly in equity, in which case the related income taxes
are also recognized either in other comprehensive income or directly in equity,
respectively.

Research and development costs

Research costs are expensed in the reporting period in which they are incurred.
Development costs are capitalized when it is probable that the development
project will generate future economic benefits for the Group, and certain criteria
related to commercial and technological feasibility are met. These costs relate
to the development of new or substantially improved products or production
processes and to transformation projects with the target of developing and
improving business processes. Capitalized development costs mainly comprise
materials and supplies and direct labour costs as well as related overhead
costs. Development costs recognized as expenses are not subsequently
capitalized.

Subsequent to initial recognition, capitalized development costs are measured
at cost less accumulated amortization and impairment losses. Capitalized
development costs are amortized on a straight-line basis over their estimated
useful lives which is generally five years. Recognition of amortization is
commenced as the asset is ready for use. The accounting treatment of
the government grants received for research and development activities is
described below under Government grants.

Goodwill and other intangible assets

Goodwill arising on a business combination is recognized at the acquisition
date at an amount representing the excess of the consideration transferred
in an acquisition over the fair value of the identifiable assets acquired,
liabilities assumed and any non-controlling interest and any previously held
equity interests in the acquiree, if any. Goodwill is not amortized, but tested
for impairment. In respect of associated companies, goodwill is included in
the carrying amount of the investment. Goodwill is measured at cost less
accumulated impairment losses.

Intangible assets other than goodwill include capitalized development costs,
patents, licenses and software. An intangible asset is recognized only if it is
probable that the future economic benefits attributable to the asset will flow
to the Group and the cost of the asset can be measured reliably. All other
expenditure is expensed as incurred. Intangible assets are recognized initially

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at cost. After initial recognition, assets are measured at cost less amortizations
and accumulated impairment losses if the intangible asset has a finite useful
life. Cost comprises the purchase price and all costs directly attributable to
bringing the asset ready for its intended use. Intangible assets acquired in a
business combination are measured at fair value at the acquisition date.

Intangible assets are amortized on a straight-line basis over their expected
useful lives. Assets tied to a certain fixed period are amortized over the contract
term. Amortization periods used for intangible assets are the following:
up to 10 years
· Software
· Capitalized development costs up to 10 years
up to 20 years
· Intangible rights

Recognition of amortization is discontinued when the intangible asset is
classified as held for sale. The estimated useful lives and residual values are
reviewed at least at the end of each financial year. If they differ substantially
from previous estimates, the useful lives are adjusted accordingly.

Gains and losses on disposal of intangible assets are included in other
operating income and expenses.

Emission allowances

Emission allowances are intangible assets measured at cost. Allowances
received free of charge are recognized at nominal value, i.e. at zero carrying
amount. A provision to cover the obligation to return emission allowances
is recognized at fair value at the end of the reporting period if the emission
allowances held by the Group do not cover the actual emissions. The purchased
emission allowance quotas recognized in intangible rights are derecognized
against the actual emissions or, when the emission allowances are sold. The
obligation to deliver allowances equal to emissions is recognized under other
operating expenses. Gains from the sale of allowances are recognized as other
operating income in the statement of income.

Property, plant and equipment

Property, plant and equipment acquired by the Group companies are measured
at cost. The cost includes all expenditure directly attributable to the acquisition
of the asset. Government grants received are deducted from the cost. Property,
plant and equipment acquired in business combinations are measured at
fair value at the acquisition date. Borrowing costs (mainly interest costs)
directly attributable to the acquisition or construction of a qualifying asset are
capitalized in the statement of financial position as part of the carrying amount
of the asset. Qualifying asset is an asset that necessarily takes a substantial
period of time to get ready for its intended use or sale. Other borrowing costs

are recognized as expenses in the period in which they are incurred. Property,
plant and equipment are carried in the statement of financial position at cost
less accumulated depreciation and impairment losses.

Impairment of property, plant and
equipment and intangible assets

Property, plant and equipment are depreciated on a straight-line basis over their
expected useful lives. Depreciation is based on the following estimated useful
lives:
· Buildings
· Heavy machinery
· Light machinery and equipment

25–40 years
15–30 years
3–15 years

Land is not depreciated, except for leased land, as the useful life of land is
assumed to be indefinite. Mine properties are depreciated using the units-
of-production method based on the depletion of ore reserves over their
estimated useful lives. Recognition of depreciation on an item of property,
plant and equipment is discontinued when the item is classified as held for
sale. Expected useful lives and residual values are reviewed at least at the end
of each financial year and, if they differ significantly from previous estimates,
the useful lives are revised accordingly. Following the review of useful lives of
certain property, plant and equipment in 2015 their estimated useful lives were
lengthened from October 1, 2015 onwards.

Ordinary repairs and maintenance costs are expensed during the reporting
period in which they are incurred. The cost of major renovations is included
in the asset’s carrying amount when it is probable that the Group will derive
future economic benefits in excess of the originally assessed standard of
performance of the existing asset and the cost can be reliably measured. Costs
arising on such major renovations are accounted for as capital expenditure and
depreciated on a straight-line basis over their estimated useful lives.

Gains and losses on sale and disposals of property, plant and equipment are
determined by the difference between the received net proceeds and the
carrying amount of the asset. Gains and losses on sale and disposals are
presented in other operating income or expenses, thus included in EBIT.

Government grants

Government or other grants are recognized as income on a systematic basis
over the periods necessary to match them with the related costs which they are
intended to compensate. Investment grants related to acquisitions of property,
plant and equipment and intangible assets are deducted from the cost of the
asset in question in the statement of financial position and recognized as
income on a systematic basis over the useful life of the asset in the form of
reduced depreciation expense.

Carrying amounts of non-current assets are regularly reviewed to determine
whether there is any evidence of impairment. If any such evidence of
impairment emerges, the asset’s recoverable amount is estimated. Goodwill
is tested at least annually, irrespective of whether there is any evidence of
impairment.

The recoverable amount of an asset is the higher of fair value less costs to
sell and value in use. For goodwill testing purposes the recoverable amount is
based on value in use which is determined by reference to discounted future
net cash flows expected to be generated by the asset. In Outokumpu, goodwill
is tested on operating segment level. The discount rate used is a pre-tax rate
that reflects the current market view on the time value of money and the asset-
specific risks. An impairment loss is the amount by which the carrying amount
of an asset exceeds its recoverable amount. An impairment loss is recognized
immediately in profit or loss. The estimated useful life of the asset that is
subject to depreciation or amortization is also reassessed when an impairment
loss is recognized.

A previously recognized impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable amount. However, the
reversal must not cause that the adjusted carrying amount is higher than the
carrying amount that would have been determined if no impairment loss had
been recognized in prior years. Impairment losses recognized for goodwill are
not reversed.

Leases

Group as a lessee
Lease agreements of property plant and equipment, in which the Group has
substantially all the rewards and risks of ownership, are classified as finance
leases. An asset acquired through finance lease is recognized as property, plant
and equipment in the statement of financial position, within a group determined
by the asset’s characteristics, at the commencement of the lease term at the
lower of fair value and the present value of minimum lease payments.

Respective lease liabilities less finance charges are included in debt. Each
lease payment is allocated between the finance charge and the reduction of
the outstanding liability. The finance charge is allocated to each period during
the lease term so as to produce a constant periodic rate of interest on the
remaining balance of the liability. Property, plant and equipment acquired under
finance lease contracts are depreciated over the shorter of the useful life of
the asset and the lease term. If a sale and leaseback transaction results in

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a finance lease, any excess of sales proceeds over the sold asset’s carrying
amount will not be immediately recognized but deferred and amortized over the
lease term.

At inception of significant other arrangements, the Group determines whether
these arrangements are, or contain a lease component. At inception of an
arrangement that contains a lease the Group separates payments and other
consideration required by the arrangement into those for the lease and those
for other elements. Lease accounting principles are applied to lease payments.

Leases of assets where the lessor retains substantially all the risks and
benefits of ownership are classified as operating leases. Payments made under
operating lease contracts are expensed on a straight-line basis over the lease
terms.

Group as a lessor
Leases of property, plant and equipment where the Group has substantially
transferred all the rewards and risks of ownership to the lessee are classified
as finance leases. Assets leased out through such contracts are recognized
as other receivables and measured at the lower of the fair value of the leased
asset and the present value of minimum lease payments. Interest income
from finance lease is recognized in the statement of income so as to achieve a
constant periodic rate of return on the net investment in the finance lease.

Rental income received from property, plant and equipment leased out by the
Group under operating leases is recognized on a straight-line basis over the
lease term.

Financial instruments

Financial assets
The Group’s financial assets are classified as financial assets at fair value
through profit or loss, loans and receivables and available-for-sale financial
assets. Outokumpu did not hold financial instruments classified as held-to-
maturity investments in the current or previous reporting period. Classification
is made upon initial recognition based on the purpose of use of the financial
asset.

If an item is not measured at fair value through profit or loss, significant
transaction costs are included in the initial carrying amount of the financial
asset. Financial assets are derecognized when the Group loses the rights
to receive the contractual cash flows on the financial asset or it transfers
substantially all the risks and rewards of ownership outside the Group.

At the end of the reporting period, the Group estimates whether there is
objective evidence on impairment of items other than financial assets
measured at fair value through profit or loss. A financial asset is assumed
to be impaired if there is objective evidence on impairment and the effect
on the estimated future cash flows generated by the financial assets can be
reliably measured. Objective evidence on impairment may be e.g. a significant
deterioration in the counterparty’s results, a contract breach by the debtor and,
in case of equity instruments (available-for-sale financial assets), a significant
or long-term decrease in the value of an instrument below its carrying amount.
In such situations, the fair value development of equity instruments is reviewed
for the past three quarters of the reporting period. The Group has determined
percentual limits for the review, the breach of which will result in the recognition
of an impairment loss. An impairment loss is recognized immediately in profit
or loss.

Financial assets at fair value through profit or loss

The category of financial assets at fair value through profit or loss includes
derivatives, to which hedge accounting is not applied, as well as other financial
items at fair value through profit or loss held for trading purposes. A financial
asset is classified in this category if it has been acquired with the main purpose
of selling the asset within a short period of time. In some cases also share
investments can be classified in this category.

These financial assets are recognized at the trade date at fair value and
subsequently remeasured at fair value at the end of each reporting period. The
fair value measurement is based on quoted rates and market prices as well as
on appropriate valuation methodologies and models. Realized and unrealized
gains and losses arising from changes in fair values are recognized in profit or
loss in the reporting period in which they are incurred.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or
determinable payments and are not quoted in active markets. Loans and
receivables arise when the Group gives out a loan or delivers goods or services
directly to a debtor.

Loans and receivables are recognized at the settlement date and measured
initially at fair value. After initial recognition, loans and receivables are
measured at amortized cost by using the effective interest rate method.

Outokumpu uses factoring for working capital management. Sold trade
receivables have been derecognized when the related risks and rewards of
ownership have been transferred in material respect.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets which are
either designated in this category or not classified in any other category of
financial assets. The purchases and sales of these items are recognized at the
trade date. Available-for-sale financial assets are included in non-current assets,
unless the Group has the intention to dispose of the investment within 12
months from the reporting date.

This category includes share investments, both in listed and unlisted
companies. Investments in shares are measured at fair value, or if fair value
cannot be reliably measured, at cost less any impairment losses. The fair
value measurement is based on quoted rates and market prices at the end of
the reporting period, as well as on appropriate valuation techniques, such as
recent transaction prices and cash flow discounting. These valuation techniques
maximize the use of observable market data where it is available and rely as
little as possible on entity-specific estimates made by Outokumpu. Fair value
changes of share instruments measured at fair value are recognized in other
comprehensive income and presented in equity within fair value reserve, net of
tax, until the shares in question are disposed of or impaired, in which case, the
accumulated changes in fair value are transferred from equity to be recognized
in profit or loss as reclassification adjustments.

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, deposits held at call with
banks and other highly liquid investments with original maturities of three
months or less. These are readily convertible to a known amount of cash and
the risk of changes in value is low. Bank overdrafts are included in current
liabilities in the statement of financial position.

Financial liabilities
The Group’s financial liabilities are classified as either financial liabilities at
fair value through profit or loss or other financial liabilities (financial liabilities
recognized at amortized cost). A financial liability (or part of the liability) is not
derecognized until the liability has ceased to exist, that is, when the obligation
identified in a contract has been fulfilled or cancelled or is no longer effective.

Financial liabilities at fair value through profit or loss

In Outokumpu Group, the category of financial liabilities at fair value through
profit or loss includes derivatives that do not meet the criteria of hedge
accounting. Realized and unrealized gains and losses arising from changes in
fair value of derivatives are recognized in profit or loss in the reporting period in
which they are incurred.

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Other financial liabilities

Financial liabilities recognized at amortized cost include the loans, bonds,
finance lease liabilities and trade and other payables. Loans and trade and
other payables are recognized at the settlement date and measured initially at
fair value. After initial recognition they are carried at amortized cost using the
effective interest rate method. Significant transaction costs are included in the
original carrying amount.

Significant costs related to revolving credit facilities are amortized over the
expected loan term.

Convertible bonds

The Group classifies convertible bonds as compound instruments. The
component parts of the bonds are classified separately as financial liabilities
and equity in accordance with the substance of the arrangement.

The liability component is recognized initially at fair value of a similar liability.
The equity component is recognized initially at the difference between the
fair value of the bond as a whole and the fair value of the liability component.
Transaction costs are allocated to the liability and equity components in
proportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component is measured at
amortized cost using the effective interest method. The equity component of
the bond is not remeasured to initial recognition except on conversion expiry.

Derivative instruments and hedge accounting

Derivatives

All the Group’s derivatives are initially recognized at fair value on the trade date,
on which the Group becomes a contractual counterparty, and are subsequently
measured at fair value. Gains and losses arising on fair value measurement are
accounted for depending on the purpose of use of the derivative contract. The
gains and losses arising from fair value changes of derivative contracts, to which
hedge accounting is applied and which are effective hedging instruments, are
presented congruent with the hedged item. Changes in fair value of derivative
contracts not qualifying for hedge accounting are recognized in EBIT in other
operating income and expenses. If a derivative is designated for financing
activities, the gain or loss effects arising from the instrument are recognized
within financial income and financial expenses.

Merton model. Fair values of certain derivatives are based on valuations of
external counterparties.

Hedge accounting

Hedge accounting refers to the method of accounting, which aims to assign
one or several hedging instruments so that their fair value or cash flows offset
completely or partly the changes in fair value or cash flows of the hedged
item. Outokumpu applies hedge accounting to certain foreign exchange and
commodity derivatives. Derivatives, to which hedge accounting is not applied,
have been acquired to reduce the profit or loss and/or cash flow effects of
operations or financing activities.

In the beginning of each hedging arrangement, the Group documents the
relationship between the hedging instrument and the hedged item, as well as
the objectives of risk management and strategy of the hedging arrangement.
Hedging instruments are subject to prospective and retrospective effectiveness
testing. Hedge effectiveness is the degree to which changes in the fair value
or cash flows of the hedged item that are attributable to a hedged risk are
offset by changes in the fair value or cash flows of the hedging instrument. The
hedging relationship is considered to be highly effective if the changes in fair
values or cash flows of the hedging instrument offset the cash flow changes
of the hedged item by 80–125%. Hedge accounting is discontinued when the
requirements of hedge accounting are no longer met.

Cash flow hedges

In cash flow hedging, the Group is hedging against changes in cash flows, which
result from the realization of a risk associated with a recognized asset or liability
or a highly probable forecast transaction. Fair value changes of derivatives
designated to hedge forecast cash flows are recognized in other comprehensive
income and presented within the fair value reserve in equity to the extent
that the hedge is effective. Such fair value changes accumulated in equity are
reclassified in profit or loss in the period in which the hedged cash flows affect
profit or loss. The fair value changes related to the ineffective portion of the
hedging instrument are recognized immediately in profit or loss.

fair value changes of qualifying financial instruments designated as hedges are
reported in equity. They will be reclassified to profit or loss as part of the gain
or loss on disposal if the corresponding foreign operation is sold or otherwise
disposed of, partly or in full.

Measurement of fair values
A number of the Group’s accounting policies and disclosures require the
measurement of fair values, for both financial and non-financial assets
and liabilities. Fair value hierarchy is based on the source of inputs used in
determining fair values. In level one, fair values are based on public quotations
for identical instruments. In level two, fair values are based on market rates
and prices, discounted future cash flows and, in respect of options, on
valuation models. For assets and liabilities in level three, there is no reliable
market source available and thus fair value measurement cannot be based on
observable market data. Therefore, the measurement methods are chosen so
that the information available for the measurement and the characteristics of
the measured objects can be adequately taken into account.

Inventories

Inventories are stated at the lower of cost and net realizable value. The cost of
raw material is determined by the weighted average method. The cost of self-
produced finished goods and work in progress comprises raw materials, direct
labour, other direct costs and related production and procurement overheads,
but excludes borrowing costs. Cost of purchased products includes all
purchasing costs including direct transportation, handling and other costs. Net
realizable value is the estimated selling price in the ordinary course of business,
less the estimated costs of completion and the estimated costs necessary to
make the sale. Spare parts are carried as inventory and their cost is recognized
in profit or loss as consumed. Major spare parts are recognized in property,
plant and equipment when they are expected to be used over more than one
financial year.

Treasury shares

Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as
fair value hedges are recorded in the statement of income, together with any
changes in the fair value of the hedged asset or liability that are attributable to
the hedged risk.

When the parent company or its subsidiaries purchase the company’s own
shares, the consideration paid, including any attributable transaction costs, net
of taxes, is deducted from the parent company’s equity as treasury shares until
the shares are cancelled. When such shares are subsequently sold or reissued,
any consideration received is recognized directly in equity.

The fair value measurement of derivatives is based on quoted market prices
and rates as well as on discounted cash flows at the end of the reporting
period. The fair value of currency, interest rate and metal options is determined
by utilising commonly applied option valuation models, such as Black-Scholes-

Net investment hedges

The Group has in earlier years hedged equities of the subsidiaries located
outside the euro area against changes in exchange rates with the aim to reduce
the effects of changes in exchange rates on the Group’s equity. Accumulated

Provisions and contingent liabilities

A provision is recognized when Outokumpu has a present legal or constructive
obligation as a result of a past event, and it is probable that an outflow of

Outokumpu Annual report 2016

Financial statements

25/64

economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. The Group’s provisions
mainly relate to restructuring plans, onerous contracts, environmental liabilities,
litigation and tax risks. The amount recognized as a provision corresponds
to the management’s best estimate of the costs required to fulfil an existing
obligation at the end of the reporting period. If part of the obligation may
potentially be compensated by a third party, the compensation is recognized
as a separate asset when it is virtually certain that the compensation will be
received. Non-current provisions are discounted to net present value at the end
of the reporting period using risk-free discount rates.

The cost of an item of property, plant and equipment also comprises the initial
estimate of costs of dismantling and removing the item and restoring the site
on which it is located at the end of the useful life of the item on a present value
basis. Such a liability may exist for decommissioning a plant, rehabilitating
environmental damage, landscaping or removing equipment. A provision
presenting the asset retirement obligation is recognized in the same amount
at the same date. Adjustments to the provision due to subsequent changes in
the estimated timing or amount of the outflow of resources, or in the change in
the discount rate are deducted from or added to the cost of the corresponding
asset in a symmetrical manner. The costs will be depreciated over the asset’s
remaining useful life.

Environmental provisions are based on the interpretation of the effective
environmental laws and regulations related to the Group at the end of the
reporting period. Such environmental expenditure, that arises from restoring
the conditions caused by prior operations are recognized as expenses in the
period in which they are incurred. A restructuring provision is recognized when a
detailed restructuring plan has been prepared and its implementation has been
started or the main parts of the plan have been communicated to those, who
are impacted by the plan. Restructuring provision mainly comprise employee
termination benefits.

A contingent liability is a possible obligation that arises from past events and
whose existence will be confirmed only by the occurrence of uncertain future
events not wholly within the control of the entity. Such present obligation that
probably does not require settlement of a payment obligation and the amount
of which cannot be reliably measured is also considered to be a contingent
liability. Contingent liabilities are disclosed in the notes to the financial
statements.

Employee benefits

EBIT

Post-employment and other long-
term employee benefits
Group companies in different countries have various post-employment benefit
plans in accordance with local conditions and practices. The plans are
classified as either defined contribution plans or defined benefit plans.

The fixed contributions to defined contribution plans are recognized as
expenses in the period to which they relate. The Group has no legal or
constructive obligation to pay further contributions if the receiving party is not
able to pay the benefits in question. All such arrangements that do not meet
these requirements are defined benefit plans.

Defined benefit plans are funded with payments to the pension funds or
insurance companies. The present value of the defined benefit obligations is
determined separately for each plan by using the projected unit credit method.
The plan assets are measured at fair value at the end of the reporting period.
The liability recognized in the statement of financial position is the defined
benefit obligation at the closing date less the fair value of plan assets. Current
service costs, past service costs and gains or losses on settlements are
recognized in functional costs above EBIT. Net interest expense or income
is recognized in financial items under interest expense or interest income.
All remeasurements of the net defined benefit liability (asset) are recognized
directly in other comprehensive income.

In Outokumpu Group, EBIT is the net sum which is formed by adding other
operating income to sales and then deducting the cost of purchase adjusted
by change in the inventory and the cost of manufacture for own use, the cost
of employee benefits, depreciation, amortization, any impairments, and other
operating expenses. All other items of the statement of income are presented
below EBIT. Exchange gains and losses and fair value changes of derivatives are
included in EBIT, if they arise from business-related items. Otherwise they are
recognized in financial items.

Adjustments to EBIT

Adjustments to EBIT presented in the notes to the consolidated financial
statements include items which affect the comparability between periods
because of their unusual nature, size or incidence. Only material income
and expenses resulting for example from group-wide restructuring programs,
impairments. and gains or losses on sale of assets or businesses, as well
as raw material related inventory and metal derivative gains and losses are
included in adjustments.

Dividends

The dividend proposed by the Board of Directors is not deducted from
distributable equity until approved by the Annual General Meeting of
Shareholders.

For other long-term employee benefits, all service costs and remeasurements
are recognized immediately in the statement of income. Interest expenses are
recognized in financial items under interest expenses.

Earnings per share

Share-based payment transactions
The share-based incentive programs are accounted for partly as equity-settled
and partly as cash-settled. The equity-settled and cash-settled parts both
include market and non-market based vesting conditions. The fair values of
programs over vesting periods are determined at the grant date and the portion
paid in cash is remeasured based on market conditions at the end of each
reporting period. Market prices and applicable statistical models are used in
determining the fair values. The impact of non-market based vesting conditions
is assessed at the end of each reporting period. The programs include
maximum limits for the pay-outs and the limits have been taken into account in
the fair value measurement of the benefits.

Basic earnings per share is calculated by dividing the net result attributable to
the equity holders of the company by the weighted average number of shares in
issue during the period, excluding shares purchased by Outokumpu and held as
treasury shares.

Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares outstanding with the assumption that convertible
instrument is converted. Furthermore, the profit or loss used in the calculation
is adjusted for the interest expense related to the instrument and recognized in
the period, net of tax. However, potential ordinary shares are only dilutive if the
adjustments decrease the earnings per share ratio.

Outokumpu Annual report 2016

Financial statements

3. Segment information

Operating segments

Outokumpu’s business is divided into three business areas which are Europe,
Americas and Long Products. In addition to the business area structure,
Business Support Functions cover Finance, Technology, Communications and
IR, Business Transformation and IT, Legal, Corporate Affairs and Compliance,
Safety, Health and Environment, Internal audit, and HR and Organization
Development.

Business areas have responsibility for sales, profitability, production and supply
chain management and they are Outokumpu’s reportable segments under IFRS.
The performance of the segments is reviewed based on segment’s EBIT which
is defined in the accounting principles for the consolidated financial statements.
The review is done regularly by the CEO based on internal management
reporting which is based on IFRS. Below is a description of the activities of the
three reportable segments:

Europe consists of both coil and plate operations as well as ferrochrome
production in Europe. The high-volume and tailored standard stainless steel
grades are primarily used for example in architecture, building and construction,
transportation, catering and appliances, chemical, petrochemical and energy
sectors, as well as other process industries. The production facilities are
located in Finland, Germany and Sweden. The business area has extensive coil
service center and sales network across Europe, Middle East, Africa and APAC
region.

Americas produces standard austenitic and ferritic grades as well as tailored
products. Its largest customer segments are automotive and transport,
consumer appliances, oil and gas, chemical and petrochemical industries, food
and beverage processing, as well as building and construction industry. The
business area has production units in the US and Mexico, as well as a service
center in Argentina.

Long Products are used in a wide range of applications such as springs, wires,
surgical equipment, automotive parts and construction. The manufacturing is
concentrated in the integrated sites in the UK, Sweden and the US.

Other operations consist of activities outside the three reportable segments
described above, as well as industrial holdings. Such business development
and Corporate Management expenses that are not allocated to the business
areas are also reported under Other operations. Sales of Other operations
consist of electricity, nickel warrants, internal commissions and services. Other
operations’ figures for 2015 include the divested SKS operations.

Outokumpu does not have individual significant customers as defined in IFRS 8.

2016

€ million

External sales
Inter-segment sales

Sales

EBITDA

Depreciation and amortization

Impairments

EBIT

Share of results in associated companies and joint ventures

Financial income

Financial expenses

Result before taxes

Income taxes

Net result for the financial year

Adjustments to EBIT

Redundancy costs

Gain on the SKS divestment

Changes to the UK pension scheme

Net insurance compensation and costs related to technical issues in Calvert

Restructuring provisions, other than redundancy

Gain on the Guangzhou divestment

Net of raw material-related inventory and metal derivative gains/losses

Europe

Americas

Reconciliation

Long
Products

Reportable
segments
total

Other

operations Eliminations

3,775
149

3,924

349

-158

-26

164

-22

-8

-1

1,304
21

1,325

-6

-54

-60

-3

333
153

487

-7

-2

-1

5,412
324

5,736

361

-219

-26

115

-26

-8

278
294

571

-6

-7

-13

-3

-
-618

-618

Assets in operating capital

Other assets

Deferred tax assets

Assets held for sale

Total assets

Liabilities in operating capital

Other liabilities

Deferred tax liabilities

Liabilities directly attributable to assets held for sale

Total liabilities

Operating capital

Net deferred tax asset

Capital employed

3,563

1,458

239

5,260

286

-219

5,326

1,155

331

1,585

318

-211

2,408

1,127

139

3,675

-32

-8

393

204

5,990

1,692

1,818

3,574

3,635

181

3,816

26/64

Group

5,690
-

5,690

355

-226

-26

103

-130

-13

156

144

-30

-8

Outokumpu Annual report 2016

Financial statements

2015

€ million

External sales
Inter-segment sales

Sales

EBITDA

Depreciation and amortization

Impairments

EBIT

Share of results in associated companies and joint ventures

Financial income

Financial expenses

Result before taxes

Income taxes

Net result for the financial year

Adjustments to EBIT

Gain on the SKS divestment

Redundancy costs

Net insurance compensation and costs related to technical issues in Calvert

Impairments related to EMEA restructuring

Net of raw material-related inventory and metal derivative gains/losses

Assets in operating capital

Other assets

Deferred tax assets

Total assets

Liabilities in operating capital

Other liabilities

Deferred tax liabilities

Total liabilities

Operating capital

Net deferred tax asset

Capital employed

1) Other operations’ figures for 2015 include the divested SKS operations.

Europe

Americas

Reconciliation

Long
Products

Reportable
segments
total

Other

operations 1) Eliminations

4,151
165

4,316

286

-196

-6

-25

-6

1,177
37

1,214

-136

-80

-216

-17

-37

389
162

551

-8

-5

5,716
365

6,081

160

-284

-6

-131

-25

-17

-6

-11

667
311

979

370

-18

358

409

-
-676

-676

-20

3,683

1,496

210

5,389

316

-234

1,002

217

1,278

289

-229

2,680

1,279

151

4,111

-6

27/64

Group

6,384
-

6,384

531

-302

-1

228

-159

127

-41

409

-25

-17

-6

-31

5,471

388

5,874

1,338

2,192

3,546

4,133

Outokumpu Annual report 2016

Financial statements

28/64

Geographical information

€ million

2016
Sales by destination

Sales by origin

Non-current assets

2015

Sales by destination

Sales by origin

Non-current assets

Finland

Germany

Sweden

The UK

Other
Europe

North
America

Asia and
Oceania

Other
countries

Inter-area

Group

204

2,743

1,555

217

3,088

1,604

1,371

1,268

345

1,437

1,367

324

162

1,166

276

148

1,326

311

482

493

572

515

1,610

404

115

1,753

460

120

1,388

1,410

1,009

1,337

1,343

1,047

382

795

407

125

-1,901

-2,182

5,690

3,379

6,384

3,503

Sales by destination is presented for external sales.
Sales by origin and non-current assets are presented by the locations of the Group companies.
Non-current assets exclude investments in associated companies and joint ventures, financial instruments, deferred tax assets and defined benefit plan assets.

