Outokumpu – an international stainless steel company

This is Outokumpu Outokumpu – an internationalstainless steel companyOutokumpu is a global leader in stainless steel with the vision to be the undisputed number one.Customers in a wide range of industries use our stainless steel and services worldwide. Being fullyrecyclable, maintenance-free, as well as very strong and durable material, stainless steel is one of thekey building blocks for sustainable future. Outokumpu employs some 7 600 people in more than 30countries. The Group's head office is located in Espoo, Finland. Outokumpu is listed on the NASDAQOMX Helsinki.

Main products Cold and hot rolled stainless steel coilSheet and plateQuarto plateThin stripTubular and long products

Grades Full range of standard and high alloyed austeniticgradesDuplexFerriticManganese grades

Dimensions Cold rolled flat products in thickness range from0.12 mm to 6.5 mmWhite hot strip and hot rolled plate in varying widthsand thicknessesFull range of tubular products from small diametertubes to heavy walled pipes

Customers DistributorsRe-rollers and further processorsTube makersEnd-user and project customers in various industrialsegments

Typical customer industries using stainless steel Architecture, building and constructionChemical, petrochemical and energyTransportationCatering and appliancesProcess industries and resourcesVarious other industries and applications

Main production plants Tornio (ferrochrome smelter, steel melting shops,hot and cold rolling mills) and Kemi (chromiummine) in Finland

Outokumpu

Outokumpu Annual Report 2009 – This is Outokumpu

Our main products are hot and cold rolled stainless steel sheets, plates and strips that are used in numerous applications– such as the construction industry, the automotive industry and equipment for the process industry.

Wide and thick individually rolled quarto plates are used in the energy sector, to extract salt from seawater, to transportchemicals and they are widely used in the process industry in pressure cylinders, tanks, thick-walled tubes, bridgestructures and process equipment. Our tubes are mainly used by the process industry, i.e. the oil refining industry andthe pulp and paper industries; bars are so-called long products, from which i.e. wire and reinforcement bar aremanufactured.

Our customers include the processing and construction industries, the energy sector the transport sector, the food andelectronics industries, and the producers of household and industrial machinery around the world.

Avesta (steel melting shop, hot and cold rollingmills), Nyby, Långshyttan (cold rolling mills at both)and Degerfors (hot rolling mill) in SwedenSheffield (steel melting shop) in the UKNew Castle (hot rolling mill) in the US.

Long products are manufactured in Sweden, the US andthe UK, whereas welded tubes and tube componentsare produced in Finland, Sweden, Estonia, Canada andthe US.

Sales companies and service centres A comprehensice network of sales companies insome 30 countries and service centres in 12countries

Fully recyclable Hygienic

Corrosion resistant Aesthetic

High-strenght Low life-cycle costs

Good qualities of stainless steel

Outokumpu Annual Report 2009 – This is Outokumpu

CEO’s review CEO's review

External environmentLast year was exceptionally difficult for the stainless steel industry. Having enjoyed continuous annual growth in demandof some 5–7% in recent decades, end-user demand for stainless fell by 9% globally and by 26% in our home market,Europe. This dramatic decline in end-user consumption was further aggravated by the heavy destocking that took placein the first half of the year.

This sudden change in our market environment was a clear result of the global recession which had already begun in thesecond half of 2008. The crisis in the financial sector had a serious adverse effect on basically all end-use sectors forstainless steel. Low levels of consumer confidence in Europe and North America had a negative impact on demand forstainless, especially in white goods. Industrial investments, a typically strong market for stainless steel, weakened evenmore.

This major decline in stainless demand had an impact on all stainless producers. All western producers had to adjust andadapt their operations to the new market conditions. In spite of very low operating rates, producers were able to restoreprices to some extent, which partly compensated for the lower production volumes.

Our responseI am satisfied that we started making plans for the new external environment already in late 2008. Our focus was onmaintaining a strong cash flow and the health of our balance sheet. We therefore put a lot of work into managing workingcapital, especially reducing inventory volumes. And we did a rather good job, as we were able to reduce working capitalby half a billion euros during 2009. This made a major contribution to our positive operating cash flow of some twohundred million euros, enabling us to maintain gearing at 48% at the end of 2009.

Another focus area was fixed-cost management. Compared to the previous year, we cut our fixed costs by EUR 185million during 2009. Regrettably, doing this meant we also had to reduce the number of people working in Outokumpu.

We also had to adjust our strategic investment programme by postponing several projects which had already beenstarted or were on-going at the end of 2008. We are continuously evaluating the future of these ‘on-hold' projects.

As to our main environmental targets set for 2009, while we did achieve our target for reducing landfill waste, lowproduction volumes meant that we did not reach our target for reducing our energy consumption per tonne produced.

Outokumpu Annual Report 2009 – CEO’s review

ProfitabilityUnfortunately, the very difficult market situation prevented us achieving our financial targets in 2009. In spite of all theactions we took, it was a year of heavy losses. Never before have we experienced operating rates as low as those wesaw last year, and the resulting very-low delivery volumes. Declining metal prices also contributed to the poor financialresult by causing inventory losses.

Our strategyIn spite of the changed market environment, we decided to keep our strategy intact. Our aim is to build a more stable andprofitable business model by focusing more on special grades and non-nickel containing ferritic grades in our productmix, and by increasing sales to end-user and project customers while also selling more to our core partner distributorsand processor customers. Other key components in our strategy are increasing sales outside Europe and maintainingthe cost competitiveness of our standard grades.

The main focus in strategy implementation during 2009 was on developing our new commercial and supply chainorganisations in the intended manner. We made good progress in both areas, and everyone involved invested a lot ofeffort – new designs always call for new ways of working.

Several investments which support our strategy implementation were also completed, improving our capability toproduce ferritic grades and our ability to serve end customers through our improved service centre network.

Strategy implementation will continue in the years to come. I strongly believe our strategy to be a compelling one whichcan and will be implemented even when markets are tough. It will make us ready and fully prepared for the good marketswhen they return. We remain confident about stainless steel's long-term attractiveness. A sustainable material helping tosolve many global challenges: the need for clean water, for reduced emissions and for sources of renewable energy.

People as a priorityMotivated and committed people are the key to our future. I recognise that 2009 was a very difficult one for Outokumpupersonnel. In situations like this, a company's attitude to its responsibilities is put to the test. As part of the cost-savingefforts, it was also necessary to reduce the number of our employees and this introduced much uncertainty into theorganisation. While we can never guarantee a situation that is fully stable, I hope that taking such extensive action in theyears to come will not be necessary. Confidence is something that should be built into our organisation. It enables peopleto focus on their key task – doing a great job every day.

It is very regrettable that our stakeholders also were affected by our reduced levels of production, the reductions in value-added distributed to them, postponed investments and lay-offs, all of them caused by the global recession and its impacton us.

Even in these difficult times, we have maintained our focus on improving safety. Although we did not reach the set targetof less than five, I am very pleased to see good progress in this area. Our injury frequency rate improved from nine(2008) to six (2009), which is encouraging but not yet world-class. Tougher targets and related plans have beenestablished for this and coming years. Our ultimate target is no injuries at all.

With our eyes on the future, we continued with our leadership development plans and actions. In difficult times,inspirational leadership is an essential element in maintaining our organisation's positive spirit.


Short-term prioritiesIt looks as the market environment will continue to be difficult in 2010. No quick recovery is to be expected. Outokumpumanagement is therefore focusing on these key priorities:

improving safety

restoring profitability

implementing our strategy

delivering the excellence initiatives

Even though issues relating to corporate responsibility are only mentioned here in brief – they are discussed indetail under corporate responsibility section of this report – I want responsibility to be fully integrated into all ouroperations and all our people to be involved.

Outokumpu's aim is to contribute to resolving global challenges such as climate change and the need for clean waterand clean energy in two ways – through continuing material development and by improving our own operations. Ourefforts to achieve a low-carbon society will continue even when markets are challenging.

Finally, I take this opportunity to thank our customers and all our stakeholders for their continued loyalty and valuablecomments. Special thanks go to our people for doing a great job in a very tough year.

Juha RantanenCEO


2009 highlights Highlights 2009

Outokumpu Annual Report 2009 – 2009 highlights

Key figures Group key figuresKey figures

2009 2008 2007

Sales € million 2 611 5 474 6 913

EBITDA € million -212 149 790

Operating profit € million -438 -63 589

Non-recurring items in operating profit € million -20 -83 14

Profit before taxes € million -474 -134 798

Non-recurring items in financial income € million - -21 252

Net profit for the period € million -336 -189 641

Capital employed on Dec. 31 € million 3 634 3 867 4 125

Return on capital employed % -11.7 -1.6 13.9

Net cash from operating activities € million 198 664 658

Capital expenditure € million 245 544 190

Net interest-bearing debt on Dec. 31 € million 1 183 1 072 788

Equity-to-assets ratio % 50.6 52.4 56.5

Debt-to-equity ratio % 48.2 38.4 23.6

Earnings per share € -1.86 -1.05 3.52

Equity per share € 13.54 15.50 18.53

Dividend per share € 0.351) 0.50 1.20

Share price on Dec. 31 € 13.26 8.28 21.21

Personnel on Dec. 31, continuing operations 2) 7 606 8 471 8 108

Wages, salaries and other employee benefits 4) 398 466 443

Stainless steel deliveries 1 000 tonnes 1 030 1 423 1 419

Stainless steel base price 3) €/tonne 1 161 1 185 1 304

Investments in the environment € million 12 18 12

Patent applications pcs 2 3 3

Outokumpu Annual Report 2009 – Key figures

R&D € million 19 20 18

R&D (% of sales) % 0.7 0.4 0.3

Income taxes and social security payments 4) € million 46 61 163

Injury rate, lost-time injuries per million hours worked 5) 6 9 11

Carbon dioxide emissions million tonnes 0.57 0.87 0.93

Notes:1) The Board of Directors' proposal to the Annual General Meeting2) FTE full-time equivalent3) Stainless steel: CRU – German base price (2 mm cold rolled 304 sheet)4) Accounting principles have been adjusted to better meet the GRI guidelines. The comparative figures have been restated.5) Including contractors

Outokumpu Annual Report 2009 – Key figures

Strategic themes Strategic themes

Outokumpu's strategy is aimed at developing and securing a more stable and profitable business model by reducingcyclical effects on demand for stainless steel standard grades and products.

The objective is to expand the Group's product portfolio by increasing the proportion of special grades, value-addedproducts and non-nickel grades. Other aims include increasing the proportion of sales to end-use customers and projectsand building stable relationships with key distributors. Growth opportunities that could have a positive effect on bothOutokumpu's operations and the company's geographical coverage are also given due consideration.

Outokumpu Annual Report 2009 – Strategic themes

Operational excellence Focus on operational excellence

VisionOutokumpu's vision is to become the undisputed number one in stainless steel with success based on operationalexcellence. Being the undisputed number one in stainless steel requires:

the best financial performance in the industry,

being an industry benchmark in customer relationship management,

production operations that are the most efficient in the industry, and

being viewed as the most attractive employer.

Actions taken by Outokumpu to achieve this vision include improving stability over the business cycle, ensuring thecompetitiveness of the Group's European assets, focusing on management of the customer interface and movingtowards growth and a readiness for global consolidation.

Operational excellenceOutokumpu focuses on operational excellence by developing and adopting best practices in all of its operations.

Commercial Excellence: making Outokumpu the industry benchmark in customer relationships

Production Excellence: optimising production of both standard and special grades

Supply Chain Management: seeking reliability and predictability throughout the supply chain, securing on-timedeliveries and reducing costs via procurement management.

Outokumpu has a strong position in stainless steel. The Group's Tornio Works, a fully-integrated and globally cost-efficient production site in northern Finland, makes Outokumpu one of the global leaders in standard grades. Read moreabout Tornio Works. Outokumpu also has a leading position in the special grades and products sector and is widelyrecognised for the high quality of its product and process development. Read more about special grades.

Outokumpu Annual Report 2009 – Operational excellence

Closer to the customer Transforming the customer mix

Some two thirds of Group sales are made to distributors or processors of stainless steel. Demand for stainless steel fromend-users is more stable as these do not normally engage in speculation regarding nickel prices. Outokumpu's aim is toincrease the proportion of direct end-user and project sales from its current level of about one third to at least one half.Other objectives include stabilising sales volumes to key distributors.

Increasing sales to end-user and project customers requires an extensive distribution network. The Group hassystematically expanded its service centre capabilities in recent years, mainly in Germany and China. In 2008,Outokumpu acquired the SoGePar Group, an independent stainless distributor in Italy.

Outokumpu Annual Report 2009 – Closer to the customer

Diversified product portfolio Expanding the product portfolio

To serve end-users of stainless steel better, Outokumpu is aiming to expand the Group's product portfolio by increasingthe proportion of special grades, value-added products and non-nickel grades (ferritics). Outokumpu has a leadingmarket position in duplex grades (low-nickel).

A major proportion of Outokumpu's current production consists of nickel-containing standard stainless steel grades(austenitics). Speculative activity by distributors regarding developments in the nickel price leads to cyclicality in thedemand for stainless steel and earnings volatility connected with raw material inventories.

Outokumpu's objective is to increase production of special grades, value-added products and ferritics from its currentlevel of about one third to one half of total Group sales.

Outokumpu Annual Report 2009 – Diversified product portfolio

Grow outside Europe Growing outside Europe

Outokumpu's objective is to continue growing outside Europe by entering new growth markets. This will reduceEurocentricity. In this context, action has been taken in tubular operations in the Middle East and the Group's network ofservice centres has been expanded to cover the Chinese market.

Outokumpu Annual Report 2009 – Grow outside Europe

Management discussion on financial performance Management discussion of financialperformance

Focus on maintaining financial strength in a loss-making year

Actions taken in response to the weak stainless steel market

Progress towards a more stable business model

Excellence programmes

Stainless steel market development in 2009

Severe losses in historically poor market conditions

Balance sheet remains relatively strong despite the heavy loss

Dividend

Economic value added

Factors affecting Outokumpu's profitability

Outokumpu and stainless steel markets going forward

Focus on maintaining financial strength in a loss-making year

In the wake of the global economic crisis and the resulting dramatic collapse ofdemand in the stainless steel market at the end of 2008, Outokumpu's focus at thebeginning of 2009 was on cash generation, short-term cost-efficiency andmaintaining the company's financial strength. In response to the weak demandthat prevailed in 2009, painful actions to adjust capacity and costs were takenthroughout the Group, resulting in both temporary and permanent layoffs andother cost-saving measures. At the same time, Outokumpu remained committedto its strategy of achieving a more stable and profitable business model byincreasing the proportion of sales to end-user and project customers as well asbuilding more stable relationships with key distributor customers. Other strategicobjectives include maintaining cost leadership in standard grades and broadeningthe product portfolio, as well as increasing the share of special grades, value-added products and non-nickel containing grades. The ongoing recession limitedprogress towards these strategic targets in 2009.

Outokumpu's overall financial objective is to generate the maximum sustainable economic value added. The specificgroup-level financial objectives in line with the vision in terms of growth, profitability and financial strength are asfollows:

To continue growing faster than the marketA return of capital employed over 13% and always the best among peersGearing below 75%

Outokumpu's financial objectives

Outokumpu Annual Report 2009 – Management discussion on financial performance

The beginning of 2009 was marked bysevere losses and very low demand fromall major customer segments due to lowlevels of economic activity and heavydestocking throughout the value chain.Base prices were very low at the beginningof the year and the rapid decline in metalprices resulted in major raw material-related inventory losses. Market conditionsimproved slightly in the summer asincreasing raw material prices triggeredminor restocking by distributors and baseprices started to recover. On the otherhand, underlying demand for stainless steelremained extremely poor throughout theyear and distributors' buying behaviour was cautious. Markets softened during the fourth quarter of 2009 and base pricesdeclined again before stabilising at the end of the year. Even though Outokumpu's result improved gradually as the year-end approached, it remained disappointingly negative. In line with the company's 2009 focus, cash flow from operationswas still positive and the balance sheet remained relatively strong. Cost-cutting measures implemented throughout 2009had a positive impact of some EUR 185 million on the result.

At the beginning of 2010, market conditions remain difficult and challenging, but have stabilised from the total collapsewitnessed at the end of 2008. Outokumpu's current focus is on restoring profitability while at the same time maintainingthe balance sheet flexibility required to pursue strategic investments when market conditions improve.

Financial development

€ million 2009 2008

Sales

General Stainless 2 065 4 147

Specialty Stainless 1 239 2 705

Other operations 243 258

Intra-group sales -935 -1 636

The Group 2 611 5 474

1 000 tonnes

Stainless steel deliveries

Cold rolled 545 739

White hot strip 263 330

Quarto plate 67 120

Tubular products 53 70

Long products 40 55

Semi-finished products 63 109


Total deliveries 1 030 1 423

€ million

Operating profit

General Stainless -259 -6

Specialty Stainless -149 -101

Other operations -31 38

Intra-group items 1 6

The Group -438 -63

€ million

Major non-recurring items in operating profit

Specialty Stainless

Redundancy provisions -5 -17

Write-down of Avesta melt-shop investment -15 -

Thin Strip restructuring in the UK - -66

Total -20 -83

Source: CRU and Outokumpu

The figures are estimates and they do not take into account the impact of hedging. They have been calculated on the basis of the

average exchange rates in 2009 and highest achieved delivery volumes.

Actions taken in response to the weak stainless steel marketIn 2009, Outokumpu made a number of difficult decisions in order to prepare for a possible period of prolonged demandweakness and to ensure that cost-efficiency and financial strength are given the highest priority in extremely challengingmarket conditions. Cost-saving measures included temporary and permanent reductions in the numbers of personnelemployed in several countries as well as Group-wide general cost-saving programmes. Actions taken included temporarylayoffs affecting more than 2 000 people and some 900 permanent job reductions, with the result that Group fixed costswere reduced by some EUR 185 million in 2009. Approximately half of these savings are expected to be sustainable.

Progress towards a more stable business modelOutokumpu's objective is to develop and secure a more stable and profitable business model to balance out the effectsof volatility in the market for stainless steel standard grades and products, and to address growth prospects related to theGroup's size and geographical coverage. Despite the difficult market situation and the resulting limited progress towardsits strategic goals, Outokumpu is committed to its chosen path towards a more stable business model. Read more aboutOutokumpu's strategy.

Increasing the proportion of value-added special products such as low-nickel duplex grades and growth in sales of ferritic(non-nickel-containing) grades will help reduce the earnings cyclicality driven by volatile nickel prices. Margins in special


grades are higher and more stable than in standard grades. By offering special products, Outokumpu can serve end-customers better and offer tailor-made solutions which deliver higher value and higher performance as well as costsavings.

Supporting the aim of increasing the proportion of special grades, value-added products and non-nickel-containinggrades, Outokumpu successfully completed replacement of one of the five annealing and pickling lines at the Group'sTornio Works in Finland during 2009. This investment improves Outokumpu's capabilities in brighter ferritic steel gradesand enhances production flexibility. At Nyby in Sweden, the investment to double annual production capacity in specialgrades from 34 000 tonnes to more than 70 000 tonnes was completed. In order to shift the Nyby plant's product mixtowards more value-added special grades, a new grinding line with automated intermediate storage and an entry sectionto the annealing and pickling line was taken into operation in October 2009. At New Castle (IN) in the US, an investmentto upgrade and install equipment that will increase the plant's quarto plate capacity by some 20 000 tonnes to 70 000tonnes has progressed well and completion is expected in the spring of 2010. With this investment, the Group's quartoplate product mix will shift increasingly towards value-added tailor-made plates and special grades, especiallyOutokumpu's proprietary lean duplex and other duplex grades.

The transformation towards increased end-user and project sales requires investment in the Group's service centrecapabilities. In end-user and project sales, steps taken during 2009 include completion of the expansion in stock andprocessing capacity at the Outokumpu service centre in Willich, Germany. This investment improves and expands theGroup's service offering to end-user and project customers in Germany, Europe's largest stainless steel market. Theproject consisted of expanding the site area, doubling the size of the service centre building and installing new cut-to-length and slitting lines. Annual capacity at the service centre has been increased from 60 000 tonnes to 125 000 tonnes.A new service centre being built in China near Shanghai will have the capacity to stock and process some 30 000 tonnesof mainly special grades when it becomes operational in mid-2010.


In December 2008, Outokumpu decided to postpone almost all elements of the Group's investment programme for atleast 12 months. Continuation of any project is subject to a separate decision based on an updated feasibility study. In2009, Outokumpu decided that the investment to expand melt-shop capacity from 500 000 tonnes to 750 000 tonnes atAvesta in Sweden will not proceed in the foreseeable future as there is no need for additional melting capacity in themedium term. Write-downs of EUR 15 million associated with this investment were booked in the 2009 third-quarteroperating result. As originally planned, this investment would have totalled some EUR 200 million. Further decisionsregarding other postponed investments will be made by the end of 2010.

Excellence programmesThe Operational Excellence programmes launched in 2005 and originally comprising Production and CommercialExcellence were expanded to include Supply Chain Excellence in 2007. While the targeted benefits were achieved in2008, they were not reached in 2009 with the prime causes being very-low delivery volumes and raw material prices. Thetargets set for this programme were improving Group performance by EUR 80 million in 2008 and EUR 200 million in2009 compared to 2005. In 2009, benefits delivered by the Operational Excellence programmes totalled some EUR 150million (2006: EUR 25 million, 2007: EUR 45 million, 2008: EUR 86 million) compared to 2005. Examples of profitability-raising improvements achieved through the Operational Excellence programmes include utilising raw materials moreefficiently, providing additional capacity to solve production bottlenecks, improved pricing discipline, the release ofworking capital through shorter payment terms and achieving profitable growth with key customers.

Due to the current weak market outlook for stainless steel, the original 2010 target of EUR 300 million in benefits fromthe Operational Excellence programmes will not be achieved. In the short term, these programmes will focus on workingcapital reduction, raw material usage and other cost-saving-related projects rather than capacity enhancement. Thestrong focus placed on Operational Excellence programmes within the Group will lead to the targeted benefits totallingEUR 300 million being achieved in the future.


Stainless steel market development in 2009

2009 began with both very low levels of demand and low base prices asinventories were being reduced throughout the value chain from mills to end-usersof stainless steel. Significant production cuts were executed by producers,especially in Europe, and capacity utilisation was at the historically extremely-lowlevels of 50-55%. Triggered by higher raw material prices, purchasing activityamong distributors improved somewhat in the second quarter, and base pricesstarted to increase gradually as the autumn months approached. Towards the endof the fourth quarter, customers became hesitant about building stocks anddelayed their purchases over the year-end. Base prices began to decline againduring the fourth quarter but stabilised at the end of the year. Compared to 2008,estimates indicate that apparent consumption of stainless steel in 2009 was downby 29% in Europe and down by 8% globally. China, where year-on-yearconsumption is estimated to have increased by 13%, was the only region in whichpositive growth was recorded in 2009. Read more about the stainless steel marketin 2009.

The average German base price for 2mm 304 cold rolled sheet in 2009 was 1 161 EUR/tonne, 2% lower than in 2008.After the collapse of the stainless steel market at the end of 2008, the base price was very low during the first quarter of2009 at 925 EUR/tonne. The recovery that began in the second quarter lifted the base price to 1 307 EUR/tonne in thethird quarter before it fell back to 1 297 EUR/tonne at the end of the year. The transaction price for stainless steelaveraged 2 036 EUR/tonne in 2009, 27% lower than in the previous year because of the higher price of nickel in 2008(CRU). Prices for special grades and project-related products were more stable but weakening demand had a negativeimpact.

Outokumpu's average base prices were somewhat lower than the CRU reference price in 2009.

The price of nickel increased from a verylow level of 10 000 USD/tonne at thebeginning of the year to some 20 000 USD/tonne after the summer and was at 17 500USD/tonne at the year-end. Theferrochrome contract price increasedgradually during the year, moving from 0.79USD/lb in the first quarter and 0.69 USD/lbin the second quarter to 1.03 USD/tonne inthe fourth quarter. Molybdenum, which isused to make stainless steel acid-resistant,surged from levels of 9 USD/lb at thebeginning of the year to 18 USD/lb at theend of the summer, then declined to 11USD/lb by the end of the year.

Severe losses in historically poor market conditionsLower delivery volumes and lower transaction prices for stainless steel in 2009 resulted in Group sales for the yeardeclining to EUR 2 611 million (2008: EUR 5 474 million). Stainless steel deliveries totalled 1 030 000 tonnes, asignificant decline from the previous year (2008: 1 423 000 tonnes).


Operating loss in 2009 was EUR 438 million (2008: EUR 63 million), with net non-recurring costs of some EUR 20 millionbeing included in this figure (EUR 15 million of write-downs resulting from the decision not to proceed with the melt-shopinvestment in Avesta in Sweden and EUR 5 million of restructuring provisions). In 2008, operating loss included net non-recurring costs of some EUR 83 million (EUR 66 million of provisions and write-downs related to the closure of the ThinStrip business in Sheffield and some EUR 17 million of provisions related to personnel reductions in Sweden). Rawmaterial-related inventory losses constrained the Group's operating result in 2009 by EUR 78 million (2008: EUR 285million losses). The underlying operational result for 2009 was EUR 340 million negative (2008: EUR 305 millionpositive), with the main reason for the decline in operating profit being significantly lower delivery volumes. Loweraverage base prices also had a negative effect on the result. On the cost side, financial benefits achieved throughoptimising raw material usage and pricing were reduced in 2009 because of lower metal prices. Cost saving actionsimplemented in 2009 resulted in EUR 185 million lower fixed costs compared to 2008. Approximately half of thesesavings are expected to be sustainable. The sharp decline from record-high ferrochrome prices in 2008 and lowerdelivery volumes due to closure of the Group's mine and ferrochrome production from April to October resulted in anegative year-on-year impact from Outokumpu's own ferrochrome operations in 2009.

Net financial income and expenses in 2009 was EUR 25 million negative (2008: EUR 47 million negative). Net financialexpenses in 2009 do not include non-recurring items. In 2008, an impairment loss of EUR 21 million (EUR 12 million inthe first quarter and EUR 9 million in the fourth quarter) was booked in other financial expenses due to the decline in theshare price of Belvedere Resources Ltd, classified as an available-for-sale financial asset. Net interest expenses fell toEUR 22 million (2008: EUR 54 million). Profit before taxes was EUR 474 million negative (2008: EUR 134 millionnegative). Net profit in 2009 was EUR 336 million negative (2008: EUR 189 million negative) and the net profit fromcontinuing operations was EUR 332 million negative (2008: EUR 110 million negative). Earnings per share was EUR-1.86 (2008: EUR -1.05) and earnings per share from continuing operations was EUR -1.83 (2008: EUR -0.61). Thereturn on capital employed in 2009 was -11.7% (2008: -1.6%).

Balance sheet remains relatively strong despite the heavy lossDue to the significant loss, Outokumpu's return on capital employed of -11.7% in 2009 was a long way from the target of13.0%. Despite this disappointing result, gearing remained below the target level of 75%, and net cash generated from


operating activities in 2009 was positive at EUR 198 million (2008: EUR 664 million positive). This figure includes a EUR548 million positive effect from the release of working capital resulting mostly from declining inventory volumes, decliningraw material prices and a reduction in accounts receivables. At the end of 2008, Outokumpu decided to postponeinvestments totalling some EUR 1.5 billion in order to maximise cash flow and maintain balance sheet flexibility in 2009and afterwards. As a result, capital expenditure in 2009 totalled EUR 245 million compared to the planned level of EUR850 million. Investments were limited to mandatory maintenance and expansion projects that were close to completion.Major investments in 2009 were the replacement of the No. 2 annealing and pickling line at Tornio Works, the expansionof stock and processing capacity at the Group's service centre in Willich, Germany, the building of a new dispatch hall forquarto plate in Degerfors, Sweden and the doubling of annual special grades production capacity in Nyby, Sweden.Construction of the Group's new service centre in China was also initiated. These investments totalled some EUR 98million.

Outokumpu's financial and liquidity position remains relatively strong. At the end of 2009, the Group's equity-to-assetsratio stood at 50.6%. Net interest bearing debt at the end of 2009 totalled EUR 1 183 million (end of 2008: EUR 1 072million) with most of the Group's debt maturities extending to the 2010–2013 period. Group cash and cash equivalentsstood at EUR 112 million (2008: EUR 224 million) at the end of the year, and committed undrawn credit facilities totalledsome EUR 1.1 billion. Committed credit facilities include a three-year EUR 900 million revolving credit facility signed inJune 2009. Intended for general corporate purposes, this replaces the comparable five-year EUR 1 billion facility signedin June 2005. The loan agreement includes a financial covenant based on gearing. The facility was fully undrawn at theend of 2009.

Dividend

Group earnings per share in 2009 totalled EUR -1.86, with earnings per sharefrom continuing operations EUR -1.83 and earnings per share from discontinuedoperations EUR -0.02. Total shareholder return (TSR) was 64.4% (2008: -58.6%).TSR is calculated as the annual change in share price plus the dividend, dividedby the starting share price for the year. Outokumpu's share price was EUR 8.28 atthe beginning of the year and fell to EUR 7.72 on January 23, 2009 beforerebounding to EUR 13.26 by the end of the year (respective market capitalisationof EUR 2 400 million). Dividends for 2008 totalling EUR 90 million (EUR 0.50 pershare) were paid in 2009.

In accordance with the Board of Directors' established dividend policy, the payoutratio over a business cycle should be at least one-third of the Group's profit for theperiod with the aim of making stable annual payments to shareholders. In itsannual dividend proposal, the Board of Directors will, in addition to financialresults, take into consideration the Group's investment and development needs. The Board of Directors is proposing tothe Annual General Meeting to be held on March 30, 2010 that a dividend of EUR 0.35 per share be paid for 2009. Thedividend yield is 2.6% and Outokumpu's average dividend payout ratio over the past five years has been approximately91%.

Share-related key figures

€ 2009 2008

Earnings per share -1.86 -1.05

From continuing operations -1.83 -0.61

From discontinued operations -0.02 -0.44


Equity per share 13.54 15.50

Dividend per share 0.351) 0.50

Share price on Dec. 31 13.26 8.28

Market capitalisation Dec. 31, € million 2 400 1 492

1) Board's proposal to the Annual General Meeting

Economic value addedOutokumpu's overall financial objective is to generate the maximum sustainable economic value added on capitalinvested by its shareholders. Outokumpu uses the weighted average cost of capital (WACC) in defining the capitalcharge for economic value added (EVA), and applies this when estimating the profitability of investment projects anddefining the economic and commercial value of the Group's business operations. In 2009, Outokumpu's WACC aftertaxes was approximately 6%. This figure was obtained using a target capital structure in which the weight given to equityis 60% and the weight of debt is 40%. The cost of equity was 8.4% and the after-tax cost of debt was 3.3%. Economicvalue added by Outokumpu's continuing operations in 2009 totalled EUR -547 million (2008: EUR -293 million).

Factors affecting Outokumpu's profitabilityThe stainless steel business is cyclical. In addition to the company's own actions, Group profitability depends on thecurrent stage in the global economic cycle and especially on levels of industrial investment activity. In the long term,demand for stainless steel has been growing at an annual rate of 5–6%. Changes in regional or global productioncapacity can sometimes have an adverse effect on stainless markets, resulting in temporary imbalances between supplyand demand. Increasing stainless steel production capacity in China will continue to have an effect on the global supplysituation in future years.

A key factor that has a direct effect on Outokumpu's profitability is developments in stainless steel base prices. The levelof these prices is linked to both the economic cycle and to levels of industrial investment in the Group's main customersegments. Changes in base prices have also been attributable to strong fluctuations in demand from distributors who areeither de-stocking or re-stocking their inventories. Outokumpu's current dependence on traditional nickel-containingstandard austenitic grades exposes the Group to demand volatility caused by fluctuations in the nickel price. Thedistributor sector in particular has postponed placing orders for stainless steel when nickel – and thus stainless steeltransaction prices – are expected to fall, resulting in unnecessary demand volatility without any changes in underlyingdemand.

