Outokumpu Oyj Annual Report 2017

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FY2017 Annual Report · Outokumpu Oyj

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a world that
lasts forever

Annual report 2017

Contents

Annual review

Sustainability review

Key figures 2017 . . . . . . . . . . . . . . . . .

Sustainability at Outokumpu . . . . . . . . .

Our year 2017 . . . . . . . . . . . . . . . . . . .

Sustainability highlights 2017 . . . . . . . .

Review by the Board
of Directors and
Financial statements

Governance

Corporate Governance statement . . . . . . 2

Key risks . . . . . . . . . . . . . . . . . . . . . . .

Global leader in stainless steel . . . . . . .

Safe and healthy working environment . . 5

REVIEW BY THE BOARD OF DIRECTORS . 2

Remuneration . . . . . . . . . . . . . . . . . . . .

CEO’s review . . . . . . . . . . . . . . . . . . . .

Outokumpu strategy – becoming the
best value creator . . . . . . . . . . . . . . . . .

Stainless steel market . . . . . . . . . . . . . .

A year of learning and boosting
organizational health . . . . . . . . . . . . . . .

Responsible sourcing,
responsible supplier . . . . . . . . . . . . . . .

Resource efficiency and the circular
economy . . . . . . . . . . . . . . . . . . . . . . .

KEY FINANCIAL FIGURES . . . . . . . . . . . .

Shares and shareholders . . . . . . . . . . . .

Group key figures . . . . . . . . . . . . . . . . . .

Information for shareholders . . . . . . . . .

Reconciliation of key financial figures . . .

Share-related key figures . . . . . . . . . . . .

Definitions of share-related key figures . .

This Annual report
combines Outokumpu’s
sustainability and financial
reporting for 2017.
Outokumpu’s Sustainability
review has been assured
and Financial statements
have been audited.

Energy efficiency . . . . . . . . . . . . . . . . . .

FINANCIAL STATEMENTS . . . . . . . . . . . .

Environmental impacts to a minimum . .

Consolidated statement of income . . . . .

Protecting the climate . . . . . . . . . . . . .

Environmental compliance . . . . . . . . . . .

Sustainable stainless . . . . . . . . . . . . . .

Scope of the report . . . . . . . . . . . . . . . .

Independent assurance report . . . . . . . .

Consolidated statement of
comprehensive income . . . . . . . . . . . . . .

Consolidated statement of financial
position . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated statement of cash flows . . .

Consolidated statement of
changes in equity . . . . . . . . . . . . . . . . . .

Notes to the consolidated
financial statements . . . . . . . . . . . . . . . .

Income statement of the parent company 64

Balance sheet of the parent company . . .

Cash flow statement of the
parent company . . . . . . . . . . . . . . . . . . .

Statement of changes in equity of the
parent company . . . . . . . . . . . . . . . . . . .

Commitments and contingent liabilities of the
67
parent company . . . . . . . . . . . . . . . . . . .

AUDITOR’S REPORT . . . . . . . . . . . . . . . .

Outokumpu Annual report 2017 | Annual review

2 / 12

Annual review 2017

DURABLE BRILLIANCE n There is now, more than ever, a powerful need for sustainable and lasting solutions that pass the test of time and can
be recycled and used time and again.

There is a need for stainless steel.

Key figures 2017

Outokumpu’s adjusted EBITDA more than doubled to 631 million euros.
Profitability improved because of our relentless focus on cost control
and productivity measures.

Long-term targets by
the end of 2020

Net sales, € million
Stainless steel deliveries, 1,000 tonnes
Adjusted EBITDA, € million
Net result for the period, € million
Operating cash flow
Net debt, € million
Debt-to-equity at the year-end, %
Personnel at the year-end*

2017

6,363
2,448
631
392
328
1,091
40.1
10,141

2016

5,690
2,444
309
144
389
1,242
51.4
10,600

2015

6,384
2,381
165
86
–34
1,610
69.1
11,002

2014

6,844
2,544
263
–439
–126
1,974
92.6
12,125

2013

6,745
2,585
–87
–1,003
34
3,556
188.0
12,561

Adjusted
EBITDA EUR

750

million

* Personnel in 2014 and 2013 from the continuing operations.

ROCE

12%

Gearing

<35%

Adjusted EBITDA, € million

Net debt, € million

Operating cash flow, € million

600

500

400

300

200

100

–100

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

400

300

200

100

–100

–200

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

Outokumpu Annual report 2017 | Annual review

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Our year 2017

New patented grades

Innovative skyscraper

Ratings upgraded twice

Outokumpu’s latest stainless
steel innovations – high-chromium
grades – obtained European patents
in March 2017. Both the ferritic Core
4622 (EN 1.4622) and austenitic
Supra 316plus (EN 1.4420) have
been developed in Outokumpu’s
R&D Center in Tornio, Finland. It has
taken only four years to progress from
market introduction in 2013 to a
patented product. These grades fulfill
customer demand for products with
enhanced properties and stable raw
material cost.

How do you come up with a new
stainless steel grade?

Outokumpu has provided 1,000
metric tonnes of Supra 316L/4404
stainless steel with Deco Linen finish
for the 392.5-meters-high China
Resources Group headquarters in
mainland China. The innovative new
building designed by KPF architects
employs stainless steel in 56 external
columns that support its glass facade,
creating an iconic form without the
need for internal columns to break up
open floor plans. Stainless steel has
become a popular material for facade
applications in China, replacing other
materials, such as aluminum, as it
has a longer life cycle and is easy to
clean and maintain.

Outokumpu has been rated by
Moody’s since 2015 and, in 2017,
the company’s ratings were upgraded
twice. First the issuer corporate family
rating was upgraded to B2 in May and
again to B1 in November. Moody’s
has also upgraded the ratings for
Outokumpu’s senior secured notes
to Ba3 from the previous rating of
B1. The outlook of all ratings is stable.
Outokumpu is pleased that Moody’s
has noted our improved operational
performance and balance sheet
and has consequently upgraded our
ratings. Further reduction of net debt
and improving of our credit metrics
remain key objectives for Outokumpu.

Why is stainless steel an ideal
material for this application?

Credit information

Kemi mine to go one
kilometer underground

New business area:
Ferrochrome

To secure a continuous chrome supply
for the coming decades, Outokumpu
invests approximately EUR 250
million in the Kemi mine expansion in
2017–2020. The investment will have
an employment impact of 300 full-
time equivalents. Construction work
has started and it will be completed
in 2020, when mining will begin in
the new levels. So far, Outokumpu’s
mining operations have been up to
500 meters underground.

Ferrochrome operations were sepa-
rated from the business area Europe
as its own entity as of January 1,
2018. After the change, Outokumpu
has four business areas – Europe, the
Americas, Long Products and Ferro-
chrome. Ferrochrome is an integral
part of Outokumpu’s operations and
a clear competitive advantage for
us. The reporting change will also
increase the transparency of our
business internally and externally
and, therefore, provide the financial
community a better understanding on
Outokumpu’s business drivers.

Read more on the Ferrochrome
business area

Outokumpu Annual report 2017 | Annual review

5 / 12

Global leader in stainless steel

Outokumpu is the global leader in stainless steel. We aim to be the best
value creator in stainless steel by 2020 through our competitive edge of
customer orientation and efficiency.

In 2017, Outokumpu’s sales amounted to 6.4 billion euros and stainless

steel deliveries 2.4 million tonnes. Outokumpu is the clear market leader in
Europe and the second largest in the Americas market.

As of January 1, 2018, Outokumpu has four business areas: Europe, the
Americas, Long Products and Ferrochrome. Our production units are located
in Finland, Germany, the US, Sweden, the UK and Mexico, and we serve our
customers through a global sales and service center network. Outokumpu’s
own chrome mine in Kemi, Finland is the source of the key raw material for
stainless steel.

Our most important raw material is recycled steel, and the recycled content
in our products is exceptionally high in the industry: nearly 90% of the raw
material we use in stainless steel production is recycled – either scrap from
the market or recycled from our own operations. At the end of its long life
cycle, stainless steel can be recycled infinitely without any quality degrada-
tion during reprocessing.

We are proud of our products and competence. Stainless steel is an answer
to many challenges posed by the megatrends of urbanization, mobility,
climate change and limited resources. It is sustainable, durable and designed
to last forever. We melt and mold recycled steel scrap into beauty and
functionality that can be used and admired in various forms around the
world. You can find us in civilization’s basic structures and its most famous
landmarks. You can also find us in homes as kitchen sinks, household cutlery
and washing machines. Stainless steel is all around us.

Outokumpu is listed on Nasdaq Helsinki. n

10,141

employees

Operations in

over 30

countries

Founded in Finland in

1914

Sales by business area, € 6,363 million

Other operations

Long Products
6%

Americas 24%

66% Europe

Deliveries by business area, %

Long Products
7%

Americas 30%

64% Europe

Outokumpu Annual report 2017 | Annual review

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CEO’s review
2017 was a successful year for Outokumpu: we achieved our key financial

targets and made solid progress towards achieving our 2020 vision – to
be the best value creator in stainless steel by 2020 through customer

orientation and efficiency.

Rigorous execution of our six must-win battles – safety, high-performing
organization, world-class supply chain, manufacturing excellence, commercial
excellence and the Americas transformation – has resulted in higher profitability
and strongly improved financial health of the company.

Outokumpu’s adjusted EBITDA more than doubled from EUR 309 million to EUR
631 million. While the positive development in ferrochrome pricing during the
first half of the year supported these numbers, the bulk of the improvement can
be attributed to our relentless focus on costs and productivity, driving sustain-
able value creation. An example of this focus is the 25% reduction of our sales,
general and administrative costs since 2015 to an annual run rate of EUR 300
million. Furthermore, solid operating cash flow of EUR 328 million brought our
net debt below the ambitious target of EUR 1.1 billion set for 2017.

The performance across the businesses reflects the overall company focus. In
Europe, the profitability of our stainless business was higher than ever, and
the financial performance of our Ferrochrome business was good despite
the operational issues that led to lower production volumes. Long Products’
profitability returned to healthy levels fueled by decisive cost control, and the
business area is well set for further growth.

The strong progress made during 2016 in the Americas continued during
2017. With the full-year adjusted EBITDA of EUR 21 million, the business
area delivered its first positive result since the inauguration of the Calvert mill
marking a substantial 48-million-euro improvement over 2016.

While financials are important, it’s our people who determine our success.
Therefore, having a safe and healthy work environment is vital. Best-in-class
safety leads to improved quality and operational efficiency, and healthy
organizations outperform unhealthy ones many times over. In 2017, we
improved in both areas. Our total recordable incident frequency rate decreased
substantially from 8.7 to 4.4 which is well below the average industry rate. Also
on organizational health as measured through our annual survey, our ranking
improved by one quartile. The fact that 80% of our employees participated
in the survey reflects commitment to becoming a truly high-performing
organization.

Sustainable value
creation was driven
by relentless focus
on costs and
productivity.

Sustainability is embedded into all our operations, products and business
practices, and our continuous efforts have been widely recognized. As in 2016,
the International Stainless Steel Forum (ISSF) granted their Sustainability
Award to Outokumpu in 2017, this time for an emission reduction project in
our Avesta mill. Reducing our carbon footprint and improving energy efficiency
continue to be our key environmental targets going forward.

In 2017, we announced two large investments to secure our long-term growth
and competitiveness. We are expanding the Kemi mine with a 250-million-euro
investment during 2017–2020 to ensure chrome supply for the coming
decades. We are also investing more than EUR 100 million in a business
transformation program to harmonize our business processes and to prepare
for further digitalization as a forerunner in the industry.

I want to thank all Outokumpu employees around the world for their
tremendous work, commitment and energy during the past year. We are firmly
progressing towards our 2020 vision and creating value for our stakeholders.
I also want to thank our customers and shareholders for continued good
collaboration and trust.

Roeland Baan
CEO

Outokumpu Annual report 2017 | Annual review

7 / 12

Outokumpu strategy – becoming the best value creator

Outokumpu’s vision is to be the best value creator in stainless steel
by 2020 through customer orientation and efficiency. The 2020 vision
focuses our efforts on the areas where we need to improve to be able to
create the best value for our customers, shareholders and employees.
Our strategic targets, the six must-win battles, lead us towards our
2020 vision.

Must-win battles

Vision 2020:

Megatrends

Economic &
population growth

Climate change

Limited resources

Safety

High-performing
organization

Mobility & urbanization

World-class supply chain

Strengths

#1 in Europe
#2 in Americas

World-class assets

Strong product portfolio

Solid balance sheet

Manufacturing excellence

Commercial excellence

Americas

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

Outokumpu is the clear market leader in Europe and strong number two

in the Americas. Our world-class assets, strong product portfolio and
solid balance sheet form a sound foundation for our strategy execution.
Global megatrends such as urbanization, mobility and climate change require
sustainable solutions that last for generations. Due to its superb qualities,
stainless steel can often be the optimal choice to tackle many of the
challenges posed by the megatrends.

Must-win battles to realize the 2020 vision

Outokumpu’s strategy builds on six strategic targets, or must-win battles,
through which we aim to drive competitiveness and further improve financial
performance. All six must-win battles – safety, high-performing organization,
world-class supply chain, manufacturing excellence, commercial excellence
and the Americas – are connected to customer orientation and efficiency
improvements.

• Disciplined safety practices correlate with improved quality and operational

efficiency.

• Flat structure, lean business support functions and shared services drive

high performance throughout the organization.

• World-class supply chain will lead to more efficient operations by matching
market demand with manufacturing capabilities through sharp planning of
required capacity, resources and logistics.

• Manufacturing excellence aims for implementing a standardized operating

model to unleash continuous productivity gains to reach industry
benchmark competitiveness.

• Commercial excellence focuses on margin growth through a superior

product strategy that matches market demand with an optimal product mix.

• The Americas holds the biggest profitability improvement potential, where

all the other must-win battles are being capitalized to improve the business
area’s cost and market position.

Each must-win battle includes a set of development programs, which guide
our daily activities and form the basis for performance management.
A common denominator for all our strategic targets is the strive for

Outokumpu Annual report 2017 | Annual review

8 / 12

straightforward and standardized processes and ways of
working to increase efficiency and productivity throughout the
organization.

Megatrends boost demand for sustainable solutions

Stainless steel demand is expected to grow by 23% between
2015–2020. Growth is mainly driven by few megatrends such
as urbanization, mobility, economic and population growth

and climate change. The need to find sustainable solutions
that stand the test of time is tangible, as the megatrends
raise concerns about economic, social and environmental
sustainability.

Our commitment and contribution to sustainability are an
integral part of all our operations from research and develop-
ment and manufacturing to customer deliveries. Close to 90%
of the raw materials we use are recycled which is among the

highest in our industry. At the end of its long life cycle, stainless
steel is 100% recyclable.

We believe that rigorous execution of our must-win battles
coupled with sound and sustainable operations will enable
us to reach our 2020 vision and capture a significant part of
the market growth and thus provide the best value to our key
stakeholders and the wider society. n

Must-win
battles
Safety

High-performing
organization

World-class
supply chain

Manufacturing
excellence

Achievements so far

Next steps

• Total recordable incident frequency improved to 4.4 against the target of less

• Target 2018: 4.0

than 8.0 in 2017

• New safety rules implemented and a Group-wide SafeStart training program initiated

• EUR 100 million savings in sales, administrative and general costs achieved*

• OHI target in 2020: top quartile

• Organizational Health Index (OHI) score improved by one quartile to the third quartile in 2017

with an exceptionally high response rate of 80.4%

• Improved procurement practices through establishing strategic partnerships with key vendors

• Reduction of procurement costs by EUR 150 million

• Significant reduction of procurement costs

by 2020

• Productivity improvement well on track

• Annual 3% productivity improvement

• Consistent manufacturing operations model implemented to drive efficiency

Commercial excellence

• Higher contribution margin through value selling, pricing excellence and mix improvement,

• Customer satisfaction at 75% in 2020

efficiency and reorganization

• Continuously strong market position: #1 in Europe and #2 in the Americas

Americas

• Deliveries increased by 39%*

• Improving profitability and product mix

• Significant adjusted EBITDA improvement to EUR 21 million from EUR –27 million in 2016

* Achievements since the launch of the new strategy in 2016 (compared to 2015 figures).

Outokumpu Annual report 2017 | Annual review

9 / 12

Stainless steel market

The consumption of stainless steel has been growing more rapidly than
that of any other metal in the world.

In 2012–2017, consumption of stainless steel has grown about 5% per

year, and the long-term prospects for increasing use of stainless steel are
positive. The stainless steel consumption has been growing in all areas.

Growth has been fastest in the APAC region, while consumption in the
Americas and EMEA regions have grown slower.

manufacture carbon steel, while European manufacturers focus on stainless
steel.

Overcapacity is decreasing in all markets

The stainless steel industry has been burdened by overcapacity in the recent
years especially in Asia. The global stainless steel production capacity of
slabs and billets increased in 2017 by roughly 3% to 66.4 million tonnes as
a result of new capacity in Indonesia and China. Also, the global utilization
rate was assessed to have increased above 70% levels in 2017. As the
production of stainless steel is capital intensive, producers generally seek
to maintain high capacity utilization in order to maintain and improve
profitability.

The global stainless steel* production of slabs and billets grew by some 6%
in 2017 from the previous year, reaching 48.0 million tonnes. The output
increased most in Asia, namely in Indonesia and China, but also Europe and
Americas showed growth in 2017. (Source: SMR)

Stainless steel is sold either directly to end users or to stainless steel
distributors, tube makers and processors, such as steel service centers, who
resell the products to end users. In 2017, 55% of Outokumpu’s stainless
steel was sold directly to end-user customers. The remaining approximately
45% of sales were shipped to distributors and processors that stock and
process stainless steel to serve end users.

*Melting capacity of flat and long products.

Major stainless steel producers

Global market with a few big players

Outokumpu operates in the global stainless steel market. The market of
cold-rolled products totaled approximately 29 million tonnes in 2017, of
which Outokumpu’s market share globally was approximately 6%. Our cold
rolled market share in Europe is approximately 29% and in the NAFTA region
approximately 21%. Outokumpu is the market leader in Europe and the clear
no 2 in the Americas with a market share of approximately 20% in the US.

In addition to Outokumpu, the largest stainless steel producers worldwide
include Asian companies Tsingshan, TISCO, POSCO, Baosteel and YUSCO as
well as European-based Acerinox and Aperam. Several Asian producers also

Million tonnes

Tsingshan
TISCO
Outokumpu
Posco (incl. ZPSS)
Acerinox
Beihai Chengde
Aperam
LISCO
Baosteel

2018

2017

10.2
5.5
3.3
3.2
3.2
2.4
2.1
2.0
1.5

8.2
5.5
3.3
3.2
3.2
2.4
2.1
2.0
2.3

10 / 12

Outokumpu Annual report 2017 | Annual review

Source: Global stainless steel capacity, SMR January 2018.

With a growing demand, the long-term market
outlook is positive

The demand for stainless steel products is impacted by global,
regional and national economic conditions, levels of industrial
investment activity and industrial production.

Global real demand for stainless steel products reached 41.2
million tonnes in 2017, an increase of 5.5% from 39.1 million
tonnes in 2016. The growth was most pronounced in the APAC
region at 6.3%, while demand grew by 3.4% in EMEA and by
3.2% in the Americas.

In 2017, the real demand growth was strongest in Consumer
Goods & Medical and ABC & Infrastructure end-use segments
at 6.7% and 6.0%, respectively. Meanwhile, Automotive & Heavy
Transport achieved growth of 4.5%, followed by growth of 3.7%
in Chemical, Petrochemical & Energy and 3.0% in the Industrial
& Heavy Industries segment.

In 2017, the global steel production amounted to 1,691
million tonnes of which approximately 3% was stainless steel.

The long-term outlook for stainless steel demand remains
positive. Global megatrends such as urbanization, climate
change, 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 2023 is expected to
be relatively well-balanced between the end-use segments.
SMR forecasts growth rates of 5.0% in Architecture, Building,
Construction & Infrastructure, 3.6% in Chemical, Petrochemical
& Energy, 3.4% in Consumer Goods & Medical, 3.3% in
Industrial & Heavy Industries and 2.6% in Automotive & Heavy
Transport segment.

The nickel price was trending downwards in the first half of
2017 due to the expectations of increased ore availability from
both Indonesia and the Philippines, as well as cyclically slowing
apparent demand from the Chinese stainless steel sector. In
the second half of the year, the price was underpinned by
increased investor interest, weaker US dollar and the bright
outlook for stainless steel demand as a result of global
economic recovery. Prices hit the highest level of the year of
USD 12,830/tonne in early November, before easing slightly
to around USD 12,000/tonne levels at the end of the year.
The average price of the year of USD 10,411/tonne was 8.5%
higher than the average of USD 9,600/tonne in 2016.

Raw material prices boosted earnings in 2017

In 2017, both European and US average base prices increased
from 2016, having a positive impact on companies’ earnings.
Of the two major raw materials, nickel prices were up by
approximately 9% and ferrochrome prices by 48% from the
previous year.

End-uses of stainless steel in 2017

Stainless steel price*, EUR/t

Nickel price, USD/t

Industrial &
Heavy Industry

Others 2%

ABC &
Infrastructure 15%

Automotive &
Heavy Transport 10%

Chemical,
Petrochemical & Energy

16%

49% Consumer Goods &

Medicals

5,000

4,000

3,000

2,000

1,000

30,000

25,000

20,000

15,000

10,000

5,000

Source: SMR, stainless steel finished products (rolled and forged products excl.
13Cr tubes, profiles), January 2018.

15 17

2011

2012

2013

2014

2015

2016

2017

n Base price n Alloy surcharge

Transaction price

Source: LME settlement, monthly average prices.

Source: CRU January 2018

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

Outokumpu Annual report 2017 | Annual review

11 / 12

The European benchmark price for ferrochrome increased to
USD 1.65/lb in the first quarter of 2017 as a result of weak
availability of ore as well as strong demand of ferrochrome
due to increased stainless steel production in China. For the
second and third quarters, ferrochrome price decreased to USD
1.54/lb and USD 1.10/lb, respectively, as a result of improved
availability and declined demand of ferrochrome in China.
Prices increased to USD 1.39/lb in the fourth quarter, but
retreated to USD 1.18/lb for the first quarter of 2018, following
the apparent supply and demand situation of ferrochrome in
China.

EU cold rolled imports from third countries are expected to
have reached a level of 27.6% of the total consumption in
2017, up from the average 24.6% in 2016. Imports from
Malaysia, the US, India and Taiwan were growing, while the

volumes from South Korea, Vietnam and Brazil decreased. In
the fourth quarter, EU imports are expected to have reached
a level of 28.4%, slightly down from 28.6% in the third quarter.
(Source: EUROFER January 2018)

The average cold rolled imports into the US are expected to
have reached 22.5% of the total US consumption in 2017,
lower than the average of 23.3% in 2016. Chinese imports
decreased significantly, while imports from almost all other
major exporting countries increased. Average cold rolled
imports into the US reached 25.0% of the total consumption
in October-November 2017, flat compared to the third quarter
of 2017. (Source: American Iron & Steel Institute, November
2017) n

More on biodiversity

17 / 25

Protecting the climate

Climate change is one of the major challenges in today’s world. For
Outokumpu, it means both the reduction of our carbon footprint and
the possibility that our products can reduce the carbon footprint of our
customers and their customers in turn.

Reducing carbon footprint by using stainless steel

Using Outokumpu cold rolled stainless steel products diminishes the carbon
footprint of our customers’ products. For instance, when comparing the
life-cycle impacts of Outokumpu stainless steel and painted carbon steel
in Myllysilta bridge project in Finland, the global warming potential in terms
of carbon dioxide emissions of our stainless steel is 38% of that of carbon
steel*. The manufacturing of stainless steel causes greater environmental
impacts than carbon steel, but these are offset by the higher need of
maintenance and eventual replacement of the carbon steel cladding. The
environmental effects of the use of stainless steel, that requires no painting
or maintenance on the environment are considerably lower – for example the
creation potential of photochemical ozone is only a fraction (around 1%) of
that of carbon steel.

Our environmental product declarations or EPDs offer life-cycle inventory
data of our main products, making it possible for our customers to calculate
sustainability performance over their products’ life cycle. EPDs are standard-
ized and verified externally.

* International Molybdenum Association’s case study on the use of molybdenum in 2015.

Where does carbon come from?

The major greenhouse gas emissions from Outokumpu operations are limited
to CO2 emissions. These emissions come both directly from the production
(scope 1), indirectly from the use of electricity (scope 2) and mainly from
upstream emissions of the use of materials (scope 3). More than half of our
emissions come from upstream emissions from our supply chain, and the
other half is split to direct emissions of the production and indirect emissions
from the use of electricity.

Direct emissions originate from the carbon content of our raw materials –
recycled steel, ferroalloys and graphite electrodes, which are used in the
electric arc furnace in the melting process. The use of these materials cause
process-related CO2 emissions, which cover about 20% of our direct CO2
emissions. The other direct emissions come from the use of fossil fuels as
the energy source for the process heat.

Indirect emissions are caused by the use of electricity. These emissions are
followed by market-based emission factors of Outokumpu’s electricity mix.
Electricity emissions are also published on a location-based factor for the first
time.

Other indirect emissions for steel productions are mainly upstream emissions
of material use and to a lesser extent from product transportation. At the
moment, there are no estimation methods for downstream emissions of
stainless steel available.

Towards less carbon

Improving our energy efficiency directly reduces the need of primary energy
and CO2 emissions. Our efforts towards a circular economy reduce emissions
by replacing raw materials and emissions from their productions processes.

Outokumpu follows the Science Based Targets initiative. In 2017, the target
setting was further developed. Outokumpu follows the steel industry’s

Outokumpu Annual report 2017 | Sustainability review

18 / 25

decarbonization approach: to reduce emission intensity by 55%
by 2050. Specific electricity emissions follow the electricity
decarbonization approach, where the specific emission
reduction target is 95% by 2050.

Outokumpu’s reduction targets include our direct CO2
emissions, indirect emissions from the use of electricity and
upstream emissions from the production of raw materials, use
of other inputs and from the transportation and business travel.

The company commits to contribute to the 2°C-scenario and to
decouple growth from emissions on the level required to keep
global temperature increase below 2°C compared to pre-indus-
trial temperatures. According to the steel industry approach,
Outokumpu aims to reduce the direct (scope 1), indirect
from electricity (scope 2), upstream and transport (scope 3)
emission intensity by 14% by 2023 compared to the baseline
of 2014–2016. The baseline of the three years was chosen
to get the most recent baseline after the restructuring of the
company and to avoid influence of yearly fluctuations. Emission
intensity refers to emissions per tonne produced steel.

CO2 emission intensity remained
on the baseline level

In 2017, Outokumpu reduced the total energy consumption by
about 500 TJ compared to the last year, although the produc-
tion increased by 3%. This reduction was mainly driven by
electricity efficiency improvement. Total specific energy factors
dropped down from 9.8 GJ/tonnes stainless steel in 2016
to 9.3 GJ/tonnes stainless steel in 2017. The high recycled
content is our main contribution also to the reduction of scope
3 emissions. In 2017, Outokumpu sourced ferrochrome also

Target for science based target criteria

Outokumpu’s CO2 emission intensity,
tonnes of CO2 per tonne steel

Outokumpu’s emissions forecast under SBT
conditions, tonnes of CO2 per tonne steel

Reduction target of 14% by 2023

2.0

1.5

1.0

0.5

0.0

14% reduction
by 2023

2.5

2.0

1.5

1.0

47% reduction

31% reduction

0.5

0.0

14–16

2023

2020

2025

2030

2035

2040

2045

2050

2014–
2016

n Upstream
n Transport & travel
n Indirect
n Direct

Steel industry approach

Scope 1, 2 & 3 reduction

Absolute emissions

externally because of own production issues, which increased
upstream emissions. For the whole year the total specific CO2
emissions remained on the level of baseline 2014–2016, as
the higher upstream emissions could be compensated by high
energy efficiency and recycled content.

Investments in productivity during the past few years have
made Outokumpu’s production sites highly efficient in their use
of energy and other resources. This is also an opportunity to
stay competitive under the emissions trading system.

All data on CO2 emissions

Emissions trading and fair competition

Besides voluntary commitments, Outokumpu’s European mills
fall under the European Union Emissions Trading Scheme. In
total, almost 0.95 million tonnes of total 1.2 million tonnes of
CO2 emissions are covered by the system.

The EU Emissions Trading Scheme (ETS) is continuing by the
third trading period 2013–2020. Outokumpu’s European
operations under the EU ETS will continue to receive free emis-
sions allocations according to efficiency-based benchmarks and
historical activity. The total phase allocation will be sufficient for
the European operations during the rest of the trading period
2018–2020, although individual plants are in deficit.