4. Acquisitions and divestments

Divestments

Acquisitions

Year 2016
In September, Outokumpu acquired Hernandez Edelstahl GmbH, a stainless
steel distributor in Germany, to further optimize Outokumpu’s customer service
in Europe. Prior to the acquisition, Outokumpu held 33.3% of the company’s
shares and it was accounted for as an associated company in the Group’s
consolidated financial statements. Assets acquired and liabilities assumed in
the acquisition included non-current assets of EUR 15 million, current assets
of EUR 21 million and current liabilities of EUR 45 million. The consideration
paid net of cash and cash equivalents acquired was EUR 9 million. The goodwill
of EUR 19 million arising from the acquisition was immediately impaired.
The impact of the goodwill impairment loss and other acquisition related
expenditure on the Group’s profit and loss was offset by the reversal of EUR 22
million of Outokumpu’s credit loss allowances for Hernandez at the time of the
acquisition.

Year 2015
Outokumpu made no acquisitions during 2015.

Year 2016
In 2016, Outokumpu agreed on the final terms and conditions of the Shanghai
Krupp Stainless Co., Ltd. (SKS) transaction recognized in 2015. The final
transaction price for Outokumpu’s 5% share rose to EUR 92 million, taking
into account all adjustments. As a result, Outokumpu recognized additional
gain of EUR 24 million net of withholding taxes on the divestment in 2016,
EUR 28 million of which is recognized in other operating income and EUR -5
million in income taxes in the consolidated statement of income. Consideration
receivable amounted to EUR 35 million on December 31, 2016.

In April 2016, Outokumpu divested its subsidiary Outokumpu Stainless
International (Guangzhou) Ltd., a service center in China. The gain on the
transaction recognized in other operating income was EUR 6 million. The effect
of the divestment on the Group’s financial position was immaterial.

Year 2015
In December 2015 Outokumpu divested its shares in Shanghai Krupp Stainless
Co., Ltd. (SKS) in China. The gain on the transaction net of withholding taxes
was EUR 389 million, including EUR 8 million transaction costs and EUR 5
million cumulative foreign exchange gains reclassified from equity to profit or
loss. The gain is presented in other operating income (EUR 409 million) and
income taxes (EUR -20 million) in the consolidated statement of income.

Effect of the SKS disposal on the
financial position of the Group

€ million

Non-current assets
Current assets

Non-controlling interest

Non-current liabilities

Current liabilities

Consideration received in cash

Withholding taxes

Cash and cash equivalents of the company disposed of

Net cash inflow

Receivable

2015

156
52

-32

-18

-137

358

-20

-15

323

Depreciation and amortization by function

Adjustments to EBIT

Outokumpu Annual report 2016

Financial statements

In December 2015 Outokumpu divested its share in joint venture Fischer
Mexicana. The divestment was carried out by selling the shares in the
subsidiary Outokumpu Participations Mexico S.A. de C.V. through which the
share in Fischer Mexicana was owned. The consideration received in cash was
EUR 57 million. The gain on the sale net of taxes was EUR 43 million, including
EUR 1 million transaction costs and EUR 12 million of cumulative foreign
exchange gains reclassified from equity to profit or loss. The gain is presented
in share of results in associated companies and joint ventures (EUR 49 million)
and income taxes (EUR -6 million) in the consolidated statement of income.
In the consolidated statement of financial position the divestment mainly
affected the item investments in associated companies and joint ventures,
which decreased by EUR 18 million. Cash and cash equivalents of the divested
subsidiary were EUR 0 million.

5. Assets held for sale

Year 2016

In 2016, Outokumpu committed to divesting the subsidiary Outokumpu
Stainless Plate, LLC within the Americas segment. Accordingly, the subsidiary is
presented as a disposal group held for sale in Outokumpu’s 2016 consolidated
financial statements. The main items presented under assets held for sale
comprise PPE of EUR 35 million, inventories of EUR 14 million and deferred tax
assets of EUR 8 million. The main item presented under liabilities associated
with assets held for sale comprise defined benefit obligation of EUR 38 million.
The divestment of the subsidiary took place in January 2017.

6. Income and expenses

Cost of sales

The EUR 400 million baseline for the EUR 100 million reduction target in
sales, general and administrative costs includes EUR 58 million of costs that
were reported as cost of sales in 2015. The corresponding costs for 2016
were reported as selling and marketing as well as administrative costs.

€ million

Cost of sales
Selling and marketing expenses

Administrative expenses

Research and development expenses

Other operating income

€ million
Exchange gains and losses from foreign exchange
derivatives
Market price gains and losses from commodity
derivatives

Market price gains and losses from derivative financial
instruments

Gains from disposal of subsidiaries

Gains on sale of intangible assets and property, plant
and equipment

Insurance compensation

Other income items

Other operating expenses

€ million
Exchange gains and losses from foreign exchange
derivatives
Market price gains and losses from commodity
derivatives

Market price gains and losses from derivative financial
instruments

Impairments

Losses on sale of intangible assets and property, plant
and equipment

Other expense items

29/64

2015

-25
409

-17

-6

-31

330

2016

-30
28

-8

2016

-214
-1

-11

-0

-226

2015

-288
-1

-12

-1

-302

€ million

Redundancy costs
Gain on the SKS divestment

Changes to the UK pension scheme

Net insurance compensation and costs related to
technical issues in Calvert

Restructuring costs, other than redundancy

Gain on the Guangzhou divestment

Impairments related to EMEA restructuring

2016

2015

Net of raw material-related inventory and metal
derivative gain/losses

409

472

2016

2015

-13

-10

-22

-26

-2

-46

-1

-11

-13

In 2016, Outokumpu announced global streamlining measures related to sales,
general and administrative functions and proceeded with other restructuring
measures in accordance with the EMEA restructuring plan. Related to these
measures redundancy costs of EUR 30 million were recognized. In 2015,
EUR 25 million of redundancy costs and EUR 6 million of impairments were
recognized relating to the EMEA restructuring plan mainly in Germany and
Sweden. In addition EUR 8 million restructuring costs were recognized in 2016
relating to earlier site closures.

In 2016, EUR 28 million additional gain was recognized relating to the
divestment of Shanghai Krupp Stainless Co., Ltd. in China (SKS) in December
2015. Outokumpu also divested its Guangzhou service center in 2016 from
which EUR 6 million gain was recognized. See note 4.

In October 2016, Outokumpu closed its defined benefit pension scheme in the
UK. As a result, the net pension obligation decreased due to a curtailment of
EUR 26 million. See note 25.

In 2016, EUR 24 million adjustment was recognized relating to earlier insurance
compensation in Calvert mill in the US due to machinery breakdown incident in
2014. In 2015 costs of EUR 17 million were recognized due to interruption and
transfer of production to Group’s other mills as well as repair and maintenance
costs.

Net effect of raw material-related inventory and metal derivative gains/losses
was EUR 11 million in 2016 (2015: EUR -31 million).

Outokumpu Annual report 2016

Financial statements

30/64

Auditor fees

KPMG

€ million

Audit
Tax advisory and other services

8. Financial income and expenses

2016

-1.9
-0.1

-1.9

2015

-2.0
-0.2

-2.1

€ million

Interest income

Gains on the sale of available-for-sale financial assets

7. Employee benefit expenses

€ million

Wages and salaries
Termination benefits

Social security costs

Post-employment and other long-term employee
benefits

Defined benefit plans 1)

Defined contribution plans

Other long-term employee benefits

Expenses from share-based payments

Other personnel expenses

2016

-562
-28

-68

-49

-2

-9

-14

-713

2015

-585
-21

-72

-12

-55

-2

-1

-15

-762

1) Includes curtailment of EUR 26 million due to the closure of the defined benefit
pension scheme in the UK. See note 25.

Profit-sharing bonuses based on the Finnish Personnel Funds Act were not
recognized in 2016 nor 2015.

More information on employee benefits for key management can be found in
note 31 and in Corporate Governance in chapter Remuneration.

Other financial income items

Other financial income

Interest expenses

Debt at amortized cost

Factoring expenses

Finance lease arrangements

Derivatives

Interest expense on defined benefit obligations and
other long-term employee benefits

Interest expenses

Capitalized interests

Fees related to committed credit facilities

Other fees

Other financial expenses

Exchange gains and losses

Derivatives

Cash, loans and receivables

Other market price gains and losses

Derivatives

Other

Market price gains and losses

Total financial income and expenses

-121

-149

Exchange gains and losses in the
consolidated statement of income

€ million

In sales
In purchases 1)

In other income and expenses 1)

In financial income and expenses 1)

2016

2015

10
-15

-12

-7

-23

13
-35

-6

-21

1) Includes exchange gains and losses on elimination of intra-group transactions.

2016

2015

-71

-8

-15

-4

-8

-105

-18

-4

-18

-13

-1

-6

-92

-6

-14

-9

-130

-21

-9

-29

-92

Exchange gains and losses include EUR 24 million net exchange loss on
derivative financial instruments (2015: EUR 84 million net exchange loss) of
which EUR 12 million loss on derivatives has been recognized in other operating
expenses and EUR 13 million loss in financial items.

9. Income taxes

Income taxes in the consolidated statement of income

€ million

Current taxes
Deferred taxes

2016

-12
168

156

2015

-35
-6

-41

The applicable Finnish corporate tax rate for the financial years 2016 and 2015
was 20.0%. The applicable tax rates for companies outside Finland range from
0.0% to 38.4% (2015: 0.0% to 38.8%).

Aggregate deferred taxes recognized in equity
through other comprehensive income

€ million

Fair value reserves
Net investment hedging

Remeasurements of the net defined benefit liability

2016

2015

-1
-4

-2
-4

-4

As of December 31, 2016 tax loss carry forwards amount to EUR 3,790 million
(2015: EUR 3,573 million), in particular EUR 896 million (2015: EUR 906 million)
in Finland, EUR 391 million (2015: EUR 421 million) in Sweden, EUR 1,646
million (2015: EUR 1,404 million) in the US and EUR 521 million (2015: EUR 485
million) in Germany. Deferred tax assets are recognized only to the extent that the
realization of such tax benefits is probable. In determining the related valuation
allowance, all positive and negative factors, including prospective results, are
taken into consideration in estimating whether sufficient taxable income will be
generated to realize deferred tax assets. These estimates can change depending
on the future course of events. As of December 31, 2016 tax loss carry forwards
of the Outokumpu Group for which no deferred tax asset is recognized amount
to EUR 2,546 million (2015: EUR 3,190 million). In 2016, due to the probable
future tax benefits in Finland and Sweden deferred tax assets of EUR 189 million
on existing tax loss carry forwards were recognized, which were not recognized in

Outokumpu Annual report 2016

Financial statements

previous years. Earnings before taxes turning positive in these countries impacted
the recognition decision. No deferred tax liabilities were recorded on undistributed
profits on foreign subsidiaries, as such profits are not to be distributed in the
foreseeable future.

Tax losses carried forward

€ million

Expire in less than 5 years
Expire between 5 and 9 years

Expire later than 9 years

Never expire

2016

176
692

1,641

1,281

3,790

2015

188
616

1,489

1,280

3,573

Deferred income taxes in the statement of financial position

€ million

Deferred tax assets
Deferred tax liabilities

Net deferred tax asset

2016

204
-22

181

2015

16
-16

Significant components of the deferred tax assets and liabilities are as follows:

€ million

Intangible assets
Property, plant and equipment

Other financial assets

Inventories

Derivative financial assets

Trade and other receivables

Non-current and current debt

Defined benefit and other long-term employee benefit
obligations

Provisions

Derivative financial liabilities

Trade and other payables

Tax loss carry forwards

Valuation allowance

Offset

Deferred tax
assets

2016
Deferred tax
liabilities

8
24

1,132

1,379

-918

-257

204

-3
-209

-2

-8

-9

-3

-0

-23

-19

-1

-2

-280

257

-22

2015

Deferred tax
assets

Deferred tax
liabilities

11
32

1,050

1,320

-1,080

-224

-2
-173

-1

-8

-9

-2

-0

-22

-18

-0

-3

-240

224

-16

Net

6
-186

-5

-1

-5

1,132

1,099

-918

181

31/64

Net

8
-142

-4

1,050

1,080

-1,080

Deferred taxes have been reported as a net balance of those Group companies that file a consolidated tax return, or that may otherwise be consolidated for current
tax purposes.

Outokumpu Annual report 2016

Financial statements

32/64

Movement in deferred tax assets and liabilities during the financial year

€ million

Intangible assets
Property, plant and equipment

Other financial assets

Inventories

Derivative financial assets

Trade and other receivables

Non-current and current debt

Defined benefit and other long-term employee benefit obligations

Provisions

Derivative financial liabilities

Trade and other payables

Tax losses carried forward

Valuation allowance

€ million

Intangible assets
Property, plant and equipment

Other financial assets

Inventories

Derivative financial assets

Trade and other receivables

Non-current and current debt

Defined benefit and other long-term employee benefit obligations

Provisions

Derivative financial liabilities

Trade and other payables

Tax losses carried forward

Valuation allowance

Net deferred
taxes
Jan 1, 2016

Translation
differences

Recognized in
profit or loss

Recognized
in other
comprehensive
income

Reclassification
to assets held
for sale

Net deferred
taxes
Dec 31, 2016

8
-142

-4

1,050

1,080

-1,080

0
-6

-0

-9

-1

-3
-46

-4

-2

-3

-24

-1

-2

171

168

-
-

-
8

-0

-16

-0

-8

6
-186

-5

-1

-5

1,132

1,099

-918

181

Net deferred
taxes
Jan 1, 2015

Translation
differences

Recognized in
profit or loss

Recognized
in other
comprehensive
income

Net deferred
taxes
Dec 31, 2015

2
-73

-3

-6

853

964

-951

0
3

-0

-57

6
-72

-9

-21

-3

-31

151

-74

-6

-
-

-1

-7

8
-142

-4

1,050

1,080

-1,080

In 2016 the income tax benefit of EUR 156 million presented in the financial
statements is EUR 154 million higher than the expected income tax benefit
of EUR 3 million, which would result if the Finnish corporate tax rate of 20.0%
was applied to the Group’s result before taxes. For financial year 2015 the
reported income tax expense of EUR 41 million was EUR 16 million higher than
the expected income tax expense of EUR 25 million calculated with the Finnish
corporate tax rate of 20.0%. The following table reconciles the expected income
tax benefit to the income tax benefit or expense presented in the consolidated
statement of income:

€ million

2016

2015

Hypothetical income taxes at Finnish tax rate on
consolidated result before tax
Difference between Finnish and foreign tax rates

Tax effect of non-deductible expenses and tax exempt
income 1)

Tax effect of losses for which no deferred tax asset is
recognized 2)

Taxes for prior years

Other items 1)

Income taxes in the consolidated statement of income

3
10

-3

152

-8

156

-25
18

-116

-29

-41

1) In 2016 and 2015 the gain on the sale of shares in subsidiaries is fully or partly
not taxable in the jurisdictions of the sellers, which resulted in a reconciliation
effect of EUR 119 million in 2015. However, the gains are subject to withholding
tax expense in the countries, in which the sales took place. Withholding taxes of
EUR -5 million (2015: EUR -26 million) are included in Other items. See note 4.
2) Includes EUR 189 million change due to deferred tax assets which were not
recognized in previous years.

Tax audit in Outokumpu Oyj was concluded in November 2014 and did not
result in proposed changes to the company’s taxation. The Tax Recipients’
Legal Service Unit appealed against the outcome of the tax audit. In January
2017 the case has been dropped as the Tax Recipients’ Legal Service Unit has
cancelled its claim for taxation adjustment.

Outokumpu Annual report 2016

Financial statements

33/64

10. Earnings per share

11. Intangible assets

Impairment testing of goodwill

Result attributable to the equity holders of the
Company, € million

2016

2015

€ million

144

Historical cost on Jan 1, 2016
Translation differences

Weighted average number of shares, in thousands

Diluted average number of shares, in thousands 1)

414,411

415,474

Earnings per share for result attributable to the equity
holders of the Company (basic and diluted), € 1)

0.35

0.23

1) 33,662 thousand potentially convertible shares were excluded from the diluted
average number of shares because their effect would have been anti-dilutive. In
2015, the impact of these shares on the average number would have been 29,235
thousand shares.

Additions

Acquired subsidiaries

Reclassifications 2)

Historical cost on Dec 31, 2016

Accumulated amortization and
impairment on Jan 1, 2016

Translation differences

Amortization

Impairments

Accumulated amortization and
impairment on Dec 31, 2016

Carrying value on Dec 31, 2016

Carrying value on Jan 1, 2016

Historical cost on Jan 1, 2015

Translation differences

Additions

Disposals

Disposed subsidiaries

Reclassifications 2)

Other
intangible
assets 1)

Goodwill

475
-1

493

-8

-19

-26

467

474

229
-2

241

-198

-8

-204

299

-6

-80

229

Total

704
-3

734

-206

-8

-19

-229

504

498

774

-6

-80

704

Historical cost on Dec 31, 2015

475

Accumulated amortization and
impairment on Jan 1, 2015

Translation differences

Disposals

Disposed subsidiaries

Amortization

Accumulated amortization and
impairment on Dec 31, 2015

-7

-1

-8

-199

-206

-3

-10

-3

-10

-198

-206

Carrying value on Dec 31, 2015

Carrying value on Jan 1, 2015

467

100

498

567

1) Other intangible assets include land-use rights, emission allowances, capitalized
development costs, patents, licenses and software.
2) Construction work in progress related to intangible assets is presented in the
corresponding item of property, plant and equipment. When the asset is taken into
use, it is reclassified to the appropriate asset account.

Intangible assets mainly comprise acquired assets.

Goodwill acquired through business combinations has been allocated for
impairment testing as follows:

€ million

Europe 1)
Long Products

2016

458
9

467

2015

458
9

467

1) Goodwill allocated in 2015 to APAC and Quarto Plate was reallocated to Europe in
2016 following the new organization structure.

Goodwill is tested on operating segment level. Operating segments are the
Group’s cash-generating units. Goodwill has been allocated to the operating
segments mentioned above. During the year 2016, goodwill was reviewed for
impairment on a quarterly basis.

The recoverable amounts of the cash-generating units are based on value-in-
use calculations which are prepared using discounted cash flow projections. Key
assumptions used in the value-in-use calculations are discount rate, terminal
value growth rate, average global growth in end-use consumption of stainless
steel and base price development. The values assigned to the key assumptions
are based on the plans approved by the management for 2017–2019 after
which cash flows are projected for a period of 3 years, including terminal value
based on conservative assumptions.

Discount rate is the weighted average pre-tax cost of capital (WACC), as defined
for Outokumpu. The components of WACC are risk-free yield rate, Outokumpu
credit margin, market risk premium, equity beta, and industry capital structure.
Goodwill of Europe presents 98% of the total goodwill of the Group and the pre-
tax WACC used for Europe is 9.4% (2015: 9.6%).

In the terminal value, growth rate assumption of 0.5% (2015: 0.5%) is used
which management believes to be prudent based on current economic
circumstances, although historical growth rates and forecasts of independent
market analysts indicate higher long-term growth rates.

Growth rate assumption used for stainless steel deliveries is conservative,
and generally lower than independent analysts’ view on long-term market
development. Base price forecast is based on conservative assumptions,
which are in line with expectations of general inflation. In addition, committed
investments and expected cost savings have been included in the cash flow
projections.

Outokumpu Annual report 2016

Financial statements

The estimated recoverable amount of Europe exceeds its carrying amount by
approximately EUR 2,404 million. Increase of 7.0 percentage point in after-tax
WACC would cause the recoverable amount to equal the carrying amount. Also,
18% decrease in annual delivery volumes or 12% decrease in base prices would
cause the recoverable amount to equal the carrying amount. Terminal growth
rate of 0% would not lead to impairment.

As a result of the performed impairment test to Group’s cash-generating
units, no impairment losses were recognized in 2016 or 2015. However, an
impairment loss of EUR 19 million was recognized immediately for goodwill that
arose from the acquisition of Hernandez Edelstahl GmbH in 2016. See note 4.

Emission allowances

Outokumpu had seven active sites operating under EU’s Emissions Trading
Scheme (ETS) in 2016. These include the production plants in Tornio, Finland;
Avesta, Degerfors and Nyby in Sweden; Sheffield in the UK; as well as Krefeld
and Dillenburg in Germany.

The pre-verified carbon dioxide emissions under ETS were approximately
0.95 million tonnes in 2016 (2015: 1.02 million tonnes). For the trading
period 2013–2020, all relevant Outokumpu sites have applied free emission
allowances according to efficiency-based benchmarks and historical activity.
Preliminary allocation for years 2017 and 2018 is estimated to be some 1
million tonnes annually. Considering the Group’s operations and the Group’s
current emission allowance position, the amount of allowances is foreseen to
be sufficient for compliance. Position is frequently monitored and optimized
according to the definitions set in corporate risk policies. See note 19 for
information on the management of the emission allowance price risk.

Machinery and
equipment

Other
tangible
assets

Advances paid
and construction
work in progress 1)

12. Property, plant and equipment

€ million

Historical cost on Jan 1, 2016
Translation differences

Additions

Acquired subsidiaries

Disposals

Disposed subsidiaries

Reclassifications

Reclassification to assets held for sale

Historical cost on Dec 31, 2016

Accumulated depreciation and impairment on Jan 1, 2016

Translation differences

Disposals

Disposed subsidiaries

Reclassifications

Depreciation

Impairments

Reclassification to assets held for sale

Accumulated depreciation and impairment on Dec 31, 2016

Carrying value on Dec 31, 2016

Carrying value on Jan 1, 2016

Historical cost on Jan 1, 2015

Translation differences

Additions

Disposals

Disposed subsidiaries

Reclassifications

Historical cost on Dec 31, 2015

Accumulated depreciation and impairment on Jan 1, 2015

Translation differences

Disposals

Disposed subsidiaries

Reclassifications

Depreciation

Impairments

Accumulated depreciation and impairment on Dec 31, 2015

Carrying value on Dec 31, 2015

Carrying value on Jan 1, 2015

Land

136
-0

-0

139

-14

-0

-14

126

122

145

-12

136

-9

-0

-6

-14

122

136

Mine
properties

66
-

-15

-6

-21

Buildings

1,269
-6

-24

-1

-18

4,635
-40

-31

-2

-62

1,251

4,641

-575

-2,705

-0

-45

-1

-603

648

693

-2

-157

-7

-2,763

1,878

1,930

-17

-19

145

-109

-92

1,269

4,635

-12

-543

-2,565

-3

-15

-5

-47

-41

108

-237

-575

-2,705

693

732

1,930

2,065

131
-1

-0

-1

-3

129

-71

-0

-9

-73

-5

131

-70

-0

-1

-5

-71

1,275

4,631

132

34/64

Total

6,407
-46

151

-71

-3

-6

-84

6,351

-3,402

-217

-8

-3,477

2,874

3,005

6,357

179

129

-145

-112

-3

6,407

-3,219

-47

132

-292

-1

-3,402

3,005

3,138

170
0

-15

-93

-0

125

-21

-0

-4

122

149

128

-1

-0

-45

170

-20

-0

-21

149

108

1) Advances paid and construction work in progress includes also intangible assets. When the asset is ready to be taken into use, it is reclassified to appropriate asset
account either in property, plant and equipment or in intangible assets.

Outokumpu Annual report 2016

Financial statements

35/64

Borrowing costs amounting to EUR 3 million were capitalized on investment
projects during the financial year (2015: EUR 2 million). Total interest capitalized
on December 31, 2016 was EUR 29 million (Dec 31, 2015: EUR 33 million).
Outokumpu determines separate capitalization rates for each quarter. The
average rate used during 2016 was 4.3%.

Impairments

Property, plant and equipment of business areas Europe and Americas
represent 62% and 34%, respectively, of the total property, plant and
equipment. Impairment testing in general as well as Europe’s results are
described in note 11.

Regarding Americas, a pre-tax WACC of 9.2% (2015: 9.2%) and a terminal
growth rate assumption of 1.0% (2015: 1.0%) are used. The estimated
recoverable amount of Americas exceeds its carrying amount by approximately
EUR 268 million. Increase of 1.5 percentage point in after-tax WACC would
cause the recoverable amount to equal the carrying amount. Also, 8% decrease
in annual delivery volumes or 2% decrease in base prices would cause the
recoverable amount to equal the carrying amount. Terminal growth rate of 0%
would not lead to impairment.

13. Investments in associated
companies and joint ventures

Outokumpu has the following associated companies and joint ventures which
are all equity accounted. Based on the amounts reported in the Group’s
consolidated financial statements, it is concluded that the investments are
immaterial.

Associated companies

OSTP Holding Oy
Rapid Power Oy

Manga LNG Oy

Domicile

Ownership, %

Finland
Finland

Finland

49
33

Summarized financial information on associated companies

€ million
Carrying value of investments in associated
companies
Group's share of total comprehensive income

2016

51
3

2015

48
-4

In 2016 or 2015 no impairment losses were recognized as a result of the
impairment test performed to Group’s cash-generating units. However, in 2016,
impairment losses totaling EUR 8 million were recognized in Europe business
area due to restructuring and asset obsolence (2015: losses of EUR 6 million
due to restructuring in Germany).

Joint ventures

Fagersta Stainless AB

Domicile

Ownership, %

Sweden

Assets leased by finance lease agreements

Summarized financial information on joint ventures

€ million

Land

Buildings

Historical cost
Accumulated depreciation

Carrying value on Dec 31, 2016

Historical cost

Accumulated depreciation

Carrying value on Dec 31, 2015

28
-1

-1

1
-0

-5

Machinery
and
equipment

234
-98

136

236

-87

149

Total

263
-99

164

298

-93

205

€ million
Carrying value of investments in joint
ventures
Group's share of total comprehensive
income,1)

Gain from disposal of Fisher Mexicana S.A.
DE C.V.

2016

2015

1) In 2015, Group’s share of total comprehensive income in 2015 includes the
divested joint venture Fisher Mexicana S.A. DE C.V. until December 2015. See
note 4.

Outokumpu Annual report 2016

Financial statements

36/64

14. Carrying values and fair values of financial assets and liabilities by
measurement category

2016

€ million

Non-current financial assets
Available-for-sale financial assets

Investments at fair value through profit or loss

Trade and other receivables

Current financial assets

Investments at fair value through profit or loss

Trade and other receivables

Cash and cash equivalents

Derivatives held for trading

Non-current financial liabilities

Non-current debt

Derivatives held for trading

Current financial liabilities

Current debt

Trade and other payables

Derivatives held for trading

Category in
accordance with
IAS 39

Amortized
cost

b), c)

611

204

817

987

458

1,324

2,769

Categories in accordance with IAS 39:
a) Available-for-sale financial assets
b) Loans and receivables
c) Financial assets at fair value through profit or loss
d) Derivatives held for trading
e) Hedge accounted derivatives
f) Other financial liabilities

Measured at

Fair value
recognized in other
comprehensive
income

Fair value
recognized
through profit
or loss

Carrying amount
on Dec 31,
2016

Fair value
on Dec 31,
2016

611

204

920

987

458

1,324

2,836

611

204

920

1,127

458

1,324

2,976

Cost

Outokumpu Annual report 2016

Financial statements

37/64

2015

€ million

Non-current financial assets
Available-for-sale financial assets

Investments at fair value throughprofit or loss

Trade and other receivables

Current financial assets

Investments at fair value through profit or loss

Trade and other receivables

Cash and cash equivalents

Hedge accounted derivatives

Derivatives held for trading

Non-current financial liabilities

Non-current debt

Derivatives held for trading

Current financial liabilities

Current debt

Trade and other payables

Hedge accounted derivatives

Derivatives held for trading

Category in
accordance with
IAS 39

Amortized
cost

b), c)

624

186

849

1,249

547

957

2,752

Measured at

Fair value
recognized in other
comprehensive
income

Fair value
recognized
through profit
or loss

Carrying amount
on Dec 31,
2015

Fair value
on Dec 31,
2015

624

186

944

624

186

944

1,249

1,245

547

957

547

957

2,811

2,807

Cost

Outokumpu Annual report 2016

Financial statements

38/64

15. Fair value hierarchy of financial assets and liabilities

16. Available-for-sale financial
assets

€ million

Carrying value on Jan 1
Additions

Fair value changes

Gains and losses from disposals reclassified
to profit or loss

Carrying value on Dec 31

Fair value reserve in equity

€ million

Fair value
Cost

Fair value reserve before tax

Deferred tax liability

Fair value reserve

2016

2015

40
14

-5

27
15

-1

2016

2015

53
49

-1

40
36

-1

Materially all equity securities are unlisted. Investments include EUR 48 million
holdings in Voimaosakeyhtiö SF providing ownership to Fennovoima Oy and
holdings in other energy companies in which Outokumpu does not have control,
joint control or significant influence. During 2016 Outokumpu invested further
EUR 14 million in Voimaosakeyhtiö SF. As the Fennovoima project is at an early
stage, the fair value cannot be reliably measured and therefore investment has
been valued at cost. Unlisted equity securities at fair value include holdings
in energy producing companies and other investments not listed in any stock
exchange.