Transaction prices for stainless steel comprise the base price plus an alloy surcharge. The alloy surcharge applied inEurope and North America includes the cost of alloying materials when the prices for these exceed predefined trigger-price levels. The cost of alloying materials for stainless steel – nickel, chrome, molybdenum, iron and titanium – isinvoiced to customers by stainless steel producers through the alloy surcharge mechanism, reducing the producer pricerisk associated with alloying materials. Even so, the price paid for alloying materials feeds through into the amounts tiedup in working capital. As Outokumpu's throughput time is longer than the time period applied in the alloy surchargemechanism, changes in the price of alloying materials may lead to timing differences that have an impact on Groupprofitability. The alloy surcharge is based on a 30-day average of raw material prices calculated backwards from the 20thday of the preceding month.

Outokumpu's operating profit is affected not only by changes in base prices but also by delivery volumes, unit costs andthe product mix. When manufacturing stainless steel, capacity utilisation rates also have a major impact on operatingprofit. Production volumes depend on the demand for stainless, and products are mostly produced to fulfil orders. Theproduct mix also has an impact on profitability – products with higher value added are more profitable.


The Group's chromium mine near Tornio in Finland supplies Outokumpu with the majority of its ferrochrome needs at thecost of production. This has a direct positive impact on Group profitability. Read more about Outokumpu's ferrochromeoperations.

Stainless steel is fully recyclable. Alloying materials can usually be purchased at a discount when sourced as recycledstainless steel and Outokumpu therefore always attempts to maximise the use of recycled steel in the Group'smanufacturing processes. The extent of the discount depends on the prevailing market conditions. When prices foralloying materials are high, the financial benefits of using recycled material can be significant. Some 60% of rawmaterials used by the Group in production are sourced as recycled stainless steel.

As a general rule, currencies in which stainless steel products are priced aredetermined by the market area: euros in Europe and US dollars in the US andAsia. Price levels in Europe, the US and Asia can differ. Outokumpu is exposed tofluctuations in currency exchange rates primarily because of sales to the Asianand US markets and also because the Group's own ferrochrome production ispriced in US dollars. Exchange rates may also impact the relative competitivenessof stainless steel producers on different continents. The majority of Outokumpu'sproduction costs are incurred in euros, Swedish crowns and UK pounds. Pricesfor raw materials are determined primarily in US dollars, while the alloy surchargemechanism transfers changes in exchange rates to the euro price in Europe.

The table below shows the approximate sensitivity of Outokumpu's operating profitin 2010 to changes in stainless steel base prices, changes in ferrochrome pricesand changes in exchange rates between the euro and the main currencies usedby the Group. These sensitivities have been calculated on the basis of theaverage exchange rates in 2009 and the highest achieved delivery volumes.

Outokumpu's sensitivity – effect of sustained change on annual operating profit

€ million

Stainless steel base price, +100 EUR/tonne 180

Ferrochrome price, +5 USc/lb 10

USD/EUR, +10% 30

SEK/EUR, +10% -40

GBP/EUR, +10% -8

Outokumpu and stainless steel markets going forwardIn 2009, the stainless steel industry was hit hard by the ongoing global recession, especially in Europe, and the dramaticdecline in demand for stainless steel had a major negative impact on Outokumpu. At the beginning of 2010, althoughthere are still no signs of major improvement in end-user demand for stainless, market conditions have stabilised and areclearly better than they were at the beginning of 2009. Although short-term demand remains depressed and visibility isstill relatively poor, long-term prospects for stainless steel demand are robust. The long-term average annual rate ofgrowth in global stainless steel consumption is forecast by SMR (Stainless Market Research) to be 5.5% (CAGR) in theperiod 2008–2020. Growth is expected to remain strong in Asian markets where capacity has also been increasingrapidly. These significant increases in capacity may cause periods of imbalance when supply exceeds demand, with aconsequent impact on the global market and particularly in standard grades.


Despite the external uncertainties in the current operational environment, Outokumpu remains committed to its statedstrategy and plans. The Operational Excellence programmes have delivered solid, well-proven results and Outokumpu isfocusing strongly on building Operational Excellence in the future. Group-wide cost-cutting actions implemented in 2009exceeded the original targets and resulted in clear sustainable savings. In the current market situation, Outokumpu'spriority is to balance short-term cost and cash flow management with balance sheet flexibility and longer-term strategyimplementation. Even though many related investments have been postponed, Outokumpu currently has adequateproduction capacity available to continue the Group's strategic drive towards a more stable and profitable businessmodel. As a leading producer, Outokumpu is well positioned to capitalise on the world's growing demand for stainlesssteel.


Operating environment Operating environmentThe consumption of stainless steel has during the last decades been growing more rapidly than any other metal in theworld. Outokumpu is one of the largest producers of stainless steel and is widely recognised as a world leader intechnical support, research and development.

According to the current strategic phase, Outokumpu is increasing the share of special grades and special products in itsproduct mix.

The global stainless steel market totals 25 million tonnes or some EUR 50 billion. During the last twenty years,consumption has grown at a rate of 4–5% per annum. In Europe (western), the Group's main market area, the markettotalled 3.1 million tonnes in 2009. The European consumption has grown by some 2% annually, but declined sharply in2009 due to the economic slowdown. In recent years, the largest growth globally has occurred in China with an averagegrowth rate of over 10% annually.

Outokumpu is one of the world's largest producers of stainless steel with main production facilities located in Finland,Sweden, the UK, the US and the Netherlands. Outokumpu's melting capacity totals 2.55 million tonnes and the finishedproducts capacity for cold rolled material and white hot strip is 1.6 million tonnes. Outokumpu also has annual productioncapacity of 0.3 million tonnes of long products and plate.

In global terms, Outokumpu's biggest site, Tornio Works in Finland, is one of the world's most cost-efficient and the mostintegrated single-site stainless steel production facilities. At Tornio Works in Finland, Outokumpu produces mainly highvolume standard grades of stainless steel while the Avesta integration in Sweden is focusing more on customer tailoredspecial grades and products.

Outokumpu has a 18% share of the stainless steel coil market in Europe and a 5% share worldwide. Outokumpu's mainmarkets are Europe (74% of sales in 2009), Asia (14%) and North and South America (10%).

Major stainless steel producers

Estimated slab capacity, million tonnes 2009 2011

Acerinox, Spain 3.24 3.32

ArcelorMittal, The Netherlands 3.00 3.00

ThyssenKrupp, Germany 2.90 3.53

POSCO, South Korea 2.80 2.80

TISCO, China 2.60 2.60

Outokumpu, Finland 2.40 2.40

YUSCO, Taiwan 1.98 1.98

Outokumpu Annual Report 2009 – Operating environment

Outokumpu Annual Report 2009 – Operating environment

Market review Market reviewStainless steel demand was heavily influenced by the global recession in 2009. The collapse in credit availability had anadverse effect on business conditions and created uncertainty, causing a reduction in business and consumer spending.As a result many stainless steel users were forced to introduce a variety of both temporary and permanent productionstoppages and cost reduction measures. These actions in turn reduced stainless steel demand significantly and,subsequently caused the stainless steel industry to operate at relatively-low capacity utilisation rates.

Global stainless steel end-use consumption fell by 9% in 2009 following a decline of 6% in 2008. China was the onlyregion to register positive growth in 2009 with year-on-year consumption increasing by 18%. Europe was the region thatwas affected worst, with demand down by 26% following a 3% fall in 2008. Demand in North America was down by 24%following a 19% fall in 2008. Global end-use consumption is expected to grow by 10% in 2010, with positive growthexpected to return to all regions.

Demand performance in 2009 in industry-led stainless steel consumption segments was poorer than in consumer-relatedindustries – which were harder hit by demand declines in 2008. The largest declines in demand in 2009 wereexperienced in the industry-related chemical, petrochemical, energy and process & resources end-use clusters. This wasa reversal of the situation in 2008 where demand reductions were lowest in industry-led clusters and highest in consumerrelated industries.

Demand in the chemical, petrochemical and energy segments fell by 23% year-on-year, while demand in process &resources segment fell by 16%. Consumption in all these industries was severely affected by restrictions in theavailability of finance and subsequent delays in project approval. In contrast, stainless steel demand in the consumer-related catering & appliances segment grew by 2%. Compared to industrial and commercial purchasers, consumerswere relatively more willing to spend during the year. This was particularly true in China, where demand for stainlesssteel in catering & appliances grew by 20% in 2009.

Global stainless steel consumption in the architectural, building & construction cluster fell by 9% in 2009 following a 7%decline in 2008. Activity in the commercial building construction sector remained at a low level in the developed

Stainless steel demand was heavily influenced by the globalrecession in 2009.

Outokumpu Annual Report 2009 – Market review

countries. Although governmental stimulus packages had some positive impact, only a small proportion of this market –products such as re-bars and material for use in bridges – has an effect on demand for stainless steel.

Global demand for stainless steel in the transportation cluster declined by 13% in 2009 following a fall of 12% in 2008. InEurope and USA, the wreckage bonus system dampened the negative impact on order intake in the Automotive sector,but there could still be a negative effect on demand in 2010. On the other hand, automotive demand in China and someemerging markets exhibited strong growth in 2009.

Long-term prospects for stainless steel demand remain robust. SMR estimates that the average annual growth inworldwide stainless steel consumption will be 5.45% (CAGR) in the 2009–2020 period. Being a leading producer ofstainless steel, Outokumpu is well positioned to capitalise on the worldwide growing demand for stainless steel.

Source: CRU and Outokumpu

Annual average metal market prices

2009 Change % 2008 2007 2006 2005

Stainless steel

Base price EUR/t 1 161 -2.0 1 185 1 304 1 470 1 174

Alloy surcharge EUR/t 875 -45.9 1 616 2 534 1 341 942


Transaction price EUR/t 2 036 -27.3 2 801 3 828 2 811 2 116

Nickel USD/t 14 655 -30.6 21 111 37 230 24 254 14 744

EUR/t 10 507 -26.8 14 353 27 161 19 317 11 851

Ferrochrome (Cr-content) USD/lb 0.85 -51.7 1.76 0.91 0.72 0.74

EUR/kg 1.34 -49.0 2.63 1.46 1.26 1.32

Molybdenum USD/lb 11.42 -61.4 29.56 30.57 25.10 32.51

EUR/kg 18.05 -59.3 44.31 49.17 44.08 57.61

Recycled steel USD/t 223 -44.4 401 280 230 204

EUR/t 160 -41.4 273 204 183 164


Risk management Risk managementOutokumpu operates in accordance with the risk management policy approved by its Board ofDirectors. The policy defines the objectives, approaches and areas of responsibility of risk managementactivities. As well as supporting Outokumpu strategy, risk management helps in defining a balanced riskprofile from the perspective of shareholders and other stakeholders such as customers, suppliers,personnel and lenders.

Definition of riskOutokumpu has defined risk as anything that could have an adverse impact on activities that the company is undertakingto achieve its objectives. Risks can therefore be threats, uncertainties or lost opportunities that relate to current or futureGroup operations.

Outokumpu's appetite for risk, and risk tolerance, are defined in relation to Group earnings, cash flows and capitalstructure. Risk management is part of the Group's management system and is divided into four stages: identifying risks,risk evaluation, risk control and mitigation, and risk reporting.

Risk management organisationThe Outokumpu Board of Directors is ultimately responsible for risk management within the Group. The CEO andThe Group Executive Committee are responsible for defining and implementing risk management procedures, and forensuring that risks are both properly addressed and taken into account in strategic and business planning. Businessunits and Group functions are responsible for managing risks connected with their own operations.

External auditors and Internal Audit monitor the risk management process, while the Group Executive Committee, theAudit Committee and the Board of Directors review key risks and actions taken to manage risk on a regular basis. TheTreasury and Risk Management function supports implementation of the Group's risk management policy, facilitates andcoordinates risk management, and prepares quarterly reports on risk for the company's management and auditors.

Outokumpu has defined risk as anything that could have anadverse impact on activities that the company is undertaking toachieve its objectives.

Outokumpu Annual Report 2009 – Risk management

Focus areas Focus areasRisk management was developed into a more dynamic direction during 2009 by adding quarterly riskreviews and updates to the agenda of Group Executive Committee meetings and by providing regularrisk management updates for both the Board of Directors and the Audit Committee.

Risk workshopsThe management teams of most Business units and several Group functions attended risk workshops in 2009. Theseworkshops covered risk identification, risk evaluation and risk mitigation, and the connections with current strategyplanning and performance management processes.

Crisis managementOutokumpu initiated a systematic programme of crisis management in 2009. Crisis management teams at corporatelevel received training in handling different crisis situations and cooperation with internal and external stakeholders.

Credit risksThe reduction of insured credit limits by credit insurers has led to an increase in the proportion of uninsured sales. Thecurrent shortage of credit limits is expected to continue and the risk of defaults by customers is expected to continue,setting increased requirements for credit management of the Group. Following the Group's new financial risk policy, adevelopment programme aimed at enhancing the organisation's ability to make timely, accurate and high-quality creditdecisions was initiated in 2009.

Security and fire safetySecurity and safety arrangements in fire situations were further improved at several Group sites in 2009. Relateddevelopment and change initiatives were based on local self-assessment at sites as well as on systematic audits andGroup-wide instructions.

Realised risksNo major damage to Group property or business interruptions occurred in 2009. The most significant risks realisedduring the year were related to structural issues in stainless steel markets and to the global recession, with the latterhaving an impact on stainless markets and the Group's ability to implement planned investment projects.

Outokumpu Annual Report 2009 – Focus areas

Strategic and business risks Strategic and business risksStrategic risks for Outokumpu are related to the company's business portfolio, the market situation andmajor investments. Business risks are connected with the company's operating environment, customerbehaviour and the economic outlook. Volatility in demand has an almost simultaneous impact on all oralmost all strategic and business risks.

Structural overcapacity in stainless marketsDemand for stainless steel remained depressed in Outokumpu's main markets in 2009. Increased stainless steelproduction capacity, especially in China, has led to gradually developing global overcapacity, while lack of demand inEurope has resulted in regional overcapacity. Consequently this development has led to global overcapacity in stainlesssteel production, and this could limit the Group's growth. Actions taken by Outokumpu to address overcapacity inproduction include improving cost-efficiency and delivery reliability in the Group's operations, developing distributionchannels and increasing sales to end-users.

Eurocentricity of operationsAlthough Outokumpu's sales and distribution network is global, the company's main production facilities are located inEurope. Outokumpu's main market area is also Europe, and depressed levels of demand have had a major impact onstainless steel markets. Minor changes in price levels, periodic demand growth or currency rates in specific market areasand regions can also affect Outokumpu's competitive position and financial performance. Outokumpu has identifiedoperations that are overly Eurocentric as a possible risk to the Group's strategy implementation, even thoughEurocentricity can also be seen as an opportunity. Ensuring profitable business operations in Europe requires thecompany to have a strong foothold with cost-efficient, local operations. Outokumpu will study ways of strengthening itsposition outside Europe.

Competition in stainless steel focused on the Asian marketAs growth prospects for stainless steel demand are better in Asia than in Europe, a lot of new production capacity hasbeen built in the region. These significant investments have resulted in cold rolled stainless steel production capacity inChina currently exceeding demand. As high levels of stainless steel capacity among Asian producers currently exceeddemand from their domestic markets there is a risk that this overcapacity will also affect European markets. While Asianproducers are competitive in standard products and basic offerings, business opportunities for Outokumpu in specialproducts and service offerings in Asia are likely to remain. In 2009, Outokumpu expanded its operations in China byinvesting in a new service centre facility in Kunshan, Shanghai, which will focus on special products and grades.

Continuing weak market situationAs the global economic downturn had a clear impact on stainless steel demand, the market for stainless steel remainedweak during 2009. Visibility regarding market development was poor during the first half. If challenging global economicconditions continues long, the weak market situation will have an impact on both demand for stainless steel andon prices. Outokumpu has made preparations for a market of this type with readiness plans, operational action to reducefixed costs, and cost savings programmes. Concerns about related risks resulted in Outokumpu postponing majorinvestment projects in 2009.

Outokumpu Annual Report 2009 – Strategic and business risks

Operational risks Operational risksOperational risks are related to inadequate or failed internal processes, employee actions, systems, orother events such as natural catastrophes and misconduct/crime. These types of risk are oftenconnected with production operations, logistics, financial processes, projects or information technologyand, should they materialise, can lead to personal injury, liabilities, the loss of property, suspension ofoperations or environmental impacts. Outokumpu's operational risks are partly covered by insurance.

Corporate culture and One Company approachOutokumpu's objective is to achieve a strong and unified corporate culture throughout the company's organisation. Tofurther this aim, the "One Outokumpu" concept has been created, but this kind of a significant culture change takes time.The change can be seen as an opportunity to increase operational effectiveness in operations by cross-culturalcooperation between people. Even so, country-based or overly independent corporate cultures can restrict operationalprogress and achievement of strategic goals. Implementation of strong Group-level functions such as Supply ChainManagement and Group Sales and Marketing play a vital role in furthering the One Company approach.

Investment projectsOutokumpu's announced major investment programme was postponed almost entirely at the end of 2008 due to theglobal financial crisis and weakened markets for stainless steel. Some investments such as the service centre expansionin Willich, Germany and the new plate service centre in China are however being carried out. As preparation for thefuture, Outokumpu is aiming to further develop project management methods to support the implementation ofinvestment projects and manage risks related to the whole of the Group's project portfolio. The proposed investment inadditional melting capacity at Avesta, Sweden was permanently cancelled at the end of the third quarter of 2009,resulting in an asset write-down of EUR 15 million.

Variations and lack of flexibility in production performanceOutokumpu has systematically developed the Group's operative performance through excellence initiatives, with asignificant number of the company's personnel being trained to implement these improvement measures in bothcommercial and production operations. However, risks associated with not being able to adapt capacity to meetfluctuating levels of demand and experiencing excessive variations in production performance can have an impact on theGroup's business operations. For example, if the Group is not able to ramp up its production to meet fluctuating demanddue to delays in product output resulting in reduced delivery reliability, this might have negative financial impact. Asmitigation against such risks, Outokumpu is expanding the Group's Operational Excellence programmes and enhancingstrategy implementation by strengthening Group-level functions such as Supply Chain Management and Group Salesand Marketing.

Major fire or accidentMost of the Group's production is located in large industrial areas and comprises a number of separate buildings andproduction lines. Stainless steel production by Outokumpu also involves the integration of production and logisticsbetween the Group's facilities in Tornio (Finland), Terneuzen (the Netherlands), Avesta (Sweden), Sheffield (the UK) andother locations. Production is capital intensive and a large part of the Group's operating capital is tied up in thesefacilities. Fire or a serious mechanical breakdown can lead to major damage to property or the loss of production, orhave other indirect adverse effects on Group operations. Outokumpu monitors such risks by continuously evaluating its

Outokumpu Annual Report 2009 – Operational risks

production facilities and processes from a risk management perspective and by arranging insurance coverage for a largeproportion of these risks.

Corporate securityOutokumpu continued to develop the Group's corporate security in 2009 with a focus on crisis management. Systematicauditing of site security continued at numerous sites and the audit results generated many initiatives to enhance securitylevels. Outokumpu also has a fire-safety audit programme linked to the company's insurances. In 2009, approximately 40audits were carried out using the Group's own resources, and on many occasions these were conducted jointly withtechnical experts from the company's insurers and insurance brokers. With the aim of harmonising different practiceswithin the Group, a significant number of Group-wide instructions relating to fire safety and security were reviewed andupdated in 2009. These instructions were prepared in cooperation with the Outokumpu Security Working Group(OSWG), the operational body for personnel at Outokumpu sites whose responsibilities include safety and security.

Outokumpu Annual Report 2009 – Operational risks

Financial risks Financial risksFinancial risks comprise market, liquidity, refinancing, country and credit risks. As nickel is used as an alloying material instainless steel production, one of the main market risks for Outokumpu is the nickel price.

Financial risk management within the Group is further described in Note 20 to the consolidated financial statements.

Outokumpu Annual Report 2009 – Financial risks

Corporate responsibility risks Corporate responsibility risksProtecting the Group's personnel, assets and reputation against a wide range of potential losses is an essentialcomponent in our operations. In all areas of risk management, the key element is having a good overview of anyunderlying risks. Risk workshops were arranged in business units and key Group functions in 2009, and developmentwork with top management was continued in order to institute frequent risk reporting and follow-up procedures. Asinstability in the financial and economic environment increased during the year, the emphasis in this work was on themanagement of strategic and financial risks connected with the weaker market situation, the nickel price and customercredit.

Read more about corporate responsibility risks here.

Outokumpu Annual Report 2009 – Corporate responsibility risks

Business Operations Outokumpu's business and businessunitsOutokumpu's product range covers both standard and special grades and products. The Group's mainproduction facilities are efficient integrated stainless steel mills located in Tornio, Finland and Avesta,Sweden. There is also a production route from the Sheffield melt shop in the UK to several long productand plate production units in Sweden, the UK and the US.

Outokumpu's organisation serves customers in an optimal way. Group Sales and Marketing is organised into customerindustry-based groups, and Group production operations are organised into two divisions based on the type of product:General Stainless and Specialty Stainless. Group Sales and Marketing, a cross-organisational function, is responsible forthe Group's commercial targets while Supply Chain Management is responsible for end-to-end delivery performance.The Group also has a comprehensive network of sales companies, service centres and sales agents in some 70countries.

Outokumpu's strategy aims at achieving a more stable and profitable business model by increasing the share of sales toend-user and project customers. Read more about strategy.

A significant share of the Group's sales is going to distributors, re-rollers and tubemakers. These segments continue tobe essential for the Group's total business, while Outokumpu is looking for growth in value-adding end-user segmentssuch as various industrial uses, construction, and catering and appliances. As a supplier for project applications, marketsegments such as pulp and paper, desalination plants, and oil and gas are central to the Group's development.


1 000 tonnes 2009 2008 2007

Cold rolled 545 739 703

Outokumpu is one of the top players in the global stainless steelmarket with a European market share of 17%.

Outokumpu Annual Report 2009 – Business Operations

White hot strip 263 330 314

Quarto plate 67 120 146

Tubular products 53 70 65

Long products 40 55 54

Semi-finished products 63 109 137

Total deliveries 1 030 1 423 1 419

Stainless steel is made of iron by adding chromium. All stainless steel grades contain a minimum of 10.5% ofchromium. Chrome gives stainless steel its corrosion resistance.The main grades of stainless steel are:

Austenitic (typically 18% chromium and 8% nickel)Ferritic (chromium up to 24%, no nickel)Ferritic-austenitic (1.5–5% nickel)

Outokumpu's duplex steel grades are ferritic-austenitic, contain only small amounts of nickel, and are very strong andcorrosion resistant.

Three main types of stainless steel

Outokumpu Annual Report 2009 – Business Operations

General Stainless General Stainless – high-qualitystandard stainless steelOutokumpu's General Stainless division produces high-quality standard stainless steel in the form ofcoil, sheet and long products. The main market is Europe. In this standard high-volume marketsegment, cost efficiency, high quality and delivery reliability are key competitive advantages.Outokumpu aims to maintain its cost leadership in standard stainless steel grades through theadvantages offered by the Group's integrated stainless steel plant in Tornio, Finland.

The main applications for General Stainlessproducts are in industrial segments such aschemicals and petrochemicals, constructionand energy-related industries, pulp andpaper, catering and households.Customers are mainly distributors andprocessors who stock and processstainless steel to serve end customers.

General Stainless consists of Tornio Worksand Long Products. The majority of theGroup's stock and processing units and itssales companies are also reported underGeneral Stainless.

General Stainless key figures

€ million 2009 2008 2007

Sales 2 065 4 147 5 321

of which Tornio Works 1 292 2 701 3 468

Operating profit -259 -6 220

of which Tornio Works -183 66 178

Non-recurring items in operating profit - - -

Operating capital on Dec. 31 2 421 2 663 2 607

Return on operating capital, % -10.2 -0.2 8.1

Capital expenditure 129 332 57

Depreciation 141 135 133

Outokumpu Annual Report 2009 – General Stainless

Personnel on Dec. 31 3 753 3 938 3 571

1 000 tonnes

Deliveries of main products




Total deliveries of the division 929 1 265 1 240

Outokumpu Annual Report 2009 – General Stainless

Tornio Works Efficient integrated single-siteoperationLocated in northern Finland, Tornio Works is one of the largest stainless steel mills in the world and also the world's mostintegrated single-site operation. The main products are cold rolled and hot rolled 300-series austenitic stainless steelcoils and sheets, ferritic grades are also part of the product portfolio. The integrated production process starts at thenearby Kemi chromite mine, continues in the Tornio ferrochrome smelter and proceeds through two stainless steel meltshops, a hot rolling mill and cold rolling lines. The majority of finishing operations are carried out in Terneuzen in theNetherlands.

Annual production capacities at Tornio Works are:

1.65 million tonnes of melting

1.6 million tonnes of hot rolling

1.2 million tonnes of finished products from the cold rolling mills

Majority of stainless steel produced in Tornio is standard austenitic stainless containing nickel in addition to chrome andiron. Outokumpu also produces 400-series ferritic stainless steel in Tornio. As ferritic grades do not contain nickel, pricesfor these products have traditionally been less volatile than those of the Group's main product, 300-series austeniticstainless steel. Outokumpu's production capacity in ferritic grades totals some 180 000 tonnes.

Some black hot band material from Tornio is also delivered to both internal and external customers.

Research and development activities carried out at the Tornio Research Centre focus on process, product andapplication development. Read more about R&D.

Outokumpu Annual Report 2009 – Tornio Works

Tornio Works’ competitive edge Tornio Works' competitive edgeTornio Works is the Group's largest production unit and one of the world's most cost-efficient stainlesssteel operations.

Integration into chrome and ferrochromeOutokumpu's unique backward integration into chromium and ferrochrome production offers the Group significantcompetitive advantages. Having its own chromium supply is both a significant cost advantage and a way of mitigatingrisk. Chromite ore is mined at the Kemi underground mine and converted into ferrochrome at Tornio Works. ForOutokumpu, the primary benefit is the ability to source the material at cost while selling it at prevailing market prices. AsOutokumpu's ferrochrome smelter is located at the same site as the integrated stainless steel mill, ferrochrome can betransferred to the stainless steel melt shop in liquid form, an exceptional advantage in terms of energy and logisticscosts. Read more about ferrochrome.

RAP lineThe integrated rolling, annealing and pickling (RAP) line provides additional production flexibility as production can beshifted between hot rolled (white hot strip) and cold rolled products in accordance with market demand. As well asyielding a clear cost advantage, the RAP line requires less working capital than traditional cold rolling processes in whichthe annealing and pickling operations are carried out on separate lines.

Efficient logisticsTornio Works is located by the sea and has its own harbour. This allows finished products to be shipped to Europe forfurther distribution in a highly efficient manner.

Tornio Works is one of the world's most cost-efficient stainlesssteel operations.

Outokumpu Annual Report 2009 – Tornio Works’ competitive edge

Ferrochrome FerrochromeChromium provides stainless steel with its corrosion resistance. Some 90% of the chromite mined around the world isconverted into different grades of ferrochrome and used by the metals industry. The stainless steel industry consumesabout 90% of globally produced ferrochrome (mainly high-carbon and charge grade). Global ferrochrome production in2009 declined significantly due to global production cut backs and totalled 5.6 million tonnes (2008: 7.7 million tonnes).Major producers of ferrochrome are South Africa (41%), China (21%), Kazakhstan (16%) and Finland (2%).

Outokumpu's unique position – a wholly-owned chromite mine in Kemi in northern Finland with its own ferrochromeproduction located, at the same site as the Tornio Works stainless steel plant – gives the Group a clear competitiveedge. The main benefits of this integrated production chain are:

Sourcing of raw material at cost while pricing chromium contained in stainless steel products at the prevailing marketprice

Transfer of ferrochrome to the Tornio Works stainless steel melt shop in liquid form (savings in energy,transportation and logistics costs)

The use of carbon monoxide gas emanating from the ferrochrome process as fuel in the stainless steel mill (reducingthe need for external energy supplies)

Outokumpu is 60–65% self-sufficient in ferrochrome and able to satisfy the Tornio Works' needs internally. Recycledstainless steel provides most of the balance, but primary ferrochrome is also purchased on the global market.

According to a seismic research report produced by the Geological Survey of Finland in late 2009, the mineral resourcesat the Kemi Mine could turn out to be significantly greater than earlier estimates. The intrusion containing chromium oreextends to a depth of 2–3 kilometres, possibly to four kilometres and the chromitite layer possibly extends to a depth of atleast 2–2.5 kilometres or more.

Proven ore reserves at the Kemi Mine total some 37 million tonnes and the quantity of mineral resources totals some 87million tonnes (estimated to a depth of 1 kilometre). The new information indicates the existence of resources sufficient toallow centuries of mining activity even with doubled annual production volumes (the previous estimate was 70–80 years).Outokumpu's mineral resources will not be updated based on these findings.

Kemi Mine and Tornio ferrochrome smelter

Production 2009 2008 2007

Ore excavated, million tonnes 0.5 1.3 1.2

Chromite concentrates, 1 000 tonnes 247 614 556

Ferrochrome, 1 000 tonnes 123 234 242

Ore reserves and mineral resources

Dec. 31, 2009 Million tonnes Grade

Outokumpu is 60–65% self-sufficient in ferrochrome.

Outokumpu Annual Report 2009 – Ferrochrome

Ore reserves

Proven 37 26% Cr2O3

Mineral resources

Indicated 13 30% Cr2O3

Inferred 73 29% Cr2O3

Outokumpu Annual Report 2009 – Ferrochrome

Long Products Long Products

SheffieldThe Sheffield melt shop in the UK has an annual operational production capacity of some 400 000 tonnes. With current-manning, production capacity is some 250–300 000 tonnes. The melt shop produces both slabs for flat stainless steelproduction and billets and blooms for the production of long products.

Investment in Long Products' finishing facilities in Sheffield began in 2008 and is being finalised in the first quarter of2010. Totalling some EUR 10 million, the investment has resulted in an integrated manufacturing route for small bar andreinforcing bar that complements Sheffield's existing melt shop and wire rod mill.

DegerforsThe hot rolling mill in Degerfors, Sweden produces rolled billets and heavy bars from blooms cast in Sheffield. Annualoperational rolling capacity at Degerfors is some 50 000 tonnes.

Other productionOutokumpu's wire rod operations in Sheffield and bar production in Richburg, S.C. in the United States have an annualdelivery capacity of some 80 000 tonnes of long products. The Group also has a 50% stake in Fagersta Stainless, acompany located in Sweden that manufactures and sells stainless steel wire rod and wire products.

Outokumpu Annual Report 2009 – Long Products

Specialty Stainless Specialty Stainless – special gradesand productsOutokumpu's Specialty Stainless division supplies both flat and stainless tubular products for tailoredsolutions and demanding customer applications. Project orders form an important part of the business,supported by a strong R&D function and extensive, long-term experience in delivering tailoredsolutions.

End-usersSpecialty Stainless serves customers withvery high requirements for steel grade,shape, thickness and surface finish in theoil and gas, chemical and petrochemicaland pulp and paper industries as well asnuclear power plants.

Products, productionand R&DThe main products produced by SpecialtyStainless are hot and cold rolled sheet,quarto plate, tubes and a variety of fittings,and precision strip. Most of the stainlesssteel slabs supplied to Specialty Stainless units come from Outokumpu's melt shops in Avesta, Sweden and Sheffield,the UK.

