Outokumpu Oyj Annual Report 2018

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FY2018 Annual Report · Outokumpu Oyj

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Annual report
2018

working towards a world that lasts forever

Contents

Annual review

Sustainability review

Working towards a world that lasts
forever . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Key figures 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . 5

CEO’s review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Our year 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Vision and strategy . . . . . . . . . . . . . . . . . . . . . . . . 8

Stainless steel market . . . . . . . . . . . . . . . . . . . . 10

Research and development . . . . . . . . . . . . . . . 13

This Annual report
combines Outokumpu’s
sustainability and
financial reporting for
2018. Outokumpu’s
Sustainability review
has been assured and
Financial statements have
been audited.

Sustainability at Outokumpu . . . . . . . . . . . . . . 2

Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Review by the Board
of Directors and
Financial statements

Governance

Corporate Governance statement . . . . . . . . 2

Key risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Sustainable performance in 2018 . . . . . . . . 4

REVIEW BY THE BOARD OF DIRECTORS . . 2

Remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Sustainability highlights in 2018 . . . . . . . . . 5

Group key figures . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Shares and shareholders . . . . . . . . . . . . . . . . . . 24

Safe and healthy working environment . . . 6

Reconciliation of key financial figures . . . . . 11

Information for shareholders . . . . . . . . . . . . . . 26

Improving organizational health and
people development . . . . . . . . . . . . . . . . . . . . . . . 8

Responsibility throughout the
supply chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Energy efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Environmental impacts to a minimum . . . . 14

Resource efficiency and the
circular economy . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Protecting the climate . . . . . . . . . . . . . . . . . . . . . 17

Long-lasting customer relations . . . . . . . . . . . 19

Sustainable stainless . . . . . . . . . . . . . . . . . . . . . . 20

Scope of the report . . . . . . . . . . . . . . . . . . . . . . . . 21

Independent assurance report . . . . . . . . . . . . 23

Share-related key figures . . . . . . . . . . . . . . . . . . 13

Definitions of share-related key figures . . . 14

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . 15

Consolidated statement of income . . . . . . . 16

Consolidated statement of
comprehensive income . . . . . . . . . . . . . . . . . . . . 16

Consolidated statement of
financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Consolidated statement of cash flows . . . . 18

Consolidated statement of
changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Notes to the consolidated financial
statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Income statement of the parent company 63

Balance sheet of the parent company . . . . 64

Cash flow statement of the parent
company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Statement of changes in equity of the
parent company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Commitments and contingent liabilities
of the parent company . . . . . . . . . . . . . . . . . . . . . 66

AUDITOR’S REPORT . . . . . . . . . . . . . . . . . . . . . . . . 67

Outokumpu Annual report 2018 | Annual review

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Annual
review
2018

Stainless steel is an amazing material
that makes modern society possible by
providing unmatched durability, longevity
and recyclability. It is at the heart of
moving society from quick fixes towards a
world that lasts forever.

In brief

Working towards a world that lasts forever

Outokumpu is one of the global leaders in stainless steel. We aim to
be the best value creator in stainless steel by 2020 through customer
orientation and efficiency.

In 2018, Outokumpu’s sales amounted to 6.9 billion euros and
stainless steel deliveries to 2.4 million tonnes. Outokumpu is
the clear market leader in Europe and the second largest in the
Americas market. Outokumpu is listed on Nasdaq Helsinki.

Outokumpu’s business is divided into four business areas: Europe,
the Americas, Long Products and Ferrochrome. We have produc-
tion in Finland, Germany, Sweden, the UK, the USA and Mexico,
and we serve our customers through a global sales and service
center network. Outokumpu’s own chromite mine in Kemi, Finland
is the source of the key raw material for stainless steel.

Our most important raw material is recycled steel, which is either
scrap from the market or recycled steel from our downstream
operations and other recycled metal material. The recycled
content in our products is exceptionally high in the industry: over
85%.

Stainless steel is a versatile material with superior durability,
longevity and recyclability. Customer needs and our legacy as the
inventor of stainless steel drive us to develop this material further.

There is a powerful need for sustainable and lasting solutions
that use the world’s natural resources sparingly. Around the
world Outokumpu is meeting this need with stainless steel that
is used to build cities and urban infrastructure, water and energy
plants, factories, consumer goods and medical supplies, as well
as transportation machinery and systems. Our stainless steel
can also be found in homes as kitchen sinks, household cutlery
and washing machines. We work together with our customers
and partners to look beyond the short term and create advanced
materials that help us to build a world that lasts forever. n

10,449

employees

Operations in

over 30

countries

Over

85%

of recycled content

Reflections on stainless steel
– CEO Roeland Baan, watch video

Sales by area, € 6,872 million

(cid:31) Europe 61%
(cid:31) Americas 24%
(cid:31) Long Products 8%
(cid:31) Ferrochrome 3%
(cid:31) Other operations 4%

Stainless steel deliveries by business area, %

(cid:31) Europe 64%
(cid:31) Americas 30%
(cid:31) Long Products 7%

Outokumpu Annual report 2018 | Annual review

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In brief

Key figures 2018

Thanks to our strong focus on customers, improved reliability and
efficiency, we have made a clear step change in our operational and
financial performance. Putting aside the prevailing market uncertainties,
the long-term growth prospects for stainless steel are sound, and as the
market leader, we are well positioned to capture our fair share of this
growth.

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

2018

6,872
2,428
485
130
214
1,241
45.1
10,449

2017

6,356
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

Adjusted
EBITDA EUR

750

million

ROCE

12%

Gearing

<35%

Adjusted EBITDA, € million

Net debt, € million

Operating cash flow, € million

700

600

500

400

300

200

100

2,000

1,500

1,000

500

400

300

200

100

–100

–200

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

Outokumpu Annual report 2018 | Annual review

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CEO’s review

Solid underlying
performance in a
tough market.

second in just two years. The response rate in the 2018
Organizational Health Index survey was exceptionally high at
86% reflecting our employees’ motivation and commitment to
become the best value creators in the industry.

In a very tough market, Outokumpu’s adjusted EBITDA
amounted to EUR 485 million (EUR 631 million in 2017)
reflecting the market volatility. Our net debt was higher than
targeted at EUR 1.2 billion mainly due to unsatisfactory
inventory management. Reducing net debt is a key priority for
2019.

Business area Europe defended successfully its margins under
heavy import and price pressure. In the Americas, our earnings
were disappointing due to high input and freight costs as
well as inadequate management of commercial challenges.
Long Products’ performance was solid, and the acquired full
ownership of Fagersta Stainless wire rod mill in Sweden further
reinforces our competitiveness on the long products market
globally.

Despite recent market turbulence, long-term growth prospects for
stainless steel remain healthy. In 2019, we expect the European
Union’s permanent safeguards to alleviate the import pressure.
The restoration of a healthy market together with decisive
execution of our must-win battles are crucial for us in reaching our
2020 targets.

Sustainable, durable products such as stainless steel can help to
mitigate climate change and reduce greenhouse gas emissions.
Outokumpu is a recognized world leader in sustainable steel
production with high recycled content of more than 85% as well as
low energy and CO2 intensity levels compared to the industry. In
2018, we were once again awarded by the International Stainless
Steel Forum (ISSF) for our work on increasing material efficiency
and reducing environmental impact in stainless steel melting
process.

To further enhance our competitiveness, we continue to invest in
Research & Development to develop new process technologies
and to meet our customers’ current and future product needs.
We have also increased our focus on digitalization by launching
a new must-win battle Digital Transformation to establish new
digital business and manufacturing platforms and to embrace the
benefits of data-driven operations. In line with this strategy, our
Tornio site will become the most digitalized stainless steel mill in
the world by 2020.

When looking back at our progress during the past three years,
I am extremely proud of our achievements. With solid execution
of our must-win battles, our operational and financial performance
have stepped up to a whole new level. The journey has not
always been easy. Our achievements have required a lot of tough
decisions and hard work by the whole Outokumpu team.

I warmly thank our employees for your enthusiasm, engagement
and diligent work during the past year. I also want to thank our
customers for trusting Outokumpu with your business and our
shareholders for your highly valued support.

Roeland Baan
CEO

In 2018, the big theme for the steel industry

was the trade disruption caused

by the US steel tariffs which led to a surge of steel imports to
Europe and an unprecedented price pressure.

Total steel imports were up by 12% as a large share of originally
US-bound steel was redirected to Europe due to the US tariffs.
This coupled with the uncertainty of the global economy had a
notable impact on the European steel industry.

While the trade environment put a strain on our financial perfor-
mance, our own operations run like clockwork and our underlying
performance remained solid thanks to our strong focus on
customers and diligent execution of our must-win battles. Our
safety performance and operational stability rose to historically
high levels, and based on our latest customer satisfaction survey,
we are regarded as the preferred partner by our customers.

The achievement I am particularly proud of is our organizational
health which has improved from the bottom quartile to the

Outokumpu Annual report 2018 | Annual review

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Highlights

Our year 2018

Acquisition of Fagersta Stainless
In June 2018, Outokumpu acquired full owner-
ship of Fagersta Stainless AB, a wire rod mill in
Sweden. Prior to the acquisition, Outokumpu
held 50% of the Fagersta Stainless shares.
Fagersta Stainless is a leader in special
stainless steel wire rod products serving
customers globally. Fagersta’s product offering
complements well Outokumpu’s ASR wire rod
mill in Sheffield, UK, and Outokumpu plans to
develop both units further to ensure continued
offering of leading products and service to its
wire rod customers globally.

Acquisition of Fagersta Stainless

Kemi chromite mine and
ferrochrome production celebrated
50 years of operation
In 2018, Outokumpu celebrated 50 years of
ferrochrome production. The milestone was
celebrated by organizing a family day for all
Outokumpu employees. The successful event
was attended by altogether 3,750 people
who had a chance to visit the Kemi mine at
500-meter depth and see the Tornio stainless
steel hot rolling mill in action. “Our families
and friends have now a better understanding
not only about our safety principles but also
about the Outokumpu Tornio site and Kemi
mine in general, as well as the jobs and tasks
we might offer in the future”, said Niklas Wass,
head of Tornio stainless steel production.

Learn more about the history of
Outokumpu

Turbulent market due
to steel tariffs
In 2018, the stainless steel market was
marked by uncertainties largely due to the US
steel import tariffs (Section 232) that were
extended in June to include steel products
imported from the European Union, Canada
and Mexico. The European Commission
initiated temporary safeguard measures in July
to restore the balance in the European market.
The permanent safeguard measures imposed
in February 2019 are expected to stabilize the
import situation in Europe. During 2018, base
prices declined significantly in Europe whereas
in the US, base prices continued to increase.

Read more about the impact of tariffs in our
Financial Statements

Outokumpu awarded in
sustainability, new technology
and safety by the ISSF
The International Stainless Steel Forum
(ISSF) recognized Outokumpu with the 2018
gold-level Sustainability Award for applying a
pelletizing method in its Sheffield melt shop
in the UK to increase material efficiency and
reduce environmental impact in stainless
steel melting process. Outokumpu was also
awarded in the categories of New Technolo-
gies and Safety. Outokumpu received a silver
medal in the New Technology category for the
weldable sandwich with a 3D profiled core and
a bronze medal in the Safety category for its
24/7 safety awareness training efforts.

More on compliance

Anti-corruption e-learning completion rate in 2018

Completion rate, %

Europe
Ferrochrome
Americas
Long Products*
Business Support Functions
Total

97
98
98
90
99
97

*Business area Long Products includes employees from both Europe and
Americas
Focus areas for 2019
The first implementation phase of the organizational process
blueprints prepared in 2018 by various group functions will
take place in 2019. The blueprints assemble current process
descriptions and refurbish processes to gear up for the future.
Building the required skills and capabilities are embraced
in the implementation phase of the new blueprints, which
include more consistent and efficient delivery of services to
our business partners, and for example in sales, processes are
developed to identify multiple ways to interact and interface
with customers.

Focusing on digital manufacturing will lead to transformation in
our ways of working: the needed skill set for operators and all
employees is affected in every function and part of production.
Educating and increasing the competencies of employees are
thus an essential part of capability development in 2019.

The leadership program License to Lead will expand from shift
leaders in operations to foremen in service centers around the
world. We will constitute to capability building by supporting
potential future leaders moving into new roles combined with
individual development activities in our Development Center.
In addition, SafeStart, Sales Academy and Reliability Academy

activities will stay on the learning curriculum, and to improve
quality, Quality and Application Academy sessions for production
employees will be rolled out.

Talent Management will be developed further in 2019. Mento-
ring and coaching of young talents will be fortified, and the
transparency of talent management processes and information
systems enhanced. Young graduates are invited to Outokumpu’s
international talent network program Form Your Future to share
knowledge and experiences, and new class of graduates and
technical graduates will start in 2019. Preparing for the future,
Excellerate program offers leadership development reviews and
management audits, and a step-change in leadership excellence
will be spread out to sites globally. Onboarding program will be
refined to upgrade on-the-job development activities and taken
into use across the company to ensure uniform onboarding
experience.

To build Outokumpu an even better workplace and to improve
our organizational health further, our goal is to continue
enhancing personal ownership and empowerment. Also,
developing leadership will stay as a focus area, with a specific
emphasis on supportive leadership behavior. The third focus
area will include role clarity, especially in the course of business
transformation program and organizational blueprint roll out.
By 2020, the company target is to move to the first quartile
amongst the 1,700 other companies using the OHI methodology.

The development of our HR platform PeopleDrive remains in
focus to deliver a better end user experience. The target is
to create an environment where employee transactions and
knowledge can be integrated into the company culture dynam-
ically and efficiently. Recruitment and placement process will
be structured further to increase focus on local and functional
aspects, and the global onboarding process automation will also
continue. To increase quality, clarity and transparency both to
the employee and organization in all HR processes including
reporting and analytics, we will continue to elevate our HR
practices to meet the requirements of the changing environment
of processes and technology. n

Outokumpu Annual report 2018 | Sustainability review

10 / 23

Responsible supplier

Responsibility throughout the supply chain

Outokumpu is a part of a global supply chain by producing stainless steel for leading brands in
demanding industries around the globe. Our customers expect us to provide a fully traceable
supply chain, therefore we have in place stringent requirements to our suppliers, too.

Our customers require assurance that the materials for their
applications are produced and procured in an ethical and
responsible manner. As one of the few companies in stainless
steel industry with an integrated production – covering the
production from mining of chrome and ferrochrome production
to the melting, hot rolling, cold rolling and finishing of stainless
steel – means that we know and control this supply chain to the
fullest extent.

Recycled steel is the most important raw material for Outo-
kumpu. The main raw materials originate mainly from Europe
and the US as our melt shops are located in these areas. The

most important alloying element, chromium, originates from our
own chromium mine which differentiates us from our compet-
itors. Our mine in Kemi, Finland is the only chromium mine in
the EU and provides ferrochrome for all our steel melt shops.

We place stringent requirements on
ourselves and our suppliers
As our customers require a lot from us, we place the most
stringent requirements on ourselves, and require the same from
our suppliers. All suppliers and subcontractors are expected to
comply with our Code of Conduct or similar standards and meet
our supplier requirements, which require our suppliers to act

Direct economic value generated

Economic value distributed

Operating costs
EUR 5,676 million
(2017: 4,938)

Direct economic value
generated and distributed

Revenues
EUR 6,977 million
(2017: 6,425)

Economic values retained in business
EUR 446 million (2017: EUR 565 million)

Employee benefit expenses
EUR 676 million (2017: 684)

Payments to providers of capital
EUR 172 million (2017: 233)

Taxes paid to government
EUR 6 million (2017: 6)

Outokumpu Annual report 2018 | Sustainability review

Community investments
EUR 0 million (2017: 0)

11 / 23

Responsible supplier

according to applicable laws and regulations, maintain a quality
management system, sign general terms and conditions and
be able to clearly define, document and share their supply and
production control processes including material traceability.

We assess our new and existing suppliers and if there is
evidence of any kind of violation of our requirements, the
suppliers are requested to provide an improvement plan and
evidence of improvement. If the situation continues without
improvement, Outokumpu will discontinue purchasing from the
supplier. Outokumpu has declined business opportunities in
cases where it has been established that the business partner
is not following the principles of our Code of Conduct.

Global supply chain
In 2018, Outokumpu had 9,177 suppliers in 56 countries. 87%
of the suppliers are located in Finland, Germany, Sweden, the
UK, the US and Mexico, where Outokumpu has production. In
those locations where we have significant production sites
with melt shops, local suppliers account for 12% of purchases.
There were no major changes in the supplier base during the
year.

We take into account the OECD Due Diligence Guidance for
Responsible Supply Chain. In 2018, we screened our main raw
materials suppliers of ferro alloys and coke on environmental,
social and governance (ESG) issues such as forced and child
labor, conflicts with indigenous people or corruption and on ESG
risks of countries of origin. More detailed raw material suppler
risk assessment will continue in 2019.

Outokumpu monitors its suppliers through self-assessment,
screenings and audits. In addition, most of the suppliers are
going through a monthly compliance screening for sanctions.
Outokumpu renewed its supplier requirements and the related
supplier assessment approach in 2017. The new approach
was piloted during 2018. A small number of existing and new
suppliers were invited to a self-assessment. Additionally, four
suppliers were audited on-site. The self-assessments and audits
were based on Outokumpu’s supplier requirements and focused
on evaluating the suppliers’ social and environmental responsi-
bility and quality management. As a result of the assessments,
improvement opportunities and requirements were identified
and agreed with the suppliers.

Environmentally sustainable transportation
Outokumpu’s target is to transport as much of its products by
rail and ship as possible. There was no change of transport
mode compared to 2017. Our mills have various programs
and targets to make transportation more environmentally
friendly. For example, our mill in Avesta is participating in a
local electric road project and switching to biofueled trucks. In
2018, the total transport emissions increased by 3% because
of the new site in Fagersta, higher ferrochrome production and
better coverage of transport data in Mexico. In 2018, chrome
concentrate transport was taken in account to calculate CO2
emissions of internal transport. It counts for about 1% of 2018
transport emissions. n

Material and service suppliers

● Outokumpu supplier countries, including the most important
supplier countries with purchases of more than 50,000 euro.

Outokumpu Annual report 2018 | Sustainability review

12 / 23

Responsible supplier

Energy efficiency

Outokumpu’s operations are energy intensive. For the recycled steel to melt, it is
heated to over 1,400°C. The process requires a high amount of electricity as the
best available technique for melting recycled steel is to use electric arc furnaces.

Outokumpu is continuously striving to make its production
operations more energy efficient and minimize its environ-
mental impacts. Although the melting of recycled steel and
the production of stainless steel use a lot of energy, stainless
steel enables more energy efficient solutions from a life-cycle
perspective by saving energy during its use phase. Our goal is
to improve the energy efficiency of our operations by 1% each
year until 2020. In 2018, our improvement of energy efficiency
calculated as a sum of different process steps was 8.9%
compared to the baseline 2007–2009. This was below our
target for 2018 but it still corresponds to a saving of 0.9 million
MWh. In 2018, we had challenges due to changes in product
mix and technical and maintenance interruptions.

Origin of electricity, %

Reduction potential
The biggest energy-saving potential lies in the optimization of
yield through high utilization of facilities and recovery of waste
heat. Energy reduction and efficiency plans are included in
environmental management systems at all our sites. Over the
past years, we have been able to improve our overall energy
efficiency by reorganizing production sites, optimizing our
internal supply chain and increasing our capacity utilization
globally.

Electricity is the largest item in our energy consumption but we
also use natural gas, propane and other fuels, such as diesel.
Fossil fuels cover about 82% of our total fuel consumption.
Outokumpu doesn't consume renewable fuels in production
processes but we use own recovered carbon monoxíde process
gas and this makes up 18% of fuel consumption. Process gases
and their heat are also used to heat buildings on the site.

Towards low-carbon energy
Outokumpu has centralized energy procurement in order to
secure sufficient energy supply, to ensure predictable, compet-
itive and stable energy prices and to optimize the energy
portfolio.

Outokumpu participates in several programs that promote the
use of low-carbon energy such as wind power, hydropower,
combined heat and power as well as nuclear power. For
example, a combined heat and power plant in Tornio produces
heat for the Tornio site out of recovered process gases, and in
Dahlerbrück, Germany, we have our own hydro power plant to
generate some 10% of the electricity needed in the production.
Outokumpu is a shareholder in a wind power park in Tornio, in a
hydro-power plant in Norway and in a new nuclear power plant
project in Finland.

A fuel change from propane to liquified natural gas started at
the Tornio site in 2018. CO2 reductions are expected in 2019
after the first implementation phase.

The aim of all these measures is to secure our energy supply
and to reduce our CO2 emissions. In 2018, 63.6% of our
electricity sources came from low-carbon (renewable and
nuclear) sources. n

100

2014

2015

2016

2017

2018

● Renewable sources
● Nuclear
● Fossiles

1) Includes electricity mix of
Mexico for the first time.

Energy used in operations

Terajoules, TJ

Electricity

Carbon monoxide gas

Natural gas

Propane

Diesel, light and heavy fuel oil

Energy

2018

17,189

2,275

4,623

4,754

662

2017

16,325

2,003

4,241

5,016

580

29,502

28,164

2016

16,734

2,405

4,078 1)

4,639

614

28,355

Energy use in GJ per tonne crude steel

10.1

9.3

9.7

Data includes the new site in Fagersta for July–Dec 2018.
1) Data for 2016 has been restated.

Outokumpu Annual report 2018 | Sustainability review

13 / 23

Environment

Environmental impacts to a minimum

We reduce the impact on the environment by proactively
developing our production processes, energy and material
efficiency and solutions for by-products of our operations.

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

Dust emissions kept at low levels
Dust and scales are generated in our operations by steel melting
and rolling processes. Dust and scales are collected, treated and,
whenever possible, recycled at our own production. For example,
raw material metals (chromium, nickel and molybdenum) are
recovered from dust and scales through specialist recovery plant.

Our dust filtering systems are extremely efficient and remove
99% of the particles. With the production of 2,913,794 tonnes
of stainless steel, the measured particle emissions from all of
our production processes was 388 tonnes in 2018 (2017: 366
tonnes). The majority of particles were emitted from the ferro-
chrome production process with 313 tonnes with the increased
ferrochrome production (2017: 193 tonnes). However, emission
measurement results in this process include high uncertainty
causing remarkable fluctuation in results year by year.

The level of dust emissions from the melt shops is well within the
limits of environmental permits. No significant further reduction
is expected.

As our main raw material is recycled steel, we take all possible
precautionary measures to check the input material for any
unwanted content, such as mercury and radioactive contami-
nated material. Despite these precautionary measures, mercury
or radioactive material is sometimes noted only when the steel is
melted. All input material, the product liquid steel and waste gas
of melting process, is controlled on radioactive contamination.

There were three incidents involving radioactive material in
2018. One was detected before melting. The other two cases
were managed in coordination with the competent authority.
The slightly radioactive contaminated slag and dust were safely
deposited on a special area. The mercury emissions of our plants
were minor and amounted to less than 211 kg (2017: 185 kg)
from our European melt shops. To reduce mercury emissions
waste gas is treated by an absorptive technique. We work
together with our suppliers to decrease the amount of unwanted
materials in our production processes.

Water is reused in production
Water is needed in stainless steel production for cooling, pickling
and cleaning. We reuse water as much as possible in our own
operations. Some water also evaporates and leaves the system.
All wastewater is treated in the company’s own treatment plants
or in municipal water treatment systems before it is discharged.
The main discharges into water are metals and nitrates. The
discharge is measured and supervised by authorities. Wastewater
treatment depends on the contamination of the wastewater. The
water is treated directly in the water circle at the process step
and/or before discharge. According to the needs treatments are
oil skimming, neutralization, flocculation and sedimentation to

Steel melt shop particle emissions, grams/t

Outokumpu Annual report 2018 | Sustainability review

14 / 23

2014

2015

2016

2017

2018

Environment

extract metals and, when necessary, a Cr(VI) reduction process.
Nitrate is often treated in the organic municipal water treatment.

Water used in the production is mainly surface water. In 2018,
withdrawal of water increased, because of warm weather
condition which increased evaporation and the need for cooling
water. Impact of water withdrawal in 2017 is evaluated at sites
where river water is used, and data of the river water is publicly
available. The impact is screened by the percentage of withdrawn
water compared to the river flow on a yearly base. All sites
resulted in no impact on the river which means the withdrawal
was below 5%.

Outokumpu operates a cold rolling mill in San Luis Potosí, Mexico,
in a dry, arid area, where groundwater is a scarce resource for
people. The water withdrawal of this site is 0.7% of Outokumpu’s

Water withdrawal and discharges

Million m3

Surface water

Municipal water

Groundwater 1)

Rainwater 1)

2018

44.6

1.4

2.5

1.2

2017

38.2

1.2

2.4

2016

37.9

1.2

1.4

1.7

Water withdrawal by source

49.7

43.1

42.2

Water discharges by type and destination

Cooling water out

Wastewater out

Discharge to surface water

13.4

23.4

22.2

12.5

20.5

19.2

14.6

21.6

20.2

Emissions to water

Metal discharges to water, tonnes

Nitrogen in nitrates, tonnes 2)

1,443

1,308

1,344

1) Refined reporting on mining water resulted in change from rainwater to
groundwater in 2018.

2) Data restated to give the discharged nitrate. Part of the nitrates are
treated in a municipal treatment plant.

Outokumpu Annual report 2018 | Sustainability review

total water withdrawal. Water is used in our production process
in annealing, pickling and cooling. It is undergoing an exceptional
treatment and recycled as much as possible, and only a few
cubic meters are discharged to municipal wastewater system.
Small amounts of cleaned water percolates to groundwater again.

The reported nitrate discharge increase will further be evaluated
in 2019.

Impacts of mining operation are limited
Outokumpu operates a chromite mine in Kemi, Finland. We are
a member of The Finnish Network for Sustainable Mining, which
was established to act as a discussion platform and to develop
practical tools to improve the sustainability of mining and ore
exploration in Finland. Kemi mine follows the Finnish sustain-
ability standard for mining.