2016
€ million

Financial assets measured at fair value
Available-for-sale financial assets

Investments at fair value through profit or loss

Derivatives

Financial assets not measured at fair value

Non-current trade and other receivables

Financial liabilities measured at fair value

Derivatives

Financial liabilities not measured at fair value

Non-current debt

2015
€ million

Financial assets measured at fair value
Available-for-sale financial assets

Investments at fair value through profit or loss

Hedge accounted derivatives

Derivatives held for trading

Financial assets not measured at fair value

Non-current trade and other receivables

Financial liabilities measured at fair value

Hedge accounted derivatives

Derivatives held for trading

Carrying amount

Level 1

Level 2

Level 3

Total

Fair value

987

859

267

1,127

Carrying amount

Level 1

Level 2

Level 3

Total

Fair value

1,245

Financial liabilities not measured at fair value

Non-current debt

1,249

465

780

The fair value of non-current debt is determined by using discounted cash flow method and taking into consideration the market credit spread applied for Outokumpu.
The fair value of non-current trade and other receivables is determined by discounted cash flow method taking into account the credit risk of the counterparty. The
carrying amounts of current financial assets and current financial liabilities not measured at fair value are reasonable estimates of their fair value.

Outokumpu Annual report 2016

Financial statements

39/64

17. Investments at fair value
through profit or loss

€ million

Carrying value on Jan 1
Additions

Other changes

Carrying value on Dec 31

2016

2015

16
1

-1

6
11

-1

The carrying value comprises mainly of investment by Group’s captive insurance
company Visenta Försäkrings AB in state bonds, covered bonds, and funds.

18. Share-based payment plans

During the year 2016 Outokumpu’s share based payment programs included
Performance Share Plan 2012 (2014–2016, 2015–2017, and 2016–2018),
Restricted Share Pool Program (2014–2016, 2015–2017 and 2016–2018)
and Matching Share Plans. Share-based programs are part of the Group’s
incentive and commitment-building system for key employees. The objective
of the programs is to retain, motivate and reward selected employees for good
performance which supports Outokumpu’s strategy.

The Performance Share Plan 2013–2015 ended and based on the achievement
of the targets the participants received 65.1% of the target number of shares
of the plan as reward. After deductions for applicable taxes, altogether 178,789
shares were delivered to 84 persons. Regarding the Restricted Share Pool
Program, plan 2013–2015, after deductions for applicable taxes in total 7,426
shares were delivered to two participants based on the conditions of the plan.
Outokumpu used its treasury shares for the reward payments.

In December 2015, the Board of Directors approved the commencement of
the new plan (plan 2016–2018) of the Performance Share Plan 2012 as of the
beginning of 2016. The number of gross shares (taxes included) allocated from
the plan was 2,651,650 (payout at maximum performance level). At the end of
the reporting period 120 persons participated in the plan. The plan’s earnings
criteria are Outokumpu’s profitability and the efficiency with which its capital is
employed compared to a peer group as well as Outokumpu’s gearing 2018.

In December 2015, the Board also approved the commencement of the
new plan (plan 2016–2018) of Restricted Share Pool Program 2012 as of
the beginning of 2016. Restricted share grants are approved annually by the
CEO on the basis of the authorization granted by the Board of Directors, with
the exception of any allocations to Leadership Team members, which will be
approved by the Board of Directors. The maximum number of gross shares
(taxes included) that could be allocated from the plan is 330,000. At the end of
the reporting period 19 persons participated in the plan.

In December 2015, the Board of Directors approved the commencement of
Matching Share Plan for the CEO at the beginning of 2016, according to which
the CEO was entitled to receive in total 1,157,156 gross shares including taxes
on the condition that he personally invested EUR 1 million into Outokumpu
shares by February 20, 2016. The matching shares will be delivered in four
equal instalments at the end of 2016, 2017, 2018 and 2019, respectively. The
CEO is required to keep at least all the shares he acquired and the first vesting
portion, i.e. 25% of the net amount of the received matching shares throughout
his service with Outokumpu. In December 2016, the Board of Directors
approved the delivery of the first reward share tranche to the CEO from the
Matching share Plan. After deduction for applicable taxes, the net number of
shares delivered to the CEO was 185,077.

In April 2016, the Board of Directors approved the commencement of Matching
Share Plan for management for the years 2016–2020. According to the plan,
the participants invested 30–120% of their annual gross base salary into

Outokumpu shares by December 31, 2016. Outokumpu will match each share
acquired by the participant with two gross shares from which applicable taxes
will be deducted and the remaining net number of shares will be delivered in
four equal instalments at the end of 2017, 2018, 2019 and 2020, respectively.
In order to receive the matching shares, the participants are required to keep
all the shares they have acquired until the vesting of the each matching share
tranche. The maximum number of gross matching shares is 2,184,702 including
taxes and 32 persons participate in the plan.

In December 2016, the Board of Directors approved the commencement of
plan 2017–2019 of the Performance Share Plan 2012 and the Restricted Share
Pool 2012 as of the beginning of 2017.

The total estimated fair value of the share-based payment plans is EUR 31
million on December 31, 2016. This value is recognized as an expense in the
statement of income during the vesting periods.

Detailed information of the share-based incentive programs can be found in
Outokumpu’s home page www.outokumpu.com

Share-based payments included in
employee benefit expenses

€ million

2016

2015

Equity-settled share-based payment transactions
Cash-settled share-based payment transactions

Total carrying amount of liabilities for cash-settled
arrangements on Dec 31

-3
-6

-9

-1
-0

-1

Outokumpu Annual report 2016

Financial statements

40/64

The general terms and conditions of the share-based incentive programs

Share values used in valuations

Share price at
the end of the
reporting period

Incentive share fair
value at the grant
date

8.51

6.46

4.82

2.11

6.46

5.41

7.81

2.50

5.35

Vesting period 2015–2017

Vesting period 2016–2018

Restricted Share Pool Program

Vesting period 2014–2016

Vesting period 2015–2017

Vesting period 2016–2018

Matching Share Plan for the CEO

Matching Share Plan for management 1)

1) Average fair value based on purchase dates

May 31, 2014

Feb 11, 2015

Feb 10, 2016

Performance Share Plan

Jan 1, 2014–Dec 31, 2016

Jan 1, 2015–Dec 31, 2017

Jan 1, 2016–Dec 31, 2018

Vesting period 2014–2016

Performance Share Plan 2012

€

Grant date

Vesting period

Vesting conditions

Non-market

EBIT improvement for the year 2014; EBIT
excluding non-recurring items for the year
2015; underlying EBITDA for the year 2016; a
cash flow measure for the years 2014, 2015
and 2016; and return on capital employed
(ROCE) in 2016

EBIT excluding non-recurring items and a cash
flow measure for the year 2015; and return on
capital employed (ROCE) ranking among peers
and debt-to-equity ratio (gearing) in 2017

Outokumpu's profitability and the efficiency with
which its capital is employed compared to a
peer group, and Outokumpu's gearing in 2018

Other relevant conditions

A salary-based limit for the maximum benefits

Exercised

In shares and cash

Grant date

Vesting period

Vesting conditions

May 31, 2014

April 30, 2015

Dec 9, 2016

Jan 1, 2014–Dec 31, 2016

Jan 1, 2015–Dec 31, 2017

Jan 1, 2016–Dec 31, 2018

Continuation of employment until the shares
are delivered, a salary-based limit for the
maximum benefits

Exercised

In shares and cash

Restricted Share Pool Program 2012

Grant date

Vesting period

Vesting conditions

Matching Share Plan for the CEO

Matching Share Plan for the management

Dec 17, 2015

Jan 1, 2016–Dec 31, 2019

April 27, 2016

Jan 1, 2017–Dec 31, 2020

Personal investment of EUR 1 million into Outokumpu shares;
requirement to keep at least the personal investment and the first
vesting portion, i.e. 25% of the net amount of the received matching
shares throughout service with Outokumpu. If the CEO’s service contract
is terminated without any fault or negligence attributable to him, all the
shares not yet delivered will vest at the expiry of the CEO agreement
provided that the ownership requirement for the CEO is fulfilled

Personal investment of 30–120% of annual gross base salary into
Outokumpu shares; requirement to keep the personal investment until
the vesting of each matching share tranch; continuation of employment
until the matching shares are delivered

Exercised

In shares and cash

The fair value of share-based incentive programs are determined using relevant mathematical modeling.

Outokumpu Annual report 2016

Financial statements

41/64

the adverse scenario is based on market volatility of the underlying risk factor.
Eventually, the impacts of key risks are quantified in terms of changes in net
income, free cash flow, net debt and equity.

Market risk

Market risk is caused by changes in foreign exchange and interest rates,
interest margins as well as metal, energy and security prices. These price
changes may have a significant impact on Group’s earnings, cash flow and
capital structure. Outokumpu uses matching strategies and derivative contracts
to partially mitigate the above mentioned impacts of market price changes.
Hedge accounting is applied selectively and based on separate decisions. The
derivatives, for which hedge accounting is not applied, have been made to

Sensitivity of financial instruments to market risks

reduce impacts of market price changes on earnings and/or cash flows related
to business or financing activities. The use of non-hedge-accounted derivatives
may cause timing differences between derivative gains/losses and the earnings
impact of the underlying exposure.

Stainless steel business is highly cyclical, which often results in significant
changes in the underlying exposures to different market risk factors.
Consequently applying hedging policies in a consistent way may lead to big
changes in the amounts of reported derivate contracts. Nominal amounts
and fair values of derivatives are presented in note 20. Sensitivity of financial
instruments to market prices is described in the following table.

€ million

+/-10% change in EUR/USD exchange rate
+/-10% change in EUR/SEK exchange rate

+/-10% change in nickel price in USD

+/-10% change in propane price in USD

+/-1% parallel shift in interest rates

2016

2015

In profit or loss

In other
comprehensive income

In profit or loss

In other
comprehensive income

+5/-4
-6/+8

-2/+1

-4/+4

-
-9/+11

-2/+3
-9/+11

-1/+1

+1/-1

-5/+1

-
-13/+15

+0/-0

The sensitivity analyses apply to financial instruments only. Other assets, liabilities and off-balance sheet items such as net pension liabilities, sales and purchase
orders, are not in the scope of these analyses. The calculations are net of tax. During the year the volatility for nickel price has been in the range of 29–37%. With
+/- 30% change in dollar denominated price, the effect in profit or loss is about EUR -6/+4 million for nickel derivatives.

19. Financial risk management,
capital management and
insurances

The objectives of financial risk management are to reduce the impact of price
fluctuations and other factors of uncertainty in financial markets on earnings,
cash flows and capital structure, as well as to ensure adequate liquidity. The
objective of capital management is to secure the ability to continue as a
going concern and to optimize the cost of capital in order to enhance value to
shareholders. The main objectives of insurance management are to provide
mitigation against catastrophe risks and to reduce earnings variation caused by
hazards.

The Board has approved the risk management policy, which defines
responsibilities, process and other main principles of risk management. The
Board oversees risk management on a regular basis and the Chief Financial
Officer is responsible for implementation and development of financial risk
management. In 2016 the Financial Risk Policy was reviewed and changes to it
were approved by the CFO. Main changes to the policy were related to the new
organization and to metal risk management.

Financial risks consist of market, country, credit, liquidity and refinancing
risks. Subsidiary companies hedge their currency and metal price risk with
Outokumpu Oyj, which does most of the Group’s foreign exchange and metal
derivative contracts with banks and other financial institutions. Treasury and
Risk Management function (“Treasury”) is responsible for managing foreign
exchange, metal, interest rate, liquidity and refinancing risk as well as emission
allowance price risk. Credit risk management is becoming more centralized and
Treasury coordinates the management of credit risk. Energy & Gas function is
responsible for managing electricity and fuel price risks.

Treasury sources substantial part of the Group’s insurances. The most
important insurance lines are property damage and business interruption,
liability, marine cargo and credit. The Group’s captive insurance company
Visenta Försäkrings AB retains selected part of risk.

Exposure to financial risk is identified as part of the risk management process.
This approach aims to secure that any emerging risk is identified early and
that each significant risk is described, quantified, managed and communicated
properly. In risk quantification, both likelihood of an adverse event and the
impact of that event are assessed. For market risk, the adverse scenario is
based on a predefined price change in a risk factor, e.g. in exchange rate or
metal price. Furthermore, the impact analysis is based on measured underlying
exposure, e.g. the amount of forecasted currency cash flow. The likelihood of

Outokumpu Annual report 2016

Financial statements

42/64

Foreign exchange rate risk

A major part of the Group’s sales is in euros and US dollars. A significant part
of expenses arise in euros, US dollars, Swedish kronas and British pounds. In
Europe, Outokumpu’s products are priced mainly in euros and therefore costs in
Swedish krona and British pounds give rise to a significant foreign exchange risk
impacting profitability and cash flows. Due to captive ferrochrome production
and related revenues being linked to US dollar, the EUR/USD exchange rate risk
for the Group is significant. Furthermore, stainless steel contribution margin is
impacted by the value of US dollar.

Foreign exchange positions of EUR-based companies

Outokumpu hedges most of its fair value risk which relates to currency
denominated accounts receivables, accounts payables, debt, cash, and loan
receivables. Cash flow risk related to firm commitments is hedged to a large
extent, whereas forecasted and probable cash flows can be hedged selectively
and with separate decisions only. In 2016 Outokumpu hedged part of the H2-
2016 forecasted cash flows related to its operations in The UK. The Group’s fair
value currency position is presented in a more detailed level in the table below.

Outokumpu has net income and net investment translation risk mainly in US
dollars, Swedish kronas and British pounds. Based on the policy this risk can
be hedged selectively and with separate decision only. In 2016 there were
no hedges related to net income or net investment exposures. The effective
portion of gains (EUR 17 million, net of tax) on earlier financial years’ net
investment hedges is recognized in other comprehensive income.

€ million

Trade receivables and payables
Loans and bank accounts 1)

Derivatives

Net position

Foreign exchange positions of SEK-based companies

€ million

Trade receivables and payables
Loans and bank accounts 1)

Derivatives

Net position

1) Includes cash and cash equivalents, loan receivables and debt

SEK

1
596

-475

122

EUR

52
20

-159

-87

2016

USD

-178
556

-409

-30

2016

USD

-13
13

-30

-31

GBP

12
0

-28

-15

GBP

-26
2

-10

Other

6
7

-10

Other

2
1

-10

-7

SEK

4
302

-135

170

EUR

-2
17

-144

-129

2015

USD

-99
930

-798

2015

USD

5
6

-25

-14

GBP

Other

18
-8

-22

-12

5
9

-12

GBP

Other

-4
1

-8

-11

4
0

-15

Changes in currency rates cause translation differences in debt and have
therefore impact on Group’s capital structure. The largest debt translation risk
relates to USD denominated internal loans. In 2016 USD 400 million equity was
injected into Outokumpu Americas Inc. in order to reduce the amount of internal
dollar denominated loans.

Interest rate risk

The Group’s interest rate risk is monitored as cash flow risk i.e. impact of
interest rate changes on net interest expenses, and fair value risk i.e. impact of
interest rate changes on fair value of monetary assets and liabilities. In order to
manage the balance between risk and cost in an optimal way, significant part of
debt has effectively short-term interest rate as a reference rate. This approach
typically helps to reduce average interest rate of debt while it may also provide
some mitigation against a risk of adverse changes in business environment,
which tends to result to decrease in short-term interest rates. Interest rate
swaps are used to manage Group’s interest rate risk.

US dollar, euro and Swedish krona have substantial contribution to the overall
interest rate risk. Approximately 34% (2015: 59%) of the Group’s debt has
an interest period of less than one year and the average interest rate of
non-current debt on December 31, 2016 was 7.2% (Dec 31, 2015: 5.4%).
Interest rate position is presented on a more detailed level in the table below.
Outokumpu is also exposed to variation of credit margins, mainly in regards of
any new financing.

Outokumpu Annual report 2016

Financial statements

43/64

Currency distribution and re-pricing of outstanding net debt

€ million

Currency

EUR

SEK

USD

Others

€ million

Currency

EUR

SEK

USD

Others

Net debt 1) Derivatives 2)

1,362

-1,057

-17

-31

-71

1,242

582

524

-17

Dec 31, 2016

Average
rate, %

Duration,
year

Rate
sensitivity 3)

5.6

-0.3

0.7

0.8

9.0

0.1

0.2

0.0

-4.5

5.7

4.9

-0.9

5.2

Net debt 1) Derivatives 2)

1,385

-1,107

283

-44

1,646

294

894

-78

Dec 31, 2015

Average
rate, %

Duration,
year

Rate
sensitivity 3)

5.5

4.1

21.2

2.7

11.5

0.3

0.2

-4.8

4.3

6.0

-0.9

4.5

1) Includes cash and cash equivalents, loan receivables and debt
2) Net derivative liabilities include nominal value of interest rate and cross currency
swaps and currency forwards earmarked to net debt. Currency forwards are not
included in average rate calculation
3) The effect of one percentage point increase in interest rates to financial
expenses over the following year

Changes in interest rates impact pension plan asset and liability values. The
net liability of Group’s pension plans is some EUR 300 million and therefore
decrease in long-term interest rates would typically increase the net liability of
the plans.

customer. Outokumpu’s nickel position consists of price fixed purchase orders,
inventories of nickel-containing materials and price fixed sales orders. Based on
financial risk policy applied in 2016 the identified nickel price risk, excluding risk
related to base stock, must be hedged. Nickel in base stock is hedged partially
and in 2016 the hedging ratio has been at around 20 percent. Nickel price
hedging has been done with dollar denominated derivatives, which are included
in currency position. This means that e.g. in Finland nickel hedging is effectively
done against euro. Risk related to stainless steel scrap purchase discounts is
not hedged. Outokumpu has not done any hedges on molybdenum and iron
prices mainly due to lack of liquid financial markets.

Nickel derivatives and LME warrants have been used to manage impacts of
price changes on earnings. Metal prices have a major impact on working capital
and therefore cash flow from operations. This risk has not been hedged with
derivatives, however strict working capital management helps to reduce cash
flow risk.

Outokumpu’s main sites in Europe are participating in the EU Emissions
Trading Scheme (ETS). The amounts of realized and forecasted carbon dioxide
emissions and granted emission allowances are monitored centrally. Emission
allowance price risk is managed with the aim of securing the cost of compliance
for the current trading period and reducing the cost of compliance. In certain
situations the market price of power is partly based on price of carbon dioxide
emissions. This indirect exposure to emission prices can be significant for
Outokumpu due to energy intensive processes using power, propane, natural
gas and other oil products, e.g. marine diesel. Outokumpu manages energy
price risk centrally.The Group hedges both propane and natural gas price risk
by locking future purchase prices mainly with supply contracts. Power price risk
is reduced with fixed price supply contracts and ownerships in power utilities.

Metal and energy price risk

Security price risk

Outokumpu uses a substantial amount of raw materials and energy for which
prices are determined in regulated markets, such as London Metal Exchange
and Nasdaq Commodities. Timing differences between alloy metal purchases
and pricing of stainless steel; changes in inventory levels; and the capability
to pass on price changes in raw materials to end-product prices affect metal
risk. In addition, the volume and amount of discounts related to stainless scrap
purchases have major impact on metal price risk. Since there is no established
financial market for chrome, this metal risk is not treated as financial risk.

Apart from chrome, changes in nickel price is the most important metal price
risk for Outokumpu. A majority of stainless steel sales contracts include an
alloy surcharge clause, with the aim of reducing the risk arising from the
timing difference between alloy metal purchase and stainless steel delivery to

Outokumpu has investments in equity and fixed income securities. On
December 31, 2016 the biggest investments were in Voimaosakeyhtiö SF
(equity investment EUR 48 million) and OSTP Holding Oy (equity investment of
EUR 23 million). The captive insurance company Visenta Försäkrings AB has
investments in highly rated and liquid fixed income securities as well as fixed
income and equity funds.

Outokumpu has a well-funded pension plan in the UK. This plan has assets
approximately EUR 500 million, most of which have been invested in fixed
income securities and a relatively large portion in equities. Changes in security
prices would therefore impact the net liability reported on this plan. For more
information please see note 25.

Country and credit risk

All sales must be covered by approved credit limits or secured payment
terms. Most of the outstanding trade receivables have been secured by credit
insurances, which typically cover some 90 percent of the insured amount. Part
of the credit risk related to trade receivables is managed with bank guarantees,
letters of credit and advance payments.

On December 31, 2016 the maximum exposure to credit risk of trade
receivables was EUR 471 million (2015: EUR 442 million). A large part of trade
receivables is covered by insurance or by secured payment terms, however
there are also unsecured trade receivables based on separate decisions.
The portion of unsecured receivables has varied between 13 to 17 percent
of all trade receivables. For significant part of trade receivables Outokumpu
uses factoring, which transfers most risks and rewards to the buyer of the
receivables. At the end of the year most of the receivables were generated by a
large number of customers and there were only a few risk concentrations. Age
analysis of accounts receivables is in note 22.

Treasury monitors credit risk related to receivables from financial institutions.
Outokumpu seeks to reduce these risks by limiting the counterparties to banks
and other financial institutions with good credit standing. For the derivative
transactions, Outokumpu prefers to have ISDA framework agreements in place.
Investments related to liquidity management are made in short-term deposits
and liquid financial instruments with low credit risk. Exposure to country risk is
monitored and at year-end such risk included e.g. Argentina due to Outokumpu’s
local and cross-border business activities there.

Liquidity and refinancing risk

Outokumpu raises most of its debt centrally. The Group seeks to reduce
liquidity and refinancing risk by having sufficient amount of cash and long-term
committed credit lines available, by having balanced maturity profile of debt and
by diversifying sources of funding. Efficient cash and liquidity management is
also reducing liquidity risk. Finance plans are prepared and reviewed regularly
with a particular focus on the Group’s forecasted cash flows, projected funding
requirements, planned funding transactions during the forecast period and
financial covenant headroom. The amount and adequacy of liquidity reserves,
the amounts of scheduled annual repayments of non-current debt as well as
forecasted gearing and leverage levels are key targets and outcomes of the
planning. In 2016 improved profitability and lower gearing allowed increased
focus on cost of debt optimization. Decent profitability, reduction in net working
capital, strict capex controls and certain asset disposals lead to a clear
reduction in net debt.

Outokumpu Annual report 2016

Financial statements

In March Outokumpu Oyj received corporate family rating of B3 and B3-PD
probability default rating from Moody’s. The 2019 and 2021 secured notes
were rated by Moody’s at B2. All ratings have a positive outlook. In June
Outokumpu issued the EUR 250 million 7.25% senior secured rated notes
maturing on June 16, 2021.

The main funding programs and credit facilities are: a committed revolving
facility of EUR 800 million, of which EUR 145 million matures in February 2017
and EUR 655 million in February 2019; two committed revolving bilateral
credit facilities of EUR 120 million maturing in February 2019, and a Finnish
commercial paper program totaling EUR 800 million. As at December 31, 2016
Outokumpu had a total amount of some EUR 920 million committed credit
facilities, of which EUR 775 million is long-term. All committed credit facilities
were unutilized at year-end. Outokumpu Oyj, certain subsidiaries and lenders
of Outokumpu benefiting from the security package have signed an intercreditor
agreement, which was created in February 2014. More information on liquidity
and refinancing risk is presented in the following table.

Contractual cash flows

2016

€ million

Bonds

Convertible bond

Loans from financial institutions

Pension loans

Finance lease liabilities

Commercial papers

Trade payables

Interest payments and facility charges

Interest rate derivatives

Other derivatives

44/64

2022–

122

Balance
Dec 31

2017

2018

496

219

165

155

321

1,111

321

1,111

2019

250

2020

250

2021

250

On December 31, 2016, the Group had cash and cash equivalent amounting to EUR 204 million and committed available long-term credit facilities totaling EUR 757
million. In addition, there is a fully unutilized EUR 145 million committed credit facility maturing in the end of February 2017.

1,672

115

364

336

346

164

2015

€ million

Bonds

Convertible bond

Loans from financial institutions

Pension loans

Finance lease liabilities

Commercial papers

Trade payables

Interest payments and facility charges

Interest rate derivatives

Other derivatives

Balance
Dec 31

398

210

467

174

208

339

830

2016

150

339

830

2017

2018

369

2019

250

2020

250

2021–

102

151

1,475

534

103

395

310

287

On December 31, 2015, the Group had cash and cash equivalent marketable securities amounting to EUR 186 million and committed and available credit facilities,
available and undrawn TyEL pension loans in Finland, and other agreed and undrawn loans totaling EUR 928 million.

Outokumpu Annual report 2016

Financial statements

45/64

Capital management

The objective of capital management is to secure ability to continue as a
going concern and to optimize cost of capital in order to enhance value to
shareholders. As part of this objective, the Outokumpu seeks to maintain
access to loan and capital markets at all times despite of the cyclical nature of
the stainless steel industry. The Board of Directors reviews the capital structure
of the Group on a regular basis. Capital structure and debt capacity are taken
into account when deciding on new investments. Tools to manage equity capital
include dividend policy, share buybacks and issues of equity or equity-linked
securities. Debt capital is managed taking into account the requirement to
secure liquidity and the capability to refinance maturing debt. These topics are
considered in connection with cost of capital optimization.

Tools to manage debt capital structure include loan prepayments and liability
management measures, such as the tender offers of issued notes and use
of call options. Revolving facilities include two financial covenants, which are
based on gearing and liquidity. The notes maturing in 2019 and 2021 include
incurrence based financial covenants on gearing. The 2019 notes covenant
level for gearing is 140% on December 31, 2016 and 130% thereafter. The
2021 notes covenant level for gearing is 120% until June 16, 2018 and 110%
thereafter.

The Group’s internal capital structure is reviewed on a regular basis with an
aim to optimize it e.g. by applying internal dividends and equity adjustments.
Net investment and debt in foreign subsidiaries is monitored and Outokumpu
has capability to hedge net investment translation risk. In 2016 Outokumpu
repatriated equity (EUR 170 million) by capital reduction in Belgium. Significant
amount (USD 400 million) of equity was injected to Outokumpu Americas Inc.

Outokumpu’s captive insurance company, Visenta Försäkrings AB, has to comply
with capital adequacy requirements set by the financial supervisory authority
in Sweden. During the reporting period Visenta has been profitable and well
capitalized to meet externally imposed requirements based e.g. on Solvency II
framework.

The management monitors Group’s capital structure on the basis of gearing
ratio, which is calculated as net debt divided by total equity. Net debt
is calculated as total current and non-current debt less cash and cash
equivalents. In 2016 leverage ratio, which is calculated by dividing net debt
by underlying EBITDA, has become an important measurement for capital
structure.

On December 31, 2016, net debt was EUR 1,242 million (2015: EUR 1,610
million), total equity EUR 2,416 million (2015: EUR 2,329 million) and gearing
51.4% (2015: 69.1%). The decrease in gearing resulted primarily from reduction
in net working capital and recognizion of deferred tax assets.

Insurances

The Group’s business is capital intensive and key production processes are
rather tightly integrated and have therefore interdependencies. Property
damage and business interruption (PDBI) insurance, covering e.g. fires,
machinery breakdowns and natural catastrophes, is the most important
insurance line and significant portion of insurance premiums paid relate PDBI
cover. Business operations may cause significant liability risks related e.g. to
people, environment or Outokumpu’s products. Outokumpu aims to mitigate
liability risk by relevant risk management measures and by having reasonable
insurances in place. Other significant insurance lines include marine cargo and
credit.