The main risk of the emissions trading system to Outokumpu
involves the pass-through costs of allowances to the electricity
price, which also depend on the allowance trading price. There-
fore, national electricity price compensations are important for
energy intensive European industry also in the future. These
small compensations are supporting producers in the intense
international competition against non-European competitors
who do not have additional carbon costs in their product prices.
Outokumpu collaborates with the industry associations to
determine and promote this position. n

Outokumpu Annual report 2017 | Sustainability review

19 / 25

Environmental compliance

Our environmental network follows closely the quarterly environmental
performance of our operations, their permit status and legal compliance.

The company’s environmental network conducts internal site audits in

the production units according to risk screening. In 2017, emissions
and discharges were generally at normal levels within our environmental

permits. There were 18 incidents of non-compliance or breach, but all were
temporary and insignificant. Outokumpu reported each incident to environ-
mental authorities, carried out corrective actions immediately or resolved
the incidents together with the authorities. No environmental damage was
reported, and there were no significant environmental incidents.

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

Outokumpu did not receive any monetary or non-monetary sanctions in 2017.

Closed sites

During recent years, Outokumpu has completed restructuring and closures
of its Kloster production site in Långshyttan, Sweden and production sites in
Benrath and Bochum and the melt shop in Krefeld, Germany. These areas
have been examined or are under examination in close cooperation with the
authorities and communities. In Krefeld, some areas of the melt shop site are
being revegetated to exclude the potential exposure route of soil to humans.
Development on the future use of closed sites is ongoing.

Emerging legislation

Outokumpu follows emerging environmental initiatives and legislation closely
to prepare for future changes. In 2017, we studied the following initiatives:

• EU CO2 emission trading rules post 2020
• EU Resource efficiency & Circular economy initiatives

• EU Non-toxic environment initiative

• Cobalt hazard classification proposal in the EU

• Ambient air standards in the US.

In case there are impacts from emerging legislation, Outokumpu analyzes
the situation and takes action through industry associations and federations,
such as EUROFER. n

Environmental permits

Outokumpu and society

All Outokumpu production sites have environmental permits and certified
ISO 14001 environment management systems. During 2017, some local
environmental permits were renewed or updated. The local supervising
environment authority and independent ISO certification body are both
auditing our production sites, environment permit conditions and compliance.

Outokumpu Annual report 2017 | Sustainability review

20 / 25

Sustainable stainless

As a material, stainless steel is strong, corrosion resistant, durable, safe
and hygienic. It is also fully recyclable and its quality does not degrade
during reprocessing.

In many ways, stainless steel is the perfect answer to the challenges the

world is now facing – limited resources, urbanization, climate change, and
clean water.

Recycling, durability, and improved performance

Due to its recycling characteristics, stainless steel is well poised to meet the
demands of a future sustainable society: the possibility of recycling a product
saves resources, as it reduces the need to extract new minerals from the
ground. Stainless steel is 100% recyclable and Outokumpu stainless steel
has one of the highest contents of recycled materials in the industry.

Durability is also important. Manufacturing an application only once, instead
of several times during a certain time period due to breakdowns and repair,
naturally consumes a lower amount of resources. Stainless steel helps to
prolong the lifetime of applications, for example in bridges because they are
susceptible to corrosion or in components like a car’s exhaust pipe system.

Outokumpu strives to improve the properties of stainless steel even further
and support customers to utilize them in their applications. An example is the
new Outokumpu stainless grade, Supra 316plus, which was chosen for tanks
carrying liquefied natural gas (LNG). Supra 316plus was selected due to its
strength and excellent properties at extremely low temperatures of –164°C
at which LNG is transported. Thanks to this material choice, the weight of the
tanks could be decreased by 30% and the capacity increased by 15%.
Read more

The durability of stainless steel also has a cost-effective impact from a life
cycle perspective. Requiring only minimal maintenance, stainless steel is
both economical and good for the environment and society. The combination
of corrosion resistance and durability increases product lifetimes and saves
money. When Outokumpu Forta LDX2404 stainless steel was chosen for the
renovation of railway bridges in central Stockholm it was considered the best
economical choice, paying for itself within 30 years. Read more

Outokumpu has made environmental assessments on its steel and provides
Environmental Product Declarations for its main products. EDPs describe
the main environmental effects and energy needs of our stainless steel
throughout their supply chain, and help our customers to calculate sustain-
ability performance over their products’ life cycle. EPDs are standardized and
verified externally.

Safe stainless

Stainless steel in its manufactured forms – as delivered by Outokumpu to our
customers – is inert, non-reactive, and non-toxic. The industrial processes of
reprocessing stainless steel by, for instance, welding and pickling, can release
substances or fumes. Outokumpu provides customers with a safety informa-
tion sheet or safety data sheets that cover all of our products. This safety
information helps our customers to process our stainless steel products in
a safe manner. Outokumpu also complies fully with European regulations on
REACH and RoHS requirements.

Product, application, and technical market development

The direction of Outokumpu’s product, application, and technical market
development is driven by global trends, such as economic and population
growth, mobility, urbanization, climate change, and limited resources. We
work closely together with customers in order to align our activities with our

Outokumpu Annual report 2017 | Sustainability review

21 / 25

efficiency of our production processes as well as on the optimization of
product quality.

The process development actively leverages our R&D collaboration networks.
In October 2017, the project Morse, which was funded by the European
Commission, was started. In this project, European companies and research
organizations join forces to renew the steel industry by developing new
enhanced software tools for the improvement of steel quality and the
management of complex processes. The project is looking for new ways to
manage the entire production chain and to reduce the consumption of energy
and raw materials and to reduce yield losses. The project aims at developing
new models and process management tools to improve the capacity
utilization and product quality, and to reduce energy consumption and carbon
dioxide emissions. Read more

External R&D collaboration

Outokumpu has an extensive network of external R&D partners and partic-
ipates in both national and international research programs to supplement
Outokumpu’s own R&D capabilities. 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, among others, with the Fraunhofer
Institute and the Max-Planck-Institut für Eisenforschung. Outokumpu is also
a member of the European Steel Technology Platform (ESTEP) and actively
involved in European R&D projects, such as the project Morse described in
the Process and technology development section. n

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.

In 2017, Outokumpu extended its product portfolio by introducing the
austenitic, nickel-based alloy Outokumpu Ultra Alloy 825. It is primarily used
for processing equipment in the chemical and oil&gas industries due to its
exceptional corrosion resistance. Outokumpu stands out as the only major
stainless steel company that can offer this nickel-based alloy in coils up to a
width of 1,500 mm. Read more

The recent stainless steel product innovations, Outokumpu Core 4622 and
Supra 316plus, were granted European patents in March 2017. These
grades satisfy the customer demand for products with enhanced properties
and a stable raw material cost. Read more

An example of our recent solution development is the weldable sandwich
technology, which was awarded this year’s prize in the Material category in
the 15th Materialica Design and Technology Awards 2017, presented at the
eMove360 materials and electromobility trade fair in Munich, Germany. The
weldable sandwich is the first directly weldable steel-polymer compound
(sandwich) structure for car body manufacture. The weldable sandwich can
make a decisive contribution in the automotive industry toward fulfilling
lightweight construction and CO2 emission goals, while providing a high level
of safety and component rigidity at the same time. Read more

Furthermore, the bionic lightweight structure for battery vehicles, constructed
using Outokumpu Forta H1000 2H high strength steel, received the Gold
Award in the Awards for the Best New Applications featuring New Technology
by the International Stainless Steel Forum (ISSF).

Our German R&D team moved to new premises in Krefeld in 2017. During
a one year construction phase, a competence center with new laboratory
facilities including state-of-the-art equipment was built. The new competence
center will guarantee the optimum quality of R&D support.

Process and technology development

Continuous development of our production processes and technologies is
at the core of our R&D. Process and technology development focuses on
the reduction of the environmental impacts and improvement of the cost

Outokumpu Annual report 2017 | Sustainability review

22 / 25

Scope of the report

Outokumpu has published its sustainability review as part of the
Annual Report 2017. Sustainability information is also available at
www.outokumpu.com/sustainability.

Outokumpu reports on the material developments of

continuing sites and changes in 2017 as part of the
Annual Report. Additional information is published on
the company’s website. The Annual Report 2016, including
Sustainability Review, were published in February 2017.

Outokumpu’s reporting follows the Global Reporting Initiative
standard in accordance with the GRI standards’ Core option.
The materiality assessment from 2015 and continuous
communication with stakeholders were the basis for the
decision on material topics and relevant disclosures.

Full GRI disclosure

The independent practitioner’s assurance report on the limited
assurance conclusion on and checking the consistency of
the sustainability reporting in the Sustainability review and
Review by the Board of Directors is available on p. 25 in the
Sustainability review. The Financial statements 2017 have
been audited, and the auditor’s report is available on p. 68 in
the Review by the Board of Directors and Financial statements
section.

Measurement and
estimation methods

Economic responsibility

Most figures relating to economic responsibility presented in
this report are based on the 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

Outokumpu Annual report 2017 | Sustainability review

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 the government include income taxes. Deferred taxes
are excluded from the 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 invest-
ments 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, ie. Avesta, Calvert, Sheffield and Tornio.

Environmental responsibility

Outokumpu’s climate change target of the carbon profile of
stainless steel is replaced by the science-based target proposal
on CO2 intensity of direct and indirect emissions of electricity
and upstream emissions. Emissions are consolidated on
production control.

CO2 emissions of electricity are calculated and monitored by
the emissions factor of Outokumpu’s electricity mix of 216 kg
CO2/MWh (2016: 194 kg CO2/MWh), given by the electricity
supplier for the used electricity. In addition, the location-based
electricity emissions are disclosed for the first time. They are
calculated by the country-specific emissions factors of the
electricity generation of 2016.

CO2 emissions outside the company (scope 3), except
electricity, are covered by more than 96%. They are calculated
as follows:

• For alloys: by emissions factors of the life-cycle assessment

of relevant association.

• For used gases, lime and dolomite, electrodes and coke: by

emissions factors of ISO 14404.

• For upstream emissions of coke and oil: by emissions factors

of World Steel Association.

23 / 25

• For internal and product transport: by typical distances and
type of transport with the corresponding emissions factors.

• For business travel: by estimated driven kilometers with

emissions factors for a car, and for flights by CO2 reports of
the flight companies.

Upstream transport was assessed on data of environmental
product declaration of 2014 but excluded from scope 3
emissions

The recycled content is calculated as the sum of all recycled
steel and metals entering the melt shop compared to stainless
steel production.

Energy efficiency is defined as the sum of specific energy of
all processes calculated as energy consumption compared to
the product output of that process. It covers ferrochrome, melt
shop, hot rolling and cold rolling processes..

Social responsibility

Health and safety figures

Health and safety figures reflect the scope of Outokumpu’s
operations as they were in 2017.

Safety indicators (accidents and preventive safety actions)
are expressed per million hours worked (frequency). Safety
indicators include Outokumpu employees, persons employed
by a third party (contractor) or 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 their next scheduled period of
working or any future working day if caused by an outcome of

Outokumpu Annual report 2017 | Sustainability review

the original accident. 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) does not cause the individual
to be absent, but results 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 (doctor or nurse).

• First-aid treated incident (FTI), where the injury did not require
medical care and was treated by a person himself/herself or
by first aid trained colleague.

• Total recordable incident (TRI) includes fatalities, LTIs, RWIs

and MTIs, but FTIs are excluded.

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.

Bonuses

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

• All workplace accidents include total recordable incidents

Personnel figures

(TRI) and first aid treated incidents (FTI)

Proactive safety actions

Near-miss incidents and hazards refer to events, situations or
actions that could have led to an accident, but where no injury
occurred. Safety behavior observations (SBOs) are safety-based
discussions between an observer and the person being
observed. Other preventive safety action includes proactive
measures.

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.

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)

Sick-leave hours and absentee rate

Days lost due to strikes

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.

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. n

24 / 25

Independent assurance report

To the Management of Outokumpu Oyj

Summary of the work performed

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 Standards in all material
respects.

Helsinki, 16 February 2018

KPMG Oy Ab

Tomas Otterström
Partner, Advisory

Petri Kettunen
Authorised Public Accountant, KHT

We have been engaged by the Management of Outokumpu
Oyj (hereafter Outokumpu) to provide limited assurance
on Outokumpu‘s Sustainability Review 2017 presented in
Outokumpu’s Annual Report for the reporting period from
January 1, 2017 to December 31, 2017 (hereafter Sustainability
Information).

Global Reporting Initiative’s Sustainability Reporting Standards
as listed in the GRI Standards Content Index were used as the
assurance criteria (hereafter GRI Standards).

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 Standards.

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.

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:

• Interview with Outokumpu Senior Management;

• An assessment of conformity with the reporting principles
of GRI 101: Foundation (2016) in the presentation of the
Sustainability Information;

• 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;

• 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.

• A consistency check of the non-financial information

presented according to the Finnish Accounting Act Chapter
3a in a separate section in Outokumpu‘s Review by the Board
of Directors (“Non-financial development at Outokumpu”) with
Outokumpu’s Sustainability Review 2017.

Outokumpu Annual report 2017 | Sustainability review

25 / 25

Review by the
Board of Directors and
Financial statements

CONTROLLED CONFIDENCE n When working within extremes, overconfidence can be a pitfall. But if you lack belief, it might be even worse. What
separates our experts from the rest is complete command of their abilities, and knowledge of the possibilities of stainless steel.

Review by the Board of Directors

The year 2017 was a successful year for Outokumpu. The
company continued its strategy execution to become the
best value creator in stainless steel by 2020. As an evidence,
Outokumpu’s adjusted EBITDA more than doubled to EUR 631
million compared to the previous year. While the profitability
was supported by the market, the company also achieved
tangible results in reducing its cost base and improving its
efficiency and productivity. Outokumpu’s financial position
strengthened significantly and net debt decreased below
EUR 1.1 billion. However, while the company has made solid
progress towards its vision, it is clear that there is still more
work to be done. In 2017, the company’s performance was
impacted by reliability issues, particularly in the ferrochrome
operations, and hence, Outokumpu’s primary focus for 2018
will be to improve the reliability of its operations.

Market development

Stainless steel demand

Global apparent stainless steel consumption1) increased by
6.0% in 2017 compared to the previous year. APAC contributed
with a growth of 6.5% followed by growth of 4.7% in the Amer-
icas and 4.6% in EMEA. Global real demand for stainless steel
products reached 41.2 million tonnes in 2017, an increase of
5.5% from 39.1 million tonnes in 2016. The growth was most
pronounced in the APAC region at 6.3%, while demand grew
by 3.4% in EMEA and by 3.2% in the Americas. (Source: SMR
January 2018)

EU cold rolled imports from third countries are expected to
have reached a level of 27.6% of the total consumption in

2017, up from the average level of 24.6% in 2016. Imports
from Malaysia, the US, India and Taiwan were growing, while
the volumes from South Korea, Vietnam and Brazil decreased.
(Source: EUROFER January 2018)

Price development of alloying metals

The European benchmark price for ferrochrome increased to
USD 1.65/lb in the first quarter of 2017 as a result of weak
availability of ore as well as strong demand of ferrochrome due
to increased stainless steel production in China. For the second
and third quarters, the ferrochrome price decreased to USD
1.54/lb and USD 1.10/lb, respectively, as a result of improved
availability and declined demand of ferrochrome in China.
Prices increased to USD 1.39/lb in the fourth quarter, but
retreated to USD 1.18/lb for the first quarter of 2018, following
the apparent supply and demand situation of ferrochrome in
China.

Business areas

Europe

The overall stainless steel market was robust in 2017. Under-
lying stainless steel demand was particularly strong during the
first half of the year and started to soften in the summer. During
the third quarter, demand started to gradually strengthen
again. Base prices increased from 2016 with the CRU reported
European base price averaging to EUR 1,123/tonne, EUR 60/
tonne higher than in 2016. The share of import volumes in the
European market increased during the first half of the year and
stabilized at higher levels during the second half.

Europe’s stainless steel deliveries amounted to 1,582,000
tonnes in 2017. Deliveries were lower than 1,625,000 tonnes
in 2016 which included deliveries of 65,000 tonnes from the
Benrath mill that was closed in September 2016. However,
business area Europe’s sales increased by 13.5% to EUR 4,455
million (EUR 3,927 million2)) due to higher prices resulting from
a strong market and improved product mix. The average base
price in the business area’s coil product deliveries was EUR 70/
tonne higher than in 2016.

Business area Europe’s full-year adjusted EBITDA improved
by EUR 241 million to EUR 615 million (EUR 374 million). In
addition to the support from ferrochrome price particularly
during the first half of the year, earnings were further supported
by solid progress in improved cost efficiencies and commercial
initiatives. Furthermore, higher base prices had a positive
impact on profitability. However, the positive impacts were
partially offset by technical issues and maintenance of a
ferrochrome furnace, resulting in lower ferrochrome production
volume of 415,000 tonnes in 2017 compared to 469,000
tonnes in 2016. Further negative impacts arose from higher
coke and electricity prices, as well as higher maintenance
costs, raw material-related inventories and metal derivatives
had a negative impact of EUR 24 million on the result (negative
impact of EUR 1 million).

1) Apparent consumption = real demand + stock change

2) Figures in parentheses refer to year 2016, unless otherwise stated.

Outokumpu Annual report 2017 | Review by the Board of Directors

2 / 73

Americas

The US stainless steel market was healthy overall in 2017. The
demand remained strong throughout the year and the base
prices were on an increasing trend for the first ten months
of the year, until a clear decline in prices in November and
December. The CRU reported US base price averaged USD
1,374/tonne, USD 88/tonne higher compared to 2016. The
share of import volumes in the US market remained stable at
reasonably modest levels during the year.

Stainless steel deliveries increased in 2017 to 742,000
tonnes compared to 690,000 tonnes in 2016. Driven by higher
deliveries, the Americas’ sales increased to EUR 1,546 million
(EUR 1,325 million). The average base price in the business
area’s coil product deliveries was USD 60/tonne higher
compared to 2016.

In 2017, business area Americas achieved a tangible
improvement in profitability and recorded a positive adjusted
EBITDA of EUR 21 million, a clear improvement compared to
2016 (EUR –27 million). The improved performance was a
result of higher deliveries and base prices, as well as increased
operational efficiency with clearly decreased variable and SG&A
costs. Raw material-related inventories and metal derivatives
had a positive impact of EUR 7 million (EUR 10 million) on the
result in 2017.

Long Products

During 2017, underlying demand for long products grew both
in Europe and in the US compared to the previous year, driven
particularly by Automotive, Oil & Gas and Aerospace segments.
Prices remained stable throughout the year and started
to gradually increase towards the end of the year. Import
pressure in the US remained relatively high due to the lack of
antidumping duties for long products.

Deliveries in 2017 increased to 264,000 tonnes compared
to 245,000 tonnes in 2016 driven by strong demand. The
product mix improved during the year. The adjusted EBITDA
amounted to EUR 16 million, a clear improvement compared to
EUR –1 million in 2016. The net impact of raw material-related
inventories and metal derivatives amounted to EUR 3 million
(EUR –1 million).

Sales, € 6,363 million

Other operations

Long Products
6%

Americas 24%

66% Europe

Adjusted EBITDA, € million

2013

2014

2015

2016

2017

EBIT, € million

Financial performance

Deliveries

For 2017, stainless steel deliveries remained flat at 2,448,000
tonnes (2,444,000 tonnes). Deliveries increased clearly in
business area Americas and Long Products but decreased in
business area Europe.

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

2017

1,713
428
79
70
262
157
105
1
2,553
2,448

2016

1,731
425
100
65
247
121
126
1
2,570
2,444

2015

1,767
346
102
63
222
95
128
9
2,509
2,381

1) Black hot band, slabs, billets and other stainless steel products.

Sales and profitability

Sales amounted to EUR 6,363 million in 2017, 11.8% higher
than in 2016 (EUR 5,690 million). The increase was mainly
a result of higher alloy surcharges and average base prices in
both Europe and the Americas.

Sales

€ million

Europe
Americas
Long Products
Other operations
Intra-group sales
The Group

2017

4,455
1,546
591
507
–737
6,363

2016

3,927
1,325
487
567
–615
5,690

2015

4,318
1,214
551
974
–673
6,384

The profitability improved significantly in 2017, with adjusted
EBITDA more than doubling to EUR 631 million (EUR 309
million). This was primarily a result of higher ferrochrome

2013

2014

2015

2016

2017

Outokumpu Annual report 2017 | Review by the Board of Directors

600

500

400

300

200

100

–100

600

400

200

–200

–400

–600

3 / 73

and base prices, as well as improved cost efficiency. Raw
material-related inventory and metal derivative losses for the
full year 2017 were EUR 20 million (gains of EUR 11 million).

Cash flow

Earnings per share, €

Operating cash flow amounted to EUR 328 million in 2017
(EUR 389 million), negatively impacted by an increase of EUR
180 million in working capital (decrease of EUR 307 million).

2017

2016

2015

Financial position

Profitability

€ million

Adjusted EBITDA

Europe
Americas
Long Products
Other operations and intra-
group items

Group adjusted EBITDA

Adjustments

EBITDA

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

EBIT margin, %
Return on capital employed, %
Earnings per share, €
Diluted earnings per share, €
Net cash generated from operating
activities

615
21
16

–22
631
31
663

445

9
–127
327
64
392

7.0
11.3
0.95
0.90

328

374
–27
–1

–37
309
47
355

312
–120
10

–37
165
366
531

103

228

5
–121
–13
156
144

1.8
2.6
0.35
0.35

49
–149
127
–41
86

3.6
5.3
0.23
0.23

Cash and cash equivalents were EUR 112 million at the end
of 2017 (EUR 204 million) and overall liquidity reserves were
approximately EUR 0.8 billion (EUR 1.0 billion). Overall liquidity
reserves decreased mainly due to a cancellation of EUR 30
million long-term credit facility, a redemption of EUR 250
million notes due in 2019, and a partial redemption of EUR
47.5 million of notes due in 2021.

Net debt decreased to EUR 1,091 million compared to
EUR 1,242 at the end of 2016. Gearing decreased to 40.1%
(51.4%).

During 2017, net financial expenses were relatively flat at EUR
127 million (EUR 121 million). Interest expenses decreased to
EUR 92 million (EUR 105 million).

Key financial indicators on financial position

€ million

Net debt

Non-current debt
Current debt
Cash and cash equivalents

2017

2016

2015

698
505
–112
1,091

2,721
15.4
40.1
46.3
92

987
458
–204
1,242

2,416
6.4
51.4
40.4
105

1,249
547
–186
1,610

2,329
3.9
69.1
39.6
130

389

–34

Net debt

Income taxes for 2017 include deferred tax income of EUR 125
million (EUR 189 million) related to previously unrecognized
deferred tax assets mainly in Germany. For the full year 2017,
the net result amounted to EUR 392 million (EUR 144 million)
and the earnings per share was EUR 0.95 (EUR 0.35).

Shareholders’ equity
Return on equity, %
Debt-to-equity ratio, %
Equity-to-assets ratio, %
Interest expenses

Outokumpu has remaining tax loss carry forwards of EUR 1,922
million mainly in the US for which deferred tax assets have not
been booked. They can be recognized as deferred tax income
when the company starts generating sufficient taxable income
in respective countries.

In order to decrease interest expenses further, Outokumpu
prematurely redeemed its 6.625% senior secured fixed rate
notes due in 2019. The notes with a total nominal amount
of EUR 250 million were redeemed in full in December 2017.
In addition, Outokumpu redeemed partially its outstanding
EUR 250 million senior secured notes due in 2021.

Outokumpu Annual report 2017 | Review by the Board of Directors

-1

–2

–3

–4

–5

–6

–7

–8

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

200

150

100

4 / 73

2013

2014

2015

2016

2017

Net debt, € million

2013

2014

2015

2016

2017

Debt-to-equity ratio, %

2013

2014

2015

2016

2017

The redemptions were done in June and December 2017 with
10% of the outstanding amount each time. As a consequence,
the total aggregate outstanding nominal amount of the notes
due in 2021 was EUR 203 million at the end of December
2017. The interest rate for the notes is 7.25%.

It is a strong, corrosion-resistant, hygienic, and aesthetic
material with a high strength-to-weight ratio and no need for
maintenance. These properties have ensured that stainless
steel consumption has been growing more rapidly than any
other metal in recent decades (source: CRU, August 2017).

Equity-to-assets ratio, %

Furthermore, Outokumpu signed an amendment and extension
of its committed syndicated revolving credit facility in December
2017 and agreed a partial security release with its key lenders.
The restated facility of EUR 650 million has its maturity in May
2021 and will be used for general corporate purposes.

Outokumpu is rated by Moody’s Investors Service. In November
2017, Moody’s upgraded Outokumpu’s issuer corporate family
rating to B1 from the previous rating of B2 and its probability
default rating to B1-PD from the previous B2-PD. Moody’s also
upgraded the ratings for Outokumpu’s senior secured notes to
Ba3 from the previous rating of B1. The outlook of all ratings is
stable.

Capital expenditure

Capital expenditure was EUR 174 million in 2017 compared to
EUR 164 million in 2016.

Capital expenditure

€ million

Europe
Americas
Long Products
Other operations
The Group

Depreciation and amortization

2017

2016

2015

104
18
8
44
174

216

101
17
8
37
164

96
19
7
32
154

226

302

Non-financial development at Outokumpu

Outokumpu is a leading global producer of stainless steel with
world-class production assets in its key markets in Europe and
the Americas, and a global sales and service network close
to its international customers. Outokumpu produces stainless
steel, which is its biggest contribution to building a sustainable
world. Stainless steel is used in building and construction,
infrastructure, appliances, transportation, and heavy industries.

87.0% of the raw material used in Outokumpu’s stainless steel
production is recycled. By converting scrap and metal waste
into new products the company also protects virgin resources.
Throughout the process, Outokumpu aims to minimize the
environmental impact of its production. At the end of its long
life-cycle, stainless steel is fully recyclable, without any loss of
quality. Outokumpu’s business is therefore based on a circular
economy. Outokumpu’s production sites are often located in
relatively small cities or towns. This means that Outokumpu is
significant for the economies of small local communities and it
is often one of the very few private-sector employers in the area.

The majority of external deliveries are austenitic (76%) and
ferritic (18%) standard and specialty stainless steels with the
remaining 3% of duplex and 3% of other stainless steel grades.
In 2017, Outokumpu sold 55% of produced steel directly to
end-user customers (architecture, building and construction
and infrastructure, consumer goods and medical, industrial
and heavy industries, chemical, petrochemical and energy
industry, and automotive and heavy transport) and 45% to
distributors and processors such as re-rollers and tube makers.
Outokumpu’s production process is very integrated, starting
from the company’s own chrome mine for the main raw
material of stainless steel, ferrochrome operations, melting, hot
rolling and cold rolling, all the way to finishing and services. In
this integrated value chain, each business area, mill, and func-
tion has a clear role. Outokumpu’s strengths include efficient
procurement and access to key raw materials, an efficient and
integrated production set-up, world-class supply chain manage-
ment, a leading product portfolio and quality, established and
balanced customer base across all key markets, and leading
technical R&D and expertise.

350

300

250

200

150

100

2013

2014

2015

2016

2017

Capital expenditure and depreciation, € million

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

2013
2013

2014
2014

2015
2015

2016
2016

2017
2017

n Capital expenditure n Depreciation

Capital expenditure, % of sales

Outokumpu Annual report 2017 | Review by the Board of Directors

5 / 73

Long-term sustainability targets

Outokumpu’s corporate responsibility aims to improve the
Group’s resource efficiency by minimizing the use of virgin
materials and primary energy and by contributing to climate
protection. The Group’s targets are:

• Recycled content of 90% by 2020

• Improvement of energy efficiency by 1% yearly until 2020

• Reduction in direct and indirect CO2 emissions intensity by
14% by 2023, compared to the baseline of 2014–2016
(including upstream emissions from the supply chain)

• Top decile position in safety in the industry by 2020 and

long-term target of zero incidents.

Outokumpu follows the Science Based Target Initiative to
decouple growth and emissions. Targets adopted by companies
to reduce greenhouse gas emissions are considered “science-
based” if they are in line to limit the temperature increase
in the atmosphere to 2 degrees by 2050, compared to the
pre-industrial era. Outokumpu’s emissions intensity trajectory
includes the upstream emissions from supply and is in line with
the sectoral decarbonization approach of the steel industry.

Policies and principles of sustainability management

The most important policies guiding Outokumpu’s operations
are the company’s Ethical Statement, Code of Conduct, and
Policy on Environment, Health, Safety and Quality. These
policies are available at www.outokumpu.com/en/sustain-
ability/corporate-responsibility/. Outokumpu also follows the
Science Based Targets Initiative and contributes to the UN
Social Development Goals. Outokumpu complies with interna-
tional, 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. All of
Outokumpu employees are free to join trade unions according
to local rules and regulations. Outokumpu expects its suppliers
and contractors to comply with applicable laws and regulations
as well as Outokumpu’s Code of Conduct, and to meet the
company’s supplier requirements.