The environmental impacts of the mine are very limited due to
the nature of the process, as the minerals are very stable, and
chemicals are not used in the beneficiation process. There were
no major changes in 2018, and the emissions have remained
stable at very low levels. Dust emissions are minimal due to the
underground mining. The biggest impact on environment from
the mine are nitrates in the wastewater which originate from
explosives. However, the amount of nitrates are reduced in the
internal water recycling system of the mine.

Kemi mine is almost self-sufficient with water as it recycles
water on site and collects rainwater. The mine site takes water
outside the area only from municipal supply (0.03 million m3 in
2018) and surface water from nearby fresh water canal (0.06
million m3 in 2018). Fresh water from canal is used only during
maintenance breaks and special situations. Normal situation
is that concentrator plant takes water from tailings ponds and
pumps back approx. same amount.

The mine district is 9.16 km2 by its size and rainwater amounts
to this area are significant (rainfall in 2018 was 486.3 mm). The
amount of direct rainfall to tailings site excluding evaporation
was about 0.5 million m3. From tailings clarifying pond area
there is discharge point where 0.89 million m3 is discharged to

receiving water body. Rainwater from old open pit is also pumped
to receiving water body which was 0.62 million m3 in 2018.
There are also seapage waters that cannot be measured. Land
use of mining is limited to the existing mining area as mining is
underground. Tailing sand is deposited in tailing ponds of the
mine area which will be landscaped as forests when full.

Environmental costs of actions and compliance
Costs for environmental-related activities for 2018 amounted to
EUR 117 million. Operational costs were EUR 111 million and
include process-related treatment, disposal and remediation
costs of waste and emission reduction into air and water. In
2018, some EUR 2.7 million was invested in the improvement of
dust and mercury reduction at Tornio site, Finland. Read about
environmental provisions in the Financial Statements section.

Our environmental network follows closely the quarterly
environmental performance of our operations, their permit status
and legal compliance. The network conducts internal site audits
in the production units according to risk screening. In 2018,
there were 18 permit breaches, but all were temporary and
insignificant. Outokumpu reported each incident to environmental
authorities, carried out corrective actions immediately or resolved
the incidents together with the authorities. No environmental
damage was reported.

Biodiversity
The production of stainless steel does not occupy or reserve large
areas of land, or have a significant effect on the biodiversity of
the surrounding natural environment. Outokumpu’s production
sites are not located in sensitive areas. However, Outokumpu has
identified areas of high biodiversity value that are owned by the
company or adjacent to our sites in Dahlerbrück, Germany, Kemi
and Tornio, Finland, and Calvert, Alabama, in the US.

Outokumpu regularly monitors the environment of its production
sites. Areas once utilized by production are remediated for further
use. More informarion on biodiversity on our website. n

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Environment

Resource efficiency and circular economy

Outokumpu is deeply connected to circular economy as stainless steel is
one of the most recycled materials in the world.

Our approach is two-fold: we aim to both reduce the total volume
of landfill waste from our own operations and increase the
proportion of materials sold as by-products.

In fact, our stainless steel mills are significant recycling facilities,
producing new products out of recycled steel, recovering and
recycling everything reasonable in our production and finally
selling by-products from the manufacturing process to replace
natural resources.

waste. In 2018, Outokumpu produced more landfill waste as a
new site was included and the market for slag use decreased.
The total amount of waste was 1.5 million tonnes which
means that the landfilled waste per tonne stainless steel also
increased to 0.47 (2017: 0.36).

The biggest waste items at Outokumpu are slag that are not
reused, tailing sand from the mining operation and dust and
scales from the stainless steel production.

Products with very high recycled content
Recycled steel from both stainless and carbon steel is our most
important raw material. The recycled content according to ISO
14021 was 84.3%. This includes pre- and post-consumer scrap.
Including the use of recycled metal from our waste streams,
the recycled content of our products was 88.6% in 2018. Our
ambitious target is to reach 90% recycled content by 2020.

One key factor in reaching such a high level of recycled content
is the recovery and recycling of metals from the production
processes, for instance from dust. Dust is either treated on the
site or by an external facility for a recycling in melt shop.

In addition to metals, other raw materials, such as slag formers,
acids and gases, are needed in the production process although
they do not become part of the stainless steel products. As far as
reasonable, these are also recovered and recycled in the process.
For instance, used acids are regenerated for re-use and hydrogen
from bright annealing process are recovered in the furnace of the
process. Some of these input materials are used to minimize or
prevent emissions to the environment.

Aim to reach zero waste to landfill
While waste is recycled whenever possible in our own production,
our production still generates landfill waste. We strive further to
reduce this, and our long-term goal is to generate zero landfill

The amount of tailing sands from the mining operation
increased in 2018 compared to the previous year, as the
production of chrome concentrate increased. 65.6% of waste
was tailing sand deposited in the pond of mining area itself
and further 25.5% was landfilled waste according to the permit
of the landfill. 4.5% of waste could be recycled and 4.4%
recovered. Other recovered material like lime, bricks and some
sludges are mostly used in our melting shops to substitute
virgin additive materials like slag formers.

Total waste development

Turning slag into by-products
Outokumpu used 1.4 million tonnes of slag as the main
by-product of operations. Slag is essential material in the
steel melting process, and it is made from limestone or other
natural minerals. One of the most important ways to reduce
the amount of waste of steel production is to turn slag into
products for useful use.

Outokumpu has developed slag-based mineral products for
road construction, refractory and concrete production and for
water treatment. The use of our slag by-products reduces the
amount of waste, saves virgin materials and leads to lower
CO2 emissions. For example, in road construction, slag is both
environmentally and economically sustainable solution.

In 2018, the use rate (including use, recovery and recycling)
of all slag was 89.9%*. The remaining 160,000 tonnes of slag
were sent to landfill. The use rate depends on the local market
for construction materials and on the acceptance of secondary
material instead of virgin materials. n

*Restated compared to the indicator in the company's Review by the
Board of Directors as the data for slag use for one site was not available
before finalization of the Review.

Total and hazardous waste

Tonnes

Tailing sand

Other waste

of which hazardous waste

recycled

recovered

landfilled

2018

991,391

519,786

163,555

15,414

47,700

100,442

2017

2016

784,585

856,245

423,383

966,281

144,617

139,224

14,506

41,171

88,939

13,224

43,521

82,485

2017 data has been restated for continuing sites.

Total waste development, tonnes per tonne steel

0.6

0.5

0.4

0.3

0.2

0.1

0.0

d
n
a
s

g
n

i
l
i

a
T

d
n
a
s

g
n

i
l
i

a
T

d
n
a
s

g
n

i
l
i

a
T

d
n
a
s

g
n

i
l
i

a
T

d
n
a
s

g
n

i
l
i

a
T

2014

2015

2016

2017

2018

● Recycled
● Recovered
● Landfilled

Outokumpu Annual report 2018 | Sustainability review

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Environment

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 profile and the
possibility to offer solutions for low carbon society and reduce carbon
emissions during the use phase.

Reduced carbon profile with stainless steel
The use of Outokumpu cold rolled stainless steel products
reduces the carbon footprint of our customers’ products. Our
environmental product declarations (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 standardized and verified
externally.

Where do our emissions come from?
The greenhouse gas emissions from Outokumpu operations
are limited to CO2 emissions. These emissions come 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).

Direct emissions originate from the carbon content of our raw
materials in our operations – reducing agent, ferroalloys and
graphite electrodes, which are used in the melting process
of ferrochrome and stainless steel production. The use of
these materials causes 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 in furnaces for the process heat and the use of CO gas
from ferrochrome production in several processes.

Indirect emissions are caused by the use of electricity. These
emissions are followed by market-based emission factors
from suppliers of Outokumpu’s electricity mix. Electricity
emissions are also published on location-based emissions
factors.

Other indirect emissions for steel productions are mainly
upstream emissions of material use as ferroalloys (except

ferrochrome which is included in direct and indirect emissions
of scope 1 and 2) and lime and to a lesser extent from trans-
portation. At the moment, there are no estimation methods for
the complex downstream emissions of stainless steel available.

Towards less carbon usage
Improving our energy efficiency directly reduces the need of
primary energy and leads to lower CO2 emissions. Our efforts
towards a circular economy reduce emissions by replacing raw
materials and emissions from their productions processes.
These are our main roadmaps towards low carbon production
because in stainless steel and ferrochrome industries there are
no signs of rapid new breakthrough technologies in this area.

Outokumpu is committed to the Science Based Targets
Initiative. The initiative considers companies’ greenhouse gas
reduction targets “science-based” if they are in line with the
level of decarbonization required to keep global temperature
increase below 2°C compared to pre-industrial temperature.
Outokumpu follows the convergence criteria of steel industry’s
decarbonization approach: to reduce emission intensity to
0.92 t CO2 per tonne of crude steel by 2050. Specific elec-
tricity emissions follow the electricity decarbonization approach,
where the specific emission reduction target is 95% by 2050.

At the beginning of 2019, the Science Based Target initiative
approved Outokumpu's target: to reduce scope 1, 2 and 3
GHG emissions 20% per ton of stainless steel by 2023 from a
2014–2016 base-period. The baseline of the three years was
chosen to get the most recent baseline after the restructuring
of the company and to avoid the influence of yearly fluctuations.
Emission intensity refers to emissions per tonne of produced
steel.

CO2 emission intensity on target track
In 2018, Outokumpu consumed overall 29,500 TJ of primary
fuels and electricity. This was an increase of about 5% mainly
caused by an increase of the ferrochrome production and
inclusion of a new site in Fagersta, Sweden. Accordingly, the
intensity figure increased to 10.1 GJ per ton steel.

Outokumpu Annual report 2018 | Sustainability review

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Environment

The high recycled content in our products contributes to the
reduction of scope 3 emissions. For the whole year, the total
specific CO2 emissions reduced by 7.7% compared to baseline
2014–2016. Scope 3 emissions could significantly be reduced
compared to 2017 as the ferrochrome production reached the
expected level and could sell ferrochrome outside the company.
Emissions allocated to sold ferrochrome were not included in
the target report for the stainless steel.

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 1.03 million tonnes of a total 1.27 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 oper-
ations under the EU ETS will continue to receive free emissions
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. Total free
allocation for the year was below emissions in 2018.

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 1)

Reduction target of 20% by 2023

2.0

1.5

1.0

0.5

0.0

20% reduction
by 2023

2.5

2.0

1.5

1.0

50% reduction

34% reduction

0.5

0.0

14–16

2023

2020

2025

2030

2035

2040

2045

2050

2014–
2016

● Upstream
● Transport & travel
● Indirect
● Direct

Steel industry approach

Scope 1, 2 & 3 reduction

Absolute emissions

1) Restated according to the target approved by SBT initiative.

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. Outokumpu collabo-
rates with industry associations to determine and promote this
position.

The next trading phase from 2020–2030 is decided and further
details are in preparation. The general rules for Outokumpu
will remain the same as in the ongoing period. The company
will fall in short position as the product benchmark significantly
reduces and the fuel input benchmark will end up with zero
free allocation. Significant cost increase is expected as the
electricity price increase will follow the allowances price
increase and, additionally, allowances have to be bought and
paid in this period.

The EU Emissions Trading Scheme was originally built on
production emissions and especially thinking on incineration of
fossil fuel. It does not take into account the product life span.
This is misleading for metal and steel products because they
decrease CO2 emissions during their life span more than their
production phase causes. There is no positive correction factor
or credit for such products or industry in the system. n

Outokumpu Annual report 2018 | Sustainability review

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Sustainable products

Long-lasting customer relations

Delivering the best customer experience and improving customer
satisfaction are important focus areas for Outokumpu.

We work with our customers and partners to create long
lasting solutions for businesses, modern life and the world’s
most critical problems such as clean energy, clean water, and
efficient infrastructure.

By choosing Outokumpu’s stainless steel, our customers can be
certain that they get the highest quality products manufactured
with lowest environmental impact. We adhere to the strictest
sustainability and corporate responsibility guidelines to ensure
world-class, high quality operations and materials.

We enable more sustainable
business to our customers
Outokumpu has a strong customer base spread across
the globe on every continent and balanced over a range of
industries. Our customers operate for example in building and
construction, produce energy and manufacture appliances and
cars. The majority of our customers are based in areas where
we have our own production: Europe, the US and Mexico. We
also have a global sales and service center network that serves
customers on all main continents.

Achieving commercial excellence is one of our six must-win
battles. This means we need to take care of our customer
relations successfully and act in a responsible manner. Our goal
is to increase our customers’ competitiveness with our products
by improving their efficiency, profitability and sustainability.
Continuous feedback and interaction with customers help
us to improve our understanding of customers' needs, their
challenges and their business environments.

With the right material choices, we aim for increased efficiency
and profitability in a sustainable way. We continuously innovate
and improve both our operations and our products so we

can offer more benefits to our customers. Together with our
customers we can find new application areas where stainless
steel can make a positive impact as a more sustainable
solution.

Improving customer satisfaction
We collect feedback from our customers on a regular basis.
This feedback helps us to achieve our growth targets and guides
us in improving our performance, at both strategic and oper-
ational levels. The overall aim is to have a mutually beneficial
process that helps us improve the three basic building blocks of
customer satisfaction: customer support, delivery performance
and product quality.

Our goal is to achieve the level of 75% in customer satisfaction
by 2020. This goal is directly linked to our 2020 vision and
must-win battle for commercial excellence. To track perfor-
mance in this field, Outokumpu conducts customer satisfaction
surveys approximately every second year. The latest survey was
conducted in spring 2018.

In 2018, around 1,200 customers were interviewed for the
survey. The overall customer satisfaction with Outokumpu
improved considerably from the previous survey: 63% of
respondents were absolutely or very satisfied with Outokumpu
while the corresponding rate in previous survey conducted
in 2016 was 57%. High product quality, competent sales
personnel and ease of doing business were mentioned as
Outokumpu’s strengths.

The areas requiring development relate in particular to delivery
performance and claims handling. Both topics are currently key
focus areas for us, and we have several on-going initiatives to
improve our performance in both areas. n

Outokumpu Annual report 2018 | Sustainability review

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Sustainable products

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, urbaniza-
tion, climate change, and scarcity of 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, such as in bridges which 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 a modular concept for wastewater
treatment tanks that makes them much more flexible for
expansion. Water is an increasingly scarce resource, and the
worldwide rising consumption of fresh water makes wastewater
treatment more and more important. Innovative wastewater
treatment tanks are made from Outokumpu Forta Duplex
stainless steel.

Outokumpu has made environmental assessments on its steel
and revised its Environmental Product Declarations (EDPs) for
its main products. The new EPDs also include Business Area
Americas. EDPs describe the main environmental effects and

energy needs of our stainless steel throughout their supply
chain and help customers to calculate sustainability perfor-
mance 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 information sheet or safety data sheets for all our prod-
ucts. 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 megatrends,
such as economic and population growth, mobility, urbanization,
climate change, and limited resources. We work closely with our
customers in order to align our activities with their current and
future needs. The key focus is the development of long-lasting,
sustainable material solutions providing advantages over the
entire product life cycle.

Partnership with customers
Outokumpu responds to customer needs. As an example, we
performed testing according to the new Chinese food contact
standard to insure that our product is in line with the require-
ments. n

Outokumpu Annual report 2018 | Sustainability review

20 / 23

Scope of the report

Outokumpu has published its sustainability review as part of the
Annual Report 2018. Sustainability information is also available at
www.outokumpu.com/sustainability.

Outokumpu reports on the material developments of continuing
sites and changes in 2018 as part of the Annual Report. Data
reported includes all continuing sites and half year's data of
the new site in Fagersta, Sweden. Additional information is
published on the company’s website. The Annual Report 2017,
including Sustainability Review, was published in February 2018.

Outokumpu’s report has been prepared in accordance with the
GRI Standards: Core option according to the GRI Standards
reporting requirements. The materiality assessment from
2018 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 is available on page 23 in the Sustain-
ability review. The Financial Statements 2018 have been
audited, and the auditor’s report is available on page 67 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

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, Sweden; Calvert, the US; Sheffield, the
UK and Tornio, Finland.

Environmental responsibility
Outokumpu’s climate change target is based on science and
approved by the Science Based Target initiative. The target
includes 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
239 kg CO2/MWh (2017: 254 kg CO2/MWh, restated with
emission from site in San Louis Potosi, Mexico), given by the
electricity supplier for the used electricity and calculated as
weighted average. Where supplier does not communicate on
customers delivery published e-factors are taken. In addition,
the location-based electricity emissions are disclosed. They are
calculated by the published country-specific emissions factors
of the electricity generation of 2016 or 2015.

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.

Outokumpu Annual report 2018 | Sustainability review

21 / 23

Scope of the report

• For internal and product transport: by typical distances and

Accident types

Total personnel costs

type of transport with the corresponding emissions factors. The
coverage of reporting includes all modes of transport. In 2018,
internal concentrate transportation is included and restated
back to the baseline period 2014–2016.

• For business travel: by estimated driven kilometers with

emissions factors for the car, and for flights by CO2 reports of
the flight companies. Rental car emissions are included by the
rental car company report.

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 from own waste streams entering the melt shop
compared to stainless steel production.

Energy efficiency is defined as the sum of specific primary and
electricity energy of all processes calculated as energy consump-
tion compared to the product output of that process. It covers
all company productions: ferrochrome, melt shop, hot rolling and
cold rolling processes. Used heat values and the consumption
of energy are taken from supplier's invoices. Water withdrawal is
measured for surface water, taken from municipal suppliers and
estimated for rainwater amount.

Social responsibility

Health and safety figures

Health and safety figures reflect the scope of Outokumpu’s
operations as they were in 2018.

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.

• 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 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

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

Training costs

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

Training days per employee

The number of days spent by an employee in training when each
training day is counted as lasting eight hours.

professional (doctor or nurse).

Bonuses

• 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.

• All workplace accidents include total recordable incidents (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.

Sick-leave hours and absentee rate

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

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

Personnel figures

Rates are calculated using the total employee numbers at
the end of the reporting period. The calculations follow the
requirements of GRI Standards. 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)

Days lost due to strikes

The number of days lost due to strikes is calculated by multi-
plying 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

Outokumpu Annual report 2018 | Sustainability review

22 / 23

Independent assurance report

Independent Practitioner’s Assurance Report

To the Management of Outokumpu Oyj
We have been engaged by the Management of Outokumpu Oyj
(hereinafter also the Company) to perform a limited assurance
engagement on selected sustainability disclosures for the
reporting period 1 January to 31 December 2018, disclosed in
Outokumpu Oyj's Sustainability Review 2018 and in Outokumpu
Oyj's online sustainability tool. In terms of the Company’s GRI
Standards reporting and GRI Standards Content Index, the scope
of the assurance has covered economic, social and environ-
mental sustainability disclosures listed within the Topic-Specific
Disclosures as well as General Disclosures 102-8 and 102-41
(hereinafter Sustainability Information).

Management’s responsibility
The Management of Outokumpu Oyj is responsible for preparing
the Sustainability Information in accordance with the Reporting
criteria as set out in the Company’s reporting instructions
and the GRI Sustainability Reporting Standards of the Global
Reporting Initiative. The Management of Outokumpu Oyj is
also responsible for such internal control as the management
determines is necessary to enable the preparation of the
Sustainability Information that is free from material misstate-
ment, whether due to fraud or error.

Practitioner’s independence and quality control
We have complied with the independence and other ethical
requirements of the Code of Ethics for Professional Accountants
issued by the International Ethics Standards Board for
Accountants, which is founded on fundamental principles of
integrity, objectivity, professional competence and due care,
confidentiality and professional behaviour.

PricewaterhouseCoopers Oy applies International Standard on
Quality Control 1 and accordingly maintains a comprehensive
system of quality control including documented policies and
procedures regarding compliance with ethical requirements,
professional standards and applicable legal and regulatory
requirements.

Practitioner’s responsibility
Our responsibility is to express a limited assurance conclusion
on the Sustainability Information based on the procedures we
have performed and the evidence we have obtained. Our assur-
ance report has been prepared in accordance with the terms
of our engagement. We do not accept, or assume responsibility
to anyone else, except to Outokumpu Oyj for our work, for this
report, or for the conclusions that we have reached.

We conducted our limited assurance engagement in accor-
dance with the International Standard on Assurance Engage-
ments (ISAE) 3000 “Assurance Engagements other than Audits
or Reviews of Historical Financial Information”. That standard
requires that we plan and perform the engagement to obtain
limited assurance about whether the Sustainability Information
is free from material misstatement.

In a limited assurance engagement the evidence-gathering
procedures are more limited than for a reasonable assurance
engagement, and therefore less assurance is obtained than in a
reasonable assurance engagement. An assurance engagement
involves performing procedures to obtain evidence about the
amounts and other disclosures in the Sustainability Information.
The procedures selected depend on the practitioner’s
judgement, including an assessment of the risks of material
misstatement of the Sustainability Information.

Our work consisted of, amongst others, the following
procedures:

• Interviewing senior management of the Company.

• Visiting the Company’s Head Office as well as one site in

Finland.

• Conducting two video interviews with sites in Sweden and in

the United States of America.

• Interviewing employees responsible for collecting and

reporting the Sustainability Information at the Group level and
at the site level where our site visits and video interview were
conducted.

• Assessing how Group employees apply the Company’s
reporting instructions and procedures.

• Testing the accuracy and completeness of the information
from original documents and systems on a sample basis.

• Testing the consolidation of information and performing
recalculations on a sample basis.

Limited assurance conclusion
Based on the procedures we have performed and the evidence
we have obtained, nothing has come to our attention that
causes us to believe that Outokumpu Oyj’s Sustainability
Information for the reporting period ended 31 December 2018
is not properly prepared, in all material respects, in accordance
with the Reporting criteria.

When reading our assurance report, the inherent limitations to
the accuracy and completeness of sustainability information
should be taken into consideration.

Helsinki, 21 February 2019

PricewaterhouseCoopers Oy

Sirpa Juutinen

Partner
Sustainability &
Climate Change

Jussi Nokkala

Director
Sustainability &
Climate Change

Outokumpu Annual report 2018 | Sustainability review

23 / 23

Review by the
Board of
Directors and
Financial
statements

REVIEW BY THE BOARD OF DIRECTORS . . . . . . . . . . . . 2

Group key figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Reconciliation of key financial figures . . . . . . . . . . . . . . 11

Share-related key figures . . . . . . . . . . . . . . . . . . . . . . . . 13

Definitions of share-related key figures . . . . . . . . . . . . . 14

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . 15

Consolidated statement of income . . . . . . . . . . . . . . . . 16

Consolidated statement of comprehensive income . . . . 16

Consolidated statement of financial position . . . . . . . . . 17

Consolidated statement of cash flows . . . . . . . . . . . . . . 18

Consolidated statement of changes in equity . . . . . . . . 19

Notes to the consolidated financial statements . . . . . . 20

Parent company financial statements . . . . . . . . . . . . . 63

Income statement of the parent company . . . . . . . . . . . 63

Balance sheet of the parent company . . . . . . . . . . . . . . 64

Cash flow statement of the parent company . . . . . . . . . 65

Statement of changes in equity of the parent company . 66

Commitments and contingent liabilities of the parent
company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

AUDITOR’S REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Review by the Board of Directors

Year 2018 was exceptional in the stainless steel markets. The
US steel tariffs and the surge of low-cost imports to Europe
led to unforeseen uncertainty and volatility. The challenging
market environment highlighted the importance of focusing
in the areas that are in our own control. Improved safety
performance, better operational reliability and cost efficiency,
as well as strengthened organizational health demonstrate
the positive outcomes of that relentless work Outokumpu has
done during the past years. Despite the market turbulence in
2018, Outokumpu was able to maintain reasonable profitability
in Europe and improve the performance of Long Products and
Ferrochrome operations. However, in the Americas, higher costs
together with misalignment between commercial and supply
chain processes led to disappointing financial results. Going
forward, a clear step-change there is needed. Decisive actions
in the Americas, diligent execution of the must-win battles, and
restored market balance in Europe are crucial for Outokumpu to
reach the 2020 targets.

Market development
In 2018, global apparent consumption of stainless steel
increased by 5.4% compared to the previous year. Americas
contributed to this with a growth of 7.8% followed by growth
of 5.6% in APAC and 3.4% in EMEA. (Source: SMR, February
2019)

Global real demand for stainless steel products reached
43.2 million tonnes in 2018, an increase of 4.9% from 41.2
million tonnes in 2017. Real demand growth was strongest
in the Architecture, Building, Construction & Infrastructure
end-user segment at 5.8%, while Industrial & Heavy Industries,
Petrochemical & Energy both grew by 5.7%. Consumer Goods &
Medical and Automotive & Heavy Transport achieved growth of
4.5% and 3.5%, respectively. (Source: SMR, February 2019)

Financial performance
In 2018, Outokumpu’s sales increased to EUR 6,872 million
(EUR 6,356 million). Stainless steel deliveries were 2,428,000
tonnes compared to 2,448,000 tonnes in 2017.

Profitability

€ million

Adjusted EBITDA

2018

2017
Restated

2016

Sales

€ million

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

2018

4,267
1,715
740
542
587
–980
6,872

2017
Restated

4,156
1,546
591
610
503
–1,050
6,356

2016

3,767
1,325
487
371
567
826
5,690

Adjusted EBITDA decreased in 2018 to EUR 485 million (EUR
631 million) as the result was burdened by higher graphite
electrode, other input and freight costs of approximately EUR
140 million. In Europe, base prices reached historically low
levels due to heavy import pressure while in the US, base prices
increased compared to the previous year. Improved product
mix in both regions had a positive impact on the result, and
earnings were further supported by improved cost efficiency
and reliability of the mills. Raw material-related inventory and
metal derivative losses were EUR 16 million (losses of EUR 10
million).

EBIT amounted to EUR 280 million (EUR 445 million) in 2018
and net result to EUR 130 million (EUR 392 million). The net
result includes EUR 34 million (EUR 125 million) of previously
unrecognized deferred tax assets mainly in the UK. Earnings per
share decreased to EUR 0.32 in 2018 (EUR 0.95).