During the reporting year there were no serious fires or machinery breakdown
incidents. There was one PDBI insurance claim caused by severe weather
conditions (lightning) in the Tornio region. In December a ship carrying
Outokumpu’s ferronickel sank in the Aegean sea. The value of Outokumpu’s
cargo (approximately EUR 6 million) is covered by insurance. There were no
significant liability or credit insurance claims in 2016. Fire safety and machinery
breakdown audits were carried out mainly as planned. The loss settlement
for the machinery breakdown, which took place in June 2014 in Calvert, was
settled with insurers in March at about USD 60 million less risk retention of
about USD 13 million.

Visenta Försäkrings AB, a captive insurance company owned by Outokumpu,
can act as direct insurer and as reinsurer. Visenta is registered in Sweden and it
has assets totaling EUR 26 million (2015: EUR 28 million). Visenta underwrites
PDBI insurance and it has issued a surety bond to support the AvestaPolarit
pension scheme in the UK.

Outokumpu Annual report 2016

Financial statements

46/64

20. Fair values and nominal amounts of derivative
instruments

Positive
fair value

2016
Negative
fair value

Net fair
value

2015

Net fair
value

2016
Nominal
amounts

2015

Nominal
amounts

Hedge accounted cash flow hedges

Outokumpu has hedged currency spot price risk related to SEK denominated long-term electricity supply agreement for the
Finnish production sites. The currency derivatives, which hedge the currency risk, mature in other periods in year 2017 than
the underlying cash flows of electricity purchases. The derivatives will be prolonged later to mature at the same period as
the underlying cash flows.

2,647

777

2,284

578

Tonnes

€ million

Maturity < 1 year

Maturity 1–5 years

2016

Fair value of
outstanding
cash flow
hedges,
€ million

Nominal
amount,
SEK million

390

770

1,161

Equity,
€ million

-1

Nominal
amount,
SEK million

391

1,171

1,562

2015

Fair value of
outstanding
cash flow
hedges,
€ million

Equity,
€ million

€ million

Currency and interest rate derivatives

Currency forwards

Interest rate swaps

Metal derivatives

Forward and futures nickel contracts

Forward and futures molybdenum contracts

Nickel options, sold

Emission allowance derivatives

Propane derivatives

Natural gas derivatives

-25

-5

-2

-1

Total derivatives

-33

Less long-term derivatives

Interest rate swaps

Forward and futures nickel contracts

Propane derivatives

Short-term derivatives

-4

-29

-7

-4

-3

-0

-12

-1

-22

-6

-2

-1

-12

27,233

32,623

1,800

212

- 2,400,000

61,500

MMBtu

705,000

Fair values are estimated based on market rates and prices on the reporting date, discounted future cash flows and, in
respect of options, on valuation models.

Master netting agreements and similar arrangements

Outokumpu enters into derivative transactions with most counterparties under ISDA agreements. In general the amounts
owed by each counterparty on a single day in respect of all transactions outstanding in the same currency are aggregated
into a single net amount that is payable by one party to the other. In certain circumstances, e.g. when a credit event
such as a default occurs, all outstanding transactions under the agreement are terminated, the termination value is
assessed and only a single amount is payable in settlement of all transactions. ISDA agreements do not meet the criteria
for offsetting in the statement of financial position. The right to offset is enforceable only on the occurrence future credit
events. The following table sets out the carrying amounts of recognized financial instruments that are subject to the
agreements described above.

€ million

Derivative assets

Gross amounts of recognized financial assets in the statement of financial position

Related financial instruments that are not offset

Derivative liabilities

Gross amounts of recognized financial liabilities in the statement of financial position

Related financial instruments that are not offset

2016

2015

Outokumpu Annual report 2016

Financial statements

47/64

21. Inventories

22. Trade and other receivables

2015

€ million

2016

2015

€ million

Raw materials and consumables
Work in progress

Finished goods and merchandise

Advance payments

2016

376
508

347

340
476

434

Non-current

Loans receivable

Other accruals and receivables

1,232

1,251

The most important commodity price risk for Outokumpu is caused by
fluctuation in nickel and other alloy prices. Majority of stainless steel sales
contracts include an alloy surcharge clause, with the aim of reducing the
risk arising from the time difference between raw material purchase and
product delivery. However, the risk is remarkable, because the delivery cycle
in production is longer than the alloy surcharge mechanism expects. Thus,
only the price for the products to be sold in near future is known. That is why
a significant part of the future prices for the products to be sold is estimated
according to management’s best knowledge in net realizable value (NRV)
calculations. Due to fluctuation in nickel and other alloy prices, the realized
prices can deviate significantly from what has been used in NRV calculations on
the closing date. Reversal of NRV write-downs amounting to EUR 26 million were
recognized in income statement during the financial year (2015: write-downs
amounting to EUR 21 million).

Current

Trade receivables

VAT receivable

Income tax receivable

Loans receivable

Prepaid insurance expenses

Other accruals

Other receivables

Allowance for impairment of trade receivables

Allowance on Jan 1

Additions

Deductions

Recovery of doubtful receivables

Allowance on Dec 31

Age analysis of trade receivables

Neither impaired, nor past due

Past due 1–30 days

Past due 31–60 days

More than 60 days

471

687

-22

-3

421

471

443

122

686

-4

-2

390

443

As of December 31, 2016 Outokumpu has derecognized trade receivables
totaling EUR 387 million (2015: EUR 287 million), which represents fair value
of the assets. Net proceeds received totaled EUR 364 million (2015: EUR 271
million). Underlying assets have maturity less than one year. The maximum
amount of loss related to derecognized assets are estimated to be EUR 17
million (2015: EUR 17 million). This estimation is based on insurance policies
and contractual arrangements of factoring companies and Outokumpu. The
analysis does not include impact of any operational risk related to Outokumpu’s
contractual responsibilities.

EUR 12 million of receivables from associated companies were impaired during
2016 in addition to EUR 10 million that were included in the allowance for
impairment of trade receivables on December 31, 2015. The total impairment
was reversed in September 2016.

23. Cash and cash equivalents

€ million

Cash at bank and in hand
Short-term bank deposits 1)

2016

203
0

204

2015

145
41

186

1) In 2015 including a short-term deposit EUR 30 million which has been pledged.

Fair value of cash and cash equivalents does not significantly differ from the
carrying value. The average effective interest rate of cash and cash equivalents
at the end of 2016 was 0.2% (Dec 31, 2015: 1.3%).

The maximum exposure to credit risk at the reporting date is the carrying
amount of the loan and trade receivables. Most of the outstanding trade
receivables have been secured by credit insurance policies, which typically
covers some 90% of an insured credit loss. Credit risks related to trade
receivables are presented in more detail in note 19. Financial risk management,
capital management and insurances.

Outokumpu Annual report 2016

Financial statements

48/64

24. Equity

Share capital, premium fund and invested unrestricted equity reserve

€ million

On Jan 1, 2015

Shares granted from the share-based payment programs 1)

On Dec 31, 2015

Shares granted from the share-based payment programs 1)

Treasury share purchase

On Dec 31, 2016

Treasury shares 1)

Total number of shares on Dec 31, 2016

1) Shares granted from treasury shares without effect to share capital.

Number of
shares,
1,000

415,427

415,489

371

-2,000

413,861

2,514

416,374

Share
capital

Premium fund

Invested
unrestricted
equity reserve

311

714

2,103

Total

3,127

714

2,103

3,127

According to the Articles of Association, the Outokumpu share does not have
nominal value.

Retained earnings

Premium fund includes proceeds from share subscription and other contribution
based on the old Finnish Limited Liability Companies Act for the part the
contributions exceed the account equivalent value allocated to share capital.

Invested unrestricted equity reserve includes net proceeds from the rights
issues in 2014 and 2012.

Fair value reserves

Retained earnings include remeasurements of defined benefit plans, treasury
shares, cumulative translation differences and other retained earnings and
losses.

Distributable funds

On December 31, 2016 the distributable funds of the parent company totaled
EUR 2,247 million of which retained earnings were EUR 123 million. The Board
of Directors proposes to the Annual General Meeting in 2017 that a dividend of
EUR 0.10 per share is paid for 2016 (no dividends paid for 2015).

Fair value reserves include movements in the fair values of available-for-sale
financial assets and derivative instruments used for cash flow hedging.

Non-controlling interest

Other reserves

Other reserves includes amounts transferred from the distributable equity
under the Articles of Association or by a decision of the General Meeting of
Shareholders, and other items based on the local regulations of the Group
companies.

In December 2015 Outokumpu divested the subsidiary Shanghai Krupp
Stainless Co., Ltd. (SKS) incorporated in China, which had a 40% non-controlling
interest (see note 4).

In 2015 Outokumpu’s profit attributable to SKS’s non-controlling interest
amounted to EUR -9 million. EUR 41 million of SKS’s share capital was paid up
by the non-controlling interest holder in 2015. SKS’s sales was EUR 322 million
and net result for the financial year was EUR -23 million in 2015 until the loss of
control, before intercompany eliminations but including fair value adjustments.

Outokumpu Annual report 2016

Financial statements

25. Employee benefit obligations

Risks associated with defined benefit plans

Outokumpu has established several defined benefit and defined contribution
plans in various countries. The most significant defined benefit plans are in
Germany and in the UK.

Through its defined benefit pension plans, Outokumpu is exposed to a number
of risks, the most significant of which are detailed below.

Defined benefit cost recognized in the
consolidated statements of income
and comprehensive income
€ million

2016

Germany

In Germany Outokumpu has several defined benefit plans, of which major plans
include a management plan, open pension plans for normal staff, and other
pension promises, which are nearly all closed for new entrants. Basis to all
pension promises in Germany are bargaining agreements and/or individual
contracts (management promises). Management plan and other pension
promises are based on annuity payments, whereas plans for normal employees
are based on one lump sum payment after retirement

In addition, all the promises are embedded in Germany in the BetrAVG law. The
law contains rules for vested rights, pension protection scheme and regulations
for the pension adjustments. In Germany no funding requirements exist, thus
the plans are materially all unfunded.

The UK scheme provides pensions in retirement and death benefits to
members. In October 2016, Outokumpu closed its defined benefit pension
scheme in the UK to future pension accruals and made changes to the terms of
retirement. All members have joined a defined contribution scheme. As a result,
the net pension obligation decreased due to a curtailment of EUR 26 million.

The scheme is registered under UK legislation and is contracted out of
the State Second Pension. The scheme is subject to the scheme funding
requirements outlined in UK legislation. The scheme trustees are responsible
for the operation and governance of the scheme, including making decisions
regarding the scheme’s funding and investment strategy.

Asset volatility: The level of equity returns is a key factor in the overall
investment return. If a plan holds significant proportion of equities, which are
expected to outperform corporate bonds in the long-term, it might face higher
volatility and risk in the short-term. The investment portfolio might also be
subject to a range of other risks typical of the assets held, in particular credit
risk on bonds and exposure to the property market.

In EBIT

In financial income and expenses

Defined benefit cost recognized in the
consolidated statement of income

In other comprehensive income

Total defined benefit cost recognized

-6

-63

-53

Change in bond yields: A decrease in corporate bond yields will increase plan
liabilities, although this will be partially offset by an increase in the value of the
plans’ bond holdings (if any). In a situation where the return on plan assets is
lower than the corporate bond yields, a plan may face a shortfall which might
lead to increased contributions.

Amounts recognized in the consolidated
statement of financial position
€ million

2016

Present value of funded defined benefit obligations

Present value of unfunded defined benefit obligations

Inflation risk: Inflation rate is linked to both future pension and salary increase,
and higher inflation will lead to higher liabilities.

Fair value of plan assets

Net defined benefit liability

Longevity: The majority of Outokumpu’s defined benefit obligations are to
provide benefits for the life of the member, so increases in life expectancy will
result in an increase in the plans’ liabilities.

Funding

€ million

Defined benefit liability

Other long-term employee benefit liabilities

Defined benefit assets

Net liability

Funding requirements are generally based on pension fund’s actuarial
measurement framework set out in the funding policies. In UK preliminary
pension fund’s valuation was completed in 2015 with a deficit of GBP 27
million. In 2016, Outokumpu made contributions totaling GBP 20 million to the
plan to cover the deficit, and the remaining GBP 7 million will be paid in 2017.
The valuation is not based on the the same assumptions as the IFRS valuation,
which shows a surplus.

49/64

2015

-12

-7

-18

-15

2015

489

323

-516

295

2015

331

-35

334

497

307

-527

276

2016

322

-45

311

Outokumpu Annual report 2016

Financial statements - Consolidated financial statements, IFRS

Movement in net defined benefit liability

€ million

On Jan 1

Current service cost

Interest expense/(income)

Remeasurements arising from

Return on plan assets

Demographic assumptions

Financial assumptions

Experience adjustment

Exchange differences

Employer contributions

Contributions by plan participants

Benefits paid

Curtailments

Reclassification to liabilities directly attributable to assets held for sale

Other change

On Dec 31

2016

2015

Present value
of obligation

Fair value of
plan assets

Net defined
benefit liability

Present value
of obligation

Fair value of
plan assets

Net defined
benefit liability

812

140

-4

-64

-36

-27

-53

-2

804

-516

-19

-74

-38

-1

-527

295

-74

140

-4

-38

-0

-27

-38

-2

276

792

-3

-18

-0

-27

-3

812

-498

-19

-30

-13

-1

-516

295

-3

-18

-0

-13

-0

-3

295

The present value of obligations and the fair value of plan assets comprise mainly of German and UK plans. The present value of obligation for German plans on
December 31, 2016 was EUR 305 million (Dec 31, 2015: EUR 275 million). For the UK, the present value of obligation was EUR 451 million (Dec 31, 2015: EUR 433
million), and the fair value of plan assets was EUR 496 million on December 31, 2016 (Dec 31, 2015: EUR 468 million).

The expected contributions to be paid to the defined benefit plans in 2017 are EUR 21 million, covering also the deficit reduction in the UK according to the agreed
payment schedule.

Allocation of plan assets
€ million

Equity instruments

Debt instruments

Real estate

Investment funds

Other assets

Total plan assets

2016

277

160

525

50/64

2015

346

514

Allocation of plan assets covers 99% of total defined benefit plan assets.
The plan assets are mainly invested in quoted instruments. Debt instruments
include mostly investment-grade government and corporate bonds.

Asset-liability matching strategies

The majority of defined benefit assets are in the UK. The UK scheme’s
benchmark asset allocation is 30%/70% return-seeking/liability matching. This
strategy reflects the scheme’s liability profile and the trustees’ and company’s
attitude to risk. The trustees monitor the investment objectives and asset
allocation policy on a regular basis.

Outokumpu Annual report 2016

Financial statements - Consolidated financial statements, IFRS

51/64

Significant actuarial assumptions

Discount rate, %

Future salary increase, %

Inflation rate, %

Future benefit increase, %

Medical cost trend rate, %

Life expectancy

2016

2015

2016

2015

2016

2015

2016

2015

2016

2015

2016

2015

Germany

1.75

2.25

1.50

1.52

The UK

Other countries

2.75

4.00

3.80

3.50

3.30

3.15

3.00

3.82

3.86

2.24

2.23

6.60–7.00

7.30–7.80

Modified from RT 2005 G

110% SAPS All Pensioner
Amounts tables

Standard mortality tables

The significant actuarial assumptions are presented separately for the significant countries, and for other countries a
weighted average of the assumptions is presented.

The UK

2016

Discount rate

Future benefit increase

Life expectancy

2015

Discount rate

Future benefit increase

Future salary increase

Life expectancy

Other countries

2016

Discount rate

Medical cost trend rate

Future salary increase

Life expectancy

The weighted average duration of the overall defined benefit obligation is 17.4 years. In Germany and in the UK the weighted
average durations are 14.7 and 20.2 years, respectively.

2015

Discount rate

Sensitivity analysis of significant actuarial assumptions

Reasonably possible changes at the reporting date to one of the weighted principal assumptions, while holding all other
assumptions constant, would have affected the defined benefit obligation as shown below:

Medical cost trend rate

Future salary increase

Life expectancy

Germany

2016

Discount rate

Future benefit increase

Life expectancy

2015

Discount rate

Future benefit increase

Life expectancy

Change in assumption

Increase in assumption

Decrease in assumption

0.5%

1 year

0.5%

1 year

Decrease by 7%

Increase by 4%

Increase by 3%

Decrease by 7%

Increase by 4%

Increase by 3%

Increase by 8%

Decrease by 4%

Increase by 7%

Decrease by 4%

Change in assumption

Increase in assumption

Decrease in assumption

0.5%

1 year

0.5%

1 year

Decrease by 10%

Increase by 12%

Increase by 7%

Increase by 3%

Decrease by 7%

Decrease by 9%

Increase by 10%

Increase by 6%

Increase by 1%

Increase by 3%

Decrease by 5%

Decrease by 1%

Change in assumption

Increase in assumption

Decrease in assumption

0.5%

1 year

0.5%

1 year

Decrease by 6%

Increase by 8%

Increase by 1%

Increase by 4%

Decrease by 6%

Increase by 8%

Increase by 1%

Increase by 5%

Increase by 7%

Decrease by 6%

Decrease by 1%

Increase by 7%

Decrease by 6%

Decrease by 1%

Outokumpu Annual report 2016

Financial statements - Consolidated financial statements, IFRS

Other long-term employee benefits

26. Provisions

Other long-term employee benefits mainly relate to long-service remunerations
and early retirement provisions in Germany as well as long-service
remunerations in Finland. In Germany, the employees are entitled to receive a
one-time indemnity every ten years after 25 years of service. Under the early
retirement agreements, employees work additional time prior to retirement,
which is subsequently paid for in instalments after retirement. In Finland, the
employees are entitled to receive a one-time indemnity every five years after 20
years of service.

The other long-term employee benefit liabilities recognized in the consolidated
statement of financial position on December 31, 2016 were EUR 34 million
(Dec 31, 2015: EUR 38 million).

Multi-employer defined benefit plans

ITP pension plans operated by Alecta in Sweden and plans operated by
Stichting Bedrijfspensioenfonds voor de metaalindustrie in the Netherlands
are multi-employer defined benefit pension plans. However, it has not been
possible to get sufficient information for the calculation of obligations and
assets by employer from the plan operators, and therefore these plans have
been accounted for as defined contribution plans in the consolidated financial
statements.

€ million

Provisions on Jan 1, 2016

Translation differences

Increases in provisions

Utilized during the financial year

Unused amounts reversed

Acquired subsidiaries

Reclassifications

Provisions on Dec 31, 2016

€ million

Non-current provisions

Current provisions

Restructuring provisions

52/64

Total

136

-2

-46

-15

133

2015

113

136

Restructuring
provisions

Environmental
provisions

Other provisions

-0

-29

-11

-2

-8

-1

-8

-4

2016

118

133

In 2016, increases in provisions were mainly due to global streamlining measures related to sales, general and administrative functions and restructuring measures in
accordance with the EMEA restructuring plan. The restructuring provisions are expected to be paid between the years 2017–2024.

Environmental provisions

Majority of the environmental provisions are for closing costs of production facilities and landfill areas, removal of problem waste and landscaping in facilities in
Finland, in the UK, in the US and in Germany. The outflow of economic benefits related to environmental provisions is expected to take place mainly over a period
of more than 10 years. Due to the nature of these provisions, there are uncertainties regarding both the amount and the timing of the outflow of economic benefits.
Reclassifications occurred between provisions and other current liabilities.

Other provisions

Other provisions comprise for example provisions for product and other claims and are mainly current in nature. The increase is mainly due to product claims and a
provision related to earlier site closures.

Provisions are based on management’s best estimates at the end of the reporting period.

Outokumpu Annual report 2016

Financial statements - Notes to the consolidated financial statements

53/64

27. Debt

€ million

Non-current

Bonds

Convertible bonds

Loans from financial institutions

Pension loans

Finance lease liabilities

Current

Bonds

Loans from financial institutions

Pension loans

Finance lease liabilities

Commercial paper

Finance lease liabilities

Minimum lease payments

€ million
Not later than 1 year

Between 1 and 5 years

Later than 5 years

Future finance charges

Present value of minimum lease payments

€ million
Not later than 1 year

Between 1 and 5 years

Later than 5 years

Present value of minimum lease payments

2016

151

-169

155

2016

155

2015

122

253

-211

207

2015

102

207

29. Commitments and contingent
liabilities

€ million
Mortgages and pledges on Dec 31

Mortgages

Other pledges

Guarantees on Dec 31

On behalf of subsidiaries for commercial and
other commitments

On behalf of associated companies for financing

On behalf of other companies for financing

On behalf of other companies for commercial and
other commitments

Other commitments

2016

2015

3,447

3,559

2016

2015

496

219

158

987

321

458

248

210

447

165

179

1,249

150

339

547

The bonds maturing in 2019 and 2021 as well as most of the bank loans
include financial covenants, which are described in note 19.

28. Trade and other payables

Bonds

€ million

2012 fixed rate bond maturing on June 7, 2016

2014 fixed rate bond maturing on Sept 30, 2019

2016 fixed rate bond maturing on June 16, 2021

Convertible bonds

€ million

Interest
rate, %

5.875

6.625

7.250

Interest
rate, %

2015 fixed rate bond maturing on Feb 26, 2020

3.250

Outstanding amount

€ million

2016

2015

250

500

150

250

400

Non-current

Accruals

Current

Trade payables

Accrued employee-related expenses

Accrued interest expenses

VAT payable

Outstanding amount

Advances received

2016

250

2015

250

Withholding tax and social security liabilities

Payables related to factoring programs

Other accruals

Other payables

2016

2015

1,111

830

102

1,459

1,089

Mortgages relate mainly to securing Group’s financing. A major part of
Outokumpu’s borrowings are secured partly by mortgage over the real property
of the Group’s main production plants and partly by share pledges over the
shares in selected Group companies.

Outokumpu has provided a security, including a pledge of shares of a subsidiary
company, related to AvestaPolarit pension scheme.

Other pledges reported in 2016 include Outokumpu’s shares in Manga LNG
Oy to secure certain liabilities of Manga LNG Oy. Outokumpu’s total liability at
the end of 2016 amounted to EUR 22 million, which is presented under other
pledges and other commitments.

Outokumpu Oyj is, in relation to its shareholding in Kymppivoima Tuotanto
Oy and Etelä-Pohjanmaan Voima Oy, liable for the costs, commitments and
liabilities relating to electricity provided by Rapid Power Oy. Outokumpu’s liability
for the net debt of Rapid Power Oy at the year-end 2016 amounted to EUR 4
million (2015: EUR 7 million). Outokumpu Oyj is, in relation to its shareholding
in Etelä-Pohjanmaan Voima Oy, liable for the costs, commitments and liabilities
relating to electricity provided by Tornion Voima Oy. Outokumpu’s liability for the
net debt of Tornion Voima Oy at the year-end 2016 amounted to EUR 3 million
(2015: EUR 4 million). These liabilities are reported under other commitments.

Outokumpu Annual report 2016

Financial statements - Notes to the consolidated financial statements

54/64

One remaining guarantee issued by ThyssenKrupp on behalf of Inoxum
companies has not yet been transferred to Outokumpu Oyj as of December 31,
2016. However, Outokumpu Oyj has given ThyssenKrupp a counter-guarantee
for this commitment amounting to EUR 4 million.

Present value of minimum lease
payments on operating leases

€ million
Not later than 1 year

Between 1 and 5 years

Later than 5 years

2016

2015

Operating leases include lease agreements on Group companies’ premises.

Outokumpu’s share of the Fennovoima investment is about EUR 250 million
of which EUR 48 million has been paid by the end of the reporting period.
Annual capital expenditure related to the project is expected to be around EUR
10–20 million in the coming years, and approximately half of the investment is
expected to be paid only at the end of the construction phase in 2022–2023.

Group’s other off-balance sheet investment commitments totaled EUR 19
million on December 31, 2016 (Dec 31, 2015: EUR 60 million).

30. Disputes and litigations

Dispute over invention rights,
Outotec vs. Outokumpu

Cartel fine imposed by the
European Commission

In March 2011, the European Court of Justice upheld a EUR 3.2 million cartel
fine imposed on ThyssenKrupp Stainless AG, a legal predecessor of Outokumpu
Nirosta GmbH (“Nirosta”), in a decision of the European Commission from
December 2006 (the “2006 Decision”). The 2006 Decision is based on a
1998 European Commission finding (the “1998 Finding”) that between 1993–
1998, certain stainless steel producers, including Inoxum and certain of its
legal predecessors, had violated Article 65 (1) of the European Coal and Steel
Community Treaty by participating in a price-fixing arrangement with other
stainless steel producers. The alleged price-fixing arrangement consisted of
modifying and applying in a concerted fashion the reference values used to
calculate the alloy surcharge to the base price of stainless steel. The 1998
Finding was appealed and subsequently annulled on procedural grounds with
respect to Nirosta’s liability for one of its legal predecessors. Subsequent to
this annulment, the European Commission opened new proceedings, which
resulted in the 2006 Decision. Nirosta’s appeals of the 2006 Decision were
unsuccessful. In April 2011, Nirosta filed a complaint (Verfassungsbeschwerde)
with the German Constitutional Court (Bundesverfassungsgericht) requesting
that the Court declare the 2006 Decision incompatible with certain
fundamental rights under the German Constitution (Grundgesetz). The German
Constitutional Court decided on July 19, 2016 not to accept the complaint.
Outokumpu has decided not to pursue the matter further.

Claim in Spain related to the
divested copper companies

Outokumpu divested all of its copper business in 2003–2008. One of
the divested companies domiciled in Spain later faced bankruptcy. The
administrator of the bankruptcy filed a claim against Outokumpu Oyj and two
other non-Outokumpu companies, for recovery of payments made by the
bankrupt Spanish company in connection with the divestment. The Bilbao court
of first instance in Spain has accepted the claim of EUR 20 million brought
against Outokumpu and the two other companies. Outokumpu and the two
other companies have appealed the court’s decision.

Claim in Italy related to former
tax consolidation group

In December 2015 Outokumpu Holding Italia and Acciai Speciali Terni
(AST) entered into a dispute relating to the tax consolidation of the former
ThyssenKrupp Tax Group in Italy. AST claims payment of approximately
EUR 23 million resulting from the former tax consolidation of the Italian tax
group managed by ThyssenKrupp. Outokumpu Holding Italia is the former
ThyssenKrupp holding company and was transferred to Inoxum as part of
the carve-out in 2011. The EUR 23 million claim resulted from former tax
installments paid by ThyssenKrupp Italia in 2006 which have not been properly
settled towards AST in the following years. The matter is currently pending in
court.

Antitrust investigation in Germany

On September 22, 2016, Outokumpu’s subsidiary in Germany (Outokumpu
Nirosta GmbH) received a letter from the German Federal Cartel Office stating
that the company has been included in an ongoing investigation of possible
infringements of antitrust laws in the past. Following an internal investigation,
Outokumpu’s view is that the official investigation on it is without merit.

55/64

Total

5,762

1,099

2,758

1,015

Outokumpu Annual report 2016

Financial statements - Notes to the consolidated financial statements

31. Related party transactions

Employee benefits for CEO and Deputy CEO

Outokumpu’s related parties include the key management of the company and
their close family members, associated companies and joint ventures, and
Solidium Oy. The transactions with related parties are presented in the tables
below. Key management includes Leadership Team members and members of
the Board of Directors. The principal associated companies and joint ventures
are listed in note 13 and subsidiaries are presented in note 32.

Solidium Oy, a limited company fully owned by the State of Finland, owns 26.2%
of Outokumpu on December 31, 2016. Solidium’s mission is to strengthen and
stabilize Finnish ownership in nationally important companies and increase the
value of its holdings in the long run.

Transactions and balances with related companies

€ thousand

2016

CEO

Deputy to the CEO 1)

2015

CEO, January 1–October 26

Deputy to the CEO

Salaries and
other short-
term benefits

Termination
benefits

Bonuses

Post-
employment
benefits

Share-based
payments

1,137

530

635

512

1,821

948

168

675

336

302

503

3,001

1) Christoph de la Camp as of July 1, 2016; Reinhard Florey until June 30, 2016

Regarding the CEO, the figures include both the statutory pension expenses based on the Finnish Employees Pensions Act and the expenses for a defined contribution
pension plan with an annual insurance premium of 25% of his annual earnings, excluding share rewards. The CEO has the right to retire at the age of 63. The deputy to
the CEO resides in Germany and is entitled to the pension benefits in accordance with the German Essener Verband. The pension of the deputy to the CEO until June
30, 2016 was also under German Essener Verband.

€ million
Sales

Purchases

Interest income

Trade and other receivables

Trade and other payables

2016

142

-6

2015

137

-6

Remuneration to Board of Directors

€ thousand
Chairman Jorma Ollila

Vice Chairman Olli Vaartimo

Member Markus Akermann

Member Roberto Gualdoni

Member Stig Gustavson

EUR 12 million of receivables from associated companies were impaired during
2016 in addition to EUR 10 million that were impaired on December 31, 2015. The
total impairment was reversed in September 2016. Property, plant and equipment
with sales price of EUR 8 million was sold to an associated company in 2015.