In terms of finished products, Specialty Stainless units have a production capacity of:

500 000 tonnes of cold rolled and white hot strip and plate

170 000 tonnes of quarto plate

100 000 tonnes of tubular products

The focus of operations in Specialty Stainless is on differentiation and further specialisation in special grades andproducts, with development opportunities being offered to meet specific customer needs. Duplex grades in particular arean effective response to the increasing competition from standard grades of stainless steel. Outokumpu is a marketleader in duplex grades with a global market share of some 50%. Read more about duplex.

At the Group's Avesta Research Centre in Sweden, the focus of R&D is on developing new grades of stainless steel,new applications and identifying the best solutions for each Outokumpu customer.Read more about R&D.

Specialty Stainless key figures

€ million 2009 2008 2007

Sales 1 239 2 705 3 456

Outokumpu Annual Report 2009 – Specialty Stainless


Non-recurring items in operating profit -20 -83 14

Operating capital on Dec. 31 1 035 1 174 1 513

Return on operating capital, % -13.5 -7.5 21.7

Capital expenditure 93 170 69


Personnel on Dec. 31 3 361 4 006 4 099

1 000 tonnes

Deliveries of main products






Total deliveries of the division 335 541 574

Outokumpu Annual Report 2009 – Specialty Stainless

Special Coil and Plate Special Coil and PlateSpecial Coil and Plate offers a wide range of special grades and products in a variety of dimensions.

Production facilitiesSpecial Coil and Plate consists of the integrated Avesta production facility (coil and continuously produced plate) and HotRolled Plate (quarto plate) production in Degerfors, Sweden and New Castle, IN, in the US.

Products and productionAvesta is a world-class supplier to the process industry of two-metre-wide, thick cold rolled and white hot rolled productsand continuously produced plate. The integrated Avesta production facility covers the entire production chain from meltshop through hot rolling to cold rolling. Approximate annual operational production capacities at Avesta are:

500 000 tonnes for melting with the current mix

450 000 tonnes for hot rolling (current manned capacity)

250 000 tonnes of finished products

Avesta supplies the Nyby and Kloster cold rolling mills with black hot band material. Slabs and steckel hot rolled plate aresupplied to hot rolled plate operations.

Outokumpu is the market leader with a 20% global market share in hot rolled plate (quarto plates). Thick, wide, andindividually rolled quarto plates are used in demanding applications in the pulp and paper, oil and gas, power plant anddesalination segments, and in chemical tankers. Outokumpu produces quarto plates at Degerfors, Sweden and in NewCastle, IN, in the US. Production capacity of quarto plates at Degerfors is 110 000 tonnes, at New Castle it is 70 000tonnes. The Group's plate service centres in Europe complement these facilities.

In accordance with Outokumpu strategy, the product mix at both Avesta and Degerfors, and quarto plate production atNew Castle, is being shifted from standard grades towards increased production of value-added, tailor-made specialgrades – especially duplex – to offer end user and project customers the Group's full product range.

Outokumpu Annual Report 2009 – Special Coil and Plate

Thin Strip Thin StripThe Group's Thin Strip operations consist of the cold rolling mills at Nyby and Kloster in Sweden. These mills have acombined annual delivery capacity of approximately 145 000 tonnes (Nyby some 100 000 tonnes and Kloster some 45000 tonnes). Thin strip products are mainly used in plate heat exchangers, domestic heaters and heating elements,flexible tubes, automotive head gaskets.

In the first quarter 2009, the Thin Strip operations at Sheffield Special Strip, SSS, in the UK were closed.

At the beginning of October 2009, a new grinding line and with an automated storage and an entry section to theannealing and pickling line was taken into operation in Nyby. This investment is doubling the annual production capacityof special grades to over 70 000 tonnes.

Outokumpu Annual Report 2009 – Thin Strip

OSTP OSTP (Outokumpu Stainless TubularProducts)

Products and productionOSTP manufactures and markets welded stainless steel tubes and pipes as well as butt-welded and threaded fittings.With an 18% market share in the process-pipe segment, Outokumpu is one of Europe's largest producers of stainlesssteel tubes. Tubular products are manufactured in Sweden, Finland, Estonia, the US and Canada. The main products –process pipes and fittings, heavy-wall pipes and heat-exchanger pipes – are used in most segments of the processindustry: pulp and paper, oil and gas, chemical and petrochemical, automotive, and construction. Annual deliverycapacity at OSTP totals some 100 000 tonnes.

As part of the restructuring of OSTP, the operation producing structural hollow sections in Pietarsaari, Finland was soldto Stalatube Oy, a Finnish company, in 2009. Closure of the OSTP site in Veteli, Finland is scheduled to take placeduring the first quarter of 2010. Production will be moved to Jakobstad in Finland and Örnsköldsvik in Sweden.

In Saudi Arabia, OSTP's joint venture with the tube manufacturer Armetal is creating the largest local producer ofprocess pipe. Investments made during the past year have expanded the product range substantially.

Outokumpu Annual Report 2009 – OSTP

Duplex grades Duplex gradesDemand for ferritic-austenitic duplex grades is growing significantly faster than demand for standard stainless grades. Inaddition to low nickel content, duplex stainless steel is characterised by good corrosion resistance and high strength,enabling the use of thinner gauges in a variety of applications such as tanks, pressure vessels, piping, transportation,building and construction, and desalination plants. Considerable savings in material costs are the result. Outokumpu is aclear market leader in duplex grade stainless with a global market share of some 50%. Avesta Works has a long andsuccessful track record in duplex production, a very demanding process.

Outokumpu has developed and patented LDX 2101®, a Lean Duplex grade with a nickel content of only 1.5%, a featurewhich makes its price less dependent on the volatile price of nickel. In terms of corrosion resistance, the performance ofLDX is similar to that of standard austenitic 304 grade (8% nickel), but Outokumpu's Lean Duplex is twice as strong andhas met with great success in demanding applications. To facilitate its market penetration, Outokumpu has awardedmanufacturing licences to a number of stainless steel producers in Europe and Asia.

Outokumpu Annual Report 2009 – Duplex grades

Group level functions Group level functionsOutokumpu's main Group level functions include

Group Sales and Marketing,

Supply Chain Management and

Research and development.

Outokumpu Annual Report 2009 – Group level functions

Group Sales and Marketing Group Sales and MarketingCustomers in a wide range of industries – from catering and appliances to building and construction,transportation and chemical, petrochemical and energy, as well as process and resources – use theGroup's stainless steel and its services worldwide. Fully-recyclable, maintenance-free, strong anddurable; stainless steel is one of the key building blocks for a sustainable future.

What makes Outokumpu special is its total customer focus from R&D to delivery. Outokumpu offers world-class stainlesssteel, technical know-how and support to activate its customers' ideas.

Commercial organisation based on industry groups

Launched in April 2008, Group Sales and Marketing, the Group's new commercialorganisation, completed its first full year of operation in 2009. Sales and marketingis organised into customer specific industry groups in order to best understand theneeds of different customers and to provide them with the best possible service.Group Sales and Marketing consists of two global sectors:

end-users and projects,

distributors and processors, as well as

regions and stock & processing operations.

Each sector is divided into clusters, enabling Outokumpu to offer customers thewhole range of products and services, to specialise in customer industries andidentify optimal solutions. Regions and stock & processing operations compriseOutokumpu's network of sales companies and the Group's service centres.

Headquarters located in BelgiumOutokumpu's commercial headquarters are located in Zaventem, Belgium, close to Brussels. The Brussels office is thecentral working and meeting location for cluster teams, and houses also Group Sales and Marketing management aswell as other central commercial functions.

Outokumpu Annual Report 2009 – Group Sales and Marketing

End-user and project customers End-user and project customers –business expected to growOutokumpu's objective is to increase the relative share of end-user and project business to support the company'sstrategy of developing a more stable and profitable business model. By building on the Group's customer service,technical expertise, product development and international reach, Outokumpu is aiming to increase this share to morethan half of Group sales. A number of initiatives are being implemented to achieve this objective.

Broadening the product mixOutokumpu is broadening its product mix. In addition to production of austenitic and various special grades, ferritic (400series) grades were introduced to the Group's product portfolio in 2009. Manganese (200 series) grades are alsoproduced according to market demand.

OrganisationOutokumpu's end-user and project business is organised into five clusters of segments according to customer industry:

Architectural, building and construction

Transportation

Catering and appliances

Chemical, petrochemical and energy

Process and resources

In addition to serving key account customers, a significant amount of segment effort is targeted towards developing newbusiness. Each segment is managed by dedicated teams consisting of key account managers, application and productexperts, R&D and supply chain specialists, as well as the Group's sales force in all the countries supplied by Outokumpu.Although Western Europe is Outokumpu's main market from a geographical perspective, the company is also seekingsignificant growth in China, Eastern Europe and India.

A key component in Outokumpu's end-user and project customer business is the service provided for all key accounts.Dedicated key account managers and their teams serve key accounts in a personalised manner, offering the Group's fullproduct portfolio and tailor-made solutions to customers globally.

Outokumpu Annual Report 2009 – End-user and project customers

Distributor and process customers Distributors and process customers– a focus on stable and long-termrelationshipsA significant proportion of the stainless steel market is served by distributors and service centres. These customers makeup a large part of the Group's customer base and continue to be the company's key business partners. Outokumpu isaiming to strengthen its relationships with stable long-term distributor and processor customers to support the Group'sstrategy of developing a more stable and profitable business model. This is of particular importance in high-volumestandard products.

Large-volume re-rollers and tube makers also represent an important market for Outokumpu. As with distributors, closeand stable relationships with these customers are of particular importance, enabling the Group to develop products,processes and working methods that benefit customers in the long term.

OrganisationOutokumpu's distributor and processor business is organised into two clusters:

Distributors

Re-rollers, tube-makers and further processors

Some members of the Group's sales teams focus exclusively on these customers, enabling Outokumpu to respond tothe specific needs of distributors and large-volume processors.

Outokumpu Annual Report 2009 – Distributor and process customers

Sales offices and service centres Sales offices and service centres –regions and stock & processing

A focus on daily salesOutokumpu's network of sales companies and the Group's service centres are managed through the Regions and stock& processing operations function. The company's more than 30 sales companies are divided into six regions.Outokumpu has sales personnel in almost 40 countries with another 30 countries being served through dedicatedagents.

Service centres operate as part of the sales company in the country in which they are located. A central team isresponsible for the processing and supply-chain efficiency of the service centre network.

Expansion of service centre networkOutokumpu's service centre network has a central role in serving end-user and project customers. The Group expandedcapacity at its service centre in Willich, Germany in 2009. A greenfield service centre that will process mainly specialgrades is being built near Shanghai in China, with operations scheduled to start in the first half of 2010.

Outokumpu Annual Report 2009 – Sales offices and service centres

Supply Chain Management Supply Chain Management

Supply Chain Management strategyOutokumpu's Supply Chain function supports the Group strategy of offering customers technically superior products andservices. The aim of Supply Chain Management is to increase sales to end-users and projects while maintaining a focuson the distributor and processor sector. The objective of Supply Chain Management is to optimise the flow of productsfrom raw materials through production to final delivery to the customer, enhancing production stability and improving theefficiency of inventory management while simultaneously developing the Group's ability to deliver to its customers ontime. Supply Chain Management includes the Production Excellence programme (OK>1) and covers raw material andgeneral procurement, logistics and supply chain operations.

Achievements in 2009In many industries, 2009 was a very difficult year due to the impact from the global economic recession. Outokumpu,however, will be better positioned to meet and adapt to current and future challenges with its renewed organisation andmore efficient processes within supply chain. Focus was on developing and creating uniform ways of working withinOutokumpu's production sites and business units. This enables the Group to optimise the entire material flow creatingshorter and more stable lead times for both internal and external customers. In 2009, the Group's delivery performanceimproved for the third consecutive year and total inventories were reduced by approximately 25%.

Outokumpu Annual Report 2009 – Supply Chain Management

Production Excellence Production ExcellenceOutokumpu's Production Excellence programme (OK>1) made good progress in 2009. Total benefitsfrom the Group-wide Operational Excellence programmes, which include Commercial Excellence,Production Excellence and Supply Chain Excellence, totalled EUR 150 million. Targeted benefits forOK>1 in 2009 were realised and the number of improvement teams increased by more than 75%.Annual audits of the Group's manufacturing plants also showed an improvement in the average auditscore. Most of the work done in 2009 was carried out using internal resources, minimising externalconsulting costs.

Understanding lossesThe purpose of the Production Excellence programme is to reduce waste, i.e. to indentify and take advantage ofimprovement opportunities. Work on developing a good understanding of operational losses has continued. This allowslocal management teams to prioritise the necessary improvement activities. This process will allow more focusedactivities to be undertaken in 2010 and consequently increase the achieved benefits.

Deploying resourcesDedicated improvement teams have investigated and addressed the prioritised losses. The number of improvementteams increased by 75% in 2009, achieving significant cost and inventory savings. The number of people involved inworkplace improvements increased significantly and enabled the development of autonomous maintenance and safetyactivities. Approximately 60% of all employees have now been involved in providing support for improvement activities in2009.

Sustainable achievementSustaining the gains is proof of the improvement work. Although temporary and permanent layoffs in 2009 caused someoperational difficulties, OK>1 tools and techniques were used to identify and resolve issues and restore operationalcapability. The development of improved daily management, performance control and autonomous maintenanceactivities continued to provide a good platform to maintain operational improvements.

Training and developmentTraining of Outokumpu personnel involved in Production Excellence continued in 2009. Investment in training continuedin the form of the 15-month Production Excellence Change Agent training programme. More than 150 change agentshave now been trained or are currently in training. Further training and development took place to support Outokumpu'sautonomous maintenance activities in most plants.

The purpose of the Production Excellence programme is toreduce waste.

Outokumpu Annual Report 2009 – Production Excellence

A development platformThe OK>1 programme supports development of supply chain improvements at most of Outokumpu's large productionunits. Safety improvements using OK>1 tools were also introduced in 2009 and a number of production units enjoyed afull year without lost-time accidents. This will also be a focus area in 2010.

Sharing of best practices and the development of improved corporate standards will also continue in Outokumpu in 2010.

Outokumpu Annual Report 2009 – Production Excellence

Procurement Procurement Excellence

Procurement Excellence programmeUnder the pressure of the global recession, cost control has become more crucial than ever. Outokumpu's ProcurementExcellence programme (PEX), part of Supply Chain Excellence, is the Group's key driver in reducing purchasing costs.Procurement Excellence aims at building capabilities for continuous improvement in procurement and reducingOutokumpu's total cost of purchasing by eliminating the losses that result from fragmented purchasing volumes, a lack ofalternative sources, untapped supplier know-how, non-value-added activities and uncontrolled expenditure. ProcurementExcellence is not a short-term project but a key driver for continuous improvement in procurement function. ProcurementExcellence is based on a category management approach which leverages knowledge of suppliers, products andservices, development of professional procurement capabilities, optimal use of materials, products and services, andleverage of Group purchasing power.

The OUPEX programmeThe Outokumpu Procurement Excellence programme (OUPEX) is a Group-wide procurement development programmefor implementing a common way of working and a common SAP system as well as raw materials purchasing andinventory management. The system is based on a common template jointly designed by several business units within theGroup. Implementation will take place in phases: OUPEX will first be taken into use at Tornio Works before being rolledout at other sites.

The Quick Wins projectLaunched at the beginning of 2009, Quick Wins, a special project targeting short-term savings through the renegotiationof terms and conditions with selected suppliers, achieved significant Group-wide savings.

Outokumpu Annual Report 2009 – Procurement

Raw materials Raw materials optimisationFollowing an assessment of the market situation in 2009, a decision was madethat Outokumpu would not cover all its primary metal needs through long-termcontracts. As there was a surplus of raw material on the market and theassociated terms and conditions were attractive, this proved to be a wise move.The Group continued using a very high proportion of its raw material consumptionin the form of recycled steel and the use of these environmentally friendly rawmaterials resulted in lower raw material costs.

Very good progress was made in optimising the Group's use of raw materials in2009, with significant cost benefits being achieved. Raw materials optimisation willcontinue to be a focus area in 2010.

Outokumpu's raw material stocks were considerably reduced in 2009. Closemonitoring of the stocks will continue in 2010 with the aim of achieving optimalstock levels.

Outokumpu Annual Report 2009 – Raw materials

Research and development Research and developmentAvesta focuses on special grades

Tornio develops ferritic grades

Application development focus is on process industries

Active participation in international associations

Development of efficient and environmental friendly production processes

The Outokumpu research centres in Tornio, Finland and Avesta, Sweden focus on process, product and applicationdevelopment. Some process and technology development work is also carried out in production units. The R&D functionoperates in close cooperation with the Group's commercial organisation and customers, and direct feedback regardingcustomer needs serves as input for further product development. In 2009, the R&D function employed almost 200professionals and investments in R&D totalled EUR 19 million.

Avesta focuses on special gradesAt the Avesta Research Centre, the focus is on special grades including duplex grades, high-alloyed corrosion-resistantaustenitic grades and heat-resistant alloys. Much effort has gone into developing duplex grades, which offer a goodcombination of strength and corrosion resistance with lower nickel content. Ideal applications for the use of duplexgrades are large heavy-wall tanks where weight savings of some 20% can be achieved. Customers have shown agrowing interest in LDX 2101®, Outokumpu's own development of Lean Duplex. New applications are continually beingdeveloped and related production technology has been improved.

In high-alloyed corrosion-resistant austenitic and heat resistant grades, Group R&D has also been actively involved intechnical marketing aspects of older developments such as 254 SMO® and 253 MA®.

Tornio develops ferritic gradesThe Tornio Research Centre develops non-nickel-containing ferritic grades which offer the biggest opportunity to reducethe effects of varying nickel prices on raw material costs. The R&D function at Tornio has investigated optimum processparameters and product properties for standard ferritic grades at production scale, with the primary focus being onsurface quality, formability and corrosion resistance. Four different grades, mostly for use in indoor applications, kitchenutensils, domestic appliances and the transportation segment, are now part of the Group's product portfolio.

Manganese-alloyed grades (200-series) are the third opportunity to reduce the quantities of nickel used and alsorepresent an interesting alternative in many applications. The most common product of this type is commodity grade 201,whose chemistry has been modified by Outokumpu. With corrosion-resistant properties almost equal to those of standardaustenitic 304 (Cr-Ni), other properties of this grade include higher strength and good formability.

Outokumpu research centres in Finland and Sweden focuson process, product and application development.

Outokumpu Annual Report 2009 – Research and development

Application development focus is on process industriesThe traditional focus of application development has been the process industries, where stainless steel plays a dominantrole in the manufacture of industrial equipment used in the pulp and paper, oil and gas, desalination and chemicalssegments. Outokumpu's R&D experts provide advice to the Group's commercial organisation and customers on productproperties and material selection.

Stainless steel's high strength and good formability have resulted in its use as a construction material being investigatedin the architectural, building and construction and transportation sectors - its lower weight and low life-cycle costs make itan excellent substitute for many other materials. Potential new automotive application were studied is the NextGeneration Vehicle project, a cooperative project involving European stainless steel producers, car manufacturers andengineering companies which was completed in 2009. In crash tests, passenger-car components made of high-strengthstainless steel have yielded very promising results.

Active participation in international associationsIn addition to participating in EU cooperation projects, Outokumpu experts are active members of many internationalassociations such as ISSF and EuroInox. Together with other steel and engineering companies and universities, theGroup is also actively involved in new FIMECC (Finnish Metal and Engineering Competence Cluster) researchprogrammes in Finland. During 2009, Outokumpu experts gave several presentations at international conferences onstainless steel manufacturing, material properties and the selection criteria for different applications.

The 10th edition of the Outokumpu Corrosion Handbook was published in 2009. Regarded as an authentic guide to thecorrosion resistance of stainless steel for more than 60 years, the handbook provides essential information formetallurgists, design engineers and fabricators all over the world, as well as serving the needs of stainless steel users,academics and students.

Development of efficient and environmental friendly productionprocessesIn addition to new products and new applications for stainless steel, the Group's R&D operations focus on innovative andenergy-efficient manufacturing processes that reduce costs, result on lower emissions, shorten lead times and improvequality levels. The main subject of environmental research in 2009 was slag utilisation, and studies on both theproperties of different slag products and the development of applications continued.

Outokumpu Annual Report 2009 – Research and development

Corporate Responsibility Raising levels of corporateresponsibility in a changing worldImprovement of Outokumpu's performance and reporting on corporate responsibility issues continuedin a more challenging world. Stated simply, our development concept involves listening to stakeholders,moving from words to actions and turning actions into results step-by-step. Our objective is to listen toour key stakeholders, achieve sustainable competitiveness, combat climate change and improve thewell-being and safety of Outokumpu people.

Environmental and health and safety (EHS) issues are – and have always been – subjects of primary importance for theGroup's profitability and competitiveness and for the well-being of our personnel. We make no compromises inOutokumpu regarding these issues, and there is always room for improvement. Developments in occupational safety aremonitored via regular reports at corporate management meetings. All management committees and equivalent bodiesthroughout the Group begin each meeting with a safety review, and safety is a top priority at all times even whenproducing lower volumes. As in 2005, to ensure an exceptionally strong focus on safety issues, 2010 has been named aSafety theme year. We pay particular attention to the well-being of Group personnel, our suppliers and the wishes of ourcustomers. As a listed company, Outokumpu is committed to generating profit for its shareholders.

During the current global downturn, acting responsibly and attempting to keep the three aspects of corporateresponsibility in balance is more important than ever. The very sharp decline in demand for stainless steel products in2008 and 2009 forced us to take heavy actions with impact on us and on our stakeholders.

Outokumpu Annual Report 2009 – Corporate Responsibility

Main corporate responsibility goals1. Corporate responsibility becomes an integral aspect of all our activities and decision-making process, from

procuring materials through to production and sales. Economic, environmental and social responsibility issues arein balance. Compliance with legislation constitutes the bedrock of our operations. Continually improving ourcorporate responsibility performance puts us on the path towards a higher level of achievement.

2. Our business partners, subcontractors and suppliers become familiar with our principles and apply the same highstandards in their own activities.

3. To enhance transparency, we aim to establish continuous, systematic and open dialogue on corporateresponsibility issues with our key stakeholders, such as shareholders, employees, customers, suppliers and non-governmental organisations. This co-operation contributes towards developing and dutifully reporting our corporateresponsibility performance.

DJSI STOXX and World ASPI Eurozone® index

UN Global Compact Ethibel Excellence Europe

Kempen SRI Storebrand SRI

SAM Sector Mover 2010

Outokumpu in many indices and initiatives

Outokumpu is in the process of integrating corporate responsibility into business operations. The integration shouldbe further continued to ensure the effectiveness of CR across all functions, e.g. Group Sales and Marketing, andalong the whole value chain.

Observations by PricewaterhouseCoopers

Outokumpu Annual Report 2009 – Corporate Responsibility

Corporate responsibility highlights 2009 Corporate responsibility highlights

Outokumpu Annual Report 2009 – Corporate responsibility highlights 2009

Management committed to corporate responsibility Making responsibility an integral partof all our activitiesEven though our main focus was on cost reduction and cash flow generation during the historicallydifficult year of 2009, we kept our vision in corporate responsibility – to be the most responsiblecompany within our industry – firmly in mind. We continued our step-by-step development approach,and I believe that awareness of corporate responsibility issues has improved among our employees.

Difficult times test a company's attitude to its responsibilitiesThe year 2009 was very difficult for all stainless steel producers and an exceptional year for Outokumpu with heavylosses but fortunately strong cash flow. Our financial result is discussed in detail in the first part of this online report, herewe take the corporate responsibility viewpoint. I believe that acting responsibly in difficult times is of particularimportance, as is maintaining a balance between the environmental, economic and social aspects of corporateresponsibility.

The economic value distributed to our key stakeholders decreased due to the dramatic drop in demand for stainless steeland the resulting impact on our sales. We continued our efforts to reach the targets set for 2009: reducing energyconsumption, waste, and injuries, and improving our employees' well-being. Unfortunately, as part of our cost savingefforts, personnel reductions could not be avoided, and some 900 jobs were lost permanently.

Our levels of production were clearly lower than in the previous year, and our energy consumption therefore alsodecreased, by 25%. We did not however reach the target of a 2% decrease per processed tonne. We did achieve ourtarget of further 10% reduction in landfill waste per processed tonne – an impressive achievement. The injury rate fellfrom 9.0 to 5.9 injuries per million working hours, our target was below five. We will continue our efforts – the target figurefor 2010 is a challenging four, a good level by global standards. The year 2010 has been named Safety Theme Year,meaning we will be placing additional emphasis on our safety performance. Our long-term target for both injuries andwaste is zero. No serious injuries occurred in 2009. In these difficult times the well-being of our personnel remainedunchanged; the improvement target was not reached.

We take climate change seriouslyClimate change, carbon dioxide emissions and energy consumption continue to be areas of concern for both us and ourstakeholders. We take these issues seriously and are doing our share in the shift towards a low-carbon society.Published at the beginning of 2010, our Energy and low-carbon programme includes a commitment to reduce our directand indirect carbon dioxide emissions by 20% per produced tonne by 2020. In 2009, our direct carbon dioxide emissionstotalled 540 000 tonnes, 35% less than in the previous year, primarily because of lower production volumes. Most of ouremissions in 2009 remained within permitted limits but some incidents did occur.

I am proud to say that according to a study made by PE International, our stainless products have the smallest carbonfootprint in our industry in the EU. Key drivers in our business are that our products have a higher percentage of recycledmaterial than the global industry average, and that our ferrochrome production is a world leader in both energy efficiencyand curbing carbon dioxide emissions.

Internal improvement initiatives such as our Operational Excellence programmes are important tools in further improvingour operations and our profits. Production excellence focuses on safety and operational efficiency and also concernseliminating waste and losses. It has an impact on both the economic and the environmental performance of the supplychain. The sustainability of our supply chain is an important issue, especially in challenging new markets. Our goal is that

Outokumpu Annual Report 2009 – Management committed to corporate responsibility

our suppliers apply ethical standards which are as high as ours. Supplier audit processes will be finalised and graduallyadopted in 2010, first in our raw material purchases then in general purchases.

Investigations of our export practices to Russia that were initiated by the Finnish Customs authorities in 2007 have beencompleted. The prosecuting authorities' process of considering possible charges is to be completed in the spring of 2010.

Awards for our sustainability performance and reportingI am really pleased that the efforts we are making to improve our corporate responsibility performance and our reportinghave been recognised once again. We maintain our position in the sustainability indices in which we already featuredand were included in one new one. For achieving the largest improvement in sustainability performance among the topeight sustainable steel companies, we won the SAM Sector Mover 2010 award. In addition, Outokumpu was againselected as Finland's best reporter on corporate responsibility issues.

And the work continues. The valuable feedback we receive from stakeholders is very useful in working towards ourvision. There is still much to do and to improve.

Juha RantanenCEO

Outokumpu Annual Report 2009 – Management committed to corporate responsibility

Corporate responsibility governance Corporate governance, commitmentsand engagementThe Group's parent company, Outokumpu Oyj, is a public limited liability company incorporated anddomiciled in Finland.

In its corporate governance and management, Outokumpu Oyj complies with Finnish legislation, the Company's Articlesof Association and the Corporate Governance Policy resolved and approved by the Board of Directors. Outokumpuobserves the Finnish Corporate Governance Code, which came into force on January 1, 2009, by the Securities MarketAssociation and approved by the NASDAQ OMX Helsinki as part of its regulations. As one exception to this code,Outokumpu has both a Board Nomination and Compensation Committee and a Shareholders' Nomination Committeeappointed by the Annual General Meeting of Shareholders. Furthermore, Outokumpu complies with all other regulationsand recommendations issued by NASDAQ OMX Helsinki.

The governing bodies of the parent company Outokumpu Oyj, i.e. the General Meeting of Shareholders, the Board ofDirectors and the CEO, have ultimate responsibility for Group management and Group operations. Outokumpu'scorporate governance and the duties and responsibilities of the company's governing bodies and the control system arepresented in detail here.

Outokumpu Annual Report 2009 – Corporate responsibility governance

Corporate responsility organisation Management of corporateresponsibility issuesCorporate responsibility in Outokumpu is the responsibility of the CEO. A corporate responsibility teamformed by representatives of different business functions is headed by VP – CorporateResponsibility. The team's task is to provide advice on corporate responsibility issues. VP –Corporate Responsibility is responsible for coordinating and developing all aspects of corporateresponsibility throughout the Group. Each business unit and function is responsible for ensuring that itsown operations are conducted in a responsible manner and that monitoring, data collection andreporting operations are executed in the required manner. We have three overall objectives in corporateresponsibility. In addition, every year we set concrete measurable targets at Group-level forenvironmental and social issues. Local targets are in line with these Group-level targets. The results arereported and monitored.

Outokumpu Annual Report 2009 – Corporate responsility organisation

Management systems We have a clear visionOutokumpu's vision is to become the undisputed number one in stainless steel, with success based on OperationalExcellence. Being the number one producer in stainless steel means we strive to be the most successful company, themost efficient producer, the most popular employer and to have the best customer relationships in our business. Weintend to gain the number one position by engaging in responsible business practices, helped and supported by our keystakeholders.

Outokumpu's strategic goalsThe aim of Outokumpu's strategic goals is to achieve the number one position in stainless steel. We create value throughsuperior production and distribution capabilities, realising this through our excellence programmes. Becoming numberone in stainless steel also requires that we maintain our focus on customer needs and continuously develop the skillsand know-how of our personnel. Read more about strategic themes here.

Policies are the backbone of our operationsWhile the underlying principle in Group operations is compliance with local legislation everywhere we operate, we arehowever willing to raise the responsibilities we accept to a higher level. Our operations are governed by corporatepolicies and also recommendations published by the United Nations (Global Compact). These include Outokumpu'sEthical Principles, our Corporate Responsibility policy, our Code of Conduct and our Quality, Environment and Health &Safety policy. The Group's ethical principles are also an integral part of our leadership principles. Individual locationshave detailed practical guidelines to support their operations.

More information on the policies followed:

Corporate Governance

Environmental responsibility

Guidance from management systems and Group policies

Economic responsibility

Policies and principles guide us

Outokumpu's leadership principles shown below are concrete recommended practices.

Making sound decisionsAchieving ambitious targetsCreating a winning teamInspiring to performBuilding trust and respect

We act consistently in accordance with clear ethics and valuesWe encourage and require others to adhere to ethical valuesWe demonstrate honesty, loyalty and integrity in our everyday work

Outokumpu's leadership principles

Outokumpu Annual Report 2009 – Management systems

Social responsibility

People are most important

Towards equality

Outokumpu Annual Report 2009 – Management systems

Internal audit Internal audit monitoring complianceThe mission of the Group's internal audit remained unchanged in 2009: providing consultative auditingon targets and issues separately identified by the Board Audit Committee and the Group ExecutiveCommittee. The focus is on distributing information and on identifying and controlling potential businessrisks. Internal audits are carried out in close cooperation with the Group's finance and risk managementfunctions, with financial administration bodies and external auditors. Internal audit reports to the AuditCommittee, which approves its operational plan.

In 2009, 27 individual units or functions were audited either independently or in cooperation with external serviceproviders. Internal audit monitors compliance with Outokumpu's Ethical Principles, Corporate Responsibility policy andCode of Conduct, and the ways in which these principles and policies are incorporated into general operationalprocedures in Group companies and units. Although no major risks were identified, two cases of suspected infringementand embezzlement within the Group were investigated and the police were notified where this was necessary. Thecurrent understanding is that the scale of any possible wrongdoing was not significant.

A confidential Helpline has been set up on the company intranet and on the Internet, and this can be used anonymouslyto report to our internal audit any action that contravenes the Group's Corporate Responsibility principles. Three cases ofdiscrimination reported during 2009 were handled at local level. Two cases of misconduct were reported through otherchannels. In one of these the police were involved and the employment of the person in question was terminated. Theother case involved interpersonal relations and was handled at local level.