Europe
Americas
Long Products
Ferrochrome
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

248
–5
25
210

7
485
10
496

280

3
–107
175
–45
130

4.1
7.0
0.32
0.32

214

404
21
16
217

–27
631
31
663

295
–27
–1
80

–38
309
47
355

445

103

9
–127
327
65
392

7.0
11.3
0.95
0.90

5
–121
–13
156
144

1.8
2.6
0.35
0.35

328

389

Operating cash flow of EUR 214 million in 2018 was lower than
EUR 328 million in 2017. Net debt increased to EUR 1,241
million compared to EUR 1,091 million at the end of 2017.
Gearing increased to 45.1% from 40.1% at the end of 2017.

Net financial expenses were EUR 107 million in 2018 (EUR
127 million). Interest expenses decreased to EUR 70 million
in 2018 compared to EUR 92 million in 2017. Cash and cash
equivalents were at EUR 68 million at the end of the year (EUR
112 million) and overall liquidity reserves were above EUR
0.7 billion (EUR 0.8 billion). In addition to these reserves, in

Outokumpu Annual report 2018 | Review by the Board of Directors

2 / 71

December Outokumpu agreed a EUR 120 million long-term loan
facility to finance its DeepMine project in Kemi, Finland.

Key financial indicators on financial position

€ million

Net debt

Non-current debt
Current debt
Cash and cash equivalents

Net debt

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

2018

798
511
68
1,241

2,750
4.8
45.1
45.9
70

2017
Restated

698
505
112
1,091

2,721
15.4
40.1
46.3
92

2016

987
458
204
1,242

2,416
6.4
51.4
40.4
105

Capital expenditure increased to EUR 260 million (EUR 174
million) primarily as a result of ongoing investments in the Kemi
mine and the digital transformation project Chorus, including
the ERP renewal, as well as the acquisition of Fagersta
Stainless.

Capital expenditure

€ million

Europe
Americas
Long Products
Ferrochrome
Other operations
The Group

Depreciation and amortization

2018

2017

2016

76
18
30
79
57
260

204

70
18
8
34
44
174

81
17
8
20
37
164

216

226

Business areas
Europe’s sales increased to EUR 4,267 million in 2018 (EUR
4,156 million) while adjusted EBITDA decreased to EUR 248
million (EUR 404 million). Stainless steel deliveries decreased
by 2% compared to previous year and amounted to 1,547,000
tonnes (1,582,000 tonnes). Realized base prices decreased
due to severe import pressure particularly during the second
half of the year, but this was partly offset by significantly

improved product mix. Graphite electrode and other input costs
were approximately EUR 80 million higher in 2018 compared
to 2017, but improved cost efficiency offset part of this impact.
Raw material-related inventory and metal derivative losses were
EUR 26 million (losses of EUR 24 million). In Europe, distributor
inventories were slightly above their long-term average level at
the end of the year. Average EU base price for 2018 amounted
to EUR 903/tonne (EUR 1,123/tonne).

Americas’ sales increased to EUR 1,715 million in 2018
(EUR 1,546 million), but adjusted EBITDA decreased to
EUR –5 million (EUR 21 million). Stainless steel deliveries
were 762,000 tonnes in 2018 (742,000 tonnes). Realized
base prices increased supported by improved product mix, but
significantly higher graphite electrode and other input costs
together with increased freight expenses had a negative impact
of approximately EUR 40 million on the 2018 result. Raw
material-related inventory and metal derivative gains were EUR
20 million compared to gains of EUR 11 million in 2017. In the
US, distributor inventories were above their long-term average
level at the end of the year. Average US base price for 2018
was USD 90/tonne higher than in 2017 and amounted to USD
1,464/tonne.

Long Products’ sales increased to EUR 740 million in 2018
(EUR 591 million) and adjusted EBITDA increased to EUR 25
million (EUR 16 million). Stainless steel deliveries increased by
8% and amounted to 285,000 tonnes (264,000 tonnes). Real-
ized base prices increased significantly, but on the other hand,
graphite electrode and other input costs were approximately
EUR 20 million higher in 2018 compared to the previous year.
Raw material-related inventory and metal derivative impact was
EUR 0 million compared to gains of EUR 3 million in 2017.
The performance of the business area was supported by the
acquisition of Fagersta Stainless AB in Sweden in June 2018.
During the full year, demand was robust in all markets. Order
intake towards the end of the year weakened in Europe driven
by slowdown particularly in automotive segment. In 2018, base
prices increased from the previous year.

Ferrochrome’s sales decreased to EUR 542 million in 2018
(EUR 610 million). Ferrochrome production was 497,000
tonnes compared to 415,000 tonnes in 2017, when the
operations were negatively impacted by production issues and

Outokumpu Annual report 2018 | Review by the Board of Directors

Sales, € 6,872 million

(cid:31) Europe 61%
(cid:31) Americas 24%
(cid:31) Long Products 8%
(cid:31) Ferrochrome 3%
(cid:31) Other operations 4%

Adjusted EBITDA, € million

700

600

500

400

300

200

100

500

400

300

200

100

–100

–200

–300

3 / 71

2014

2015

2016

2017

2018

EBIT, € million

2014

2015

2016

2017

2018

Review by the Board of Directorsmaintenance work. Adjusted EBITDA decreased to EUR 210
million in 2018 (EUR 217 million) as average ferrochrome
contract price in 2018 was USD 0.11/lb. lower than in 2017
and costs increased primarily due to higher coke costs. 2018
adjusted EBITDA was positive impacted by the insurance
compensation related to the 2017 property damage and
business interruption. In 2018, the average European bench-
mark price for ferrochrome was USD 1.31/lb. compared to USD
1.42/lb. in 2017.

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. Stainless steel is a
significant contributor to building a sustainable world. Stainless
steel is used in building and construction, infrastructure,
appliances, transportation, and heavy industries. It is a strong,
corrosion-resistant, hygienic, and aesthetic material with a high
strength-to-weight ratio and no need for maintenance. Due to
these properties stainless steel consumption has been growing
more rapidly than any other metal in recent decades (source:
CRU, August 2017).

Outokumpu’s business is based on a circular economy. Over
85% of the 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 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 and ferritic
standard and specialty stainless steels with the remaining being
duplex and other stainless steel grades. Outokumpu has an
integrated production process, including the company’s own
chrome mine for one of the main raw materials of stainless
steel, ferrochrome operations, melting, hot rolling and cold
rolling, and the finishing and services.

Policies and principles of sustainability management

Earnings per share, €

At Outokumpu, the CEO is responsible for the top-level manage-
ment of sustainability. The corporate EHS unit is responsible
for the group-wide execution of sustainability strategy. The
business areas and functions are responsible for ensuring that
operations within their own organizations are conducted in a
responsible manner and that monitoring, data collection and
reporting are duly carried out.

The most important policies guiding Outokumpu’s Sustainability
Management are the Group’s Code of Conduct, Corporate
Responsibility Policy and the Policy on Environment, Health,
Safety and Quality (EHSQ), all available on Outokumpu’s
website. Outokumpu’s Code of Conduct defines the common
way of operating in the Group and sets principles for legal
compliance and ethical conduct, including zero tolerance
for corrupt practices and requiring compliance with antitrust
and competition laws. The Corporate Responsibility Policy
describes the main principles of the sustainable development
of economic, environmental, and social aspects in the Group.
Outokumpu’s EHSQ policy describes the company’s commit-
ment to continuous improvement in these fields, compliance
with legislation in all areas the company operates in, and the
fulfilment of stakeholder requirements to which the company
subscribes.

Outokumpu has also an Anti-Corruption Instruction providing
detailed guidance on responsible business practices. At
Outokumpu, there is zero tolerance of any form of discrimina-
tion, whether it is based on ethnic origin, nationality, religion,
political views, gender, sexual orientation, age or any other
factor.

In addition to the EHSQ policy, Outokumpu has strict guidelines
for safety through the Outokumpu Safety Principles and
Health and Safety Standard. Safety is one of the company’s
six must-win battles and is therefore a top priority across
the company. The health and safety of the personnel is a
precondition for successful day-to-day operations as well as for
long-term competitiveness. Outokumpu works towards a goal of
zero accidents.

Corporate statements, policies and instructions are the basis
of the Outokumpu operating model in governance, risk, and

2014

2015

2016

2017

2018

Net debt, € million

2014

2015

2016

2017

2018

Debt-to-equity ratio, %

Outokumpu Annual report 2018 | Review by the Board of Directors

2014

2015

2016

2017

2018

1.0

0.5

0.0

–0.5

–1.0

–1.5

2,000

1,500

1,000

500

100

4 / 71

Review by the Board of Directorscompliance. Policies and instructions are implemented through
internal communication, mandatory training and internal control
mechanisms. Outokumpu has an on-going governance, risk and
compliance project to further enhance and develop internal
control processes.

The internal audit function flanked by external audits consis-
tently monitors and tests adherence to corporate guidance and
standards, while the sustainability organization follows-up on
environmental performance and legality on a quarterly basis.
Outokumpu carried out screenings of Environment, Social
and Governance issues on raw material suppliers in 2018. In
addition, annual environmental audits are performed based
on an internal risk assessment. In addition, more than half of
suppliers are going through a monthly compliance screening
for sanctions. 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 also follows the 2-degree scenario committed to
the Science Based Targets Initiative and contributes to the
UN Social Development Goals. Outokumpu complies with
international, national, and local laws and regulations, and
respects international agreements concerning human and
labor rights, such as the United Nations’ Universal Declaration
of Human Rights and condemns the use of forced and child
labor. All 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 or similar
standards and principles, and to meet the company’s supplier
requirements. Outokumpu aims to ensure that modern slavery
or human trafficking plays no part in our supply chain or in any
part of our business.

Long-term sustainability targets

Outokumpu 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

• Outokumpu commits to reduce scope 1, 2 and 3 GHG

emissions 20% per ton of stainless steel by 2023 from a
2014–2016 base-period.

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

long-term target of zero incidents.

Outokumpu’s emissions intensity trajectory includes the
upstream emissions from supply chain and is in line with the
sectoral decarbonization approach of the steel industry.

Environmental performance

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

Outokumpu uses 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 production. Outokumpu
also aims to increase the use of its by-product slag from its
production outside the company for example in road construc-
tion, concrete production and water treatment. All used slag
compared to the used and landfilled slag (use rate) is slightly
reduced but the amount of landfilled slag was approximately
the same. On top of production waste, tailing sand from mining
is the most significant waste item to be deposited in the mine
site.

In 2018, Outokumpu maintained the level of recycled content
(all metallic input from waste streams, as scrap, scales or
metals from slag and dust treatment, per tonne stainless steel)
at 88.6% (2017: 87.0% and 2016: 87.1%). The change of the
energy efficiency calculated as a sum of different process steps
was 8.9% (2017: 10.4% and 2016: 11.0%) 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 the energy efficiency target is
behind this year. In 2018, Outokumpu restated CO2 intensity
according to the target approved by the Science Based Target

350

300

250

200

150

100

Equity-to-assets ratio, %

2014

2015

2016

2017

2018

Capital expenditure and depreciation, € million

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

2014

2015

2016

2017

2018

● Capital expenditure ● Depreciation

Capital expenditure, % of sales

Outokumpu Annual report 2018 | Review by the Board of Directors

5 / 71

Review by the Board of Directorsinitiative and reduced it by about 8% from baseline period.
Landfilled waste increased as several waste materials such as
dust, sludge or refractories needed to be landfilled in a higher
amount.

All Outokumpu sites have environmental permits that set the
basic framework for production operations. In 2018, 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 melting shop in
Tornio detected three cases of radioactive americium sources
during the year. Two of them came in to melting among raw
materials. One incident was detected in control of incoming
scrap and did not cause any risk on employees or environment:
low-active dusts and slags were treated and separately
landfilled according to the guidance of the Finnish Radiation
and Nuclear Safety Authority.

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 2018 and will be sufficient for 2019.
Free allocation for the group is below the expected emissions
for 2019. 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 indicators

Scope 1, 2 and 3 (direct and indirect) CO2 emission intensity,
tonnes per tonne stainless steel

Energy intensity, GJ per tonne stainless steel

Use rate of slag including slag from ferrochrome production, %

Total landfill waste intensity per tonne stainless steel

1) 2014–2016 baseline 1,863 tonnes

2) Restated

Social performance

Personnel on December 31, 2018

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. Group
TRIFR improved slightly from the previous year and was 4.1
against the target of <4.0 (2017: 4.4). In 2018, Outokumpu
continued to train its employees in behavioral safety according
to the program started in 2017.

Outokumpu’s headcount increased by 308 during the year and
totaled 10,449 at the end of December 2018 (2017: 10,141
and 2016: 10,600). The increase was driven by the acquisition
of Fagersta Stainless in Sweden. Total wages and salaries
amounted to EUR 541 million in 2018 (2017: EUR 549
million and 2016: EUR 562 million). Indirect employee benefit
expenses totaled EUR 135 million in 2018 (2017: EUR 135
million and 2016: EUR 151 million).

Outokumpu provides a whistleblowing hotline “Helpline” on
the company’s intranet and webpage to anonymously report
of suspicions of misconduct or unethical behavior. In 2018,
Outokumpu recorded fourteen alleged incidents of potential
misconduct through Helpline and other channels. 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

2018

1,719

10.1

88.1

0.472

2017

1,839

9.3

91.1 2)

2016

1,863 1)

9.8

90.2

0.361

0.406

12,000

10,000

8,000

6,000

4,000

2,000

2014

2015

2016

2017

2018

Key social indicators

Diversity
Employees
male, %
female, %

Board of Directors

male, %
female, %

2018

2017

2016

85
15

67
33

86
14

71
29

84
16

67
33

Safety
Total recordable incident frequency
rate, per million working hours

4.1

4.4

8.7

program. As a part of these efforts, Outokumpu issued in 2018
two compliance-related e-learning courses. The anti-corruption
e-learning course was mandatory for white-collar employees
and achieved a completion rate of 97%. The second data
protection e-learning with focus on the EU GDPR (EU General
Data Protection Regulation) was also mandatory for white-collar
employees and obtained a completion rate of 98%. The
Code of Conduct e-learning launched in 2017, mandatory for
white-collar employees, was in 2018 issued for also blue-collar
employees with an aim to complete the training site by site in
2019.

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Review by the Board of DirectorsResearch and development
Outokumpu’s research and development (R&D) works closely
together with sales, operations and customers to support the
business and align R&D 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 2018, Outokumpu’s R&D expenditure totaled EUR
15 million, 0.2% of net sales (2017: 13 million and 0.2%,
2016: EUR 20 million and 0.4%).

In 2018, R&D was reorganized in Process R&D, Product and
Application R&D and industrial digitalization teams to further
improve R&D impact and to optimize utilization and develop-
ment of the R&D competences. Process R&D teams focus on
developing the efficiency of the operations and develop the
competences in process and physical metallurgy and alloy
development. Product and application R&D teams focus on
product properties, applications and product development in
selected strategic areas, as well as on developing competences
in corrosion, design & fabrication, surface technology and
stainless steel application technologies.

R&D, technical market development and customer service and
product management teams took steps towards even more
close cooperation. The closer cooperation aims at increasing
speed in R&D project execution and to maximizing impact of
the R&D activities through efficient prioritization and resource
use.

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 2018 was on implementing
the actions for the mitigation of the identified risks, supporting
improvements in operational reliability in Outokumpu e.g.
by modelling business interruption risks and on improving
the efficiency of the risk management process. The efforts
also included actions to support the reduction of Group’s
operational costs, improvements in metal and commodity risk
management processes as well as improving the efficiency and
controls of Outokumpu’s operations as part of a large business
process transformation program.

Outokumpu continued its fire safety and loss prevention audit
program, which focused also in operational reliability to prevent
machinery breakdown related business interruptions. In total,
some twenty fire safety loss prevention audits were carried out
in 2018 using in-house expertise in cooperation with external
advisors.

The main realized risks in 2018 were related to increased costs
in certain supply materials, inadequate profitability of business
area Americas, market disruptions related to Section 232 and
delayed implementation of the business process transformation
program.

Strategic and business risks

Outokumpu’s key strategic and business risks currently
include: risks and uncertainties relating to the development of
overcapacity of global stainless steel production and volatility
of raw material and end product prices, 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; the risk of trade war due to the US steel import
tariffs and the safeguard measures initiated by EC; 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; fluctuations in exchange rates affecting

the global competitive environment in stainless; and the risk of
litigation or adverse political action affecting trade.

Operational risks

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.
Operational risks also 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 infor-
mation 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. 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 operational
reliability in connection with loss prevention actions.

Environmental risks
The main environmental business risks for Outokumpu are
related to emissions trading schemes; new environmental and
consumer protection demands, including changes in environ-
mental legislation and their impact on Outokumpu’s competitive
position; as well as 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 some potential environmental
liabilities and risks at closed mines and production sites.

Safety- and personnel-related risks
The main risks related to safety and personnel are the risk of
fatalities and serious injuries to own employees and contractors,

Outokumpu Annual report 2018 | Review by the Board of Directors

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Review by the Board of Directorswhich would also have a significant impact on Outokumpu’s
safety culture and the company’s reputation as an employer;
the loss of key individuals or other employees who have specific
knowledge of, or relationships with, trade customers in markets
in which Outokumpu operates; 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 globally in areas such as compe-
tition 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, external theft and crime, 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 risks related to its expo-
sures in sustainability 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.

Financial risks

Key financial risks for Outokumpu include: changes in the
prices of nickel, iron, molybdenum, power, and fuels; currency
developments affecting the euro, the US dollar, the Swedish
krona, and the British pound; interest rate changes connected
to the US dollar, the euro, and the Swedish krona; interest
margin changes applied for Outokumpu; constrained access
to new financing; 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;
the risk of trade war due to the US steel import tariffs and the
safeguard measures initiated by EU; risks and uncertainties
related to global overcapacity in stainless steel as well as
to market development in stainless steel, ferrochrome and
competitor actions; availability and price of certain critical
supplies, such as graphite electrodes; dependencies on certain
critical suppliers; the risk of changes in metal prices impacting
capital tied up in inventories and account receivables; changes
in the prices of electrical power, fuels, ferrochrome, nickel, iron
and molybdenum; currency developments affecting the euro, US
dollar, Swedish krona, and British pound; changes in interest
margins applied for Outokumpu; fair value of shareholdings;
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
including unfavorable no-deal or hard Brexit scenario to Outo-
kumpu may have a significant adverse impact on Outokumpu’s
overall business and access to financial markets.

Significant legal proceedings

Claim in Spain related to the
divested copper companies

brought against Outokumpu and the two other companies.
Outokumpu and the two other companies then appealed the
court’s decision and in March 2018 the Court of Appeal ruled
in favor of Outokumpu. In May 2018, the administrator of the
bankruptcy estate filed an appeal before the Spanish Supreme
Court, where the case pending.

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 tax benefits (tax losses, tax credits and
interest expenses) transferred by AST to the Italian tax group
during the period from financial year 2007/08 until 2013,
which have in AST’s view not been properly settled towards
them in the following years. The matter is currently pending in
court in Italy.

Antitrust investigation in Germany

In September 2016, Outokumpu learned of a cartel investi-
gation initiated by the German Federal Cartel Office involving,
among others, Outokumpu Nirosta GmbH, Outokumpu’s
subsidiary in Germany. Outokumpu initiated an internal
investigation and became convinced that the investigation is
without merit, as far as Outokumpu is concerned. In May 2018,
Outokumpu received an official notification from the German
Federal Cartel Office confirming that the investigation against
Outokumpu Nirosta GmbH was terminated.

Shares
On December 31, 2018, Outokumpu’s share capital was EUR
311 million, and the total number of shares was 416,374,448.
At the end of the year, Outokumpu held 5,810,729 treasury
shares. The average number of shares outstanding in 2018 was
411,065,622.

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Review by the Board of DirectorsBoard of Directors’ proposal
for profit distribution
According to Outokumpu’s dividend policy, the dividend pay-out
ratio throughout a business cycle shall be in a range of 30–50
per cent of net income. According to the parent company’s
financial statements on December 31, 2018 distributable
funds totaled EUR 2,298 million, of which retained earnings
were EUR 175 million.

The Board of Directors is proposing to the Annual General
Meeting to be held on March 27, 2019 that a dividend of
EUR 0.15 per share is paid for 2018.

Management shareholdings and share
based incentive programs

On December 31, 2018, the members of the Board of Directors
and the members of the Outokumpu Leadership Team (OLT)
altogether held 2,483,353 shares, or 0.6% 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 2018,
after deductions for applicable taxes, a total of 892,170 shares
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 2017–2019 and
2018–2020, and their continuation for the period 2019–2021
was already approved by the Board of Directors in December
2018. The Performance Share Plan for the periods 2017–2019
and 2018–2020 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.

the proposals of the Nomination Board regarding the members
of the Board of Directors and their remuneration.

The Annual General Meeting decided in accordance with the
proposal by the Nomination Board that the Board of Directors
would consist of six members. Kati ter Horst, Heikki Malinen,
Eeva Sipilä and Olli Vaartimo were re-elected, and Kari Jordan
and Pierre Vareille were elected as new members for the term
of office ending at the end of the next Annual General Meeting.
Kari Jordan was elected as the Chairman and Olli Vaartimo as
the Vice Chairman of the Board of Directors.

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, 2018 the four largest shareholders of Outo-
kumpu were Solidium Oy, Varma Mutual Pension Insurance
Company, Ilmarinen Mutual Pension Insurance Company and
The Social Insurance Institution of Finland, and they have
appointed the following representatives to the Nomination
Board:

• Antti Mäkinen, Managing Director at Solidium Oy

• Pekka Pajamo, CFO at Varma Mutual Pension Insurance

Company

• Jouko Pölönen, President and CEO, at Ilmarinen Mutual

Pension Insurance Company

Annual General Meeting

• Tuula Korhonen, Investment Manager at The Social Insurance

The Annual General Meeting of Outokumpu Oyj was held on
March 22, 2018. The Meeting approved the financial state-
ments and discharged the management of the company from
liability for the financial year 2017. The Meeting decided that
a dividend of 0.25 euros per share shall be paid for 2017. 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

Institution of Finland

The Nomination Board has submitted its proposals to Outo-
kumpu’s Board of Directors on January 24, 2019.

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Review by the Board of DirectorsGroup key figures

2018

2017 1)

2016

2015

2014

2018

2017 1)

2016

2015

2014

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

Finland, of total sales

€ million
%

6,872
8.1

6,356
11.7

5,690
–10.9

6,384
–6.7

6,844
1.5

96.7

96.5

96.4

96.6

96.7

Capital employed on Dec 31 2)

€ million

4,086

3,929

3,816

4,133

4,072

Capital expenditure 3)
–in relation to sales

€ million
%

Depreciation and amortization
Impairments

€ million
€ million

Research and development
costs
–in relation to sales

€ million
%

260
3.8

204
12

15
0.2

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

Financing and financial position
Net debt
– in relation to sales

€ million
%

1,241
18.1

1,091
17.2

1,242
21.8

1,610
25.2

1,974
28.8

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

%
%

107
1.6

70
1.0

2.6

311
2,750

45.9
45.1

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

7.5

311
2,132

33.3
92.6

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

10,449
10,468

10,141
10,485

10,600
10,977

11,002
11,833

12,125
12,540

Net cash generated from
operating activities 3)

€ million

214

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
%

Return on equity 2)
Return on capital employed 2)

%
%

485
496

280
4.1

175
2.5

130
1.9

4.8
7.0

631
663

445
7.0

327
5.1

392
6.2

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

–21.8
–5.8

1) Figures for 2017 have been restated due to IFRS 15 adoption. Figures for 2014–2016 have not been

restated.

2) Key figure definition changed in 2016. Figures for 2015 have been restated. Figures for 2014 have not been

restated.

3) Year 2014 reported for continuing operations.

4) Personnel reported as headcount.

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Review by the Board of DirectorsReconciliation of key financial figures

Key figure

Sales
– change in sales

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

2018

2017

Key figure

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

2018

2017

Consolidated statement of income
Comparison to previous year’s sales

€ million
%

6,872
8.1

6,356
11.7

Capital employed is a sum of:
Total equity

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

Note 3. Segment information
Sales – Sales by destination to Finland

€ million

230

222

€ million

6,642

6,134

Comparison to sales

96.7

96.5

Depreciation and amortization
Impairments

Note 6. Income and expenses
Note 6. Income and expenses and
note 8. Financial income and expenses € million

€ million

Research and development costs
– in relation to sales

Consolidated statement of income
Comparison to sales

€ 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
%

204

15
0.2

485
10

496

280
4.1

216

13
0.2

631
31

663

445
7.0

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

Financial assets at fair value
through other comprehensive
income
Available-for-sale financial assets

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)

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

Consolidated statement of financial
position
Consolidated statement of financial
position

Consolidated statement of financial
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
€ million

2,750
1,241

2,721
1,091

€ million

318

337

€ million
€ million

€ million

€ million
€ million

€ million
€ million
€ million
€ million
€ million

–2
5

–

3
6

–

53
4,086

73
3,929

3,929
3,854
4,023
4,037
4,086

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

€ million

3,986

3,928

Return on capital employed

EBIT / Capital Employed
(4-quarter average)

7.0

11.3

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Review by the Board of DirectorsKey figure

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

2018

2017

Key figure

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

2018

2017

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
%

175
2.5

130
1.9

327
5.1

392
6.2

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
%

798

511

698

505

112

1,241
18.1

1,091
17.2

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

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

€ million

2,750

2,721

€ million
€ million
€ million
€ million

2,721
2,655
2,686
2,710

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

€ million

2,750

2,721

€ million

2,704

2,549

Return on equity

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

4.8

15.4

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)

Deb-to-equity ratio

Net debt / Total equity

€ million
€ million

107
1.6

70
1.0

2.6

5,998
10

45.9

45.1

127
2.0

92
1.5

1.7

5,887
8

46.3

40.1

Net cash generated from operating
activities

Consolidated statement of cash flows

€ million

214

328

Figures for 2017 have been restated due to IFRS 15 adoption.