Member Kati ter Horst, as of April 6, 2016

Member Heikki Malinen

Member Saila Miettinen-Lähde, as of March 26, 2015

Member Elisabeth Nilsson

Member Siv Schalin, until March 26, 2015

Employee benefits for the key management

2016

151

2015

154

763

721

€ thousand
Short-term employee benefits

Termination benefits

Post-employment benefits 1)

Share-based payments

Remuneration to the Board of Directors

1) Includes only supplementary pensions.

2016

7,956

1,243

4,485

763

14,447

2015

4,187

2,681

1,307

273

721

9,169

In 2016, key management has received EUR 978,000 related to financing
arrangements of the matching share plans.

More information on key management’s employee benefits can be found on the page Remuneration, on p.14 in the Corporate Governance section.

Outokumpu Annual report 2016

Financial statements - Notes to the consolidated financial statements

56/64

32. Subsidiaries on December 31, 2016

Europe

AO Outokumpu

Avesta Klippcenter AB

Hernandez Edelstahl GmbH

Outokumpu AS

Outokumpu A/S

Outokumpu Asia Pacific Ltd

Outokumpu Benelux B.V.

Outokumpu B.V.

Outokumpu Chrome Oy

Outokumpu Distribution France S.A.S.

Outokumpu Distribution Hungary Kft.

Outokumpu Distribution Polska Sp. z o.o.

Outokumpu Distribution UK Ltd.

Outokumpu EMEA GmbH

Outokumpu EMEA Oy

Outokumpu Ges.m.b.H

Outokumpu India Private Limited

Outokumpu Industriunderhåll AB

Outokumpu Istanbul Dis Ticaret Limited Sirketi

Outokumpu K.K.

Outokumpu Management (Shanghai) Co., Ltd.

Outokumpu Middle East FZCO

Outokumpu Nirosta GmbH

Outokumpu Nordic AB

Outokumpu N.V.

Outokumpu Prefab AB

Outokumpu Press Plate AB

Outokumpu PSC Benelux B.V.

Outokumpu PSC Finland Oy

Outokumpu PSC Germany GmbH

Outokumpu Pty Ltd

Outokumpu (Pty) Ltd

Outokumpu S.A.

Outokumpu (S.E.A.) Pte. Ltd.

Outokumpu Shipping Oy

Outokumpu S.p.A.

Outokumpu S.r.l.

Country

Group
holding, %

Russia

Sweden

Germany

Norway

Denmark

China

The Netherlands

Finland

France

Hungary

Poland

The UK

Germany

Finland

Austria

India

Sweden

Turkey

Japan

China

United Arab
Emirates

Germany

Sweden

Belgium

Sweden

The Netherlands

Finland

Germany

Australia

South Africa

Spain

Singapore

Finland

Italy

Romania

100

Outokumpu Stainless AB

Outokumpu Stainless B.V.

Outokumpu Stainless (GZ) Trading Co. Ltd.

Outokumpu Stainless Steel (China) Co. Ltd.

Outokumpu Stainless Oy

Outokumpu Tornio Infrastructure Oy

Sogepar UK Limited

Americas

Outokumpu Brasil Comercio de Metais Ltda.

Outokumpu Fortinox S.A.

Outokumpu Mexinox Distribution S.A. de C.V.

Outokumpu Mexinox S.A. de C.V.

Outokumpu Stainless Coil, Inc.

Outokumpu Stainless Plate, LLC

Outokumpu Stainless USA, LLC

ThyssenKrupp Mexinox CreateIT, S.A. de C.V.

Long Products

Outokumpu Stainless Bar, LLC

Outokumpu Stainless Ltd

Outokumpu Stainless Pipe, Inc.

Polarit Welding, Inc.

Other operations

2843617 Canada Inc.

OHHEB GmbH

Orijärvi Oy

Outokumpu Americas, Inc.

Outokumpu Chrome Holding Oy

Outokumpu Distribution Benelux B.V.

Outokumpu Holding Germany GmbH

Outokumpu Holding Italia S.p.A.

Outokumpu Holding Nederland B.V.

Outokumpu Holding UK Limited

Outokumpu Mining Australia Pty. Ltd.

Outokumpu Mining Oy

Outokumpu Stainless Holding GmbH

Outokumpu Stainless Holdings Ltd

Country

Sweden

The Netherlands

China

Finland

The UK

Brazil

Argentina

Mexico

The US

Mexico

The US

The UK

The US

Canada

Germany

Finland

The US

Finland

The Netherlands

Germany

Italy

The Netherlands

The UK

Australia

Finland

Germany

The UK

Group
holding, %

100

Outokumpu Stainless UAB

Outokumpu Treasury Belgium N.V./SA

Outokumpu Zinc B.V.

Viscaria AB

Visent Invest AB

Visenta Försäkrings AB

Country

Lithuania

Belgium

The Netherlands

Sweden

Group
holding, %

100

In addition Outokumpu has agents and branch offices in Argentina, Bulgaria,
Chile, Colombia, Egypt, Estonia, Greece, Israel, South Korea, Lebanon, Peru,
Slovenia, Switzerland, Taiwan, Thailand, Venezuela and Vietnam.
This list does not include all dormant companies or all holding companies.
The Group holding corresponds to the Group’s share of voting rights.

1) Acquired in 2016
2) Established in 2016
*) Shares and stock held by the parent company

33. Events after the end of the
reporting period

Divestment of quarto plate mill in the US

On January 25, 2017, Outokumpu divested its quarto plate mill in New
Castle, Indiana, US to D’Orazio Capital Partners, a US-based private equity
company and to the mill’s current management. The cash consideration of the
transaction is expected to be approximately EUR 28 million, depending on the
amount of the net working capital at the closing. In 2016 financial statements,
the New Castle mill is presented as assets held for sale.

Outokumpu Annual report 2016

Financial statements - Notes to the consolidated financial statements

57/64

Key financial figures

Group key figures

Scope of activity

Sales

- change in sales

- exports from and sales outside Finland,
of total sales

Capital employed on Dec 31 1)

Operating capital on Dec 31 1)

Capital expenditure 2)

- in relation to sales

Depreciation and amortization

Impairments

Research and development costs

- in relation to sales

Personnel on 31 Dec 3)

- average for the year 4)

2016

2015

2014

2013

2012

2016

2015

2014

2013

2012

€ million

Profitability

5,690

-10.9

6,384

-6.7

6,844

1.5

6,745

48.6

4,538

-9.4

EBIT

- in relation to sales

96.4

96.6

96.7

96.9

95.7

EBITDA

3,816

3,635

4,133

4,072

4,059

4,265

4,266

164

2.9

226

0.4

154

2.4

302

0.4

127

1.8

320

0.3

183

2.7

332

0.4

5,623

5,626

3,149

69.4

230

105

0.4

10,600

10,977

11,002

11,833

12,125

12,540

12,561

13,150

16,649

7,853

Share of results of associated companies
and joint ventures

Result before taxes

- in relation to sales

Net result for the financial year

- in relation to sales

Return on equity 1)

Return on capital employed 1)

Return on operating capital 1)

€ million

103

1.8

355

-13

-0.2

144

2.5

6.4

2.6

2.7

228

3.6

531

127

2.0

1.4

3.9

5.3

-243

-3.6

-510

-7.6

-385

-8.5

104

-165

-50

-2

-0

-459

-6.7

-439

-6.4

-21.8

-5.8

-822

-12.2

-1,003

-14.9

-41.4

-10.3

-524

-11.5

-536

-11.8

-21.4

-8.2

1) Key figure definition changed in 2016. Figures for 2015 have been restated. Figures for 2014–2012 have not been restated.
2) Capital expenditure for 2014 and 2013 presented for continuing operations.
3) Personnel reported as headcount. Year 2013 reported for continuing operations.
4) Year 2012 average personnel does not include Inoxum personnel. Years 2014 and 2013 reported for continuing operations.

Outokumpu Annual report 2016

Financial statements - Notes to the consolidated financial statements

58/64

Financing and financial position

2016

2015

2014

2013

2012

Liabilities

Net debt

- in relation to sales

Net financial expenses

- in relation to sales

Net interest expenses

- in relation to sales

Interest cover

Share capital

Other equity

Equity-to-assets ratio

Debt-to-equity ratio

€ million

3,574

3,546

4,279

5,884

5,949

1,242

21.8

1,610

25.2

1,974

28.8

3,556

52.7

3,431

75.6

€ million

121

2.1

102

1.8

0.9

40.4

51.4

389

149

2.3

125

2.0

311

2,018

39.6

69.1

223

3.3

139

2.0

-2.3

311

1,821

33.3

92.6

-34

-126

€ million

311

2,105

310

4.6

197

2.9

-3.2

311

1,580

21.5

188.0

138

3.1

1.5

-6.9

311

2,641

30.5

116.2

266

Net cash generated from operating activities 5)

€ million

Dividends

€ million

0.10 6)

5) Cash flows for 2014 and 2013 presented for continuing operations.
6) The Board of Directors’ proposal to the Annual General Meeting.

Outokumpu Annual report 2016

Financial statements - Notes to the consolidated financial statements

59/64

Share-related key figures

Earnings per share 1), 2)

Earnings per share, continuing operations 2), 3)

Cash flow per share 1), 2)

Equity per share 2), 4)

Dividend per share

Dividend payout ratio

Dividend yield

Price/earnings ratio

Development of share price 6)

Average trading price

Lowest trading price

Highest trading price

Trading price at the end of the period

Change during the period 7)

Change in the OMX Helsinki index during the period

€

2016

0.35

0.94

5.84

0.10 5)

28.8

1.2

2015

0.23

-0.08

5.60

0.0

24.31

11.85

4.51

2.08

8.51

211.3

3.6

4.49

2.06

7.76

2.73

-42.7

10.8

2014

-1.24

-1.27

-0.36

5.13

neg.

0.0

neg.

5.16

3.37

7.50

4.77

34.2

5.7

Market capitalization at the end of the period

€ million

3,541

1,138

1,987

2013

-7.52

-6.23

0.26

14.23

neg.

0.0

neg.

4.64

3.03

7.39

3.55

-48.8

26.5

845

2012

-0.46

0.23

22.07

neg.

0.0

neg.

0.97

0.64

2.10

0.79

-40.3

8.3

1,650

Development in trading volume

Trading volume 8)

In relation to weighted average number of shares 1)

1,000 shares

955,682

230.6

1,345,515

323.9

695,235

198.9

178,989

135.0

1,297,738

112.5

Adjusted average number of shares 9)

Number of shares at the end of the period 8), 9), 10)

414,411,287

413,860,600

415,473,976

349,558,854

132,579,577

1,156,005,029

415,489,308

415,426,724

2,077,105,460

2,077,065,460

1) 2014 and 2013 calculated based on the rights-issue-adjusted weighted average number of shares. 2012 has not been restated.
2) 2013 adjusted to reflect the reverse split in June 2014.
3) 2013 calculated based on rights-issue-adjusted weighted average number of shares.
4) 2013 and 2012 calculated based on the rights-issue-adjusted number of shares
5) The Board of Directors’ proposal to the Annual General Meeting.
6) 2013 share prices adjusted according to the effect of the rights issue and the reverse split. 2012 has not been adjusted.
7) 2014 calculated based on the adjusted comparable share prices. 2013 calculated based on the unadjusted comparable share prices.
8) Includes only Nasdaq Helsinki trading.
9) Excluding treasury shares.
10) 2013 and 2012 not adjusted according to the effect of the rights-issue-adjusted and the reverse split.

Outokumpu Annual report 2016

Financial statements - Notes to the consolidated financial statements

60/64

Definitions of key financial figures

Capital employed =

Total equity + net debt + net defined benefit and other long-term
employee benefit obligations + net interest rate derivative liabilities
+ net accrued interest expenses – net assets held for sale – loans
receivable – available-for-sale financial assets – investments at fair
value through profit or loss – investments in associated companies
and joint ventures

Operating capital = Capital employed + net deferred tax liability

Research and development costs =

Research and development expenses in the statement of income
(including expenses covered by grants received)

Underlying EBIT = EBIT – Items classified adjustments

EBITDA = EBIT before depreciation, amortization and impairments

Return on equity =

Net result for the financial period (4-quarter rolling)

Total equity (4-quarter rolling average)

Return on capital employed (ROCE) =

EBIT (4-quarter rolling)

Capital employed (4-quarter rolling average)

Return on operating capital (ROOC) =

EBIT (4-quarter rolling)

Operating capital (4-quarter rolling average)

× 100

Net debt = Non-current debt + current debt – cash and cash equivalents

Interest cover = Result before taxes + net interest expenses

Net interest expenses

Equity-to-assets ratio =

Total equity

Total assets – advances received

Debt-to-equity ratio =

Net debt

Total equity

Earnings per share =

Net result for the financial year attributable to the equity holders

Adjusted average number of shares during the period

Cash flow per share =

Net cash generated from operating activities

Adjusted average number of shares during the period

Equity per share =

Equity attributable to the equity holders

Adjusted number of shares at the end of the period

Dividend per share =

Dividend for the financial year

Adjusted number of shares at the end of the period

Dividend payout ratio =

Dividend for the financial year

Net result for the financial year attributable to the equity holders

Dividend yield =

Dividend per share

Adjusted trading price at the end of the period

Price/earnings ratio (P/E) =

Adjusted trading price at the end of the period

Earnings per share

Average trading price =

EUR amount traded during the period

Adjusted number of shares traded during the period

× 100

Market capitalization at end of the period =

Number of shares at the end of the period × Trading price at the
end of the period

Trading volume =

Number of shares traded during the period, and in relation to the
weighted average number of shares during the period

Outokumpu Annual report 2016

Financial statements - Notes to the consolidated financial statements

61/64

Parent company financial statements

Income statement of the parent company

€ million

Sales

Cost of sales

Gross margin

Other operating income

Selling and marketing expenses

Administrative expenses

Other operating expenses

EBIT

Financial income and expenses

Result before appropriations and taxes

Appropriations

Group contribution

Change in depreciation difference

Income taxes

2016

2015

561

-451

109

-27

-123

-20

-52

157

105

-1

649

-580

-32

-84

-118

-156

311

156

-0

Result for the financial year

105

155

According to the Finnish accounting standards the parent company financial statements are to be presented in addition
to Group financial statements. The parent company’s financial statements have been prepared in accordance with Finnish
accounting standards (FAS). The parent company Outokumpu Oyj’s income statement and balance sheet items are mainly
internal and are eliminated on the group level. The parent company’s complete financial statements (available only in
Finnish) can be read on the company’s internet pages www.outokumpu.com

Outokumpu Annual report 2016

Financial statements - Notes to the consolidated financial statements

62/64

2016

2015

€ million

2016

2015

Balance sheet of the parent company

€ million

ASSETS

Non-current assets

Intangible assets

Property, plant and equipment

Financial assets

Shares in Group companies

Loan receivables from Group companies

Shares in associated companies

Other shares and holdings

Other financial assets

EQUITY AND LIABILITIES

Shareholders’ equity

Share capital

Premium fund

Invested unrestricted equity reserve

Retained earnings

Result for the financial year

Untaxed reserves

Accumulated depreciation difference

Liabilities

Non-current liabilities

4,037

428

3,798

740

4,545

4,607

Total non-current assets

4,594

4,637

Interest-bearing

Current assets

Current receivables

Interest-bearing

Non interest-bearing

Cash and cash equivalents

Total current assets

TOTAL ASSETS

Current liabilities

Interest-bearing

Non interest-bearing

Total liabilities

TOTAL EQUITY AND LIABILITIES

1,774

163

1,937

2,260

225

2,485

124

139

2,062

2,624

6,655

7,260

311

720

2,123

105

3,278

311

720

2,123

-130

155

3,181

915

2,190

272

2,462

1,096

2,725

259

2,984

3,377

4,080

6,655

7,260

Outokumpu Annual report 2016

Financial statements - Notes to the consolidated financial statements

63/64

Cash flow statement of the parent company

€ million

2016

2015

€ million

2016

2015

Cash flow from operating activities

Result for the financial year

Adjustments for

Taxes

Depreciation and amortization

Impairments

Gain/loss on sale of intangible assets, and property, plant and equipment

Interest income

Dividend income

Interest expense

Change in provisions

Exchange gains and losses

Gain on disposal of other financial assets

Other adjustments

Change in working capital

Change in trade and other receivables

Change in trade and other payables

Dividends received

Interest received

Interest paid

Income taxes paid

Net cash from operating activities

Cash flow from investing activities

Investments in subsidiaries and other shares and holdings

105

155

Purchases of property, plant and equipment

-2

-124

-119

-1

-2

-5

117

-5

-137

-272

-13

Purchases of intangible assets

Proceeds from disposal of subsidiaries and other disposals

Proceeds from sale of property, plant and equipment

Proceeds from sale of intangible assets

Proceeds from sale of other financial assets

Change in other long-term receivables

Net cash from investing activities

Cash flow before financing activities

Cash flow from financing activities

-173

-215

Repurchase of treasury shares

Gain on disposal of other financial assets

Borrowings of non-current debt

Repayments of non-current debt

Change in current debt

Other financing cash flow

Net cash from financing activities

Net change in cash and cash equivalents

Net change in cash and cash equivalents in the balance sheet

119

124

-69

-1

174

176

-64

-51

-116

272

133

-86

319

143

-267

-1

-28

-272

-95

-7

369

-637

-400

751

-14

-222

-0

-31

1,020

261

1,067

1,210

326

-589

-409

-520

-1,192

Outokumpu Annual report 2016

Financial statements - Notes to the consolidated financial statements

64/64

Statement of changes in equity of the parent company

€ million
Equity on Jan 1, 2015

Result for the financial year

Equity on Dec 31, 2015

Result for the financial year

Treasury shares repurchase

Equity on Dec 31, 2016

Share capital

Premium fund

311

720

Invested
unrestricted
equity reserve

2,123

Distributable funds on Dec 31

€ million
Retained earnings

Result for the financial year

Invested unrestricted equity reserve

Distributable funds on Dec 31

Commitments and contingent liabilities
of the parent company

€ million
Pledges on Dec 31

Guarantees on Dec 31

On behalf of subsidiaries

For financing

For commercial guarantees

For other commitments

On behalf of associated companies

For financing

On behalf of sold companies

For financing

For commercial and other guarantees

Other commitments

Retained
earnings

Total equity

A major part of Outokumpu’s borrowings are secured partly by share pledges over the shares in selected Group companies
and partly by security to the real property of selected subsidiaries.

Pledges reported in 2016 include Outokumpu’s shares in Manga LNG Oy to secure certain liabilities of Manga LNG Oy.
Outokumpu’s total liability at the end of 2016 amounts to EUR 22 million, which is presented under pledges and other
commitments.

Outokumpu Oyj is, in relation to its shareholding in Kymppivoima Tuotanto Oy and Etelä-Pohjanmaan Voima Oy, liable for the
costs, commitments and liabilities relating to electricity provided by Rapid Power Oy. Outokumpu’s liability for the net debt
of Rapid Power Oy at the year-end 2016 amounted to EUR 4 million (2015: EUR 7 million). Outokumpu Oyj is, in relation
to its shareholding in Etelä-Pohjanmaan Voima Oy, liable for the costs, commitments and liabilities relating to electricity
provided by Tornion Voima Oy. Outokumpu’s liability for the net debt of Tornion Voima Oy at the year-end 2016 amounted to
EUR 3 million (2015: EUR 4 million). These liabilities are reported under other commitments.

One remaining guarantee issued by ThyssenKrupp on behalf of Inoxum companies has not yet been transferred to
Outokumpu Oyj as of December 31, 2016. However, Outokumpu Oyj has given ThyssenKrupp a counter-guarantee for this
commitment amounting to EUR 4 million.

Outokumpu Oyj will guarantee until January 2017 certain subsidiaries’ ability to satisfy their financial liabilities when due.

-130

155

105

-7

123

2016

105

2,123

2,247

3,025

155

3,181

105

-7

3,278

2015

-130

155

2,123

2,149

2016

2015

304

261

Outokumpu Annual report 2016

Corporate Governance 2016

1/26

Corporate
Governance
2016

Outokumpu Annual report 2016

Corporate Governance 2016

2/26

Corporate Governance in 2016

Regulatory and structural framework

Organization on December 31, 2016

Outokumpu Oyj, the Group’s parent company, is a public limited liability
company, listed on the Helsinki Stock Exchange (Nasdaq) and incorporated
and domiciled in Finland. In its corporate governance and management,
Outokumpu Oyj complies with the laws and regulations applicable to Finnish
public companies, the company’s Articles of Association and the Corporate
Governance Policy approved by the company’s Board of Directors.

Outokumpu Oyj follows the Finnish Corporate Governance Code
of January 1, 2016. The Finnish Corporate Governance Code is issued by the
Securities Market Association and adopted by Nasdaq Helsinki Ltd.

effective as

The governing bodies of the parent company Outokumpu Oyj, i.e. the General
Meeting of Shareholders, the Board of Directors and the President and Chief
Executive Officer (CEO), have the ultimate responsibility for the organization of
the Group’s management and operations. The Outokumpu Leadership Team
members report to the CEO and support and assist the CEO in the efficient
management of the Group’s operations. Outokumpu’s primary corporate
governance information source is the Group’s Corporate Governance website
Please visit the website for the latest Corporate Governance Statement and the
latest corporate governance information.

The General Meeting of Shareholders convenes at least once a year. Under
the Finnish Companies Act, certain important decisions, such as the approval
of financial statements, decisions on dividends and increases or reductions in
share capital, amendments to the Articles of Association, and election of the
Board of Directors and auditors, fall within the exclusive domain of the General
Meeting of Shareholders.

CEO

CTO

CFO

Human Resources &
Organizational Development

Communications & IR

Business Transformation & IT

Americas

Europe

Long Products

Sales Europe

Operations Europe

Supply chain Europe

Outokumpu Annual report 2016

Corporate Governance 2016

3/26

Composition and Operations of the Board
of Directors on December 31, 2016

Chairman of the Board of Directors

Vice Chairman of the Board of Directors

Members of the Board of Directors

Jorma Ollila

b. 1950, Finnish citizen
M.Sc. (Pol.) (University of Helsinki 1976)
M.Sc. (Econ.) (London School of Economics 1978)
M.Sc. (Eng.) (Helsinki University of Technology 1981)
Outokumpu Board member 2013–
Chairman of the Board 2013–
Chairman of the Remuneration Committee

Work experience
Chairman of the Board: Nokia Corporation 2006–2012
Chairman and Chief Executive Officer: Nokia Corporation 1999–2006
President and Chief Executive Officer: Nokia Corporation 1992–1999
President: Nokia Mobile Phones 1990–1992
Senior Vice President, Finance: Nokia 1986–1989
Various managerial positions within corporate banking: Citibank 1978–1985

Positions of trust
Chairman of the Board; Xinova Management Company LLC 2016–
Chairman of the Board: Miltton Oy 2015–
Chairman of the Boards of Directors and the Supervisory Boards: The Research
Institute of the Finnish Economy ETLA and Finnish Business and Policy Forum
EVA 2005–
Vice Chairman of the Board: Otava Ltd 1996–
Board member: TBG AG 2016–
Board member: Tetra Laval Group 2013–
Board member: University of Helsinki 2009–
Advisory Partner: Perella Weinberg Partners 2014–
Chairman of the Board: Royal Dutch Shell Plc 2006–2015

Independent of the company and its significant shareholders.

Olli Vaartimo

b. 1950, Finnish citizen
M.Sc. (Econ.)
Outokumpu Board member 2010–
Vice Chairman of the Board 2011–
Chairman of the Audit Committee

Markus Akermann

b. 1947, Swiss citizen
M.Econ. (University of St.Gallen, Switzerland)
Outokumpu Board member 2013–
Member of the Audit Committee

Work experience
CFO: Metso Oyj 2003–2010
Executive Vice President, Deputy to the President and CEO:
Metso Oyj 2003–2010
Member of the Executive Team 1999–2010 and Vice Chairman of the Executive
Team 2004–2010: Metso Oyj
President and CEO (acting): Metso Oyj 2003–2004
President and CEO: Metso Minerals Oy 1999–2003
President and CEO: Nordberg Group, Rauma Oyj 1993–1999
Executive Vice President: Rauma Oyj 1991–1998

Work experience
Chief Executive Officer: Holcim Group 2002–2012
Chairman of the Board: Holcim Group Support Ltd 2002–2012
Member of the Board: Holcim Ltd 2002–2013
Member of the Group Executive Committee with responsibility for Latin America,
international trading activities and Corporate Human Resources and Training:
Holcim Group 1993–2001
Member of the Board and Managing Director: Holcim Apasco SA de CV, Mexico
1993–2012
Area Manager Central America, Andean Countries and international trading
activities: Holcim Group 1986–1993

Positions of trust
Chairman of the Board: Kuusakoski Group Oy 2016–
Vice Chairman of the Board: Kuusakoski Oy 2016–
Vice Chairman of the Board: BMH Technology Oy 2016–
Board member: Sampo-Rosenlew Oy 2016–
Board member: Black Bruin Oy 2016– (earlier Sampo-Hydraulics Oy)
Board member: Valmet Automotive Oy 2014–
Chairman of the Board: Valmet Automotive Oy 2003–2014
Board member: Kuusakoski Oy 2008–2016
Board member: Kuusakoski Group Oy 2008–2016
Board member: Alteams Oy 2008–2014
Board member: Northland Resources SA 2013–2014

Independent of the company and its significant shareholders.

Positions of trust
Member of the Board: Votorantim Cimentos S.A. 2013–
Member of the Board: ACC Mumbai, India 2005–2012
Member of the Board: Ambuja Cements Ltd Mumbai, India 2006–2012
Member of the Executive Board: World Business Council for Sustainable
Development (WBCSD) 2008–2011

Independent of the company and its significant shareholders.

Outokumpu Annual report 2016

Corporate Governance 2016

4/26

Kati ter Horst

b. 1968, Finnish citizen
M.Sc. (Marketing), MBA (International Business)
Outokumpu Board member 2016–
Member of the Audit Committee

Work experience
Executive Vice President, Head of Stora Enso Paper 2014–
Senior Vice President, Paper Sales, Printing and Living: Stora Enso 2013–2014
Senior Vice President, Office Paper Sales, Printing and Reading:
Stora Enso 2012–2013
Director, Customer Service Centre West, Publication Paper:
Stora Enso 2010–2012
Several managerial positions in the paper business, 1996–2010
Business analyst, Jaakko Pöyry Consulting, Singapore 1994–1996

Positions of trust
Board member: Finnish Forest Industries Federation 2015–

Independent of the company and its significant shareholders.

Roberto Gualdoni

b. 1956, German citizen
MBA, M.Sc. (Eng.)
Outokumpu Board member 2014–
Member of the Audit Committee

Work experience
Chief Executive Officer: Styrolution Group 2011–2014
President, Styrenics: BASF SE 2010–2011
Senior Vice President, Global Procurement Raw Materials: BASF SE 2007–2010
Senior Vice President, Global Procurement Basic Products: BASF SE 2006–2007
Group Vice President, Business Unit Engineering Plastics Europe: BASF SE
2001–2005
Group Vice President, Business Unit Foam Products Europe:
BASF SE 1998–2001
Chief Controller, Regional Division Central Europe: BASF SE 1996–1998
Controlling, Sales Division Germany: BASF SE 1994–1996
European Market Coordinator – Specialty Chemicals: BASF SE 1991–1994
Market Coordinator North Europe/Germany – Specialty Chemicals:
BASF SE 1991
Product manager, Superabsorbers and Dispersing Agents: BASF SE 1990–1991
Marketing Manager, Textile, Leather, Paper and Specialty Chemicals:
BASF Argentina S.A. 1988–1989
Assistant to the General Manager: BASF Argentina S.A. 1987–1989
Commercial Coordinator: Tenaris 1983–1986

Positions of trust
Board member: American Aerogel Corp. 2016–
Chairman of the Supervisory Board: Styrolution Europe and Styrolution Americas
2012–2014
Chairman of the Board: BGS 2001–2005
Member of the Steering Board: PlasticsEurope 2012–2014
Board member: FIW 1998–2001
Board member: BASF Intertrade AG 2006–2007
Vice President: EXIBA 1998–2001

Independent of the company and its significant shareholders.