Outokumpu’s Ethical Statement describes ethical principles
of human rights and dignity, the future of the planet, good
corporate citizenship, and a safe and healthy workplace.
Outokumpu’s Code of Conduct defines the common way of
operating in the Group, built on the equal treatment of all
people, and sets principles for legal compliance and ethical
conduct. In practice, this means keeping each other safe at
work, treating everyone with respect, complying with laws, doing
what is ethically right, and conducting business in an environ-
mentally sustainable way. Outokumpu’s Code of Conduct sets
zero tolerance for corrupt practices and requires compliance
with antitrust and competition laws. Outokumpu has also issued
an Anti-Corruption Instruction providing more detailed guidance
on responsible business practices. Outokumpu respects human
rights and promotes diversity, and condemns discrimination
and intolerance of any kind. At Outokumpu, there is zero
tolerance of any form of discrimination, whether it is based on
ethnic origin, nationality, religion, political views, gender, sexual
orientation, age or any other factor.

Outokumpu’s Policy on Environment, Health, Safety and Quality
describes the company’s commitment to continuous improve-
ment in these fields, the company’s corporate responsibility,
compliance with legislation in all areas the company operates
in, and the fulfilment of stakeholder requirements to which the
company subscribes.

In addition to the EHSQ policy, Outokumpu has strict guidelines
for safety through the Outokumpu Safety Principles and Health
and Safety Standard. Outokumpu provides its employees with a
healthy and safe working environment. The health of 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. Outokumpu also believes that all
accidents are preventable and therefore works towards a goal
of zero accidents.

Corporate statements, policies and instructions serve as
the formal back-bone of the Outokumpu operating model in
governance, risk, and compliance. Policies and instructions
are implemented through internal communication, mandatory
training and internal control mechanisms. In 2017, Outokumpu
initiated a governance, risk and compliance project to further
enhance and develop internal control processes. As part of
this project, Outokumpu is implementing an operating model
that emphasizes the three lines of defense model. Businesses
and operation forms the first line of defense based on the
Group policies and instructions. Business support functions
monitor and facilitate compliance as the second line of
defense, and internal and external audits form the third line of
defense providing independent assurance. The internal audit
function flanked by external audits consistently monitors and
tests adherence to corporate guidance and standards, while
the sustainability organization follows-up on environmental
performance and legality on a quarterly basis. In addition,
annual environmental audits are performed based on an
internal risk assessment. Environmental compliance screenings
of suppliers are carried out regularly. As part of the overall
management set-up, the established incentive systems support
the achievement of strategic targets, such as safety which is
the highest priority.

Outokumpu Annual report 2017 | Review by the Board of Directors

6 / 73

Environmental performance

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

Outokumpu uses extremely efficient dust-filtering systems that
remove 99% of particles, and water is reused in production as
much as possible and treated on production sites. In addition
to material efficiency through using as much recycled material
as possible, Outokumpu aims to reduce landfill waste and
reuses waste from its production processes in its own produc-
tion. Outokumpu also aims to increase the use of by-products
from its production (such as slag) outside the company – for
example, in road construction, concrete production and water
treatment – to reduce the amount of landfilled waste and to
reduce the use of virgin materials. On top of production waste,
tailing sand from mining is the most significant waste item to
be deposited in the mine site.

In 2017, Outokumpu maintained the level of recycled content
at 87.0% (2016: 87.1% and 2015: 87.2%). The cumulative
increase in energy efficiency was 10.4% (2016: 9.1% and
2015: 7.6%) compared to the baseline of 2007–2009 on a
comparable basis. There were no significant environmental
incidents.

All in all, Outokumpu is well on track to reach its long-term
sustainability targets, of which only recycled content is slightly
behind. In 2017, Outokumpu maintained CO2 intensity at the
level of the baseline 2014–2016. As some ferrochrome was
externally bought because of production interruptions, the
upstream emissions increased. This could be compensated
by Outokumpu’s own excellent energy efficiency, which also
resulted in a decrease of total energy consumption compared
to 2016, even though stainless steel production increased by
more than 3%. Landfilled waste could be reduced, as the use of
slag increased.

All Outokumpu’s sites have environmental permits that set the
basic framework for production operations. In 2017, 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.

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 was sufficient for the Group’s operations
during 2017 and will be sufficient for 2018. Outokumpu is not
a party to any significant legal 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.

Environmental impacts

Climate change
Direct CO2 emissions, tonnes
Indirect CO2 emissions (electricity), tonnes
Indirect CO2 emissions (upstream), tonnes
Direct and indirect CO2 emission intensity, tonnes per tonne stainless steel 1)
1) 2014–2016 baseline 1.764

Energy
Fuel consumption, TJ
Secondary energy (electricity) consumption, TJ
thereof renewable or low carbon sources, %

Energy intensity, GJ per tonne stainless steel

Slag by-products
Slag used of steel and FeCr production, tonnes
Use rate of slag including slag from ferrochrome production, %

Waste
Total waste from stainless steel production, tonnes
Deposited tailings from mining, tonnes

Mining waste intensity, tonnes per tonne concentrated ore

Total landfill waste intensity, tonnes per tonne stainless steel

2017

2016

2015

1,203,614
979,394
3,136,946
1.760

11,839
16,326
60.0
9.3

1,208,918
901,750
2,503,880

1,231,843
1,016,234
2,491,876

11,964
16,733
67.3
9.8

11,460
16,116
62.9
10.5

2,280,862
91.1

1,531,326
90.2

1,502,716
92.0

423,383
784,585

0.81

0.361

540,150
856,245

0.80

0.406

407,996
830,874

0.88

0.423

Outokumpu Annual report 2017 | Review by the Board of Directors

7 / 73

Personnel on December 31

2013

2014

2015

2016

2017

12,000

10,000

8,000

6,000

4,000

2,000

Social performance

Outokumpu’s main indicator for safety performance is the total
recordable incident frequency rate (TRIFR), which includes
fatal accidents, lost-time incidents, restrictive work incidents,
and medically treated incidents per million working hours. In
2017, safety developed in line with the target, and TRIFR was
reduced to 4.4 against the target of less than 8. During the
year, Outokumpu started a behavioral safety training program
at selected production sites in Europe and the Americas, with
plans to train all Outokumpu employees in 2018. Outokumpu
also established Group-wide Cardinal Safety Rules – ten
fundamental rules set to ensure the safety of everyone at
Outokumpu. Covering the most severe breaches of safety
behavior, these common rules form the foundation of safety for
all Outokumpu employees, contractors and visitors.

Outokumpu’s headcount decreased by 459 during the year and
totaled 10,141 at the end of December 2017 (2016: 10,600
and 2015: 11,002). The decrease was driven primarily by
divestments of quarto plate mill in New Castle, Indiana, US and
pipe plant in Wildwood, Florida, US, as well as other continued
restructuring and efficiency measures. 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 549 million
in 2017 (2016: EUR 562 million, 2015: EUR 585 million).
Indirect employee benefit expenses totaled EUR 135 million in
2017 (2016: EUR 151 million, 2015: EUR 177 million).

Key social indicators

Diversity
Employees
male, %
female, %

Board of Directors

male, %
female, %

2017

2016

2015

86
14

71
29

84
16

67
33

86
14

75
25

Safety
Total recordable incident frequency
rate, per million working hours

4.4

8.7

N/A

In 2017, Outokumpu recorded nine alleged incidents of
potential misconduct. All of these incidents were investigated
in detail and proper corrective action has been taken as a
consequence. Raising awareness of and training on the Code
of Conduct and its topics are central elements of Outokumpu’s
compliance program. As a part of these efforts, Outokumpu
issued in 2017 two compliance-related e-learning courses.
The Code of Conduct e-learning course was mandatory for
white-collar employees and achieved a completion rate of 98%.
The second Competition Law compliance training was directed
at management, sales, procurement, and business support
functions, and obtained a completion rate of 99%.

Outokumpu’s governing bodies are the Annual General Meeting
of Shareholders, the Board of Directors, and the President
and Chief Executive Officer. All the members of the Board of
Directors in 2017 were independent of the company and of its
significant shareholders.

Research and development

Outokumpu’s research and development (R&D) involves process,
product and application development. R&D works closely
together with sales, operations and customers to align activities
with customers’ current and future needs. Outokumpu has
three R&D centers located in Avesta in Sweden, in Krefeld in
Germany and in Tornio in Finland.

In 2017, Outokumpu’s R&D expenditure totaled EUR 13
million, 0.2% of net sales (2016: EUR 20 million and 0.4%,
2015: EUR 23 million and 0.4%). During the year, the company
implemented a new IT solution for R&D project management,
which improved R&D efficiency substantially. Another major
event boosting R&D effectiveness was the inauguration of the
new R&D premises in Krefeld.

The process development teams continued to focus on
supporting the operations and in transferring technological
knowhow between Outokumpu’s operational units. The major
achievement of the product development was the launch of
Outokumpu Ultra Alloy 825. Outokumpu stands out as the only
major stainless steel company that can offer this nickel-based
alloy in coils up to width of 1,500 mm. Another highlight of
2017 was the prize awarded to patented weldable sandwich

Outokumpu Annual report 2017 | Review by the Board of Directors

8 / 73

technology in 15th Materialica Design and Technology Awards
2017.

Risks and uncertainties

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.

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.

The risk management process is an integral part of the overall
management processes and is divided into four stages: risk
identification, evaluation/prioritization, mitigation and reporting.
Key risks are assessed and updated on a regular basis.

The focus in risk management in 2017 was in securing the
steps in improving Outokumpu’s cost competitiveness as well
as continuous improvement of risk management, including
actions in safety, securing liquidity, managing project risks and
improving the efficiency and controls of Outokumpu’s opera-
tions as part of large business transformation program aiming
to renew fragmented IT systems going forward. Outokumpu
continued its systematic fire safety and loss prevention audit
programs, which also included machinery breakdown loss
prevention. In total, some twenty fire safety and machinery
breakdown loss prevention audits were carried out in 2017
using in-house expertise in cooperation with external advisors.
The main realized risks in last year were a fatal accident to
a contractor at Degerfors, Sweden in May, risks related to
production stability, especially in ferrochrome, and inadequate
profitability in the business area Americas.

Strategic and business risks

Outokumpu’s key strategic and business risks currently include:
risks and uncertainties in implementing the announced vision,

including measures to improve operational reliability, drive
competitiveness and further improve financial performance;
risks and uncertainties related to developments in the stainless
steel and ferrochrome markets and competitor actions;
changes in the prices of electrical power, fuels, nickel, iron and
molybdenum impacting cash flow and availability of financing;
fluctuations in exchange rates affecting the global competitive
environment in stainless; and the risk of litigation or adverse
political action affecting trade.

Operational risks

Operational risks include inadequate or failed internal
processes, employee actions, systems, or events such as
natural catastrophes and misconduct or crime. These risks
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; IT dependency and cyber
security risks; risks due to a fragmented system environment;
risks related to supply chain and certain critical supplier
dependencies; and project implementation risks, especially
related to implementation of new ERP systems. To minimize
the 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 safety audit
programs in place. During the last year further measures were
taken to improve cyber security.

Environmental risks

The main environmental business risks for Outokumpu are
related to emissions trading schemes and new environmental
and consumer protection demands and include changes in
environmental legislation and their impact on Outokumpu’s
competitive position, and the risk of increased electricity prices
and emissions costs due to the European Union’s unilateral
Emissions Trading System (ETS).

The main environmental accident risks at production sites
relate to the use of acids, the production of hazardous waste
and toxic gases, landfill activities, long-term contamination of
soil or groundwater, and the long-term effects of hazardous
pollutants. Outokumpu also has environmental liabilities and
risks at closed mines and sites.

Safety- and personnel-related risks

The main risks related to safety, personnel and compliance are
the risk of fatalities and serious injuries to own employees and
contractors having a significant impact on Outokumpu’s safety
culture and the company’s reputation as an employer; the risk
of fatalities or severe incidents; the loss of key individuals or
other employees who have specific knowledge of, or relation-
ships with, trade customers in markets in which Outokumpu
operates could have significant impacts on Outokumpu’s
business; and the risk of being unable to attract, retain,
motivate, train, and develop qualified employees at all levels,
which could have a material adverse effect on Outokumpu’s
business, financial condition, and operational results.

Risks related to 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
bribery, anti-money laundering, data protection (including EU
GDPR compliance) and trade restrictions, including sanctions.
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.

Sustainability and corporate responsibility risks

Outokumpu aims to actively identify its exposures in sustain-
ability and corporate responsibility, including human rights
related topics. Outokumpu takes seriously all labor practice
violations and related threats as well as its full transparency
and compliance on human rights topics. However, Outokumpu
operates mainly in regions, where the risk related to human
rights is not considered to be high.

Outokumpu Annual report 2017 | Review by the Board of Directors

9 / 73

Financial risks

Significant legal proceedings

Key financial risks for Outokumpu include: changes in the prices
of nickel, iron, molybdenum, power, and fuels; currency devel-
opments 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; counterparty risks
related to customers and other business partners, including
suppliers and financial institutions; risks related to liquidity
and refinancing; risks related to the fair value of shareholdings;
the risk of breaching financial covenants or other terms and
conditions of debt leading to an event of default; and risks
related to the 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 implement new IT
systems and processes, improve operational reliability, drive
competitiveness and further improve financial performance;
risks and uncertainties related to market development in
stainless steel, ferrochrome and certain critical supplies as
well as competitor actions; the risk of changes in metal prices
impacting cash tied up in working capital; changes in the
prices of electrical power, fuels, ferrochrome, nickel, iron and
molybdenum; currency developments affecting the euro, the
US dollar, the Swedish krona, and the British pound; fair value
of shareholdings; dependencies on certain critical suppliers;
project implementation risks; IT dependency and cyber security
risks; risks due to fragmented system environment; counter-
party risks related to customers and other business partners,
including suppliers and 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.

Dispute over invention rights, Outotec vs. Outokumpu

Outokumpu and Outotec Oyj had a dispute since 2013 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.

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 compa-
nies 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 Thyssen-
Krupp 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.

Shares and shareholders

During 2017, the Outokumpu share price peaked at EUR
10.05 and was EUR 6.61 at its lowest (2016 high/low: EUR
8.51/ EUR 2.08). The share price closed at the end of the
year at EUR 7.74, marking a decrease of 9% from the closing
price of 2016 (Dec 31, 2016: EUR 8.51). At the end of
2017, the company’s market capitalization was EUR 3,223
million, compared to EUR 3,541 million at the previous year’s
end. In total, 1,022 million Outokumpu shares were traded
on Nasdaq Helsinki during 2017, representing a value of EUR
8,295 million.

Outokumpu’s share capital was unchanged at EUR 311
million at the end of 2017. The total number of shares was
416,374,448 and the average number of shares outstanding in
2017 was 412,363,204.

Between February 6, 2017, and February 17, 2017,
Outokumpu repurchased 2,000,000 of its own shares through
public trading at Nasdaq Helsinki intending to use them for the
reward under the share-based payment plans. On December
31, 2017, Outokumpu held 3,702,899 of its own shares, i.e.
treasury shares.

Management shareholdings and share
based incentive programs

On December 31, 2017, the members of the Board of Directors
and the members of the Outokumpu Leadership Team (OLT)
altogether held 1,915,835 shares, or 0.5% of the total number
of shares.

Outokumpu has established share-based incentive programs
for the OLT members, selected managers and key employees.
Outokumpu’s share-based incentive programs include
Performance Share Plan, Restricted Share Pool and Matching
Share Plans for the CEO and other key employees. In 2017,
after deductions for applicable taxes, a total of 813,066 shares

Outokumpu Annual report 2017 | Review by the Board of Directors

10 / 73

were delivered to the participants of the programs based on
the achievements of the agreed targets and conditions of the
programs. Outokumpu used its treasury shares for the reward
payments.

The Performance Share Plan and the Restricted Share Pool
Program are currently ongoing for the periods 2016–2018 and
2017–2019 and their continuation for the period 2018–2020
was already approved by the Board of Directors in December
2017. The Performance Share Plan for the period 2017–2019
focuses on earnings criteria that measures Outokumpu’s
profitability and the efficiency with which its capital is employed
compared to a peer group.

More details on the share-based incentive programs can be
found in the note 18. in the consolidated financial statements.

Corporate governance

Outokumpu’s Corporate Governance Statement can be found
on the Outokumpu website:
www.outokumpu.com/en/investors/governance.

Annual General Meeting

The Annual General Meeting of Outokumpu Oyj was held on
March 21, 2017. The Meeting approved the financial state-
ments and discharged the management of the company from
liability for the financial year 2016. The Meeting decided that
a dividend of 0.10 euro per share be paid for 2016. The Board
of Directors was authorized to repurchase the company’s own
shares and decide on the issuance of shares as well as special
rights entitling to shares. The Meeting also approved the
amendments in the articles of association and the proposals of
the Nomination Board regarding the members of the Board of
Directors and their remuneration.

The Annual General Meeting decided that the Board of Directors
would consist of eight members. Markus Akermann, Roberto
Gualdoni, Kati ter Horst, Heikki Malinen, Saila Miettinen-Lähde,
Jorma Ollila and Olli Vaartimo of the previous members of the
Board of Directors were re-elected, and Eeva Sipilä was elected
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.

• Antti Mäkinen, Managing Director at Solidium Oy

• Pekka Pajamo, CFO at Varma Mutual Pension Insurance

Changes in the Board of Directors and
the Outokumpu Leadership Team

Saila Miettinen-Lähde resigned from Outokumpu’s Board of
Directors as of June 9, 2017. The Board of Directors continues
to operate with seven members until the next Annual General
Meeting.

Outokumpu Chief Technology Officer Pekka Erkkilä retired as
of February 2, 2017. He continues to support the company in
selected areas and to represent Outokumpu’s interest in for
example Fennovoima and the Association of Finnish Steel and
Metal Producers.

In March 2017, Reeta Kaukiainen joined Outokumpu serving
as Executive Vice President, Communications and Investor
Relations and a member of the Outokumpu Leadership Team.
Reeta joined Outokumpu from Accenture, where she led its
communications and marketing activities in Finland.

In December 2017, Maciej Gwozdz, member of the Outokumpu
Leadership Team, was appointed President of Business Area
Europe as of January 1, 2018. He took over the position from
CEO Roeland Baan who was leading the business area since
2016.

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.

On October 1, 2017 the four largest shareholders of Outo-
kumpu were Solidium Oy, Varma Mutual Pension Insurance
Company, The Social Insurance Institution of Finland and
Ilmarinen Mutual Pension Insurance Company, and they have
appointed the following representatives to the Nomination
Board:

Company

• Tuula Korhonen, Investment Director at The Social Insurance

Institution of Finland

• Timo Ritakallio, President and CEO at Ilmarinen Mutual

Pension Insurance Company

The Nomination Board submitted its proposals to Outokumpu’s
Board of Directors on January 31, 2018 at the latest. The
proposals were published as a part of the notice to the Annual
General Meeting.

Board of Directors’ proposal for profit distribution

The Board of Directors updated Outokumpu’s dividend policy
on January 31, 2018. According to the new policy, the dividend
pay-out ratio throughout a business cycle shall be in a range of
30–50 percent of net income.

According to the parent company’s financial statements on
December 31, 2017 distributable funds totalled EUR 2,413
million, of which retained earnings were EUR 289 million.

The Board of Directors is proposing to the Annual General
Meeting to be held on March 22, 2018 that a dividend of
EUR 0.25 per share is paid for 2017 and the remaining
distributable funds are allocated to retained earnings.

Events after the reporting period

Outokumpu has changed its segment structure as of January
1, 2018 by separating Ferrochrome operations from Business
Area Europe as a new reportable segment. In the new structure,
Outokumpu has four reportable segments – Europe, the
Americas, Long Products and Ferrochrome. Outokumpu’s
financial reporting will be changed accordingly as of the
first-quarter interim statement 2018.

Outokumpu Annual report 2017 | Review by the Board of Directors

11 / 73

Group key figures

2017

2016

2015

2014

2013

2017

2016

2015

2014

2013

Scope of activity
Sales
– change in sales
– exports from and sales outside

Finland, of total sales

€ million
%

6,363
11.8

5,690
–10.9

6,384
–6.7

6,844
1.5

6,745
48.6

96.5

96.4

96.6

96.7

96.9

Capital employed on Dec 31 1)

€ million

3,929

3,816

4,133

4,072

4,265

Capital expenditure 2)
– in relation to sales

€ million
%

Depreciation and amortization
Impairments

€ million
€ million

Research and development
costs
– in relation to sales

€ million
%

174
2.7

216
2

13
0.2

164
2.9

226
26

20
0.4

154
2.4

302
1

23
0.4

127
1.8

320
27

23
0.3

183
2.7

332
13

26
0.4

Financing and financial position
Net debt
– in relation to sales

€ million
%

1,091
17.1

1,242
21.8

1,610
25.2

1,974
28.8

3,556
52.7

Net financial expenses
– in relation to sales

Interest expenses
– in relation to sales

Net debt to Adjusted EBITDA

Share capital
Total equity

Equity-to-assets ratio
Debt-to-equity ratio

€ million
%

€ million
€ million

%
%

127
2.0

92
1.5

1.7

311
2,721

46.3
40.1

121
2.1

105
1.9

4.0

311
2,416

40.4
51.4

149
2.3

130
2.0

9.8

311
2,329

39.6
69.1

223
3.3

141
2.1

310
4.6

210
3.1

7.5

neg.

311
2,132

33.3
92.6

311
1,891

21.5
188.0

Personnel on Dec 31 3)
– average for the year 4)

10,141
10,485

10,600
10,977

11,002
11,833

12,125
12,540

12,561
13,150

Net cash generated from
operating activities 5)

€ million

328

389

–34

–126

Profitability
Adjusted EBITDA
EBITDA

EBIT
– in relation to sales

Result before taxes
– in relation to sales

€ million
€ million

€ million
%

Net result for the financial year
– in relation to sales

€ million
%

631
663

445
7.0

327
5.1

392
6.2

Return on equity 1)
Return on capital employed 1)

%
%

15.4
11.3

309
355

103
1.8

–13
–0.2

144
2.5

6.4
2.6

165
531

228
3.6

127
2.0

86
1.4

3.9
5.3

263
104

–243
–3.6

–459
–6.7

–439
–6.4

–87
–165

–510
–7.6

–822
–12.2

–1,003
–14.9

–21.8
–5.8

–41.4
–10.3

1) Key figure definition changed in 2016. Figures for 2015 have been restated. Figures for 2014 and 2013 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) Years 2014 and 2013 reported for continuing operations.

5) Cash flows for 2014 and 2013 presented for continuing operations.

12 / 73

Outokumpu Annual report 2017 | Key financial figuresReconciliation of key financial figures

Key figure

Sales
– change in sales

Definition of the key figure or source in
the consolidated financial statements

2017

2016

Key figure

Definition of the key figure or source in
the consolidated financial statements

2017

2016

Consolidated statement of income
Comparison to previous year’s sales

€ million
%

6,363
11.8

5,690
–10.9

Capital employed is a sum of:
Total equity

Consolidated statement of financial
position
Defined in the next page

€ million
€ million

2,721
1,091

2,416
1,242

Sales by destination to Finland
Exports from and sales outside
Finland
– exports from and sales outside

Note 3. Segment information

€ million

224

204

Sales – Sales by destination to Finland € million

6,139

5,486

Finland, of total sales

Comparison to sales

96.5

96.4

€ million

216

226

Net debt
Defined benefit and other
long-term employee benefit
obligations
Net interest rate derivative
liabilities
Net accrued interest expenses

Consolidated statement of financial
position
Note 20. Fair values and nominal
amounts of derivative instruments
Note 28. Trade and other payables

Depreciation and amortization
Impairments

Note 6. Income and expenses
Note 6. Income and expenses and
Note 8. Financial income and
expenses

Research and development costs Consolidated statement of income
– in relation to sales

Comparison to sales

€ million

€ million
%

Adjusted EBITDA

Adjustments to EBITDA
EBITDA

EBITDA – Items classified adjustments
to EBITDA
Note 6. Income and expenses
EBIT before depreciation, amortization
and impairments in Note 6. Income
and expenses

€ million
€ million

€ million

EBIT
– in relation to sales

Consolidated statement of income
Comparison to sales

€ million
%

13
0.2

631
31

663

445
7.0

20
0.4

309
47

355

103
1.8

Less:
Net assets held for sale

Defined benefit plan assets

Consolidated statement of financial
position
Consolidated statement of financial
position
Loans receivable
Note 22. Trade and other receivables
Available-for-sale financial assets Consolidated statement of financial

Investments at fair value through
profit or loss
Investments in associate
companies and joint ventures
Capital employed on Dec 31

Capital employed on Dec 31 of
previous year
Capital employed on March 31
Capital employed on June 30
Capital employed on Sept 30
Capital employed on Dec 31
Capital employed (4-quarter
average)

position
Consolidated statement of financial
position
Consolidated statement of financial
position

Defined above

Defined above
Average of the opening and 4 quarter-
end values

€ million

337

€ million
€ million

€ million

€ million
€ million

€ million

3
6

–

70
–

€ million
€ million

73
3,929

€ million
€ million
€ million
€ million
€ million

3,816
4,075
3,991
3,830
3,929

356

5
11

45
6

67
3,816

4,133
3,973
3,905
3,815
3,816

€ million

3,928

Return on capital employed

EBIT / Capital Employed (4-quarter
average)

11.3

2.6

13 / 73

Outokumpu Annual report 2017 | Key financial figuresKey figure

Definition of the key figure or source in
the consolidated financial statements

2017

2016

Key figure

Definition of the key figure or source in
the consolidated financial statements

2017

2016

Result before taxes
– in relation to sales

Consolidated statement of income
Comparison to sales

€ million
%

Net result for the financial year
– in relation to sales

Consolidated statement of income
Comparison to sales

€ million
%

327
5.1

392
6.2

–13
–0.2

144
2.5

Non-current debt

Current debt

Cash and cash equivalents

Net debt

€ million

311

– in relation to sales

Consolidated statement of financial
position
Consolidated statement of financial
position
Consolidated statement of financial
position
Non-current debt + current debt
– cash and cash equivalents
Comparison to sales

€ million

€ million
%

698

505

112

987

458

204

1,091
17.1

1,242
21.8

Share capital

Total equity

Total equity on Dec 31 of
previous year
Total equity on March 31
Total equity on June 30
Total equity on Sept 30
Total equity on Dec 31

Total equity (4-quarter average)

Consolidated statement of financial
position
Consolidated statement of financial
position

Consolidated statement of financial
position

€ million

2,721

2,416

€ million
€ million
€ million
€ million

2,416
2,502
2,561
2,543

2,329
2,229
2,148
2,137

Consolidated statement of financial
position
Average of the opening and 4 quarter-
end values

€ million

2,721

2,416

€ million

2,549

2,252

Return on equity

Net result for the financial year /
Total equity (4-quarter average)

15.4

6.4

Net financial expenses
– in relation to sales

Consolidated statement of income
Comparison to sales

€ million
%

Interest expenses
– in relation to sales

Consolidated statement of income
Comparison to sales

€ million
%

Net debt to Adjusted EBITDA

Net debt / Adjusted EBITDA

Total assets

Advances received
Equity-to-assets ratio

Consolidated statement of financial
position
Note 28. Trade and other payables
Total equity / (Total assets – advances
received)

Debt-to-equity ratio

Net debt / Total equity

€ million
€ million

127
2.0

92
1.5

1.7

5,886
8

46.3

40.1

121
2.1

105
1.9

4.0

5,990
7

40.4

51.4

Net cash generated from
operating activities

Consolidated statement of cash flows € million

328

389

14 / 73

Outokumpu Annual report 2017 | Key financial figuresShare-related key figures

Earnings per share 1) 2)
Diluted earnings per share 1) 2)
Earnings per share, continuing operations 2) 3)
Diluted 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

2017

0.95
0.90
–
–

0.79
6.59

0.25 5)
26.3
3.2

8.15

8.11
6.61
10.05
7.74
–9.0

6.4

€
€
€
€

€
€

€
%
%

€
€
€
€
%

2016

2015

0.35
0.35
–
–

0.94
5.84

0.10
28.8
1.2

0.23
0.23
–
–

–0.08
5.60

–
–
–

2014

–1.24
–1.24
–1.27
–1.27

–0.36
5.13

–
–
–

2013

–7.52
–7.52
–6.23
–6.23

0.26
14.23

–
–
–

24.31

11.85

neg.