Outokumpu Annual report 2018 | Review by the Board of Directors

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Review by the Board of DirectorsShare-related key figures

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

Cash flow per share 2)
Equity per share 1)

Dividend per share
Dividend payout ratio 1)
Dividend yield

Price/earnings ratio 1)

Development of share price
Average trading price
Lowest trading price
Highest trading price
Trading price at the end of the period
Change during the period 4)

Change in the OMX Helsinki index during the period

€
€
€
€

€
€

€
%
%

€
€
€
€
%

2018

0.32
0.32
–
–

0.52
6.70

0.15 3)
47.4
4.7

10.00

5.39
3.18
8.26
3.20
–58.7

–8.0

2017

0.95
0.90
–
–

0.79
6.59

0.25
26.3
3.2

8.15

8.11
6.61
10.05
7.74
–9.0

6.4

2016

0.35
0.35
–
–

0.94
5.84

0.10
28.8
1.2

2015

0.23
0.23
–
–

–0.08
5.60

–
–
–

2014

–1.24
–1.24
–1.27
–1.27

–0.36
5.13

–
–
–

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

Market capitalization at the end of the period

€ million

1,312

3,223

3,541

1,138

1,987

Development in trading volume

1) Figures for 2017 have been restated due to IFRS

15 adoption. Figures for 2014–2016 have not been
restated.

2) 2014 calculated based on the rights-issue-adjusted

weighted average number of shares.

Trading volume 5)
In relation to weighted average number of shares 2)

1,000 shares
%

826,636
201.1

1,021,607
247.7

955,682
230.6

1,345,515
323.9

695,235
198.9

3) The Board of Directors’ proposal to the Annual

General Meeting.

Adjusted average number of shares 6)
Diluted average number of shares 6)
Number of shares at the end of the period 6)

411,065,622
447,181,306
410,563,719

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

349,558,854
349,558,854
415,426,724

4) 2014 calculated based on the adjusted comparable

share prices.

5) Includes only Nasdaq Helsinki trading.

6) Excluding treasury shares.

Outokumpu Annual report 2018 | Review by the Board of Directors

13 / 71

Review by the Board of DirectorsDefinitions 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

Outokumpu Annual report 2018 | Review by the Board of Directors

14 / 71

Review by the Board of DirectorsConsolidated financial statements, IFRS

Parent company
financial statements

Income statement of the parent company . . . . . . . . . . . . . . . . . . . 63

Balance sheet of the parent company . . . . . . . . . . . . . . . . . . . . . . . 64

Cash flow statement of the parent company . . . . . . . . . . . . . . . . 65

Statement of changes in equity of the
parent company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Commitments and contingent liabilities
of the parent company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Consolidated statement of income . . . . . . . . . . . . . . . . . . . . . . . . . . 16

14. Investments in associated companies

Consolidated statement of
comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Consolidated statement of
financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Consolidated statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . 18

Consolidated statement of
changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Notes to the consolidated financial statements . . . . . . . . . . . . . 20

1. Corporate information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

2. Accounting principles for the

consolidated financial statements . . . . . . . . . . . . . . . . 20

3. Operating segment information . . . . . . . . . . . . . . . . . . . . . 30

4. Geographical information . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

5. Acquisitions and divestments . . . . . . . . . . . . . . . . . . . . . . . 32

6. Income and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

7. Employee benefit expenses . . . . . . . . . . . . . . . . . . . . . . . . . 34

8. Financial income and expenses . . . . . . . . . . . . . . . . . . . . 34

9. Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

10. Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

11. Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

12. Property, plant and equipment . . . . . . . . . . . . . . . . . . . . 37

13. Impairment of intangible assets and

property, plant and equipment . . . . . . . . . . . . . . . . . . . . 39

and joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

15. Carrying values and fair values of financial assets

and liabilities by measurement category . . . . . . . . . 40

16. Fair value hierarchy of financial assets and

liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

17. Financial assets at fair value through other

comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

18. Share-based payment plans . . . . . . . . . . . . . . . . . . . . . . . 44

19. Financial risk management, capital management

and insurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

20. Fair values and nominal amounts of

derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

21. Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

22. Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . 53

23. Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . 53

24. Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

25. Employee benefit obligations . . . . . . . . . . . . . . . . . . . . . . 55

26. Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

27. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

28. Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . 59

29. Commitments and contingent liabilities . . . . . . . . . . 60

30. Disputes and litigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

31. Related party transactions . . . . . . . . . . . . . . . . . . . . . . . . 61

32. Subsidiaries on December 31, 2018 . . . . . . . . . . . . . 62

15 / 71

Outokumpu Annual report 2018 | Financial statementsConsolidated statement of income

Consolidated statement of
comprehensive income

Note

2018

2017
Restated

€ million

Note

2018

2017
Restated

3, 4, 6

6,872

6,356

Net result for the financial year

130

392

–6,398

–5,627

Other 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 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

474

99
–71
–188
–15
–19

280

3
–70
–15
–26
–107

175

–45

130

0.32
0.32

729

Items that may be reclassified subsequently to profit or loss:

58
–74
–219
–13
–35

445

3
–92
–7
–30
–127

327

392

0.95
0.90

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

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

Financial assets at fair value through other comprehensive income

Fair value changes during the financial year
Income tax relating to financial assets at fair value
through other comprehensive income

Share of other comprehensive income in
associated companies and joint ventures

Other comprehensive income for the financial year, net of tax

–

–4
–0

–7
–1

–1

–0

–83

–3

–1

–1
1

18
37

–

–1

–32

359

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

Comparable figures for 2017 have been restated due to adoption of IFRS 15 – Revenue from Contracts with
Customers. For further information, see note 2 to the consolidated financial statements.

Total comprehensive income for the financial year

148

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

Comparable figures for 2017 have been restated due to adoption of IFRS 15 – Revenue from Contracts with
Customers. For further information, see note 2 to the consolidated financial statements.

16 / 71

Outokumpu Annual report 2018 | Financial statementsConsolidated financial statementsConsolidated statement of financial position

€ million

ASSETS

Non-current assets
Intangible assets
Property, plant and equipment
Investments in associated companies
and joint ventures
Financial assets at fair value through
other comprehensive income
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

Note

2018

2017
Restated

Jan 1, 2017
Restated

€ million

Note

2018

2017
Restated

Jan 1, 2017
Restated

11, 13
12, 13

17
17

20
9
25
22

20
22
23

585
2,659

86
–
0
2
247
72
2
3,706

1,555
13
15
640
68
2,292

535
2,633

–
68
0
1
295
70
1
3,675

1,380
16
43
660
112
2,212

504
2,874

–
53
1
–
204
45
2
3,750

1,232
16
34
688
204
2,174

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
5
–382

311
714
2,103
3
–410

311
714
2,103
4
–716

Total equity

2,750

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

27
20
9

25
26
28

27
20
26

798
1
12

318
65
35
1,229

511
20
5
12
1,471
2,019

698
3
10

337
79
34
1,160

505
37
14
7
1,442
2,005

987
4
22

356
118
37
1,525

458
63
15
12
1,461
2,008

Assets held for sale

TOTAL ASSETS

–

5,998

5,887

5,991

Comparable figures for 2017 have been restated due to adoption of IFRS 15 – Revenue from Contracts with
Customers. For further information, see note 2 to the consolidated financial statements.

Liabilities directly attributable to assets held for sale

–

TOTAL EQUITY AND LIABILITIES

5,998

5,887

5,991

Comparable figures for 2017 have been restated due to adoption of IFRS 15 – Revenue from Contracts with
Customers. For further information, see note 2 to the consolidated financial statements.

17 / 71

Outokumpu Annual report 2018 | Financial statementsConsolidated financial statementsConsolidated statement of cash flows

€ million

Note

2018

2017

€ million

Note

2018

2017

Cash flow from operating activities

Net result for the financial year 1)

130

392

Adjustments for
Taxes 1)
Depreciation and amortization
Impairments
Share of results in associated companies
and joint ventures
Gain/loss on sale of intangible assets
and property, plant and equipment
Gain/loss on sale of financial assets
Gain/loss on disposal of subsidiaries
Interest income
Interest expense
Exchange rate differences
Other non-cash adjustments 1)

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

1) Comparable figures restated due to IFRS 15 adoption.

9
11, 12
8, 11, 12, 13

6
8
5
8
8

45
204
12

–3

–14
1
–
–1
62
1
6
313

60
–145
–27
–112

–60

2
–54
–5

214

–65
216
2

–9

–16
0
–22
–1
85
55
13
259

–54
–222
97
–180

–60

3
–78
–8

328

Cash flow from investing activities
Acquired businesses, net of cash
Investments in financial assets at fair value
through other comprehensive income
Investments in 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
17
12
11

12
11

24
24

–10

–16
–
–154
–76
–
3
19
4

–229

–14

–103
–17
329
–240
7
–5
1

–29

–43

112
–43
–1
68

–

–
–15
–144
–27
90
21
12
–1

–63

264

–41
–20
190
–541
162
–65
–37

–353

–89

204
–89
–3
112

18 / 71

Outokumpu Annual report 2018 | Financial statementsConsolidated financial statementsConsolidated statement of changes in equity

€ million

Equity on Dec 31, 2016
IFRS 15 restatement

Equity on Jan 1, 2017

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

24
18
24

Quarto plate mill and pipe plant divestments

Other
Equity on Dec 31, 2017
IFRS 2 restatement
IFRS 9 restatement
Equity on Jan 1, 2018

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

Equity on Dec 31, 2018

24
18
24

Total equity is fully attributable to the equity holders of the company.

Note

Share capital Premium fund

equity reserve Other reserves

Invested
unrestricted

Fair value
reserves

Cumulative
translation
differences

Remeasure-
ments of
defined benefit
plans

Treasury
shares

Other retained
earnings

Total equity

311
–
311
–
–
–

–
–
–

–
–
311
–
–
311
–
–
–

–
–
–
311

714
–
714
–
–
–

–
–
–

–
–
714
–
–
714
–
–
–

–
–
–
714

2,103
–
2,103
–
–
–

–
–
–

–
–
2,103
–
–
2,103
–
–
–

–
–
–
2,103

2
–
2
–
–
–

–
–
–

–
1
3
–
–
3
–
–
–

–
–
–
3

1
–
1
–
–1
–1

–
–
–

–
–
0
–
–
0
–
2
2

–
–
–
2

3
–
3
–
–86
–86

–
–
–

3
–
–81
–
–
–81
–
24
24

–
–
–
–56

–135
–
–135
–
56
56

–
–
–

8
–
–72
–
–
–72
–
–8
–8

–
–
–
–80

–19
–
–19
–
–
–

–
13
–20

–
–
–26
–
–
–26
–
–
–

–
3
–17
–40

–564
–0
–564
392
–1
391

–41
–6
–

–11
–1
–232
7
–1
–225
130
–0
130

–103
–8
–
–207

2,416
–0
2,416
392
–32
359

–41
7
–20

–
–
2,721
7
–1
2,728
130
18
148

–103
–5
–17
2,750

19 / 71

Outokumpu Annual report 2018 | Financial statementsConsolidated 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 February 7, 2019 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 on going concern basis for the financial year
2018 covering the period from January 1 to December 31,
2018.

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, 2018. 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.

As of January 1, 2018, Outokumpu has applied the following
new and amended standards.

• 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.

Outokumpu has adopted IFRS 15 as of January 1, 2018,
using the retrospective approach. The adoption had no
material impact on the quantitative information or on the
presentation of the consolidated financial statements. The
accounting principles related to revenue from contracts with
customers and the transition impacts are described later in
this note.

• 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 carries forward the guidance on
recognition and derecognition of financial instruments from
IAS 39.

Outokumpu has adopted IFRS 9 as of January 1, 2018.
The adoption had no material impact on Outokumpu’s
consolidated financial statements. The accounting principles
related to financial instruments and the transition impacts
are described later in these financial statements. The
comparable information related to financial instruments has
not been restated to reflect IFRS 9 requirements.

• 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 had an impact on Outokumpu’s consolidated
financial statements, and Outokumpu adopted these changes
as of January 1, 2018. The accounting principles related
to share-based payments and the transition impacts are
described later in this note. The comparable information
related to share-based payments has not been restated to
reflect the amended IFRS 2 requirements.

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

20 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsadopt 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, 2018).

change in the accounting policy on EBITDA is approximately
EUR 20 million. Correspondingly, depreciation is estimated
to increase by approximately the same amount. Increase in
interest expenses is estimated not to be material.

• 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 nearly all lease agreements
as right-of-use assets and lease liabilities in the statement
of financial position. The accounting model is similar as the
finance lease accounting according to IAS 17. The exceptions
relate to short-term contracts with a lease term of 12 months
or less and to low value items.

Outokumpu implements IFRS 16 on January 1, 2019 using
the modified retrospective approach, where comparative
financial information is not restated, but the transition
impact is recognized to the balances of January 1, 2019. In
transition, Outokumpu plans to use the following practical
expedients allowed by the standard: (1) leases with remaining
lease period of less than 12 months on January 1, 2019 are
accounted as short-term leases, and thus excluded from the
lease liability and right-of-use asset amounts recognized to
the statement of financial position, and (2) initial direct costs
of lease contracts already in place on December 31, 2018
are excluded from the right-of-use asset value.

In transition on January 1, 2019, Outokumpu estimates to
recognize lease liabilities and right-of-use assets of approx-
imately EUR 125–130 million to its statement of financial
position. On December 31, 2018 Outokumpu reported
minimum operating lease payments of EUR 90 million. The
difference between the amounts results from contracts that
have not been classified as lease contracts under IAS 17
and have been accounted as service contracts, but will be
under IFRS 16 considered as lease contracts. This impact
is partly offset by the effect of discounting the future lease
payments and exclusion of short-term lease contracts from
the lease liability. A reconciliation between the amounts will
be presented in connection with Outokumpu’s first quarter
2019 financial information.

Regarding contracts already in effect on December 31, 2018,
Outokumpu estimates that the annualized impact from the

• 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.

• Amendments to IAS 1 Presentation of financial

statements and IAS 8 Accounting policies, changes
in accounting estimates and errors* (effective for
financial years beginning on or after January 1, 2020): The
amendments clarify the definition of materiality and use it
consistently throughout IFRSs and the Conceptual Framework
of Financial Reporting. The amendments are not expected 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 the near future is known. That is why a significant
part of the future price for each product to be sold is estimated
according to management’s best knowledge in NRV calculations.
Due to fluctuations in nickel and other alloy prices, the realized
prices can deviate significantly from what has been used in NRV
calculations on the closing date. See note 21.

Property, plant and equipment and
intangible assets and impairments

Management estimates relate to carrying amounts and
useful lives of assets as well as other underlying assumptions.
Different assumptions and assigned lives could have a
significant impact on the reported amounts. Management
estimates in relation to goodwill relate to the estimation of the
value in use of the cash-generating units to which goodwill has
been allocated. The value in use calculation requires 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.

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Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsCarrying 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.

Income taxes

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

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

Fair values of non-derivative 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 date on which control commences until the date on which
control ceases.

Relating to the valuation of Outokumpu’s investment in
Voimaosakeyhtiö SF, key management judgements relate to
long-term market price for electricity, Fennovoima’s capacity
utilization rate, discount rates for cash flows and terminal value,
and inflation rates for costs and electricity market price. See
note 16.

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.

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

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 except costs to issue
debt or equity securities, are recognized as expenses in the
periods in which costs are incurred and services rendered.

Goodwill arising on an acquisition is recognized as the excess
of the aggregate of the consideration transferred and the
amount of any non-controlling interests or previously held equity
interests in the acquiree, over the Group’s share of the fair
value of the identifiable assets acquired and liabilities assumed
at the acquisition date. Non-controlling interest in the acquiree
is measured acquisition-by-acquisition either at fair value or at
value, which equals to the proportional share of the non-con-
trolling interest in the identifiable net assets acquired. Changes
in the parent company’s ownership interest in a subsidiary are
accounted for as equity transactions if the parent company
retains control of the subsidiary.

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

All intra-group transactions, receivables, liabilities and unreal-
ized margins, as well as distribution of profits within the Group,
are eliminated in the preparation of consolidated financial
statements.

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Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsAssociated 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 recog-
nized in the associated company’s other comprehensive income
is recognized in the Group’s other comprehensive income.
When Outokumpu’s share of the associated company’s losses
exceeds the carrying amount of the investment, the investment
is recognized at zero value in the statement of financial position
and recognition of further losses is discontinued, except to the
extent that the Group has incurred obligations in respect of the
associated company. The interest in an associated company
comprises the carrying amount of the investment under the
equity method together with any long-term interest that, in
substance, forms a part of the net investment in the associated
company.

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

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

Prior to classification as held for sale, the assets or assets and
liabilities related to a disposal group in question are measured
according to the respective IFRS standards. From the date of
classification, non-current assets or a disposal group held for
sale are measured at the lower of the carrying amount and the

fair value less costs to sell, and the recognition of depreciation
and amortization is discontinued.

the net investments in foreign operations is recognized in other
comprehensive income.

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’s business is divided into four business
areas, which are responsible 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 segments’ adjusted EBITDA,
which is defined in these accounting principles. The review is
done by the CEO who is Outokumpu’s chief operating decision
maker, on the basis of regular internal management reporting
based on IFRS.

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 consolidated statement of income. Foreign exchange
differences arising in respect of other financial instruments
are included in EBIT under sales, purchases or other operating
income and expenses. The effective portion of exchange
differences arisen from instruments designated as hedges of

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 from contracts with customers
Outokumpu generates revenue mainly from sales of stainless
steel and ferrochrome. Outokumpu ships these goods to
customers under a variety of Incoterms, and considers the
transfers of physical possession and risks and rewards related
to the ownership of the goods accordingly. Consequently, the
performance obligations related to sales of stainless steel and
ferrochrome are satisfied at a point of time.

With customer deliveries following the “C” Incoterms, whereby
the control of the goods transfers to the customer before
the delivery, Outokumpu remains responsible for organizing
the transportation of the goods to the customer. In these
cases, the transportation service is a separate performance
obligation, which is satisfied over time of the transportation.
Before the IFRS 15 adoption, the revenues were fully allocated
to the goods sold and recognized at a point of time. The
impact of the accounting principle change is only minor as
the revenue and the related freight cost are recognized at the
same time. Additionally, the movement in the obligation to
provide the transportation service from one period to another

23 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsis not material. Outokumpu has concluded that it acts as a
principal with regards to the transportation service performance
obligation. In some cases, Outokumpu had earlier recognized
the freights recharged from its customers as a credit to freight
cost instead of sales. This accounting principle has been
changed, the impact not being material.

Most of Outokumpu’s revenue from contracts with customer is
recognized at a point of time. Only revenue from transportation
service is recognized over a period of time, and the period
under which the revenue is recognized, is relatively short.
Moreover, the sales of goods and transportation service are
invoiced together from the customer. Consequently, the
uncertainty associated with the cash flows does not differ with
respect to the timing of revenue recognition.

Stainless steel and ferrochrome sales prices are mainly fixed
before delivery, and volume discounts estimated and accrued
in the revenue recognition are the only variable component in
pricing. The earlier volume discount accrual practices were in
line with the IFRS 15 guidelines. In individual cases, the sales
price of ferrochrome is based on the period of time when the
customer uses the purchased ferrochrome. The payment terms
used vary from advance payment to 90 days payment term,
and they do not include any significant financing component.

Outokumpu also sells nickel warrants that relate to nickel
sourced as part of a nickel supply agreement but is not needed
for the production of stainless steel. Nickel warrant sales
are recognized to revenue when the title to the material is
transferred to the buyer.

Transition impact

In transition to IFRS 15, Outokumpu has restated its January 1,
2017 consolidated statement of financial position with the
following impacts: contract liability of EUR 1 million related
to the unperformed transportation service, impacting line
trade and other payables; and accrued receivable related to
purchased transportation of EUR 1 million impacting line trade
and other receivables. The net impact of these items (net of
tax) is recognized in retained earnings. The movement in the
restated items impacted the following lines in the consolidated
income statement of 2017: sales (impact of EUR 0 million),
cost of sales (impact of EUR –0 million), and income taxes

(impact of EUR 0 million). The reclassification of recharged
freights from cost of sales to sales amounted to EUR 1 million
in 2017.

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.

In connection to the IFRS 15 adoption, Outokumpu reviewed
the presentation of its revenue items in general, and concluded
that certain items not related to Outokumpu’s operations as a
stainless steel and ferrochrome producer should be presented
in other operating income rather than in sales. Consequently,
items such as rental income are presented as other operating
income going forward. The 2017 comparable figures are
presented accordingly with a EUR –8 million impact on sales
and EUR 8 million impact on other operating income.

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 consolidated 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

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

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

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

Goodwill and other intangible assets
Goodwill arising on a business combination is recognized at the
acquisition date at an amount representing the excess of the
consideration transferred in an acquisition over the fair value
of the identifiable assets acquired, liabilities assumed and any
non-controlling interest and any previously held equity interests
in the acquiree, if any. Goodwill is not amortized, but tested for

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Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsimpairment. 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 accumulated amortizations and
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 an intangible asset are capitalized in the
statement of financial position as part of the carrying amount of
the asset, when it takes a substantial period of time to get the
asset 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.

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.

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 an asset are capitalized in the
statement of financial position as part of the carrying amount of
the asset, when it takes a substantial period of time to get the
asset ready for its intended use or sale.

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 depre-
ciated 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
include preparatory work to utilize an ore body or part of it,
such as shafts, ramps and ventilation and 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.

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.

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.

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

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Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsan 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.

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.

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.

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
Outokumpu has adopted IFRS 9 as of January 1, 2018. The
adoption had no material impact on Outokumpu’s consolidated
financial statements. The comparable information related to
financial instruments has not been restated to reflect IFRS
9 requirements. When transition to IFRS 9 impacted the
accounting principles, the change and the previous practice is
described in the following sections. In case the transition did
not have an impact, this is not specifically stated.

Financial assets

The Group’s financial assets are classified under IFRS 9
Financial Instruments standard as financial assets at fair value
through profit or loss, financial assets at fair value through
other comprehensive income and financial assets at amortized
cost. The classification is based on Group’s business model for
financial assets and their contractual cash flow characteristics.

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.

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, such
as an investment in debt instrument or money market fund 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. The changes in fair value
of other financial items measured at fair value are recognized
in market price gains and losses under financial income and
expenses. Accounting of derivatives is described in more detail
in section Derivatives and hedge accounting.

Financial assets at fair value through other
comprehensive income

Financial assets at fair value through other comprehensive
income includes share investments in listed and unlisted
companies. The purchases and sales of these items are
recognized at the trade date. These investments are included
in non-current assets, unless the Group has the intention to
dispose of the investment within 12 months from the reporting
date.

Investments in shares are measured at fair value. 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 use
observable market data when it is available but rely also on
entity-specific estimates made by the Group. Fair value changes
of share instruments measured at fair value are recognized in
other comprehensive income and presented in equity within

26 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsfair value reserve, net of tax. Dividends are recognized in
profit or loss. When the shares are disposed, the accumulated
changes in fair value are reclassified from fair value reserve to
retained earnings. Under IAS 39 in connection of disposal or
impairment of shares the accumulated changes in fair value
were transferred from equity to profit or loss as reclassification
adjustment.

Financial assets measured at amortized cost

Financial assets measured at amortized cost include non-
derivative financial assets with fixed or determinable payments
and are not quoted in active markets. This category includes
trade and other receivables and cash and cash equivalents.

Financial assets measured at amortized cost are measured
initially at fair value. After initial recognition, they are measured
at amortized cost by using the effective interest rate method
less accumulated impairments.

Outokumpu uses factoring for working capital management.
Factored trade receivables have been derecognized from the
statement of financial position when the related risks and
rewards of ownership have materially been transferred.

Outokumpu has adopted simplified model in assessing and
recognizing expected credit losses on trade receivables.
The calculation model is based on overdue statistics and
counterparty-specific credit rating linked with loss probabilities
for each rating. Impairment losses are recognized in selling and
marketing expenses.

Transition impact

The new expected credit loss model resulted in impairment loss
of trade receivables of EUR 1 million. This impact (net of tax)
is recognized as a decrease of retained earnings on January 1,
2018.

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

Derivative instruments and hedge accounting

Financial liabilities at fair value through profit or loss

Derivatives

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

Financial liabilities at amortized cost

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. Transaction costs are included
in the original carrying amount. 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.

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 or expiry.

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 values of currency,
interest rate and metal options are determined by utilising
commonly applied option valuation models, such as Black-
Scholes-Merton model. Fair values of derivatives can in certain
cases be based on valuations of external counterparties.

Hedge accounting

Outokumpu applies hedge accounting to certain currency
derivatives which fulfil the IFRS 9 hedge accounting require-
ments. Outokumpu has estimated that all hedge accounting
relationships under IAS 39 fulfil also IFRS 9 hedge accounting
requirements and no changes to applying hedge accounting
was made. In the beginning of each hedging arrangement,
the Group documents the relationship between the hedging
instrument and the hedged item, as well as the objectives of
risk management and strategy of the hedging arrangement.
Effectiveness of the hedge relationship is documented and
assessed when hedging is started and at least in the end of
each reporting period. 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 instru-
ment. Under IAS 39 the hedging relationship was considered
to be highly effective if the changes in fair values or cash flows

27 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsof 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.

Fair value changes of derivatives designated to hedge
forecasted cash flows are recognized in other comprehensive
income and presented within the fair value reserve in equity to
the extent that the hedge is effective. Such fair value changes
accumulated in equity are reclassified in profit or loss in the
period in which the hedged cash flows affect profit or loss. The
fair value changes related to the ineffective portion of the
hedging instrument are recognized immediately in profit or loss.

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.

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
the 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 actual cost
defined as monthly weighted average. The cost of self-produced
finished goods and work in progress comprises raw materials,

direct labour, other direct costs and related production and
procurement overheads, but excludes borrowing costs. Cost
of purchased products includes all purchasing costs including
direct transportation, handling and other costs. Net realizable
value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and the
estimated costs necessary to make the sale. Spare parts are
carried as inventory and their cost is recognized in profit or loss
as consumed. Major spare parts are recognized in property,
plant and equipment when they are expected to be used over
more than one financial year.