Stig Gustavson

b. 1945, Finnish citizen
M.Sc. (Eng.)
Dr.Tech. (hon.) Tampere University of Technology
Dr.Tech. (hon.) Aalto University Helsinki
Finnish Honorary title Vuorineuvos
Outokumpu Board member 2014–
Member of the Remuneration Committee

Work experience
President and CEO: Konecranes Plc 1994–2005
President: KONE Oy/KONE Cranes 1988–1994
President: KONE Oy/KONE Wood 1985–1988
Director: KONE Oy/KONE Roxon 1982–1985
Various executive positions within leading Finnish and Swedish companies,
1970–1982

Positions of trust
Board memberships and Chairmanships in over 20 major Finnish and
Scandinavian companies and over 10 Finnish, Scandinavian and European
organizations, trusts and charities, including present positions.
Chairman of the Board: Suomi Gas Distribution Oy 2015–
Chairman of the Finance Committee: Technology Academy (Finland) 2015–
Vice Chairman of the Board: Konecranes Plc 2016–
Vice Chairman of the Supervisory Board: Tampere Technical University 2013–
Supervisory Board Member: Varma Mutual Pension Insurance Company 2000–
Senior Advisor: IK Investment Partners 1997–
Board Member: IK Investment Partners Funds 2014–
Chairman of the Board: Konecranes Plc 2005–2016
Chairman of the Board and Executive Committee: Technology Academy (Finland)
2007–2015

Independent of the company and its significant shareholders.

Outokumpu Annual report 2016

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Heikki Malinen

b. 1962, Finnish citizen
M.Sc. (Econ.), MBA (Harvard)
Outokumpu Board member 2012–
Member of the Remuneration Committee

Saila Miettinen-Lähde

b. 1962, Finnish citizen
M.Sc. (Eng.)
Outokumpu Board member 2015–
Member of the Audit Committee

Work experience
President and CEO: Posti Group Corporation (formerly Itella Corporation) 2012–
President and CEO: Pöyry PLC 2008–2012
Executive Vice President, Strategy, member of the UPM Executive Team:
UPMKymmene Corporation, Helsinki, Finland 2006–2008
President: UPM North America, Chicago, USA 2004–2005
President of Sales: UPM North America, Chicago, USA 2002–2003
Managing Partner: Jaakko Pöyry Consulting, New York, USA 2000–2001
Engagement Manager: McKinsey & Co, Atlanta, USA 1997–1999
Director, Business Development UPM Paper Divisions, Helsinki, Finland
1994–1996

Positions of trust
Vice Chairman: Service Sector Employers PALTA 2016–
Board member: East Office of Finnish Industries 2012–
Supervisory Board member: Finnish Fair Corporation 2014–
Chairman: American Chamber of Commerce (AmCham Finland) 2009–2014
Board member: Ilmarinen Mutual Pension Insurance Company 2014–2016
Board member: Federation of Finnish Technology Industries 2011–2012
Board member: Botnia Oy 2006–2008
Supervisory Board member: Ilmarinen Mutual Pension Insurance
Company 2013

Independent of the company and its significant shareholders.

Work experience
Chief Financial Officer: F-Secure Corporation 2015–
Deputy CEO 2012–2014 and CFO 2005–2015: Talvivaara Mining Company Plc
Founding Partner: SIDOS Partners Oy 2004–2005
Director: Carnegie Investment Bank 2000–2004
Vice President Business Development: Orion Oyj 2000
Director: The Finnish Innovation Fund Sitra: 1998–1999
Various managerial positions: Leiras Oy 1993–1998

Positions of trust
Member of the Board: LeaseGreen Group Oy 2015–
Chairman of the Board: Valuecode Oy 2014–2015 and member of the Board
2008–2014
Member of the Board: Rautaruukki Oyj 2012–2014
Member of the Board: Biohit Oyj 2011–2013
Member of the Board: Talvivaara Mining Company Plc 2007–2012

Independent of the company and its significant shareholders.

Elisabeth Nilsson

b. 1953, Swedish citizen
M.Sc. (Tech.)
Hon. Doctor, Luleå Technical University
Outokumpu Board member 2011–
Member of the Remuneration Committee

Work experience
Governor: Östergötlands län 2010–
President: Jernkontoret (Swedish Steel Producers’ Association) 2005–2010
General Manager, Metallurgy Division: SSAB Oxelösund 2003–2005
Managing Director: SSAB Merox 2001–2003
Manager, Department for Environment, Health and Safety: SSAB 1996–2001
Manager, Continuous Casting Department: SSAB Oxelösund 1991–1996

Positions of trust
Chairman of the Board: Göta Kanalbolaget 2011–
Chairman of the Board: Risbergska donationsfonden 2010–
Chairman of the Board: Tåkernfonden 2010–
Chairman of the Board: Övralidsstiftelsen 2010–
Member: Royal Swedish Academy of Engineering Science IVA 2007–
Member: Skandia Council 2014–
Board member: EKN Exportkreditnämnden 2016–
Board Member: Boliden 2015–
Chairman: Foundation Mefos 2005–2010
Chairman: Svenska Bergsmannaföreningen 2007–2009
Board member: Northland Resources SA 2013–2014
Board member: Sveaskog AB 2010–2012
Board member: 4:e AP-fonden 2010–2011
Board member: Swerea AB 2008–2011
Board member: Euromaint AB 2004–2007
Board member: Swedish Maritime Administration 1996–2006

Independent of the company and its significant shareholders.

Outokumpu Annual report 2016

Corporate Governance 2016

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The Board assesses the independence of the Board members and
records the outcome in the Board minutes. All of the members of the
Board of Directors on December 31, 2016 were independent of the
company and its significant shareholders.

The Board of Directors has established rules of procedure which define its
tasks and operating principles in the Charter of the Board of Directors
.
The main duties of the Board of Directors are as follows:

With respect to the preparation of matters to be resolved by the
General Meetings of Shareholders:

• To establish a dividend policy and issue a proposal on dividend

The updated biographical details are found on the company’s website

• To make a proposal to the Annual General Meeting concerning the

With respect to directing the company’s business and strategies:

distribution.

Outokumpu shares and share-based rights (parents
or subsidiaries) owned by each director and his/her
controlled corporations on December 31, 2016

Jorma Ollila

Olli Vaartimo

Markus Akermann

Roberto Gualdoni

Sitg Gustavson

Kati ter Horst

Heikki Malinen

Saila Miettinen-Lähde

Elisabeth Nilsson

Total

• To decide on Outokumpu’s basic strategy and long-term targets and

election of an external auditor and auditing fees

monitor their implementation.

• To make other proposals to General Meetings of Shareholders.

• To decide on annual business plans.
• To decide on annual limits for the Group’s capital expenditure, monitor
related implementation, review performance and decide on changes.

• To decide on major and strategically significant investments.
• To decide on major and strategically important business acquisitions

With respect to financial control and risk management:

• To discuss and approve interim reports, statements and annual

accounts.

and divestments.

• To monitor significant risks related to the Group’s operations and the

• To decide on any significant financing arrangements.
• To decide on any other commitments by any of the Group companies

that are out of the ordinary either in terms of value or nature, taking into
account the size, structure and field of the Group’s operations.

management of such risks.

• To ensure that adequate procedures concerning risk management are

in place.

• To monitor financial position, liquidity and debt maturity structure
• To monitor the Group’s control environment.

With respect to organizing the company’s management and
operations:

The Board of Directors also assesses its own activities on a regular basis.

54,248

29,202

23,248

32,936

14,936

6,488

25,936

10,918

17,545

215,475

Operations and appointment of the Board of Directors
The general objective of the Board of Directors is to direct Outokumpu’s
business and strategies in a manner that secures a significant and
sustained increase in the value of the company for its shareholders. To
this end the members of the Board are expected to act as a resource and
to offer their expertise and experience for the benefit of the company.
The tasks and responsibilities of the company’s Board of Directors are
determined on the basis of the Finnish Companies Act as well as other
applicable legislation.

The Board of Directors has general authority to decide and act in all
matters not reserved for other corporate governance bodies by law or
under the provisions of the company’s Articles of Association. The general
task of the Board of Directors is to organize and oversee the company’s
management and operations and it has the duty at all times to act in the
best interest of the company.

• To nominate and dismiss the CEO and his/her deputy, if any, monitor
his/her performance and to decide on the CEO’s terms of service,
including incentive schemes, on the basis of a proposal made by the
Board’s Remuneration Committee.

• To nominate and dismiss the members of the Outokumpu Leadership

Team and to define their areas of responsibility based on a proposal by
the Board’s Remuneration Committee.

• To monitor the adequacy and allocation of the Group’s top management

resources.

• To decide on any significant changes to the Group’s business

organization.

• To decide on the Group’s ethical values and modes of activity.
• To ensure that policies outlining the principles of corporate governance

are in place.

• To ensure that policies outlining the principles of managing the

company’s insider issues are being observed.

• To ensure that the company has guidelines for any other matters that

the Board deems necessary and that fall within the scope of the Board’s
duties and authority.

The Board of Directors shall have a quorum when more than half of its
members are present. A decision by the Board of Directors shall be
the opinion supported by more than half of the members present at a
meeting. In the event of a tie, the Chairman shall have the casting vote.

The Annual General Meeting elects the Chairman, the Vice Chairman
and the other members of the Board of Directors for a term expiring at
the close of the following Annual General Meeting. The entire Board of
Directors is therefore elected at each Annual General Meeting. A Board
member may be removed from office at any time by a resolution passed
by a General Meeting of Shareholders. Proposals to the Annual General
Meeting concerning the election of Board members that have been made
known to the Board of Directors prior to the Annual General Meeting will
be made public if such a proposal is supported by shareholders holding
a minimum of 10% of all the company’s shares and voting rights and the
person being proposed has consented to such nomination.

Outokumpu Annual report 2016

Corporate Governance 2016

Under the company’s Articles of Association, the Board shall have a
minimum of five and a maximum of twelve members. A Board consisting
of nine members was elected at the 2016 Annual General Meeting. The
Board of Directors meets at least five times each year. In 2016, the Board
of Directors had 13 meetings, and the average attendance rate was 97%.

Breakdown of individual attendance at Board meetings

13 meetings in 2016

Jorma Ollila

Olli Vaartimo

Markus Akermann

Roberto Gualdoni

Stig Gustavson

Kati ter Horst (from April 6, 2016)

Heikki Malinen

Saila Miettinen-Lähde

Elisabeth Nilsson

Attendance

13/13

11/13

8/9

13/13

Diversity Principles of the Board of Directors
Diversity of the Board of Directors supports the vision and the long-
term objectives of the Group. Outokumpu recognizes the importance
of a diverse Board, including but not limited to age, educational and
international background, professional expertise and experience from
relevant industrial sectors as well as a representation of both genders.
The Company strives for a Board structure where both genders are
represented in a well-balanced manner. The Shareholders’ Nomination
Board shall take the Diversity Principles into account when preparing its
proposals to the Annual General Meeting and an account of the progress
in achieving set objectives shall be disclosed annually. The objective of
a well-balanced Board structure in terms of gender representation was
achieved in 2016.

The review by the Board of Directors is found on p. 2 in the Financial
statements.

Composition and operations of the Board committees
The Board of Directors has set up two permanent committees consisting
of Board members and has confirmed rules of procedure for these
committees. Both committees report to the Board of Directors.

approved

Audit Committee
The Audit Committee consists of a minimum of three Board members.
The rules of procedure for and responsibilities of the Audit Committee
have been established in the Charter of the Audit Committee
by the Board of Directors. The task of the Audit Committee is, in greater
detail than is possible for the Board as a whole, to deal with matters
relating to financial reports and statements, the company’s financial
position, auditing work, fees paid to auditors, internal controls and
compliance matters, the scope of internal and external audits, the
Group’s tax position, the Group’s financial policies and other procedures
for managing Group risks. In addition, the Audit Committee prepares a
recommendation to the Board of Directors concerning the election of
an external auditor and auditing fees at a General Meeting. The Audit
Committee met five times during 2016, and the average attendance rate
was 96%.

Breakdown of individual attendance at
Audit Committee meetings

5 meetings in 2016

Olli Vaartimo

Markus Akermann

Roberto Gualdoni (from April 6, 2016)

Kati ter Horst (from April 6, 2016)

Heikki Malinen (until April 6, 2016)

Saila Miettinen-Lähde

Attendance

5/5

4/4

3/4

1/1

5/5

Remuneration Committee
The Remuneration Committee consists of the Chairman of the Board and
a minimum of two additional Board members. The rules of procedure
for and responsibilities of the Remuneration Committee have been
established in the Remuneration Committee Charter
Board of Directors. The task of the Remuneration Committee is to prepare
proposals to the Board of Directors concerning the appointment of the
company’s top management and principles relating to the compensation
they receive. The Board of Directors has authorized the Remuneration
Committee to determine the terms of service and benefits enjoyed by
the Outokumpu Leadership Team members other than the company’s
CEO. The Remuneration Committee met five times during 2016, and the
average attendance rate was 95%.

approved by the

7/26

Attendance

5/5

2/2

4/5

3/3

5/5

Breakdown of individual attendance at
Remuneration Committee meetings

5 meetings in 2016

Jorma Ollila

Roberto Gualdoni (until April 6, 2016)

Stig Gustavson

Heikki Malinen (from April 6, 2016)

Elisabeth Nilsson

Temporary Working groups
To handle specific tasks, the Board of Directors can also set up temporary
working groups consisting of Board members. These working groups report
to the Board of Directors. No temporary working groups were set up in
2016.

Shareholders’ Nomination Board
Outokumpu’s Annual General Meeting in 2012 resolved to establish a
Shareholders’ Nomination Board to annually prepare proposals to the
Annual General Meeting for the election, composition and remuneration of
the members of the Board of Directors.

In addition, the Annual General Meeting adopted a Charter of the
Shareholders’ Nomination Board
, which regulates the nomination and
composition, and defines the tasks and duties of the Nomination Board.

According to the Charter, the Nomination Board consists of the
representatives of Outokumpu’s four largest shareholders, registered
in the Finnish book-entry securities system on October 1, who accept
the assignment and the Chairman of the Board should act as an
expert member of the Nomination Board. Accordingly, to be eligible for
membership in the Nomination Board, any nominee-registered shareholder
needs to register the holding directly in the Finnish book-entry system for
at least the said date.

Holdings by a shareholder who, under the Finnish Securities Markets Act
has an obligation to disclose changes in shareholdings (flagging obligation)
that are divided into several funds or registers will be added together
when calculating the share of all the voting rights, provided that the
shareholder presents a written request to that effect to the Chairman of
the Company’s Board of Directors no later than September 30 preceding
the Annual General Meeting. Should a shareholder not wish to use its

Outokumpu Annual report 2016

Corporate Governance 2016

8/26

nomination right, the right transfers to the next largest shareholder who
would otherwise not have a nomination right.

Shareholders with the right to appoint representatives to the Nomination
Board in 2016 were Solidium Oy, Varma Mutual Pension Insurance
Company, Ilmarinen Mutual Pension Insurance Company and the Social
Insurance Institution of Finland. These shareholders chose the following
individuals as their representatives on the Nomination Board: Kari
Järvinen, Managing Director of Solidium Oy; Pekka Pajamo, CFO of Varma
Mutual Pension Insurance Company; Timo Ritakallio, President and CEO
of Ilmarinen Mutual Pension Insurance Company and Tuula Korhonen,
Investment Director of the Finnish Social Insurance Institution. Kari Järvinen
was elected Chairman of the Nomination Board, and Jorma Ollila, Chairman
of the Outokumpu Board of Directors, served as an expert member. The
Nomination Board convened 3 times in total, and the attendance rate was
100%. The Nomination Board has submitted its proposals regarding the
Board composition and director remuneration to Outokumpu’s Board of
Directors, and the Board has incorporated these proposals into the notice
convening the Outokumpu 2017 Annual General Meeting of Shareholders.

Executive Management

Biographical details of the CEO and the
Leadership Team on December 31, 2016

Work experience
Executive Vice President and CEO: Aleris Europe and Asia 2013–2015
Executive Vice President and CEO, Global Rolled and Extruded Products: Aleris
2011–2013
Executive Vice President and CEO, Europe and Asia: Aleris 2008–2011
Executive Vice President, Global Pipes and Tubes Division and the South African
carbon steel operations: Arcelor Mittal Group 2006–2007
Chief Executive Officer: Mittal Steel Europe 2004–2006
Senior Vice President, Operations, SHV Energy BV: SHV NV 2001–2004
Chief Executive Officer, Thyssen Sonnenberg Recycling GmbH & Co. KG: SHV NV
1998–2001
Senior Vice President, Business Development and Asia Operations: SHV NV
1996–1998
Various positions: Shell International Petroleum Co. 1980–1996

Work experience
Chief Financial Officer: INEOS Styrolution Holding GmbH 2011–2016
Chief Financial Officer: INEOS Nova LLC (INEOS Stynerics LLC) 2007–2011
Finance Director: NOVA Innovene International SA 2005–2007
Various commercial, project management and financial positions: BP Plc
1994–2005

Positions of trust
Chairman of the Board: International Stainless Steel Forum 2016–
Board member: World Steel Association 2016–
Board member: Eurofer 2015–
Board member: Borusan Mannesmann Boru Sanayi ve Ticaret A.Ş. 2012–,
member of the Audit Committee 2012–, Chairman of the Corporate Governance
Committee 2013– and member of the Risk Committee 2013–
Vice Chairman: European Aluminium Association 2014–2015

Kari Tuutti

b. 1970, Finnish citizen
M.Sc. (Econ.)
President – Long Products 2014–
Member of the Outokumpu Leadership Team 2012–
Responsibility area: Long Products business area
Employed by the Outokumpu Group since 2011

Work experience
Executive Vice President – Marketing, Communications and Sustainability:
Outokumpu Oyj 2012–2014
Senior Vice President – Marketing, Communications and IR: Outokumpu Oyj
2011–2012
Communications, marketing, investor relations and treasury positions: Nokia
1995–2011
Treasury Manager, Nokia Finance (Geneva, Switzerland) 1997–1998
Analyst, Treasury: Merita Bank 1994–1995

Positions of trust
Chairman of the Board: Fagersta Stainless AB 2014–2015, 2016–
Chairman of the Board: Euro Inox 2013–2015
Board member: Fagersta Stainless AB 2015–2016

Roeland Baan

b. 1957, Dutch citizen
M.Sc. (Econ.)
President and Chief Executive Officer 2016–
Chairman of the Outokumpu Leadership Team 2016–
Responsibility areas: Group management, Europe business area, legal, corporate
affairs and compliance, safety, health and environment, and internal audit
Employed by the Outokumpu Group since 2016

Christoph de la Camp

b. 1963, German citizen
MBA, B.Sc. (Eng.)
Chief Financial Officer 2016–
Member of the Outokumpu Leadership Team 2016–
Responsibility areas: Financial and business controlling, taxation, treasury,
metal and risk management, business analysis
Employed by the Outokumpu Group since 2016

Outokumpu Annual report 2016

Corporate Governance 2016

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Work experience
President – Quarto Plate: Outokumpu Oyj 2015–2016
Senior Vice President – Quarto Plate Europe: Outokumpu Stainless AB 2014–2015
Vice President – Mergers & Acquisitions: Outokumpu Oyj 2012–2014
Various positions in Outokumpu since 1993

Work experience
President – EMEA: Outokumpu 2014–2016
Senior Vice President – Head of Sales EMEA: Outokumpu 2013–2014
SVP and General Manager, Division Rolled Products: Aleris 2011–2013
VP, Sales and Marketing: Aleris 2008–2011
VP, Sales and Marketing: ArcelorMittal 2004–2008
VP, Sales: Rautaruukki 2000–2004

Positions of trust
Chairman: International Stainless Steel Forum’s Market Development
Committee 2014–

Michael S. Williams

b. 1960, US citizen
B.Sc. (Information science)
President – Americas 2015–
Member of the Outokumpu Leadership Team 2015–
Responsibility area: Americas business area
Employed by the Outokumpu Group since 2015

Work experience
Senior Vice President, Strategic Planning & Business Development: United
States Steel Corporation 2013–2015 and other positions 2006–2013 and
1992–1999
Vice President, Commercial Products: Special Metals Corporation 2006
Various executive, operations and sales positions: Ormet Corporation
1999–2006

Positions of Trust:
Board Member: Specialty Steel Industry of North America 2015–
Board memebr: Mobile Area Chamber of Commerce 2017

Maciej Gwozdz

b. 1975, Polish citizen
Executive MBA, M. Sc. (Econ.)
Executive Vice President – Operations, Europe 2016–
Member of the Outokumpu Leadership Team 2016–
Responsibility area: Operations in the Europe business area
Employed by the Outokumpu Group since 2016

Work experience
Senior Vice President, Steering Europe: ZF Friedrichshafen AG 2016
Vice President, Steering Europe: TRW Automotive/ZF Group 2013–2016
Various positions in operations and HR: TRW Automotive 2001–2013
Various HR positions: South African Breweries International 1998–2001

Liam Bates

b. 1971, UK citizen
B.Sc. hons (Econ.), MBA
Executive Vice President – Supply Chain, Europe 2016–
Member of the Outokumpu Leadership Team 2015–
Responsibility area: Supply chain in the Europe business area
Employed by the Outokumpu Group since 1993

Olli-Matti Saksi

b. 1967, Finnish citizen
M.Sc. (Eng.)
Executive Vice President – Sales, Europe 2016–
Member of the Outokumpu Leadership Team 2014–
Responsibility area: Sales in the Europe business area
Employed by Outokumpu Group since 2013

Pekka Erkkilä

b. 1958, Finnish citizen
M.Sc. (Eng.)
Executive Vice President, Chief Technology Officer 2013–
Member of the Outokumpu Leadership Team 2013–
Responsibility areas: Technology, R&D and strategic investments
Employed by the Outokumpu Group since 2013 (and in 1983–2000 and 2004–
2010)

Work experience
President, Ferrous Solutions business area: Outotec Oyj 2010–2013
Executive Vice President, General Stainless and Production Operations:
Outokumpu Oyj 2004–2010
Executive Vice President, later President: AvestaPolarit Oyj 2001–2004
President: Outokumpu Chrome Oy 1996–2000
Various management positions: Outokumpu Tornio Works 1983–1995

Positions of trust
Vice Chairman of the Board: Fennovoima Oy 2016–
Board member: East Office of Finnish Industries Oy 2016–
Board member: Metallurgiska Forskningsbolaget i Luleå AB 2015–
Chairman of the Board: Manga LNG Oy 2013–2015
Board member: Association of Finnish Steel and Metal Producers 2016

Outokumpu Annual report 2016

Corporate Governance 2016

10/26

Board member: Voimaosakeyhtiö SF 2014–2016
Board member: University of Oulu 2009–2015

Jan Hofmann

b. 1979, German citizen
M.Sc. (Econ.)
Executive Vice President – Business Transformation & IT 2016–
Member of the Outokumpu Leadership Team 2015–
Responsibility areas: Business Transformation and IT
Employed by the Outokumpu Group since 2012

Work experience
President – APAC: Outokumpu 2015–2016
Chief Financial Officer – APAC: Outokumpu Oyj 2015
Senior Vice President – Group Strategy and Business Excellence:
Outokumpu Oyj 2012–2014
Vice President – Business Development: Inoxum GmbH 2011–2012
Head of Business Development: ThyssenKrupp Stainless AG 2009–2011
Various positions: ThyssenKrupp 2005–2009

Positions of trust
Vice Chairman of the Board: Shanghai Krupp Stainless Co. Ltd, 2015–
Board member: ThyssenKrupp VDM GmbH 2011–2012

Johann Steiner

b. 1966, German citizen
M.Sc. (Econ.)
Executive Vice President – Human Resources and Organization
Development 2016–
Member of the Outokumpu Leadership Team 2013–
Responsibility areas: Human resources and organization development
Employed by the Outokumpu Group since 2013

Work experience
Executive Vice President – Human Resources, IT, Health and Safety: Outokumpu
2013–2016
Group HR Director: SAG Group GmbH 2012
Operating Partner: Humatica AG 2010–2012
Group HR Director: Clariant International AG 2002–2008
VP Executive Policies: EADS (former DaimlerChrysler Aerospace AG)
1999–2002
Senior Consultant: Towers Perrin 1993–1998

Saara Tahvanainen

b. 1974, Finnish citizen
M.Sc. (Soc.)
Executive Vice President – Communications and Investor Relations 2016–
Member of the Outokumpu Leadership Team 2014–
Responsibility areas: Communications, investor relations and marketing
Employed by the Outokumpu Group since 2012

Work experience
Executive Vice President – Communications & Marketing: Outokumpu Oyj
2014–2016
Vice President – Communications: Outokumpu Oyj 2013–2014
Director – External Communications: Outokumpu Oyj 2012
Senior Communications Manager and Communications Manager: Nokia 2006–
2012
Communications Manager: Fazer 2004–2006
Project Manager, change and leadership communications: Ericsson 2001–2004

The updated biographical details are found on the company’s website

Outokumpu shares and share-based rights (parents or
subsidiaries) owned by Leadership Team members and
his/her controlled corporations on December 31, 2016

Roeland Baan

Christoph de la Camp

Liam Bates

Pekka Erkkilä

Maciej Gwozdz

Jan Hofmann

Olli-Matti Saksi

Johann Steiner

Saara Tahvanainen

Kari Tuutti

Michael S. Williams

Total

583,692

132,950

60,059

93,207

74,137

56,471

103,161

57,609

1,959

64,070

121,253

1,348,568

More information on remuneration can be found on p. 23–24 in this Corporate
governance section and in the separate Remuneration statement.

CEO and deputy to the CEO
The President and Chief Executive Officer (CEO) is responsible for the
company’s operational management, in which the objective is to secure
significant and sustainable growth in the value of the company for its
shareholders.

The CEO prepares decisions and other matters for the meetings of the
Board of Directors, develops the Group’s operations in line with the
targets agreed with the Board of Directors, and ensures the proper

Outokumpu Annual report 2016

Corporate Governance 2016

11/26

implementation of Board decisions. The CEO is also responsible for
ensuring that existing legislation and applicable regulations are observed
throughout the Group.

Internal control procedures and the main
features of risk management systems

suppliers, personnel and lenders. More information on risk management
within Outokumpu can be found in the Risk management section on p. 16
in the Corporate Governance section.

The CEO chairs the meetings of the Outokumpu Leadership Team. The
deputy to the CEO is responsible for attending to the CEO’s duties in the
event that the CEO is prevented from doing so. Since 2011, the Group’s
Chief Financial Officer has acted as deputy to the CEO.

Leadership Team
The Outokumpu Leadership Team assists the CEO in the overall
management of Outokumpu’s business. The members of the team have
extensive authorities in their individual areas of responsibility, and their
duty is to develop the Group’s operations in line with the targets set by the
Board of Directors and the CEO. At the end of 2016, the members of the
Outokumpu Leadership Team held the following positions:

• President and Chief Executive Officer (Group management, Europe

business area, legal, corporate affairs and compliance, safety, health
and environment, and internal audit)

• Executive Vice President – Chief Financial Officer (Financial and business

controlling, taxation, treasury, metal and risk management, business
analysis)

• Executive Vice President – Operations Europe (Operations in the Europe

business area)

• Executive Vice President – Sales, Europe (Sales in the Europe business

area)

• Executive Vice President – Supply Chain, Europe (Supply chain in the

Europe business area)

• President – Americas (Americas business area)
• President – Long Products (Long Products business area)
• Executive Vice President – Chief Technology Officer (Technology, R&D

and strategic investments)

• Executive Vice President – Business Transformation and IT (Business

Transformation and IT)

• Executive Vice President – Communications and Investor Relations

(Communications, investor relations and marketing)

• Executive Vice President – Human Resources and Organizational
Development (Human resources and organization development)

The Leadership Team typically meets at least once a month.

Internal control
According to the Finnish Limited Liability Companies Act and the Finnish
Corporate Governance Code, the Board of Directors is responsible for
ensuring that the company’s internal controls are properly organized. The
purpose of this section is to provide shareholders and other parties with
a description of how internal control and risk management of financial
reporting is organized in Outokumpu. As a listed company, the Group
has to comply with a variety of regulations. To ensure that all the stated
requirements are met, Outokumpu has introduced principles for financial
reporting and internal control and distributed them throughout the
company’s organization.

Control environment
The foundation of Outokumpu’s control environment is the business
culture established within the Group and its associated methods of
operation. The basis for the company’s compliance and control routines
is provided by Group policies and principles, which define the way in which
Outokumpu’s organization operates. These policies and principles include,
for example, the Group’s Corporate Responsibility Policy and Ethical
Principles. The Outokumpu Code of Conduct describes the Group’s basic
values and offers standardized, practical guidelines for managers and
employees to follow. Outokumpu’s compliance program is described at our
website

The Outokumpu performance management process is a key management
activity and an important factor in enabling an efficient control
environment. In all sections of the Group’s operations, planning activities
and the setting of both operational and financial targets are executed
in accordance with Outokumpu’s overall business targets. Management
follow-up of related achievements is carried out through monthly
management reporting routines and in performance review meetings.