4.51
2.08
8.51
8.51
211.3

3.6

4.49
2.06
7.76
2.73
–42.7

10.8

5.16
3.37
7.50
4.77
34.2

5.7

4.64
3.03
7.39
3.55
–48.8

26.5

845

Market capitalization at the end of the period

€ million

3,223

3,541

1,138

1,987

Development in trading volume

Trading volume 8)
In relation to weighted average number of shares 1)

1,000 shares
%

1,021,607
247.7

955,682
230.6

1,345,515
323.9

695,235
198.9

178,989
135.0

Adjusted average number of shares 9)
Diluted average number of shares 9)
Number of shares at the end of the period 9) 10)

412,363,204
450,247,639
412,671,549

414,411,287
414,411,287
413,860,600

415,473,976
415,473,976
415,489,308

132,579,577
349,558,854
349,558,854
132,579,577
415,426,724 2,077,105,460

1) 2014 and 2013 calculated based on the rights-

issue-adjusted weighted average number of shares.

2) 2013 adjusted to reflect the reverse split in June

2014.

3) 2013 calculated based on the rights-issue-adjusted

weighted average number of shares.

4) 2013 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.

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 not adjusted according to the effect of the

rights-issue-adjusted and the reverse split.

15 / 73

Outokumpu Annual report 2017 | Key financial figuresDefinitions of share-related key figures

Earnings per share

Cash flow per share

Equity per share

Dividend per share

Dividend payout ratio

Dividend yield

Price/earnings ratio (P/E)

Average trading price

Net result for the financial year attributable to the equity holders
Adjusted average number of shares during the period

Net cash generated from operating activities
Adjusted average number of shares during the period

Equity attributable to the equity holders
Adjusted number of shares at the end of the period

Dividend for the financial year
Adjusted number of shares at the end of the period

Dividend for the financial year
Net result for the financial year attributable to the equity holders

× 100

Dividend per share
Adjusted trading price at the end of the period

× 100

Adjusted trading price at the end of the period
Earnings per share

EUR amount traded during the period
Adjusted number of shares traded during the period

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

16 / 73

Outokumpu Annual report 2017 | Key financial figuresConsolidated financial statements, IFRS

Consolidated statement of income . . . . . . . . . . . . . . . . .

Consolidated statement of comprehensive income . . . . .

Consolidated statement of financial position . . . . . . . . . .

Consolidated statement of cash flows . . . . . . . . . . . . . . .

Consolidated statement of changes in equity . . . . . . . . . .

Notes to the consolidated financial statements . . . . . . . .

1. Corporate information . . . . . . . . . . . . . . . . . . . .

2. Accounting principles for the consolidated financial
statements . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

16. Fair value hierarchy of financial assets and

liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17. Available-for-sale financial assets . . . . . . . . . . .

18. Share-based payment plans . . . . . . . . . . . . . . .

19. Financial risk management, capital management
and insurances . . . . . . . . . . . . . . . . . . . . . . . .

20. Fair values and nominal amounts of

derivative instruments . . . . . . . . . . . . . . . . . . .

Parent company
financial statements

Income statement of the parent company . . . . . . . . . . . .

Balance sheet of the parent company . . . . . . . . . . . . . . .

Cash flow statement of the parent company . . . . . . . . . .

Statement of changes in equity of the parent company . .

Commitments and contingent liabilities of the parent
company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. Segment information . . . . . . . . . . . . . . . . . . . . .

21. Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. Acquisitions and Divestments . . . . . . . . . . . . . . .

22. Trade and other receivables . . . . . . . . . . . . . . .

5. Assets held for sale . . . . . . . . . . . . . . . . . . . . . . 34

23. Cash and cash equivalents . . . . . . . . . . . . . . .

6. Income and expenses . . . . . . . . . . . . . . . . . . . .

24. Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7. Employee benefit expenses . . . . . . . . . . . . . . . .

25. Employee benefit obligations . . . . . . . . . . . . . .

8. Financial income and expenses . . . . . . . . . . . . .

26. Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9. Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .

27. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10. Earnings per share . . . . . . . . . . . . . . . . . . . . .

28. Trade and other payables . . . . . . . . . . . . . . . . .

11. Intangible assets . . . . . . . . . . . . . . . . . . . . . . .

29. Commitments and contingent liabilities . . . . . .

12. Property, plant and equipment . . . . . . . . . . . . .

30. Disputes and litigations . . . . . . . . . . . . . . . . . .

13. Impairment of intangible assets and

property, plant and equipment . . . . . . . . . . . . .

14. Investments in associated companies and

joint ventures . . . . . . . . . . . . . . . . . . . . . . . . .

31. Related party transactions . . . . . . . . . . . . . . . .

32. Subsidiaries on December 31, 2017 . . . . . . . .

33. Events after the reporting period . . . . . . . . . . .

17 / 73

Outokumpu Annual report 2017 | Financial statementsConsolidated 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

Earnings per share for result attributable
to the equity holders of the Company

Earnings per share, EUR
Diluted earnings per share, EUR

Note

2017

2016

€ million

Note

2017

2016

6,363

5,690

Net result for the financial year

392

144

–5,626

–5,298

Other comprehensive income

736

51
–74
–219
–13
–35

445

3
–92
–7
0
–30
–127

327

392

0.95
0.90

392

Items that may be reclassified subsequently to profit or loss:

88
–90
–221
–20
–46

103

4
–105
–6
6
–18
–121

–13

156

144

0.35
0.35

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
Reclassification adjustments from other comprehensive
income to profit or loss

Cash flow hedges

Fair value changes during the financial year
Reclassification adjustments from other comprehensive
income to profit or loss
Income tax relating to cash flow hedges

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

Share of other comprehensive income in
associated companies and joint ventures

Other comprehensive income for the financial year, net of tax

Total comprehensive income for the financial year

–83

–3

–

–1

–1
1

18
37

–1

–32

359

–3

–2

–5

0
1

–63
20

–53

Net result for the financial year is fully attributable to the equity holders of the company.

Total comprehensive income for the financial year is fully attributable to the equity holders of the company.

18 / 73

Outokumpu Annual report 2017 | Financial statementsConsolidated 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
Derivative financial instruments
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

2017

2016

€ million

Note

2017

2016

11, 13
12, 13
14
17

20
9
25
22

20
22
23

535
2,633
73
68
0
1
295
70
1
3,675

1,380
16
43
659
112
2,211

504
2,874
67
53
1
–
204
45
2
3,750

1,232
16
34
687
204
2,173

–

5,886

5,990

EQUITY AND LIABILITIES

Equity attributable to the equity holders of the Company
Share capital
Premium fund
Invested unrestricted equity reserve
Other reserves
Retained earnings

311
714
2,103
3
–409

311
714
2,103
4
–716

Total equity

2,721

2,416

Non-current liabilities
Non-current debt
Derivative financial instruments
Deferred tax liabilities
Defined benefit and other long-term employee benefit obligations
Provisions
Trade and other payables

Current liabilities
Current debt
Derivative financial instruments
Provisions
Current tax liabilities
Trade and other payables

Liabilities directly attributable to assets held for sale

TOTAL EQUITY AND LIABILITIES

27
20
9
25
26
28

27
20
26

698
3
10
337
79
34
1,160

505
37
14
7
1,441
2,004

987
4
22
356
118
37
1,525

458
63
15
12
1,459
2,007

–

5,886

5,990

19 / 73

Outokumpu Annual report 2017 | Financial statementsConsolidated statement of cash flows

€ million

Note

2017

2016

€ million

Note

2017

2016

Cash flow from operating activities

Net result for the financial year

392

144

Adjustments for

Taxes
Depreciation and amortization
Impairments
Share of results in associated companies and joint ventures

9
11, 12
8, 11, 12, 13
14

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

6
8
4
8
8

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 and dividends received
Interest paid
Income taxes paid

Net cash from operating activities

–64
216
2
–9

–16
0
–22
–1
85
55
13
259

–54
–222
97
–180

–60

3
–78
–8

328

–156
226
26
–5

–2
–5
–34
–2
94
–4
–4
134

–17
39
285
307

–94

1
–94
–9

389

Cash flow from investing activities
Acquired businesses, net of cash
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
Dividends paid
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

Net cash from financing activities

Net change in cash and cash equivalents

Cash and cash equivalents at the beginning of the financial year
Net change in cash and cash equivalents
Foreign exchange rate effect on cash and cash equivalents
Cash and cash equivalents at the end of the financial year

17
12
11
4
12
11

24
24

–
–15
–144
–27
90
21
12
–1

–63

264

–41
–20
190
–541
162
–65
–37

–353

–89

204
–89
–3
112

–9
–14
–116
–25
72
8
–
3

–81

308

–
–7
369
–656
–13
–28
45

–291

186
17
1
204

20 / 73

Outokumpu Annual report 2017 | Financial statementsConsolidated statement of changes in equity

€ million

Equity on Jan 1, 2016

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

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

Dividends paid
Share-based payments
Treasury share purchase
Changes in ownership interests

Quarto plate mill and pipe plant
divestments

Other
Equity on Dec 31, 2017

Note

Share
capital

Premium
fund

Invested
unrestricted
equity reserve

Other
reserves

Fair value
reserves

Cumulative
translation
differences

Remeasure-
ments of
defined benefit
plans

Treasury
shares

Other
retained
earnings

Total equity

311
–
–
–

–
–
–
311
–
–
–

–
–
–

–
–
311

714
–
–
–

–
–
–
714
–
–
–

–
–
–

–
–
714

2,103
–
–
–

–
–
–
2,103
–
–
–

–
–
–

–
–
2,103

18
24

24
18
24

5
–
–
–

–
–
–2
2
–
–
–

–
–
–

–
1
3

6
–
–4
–4

–
–
–
1
–
–1
–1

–
–
–

–
–
0

8
–
–5
–5

–
–
–
3
–
–86
–86

–
–
–

3
–
–81

–92
–
–43
–43

–
–
–
–135
–
56
56

–
–
–

8
–
–72

–21
–
–
–

9
–7
–
–19
–
–
–

–
13
–20

–
–
–26

–704
144
0
144

–7
–
2
–564
392
–1
391

–41
–6
–

–11
–1
–232

2,329
144
–53
91

3
–7
–
2,416
392
–32
359

–41
7
–20

–
–
2,721

21 / 73

Outokumpu Annual report 2017 | Financial statementsNotes 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 Helsinki,
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 January 31, 2018 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 decide to amend the
financial statements.

2. Accounting principles for the
consolidated financial statements

Basis of preparation

These consolidated financial statements of Outokumpu have
been prepared for the financial year 2017 covering the period
from January 1 to December 31, 2017.

The consolidated financial statements 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 inter-
pretations in force on December 31, 2017. 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 2017
have been prepared on a going concern basis.

As from January 1, 2017 Outokumpu has applied the following
amended standards.

• 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 had no impact on
Outokumpu’s consolidated financial statements.

• 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 had an impact on the disclosures in
Outokumpu’s consolidated financial statements. See note
27.

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, 2017).

• 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 will adopt IFRS 15 as of January 1, 2018, using
the retrospective approach. Outokumpu has assessed its
current accounting policies and has concluded that the
adoption will have no material impact on the quantitative
information or on the presentation of the consolidated finan-
cial statements. Outokumpu’s performance obligations are
sales of stainless steel and ferrochrome, as well as arranging
transportation of these goods to the customer when “C”
Incoterms are applied in the customer delivery. Outokumpu
ships goods to customers under variety of Incoterms, and
considers the transfers of physical possession and risks and
rewards related to the ownership of the goods accordingly.
Consequently, Outokumpu considers that performance obli-
gations related to sales of stainless steel and Ferrochrome
are satisfied at a point of time. Performance obligations
related to arranging transportation are satisfied over time of

22 / 73

Outokumpu Annual report 2017 | Financial statementsthe transportation. The transaction price is allocated to the
performance obligations on relative stand-alone selling price
basis. Stainless steel and ferrochrome sales prices are fixed
before delivery, and volume discounts accrued in the revenue
accounting are the only variable component in pricing. The
volume discounts are already according to current principles
accrued in revenue accounting.

• 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: Recogni-
tion 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 main impact of the new standard to Outokumpu is the
requirement to value all equity instruments at fair value.
According to IAS 39, Outokumpu has valued its investment
in Voimaosakeyhtiö SF at cost as fair valuation has not been
reliable due to early stage of the Fennovoima project. Once
the Fennovoima project progresses and reliability of fair value
measurement improves, the value can differ from the current
fair value estimate based on cost. Depending on assumptions
used, management estimates result in a wide range for fair
value.

Outokumpu will apply simplified approach to analyze and
recognize expected credit losses on trade receivables. The
change will not have material impact on Group’s consolidated
financial statements. Regarding hedge accounting, the
changes will not have material impact on Group’s current
hedge accounting program. However, Group will analyze the
opportunities for a wider application of hedge accounting in
the future.

• 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 recognize 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 contracts 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, affecting primarily the
accounting for the Group’s leases that have currently been
classified operating leases. The change will improve adjusted
EBITDA which is Outokumpu’s main performance measure.

• Amendments to IFRS 2 Share-based Payments –

Classification 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 classification of share-based payments settled net
of tax withholdings will have an impact on Outokumpu’s
consolidated financial statements. As Outokumpu’s share-
based payment plans will according to the amendment be
fully accounted for as equity-settled, the fair values of the
programs over the vesting period will be fully determined
based on the share price at the grant date. Based on
share-based payment valuation on December 31, 2017, the
impact is not material.

• Annual Improvements to IFRSs (2014–2016 Cycle)*:

The changes will not have material impact on Outokumpu’s
consolidated financial statements.

• IFRIC 23 Uncertainty over Income Tax Treatments*

(effective for financial years beginning on or after January 1,
2019). IFRIC 23 adds to the requirements in IAS 12 Income
Taxes by specifying how to reflect the effects of uncertainty
in accounting for income taxes when it is unclear how tax
law applies to a particular transaction or circumstance, or it
is unclear whether a taxation authority will accept an entity’s
tax treatment. The interpretation is not assessed to have
material impact on Outokumpu’s consolidated financial
statements.

• Annual Improvements to IFRSs (2015–2017 Cycle)*:

The changes are not assessed to have material impact on
Outokumpu’s consolidated financial statements.

Other new or amended standards and interpretations that are
not yet effective are not expected to have a material impact on
Outokumpu’s consolidated financial statements.

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

23 / 73

Outokumpu Annual report 2017 | Financial statementsaccording 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 manage-
ment 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 assump-
tions used in the impairment testing, including sensitivity
analysis, are explained further in note 13.

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 20.

Employee benefits

The present value of pension obligations is subject to actuarial
assumptions which actuaries use in calculating these obliga-
tions. 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.

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

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.

24 / 73

Outokumpu Annual report 2017 | Financial statementsGoodwill 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.

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.

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

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.

All intra-group transactions, receivables, liabilities and unreal-
ized 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 comprehen-
sive 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

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 the 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. Adjusted EBITDA 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. Adjusted EBITDA used in management reporting is
defined in these accounting principles.

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

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 trans-
actions 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

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Outokumpu Annual report 2017 | Financial statementsarising 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 adjust-
ments 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 trans-
ferred 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 destina-
tion, 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.

Sales-related volume discounts are accrued in the revenue
accounting.

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 differ-
ences 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

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Outokumpu Annual report 2017 | Financial statementsnon-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 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.

Borrowing costs (mainly interest costs) directly attributable to
the acquisition of a qualifying intangible asset are capitalized
in the statement of financial position as part of the carrying
amount of the asset. Qualifying asset is an asset that neces-
sarily takes a substantial period of time to get ready for its
intended use.

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:

Software
Capitalized development costs
Intangible rights

up to 10 years
up to 10 years
up to 20 years

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 emis-
sions. 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 compa-
nies 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.

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.

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 sales 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 sales 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 or amortization
expense.

Impairment of property, plant and
equipment and intangible assets

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 recover-
able amount is estimated. Goodwill is tested at least annually,
irrespective of whether there is any evidence of impairment.

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Outokumpu Annual report 2017 | Financial statementsThe 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 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 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 derecog-
nized 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. Changes in fair value of
derivative contracts not qualifying for hedge accounting are
recognized in EBIT in other operating income and expenses.

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Outokumpu Annual report 2017 | Financial statementsIf a derivative is designated for financing activities, the gain or
loss effects arising from the instrument are recognized within
financial income and financial expenses. The changes in fair
value of other financial items at fair value through profit or loss
held are recognized in market price gains and losses under
financial income and expenses.

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 classi-
fied 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 deriva-
tives are recognized in profit or loss in the reporting period in
which they are incurred.

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.

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

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Outokumpu Annual report 2017 | Financial statementsutilising commonly applied option valuation models, such as
Black–Scholes–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 docu-
ments 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 compre-
hensive 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 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.

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 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.

handling and other costs. Net realizable value is the estimated
selling price in the ordinary course of business, less the esti-
mated 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

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.

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,

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 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.

30 / 73

Outokumpu Annual report 2017 | Financial statementsAdjustments 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

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.

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.

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 statis-
tical 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.

EBIT and EBITDA

In Outokumpu, 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. EBITDA is formed by adding the deducted
depreciation, amortization and impairments back into EBIT.

Adjusted EBITDA

Outokumpu considers adjusted EBITDA as its main performance
indicator in financial reporting, including segment reporting.
Adjusted EBITDA presented in the notes to the consolidated
financial statements excludes such material income and
expense items which affect the comparability between periods
because of their unusual nature, size or incidence resulting for
example from group-wide restructuring programs or disposals of
assets or businesses.

Dividends

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

Earnings per share

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. 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. In addition the shares estimated to be delivered
based on the share-based incentive programs are taken into
account. However, potential ordinary shares are only dilutive if
the adjustments decrease the earnings per share ratio.

31 / 73

Outokumpu Annual report 2017 | Financial statements3. Segment information

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, 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 operating segments under IFRS. The performance
of the segments is reviewed based on segment’s adjusted
EBITDA, 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 operating 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.

Operating segments

2017
€ million

External sales
Inter-segment sales
Sales

Adjusted EBITDA
Adjustments to EBITDA

Gain on the quarto plate mill divestment
Gain on the sale of land in Sheffield
Gain on the pipe plant divestment

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

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

Europe

Americas

Long Prod-
ucts

Operating
segments
total

Other oper-

ations Eliminations

Group

Reconciliation

4,206
250
4,455

615

–
–
–
615
–151
–1
463

–
–
–
–
–
–

3,571
–
–
–

1,085
–
–
–

2,485
–
–

1,512
33
1,546

405
186
591

–
–
–
21
–52
–
–31

–
–
–
–
–
–

1,382
–
–
–

310
–
–
–

1,072
–
–

–
–
–
16
–7
–
10

–
–
–
–
–
–

241
–
–
–

128
–
–
–

113
–
–

6,123
469
6,592

653

–
–
–
653
–210
–1
442

–
–
–
–
–
–

5,194
–
–
–

1,524
–
–
–

3,670
–
–

239
268
507

–15

15
9
7
16
–6
–
10

–
–
–
–
–
–

253
–
–
–

264
–
–
–

–11
–
–

–
–737
–737

6,363
–
6,363

–7

–
–
–
–7
–
–
–7

–
–
–
–
–
–

–196
–
–
–

–182
–
–
–

–15
–
–

631

15
9
7
663
–216
–1
445

9
3
–129
327
64
392

5,251
340
295
5,886

1,606
1,549
10
3,164

3,645
285
3,929

32 / 73

Outokumpu Annual report 2017 | Financial statements
Other operations consist of activities outside the three
operating segments described above, as well as industrial
holdings. Such business development and Corporate Manage-
ment expenses that are not allocated to the business areas are
also reported under Other operations. Sales of Other operations
consist of sales of electricity to Group’s production facilities in
Finland and in Sweden, nickel procured under Group’s sourcing
contract that exceed the production needs, and internal
commissions and services.

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

2016
€ million

External sales
Inter-segment sales
Sales

Europe

Americas

3,775
151
3,927

1,304
21
1,325

Adjusted EBITDA
Adjustments to EBITDA
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

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

374

–23
–
4

–
–8
–
348
–158
–26
164

–
–
–
–
–
–

3,569
–
–
–
–

1,150
–
–

–
–

2,419
–
–

–27

–3
–
–

24
–
–
–6
–54
–
–60

–
–
–
–
–
–

1,458
–
–
–
–

331
–
–

–
–

1,127
–
–

Reconciliation

Long Prod-
ucts

Operating
segments
total

Other oper-

ations Eliminations

333
153
487

5,412
326
5,738

–1

–2
–
21

–
–
–
18
–7
–
11

–
–
–
–
–
–

239
–
–
–
–

99
–
–

–
–

139
–
–

346

–27
–
25

24
–8
–
360
–219
–26
115

–
–
–
–
–
–

5,265
–
–
–
–

1,580
–
–

–
–

3,686
–
–

277
289
567

–37

–3
28
1

–
–
6
–5
–7
–
–12

–
–
–
–
–
–

279
–
–
–
–

322
–
–

–
–

–43
–
–

–
–615
–615

–
–
–

–
–
–
0
–
–
0

–
–
–
–
–
–

–218
–
–
–
–

–210
–
–

–
–

–8
–
–

Group

5,690
–
5,690

309

–30
28
26

24
–8
6
355
–226
–26
103

5
10
–130
–13
156
144

5,326
393
204
67
5,990

1,692
1,818
22

43
3,574

3,635
181
3,816

33 / 73

Outokumpu Annual report 2017 | Financial statementsGeographical information

€ million

Finland Germany

Sweden

The UK

Other
Europe

North
America

Asia and
Oceania

Other
countries

Inter-area

Group

2017
Sales by destination
Sales by origin
Non-current assets

2016
Sales by destination
Sales by origin
Non-current assets

224
3,133
1,539

204
2,743
1,555

1,511
1,425
337

1,371
1,268
345

174
1,363
260

162
1,166
276

479
617
56

482
493
59

1,984
424
112

1,610
404
115

1,458
1,659
847

1,388
1,410
1,009

434
64
15

382
56
17

99
55
2

89
51
3

–
–2,377
–

–
–1,901
–

6,363
6,363
3,168

5,690
5,690
3,379

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

Acquisitions in 2017

Outokumpu did not have any acquisitions in 2017.

differences that were reclassified to profit or loss. The divest-
ment did not have any material impact on the consolidated
statement of financial position. Cash and cash equivalents of
the divested subsidiary were EUR 0 million.

Divestments in 2017

In January 2017, Outokumpu divested its quarto plate mill
Outokumpu Stainless Plate, LLC within the Americas segment.
The consideration of the transaction was EUR 27 million and
the gain, recognized in other operating income, was EUR 15
million, of which EUR 7 million were cumulative translation
differences reclassified to profit or loss. In the consolidated
financial statements for 2016, the subsidiary was presented
as a disposal group held for sale with assets held for sale
amounting to EUR 67 million and liabilities directly attributable
to assets held for sale amounting to EUR 43 million. Cash and
cash equivalents of the divested subsidiary were EUR 0 million.

In July 2017, Outokumpu divested its pipe plant Outokumpu
Stainless Pipe, Inc. within the Long Products segment. The
consideration of the transaction was EUR 26 million and the
gain, recognized in other operating income, was EUR 7 million,
which included EUR –4 million of cumulative translation

5. Assets held for sale

Year 2017

In 2017, Outokumpu did not have any disposal groups or
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 was presented as a disposal group
held for sale in Outokumpu’s 2016 consolidated financial
statements. The main items presented under assets held
for sale comprised property, plant and equipment 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 comprised defined benefit
obligation of EUR 38 million. The divestment of the subsidiary
took place in January 2017.

6. Income and expenses

Depreciation and amortization by function

€ million

Cost of sales
Selling and marketing expenses
Administrative expenses
Research and development expenses

Other operating income

€ million

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

2017

–207
–0
–8
–1
–216

2016

–214
–1
–11
–0
–226

2017

2016

16
0
12
51

4
37
13
88

2017

2016

–9

–14

–23
–1

–0
–10
–35

–13

–10

–22
–26

–2
4
–46

34 / 73

Outokumpu Annual report 2017 | Financial statementsAuditor fees

2017
€ million

Audit
Audit-related services
Tax advisory
Other services

7. Employee benefit expenses

PricewaterhouseCoopers

€ million

–1.9
–0.1
–0.2
–0.3
–2.5

Wages and salaries
Termination benefits
Social security costs
Post-employment and other long-term employee
benefits

PricewaterhouseCoopers Oy has provided non-audit services
to Outokumpu in total of EUR 0.4 million during 2017. These
services comprised of auditor’s written statements and
certificates, tax services and consultation in business transfor-
mation projects.

Defined benefit plans 1)
Defined contribution plans
Other long-term employee benefits 2)

Expenses from share-based payments
Other personnel expenses

2017

–549
–1
–73

–7
–43
13
–16
–7
–684

2016

–562
–28
–68

17
–49
–2
–9
–14
–713

2016
€ million

Audit
Tax advisory and other services

KPMG

–1.9
–0.1
–1.9

1) 2016 includes curtailment of EUR 26 million due to the closure of the

defined benefit pension scheme in the UK. See note 25.

2) 2017 includes EUR 14 million from reversal of long-service

remuneration obligations in Germany where the terms of the
arrangement were changed, and the arrangement no longer contains
long-term employee benefit obligations, but the benefits are current
in nature. The accruals related to the current benefits have been
reported under wages and salaries. See note 25.

Profit-sharing bonuses based on the Finnish Personnel Funds
Act were not recognized in 2017 nor 2016.

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

Adjustments to EBITDA and EBIT

€ million

2017

2016

Gain on the quarto plate mill divestment
Gain on the sale of land in Sheffield
Gain on the pipe plant divestment
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

15
9
7
–
–
–

–
–
–
31

–
–
–
–30
28
26

24
–8
6
47

In 2017, Outokumpu divested its quarto plate mill in New
Castle, Indiana, US resulting in a gain of EUR 15 million, surplus
land in Sheffield, UK with a gain of EUR 9 million, and its pipe
plant in Wildwood, Florida, US with a gain of EUR 7 million.
See note 4.

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

In 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.

35 / 73

Outokumpu Annual report 2017 | Financial statements
8. Financial income and expenses

Exchange gains and losses in the
consolidated statement of income

9. Income taxes

€ million

Interest income

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

2017

2016

€ million

2017

2016

Income taxes in the consolidated statement of income

In sales
In purchases 1)
In other income and expenses 1)
In financial income and expenses 1)

–17
37
–9
–15
–3

10
–15
–13
–7
–24

€ million

Current taxes
Deferred taxes

2017

2016

–6
71
64

–12
168
156

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

transactions.

Exchange gains and losses include EUR 74 million of net
exchange gains on derivative financial instruments (2016: EUR
24 million net exchange losses) of which a loss of EUR 9 million
has been recognized in other operating expenses and a gain of
EUR 83 million in financial items.

Reconciliation of income taxes at statutory tax
rate in Finland and income taxes recognized
in the consolidated income statement

€ million

Result before taxes
Hypothetical income taxes at Finnish tax rate of
20% on consolidated result before tax
Difference between Finnish and foreign tax rates
Tax effect of non-deductible expenses and tax
exempt income 1)
Reassessment of the values of deferred tax
assets 2)
Taxes for prior years
Other items 1)
Income taxes in the consolidated
statement of income

2017

327

2016

–13

–65
–6

–2

139
–1
0

3
10

–3

152
2
–8

156

1) The tax effect of non-deductible and tax exempt items in 2016

included fully or partly tax exempted gain from disposal of subsidiary
shares. Local withholding tax with respect to these particular share
disposals is presented as other items.

2) Includes EUR 125 million tax benefit due to recognition of previously

non-recognized deferred tax assets (2016: EUR 189 million).

–
0
0

–65
–8
–12
–2

–5
–92

1
–1
–14
–15
–30

83
–97

2
5
–7

5
0
6

–71
–8
–15
–4

–8
–105

3
–0
–18
–4
–18

–13
6

1
–1
–6

Total financial income and expenses

–127

–121

Other fees mainly consist of expenses related to the redemp-
tion of the notes due 2019 and two partial redemptions related
to the notes due 2021.