Outokumpu Annual Report 2009 – Internal audit

Compliance Compliance with CorporateResponsibility policies

Outokumpu's CEO is charged by the Board of Directors with formulating and implementing anymeasures necessary to safeguard systematic compliance with the Group's Corporate Responsibilitypolicy and Ethical Principles. At least once each year, based on a report by the CEO, the Board ofDirectors carried out an assessment of corporate responsibility issues within Outokumpu. Companymanagement and all company personnel are expected to comply with the Group's CorporateResponsibility principles.

Suspected misconductThe Finnish customs authorities has been investigating exports to Russia by Outokumpu Tornio Works since thebeginning of 2007. The preliminary investigation has now been completed and the case has been forwarded to theprosecuting authorities. The process, and the announcement of any possible consequences, are scheduled to becompleted in the spring of 2010. Investigations initiated by the Group have not revealed any evidence that eitherOutokumpu employees or the company are guilty of any of the crimes suspected by the customs authorities. Accordingto Roschier Attorneys Ltd, a leading law firm based in Helsinki, no evidence of wrongdoing by Outokumpu employeesexists, and KMPG Oy Ab, the Group's auditor, has stated that all suspicions are groundless.

Misconduct in businesses sold

Class actions involving the fabricated copper products business sold in 2005 comprised, among others, OutokumpuCopper (USA), Inc, which was served with one individual damage claim associated with ACR tubes under US antitrustlaws. Outokumpu believes that the allegations made are groundless. When this business was sold to Nordic Capital,Outokumpu agreed to indemnify and hold harmless Nordic Capital with respect to this claim.

In 2003, the European Commission issued its judgement on Outokumpu's participation in a European price-fixing andmarket-sharing cartel involving copper air-conditioning tubes during 1988–2001. A fine of EUR 18 million was imposed.In 2004, Outokumpu lodged an appeal with the Court of First Instance for Europe regarding the basis of the calculationand the level of the fine. In 2009 the court announced that the amount is to remain unchanged.

In a cartel investigation concerning copper sanitary tubes, the European Commission issued a judgement in 2004 andimposed a EUR 36 million fine on the Group for participation in cartel activities. Outokumpu subsequently lodged anappeal regarding the level of this fine, which was paid in 2009. The court's final decision is expected to be that theamount of the fine is unchanged.

Honouring the rules of competitionOutokumpu expects all its employees to honor and respect the rules associated with competition. Since the mid 1990'sthe Legal Affairs has trained sales and marketing personnel on competition rules and legislation. The aim of this trainingis to alert participants to problematic situations to make sure they will seek professional advice and guidance to avoidpossibly illegal arrangements. Training sessions are organised when they are needed.

An e-learning programme was launched in 2009 and is currently in progress within Outokumpu Group. The main purposeof the programme is to train our personnel in competition law. Upon completion of the programme in the end of 2010,

Outokumpu Annual Report 2009 – Compliance

some 500 participants in the commercial organisation will have been reached and duly trained. The follow-up systemascertains that each participant is able to complete the course successfully.

As mentioned in our Ethical Principles and Code of Conduct Outokumpu condemns corruption and bribery and compliesstrictly with competition legislation. Outokumpu obtains business in a legal and ethical way. Offering bribes andkickbacks is prohibited.

Outokumpu's internal audit monitors compliance with our policies and Code of Conduct. Read more about internal auditand Helpline here.

Outokumpu Annual Report 2009 – Compliance

Risk management of corporate responsibility Security and risk managementProtecting the Group's personnel, assets and reputation against a wide range of potential losses is anessential component in our operations. In all areas of risk management, the key element is having agood overview of any underlying risks. Risk workshops were arranged in business units and key Groupfunctions in 2009, and development work with top management was continued in order to institutefrequent risk reporting and follow-up procedures. As instability in the financial and economicenvironment increased during the year, the emphasis in this work was on the management of strategicand financial risks connected with the weaker market situation, the nickel price and customer credit.

Group risk management strategy was put into practice by issuing operational instructions in connection with personnelsecurity, project security and fire safety as well as by carrying out regular audits and certain special programmes atindividual sites. The Outokumpu Security Working Group (OSWG) continued its work on improvements at specific sites.A systematic crisis management programme was instituted during 2009, with crisis management teams being trained inhandling challenging situations. Communication during crisis situations was a subject that received particular attention.

Fire safety and security levels in the Group were monitored through a total of more than 40 regular site audits executedusing Outokumpu's own resources and, to a certain extent, jointly with the Group's insurance experts and insurancebrokers. Fire audits and security audits were merged first time.

Activities initiated in 2008 in connection with risk management in the Outokumpu supply chain continued in 2009. One ofthe year's main goals was preparation for forthcoming changes in customs practices and the achievement of authorisedeconomic operator (AEO) status, which will significantly ease the burden of customs processes and thus shorten leadtimes. Much effort was put into improving supply chain security as achievement of the authorised economic operatorstatus (AEO). Work related to AEO status continues at certain Group sites in the EU.

Outokumpu's business is capital intensive and the degree of integration in key production processes is quite high. Otherinterdependencies also exist. To cover related risks, Outokumpu has a comprehensive and global property damage andbusiness interruption (PD/BI) insurance programme. As the Group's most important form of insurance, PD/BI accountsfor a substantial proportion of the insurance premiums paid by the Group. Other global insurance programmes whichplay a significant role include transport, credit and liability insurances. The renewal date for most Group-wide annualinsurances is April 1.

More on risk management can be found here.

Outokumpu Annual Report 2009 – Risk management of corporate responsibility

Our stakeholders Stakeholder dialogue promotesunderstandingTo enhance transparency, we strive for open and regular dialogue with our key stakeholder groups.Awareness of the expectations held by others is essential for development.

Our wish is that information is shared openly. We meet our stakeholders face-to-face in many forums – at seminars,workshops and discussion panels, during road shows, and at fairs and exhibitions. We offer local stakeholders visitingopportunities and "open house" days. We also maintain ongoing dialogues, especially with analysts, investors,employees, customers, goods suppliers and service providers. Our other key stakeholders are NGOs, local communities,authorities as well as industry and business associations. Our stakeholders' involvement in what we do and the trust theyhave in us are fundamental elements of our business operations.

The main function of the Outokumpu Corporate Responsibility network during 2009 was to distribute information tostakeholders about the Group's corporate responsibility achievements. Feedback from stakeholders proved useful indeveloping our operations. Plans for 2010 include a webinar for key stakeholders on corporate responsibility issues. In2009, webinars were organised to provide information and training to our customers and non-customers.The firstmeeting with Finnish environmental NGOs at corporate level took place during the year, and close interaction with bothinvestors and analysts continued the trend established in earlier years.

In this section the focus is on dialogue with our external stakeholders. The very important interaction with internalstakeholders – our employees – can be found in the social responsibility section.

Stakeholders Outokumpu

Customers They want high quality, safe products and servicesat a competitive price, reliable deliveries, flexibility

We need them to buy our products –we also need them to trust us, beresponsible and willing to cooperatewith us

Suppliers They want to cooperate with us and expect us to beresponsible, be their partners and engage in opendiscussion

We need raw materials, otherconsumables and services; we expectthem to be responsible

Personnel They expect us to be responsible and give themchallenging tasks, security, occupational safety andwell-being, development opportunities, recognitionfor their work

We need their professional skills – weexpect them to be responsible,motivated and committed

Futureemployees

They expect competitive benefits, challengingtasks, development opportunities, responsibility,work-life balance

We will need them to work for us inthe future and expect them to bemotivated, responsible and seek toimprove themselves

Associations andfederations

They expect active participation, joint efforts topromote the industry's interests

We expect them to provide equalsupport to us, oversee our interestsand our business opportunities

Stakeholder expectations

Outokumpu Annual Report 2009 – Our stakeholders

Localcommunities

They expect us to participate, interact, providesupport, be responsible, provide jobs

We need their approval, confidence,willingness to cooperate

Shareholders They expect us to be profitable, provide a return ontheir investment, and be responsible

We hope they consider us as good,attractive investment – we hope theyhave confidence in us

NGOs They expect us to be responsible, transparent andto have joint efforts to promote environmental andsocial issues

We want their understanding,willingness to cooperate in promotingenvironmental and social issues

Ethical operationsOpen and regular communications and dialogues, interactionA culture that stresses corporate responsibilityOpen and transparent CR reportingOperating as one companySafe working environmentPersonnel development, job rotationDevelopment of products and processes, R&DStainless steel is a safe and sustainable material

How do we meet stakeholder expectations?

Outokumpu Annual Report 2009 – Our stakeholders

Customers Successes through the "One face tothe customer" approachThe Group Sales and Marketing function established in April 2008 was developed and improved during2009. New Key Account Managers were trained and appointed. Even though the adverse effects of theeconomic crisis on global activity in the stainless steel sector made the second half of the yearparticularly difficult, several successes resulted from collaborative initiatives and a "One face to thecustomer" approach.

A customer survey covering more than 120 Key Accounts is being conducted. Topics covered by the survey includelevels of customer satisfaction, Outokumpu's ability to identify the right solution for a customer application and openfeedback. The results of the survey will be available during the first quarter of 2010 and the conclusions will provide asolid foundation for developing the Group's customer services. A similar survey is planned for 2010 together withdevelopment of a new system for the regular implementation of Group-wide surveys. The results from these ongoingsurveys will be linked directly to Outokumpu's operational activities. Although the details have not been finalised,objectives include understanding operational successes and identifying critical areas for further development.

In April 2009, Outokumpu hosted the first in a series of webinars. Open to customers and non-customers who areinterested in learning more about Outokumpu and stainless steel, webinars offer the Group a method of providingtraining and technical information that does not involve travelling and its associated environmental impacts. The firstwebinar focused on stainless steel fabrication and there were more than 40 participants. The six webinars arrangedduring 2009 covered a wide selection of topics and the total number of participants exceeded 200. In 2010, the target isto raise both the number of webinars and the range of topics covered.

Outokumpu's sales companies and service centres provide local support, training opportunities and connections withcustomers. Each location is adopting initiatives that will be of local interest. For example in Japan an annual seminar forover 120 special grade customers was organised for the fifth time to receive quantitative and qualitative feedback, and tofind better and lasting solutions for local applications together with customers. A customer day was held for the first timefor the Nordic key tubular product customers. In total some 1000 customers in Estonia, Brazil, Chile, Thailand, Malaysia,Singapore and India received training. Customer visits have been organised in Finland often with tailor-made training onmechanical properties, formability, weldability and corrosion resistance. In Sweden there is a plan to start two-day-training in design in stainless steel for Nordic customers, designers and fabricators. Based on the positive feedbackreceived more technical training will be given to customers in the future. On-site customer training is an essentialcomponent when handling certain technical topics. Customers seem to be more and more interested also in steel'scarbon footprint. The carbon footprint of Outokumpu's products is presented in the environmental responsibility section.Read about product safety issues here.

The Group's Hungarian sales company organised a conference with the Budapest University of Technology (BME) atwhich the topics included cost-efficient solutions and the environmental friendliness of stainless steel.

Webinars enable training and technical information withouttravelling and its associated environmental impacts.

Outokumpu Annual Report 2009 – Customers

Suppliers of goods and services A focus on suppliers' environmentalimpactAs the global financial crisis put pressure on Outokumpu and everyone in the industry, cost controlbecame increasingly important. We bore in mind, though, corporate responsibility issues in supplierevaluations and product development. It is our goal to do business with responsible partners.

General material purchasingThe Procurement Excellence programme launched in 2008 was the key driver in cost reduction and the cumulativesavings achieved from the programme increased from the previous year. At the beginning of 2009, a special projectQuick Wins, was launched targeting at short-term savings through renegotiating terms and conditions with selectedsuppliers, as well as a logistics Procurement Excellence programme. The Quick Wins programme has already achievedsignificant Group-wide savings.

Product development with suppliersIn addition to cost savings, product development was carried out with selected suppliers:

The protective film team has been able to reduce the thickness of the product employed from 80µm to 70µm.Suppliers require less plastic for their production and impact on the environment is thus reduced.

The interleaving paper team will start to recycle all the paper used in the Group's production processes.

The electric motor team is working with suppliers to improve production efficiency and consume less energy.

We have advised all our suppliers to consider using modes of transportation that are the most environmentallyfriendly. If trucks are used, we favour eco-friendly driving techniques.

We highly appreciate suppliers who maintain the highest ethical standards, respect human rights and the environment. In2006, we started a project called Sustainable Supply Chain Management Tool to develop a questionnaire to be used forevaluating our suppliers' sustainability. The project was ended in 2008, but the work continues. Read more aboutResponsible sourcing in the Social responsibility section.

The Procurement Excellence programme will be expanded by establishing more teams, deepening cross-functional andcross-business unit cooperation, training additional skilled professionals to lead these teams and working more closelywith selected suppliers with the aim to increase achieved savings compared to previous year. In the long-term, webelieve that the most innovative ideas for optimising total cost ownership result from creative cooperation with oursuppliers and partners. The key to sustainable development is sharing mutual benefits with responsible suppliers whotake economic, environmental, and social responsibilities into account in their daily operations.

In the long-term, we believe that the most innovative ideas foroptimising total cost ownership result from creative cooperationwith our suppliers and partners.

Outokumpu Annual Report 2009 – Suppliers of goods and services

Outokumpu's Procurement Development programme reached an important milestone in May 2009 when the firstpurchase orders and inventory transactions were registered by Tornio Works in a common Outokumpu SAP system builtspecifically for general materials purchasing and inventory management. We are now one step further along the path ofbuilding a common purchasing information system inside Outokumpu. The focus of the Procurement Developmentprogramme is now on raw materials purchasing in Tornio.

Outokumpu Annual Report 2009 – Suppliers of goods and services

Employees Employees – Important internalstakeholdersOutokumpu's success is based on the company's most important asset, our personnel. The Group's renewed Peoplestrategy aims to attract, retain and develop Outokumpu people globally, enhancing both their motivation and their abilityto support the Group in its vision of becoming the undisputed number one in stainless steel.

The very important interaction with internal stakeholders – our employees – can be found in the social responsibilitysection.

Outokumpu Annual Report 2009 – Employees

Future employees We listen to our future professionals'expectationsWe believe that securing future talent is an essential element in ensuring progress towards our vision ofbecoming the global number one in stainless steel – and being the most popular employer in thestainless steel business. We maintain an active dialogue with potential future employees by visitinguniversities, hosting visits for school groups and attending recruitment fairs – we attended three fairs inFinland, six in Sweden and two in the UK in 2009. The Outokumpu research centres in Avesta andTornio are engaged in running technical research projects together with these institutions.

As in 2008, Group CEO Juha Rantanen participated in a panel discussion at a student event together with other CEOsfrom the leading companies in Finland's metal industry. More than 150 students from several Finnish universities tookpart. The positive feedback received included requests for the event to be repeated in 2010.

Outokumpu has close contacts with many comprehensive and upper secondary schools. Goals of this cooperationinclude raising awareness of the steel industry among children and students and encouraging them to learn more aboutthe sector. Outokumpu has adopted schools in many of the Group's operational locations and also awards annualscholarships and stipends to local schools in both Finland and Sweden.

In 2009 Outokumpu improved its ranking among Finnish engineering students in an annual employer branding surveyconducted by Universum. The survey tracks both young people's expectations regarding companies and the way theyperceive certain individual companies. In the 2009 survey, Outokumpu was placed 22nd in the ideal employer ranking listin Finland and 81st in Sweden. Among Finnish business students, Outokumpu was ranked 85th.

According to a 2009 survey of graduates, Finnish students appear to have confidence in companies even thoughcompanies have no open vacancies. All students are in a similar situation. Comments made included general opinionsabout workplace conditions and job options, and no specific comments were made on Outokumpu.

Outokumpu Annual Report 2009 – Future employees

Associations and federations Industry and business associations –networkingOutokumpu is an active and responsible actor in society. As the world's sixth largest stainless steelproducer and Finland's twelfth largest company (2008), Outokumpu has a significant influence invarious issues and the company's opinion is voiced in many forums. In 2009, our experts and topmanagement continued to maintain effective liaisons with the authorities and different organisations.Top management participated in dialogue concerning issues such as the challenges of climate change,the global financial situation and stainless steel business in the future. Our aim is to broaden theGroup's comprehension of approaches to corporate responsibility by engaging actively with differentcompanies and organisations.

Outokumpu's CEO Juha Rantanen was an active participant in energy-related discussions, especially in connection withthe issue of nuclear power plants in Finland. Outokumpu supports nuclear power being one of the owners of Fennovoimawhich plans to build a nuclear power plant in Finland by 2020.

Outokumpu is a member of international organisations and confederations including the World Economic Forum, Eurofer,EuroInox, and the International Chromium Development Association. Outokumpu is also an associate member of theWorld Steel Association (previously the International Iron and Steel Institute IISI, now also known as worldsteel) and amember of the International Stainless Steel Forum (ISSF), a stainless-steel-specific suborganisation.

As a member of worldsteel, Outokumpu participates in the Climate Change Policy Group whose aim is to influence globalmitigation of greenhouse gas emissions by the iron and steel industry. In this forum, members share best practices,obtain benchmark data relating to occupational safety from the Safety and Health Committee and contribute their owndata to the World Steel Association Sustainability Report. TU Bergakademie Freiberg made a survey in 2009 toinvestigate stakeholders' perceptions on sustainability issues related to steel and the steel industry in order to helpimprove the sustainability and worldsteel reporting efforts. The most significant issues pointed out were climate change,efficient use of energy and water resources, protecting the environment, as well as education and recycling.

In Europe, Outokumpu is member of several federations and associations in Finland, Sweden, the UK and theNetherlands. National lobbying and cooperation organisations advance industry views and contribute to legislation inEurope through national representatives in EU governing bodies. Outokumpu is also a member of different businessassociations in North America.

Eurofer is a lobbying and collaboration organisation for the European iron and steel industry. Outokumpu contributes atpresidency level to commercial and trade issues, in committees handling statistics, research and the environment, and inworking groups whose focus is climate change and industrial benchmarking. Eurofer conveys opinions to EU governingbodies such as the European Commission, the European Parliament and the European Council, and promotes measuressuch as Renewal of the Integrated Pollution Prevention and Control IPPC Directive, the implementation of REACH(Registration, Evaluation and Authorisation of Chemicals) and continuation of the European Emissions Trading Scheme(EU ETS) after 2013.

Outokumpu participates in the Climate Change Policy Group.

Outokumpu Annual Report 2009 – Associations and federations

In Finland, Outokumpu is active in corporate responsibility networks. To develop both our expertise in corporateresponsibility and the Group's performance, we are an active member of the Finnish Business & Society enterprisenetwork and CSR Europe. To combat corruption and bribery, we are a participant in Transparency Finland, a nationalchapter of Transparency International. Outokumpu is a signatory to the International Chamber of Commerce (ICC)charter, follows and supports the United Nations Global Compact, and is a member of the UN's Global Compact NordicNetwork. To demonstrate the Group's support for sustainability, Outokumpu has also signed the worldsteel SustainableDevelopment Charter.

Outokumpu Annual Report 2009 – Associations and federations

Local communities Cooperation with local communitiesAs one of the leading companies in the stainless steel sector, Outokumpu seeks an active presence inthe local communities in which it operates. The Group is already the largest industrial employer incommunities such as Avesta, Degerfors, Långshyttan (Kloster) and Storfors in Sweden, in New Castlein the US, and in the Kemi-Tornio region in Finland. Our decisions to invest, to postpone plannedinvestments or possibly close operations have a major influence at local level.

Although the 12-month postponement of almost all Group investments announced in December 2008 has clearly had animpact on our production sites and the surrounding communities in Sweden and Finland, Outokumpu's strategy has notchanged and all these investments continue to be of strategic importance to us.

As in previous years, numerous visits by stakeholder groups to Group facilities were organised at many of our productionsites to further improve relationships with local communities. As defined in Outokumpu's Communications policy, theGroup sponsors sports, culture and a variety of events at local level, and also charity work. In 2009, however, lay-offsand redundancies have meant that the level of this input has been reduced, sometimes to zero. For this reason,information concerning Group-wide donations which would normally be reported in the economic responsibility sectionhas not been collected.

Outokumpu Annual Report 2009 – Local communities

Shareholders Active contacts with investors andanalysts continueWe maintained an active dialogue and contacts with our global investor and analyst networks in 2009.Major investor relations events included Outokumpu's annual Capital Markets Day in London foranalysts, investors and bankers, 12 road shows in Europe and the US, in connection with the quaterlyresult announcements. A live webcast was arranged at each result announcement. Outokumpu'sAnnual General Meeting was held in March in Helsinki, Finland.

In addition to the main events, Outokumpu hosted a total of 13 breakfasts and luncheons for institutional investors inHelsinki, New York, London, Paris, Stockholm and Oslo, and also attended eight industry seminars arranged by differentbrokers. We also arranged a site visit to Degerfors in Sweden for some institutional investors.

Approximately 300 one-on-one meetings, conference calls and video conferences with investors were arranged during2009.

To improve the Group's operations, surveys of Outokumpu's performance carried out by external research organisationsare monitored on a regular basis. According to the Regi Research & Strategi Ab 2009 survey of investor relations inwhich areas such as content, functionality, openness and trustworthiness are evaluated, Outokumpu improved its overallranking significantly, increasing from position number 12 to being ranked number three in Finland.

Outokumpu Annual Report 2009 – Shareholders

NGOs A dialogue with environmental NGOshas startedTo establish a positive and continuing dialogue with non-governmental organisations, we initiated roundtable discussions with environmental non-governmental organisations (NGOs) located in the Helsinkiarea in Finland. The dialogue concept will be expanded and used by the Group in other countries in thefuture.

At the first meeting, the objectives included getting to know each other, free discussion and a listing of possible areas orthemes of common interest. The organisations present explained their strategies, objectives and methods ofoperation. We reported on our activities in the area of corporate responsibility and especially in the field of environmentalresponsibility. The meeting represented a good start, and the process will continue. While comments made by the NGOson Group reporting were useful and also complimentary, additional and less complicated material covering futuredevelopment trends, life-cycle information and carbon footprint data was requested.

Outokumpu Annual Report 2009 – NGOs

Economic responsibility Policies guide usAs a listed company governed by the Finnish Companies Act, Outokumpu is responsible for making a profit for itsshareholders. The Group's overall financial objective is to generate the maximum sustainable amount of added value.This means that in targeting long-term profits, Outokumpu develops and maintains competitive and profitable operationsfounded on ethical business practices while also taking into account the environmental and social implications of anydecisions that are made. The Group's Ethics Statement, Leadership Principles, Corporate Responsibility Policy andCode of Conduct also guide the company in commercial matters. Outokumpu observes the principles of good corporategovernance and transparent financial reporting and its actions are guided by: the rules and regulations that apply to listedcompanies, international accounting standards, a declaration of competition policy, rules concerning insider trading, andthe Group's dividend policy.

The Group's financial targets and results are detailed in Outokumpu's financial statements. This section of the reportconcentrates on the Group's economic impacts on its stakeholders.

Outokumpu Annual Report 2009 – Economic responsibility

Economic goals and results Challenges brought by the globaleconomic situationThe on-going global economic downturn has had a significant effect on the stainless steel industry,Outokumpu's customers and also the Group. The market situation at the beginning of 2009 wasuncertain and difficult. The crash in the financial markets at the end of 2008 and the resulting economicdownturn reduced demand for stainless steel substantially and, in common with other stainless steelproducers, Outokumpu had to cut back production.

During the first half of 2009, destocking activities by distributors led to reduced production levels. After the summer,purchasing activity recovered somewhat due to reduced production, increases in metal prices and an end to destockingamong distributors. Some softening in market was visible towards the end of the year. Since production remained atunsatisfactory levels until the end of the year, deliveries by Outokumpu declined 28% to 1 030 000 tonnes (2008: 1 423000 tonnes). Return on capital employed in 2009 was negative at 11.7% and the Group's 13% target for this was notachieved. Despite a difficult year, Outokumpu's debt-to-equity ratio remained at a relatively good level of 48.2%, belowthe Group target of a maximum of 75%.

Outokumpu's current financial priority is to restore profitability by managing price and grade mix, optimising loading atmills and ensuring cost efficiency. In a volatile market situation, a strong balance sheet ensures flexible access tofinancing. Good cashflow also guarantees uninterrupted business with the company's suppliers and adds value for otherstakeholder groups.

Facing the situationGroup's cashflow from operating activities weakened compared to 2008 but remained strong amounting to EUR 198million (2008: EUR 664 million). Main contributors were the reduction of working capital and lower metal prices. Toguarantee necessary levels of liquidity and long-term financing, Outokumpu signed a three-year Revolving Credit Facilityof EUR 900 million in 2009 to replace the previous five-year facility of EUR 1 billion. At the end of the year, in addition tocash reserves, the Group had some EUR 1.1 billion of previously-negotiated loans and binding loan commitments fromits debtors. Secured financing will help us to live through the financial crisis relatively unscathed while continuing to addvalue for all our stakeholders.

Good cashflow also guarantees uninterrupted business with thecompany's suppliers and adds value for other stakeholdergroups.

Outokumpu Annual Report 2009 – Economic goals and results

Economic impact on our stakeholders Strategy unchanged despite theeconomic downturnIn 2007, Outokumpu launched a new strategic phase with the aim of building a more stable andprofitable business model. Even though a number of investments were announced in late 2007 andearly 2008, one consequence of the global economic downturn was that in December 2008, the Groupdecided to postpone almost its entire investment programme for a period of at least 12 months.

In 2009, a decision was made not to proceed with the melt shop expansion investment at Avesta in Sweden in theforeseeable future as no need for additional melting capacity exists in the medium term. While adverse financialconditions prevail, continuation of any investment project is subject to separate decision based on an updated feasibilitystudy. Further decisions regarding postponed investments will be made by the end of 2010. Regrettably, delays ininvestments and cancellation of the melt shop expansion at Avesta mean that the positive financial effects throughcreation of new jobs both in Outokumpu units and indirectly in the local communities will not now occur in the areaswhere the investments were planned to take place.

Outokumpu's fundamental strategy, however, remains unchanged. The Group is committed to balancing its product mixby increasing the proportion of end-user and project sales, and stabilising the volumes of product purchased by keydistributors and growth outside Europe. In accordance with this strategy, expansion of stock and processing capacity atthe Group's Service Centre in Willich in Germany was completed in 2009. Outokumpu is also establishing a new servicecentre at Kunshan in China. These expansions support the strengthening of the Group's network of service centres toincrease sales to end-users and project customers. Specialty Stainless production capabilities at Nyby in Sweden and inNew Castle in the US have also been expanded. All of these investments will have a positive financial effect on localcommunities through increased salary payments and the indirect creation of jobs. The Group's Production and SupplyChain Management Excellence programmes are important tools in further improving Outokumpu's operations andprofitability in a challenging market environment and in implementing Group strategy. Financial benefits totalling EUR150 million were achieved through the Group's Excellence programmes in 2009 compared to 2005.

Outokumpu Annual Report 2009 – Economic impact on our stakeholders

Dividends to shareholders Dividend to shareholdersThe two largest shareholders in Outokumpu are the Finnish state (31.0% through Solidium Oy) and the Finnish SocialInsurance Institution (8.1%). One result of the global economic downturn has been that the Group's share price suffereda dramatic decline of 61% in 2008. Stock exchanges worldwide recovered in 2009 from very low levels at the beginningof the year. Outokumpu's share price increased by over 60% to 13.26 euros on December 31, 2009. The dividend ofEUR 0.50 per share for 2008 resulted in payments totalling EUR 90 million. The dividend proposal for 2009 is EUR 0.35per share and the effective dividend yield is 2.6%. Over the last five years, dividends distributed by Outokumpu haveaveraged 80% of the net profits from continuing operations. More investor information can be found here.

Outokumpu Annual Report 2009 – Dividends to shareholders

Wages and salaries Salary paymentsAt the end of 2009, Outokumpu employed 7 606 people in over 30 countries (2008: 8 471 people). The number ofemployees was lower than in the previous year because personnel had to be adjusted to take account of lower deliveryvolumes that are clearly below the Group's maximum production capacity. The closure of Sheffield Special Strip, reducedmelting capacity and other adjustments at Sheffield in the UK resulted in the loss of some 350 jobs. In Sweden,personnel adjustments at a number of sites led to approximately 400 jobs being lost. Adjustments also had to be made inother countries including temporary layoffs.

Salary payments including pensions and other benefits paid by Outokumpu in 2009 reduced by 15% to EUR 398 million(2008: EUR 466 million). Bonuses received by Group staff in 2009 were based on both some financial results achievedand key performance indicators defined in 2008. The Group's benefit plans for employees vary by country.

Wages, salaries and other employee benefits by country 1)

€ million 2009 2008 2007

Finland 147 163 163

Sweden 128 168 152

The UK 37 49 44

Other Europe 57 53 45

Other countries 31 33 38

Total 398 466 443

Notes:1) Accounting principles have been adjusted to better meet the GRI guidelines. The comparative figures have been restated.

Outokumpu Annual Report 2009 – Wages and salaries

Customer impact Sales decreased due to low deliveriesOutokumpu's sales and marketing know-how has been combined into a single entity called Group Sales and Marketing.During 2009, the new organisation launched in 2008, has continued to serve customers in the best possible ways.Delivery volumes of stainless steel in 2009 totalled 1 030 000 tonnes, clearly lower than in the previous year (2008: 1423 000 tonnes). Group sales in 2009 were 52% lower at EUR 2 611 million (2008: EUR 5 474 million). The main reasonfor the clearly lower sales in 2009 was the extremely low delivery volumes. Because of lower metal prices transactionprices for stainless steel declined and also affected sales.

Outokumpu Annual Report 2009 – Customer impact

Business with suppliers Reduced purchasesThe majority of Outokumpu's costs are associated with the purchase of raw materials. The primary raw materials used instainless steel production – nickel, ferrochrome, recycled stainless and carbon steel, – are purchased on the openmarket, but a proportion of the Group's ferrochrome needs are sourced internally. The economic downturn andconsequently low demand for stainless steel meant that raw material prices remained at a low level in 2009 – theaverage nickel price was 14 655 USD/tonne, 31% lower than in 2008. As demand for stainless steel was weak, thevolumes of raw material purchased by Outokumpu in 2009 were reduced in order to avoid excessive inventories. Thereduction in purchases and the low raw material prices reduced the economic value we added for our suppliers. The costof goods and services purchased in 2009 declined by 51% to EUR 2 388 million.

Since we recognise our responsibilities towards such businesses and the communities in which we operate, our objectiveis that no single supplier should be too dependent on its business partnership with Outokumpu. The actual number of ourraw material suppliers is quite low and most of the Group's raw materials are sourced globally rather than locally. Thismakes our procurement processes more efficient. Read more about responsible sourcing here.

Cost of goods and services

€ million 2009 2008 2007

Raw material and merchandise 1 522 3 602 4 556

Fuels and supplies 245 364 325

Energy expenses 161 221 189

Freights 133 192 187

Maintenance 75 113 106

Hire processing 27 38 48

Rents and leases 25 26 24

Other expenses 200 271 229

Total 2 388 4 826 5 662

Outokumpu Annual Report 2009 – Business with suppliers

Taxes distributing wealth The direct and indirect effects oftaxes on societal well-beingOutokumpu contributes to the well-being of local, national and international communities through tax payments, throughdirect and indirect employment and by participating in other societal activities. In 2009, taxes and social securitycontributions paid by the Group totalled EUR 46 million, lower than in the preceding year (2008: EUR 61 million). In2009, Outokumpu received EUR 1 million net tax return payment (2008: taxes of EUR 6 million was paid).