Outokumpu operates in accordance with the risk management policy
approved by the Group’s Board of Directors, and the Audit Committee
regularly monitors the Group’s risk map. The policy defines the objectives
of risk management activities, the approaches to be taken and areas
of responsibility. As well as supporting the Outokumpu strategy, risk
management activities help in defining a balanced risk profile from the
perspective of shareholders and other stakeholders, such as customers,

Outokumpu’s control process for financial reporting is based on Group
policies, principles and instructions relating to financial reporting, as well
as on the responsibility and authorization structure within the Group.
Policies relating to financial reporting are usually owned and approved by
the CEO and the CFO. Financial reporting in Outokumpu is carried out in a
harmonized way using a common chart of accounts.

Financial reporting is prepared in accordance with International Financial
Reporting Standards (IFRS). The Outokumpu Accounting Principles (OAP)
are Outokumpu’s application guidance as regards IFRS. The aim of the
OAP and other financial reporting policies and instructions included in
the Outokumpu Controller’s Manual is to ensure that uniform financial
processes and reporting practices are used throughout the Group. Policies
and instructions for financial reporting are reviewed on a regular basis and
revised when necessary. During the 2016 financial year, Outokumpu has
evaluated the implications of the new and revised IFRS standards to enter
into force in the near future and implemented the changes required in
the ESMA guidelines on Alternative Performance Measures. In 2015, the
key changes included the review of the useful lives of its property, plant
and equipment. In 2017, Outokumpu will prepare for the implementation
of the new IFRS 15 and IFRS 9 standards as of the beginning of 2018
and IFRS 16 standard as of the beginning of 2019 and continue to follow
other changes in IFRS standards closely. No major impact on the financial
reporting due to the implementation of new standards is expected in 2017.

Financial statements by the parent company and stand-alone Finnish
subsidiaries are prepared in accordance with generally accepted
accounting principles in Finland, while foreign subsidiaries follow local
accounting principles. Outokumpu also complies with regulations regarding
financial reporting published by the Financial Supervisory Authority (FIN-
FSA) Nasdaq Helsinki and the European Securities and Markets Authority
(ESMA).

Identification and assessment of risks related to financial reporting
Risk management processes connected with the Group’s financial
reporting are coordinated by Outokumpu’s Treasury and Risk Management
function. Related risks are classified as operational risks and can arise
as a consequence of inadequate or failed internal processes, employee
actions, systems or other events such as misconduct or crime. The aim of

Outokumpu Annual report 2016

Corporate Governance 2016

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the Outokumpu risk management process is to identify, evaluate, control
and mitigate such risks.

As part of this program, internal controls based on systems and processes
will also be enhanced and evaluated.

Major risks are reported to and evaluated by the Audit Committee on a
regular basis. Outokumpu’s risk management process includes arranging
workshops on the identification of key risks, including operational risks, for
business areas and Group functions. Deliverables include risk maps, risk
identification plans and a financial assessment of the Group’s ability to
bear risk.

Control activities
In addition to the Board of Directors and Audit Committee, operational
management teams in Outokumpu are responsible for ensuring that
internal controls relating to financial reporting are in place at all Outokumpu
units. The aim of control activities is to discover, prevent and correct
potential errors and deviations in financial reporting. Control activities also
aim to ensure that authorization structures are designed and implemented
in such a way that conflicting divisions of work do not exist (i.e. one
person performing an activity and also being responsible for controlling
that activity). Control activities consist of different kinds of measures and
include reviews of financial reports by Group management and in business
area management teams, the reconciliation of accounts, analyses of
the logic behind reported figures, forecasts compared to actual reported
figures, and analyses of the Group’s financial reporting processes, among
others. A key component is the monitoring of monthly performance against
financial and operational targets. These control activities take place at
different levels of the organization. The most important accounting items in
Outokumpu are the valuation and reporting of inventories and other items
of working capital. Also, in difficult market situations, asset impairment
calculations and related sensitivity analyses are increasingly important.
These items are carefully monitored and controlled, both within business
areas and at Group level, on a regular basis.

Information technology and solutions play an important role in
guaranteeing that the Group’s internal controls have a solid foundation.
The Group’s consolidation system has been renewed in 2015 to
ensure timely and uniform financial and management reporting from
the Group entities and an effective closing process within the whole
Group. Outokumpu is also running a business transformation program to
develop and improve business capabilities. This will be achieved mainly
by harmonizing and improving the Group’s core business processes and
implementing supporting IT systems (e.g. ERP) that will be common to the
whole Group.

Information and communication
Group-wide policies and principles are available to all Outokumpu
employees. Instructions relating to financial reporting are communicated
to all the parties involved. The main communication channels employed
are Outokumpu’s intranet and other easily accessible databases. Face-to-
face controller meetings are also organized. Senior controller meetings are
organized on a quarterly basis or more frequently when this is considered
necessary to share information and discuss issues of topical interest to
the Group.

Outokumpu has established different networks and communities in which
financial reporting and internal control issues and related instructions
are discussed and reviewed. These networks usually consist of personnel
from the business areas and Group functions. The aim of these networks,
communities and common instructions is to ensure that unified financial
processes and reporting practices are used throughout the Group. The
networks and communities play an important role in establishing the
effectiveness of internal controls relating to financial reporting and in
developing Outokumpu policies, instructions and processes.

Follow-up
Both management in all Outokumpu companies and personnel in the
accounting and controlling functions are responsible for the follow-up and
monitoring of internal controls connected with financial reporting. Through
its activities, the Internal Audit function monitors as well as ensures a
proper control environment across the group. The Risk Management
function and external auditors are also engaged in follow-up and control
activities. The findings of the follow-up procedures are reported to the
Audit Committee and the Outokumpu Leadership Team on a regular basis.

Compliance

Outokumpu is strongly committed to the highest ethical standards and
observes the laws and other regulations of the countries in which it
operates, and it complies with agreements and commitments it has
made. Outokumpu’s Code of Conduct sets out these ethical standards
and provides guidelines for a common way of working with the aim of
ensuring that all Outokumpu employees live up to Outokumpu’s ethical
standards. Outokumpu’s Legal, Corporate Affairs and Compliance function
is responsible for managing and continuously developing Outokumpu’s

compliance program. Outokumpu’s compliance program is described
in more detail as part of Outokumpu & society
Affairs and Compliance function reports to the CEO and also reports
to the Outokumpu Leadership Team and directly to the Board Audit
Committee on compliance-related matters.

. The Legal, Corporate

Internal audit

Internal Audit is an independent and objective assurance, control, and
consulting function designated to add value, to improve operations, and to
monitor and support the organization in the achievement of its objectives.
Through a systematic, disciplined approach, Internal Audit determines
whether governance processes, the internal control system, and the
risk management system, as designed and represented by the Board of
Directors and the Leadership Team, are effective and efficient.

With a strong commitment to integrity and accountability, Internal
Audit provides value to governing bodies and senior management as
an objective and direct source of correct, reliable information and
independent advice. Internal Audit also monitors adherence to Group
principles, policies and procedures, and investigates fraudulent and non-
compliant behaviors and activities. Internal Audit performs its function
on behalf of and directly reports to the Audit Committee and to the
Leadership Team, but is functionally assigned to the CEO. The annual
internal audit plan is approved by the Audit Committee.

In 2016, Internal Audit performed 20 scheduled operational audits,
including an extended compliance audit in the Nordic region, an evaluation
and consulting on delivery performance in the Americas, and audits
of various sales offices around the world. The results of all the audits
carried out, including their risk appraisals are reported and distributed
in writing. In view of the Outokumpu Code of Conduct and the Corporate
Responsibility Policy, a previously identified potential risk in the context of
sales intermediary agreements has been resolved successfully. The key
risk areas to be focused on 2017 are master data management, process
controls, and data protection.

The confidential whistleblowing hotline (“Helpline”) available on the
company intranet and via the internet is set up to anonymously inform
Internal Audit and the Audit Committee of suspicions of financial
misconduct or unethical behavior. No cases were reported via the Helpline
in 2016.

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Of 6 unscheduled investigations of potential misconduct recognized
through other channels, no incidents of discrimination or human rights
violations were noted. Internal Audit observed cases of unfair behavior and
incurred or alleged theft, among them stealing material out of a closed-
down melt shop; however, none of these cases was financially material.
Various noted attempts of misconduct via faked emails resulted in no
harm to the company.

Insider management

realized, is likely to have a significant effect on the value of the company’s
publicly traded securities.

The company has the obligation to inform the public as soon as possible
of inside information which directly concerns the Company, unless the
company has decided that the publication of the inside information shall
be delayed, in accordance with the applicable insider regulations. The
publication of inside information shall be made in accordance with the
company’s Disclosure Policy.

Ethics of the International Federation of Accountants (IFAC). An audit
tendering process was held in 2016 and the Board of Directors’ proposal
of company auditor will be given to the Annual General Meeting convening
on March 21, 2017.

Outokumpu’s Board Audit Committee continuously monitored non-audit
services purchased by the Group from KPMG Oy Ab at a global level. In
2016, auditors were paid fees totaling EUR 1.9 million, of which non-
auditing services accounted for EUR 0.1 million.

The company’s Insider Rules and the insider laws and regulations,
including the Finnish Securities Act, the Guidelines for Insiders issued by
Nasdaq Helsinki Ltd and the Market Abuse Regulation (EU), constitute the
primary legal framework for the insider issues relevant to the Group and
its employees.

Additionally, the Regulation on Energy Market Integrity and Transparency
(EU) sets forth similar requirements as the Market Abuse Regulation on
dealing with inside information relating to wholesale energy products.
As the company is a participant in the wholesale energy market, the
company’s Insider Rules apply to such energy-related inside information,
as applicable.

The persons discharging managerial responsibilities in Outokumpu,
in the meaning of the Market Abuse Regulation, include members of
the company’s Board of Directors, the CEO and other members of the
Outokumpu Leadership Team (“the Management”). The Management
together with the persons or companies closely associated with a
member of the Management constitutes the so called “Notifying Persons”.
Outokumpu maintains a non-public list of the Notifying Persons.

Outokumpu applies a restricted period of thirty (30) calendar days before
the announcement, as well the day of the announcement, of an interim
financial report, interim financial statement and a year-end report (the
“Closed Window”). During this period, the Management, the persons
subject to trading restrictions and any legally incompetent persons under
their custody shall not conduct any transactions, on its own account
or for the account of a third party, directly or indirectly, relating to the
company’s shares or debt instruments, or derivatives or other financial
instruments linked thereto. Separate, non-public, project-specific insider
registers are maintained for insider projects. Persons defined as project-
specific insiders are those who, in the course of their duties in connection
with a project, receive information concerning the Group which, if or when

Outokumpu’s Head of Legal, Corporate Affairs and Compliance is
responsible for the coordination and supervision of insider topics.

Auditors

Under its Articles of Association, the company shall have a minimum of
one and a maximum of two auditors who are qualified auditors or firms of
public accountants authorized by the Central Chamber of Commerce of
Finland and independent of the company.

The Annual General Meeting elects the auditors for a term of office ending
at the close of the next Annual General Meeting. A proposal to the Annual
General Meeting on the election of auditors that has been made known to
the Board of Directors prior to the Annual General Meeting will be made
public if it is supported by shareholders holding a minimum of 10% of
all the company’s shares and voting rights and the person or company
proposed has consented to such nomination. Additionally, the Board of
Directors has the duty to make a proposal to the Annual General Meeting
as to the election and fees of the auditor.

The company’s auditors submit the statutory auditor’s report to the
company’s shareholders in connection with the company’s financial
statements. The auditors also report their findings to the Board Audit
Committee on a regular basis and at least once a year to the full
Board of Directors. The parent company, Outokumpu Oyj, is audited by
KPMG Oy Ab, and the responsible auditor is Virpi Halonen, Authorized
Public Accountant. KPMG Oy Ab is also responsible for overseeing and
coordinating the auditing of all Group companies. KPMG has been
the Group Auditor since fiscal year 2006 and Virpi Halonen has been
the Auditor in Charge since 2012. Both Outokumpu and KPMG Oy Ab
emphasize the requirement that the auditor be independent of the
company being audited. In its global independence policy, KPMG has
stated its commitment to observing and complying with the Code of

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Remuneration

Board of Directors
As confirmed by the 2016 Outokumpu Annual General Meeting, the
annual remuneration for the members of Outokumpu’s Board of Directors
is as follows: Chairman EUR 140,000, Vice Chairman EUR 80,000
and other members EUR 60,000, with 40% of this paid as Outokumpu
shares purchased from the market and 60% paid in cash. The annual
fee is paid once a year, and members of the Board are not entitled to
any other share-based rewards. In addition to their annual remuneration,
all members of the Board of Directors are paid a meeting fee of EUR
600 (EUR 1,200 for members of the Board of Directors residing outside
Finland). The meeting fee is also payable for attending meetings of Board
committees.

Compensation and benefits of the CEO
In 2016 the President and CEO’s compensation consisted of a basic
salary, taxable benefits (housing benefit, car benefit, phone benefit,
medical and life insurance and compensation for schooling costs of his
children in Finland), matching share plan and a yearly short-term incentive
determined by the Board on the basis of the Company’s key targets. The
performance-based short-term incentive payable based on the targets
set for 2016 could not exceed 95% of the CEO’s annual basic salary,
and it was based on an EBITDA target (earnings before interest, taxes,
depreciation and amortization), operational targets with an emphasis
on occupational safety and net working capital improvement as well as
individual targets. The compensation paid in 2016 to the President and
CEO Baan is shown in the table on p. 15 in the Corporate Governance
section and details of the share-based incentive programs he participates
in on p. 23–24 in the Corporate Governance section.

The CEO has the right to retire at the age of 63. He participates in the
Finnish TyEL pension system in addition to which he is included in a
defined contribution pension plan with an annual insurance premium of
25% of his annual earnings, excluding share rewards.

The service contract of the CEO is valid until further notice. The CEO is not
entitled to a specific severance payment, and the notice period is three
months for both parties.

Compensation and benefits of the
other Leadership Team members
The performance-based short-term incentive payable to the members
of the Leadership Team based on the targets set for 2016 was based
on an EBITDA target (earnings before interest, taxes, depreciation and
amortization), operational targets with an emphasis on occupational
safety and net working capital improvement as well as individual targets.
The maximum short-term incentive payment for 2016 varied based on
local market practices between 50% and 100% of the members’ annual
basic salaries. The Leadership Team members are also included in the
share based incentive plans for Outokumpu management, the details
of which are presented in the tables on p. 23–24 in the Corporate
Governance section. No separate remuneration is paid to the Group CEO
or members of the Leadership Team for membership of this Team or the
Group’s other internal governing bodies.

The service contract of CFO de la Camp, who is also deputy to the CEO,
can be terminated by both parties with six months’ notice. To the extent
that the service contract would be terminated by the company, other than
for a cause without notice or with ordinary notice due to misconduct, the

CFO would receive additional compensation equivalent to 12 months’
salary. For the other members of the Leadership Team, the notice period
is six months for the employee and either twelve months for the Company
without additional severance compensation and with the possibility to
stop salary payment during notice period if the executive finds another
employment before the end of notice period, or 18 months’ base salary
at the maximum, including salary for notice period and severance
compensation.

The retirement age for the members of the Leadership Team is 63
years, and they participate in the local retirement programs applicable
to employees in the country where their employing company is located.
The members employed in Germany are entitled to pension benefits in
accordance with the rules of the German Essener Verband. The members
employed in Finland participate in the Finnish TyEL pension system, in
addition to which they are entitled to a defined contribution pension plan
for which maximum premium is 25% of an individual’s annual earnings,
excluding share rewards. The pension benefits of the other Leadership
Team members vary in line with the local market practices. Outokumpu
did not provide any guarantees or other similar commitments on behalf of
members of its Board of Directors in 2016.

No members of the Board of Directors or the Leadership Team or closely
related persons or institutions have any significant business relationships
with the Group.

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Fees, salaries and employee benefits paid

2016

€

Board of Directors

Chairman of the Board, Ollila

Vice Chairman of the Board, Vaartimo

Board member, Akermann

Board member, Gualdoni

Board member, Gustafsson

Board member, ter Horst

Board member, Malinen

Board member, Miettinen-Lähde

Board member, Nilsson

CEO, Baan

Deputy to the CEO 2)

Other Leadership Team Members 3)

Salaries and fees with
employee benefits 1)

Performance/project-
related incentives

Annual
remuneration

Share-based
incentives 4)

11,400

10,800

21,600

9,600

5,400

10,200

10,800

21,600

1,137,213

530,000

3,310,719

215,000

140,000

80,000

60,000

2,441,252

264,764

Total

151,400

90,800

81,600

69,600

65,400

70,200

70,800

81,600

3,578,465

530,000

3,790,483

1) For Board members, meeting fees. For Leadership Team, salaries and employee benefits.
2) Florey January 1–June 30, 2016, de la Camp July 1–December 31, 2016
3) Gwozdz October 1–December 31, 2016, other members January 1– December 31, 2016
4) Gross, including the value of the shares on the day of delivery and taxes. For CEO includes the taxable value of the shares delivered in the end of December and the whole
cash portion of which a small portion was paid in January 2017.

2015

€

Board of Directors

Chairman of the Board, Ollila

Vice Chairman of the Board, Vaartimo

Board member, Akermann

Board member, Gualdoni

Board member, Gustafsson

Board member, Malinen

Board member, Miettinen-Lähde

Board member, Nilsson

Board member, Schalin 1)

CEO, Seitovirta 2)

Deputy to the CEO

Other Leadership Team Members 3)

Salaries and fees with
employee benefits

Performance/project-
related incentives

Annual
remuneration

Share-based
incentives 4)

13,800

12,000

24,000

27,600

12,000

12,600

9,000

26,400

3,600

634,888

512,072

3,039,955

303,912

250,000

1,015,241

140,000

80,000

60,000

110,408

100,675

48,035

Total

153,800

92,000

84,000

87,600

72,000

72,600

69,000

86,400

3,600

938,800

762,072

4,055,196

1) January 1–March 31, 2015
2) January 1–October 26, 2015
3) Lu January 1–March 31, 2015, Hofmann April 1–December 31, 2015, Wallis January 1–April 30, 2015, Salas May 1–June 30, 2015, Williams July 1–December 31, 2015,
Parvento January 1–November 5, 2015, Bates November 5– December 31, 2015.
4) Gross, including the value of the shares on the day of delivery and taxes

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Risk management

Outokumpu operates in accordance with the risk management policy
approved by the company’s Board of Directors. This defines the objectives,
approaches and areas of responsibility in the Group’s risk management
activities. As well as supporting Outokumpu’s strategy, the aim of risk
management is identifying, evaluating and mitigating risks from the
perspective of shareholders, customers, suppliers, personnel, creditors
and other stakeholders.

Risk management organization
The Board of Directors carries ultimate responsibility for risk management
within Outokumpu. The CEO and members of the Leadership Team are
responsible for defining and implementing risk management procedures,
and for ensuring that risks are both properly addressed and taken into
account in strategic and business planning.

Outokumpu’s Risk Management Steering Group, led by the CFO, is a
governing body for risk management in Outokumpu. Business Areas and
Group functions are responsible for managing risks connected with their
own operations. Auditors and Internal Audit monitor risk management
processes, and the Risk Management Steering Group, the Board’s
Audit Committee and the Board of Directors review both key risks and
actions taken to manage these risks on a regular basis. Treasury and
Risk Management function supports implementation of Outokumpu’s
risk management policy, facilitates and coordinates risk management
activities, and prepares quarterly risk reports for management, Board’s
Audit Committee and Auditors.

Risk management process
Outokumpu has defined risk as anything that could have an adverse
impact on achieving the Group’s objectives. Risks can therefore be
threats, uncertainties or lost opportunities connected with current or
future operations. Outokumpu’s appetite for risk and risk tolerance are
defined in relation to earnings, cash flows and capital structure. The
risk management process is an integral part of the overall management
processes and it is divided into four stages: risk identification, evaluation/
prioritization, mitigation and reporting. Risk management process in

prevention audit programs, which also focused on machinery breakdown
loss prevention during 2016. In total, more than twenty fire safety and
machinery breakdown loss prevention audits were carried out in 2016
using in-house expertise in co-operation with external advisors. In the first
quarter of 2016, Outokumpu completed negotiations with its insurance
companies regarding the settlement of the machinery breakdown incident
at its Calvert mill in the US back in 2014. No material operational risks
realized during 2016.

Outokumpu obtained a rating from Moody’s in the first quarter of 2016.
Rating was supported by improvement in profitability and free cash flow.

In the second quarter, Outokumpu issued a EUR 250 million senior
secured bond, to extend the maturity profile while also addressing the
refinancing of 2017 debt maturities.

Outokumpu is two-fold, including a top-down approach to manage the
Group’s key risks and a bottom-up approach focusing on the operational
level.

Within Outokumpu, the risk management process is monitored and
controlled at different organizational levels in a systematic manner.
Regular risk updates are carried out to capture relevant information and
to ensure that the process is operating in an uninterrupted manner.
The monitoring and analysis of results and risk updates also ensure
that accurate information is provided both internally – to Business
Area management teams and members of the Leadership Team – and
externally to parties such as shareholders and other stakeholders.

Focus areas 2016
The focus in risk management was to secure the business plan by robust
risk management activities, including actions in safety, securing liquidity,
reducing costs and improving the efficiency and controls of Outokumpu’s
operations. Outokumpu continued its systematic fire safety and loss

Risk management process in Outokumpu

Enterprise-wide risks

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Top-down
Policies,
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Bottom-up
Identifi cation,
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Risk
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Regular risk
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Identifi cation

Evaluation and
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Risk monitoring
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Mitigation

Leadership Team

Business areas and
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Operations

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Strategic and business risks

Risks related to Outokumpu’s
business priorities and targets
In the beginning of April 2016, Outokumpu announced its new vision
and measures to drive competitiveness and further improve the financial
performance of the Company. The new vision has been defined as: to
be the best value creator in stainless steel by 2020 through customer
orientation and efficiency. Simultaneously, Outokumpu outlined its
long-term financial targets connected to this vision. In the short term,
Outokumpu’s future development is expected to depend on the successful
implementation of the measures to drive competiveness and the following
short term actions:

• New organizational set-up meaning a simplified organization with three
business areas, less management layers and a lighter cost structure;

• A reduction of EUR 100 million in sales, general and administrative costs
(SG&A) by the end of 2017 against the baseline of EUR 400 million at
the end of 2015; and

• A cash release of at least EUR 200 million from net working capital by
the end of 2016, particularly through the reduction of inventory carry.

Outokumpu’s current expectations regarding the impact and timing of the
abovementioned measures are based on a number of assumptions and
expectations that are subject to various risks and uncertainties.

Stainless steel industry and markets
Huge stainless steel capacity build-up in Asia, namely China, in the past
years has resulted into a reversal of the trade flows between East and
West. Whereas China earlier was a net importer of stainless steel, it
has now been a net exporter since 2010. This has resulted in rapidly
increasing market shares of Chinese material and deflated price levels in
the Outokumpu main markets, Europe and USA. Europe has responded
by imposing anti-dumping measures on cold rolled stainless products
from China and Taiwan in 2015, while USA has imposed preliminary anti-
dumping and counter-valing duties on stainless steel flat products from
China in 2016. In Europe, this has resulted in lower volumes of imports
during 2015–2016, compared to record-highs of 2014, but the volumes
still remain at higher levels than before 2014. However, these measures
are inadequate to fully mitigate the risk, as there seem to be possibilities

(circumvention, absorption, semi-finished products etc.) for exporters
to undermine/avoid the effects of the defense measures. In 2016, the
imports of hot rolled material (no duties being applied) from Asia to
Europe have continued to increase, adding concerns to European mills of
lost volumes and deflated price levels.

Lower pricing levels of imports may impair or eliminate Outokumpu’s
ability to compete with such producers. This and other practices may
have an adverse effect on Outokumpu’s profitability to the extent that
subsidized stainless steel products are exported into Outokumpu’s key
markets, the EU and the United States. In addition, Outokumpu has
significant exposure to the effects of trade actions and barriers due to the
global nature of its operations. Such trade actions and barriers could limit
Outokumpu’s further growth and market access.

Outokumpu believes that the overall long-term prospects for stainless
steel demand remain positive. Key global megatrends, such as
urbanization, modernization, and increased mobility, are expected to
support future growth of stainless steel demand. There are, however, risks
that such megatrends will be realized slower than expected, and that
the occurrence of natural catastrophes or other adverse changes in the
global political and economic environment, can impact the stainless steel
industry and reduce growth prospects also in Outokumpu’s core markets.

Since global demand for stainless steel is forecasted to increase in the
coming years, Outokumpu expects that global demand for ferrochrome, a
key ingredient in stainless steel production, will increase correspondingly.
As part of its Europe Business Area, Outokumpu produces ferrochrome at
its Tornio ferrochrome production facility using chromite extracted from its
Kemi chromite mine. Outokumpu aims to maintain both a high utilization
rate at its ferrochrome production facility and the Group’s competitive
position in the ferrochrome market by consuming a significant amount of
ferrochrome internally and also by selling certain volumes on the global
market. Outokumpu’s competitive position in the ferrochrome business is
affected by foreign exchange rates, particularly the US dollar and e.g. the
prices of power and coke.

Raw materials, supplies and energy
Outokumpu is exposed to price changes of alloy metals in multiple ways.
The underlying exposure consists of price fixed purchase contracts; price

fixed sales contracts and physical stocks of priced inventories of nickel,
molybdenum, carbon and stainless steel scrap and various grades and
forms of stainless steel. Price changes of alloy metals lead to impacts
on earnings, cash flows and balance sheet structure. Pricing systems are
applied in many markets and may cause volatility in demand of stainless
steel. This typically leads to reduced demand when metal prices decline,
which may also lead to increase in inventories causing adverse impact
on earnings being even higher. Another possible adverse consequence
of volatility in demand is the negative impact on capacity utilization
rations. In addition, the monetary value of discounts in purchasing (e.g. in
connection with purchases of stainless steel scrap) depends on the level
of alloy metal prices. Therefore, the price levels of alloy metals are likely to
have long-term impacts on profitability.

Stainless steel production requires substantial amounts of certain
raw materials, primarily nickel, recycled stainless steel, ferrochrome,
molybdenum, recycled carbon steel, as well as energy and supplies.
Most of these are subject to significant price volatility due to fluctuating
customer demand, speculation and scarcity, which may, from time to time,
be compounded by decreases in extraction and production due to natural
disasters, political or financial instability, or unrest. Additionally, the
production of stainless steel products and ferrochrome requires significant
amounts of energy, particularly electricity and, to a lesser extent, propane,
natural gas and light fuel oil. Energy costs represent a substantial portion
of Outokumpu’s total cost of sales and energy prices have historically
varied, and may continue to vary significantly, as a result of political and
economic factors beyond Outokumpu’s control. For example, the European
Climate and Energy Package (the “CEP”) has a significant impact on the
electricity markets in Europe, and, therefore, also affects Outokumpu’s
business. Outokumpu is also exposed to price volatility of raw materials
and supplies, which it purchases primarily under short- or long-term
contracts, but also on the spot market. Increases in the prices of certain
raw materials, such as nickel, ferrochrome, molybdenum and iron, are
generally passed on to customers through alloy surcharges. Outokumpu
has hedged part of its exposure to changing nickel prices and, on a
case-by-case basis, molybdenum prices. Although the alloy surcharge
mechanism is intended to allow stainless steel producers to pass on the
costs of raw materials to customers, it does not eliminate Outokumpu’s
exposure to raw material price volatility. Therefore, Outokumpu may not be
able to pass on all of its raw materials costs to customers, which can have

Outokumpu Annual report 2016

Corporate Governance 2016

18/26

negative impacts on Outokumpu’s profitability. Financial risks related to
raw materials and energy prices are described in note 19 to the financial
statements.