36 / 73

Outokumpu Annual report 2017 | Financial statementsDeferred tax assets and liabilities

€ million

Intangible assets
Property, plant and equipment
Inventories
Net derivate financial assets
Other financial assets
Defined benefit and other long-term employee benefit obligations
Other financial liabilities
Provisions
Tax losses and tax credits

Offset
Deferred taxes in the statement of financial position

€ million

Offset
Deferred taxes in the statement of financial position

Jan 1, 2017

Movements

Dec 31, 2017

Deferred tax
assets

Deferred tax
liabilities

Recognized in
profit or loss

Recognized in
other comprehen-
sive income

Translation differ-
ences

Reclassification
to assets
held for sale

Deferred tax
assets

Deferred tax
liabilities

7
25
15
9
4
18
80
22
282
461
–257
204

–3
–209
–8
–10
–5
–23
–2
–19
–
–280
257
–22

–2
17
2
–11
–2
–13
2
2
74
71

–
–
–
1
–
37
–
–
–
38

–
0
0
–
–
–0
–0
–
–4
–4

–
–
–
–
–
–
–
–
–
–

6
28
19
5
4
53
81
27
352
575
–280
295

–4
–195
–10
–17
–7
–33
–3
–22
–
–290
280
–10

Jan 1, 2016

Movements

Dec 31, 2016

Deferred tax
assets

Deferred tax
liabilities

Recognized in
profit or loss

Recognized in
other comprehen-
sive income

Translation differ-
ences

Reclassification
to assets
held for sale

Deferred tax
assets

Deferred tax
liabilities

8
31
19
8
2
44
59
21
48
240
–224
16

–2
–173
–8
–9
–3
–22
–3
–18
–
–240
224
–16

–2
–44
–3
–0
–1
–34
20
0
232
168

–
–
–
1
–
20
–
–
–
21

–
–6
–
–
–
2
2
–
2
–1

–
8
–0
–
–
–16
–
–
–
–8

7
25
15
9
4
18
80
22
282
461
–257
204

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.

–3
–209
–8
–10
–5
–23
–2
–19
–
–280
257
–22

37 / 73

Outokumpu Annual report 2017 | Financial statementsAggregate deferred taxes recognized in equity
through other comprehensive income

€ million

2017

2016

Fair value reserves
Net investment hedging
Remeasurements of the net defined benefit
liability

Tax losses carried forward

€ million

Expire in 5 years
Expire later than in 5 years
Never expire

0
–4

53
49

–1
–4

23
18

2017

230
1,993
1,173
3,396

2016

176
2,333
1,281
3,790

As of December 31, 2017 tax loss carry forwards amount to
EUR 3,396 million (2016: EUR 3,790 million), of which EUR
630 million (2016: EUR 896 million) in Finland, EUR 347 million
(2016: EUR 391 million) in Sweden, EUR 1,625 million (2016:
EUR 1,646 million) in the US and EUR 498 million (2016: EUR
521 million) in Germany. Deferred tax assets are recognized
only to the extent that the utilization of related tax benefits
is considered probable. In the determination of whether the
utilization is probable, all positive and negative factors, including
prospective results, are taken into consideration in order to
estimate 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,
2017 tax loss carry forwards of the Outokumpu Group for which
no deferred tax asset has been recognized amount to EUR
1,922 million (2016: EUR 2,546 million) of which most sigficant
are in the US. Majority of the US tax losses expire later than
in 5 years. In 2017, due to increased probability of future tax
benefits, mainly in Germany, previously non-recognized deferred
tax assets of EUR 160 million in total were recognized. In 2016,
corresponding recognition of previously non-recognized deferred
tax assets in Finland and Sweden amounted to EUR 189 million.
The recognition decision in both 2017 and 2016 has been
impacted by positive earnings before taxes and positive taxable
results. No deferred tax liabilities were recorded on undistributed
profits on foreign subsidiaries, as such profits are not to be
distributed in the foreseeable future.

10. Earnings per share

11. Intangible assets

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

2017

2016

392

144

Weighted average number of shares, in
thousands
412,363
Diluted average number of shares, in thousands 1) 450,248

414,411
414,411

Earnings per share for result attributable to the
equity holders of the Company
Earnings per share, EUR
Diluted earnings per share, EUR

0.95
0.90

0.35
0.35

1) In 2016, 33,662 thousand potentially convertible shares and 3,859

thousand shares to be delivered based on Group’s share-based
incentive programs were excluded from the diluted average number
of shares in 2016 because their overall effect would have been anti-
dilutive.

€ million

Goodwill

Historical cost on Jan 1, 2017
Translation differences
Additions
Disposals
Reclassifications 2)
Historical cost on Dec 31, 2017

Accumulated amortization and
impairment on Jan 1, 2017
Translation differences
Amortization
Accumulated amortization and
impairment on Dec 31, 2017

Carrying value on Dec 31, 2017
Carrying value on Jan 1, 2017

Historical cost on Jan 1, 2016
Translation differences
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

493
–2
–
–
–
491

–26
1
–

–24

467
467

475
–1
–
19
–
493

–8
1
–
–19

–26

467
467

Other
intangible
assets 1)

241
–4
42
–24
21
276

–204
3
–7

Total

734
–6
42
–24
21
767

–229
5
–7

–207

–232

68
37

229
–2
13
0
1
241

–198
2
–8
–

–204

37
30

535
504

704
–3
13
19
1
734

–206
3
–8
–19

–229

504
498

1) Other intangible assets include land-use rights, emission allowances,

capitalized development costs, patents, licenses and software.

2) In 2016, construction work in progress related to intangible assets
was presented in the corresponding item of property, plant and
equipment. In 2017, these assets were reclassified to the intangible
assets. These assets relate mainly to on-going IT system development
in the Group.

38 / 73

Outokumpu Annual report 2017 | Financial statementsDuring 2017, borrowing costs amounting to EUR 1 million
were capitalized on investment projects (2016: EUR 0 million).
Total interest capitalized on December 31, 2017 was EUR 1
million (Dec 31, 2016: EUR 0 million). Outokumpu determines
separate capitalization rates for each quarter. The average rate
used during 2017 was 3.3%.

Intangible assets mainly comprise acquired assets.

Emission allowances

Outokumpu had seven active sites operating under EU’s
Emissions Trading Scheme (ETS) in 2017. These include the
production plants in Tornio, Finland; Avesta, Degerfors and Nyby
in Sweden; Sheffield in the UK; as well as Krefeld together with
Dillenburg in Germany.

The pre-verified carbon dioxide emissions under ETS were
approximately 0.95 million tonnes in 2017 (2016: 0.95
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 year 2018 is estimated to be some
1 million tonnes. Considering the Group’s operations and the
Group’s current emission allowance position, the overall 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.

12. Property, plant and equipment

€ million

Historical cost on Jan 1, 2017
Translation differences
Additions
Disposals
Disposed subsidiaries
Reclassifications
Historical cost on Dec 31, 2017

Accumulated depreciation and
impairment on Jan 1, 2017
Translation differences
Disposals
Disposed subsidiaries
Reclassifications
Depreciation
Impairments
Accumulated depreciation and
impairment on Dec 31, 2017

Carrying value on Dec 31, 2017
Carrying value on Jan 1, 2017

Land

Mine proper-
ties

Buildings

Machinery
and
equipment

Other
tangible
assets

Advances
paid and con-
struction work
in progress 1)

139
–3
–
–2
–
–
135

–14
0
–
–
–
–0
–

–14

121
126

66
–
0
–
–
–
66

–21
–
–
–
–
–6
–

–27

40
45

1,251
–28
4
–4
–2
13
1,233

–603
5
0
2
–
–43
–

–639

594
648

4,641
–154
21
–10
–33
–24
4,440

–2,763
54
9
25
62
–155
–1

–2,768

1,672
1,878

129
–0
0
–0
–
0
128

–73
0
–0
–0
–
–4
–

–77

52
56

125
–5
106
–
–0
–68
158

–4
0
–
–
1
–0
–

–3

155
122

Total

6,351
–190
130
–17
–35
–80
6,160

–3,477
60
9
27
63
–209
–1

–3,527

2,633
2,874

39 / 73

Outokumpu Annual report 2017 | Financial statements€ 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

Land

Mine proper-
ties

Buildings

Machinery
and
equipment

Other
tangible
assets

Advances
paid and con-
struction work
in progress 1)

136
–0
4
–
–0
–
–

–0
139

–14
0
–
–
–
–0
–

–

–14

126
122

66
–
0
–
–
–
0

–
66

–15
–
–
–
–
–6
–

–

–21

45
51

1,269
–6
18
–
–24
–1
14

–18
1,251

–575
8
2
–0
–0
–45
–1

4,635
–40
64
3
–31
–2
74

–62
4,641

–2,705
45
24
1
–2
–157
–7

–603

–2,763

648
693

1,878
1,930

131
–1
1
–
–0
–
–1

–3
129

–71
0
–0
–
6
–9
–

–73

56
60

170
0
64
–
–15
–
–93

–0
125

–21
0
16
–
1
–0
–

–

–4

122
149

Total

6,407
–46
151
3
–71
–3
–6

–84
6,351

–3,402
54
42
1
5
–217
–8

–3,477

2,874
3,005

1) In 2016, advances paid and construction work in progress included also intangible assets. In 2017, these assets have been reclassified into

intangible assets.

During 2017, no borrowing costs were capitalized on investment projects (2016: EUR 3 million). Total interest capitalized on
December 31, 2017 was EUR 26 million (Dec 31, 2016: EUR 29 million).

40 / 73

Outokumpu Annual report 2017 | Financial statementsAssets leased by finance lease agreements

€ million

Historical cost
Accumulated depreciation
Carrying value on Dec 31, 2017

Historical cost
Accumulated depreciation
Carrying value on Dec 31, 2016

Land

Buildings

Machinery and
equipment

28
–1
27

28
–1
28

1
–0
1

106
–50
56

234
–98
136

Total

136
–51
85

263
–99
164

13. Impairment of intangible assets and property, plant and equipment

Intangible assets and property, plant and equipment by operating segment

€ million

Europe
Americas
Long Products
Other operations

Impairment testing

Goodwill

Other intangible assets

Property, plant and equipment

2017

458
–
9
–
467

2016

2017

2016

458
–
9
–
467

5
1
4
58
68

4
0
6
28
37

2017

1,727
824
63
18
2,633

2016

1,786
975
74
39
2,874

Impairment testing is carried out on operating segment level.
Operating segments are the Group’s cash-generating units.
Europe represents 98% of the total goodwill and 66% of the
total property, plant and equipment of the Group, and Americas
represents 31% of the total property, plant and equipment
of the Group. During the year 2017, impairment needs were
assessed 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 conservative, and
cash flow projections based on the plans approved by the

management for 2018–2020 after which cash flows are
projected for a period of 3 years before calculating the terminal
value.

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. The
pre-tax WACC used for Europe is 8.0% (2016: 9.4%), and for
Americas 9.5% (2016: 9.2%).

In the terminal value, growth rate assumptions of 0.5% (2016:
0.5%) for Europe and 1.0% (2016: 1.0%) for Americas are used.
Management believes these 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. In addition, committed
investments and expected cost savings have been included in
the cash flow projections.

The estimated recoverable amount of Europe exceeds its
carrying amount by approximately EUR 6,043 million. Increase
of 13.4 percentage point in after-tax WACC would cause the
recoverable amount to equal the carrying amount. Also, 32%
decrease in annual delivery volumes or 23% decrease in base
prices would cause the recoverable amount to equal the
carrying amount. Terminal growth rate of 0% would not lead to
impairment.

The estimated recoverable amount of Americas exceeds its
carrying amount by approximately EUR 231 million. Increase
of 1.6 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.

As a result of the performed impairment test to Group’s
cash-generating units, no impairment losses were recognized in
2017 or 2016. However, an impairment loss of EUR 1 million
on property, plant and equipment was recognized in Europe
in 2017 due to obsolence (2016: a goodwill impairment loss
of EUR 19 million related to the acquisition of Hernandez
Edelstahl GmbH and impairment losses of EUR 8 million on
property, plant and equipment in Europe due to restructuring
and asset obsolence).

41 / 73

Outokumpu Annual report 2017 | Financial statements14. 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
45

Summarized financial information on associated companies

€ million

2017

2016

Carrying value of investments in
associated companies
Group’s share of total comprehensive
income

2017
€ million

Non-current financial assets
Available-for-sale financial assets
Investments at fair value through
profit or loss
Trade and other receivables
Derivatives held for trading

Current financial assets
Investments at fair value through
profit or loss
Trade and other receivables
Cash and cash equivalents
Derivatives held for trading

Joint ventures

Fagersta Stainless AB

Domicile Ownership, %

Sweden

Non-current financial liabilities
Non-current debt
Derivatives held for trading

Summarized financial information on joint ventures

€ million

2017

2016

Carrying value of investments in joint
ventures
Group’s share of total comprehensive
income

Current financial liabilities
Current debt
Trade and other payables
Hedge accounted derivatives
Derivatives held for trading

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

Measured at

Category in
accordance
with IAS 39

Amortized
cost

Cost

Fair value
recognized
in other com-
prehensive
income

Fair value
recognized
through profit
or loss

Carrying
amount on
Dec 31, 2017

Fair value on
Dec 31, 2017

c)
b)
d)

c)
b)
b), c)
d)

f)
d)

f)
f)
e)
d)

–

–
1
–

–
597
112
–
710

698
–

505
1,310
–
–
2,513

–
–
–

–
–
–
–
64

–
–

–
–
–
–
–

–
–
–

–
–
–
–
4

–
–

–
–
2
–
2

–

0
–
1

16
–
–
43
61

–
3

–
–
–
35
38

0
1
1

16
597
112
43
838

698
3

0
1
1

16
597
112
43
838

802
3

505
1,310
2
35
2,553

505
1,310
2
35
2,657

42 / 73

Outokumpu Annual report 2017 | Financial statements
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
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
Derivatives held for trading

Measured at

Category in
accordance
with IAS 39

Amortized
cost

Cost

Fair value
recognized
in other com-
prehensive
income

Fair value
recognized
through profit
or loss

Carrying
amount on
Dec 31, 2016

Fair value on
Dec 31, 2016

c)
b)

c)
b)
b), c)
e)
d)

f)
d)

f)
f)
d)

–

–
2

–
611
204
–
–
817

987
–

458
1,324
–
2,769

–
–

–
–
–
–
–
49

–
–

–
–
–
–

–
–

–
–
–
0
–
4

–
–

–
–
–
–

–

1
–

16
–
–
–
34
51

–
4

–
–
63
67

1
2

16
611
204
0
34
920

987
4

458
1,324
63
2,836

1
2

16
611
204
0
34
920

1,127
4

458
1,324
63
2,976

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

43 / 73

Outokumpu Annual report 2017 | Financial statements
16. Fair value hierarchy of financial assets and liabilities

Carrying amount

Level 1

Level 2

Level 3

Total

Fair value

2017
€ million

Financial assets measured at fair value
Available-for-sale financial assets
Investments at fair value through profit or loss
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

Financial liabilities not measured at fair value
Non-current debt

2016
€ 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

Financial liabilities not measured at fair value
Non-current debt

4
17
44
65

2
38
40

698

0
16
–
17

–

–
–
–

–

–
–
44
44

2
38
40

802

Fair value

4
0
–
4

–

–
–
–

–

Carrying amount

Level 1

Level 2

Level 3

Total

4
17
0
34
55

0
67
67

987

0
16
–
–
16

–

–
–
–

–

–
–
0
34
34

0
67
67

1,127

4
1
–
–
5

–

–
–
–

–

4
17
0
34
55

0
67
67

1,127

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.

Available-for-sale financial assets at hierarchy level 3 relate to
investments in unlisted energy producing companies. Valuation
model of energy producing companies is based on discounted
cash flow model, which takes into account the future prices of
electricity, discount rate, inflation rate, the estimated amount of
electricity to be received and estimated production costs.

17. Available-for-sale financial assets

4
17
44
65

2
38
40

802

€ 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

2017

2016

53
15
0

–
68

40
14
5

–5
53

2017

2016

68
64

–1

53
49
4
–1
3

Materially all equity securities are unlisted. Investments include
EUR 63 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 2017 Outokumpu invested
further EUR 15 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.

44 / 73

Outokumpu Annual report 2017 | Financial statements18. Share-based payment plans

During the year 2017, Outokumpu’s share based payment
programs included Performance Share Plan 2012 (Plans
2015–2017, 2016–2018, and 2017–2019), Restricted
Share Pool Program 2012 (Plans 2015–2017, 2016–2018
and 2017–2019) and Matching Share Plans for the CEO and
other key management. 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 2014–2016 ended and based on
the achievement of the targets the participants received 75,6%
of the target number of shares of the plan as reward. After
deductions for applicable taxes, altogether 293,761 shares
were delivered to 84 persons. Regarding the Restricted Share
Pool Program, plan 2014–2016, after deductions for applicable
taxes, in total 10,557 shares were delivered to 5 participants
based on the conditions of the plan. Outokumpu used its
treasury shares for the reward payments.

In December 2016, the Board of Directors approved the
commencement of the new plan (plan 2017–2019) of the
Performance Share Plan as of the beginning of 2017. At the
end of the reporting period 138 persons participated in the
plan and they had been allocated in total 1,789,000 gross
shares (payout at maximum performance level).The plan’s
earnings criterion is Outokumpu’s return on operating capital
compared to a peer group.

In December 2016, the Board approved the commencement
of the new plan (plan 2017–2019) of Restricted Share Pool
Program as of the beginning of 2017. Restricted share grants
are approved annually by the CEO on the basis of the autho-
rization 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. At the end of the reporting
period 58 persons participated in the plan and they have been
allocated in total 81,500 gross shares.

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
2017, the Board of Directors approved the delivery of the
second 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 commence-
ment of Matching Share Plan for the 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
each matching share tranche. In 2017, the Board of Directors
approved the delivery of the first reward tranches from the plan.
After deduction for applicable taxes, the net number of shares
delivered was 323,671. At the end of the reporting period 30
persons participated in the plan.

In December 2017, the Board of Directors approved the
commencement of plan 2018–2020 of the Performance Share
Plan 2012 and the Restricted Share Pool 2012 as of the
beginning of 2018.

The total estimated fair value of the share-based payment
plans is EUR 32 million on December 31, 2017. 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

2017

2016

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

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

–7
–9
–16

–3
–6
–9

45 / 73

Outokumpu Annual report 2017 | Financial statementsGrant date
Vesting period
Vesting conditions

Exercised

Grant date
Vesting period
Vesting conditions

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

Grant date
Vesting period
Vesting conditions
Non-market

Performance Share Plan

Feb 11, 2015
Jan 1, 2015–Dec 31, 2017

Feb 10, 2016
Jan 1, 2016–Dec 31, 2018

Feb 10, 2017
Jan 1, 2017–Dec 31, 2019

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

Outokumpu’s return on operating capital compared to a peer
group, and Outokumpu’s gearing in 2018

Outokumpu’s return on operating capital compared to a peer
group

Other relevant conditions A salary-based limit for the maximum benefits
In shares and cash

Exercised

A salary-based limit for the maximum benefits
In shares and cash

Restricted Share Pool Program

April 30, 2015
Jan 1, 2015–Dec 31, 2017
Continuation of employment until the shares are delivered, a
salary-based limit for the maximum benefits
In shares and cash

Dec 9, 2016
Jan 1, 2016–Dec 31, 2018
Continuation of employment until the shares are delivered, a
salary-based limit for the maximum benefits
In shares and cash

April 26, 2017
Jan 1, 2017–Dec 31, 2019
Continuation of employment until the shares are delivered, a
salary-based limit for the maximum benefits
In shares and cash

Matching Share Plan for the CEO

Dec 17, 2015
Jan 1, 2016–Dec 31, 2019
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

Exercised

In shares and cash

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

Share values used in valuations

€

Performance Share Plan

Vesting period 2015–2017
Vesting period 2016–2018
Vesting period 2017–2019
Restricted Share Pool Program
Vesting period 2015–2017
Vesting period 2016–2018
Vesting period 2017–2019
Matching Share Plan for the CEO
Matching Share Plan for the management 1)

Share price at the end of the reporting period

Incentive share fair value at the grant date

7.74
7.74
7.74

7.74
7.74
7.74
7.74
7.74

4.82
2.11
9.80

5.41
7.81
9.80
2.50
5.35

1) Incentive fair value at the grant date reported as the average fair value based of the share purchase dates.

Matching Share Plan for the management

April 27, 2016
Jan 1, 2017–Dec 31, 2020
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
In shares and cash

46 / 73

Outokumpu Annual report 2017 | Financial statements

19. Financial risk management, capital

management and insurances

The main objective of financial risk management is to reduce
earnings volatility and to secure acceptable liquidity in order
to avoid financial distress. Other objectives include reduction
of cash flow volatility and maintaining gearing and leverage
according to set targets. 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 insurable risk.

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.

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 has been mostly centralized to Global Business
Services and Treasury coordinates Group’s credit control.
Supply Chain function is responsible for managing electricity
and fuel price risks.

Treasury sources all Group’s global insurances. The most
important insurance lines are property damage and business
interruption (PDBI), liability, marine cargo and credit risk.
Group’s captive insurance company Visenta Försäkringsaktie-
bolag in Sweden can be used in insurance management.

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.
Eventually, the impacts of key financial risks are quantified in
terms of changes in income, free cash flow, net debt and equity.

Market risk

Foreign exchange rate risk

A major part of the Group’s sales is in euros and US dollars. In
this context, the local currency denominated production cost in
the UK and Sweden cause foreign exchange risk for Outokumpu.
Outokumpu hedges most of its fair value risk which relates to
currency denominated accounts receivables, accounts payables,
debt, cash, loan receivables and commodity derivatives. Cash
flow risk related to firm commitments, e.g. price fixed sales
and purchase orders, is hedged to a large extent, whereas
forecasted and probable cash flows can be hedged selectively.

The main dollar risks are caused by captive ferrochrome
production and chrome being priced in US dollars, as well as
sales margins including dollar-linked stainless scrap purchase
discount benefits.

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. The
derivatives, for which hedge accounting is not applied, are used
to 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 cyclical, which may result in
significant changes in the underlying exposures to different
market risk factors, especially US dollar and nickel price.
Consequently, the cyclicality may lead to significant changes
in the amounts of 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.

Sensitivity of financial instruments to market risks

€ million

+/–10% change in EUR/USD exchange rate
+/–10% change in EUR/SEK exchange rate
+/–10% change in nickel price in USD
+/–1% parallel shift in interest rates

Dec 31, 2017

Dec 31, 2016

In profit or loss

In other compre-
hensive income

In profit or loss

In other compre-
hensive income

+0/–0
–6/+7
–1/+2
+0/–0

–
–6/+7
–
–

+5/–4
–6/+8
–2/+1
–4/+4

–
–9/+11
–
–

The sensitivity analyses apply to financial assets and liabilities only. Other assets and liabilities, including defined benefit pension
plan assets and liabilities, as well as off-balance sheet items such as 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 23–36%. With
+/–30% change in dollar denominated price, the effect in profit or loss is about EUR –2/+16 million for nickel derivatives.

47 / 73

Outokumpu Annual report 2017 | Financial statementsThis risk is hedged with derivative contracts to the extent of
invoices and orders. Internal US dollar and Swedish krona
denominated financing causes significant exchange rate risk,
which is hedged with forward contracts and, if possible, with
matching debt. The Group’s fair value currency position is
presented in a more detailed level in the following table.

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. In 2017
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.

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 US dollars and Swedish
krona denominated internal loans.

Foreign exchange positions of EUR-based companies

€ 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.

Dec 31, 2017

Dec 31, 2016

SEK

23
534
–479
78

EUR

55
20
–162
–87

USD

–182
581
–361
38

GBP

16
–33
1
–16

Dec 31, 2017

USD

–36
16
–18
–39

GBP

–33
5
21
–8

Other

8
–12
1
–3

Other

5
3
–18
–10

SEK

1
596
–475
122

EUR

52
20
–159
–87

USD

–178
556
–409
–30

GBP

12
0
–28
–15

Dec 31, 2016

USD

–13
13
–30
–31

GBP

–26
2
14
–10

Other

6
7
–10
3

Other

2
1
–10
–7

Interest rate risk

Currency distribution and re-pricing of outstanding net debt

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.

US dollar, euro and Swedish krona have substantial contribution
to the overall interest rate risk. Approximately 44% (2016: 34%)
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, 2017 was 6.7% (Dec 31, 2016: 7.2%). Interest rate posi-
tion 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, e.g. in connection with
issue of commercial papers and any new long-term debt.

€ million
Currency

EUR
SEK
USD
Other

€ million
Currency

EUR
SEK
USD
Other

Dec 31, 2017

Net debt 1)

Derivatives 2)

Average rate, % 1)

Duration, year 3)

Rate sensitivity 4)

1,152
–3
–20
–38
1,091

–1,059
530
553
–36
–12

4.6
–1.8
1.7
0.9

25.0
0.2
0.2
0.0

–6.3
5.3
5.3
–0.7
3.5

Dec 31, 2016

Net debt 1)

Derivatives 2)

Average rate, % 1)

Duration, year 3)

Rate sensitivity 4)

1,362
–17
–31
–71
1,242

–1,057
582
524
–17
32

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

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) Duration calculation includes both net debt and derivatives. The euro sum of these is low, which causes the presented duration to be high. Duration

of euro-denominated net debt is 2.1 years (2016: 2.5 years).

4) The effect of one percentage point increase in interest rates to financial expenses over the following year.

48 / 73

Outokumpu Annual report 2017 | Financial statements
Changes in interest rates impact pension plan asset and
liability values. The net liability of defined benefit plans and
other long-term employee benefits was some EUR 267 million
at year end and therefore increase in long-term interest rates
would typically decrease the net liability of these plans.

Metal and energy 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 volumes and discounts related
to stainless scrap purchases have major impact on nickel price
risk. Since there is no established financial market for chrome,
this risk is not categorized as financial.

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. 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 the
identified nickel price risk, excluding risk related to base stock,
must be fully hedged. Nickel in base stock is hedged partially
and in 2017 the hedging ratio has been between 20 and
80 percent. Nickel forwards and options have been used to
manage impacts of nickel price changes on earnings, whereas
effiicient working capital management helps to reduce cash
flow variations caused by metal prices.

Outokumpu’s main production 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 at Group level. Emission
allowance price risk is managed with the aim of securing and
optimizing the cost of compliance for the current trading period.
In certain situations the market price of power can be partially
based on price of carbon emissions. This indirect exposure to

emission prices can be significant for Outokumpu due to energy
intensive processes using power and fuels.

Outokumpu manages energy price risk centrally. The Group
has hedged propane price risk by keeping inventories and by
fixing purchase prices in its supply contracts. Power price risk is
reduced with fixed price supply contracts and partial ownerships
in power utilities.

Security price risk

Outokumpu has investments in equity and fixed income
securities. On December 31, 2017 the biggest investments
were in Voimaosakeyhtiö SF (equity investment EUR 63 million)
and OSTP Holding Oy (investment in associated company EUR
25 million).

The investment in Voimaosakeyhtiö SF provides Outokumpu
with appr. 14% indirect stake in the Fennovoima Oy nuclear
power plant project. This stake gives Outokumpu access
to estimated 166 MW power once the project has been
completed. The accounting value of this ownership is currently
at cost, since it has not been possible to determine fair value
of the investment in a reliable manner. The risk related to this
shareholding has been assessed in 2017 and both impact
and likelihood of risk realizing have increased from previous
assessment.

The captive insurance company Visenta Försäkringsaktiebolag
has investments totalling EUR 16 million in highly rated and
liquid fixed income securities as well as fixed income and equity
funds in order to optimize return for assets and to manage its
risk prudently.

Outokumpu has a well-funded pension plan in the UK. This
plan has assets approximately EUR 0.5 billion, 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 asset reported on this plan. For more
information please see note 25.

Country and credit risk

Outokumpu’s sales have been 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, 2017 the maximum exposure to credit
risk of trade receivables was EUR 493 million (2016: EUR
471 million). The portion of unsecured receivables has varied
between 9–17% 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
presented 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 institu-
tions with good credit standing. For the derivative transactions,
Outokumpu prefers to have ISDA framework agreements in
place. 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. Daily liquidity is optimized by issuance of
commercial papers and by doing currency swaps. Efficient cash
and liquidity management is also reducing liquidity risk. Finance
plans are prepared and reviewed regularly with a focus on
forecasted cash flows, projected funding requirements, planned
funding transactions during the forecast period and financial
covenant headroom. The adequacy of liquidity reserves, the
amounts of scheduled annual repayments of non-current debt
compared to EBITDA as well as forecasted gearing and leverage
levels are key targets and outcomes of the planning. In 2017
good profitability and free cash flow allowed to focus on cost
of debt optimization. Finance cost reduction efforts included
e.g. call of the notes due 2019 (EUR 250 million), partial calls
of the notes due 2021 (EUR 47.5 million), prepayments of

49 / 73

Outokumpu Annual report 2017 | Financial statementspensions loans, drawing of new long-term pension loans, and
amendment of revolving credit facility, which led to maturity
extension. The amendment to the facility was signed in
December 2017.

In May and November, Outokumpu Oyj received upgrades in
corporate family rating to B1 and B1-PD probability default
rating from Moody’s. The 2019 and 2021 secured notes were
also upgraded twice by Moody’s and at year-end the rating of
the notes due 2021 was at Ba3. All ratings have stable outlook.