Taxes and social dues by country 1)

€ million 2009 2008 2007

Finland 10 11 34

Sweden 24 29 88

Other Europe 15 20 21

Other countries -3 0 19

Total 46 61 163

Notes:1) Accounting principles have been adjusted to better meet the GRI guidelines. The comparative figures have been restated.

Outokumpu Annual Report 2009 – Taxes distributing wealth

Impact of climate change The impacts of climate change aretaken seriouslyClimate change has attracted increasing attention in Outokumpu in recent years. Both responding tothe challenges set by emissions reduction targets and taking these into account in the Group's long-term strategy are important. Outokumpu views climate change as a matter for serious concern andwishes to contribute to targets set by the European Union. While preparations must be made foreconomic challenges that the Group may face in the future in connection with reducing carbon dioxideemissions, climate change will also present financial opportunities.

Regulatory risksThe greatest regulatory uncertainty for Outokumpu stems from the EU's Emissions Trading Scheme (EU ETS). It createsa financial incentive for companies to restrict their emissions of carbon dioxide as emission allowances that remainunused can be sold on financial markets. Conversely, if the level of a company's emissions exceeds its emission rights,allowances have to be purchased. Our sites in Finland, Sweden and the UK fall within the scheme. While the Group hasbeen granted allowances at no cost in the current trading period (2008–2012), it is highly probable that in the future theEmissions Trading Scheme will mainly be based on auctioning of allowances. This could lead to Outokumpu beingplaced at a competitive disadvantage compared to stainless steel producers located outside Europe. To dissuadecompanies currently operating inside the EU from moving to countries without emission reduction targets, industrieswithin the EU that are exposed to high carbon leakage will continue to receive free emission allowances. The iron andsteel industry has been identified as a sector that is vulnerable to the risk of carbon leakage and Outokumpu sites willtherefore probably receive free allowances even during the 2013–2020 period.

In the future, emission reduction targets will most probably be more stringent and we will have to make preparations foroperating in a more restricted environment in connection with carbon dioxide emissions. To manage such risks andprepare for expected developments in the Emissions Trading Scheme, an Emission Management Committee has beenestablished with representatives from different Group functions. The committee's responsibilities include assisting indefining Outokumpu's emissions management strategy and coordinating its implementation.

Price risksFor the Group it is important to secure the cost of compliance for emission allowances. The realised and forecastemissions as well as the granted allowances are monitored regularly. The Group has also aimed at decreasing the costof compliance by entering into financial transactions such as swapping EU emission allowances to CERs and investinginto a carbon fund.

As steel manufacturing is energy intensive, the Group is sensitive to changes in the price of electricity. Power companiestransfer the cost of their emission allowances to the prices they charge for electricity, and marginal cost pricing meansthat all forms of power production are therefore affected by the price of emission allowances. Even though the electricitypurchased by Outokumpu is mostly low-carbon, costs of this type have an impact on the Group. The risk related to thefuture cost of emitting carbon dioxide also adds an element of uncertainty to the planning of new investments and canaffect future investment decisions.

Outokumpu Annual Report 2009 – Impact of climate change

Physical risksClimate change could also have a less direct impact on Group operations as it may exacerbate physical risks such asdamage to property or loss of production resulting from floods, hurricanes and/or drought. The normal measures requiredto mitigate these risks have however been incorporated into our risk management and associated policies. Currently,Outokumpu's production facilities include only one tube mill in Florida in an area defined as a "regional hotspot".

OpportunitiesEven though climate change represents a significant challenge for the Group, it also opens up new businessopportunities. Stainless steel, a sustainable material, is often specified as a construction material in projects whose aimis to improve efficiency in transportation, buildings and production, and in building the low-carbon society. Outokumpucan also help in resolving global challenges such as need for clean water.

In 2009, the temporary shutdown of the ferrochrome plant and production levels that were significantly lower than normalresulted in Outokumpu having a surplus of emission allowances. The Group took the opportunity to use the financialmarkets for efficient risk management of these allowances. One example was the EUA-CER swap contract in whichmore-expensive EU emission allowances (EUA) were exchanged for cheaper Certified Emission Reduction (CER) units,a type of Kyoto credit.

To optimise the cost of compliance with the EU Emissions Trading Scheme, Outokumpu has also invested EUR 1.5million in the Testing Ground Facility (TGF), a Nordic carbon fund managed by the Nordic Environmental FinanceCorporation. Aims of the fund include purchasing Emission Reduction Units for its investors at financially attractive termsfrom projects that bring down carbon dioxide emissions. The Group expects to start receiving these allowances in early2010.

As steel manufacturing is energy intensive, the Group is sensitiveto changes in the price of electricity.

Outokumpu Annual Report 2009 – Impact of climate change

Public sector support Grants and community supportgiven, public sector support receivedDue to the financial downturn and resulting personnel reductions and lay-offs, our sponsoring activitiesand donations have been reduced in 2009. Therefore, we have not collected corresponding data fromour organisation. Sponsorship of local events and support for charities provided in accordance withOutokumpu's Communications policy totalled some EUR 0.7 million in 2008. Outokumpu does not takepart in or otherwise support political activities whether they are local, communal or national. Outokumpudoes not make donations to any political parties or groups.

In 2009, Outokumpu and other member companies of the Association of Finnish Steel and Metal Producers founded afund to promote university-level research, teaching and studies of technology and business issues concerning the metalsproduction and covering the entire production chain. The fund awarded grants totalling EUR 0.3 million in 2009.Outokumpu was also one of the founding members and a corporate partner in the biennial Millennium Technology Prize,the world's largest technology award. The prize of almost EUR 1 million is awarded to a technological innovation thatsignificantly improves quality of life.

The Outokumpu Oyj Foundation did not grant any awards in 2009.

Outokumpu's Swedish Stainless Steel Research Foundation donated EUR 30 000 to Oulu's University Fund. Thedonation was meant for the research work on stainless steels and it supports future metallurgical research work carriedout in the Oulu University.

In 2009, Outokumpu received EUR 0.7 million from the public sector to support Group research and the development ofnew technologies, products and applications (2008: EUR 0.7 million).


As part of CR reporting, Outokumpu discloses data on sponsoring activities and donations. Recording and reportingamounts for sponsoring and donation should be further developed to ensure systematic collection of data throughoutthe organisation.


Outokumpu Annual Report 2009 – Public sector support

Environmental responsibility Longterm commitment showsStainless steel is 100% recyclable, hygienic and corrosion-resistant and the environmental impactsresulting from its use are almost non-existent. On the other hand, its production – the manufacturingand reprocessing stages – do have an impact on the environment.

Our main environmental impactsThe most substantial environmental impacts resulting from the stainless steel production process are: dust andparticulate emissions into the air; discharges of water from production plants; and the high levels of direct and indirectenergy consumption during production. Landfill waste is also created during the production process.

Outokumpu's way to manage environmental issuesGuided by our Environmental and Corporate Responsibility Policies and Ethical Principles, Outokumpu's firm objective isto minimise the environmental burden of our operations as much as this is economically and technically feasible.

Local guidelines and environmental management systems complying with the ISO 14001 standard provide more detailedmodels for the Group's actions. Environmental issues are an essential part of the management systems employed inOutokumpu's plants and units, and the functioning of these systems is monitored by both internal and external audits.We also provide the relevant authorities with reports on our operations in all the countries in which we operate. At theGroup level, operations are managed and best practices are applied through our environment network, whose workinggroups and environment committee meet once during each quarter.


The CR reporting system is used to consolidate unit level environmental data at group level. The production unitsprepare reports for local environmental authorities by separate, parallel systems. It would enhance consistency anddata accuracy, if the CR reporting system was used also for local reporting needs.


Outokumpu Annual Report 2009 – Environmental responsibility

Environmental goals and results Aiming at ambitious targetsAnnual routines at all Outokumpu production locations include the setting and monitoring ofindependent environmental targets. These processes are built into the Group's environmentalmanagement systems and there are also key targets for 2010 at the Group level. Having concrete,measurable targets for our operations is a way of focusing attention on specific environmental andenergy aspects throughout the Group.

Outokumpu is committed to the long-term target of reducing its carbon emissions profile (indirect and direct emissions)by 20% per produced tonne by 2020. The setting of this challenging target is a clear demonstration of Outokumpu'sdesire to improve the Group's energy efficiency, contribute to reducing global emissions of carbon dioxide, andparticipate in the transformation to a low-carbon society. Outokumpu's Energy & low-carbon programme can be foundhere.

Group indirect and direct CO2 emissions per tonne produced tobe reduced by 20% by 2020.

Outokumpu Annual Report 2009 – Environmental goals and results

Site-specific environmental targets Site-specific targets

Water protection Avesta: reduce nitrate discharges to water by 10% and achieve 1 kg/tonne as amonthly average.

Wildwood: Improve wastewater recycling by reusing some in the picklingprocess.

Waste management Avesta: Complete 3 000 tonne Hydrosludge recycling test.

Sheffield melt shop: Reduce waste to landfill by 10% compared to 2008volumes, through recycling.

Örnsköldsvik tube mill: Analysis of most optimal future waste reductionpossibilities will be done in 2009.

Air protection Tornio: Achieve usage level of dust reduction units to more than 98% per month.

Soil protection Sheffield melt shop: Complete and install additional landfill leachate pump.

Use of materials Kemi Mine: Reuse 250 000 tonnes of lumpy rock and side rock from the Kemiconcentrating plant to the underground mine

Tornio: Produce steel slag products amounting to 10% of steel productiontonnages.

Sheffield melt shop: Find a way to return Filter press Slab Caster Backwashrejection sludge to the electronic arc furnace and use it as raw material.

Energy efficiency Avesta: Reduce electricity consumption by 3% from 980 to 950 kWh per tonne.Reduce consumption of liquid petroleum gas (LPG) by 3% from 66 to 64 kg pertonne.

Sheffield melt shop: Reduce specific energy consumption by 2% againstreference year 2007.

Richburg: Reduce electricity consumption per million tonnes by 10% using 2008as basis.

Managementsystems

The process of integrating management systems that comply with the EN-14001,EN-9001 and BS-18001 standards and relevant energy management systems

Goals for 2009

Outokumpu Annual Report 2009 – Site-specific environmental targets

into a single environment, health and safety, and quality system has beeninitiated. The target is to start implementation during 2009.

Water protection Avesta: The goal to reduce nitrate discharges to water by 10% and achieve 1 kg/tonne as a monthly average, was not achieved.

Wildwood: The goal to improve wastewater recycling by reusing some in thepickling process, was not achieved. The project was postponed.

Waste management Avesta: To complete 3 000 tonne Hydrosludge recycling test was not met.

Sheffield melt shop: The target to reduce waste to landfill by 10% compared to2008 volumes was not met.

Örnsköldsvik tube mill: Analysis of most optimal future waste reductionpossibilities was postponed.

Air protection Tornio: Not fully achieved. In steel melting shop the goal was not achieved inSeptember due to a fire accident in the dust reduction unit.

Soil protection Sheffield melt shop: The goal to complete and install additional landfill leachatepump was achieved.

Use of materials Kemi Mine: The goal to reuse 250 000 tonnes of lumpy rock and side rock wasnot reached. The result was 120 000 tonnes. It was not possible to reach thetarget due to the temporary production stop.

Tornio: The target was achieved. 83 350 tonnes of steel slag products wereproduced, which means over 10% of steel production.

Sheffield melt shop: Trials to return Filter press Slab Caster Backwash rejectionsludge to the electronic arc furnace were not succesfull, work continues.

Energy efficiency Avesta: The goals to reduce electricity consumption by 3% from 980 to 950 kWhper tonne and to reduce consumption of liquid petroleum gas (LPG) by 3% from66 to 64 kg per tonne were not reached.

Sheffield melt shop: The target to reduce specific energy consumption by 2%against reference year 2007, was not met.

Results 2009


Richburg: The target was not met. Due to current difficult economic situation,low capacity utilisation and temporary stops generally, all energy efficiencytargets were not met.

Managementsystems

The Integrated Management System project proceeded and the IMS Manual wasdrafted. Implementation was not started during 2009.

Water protection Sheffield melt shop: To reduce water consumption by 5% against 2007 usage.

Waste management Tornio: Produce steel slag products amounting to 32% of total slag production.

Degerfors hot rolling: Waste to land fill target 2kg per tonne

Air protection Tornio Works: Achieve usage level of dust reduction units to more than 98% permonth.

Soil protection Sheffield melt shop: Complete hydrological assessment for the Tinsley Parklandfill.

Use of materials Kemi mine: Reuse 250 000 tonnes of lumpy rock and side rock from the Kemiconcentrating plant to the underground mine.

Richburg Bar: Reduction of hydraulic oil consumption by 50%

Energy efficiency Avesta: Reduction of specific energy consumption by 3%

Managementsystems

IMS Manual to be published and IMS implementation to start from the businessunits Tornio Works and tubular products. IMS internal audit system starts tooperate.

Goals for 2010


Group-wide environmental targets Group-wide environmental targets

Group-wide reporting tool taken into use in 2009.

Energy efficiency:Uniform energy efficiency plans ready at all production sites by the end of 2009.Identification of most important energy efficiency investments at corporate level by the end of 2009 – basedon site-specific energy efficiency plans.Reducing specific energy consumption per processed tonne by 2% – base year 2007.

Material efficiency:Reducing waste to landfill per processed tonne – base year 2007 and further reductions of 10%.Identification of most feasible material efficiency investments at corporate level by the end of 2009 – basedon site-specific plans.

Goals for 2009

The target was fully achieved. Group wide reporting tool was taken into use. Energy and environmentalreporting 2009 was successfully carried out with the new system.

Energy efficiency:The energy efficiency targets were not met. Most of the production sites have energy efficiency plans andmappings ready but not yet uniformly reported by the end of 2009.Specific energy reduction target was not met due to low production levels.

Material efficiency:Further 10% reduction of waste to landfill per tonne processed achieved.Most of the sites have material efficiency or waste reduction schemes. However the most feasible materialefficiency plans were not identified at Group level.

Results 2009

Zero significant environmental incidentsReduction of our direct and indirect CO2 emissions in line with the long term target of 20% by 2020.

Energy efficiency:Reducing specific energy consumption per processed tonne by 1% – base year 2007.

Material efficiency:Further reduction of waste to landfill per tonne.

Goals for 2010

Outokumpu Annual Report 2009 – Group-wide environmental targets

Materials efficiency The recycled content ofOutokumpu's steel is 90%For Outokumpu, the most important raw materials used in producing stainless steel are recycledstainless steel and recycled carbon steel. Together with metals recovered from waste and by-productsof the production process, they raise the recycled content of stainless steel produced by the Group. Therecycled content of Outokumpu stainless steel is approximately 90%, and higher than the globalindustry average of 60% (according to the International Stainless Steel Forum ISSF). In addition to therecycled steel, alloying elements are also required. These include iron-containing alloys and othermetals such as chromium, nickel and molybdenum.

Slag and dust are produced as by-products of the steelmaking process. Considerable research and development efforthas been invested by Outokumpu in methods of retrieving valuable metals from this slag and dust as these can berecycled as raw materials in the Group's melt shops. For example, to minimise emissions into the environment, filterscollect more than 99% of the dust generated by the Group's production operations. All of the dust generated by thecompany's melt shops is recycled. Dust fractions with the highest metal content are recycled directly, and the remainderof the collected dust is recycled following metal recovery. In the Nordic region this residue is sent to an external facility inSweden which treats the dust to recover the metals it contains. In the UK, there is a metal recovery facility on site.

There are many phases in the life-cycle of stainless steel products. It is Outokumpu's aim to improve the sustainability of each

phase – from production to re-use. Outokumpu's sustainable supply chain from supplier of recycled steel to production of stainless

steel productions.

Improved waste utilisation and less landfill wasteOutokumpu has the twofold aim of improving levels of efficiency in using materials and reducing the quantities of wastesent to landfills. By paying special attention to waste management and segregation techniques, many waste fractions arenow recycled and the amount of waste sent to landfills has been reduced.

In Tornio, a full-scale process involving a local contractor has been established to recycle refractories and linings frommelt shops by crushing and reprocessing them. The reprocessed material is used as a substitute for virgin material such

Outokumpu Annual Report 2009 – Materials efficiency

as lime in the melt shop. This technique also reduces the amount of waste sent to landfill and improves metal recoveryrates.

Outokumpu's melt shop in Sheffield continues to increase the quantities of stabilised and solid slag sold as roadstone.During 2009, some 84% of all slag from the melt shop was recycled in this manner.

Hydroflux, a product developed by Outokumpu, is made using descaling waste generated on the Group's stainless steelannealing and pickling lines. It can be used to replace the calcium fluoride used as a flux in stainless steel slagmanagement. The aim is to enable full scale utilisation.

Maximising economic value while minimising the environmentalburdenAchieving the Outokumpu vision of being the undisputed number one in stainless steel, means in environmental matterscreating the highest possible amount of economic value using the lowest possible levels of resources while reducing anyresulting ecological burden to an absolute minimum. With this in mind, the Group has bult up a model to develop aninternal environmental value chain. Environmental costs and the resources employed in running processes andmanufacturing products are evaluated from a value creation perspective, with aim that resources are employed in themost efficient ways possible.

Assessing each value creation phase by comparing it with the environmental consequences and material requirementsby grade and by process allows Outokumpu to maximise the eco-efficiency of the Group's production. This model wascreated under a project called ENO (Environmentally number one) during 2007–2009. Although the project was ended inthe beginning of 2009, the model is still valid. Adopting a value added approach has provided extremely usefulinformation about material flows and streams. Since the model is able to provide a measurement of the eco-efficiency ofOutokumpu's commercial value creation processes, the ENO approach is viewed as one of the best ways to encouragesustainable production. It is also very helpful when deciding the most efficient environmental investments.

A good example is the recycled content in stainless steel. Raising this from an average of 70% to an average of 90%drastically reduces the environmental burden which results from manufacturing stainless steel. Recycled input replacesthe virgin materials that would otherwise have been required, and this affects the whole supply chain. If the entire life-cycle is taken into account, a 20% increase in recycled content corresponds to the avoidance of carbon dioxideemissions totalling 1.2 tonnes per tonne of stainless steel. At the 2009 production level of 1.2 million tonnes, the tonnageof carbon dioxide emissions avoided in this way would equal 1.4 million tonnes.

Entire life-cycle taken into account, 20% increase in recycledcontent corresponds avoidance of CO2 emissions of 1.2 tonnesper tonne of stainless produced.

Outokumpu Annual Report 2009 – Materials efficiency

Material balance Material balanceMaterial balance

2009 2008 2007

Material used, tonnes

Recycled steel 1 131 144 1 367 858 1 480 332

Recovered metals 45 513 97 463 105 480

Ferrochrome 168 600 265 412 282 001

Nickel alloys 63 837 100 654 105 697

Other alloys 63 272 86 564 100 274

Additives, tonnes

Slag formers 191 190 227 302 237 454

Melt shop process gases 155 978 179 851 181 048

Pickling acids bought 10 106 13 220 11 322

Pollution prevention materials 25 715 27 216 17 365

Packaging materials used for final products 10 876 14 885 11 797

Energy, million GJ

Electricity 7.4 9.9 10.5

Propane 3.7 4.5 4.4

Carbon monoxide gas 0.7 1.4 1.7

Natural gas 0.5 0.7 0.6

Light and heavy fuel oil 0.7 0.8 1.4

Output, tonnes

Steel slabs, billets 1 245 532 1 650 068 1 718 704

Emissions to air, tonnes

Carbon dioxide 568 000 871 000 932 000

Nitrogen oxides 1 207 1 925 1 653

Sulphur oxides 179 277 451

Dust 134 216 265

Ozone-depleting substances 0 19 20

Outokumpu Annual Report 2009 – Material balance

Emissions to water, tonnes

Metals (Cr, Ni, Mo, Zn) 14.9 15.5 17.2

Nitrates 438 578 575

Hazardous waste, tonnes

Oily sludge to the treatment 5 907 4 978 4 834

Hydroxide sludge landfilled 38 444 49 646 44 967

Steel making dust to recovery 25 265 37 240 39 000

Waste and by-products, tonnes

Slag, total 324 832 593 777 547 620

Slag utilised 185 576 443 517 220 000

Outokumpu Annual Report 2009 – Material balance

By-products Material efficiency and by-productsThe efficiency of using materials within the Group is also continually being improved. The input pertonne of steel produced has been reduced as the recycled content has increased. Unavoidable by-products such as slag have been successfully utilised as substitute for other virgin materials. All thesemeasures result in substantial environmental benefits.

Material efficiency is a cornerstone in Outokumpu's environmental responsibility thinking. The Group has completedmany materials-related research and development projects in recent years and a number of schemes to reduce wastevolumes have been implemented. One of the most important ways of reducing the quantities of waste generated in thesteel industry is to modify melting shop processes so that slag is produced as a product.

Outokumpu has invested several million euros in developing slag-based products for construction and neutralisingpurposes.

Until the beginning of 2009, steel melting slag from the Tornio Works was processed in a grinding metal-separationprocess to retrieve and then reuse the valuable materials it contained. The problem was that slag treated in this waybecomes a very fine powder which is difficult to utilise. During 2009, the process was modified to retrieve the metalcontent just as effectively but allow the slag to remain in a coarser form, making it easier to use as construction material.The new process will be launched in 2010.

Practically all significant waste streams are studied in order to reduce environmental impact. For example Outokumpu'sTornio Research coordinated following environment related research projects during 2009:

1. ISSF-project GRASCA – FINCON (Granulation of Slag under Controlled Atmosphere and Use of Stainless SteelSlag as Filler in Concrete)

2. Tests with fine steel slag as neutralising material for acidic mine waters.

3. Reuse of OPAR acid regeneration salts from Tornio in nickel production.

4. Bioleaching processes to treat metallurgical wastes to more inert and less harmful (PROBIO) and to create new,remote monitoring systems for ground and waste waters (MONIWATER).

5. Dust treatment study

6. Recover the metals from mill scale sludge, oily sludge and steel dusts.

7. Use of oil containing waste waters in ferrochrome sintering plant.

Outokumpu Annual Report 2009 – By-products

In the UK Alloy Steel Rod unit worked with a Thermal Recovery plant to look at the possibility of treating and reuse themill scale. The melt shop started a project to recover metallic finds from the caster open water systems.

More than 84% of all the slag produced at the Sheffield melt shop is being used as an additive in asphalt used in roadconstruction. Roads built using stainless steel slag are considered to be safer for drivers as the slag provides additionalgrip during braking (Source: MiMer 2003, Minerals and Metals recycling centre, Luleå University, Sweden and Recmix2008 Belgium). In Avesta, a test road has been built in which slag has been used as a construction material. Avesta,Nyby and Degerfors are also engaged in a project to develop ways of reusing hydroxide flux instead of sending it tolandfill.

The Sheffield melt shop is licensed by the UK Environment Agency as an accredited packaging reprocessor, animportant and vital component in the UK's packaging compliance and waste reduction policies. Packaging waste fromSheffield is recycled to be used in the production of new packaging materials.

Outokumpu Annual Report 2009 – By-products

Energy and climate change Energy efficiency a key priorityThe steel industry is energy intensive and Outokumpu's steelmaking and rollingprocesses are no exception. We do however recognise the need for energy to beused efficiently. Hard work has given the Group a very good record in reducingenergy consumption, and Outokumpu processes are considered to be BestAvailable Techniques (BAT) as defined in the EU's integrated pollution preventionand control directive. Energy consumption in our ferrochrome production inTornio, for example, is very close to the theoretical minimum and only two thirds ofthe level in traditional processes. Process heat is recovered and used for heating.

Outokumpu sites use a range of fuels including direct energy sources such asnatural gas, propane, heavy fuel oil and electricity. Direct energy use by the Grouptotalled 13 million gigajoules (GJ) in 2009. Electricity consumption totalled 7.4million GJ (2.1 million megawatt hours), which is in practice some 25% of theannual capacity of a modern 1600 MW nuclear power plant.

Outokumpu Annual Report 2009 – Energy and climate change

Combating climate change Combating climate change –Outokumpu's Energy & low-carbonprogrammeBeing a global player in an energy-intensive industry means that our targets are ambitious.Outokumpu's long-term efforts and results in the field of energy and material efficiency, R&D andproduct stewardship – and the results achieved – have reinforced our leadership position and provide asolid base in our way towards a low-carbon society.

The Outokumpu Energy and low-carbon programme presents both the Group's ambitious targets and the actionsrequired to reach them. In the last ten years Outokumpu has managed to reduce its direct carbon dioxide (CO2 )emissions by 25% per tonne of stainless steel produced. Outokumpu's target is a 20% reduction in the Group's specificcarbon emissions profile (indirect and direct CO2 emissions) in stainless steel production by 2020.

Emissions are calculated per tonne of stainless steel produced hence highlightingnot only the actual reductions but also production efficiency.

Outokumpu carbon profile consists of:

direct emissions from production operations,

indirect emissions from purchased electricity as well as

emissions resulting from transport of products and business travel.

The targeted annual reduction is approximately 370 000 tonnes of CO2 emissionstotalling 2 200 000 tonnes during the programme period 2010–2020, calculatedagainst current capacity and products.

The primary actions within the programme consist of further improvements inenergy efficiency, increasing the share of low-carbon electricity and targeting forefficient and optimal production levels. Additionally, air travel offsetting will beimplemented for business travelling, and sustainable aspects will be integratedwhen planning logistics and transportation. These actions cover our operations in all countries and business units.Progress in the different plans will be monitored and reported on an annual basis. The full report can be read here.

Participation in life-cycle studiesOutokumpu recognises the importance of life-cycle data, both for internal use in highlighting areas for improvement andfor communications purposes in the supply chain. Outokumpu participated in a project to collect and updateEuropean Life Cycle Inventory (LCI) data for the production of stainless steel during 2007–2008. The results werepublished in 2009. Compared to a similar exercise in the late 90s, the carbon efficiency (CO2 efficiency) of stainless steelmanufacturing had improved dramatically. According to the study the carbon footprint of austenitic stainless steel wasnow more than 40% lower than a decade ago. This is possible through better process efficiency, higher input of recycledstainless steel and better electricity mix today.

Outokumpu Annual Report 2009 – Combating climate change

Outokumpu's production sites are well positioned when it comes to carbon efficient steel manufacturing. All Outokumpuproducts had smaller carbon footprints than the average EU stainless steel. The carbon footprint of quarto plate productswas almost 20% smaller than the average European values. Austenitic flat products were about 10 times more carbonefficient than average. Also the ferritic grade 430 performed well compared to average. Outokumpu ferritic data wasupdated with new information since ferritic production was almost non existing when this study was started.

Outokumpu has also actively participated in the Swedish Steel Eco-Cycle research project. The project is the first largeand coherent research effort with an environmental focus in the steel industry in Sweden. It is looking for areas toimprove in all stages of steel's life-cycle, from mining to steel products and recycling. Projects involving life-cycleassessment, recycling and slag utilisation have been of special interest to Outokumpu. The first phase of the project thatstarted in 2004 has now been successfully completed. The second phase, stretching from 2009 to 2012 has beeninitiated.

Carbon footprints of Outokumpu products are smaller than EUaverage.

Outokumpu Annual Report 2009 – Combating climate change

Energy efficiency A long-term approach to energyefficiencyOutokumpu takes a long-term approach to energy efficiency and the target is continuous improvement. Energy efficiencyis a component in the environmental management systems at most of the Group's mills. Major production sites have alsohad long-term, prioritised energy efficiency investment plans since 2009. In general terms, the largest energy savingpotential lies in recovering waste heat, improving process integration and improved efficiency in using raw materials.

Improvements in energy efficiency are not however only associated with large, energy specific investments. Thesystematic monitoring and analysis of energy consumption is very important, as is life-cycle analysis when purchasingnew electrical equipment. The Group provides energy efficiency training for production personnel.

Voluntary agreements to improve energy efficiencyOutokumpu has participated in voluntary national energy efficiency agreements in Finland, Sweden and the UK for manyyears. The Tornio Works joined the Finnish programme at the beginning of the 1990s. Achieved energy savings inelectricity, heat and fuel sum up to total of 650 GWh during 2009. To continue these systematic improvements in energyefficiency, Outokumpu sites in Finland signed new energy efficiency agreements in December 2007. These newagreements are valid from 2008 to 2016. In Sweden, the first round of the PFE (Programmet för energieffektivisering ienergiintensiv industri) agreement ended in the summer of 2009 having achieved annual savings in electricityconsumption totalling 8 GWh rather than the agreed 4 GWh. The Group has now applied for the second period between2009 and 2014. In connection with energy issues, Outokumpu usually works closely with the authorities – with Motiva inFinland and by participating in the Jernkontoret forum in Sweden.

Continuous improvement, efficient operations and maintenance are essential part of our energy efficiency work. In ourAvesta Works measures for improvements during 2009 were:

New routines for maintenance shut downs to shut down motors when not used.

Improved control system of flameless combustion in the annealing line, which resulted in fuel savings and loweremissions.

New pressurised air control system installed and work started to find leakage to improve compressor utilisation andsave energy.

New industrial water pump station installed with increased capacity. frequency controlled pumps save energy andimprove regulation.

Amount of free cooling from the water increased by replacing a larger power supplied compressor.

Energy and data collection system developed and better analysing tools prepared.

Outokumpu has participated in voluntary national energyefficiency agreements in Finland, Sweden and the UK for manyyears.

Outokumpu Annual Report 2009 – Energy efficiency

Sustainable power solutionsOutokumpu is protected against price volatility in the Nordic electricity market by having its own electricity productionfacilities and long-term electricity purchasing agreements. In addition to reasonable and stable electricity prices, one ofthe Group's aims is to purchase environmentally sustainable electrical power. Outokumpu has acquired low-carbonnuclear, hydropower and windpower production assets.

Nuclear power

Outokumpu has a 20 MW share in the new Olkiluoto 3 nuclear power project currently under construction in Finland. Asone of the shareholders in Fennovoima, a company planning to build a new 1500–2500 MW nuclear power plant inFinland by 2020, Outokumpu's aim is to have access to an additional 150 MW of low-carbon electrical power.

Hydropower

Through a long-term lease agreement, Outokumpu has access to 104 MW of Norwegian hydropower capacity in Rana,Norway until 2020.

Windpower

Outokumpu is a minority shareholder in Rajakiiri Oy, a company building a wind farm in Tornio. The first investmentdecisions regarding eight shoreline wind generators were made in 2009. Rajakiiri is also drawing up plans for an offshorewind farm that will produce up to 200 MW.

The winning proposal of Outokumpu's internal EUR 5 million competition was to invest in power generation by windturbines to reduce CO2 emissions. The investment will be made in Rajakiiri. More about the competion can be found atOutokumpu's website.

Combined Heat and Power (CHP)

The Group has a minority stake in a Combined Heat and Power (CHP) plant in Tornio. This plant delivers heat to theTornio Works, and a proportion of the fuel used is carbon monoxide gas created as a by-product of the ferrochromeproduction process. The CHP plant has also acquired a local heating business in Tornio. This acquisition will lead tobetter optimisation of the CHP plant, improvements in energy efficiency and a reduction in the level of carbon dioxideemissions in the Tornio-Haparanda region.

Outokumpu Annual Report 2009 – Energy efficiency

Emissions trading Energy and emissions tradingEnergy needed in processes is the main source of Outokumpu's carbon dioxide emissions.Outokumpu's carbon dioxide emissions in 2009 totalled 568 000 tonnes. Outokumpu's emissionstrading activities fully comply with the relevant EU laws and regulations, with agreed procedures andwith the Group's trading and risk policies. Carbon dioxide emissions under EU Emissions TradingScheme were at a very low level in 2009 due to reduced levels of production, approximately 540 000tonnes (2008: 820 000 tonnes). Outokumpu's carbon dioxide allowances in the UK, Sweden andFinland were sufficient for the Group's planned production.