Treasury shares
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.

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.
Adjustments to the provision due to subsequent changes in the
estimated timing or amount of the outflow of resources, or in
the change in the discount rate are deducted from or added to
the cost of the corresponding asset in a symmetrical manner.
The costs will be depreciated over the asset’s remaining useful
life.

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

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

Employee benefits

Post-employment and other long-term
employee benefits

Group companies in different countries have various post-em-
ployment 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

28 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsaccount. However, potential ordinary shares are only dilutive if
the adjustments decrease the earnings per share ratio.

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 payments are settled net of tax withholdings,
and according to the IFRS 2 amendment, they are accounted
as fully equity-settled. The expense of the programs recognized
over vesting periods is fully based on the grant date fair value.
Before, the share-based payments were accounted partly as
equity-settled and partly as cash-settled, and the cost of the
cash-settled part was remeasured based on market conditions
at the end of each reporting period.

Applicable statistical models are used in valuation. 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 valuation of the benefits.

Transition impact

In transition on January 1, 2018, the accrued liabilities for the
cash-settled portion amounting to EUR 10 million on December
31, 2017 and the related deferred tax assets amounting
to EUR 3 million have been recognized in retained earnings.
Comparable figures for 2017 have not been restated.

EBIT and EBITDA
Outokumpu’s 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
Adjusted EBITDA is Outokumpu’s 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

29 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements3. Operating segment information
Outokumpu’s business is divided into four business areas
which are Europe, Americas, Long Products and Ferrochrome.
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
four operating segments:

Europe consists of both coil and plate operations 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 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.

Ferrochrome produces charge grade of ferrochrome. The
business area has a chrome mine in Kemi, Finland and
ferrochrome smelter in Tornio, Finland.

2018
€ million

External sales
Inter-segment sales
Sales

Adjusted EBITDA
Adjustments to EBITDA

Gain on the sale of PPE and release of
provisions related to EMEA restructuring

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

4,169
97
4,267

1,670
45
1,715

248

–5

10
259
–114
–0
144

–
–
–
–
–
–

2,922
–
–
–

988
–
–
–

1,934
–
–

–
–5
–51
–
–56

–
–
–
–
–
–

1,357
–
–
–

273
–
–
–

1,084
–
–

Long
Products

Ferro-
chrome

Operating
segments
total

Other

operations Eliminations

Reconciliation

521
220
740

–
25
–6
–
18

–
–
–
–
–
–

331
–
–
–

152
–
–
–

179
–
–

197
345
542

210

–
210
–30
–1
179

–
–
–
–
–
–

772
–
–
–

132
–
–
–

640
–
–

6,557
707
7,264

478

10
489
–201
–2
286

–
–
–
–
–
–

5,383
–
–
–

1,546
–
–
–

3,837
–
–

314
273
587

–4

–
–4
–3
–10
–17

–
–
–
–
–
–

275
–
–
–

245
–
–
–

29
–
–

–
–980
–980

Group

6,872
–
6,872

485

–
11
–
–
11

–
–
–
–
–
–

–202
–
–
–

–188
–
–
–

–15
–
–

10
496
–204
–12
280

3
3
–110
175
–45
130

5,455
296
247
5,998

1,604
1,632
12
3,248

3,851
235
4,086

30 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsEurope

Americas

Long
Products

Ferro-
chrome

Reconciliation

Operating
segments
total

Other

operations Eliminations

Other operations consist of activities outside the four
operating segments, as well as industrial holdings. Such
business development and Corporate Management expenses
that are not allocated to the business areas are also reported
under Other operations. Sales of Other operations consist of
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.

2017
Restated
€ 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

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

4,074
81
4,156

404

–
–
–
404
–123
–
281

–
–
–
–
–
–

2,883
–
–
–

1,035
–
–
–

1,848
–
–

1,512
33
1,546

405
186
591

–
–
–
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
–
–

6,118
784
6,903

658

–
–
–
658
–210
–1
447

–
–
–
–
–
–

5,258
–
–
–

1,577
–
–
–

3,681
–
–

237
266
503

–15

15
9
7
16
–6
–
10

–
–
–
–
–
–

253
–
–
–

264
–
–
–

–11
–
–

–
–1,050
–1,050

Group

6,356
–
6,356

–12

631

–
–
–
–12
–
–
–12

–
–
–
–
–
–

–259
–
–
–

–234
–
–
–

–25
–
–

15
9
7
663
–216
–1
445

9
3
–129
327
65
392

5,252
340
295
5,887

1,608
1,549
10
3,166

3,645
285
3,929

31 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements4. Geographical information

€ million

Finland Germany

Sweden

The UK

Other
Europe

North
America

Asia and
Oceania

Other
countries

Inter-area

Group

2018
Sales by destination

Europe
Americas
Long Products
Ferrochrome
Other operations

219
0
0
10
–
230

Sales by origin
Non-current assets

3,222
1,623

2017 Restated
Sales by destination

Europe
Americas
Long Products
Ferrochrome
Other operations

211
–
–
10
–
222

Sales by origin
Non-current assets

3,133
1,539

1,380
0
66
10
–
1,456

1,428
332

1,463
–
32
12
–
1,507

1,425
337

144
–
47
22
–
214

1,581
252

119
–
33
22
–
174

1,363
260

234
0
9
–
–
243

694
60

233
–
8
–
–
242

617
56

1,719
40
161
118
–
2,038

414
110

1,655
173
116
40
–
1,984

424
112

74
1,551
195
–
–
1,820

1,845
851

58
1,209
191
–
–
1,458

1,659
847

349
12
42
37
–
440

76
14

301
65
25
43
–
434

64
15

50
67
–
–
314
431

58
2

33
66
–
–
237
336

55
2

–
–
–
–
–
–

–2,446
–

–
–
–
–
–
–

–2,384
–

4,169
1,670
521
197
314
6,872

6,872
3,244

4,074
1,512
405
127
237
6,356

6,356
3,168

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.

5. Acquisitions and divestments
Acquisitions in 2018
In June 2018, Outokumpu acquired full ownership of Fagersta
Stainless AB, a wire rod mill in Sweden. Prior to the acquisition,
Outokumpu held 50% of the Fagersta Stainless shares, and it
was included in Outokumpu’s consolidated financial statements
with the equity method. Outokumpu reports Fagersta Stainless
as part of the Long Products segment.

The cash consideration of the transaction was EUR 18 million of
which EUR 14 million, representing 80% of the total consider-
ation, was paid at closing with an additional 40% of the shares
transferred to Outokumpu. The remaining 20% will be paid in
the end of 2019 at which point Outokumpu will receive the final
10% of the shares. Outokumpu does not present non-controlling
interest related to the 10% shareholding of Fagersta Stainless
AB in its statement of financial position as the terms regarding
the transfer of the shares to Outokumpu have already been
agreed upon. The transaction price of the final 10% portion is
reported in current trade and other payables.

The consideration, net of cash and cash equivalents acquired
amounts to EUR 13 million. Assets acquired and liabilities
assumed include non-current assets of EUR 9 million, current
assets of EUR 75 million, non-current liabilities of EUR 2
million and current liabilities of EUR 47 million. The transaction
resulted in no goodwill.

Divestments in 2018
Outokumpu did not have any divestments in 2018.

32 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements
6. Income and expenses

Timing of revenue recognition related
contracts with customers

More than 97% of Outokumpu’s revenue from contracts with
customers is recognized at a point of time, and less than 3% is
recognized over time. The revenue recognized over time relates
to the performance obligation of organizing the transport of
sold goods to the customer, and the period under which it is
recognized is relatively short. Moreover, the sales of goods and
transportation service are invoiced together from the customer.
Consequently, the uncertainty associated with the cash flows
do not differ with respect to the timing of revenue recognition.

Depreciation and amortization by function

€ million

Cost of sales
Administrative expenses
Research and development expenses

Other operating income

€ million
Exchange gains and losses from foreign
exchange derivatives
Market price gains and losses from commodity
derivatives
Market price gains and losses from derivative
financial instruments
Gains from disposal of subsidiaries
Gains on sale of intangible assets and property,
plant and equipment
Insurance compensation
Other income items

2018

–194
–9
–1
–204

2017

–207
–8
–1
–216

2018

2017
Restated

Adjustments to EBITDA and EBIT

€ million
Gain on the sale of PPE and release of
provisions related to EMEA restructuring
Gain on the quarto plate mill divestment
Gain on the sale of land in Sheffield
Gain on the pipe plant divestment
Adjustments to EBITDA
Impairment related to Group’s digital
transformation project
Adjustments to EBIT

2018

2017

10
–
–
–
10

–10
0

–
15
9
7
31

–
31

25
–

15
32
28
99

–

–
22

16
1
19
58

In 2018, Outokumpu sold property, plant and equipment in
Sweden relating to a site that had been closed earlier under the
EMEA restructuring plan. Outokumpu also released provisions
related to the site closures under the restructuring plan. These
items amounted to a gain of EUR 10 million.

In 2018, Outokumpu adjusted the scope of its digital transfor-
mation program, which resulted in an impairment loss of EUR
10 million.

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.

In 2018, Outokumpu received an insurance compensation
regarding the property damage and business interruption at
Tornio ferrochrome production in Finland in 2017.

Other operating expenses

€ million

2018

2017

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
Other expense items

–

–
–12
–6
–19

–9

–14

–23
–1
–10
–35

Auditor fees

PricewaterhouseCoopers
€ million

Audit
Audit-related services
Tax advisory
Other services

2018

2017

–2.2
–0.1
–0.0
–0.0
–2.3

–1.9
–0.1
–0.2
–0.3
–2.5

PricewaterhouseCoopers Oy has provided non-audit services
to Outokumpu in total of EUR 0.1 million during 2018. These
services comprised of tax services and consultation in business
transformation projects and sustainability reporting.

33 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements7. Employee benefit expenses

8. Financial income and expenses

€ million

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

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

Expenses from share-based payments
Other personnel expenses

2018

–541
–6
–81

–2
–39
–1
1
–6
–676

2017

–549
–1
–73

–7
–43
13
–16
–7
–684

1) 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 of EUR 2 million were paid in 2018 (2017: none).

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

€ million

Interest income

Interest expenses

Debt at amortized cost
Factoring expenses
Finance lease arrangements
Derivatives
Interest expense on defined benefit and
other long-term employee benefit obligations

Interest expenses

Capitalized interests
Impairment of financial assets
Loss from the sale of financial asset
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

2018

–45
–10
–9
–0

–5
–70

3
0
–1
–11
–17
–26

–21
8

2
–4
–15

Exchange gains and losses in the
consolidated statement of income

2017

€ million

2018

2017

–65
–8
–12
–2

–5
–92

1
–1
–0
–14
–15
–30

83
–97

2
5
–7

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

15
–29
1
–13
–26

–17
37
–9
–15
–3

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

transactions.

Exchange gains and losses include EUR 20 million of net
exchange loss on derivative financial instruments (2017: EUR
74 million net exchange gains) of which a gain of EUR 1 million
has been recognized in other operating expenses and a loss of
EUR 21 million in financial items.

9. Income taxes

Income taxes in the consolidated statement of income
2017
Restated

€ million

2018

Current taxes
Deferred taxes

–4
–41
–45

–6
71
65

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

Total financial income and expenses

–107

–127

€ million

Other fees consist of expenses related to the redemption of the
notes due 2021.

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
Reassessment of the values of deferred tax
assets 1)
Taxes for prior years
Tax effect of tax rate changes and other changes
in tax laws
Income taxes in the consolidated statement of
income

2018

175

–35
–2

–11

5
–2

–1

–45

2017
Restated

327

–65
–6

–2

139
–1

1) Includes EUR 34 million tax benefit due to recognition of previously

non-recognized deferred tax assets (2017: EUR 125 million).

34 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated 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 1)
Provisions
Tax losses and tax credits

Offset
Deferred taxes in the statement of financial position 1)

Jan 1, 2018

Movements

Dec 31, 2018

Deferred tax
assets

Deferred tax
liabilities

Recognized in
profit or loss

Recognized
in other
comprehensive
income

Translation
differences

Acquired
subsidiaries

Deferred tax
assets

Deferred tax
liabilities

6
28
19
5
4
53
78
27
352
572
–280
292

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

–0
–16
–0
3
–22
23
–2
–3
–23
–41

–
–
–
–0
–1
–1
–
–
–
–1

0
–1
–0
–0
–0
0
0
–0
–3
–4

–
–1
–
–
–
–
–0
1
–
–1

7
29
20
4
–16
75
88
22
326
555
–308
247

–4
–214
–12
–13
–10
–33
–14
–20
–
–320
308
–12

1) In transition to amended IFRS 2 transition on Jan 1, 2018, the accrued liabilities for the cash-settled portion of share-based payments amounting to EUR 10 million on Dec 31, 2017 and the related deferred tax assets
amounting to EUR 3 million have been recognized in retained earnings. Comparable figures for 2017 have not been restated.

€ 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
comprehensive
income

Translation
differences

Disposed
subsidiaries

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

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.

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

35 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements

Aggregate deferred taxes recognized in equity
through other comprehensive income

€ million

2018

2017

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

–1
–4

52
47

0
–4

53
49

2018

186
1,941
1,272
3,400

2017

230
1,993
1,173
3,396

As of December 31, 2018 tax loss carry forwards amount to
EUR 3,400 million (2017: EUR 3,396 million), of which EUR
487 million (2017: EUR 630 million) in Finland, EUR 320
million (2017: EUR 347 million) in Sweden, EUR 1,864 million
(2017: EUR 1,625 million) in the US and EUR 476 million
(2017: EUR 498 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, 2018 tax attributes of the Outokumpu Group
for which no deferred tax asset has been recognized amount
to EUR 1,940 million (2017: EUR 1,922 million). In 2018, due
to increased probability of future tax benefits, mainly in the UK,
previously non-recognized deferred tax assets of EUR 34 million
in total were recognized. In 2017, corresponding recognition
of previously non-recognized deferred tax assets in Germany
amounted to EUR 160 million. The recognition decision in both
2018 and 2017 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 1)

130

392

€ million

2018

2017

Good-
will

Other
intangible
assets 1)

Weighted average number of shares, in
thousands
Diluted average number of shares, in thousands

411,066
447,181

412,363
450,248

Earnings per share for result attributable to the
equity holders of the Company 1)
Earnings per share, EUR
Diluted earnings per share, EUR

0.32
0.32

0.95
0.90

1) Comparable figures restated due to IFRS 15 adoption.

Historical cost on Jan 1, 2018
Translation differences
Additions
Disposals
Reclassifications
Historical cost on Dec 31, 2018

Accumulated amortization and
impairment on Jan 1, 2018
Translation differences
Amortization
Accumulated amortization and
impairmenton Dec 31, 2018

Carrying value on Dec 31, 2018
Carrying value on Jan 1, 2018

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
impairmenton Dec 31, 2017

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

491
–2
–
–
–
489

–24
2
–

–22

467
467

493
–2
–
–
–
491

–26
1
–

–24

467
467

276
–2
77
–20
1
332

–207
2
–8

–214

118
68

241
–4
42
–24
21
276

–204
3
–7

–207

68
37

Total

767
–3
77
–20
1
821

–232
4
–8

–236

585
535

734
–6
42
–24
21
767

–229
5
–7

–232

535
504

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

capitalized development costs, patents, licenses and software.

2) Reclassifications in 2017 include construction work in progress related
to intangible assets, which was earlier presented in the corresponding
item of property, plant and equipment. These assets relate mainly to
Group’s digital transformation project.

36 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsDuring 2018, borrowing costs amounting to EUR 2 million were
capitalized on investment projects (2017: EUR 1 million). Total
interest capitalized on December 31, 2018 was EUR 3 million
(Dec 31, 2017: EUR 1 million). Outokumpu determinates
separate capitalization rates for each quarter. The average rate
used during 2018 was 2.7%.

Intangible assets mainly comprise acquired assets.

Emission allowances

Outokumpu had seven active sites operating under EU’s
Emissions Trading Scheme (ETS) in 2018. These include the
production plants in Tornio, Finland; Avesta, Degerfors, Fagersta
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 1.0 million tonnes in 2018 (2017: 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 2019 is estimated to be some
1.0 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, 2018
Translation differences
Additions
Acquired subsidiaries
Disposals
Reclassifications
Historical cost on Dec 31, 2018

Accumulated depreciation and
impairment on Jan 1, 2018
Translation differences
Disposals
Reclassifications
Depreciation
Impairments
Accumulated depreciation and
impairment on Dec 31, 2018

Carrying value on Dec 31, 2018
Carrying value on Jan 1, 2018

Mine
properties

Buildings

Machinery
and
equipment

Other
tangible
assets

Advances
paid and
construction
work in
progress

66
–
2
–
–
2
71

–27
–
–
–
–7
–

–33

37
40

1,233
2
2
1
–
6
1,243

–639
4
3
–
–43
–

–676

567
594

4,440
–4
34
4
–22
59
4,511

–2,768
25
19
–1
–140
–2

–2,868

1,644
1,672

128
–1
4
1
–0
4
137

–77
0
0
–
–4
–

–80

56
52

158
1
146
3
–0
–73
235

–3
0
0
1
–0
–

–2

233
155

Land

135
1
0
0
–0
–
136

–14
0
–
–
–0
–

–14

121
121

Total

6,160
–2
189
9
–23
–2
6,332

–3,527
30
22
0
–195
–2

–3,673

2,659
2,633

During 2018, EUR 1 million of borrowing costs were capitalized on investment projects (2017: EUR - million). Total interest
capitalized on December 31, 2018 was EUR 25 million (Dec 31, 2017: EUR 26 million). Outokumpu determines separate
capitalization rates for each quarter. The average rate used during 2018 was 1.5%.

37 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsMine
properties

Buildings

Machinery
and
equipment

Other
tangible
assets

Advances
paid and
construction
work in
progress

€ 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

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

Assets leased by finance lease agreements

€ million

Land

Buildings

Historical cost
Accumulated depreciation
Carrying value on Dec 31, 2018

Historical cost
Accumulated depreciation
Carrying value on Dec 31, 2017

28
–1
27

1
–0
1

Machinery
and
equipment

100
–52
49

106
–50
56

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

4,641
–154
21
–10
–33
–24
4,440

–2,763
54
9
25
62
–155
–1

–2,768

1,672
1,878

Total

129
–53
76

136
–51
85

Total

6,351
–190
130
–17
–35
–80
6,160

–3,477
60
9
27
63
–209
–1

–3,527

2,633
2,874

38 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements13. Impairment of intangible assets and property, plant and equipment

Intangible assets and property, plant and equipment by operating segment

€ million

Europe
Americas
Long Products
Ferrochrome
Other operations

Goodwill

Other intangible assets

Property, plant and equipment

2018

2017

2018

2017

343
–
9
114
–
467

344
–
9
114
–
467

5
2
3
0
109
118

5
1
4
0
58
68

2018

1,197
829
79
537
17
2,659

2017

1,240
824
63
487
18
2,633

Impairment testing

Impairment testing is carried out on operating segment level,
which are the Group’s cash-generating units. Europe represents
74% of the total goodwill and 45% of the total property, plant
and equipment of the Group, Americas represents 31% of
the total property, plant and equipment of the Group, and
Ferrochrome represents 24% of the total goodwill and 20% of
the total property, plant and equipment of the Group. During
the year 2018, 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 are based on the plans approved by the
management for 2019–2021 after which cash flows are further
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 the Group target capital structure.
The pre-tax WACC used for both Europe and Ferrochrome is
7.2%, and for Americas 9.8% (2017: 9.5%). In 2017, Europe

and Ferrochrome belonged to the same operating segment and
were tested together with pre-tax WACC of 8.0%.

In the terminal value, growth rate assumptions of 0.5% (2017:
0.5%) for Europe and Ferrochrome, and 1.0% (2017: 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 3,946 million. Increase
of 11.6 percentage points in after-tax WACC would cause the
recoverable amount to equal the carrying amount. Also, 54%
decrease in EBITDA 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 51 million. Increase
of 0.3 percentage points in after-tax WACC would cause the
recoverable amount to equal the carrying amount. Also, 3%

decrease in EBITDA would cause the recoverable amount to
equal the carrying amount. Terminal growth rate of 0% would
lead to an impairment loss of EUR 58 million.

The estimated recoverable amount of Ferrochrome exceeds its
carrying amount by approximately EUR 1,765 million. Increase
of 13.0 percentage points in after-tax WACC would cause the
recoverable amount to equal the carrying amount. Also, 58%
decrease in EBITDA 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
2018 or 2017. However, impairment losses of EUR 10 million
related to Group’s digital transformation project and EUR 2
million related to asset obsolence in Ferrochrome and Europe
were recognized in 2018. (2017: an impairment loss of EUR 1
million on property, plant and equipment in Ferrochrome due to
asset obsolence).

39 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements14. Investments in associated

companies and joint ventures

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

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.

The Group has adopted IFRS 9 standard as of January 1, 2018 and the following table reconciles the carrying amounts of financial
instruments under IAS 39 to the carrying amounts under IFRS 9.

Measurement category

Carrying amount on Jan 1, 2018

Associated companies

OSTP Holding Oy
Rapid Power Oy
Manga LNG Oy

Summarized financial information
on associated companies

Domicile Ownership, %

Financial assets

Investments in equity

Finland
Finland
Finland

49
33
45

Other investments
Trade and other receivables
Hedge accounted derivatives
Derivatives held for trading
Cash and cash equivalents

IAS 39

Available for sale
Investments at fair value
through profit or loss
Amortized cost
FVOCI
FVPL
Amortized cost

€ million

2018

2017

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

Financial liabilities

Debt
Trade and other payables
Hedge accounted derivatives
Derivatives held for trading

Amortized cost
Amortized cost
FVOCI
FVPL

IFRS 9

FVOCI

FVPL
Amortized cost
FVOCI
FVPL
Amortized cost

Amortized cost
Amortized cost
FVOCI
FVPL

Original

17
598
–
44
112

1,203
1,310
2
38

New

17
597
–
44
112

1,203
1,310
2
38

Difference

–

–
–1
–
–
–

–
–
–
–

FVOCI = Fair value through other comprehensive income

FVPL = Fair value through profit or loss

The Group has adopted simplified model in assessing expected credit losses on trade receivables which caused a difference between carrying amounts
under IAS 39 and IFRS 9.

Joint ventures
In June 2018, Outokumpu acquired full ownership of Fagersta
Stainless AB, previously a joint venture of Outokumpu in
Sweden. See note 5 for more information on the acquisition.
The net result and the other comprehensive income from
January 1, 2018 to June 30, 2018 have been included in
Outokumpu’s consolidated financial statements with the equity
method. The Group’s share of total comprehensive income
reported in the table below includes also the fair valuation
impact related to the valuation of Outokumpu’s original 50%
share prior the acquisition.

Summarized financial information on joint ventures

€ million

2018

2017

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

–

–2

40 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements2018
€ million

Non-current financial assets
Investments in equity
Other investments
Trade and other receivables
Derivatives held for trading

Current financial assets
Other investments
Trade and other receivables
Hedge accounted derivatives
Derivatives held for trading
Cash and cash equivalents

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

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

Measured at

Fair value
through other
comprehensive
income

Amortized
cost

Fair value
through

profit or loss Carrying amount

Fair value

–
–
2
–

–
578
–
–
68
648

798
–

511
1,349
–
–
2,658

86
–
–
–

–
–
0
–
–
86

–
–

–
–
0
–
0

–
0
–
2

13
–
–
15
–
30

–
1

–
–
–
19
21

86
0
2
2

13
578
0
15
68
764

798
1

511
1,349
0
19
2,678

86
0
2
2

13
578
0
15
68
764

814
1

511
1,349
0
19
2,694

41 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements
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

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

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

Category in
accordance
with IAS 39

Amortized
cost

Measured at

Fair value
through other
comprehensive
income

Fair value
through profit
or loss

Cost

Carrying
amount

Fair value

c)
b)
b)

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

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

The comparable information for 2017 has not been restated to reflect IFRS 9 requirements.

Adoption of IFRS 9 had no material impact on consolidated financial statements.

42 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements
16. Fair value hierarchy of financial assets and liabilities

2018
€ million

Financial assets measured at fair value
Financial assets at fair value through other
comprehensive income
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
Derivatives held for trading

Financial liabilities not measured at fair value
Non-current debt

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

Carrying amount

Level 1

Level 2

Level 3

Total

Fair value

86
13
0
17
116

798

0
13
–
–
13

–

–
–
0
17
17

814

Fair value

86
0
–
–
86

–

86
13
0
17
116

814

Carrying amount

Level 1

Level 2

Level 3

Total

4
17
44
65

2
38
40

698

0
16
–
17

–

–
–
–

–

–
–
44
44

2
38
40

802

4
0
–
4

–

–
–
–

–

4
17
44
65

2
38
40

802

In 2018, investment in Voimaosakeyhtiö SF is included in finan-
cial assets at fair value through other comprehensive income. It
was not included in the table as available-for-sale financial assets
in 2017, because according to IAS 39 it was measured at cost.

A major part of financial assets at fair value through other
comprehensive income 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 market prices of electricity,
discount rate, inflation rate, the estimated amount of electricity
to be received and estimated production costs.

Additional parameters for Voimaosakeyhtiö SF valuation include
e.g. expected purchase price of electricity under the Mankala
principle, expected project completion date and cost of debt in
Fennovoima Oy. The fair value of Voimaosakeyhtiö SF shares
is highly sensitive to the valuation parameters and especially
to long-term market price of electricity, Fennovoima’s capacity
utilization rate, discount rates for cash flows and the terminal
value, inflation rates for costs and market price of electricity, and
project completion date.

Long-term market price for electricity for the time when the plant
is expected to be commissioned has been estimated by the
management, and the estimate assumes an increase compared
to the current market price level. However, the long time periods
to complete the project and to operate the plant affect the
reliability of such estimate, and reasonable changes in the
electricity price estimate or in other valuation parameters can
significantly impact the fair value of the investment. In general,
the project risk is considered high with the estimated completion
of the project in 2028, and the range of potential fair values is
wide.