The main funding programs and credit facilities are: a
committed revolving credit facility of EUR 650 maturing in May
2021; a committed revolving bilateral credit facilitiy of EUR
90 million maturing in February 2019, and an uncommitted
Finnish commercial paper program totaling EUR 800 million.
Revolving credit facilities, certain bilateral bank loans and the
notes due in 2021 are secured by a comprehensive security
package, which includes pledges on real estate in Tornio
and Calvert, pledges of shares of certain material subsidiary
companies and guarantees issued by many of the material
subsidiary companies. Outokumpu and its secured lenders have
signed an intercreditor agreement in February 2014, when the
security package was originally created. In connection with the
amendment of the revolving credit facility part of the security
and certain guarantee obligations were agreed to be released.

As at December 31, 2017, Outokumpu had a total amount
of EUR 740 million committed credit facilities, of which all is
long-term. More information on liquidity and refinancing risk is
presented in the following table.

Contractual cash flows

2017
€ million

Bonds
Convertible bond
Loans from financial institutions
Pension loans
Finance lease liabilities
Commercial papers
Trade payables
Interest payments and facility charges
Currency derivatives

Outflows
Inflows

Interest derivatives
Metal derivatives
Other derivatives

Balance
Dec 31

201
229
35
171
90
477
1,162

–9

3
8
–3

2018

–
–
17
6
5
477
1,162
49

2,990
–2,998
1
9
–3
1,714

2019

2020

2021

2022

2023–

–
–
6
16
3
–
0
44

–
–
1
–1
–
70

–
250
6
56
3
–
–
43

–
–
0
–
–
358

203
–
4
50
51
–
–
25

–
–
0
–
–
332

–
–
1
43
0
–
–
3

–
–
–
–
–
48

–
–
–
–
29
–
–
120

–
–
–
–
–
149

On December 31, 2017, the Group had cash and cash equivalent amounting to EUR 112 million and committed available long-term
credit facilities totaling EUR 727 million.

2016
€ million

Bonds
Convertible bonds
Loans from financial institutions
Pension loans
Finance lease liabilities
Commercial papers
Trade payables
Interest payments and facility charges
Currency derivatives

Outflow
Inflow

Interest derivatives
Metal derivatives
Other derivatives

Balance
Dec 31

496
219
89
165
155
321
1,111

5
2
–

2017

–
–
64
8
65
321
1,111
75

2,660
–2,634
2
2
–
1,674

2018

2019

2020

2021

2022–

–
–
7
33
5
–
–
69

–
–
1
–
–
115

250
–
6
46
2
–
–
59

–
–
1
–
–
364

–
250
6
43
3
–
–
34

–
–
0
–
–
336

250
–
4
23
51
–
–
18

–
–
–
–
–
346

–
–
1
13
28
–
–
122

–
–
–
–
–
164

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 was a fully unutilized EUR 145 million committed credit facility which
matured in the end of February 2017.

50 / 73

Outokumpu Annual report 2017 | Financial statementsCapital management

The objectives of capital management are 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 these
objectives, 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 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 maintain good 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 prepay-
ments and liability management measures, such as the use
of call options of issued notes. In 2017 Outokumpu called all
(EUR 250 million) notes due 2019 and part (EUR 47.5 million)
of the notes due 2021. The revolving credit facility includes
one financial covenant, which is based on gearing. The notes
maturing in 2021 include incurrence based financial covenant
on gearing. The gearing covenant level in notes due 2021 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.

Outokumpu’s captive insurance company, Visenta
Försäkringsaktiebolag, 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,
which are 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, and on a basis of leverage ratio, which is
calculated as net debt divided by adjusted EBITDA. Net debt is
calculated as total current and non-current debt less cash and
cash equivalents. Outokumpu targets are to have gearing below
35 percent and leverage below 1.0. Outokumpu also targets to
improve its current credit ratings.

On December 31, 2017, net debt was EUR 1,091 million
(2016: EUR 1,242 million), total equity EUR 2,721 million
(2016: EUR 2,416 million) and gearing 40.1% (2016: 51.4%)
and leverage 1.7 (2016: 4.0). The decrease in gearing resulted
primarily from good profitability, low net cash from investing
activities and recognition of deferred tax assets. Leverage
decreased significantly mainly due to improved EBITDA.

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
insurance, covering e.g. fires, machinery breakdowns and
natural catastrophes, is the most important insurance line and
significant portion of insurance premiums paid relate to this
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 insur-
ances in place. Other significant insurance lines include marine
cargo and credit. In connection with 2017 insurance renewal
Outokumpu chose to increase deductibles of certain insurance
policies.

During the reporting year there were no serious fires. Tornio site
suffered from a few serious machinery breakdown incidents,
including a damage occurred in ferrochrome meltshop. Claim
process is ongoing in regards of the Tornio incidents. Fire safety
and machinery breakdown audits were carried out mainly as
planned.

Visenta Försäkringsaktiebolag, 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 21 million (2016: EUR 26 million). Visenta has issued a
surety bond to support the Outokumpu’s pension scheme in the
UK.

51 / 73

Outokumpu Annual report 2017 | Financial statements20. Fair values and nominal amounts of derivative instruments

Hedge accounted cash flow hedges

€ million
Currency and interest rate
derivatives

Currency forwards
Currency options,
bought
Interest rate swaps

Metal derivatives

Forward and futures
nickel contracts
Nickel options, bought
Nickel options, sold

Emission allowance
derivatives

Total derivatives

Less long-term derivatives
Interest rate swaps
Forward and futures
nickel contracts
Short-term derivatives

Positive fair
value

2017
Negative
fair value

Net fair
value

2016

Net fair
value

2017
Nominal
amounts

2016

Nominal
amounts

0
–

12
0
–

–

1
43

0
3

19
1
–

–

–
37

0
–3

–6
–1
–

–3

1
6

–25

2,994

2,647

–
–5

–2
–
–1

12
150

–
777

Tonnes

18,581
9,800
–

27,233
–
1,800

– 2,400,000

–

–33

–4

–
–29

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.

Fair value of bought nickel options is negative due to premium liability.

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 2018 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.

€ million

Maturity < 1 year
Maturity 1–5 years

2017

Fair value of
outstanding
cash flow
hedges

–1
–1
–2

Nominal
amount

40
39
78

2016
Fair value of
outstanding
cash flow
hedges

0
0
0

Equity

–1
–1
–3

Nominal
amount

41
81
122

Equity

0
–1
–1

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

2017

2016

44
29
15

40
29
11

34
33
1

67
33
34

52 / 73

Outokumpu Annual report 2017 | Financial statements
21. Inventories

€ million

Raw materials and consumables
Work in progress
Finished goods and merchandise
Advance payments

22. Trade and other receivables

2017

423
540
416
1
1,380

2016

376
508
347
2
1,232

€ million

Non-current

Loans receivable
Other accruals and receivables

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. NRV
write-downs amounting to EUR 5 million were recognized in
income statement during the financial year (2016: reversals
of write-downs amounting to EUR 26 million). More details on
commodity price risk are presented in note 19.

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

2017

2016

–
1
1

493
37
19
–
7
37
67
659

6
0
–0
–0
6

425
56
5
6
493

1
1
2

471
36
25
5
7
45
98
687

19
12
–22
–3
6

421
38
5
6
471

As of December 31, 2017 Outokumpu has derecognized
trade receivables totaling EUR 377 million (2016: EUR 387
million), which represents fair value of the assets. Net proceeds
received totaled EUR 357 million (2016: EUR 364 million).
Underlying assets have maturity less than one year. The
maximum amount of loss related to derecognized assets is
estimated to be EUR 15 million (2016: 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.

23. Cash and cash equivalents

€ million

Cash at bank and in hand
Short-term bank deposits

Bank overdrafts 1)

2017

2016

112
0
112
–7
105

203
0
204
–
204

1) Presented in current debt in the statement of financial position.

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 2017 was 0.7%
(Dec 31, 2016: 0.2%).

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.

53 / 73

Outokumpu Annual report 2017 | Financial statements

24. Equity

Share capital, premium fund and invested unrestricted equity reserve

€ million

On Jan 1, 2016
Shares delivered from the share-based payment programs 1)
Treasury share purchase
On Dec 31, 2016
Shares delivered from the share-based payment programs 1)
Reward shares returned to the Company
Treasury share purchase
On Dec 31, 2017
Treasury shares 1)
Total number of shares on Dec 31, 2017

Number of
shares, 1,000

Share capital Premium fund

Invested unre-
stricted equity
reserve

415,489
371
–2,000
413,861
813
–2
–2,000
412,672
3,703
416,374

311
–
–
311
–

–
311

714
–
–
714
–

–
714

2,103
–
–
2,103
–

–
2,103

Total

3,127
–
–
3,127
–

–
3,127

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

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

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

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

Other reserves

Other reserves includes amounts transferred from the distribut-
able 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.

Retained earnings

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

Distributable funds

On December 31, 2017, the distributable funds of the parent
company totaled EUR 2,413 million of which retained earnings
were EUR 289 million. The Board of Directors proposes to
the Annual General Meeting in 2018 that a dividend of EUR
0.25 per share is paid for 2017 (dividend of EUR 0.10 paid for
2016).

54 / 73

Outokumpu Annual report 2017 | Financial statements25. 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

2017

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

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 curtail-
ment 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 gover-
nance 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 propor-
tion 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.

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.

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

Amounts recognized in the consolidated
statement of financial position

€ million

Present value of funded defined benefit
obligations
Present value of unfunded defined benefit
obligations
Fair value of plan assets
Net defined benefit liability

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

€ million

Defined benefit liability
Other long-term employee benefit liabilities
Defined benefit assets
Net 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

Funding requirements are generally based on pension fund’s
actuarial measurement framework set out in the funding poli-
cies. 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 was paid in 2017.
The valuation was not based on the the same assumptions as
the IFRS valuation, which shows a surplus.

–7
–4

–11
18
8

17
–6

11
–63
–53

2017

2016

441

497

311
–503
249

307
–527
276

2017

2016

319
18
–70
267

322
34
–45
311

55 / 73

Outokumpu Annual report 2017 | Financial statementsMovement 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
Disposed subsidiaries
Other change
On Dec 31

2017

2016

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

804
7
17

–
8
5
–20
–19
–
0
–40
–0

–
–12
–
752

–527
–
–13

–12
–
–
–
18
–18
–0
40
–

–
9
–
–503

276
7
4

–12
8
5
–20
–1
–18
0
0
–0

–
–3
–
249

812
10
25

–
1
140
–4
–64
–
1
–36
–27

–53
–
–2
804

–516
–
–19

–74
–
–
–
70
–38
–1
36
–

15
–
–
–527

295
10
6

–74
1
140
–4
7
–38
–0
–
–27

–38
–
–2
276

Allocation of plan assets

€ million

Equity instruments
Debt instruments
Real estate
Investment funds
Other assets
Total plan assets

2017

2016

68
271
1
0
159
499

81
277
4
3
160
525

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 trustee monitors the investment objectives and asset
allocation policy on a regular basis.

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, 2017 was EUR 305 million (Dec 31, 2016: EUR 305 million). For the UK, the present
value of obligation on December 31, 2017 was EUR 414 million (Dec 31, 2016: EUR 451 million), and the fair value of plan assets
was EUR 485 million (Dec 31, 2016: EUR 496 million).

The expected contributions to be paid to the defined benefit plans in 2018 are EUR 16 million.

56 / 73

Outokumpu Annual report 2017 | Financial statementsSignificant actuarial assumptions

Germany

The UK

Other countries

Discount rate, %

Future salary
increase, %
Inflation rate, %

Future benefit
increase, %
Medical cost trend
rate, %
Life expectancy

1.51
1.75
–
–
–
–
1.51
1.50
–
–

2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017 Modified from

RT 2005 G

2016 Modified from

RT 2005 G

2.50
2.75
–
–
3.20
3.50
2.95
3.15
–
–
96% SAPS All Pensioner
Amounts tables
110% SAPS All Pensioner
Amounts tables

2.76
3.82
2.18
2.24
–
–
–
–
6.20–6.60
6.60–7.00
Standard mortality 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 weighted average duration of the overall defined benefit obligation is 17.2 years. In Germany
and in the UK the weighted average durations are 14.4 and 20.0 years, respectively.

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:

Germany
2017
Discount rate
Future benefit increase
Life expectancy

2016
Discount rate
Future benefit increase
Life expectancy

Change in assumption

Increase in assumption

Decrease in assumption

0.5%
0.5%
1 year

Decrease by 7%
Increase by 3%
Increase by 3%

Decrease by 7%
Increase by 4%
Increase by 3%

Increase by 8%
Decrease by 3%

Increase by 8%
Decrease by 4%

The UK
2017
Discount rate
Future benefit increase
Life expectancy

2016
Discount rate
Future benefit increase
Life expectancy

Other countries
2017
Discount rate
Medical cost trend rate
Future salary increase
Life expectancy

2016
Discount rate
Medical cost trend rate
Future salary increase
Life expectancy

Change in assumption

Increase in assumption

Decrease in assumption

0.5%
0.5%
1 year

Decrease by 9%
Increase by 7%
Increase by 3%

Increase by 11%
Decrease by 6%

Decrease by 10%
Increase by 7%
Increase by 3%

Increase by 12%
Decrease by 7%

Change in assumption

Increase in assumption

Decrease in assumption

0.5%
0.5%
0.5%
1 year

Decrease by 5%
Increase by 2%
Increase by 1%
Increase by 7%

Decrease by 6%
Increase by 8%
Increase by 1%
Increase by 4%

Increase by 5%
Decrease by 2%
Decrease by 1%

Increase by 7%
Decrease by 6%
Decrease by 1%

Other long-term employee benefits

Other long-term employee benefits mainly relate to early retirement provisions in Germany and
long-service remunerations in Finland. The terms of the long-service remunerations in Germany were
changed in 2017, and the arrangement no longer contains long-term employee benefit obligations,
but the benefits are current in nature. Under the German early retirement agreements, employees
work additional time prior to retirement, which is subsequently paid for in instalments after retire-
ment. 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, 2017 were EUR 18 million (Dec 31, 2016: EUR 34 million).

Multi-employer defined benefit plans

ITP pension plans operated by Alecta in Sweden and plans operated by Stichting Bedrijfspensioen-
fonds 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.

57 / 73

Outokumpu Annual report 2017 | Financial statements26. Provisions

€ million

Provisions on Jan 1, 2017
Translation differences
Increases in provisions
Disposed subsidiaries
Utilized during the financial year
Unused amounts reversed
Provisions on Dec 31, 2017

€ million

Non-current provisions
Current provisions

Restructuring provi-
sions

Environmental provi-
sions

Other provisions

54
–0
3
–
–25
–9
23

64
–1
5
–2
–6
–1
59

15
–0
4
–0
–4
–3
12

2017

79
14
93

Restructuring provisions

Other provisions

27. Debt

€ million

Non-current
Bonds
Convertible bonds
Loans from financial institutions
Pension loans
Finance lease liabilities

Current

Loans from financial institutions
Pension loans
Finance lease liabilities
Commercial papers

Total

133
–1
12
–2
–35
–13
93

2016

118
15
133

2017

2016

201
229
18
165
85
698

16
6
5
477
505

496
219
24
158
90
987

64
8
65
321
458

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.

Net debt

Non-current and current debt
Cash and cash equivalents
Net debt

1,203
–112
1,091

1,445
–204
1,242

The bond maturing 2021 as well as most of the bank loans
include financial covenants, which are described in note 19.

Restructuring provision relate mainly to global streamlining
measures of sales, general and administrative functions in
2016 and restructuring measures in accordance with the EMEA
restructuring plan in 2013–2015. The remaining restructuring
provisions on December 31, 2017 related mainly to measures
in Germany, where such activities are typically carried out over
a period of several years. Consequently, the cash outflows are
expected take place between the years 2018–2024.

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, 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.

58 / 73

Outokumpu Annual report 2017 | Financial statementsChanges in non-current and current debt

2017

€ million

On Jan 1
Financing cash flows 1)
Transfer to current debt
Other non-cash movements
On Dec 31

2016

€ million

On Jan 1
Translation differences
Financing cash flows 1)
Transfer to current debt
Other non-cash movements
On Dec 31

Non-current debt

Current portion
of non-current
debt

Non-current
finance lease
liabilities

Current portion
of finance lease
liabilities

Current debt

897
–283
–13
13
613

67
–67
13
–
13

90
–
–5
–
85

65
–65
5
–
5

326
161
–
–
487

Non-current debt

Current portion
of non-current
debt

Non-current
finance lease
liabilities

Current portion
of finance lease
liabilities

Current debt

1,070
–7
–108
–67
10
897

179
0
–179
67
0
67

179
–
–
–65
–24
90

28
–
–28
65
0
65

339
–
–13
–
–
326

Total

1,445
–254
–
13
1,203

Total

1,796
–7
–328
–
–14
1,445

1) Additionally, net cash flow from financing activities in 2017 included a repayment of a guarantee received relating to the divestment of SKS of
EUR 37 million (2016: receipt of this guarantee payment and EUR 6 million of proceeds from disposal of available for sale financial assets). In
consolidated statement of cash flows, these items are reported as other financing cash flow.

Regarding cash and cash equivalents, the reconciliation of cash effective and non-cash movements is presented in the consolidated
statement of cash flows.

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

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

28. Trade and other payables

€ million

Non-current
Accruals

Current

Bonds

€ million

2014 fixed rate bond maturing on Sept 30, 2019
2016 fixed rate bond maturing on June 16, 2021

Convertible bonds

€ million

2015 fixed rate bond maturing on Feb 26, 2020

Interest rate, %

6.625
7.250

Outstanding amount

2017

–
203
203

Interest rate, %

3.250

Outstanding amount

2017

250

Trade payables
Accrued employee-related expenses
Accrued interest expenses
VAT payable
Advances received
Withholding tax and social security liabilities
Payables related to factoring programs
Guarantee payment received related to SKS
divestment
Other accruals
Other payables

2016

250
250
500

2016

250

The convertible bond is convertible into ordinary shares of Outokumpu. The current conversion price is set at EUR 7.35. The
conversion price will be subject to adjustments for any dividend in cash or in kind as well as customary anti-dilution adjustments,
pursuant to the terms and conditions of the notes. Outokumpu has the right to redeem all outstanding bonds on or after March 13,
2018 if the volume-weighted average price of the Outokumpu share calculated for a specified period of time exceeds 130% of the
then prevailing conversion price. Subject to a certain triggering event, there can be a coupon step-up by 0.75 percentage points.

2017

14
83
149
–157
90

2016

77
96
151
–169
155

2017

2016

5
56
29
90

65
61
29
155

2017

2016

1,162
77
6
26
8
19
50

–
46
48
1,441

1,111
77
11
33
7
20
48

39
51
63
1,459

59 / 73

Outokumpu Annual report 2017 | Financial statements29. Commitments and contingent liabilities

€ million

Mortgages and pledges on Dec 31

Mortgages
Other pledges

Guarantees on Dec 31

2017

2016

2,984
13

3,447
13

One remaining guarantee issued by ThyssenKrupp on behalf of
Inoxum companies has not yet been transferred to Outokumpu
Oyj as of December 31, 2017. However, Outokumpu Oyj has
given ThyssenKrupp a counter-guarantee for this commitment
amounting to EUR 3 million.

Present value of minimum lease payments
on operating leases

On behalf of subsidiaries for commercial and
other commitments
On behalf of other companies for commercial
and other commitments

Other commitments on Dec 31

–

€ million

Not later than 1 year
Between 1 and 5 years
Later than 5 years

2017

2016

11
30
47
88

10
27
50
87

Operating leases include lease agreements on Group compa-
nies’ premises.

Outokumpu’s share of the Fennovoima investment is about
EUR 250 million of which EUR 63 million has been paid by the
end of the reporting period. Annual capital expenditure related
to the project is expected to be around EUR 15–20 million in
the coming years, and approximately half of the investment is
expected to be paid only at the end of the construction phase.

Group’s other off-balance sheet investment commitments
totaled EUR 28 million on December 31, 2017 (Dec 31, 2016:
EUR 19 million).

Mortgages relate mainly to securing Group’s financing. A major
part of Outokumpu’s borrowings are secured by mortgage over
the real property of the Group’s main production plants.

Outokumpu has provided a security, including a pledge of
shares of a subsidiary company, related to AvestaPolarit
pension scheme in the UK.

Other pledges include Outokumpu’s shares in Manga LNG Oy to
secure certain liabilities of Manga LNG Oy. Outokumpu’s total
liability at the end of 2017 amounted to EUR 31 million (2016:
EUR 22 million), and the part exceeding the share pledge is
presented under 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. In year-end 2017, Rapid
Power had no net debt. In the year-end 2016 Outokumpu’s
liability for the net debt of Rapid Power Oy amounted to EUR
4 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
in year-end 2017 amounted to EUR 2 million (2016: EUR 3
million). These liabilities are reported under other commitments.

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 compa-
nies, 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 was 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 Thyssen-
Krupp Italia in 2006 which have not been properly settled
towards AST in the following years. The matter is currently
pending in court.

30. Disputes and litigations

Antitrust investigation in Germany

Dispute over invention rights, Outotec vs. Outokumpu

Outokumpu and Outotec Oyj had since 2013 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.

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.

60 / 73

Outokumpu Annual report 2017 | Financial statementsEmployee benefits for CEO and Deputy CEO
Salaries and other
short-term benefits

€ thousand

Bonuses

Post-employment
benefits

Share-based
payments

2017

CEO
Deputy to the CEO

2016

CEO
Deputy to the CEO 1)

1,073
440

1,137
530

701
249

948
168

612
196

675
336

1,787
700

3,001
64

1) Christoph de la Camp as of July 1, 2016; Reinhard Florey until June 30, 2016.

Total

4,173
1,584

5,762
1,099

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.

More information on key management’s employee benefits
can be found in chapter Corporate Governance on the page
Remuneration.

Remuneration to Board of Directors

€ thousand

2017

2016

Chairman Jorma Ollila
Vice Chairman Olli Vaartimo
Member Markus Akermann
Member Roberto Gualdoni
Member Kati ter Horst, as of April 6, 2016
Member Heikki Malinen
Member Eeva Sipilä, as of March 21, 2017
Member Saila Miettinen-Lähde, as of
April 6, 2016 and until June 9, 2017
Member Stig Gustavson, until
March 21, 2017
Member Elisabeth Nilsson, until
March 21, 2017

148
89
74
78
69
68
67

5
617

151
91
82
82
65
70
–

82
763

31. Related party transactions

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 trans-
actions 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 14. and
subsidiaries are presented in note 32.

Solidium Oy, a limited company fully owned by the State of
Finland, owns 22.8% of Outokumpu on December 31, 2017.
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

€ million

Sales
Purchases
Dividend income

Trade and other receivables
Trade and other payables

Employee benefits for the key management

€ thousand

Short-term employee benefits
Post-employment benefits 1)
Share-based payments
Remuneration to the Board of Directors

1) Includes only supplementary pensions.

2017

2016

104
–5
2

25
0

142
–6
–

29
1

2017

7,848
1,792
6,449
617
16,706

2016

7,956
1,243
4,485
763
14,447

In 2016, key management received EUR 978,000 related to
financing arrangements of the matching share plans. In 2017
the item had been settled.

61 / 73

Outokumpu Annual report 2017 | Financial statements
32. Subsidiaries on December 31, 2017

Country

Group holding, %

Country

Group holding, %

Europe

Hernandez Edelstahl GmbH
Outokumpu AS
Outokumpu Asia Pacific Ltd
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 Europe Oy
Outokumpu Ges.m.b.H
Outokumpu India Private Limited
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 Stainless AB
Outokumpu Stainless B.V.
Outokumpu Stainless Steel (China) Co. Ltd.
Outokumpu Stainless Oy
Outokumpu Tornio Infrastructure Oy
Sogepar UK Limited

Germany
Norway
China
The Netherlands
Finland
France
Hungary
Poland
The UK
Finland
Austria
India
Japan
China
United Arab Emirates
Germany
Sweden
Belgium
Sweden
Sweden
The Netherlands
Finland
Germany
Australia
South Africa
Spain
Singapore
Finland
Italy
Sweden
The Netherlands
China
Finland
Finland
The UK

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

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 USA, LLC
ThyssenKrupp Mexinox CreateIT, S.A. de C.V.

Long Products

Outokumpu Stainless Bar, LLC
Outokumpu Stainless Ltd

Other operations

2843617 Canada Inc.
Orijärvi Oy
Outokumpu Americas, Inc.
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
Outokumpu Stainless UAB
Outokumpu Treasury Belgium N.V./SA
Viscaria AB
Visenta Försäkrings AB

*)
*)

Brazil
Argentina
Mexico
Mexico
The US
The US
Mexico

The US
The UK

Canada
Finland
The US
The Netherlands
Germany
Italy
The Netherlands
The UK
Australia
Finland
Germany
The UK
Lithuania
Belgium
Sweden
Sweden

100
100
100
100
100
100
100

100
100

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
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.

*) Shares and stock held by the parent company

1) Name changed

62 / 73

Outokumpu Annual report 2017 | Financial statements

33. Events after the reporting period

Outokumpu changed its segment reporting by separating Ferro-
chrome from business area Europe as an operating segment as
of January 1, 2018. In the new structure, Outokumpu has four
operating segments – Europe, the Americas, Long Products and
Ferrochrome. Ferrochrome operations consist of a chromium
mine in Kemi, Finland and ferrochrome production in Tornio,
Finland.

2017 comparison data for operating segments as of Jan 1, 2018

Europe

Americas

Long Prod-
ucts

Fer-
ro-chrome

Reconciliation

Operating
segments
total

Other

operations Eliminations

€ million

External sales
Inter-segment sales
Sales

Adjusted EBITDA
Adjustments to EBITDA

Gain on the quarto plate mill
divestment
Gain on the sale of land in
Sheffield
Gain on the pipe plant divestment

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

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

4,079
85
4,164

1,512
33
1,546

405
186
591

404

–

–
–
404
–123
–
281

–
–
–
–
–
–

2,883
–
–
–

1,035
–
–
–

1,848
–
–

–

–
–
21
–52
–
–31

–
–
–
–
–
–

1,382
–
–
–

310
–
–
–

1,072
–
–

–

–
–
16
–7
–
10

–
–
–
–
–
–

241
–
–
–

128
–
–
–

113
–
–

127
483
610

217

–

–
–
217
–29
–1
187

–
–
–
–
–
–

752
–
–
–

104
–
–
–

648
–
–

6,123
788
6,911

658

–

–
–
658
–210
–1
447

–
–
–
–
–
–

5,258
–
–
–

1,577
–
–
–

3,681
–
–

239
268
507

–15

9
7
16
–6
–
10

–
–
–
–
–
–

253
–
–
–

264
–
–
–

–11
–
–

–
–1,056
–1,056

Group

6,363
–
6,363

–12

631

–

–
–
–12
–
–
–12

–
–
–
–
–
–

–260
–
–
–

–235
–
–
–

–25
–
–

9
7
663
–216
–1
445

9
3
–129
327
64
392

5,251
340
295
5,886

1,606
1,549
10
3,164

3,645
285
3,929

63 / 73

Outokumpu Annual report 2017 | Financial statementsParent 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

2017

2016

505

–384

121

135
–18
–115
–1

123

132

97
–2

–0

561

–451

109

9
–27
–123
–20

–52

157

105

0
0

–1

Result for the financial year

227

105

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.