Legal risks
Outokumpu and its subsidiaries are subject to several litigation cases.
For a company such as Outokumpu, there is a general risk, which mainly
relates to Outokumpu being litigated against by business partners and/
or in connection with its business activities in the future. Outokumpu is
also exposed to typical litigation risks in connection with mergers and
acquisitions. For the specific risks relating to existing litigation, please
see Note 30 to the financial statements, “Disputes and litigations”.
Outokumpu’s products are used in a wide range of applications. For
instance, certain products are used in safety-critical applications, such
as pipes used in the oil, gas, chemical and petrochemical industries.
In addition, a certain part of Outokumpu’s products are used in the
automotive industry, where key customers require extensive third-party
certification regarding the products purchased. Therefore, Outokumpu is
exposed to product liability claims arising e.g. from automotive industry
customers. Such claims may result in severe damages, impacting
Outokumpu’s profitability. Outokumpu manages and mitigates its
legal risks by running internal governance and compliance programs
and policies, some of them extending beyond local minimum legal
requirements.

Environmental business risks
The main environmental business risks for Outokumpu are related
to emission trading schemes and new environmental and consumer
protection demands. The European Union’s unilateral Emission Trading
System (ETS) forms a risk for Outokumpu, indirectly in electricity prices
and directly in emission allowance costs. Outokumpu´s European units
cannot transfer these costs to product prices due to global competition.

Outokumpu has secured part of its future electricity supply – and the
associated prices – through long-term contracts. Additionally, Outokumpu
is participating in nuclear power projects in Finland. Outokumpu
operates in accordance with prevailing laws and regulations, including
environmental, chemical and product safety legislation. EU regulatory
activity in this area has developed rapidly. Non-fact based changes in
this legislation, as proposed in the EU, could have long-term impacts on

Outokumpu’s operations. Strict compliance with all relevant environmental
regulations causes increased costs and impacts Outokumpu’s competitive
position. Outokumpu mitigates these impacts through the systematic
identification and management of environmental, chemical and product
safety risks, through emission trading, and by maintaining a proactive
dialogue with stakeholders involved in the framing of environmental
legislation.

Operational risks

Major disasters and business interruptions
Outokumpu’s production processes are dependent on the continuous
operation of critical production equipment, including furnaces, continuous
casters, rolling mills and electrical equipment, e.g. electric motors
and transformers, and production downtime may occur as a result of
unexpected mechanical failures. Operations may also be disrupted for
a variety of other reasons, including fire, explosion, flooding, release of
substances harmful to the environment or health, failures in information
technology, strikes or transportation disruptions.

Furthermore, accidents may lead to production downtimes that affect
specific items of machinery or production plants, or possibly result in plant
closures, including closure for the duration of any ongoing investigation.
This type of disruption may cause significant business interruptions and
have a negative impact on Outokumpu’s profitability. Primarily because
of the high temperatures required for production, fire is a significant risk
for Outokumpu. Most of the production facilities are located in extensive
industrial zones and a fire in could lead to major damage to property
and interruptions in production. Extreme weather conditions and natural
disasters may also affect Outokumpu’s operations, especially as a
result of damage to property or the loss of production through extremely
low temperatures, flooding, hurricane, tornado or drought. Outokumpu
monitors such risks by continuously evaluating its production facilities and
production processes from a risk management perspective and also by
arranging regular fire-safety audits. Insurance covers a large proportion
of the associated risks. In 2016, Outokumpu also focused on machinery
breakdowns loss prevention by conducting separate surveys at the main
sites.

Environmental accidents
The main environmental accident risks at production sites relate to use of
acids, production of hazardous waste and toxic gases, landfill activities,
long-term contamination of soil or groundwater, or long-term effects of
hazardous pollutants. Outokumpu also has environmental liabilities and
risks at closed mines and sites. Certified environmental management
systems are in place at all production sites to manage the environmental
accident risks in a systematic way, including external environmental
audits. In addition, Outokumpu has an internal environmental auditing
program to monitor and ensure local legal compliance and the level of
environmental risk management.

Project risks
Outokumpu has through a holding company Voimaosakeyhtiö SF
committed to a 14% stake in Fennovoima Oy, which has a parliamentary
decision-in-principle to construct a new nuclear power plant in Pyhäjoki,
Finland. The company has selected Rosatom Overseas CJSC as the plant
supplier. Fennovoima Oy submitted a construction license application to
the government in June 2015, and the construction license is expected
in the end of 2018. Infrastructure work at the site began in 2015 and
according to the plans, is expected to last approximately two to three
years. The construction of the plant will begin after the construction
license has been obtained and the infrastructure work has sufficiently
progressed. The power plant is scheduled to start commercial operations
in 2024. The project involves a number of potential risks for Outokumpu,
including project completion risks such as delays, cancellation, non-
completion, technical risks, possible tightening nuclear safety regulations
in the future, and financial risks such as budget overruns, non-competitive
cost of power, financing risks, cost and availability of the financing,
political and public acceptance risks as well as environmental risks.
When operational, shareholders will be liable for their pro rata share of
the company’s fixed energy procurement costs and the right to procure
their pro rata share of the energy produced by the company at cost (the
“Mankala principle”). Considering the risks involved in the project, there
can be no assurance that one or more of the project risks will not occur
or that Fennovoima Oy will have adequate financing for the project in
the event of any future defaults by the direct or indirect shareholders in
Fennovoima Oy.

Outokumpu Annual report 2016

Corporate Governance 2016

19/26

Outokumpu is investing approximately EUR 30 million in using liquefied
natural gas (LNG) instead of propane at the Tornio mill. The main part
of the investment, phased over 2015–2018, is being used to make the
required equipment modifications at the Tornio mill. This investment
includes a number of risks inherent to investment projects, including
project completion risks, financial risks such as market price risks, and
risks relating to contractual arrangements between the different business
partners. Replacing the use of propane with LNG sourced directly from the
global market is expected to reduce production costs through lower and
more stable energy prices, and thereby increase the competitiveness of
and provide a more sustainable source of energy for our Tornio mill.

IT dependency and cyber security risks
Outokumpu relies on various applications and other information
technologies that are used globally in all business areas and group
functions. Many of these applications and underlying infrastructure are
outdated, making them more vulnerable to failure, and could result in
business interruptions, for example, in the production and supply chain
processes. In addition, the enterprise architecture is complicated, and
the large number of different and unharmonized information systems
increases the risk of loss of critical applications. Furthermore, cyber
threats and other security threats could exploit possible weaknesses
in Outokumpu’s security controls, which in turn, could cause leakage of
sensitive information, theft of intellectual property, production outages or
damage to Outokumpu’s reputation. Outokumpu is taking necessary steps
to ensure that the IT systems and solutions are reliable, and also aims to
ensure secure information management at all company locations to avoid
data loss or situations in which business-critical information becomes
unavailable. Additionally, Outokumpu is improving its cyber readiness in
order to prevent possible cyber-attacks, by running and initiating various
security development activities based on the detailed cyber threat and
risk exposure analyses. Outokumpu has also taken actions to mitigate
its earlier dependence on certain people in application support and has
improved IT incident management with a special focus on major incidents.
Outokumpu has also launched a business transformation program to
develop and improve its business capabilities and renew its IT systems in
the coming years.

Safety and personnel
Outokumpu has set its safety vision and principles on high level. Safety
takes priority over all other activities. All Outokumpu employees are
responsible for their own safety, but also for the safety of their colleagues.
Outokumpu strongly believes that all injuries can be prevented.
Additionally, as a part of its vision for 2020 Outokumpu has introduced
6 must win battles to reach its short term targets, safety being one of
these six, aiming to standardized and disciplined approach to safety that
correlates with improved quality and operational efficiency, leading to a
top decile position in the industry.

Despite the ongoing efforts and actions, serious incident or fatal accident
may occur during worktime. Outokumpu considers the risk of fatalities and
serious injuries having a significant impact on its safety culture and its
reputation as an employer. Moreover Outokumpu believes that great focus
and systematic development of safety performance and safety culture
will have a positive impact on operational performance and discipline.
Outokumpu has systematic and continuos monitoring and reporting
practices in place, including reactive and proactive measures of safety
performance on montly level.

Outokumpu’s ability to continue and grow its business as well as provide
high-quality products depends, to a large extent, on the contributions
made by its key personnel. The loss of key individuals or other employees
who have specific knowledge of, or relationships with, trade customers
in markets in which Outokumpu operates could have significant impacts
on Outokumpu’s business. If Outokumpu is unable to attract, retain,
motivate, train and develop qualified employees at all levels, it could have
a material adverse effect on Outokumpu’s business, financial condition
and results of operations. There can be no assurance that Outokumpu
will be able to retain such senior managers and other key employees.
However, Outokumpu has implemented HR processes to attract and retain
key employees in the Group. Implementation of leadership development
programs and succession planning for key positions in the Group are also
undertaken as part of the talent review process to maintain development
opportunities and to ensure an adequate pipeline of talent to mitigate the
potential loss of senior managers. Additionally, Performance Management
processes were upgraded through the organization to ensure alignment to
the company mission and targets.

Compliance, crime and reputational harm
Outokumpu operates globally and its activities span multiple jurisdictions
and complex regulatory frameworks at a time of increased enforcement
activity and enforcement initiatives globally in areas such as competition
law, anti-corruption and trade restrictions, including sanctions.
Outokumpu’s governance and compliance processes may not prevent
breaches of law or governance standards. Outokumpu also faces the risk
of fraud by its employees, losses of critical research and development
data, misconduct, as well as violations by its sales intermediaries or at its
joint ventures and other companies in which it has an interest, particularly
if it only has a minority stake and does not control accounting or other
rules and protocols for the conduct of business.

Outokumpu’s failure to comply with applicable laws and other standards
could subject it to fines, loss of operating licenses, loss of business, loss
of management time, company focus, breach of its financing agreements
and reputational harm. Effective internal controls are necessary for
Outokumpu to provide reliable financial reports and effectively prevent
and detect fraud. If Outokumpu cannot provide reliable financial reports
or prevent fraud, this could have a material adverse effect on its financial
results. Additionally, at the operational level, individual employees may
not comply with Outokumpu’s policies and guidelines and, as a result,
may incur compliance costs (including fines) and cause reputational
damage. Inadequate internal controls could also cause investors and
other third parties to lose confidence in Outokumpu’s reported financial
information and risk management processes, which could have a
material adverse effect on Outokumpu’s business, financial condition and
results of operations. Outokumpu’s compliance program aims to prevent
and mitigate compliance risks from occuring and is further developed
continuously. The annual compliance risk assesment forms the basis for
the compliance action plan for the forthcoming year.

Financial risks

Key current financial risks for Outokumpu are:

• Changes in the prices of nickel, iron, molybdenum, electrical power and

fuels;

• Currency developments affecting the euro, the US dollar, the Swedish

krona and the British pound;

Outokumpu Annual report 2016

Corporate Governance 2016

20/26

Additionally, Outokumpu takes seriously all labor practice violations and
related threats as well as its full transparency and compliance in human
rights topics. Additional information on human

rights and about Outokumpu’s stakeholder relations is available in the
Sustainability report under sections Our people and Outokumpu and
society. In order to also improve the identification of sustainability risks,
the new Global Reporting Initiative G4 standard has been taken in to use
for the responsibility reporting.

• Interest rate changes connected with the US dollar, the euro and the

Swedish krona;

• Changes in levels of credit margins;
• Counterparty risk related to customers and other business partners,

including financial institutions;

• Risks related to liquidity and refinancing;
• Breach of financial covenants or other terms and conditions leading to

default;

• Risk related to prices of equities and fixed-income securities invested

under defined benefit pension plans.

The financial risks listed above and related processes for risk
management are described in further detail in note 19 to the Group’s
consolidated financial statements.

Corporate responsibility risks and
stakeholders’ materiality analysis

Outokumpu has also identified its exposures in sustainability and
corporate responsibility. These are mainly identified through dialogue
with stakeholders (customers, suppliers, investors, employees,
NGOs, authorities, communities, associations) in connection with the
materiality analysis related to Outokumpu’s sustainability program,
but also through Outokumpu’s risk management process as well. In
the materiality analysis, the most important sustainability topics for
business were a safe and healthy workplace, energy and material
(resource) efficiency, and accountable and transparent governance and
reporting. For our stakeholders, in addition to these, management of
toxics and chemicals and mitigation of environmental impacts were also
important. Additional information on the materiality analysis is available in
Outokumpu’s sustainability report in the section ”Reporting on sustainable
development”. These main topics from the materiality analysis are also
partially considered as Outokumpu’s key risks, which are explained above
within several risk scenarios, including: environmental business risks;
environmental accident risks; raw materials, supplies and electricity;
compliance; and reputational harm.

For instance, the management of workplace safety, toxics and chemicals
are core parts of Outokumpu’s health and safety management activities,
as described in the chapter Safe and healthy working environment.

Outokumpu Annual report 2016

Corporate Governance 2016

Shares and shareholders

Shares and share capital

Shareholders by group on December 31, 2016

Principal shareholders on December 31, 2016

Outokumpu’s shares are listed on the Nasdaq Helsinki Large Cap list
under the trading code OUT1V, and are incorporated into the Finnish
book-entry securities system. The total share capital was EUR 311 million
at the end of the year. All shares in Outokumpu carry equal voting and
dividend rights.

As of December 31, 2016, the total number of Outokumpu shares was
416,374,448. Between May 17, 2016, and May 26, 2016, Outokumpu
repurchased 2,000,000 of its own shares through public trading at
Nasdaq Helsinki. As of December 31, 2016, Outokumpu held 2,513,848
of its own shares, i.e. treasury shares (Dec 31, 2015: 885,140).

Outokumpu in the capital markets

Outokumpu continued its regular and active dialogue with investors and
analysts in 2016.

Key topics discussed with investors were Outokumpu’s new vision and
financial targets for 2020, the improving performance of the Americas
business area, the balance sheet, as well as market-related topics.
Outokumpu held its Annual General Meeting in Helsinki, Finland, in April.
The Capital Markets Day was held in the new headquarters in Helsinki,
Finland, in November. Outokumpu arranged 17 roadshows in Europe
and in the US during the year. The company also met investors at three
industry seminars in New York, Miami and London. In total, over 250 one-
on-one meetings and 30 conference calls were held with investors during
the year.

Private corporations

Financial and insurance institutions

Public sector and public organizations

Non-profit organizations

Households

Outside Finland

122,994,508

14,986,923

37,562,259

2,280,222

73,556,287

1,747,088

Nominee accounts held by custodian banks

163,247,161

Total

416,374,448

Shares not transferred to the book-entry securities system total 30.

29.54

3.60

9.02

0.55

17.66

0.42

39.21

100

Shareholders by group on December 31, 2016

Solidium Oy

The Social Insurance Institution of Finland

Varma Mutual Pension Insurance Company

Ilmarinen Mutual Pension Insurance Company

State Pension Fund

Elo Mutual Pension Insurance Company

OP-Finland Small Firms Fund

OP-Finland Value Fund

Etera Mutual Pension Insurance Company

Evli Bank Plc

Keva

Nordea Nordic Small Cap Mutual Fund

OP-Delta Fund

Nordea Pro Suomi Fund

Relander Harald Bertel

109,069,264

9,298,652

8,628,949

8,060,673

5,000,000

3,500,000

1,735,000

1,234,282

1,111,295

1,067,048

1,000,000

994,300

950,000

922,629

850,000

153,422,092

36.85

Nominee accounts held by custodian banks

163,247,161

Treasury Shares

Other Shareholders

2,513,848

97,191,347

39.21

0.60

23.34

Total

416,374,448

100

Shares not transferred to the book-entry securities system total 30.

Solidium Oy* 26.2%

The Social Insurance Institution of
Finland 2.2%

Varma Mutual Pension Insurance
Company 2.1%

Ilmarinen Mutual Pension
Insurance Company 1.9%

State Pension Fund 1.2%

Other Finnish organizations 9.1%

Finnish households and private
persons 17.7%

International shareholders** 39.6%

* Solidium Oy is wholly-owned by The Finnish State.

** incl. JPMorgan Asset Management U.K. Limited holding >5% of

outstanding shares

21/26

26.19

2.23

2.07

1.94

1.20

0.84

0.42

0.30

0.27

0.26

0.24

0.23

0.22

0.20

Outokumpu Annual report 2016

Corporate Governance 2016

22/26

Share price development and
market capitalization

During 2016, the price of the Outokumpu share peaked at EUR 8.51
and was EUR 2.08 at its lowest (2015 high/low: EUR 7.76/ EUR 2.06).
The Outokumpu share price closed at the end of the year at EUR 8.51,
marking an increase of 211% from the closing price of 2015 (Dec 31,
2015: EUR 2.73). At the end of 2016, the company’s market capitalization
was EUR 3,541 million, compared to EUR 1,138 million at the previous
year’s end.

In 2016, the average daily trading volume in Outokumpu shares on the
Nasdaq Helsinki was 3.8 million shares. In total, 956 million Outokumpu
shares were traded on the Nasdaq Helsinki during 2016, representing
a value of EUR 4,302 million (2015: 1,346 million shares, which
corresponded to EUR 6,013 million).

In addition to the Nasdaq Helsinki, Outokumpu’s shares are traded also
on various alternative trading platforms. The volume of Outokumpu’s
shares traded on the Nasdaq Helsinki represented approximately 50% of
the total volume of Outokumpu’s shares traded in 2016 (source: Fidessa
Fragmentation Index

More information about the shares is available at our website

Distribution of shareholders on December 31, 2016

Number of shares

1–100

101–1 000

1 001–10 000

10 001–100 000

100 001–1 000 000

1 000 001–10 000 000

10 000 001–100 000 000

100 000 001–

Shares in nominee accounts held by custodian banks

Shares not transferred to the book-entry securities system total 30.

Number of
shareholders

% of
shareholders

Total
shares

% of
share capital

Average
shareholding

15,155

29,734

12,830

1,182

58,984

25.70

50.41

21.75

2.00

0.12

0.02

0.00

100

686,437

12,728,244

37,089,212

28,111,583

23,292,800

42,149,747

109,069,264

163,247,161

416,374,448

0.17

3.06

8.91

6.75

5.59

10.12

0.00

26.19

39.21

100

428

2,891

23,783

623,511

4,214,975

109,069,264

Market capitalization and share price development

Monthly trading volume

€ million
4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

€/share
40

Million shares

180

150

120

Month-end market capitalization
Share price
Source: Nasdaq

Includes trading on Nasdaq Helsinki. The graph does not include trading
on 28 February, 2014 because of an extraordinary peak as a result of
ThyssenKrupp selling its shares in Outokumpu.

Source: Nasdaq

Outokumpu Annual report 2016

Corporate Governance 2016

23/26

Share-based incentive programs

Outokumpu share price development in 2016

Trading venue development 2013–2016

Outokumpu’s Board of Directors has confirmed that share-based incentive
programs are part of the incentive and commitment scheme for the
company’s key personnel. The objectives are to reward key personnel
for good performance and thereby support Outokumpu’s strategy, and to
direct management attention towards increasing Outokumpu’s profitability
and shareholder value. The programs offer the possibility of receiving
Outokumpu shares as an incentive, provided that the criteria set by the
Board for each earnings period are fulfilled.

Performance Share Plan 2012
The Board of Directors of Outokumpu approved on January 31, 2012 the
establishment of a share-based incentive plan, the Performance Share
Plan 2012, which is part of the remuneration and commitment program
for the key management of Outokumpu Group. The Performance Share
Plan consists of annually commencing performance share plans. Each
plan includes a three-year earnings period, after which any share rewards
earned will be delivered to the participants.

The second plan of the Performance Share Plan, covering years 2013–
2015, ended on December 31, 2015. The criteria set for the plan were
Outokumpu share price at the end of 2015, EBITDA (earnings before
interest, taxes, depreciation and amortization) for the year 2013, EBIT
(earnings before interests and taxes) improvement for the year 2014,
EBIT excluding non-recurring items for the year 2015 and achievement of
Inoxum transaction related synergies. Based on the achievement of the
targets, the participants received 65.1% of the target number of shares as
a reward. After deductions for applicable taxes, altogether 178,789 shares
were delivered to 84 persons in spring 2016. Of these 178,789 shares,
36,606 shares were delivered to Leadership Team members. Outokumpu
used its treasury shares for the reward payment, which meant that the
total number of shares of the company did not change due to the reward.

Restricted Share Pool 2012
The Board of Directors of Outokumpu approved on January 31, 2012
the establishment of a Restricted Share Pool program, which is part of
the remuneration and commitment program for selected key resources
of Outokumpu Group. It consists of annually commencing plans with a

%, Dec 31, 2015 = 100
350

300

250

200

150

100

%
100

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct Nov Dec

Outokumpu
Nasdaq Helsinki

Nasdaq Helsinki, %

Others, including MTFs, OTC and Dark pool trading, %

Source: Fidessa.

Performance Share Plans

Number of participants on December 31, 2016

Maximum number of gross shares to be paid 1)

CEO Baan

Other Leadership Team members

Other participants

Total maximum number of gross shares to be paid 1)

Earning criteria

PSP 2014–2016
99

PSP 2015–2017
111

PSP 2016–2018
120

253,704

902,058

1,155,762

EBIT improvement for the year 2014;
EBIT excluding non-recurring items
for the year 2015; underlying EBITDA
for the year 2016; a cash flow
measure for the years 2014, 2015
and 2016; and return on capital
employed (ROCE) in 2016.

393,000

958,500

1,351,500

220,000

739,500

1,692,150

2,651,650

EBIT excluding non-recurring items and
a cashflow measure for the year 2015;
and return on capital employed (ROCE)
ranking among peers and debt-to-equity
ratio (gearing) in 2017.

Outokumpu's profitability and the
efficiency with which its capital is
employed compared to a peer group, and
Outokumpu's gearing in 2018

Share delivery year

2017

2018

2019

1) The maximum number of gross shares (taxes included) payable if the set performance targets are achieved in full.

Outokumpu Annual report 2016

Corporate Governance 2016

24/26

Restricted Share Pool

Number of participants on December 31, 2016

Maximum number of gross shares to be paid 1)

CEO Baan

Other Leadership Team members

Other participants

Total maximum number of gross shares to be paid 1)

Share delivery year

RSP 2014–2016
5

RSP 2015–2017
4

RSP 2016–2018
19

17,700

2017

5400

17,900

23,300

2018

39,500

2019

1) The gross number of shares (taxes included) payable if the employment has continued until the delivery date of the shares and no notice of termination has been given prior
to the delivery date.

Matching Share Plans

Number of participants on December 31, 2016

Maximum number of gross shares to be paid 1)

CEO Baan

Other Leadership Team members

Other participants

Total number of gross shares to be paid 1)

Shares delivered (net of taxes)

Gross shares to be paid 1)

Share delivery years

1) The gross number of shares (taxes included) payable.

CEO Plan

1,157,156

185,077

867,867

Management Plan

1,393,342

791,360

2,184,702

2016, 2017, 2018, 2019

2017, 2018, 2019, 2020

three-year vesting period, after which the allocated share rewards will
be delivered to the participants provided that their employment with
Outokumpu continues uninterrupted throughout the duration of the plan
and until the shares are delivered. Restricted share grants are approved
annually by the CEO, with the exception of any allocations to Leadership
Team members, which will be approved by the Board of Directors.

The second plan of the Restricted Share Pool 2012, covering years
2013–2015, ended on December 31, 2015. After deductions for
applicable taxes, in total 7,426 shares were delivered to two participants
of the 2013–2015 plan in spring 2016. Of these 7,426 shares, 5,070
shares were delivered to Leadership Team members. Outokumpu used
its treasury shares for the reward payment, which meant that the total
number of shares of the company did not change due to the reward.

Matching Share Plans

Matching Share Plan for the CEO
The CEO is part of a Matching Share Plan according to which he is entitled
to receive in total 1,157,156 gross shares including taxes on the condition
that he personally invested EUR 1 million into Outokumpu shares by
February 20, 2016. The matching shares will be delivered in four equal
instalments in the end of 2016, 2017, 2018 and 2019, respectively. The
first vesting portion, in total 185,077 shares after deduction of applicable
taxes, was delivered to the CEO in the end of 2016. The CEO is required
to keep at least all the shares he has acquired and the first vesting
portion throughout his service with Outokumpu. If the CEO’s service
contract is terminated without any fault or negligence attributable to him,
all unvested matching shares (ie. shares not yet delivered) will vest at the
expiry of the CEO agreement, provided that the ownership requirement for
the CEO is fulfilled.

Matching Share Plan for management
The Board of Directors of Outokumpu approved on April 27, 2016 the
establishment of a Matching Share Plan program for key management
for years 2016–2020, in order to emphasize shareholder value creation,
enforce an ownership culture and to incentivize the achievement of the
2020 vision.

According to the plan, the participants have invested an amount
corresponding to 30–120% of their annual gross base salary into
Outokumpu shares. Outokumpu will match each share acquired by the
participant with two gross shares from which applicable taxes will be

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Corporate Governance 2016

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deducted and the remaining net number of shares will be delivered
to the participant. The matching shares will be delivered in four equal
instalments in the end of 2017, 2018, 2019 and 2020, respectively. In
order to receive the matching shares, the participants are required to
keep all the shares they have acquired until the vesting of each matching
share tranche.

Other terms
According to the share ownership plan of the Outokumpu Group, the
members of the Leadership Team are obliged to own Outokumpu shares
received under share-based incentive programs to the value of their
annual gross base salary. 50% of the net shares received from the
Performance Share Plan, Restricted Share Pool and Matching Share Plan
programs described above must be used to fulfill the above ownership
requirement.

Management shareholding

On December 31, 2016, members of the Outokumpu Board of Directors
and the Leadership Team held a total of 1,156,043 Outokumpu shares,
corresponding to 0.4% of the company’s shares and voting rights. If
the members of the Leadership Team were to receive the maximum
number of gross shares for the Matching Share Plan and the 2014–2016,
2015–2017 and 2016–2018 periods of the performance and restricted
share plans (a total of 4,092,813 gross shares including taxes), their
shareholding obtained via the programs would amount to 1.3% of the
company’s shares and voting rights. Details of Outokumpu’s management
shareholdings can be found in the section Corporate Governance.

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Information for investors

Annual General Meeting 2017
Outokumpu Oyj’s Annual General Meeting 2017 will be held on
Tuesday, March 21, 2017 at 2.00 pm EET at Clarion Hotel Helsinki at
Tyynenmerenkatu 2, 00220 Helsinki, Finland.

To attend the Annual General Meeting, shareholders must be registered
on March 9, 2017 in Outokumpu’s shareholder register held by Euroclear
Finland Ltd.

A holder of nominee registered shares has the right to participate in the
Annual General Meeting by virtue of such shares, based on which he/she
on March 9, 2017 would be entitled to be registered in the shareholders’
register of the company held by Euroclear Finland Ltd. The participation
in the meeting also requires that the shareholder has been registered
into the temporary shareholders’ register held by Euroclear Finland Ltd.
at the latest by March 16, 2017 by 10.00 am EET. A holder of nominee-
registered shares who wants to participate in the Annual General Meeting
has to be registered into the temporary shareholders’ register by the
account management organization of the custodian bank latest by the
time stated above.

A shareholder shall register for the meeting no later than March 13, 2017
by 4.00 pm EET by giving a prior notice of participation. Notifications
can be made at www.outokumpu.com/generalmeeting
to agm.outokumpu@innovatics.fi; by telefax: +358 9 421 2428, or by
telephone: +358 50 532 5582 (from Monday to Friday at 12.00–4.00 pm
EET) or by mail to

; by e-mail

Payment of dividend
The Board proposes to the Annual General Meeting a dividend of 0.10
euros per share based on the balance sheet adopted for the account
period ending December 31, 2016. The dividend will be paid to
shareholders registered in the shareholders’ register held by Euroclear
Finland Oy on the dividend record date of March 23, 2017. The Board
proposes that the dividend be paid on March 30, 2017.

Outokumpu Oyj
Share Register
P.O. Box 245
FI-00181 Helsinki, Finland.

A shareholder may participate in the Annual General Meeting and exercise
his/her rights at the meeting by way of proxy representation. Proxy
documents should be delivered to Outokumpu Oyj, Share Register, P.O. Box
245, FI-00181 Helsinki, Finland before the end of the registration period.

A complete notice to the AGM and additional information concerning the
AGM is available at www.outokumpu.com/generalmeeting

Working towards a world
that lasts forever.

Outokumpu is a global leader in stainless steel. We create advanced materials that
are efficient, long lasting and recyclable – thus building a world that lasts forever.

Stainless steel, invented a century ago, is an ideal material to create lasting solutions
in demanding applications from cutlery to bridges, energy and medical equipment: it
is 100% recyclable, corrosion-resistant, maintenance-free, durable and hygienic.

Outokumpu employs some 10,000 professionals in more than 30 countries,
with headquarters in Helsinki, Finland and shares listed in Nasdaq Helsinki.

Outokumpu Oyj
Salmisaarenranta 11
FI-00180 Helsinki, Finland

Tel. +358 9 4211

corporate.comms@outokumpu.com