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.

43 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements17. Financial assets at fair value
through other comprehensive income
€ million
2018

Carrying value on Jan 1
Additions
Fair value changes
Carrying value on Dec 31

68
16
2
86

2017

–
–
–
–

Available-for-sale financial assets

€ million

Carrying value on Jan 1
Additions
Fair value changes
Carrying value on Dec 31

2018

2017

–
–
–
–

53
15
0
68

In IFRS 9 transition, the measurement category of former
available-for-sale financial assets was changed to financial
assets at fair value through other comprehensive income. For
more information, see notes 2 and 15.

Fair value reserve in equity

€ million

Fair value
Cost
Fair value reserve before tax
Deferred tax liability
Fair value reserve

2018

2017

86
80
6
–1
5

68
64
4
–1
3

Financial assets at fair value through other comprehensive
income consists of equity securities which are not held for
trading, and which the Group has irrevocably elected at initial
recognition to recognize in this category. These are mainly
strategic investments and the Group considers this classifica-
tion to be relevant. Materially all equity securities are unlisted.
Investments include EUR 79 million holding in Voimaosakeyhtiö
SF providing ownership to Fennovoima Oy and EUR 6 million of
holdings in other energy companies in which Outokumpu does
not have control, joint control or significant influence. During
2018 Outokumpu invested further EUR 16 million in Voima-
osakeyhtiö SF. Information on the valuation of this investment
is presented in note 16.

18. Share-based payment plans
During 2018, Outokumpu’s share based payment programs
included Performance Share Plan 2012 (Plans 2016–2018,
2017–2019 and 2018–2020), Restricted Share Pool Program
2012 (Plans 2016–2018, 2017–2019 and 2018–2020) 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 2015–2017 ended and after
deductions for applicable taxes, altogether 413,896 shares
were delivered to 92 persons. Regarding the Restricted Share
Pool Program plan 2015–2017, after deductions for applicable
taxes, in total 12,139 shares were delivered to 4 participants
based on the conditions of the plan. Outokumpu used its
treasury shares for the reward payments.

In December 2017, the Board of Directors approved the
commencement of the new plan (plan 2018–2020) of the
Performance Share Plan as of the beginning of 2018. At the
end of the reporting period 141 persons participated in the
plan and they had been allocated in total 1,459,600 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 2017, the Board approved the commencement
of the new plan (plan 2018–2020) of Restricted Share Pool
Program as of the beginning of 2018. 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 46 persons participated in the plan and they have been
allocated in total 106,500 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
2018, the Board of Directors approved the delivery of the third
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 2018, the Board of Directors
approved the delivery of the second reward tranches from the
plan. After deduction for applicable taxes, the net number of
shares delivered was 281,058. At the end of the reporting
period 29 persons participated in the plan.

In December 2018, the Board of Directors approved the
commencement of plan 2019–2021 of the Performance Share
Plan 2012 and the Restricted Share Pool Program 2012 as of
the beginning of 2019.

The total estimated value of the share-based payment plans is
EUR 9 million on December 31, 2018. 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.

44 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsShare-based payments included in employee benefit expenses

€ million

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

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

2018

2017

1
–
1

–

–7
–9
–16

According to the amendment in IFRS 2 Share-based payments, Outokumpu accounts all
its share-based payment plans as equity-settled as of January 1, 2018.

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

Grant date
Vesting period
Share price at grant date
Vesting conditions
Non-market

Performance Share Plan

Feb 10, 2016
Jan 1, 2016–Dec 31, 2018
2.11

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

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

Exercised

Restricted Share Pool Program

Feb 10, 2017
Jan 1, 2017–Dec 31, 2019
9.80

Feb 2, 2018
Jan 1, 2018–Dec 31, 2020
6.61

Outokumpu’s return on operating capital compared to a
peer group
A salary-based limit for the maximum benefits
In shares and cash

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

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

Grant date
Vesting period
Share price at grant date
Vesting conditions

Exercised

Dec 9, 2016
Jan 1, 2016–Dec 31, 2018
7.81
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
9.80
Continuation of employment until the shares are delivered,
a salary-based limit for the maximum benefits
In shares and cash

June 1, 2018
Jan 1, 2018–Dec 31, 2020
5.76
Continuation of employment until the shares are delivered,
a salary-based limit for the maximum benefits
In shares and cash

Grant date
Vesting period
Share price at grant date
Vesting conditions

Exercised

Matching Share Plan for the CEO

Dec 17, 2015
Jan 1, 2016–Dec 31, 2019
2.50
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.

Matching Share Plan for the management

April 27, 2016
Jan 1, 2017–Dec 31, 2020
5.35 1)
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

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

45 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements
19. Financial risk management, capital

management and insurances

The main objectives of financial risk management are 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 debt-to-equity ratio as well
as leverage according to set targets. The objective of capital
management is to secure the ability to continue as a going
concern and to optimize 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.

The Board of Directors has approved the risk management policy,
which defines responsibilities, process and other main principles
of risk management. The Board of Directors 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
commodity price risk with Outokumpu Oyj, which does most of
the Group’s foreign exchange and commodity 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 Försäkringsaktiebolag in
Sweden can be used in insurance management.

Exposure to financial risk is identified in connection with 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 to income, free cash flow, net debt and equity.

Market risk

Foreign exchange rate risk

Market risk is caused by changes in foreign exchange and
interest rates, interest margins as well as metal, energy,
emission 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 table
below.

A major part of the Group’s sales is in euros and US dollars. In
this context, the local currency denominated production costs
in the UK and Sweden cause foreign exchange risk. Foreign
exchange cash flow risk related to firm commitments, e.g. price
fixed sales and purchase orders, is hedged whereas forecasted
and probable cash flows are not typically hedged but can be
hedged selectively. The main dollar cash flow risk origins from
ferrochrome operations as a consequence of chrome being
priced in US dollars. Another significant dollar cash flow risk is
embedded in sales margins due to dollar-linked stainless scrap
purchase discounts.

Fair value risk consists of currency denominated accounts
receivable, accounts payable, debt, cash, loan receivables and
commodity derivatives. Outokumpu aims to hedge most of
the identified fair value risk with derivative contracts. Internal
US dollar and Swedish krona denominated financing causes
significant fair value exchange rate risk, which is hedged with
forward contracts and, if possible, with matching external debt.
The Group’s fair value foreign exchange position is presented in
a more detailed level in the 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
+/–10% change in propane price in USD
+/–1% parallel shift in interest rates

Dec 31, 2018

Dec 31, 2017

In profit or loss

In other
comprehensive
income

In profit or loss

In other
comprehensive
income

+7/–8
–14/+17
–2/+4
–1/+1
–10/+10

–
–3/+3
–
–
–

+0/–0
–6/+7
–1/+2
–
+0/–0

–
–6/+7
–
–
–

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 24–36%. With
+/–30% change in dollar denominated price, the effect in profit or loss is about EUR –3/+14 million for nickel derivatives.

46 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsOutokumpu’s net income and net investment translation risk is
mainly in US dollars, Swedish kronas and British pounds. Based
on the policy this risk can be hedged selectively and in 2018
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 Swedish krona and US
dollar denominated internal loans. In the third quarter 2018,
the translation risk related to internal dollar financing was
significantly reduced by increasing equity of Business Area
Americas.

Interest rate risk

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

Swedish krona, euro and US dollar have substantial contribution
to the overall interest rate risk. Approximately 40% (2017:
44%) 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, 2018 was 5.8% (Dec 31, 2017: 6.7%). Interest
rate position is presented on a more detailed level in the table.
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.

Foreign exchange positions of EUR-based companies

Dec 31, 2018

Dec 31, 2017

€ million

Trade receivables and payables
Loans and bank accounts 1)
Derivatives
Net position

SEK

15
545
–515
46

USD

–246
270
–1
22

GBP

16
–7
–21
–12

Other

11
–29
16
–3

Foreign exchange positions of SEK-based companies

€ million

Trade receivables and payables
Loans and bank accounts 1)
Derivatives
Net position

Dec 31, 2018

EUR

67
29
–284
–188

USD

–27
14
–116
–129

GBP

Other

–9
2
–1
–8

18
3
–63
–42

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

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

Currency distribution and re-pricing of outstanding net debt

€ million
Currency

EUR
SEK
USD
Others

€ million
Currency

EUR
SEK
USD
Others

Net debt 1)

Derivatives 2)

Average
rate, % 1)

Duration,
year 3)

Rate
sensitivity 4)

Dec 31, 2018

1,264
21
–19
–25
1,241

–737
549
241
–44
9

4.1
2.2
1.7
1.8

3.1
0.0
0.1
0.0

–0.6
5.7
2.2
–0.7
6.6

Net debt 1)

Derivatives 2)

Average
rate, % 1)

Duration,
year 3)

Rate
sensitivity 4)

Dec 31, 2017

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

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

2) Net derivative liabilities include nominal value of interest rate 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.

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

47 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated 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 EUR 245 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. Furthermore, the volumes and discounts
related to stainless scrap purchases have major impact on alloy
metal price risk. Since there is no established financial market
for chrome this risk is categorized as business risk. In 2018,
Outokumpu undertook a project to further improve its metal risk
management. The outcomes of the project were presented to
management and the board.

Apart from chrome, changes in nickel price is the most
important metal price risk for Outokumpu. Significant part of
stainless steel sales contracts includes 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 2018 the hedging ratio has been between zero
and sixty percent. Nickel forwards and options are used to
manage impacts of nickel price changes on earnings, whereas
efficient working capital management helps to reduce cash
flow variations caused by metal prices. Outokumpu’s exposure
to iron price is much similar to that of nickel, except for the
value of the exposure being lower and secondly, Outokumpu
produces some iron in connection with the Kemi chromite
mining. Financial hedging of iron has been considered but so far
systematic alloy metal hedging has been limited to hedging of
nickel price.

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. At year end,
Outokumpu had adequate amount of emission allowances
to cover all forecasted needs of the current emission trading
period, ending in 2020.

Outokumpu manages energy price risk centrally. The Group has
hedged propane price risk by keeping inventories and partly by
fixing purchase prices in its supply contracts. Power price risk is
reduced with fixed price supply contracts and partial ownerships
in power utilities. In late 2018, Outokumpu started using
liquified natural gas at its Tornio site, thus reducing the need of
propane.

Security price risk

Outokumpu has investments in equity and fixed income securi-
ties. On December 31, 2018, the biggest investments were in
Voimaosakeyhtiö SF (equity investment of EUR 79 million) and
OSTP Holding Oy (investment in associated company of EUR 28
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 170 MW power capacity once the project has been
completed. Information on the valuation of the investment is
presented in note 16.

The captive insurance company Visenta Försäkringsaktiebolag
has investments totaling EUR 13 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 defined benefit 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 trade credit insurances,
which typically cover some 90% of the insured amount. Part
of the credit risk related to trade receivables is managed with
letters of credit, advance payments and guarantees.

On December 31, 2018, the maximum exposure to credit
risk of trade receivables was EUR 482 million (2017: EUR
493 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 financial institutions.
Outokumpu seeks to reduce these risks by limiting the coun-
terparties to banks and other financial institutions 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. In 2018, the country risk profile
of Argentina continued to deteriorate, and the value of peso
declined significantly, which caused some adverse impacts for
Outokumpu as well.

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

48 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsThe main funding programs and credit facilities are: a
committed revolving credit facility of EUR 650 maturing in May
2021; a committed Kemi mine investment facility of EUR 120
million having its final maturity in 2030; and an uncommitted
Finnish commercial paper program totalling EUR 800 million.
The revolving credit facility, a bilateral bank loan and the notes
due in 2024 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. More information on liquidity
and refinancing risk is presented in the following table.

forecasted cash flow, 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 debt-to-equity and
leverage ratios are key measurements in the planning.

In 2018, good profitability and positive cash flow from operating
activities allowed continued focus on cost of debt optimization
and weighted average maturity (WAM) of debt. Finance cost
reduction efforts included e.g. call of the notes due 2021 (EUR
202.5 million) and cancellation of a EUR 90 million bilateral
credit facility, which had its final maturity in the first quarter
2019. WAM was positively impacted by issuing EUR 250 million
new notes due 2024 and by agreeing new EUR 80 million
seven-year pension loan, having no repayments during the first
two years. Furthermore, in December 2018 Outokumpu agreed
a long-term EUR 120 million loan facility which can be used to
finance the ongoing investment to deepen the Kemi mine. The
facility can be drawn from April 2019 until early 2022, where
after repayments will begin. The final maturity of the facility is
in 2030.

Net debt development

€ million

Net cash flow from operating activities
Net cash flow from investing activities
Cash flow before financing activities
Dividends paid
Treasury shares purchased
Other financing cash flow
Cash flow impact on net debt

Opening net debt
Cash flow impact on net debt
Change in net debt, non- cash
Closing net debt

2018

214
–229
–14
–103
–17
1
–134

1,091
134
16
1,241

2017

328
–63
264
–41
–20
–39
164

1,242
–164
12
1,091

Moody’s corporate family rating was B1 during the whole year
and the new secured notes were rated by Moody’s at Ba3. Both
ratings have stable outlook.

49 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsContractual cash flows

2018
€ 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

249
238
57
220
85
460
1,200

–6
5
0

2019

–
–
45
3
3
460
1,200
47

2,292
–2,287
–1
4
0
1,766

2020

2021

2022

2023

2024–

–
250
6
47
3
–
–
40

–
–
–1
1
–
346

–
–
4
55
51
–
–
29

–
–
–1
–
–
138

–
–
1
59
0
–
–
22

–
–
–1
–
–
82

–
–
–
16
0
–
–
14

–
–
–1
–
–
29

250
–
–
40
28
–
–
126

–
–
–1
–
–
443

On December 31, 2018, the Group had cash and cash equivalent amounting to EUR 68 million and committed available long-term
credit facilities totaling EUR 650 million. In addition, the EUR 120 million long-term facility will become available for financing the
Kemi mine investment.

2017
€ 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

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.

Capital 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 struc-
ture and debt capacity are taken into account when deciding
e.g. on investments and dividends. 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.

In early part of 2018, Outokumpu’s dividend policy was
updated. According to the new policy dividend pay-out ratio
throughout a business cycle shall be in the range of 30–50% of
net income.

Tools to manage debt capital include issue of new debt,
prepayment of loans and liability management measures, such
as the use of call options of issued notes. In 2018, Outokumpu
called all remaining amount (EUR 202.5 million) of notes due
2021. The revolving credit facility and the Kemi mine financing
facility includes financial covenants, which are based on debt-
to-equity ratios. The notes maturing in 2024 include incurrence
based financial covenant on debt-to-equity ratio and the defined
covenant level is 100 percent.

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.

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 debt-to-equity ratio, which is calculated as net debt

50 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementscargo and credit. In connection with 2018 insurance renewal
Outokumpu chose to increase deductibles of its property
damage and business interruption policy.

Visenta Försäkringsaktiebolag can act as direct insurer and as
reinsurer. Visenta is registered in Sweden and it has assets
totalling EUR 19 million (2017: EUR 21 million). In 2018,
Visenta increased its participation to Outokumpu’s property and
business interruption insurance.

During the reporting year there were no serious fires, but
there were few machinery breakdown incidents of which one
is in claims process. The claim process related to damage in
ferrochrome meltshop in 2017 was concluded and Outokumpu
received EUR 32 million insurance compensation in the fourth
quarter 2018. Fire safety and machinery breakdown audits
were carried out mainly as planned.

divided by total equity, and on a basis of leverage ratio, which is
calculated as net debt divided by adjusted EBITDA. Outokumpu
targets are to have debt-to-equity ratio below 35% and leverage
below 1.0. Outokumpu also targets to improve its current credit
ratings.

Capital structure

€ million

Total equity

Non-current debt
Current debt
Total debt

Total capitalization

Total debt
Cash and cash equivalents
Net debt

Debt-to-equity ratio, %
Net debt to adjusted EBITDA

2018

2,750

798
511
1,309

4,059

1,309
–68
1,241

2018

45.1
2.6

2017

2,721

698
505
1,203

3,924

1,203
–112
1,091

2017

40.1
1.7

The increase in debt-to-equity ratio resulted primarily from
distributions to shareholders and increase in net working
capital. Leverage at year-end increased when compared with
the previous year, this was caused mainly by decrease in
profitability.

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

51 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated 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
Forward and futures
molybdenum contracts
Nickel options, bought
Nickel options, sold

Propane derivatives

Emission allowance
derivatives

Total derivatives

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

Short-term derivatives

2018

2017

2018

2017

Positive
fair value

Negative
fair value

Net
fair value

Nominal
amounts

2,289

2,994

–
200

12
150

Tonnes

12,266

18,581

34
8,000
3,000

–
9,800
–

18,000

–

– 2,400,000

–
2

0
3
–

–

–
15

–
–

0
–
0

–

0
20

–4

–
2

–5

–0
3
–0

–

–4

–1

–0
–4

0
–3

–6

–
–1
–

–

–3

–
6

Outokumpu has hedged with EUR/SEK currency forwards the spot price risk related to SEK
denominated electricity supply agreement for the Finnish production sites. The forward points are
excluded from the cash flow hedging relationship and are recognized in other operating profit and
loss. The currency derivatives designated to cash flow hedge accounting and the purchases of
electricity will mature in year 2019. The management has estimated that possible ineffectiveness
relates to credit risk or timing of transactions, but these are estimated to be insignificant.

Cash flow hedges (EUR/SEK)

Fair value of hedges, € million
Nominal amount of hedges, € million
Nominal amount of hedged item, € million
Hedge ratio
Weighted average hedge rate
Fair value reserve in other comprehensive income, € million
Reclassified from other comprehensive income to profit or loss, € million 1)

1) Included in cost of sales

2018

0
37
38
1:1
9.410
–3
–4

2017

–2
78
79
1:1
9.410
–3
–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

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.

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

2018

2017

17
12
5

21
12
9

44
29
15

40
29
11

52 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements

21. Inventories

€ million

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

2018

485
584
486
0
1,555

2017

423
540
416
1
1,380

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 13 million were recognized in
income statement during the financial year (2017: write-downs
amounting to EUR 5 million). More details on commodity price
risk are presented in note 19.

As of December 31, 2018 Outokumpu has derecognized
trade receivables totaling EUR 392 million (2017: EUR 377
million), which represents fair value of the assets. Net proceeds
received totaled EUR 373 million (2017: EUR 357 million).
Underlying assets have maturity less than one year. The
maximum amount of loss related to derecognized assets is
estimated to be EUR 18 million (2017: EUR 15 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

2018

2017

Cash at bank and in hand
Short-term bank deposits and cash equivalents

Bank overdrafts 1)

67
1
68
–36
32

112
0
112
–7
105

1) Presented in current debt in the consolidated 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 2018 was 1.3%
(Dec 31, 2017: 0.7%).

22. Trade and other receivables

€ million

Non-current

2018

2017
restated

Other accruals and receivables

Current

Trade receivables
VAT receivable
Income tax receivable
Prepaid insurance expenses
Other accruals
Other receivables

Impairment of trade receivables

On Jan 1 before IFRS 9 transition
IFRS 9 transition impact
On Jan 1 according to IFRS 9
Additions
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

482
26
24
11
28
70
640

6
1
7
0
7

416
54
6
6
482

493
37
19
7
38
67
660

6
–
–
0
6

425
56
5
6
493

On January 1, 2017, other accruals amounted to EUR 46
million and total current trade and other receivables amounted
to EUR 688 million. The amounts were impacted by the IFRS
15 transition of EUR 1 million as described in note 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. Expected credit losses
are calculated as defined in the accounting principles of these
financial statements (see note 2).

53 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements

24. Equity

Share capital, premium fund and invested unrestricted equity reserve

€ million

On Jan 1, 2017
Shares delivered from the share-based payment programs 1)
Reward shares returned to the Company
Treasury share purchase
On Dec 31, 2017
Shares delivered from the share-based payment programs 1)
Treasury share purchase
On Dec 31, 2018
Treasury shares 1)
Total number of shares on Dec 31, 2018

Number
of shares,
1,000

Share
capital

Premium
fund

Invested
unrestricted
equity reserve

413,861
813
–2
–2,000
412,672
892
–3,000
410,564
5,811
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. The movement in the cost of treasury shares in presented in
the statement of changes in the equity.

Distributable funds

On December 31, 2018, the distributable funds of the parent
company totaled EUR 2,298 million of which retained earnings
were EUR 175 million. The Board of Directors proposes to the
Annual General Meeting in 2019 that a dividend of EUR 0.15
per share is paid for 2018 (dividend of EUR 0.25 per share
paid for 2017).

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 include
movements in the fair values of available-for-sale financial
assets and derivative instruments used for cash flow hedging.
Other reserves include 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 include remeasurements of defined benefit plans,
treasury shares, cumulative translation differences and other
retained earnings and losses.

54 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements25. Employee benefit obligations
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.

Risks associated with defined benefit plans

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

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

€ million

2018

2017

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 2018, the lump sum payment
option was introduced to more plans, and the assumption
related to the usage of this option was revised. These were
considered as plan amendments leading to a positive settle-
ment impact of EUR 11 million.

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 scheme is registered under UK legislation and is contracted
out of the State Second Pension. The scheme is subject to
the scheme funding requirements outlined in UK legislation.
The scheme trustees are responsible for the operation and
governance of the scheme, including making decisions
regarding the scheme’s funding and investment strategy. In
2018, the interpretation related to guaranteed minimun
pension equalization was changed, which resulted in recognition
of past service cost of EUR 9 million in 2018.

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

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.

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

Funding

Funding requirements are generally based on pension fund’s
actuarial measurement framework set out in the funding
policies. In the UK preliminary pension fund’s valuation was
completed in 2018 with a deficit of GBP 32 million. In 2018,
Outokumpu made contributions totalling GBP 17 million to the
plan to cover the deficit, and the remaining GBP 15 million will
be paid during 2019–2021. The valuation was not based on
the same assumptions as the IFRS valuation, which shows a
surplus.

–2
–3

–5
–7
–12

–7
–4

–11
18
8

2018

2017

415

441

287
–471
231

311
–503
249

2018

2017

304
14
–72
245

319
18
–70
267

55 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated 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
Benefits paid
Curtailments
Disposed subsidiaries
Other change
On Dec 31

2018

2017

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

752
2
15

–
1
–26
8
–3
–
–48
–1
–
1
702

–503
–
–12

24
–
–
–
4
–31
48
–
–
–
–471

249
2
3

24
1
–26
8
1
–31
0
–1
–
1
231

804
7
17

–
8
5
–20
–19
–
–40
–0
–12
–
752

–527
–
–13

–12
–
–
–
18
–18
40
–
9
–
–503

276
7
4

–12
8
5
–20
–1
–18
0
–0
–3
–
249

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, 2018 was EUR 294 million (Dec 31, 2017: EUR 305 million). For the UK, the present
value of obligation was EUR 382 million (Dec 31, 2017: EUR 414 million), and the fair value of plan assets was EUR 454 million
(Dec 31, 2017: EUR 485 million) on December 31, 2018.

The expected contributions to be paid to the defined benefit plans in 2019 are EUR 8 million.

Allocation of plan assets

€ million

Equity instruments
Debt instruments
Real estate
Other assets
Total plan assets

2018

2017

48
251
0
166
465

68
271
1
159
499

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.

56 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated 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

1.75
1.51
–
–
–
–
1.70
1.51
–
–

2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018 Modified from RT 2018
G / RT 2005 G

2017 Modified from

RT 2005 G

2.75
2.50
–
–
3.20
3.20
2.95
2.95
–
–
96% SAPS All Pensioner
Amounts tables with CMI
Core Projection Model
–2016
96% SAPS All Pensioner
Amounts tables

3.12
2.76
1.26
2.18
–
–
–
–
5.20–5.60
6.20–6.60
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 17.1 years. In Germany
and in the UK the weighted average durations are 13.1 and 21.0 years, respectively.

The UK
2018
Discount rate
Future benefit increase
Life expectancy

2017
Discount rate
Future benefit increase
Life expectancy

Other countries
2018
Discount rate
Medical cost trend rate
Future salary increase
Life expectancy

2017
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%

Change in assumption

Increase in assumption

Decrease in assumption

0.5%
0.5%
0.5%
1 year

Decrease by 4%
Increase by 0%
Increase by 1%
Increase by 7%

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

Increase by 4%
Decrease by 0%
Decrease by 1%

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

Sensitivity analysis of significant actuarial assumptions

Other long-term employee benefits

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
2018
Discount rate
Future benefit increase
Life expectancy

2017
Discount rate
Future benefit increase
Life expectancy

Change in assumption

Increase in assumption

Decrease in assumption

0.5%
0.5%
1 year

Decrease by 6%
Increase by 3%
Increase by 3%

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

Increase by 7%
Decrease by 3%

Increase by 8%
Decrease by 3%

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 retirement. In Finland, the employees are entitled to receive a one-time indemnity every five
years after 20 years of service.

The other long-term employee benefit liabilities recognized in the consolidated statement of
financial position on December 31, 2018 were EUR 14 million (Dec 31, 2017: EUR 18 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 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements26. Provisions

€ million

Provisions on Jan 1, 2018
Translation differences
Increases in provisions
Acquired subsidiaries
Utilized during the financial year
Unused amounts reversed
Provisions on Dec 31, 2018

€ million

Non-current provisions
Current provisions

Restructuring
provisions

Environmental
provisions

Other
provisions

23
–0
5
–
–11
–3
13

59
–1
4
1
–5
–5
53

12
–0
2
0
–5
–5
4

2018

65
5
70

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 paper

Total

93
–1
12
1
–22
–14
70

2017

79
14
93

2018

2017

249
238
12
217
82
798

45
3
3
460
511

201
229
18
165
85
698

16
6
5
477
505

Restructuring provisions

Other provisions

Other provisions comprise for example provisions for product
and other claims and are mainly current in nature. The increase
is mainly due to product claims and a provision related to
earlier site closures.