64 / 73

Outokumpu Annual report 2017 | Financial statementsBalance 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

Total non-current assets

Current assets

Current receivables
Interest-bearing
Non interest-bearing

Cash and cash equivalents

Total current assets

TOTAL ASSETS

2017

2016

€ million

2017

2016

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

4,002
924
31
64
1
5,021

4,037
428
31
49
–
4,545

5,080

4,594

Non-current liabilities
Interest-bearing

Current liabilities

Interest-bearing
Non interest-bearing

Total liabilities

TOTAL EQUITY AND LIABILITIES

1,223
247
1,471

1,774
163
1,937

124

1,532

2,062

6,612

6,655

311
720
2,123
63
227
3,444

311
720
2,123
19
105
3,278

625
625

2,315
227
2,542

915
915

2,190
272
2,462

3,166

3,377

6,612

6,655

65 / 73

Outokumpu Annual report 2017 | Financial statementsCash flow statement of the parent company

€ million

2017

2016

€ million

2017

2016

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
Group contributions
Other non-cash 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
Purchases of property, plant and equipment
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
Dividends paid
Treasury shares purchase
Proceeds from disposal of other financial assets
Borrowings of non-current debt
Repayments of non-current debt
Change in current debt
Cash flow from group contribution
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

227

–0
6
–135
0
–93
–0
54
1
5
–
–99
0
–261

8
26
35

0
96
–59
–0
37

105

1
6
8
–2
–124
–119
64
–1
–2
–5
–0
2
–173

47
23
71

119
124
–69
–1
174

176

–15
–0
–38
170
–0
24
0
–418

–277

–240

–41
–20
–
190
–538
130
0
454

177
–63
–63

–267
–1
–28
4
0
8
0
11

–272

–95

–
–7
6
369
–637
–400
–
751

81
–14
–14

66 / 73

Outokumpu Annual report 2017 | Financial statementsStatement of changes in equity of the parent company

€ million

Equity on Jan 1, 2016
Result for the financial year
Treasury shares repurchase
Equity on Dec 31, 2016
Result for the financial year
Dividends paid
Treasury shares repurchase
Equity on Dec 31, 2017

Share capital

Premium fund

Invested
unrestricted
equity reserve

Retained earnings

Total equity

€ million

Distributable funds on Dec 31

311
–
–
311
–
–
–
311

720
–
–
720
–
–
–
720

2,123
–
–
2,123
–
–
–
2,123

26
105
–7
123
227
–41
–20
290

3,180
105
–7
3,278
227
–41
–20
3,444

Retained earnings
Result for the financial year
Invested unrestricted equity reserve
Distributable funds on Dec 31

2017

63
227
2,123
2,413

2016

19
105
2,123
2,247

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

Other commitments on Dec 31

2017

2016

A major part of Outokumpu’s borrowings are secured by security
to the real property of selected subsidiaries.

295
0
27

304
1
26

Pledges include Outokumpu’s shares in Manga LNG Oy to
secure certain liabilities of Manga LNG Oy. Outokumpu’s total
liability at the end of 2017 amounts to EUR 31 million (2016:
EUR 22 million), and the part exceeding the share pledge is
presented under other commitments.

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 2017 amounted to EUR
2 million (2016: EUR 3 million). These liabilities are reported
under other commitments.

Outokumpu Oyj guaranteed until January 2017 certain
subsidiaries’ ability to satisfy their financial liabilities when due.

67 / 73

Outokumpu Annual report 2017 | Financial statementsAuditor’s Report (Translation of the Finnish Original)

To the Annual General Meeting of Outokumpu Oyj
Report on the Audit of the Financial Statements

Opinion

In our opinion

To the best of our knowledge and belief, the non-audit services that we have provided to the
parent company and to the group companies are in accordance with the applicable law and
regulations in Finland and we have not provided non-audit services that are prohibited under
Article 5(1) of Regulation (EU) No 537/2014. The non-audit services that we have provided are
disclosed in note 6 to the Financial Statements.

Our Audit Approach

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

Overview

• 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
the financial statements in Finland and comply with statutory requirements.

• Our opinion is consistent with the additional report to the Audit Committee.

What we have audited

We have audited the financial statements of Outokumpu Oyj (business identity code 0215254-2)
for the year ended 31 December 2017. 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

• the parent company’s balance sheet, income statement, statement of cash flows and notes.

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

• Overall group materiality: € 20 million

Materiality

• The audit scope includes all significant companies, covering the vast

majority of revenues, assets and liabilities.

Group scoping

• Valuation of goodwill

Key audit
matters

• Valuation of Property, Plant and Equipment

• Valuation of inventories

• System environment and internal controls

• Valuation of deferred tax assets

• Valuation of subsidiary shares in the parent company’s financial

statements

As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the financial statements. In particular, we considered where management made
subjective judgements; for example, in respect of significant accounting estimates that involved
making assumptions and considering future events that are inherently uncertain.

Independence

Materiality

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.

The scope of our audit was influenced by our application of materiality. An audit is designed to
obtain reasonable assurance whether the financial statements are free from material misstate-
ment. Misstatements may arise due to fraud or error. They are considered material if individually

68 / 73

Outokumpu Annual report 2017 | Auditor’s Reportor in aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.

Key audit matter in the audit of the group

How our audit addressed
the key audit matter

Based on our professional judgement, we determined certain quantitative thresholds for
materiality, including the overall group materiality for the consolidated financial statements as set
out in the table below. These, together with qualitative considerations, helped us to determine the
scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the
effect of misstatements on the financial statements as a whole.

Overall group materiality

€ 20 million

How we determined it

0.3% of net sales 2017

Rationale for the materiality
benchmark applied

We chose net sales as the benchmark because, in our view,
it is the most stable and most important benchmark in the
group’s current situation, against which the performance of
the group is measured by users of the financial statements.
As the group’s profitability has not been stable, net sales is
also a generally accepted benchmark. We chose 0,3% which
is within the range of acceptable quantitative materiality
thresholds in auditing standards.

How we tailored our group audit scope

The scope of our audit was tailored for the Outokumpu Group, taking into account the structure
of the group, the industry in which the group operates, and the accounting processes and
controls. The group audit scope was focused on the manufacturing companies in Finland, Sweden,
Germany, USA, Mexico and the UK and the sales company in Italy. We obtained, through our audit
procedures at the aforementioned companies, combined with additional procedures at the Group
level, sufficient and appropriate evidence regarding the financial information of the Group as a
whole to provide a basis for our opinion on the consolidated 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.

As in all of our audits, we also addressed the risk of management override of internal controls,
including among other matters consideration of whether there was evidence of bias that repre-
sented a risk of material misstatement due to fraud.

Valuation of goodwill

Refer to notes 1, 11 and 13 in the
consolidated financial statements.

As at 31 December 2017 the Group’s goodwill
balance amounted to € 467 million.

Goodwill is tested at least annually, irrespec-
tive of whether there is any indication of
impairment. 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. Key assumptions used in the
value-in-use calculations are discount rate,
growth rate of terminal value, average global
growth in consumption of stainless steel and
base price development.

Valuation of goodwill is a key audit matter due
to the size of the goodwill balance and the high
level of management judgement involved the
estimation process.

Our audit of goodwill valuation focused on
management’s judgement and estimates used.
We assessed the appropriateness of these
through the following procedures:

• We tested the methodology applied in the

value in use calculation by comparing it to the
requirements of IAS 36, Impairment of Assets,
and we tested the mathematical accuracy of
the calculations.

• We evaluated the process by which the future
cash flow forecasts were drawn up, including
comparing them to medium term strategic
plans and forecasts approved by the Board
and testing the key underlying assumptions.

• We considered whether the sensitivity analysis
performed by management around key drivers
of the cash flow forecast was appropriate by
considering the likelihood of the movements of
these key assumptions.

• We compared the current year actual results
to those included as estimates in the prior
year impairment model to corroborate the
reliability of management’s estimates.

• The discount rates applied within the model
were assessed by PwC business valuation
specialist, including comparison to economic
and industry forecasts as appropriate.

We also considered the appropriateness of the
related disclosures provided in note 13 in the
Group financial statements.

69 / 73

Outokumpu Annual report 2017 | Auditor’s ReportValuation of Property, Plant and Equipment

Refer to notes 1 and 12 in the consolidated
financial statements.

As at 31 December 2017 the Group’s Property,
Plant and Equipment (PPE) amounted to €
2,633 million, which is 45% of the total assets
and 97% of the total equity.

The company’s business is very capital
intensive and there are a lot of historical
operative losses. Therefore there is a risk that
the carrying value of the Property, Plant and
Equipment is overstated. The carrying value of
Property, Plant and Equipment is tested as part
of the group impairment testing based on the
discounted cash flow model.

Valuation of Property, Plant and Equipment is a
key audit matter due to the size of the balance
and the high level of management judgement
involved the estimation process.

We assessed the appropriateness of the Group’s
method and management’s judgement and
estimates in the impairment calculations for
Property, Plant and Equipment.

Our audit work also included testing the
operating effectiveness of key controls in
place to ensure the existence and appropriate
valuation of Property, Plant and Equipment. Such
controls include the authorization of additions,
disposals and scrapings, the evaluation of the
useful economic lives and the reconciliation of
fixed assets registers to the accounting records.

In addition we performed substantive audit
procedures including testing of assets acquired
in the year and depreciation of the fixed assets
mainly through analytical audit procedures.

Valuation of Inventories

• Our audit work included testing management’s

key controls in place to ensure proper
valuation and existence of inventories.

• In addition, our audit procedures included,

among other things, the following:

• We performed tests over the prices of raw
materials and verified items in the product
costing of work in progress.

• We performed tests over the NRV calculations

and the assumptions used

• We assessed the adequacy of the obso-

lescence provision and the management
judgement used.

• We participated in the physical inventory
counting and performed independent test
counts to validate the existence of assets and
accuracy of the counting performed.

Refer to notes 1 and 21 in the consolidated
financial statements.

Net inventories amount to EUR 1,380 million
as at 31 December 2017.

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. 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.

Due to the high level of management judgment
and the significant carrying amounts and risks
relating to valuation, this is one of the key
audit matters.

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Outokumpu Annual report 2017 | Auditor’s ReportSystem environment and internal controls

• Our response to the risks related to the

The group has a fragmented system environ-
ment. The fragmented system environment
introduces risks related to system access,
change management and data transfer
between the different systems, and we have
accordingly designated this as a key audit
matter.

fragmented system environment included both
the testing of IT controls and tests of details.

• We tested the company’s controls around

access and change management related to
key IT systems. We also tested the company’s
controls around system inter-faces, and the
transfer of data between systems.

• We noted certain weaknesses related to

access controls to certain key systems. We
reported these control weaknesses to manage-
ment, and performed tests of detail to reduce
the related risks of material misstatement to
an acceptably low level.

Valuation of deferred tax assets

• We assessed the amount and availability of

tax losses and temporary differences under tax
law in the relevant jurisdictions, focusing on
the most material balances.

• We also assessed whether the historical

profitability and management’s forecast of
future profits in the relevant tax jurisdictions
support the recognition of the deferred tax
asset.

Refer to notes 1 and 9 in the consolidated
financial statements.

Deferred tax assets are recognised 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. In
determining the realisability of deferred tax
assets, all positive and negative factors,
including past and prospective results, are
taken into consideration in determining
whether sufficient taxable income will be
generated to realize deferred tax assets. These
estimates can change depending on the future
course of events.

The group has recognized deferred tax assets
of EUR 352 million on tax loss carry-forwards.

We determined this to be a key audit matter
because the recognition of deferred tax assets
involves significant application of judgement
by management in respect of assessing the
probability and sufficiency of future taxable
profits in the relevant jurisdictions.

There are no significant risks of material misstatement referred to in Article 10(2c) of Regulation
(EU) No 537/2014 with respect to the consolidated financial statements.

Key audit matter in the audit
of the parent company

How our audit addressed
the key audit matter

Valuation of subsidiary shares in the
parent company’s financial statements

As at 31 December 2017, the value of
Outokumpu Oyj’s subsidiary shares amounted
to EUR 4,037 million in the parent company’s
financial statements prepared in accordance
with Finnish GAAP.

The valuation of subsidiary shares is tested as
part of the group impairment testing based on
the discounted cash flow model.

The valuation of subsidiary shares is a key audit
matter due to the significant carrying amounts
involved and the high level of management
judgement involved.

This matter is a significant risk of material
misstatement referred to in Article 10(2c) of
Regulation (EU) No 537/2014.

We assessed the appropriateness of the method
and management’s judgement and estimates
in the calculations through the following
procedures:

• We compared the current year actual results
included in the prior year impairment model
to corroborate the reliability of management’s
estimates.

• The discount rates applied within the model
were assessed by PwC business valuation
specialist, including comparison to economic
and industry forecasts as appropriate.

Responsibilities of the Board of Directors and the
Managing Director for the Financial Statements

The Board of Directors and the Managing Director 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 Managing Director 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.

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Outokumpu Annual report 2017 | Auditor’s ReportIn preparing the financial statements, the Board of Directors and the Managing Director are
responsible for assessing the parent company’s and the group’s ability to continue as a 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 to 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 about 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 the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these 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 Managing Director’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 to 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

Appointment

We were first appointed as auditors by the annual general meeting on 21 March 2017.

Other Information

The Board of Directors and the Managing Director are responsible for the other information. The
other information comprises the report of the Board of Directors and the information included in
the Annual Report, but does not include the financial statements and our auditor’s report thereon.
We have 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.

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Outokumpu Annual report 2017 | Auditor’s ReportIn our opinion

• the information in the report of the Board of Directors is consistent with the information in the

financial statements

• 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 other information that we obtained prior to the
date of this auditor’s report, 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 statements based on the decision by the Annual General Meeting

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 31 January 2018

PricewaterhouseCoopers Oy
Authorised Public Accountants

Janne Rajalahti
Authorised Public Accountant (KHT)

73 / 73

Outokumpu Annual report 2017 | Auditor’s ReportGovernance 2017

NOTHING TO HIDE n We make the strictest possible demands of ourselves as an organization, and expect the same from our suppliers. This
means that our customers’ supply chains – and, in turn, those of their customers – benefit from our rigorous standards and high transparency. We
track our products at every step, and provide continually updated product statements and comprehensive product declarations.

Corporate Governance statement 2017

Regulatory and structural framework

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.

the ultimate responsibility for the organization of the Group’s
management and operations. The Outokumpu Leadership Team
supports and assists 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.

Outokumpu Oyj follows the Finnish Corporate Governance
Code effective as of January 1, 2016. The Finnish Corporate
Governance Code is issued by the Securities Market Associa-
tion and adopted by Nasdaq Helsinki Ltd.

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 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.

Organization structure as of Jan 1, 2018

President and CEO
Roeland Baan

Human Resources &
Organization Development

Finance

Business Transformation & IT

Communications & IR

Europe

Americas

Long Products

Ferrochrome

Outokumpu Annual report 2017 | Governance
Outokumpu Annual report 2017 | Governance

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Composition and Operations of the Board of Directors on December 31, 2017

Chairman of the Board of Directors

Vice Chairman 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

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 2005–2017
Vice Chairman of the Board: Otava Ltd 1996–
Board member: TBG AG 2016–
Board member: Tetra Laval Group 2013–
Board member: University of Helsinki 2009–2017
Advisory Partner: Perella Weinberg Partners 2014–

Independent of the company and its significant shareholders.

Outokumpu Annual report 2017 | Governance
Outokumpu Annual report 2017 | Governance

Olli Vaartimo

b. 1950, Finnish citizen
M.Sc. (Econ.)
Outokumpu Board member 2010–
Vice Chairman of the Board 2011–
Chairman 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

Positions of trust
Chairman of the Board: BMH Technology Oy 2017–
Chairman of the Board: Kuusakoski Group Oy 2016–
Vice Chairman of the Board: Kuusakoski Oy 2016–
Board member: Sampo-Rosenlew Oy 2016–
Board member: Black Bruin Oy 2016–
(earlier Sampo-Hydraulics Oy)
Board member: Valmet Automotive Oy 2014–

Independent of the company and its significant shareholders.

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Members of the Board of Directors

Markus Akermann

b. 1947, Swiss citizen
M.Econ. (University of St.Gallen, Switzerland)
Outokumpu Board member 2013–
Member of the Remuneration Committee

Roberto Gualdoni

b. 1956, German citizen
MBA, M.Sc. (Eng.)
Outokumpu Board member 2014–
Member of the Audit Committee

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

Positions of trust
Member of the Board: Votorantim Cimentos S.A. 2013–
Member of the Board: ACC Mumbai, India 2005–2012

Independent of the company and its significant shareholders.

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

Positions of trust
Chairman of the Advisory Board: CABB GmbH 2017–
Board member: Saudi Basic Industries Corp. 2017–
Board member: Carmeuse SA 2017–
Board member: American Aerogel Corp. 2016–

Independent of the company and its significant shareholders.

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

Positions of trust
Board member: EURO-GRAPH asbl 2017–
Board member: Finnish Forest Industries Federation 2015–

Independent of the company and its significant shareholders.

Outokumpu Annual report 2017 | Governance
Outokumpu Annual report 2017 | Governance

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Heikki Malinen

b. 1962, Finnish citizen
M.Sc. (Econ.), MBA (Harvard)
Outokumpu Board member 2012–
Member of the Remuneration Committee

Eeva Sipilä

b. 1973, Finnish citizen
M.Sc. (Econ.), CEFA
Outokumpu Board member 2017–
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: UPM-Kymmene Corporation, Helsinki, Finland
2006–2008

Work experience
Chief Financial Officer and Deputy to the CEO: Metso
Corporation 2016–
Executive Vice President and Chief Financial Officer: Cargotec
Corporation 2008–2016
SVP, Investor Relations and Communications: Cargotec
Corporation 2005–2008

Positions of trust
Vice Chairman: Service Sector Employers PALTA 2016–
Board member: Realia Group 2017–
Board member: East Office of Finnish Industries 2012–

Independent of the company and its significant shareholders.

Full details of work experience and positions of trust

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,
2017 were independent of the company and its significant
shareholders.

Outokumpu shares and share-based rights (parent
or subsidiaries) owned by each director and his/her
controlled corporations on December 31, 2017

Jorma Ollila
Olli Vaartimo
Markus Akermann
Roberto Gualdoni
Kati ter Horst
Heikki Malinen
Eeva Sipilä
Total

60,505
32,777
40,929
50,617
9,169
28,617
7,981
230,595

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.

Outokumpu Annual report 2017 | Governance
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The Board of Directors has established the rules of procedure
that 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 directing the company’s
business and strategies:

• Decide on Outokumpu’s strategy and long-term targets and

monitor their implementation;

• Decide on annual business plans;

• Decide on annual limits for the Group’s capital expenditure,
monitor related implementation, review performance and
decide on changes;

• Decide on any major and strategically significant investments;

• Decide on any major and strategically important business

acquisitions and divestments;

• Decide on any significant financing arrangements;

• 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.

With respect to organizing the company’s
management and operations:

• 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;

• Nominate and dismiss the members of the Outokumpu Lead-
ership Team and to define their areas of responsibility based
on a proposal by the Board’s Remuneration Committee;

• Monitor the adequacy and allocation of the Group’s top

management resources;

• Decide on any significant changes to the Group’s business

organization;

Outokumpu Annual report 2017 | Governance
Outokumpu Annual report 2017 | Governance

• Decide on the Group’s ethical values and modes of activity;

• Ensure that policies outlining the principles of corporate

governance are in place;

• Ensure that policies outlining the principles of managing the

company’s insider issues are being observed;

• 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.

With respect to the preparation of matters to be
resolved by the General Meetings of Shareholders:

• Establish a dividend policy and issue a proposal on dividend

distribution;

• Make a proposal to the Annual General Meeting concerning

the election of an external auditor and auditing fees;

• Make other proposals to General Meetings of Shareholders.

With respect to financial control and risk management:

• Discuss and approve interim reports, statements, and annual

accounts;

• Monitor significant risks related to the Group’s operations and

the management of such risks;

• Ensure that adequate policies for risk management are in

place;

• Monitor financial position, liquidity, and debt maturity

structure;

• Monitor the Group’s control environment;

• Reassess its activities on a regular basis.

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.

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 8 members was elected at the 2017
Annual General Meeting. Saila Miettinen-Lähde stepped down
from the Board on June 9, 2017 after which the Board of
Directors comprised 7 members. The Board of Directors meets
at least five times each year. In 2017, the Board of Directors
had 9 meetings, and the average attendance rate was 98.5%.

Breakdown of individual attendance at Board meetings

9 meetings in 2017

Attendance

Jorma Ollila
Olli Vaartimo
Markus Akermann
Roberto Gualdoni
Stig Gustavson (until March 21, 2017)
Kati ter Horst
Heikki Malinen
Saila Miettinen-Lähde (until June 9, 2017)
Elisabeth Nilsson (until March 21, 2017)
Eeva Sipilä (from March 21, 2017)

9/9
9/9
9/9
8/9
1/1
9/9
9/9
4/4
1/1
8/8

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Breakdown of individual attendance at
Remuneration Committee meetings

4 meetings in 2017

Attendance

Jorma Ollila
Markus Akermann (from March 21, 2017)
Stig Gustavson (until March 21, 2017)
Heikki Malinen
Saila Miettinen-Lähde
(March 21, 2017 – June 9, 2017)
Elisabeth Nilsson (until March 21, 2017)

Temporary Working groups

4/4
3/3
1/1
4/4

0/0
1/1

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 2017.

Diversity principles of the Board of Directors

Diversity of the Board of Directors supports the vision and
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 2017.

The review by the Board of Directors is found on p. 2 in
the section Review by the Board of Directors and 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 the rules of
procedure for these committees. Both committees report to the
Board of Directors.

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 approved 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 the 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
six times during 2017, and the average attendance rate was
96%.

Breakdown of individual attendance
at Audit Committee meetings

6 meetings in 2017

Attendance

Olli Vaartimo
Markus Akermann (until March 21, 2017)
Roberto Gualdoni
Kati ter Horst
Saila Miettinen-Lähde (until March 21, 2017)
Eeva Sipilä (from March 21, 2017)

Remuneration Committee

6/6
1/1
5/6
6/6
1/1
5/5

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 approved by the Board of Directors. The
tasks of the Remuneration Committee are to discuss and
prepare recommendations to the Board regarding new nomina-
tions in and compensation principles applicable to the Group’s
executive and senior management. 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 four times during 2017, and the
average attendance rate was 100%.

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Outokumpu Annual report 2017 | Governance

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Shareholders’ Nomination Board

and Timo Ritakallio, President and CEO of Ilmarinen Mutual
Pension Insurance Company. Antti Mäkinen 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 four times in total,
and the attendance rate was 100%. The Nomination Board has
submitted its proposals regarding the Board composition and
director compensation to Outokumpu’s Board of Directors, and
the Board has incorporated these proposals into the notice
convening the Outokumpu 2018 Annual General Meeting of
Shareholders.

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 compensation 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 sharehold-
ings (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. If a shareholder does not wish to use
their 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 2017 were Solidium Oy, Varma Mutual
Pension Insurance Company, the Social Insurance Institution
of Finland and Ilmarinen Mutual Pension Insurance Company.
These shareholders chose the following individuals as their
representatives in the Nomination Board: Antti Mäkinen,
Managing Director of Solidium Oy; Pekka Pajamo, CFO of
Varma Mutual Pension Insurance Company; Tuula Korhonen,
Investment Director of the Finnish Social Insurance Institution

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Executive Management

Biographical details of the CEO and the Leadership Team on January 1, 2018

Roeland Baan

Christoph de la Camp

Maciej Gwozdz

b. 1957, Dutch citizen
M.Sc. (Econ.)
President and Chief Executive Officer 2016–
Chairman of the Outokumpu Leadership Team 2016–
Responsibility: Group management; the Ferrochrome business
area; legal, corporate affairs and compliance; safety, health and
environment, and internal audit
Employed by the Outokumpu Group since 2016

b. 1963, German citizen
MBA, B.Sc. (Eng.)
Chief Financial Officer 2016–
Member of the Outokumpu Leadership Team 2016–
Responsibility: Financial and business controlling and analysis,
taxation, treasury, metal and risk management, global business
services
Employed by the Outokumpu Group since 2016

Work experience
Chief Financial Officer: INEOS Styrolution Holding GmbH
2011–2016
Chief Financial Officer: INEOS Nova LLC (INEOS Styrenics LLC)
2007–2011
Finance Director: NOVA Innovene International SA 2005–2007

Work experience
President – Europe business area: Outokumpu Oyj 2016–2017
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

Current positions of trust
Vice Chairman: International Stainless Steel Forum 2017–
Board member: World Steel Association 2016–
Board member: Eurofer 2015–
Board member: Borusan Mannesmann Boru Sanayi ve Ticaret
A.Ş. 2012–, member of Audit Committee 2012–, Chairman of
Corporate Governance Committee 2013–2017 and Chairman
of Risk Committee 2017– (member 2013–)

Outokumpu Annual report 2017 | Governance
Outokumpu Annual report 2017 | Governance

b.1975, Polish citizen
Executive MBA, M.Sc. (Econ.)
President – Europe 2018–
Member of the Outokumpu Leadership Team 2016–
Responsibility: The Europe business area
Employed by the Outokumpu Group since 2016

Work experience
Executive Vice President – Operations, Europe: Outokumpu Oyj
2016–2017
Senior Vice President, Steering Europe: ZF Friedrichshafen AG
SVP 2016
Vice President, Steering Europe: TRW Automotive/ZF Group
2013–2016
Operations Director Steering Europe: TRW Automotive
2011–2013

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Kari Tuutti

Michael S. Williams

Liam Bates

b. 1970, Finnish citizen
M.Sc. (Econ.)
President – Long Products 2014–
Member of the Outokumpu Leadership Team 2012–
Responsibility: The 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
Director, Marketing Creation: Nokia 2009–2011

Positions of trust
Board member: Fagersta Stainless AB 2015–2016, 2017–

b. 1960, US citizen
B.Sc. (Information science)
President – Americas 2015–
Member of the Outokumpu Leadership Team 2015–
Responsibility: The 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
Senior Vice President, North American Flat-Roll Operations:
United States Steel Corporation 2009–2013
Vice President, Midwest Flat-Roll Operations: United States
Steel Corporation 2008–2009

Positions of trust
Board Member: Specialty Steel Industry of North America 2015–
Board Member: Mobile Chamber of Commerce 2017

b. 1971, UK citizen
B.Sc. hons Economics, MBA
Executive Vice President – Supply Chain Management,
Europe 2016–
Member of the Outokumpu Leadership Team 2015–
Responsibility: Supply chain management in the Europe
business area
Employed by the Outokumpu Group since 1993

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

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Outokumpu Annual report 2017 | Governance

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Olli-Matti Saksi

Jan Hofmann

Reeta Kaukiainen

b. 1967, Finnish citizen
M.Sc. (Eng.)
Executive Vice President – Sales, Europe 2016–
Member of the Outokumpu Leadership Team 2014–
Responsibility: Sales in the Europe business area
Employed by Outokumpu Group since 2013

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

b. 1979, German citizen
M.Sc. (Econ.)
Executive Vice President – Business Transformation & IT 2016–
Member of the Outokumpu Leadership Team 2015–
Responsibility: Business transformation and IT
Employed by the Outokumpu Group since 2012

Work experience
President – APAC: Outokumpu Oyj 2015–2016
Chief Financial Officer – APAC: Outokumpu Oyj 2015
Senior Vice President – Group Strategy and Business
Excellence: Outokumpu Oyj 2012–2014

b. 1964, Finnish citizen
M.Sc. (Soc.)
Executive Vice President – Communications and Investor
Relations 2017–
Member of the Outokumpu Leadership Team 2017–
Responsibility: Communications, investor relations and
marketing
Employed by the Outokumpu Group since 2017

Work experience
Marketing & Communications Country Lead: Accenture Oy
2016–2017
Senior Vice President, Communications: Metsä Group
2012–2015
Vice President, Communications and Investor Relations: Tieto
Corporation 2007–2012

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Outokumpu shares and share-based rights
(parent or subsidiaries) owned by CEO and
Leadership Team members and his/her controlled
corporations on December 31, 2017

Roeland Baan
Christoph de la Camp
Liam Bates
Maciej Gwozdz
Jan Hofmann
Reeta Kaukiainen
Olli-Matti Saksi
Johann Steiner
Kari Tuutti
Michael S. Williams
Total

774,869
171,720
70,752
101,324
74,657
0
148,256
84,079
98,946
160,637
1,685,240

More information on compensation can be found on p. 22 in
this 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 implementation of Board decisions. The
CEO is also responsible for ensuring that the existing legislation
and applicable regulations are observed throughout the Group.

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 beginning of 2018, the members of the
Outokumpu Leadership Team held the following positions:

• President and Chief Executive Officer (Group management,
the Ferrochrome business area, legal, corporate affairs and
compliance, safety, health and environment, and internal
audit)

• Executive Vice President – Chief Financial Officer (financial
and business controlling and analysis taxation, treasury,
metal and risk management, global business services)

• President – Europe (the Europe business area)

• President – Americas (the Americas business area)

• President – Long Products (Long Products business area)

• Executive Vice President – Sales, Europe (sales in the Europe

business area)

• Executive Vice President – Supply Chain Management, Europe

(supply chain in the Europe business area)

• 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 Organi-
zation Development (human resources and organization
development)

The Leadership Team typically meets at least once a month.

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: 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
Executive Vice President – Human Resources and Health, Safety
and Sustainability: Outokumpu Oyj 2013
Group HR Director: SAG Group GmbH 2012

Full details of work experience and positions of trust

Outokumpu Annual report 2017 | Governance
Outokumpu Annual report 2017 | Governance

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Internal control procedures and the main features of risk management systems

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
deployed 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 on 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 opera-
tional and financial targets are executed in accordance with
Outokumpu’s overall business targets. Management follow-up of
related achievements is carried out through monthly manage-
ment 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

Outokumpu Annual report 2017 | Governance
Outokumpu Annual report 2017 | Governance

approaches to be taken, and areas of responsibility. In addition
to 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, 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.