The EU Emissions Trading Scheme after 2012The European Commission (EC) and the European Parliament have agreed that the EU Emissions Trading Scheme(ETS) will continue, with the next trading period being 2013–2020. The most important issue for Outokumpu has been toqualify for a free allocation of emissions allowances during 2013–2020 by being part of an industry sector where there isa significant risk of carbon leakage. According to an EC decision, all of Outokumpu's ETS operations are qualified.

Free allocations of emissions are to be distributed according to efficiency based product benchmarks which will befinalised by the end of 2010. The renewed ETS directive states that member states can offer companies compensationfor carbon dioxide related increases in electricity prices. As Outokumpu has three electricity intensive installations inthree different EU countries, this is an important issue.

More information on climate change can be found here.

Outokumpu Annual Report 2009 – Emissions trading

Energy sources Outokumpu's energyEnergy supplies of Outokumpu are based on long-term supply agreements and investments in power-generationcapacity.

The primary tasks of the Group's Energy function are to procure electrical energy for Outokumpu's Nordic sites atfavourable and stable prices and to hedge against future changes in price. The Energy function also supports Groupcompanies in their energy related activities.

Energy used 2009

Unit Electricity (GWh) Fuel energy (GWh) Total (GWh)

Tornio 1 398 913 2 311

Avesta 318 319 637

Sheffield 134 90 224

Other 205 216 421

Total 2 055 1 538 3 593

Origin of Electricity (figures based on estimates)

2009

Renewable sources 45%

Nuclear 35%

Fossils and turf 20%

Final figures are available in May 2010.

Outokumpu Annual Report 2009 – Energy sources

Outokumpu Annual Report 2009 – Energy sources

Water Water – a natural resource for coolingSteel manufacturing requires high temperatures. Whenever large amounts of heat are generated orused, cooling is required to protect people and equipment. As in most industrial processes, water is thenatural resource used for cooling. Outokumpu's main production operations also use large volumes ofwater for rinsing and cleaning tasks. To minimise the risk of pollution that could affect local resources,water used in the Group's production processes is recirculated.

All Outokumpu's melt shops are situated in areas where the intake or use of cooling water does not place anunreasonable burden on the water resource environment.

At Avesta, for example, the Group's water intake is less than 0.05% of the total volume of the Dalälven river which runspast the site. Environmental impacts in this location are further reduced by the fact that most of the water used is onlyemployed in cooling processes and then returned to the river (source: Dalälvens Vattenvårdsförening).

Water withdrawal and discharges

2009 2008 2007

Water withdrawal by source

Surface water, million m³ 17.2 19.3 20.3

Municipal water, million m³ 0.9 1.1 1.1

Water discharges by type and destination

Cooling water out, million m³ 8.1 11.5 10.6

Waste water out, million m³ 7.3 7.8 8.6

Metal discharges to water, tonnes 9.9 15.5 17.2

Nitrogen in nitrates, tonnes 437 578 574

High levels of water recyclingCooling water is used either directly in contact with steel or indirectly via a heat exchanger in which fresh cold water isused to reduce the temperature of a continuously circulating stream of cooling water. In the latter case, the onlycontamination associated with the outgoing water is that it has a higher temperature than incoming water when it ispumped back into the water system from which it was extracted. The percentage of water recycled at each Outokumpusite varies, but the average is above 90%.

High levels of recycling of cooling and process waters are achieved at many of the Group's sites by employingrecirculating cooling systems and water treatment programmes. The actual recycling rate varies from season to season.In Tornio in winter, for example, cooling water is only partially recycled – after it has been used for cooling, some wateris pumped into the Tornio harbour basin to help reduce the amount of ice. In a cold climate, preventing ice formation inthe harbour is more energy efficient than operating ice breakers. Even though cooling water is used in this way,considerable reductions in overall water use have been achieved as can be seen in the above mentioned table.

Outokumpu Annual Report 2009 – Water

Responsible treatment of rainwaterSignificant volumes of rainwater fall on Outokumpu sites. At Avesta, for example, where the works cover a total area of2.4 square kilometres, at least a million cubic metres of water falls as rain or snow each year. While some of this waterevaporates, a large proportion is collected and combined with used cooling water. All of this water is channelled throughoil separation facilities before being discharged into watercourses.

At Tornio, rainwater that has filtered through the landfill is collected. These filtrates are alkaline and also contain smallamounts of hexavalent chromium, a harmful form of chromium that can not be released without further treatment. Anautomated reducing and neutralisation station has therefore been constructed. In the neutralisation process,ferrosulphate is used to reduce the hexavalent chromium to a harmless oxidised state and also neutralise the waterbefore it is discharged.

Outokumpu Annual Report 2009 – Water

Biodiversity Surroundings at stainless steel sitesremain unharmedStainless steel production does not employ or reserve large areas of land or have a significant effect onbiodiversity in surrounding natural areas. Outokumpu production sites are not located in sensitive areassuch as Unesco World Heritage Sites, Ramsar Sites or Unesco Biosphere Reserves. During recentdecades, the Group sites have not been found to disturb biodiversity in any unacceptable manner.

Regular evaluations of impacts on biodiversityNone of the species included on the International Union for the Conservation of the Nature and Natural Resources(IUCN) Red List, a list reviewing the conservation status of species, are known to be affected by Outokumpu's activities.Although the Group does not have any significant operations in ecologically sensitive areas, impacts on biodiversity atOutokumpu production sites are evaluated on a regular basis as part of environmental management.

The environmental authorities have evaluated the EU Natura areas located near our Tornio site. Reports and statementsindicate that the Group's activities do not exert a negative impact or threaten biodiversity in these areas.

At the Outokumpu site in Sheffield in the UK, an area has been established to provide protection for wading birds whonest there during the spring. Measures are taken to ensure that the nesting birds are not disturbed, and ornithologistsring birds as part of a programme to monitor breeding and migration patterns.

Former production sites returned to their natural stateOutokumpu takes care to return areas that have been subjected to production operations to their natural state. At theGroup's Kemi Mine, waste rock extracted from the mine is now being utilised and intermediate rock storage locations arebeing used for underground construction and gallery fillings.

At the Kemi Mine, the use of one 22.5 hectare concentrating sand bond in production processes ceased in 2008. Dryingout has commenced and landscaping and reafforestation will be carried out in accordance with the remediation plan.Bonds that are still in active use support a rich waterfowl population which includes rare species.

Pöyry, a consulting company, has produced a summary report concerning the effects of wastewaters from the Group'sTornio Works on local sea areas. No significant effects on fish, bottom feeding animals, vegetation or algae wereobserved. The overall condition of the local sea areas was judged to have improved over the last 10 years.

Decommissioning of earlier closed production sites Meadowhall and Stockbridge in the UK is proceeding according toplans with local authorities. No environmental issues have emerged.

During recent decades, the Group sites have not been found todisturb biodiversity in any unacceptable manner.

Outokumpu Annual Report 2009 – Biodiversity

Emissions, effluents and waste BAT technology for emission controlIt is an Outokumpu principle that best available techniques (BAT) be employed to reduce emissions andminimise harmful environmental impacts which may result from the Group's operations. BAT meanseconomically and technically best available pollution prevention technology that is agreed andpublished by the EU. Using BAT means that Group emissions are kept at the lowest achievable level byusing the latest technology. To maintain good levels of emission control in the future, Outokumpu iscontinually developing its processes and pollution prevention techniques and is also an activeparticipant in the process of updating the reference documents (BREF) which define the technologies,helping to set high standards which are applicable all over the EU.

Efficient systems help in preventing spills and non-compliances

Safety first with radiation sources

Investments in technology reduce dust emissions

Efficient systems help in preventing spills and non-compliancesAll Outokumpu's larger production sites employ Environmental Management Systems (EMS) or risk based managementsystems which help to avoid spills and accidents that could be harmful to the environment or to humans. All of thesesystems operate in accordance with ISO 14001, the international standard for environmental management systems. Weaim to achieve one group-wide certification, currently 91% of the production sites have separate certification.

Emissions and discharges were generally at normal levels and in compliance with environmental permits in 2009, butsome spills and non-compliances did take place.

There was a fire in the steel melting shop at Tornio. Hot combustion gases penetrated one bag filter and melted some ofthe filter tubes. Even though quick and effective measures were taken, 2.3 tonnes of dust was released into the air. Thisamount corresponds to 15% of annual emissions by the steel melting shop.

At the ferrochrome plant in Tornio, the operation time ratio for the dust filtering unit in the feed silo was 93% in January(permitted level: 97%). Dust emissions to the air totalled three tonnes during this period. Because of the difficulties beingexperienced with the cleaning units, the supervising authority requested an action plan to resolve the malfunctions.Among other items, the action plan included a timetable for installing continuous measurement instruments in outletswhose significance was higher. The action plan was approved in March 2009 and the dust cleaning units have beenworking without any difficulties.

At the Nyby site small acid leakage occurred. At Sheffield there have been minor emission breaches from the DirectCurrent Arc Furnace extraction system. Långshyttan (Kloster), Sweden, and Meadowhall site, the UK, reported incidentsof discharges to the local brooks. The environmental authorities were informed on all occasions and no environmentaldamage was reported.

Safety first with radiation sourcesThe source of radioactive material may enter the stainless steel production chain via the recycled stainless steel used inthe process. Such radiation is usually from natural occurring sources. In some cases, the source of radiation is oldmeasuring equipment extensively used in heavy industry. Such items of equipment contain small amounts – a maximummeasured in grams – of radioactive isotopes. These are normally detected before they enter the Group's productionprocess.

Outokumpu Annual Report 2009 – Emissions, effluents and waste

Three incidents occurred at Outokumpu's Tornio facilities in 2009 during which radioactive material entered the electricarc furnace despite the presence of alarm systems. The radioactive material concerned was identified as americium 241,an isotope employed in measurement instruments. All dusts and slag from the melt affected were separated andmeasured, and the radioactive materials were stored separately in accordance with guidelines provided by the nationalauthorities.

The dose rate associated with the radioactive material in these Tornio cases was approximately 10 times the dose rate ofthe background radiation that humans are exposed to in their everyday lives. By way of comparison, travelling by airinvolves exposure to a dose rate 50 times higher than the dose rate of background radiation.

Investments in technology reduce dust emissions

Dusts have traditionally been the most significant type of emission by the steelindustry. The majority of Outokumpu's particle emissions originate from theTornio, Avesta and Sheffield steel mills and the New Castle hot rolling mill. In the2002–2006 period, the Group's steel plants invested more than EUR 20 million toimprove their environmental performance and minimise dust emissions. Eventhough total production of stainless steel has increased during that period, levelsof dust emissions by Outokumpu have declined significantly in recent years.

Close monitoring of emissions

The steel melting shop in Tornio has been monitoring dust particle emissions witha continuous emissions measurement system since the beginning of 2007. Havingdaily emissions data helps in detecting potential filter leakages quickly.

The impacts of emissions by the Group on local air quality at major Outokumpuproduction sites are regularly assessed. At the Avesta Works, specificmeasurements of mercury emissions from the steel melting shop were performedand reported to the authorities in 2009.

Reductions in emissions

Dust emissions from the Group's operations typically contain small quantities ofmetals (including iron, chromium and nickel) and these are mainly present in aharmless form. Chromium, for example, is usually found in its trivalent form andnot as the hazardous hexavalent form. In recent years, Outokumpu has supportedmany studies investigating the effects of metal emissions on both the environmentand human health.

Emissions of nitrogen oxides have also declined. Reductions have been achievedby investing in new technology and abatement plants. To minimise their emissions, Outokumpu production sites inTornio, Avesta and Nyby are employing the latest burner technology and selective catalytic reduction (SCR) technologiesfor certain processes.


The primary origin of the Group's sulphurdioxide emissions is the district heating unitat Tornio Works which is used onlyoccasionally during the cold winter season.

Recovering heat from waste furnace gasesat the Tornio and Avesta Works alsoreduces the Group's energy consumption.Emissions of nitrogen oxides, carbondioxide and sulphur dioxide arecorrespondingly lower as fuel does notneed to be combusted to produce heat.The energy efficiency measures that havebeen implemented have reducedOutokumpu's specific carbon dioxideemissions.

In general terms, ambient air quality in the Tornio and Haparanda communities is equivalent to that in other communitiesof similar size in Finland and Sweden. The most significant impacts on air quality in these locations come from traffic anddust in the streets. Studies made in cooperation with local municipalities and authorities in recent years indicate that theeffects that operations at Tornio Works have on air quality are very local.


Waste Ongoing developments in wastehandling bring resultsDust and scale collected from stainless steel manufacturing operations are considered by Outokumpu to be significantwaste streams. Wherever practicable, these waste materials are collected and recycled to recover the valuable alloyingelements they contain – these include nickel, chromium and molybdenum. Where necessary, specialist recoverytechniques are employed such as the Group's DC arc furnace at the melt shop in Sheffield or external treatment facilitiesoperated by other companies. The total quantity of dusts and scale collected and treated by Outokumpu in 2009 was 47000 tonnes.

Wastes from Outokumpu production units are sent to appropriate treatment facilities or to landfill sites licensed to acceptsuch materials. Both hazardous and non-hazardous wastes are involved, and pre-treatment of the waste material iscompleted when this required. Hazardous wastes (oily wastes and hydroxide sludge) generated by the Group'soperations in 2009 totalled 44 351 tonnes. All hazardous wastes are treated, reused or disposed of in accordance withcurrent legislation and best practices.

Outokumpu owns and manages landfill sites at some production sites in Finland, Sweden and the UK. In Tornio a new 5hectare landfill site for hazardous waste has been prepared, but an older one is still in use. The closure process hasbeen initiated with completion scheduled in 2012. Both landfill sites fulfil all high requirements and standards set byEuropean legislation.

As material efficiency is a cornerstone of Outokumpu strategy, an investigation of waste material flow at Tornio Workshas been launched. The aim is to establish the most cost effective ways of recycling, reusing, treating or disposing ofwaste materials and minimising the amounts produced by the Group.

A good example of the results emerging from this project is the sludge produced by water treatment in the Group'sferrochrome plant. Previously, this was disposed of as landfill. Technical investigations revealed that the material'sproperties make it a very effective barrier to water flow. Results obtained from an experimental installation carried out ata landfill site in the City of Oulu in Northern Finland were very promising, and the material is now employed inOutokumpu's own landfill area, with approximately 100 000 tonnes of ferrochrome water treatment sludge being used asa mineral sealing layer in the surface structure. The Group's ultimate target is zero waste production plants.

At Outokumpu sites Richburg and New Castle in the US continued a waste programme that has reduced the monthlytonnage of waste produced. The broad spectrum action plan includes cardboard recycling, sending shot blast grits andbaghouse dust to recycling, the recycling of cardboard and office paper, and chipping of waste wood to produce mulch.

Material efficiency a cornerstone of our strategy.

Outokumpu Annual Report 2009 – Waste

Water discharges Working towards reductions in waterdischargesFrom an environmental perspective, the most significant components in waterdischarges from stainless steel production processes are metal compounds andnitrates resulting from the neutralisation of acidic waste generated in cold rollingunits. Effluent discharges at all of Outokumpu's production units are controlled inorder to minimise their impact on the environment. At Tornio Works, for example,levels of metals in the main discharges from the plant are much lower according toexternal studies, than the natural loading of metals in local rivers that flow into theGulf of Bothnia.

Action to reduce nitrate loadsNitrate loadings originate in the pickling acids used in descaling stainless steels. Anumber of different techniques are employed by the Group to reduce the nitrateload in effluent discharges from these operations, including pickling acid recyclingtechnologies. Outokumpu is working on the development of discharge handling techniques to further reduce effluentloadings.

At the Group's Kemi Mine, the main source of nitrates is explosives. A small proportion of the explosive charges usedremains and washes out into the water circulation system. Passage through three large ponds (a total of almost 200hectares) located upstream of the point at which discharges into the recipient water system take place results in thewater's nitrate content being reduced by some 60%. These water ponds are natural removal units and there are nonegative impacts on the recipient water system, the Iso-Ruonaoja.

R&D to reduce water dischargesSeveral research projects aimed at reducing nitrate discharges have been carried out at a number of Outokumpu'sproduction sites in Sweden. At Avesta, this has resulted in the investment of EUR 28 million in a new acid recyclingsystem. Installation will take place during 2010 and process start-up is scheduled for early 2011. Discharges of nitrateswill be reduced drastically through the recycling of acids. As the process also produces a metal oxide that can be usedas a raw material in the steel melting process, the new system will also reduce the amount of sludge sent to landfill.

The oil separation station at the Avesta site used for purifying cooling water and rainwater converted into a modernlamella filter unit. The process control ensures that oil is separated from the water stream. At Tornio, plans have beenmade to use the large dredging pond near the harbour as a post treatment area for process waste waters with the aim offurther reducing concentrations of nitrogen and suspended solids.

Outokumpu Annual Report 2009 – Water discharges

Impacts of water discharges and runoff Reducing water discharges to protectmarine ecosystemsLocated in the estuary of the Tornionjoki river on the coast of the Gulf of Bothnia and close to naturereserves, the Tornio Works in Finland is probably Outokumpu's most ecologically-sensitive productionsite. Many studies monitoring the biological, physical and chemical conditions have been carried outnear the Tornio site since the 1970s. In 2008, the results of voluntary research concerning the impact ofnitrates on recipient water at the Tornio site and the Kemi Mine were published. These showed thatimpacts are restricted to the immediate proximity of the discharge points at Tornio and cause slighteutrophication. At the Kemi Mine, the impacts on sea areas are in practice negligible.

Pollution prevention techniques being employed by Outokumpu mean that increases in emissions can be avoided, andfurther reductions from previous levels will be achieved in many cases even at higher than current productionlevels. Annual studies carried out by Pöyry, a consulting company, have shown that impacts on the sea areas close tothe Group's production plants have diminished during the last decade and that the marine ecosystem is in good health.

A number of studies which include the continuous monitoring of discharge levels have shown that discharges ofchromium and nickel are now 60–80% below the levels measured ten years ago. These metals are considered to be themost significant metals released into the sea by Group activities at Tornio, current discharge levels of chromium andnickel are only a fraction of the total metal loading which originates in the main from natural sources in the northern partof the Gulf of Bothnia. This is because Tornionjoki and Kemijoki, the two local rivers, carry far greater concentrations ofthese metals into the sea than the combined amount discharged by Outokumpu's Tornio Works and Kemi Mine. Activityin local fisheries located near the Tornio Works is at healthy levels and commercial fishing is carried out near theproduction plant. Research indicates that the metals released from the Group's facilities do not accumulate in the marinefood chain.

Outokumpu is participating in the Baltic Sea challenge with the practical measures it has already taken in the 2000s andwill take in the future to improve the condition of the sea. Outokumpu's action programme can be found here.

Outokumpu shoulders its responsibility for the Baltic Sea.

Outokumpu Annual Report 2009 – Impacts of water discharges and runoff

Impacts on soil and groundwater Working to prevent leakagesSoil contamination mapping or remediation was ongoing at several sites according to plans. Soil surveys were made inAvesta, Fagersta, Molkom and Nyby. Since 2002 open soil contamination issues in Degerfors were positively completedwithout further action demands. In Meadowhall and Stocksbridge decommissioning of plant continues. The closure of theold landfill areas continued in Tornio and Nyby according to plans. Also the capping of Tinsley Park Landfill, Sheffield,continued. Remediation activity in connection with contaminated groundwater continues at the Outokumpu site inWildwood, the US. Remediation work also continued with an old oil leakage at Outokumpu's Montreal facility in Canada.During 2009, the system has operated normally. The oil levels are stable to declining.

Outokumpu Annual Report 2009 – Impacts on soil and groundwater

Transport Rail transportation significantlyimproves environmental performanceOutokumpu has been working hard to improve the environmental performance of the Group'stransportation networks. Transport of products has been included also in the Group's Energy and low-carbon programme as well as long-term targets for indirect and direct CO2 emissions.

Outokumpu has signed a five year contract covering the 2008–2012 period with the EuroLink railway system. EuroLinkconnects Tornio, Avesta, Nyby, Degerfors and Sheffield and is the Group's primary internal, rail based, rail-ship-railmaterials transportation solution. Unique equipment is used to transport coil, slab and billet products and raw materials,and as finished material is transported intermodally, products are only handled during loading and offloading operations.

Supply Chain Management goals in system solutions such as EuroLink include maintaining a reliable and frequentservice between the Group's different sites throughout Europe. The system has a high capacity and very good reliabilitywith low costs. As it is rail based and most of the engines use electric drive, EuroLink has an excellent environmentalprofile when compared to alternative methods of transportation such as trucks or ships which are driven by internalcombustion engines.

To illustrate this, a comparison between rail and truck transportation was made using actual tonnages and mileagefigures from 2008 when the system is 100% utilised. The results indicate the potential for radical improvement inOutokumpu's environmental performance that the rail based system offers.

In 2009, carbon dioxide emissions resulting from transportation of finished products by the Group totalled 128 285tonnes. The proportion of products transported by truck totalled 55% and the proportion transported by ship totalled 28%,while 17% were transported by rail. The volume of products transported in 2009 was lower than in the preceding year at1.0 million tonnes (2008: 1.4 million tonnes). Thus, the main reason for the significant reduction in the transportationemissions is likely to be the smaller volumes that were transported.

Application for an environmental permit in connection with plans to increase the capacity of Outokumpu's Kemi Mine ledto an environmental impact assessment (EIA) being completed during 2009. The only clear impact identified was anincrease in levels of traffic between the Kemi mine and the Tornio Works. However, not even a doubling of traffic willcause significant harm to settlements along the route.

Outokumpu is moving from truck to rail transportation.

Outokumpu Annual Report 2009 – Transport

Expenditure and investments Environmental investments furtherimprove sustainabilityOperational costs for Outokumpu's environmental activities totalled EUR 58 million in 2009, with costsfor the treatment and disposal of waste totalling EUR 3 million. Provisions and guarantees connectedwith environmental considerations totalled EUR 13.4 million. In addition to this, provisions for theaftercare of old mining sites totalled EUR 0.5 million. Environmental investments by Outokumpu totalledsome EUR 11.7 million (2008: EUR 18 million), despite the economic downturn. This shows greatcommitment from the Group.

Main environmental investmentsIn 2009, the Group launched a project to install a new acid regeneration plant at Avesta, an investment of EUR 28million. The objective of this two year project is to reduce the amount of nitrates discharged into the Dala River by a third.

Other environmental investments in 2009 included the following:

Tubular Products Wildwood in Florida, the US substituted propane for natural gas in its annealing furnaces.

A new acid unloading station at Degerfors, Sweden (EUR 1.5 million).

At the Tornio Works, Finland construction of a new steel recycling facility in cooperation with Refelco Oy.Outokumpu's share of this investment is EUR 5 million and Refelco's share is EUR 1.5 million.

New bulk storage for acids was installed at New Castle, IN, the US.

A new sulphuric acid tank was installed at Alloy Steel Rod plant, in Sheffield in the UK.

Environmental investments despite the economic downturn.

Outokumpu Annual Report 2009 – Expenditure and investments

Social responsibility People are most importantHow we treat people – not only own employees but also various stakeholders – is most important.

Our Ethics Statement, Corporate Responsibility Policy and Code of Conduct define our approach to social responsibility:

People must be treated equally and fairly irrespective of their ethnic origin, nationality, religion, political views,gender, sexual orientation or age.

Outokumpu is completely opposed to the use of forced and child labour, and the Group condemns all forms ofcorruption and bribery.

Outokumpu Annual Report 2009 – Social responsibility

Social goals and results Social goals and resultsIn 2009, Outokumpu's social responsibility goals were to reduce injuries, to develop the Group's Leader Pool through jobrotation, to further develop Human Resources data collection and reporting, to hold performance and developmentdialogues for all Outokumpu employees, and that the Supply Chain Tool would be taken into use. To measure oursuccess in improving our employees' well-being, the O'People personnel survey was conducted at the end of the year.The target for O'People score was 660, as set in spring 2009.

Group-wide social targets

Further SAP HR development to cover more GRI social performance indicators.

Job rotation for 20% of personnel within Leader Pool. Job rotation reported at all levels throughout the Group.

Performance and development dialogues for all.

Decrease injuries to below 5 per million hours worked.

Sustainable Supply Chain Management Tool taken into use.

Goals for 2009

The target for SAP HR development reached, all but 4 GRI-indicators were reported via SAP HR. SAP HR is nowalso used as master data source for monthy Full Time Equivalent (FTE) reporting.

The target of job rotation for 20% of personnel within Leader Pool was not achieved as the figure was 9.5%. Thetarget of job rotation reported at all levels throughout the Group was achieved.

The target of performance and development dialogues for all, was not fully achieved. On Group level some 90%of white collars completed the dialogues and some 65% of blue collars. The number of dialogues was affected bye.g. lay-offs.

The injury rate fell from 9.0 to 5.9 injuries per million working hours, but the target below five was not achieved.

The goal to take the Sustainable Supply Chain Management Tool into use was not achieved. Supplieraudit template is being developed.

Results 2009

To build a global interface for the SAP HR system so that HR data can be fed to other Group systems. In this wayto reduce manual work and the possibility of human errors. As the data quality improves the aim is to increase theusage of people-related data in the strategic business decision making.

Goals for 2010

Outokumpu Annual Report 2009 – Social goals and results

To improve job rotation practices and reporting further in SAP HR.

Performance and development dialogues to all (white collars by the end of February and blue collars by the ofMay) and to improve dialogue reporting.

Reduction of injuries to below four per million hours worked.

Improve employees' well-being. Well-being is measured by O'People employee survey, aim to increase theoverall score to 660.

Supplier audit processes finalised in 2010 and gradually taken into use.

Outokumpu Annual Report 2009 – Social goals and results

Employees Personnel is importantOutokumpu's success is based on the company's most important asset, ourpersonnel. The Group's renewed People strategy aims to attract, retain anddevelop Outokumpu people globally, enhancing both their motivation and theirability to support the Group in its vision of becoming the undisputed number one instainless steel.

At the end of December 2009, Outokumpu employed 7 606 people (2008: 8471,figures as full time equivalent). Approximately 42% of Group's employees arewhite collar workers, 17.9% are women (2008: 18.8%, 2007: 18.0%), and 82.1%are men. Outokumpu employs people in some 30 countries, with 93% located inEurope (35.5% in Finland, 36.1% in Sweden, and 7.4% in the UK).

In 2009, the number of permanent employees who had worked for Outokumpu formore than 30 years totalled 1 168, and for less than 5 years the number employedwas 1814 (6-10 years 1 459 employees). The average age of the Group'spermanent employees was 43.6 years and the average length of service 15.8years. The average length of service at Outokumpu and the average age ofemployees seem to indicate that a "generation shift" is taking place in thecompany. Average turnover among permanent employees in 2009 was 7.6%(2008: 7.03%), the hiring rate being 5.2% and the leaving rate 10.0%. 198 employees had fixed-term contracts.


Personnel figures

2009 2008 2007

Sales/person, € million 0.3 0.6 0.8

Incentives of total personnel costs, %1) 2.3 4.9 5.6

Training costs of total personnel costs, %1) 2) 4.2 1.4 1.4

Training days/person 2.4 2.8 3.3

Days lost due to strikes 911 4 1 235

Personnel turnover, % 7.6 7.0 6.1

1) Accounting principles of total personnel costs have been changed from previous year, and thus the figures from previous years

are not comparable. 2009 figure includes social security expenditure and other employee benefits that have not been included in

previous year figures.

2) Accounting principles of and the way of collecting data for training costs have been changed from previous year, and thus the

figures from previous years are not comparable.

Personnel by country, Dec.311)

2009 2008 2007

Europe

Sweden 2 749 3 211 3 070

Finland 2 703 2 798 2 759

The UK 564 717 862

Italy 292 340 141

The Netherlands 240 260 253

Germany 197 214 194

Other European countries 342 388 321

7 087 7 928 7 600

North and South America

The US 321 403 394

Canada 29 38 34

Brazil 4

354 441 428

Asia 137 72 51

Australia 24 25 25

Africa 5 5 5


Group total 7 606 8 471 8 108

1) FTE full time equivalent.

Further improvements in HR data collection and managementIn May 2009, a two-year project to implement a global SAP HR system was successfully concluded. Our target for 2009was to develop HR data collection and reporting in SAP HR. Data concerning all Outokumpu employees is now stored ina single HR system and standard SAP functionality is in place to support the most mature People Processes such asPerformance and Development Dialogues. All Group managers and employees can now use a portal to access, viewand execute HR-related tasks.

The SAP HR development plan has been completed and the system will be developed in accordance with the prioritiesallocated to Outokumpu's People Strategy and People Processes. In 2010, the first major activity is to build a globalinterface for the SAP HR system so that HR data can be fed to other Group systems. In this way to reduce manual workand the possibility of human errors. As the data quality improves the aim is to increase the usage of people-related datain the strategic business decision making.

HR

Outokumpu reports HR figures in full-time equivalent instead of headcount. In the corporate responsibility context,headcount figures would be more descriptive of Outokumpu's human resources.



Safe working environment Everyone deserves a safe workingenvironmentOutokumpu is committed to providing its personnel with safe and healthy working environments. TheGroup is also accountable for the safety of contractors and suppliers while they are working inOutokumpu's production plants and other Group facilities. Development of occupational safety ismonitored via regular reporting to corporate management meetings, and all management committeesand equivalent bodies throughout Outokumpu start each meeting with a safety review. Safety is a keyperformance indicator linked to our bonus system.

The importance attached to safety has been highlighted by making it a separate function in Outokumpu's organisation,increasing the personnel resources available, and developing a new safety vision and principles for the Group. Our newOccupational Safety Committee has begun developing Group-wide safety standards. The learning of DuPont SafetyResources evaluation at 2008 was enforced.

We have clear targets: injury prevention and hazard awareness

In 2005, the Group's Occupational Safety Theme Year set a target of reducing theinjury rate to less than five per million hours worked by 2009. As the rate in 2009was 5.9 lost-time injuries per million hours worked (including contractors), thetarget was not achieved in full. The target has been tightened. Efforts within theGroup to reach it will be strengthened. We believe all injuries are avoidable. Ourultimate target is no injuries at all.

Although we did not reach our goal, the 2009 figure is an improvement over theprevious year (2008: nine injuries per million hours worked). Injuries resultedin 120 sick leave days per million hours worked (including contractors) in 2009and a total of 92 individual lost-time injuries occurred (including contractors), noneof which were fatal. The EU average of stainless steel producers for the WorldSteel Association member companies in 2008 was 8 injuries per million hoursworked.

Outokumpu employees are encouraged to report all the near-miss situations theyencounter in the workplace. Reporting activity has slightly improved from previousyear, but we are still far below the 2007 figure. A total of 2898 reports (includingcontractors) were received in 2009 (2008: 2521 and 2007: 4 480).

Safety Log, a Group-wide occupational safety system for data collection and management was launched in 2008 at allOutokumpu's business units and service centers as well as in the Group's head office. Sales companies joined thesystem at the beginning of 2009. Development of the system was conducted in 2009. This tool allows us to log andmonitor our safety status in real time and also compare reports and data received from all Outokumpu units.

Group top management is strongly committed to achieving improved levels of safety. Year 2010 has been designatedSafety Theme Year. The aim is to discuss the Group's new safety vision and principles with everyone working inOutokumpu.

Outokumpu Annual Report 2009 – Safe working environment

Staying healthy in the workplaceOccupational health services provided by the Group at operating locations are in line with national legislation and localneeds. Activities focus on improving working environments and employees' health is monitored through a variety ofoccupational health checks and fitness tests. Industrial hygiene measurements are carried out at Group productionplants to monitor work-related exposure to, for example, noise and dust. Issues relating to the work environment are alsostudied through joint research projects carried out in collaboration with universities and specialist institutions.