Provisions are based on management’s best estimates at the
end of the reporting period.

Net debt

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

1,309
–68
1,241

1,203
–112
1,091

The bond maturing in 2024 as well as credit facilities and
long-term loans from financial institutions include financial
covenants, which are described in note 19.

Restructuring provisions 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, 2018 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 to take place between years 2019–2024.

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, the
UK, and 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 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsChanges in non-current and current debt

2018
€ million

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

2017
€ million

On Jan 1
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

613
101
–10
11
715

13
–13
10
–
10

85
–
–3
–
82

5
–5
3
–
3

487
7
–
4
499

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

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

2018

12
74
147
–147
85

2017

14
83
149
–157
90

Present value of minimum lease payments

€ million

2018

2017

Not later than 1 year
Between 1 and 5 years
Later than 5 years
Present value of minimum lease payments

3
54
28
85

5
56
29
90

Total

1,203
90
–
16
1,309

Total

1,445
–254
–
13
1,203

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. In consolidated statement of cash flows, these was reported as other financing cash flow.

28. Trade and other payables

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

Bonds

€ million

2018 fixed rate bond maturing on June 18, 2024
2016 fixed rate bond maturing on June 16, 2021

Convertible bonds

€ million

2015 fixed rate bond maturing on Feb 26, 2020

Interest rate, %

4.125
7.250

Outstanding amount

2018

250
–
250

Interest rate, %

3.250

Outstanding amount

2018

250

2017

–
203
203

2017

250

The convertible bond is convertible into ordinary shares of Outokumpu. The current conversion price is set at EUR 7.06. 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.

€ million

Non-current
Accruals

Current

Trade payables
Accrued employee-related expenses
Accrued interest expenses
VAT payable
Withholding tax and social security liabilities
Payables related to factoring programs
Advance payments received
Other accruals
Other payables

2018

2017
Restated

1,200
63
5
24
21
46
10
49
52
1,471

1,162
77
6
26
19
50
8
48
48
1,442

Customer contract liabilities related to unperformed transporta-
tion service amounted to EUR 1 million on December 31,
2018 (Dec 31, 2017 and Jan 1, 2017: EUR 1 million). These
liabilities and advances received are expected to be recognized
as revenue during the first quarter of 2019.

59 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statementsOn December 31, 2018, accrued volume discounts related to
contracts with customers amounted to EUR 28 million (Dec 31,
2017: EUR 32 million).

On January 1, 2017, other accruals amounted to EUR
52 million and the total current trade and other payables
amounted to EUR 1,461 million. The amounts were impacted
by the IFRS 15 transition of EUR 1 million as described in note
2.

29. Commitments and contingent liabilities

€ million

Mortgages and pledges on Dec 31

Mortgages
Other pledges

Guarantees on Dec 31

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

Other commitments on Dec 31

2018

2017

3,055
28

2,984
13

–

Mortgages relate mainly to securing the 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
of EUR 13 million to secure certain liabilities of Manga LNG
Oy. Outokumpu’s total liability at the end of 2018 amounted to
EUR 33 million (2017: EUR 31 million), and the part exceeding
the share pledge and guarantee is presented under other
commitments.

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 2018 amounted to EUR 2 million (2017: EUR 2
million). These liabilities are reported under other commitments.

Minimum lease payments on operating leases

€ million

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

2018

2017

13
32
44
90

11
30
47
88

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 79 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 106 million on December 31, 2018 (Dec 31,
2017: EUR 28 million).

30. Disputes and litigations

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 estate filed a
claim against Outokumpu Oyj and two other non-Outokumpu
companies for recovery of payments made by the bankrupt
Spanish company in connection with the divestment. The court
of first instance in Spain accepted the claim of EUR 20 million
brought against Outokumpu and the two other companies.
Outokumpu and the two other companies then appealed the
court’s decision and in March 2018 the Court of Appeal ruled
in favor of Outokumpu. In May 2018, the administrator of the
bankruptcy estate filed an appeal before the Spanish Supreme
Court, where the case pending.

Claim in Italy related to former tax consolidation group

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 tax benefits (tax losses, tax credits and
interest expenses) transferred by AST to the Italian tax group
during the period from financial year 2007/08 until 2013,
which have in AST’s view not been properly settled towards
them in the following years. The matter is currently pending in
court in Italy.

Antitrust investigation in Germany

60 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements31. 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 transac-
tions 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, owned 22.8% of Outokumpu on December 31, 2018.
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 and other operating income
Purchases
Dividend income

Trade and other receivables
Trade and other payables

2018

100
–16
1

24
3

2017
Restated

104
–5
2

25
0

Employee benefits for the key management

€ thousand

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

1) Includes only supplementary pensions.

2018

6,381
519
1,247
55
576
8,777

2017

7,848
–
1,792
6,449
617
16,706

Employee benefits for CEO and Deputy CEO

€ thousand

2018

CEO
Deputy to the CEO

2017

CEO
Deputy to the CEO

Salaries and other
short-term benefits

Bonuses

Termination
benefits

Post-employment
benefits

Share-based
payments

1,076
469

1,073
440

348
163

701
249

–
519

–
–

503
101

612
196

–166
159

1,787
700

Total

1,761
1,411

4,173
1,584

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.

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

2018

2017

Chairman Kari Jordan, as of March 22, 2018
Chairman Jorma Ollila, until March 22, 2018
Vice Chairman Olli Vaartimo
Member Kati ter Horst
Member Heikki Malinen
Member Eeva Sipilä, as of March 21, 2017
Member Pierre Vareille, as of March 22, 2018
Member Markus Akermann, until March 22,
2018
Member Roberto Gualdoni, until March 22,
2018
Member Saila Miettinen-Lähde, until June 9,
2017
Member Stig Gustavson, until March 21, 2017
Member Elisabeth Nilsson, until March 21, 2017

164
2
97
77
77
75
77

–
–
–
576

–
148
89
69
68
67
–

18
2
5
617

61 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements32. Subsidiaries on December 31, 2018

Country

Group
holding, %

Europe
Outokumpu AS
Outokumpu Asia Pacific Ltd
Outokumpu B.V.
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 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 Service Center GmbH
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

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

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

Long Products
Fagersta Stainless AB
Outokumpu Stainless Bar, LLC
Outokumpu Stainless Ltd

Ferrochrome
Outokumpu Chrome Oy

Other operations
Outokumpu Americas, Inc.
Outokumpu Distribution Benelux B.V.
Outokumpu Holding Germany GmbH
Outokumpu Holding Italia S.p.A.
Outokumpu Holding Nederland B.V.
Outokumpu Mining Australia Pty. Ltd.
Outokumpu Mining Oy
Outokumpu Stainless Holding GmbH
Outokumpu Stainless Holdings Ltd
Outokumpu Stainless UAB
Québec Inc.
Viscaria AB
Visenta Försäkrings AB

Country

Brazil
Argentina
Mexico
Mexico
The US
Mexico

Sweden
The US
The UK

Finland

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

Group
holding, %

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 branch offices in South Korea, Switzerland, Taiwan, Thailand, The UK
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

2) Acquired in 2018

62 / 71

Outokumpu Annual report 2018 | Financial statementsNotes to the consolidated financial statements

Parent company
financial statements

Income statement of the parent company

€ million

Sales

Cost of sales

Gross margin

Other operating income
Selling and marketing expenses
Administrative expenses
Other operating expenses

EBIT

Financial income and expenses

Result before appropriations and taxes

Appropriations

Group contribution
Change in depreciation difference

Income taxes

Result for the financial year

2018

2017

587

–482

105

87
–17
–110
–431

–367

187

–180

185
1

–0

505

–384

121

135
–18
–115
–1

123

132

97
–2

–0

227

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.

63 / 71

Outokumpu Annual report 2018 | 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
Loans receivable
Trade receivables
Prepaid expenses and accrued income
Other receivables

Cash and cash equivalents

Total current assets

TOTAL ASSETS

2018

2017

€ million

2018

2017

100

3,776
1,022
27
80
2
4,906

4,002
924
31
64
1
5,021

5,016

5,080

617
54
40
213
924

947

1,223
64
16
167
1,471

1,532

5,962

6,612

EQUITY AND LIABILITIES

Shareholders’ equity
Share capital
Premium fund
Invested unrestricted equity reserve
Retained earnings
Result for the financial year

Untaxed reserves

Accumulated depreciation difference

Liabilities

Non-current liabilities

Bonds
Convertible bonds
Loans from financial institutions
Pension loans
Other non-current loans

Current liabilities

Loans from financial institutions
Pension loans
Group bank account liabilities
Other current loans
Trade payables
Accrued expenses and prepaid income
Other current liabilities

Total liabilities

TOTAL EQUITY AND LIABILITIES

311
720
2,123
169
6
3,330

311
720
2,123
63
227
3,444

250
250
12
137
1
650

36
3
1,275
464
163
10
30
1,982

203
250
18
149
4
625

13
3
1,751
549
142
11
74
2,542

2,632

3,166

5,962

6,612

64 / 71

Outokumpu Annual report 2018 | Financial statementsParent company financial statementsCash flow statement of the parent company

€ million

2018

2017

€ million

2018

2017

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
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
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

0
7
431
–78
–94
–171
35
–1
15
–185
1
–40

–10
2
–8

171
89
–36
–0
224

183

227

0
6
–135
0
–93
–0
54
1
5
–99
0
–261

8
26
35

0
96
–59
–0
37

–398
–0
–78
255
–10
27
0
–125

–330

–147

–103
–17
250
–221
–540
97
643

108
–39
–39

–15
–0
–38
170
–0
24
0
–418

–277

–240

–41
–20
190
–538
130
0
454

177
–63
–63

65 / 71

Outokumpu Annual report 2018 | Financial statementsParent company financial statementsStatement of changes in equity of the parent company

€ million

Equity on Jan 1, 2017
Result for the financial year
Dividends paid
Treasury shares repurchase
Equity on Dec 31, 2017
Result for the financial year
Dividends paid
Treasury shares repurchase
Equity on Dec 31, 2018

Share
capital

Premium
fund

Invested
unrestricted equity
reserve

Retained
earnings

Distributable funds on Dec 31

Total equity

€ million

311
–
–
–
311
–
–
–
311

720
–
–
–
720
–
–
–
720

2,123
–
–
–
2,123
–
–
–
2,123

123
227
–41
–20
289
6
–103
–17
175

3,278
227
–41
–20
3,444
6
–103
–17
3,330

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

2018

169
6
2,123
2,298

2017

62
227
2,123
2,412

Commitments and contingent liabilities of the parent company

€ million

Other pledges on Dec 31

2018

2017

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

Guarantees on Dec 31
On behalf of subsidiaries

For financing
For commercial guarantees
For other commitments

On behalf of associated companies

For financing

Other commitments on Dec 31

378
2
28

295
0
27

–

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 2018 amounts to EUR 33 million (2017:
EUR 31 million), and the part exceeding the share pledge and
guarantee is presented under other commitments.

Outokumpu Oyj is, in relation to its shareholding in Etelä-Pohjan-
maan Voima Oy, liable for the costs, commitments and
liabilities relating to electricity provided by Tornion Voima Oy.
Outokumpu Oyj’s liability for the net debt of Tornion Voima Oy
at the year-end 2018 amounted to EUR 2 million (2017: EUR 2
million). These liabilities are reported under other commitments.

66 / 71

Outokumpu Annual report 2018 | Financial statementsParent company 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

• 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

• 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

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

Overview

• Overall group materiality: € 32 million

Materiality

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

majority of revenues, assets and liabilities.

We have audited the financial statements of Outokumpu Oyj (business identity code 0215254-2)
for the year ended 31 December 2018. The financial statements comprise:

Group scoping

• Valuation of goodwill

• the 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 and notes to the consolidated financial statements, including a
summary of significant accounting principles

• the parent company’s income statement, balance sheet, cash flow statement and notes to the

parent company financial statements.

Key audit
matters

• Valuation of Property, Plant and Equipment

• Valuation of inventories

• System environment and internal controls

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

statements

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.

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.

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

Independence

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.

Materiality

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
misstatement. Misstatements may arise due to fraud or error. They are considered material
if individually or in aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for
materiality, including the overall group materiality for the consolidated financial statements as set

67 / 71

Outokumpu Annual report 2018 | Auditor’s ReportAuditor’s reportout 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

€ 32 million

How we determined it

0.5% of net sales 2018

Rationale for the materiality
benchmark applied

We chose net sales as the benchmark because, in our view,
it is a stable and an 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 0.5% which
is within the range of acceptable quantitative materiality
thresholds in auditing standards.

How we tailored our group audit scope

We tailored the scope of our audit, taking into account the structure of the Outokumpu group, the
accounting processes and controls, and the industry in which the group operates. The group audit
scope was focused on the manufacturing companies in Finland, Sweden, Germany, USA, Mexico,
the UK and 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.

Key audit matter in the
audit of the group

How our audit addressed
the key audit matter

Valuation of goodwill

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

As at 31 December 2018 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.

68 / 71

Outokumpu Annual report 2018 | Auditor’s ReportAuditor’s reportValuation of Property, Plant
and Equipment

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

As at 31 December 2018 the Group’s Property,
Plant and Equipment (PPE) amounted to €
2,659 million, which is 44% of the total assets
and 97% of the total equity.

The group’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

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

Our audit work included testing management’s
key controls in place to ensure proper valuation
and existence of inventories.

Net inventories amount to € 1,555 million as
at 31 December 2018.

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.

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.

69 / 71

Outokumpu Annual report 2018 | Auditor’s ReportAuditor’s reportSystem environment and
internal controls

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.

Our response to the risks related to the
fragmented system environment included both
testing of IT controls and tests of details.

We tested the group’s controls around access
and change management related to key IT
systems. We also tested the group’s controls
around system interfaces, 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 management, and
performed tests of detail to reduce the related
risks of material misstatement to an acceptably
low level.

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 2018, the value of
Outokumpu Oyj’s subsidiary shares amounted
to € 3,776 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.

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 consoli-
dated 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.

In 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

70 / 71

Outokumpu Annual report 2018 | Auditor’s ReportAuditor’s reporta 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 state-
ments. 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. Our
appointment represents a total period of uninterrupted engagement of 2 years.

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.

In 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 7 February 2019

PricewaterhouseCoopers Oy

Authorised Public Accountants

Janne Rajalahti

Authorised Public Accountant (KHT)

71 / 71

Outokumpu Annual report 2018 | Auditor’s ReportAuditor’s reportGovernance
2018

Outokumpu’s Corporate Governance
statement includes information on the
Group’s governance principles as well as
remuneration and risks.

Corporate Governance Statement 2018

Regulatory and structural framework

Outokumpu Oyj, the Group’s parent company, is a public limited
liability company, listed on Nasdaq Helsinki and incorporated
and domiciled in Finland. In its corporate governance and
management, Outokumpu Oyj complies with the laws and regu-
lations applicable to Finnish public companies, the company’s
Articles of Association and the Corporate Governance Policy
approved by the company’s Board of Directors.

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

The governing bodies of the parent company Outokumpu
Oyj, i.e. the General Meeting of Shareholders, the Board
of Directors, and the President and Chief Executive Officer
(CEO), have the ultimate responsibility for the management

Organization structure

and operations of the Outokumpu Group (“the Group”). The
Outokumpu Leadership Team supports and assists the CEO in
the efficient management of the Group’s operations. The latest
Corporate Governance Statement and other updated corporate
governance information can be found on the Group’s Corporate
Governance website.

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.

President and CEO
Roeland Baan

Human Resources &
Organization Development

Finance

Business Transformation & IT

Communications & IR

Europe

Americas

Long Products

Ferrochrome

Outokumpu Annual report 2018 | Governance

2 / 26

Composition and operations of the Board of Directors December 31, 2018
Chairman of the Board of Directors

Vice Chairman of the Board of Directors

Members of the Board of Directors

Kari Jordan

Chairman of the
Remuneration
Committee

Olli Vaartimo

Chairman of the Audit
Committee

Kati ter Horst

Member of the Audit
Committee

b. 1956, Finnish citizen
M.Sc. (Econ.), Vuorineuvos (Finnish honorary title)
Outokumpu Board member 2018–
Chairman of the Board 2018–
Chairman of the Remuneration Committee

Work experience
CEO: Metsäliitto Cooperative 2004–2017
President and CEO: Metsä Group 2006–2018
Chairman, Metsä Board Corporation 2005–2018
Chairman, Metsä Fibre Oy 2006–2017
Chairman, Metsä Tissue Corporation 2004–2017
Executive Vice President and Member of the Group Executive
Management: Nordea AB and predecessors 1994–2004
Member of the Executive Board: OKOBANK 1987–1994

Positions of trust
Chairman of the Supervisory Board: Varma Mutual Pension
Insurance Company 2015–
Vice Chairman of the Board: Nokian Tyres Plc 2018–
Chairman of the Board: Finland Chamber of Commerce
2012–2016
Member of the Board (2005–2017), Vice Chairman of the
Board (2005–2008, 2014–2017) and Chairman of the Board
(2009–2011): Finnish Forest Industries Federation
Member of the Board (2005–2016) and Vice Chairman of the
Board (2009–2011, 2013–2014): Confederation of Finnish
Industries (EK)

Independent of the company and its significant shareholders.

Outokumpu Annual report 2018 | Governance

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 2016–2018
Board member: Sampo-Rosenlew Oy 2016–
Board member: Black Bruin Oy (formerly Sampo-Hydraulics Oy)
2016–
Board member: Valmet Automotive Oy 2014–2018

Independent of the company and its significant shareholders.

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.

3 / 26

Corporate Governance statementHeikki Malinen

Member of the
Remuneration
Committee

Eeva Sipilä

Member of the Audit
Committee

Pierre Vareille

Member of the
Remuneration
Committee

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

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, 2006–2008

Positions of trust
Vice Chairman 2016–2018 and Board member: Service Sector
Employers PALTA 2013–
Board member: Realia Group 2017–
Board member: East Office of Finnish Industries 2012–

Independent of the company and its significant shareholders.

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

Independent of the company and its significant shareholders.

Additional information on work experience and positions of trust
to be found on the Company’s website

Outokumpu Annual report 2018 | Governance

b. 1957, French citizen
Knight of the Legion of Honour in July 2003
M.Sc. (Ecole Centrale Paris), BA (Econ.) (Sorbonne University),
Degree in Controlling and Finance (Institut de Contrôle de
Gestion)
Outokumpu Board member 2018–
Member of the Remuneration Committee

Work experience
Chairman and CEO 2012–2013 and CEO 2013–2016:
Constellium
Chairman of the Board and CEO: FCI SA 2008–2012
Chief Operating Officer: FCI SA 2007–2008

Positions of trust
Chairman of the Board: Société Bic SA 2018–
Board member and member of the Remuneration and Selection
Committee: Etex SA 2017–
Board member (2017–) and member of the Audit Committee
and the Compensation Committee (2018–): Ferroglobe Plc.
Board member (2015–) and member of the Audit Committee
(2018–): Verallia
Founder and Co-President: The Vareille Foundation 2014–
Board member and member of the Strategic Committee:
CentraleSupelec 2008–

Independent of the company and its significant shareholders.

4 / 26

Corporate Governance statementThe Board assesses the independence of the Board members
and records the outcome in the Board minutes. All members of
the Board of Directors on December 31, 2018 were indepen-
dent of the company and its significant shareholders.

Outokumpu shares and share-based rights (parent
and subsidiaries) owned by each director and their
controlled corporations on December 31, 2018

of the Board of Directors. The main duties of the Board of
Directors are as follows:

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

organization;

With respect to directing the company’s
business and strategies:

• Decide on Outokumpu’s strategy and the long-term targets
of the Outokumpu Group (the “Group”) and monitor their
implementation;

• 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;

Board member

Kari Jordan
Olli Vaartimo
Kati ter Horst
Heikki Malinen
Eeva Sipilä
Pierre Vareille
Total

Number of
shares

81,387
55,182
14,150
33,598
12,962
24,981
222,260

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.

The Board of Directors has established the rules of procedure
that define its tasks and operating principles in the Charter

• Decide on annual business plans and monitor their

• Ensure that the company has guidelines for any other matters

implementation;

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

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:

• Decide on any major and strategically significant investments

• Establish a dividend policy and issue a proposal on dividend

and monitor their implementation;

distribution;

• Decide on any major and strategically important

business acquisitions and divestments and monitor their
implementation;

• 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;

• 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 elected 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.

Outokumpu Annual report 2018 | Governance

5 / 26

Corporate Governance statementThe 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 6 members was elected at the 2018
Annual General Meeting. The Board of Directors meets at least
five times each year. In 2018, the Board of Directors had 10
meetings, and the average attendance rate was 97%.

Breakdown of individual attendance
at Board meetings

10 meetings in 2018

Attendance

Kari Jordan, from March 22, 2018
Jorma Ollila, until March 22, 2018
Olli Vaartimo
Markus Akermann, until March 22, 2018
Roberto Gualdoni, until March 22, 2018
Kati ter Horst
Heikki Malinen
Eeva Sipilä
Pierre Vareille, from March 22, 2018

9/9
1/1
10/10
1/1
1/1
10/10
10/10
8/10
9/9

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

Outokumpu Annual report 2018 | Governance

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 2018.

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
five times during 2018, and the average attendance rate was
100%.

Breakdown of individual attendance
at Audit Committee meetings

5 meetings in 2018

Attendance

Olli Vaartimo
Roberto Gualdoni, until March 22, 2018
Kati ter Horst
Eeva Sipilä

Remuneration Committee

5/5
1/1
5/5
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 2018, and the
average attendance rate was 100%.

Breakdown of individual attendance at
Remuneration Committee meetings

4 meetings in 2018

Attendance

Kari Jordan, from March 22, 2018
Jorma Ollila, until March 22, 2018
Markus Akermann, until March 22, 2018
Heikki Malinen
Pierre Vareille, from March 22, 2018

Temporary Working groups

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

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 2018.

6 / 26

Corporate Governance statementShareholders’ Nomination Board

Tuula Korhonen, Investment Manager of the Finnish Social
Insurance Institution. Antti Mäkinen was elected Chairman
of the Nomination Board, and Kari Jordan, Chairman of the
Outokumpu Board of Directors, served as an expert member.
The Nomination Board convened twice for a formal meeting,
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 2019 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 acts 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 2018 were Solidium Oy, Varma Mutual
Pension Insurance Company, the Social Insurance Institution
of Finland and Ilmarinen Mutual Pension Insurance Company.
These shareholders nominated 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; Jouko Pölönen, President
and CEO of Ilmarinen Mutual Pension Insurance Company and

Outokumpu Annual report 2018 | Governance

7 / 26

Corporate Governance statementExecutive Management
Biographical details of the CEO and the Leadership Team on December 31, 2018

Roeland Baan
President and Chief
Executive Officer

Christoph
de la Camp

Chief Financial Officer,
until March 2019

Maciej Gwozdz

President – Europe

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

b. 1963, German citizen
MBA, B.Sc. (Eng.)
Chief Financial Officer and Deputy to the CEO 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 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 – business area Europe: 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
Board member 2016– and Vice Chairman 2017–:
International Stainless Steel Forum
Supervisory Board member: SBM Offshore N.V. 2018–
Board member: World Steel Association 2016–
Board member 2015– and member of the Executive Committee
2018–: Eurofer

b. 1975, Polish citizen
Executive MBA, M.Sc. (Econ.)
President – Business area Europe 2018–
Member of the Outokumpu Leadership Team 2016–
Responsibility: Business area Europe, Global R&D and
Operational Excellence
Employed by 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

Outokumpu Annual report 2018 | Governance

8 / 26

Corporate Governance statementKari Tuutti

President
– Long Products

Michael S.
Williams

President – Americas

Liam Bates

Executive Vice
President – Supply Chain
Management, Europe

b. 1970, Finnish citizen
M.Sc. (Econ.)
President – Business area Long Products 2014–
Member of the Outokumpu Leadership Team 2012–
Responsibility: Business area Long Products
Employed by 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
Chairman of the Board: Fagersta Stainless AB 2014–2015,
2016–2017, 2018–
Board member: Fagersta Stainless AB 2015–2016,
2017–2018

b. 1960, US citizen
B.Sc. (Information science)
President – Business area Americas 2015–
Member of the Outokumpu Leadership Team 2015–
Responsibility: Business area Americas
Employed by 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, British citizen
B.Sc. hons Economics, MBA
Executive Vice President – Supply Chain Management, Business
area Europe 2016–
Member of the Outokumpu Leadership Team 2015–
Responsibility: Supply chain management in Business area
Europe
Employed by 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

Outokumpu Annual report 2018 | Governance

9 / 26

Corporate Governance statementOlli-Matti Saksi

Executive Vice President
– Sales, Europe

Jan Hofmann

Executive Vice President
– Business
Transformation & IT

Reeta
Kaukiainen

Executive Vice President
– Communications and
Investor Relations

b. 1967, Finnish citizen
M.Sc. (Eng.)
Chief Commercial Officer 2018–
Executive Vice President – Sales, Business area Europe 2016–
Member of the Outokumpu Leadership Team 2014–
Responsibility: Sales in business areas Europe and the
Americas, commercial strategy and development
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 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 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

Outokumpu Annual report 2018 | Governance

10 / 26

Corporate Governance statementJohann Steiner

Executive Vice President
– Human Resources
and Organization
Development

Pia
Aaltonen-Forsell

Chief Financial Officer,
as of March 1, 2019

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 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

b. 1974, Finnish citizen
M.Soc.Sc. (Econ.)
Chief Financial Officer and Deputy to the CEO, 2019–
Member of the Outokumpu Leadership Team 2019–
Responsibility: Financial and business controlling and analysis,
taxation, treasury, metal and risk management, global business
services
Employed by Outokumpu Group since 2019

Work experience
Executive Vice President & CFO: Ahlström-Munksjö 2018
Chief Financial Officer: Munksjö 2015–2017
Chief Financial Officer: Vacon 2013–2015
Senior Vice President, Finance, IT and M&A, Building and Living:
Stora Enso 2012–2013
Senior Vice President & Group Controller: Stora Enso
2009–2012
Various finance and managerial positions: Stora Enso
2000–2009

Positions of trust
Board member (2017–) and Audit Committee Chair (2018–):
Uponor

Additional information on work experience and positions of trust
to be found on the Company’s website

Outokumpu Annual report 2018 | Governance

11 / 26

Corporate Governance statementOutokumpu shares and share-based rights
(parent or subsidiaries) owned by the CEO
and Leadership Team members and his/her
controlled corporations on December 31, 2018

Member of the Leadership Team

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

Number of
shares

997,246
223,440
102,767
145,539
102,589
0
211,757
112,245
130,365
235,145
2,261,093

More information on compensation can be found on p. 21 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 opera-
tions in line with the targets set by the Board of Directors and
the CEO. At the end of 2018, the members of the Outokumpu
Leadership Team held the following positions:

• President and Chief Executive Officer (Group management,
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 (business area Europe)

• President – Americas (business area Americas)

• President – Long Products (business area Long Products)

• Executive Vice President – Sales, Europe (sales in business

area Europe)

• Executive Vice President – Supply Chain Management, Europe

(supply chain management in business area Europe)

• Chief Commercial Officer (commercial strategy and

development)

• 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.