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 2017 financial year, Outokumpu has evaluated the
implications of the new and revised IFRS standards to enter
into force in the near future, and specifically prepared for the
implementation of the new IFRS 15 and IFRS 9 standards as
of the beginning of 2018. In 2016, Outokumpu implemented
the changes required in the ESMA (European Securities and
Markets Authority) guidelines on Alternative Performance
Measures. In 2018, Outokumpu will prepare for the imple-
mentation of the new 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 2018.

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 the regulations regarding the financial reporting
published by the Financial Supervisory Authority (FINFSA)
Nasdaq Helsinki and ESMA.

Identification and assessment of risks
related to financial reporting

Risks related to the Group’s financial reporting are classified as
operational risks and can arise as a consequence of inade-
quate or failed internal processes, employee actions, systems,
or other events such as misconduct or crime. The aim of the
Outokumpu risk management process is to identify, evaluate,
control, and mitigate such risks.

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 identifica-
tion 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

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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 Outo-
kumpu are the valuation and reporting of inventories and other
items of working capital. Moreover, in difficult market situations,
asset impairment calculations and related sensitivity analyses
are equally important. These items are carefully monitored and
controlled, both within business areas and at the 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 was
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 and to renew major parts of its
fragmented system environment. 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. Outokumpu is also
in the transition phase to centralize accounting and financial
reporting to its global business service centers. As part of
this development, internal controls based on systems and
processes are being further developed and improvements to the
control environment are in the process of being implemented.
First rollouts of the ERP will take place during 2018.

Information and communication

Group-wide policies and principles are available to all Outo-
kumpu 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

Outokumpu Annual report 2017 | Governance
Outokumpu Annual report 2017 | Governance

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 commu-
nities 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. Risk management and external
auditors are also engaged in follow-up of control activities. The
findings of the follow-up procedures are reported to the Audit
Committee and the Outokumpu Leadership Team on a regular
basis.

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 noncompliant
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 2017, Internal Audit performed 18 scheduled operational
audits including audits of various entities in Sweden, focused
reviews of coil service centers in Eastern Europe and Italy, and
audits of the Outokumpu subsidiaries in India and the Far East.
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, the previously identified potential risk in the context of
sales intermediary agreements is deemed to be resolved and
controlled adequately. The key risk areas to be focused on in
2018 are the newly established Ferrochrome business area,
the procedural control environment at interfaces with global
business services in Europe and in the Americas, and the
procurement of raw materials and IT soft-/hardware.

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. Two
cases were reported via the Helpline in 2017.

Seven unscheduled investigations of potential misconduct were
recognized through other channels. Internal Audit observed
cases of unfair behavior, forged company documents and
incurred or alleged theft, among them stealing material out of
a closed-down melt shop; however, none of these cases were

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financially material. Various noted attempts of misconduct via
faked emails resulted in no harm to the company.

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 Compli-
ance 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 at www.outokumpu.com. The Legal,
Corporate 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. Compliance-related matters are also regularly handled
in the Compliance Committee, consisting of the CEO, CFO,
Head of HR, Corporate General Counsel and Group Compliance
Officer. The Compliance Committee met four times in 2017.

Insider management

The company’s Insider Rules and the insider laws and regula-
tions, 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.

Furthermore, 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 Manage-
ment 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 inside information concerning the Group which, if or
when 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 that 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.

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. In addition, 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 PricewaterhouseCoopers Oy, and
the responsible auditor is Janne Rajalahti, Authorized Public
Accountant. PricewaterhouseCoopers Oy is also responsible for
overseeing and coordinating the auditing of all Group compa-
nies. PricewaterhouseCoopers Oy was elected as the Group
Auditor in the Annual General Meeting held on March 21, 2017
after an audit tender process held in 2016. Both Outokumpu
and PricewaterhouseCoopers Oy emphasize the requirement
that the auditor be independent of the company being audited.
The PwC Network Independence policy is based on the
International Ethics Standards Board for Accountants’ (IESBA)
Code of Ethics for Professional Accountants. For the fiscal years
2006–2016, Outokumpu was audited by KPMG Oy Ab.

Outokumpu’s Board Audit Committee continuously
monitored non-audit services purchased by the Group from

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Outokumpu Annual report 2017 | Governance

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PricewaterhouseCoopers Oy at a global level. In 2017, auditors
were paid fees totaling EUR 2.5 million, of which non-auditing
services accounted for EUR 0.6 million.

Risk management

Outokumpu operates in accordance with the risk management
policy approved by the company’s Board of Directors. The
policy has been reviewed and updated in 2017 and it defines
the objectives, approaches, and areas of responsibility in the
Group’s risk management activities. In addition to supporting
Outokumpu’s strategy, the aim of risk management is identi-
fying, 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 the governing body for risk management in Outokumpu.
Business areas and Group functions are responsible for
managing risks connected with their own operations. Internal
Audit monitors risk management processes, and the Risk
Management Steering Group, the Board 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, the Board Audit Committee and Auditors.

Risk management
process in Outokumpu

Enterprise-wide risks

s
k
s
i
r

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o
f

y
t
i
l
i

b
s
n
o
p
s
e
R

Top-down
Policies, guidelines
and requirements

Bottom-up
Identification,
evaluation, mitigation
and reporting

Risk
reporting
(external/
internal)

Regular risk
updates

Identification

Leadership Team

Evaluation and
prioritization

Business areas and
Group functions

Risk monitoring
and control

Mitigation

Operations

Risk management process

Focus areas

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 manage-
ment 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 manage-
ment process in Outokumpu is twofold, 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.

The focus in risk management in 2017 was in securing the
steps to improve Outokumpu’s cost competitiveness as well
as continuous improvement of risk management, including
actions in safety, securing liquidity, managing project risks and
improving the efficiency and controls of Outokumpu’s opera-
tions as part of large business transformation program aiming
to renew fragmented IT systems going forward. Outokumpu
continued its systematic fire safety and loss prevention audit
programs, which also included machinery breakdown loss
prevention. In total, some twenty fire safety and machinery
breakdown loss prevention audits were carried out in 2017
using in-house expertise in cooperation with external advisors.
The main realized risks in last year were a fatal accident to
a contractor at Degerfors, Sweden in May, risks related to
production stability, especially in ferrochrome, and inadequate
profitability in the business area Americas. n

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Key risks

Strategic and business risks

Risks related to Outokumpu’s
business priorities and targets

Outokumpu is making solid progress to become the best value
creator in stainless steel by 2020 through customer orientation
and efficiency. The company has made significant improve-
ments since the launch of the vision and is solidly on track to
achieve its financial targets for 2020, which are:

• Adjusted EBITDA of EUR 750 million

• ROCE of 12%

• Gearing below 35%.

Outokumpu’s current expectations regarding the impact and
timing of the abovementioned targets 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 decade has resulted in 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 resulted in rapidly increasing market shares
of Chinese material and deflated price levels in the Outokumpu
main markets of Europe and the US. Europe has responded
by imposing anti-dumping measures on cold rolled stainless
products from China and Taiwan in 2015, while the US has
imposed preliminary anti-dumping and countervailing duties
on stainless steel flat products from China in 2016. 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 or
avoid the effects of the defense measures. More recently,
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. In
2017, the concerns increased for the possible impacts if China
is potentially granted Market Economy Status (MES), which
would make it more difficult for other countries to impose trade
defense measures against it.

In addition, due to global supply-chains and export-driven Asian
economies, the overall situation of Asian overcapacity is also
likely to expose other regions, namely Europe and the Americas
in Outokumpu’s case, to the threat of low-cost imports from
Asia, namely China and especially Indonesia with the recently
added low-cost capacity. There is a risk that this can result in
severe global production costs deflation and, subsequently,
undermining prices as well as profit levels, which may impair or
eliminate Outokumpu’s ability to compete with such producers.
This and other practices may have an adverse effect on Outo-
kumpu’s profitability to the extent that low-cost stainless steel
products are exported to 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, climate change 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. Outokumpu produces
ferrochrome at its Tornio ferrochrome production facility using
chrome extracted from its Kemi chrome mine in Finland.
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 ferrochrome
production capability is subject to the typical operational risks
and uncertainties that may cause significant financial impacts
due to production downtimes and business interruptions.
Outokumpu’s competitive position in the ferrochrome business
is affected by foreign exchange rates, particularly the US dollar
and 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
steel and stainless steel scrap as well as 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 an increase in inventories causing an even
higher adverse impact on earnings. Another possible adverse
consequence of volatility in demand is the negative impact on
capacity utilization ratios. 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.

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Outokumpu operates in accordance with the 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 Outo-
kumpu’s operations. Strict compliance with all of the relevant
environmental regulations causes increased costs and impacts
Outokumpu’s competitive position. Outokumpu mitigates these
impacts through systematic identification and management
of environmental, chemical, and product safety risks, through
emission trading, and by maintaining a proactive dialog
with stakeholders involved in the framing of environmental
legislation.

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. In 2017, the tightening
supply of graphite electrodes led to limited global availability
of electrodes and sharp increases in their prices. This has, in
turn, led to an increase in stainless steel production costs. In
late September, Outokumpu introduced a graphite electrode
surcharge of EUR 30/tonne for all new contracts and spot-or-
ders in Europe, Middle East, Africa, Australia, and Asia.

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 negative impacts
on Outokumpu’s profitability. Financial risks related to raw
materials and energy prices are described in note 19. to the
consolidated financial statements.

In addition, the production of stainless steel 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, affects Outokumpu’s business.

Legal risks

Outokumpu and its subsidiaries are subject to several litigation
cases. Litigation risk 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 consolidated financial statements.

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 and aviation
industries, where customers require extensive third-party
certification regarding the products purchased. Therefore,
Outokumpu is exposed to product liability claims arising from
automotive or aviation industry customers, for example. 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 which extending beyond the 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.
Furthermore, Outokumpu is participating in nuclear power
projects in Finland.

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Operational risks

Major disasters and business interruptions

Outokumpu’s production processes are dependent on the
continuous operation of critical production equipment, including
smelters, 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
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 2017, Outokumpu also continued
its machinery breakdowns loss prevention work by conducting
separate surveys at the main sites.

Environmental accidents

The main environmental accident risks at production sites
relate to use of acids, hazardous waste, and toxic gases from
production, landfill activities, gradually developing pollution and

long-term contamination of soil and groundwater or effects of
hazardous pollutants. Outokumpu also has environmental liabili-
ties 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 2019.
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, original schedule for construction period
being 2018–2024. 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; fair value
of shareholding; political and public acceptance risks, and
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 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 the 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
leaks 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 informa-
tion becomes unavailable. Moreover, Outokumpu is improving
its cyber readiness in order to prevent possible cyber-attacks,
by running and initiating various security development activities

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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 continued the business transformation
program to harmonize its enterprise level data, processes,
and IT systems as well as to develop or enhance business
capabilities in 2016–2020.

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 and the target is zero accidents.
Furthermore, as a part of its vision for 2020, Outokumpu
has introduced six must-win battles to reach its short-term
targets, safety being one of them, aiming at a 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 working time. 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 the systematic development of safety performance
and safety culture will have a positive impact on operational
performance and discipline. In 2017, Outokumpu focused on
implementing new safety leadership developments, establishing
behavioral based safety training for all employees and
setting up a new Safety Governance Group. Outokumpu has
systematic and continuous monitoring and reporting practices
in place, including reactive and proactive measures of safety
performance on a monthly level. A number of plants maintained
zero lost time injuries during 2017 and have maintained this for

multiple years, providing evidence of best practice and sharing
opportunities.

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 the 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
statements, policies, instructions 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 manage-
ment 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 occurring and is further
developed continuously. The compliance risk assessment forms
the basis for the compliance action plan for the forthcoming
year.

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 leader-
ship 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 leaders. In 2017, new Performance Management
processes were implemented through the organization to
ensure alignment to the company vision 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
bribery, anti-money laundering, data protection (including EU
GDPR compliance) 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

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Financial risks

Corporate responsibility risks and
stakeholders’ materiality analysis

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;

• 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.

The financial risks listed above and related processes for risk
management are described in further detail in note 19. to the
consolidated financial statements.

Outokumpu has also identified its exposures in sustainability
and corporate responsibility. These are mainly identified
through dialog with stakeholders (customers, suppliers,
investors, employees, non-governental organizations, authorities,
communities, associations) in connection with the materiality
analysis related to Outokumpu’s sustainability program, but
also through Outokumpu’s risk management process. 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, the management of toxics and chemicals and
mitigation of environmental impacts were also important.
Additional information on the materiality analysis is available in
Outokumpu’s website in the Sustainability section. 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 Sustainability
report in the chapter Safe working environment. In addition,
Outokumpu takes all labor practice violations and related
threats as well as its full transparency and compliance in
human rights topics seriously. Additional information on human
rights and about Outokumpu’s stakeholder relations is available
in the Sustainability report under the sections Our people and
Outokumpu and society. In order to also improve the identifica-
tion of sustainability risks, the new Global Reporting Initiative
G4 standard has been taken into use for the responsibility
reporting. n

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Remuneration

Board of Directors

As confirmed by the Annual General Meeting 2017, the annual
remuneration for the members of the Board is EUR 140,000
for the Chairman of the Board of Directors, EUR 80,000 for the
Vice Chairman and EUR 60,000 for the other members of the
Board. 40% of the annual remuneration is paid as Outokumpu
shares purchased from the market and 60% 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 of the members of the Board
of Directors are paid a meeting fee of EUR 600. For those
members who reside outside of Finland, the meeting fee is EUR
1,200. The meeting fee is also paid for the meetings of the
Board committees.

CEO

Compensation and benefits

The President and CEO’s compensation in 2017 consisted of
a basic salary, taxable benefits (housing benefit, car benefit,
phone benefit, medical and life insurance and compensation for
the schooling costs of his children in Finland), matching share
plan and a yearly short-term incentive as determined by the
Board based on the company’s key targets.

The performance-based short-term incentive payable based on
the targets set for 2017 could not exceed 95% of the CEO’s
annual basic salary, and it was based on the achievement of
EBITDA, occupational safety, a savings target and individual
objectives.

Pension benefits and terms of service

The CEO has the right to retire at the age of 63. He participates
in the Finnish TyEL pension system, and 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.

Other Leadership Team members

Compensation and benefits

The performance-based short-term incentive payable to the
members of the Leadership Team depending on the targets
set for 2017 was based on the achievement of EBITDA,
occupational safety, a savings target and individual objectives.
The maximum payment varied between 50% and 100% of the
annual base salary in line with local market practices for similar
positions.

The Leadership Team members are also included in the
share based incentive plans for Outokumpu management. No
separate remuneration is paid to the Group CEO or members
of the Leadership Team for membership of the Group’s internal
governing bodies.

Pension benefits and terms of service

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 an 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 the notice period if the executive finds other employment
before the end of the notice period, or 18 months’ base salary
at the maximum, including salary for the notice period and
severance compensation.

The retirement age for the members of the Leadership Team
is 63 or 65 years, depending on the country of employment
and date of appointment, 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 the
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.

Share-based incentive programs

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, as well as to
direct management attention toward 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

In 2012, the Board of Directors established a share-based
incentive plan, the Performance Share Plan 2012 as part of the
remuneration and commitment program for Outokumpu’s key
management. The Performance Share Plan consists of annually
commencing performance share plans, each of which includes
a three-year earnings period, after which any share rewards
earned will be delivered to the participants.

The third plan of the Performance Share Plan, covering years
2014–2016, ended on December 31, 2016. The criteria set for

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the plan consisted of profitability and cash flow improvement as
well as the improvement of the return on the capital employed
for 2016. Based on the achievement of the targets, the
participants received 75.6% of the target number of shares
as a reward. After deductions for applicable taxes, altogether
293,761 shares were delivered to 84 persons in March 2017.
Of those 293,761 shares, 69,393 shares were delivered to
the 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.

Restricted Share Pool 2012

The Board of Directors established in 2012 a Restricted Share
Pool program, which is part of the remuneration and commit-
ment program for selected key resources of Outokumpu. It
consists of annually commencing plans with a 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 third plan of the Restricted Share Pool 2012, covering
years 2014–2016, ended on December 31, 2016. After
deductions for applicable taxes, in total 10,557 shares were
delivered to two participants of the plan in March 2017. No
shares were delivered to Leadership Team members based
on the 2014–2016 plan. Outokumpu used its treasury shares
for the reward payment, which meant that the total number of
shares of the company did not change.

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 at
the end of 2016, 2017, 2018 and 2019, respectively.

The second vesting portion, in total 185,077 shares after
deduction of the applicable taxes, was delivered to the CEO
at the end of December 2017. Under the Matching Share
Plan, the CEO is required to keep at least all the shares he
has acquired and the first vesting portion paid at the end of
December 2016 throughout his service with Outokumpu. If
the CEO’s service contract is terminated without any fault
or negligence attributable to him, all the unvested matching
shares (i.e. 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 established in 2016 a
Matching Share Plan program for key management for the
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
the applicable taxes will be deducted and the remaining net
number of shares will be delivered to the participant. The
matching shares will be delivered in four equal installments at
the end of 2017, 2018, 2019 and 2020, respectively. In order
to receive the matching shares, the participants are required
to keep all of the shares they have acquired until the vesting of
each matching share tranche. In 2017, Outokumpu delivered
35,099 shares after deduction of the applicable taxes in August
2017 and 288,572 shares at the end of December 2017 to
the plan participants. Of these 323,671 shares, 181,346
shares were delivered to the Leadership Team members.

Other terms

According to the share ownership plan of the Outokumpu Group,
the members of the Leadership Team are obliged to own Outo-
kumpu 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, 2017, members of the Outokumpu Board of
Directors and the Leadership Team held a total of 1,915,835
Outokumpu shares, corresponding to 0.5% 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 2015–2017, 2016–2018
and 2017–2019 periods of the performance and restricted
share plans (a total of 5,115,458 gross shares including taxes),
their shareholding obtained via the programs would amount
to 1.2% of the company’s shares and voting rights. More
information on the management shareholding is on the p. 12 in
the Governance section.

Guarantees and business relationships

Outokumpu did not provide any guarantees or other similar
commitments on behalf of members of its Board of Directors in
2017.

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. n

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Fees, salaries and benefits paid

2017

Board of Directors
Chairman of the Board, Ollila
Vice Chairman of the Board, Vaartimo
Board member, Akermann
Board member, Gualdoni
Board member, ter Horst
Board member, Malinen
Board member, Sipilä
Board member, Miettinen-Lähde
Board member, Gustafsson
Board member, Nilsson
CEO, Baan
Deputy to the CEO
Other Leadership Team Members 3)

Salaries and fees
with employee
benefits 1)

Performance/
project-related
incentives

Annual
remuneration

Share-based
incentives 2)

7,800
9,000
14,400
18,000
9,000
7,800
6,600
4,200
2,400
4,800
1,073,219
440,000
2,724,872

–
–
–
–
–
–
–
–
–
–
947,629
168,000
2,988,248

140,000
80,000
60,000
60,000
60,000
60,000
60,000
13,315
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
2,083,469
491,835
2,759,509

1) For Board members, meeting fees. For Leadership Team, salaries and employee benefits.
2) Gross, including the value of the shares on the date of delivery and taxes.
3) Erkkilä Jan 1–31, 2017, Tahvanainen Jan 1–Feb 28, 2017, Kaukiainen March 1–Dec 31, 2017.

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 3)
Other Leadership Team Members 4)

Salaries and fees
with employee
benefits 1)

Performance/
project-related
incentives

Annual
remuneration

Share-based
incentives 2)

11,400
10,800
21,600
21,600
9,600
5,400
10,200
10,800
21,600
1,137,213
530,000
3,310,719

–
–
–
–
–
–
–
–
–
–
–
200,000

140,000
80,000
60,000
60,000
60,000
60,000
60,000
60,000
60,000
–
–
–

–
–
–
–
–
–
–
–
–
2,441,252
–
264,764

Total

147,800
89,000
74,400
78,000
69,000
67,800
66,600
17,515
2,400
4,800
4,104,317
1,099,835
8,472,629

Total

151,400
90,800
81,600
81,600
69,600
65,400
70,200
70,800
81,600
3,578,465
530,000
3,775,483

1) For Board members, meeting fees. For Leadership Team, salaries and employee benefits.
2) Gross, including the value of the shares on the date 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.

3) Florey Jan 1–June 30, 2016, de la Camp July 1–Dec 31, 2016.
4) Gwozdz Oct 1–Dec 31, 2016.

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December 31, 2017 status of the ongoing Performance Share Plans

Performance Share Plans

Number of participants
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 2015–2017

102

PSP 2016–2018

109

PSP 2017–2019

138

–
313,500
901,200
1,214,700

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

220,000
1,583,250
1,692,150
2,418,250
Outokumpu's return on operating capital compared to
a peer group, and Outokumpu's gearing in 2018.

92,000
482,000
1,215,000
1,789,000
Outokumpu's return on operating capital compared to
a peer group

Share delivery year

2018

2019

2020

1) The maximum number of gross shares (taxes included) payable if the set performance targets are achieved in full.

December 31, 2017 status of the ongoing Restricted Share Plans

Restricted Share Pool

Number of participants
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 2015–2017

RSP 2016–2018

RSP 2017–2019

–
5,400
17,900
23,300
2018

–
–
35,000
35,000
2019

–
–
81,500
81,500
2020

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.

December 31, 2017 status of the ongoing Matching Share Plans

Matching Share Plans

Number of participants
Number of gross shares 1)

CEO Baan
Other Leadership Team members
Other participants

Total number of gross shares 1)
Shares delivered (net of taxes) 2)
Gross shares to be paid 3)
Share delivery years

CEO Plan

1,157,156
–
–
1,157,156
185,077
578,578
2016, 2017, 2018, 2019

Management Plan

–
1,262,152
768,058
2,030,210
323,671
1,522,649
2017, 2018, 2019, 2020

1) The gross number of shares (taxes included) payable for the Matching Share Plan.
2) For the CEO, the same net amount was delivered both in 2017 and 2016.
3) The gross number of shares (taxes included) still payable.

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Shares and shareholders

Shares and share capital

Outokumpu in the capital markets

Principal shareholders on December 31, 2017

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, 2017, the total number of Outokumpu
shares was 416,374,448. Between February 6, 2017, and
February 17, 2017, Outokumpu repurchased 2,000,000 of its
own shares through public trading at Nasdaq Helsinki intending
to use them for the reward shares from the share-based
incentive programs. As of December 31, 2017, Outokumpu
held 3,702,899 of its own shares, i.e. treasury shares (Dec 31,
2016: 2,513,848).

Shareholders by group on December 31, 2017

Nominee accounts held
by custodian banks 37%

Private corporations 27%

Outside Finland 1%

Households 20%

Financial and insurance
institutions 3%

Public sector and public
organizations 11%

Non-proﬁt organizations 1%

Outokumpu continued its regular and active dialogue with
investors and analysts in 2017.

Key topics discussed with investors were Outokumpu’s progress
in reaching its vision and financial targets for 2020, the
improving performance of the Americas business area, the Ferro-
chrome operations, the balance sheet as well as market-related
topics. Outokumpu held its Annual General Meeting in Helsinki,
Finland, in March. The Capital Markets Day was held in London,
the UK, in November. Outokumpu arranged 18 roadshows in
Europe and in the US during the year. The company also met
investors at five industry seminars in New York, Barcelona,
London and Stockholm. In total, over 260 one-on-one meetings
and conference calls were held with investors during the year.

International shareholders held 38.2% of the total shares at
the end of December 2017 compared to 39.6% at the end of
the previous year. JP Morgan Asset Management U.K. Limited
remained the largest non-Finnish shareholder with holding of
over 5%. The largest Finnish shareholder Solidium Oy reduced
its ownership in Outokumpu from 26.2% to 22.8%. The share of
Finnish households and private persons increased from 17.7%
in 2016 to 19.7% at the end of 2017.

Solidium Oy
Varma Mutual Pension Insurance Company
The Social Insurance Institution of Finland
Ilmarinen Mutual Pension Insurance
Company
State Pension Fund
Elo Mutual Pension Insurance Company
OP-Finland Fund
Keva
Skagen vekst verdipapierfond
OP-Finland Small Firms Fund
Etera Mutual Pension Insurance Company
Evli Finland Small Firms Fund
SR Danske Invest Finnish Institutional Equity
Fund
Säästöpankki Small Firms Fund
OP Life Assurance Company Ltd

95,044,385
13,000,112
9,298,652

22.83
3.12
2.23

8,721,271
4,300,000
3,500,000
2,744,685
2,365,000
2,295,354
1,771,433
1,211,295
1,055,460

2.09
1.03
0.84
0.66
0.57
0.55
0.43
0.29
0.25

931,184
920,000
828,397
147,987,228

0.22
0.22
0.20
35.53

Nominee accounts held by custodian banks 154,384,942
3,702,899
Treasury Shares
110,299,379
Other Shareholders
416,374,448
Total

37.08
0.89
26.50
100.00

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Share price development and market capitalization

Market capitalization and share price development

Monthly trading volume, million shares

During 2017, Outokumpu’s share price peaked at EUR 10.05
and was EUR 6.61 at its lowest (2016 high/low: EUR 8.51/
EUR 2.08). The share price closed at the end of the year at EUR
7.74, marking a decrease of 9% from the closing price of EUR
8.51 at the end of 2016. At the end of 2017, the company’s
market capitalization was EUR 3,223 million, compared to EUR
3,541 million at the previous year’s end.

In 2017, the average daily trading volume in Outokumpu shares
on Nasdaq Helsinki was 4.1 million shares. In total, 1,022
million Outokumpu shares were traded on Nasdaq Helsinki
during 2017, representing a value of EUR 8,295 million (2016:
956 million shares, which corresponded to EUR 4,302 million).

In addition to Nasdaq Helsinki, Outokumpu’s shares are traded
also on various alternative trading platforms. The volume of
Outokumpu’s shares traded on Nasdaq Helsinki represented
approximately 40% of the total volume of Outokumpu’s shares
traded in 2017 (source: Fidessa Fragmentation Index). n

More information about the
shares is available at our website.

€ million

4,000

3,000

2,000

1,000

€

150

120

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

n Month-end market capitalization, € million

Share price, €/share

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 share price development in 2017, %

Dividend/share, €

Dec 31, 2016 = 100

140

120

100

0.25

0.20

0.15

0.10

0.05

0.00

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2013

2014

2015

2016

2017

Outokumpu

Nasdaq Helsinki

In 2013–2015 no dividend was paid.

The dividend for 2017 is a proposal by the Board of Directors.

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Information for shareholders

Annual General Meeting 2018

Notice is given to the shareholders of Outokumpu Oyj to the
Annual General Meeting to be held on Thursday, March 22,
2018 at 12.00 at Finlandia Hall, Congress Wing, address:
Mannerheimintie 13 e, 00100 Helsinki, Finland, entrances M1
and K1. The reception of persons who have registered for the
meeting and the distribution of voting tickets will commence at
11.00 am EET.

Each shareholder, who is registered on March 12, 2018 in
Outokumpu’s shareholder register held by Euroclear Finland Oy,
has the right to participate in the Annual General Meeting.

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 12, 2018 would be
entitled to be registered in the shareholders’ register of the
company held by Euroclear Finland Oy. Participation in the
meeting also requires that the shareholder has been registered
into the temporary shareholders’ register held by Euroclear
Finland Oy at the latest by March 19, 2018 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, who is registered in the shareholders’ register
of the company and who wants to participate in the Annual
General Meeting, shall register for the meeting no later than

March 16, 2018 by 4.00 pm EET by giving a prior notice of
participation, which shall be received by the company no later
than on the above-mentioned date. Such notice can be given
as of January 31, 2018 at www.outokumpu.com/agm2018,
by e-mail: agm.outokumpu@innovatics.fi, by telephone:
+358 50 532 5582 (From Monday to Friday at 12.00–4.00 pm
EET), by telefax: +358 9 421 2428, or by mail to

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 Annual General Meeting and addi-
tional information about it is available at
www.outokumpu.com/agm2018.

Payment of the dividend

The Board proposes a dividend of EUR 0.25 per share based
on the balance sheet adopted for the account period ending
December 31, 2017. The dividend will be paid to shareholders
registered in the shareholders’ register held by Euroclear
Finland Oy on the dividend record date of March 26, 2018. The
Board proposes that the dividend be paid on April 4, 2018. n

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A world that lasts forever
We believe in a world that is efficient, sustainable, and designed to last forever.
The world deserves innovations that can stand the test of time and are ready to
be born again at the end of their life cycle. Stainless steel is vital in enabling a
sustainable world with economic prosperity.

Outokumpu Oyj
Salmisaarenranta 11
FI-00180 Helsinki, Finland
Tel. +358 9 4211
corporate.comms@outokumpu.com
www.outokumpu.com