It is vital to listen to our employees on a regular basis. Feedback helps us when further improving our performance. Atthe Group's headquarters in Espoo, for instance, regular satisfaction surveys on occupational health are carried out. In2009, the study was made by the Finnish Institute of Occupational Health. A link to the survey was sent to all 150persons who visited the occupational health unit during September. The unit serves 750 employees of nine companiesoperating at the campus area in Espoo, 25 percent of which work for Outokumpu. The response percentage was good,69 percent, and overall feedback positive. Our occupational health unit was better than the reference group incommunicating in different ways the necessary measures to prevent adverse work related health effects. The unitpromotes workplace safety and improves the work environment, co-operates with the employer and employees toimprove well-being at work. Development areas were also pointed out and proposals for improvement received. They willbe studied in detail and discussed with the personnel. Possible measures to be taken will be considered case by case.

In 2009, an average of 5 900 days per million hours worked of own employees (2008: 7 445) in the Group were lost as aresult of sickness or injury. The number of cases of occupational disease diagnosed in 2009 was 9 (2008: five cases).

"Stop Flu" Research Project

In the early months of 2009 and well before the "swine flu" virus appeared in April, Finland's National Institute for Healthand Welfare and four major international companies whose head offices and integrated occupational health services arelocated in the Helsinki area, one of which was Outokumpu , launched an 18-month follow-up and intervention study. Theaim is to obtain scientific evidence to support recommendations for hand hygiene routines to be used when makingpreparations to cope with serious pandemics. The study will continue until June 2010 and preliminary results will beavailable later in 2010. The study programme is a global spearhead initiative which will benefit all workplaces.

Study of occupational exposure and respiratory health effects in Tornio

Outokumpu has been studying exposure to chromium compounds in the stainless steel production chain and their long-term effects on respiratory health since 1985. The latest research programme - a joint venture between Outokumpu andthe Finnish Institute of Occupational Health co-sponsored by The Finnish Work Environment Fund – is a logicalcontinuation of these studies.

A total of 350 Group employees participated in the clinical studies carried out in 2009. Levels of occupational exposurewere studied using very sophisticated methods including chromium speciation and measurements of ultrafine particles. Apreliminary report will be published in 2010, and scientific articles will follow.

Occupational health and safety

Outokumpu should streamline the reporting practices for occupational safety and well-being, and further improveimplementation of reporting systems locally in order to avoid manual work and thus reduce risks of errors.


Outokumpu Annual Report 2009 – Safe working environment

Training and development Attracting and developing talentthrough continuous trainingOutokumpu's People strategy highlights the need to proactively develop the Group's resource andcompetence base and leadership capabilities to meet the rapidly evolving requirements of the sector inwhich we operate. Part of this work is continuing personnel development and training. During individualperformance and development dialogues, managers and personnel together identify futuredevelopment needs.

Outokumpu has different types of internal development and training programmes for developing competences and skillsat different stages of individual's career. The planning and implementation of competence development takes place atGroup level as well as at functional and business-unit levels.

In 2009, training costs in Outokumpu amounted to 4.2% of total personnel costs (2008: 1.4%, 2007: 1.4% and 2006:1.1%). In 2009 the training costs have been reported more thoroughly since the reporting practices and guidelines havebeen clarified. Thus the previous training cost figures are not comparable to 2009 figures and due to this it seems thatthe costs have tripled. The Group provided 2.4 training days per employee (2008: 2.8, 2007: 3.3 and 2006: 2.9).Incentive bonuses in 2009 totalled 2.3% of total personnel costs (2008: 4.9%, 2007: 5.6%, 2006: 4.2%).

Development programmes motivate and increase capabilitiesOutokumpu's Group level development programmes focus on leadership development and supporting the Group'sstrategy implementation. One of the key principles in our People strategy is that all Outokumpu leaders regardthemselves as accountable for people management. The backbone of leadership development in Outokumpu is ourLeadership Principles. To bring these principles to life, two Leadership Excellence programmes were arranged during2009. The programmes had altogether 37 participants.

In 2009 Outokumpu started a new development programme called High Potential Development Programme. Throughthis programme Outokumpu identifies individuals with ability, aspiration, engagement and potential to move from theircurrent roles to more demanding positions. For these individuals the programme offers a structured way to developthemselves and build their career in Outokumpu according to their personal long-term development plan. Onedevelopment method for them is a possibility to participate in a Reference Group, which target's to enhance the dialoguebetween the employees and the Group Executive Committee. The first Reference Group has six members and theymeet the Group Executive Committee three times during September 2009-April 2010 in order to change views and workon given assignments.

Also Outokumpu's internal Coaching Programme started in 2009. The aim of the programme is to train certifiedinternal coaches in Outokumpu. Coaching not only helps individuals in improving their performance and motivation, italso supports Outokumpu managers who face challenging situations. The programme is designed for managers andspecialists who wish to develop themselves and are especially motivated to help others develop their abilities. TwoInternal Coaching Programmes were arranged in 2009. When these two programmes have been completed, the Groupwill have some 30 certified internal coaches.

Outokumpu's Stainless Pro International Graduate Programme has proved to be a good way of attracting young talents,as it gives us a concrete way to cooperate with universities, to tell students about Outokumpu and what we have to offer,and also to hear what they expect from us. This two-year programme for recent university graduates was launched in2007. In 2009, the first eight Stainless Pro graduates transferred to new positions such as Business Analyst,Development engineer and Manager –BU Strategy, within Outokumpu. Seven new Stainless Pro Graduates started the

Outokumpu Annual Report 2009 – Training and development

programme in September 2008, and are set to finish the programme in August 2010. The next programme for 6 newtalents will start in September 2010.

Outokumpu Annual Report 2009 – Training and development

Employees' voices Employees' opinions are heardTo increase the motivation of Outokumpu's employees and their level of job satisfaction, open andinteractive dialogue is vital. To understand employees' needs better, O'People, the Group's personnelsurvey, was conducted for the fifth time in 2009.

One aim was to increase the survey response rate to 80%. As the response rate was 72.1% (2008: 75.5%, 2007: 64%)the desired level was not achieved, but as this was higher than 60%, the results can be considered reliable.

The overall O'People index for 2009 stood at 617 (2008: 621, 2007: 595) when our target for 2009 was 660. Even thoughour score declined slightly, it is encouraging to see that the index figure has remained almost unchanged during difficulttimes – a sign of the commitment and professionalism of Outokumpu people. The Leadership Index improved to 64points in 2009 (2008: 63, 2007: 53).

Ideas for fast action – survey to engage personnelIn order to get employees' ideas and creativity in use a web-based survey was organized in the spring. Focus was onconcrete ideas on how to get through the difficult times, on ways to cut costs and to improve overall performance.Ultimately, how we can be even stronger in the long-term. Altogether 8 613 improvement ideas and comments werereceived. The ideas ranged from big to smaller concrete improvements concerning energy savings, increasingvideoconferencing, limiting travelling, cutting use of consultants and reviewing service level of health station. During thesummer all units went through the ideas concerning their respective units and made their action plans. Actions andachieved results are reported to the Group Executive Committee, and successes and best practices are also presentedon the intranet.

Spontaneous comments from employeesIt seems that the awareness of corporate responsibility issues within our personnel has grown. Questions andspontaneous comments have arisen on issues such as air travel carbon offsetting, selling stainless steel to risk industriesor eating tuna fish. Internal corporate responsibility updating sessions were started in management team meetings inFinland and in Sweden. These sessions will continue in 2010. Towards the end of the year, our personnel also got thepossibility to comment on internal news on the intranet. This has been quite actively used and useful comments havebeen received through this channel as well.

Performance management supports our strategic goalsBecoming the undisputed number one in stainless steel requires clear direction, world-class operations and motivatedpeople. High-quality leadership and a strong Performance Management process help the Group achieve this.

Performance Management, a 365-day process based on dialogue, focuses on improving business performance byenhancing employees' performance and levels of competence. The Performance and Development Dialogue is animportant component in Performance Management. The dialogues consist of a formal annual review of each individual'sperformance and development against established targets in the preceding 12 months, together with development of anew Performance and Development plan for the next 12 months. Almost all Group employees participated inPerformance and Development Dialogues in 2009, but the goal of 100% coverage was not achieved.

Both the Performance Management and the Performance and Development Dialogue processes were revised in 2009.The improved approach to Performance Management will be applied from 2010.

Outokumpu Annual Report 2009 – Employees' voices

Cooperation between management and personnelOutokumpu's Personnel Forum is a joint consultative body which provides an information channel between companypersonnel and management. Established in 1994 in response to a European Works Council Directive, it includes 21personnel representatives from the Group's European operations, people representing the HR function and members ofOutokumpu's senior management teams. Usually convened once each year, the 2009 Personnel Forum was held inEspoo, Finland. Topics included the renewed People strategy and the processes of culture change involved in operatingas "one company".

The Personnel Forum appoints a working committee which is responsible for ongoing cooperation between Grouppersonnel and management. During 2009, this committee held six meetings with members of the senior managementteam, including the CEO.

Outokumpu Annual Report 2009 – Employees' voices

Diversity and equal rights Towards equalityOutokumpu's Ethical Principles require that every individual is treated equally, discrimination isprohibited and the Group has zero tolerance regarding the use of forced and child labour. SinceJanuary 2009, we have officially supported the ten principles of the United Nations Global Compact.These are derived from The Universal Declaration of Human Rights, The International LabourOrganization's (ILO) Declaration on Fundamental Principles and Rights at Work, The Rio Declarationon Environment and Development, and the United Nations Convention Against Corruption.

Outokumpu maintains a consistent freedom of association policy, meaning that personnel in all the Group's operatinglocations are free to join trade unions in line with the rules and regulations that apply in local labour markets. In 2009,approximately 6586 Outokumpu employees were covered by collective agreements. There were 911 strike days in 2009(2008: 4, 2007: 1 235 and 2006: 15).

The overall percentage of women permanently employed by Outokumpu is 17.9 (2008 18.8%) – this low proportion istypical of heavy industries. The Group's aim is to address diversity issues e.g. when renewing Outokumpu's RecruitmentPolicy. Three members of the Outokumpu Board of Directors are female, one of the Group Executive Committee and 53women hold key positions in the Group.

Outokumpu Annual Report 2009 – Diversity and equal rights

Redundancies Hard times also for personnelAs a response to the very weak demand for stainless steel Outokumpu took a number of actions to adjust to the poormarket conditions. Production was cut back heavily and consequent adjustments of personnel numbers through bothtemporary and permanent layoffs were implemented.

In Finland, the low order load resulted in temporary layoffs for most employees at the Tornio Works. Some 250employees at the Kemi Mine and the ferrochrome plant were temporarily laid off from March until the end of September.Approximately 1 600 employees working on other steel production lines, maintenance and support functions weretemporarily laid off in sequences starting from March. In September, some 700 employees were taken back and theremaining 900 who had been laid off temporarily returned to work in October. All head office employees (some 150)located in Finland were temporarily laid-off for ten days during the spring 2009. Some 50 permanent job reductions weremade in Finland in 2009.

In Sweden, a total of some 400 job reductions were made in 2009. The number of working shifts was reduced andrelated temporary lay-offs were implemented. In the UK, the closure of Sheffield Special Strip, reduced production in theSheffield melt-shop and actions taken in the service centre and the sales company resulted in approximately 350 jobreductions and temporary adjustments due to reduced working shifts. Approximately 150 job reductions wereimplemented in other countries.

Altogether actions taken included temporary lay-offs affecting more than 2 000 people and some 900 permanent jobreductions, being the main contributor to the Group fixed costs being reduced by some EUR 185 million in 2009.Outokumpu follows local laws and regulations also in job reductions and lay-offs.

Outokumpu Annual Report 2009 – Redundancies

Research Close involvement with researchOutokumpu invested EUR 19 million in research and development in 2009 (2008: EUR 20 million and2007: EUR 18 million). Research activities are conducted by the Group in collaboration with customers,research institutes and universities as well as independently. Both research and students are alsosupported by two Outokumpu-related foundations, the Outokumpu Stainless Research Foundation inSweden and the Technology Industries of Finland Centennial Foundation Fund for the Association ofFinnish Steel and Metal Producers.

Joint R&D projects with research institutes and universities are conducted within national and European researchprogrammes. Outokumpu is a shareholder in two Finland-based strategic centres for science, technology and innovation:the Finnish Metals and Engineering Competence Cluster (FIMECC Ltd) and the Cluster for Energy and Environment(CLEEN Ltd). During 2009, Outokumpu had an active role in launching first research programmes of FIMECC, and isnow participating in three extensive five-year research programmes: Light and Efficient Solutions, DemandingApplications, and Energy & Life-cycle Efficient Metal Processes. The focus in these programmes is on long-termresearch into life-cycle-efficient and sustainable steel products, applications and production processes.

Two patent applications for new inventions associated with stainless steel raw materials and welding were submitted bythe Group during 2009.

Working with other stainless steel producers in the ISSF (International Stainless Steel Forum) Outokumpu contributes toglobal statistics, runs joint research programmes in pre-competitive product and application development areas andproduces data and evidence regarding the environmental effects of stainless steel. In recent years, a substantial amountof effort has been put into proving that the levels at which constituent elements of stainless steel are released intofoodstuffs and human body fluids is extremely low. The use of slag products and improvements in the properties of suchmaterials have also been topical subjects. Working together with associations of key raw material producers, the use ofnew production routes that would result in reduced quantities of greenhouse gases being emitted has been investigated.

As a ferrochromium producer, Outokumpu is a member of the International Chromium Development Association (ICDA).In addition to producing statistics, the focus of associated activities has been firmly on demonstrating that the productionand use of both metallic chromium and chromium-containing alloys results in no harmful effects on human health or thenatural environment. ICDA made an extensive contribution by establishing a consortium for ferrochromium whichproduced data for REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals regulations).

Tornio is currently engaged in a research project titled "Respiratory symptoms caused by chromium compounds, ultra-fine particles and other exposures in the workplace air in the stainless steel production chain".

More about Outokumpu's research and development can be found here.

Outokumpu Annual Report 2009 – Research

Responsible sourcing Suppliers of raw materials to beevaluatedOne of our overall goals is that our suppliers and contractors adhere to ethical standards that are as high as the ones wefollow within Outokumpu. In 2006, we started to develop a Supply Chain Management Tool, a questionnaire togetherwith one of our raw material suppliers and the Helsinki University of Technology. Our raw material suppliers represent avast majority of our total purchasing volume. The idea behind this project was to screen human rights issues togetherwith matters that affect social, environmental and economic sustainability. The project was completed in 2008.

In 2009, we continued to develop further the questionnaire, the supplier audit template. The aim was to assess how ourraw material suppliers behave in different contexts. A trial was carried out with our biggest external supplier of recycledstainless steel, our biggest supplier of ferrochrome and a major supplier of nickel. Feedback received from thesecompanies will be used to amend the template before it is distributed to all Outokumpu suppliers. Work to finalise theform of this audit template should be completed in April 2010. Our aim is to assess first 80% of our main raw materialsuppliers and then continue with our general materials suppliers. There is still some way to go before we can claim thatthe majority of our suppliers (or the suppliers who make most deliveries, either in financial or volume terms) have beenassessed.

Outokumpu Annual Report 2009 – Responsible sourcing

Product safety and liability A focus on product safety fromproduct development to recyclingTaking health and safety issues into account is important not only during the manufacturing of stainlesssteel, but also when Outokumpu customers are processing the material further, when stainless steelproducts are being used, and when it is returned for re-melting.

As stainless steel is an inert material and non-reactive when employed correctly, its potential impacts on people's healthand safety are very limited. This is why stainless steel is so widely used in both medical appliances and in equipmentused in the food processing industry. Outokumpu manufactures stainless steel grades that are standardised and provensafe for their recommended uses. All Outokumpu's main production sites are certified according to the ISO 9001 qualitystandard to ensure that all products produced comply with the specified requirements. All our service centres have ISO 9001 quality sertificate and about half of them also ISO 14 001 environmental management system.

Careful testing and compliance to ensure safetyWhen new stainless steel grades are developed they are carefully tested for safety. One recent example is Outokumpu'snew LDX duplex grade. In addition to internal test programmes the steel grade was tested in contact with water andacetic acid by an external laboratory and approved according to the Italian requirements for materials in contact withfood. In the US LDX 2101 has been tested and approved for incorporation in the NSF-ANSI 61 standard for componentsin contact with drinking water and the same grade has also received a food equipment acceptance certificate accordingto the 3A sanitary standard.

Outokumpu takes account of specific end-use concerns. Outokumpu does not use metal compounds such as lead,cadmium, mercury and hexavalent chromium in its manufacturing process, as there are restrictions for their use in theelectronic and automotive industries.

The Group works actively with REACH to ensure that all substances used and produced are registered correctly and ontime. Products sold by Outokumpu do not contain any SVHC (Substances of Very High Concern) as defined by theEuropean Chemicals Agency (ECHA).

Most stainless steels contain nickel that has been classified as harmful in the EU. However, since stainless steel is inertthere is no risk to either human beings or environment from normal use of stainless steel products. This has beendemonstrated both in laboratory studies and through a long history of use. Unfortunately, the fact that steel is a verydifferent material from its components is sometimes not well understood by regulators. For example, in an effort tosimplify the EU Ecolabel Directive, all substances classified as harmful were excluded, regardless of real risk to man orenvironment. Since nickel is banned from receiving the Ecolabel, it automatically means that stainless steel productscannot receive the label either, although stainless steel has very different properties compared to nickel.

Since stainless steel is inert there is no risk to either humanbeings or environment from normal use of stainless steelproducts.

Outokumpu Annual Report 2009 – Product safety and liability

Extensive product informationOutokumpu provides health and safety information on materials supplied by the Group. Technical data sheets offerdetailed information on the chemical and technical properties of each stainless steel grade. Information on topics such asOccupational Exposure Limits for substances contained in stainless steel is also provided in Safety Data sheets, as wellas safety measures to be employed during operations that involve welding.

Reports on the health and environmental impacts associated with the use of stainless steel are issued by the industry'smarketing organisations such as EuroInox. Information is also available from the product safety bulletin issued byinternational nickel, chromium and molybdenum organisations.

Outokumpu Annual Report 2009 – Product safety and liability

Reporting principles Reporting provides information forstakeholdersThe overarching objective in Outokumpu's corporate responsibility reporting is to support an opendialogue between the Group and its stakeholders. Our aim is to address the needs of our current andfuture personnel, shareholders, customers and other parties who are interested in Outokumpu and itsbusiness. We pay special attention to addressing the concerns of these stakeholders. Read about ourstakeholder dialogues here.

We utilise reporting as an opportunity to illustrate what Outokumpu has done to ensure the sustainability of its businessoperations, and what actions we hope to take in the future to enhance the well-being of people and the naturalenvironment that surrounds us. The Group has a long history of responsible business practices and we hope to make ouroperations even more sustainable. We report on matters considered important and relevant to our business operations,such as stainless steel – our product and the material of sustainable development. We also cover current global themesthat have an effect on us, our operations and our stakeholders.

Valuable feedback was received during 2009 from the reporting competition in Finland, from analyst reports and from ourassurance providers. Our first Group-level meeting with environmental NGOs was very useful in this connection.Feedback helps us as we seek to further improve our reporting – we believe that thorough reporting promotesdevelopment of our way of working and our operations.

Contact details for questions regarding the contents of this report can be found here.

Scope of the reportOutokumpu's corporate responsibility report is published annually. The reporting period is the same as our financialreporting period i.e. a calendar year. Our previous report "Outokumpu and our environment 2008" was published onMarch 13, 2009 together with Annual Report 2008.

This 2009 online report is a natural progression from our previous, printed sustainability reports in 2005–2008. Since2004, Outokumpu's reporting has been based on the widely recognised and applied Global Reporting Initiative (GRI)guidelines (G3 from 2007), and follows the recommended tripartite division into economic, environmental and socialresponsibility. We also reflect on the impacts of Group operations on different stakeholders. A comparison of Outokumpureporting with the GRI guidelines and the 10 principles of the UN Global Compact can be found here.

Economic and social information is covered from the perspective of Outokumpu's entire stainless steel operations.Environmental indicators include all Outokumpu Stainless Steel production plants.

While Outokumpu still has brass bar operations (a total of 149 employees and net sales of some EUR 31 million), theGroup has announced that these are being divested. Information concerning this business is not included in this orprevious corporate responsibility reports.

Comparability of statisticsEven though major changes have taken place in Outokumpu's organisational structure, the statistics provided in theGroup's 2005, 2006, 2007, 2008 and 2009 reports are comparable as the reporting focuses solely on the Group'sstainless steel operations, our main business today. As mentioned in our previous reports, we have closed some smallerstainless steel units in Sweden and the UK. However, their impact on our emissions or other figures is insignificant.

Outokumpu Annual Report 2009 – Reporting principles

Figures for copper and brass businesses divested in 2005–2008 have not been included. We have not noticed nor areaware of any errors in the data provided in our earlier reports. Since 2007, Outokumpu reports have included anassurance report that has been submitted by independent external assurance providers. This independent assurancereport is available here. The data based on the financial statements has been audited.

Measurement techniques


All the economic figures in the Corporate Responsibility section only cover our stainless steel operations ie. excludingour so-called discontinued operations (non-core operations).

Accounting principles have been adjusted to better meet the GRI guidelines.The comparative figures have been restatedin the tables: Wages, salaries and other employee benefits by country and Taxes and social dues by country.


Environmental expenditure

Financial information related to environmental investments is collected according to group wide unified guidance in linewith GRI and World Steel Association principles. Data is aggregated through our EER reporting system, which also hasgroup guidance integrated.

Water

Water use reporting is based on measured and calculated consumption and information is collected according to groupwide unified guidance in line with GRI and World Steel Association principles. Water balance information is aggregatedthrough our Energy and Environment Reporting System, which also has group guidance integrated.

Social responsibility

Lost Time Injury

(Worldsteel Association's principle) Injuries per million hours worked

Any work-related injury, resulting in the Company or Third Party Contractor employee not being able to return to work thenext scheduled work day. Returning to work with work restrictions does not constitute lost time injury status, no matterhow minimal or severe the restrictions.

EU average LTI

From statistics supplied by Worldsteel Association which is followed by all member companies.

Near miss incidents

Come from our own hyperion system, where number of incidents is collected at business unit level. Source of informationis Safety log, but also other reporting sources as not all units use Safety log.

Sick leave days


Business units report data on sickness absence and occupational diseases on a monthly basis together with financialreporting. In the future sick leave days will be reported per million hours worked, not in percentages which is slightlycontroversial as there are differing ways in different countries.

Personnel figures

We use, as in previous years, the full-time equivalent (FTE) to calculate our personnel. This will, however, be changed asof 2010, when we start using actual headcount figures, as recommended by our assurance providers.

Total personnel costs

The figure includes wages, salaries, bonuses, social costs or other personnel expenses and fringe benefits paid duringthe reporting year 2009. The 2008 total personnel costs were calculated without social costs or other personnelexpences and fringe benefits.

Training costs

External and internal training costs (in euros) are counted from the specific account assigned to training costs percompany. Costs also include the salaries of internal trainers. Wages and salaries of the participant are not included.

Training days per employee

The number of actual internal and external training days in which 8 hours equals one day (actual training day = traininghours/8).

Incentive bonuses

Amount of bonuses (in euros) is counted from the specific account assigned to bonuses per company without socialcosts or other personnel costs or personnel expenses and without fringe benefits.

Personnel turnover (termination and recruitment turnover separately)

(new hired + leavers)/(2 x average headcount)

Days lost due to strikes

Number of employees, who have been on strike multiplied by scheduled working days. The count begins the day thestrike has started.


GRI & UN Global Compact GRI & UN Global Compact

GlobalCompactPrinciples

GRI Content Included Section

1 Strategy andAnalysis

1.1 CEO's statement Yes Management committed to corporateresponsibility

1.2 Key impacts, risksand opportunities

Yes Management committed to corporateresponsibilityCorporate responsibilityRisk management of corporate responsibility2009 highlights

2 Organisationalprofile

2.1 Name of theorganisation

Yes

2.2 Primary brands,products andservices

Yes This is outokumpuBusiness Operations

2.3 Operationalstructure

Yes Business OperationsCorporate Governance

2.4 Location oforganisation'sheadquarters

Yes This is Outokumpu

2.5 Number ofcountries andlocation ofoperations

Yes This is OutokumpuOperating environment

2.6 Nature ofownership andlegal form

Yes Corporate responsibility governanceShares and shareholders

2.7 Markets served Yes General StainlessSpecialty Stainless

2.8 Scale of thereportingorganisation

Yes Key figures

Comparison with GRI guidelines and Global Compact

Outokumpu Annual Report 2009 – GRI & UN Global Compact

2.9 Significantchanges regardingsize, structure orownership

Yes Review by the Board of Directors

2.10 Awards receivedin the reportingperiod

Yes Management committed to corporateresponsibility

3 Reportparameters

3.1 Reporting period Yes Reporting principles

3.2 Date of mostrecent report

Yes Reporting principles

3.3 Reporting cycle Yes Reporting principles

3.4 Contact point forquestionsregarding thereport

Yes Contact us

3.5 Process fordefining reportcontent

Yes Reporting principles(The report addresses the needs of Outokumpu'sstakeholders. Outokumpu reports on mattersconsidered relevant to its business operations andcurrent global themes that have an effect onOutokumpu, its operations and stakeholders. Thereporting is based on GRI G3 Guidelines).

3.6 Boundary of thereport


3.7 Limitations on thereport's scope orboundary


3.8 Basis for reportingsubsidiaries andjoint ventures


3.9 Datameasurementtechniques andbases ofcalculations

Yes Reporting principles(More information on accounting principles arereported in connection with the figures in question)

3.10 Explanation of re-statements


3.11 Significantchanges fromprevious reportingperiods in the



scope, boundaryor measurementmethods

3.12 GRI content index Yes GRI & UN Global Compact

3.13 Assurance policyand practice

Yes Independent assurance reportReporting principles

4 Governance,Commitmentsand Engagement

Governance

4.1 Governancestructure of theorganisation

Yes Governance 2009

4.2 Position of theChairman of theBoard

Yes Board of DirectorsBoard of Directors

4.3 Independence ofthe Boardmembers

Yes Board of Directors

4.4 Mechanism forshareholder andemployeeconsultation

Yes General meeting on shareholdersShareholders' nomination committee

4.5 Executivecompensation andlinkage toorganisation'sperformance

Yes Remuneration

4.6 Processes foravoiding conflictsof interest


4.7 Processes fordeterminingexpertise

Yes Board CommitteesBoard of Directors

4.8 Implementation ofmission andvalues statements,code of conductand otherprinciples

Yes Corporate responsibility governanceOperational ExcellenceManagement systems

4.9 Procedures of theBoard foroverseeingmanagement of

Yes ComplianceBoard of Directors


sustainabilityperformance,including riskmanagement

4.10 Processes forevaluating theBoard'sperformance


Commitments toExternalInitiatives

7 4.11 Addressingprecautionaryapproach

Yes Risk managements of corporate responsibilityRisk management

1–10 4.12 Voluntary chartersand otherinitiatives

Yes Associations and federationsCorporate Responsibility

1–10 4.13 Memberships inassociations

Yes Associations and federations

StakeholderEngagement

4.14 List of stakeholdergroups

Yes Our stakeholders

4.15 Identification andselection ofstakeholders


4.16 Approaches tostakeholderengagement


4.17 Key topics raisedthroughstakeholderengagement

Yes Our stakeholdersEmployees voices

5 ManagementApproach andPerformanceIndicators

1, 4, 6, 7 Managementapproach toeconomicresponsibility

Yes Economic responsibilityEconomic goals and resultsStrategic themes


7, 8, 9 Managementapproact toenvironmentalresponsibility

Yes Management systemsEnvironmental responsibilityEnvironmental goals and resultsEmissions, effluents and waste

1, 3, 6 Managementapproach to socialresponsibility

Yes Management systemsSocial goals and resultsDiversity and equal rights

EconomicPerformanceIndicators

EconomicPerformance

EC1* Direct economicvalue generatedand distributed

Yes Economic impact on our stakeholdersPublic sector support

7 EC2* Risks andopportunities dueto climate change

Yes Impact of climate changeEmissions trading

EC3* Coverage ofdefined benefitplan obligations

Yes Remuneration(Pension benefits for Group Executive Committee)

EC4* Significantsubsidies receivedfrom government

Yes Public sector support

Market presence

1 EC5 Entry level wagecompared tominimum wage

No

EC6* Spending on localsuppliers

No

6 EC7* Local hiring No

IndirectEconomicImpacts

EC8* Infrastructureinvestmentsprovided for publicbenefit

No

EC9 Significant indirecteconomic impacts

No


EnvironmentalPerformanceIndicators

Materials

8 EN1* Materials used byweight or volume

Yes Material balance

8, 9 EN2* Recycledmaterials used

Yes Materials efficiency

Energy

8 EN3* Direct energyconsumption

Yes Energy and climate changeMaterial balance

8 EN4* Indirect energyconsumption

Partly Energy sources(Electricity consumption)

8, 9 EN5 Energy saved dueto conservationand efficiencyimprovements

Yes Energy efficiency

8 EN6 Initiatives toprovide energy-efficient orrenewable energybased productsand services

Yes Energy efficiency

8 EN7 Initiatives toreduce indirectenergyconsumption

Partly Corporate responsibility highlights 2009Transport

Water

8 EN8* Total waterwithdrawal

Yes Water

8 EN9 Water sourcessignificantlyaffected bywithdrawal ofwater

Yes Water

8, 9 EN10 Percentage andtotal volume ofwater recycledand reused

Yes Water(Average percentage of water recycled)

Biodiversity

8 EN11* Location and sizeof land holdings in

Yes Biodiversity


areas of highbiodiversity

8 EN12* Description ofsignificant impactof activities,products, andservices onbiodiversity

Yes Biodiversity

8 EN13 Habitats protectedor restored

Yes Biodiversity

8 EN14 Managing impactson biodiversity

Yes Biodiversity

8 EN15 Species withextinction risk withhabitats in areasaffected byoperations

Yes Biodiversity

Emissions,Effluents andWaste

8 EN16* Total direct andindirectgreenhouse gasemissions


8 EN17* Other relevantindirectgreenhouse gasemissions

Yes Combating climate change

7, 8, 9 EN18 Initiatives toreducegreenhouse gasemissions

Yes Combating climate changeTransport

8 EN19* Emissions ofozone-depletingsubstances


8 EN20* NOx, SOx, andother significantair emissions

Yes Material balanceEmissions, effluents and waste

8 EN21* Total waterdischarge

Yes WaterWater discharges

8 EN22* Total amount ofwaste

Yes WasteMaterial balance

8 EN23* Significant spills Yes Emissions, effluents and waste

8 EN24 Transported,imported,

No


exported, ortreated hazardouswaste

8 EN25 Water bodies andhabitats affectedby discharges ofwater

Yes Impacts of water discharges and runoff

Products andServices

7, 8, 9 EN26* Mitigatingenvironmentalimpacts ofproducts andservices

Yes Materials efficiency

8, 9 EN27* Reclaimableproducts andreuse

No

Compliance

8 EN28* Significant finesand sanctions fornon-compliancewith environmentalregulations

Partly Emissions, effluents and waste

Transport

8 EN29 Environmentalimpacts oftransportation

Yes Transport(CO2 emissions of transportation)

Overall

7, 8, 9 EN30 Totalenvironmentalprotectionexpenditures andinvestments

Yes Expenditure and investments

SocialPerformanceIndicators

Labor Practicesand DecentWork

Employment

LA1* Total workforce byemployment type,employment

Yes Employees


contract andregion

6 LA2* Total number andrate of employeeturnover

Yes EmployeesRedundancies

(Turnover among permanent employees)

LA3 Employeebenefits

No

Labor/ManagementRelations

1, 3 LA4* Coverage ofcollectivebargainingagreements

Yes Diversity and equal rights

3 LA5* Minimum noticeperiod regardingoperationalchanges

Yes Redundancies(Outokumpu follows local laws and regulations alsoin job reductions and lay-offs).