Outokumpu Annual report 2018 | Governance

12 / 26

Corporate Governance statementInternal control procedures and the main features of risk management systems

Internal control and risk management
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 appropriately 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 Outokumpu’s 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 regular manage-
ment reporting routines and in performance review meetings.

Risk management
Outokumpu operates in accordance with the risk management
policy approved by the company’s Board of Directors. The policy
defines the objectives, approaches, and areas of responsibility

Outokumpu Annual report 2018 | Governance

Risk management
process in Outokumpu

Enterprise-wide risks

s
k
s
i
r

r
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

in the Group’s risk management activities. In addition to
supporting Outokumpu’s strategy, the aim of risk management
is identifying, evaluating, and mitigating risks from the perspec-
tive 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.
The Business areas and Group functions are responsible for
managing risks connected with their own operations. 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. The Treasury and Risk
Management function supports the implementation of Outo-
kumpu’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

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 regularly in
relation to earnings, cash flows and capital structure. The risk
management process is divided into four stages: risk identifica-
tion, evaluation/prioritization, mitigation and reporting. The Risk
management process in Outokumpu is two-fold: 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. Regular
risk updates are carried out to capture relevant information.
The monitoring 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 relevant parties such as shareholders
and other stakeholders. Risk mitigation actions are defined
based on the information captured and the impact/likelihood
assessments.

13 / 26

Corporate Governance statement

Focus areas

The focus in risk management in 2018 was on implementing
the actions for the mitigation of identified risks, supporting
improvements in operational reliability in Outokumpu e.g. by
modelling business interruption risks and on improving the
efficiency of the risk management process. The efforts also
included actions to support the reduction of Group’s costs,
improvements in metal and commodity risk management
processes as well as improving the controls of Outokumpu’s
operations as part of a large business process transformation
program. Outokumpu continued its systematic fire safety
and loss prevention audit program, which focused also in
operational reliability to prevent machinery breakdown related
business interruptions. In total, some twenty fire safety loss
prevention audits were carried out in 2018 using in-house
expertise in cooperation with external advisors.

The main realized risks in 2018 were related to increased costs
in certain supply materials, inadequate profitability of business
area Americas, market volatility as a result of trade political
actions related to Section 232 and delayed implementation of
the business transformation program.

Internal controls for financial reporting

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 on 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 2018 financial year, Outokumpu has implemented the new
IFRS 15 and IFRS 9 standards, as well as changes to the IFRS 2
standard, and continued to prepare for IFRS 16 implementation
at the beginning of 2019. In 2017, Outokumpu carried out
an evaluation and preparation work for these IFRS changes.
Outokumpu will implement the IFRS 16 standard as of the
beginning of 2019 and continue to follow other changes in IFRS
standards closely. The impacts of the IFRS 16 implementation
will be disclosed during the first quarter of 2019.

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 managed
according to Outokumpu’s risk management process and
classified as operational risks which can arise as consequences
of inadequate or failed internal processes, employee actions,
systems, or other events such as misconduct or crime. The
risks related to financial reporting are identified and typically
assessed in risk workshops, which were recently arranged
in connection with Outokumpu’s ongoing project to further
improve its governance, risk and compliance processes.
All major risks are reported to and evaluated by the Audit
Committee on a regular basis

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 in 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 would not exist (i.e. one
person performing an activity and also being responsible for
controlling that activity). Control activities consist of different
kinds of measures and include reviews of financial reports by
Group management and in business area management teams,
the reconciliation of accounts, analyses of the logic behind
reported figures, forecasts compared to actual reported figures,
and analyses of the Group’s financial reporting processes,
among others. A key component is the monitoring of monthly
performance against financial and operational targets. These
control activities take place at different levels of the organiza-
tion. The most important accounting items in Outokumpu are
the valuation and reporting of inventories and other items of
working capital as well as other items calling for management
judgement. 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 ensuring appropriate structures for the Group’s internal
controls. The Group’s consolidation system provides 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 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). Outokumpu has also recently centralized the majority
of its accounting and financial reporting in 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. The quality and consistency of

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Corporate Governance statementthe controls around the financial closing process are addressed
separately in a project started in 2018. First rollouts of the new
ERP will take place during 2019.

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
meetings are also organized. Senior controller meetings are
organized regularly 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 common financial
processes and reporting practices are followed throughout the
Group. The networks and communities play an important role
in establishing the effectiveness of internal controls relating to
financial reporting.

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 that an appropriate control environment
exists across the Group. Risk management and external
auditors are also engaged in the 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 organiza-
tion 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. As a basic principle, all large units are visited at least
once per year, all medium size units once every 3 years and all
small units once every 5 years.

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
instructions, 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 2018, Internal Audit performed 12 scheduled operational
audits including the Outokumpu Global Business Services
Europe in Lithuania, the worldwide IT hardware refresh
program, the Ferrochrome business area in Finland, and audits
of the Outokumpu subsidiaries in China and South America.
The results of all the audits carried out including their risk
appraisals are reported and distributed in writing. In view of the
Outokumpu Code of Conduct and the Corporate Responsibility
Policy a previously identified potential risk in the context of
sales is deemed to be resolved and controlled adequately.
The 2019 internal audit plan covers for instance the following
topics: the Outokumpu Global Business Services Americas in
Mexico, the procurement of raw materials, the Outokumpu
subsidiaries in Singapore and Australia, the controls in procure-
ment and payroll processing in Sweden, the Long Products

operations in the United Kingdom and Sweden and, and the
Coil Service Centers in Germany and France.

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. Four-
teen unscheduled investigations of potential misconduct were
performed in 2018, thereof one case reported via the Helpline
and thirteen recognized through other channels. Internal Audit
observed a small number of cases involving inappropriate
behavior, but none of these cases was financially material.
Various attempts of fraud through faked e-mails received from
external sources 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 Outo-
kumpu employees live up to Outokumpu’s ethical standards.
Outokumpu’s Legal, Corporate Affairs and Compliance function
is responsible for managing and continuously developing
Outokumpu’s compliance program. Outokumpu’s compliance
program is described in more detail as part of Outokumpu &
society 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-re-
lated matters are also regularly handled in the Compliance
Steering Group (former Compliance Committee), consisting
of the CEO, CFO, Head of HR and Organization Development,
Corporate General Counsel and Group Compliance Officer. The
Compliance Steering Group met four times in 2018.

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Corporate Governance statementoverseeing 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 22, 2018
and has been the Auditor of Outokumpu for two consecutive
terms. 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.

Outokumpu’s Board Audit Committee continuously monitored
non-audit services purchased by the Group from Pricewater-
houseCoopers Oy at a global level. In 2018, auditors were paid
fees totaling EUR 2.3 million, of which non-auditing services
accounted for EUR 0.1 million. n

Insider management
The company’s Insider Rules and the insider laws and
regulations, including the EU Market Abuse Regulation, Finnish
Securities Act and the Guidelines for Insiders issued by Nasdaq
Helsinki, constitute the primary legal framework for the insider
issues relevant to the Group and its employees.

Furthermore, the Regulation on EU Energy Market Integrity and
Transparency 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 his/her own
account or for the account of a third party, directly or indirectly,
relating to the company’s shares or debt instruments, or deriv-
atives 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
function 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. The auditors
must be Authorized Public Accountants (KHT) or accounting
firms whose mainly responsible auditors are Authorized Public
Accountants (KHT). The auditors shall be independent of the
company.

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 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.

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

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Corporate Governance statementKey risks

Strategic and business risks

Risks related to Outokumpu’s
business priorities and targets
Outokumpu is progressing to become the best value creator
in stainless steel by 2020 through customer orientation and
efficiency. The company has made significant improvements
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
Outokumpu believes that the long-term prospects for stainless
steel demand remain firmly positive. Global mega-trends
including population growth, urbanization, increasing mobility
and climate change will drive the need for sustainable materials.
There are risks that such mega-trends will realize more slowly
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, thereby
reducing growth prospects in Outokumpu’s core markets.
Nonetheless, demand growth in Outokumpu’s main regions and
customer segments is expected to be robust and will continue
to support long-term growth.

The risk of global overcapacity in stainless steel has the
potential to disrupt industry economics. The commissioning
of further export-driven capacity in Asia, particularly in China
and Indonesia, has created a regional demand imbalance. This
results in a risk of adverse trade flows to Outokumpu’s core

markets, which when further coupled with trade protectionist
measures, can distort the stainless steel market. Given the
global nature of its operations Outokumpu has significant
exposure to the effects of trade actions and barriers which
create a risk to market access, continued growth and stable
profitability.

This risk was realized on March 8, 2018 with the implemen-
tation by the United States of America of additional tariffs
on imports of aluminium and steel under Section 232 of the
1962 Trade Expansion Act. The resulting reduction in imports
to the United States, and diversion of trade flows towards the
European market, has disrupted the balance in both markets.
The European Commission’s imposition of provisional safeguard
measures on steel imports on 19 July, 2018 has only been
partially successful in mitigating the risks. Definitive measures
consisting of a tariff-rate quota system were announced
in January 2019 which should support the restoration of
traditional market supply levels and reduce the profitability risk.
Outokumpu also retains concerns about the possible impacts
were China to be granted Market Economy Status which would
make it more difficult for other countries to impose trade
defense measures against it.

With increasing global demand for stainless steel, Outokumpu
expects global demand for ferrochrome, a key ingredient in
stainless steel production, to increase correspondingly. From
its cost competitive chromite mine in Kemi and ferrochrome
production facilities in Tornio, Outokumpu supplies a significant
amount of ferrochrome to its own stainless steel operations. As
a result, Outokumpu is well placed to maintain high utilization
rates and support the group’s growth and profitability. Risks
resulting from its production of ferrochrome are typical
operational risks and uncertainties that may cause significant
financial impacts due to the costs for power and coke, produc-
tion downtimes and business interruptions. Risks associated

with its external sales of chromite and ferrochrome relate to
those from foreign exchange rates, particularly the US dollar.

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.

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.

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

Outokumpu Annual report 2018 | Governance

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Key risksRisks related to environmental regulation
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.

However, 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.

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. Some non-fact based changes in this legis-
lation, as proposed in the EU, could have long-term impacts
on Outokumpu’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 the 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.

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 products and
ferrochrome requires significant amounts of energy, particularly
electricity and, to a lesser extent, propane, natural gas, and
light fuel oil. Energy costs represent a substantial portion
of Outokumpu’s total cost of sales and energy prices have
historically varied, and may continue to vary significantly, as a
result of political and economic factors beyond Outokumpu’s
control.

Legal risks
In connection with its business activities Outokumpu may
become subject to various legal claims and litigations. In
addition to legal claims resulting from Outokumpu’s daily
business, Outokumpu is also exposed to typical litigation
risks in connection with mergers and acquisitions. For further
information on existing major litigations, please see note 30 to
the financial statements.

Outokumpu’s products are used in a wide range of applications.
For instance, certain products are used in safety-critical
applications in the oil, gas, chemical, and petrochemical
industries. In addition, a part of Outokumpu’s products are used
in the automotive and aviation industries, where key customers
require extensive third-party certification regarding the products
purchased. Therefore, Outokumpu is exposed to product
quality related liability claims. Such claims may result in severe
damages, impacting Outokumpu’s profitability. Outokumpu
manages and mitigates its legal risks by running internal
processes as well as governance and compliance programs and
policies, some of which extending beyond the local minimum
legal requirements.

Outokumpu Annual report 2018 | Governance

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 and loss prevention surveys. Insurance covers a large
proportion of the associated risks.

Environmental accidents
The main environmental accident risks at production sites relate
to use of acids, hazardous waste, gases, landfill activities, grad-
ually developing pollution and long-term contamination of soil or
groundwater or effects of hazardous pollutants. Outokumpu also
has environmental liabilities and risks at closed mines and sites.
Certified environmental management systems are in place at

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Key risksall 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 parlia-
mentary 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, however it is not likely that the construction license will
be granted in 2019 as earlier expected. 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 new delays, cancellations,
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 also faces project risks related to other ongoing
investments in the Kemi mine expansion and the digital transfor-
mation project Chorus, which focuses on harmonizing business
processes, including the ERP renewal. These and other ongoing
investments and projects include similar project risks which
Outokumpu manages through its project management process.

Outokumpu Annual report 2018 | Governance

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 complex, 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 has improved
its cyber readiness in order to prevent possible cyber-attacks,
by running and initiating various security development activities
based on the detailed cyber threat and risk exposure analyses.
Outokumpu has also taken actions to mitigate its earlier
dependence on certain people in application support and has
improved IT incident management with a special focus on major
incidents. Outokumpu 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 must-win battles to reach its short-term targets,

safety being one of them, aiming at fully implemented, 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. Strengthening the safety competence and awareness
of our leaders, safety professionals and employees was one of
the focus areas in 2018 along with driving for full implementation
of our company safety standards. Outokumpu has systematic and
continuous monitoring and reporting practices in place, including
reactive and proactive measures of safety performance on
monthly level and full reviews on a quarterly basis.

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 Outo-
kumpu operates could have significant impacts on Outokumpu’s
business. If Outokumpu is unable to attract, retain, motivate,
train, and develop qualified employees at all levels, it could have
a material adverse effect on Outokumpu’s business, financial
condition and results of operations. There can be no assurance
that Outokumpu will be able to retain such senior managers and
other key employees. However, Outokumpu has implemented
HR processes to attract and retain key employees in the Group.
Implementation of leadership development programs and
succession planning for key positions in the Group are also
undertaken as part of the talent review process to maintain
development opportunities and to ensure an adequate pipeline of
talent to mitigate the potential loss of senior leaders.

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Key risksCompliance, 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
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.

Financial risks

Key current financial risks for Outokumpu are:

• Changes in the prices of nickel, iron, molybdenum, electrical

power, and fuels;

• Currency developments affecting the euro, the US dollar, the

Swedish krona, and the British pound;

• Interest rate changes connected with the euro, the Swedish

krona and the US dollar;

• Changes in levels of credit margins applied for Outokumpu;

• Risk related to prices of equities and fixed-income securities

invested under defined benefit pension plans;

• 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;

• Changes in fair value of equity investments in energy

production.

The financial risks listed above and related processes for risk
management are described in further detail in note 19 to the
consolidated financial statements.

Corporate responsibility
risks and stakeholders’
materiality analysis

Outokumpu has also identified its exposures in sustainability
and corporate responsibility. Revised Corporate Responsibility
Policy describes the main principles of the sustainable
development of economic, environmental, and social aspects in
the Group. Corporate Responsibility risks are mainly identified
through a new materiality analysis based on an extensive data
tool study of the emerging trends in the steel industry and
compared these trends with the material topics of Outokumpu’s
main peers, customers and suppliers. The company has regular
dialog with stakeholders (customers, suppliers, investors,
employees, NGOs, authorities, communities, associations)
and also assesses the corporate responsibility risks through
Outokumpu’s risk management process. In the materiality
analysis, the five focus sustainability issues for business
were Occupational health, safety and well-being; Responsible
business practices; Energy management; Material efficiency;
and Customer experience. Climate change is included by
the direct impact by the energy management and material
efficiency aspects.

Additional information on the materiality analysis is available
in Outokumpu’s sustainability report in the section “Focus on
material sustainability topics”. These main topics from the
materiality analysis are also partially considered as Outokum-
pu’s key risks, which are explained above within several risk
scenarios, including: risks related to environmental regulation;
environmental accident risks; raw materials, supplies and
electricity; compliance; and reputational harm.

Safety is one of the cornerstones in Outokumpu’s strategy and
ensuring the safety and good health of our employees is the
first priority. In addition, Outokumpu takes all labor practice
violations and related threats as well as its full transparency
and compliance in Environment, Social and Governance (ESG)
topics seriously. In order to also improve the identification of
sustainability risks, the Global Reporting Initiative standard has
been taken into use for the responsibility reporting. n

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Key risksRemuneration

Board of Directors
As confirmed at Outokumpu’s Annual General Meeting 2018,
the annual remuneration for the members of the Board is
EUR 160,000 for the Chairman of the Outokumpu’s Board of
Directors, EUR 90,000 for the Vice Chairman and EUR 70,000
for the other members of the Board. The Annual General
Meeting 2018 decided that 40% of the annual remuneration
will be paid in the Company’s shares to be purchased from the
market at a price formed in public trading and in accordance
with the applicable insider regulations.

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 the members of the Board of
Directors are paid a meeting fee of EUR 600 per meeting for
each member of the Board of Directors and EUR 1,200 per
meeting when travelling to a meeting held outside the Board
member’s country of residence.

CEO

Compensation and benefits

The President and CEO’s remuneration consists of base salary,
taxable benefits (housing benefit, car benefit, phone benefit,
pension, medical and life insurance), share-based incentive and
annual short-term incentive determined by the Board based on
the company’s key targets.

The annual short-term incentive payable based on the targets
set for 2018 could not exceed 95% of the CEO’s annual
base salary, and it was based on the achievement of EBITDA,
occupational safety, delivery reliability and individual targets.

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 in addition to which he is
included in a defined contribution pension plan with an annual
insurance premium of 25% of his annual earnings, excluding
share rewards.

The service contract of the CEO is valid until further notice. The
CEO is not entitled to a specific severance payment, and the
notice period is three months for both parties.

Other Leadership Team members

Compensation and benefits

The performance-based short-term incentive payable to the
members of the Leadership Team based on the targets set for
2018 was based on the achievement of EBITDA, occupational
safety, delivery reliability and individual objectives. The
maximum payment varies 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

For the deputy to the CEO (i.e. CFO), the service contract 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, and to direct management attention
towards increasing Outokumpu’s profitability and shareholder
value. The programs offer the possibility of receiving Outokumpu
shares as an incentive, provided that the criteria set by the
Board for each earnings period are fulfilled.

Other terms

According to the share ownership plan of the Outokumpu
Group, the members of the Leadership Team are obliged to
own Outokumpu shares received under share-based incentive
programs to the value of their annual gross base salary. Half (i.e.
50%) of the net shares received from the share-based programs
must be used to fulfil the above ownership requirement.

Guarantees and business relationships
Outokumpu did not provide any guarantees or other similar
commitments on behalf of members of its Board of Directors in
2018.

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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RemunerationFees, salaries and benefits paid

2018

Board of Directors
Chairman of the Board, Jordan
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, Vareille
CEO, Baan
Deputy to the CEO
Other Leadership Team Members

Salaries and fees
with employee
benefits 1)

Performance/
project-related
bonuses 2)

Annual
remuneration

Share-based
incentives 3)

4,200
2,400
6,600
4,800
2,400
6,600
6,600
5,400
7,200
1,075,835
469,111
3,380,035

–
–
–
–
–
–
–
–
–
700,997
249,044
1,595,081

160,000
–
90,000
–
–
70,000
70,000
70,000
70,000
–
–
–

–
–
–
–
–
–
–
–
–
929,081
211,861
2,041,259

1) For Board members, meeting fees. For Leadership Team members, salaries and employee benefits.
2) Actual Short Term Incentive 2017 payout.
3) Gross, including the value of the shares on the date of delivery and taxes.

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 January 1–31, 2017, Tahvanainen January 1–February 28, 2017, Kaukiainen March 1–December 31, 2017.

Total

164,200
2,400
96,600
4,800
2,400
76,600
76,600
75,400
77,200
2,705,913
930,016
7,016,375

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

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RemunerationDecember 31, 2018 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

Share delivery year

PSP 2016–2018

107

PSP 2017–2019

137

PSP 2018–2020

148

165,000
615,000
1,536,750
2,316,750
Outokumpu's return on operating capital compared to
a peer group, and Outokumpu's gearing in 2018.
2019

92,000
482,000
1,193,600
1,767,600
Outokumpu's return on operating capital compared to
a peer group in 2019.
2020

72,000
398,000
1,012,200
1,482,200
Outokumpu's return on operating capital compared to
a peer group in 2020.
2021

1) The maximum number of gross shares (taxes included) payable if the set performance targets are achieved in full.
December 31, 2018 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 2016–2018

RSP 2017–2019

–
–
35,000
35,000
2019

–
–
90,200
90,200
2020

RSP 2018–2020

–
–
111,000
111,000
2021

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, 2018 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
555,231
289,289
2016, 2017, 2018, 2019

Management Plan

–
1,262,152
762,948
2,025,100
569,630
1,015,105
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 in 2018, 2017 and 2016.
3) The gross number of shares (taxes included) still payable.

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RemunerationShares and shareholders

Shares and share capital
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.

On December 31, 2018, the total number of Outokumpu
shares was 416,374,448. On December 31, 2018, Outokumpu
held 5,810,729 treasury shares (Dec 31, 2017: 3,702,899).

Outokumpu in the capital markets
Outokumpu continued its regular and active dialogue with
investors and analysts in 2018.

Key topics discussed with investors were Outokumpu’s
progress in reaching its vision and financial targets for 2020,
the performance of the Americas business area, Ferrochrome
operations, 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 14 roadshows in Europe
and in the US during the year. The company also met investors
at four industry seminars in New York, London and Miami. In
total, over 176 one-on-one meetings and conference calls were
held with investors during the year.

International shareholders held 26.7% of the total shares at the
end of December 2018 compared to 38.2% at the end of the
previous year. Prudential plc group and JPMorgan Chase & Co
are the largest non-Finnish shareholders with holdings of over
5%. The largest Finnish shareholder Solidium Oy held 22.8%
of Outokumpu shares. The share of Finnish households and
private persons increased from 19.7% in 2017 to 27.3% at the
end of 2018.

Principal shareholders on December 31, 2018

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
Keva
Mandatum Life
OP Life Assurance Company Ltd.
OP-Finland Fund
Nordea Life Assurance Finland Ltd.
Skagen vekst verdipapierfond
Evli Finland Small Firms Fund
OP-Finland Small Firms Fund
Solesol Oy

95,044,385
18,500,112
9,298,652

8,300,000
4,827,142
2,500,000
2,365,000
2,299,830
2,138,025
2,005,724
1,841,089
1,400,000
1,330,000
1,113,356
1,000,000
153,963,315

22.83
4.44
2.23

2.00
1.16
0.60
0.57
0.55
0.51
0.48
0.44
0.34
0.32
0.27
0.24
36.98

Nominee accounts held by custodian banks 107,418,829
5,810,729
Treasury Shares
149,181,575
Other Shareholders
416,374,448
Total

25.80
1.40
35.82
100.00

Shareholders by group on December 31, 2018

● Nominee registered and non-Finnish holders 27%
● Finnish institutions, companies and foundations 23%
● Solidium Oy 1) 23%
● Households 27%

1) Solidium Oy is wholly owned by the Finnish state

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Shares and shareholders

Share price development and
market capitalization
During 2018, Outokumpu’s share price peaked at EUR 8.26
and was EUR 3.18 at its lowest (2017 high/low: EUR 10.05/
EUR 6.61). The share price closed at the end of the year at
EUR 3.20, marking a decrease of 58.7% from the closing
price of EUR 7.74 at the end of 2017. At the end of 2018,
the company’s market capitalization was EUR 1,330 million,
compared to EUR 3,223 million at the previous year’s end.

In 2018, the average daily trading volume in Outokumpu shares
on Nasdaq Helsinki was 3.3 million shares. In total, 827 million
Outokumpu shares were traded on Nasdaq Helsinki during
2018, representing a value of EUR 6,277 million (2017: 1,022
million shares, which corresponded to EUR 8,295 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 2018 (source: Fidessa Fragmentation Index).

Market capitalization and share price development

Monthly trading volume, million shares

€ million

4,000

3,000

2,000

1,000

€

150

120

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

● Month-end market capitalization, € million
Source: Nasdaq

Share price, €/share

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 2018, %

Dividend/share, €

More information about the shares on our website

Dec 31, 2017 = 100

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

2014

2015

2016

2017

2018

Outokumpu
Nasdaq Helsinki

In 2014–2015 no dividend was paid.
The dividend for 2018 is a proposal by the Board of Directors.

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Information for shareholders

Annual General Meeting 2019
Notice is given to the shareholders of Outokumpu Oyj to the
Annual General Meeting to be held on Wednesday, March
27, 2019 at 1.00 pm EET 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 12.00 pm EET.

Each shareholder, who is registered on March 15, 2019 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 partic-
ipate in the Annual General Meeting by virtue of such shares,
based on which he/she on March 15, 2019 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 22, 2019 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 19, 2019 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 February 7, 2019 at
Outokumpu’s Annual General Meeting website, 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 Outokumpu’s Annual
General Meeting website.

Payment of the dividend
The Board proposes a dividend of EUR 0.15 per share based
on the balance sheet adopted for the financial year ending
December 31, 2018. The dividend will be paid to shareholders
registered in the shareholders’ register of the company held
by Euroclear Finland Oy on the dividend record date March 29,
2019. The Board proposes that the dividend be paid on April 5,
2019. n

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Working towards 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

@Outokumpu

Outokumpu Group

Outokumpu