OccupationalHealth andSafety

1 LA6 Representation injoint health andsafety committees

No

1 LA7* Rates of injury,occupationaldiseases, lostdays, fatalities andabsenteeism

Yes Safe working environment

1 LA8* Education andpreventionprogrammesregarding seriousdiseases

Yes Safe working environment

1 LA9 Health and safetytopics covered informal agreementswith trade unions

No

Training andEducation

LA10* Average traininghours per year

Yes Training and development(Training days per employee)


LA11 Programmes forskills managementand lifelonglearning

Yes Training and development(Description of development and trainingprogrammes)

LA12 Employeesreceiving regularperformance andcareerdevelopmentreviews

Yes Employees voices

Diversity andEqualOpportunity

1, 6 LA13* Composition ofgovernancebodies andbreakdown ofemployees

Yes Diversity and equal rights(Breakdown of total workforce by gender, age andeducation. Composition of governance bodies bygender).

1, 6 LA14* Ratio of basicsalary of men towomen byemployeecategory

No

Human Rights

1–6 HR1* Investmentagreements withhuman rightsclauses or thathave undergonehuman rightsscreening

No

1–6 HR2* Suppliers andcontractors thathave undergonehuman rightsscreening

Partly Responsible sourcing

1–6 HR3 Human rightsrelated training foremployees

No

1, 2, 6 HR4* Incidents ofdiscrimination andactions taken

Yes Internal auditManagement systems

1, 2, 3 HR5* Supporting right tofreedom ofassociation and

Partly Diversity and equal rights


collectivebargaining in riskareas

(Ethics Statement, Corporate Responsibility Policyand Code of Conduct)

1, 2, 5 HR6* Measures taken toeliminate childlabour in riskareas

Partly Diversity and equal rightsSocial responsibility


1, 2, 4 HR7* Measures taken toeliminate forcedlabour in riskareas

Partly Diversity and equal rightsSocial responsibility


1, 2 HR8 Human rightsrelated training forsecuritypersonnel

No (not relevant)

1, 2 HR9 Incidents involvingrights ofindigenous peopleand actions taken

No (not relevant)

Society

Community

SO1* Managing impactsof operations oncommunities

Partly Local communities

Corruption

10 SO2* Business unitsanalysed forcorruption risks

Partly ComplianceManagement systemsSocial responsibility


10 SO3* Anti-corruptiontraining



10 SO4* Actions taken inresponse toincidents ofcorruption




Public Policy

1–10 SO5* Public policypositions andparticipation inpublic policydevelopment andlobbying

Partly Associations and federationsManagement systems

(Code of Conduct)

10 SO6 Contributions topolitical partiesand relatedinstitutions

Yes Public sector support(Code of Conduct)

SO7 Legal actions foranti-competitivebehaviour, anti-trust, andmonopoly

Yes Compliance

Compliance

SO8* Fines andsanctions for non-compliance withlaws andregulations

Yes Compliance

ProductResponsibility

Customer Healthand Safety

1 PR1* Assessment ofhealth and safetyimpacts ofproducts

Yes Product safety and liabilityResearch

1 PR2 Non-compliancewith regulationsconcerning healthand safety impactsof products

No

Product andService Labeling

8 PR3* Productinformationrequired byprocedures

Yes Product safety and liability


Based on its own assessment, Outokumpu has followed the B+ application level of the GRI guidelines. The applicationlevel has been checked by a third party, PricewaterhouseCoopers Oy.

8 PR4 Non-compliancewith regulationsconcerningproductinformation andlabelling

No

PR5 Customersatisfaction

Yes Customers

MarketingCommunications

PR6* Adherence tomarketingcommunicationslaws, standardsand voluntarycodes

No

PR7 Non-compliancewith marketingcommunicationsregulations andvoluntary codes

No

CustomerPrivacy

1 PR8 Complaintsregardingbreaches ofcustomer privacy

No

Compliance

PR9* Fines for non-complianceconcerning theprovision and useof products andservices

No

* GRI Coreindicator


Independent assurance report Independent Assurance Report

To Outokumpu Oyj's ManagementAt the request of Outokumpu Oyj's Management we have performed the procedures agreed with you and detailed belowconcerning the limited assurance engagement on the Outokumpu Oyj's Corporate Responsibility section in online AnnualReport 2009 (the Report) consisting of the economic, social and environmental information (Subject Matter) withinreporting period 1.1.-31.12.2009.

Management's ResponsibilityOutokumpu Oyj's Management has prepared the Report, and is responsible for the collection and presentation ofinformation within the Report in accordance with the reporting criteria as set out in Global Reporting Initiative (GRI)Sustainability Reporting Guidelines G3 version together with Outokumpu Oyj's own reporting guidelines (Criteria).

Practitioner's ResponsibilityOur responsibility is to express an independent conclusion on the Subject Matter based on our limited assuranceengagement. Our assurance report has been made 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 thatwe have reached.

We conducted our work in accordance with the International Standard on Assurance Engagements (ISAE) 3000applicable to assurance engagements other than audits or reviews of historical financial information. This Standardrequires that we comply with ethical requirements and plan and perform the assurance engagement to obtain limitedassurance whether any matters come to our attention that causes us to believe that the Subject Matter does not providea balanced and reasonable representation of Outokumpu Oyj's corporate responsibility performance based on theCriteria.

In a limited assurance engagement the evidence-gathering procedures are more limited than for a reasonable assuranceengagement, and therefore less assurance is obtained than in a reasonable assurance engagement. We have plannedand performed our evidence gathering procedures to obtain sufficient appropriate evidence on which to base ourconclusion. We have performed amongst others the following procedures:

Interviewing five (5) persons in Group Management in order to ascertain the current targets for Outokumpu Oyj'scorporate responsibility as part of the business strategy and operations;

Interviewing persons responsible for corporate responsibility at Outokumpu Group;

Reviewing management and reporting systems relating to information disclosed in the Report;

Assessing the data management procedures used in compiling and reporting the quantitative data;

Interviewing persons responsible for the practices and procedures used for data generation, recording, compilationand consolidation both at the Group Head Office and at two sites (Tornio, Avesta);

Testing existency of reported information on a sample basis from primary documentation at two sites (Tornio,Avesta);

Testing the completeness, accuracy and comparability of the quantitative data presented in the Report on a samplebasis of primary documentation at two sites (Tornio, Avesta) as well as performing recalculations at Group level;

Reviewing the content and quality of information presented in the Report.

Outokumpu Annual Report 2009 – Independent assurance report

Our conclusionsBased on our work described above, nothing has come to our attention that causes us to believe that the Report in allmaterial respects, based on the aforementioned Criteria, is not providing a balanced and reasonable representation ofOutokumpu Oyj's corporate responsibility performance.

Our assurance report should be read in conjunction with the inherent limitations of accuracy and completeness forcorporate responsibility information.This independent assurance report should not be used on its own as a basis forinterpreting Outokumpu Oyj's performance in relation to its policies of corporate responsibility.

Espoo, 24 February 2010PricewaterhouseCoopers Oy

Marko KorkiakoskiPartner

Sirpa JuutinenDirector, Sustainable Business Solutions

Download PDF

Outokumpu Annual Report 2009 – Independent assurance report

Corporate Governance Regulatory frameworkThe Group's parent company, Outokumpu Oyj, is a public limited liability company incorporated anddomiciled in Finland.

In its corporate governance and management, Outokumpu Oyj complies with Finnish legislation, the company's Articlesof Association and the Corporate Governance Policy resolved and approved by the Board of Directors. Outokumpufollows the Finnish Corporate Governance Code (publically available on www.cgfinland.fi), effective as of January 1,2009, issued by the Securities Market Association and adopted by NASDAQ OMX Helsinki. As one exception to thiscode, Outokumpu has both a Board Nomination and Compensation Committee and a Shareholders' NominationCommittee appointed by the Annual General Meeting of Shareholders. Outokumpu complies with the other regulationsand recommendations issued by NASDAQ OMX Helsinki.

The Corporate Governance Statement is presented as a separate report.

Outokumpu Annual Report 2009 – Corporate Governance

Governance 2009 Tasks and responsibilities ofgoverning bodiesThe governing bodies of the parent company Outokumpu Oyj, i.e. the General Meeting of Shareholders, the Board ofDirectors, and the President and Chief Executive Officer (CEO), have ultimate responsibility for Group management andGroup operations. The Group Executive Committee reports to the CEO and is responsible for the efficient managementof the Group.

Outokumpu Annual Report 2009 – Governance 2009

General Meeting of Shareholders General Meeting of ShareholdersThe General Meeting of Shareholders normally convenes once a year. Under the Finnish Companies Act, certainimportant decisions such as the approval of financial statements, decisions on dividends and increases or decreasing ofshare capital, amendments to the Articles of Association, and election of the Board of Directors and auditors fall withinthe exclusive domain of the General Meeting of Shareholders.

The Board of Directors convenes a General Meeting of Shareholders. The Board can decide to convene a GeneralMeeting on its own initiative, but is obliged to convene a General Meeting if the auditor or shareholders holding at least10% of Outokumpu's shares so request. In addition, each shareholder has the right to bring a matter before a GeneralMeeting of Shareholders that falls within the domain of the General Meeting, provided that a written request to do thishas been received by the Board of Directors early enough to allow the matter to be placed on the agenda included in thenotice announcing the General Meeting. According to its Articles of Association, Outokumpu has only a single class ofshares and all shares have equal voting power at General Meetings of Shareholders.

Outokumpu Annual Report 2009 – General Meeting of Shareholders

Shareholders’ Nomination Committee Shareholders' Nomination CommitteeBased on a proposal by Solidium Oy (the Finnish State), Outokumpu's largest shareholder, the Outokumpu 2009 AnnualGeneral Meeting decided to establish a Shareholders' Nomination Committee to prepare proposals on the composition ofthe Board of Directors and director remuneration for the following General Meeting of Shareholders. The 2009 AnnualGeneral Meeting also decided that the Shareholders' Nomination Committee should consist of representatives ofOutokumpu's three largest shareholders as registered in the Finnish book-entry securities system on November 2, 2009,who accept the assignment. The Chairman and another member of the Outokumpu Board of Directors act as expertmembers of the Committee.

Outokumpu's largest shareholders are determined on the basis of shareholdings registered in the Finnish book-entrysystem. However, holdings of a shareholder who, under the Finnish Securities Markets Act, has the obligation to disclosechanges in shareholdings (the flagging obligation) which are divided among a number of funds, may be combinedprovided that the owner presents a written request to that effect to the company's Board of Directors no later thanOctober 30, 2009.

Shareholder representatives on the committee were: Solidium Oy (the Finnish State), The Finnish Social InsuranceInstitution, and Ilmarinen Mutual Pension Insurance Company. These shareholders chose the following persons as theirrepresentatives on the Shareholders' Nomination Committee: Kari Järvinen, Chief Executive Officer (Solidium Oy),Jorma Huuhtanen, Director General (The Finnish Social Insurance Institution) and Harri Sailas, Chief Executive Officer(Ilmarinen Mutual Pension Insurance Company). Kari Järvinen was elected Chairman of the Committee. Ole Johansson,Chairman of the Outokumpu Board of Directors and Board member Evert Henkes served as expert members. TheCommittee submitted its proposals on Board composition and director remuneration to the Board of Directors. TheOutokumpu Board has incorporated these proposals into the notice announcing the 2010 Annual General Meeting ofShareholders.

Outokumpu Annual Report 2009 – Shareholders’ Nomination Committee

Board of Directors Board of DirectorsThe general objective of the Board of Directors is to direct Outokumpu's business in a manner that secures a significantand sustained increase in the value of the company for its shareholders. Board members offer their expertise andexperience for the benefit of the company. The tasks and responsibilities of the company's Board of Directors aredetermined on the basis of the Finnish Companies Act as well as other applicable legislation. The Board has generalauthority to decide and act in all matters not reserved for other corporate governing bodies by law or under the provisionsof the company's Articles of Association. The Board's general task is to organise the company's management andoperations. In all situations, the Board must act in accordance with the company's best interest.The Board of Directors has established rules of procedure which define its tasks and operating principles. The mainduties of the Board of Directors are as follows:

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

To decide on the Group's basic strategy and monitor its implementation;

To decide on annual limits for the Group's capital expenditure, monitor their implementation, review quarterly plansand decide on changes;

To decide on individual investments or expenditure that are within the authorised capital expenditure limits and havea value exceeding EUR 20 million, as well as on other major and strategically important investments;

To decide on any individual business acquisitions and divestments within the current scope of business that have avalue exceeding EUR 10 million;

To decide on any financing arrangements by any Group company which either exceed EUR 150 million, areorganised by way of public offerings, or which are otherwise out of the Group's normal course of business; and

To decide on any other commitments by any of the Group's companies that are out of the ordinary either in terms ofvalue or nature, taking into account the size, structure and field of operation of the Group.

With respect to organising the company's management and operations:

To nominate and dismiss the CEO and his deputy, and to decide on their terms of service, including incentiveschemes, on the basis of a proposal made by the Board Nomination and Compensation Committee;

To nominate and dismiss members of the Group Executive Committee, to define their areas of responsibility, and todecide on terms of service, including incentive schemes, on the basis of a proposal made by the Board Nominationand Compensation Committee;

To monitor the adequacy and allocation of the Group's top management resources;

To decide on any significant changes to the Group's business organisation;

To define the Group's ethical values and working methods;

To ensure that policies outlining the principles of corporate governance are in place;

To ensure that policies outlining the principles of managing the company's insider issues are in use; and

To ensure that the company has other guidelines for matters which the Board deems necessary and which fall withinthe scope of the Board's duties and authority.

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

To establish a dividend policy and issue a proposal on dividend distribution; and

To make other proposals to General Meetings of Shareholders.

Outokumpu Annual Report 2009 – Board of Directors

With respect to financial control and risk management:

To discuss and approve interim reports and annual accounts;

To monitor significant risks related to the Group's operations and the management of such risks; and

To ensure that adequate procedures concerning risk management are in place.

The Board of Directors also assesses its own activities on a regular basis.

The Board of Directors is quorate when more than half of its members are present. A decision by the Board of Directorsshall be the opinion supported by more than half of the members present at a meeting. In the event of a tie, theChairman shall have the casting vote.

The Annual General Meeting elects the Chairman, the Vice Chairman and the other members of the Board of Directorsfor a term expiring at the close of the following Annual General Meeting. The entire Board is therefore elected at eachAnnual General Meeting. A Board member may be removed from office at any time by a resolution passed by a GeneralMeeting of Shareholders. Proposals to the Annual General Meeting concerning the election of Board members whichhave been made known to the Board prior to the Annual General Meeting will be made public if a given proposal issupported by shareholders holding a minimum of 10% of all the company's shares and voting rights and if the personproposed has consented to such nomination.

Under the company's Articles of Association, the Board shall have a minimum of five and a maximum of twelvemembers. The company's largest shareholders have confirmed that they are in favour of a principle according to whichmembers of the company's Board of Directors should, as a rule, be qualified experts from outside the company.According to the Articles of Association, a person aged 68 years or more cannot be elected as a member of the Board ofDirectors. A Board consisting of eight members was elected at the 2009 Annual General Meeting. All its members areindependent of the company and its main shareholders.

The Board of Directors meets at least five times a year. In 2009, the Board met eight times and the average attendancerate of members at board meetings was 95%.

See Board of Directors.

Shares and options of the members of the Board of Directors February 2, 2010

Member Shares

Ole Johansson 1 789

Anssi Soila 5 500

Victoire de Margerie 500

Evert Henkes -

Jarmo Kilpelä 300

Anna Nilsson-Ehle 800

Leena Saarinen 1 495

10 384


Board committees Board committeesThe Board of Directors has set up two permanent committees consisting of Board members and has confirmed rules ofprocedure for these committees. Both committees report to the Board of Directors.

The Audit Committee comprises three Board members. See Board of Directors. The task of the Audit Committee is todeal with matters relating to financial statements, auditing work, internal controls, the scope of internal and externalaudits, billing by auditors, the Group's financial policies and other procedures for managing Group risks. In addition, theAudit Committee prepares a recommendation for the company's largest shareholders concerning the election of anexternal auditor and auditing fees. The Audit Committee met three times during 2009 and the average attendance ratewas 80%.

The Nomination and Compensation Committee comprises the Chairman of the Board and three other Board members.See Board of Directors. The tasks of the Committee do not comply in all respects with the Finnish Corporate GovernanceCode published by the Securities Market Association in cooperation with the Confederation of Finnish Industries (EK),NASDAQ OMX Helsinki and the Central Chamber of Commerce of Finland. The task of the Nomination andCompensation Committee is to prepare proposals for the Board of Directors on appointment of the company's topmanagement, excluding the Board of Directors, and principles regarding their compensation. The Board has authorisedthe Committee to determine the terms of service and benefits of Group Executive Committee members other than thecompany's CEO and Deputy CEO. The Nomination and Compensation Committee met three times during 2009 and theattendance rate was 100%.

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. No such working groups were set up in 2009.

Outokumpu Annual Report 2009 – Board committees

CEO and Deputy CEO The CEO and Deputy CEOThe Chief Executive Officer (CEO) is responsible for the company's operational management with the objective ofsecuring significant and sustainable growth in the value of the company to its shareholders. The CEO prepares mattersfor decision by the Board of Directors, develops the Group in line with the targets agreed with the Board, and ensures theproper implementation of Board decisions. The CEO is also responsible for ensuring that existing laws and regulationsare observed throughout the Group. The CEO chairs meetings of the Group Executive Committee. The Deputy CEO isresponsible for attending to the CEO's duties in the event that the CEO is prevented from attending to them.

Outokumpu Annual Report 2009 – CEO and Deputy CEO

Group Executive Committee Group Executive CommitteeThe task of the Group Executive Committee is overall management of Outokumpu's business. Committee members haveextensive authority in their individual areas of responsibility and their duty is to develop the Group's operations in linewith the targets set by the Board of Directors and the CEO. The Group Executive Committee consists of seven membersappointed by the Board of Directors. The members of the committee hold the positions of the CEO and the Deputy CEO,Executive Vice President – General Stainless, Executive Vice President – Specialty Stainless, Executive Vice President– Supply Chain Management, Executive Vice President – Group Sales & Marketing, Executive Vice President – ChiefFinancial Officer, and Executive Vice President - Human Resources. By May 1, 2010 the responsibilities of EVP –General Stainless will be distributed among the other Executive Committee members The Group Executive Committeetypically meets twice each month.

See Executive Committee.

Shares and options of the Group Executive Committee members February 2, 2010

SharesOptions

2003AOptions

2003BOptions2003C

Share-basedinventive

programme2007–2009

Share-basedincentive






JuhaRantanen 35 000 - - 17 500 15 500 16 500 33 000 33 000

KarriKaitue 12 380 - - 15 000 7 500 8 000 15 500 15 000

JamieAllan 2 000 - - - 2 100 5 500 10 000 9 000

BoAnnvik - - - 10 000 5 300 5 500 10 000 9 000

PekkaErkkilä 14 000 - - 15 000 5 300 5 500 10 000 -

PiiKotilainen 1 500 - - - - - 10 000 9 000

EsaLager 18 000 - - 10 000 5 300 5 500 10 000 9 000

KariParvento1) - - - - - - 7 000 9 000

Total 82 880 - - 67 500 41 000 46 500 98 500 84 000

Notes:1) Employed by Outokumpu as of May 1, 2010 at the latest.

Outokumpu Annual Report 2009 – Group Executive Committee

Group management Group managementOutokumpu's corporate management consists of the Chief Executive Officer (CEO), members of the Group ExecutiveCommittee, and managers and experts who assist the CEO and the Group Executive Committee. The task of corporatemanagement is to manage the Group as a whole. Duties include the coordination and execution of strategy and plans,business development, financial control, internal audit, human resources, environment, health and safety,communications and investor relations, legal affairs as well as treasury and risk management. In addition to corporatemanagement tasks, Outokumpu's functional steering across Group businesses has been organised into Sales andMarketing functions and Supply Chain Management. Certain support functions have been centralised at Group level. TheOutokumpu Group is managed in accordance with the organisation of its business, in which the legal company structureof the Group also provides the legal framework for its operations. Clear financial and operational targets have beendefined for all the Group's operational businesses.

Outokumpu's businesses are organised into five business units: Tornio Works, Special Coil and Plate, Thin Strip, OSTP(Outokumpu Stainless Tubular Products) and Long Products. Business units report directly to individual Group ExecutiveCommittee members. In this reporting, business units are consolidated into two divisions according to the type of productmanufactured; General Stainless (Tornio Works and Long Products) and Specialty Stainless (Special Coil and Plate,Thin Strip and OSTP).

As a discontinued operation, Outokumpu Brass is managed separately from the Group through the Board of Directors ofOutokumpu Brass.

Outokumpu Annual Report 2009 – Group management

Remuneration RemunerationAs confirmed by the Annual General Meeting 2009, annual fees for members of Outokumpu's Board of Directors are asfollows: Chairman EUR 70 000, Vice Chairman EUR 43 000 and other members EUR 34 000. All members of the Boardof Directors are to be paid a meeting fee of EUR 600 (EUR 1 200 for non-Finnish members). The meeting fee is alsopayable for meetings of Board committees.

The period of notice for the CEO is six months on both sides. If Outokumpu terminates the CEO's employment for areason or reasons unconnected with his performance or events interpreted as him having failed in his duties, thecompany will make a compensation payment. The amount of this payment will total the CEO's basic salary in thepreceding 24 months plus the monetary value of his employee benefits at the moment of termination.

The performance-related incentive paid to the CEO and members of the Group Executive Committee in addition to theirsalary and employee benefits for the year 2010 is determined on the basis of achieving the Group's ROCE (return oncapital employed) target, the operating profit margin compared with a peer group, operational (safety and deliveryreliability) targets and individual targets set separately. For the CEO, the maximum amount of this incentive is 75% ofannual base salary, for other members of the Group Executive Committee it is 60%. The total amount of short and long-term incentives must not exceed 200% of annual salary. If the limit is exceeded, the share based incentive will bereduced accordingly.

No separate remuneration is paid to the CEO or members of the Group Executive Committee for membership of theCommittee or of the Group's other internal governing bodies. Members of the Group Executive Committee are entitled toretire at the age of 60. In December 2009, the Board of Directors confirmed that the retirement age is 63 for newmembers of the Group Executive Committee. For Finnish members of the Group Executive Committee appointed beforeJanuary 1, 2007, pension benefits amount to 60% of the total average annual salary in the last five full years of service.For the other Finnish members of the Group Executive Committee, the targeted pension is 60% of annual salary at theage of 60. Earnings from the year of joining, including fringe benefits but not including performance-related incentives,are used as the basis for the insurance premium. The maximum premium is 25% of annual earnings.

The company has not provided any guarantees or other similar commitments on behalf of the members of the Board ofDirectors. No members of the Board of Directors or the Group Executive Committee, or closely-related persons orinstitutions, have any significant business relationships with the company.

Fees, salaries and employee benefits paid

2009

€

Salaries andfees with

employee benefits

Performance/project-related

bonusesShare-based

payments Total

Board of Directors

Chairman of the Board, Johansson 76 600 - - 76 600

Vice Chairman of the Board, Soila 47 800 - - 47 800

Board memeber, Henkes 44 800 - - 44 800

Board memeber, Kilpelä 40 600 - - 40 600

Board memeber, de Margerie 41 200 - - 41 200

Board memeber, Nilsson-Ehle 44 800 - - 44 800

Outokumpu Annual Report 2009 – Remuneration

Board memeber, Oksanen 9 100 - - 9 100

Board memeber, Pesonen 31 933 - - 31 933

Board memeber, Saarinen 40 600 - - 40 600

CEO 740 295 183 300 285 754 1 209 349

Deputy CEO 376 721 101 906 142 877 621 504

Other Group Executive Committeemembers 1 594 596 302 513 373 467 2 270 576

2008

€

Salaries andfees with

employee benefits

Performance/project-related

bonuses Options Total

Board of Directors

Chairman of the Board, Johansson 67 800 - - 67 800

Vice Chairman of the Board, Soila 37 050 - - 37 050

Board member, Henkes 45 500 - - 45 500

Board member, Härmälä 15 000 - - 15 000

Board member, Kilpelä 29 700 - - 29 700

Board member, de Margerie 44 300 - - 44 300

Board member, Nilsson-Ehle 47 700 - - 47 700

Board member, Oksanen 37 900 - - 37 900

Board member, Saarinen 37 800 - - 37 800

Board member, Turunen 8 200 - - 8 200

CEO 758 573 402 052 930 512 2 091 137

Deputy CEO 390 774 162 512 - 553 286

Other Group Executive Committeemembers 1 516 205 585 052 394 428 2 495 685

Shares and options received through share-related schemes are also included in the tables regarding shareholdings and options.

Outokumpu Annual Report 2009 – Remuneration

Insider issues Insider issuesOutokumpu's insider rules are based on and comply with the Guidelines for Insiders issued by NASDAQ OMX Helsinki.The company's permanent insiders with a duty to declare consist of members of the Board of Directors, the Auditor inCharge, the CEO and his deputy, and other members of the Group Executive Committee. Outokumpu maintains a publicregister of permanent insiders with the duty to declare. Employees of the Group who receive inside information on aregular basis as a result of their position or their duties are registered in a non-public register of permanent company-specific insiders. Permanent insiders must not purchase or sell securities issued by the company in the 14 days prior topublication of interim reports or the annual accounts (the so-called closed window).

Separate non-public project-specific insider registers are maintained for insider projects. Persons defined as project-specific insiders are those who, in the course of their duties in connection with a project, receive information concerningthe Group which, when realised, is likely to have a significant effect on the value of the company's publicly-tradedsecurities.

Outokumpu's corporate general counsel is responsible for coordinating and supervising insider issues. For up-to-dateinformation on holdings by Outokumpu's permanent insiders with a duty to declare see permanent insiders atwww.outokumpu.com.

Outokumpu Annual Report 2009 – Insider issues

Financial reporting Report by the Board of Directors onkey aspects of Outokumpu's systemfor internal controls and riskmanagement in connection withfinancial reporting

Control environment

Risk identification and assessment

Internal audit

Control activities

Information and communication

Follow-up

According to the Finnish Limited Liability Companies Act and the Finnish Code of Corporate Governance, the Board ofDirectors is responsible for a company's internal controls. The purpose of this chapter is to provide shareholders andother parties with a description of how internal control and risk management of financial reporting is organised inOutokumpu.

As a listed company, the Group has to comply with a variety of regulations. To ensure that all the stated requirementsare met, Outokumpu has introduced principles for financial reporting and internal control and distributed these throughoutthe company's organisation.

Control environmentThe foundation for Outokumpu's control environment is the business culture established within the Group and itsassociated methods of operation. The basis for the company's control routines is provided by Group policies andprinciples which define the way in whichOutokumpu's organisation operates. These policies and principles are for example the Group's Corporate ResponsibilityPolicy, Ethical Principles and the Outokumpu Leadership Principles. Introduced in 2007, the Outokumpu Code ofConduct describes the Group's basic values and offers standardised, practical guidelines for managers and employees.The Outokumpu performance management process is a key management activity and an important factor in enabling anefficient control environment. In all sections of the Group's operations, planning activities and the setting of bothoperational and financial targets are executed in accordance with Outokumpu's overall business targets. Managementfollow-up of related achievements is carried out through monthly management reporting routines and in performancereview meetings.

Outokumpu operates in accordance with the risk management policy approved by the Group's Board of Directors. Thispolicy defines the objectives of risk management activities, the approaches to be taken and areas of responsibility. Aswell as supporting Outokumpu strategy, risk management activities help in defining a balanced risk profile from theperspective of shareholders and other stakeholders such as customers, suppliers, personnel and lenders. TheOutokumpu Board of Directors holds ultimate responsibility for risk management within the Group. The CEO and theGroup Executive Committee are responsible for defining and implementing risk management procedures, and for

Outokumpu Annual Report 2009 – Financial reporting

ensuring that risks are both properly addressed and taken into account in strategic and business planning. Businessunits and Group functions are responsible for managing risks connected with their own operations. More information onrisk management within Outokumpu can be found in the Risk Management chapter in the Group's annual report.

The policies and principles described above are freely available to all Outokumpu employees. All new employees arerequired to familiarise themselves with the Outokumpu Code of Conduct. In addition, Outokumpu takes an activeapproach to informing company personnel and communicating the policies and principles within its organisation in orderto ensure their dissemination throughout the Group.

Outokumpu's control process for financial reporting is based on Group policies, principles and instructions as well as onthe responsibility and authorisation structure used within Outokumpu. Outokumpu Controller's Manual contains financialreporting instructions and policies. Financial reports are prepared in accordance with International Financial ReportingStandards (IFRS). Financial reporting in Outokumpu is carried out in a harmonised manner using a common chart ofaccounts. Financial statements by the parent company and stand-alone Finnish subsidiaries are prepared in accordancewith generally accepted accounting principles in Finland, while foreign subsidiaries follow local accounting principles.Outokumpu also complies with regulations regarding financial reporting issues published by the FinancialSupervisoryAuthority (FIN-FSA) and NASDAQ OMX Helsinki.

The process of creating internal policies in Outokumpu is based on the Group's authorisation structure. Policies relatingto financial reporting are usually owned and approved by the CEO, the CFO or the Corporate Controller.

Risk identification and assessmentRisk management processes connected with the Group's financial reporting are coordinated by the Treasury and RiskManagement function. Related risks are classified as operational risks and can arise as a consequence of inadequate orfailed internal processes, employee actions, systems or other events such as misconduct or crime. The aim of theOutokumpu risk management process is to identify, evaluate, control and mitigate such risks. Major risks are reported toand evaluated by the Audit Committee on a regular basis.

Internal auditOutokumpu's Internal Audit function has an independent role and a twofold objective: to provide assurance and to offerconsulting services which add value and improve the organisation's operations. Internal Audit's most important task isassisting the Audit Committee and the Executive Committee in fulfilling their control functions. To do this, Internal Auditidentifies and monitors significant operational risks within the Group, ascertains the adequacy and effective operation ofinternal controls and provides the two committees with a direct source of correct and reliable information. Other taskscarried out by Internal Audit include monitoring the Group's principles, controls and policies and follow-up of the auditconclusions by the company's auditors.

The internal auditor reports to the Audit Committee and administratively to the CFO.

Control activitiesIn addition to the Board of Directors and Audit Committee, operational management teams in Outokumpu areresponsible for ensuring that internal controls relating to financial reporting are in place at all Outokumpu units.

The aim of control activities is to discover, prevent and correct potential errors and deviations in financial reporting.Control activities consist of different kind of measures and include reviews of financial reports by Group managementand in business unit management teams, the reconciliation of accounts, analyses of the logic behind reported figures,forecasts compared to actual reported figures and analyses on the Group's financial reporting processes. A key


component is the monitoring of monthly performance against financial and operational targets. These control activitiestake place at different levels in the organisation.

Outokumpu's risk management process includes arranging workshops on the identification of key risks, includingoperational risks, for business units and other Group functions. Deliverables include risk maps and risk identificationplans.

Information technology and solutions play an important role in guaranteeing that the Group's internal controls have asolid foundation. The harmonisation of IT systems to further improve Outokumpu's internal control environment is on-going.

The Group CFO and the management team in each Outokumpu company are responsible for ensuring that internalcontrols relating to financial reporting are properly established in each Outokumpu company. The target is to ensure thatauthorisation structures are designed in a way that prevents combinations which could raise levels of risk (such as oneperson performing an activity and also being responsible for controlling that activity).

Information and communicationPolicies and instructions for financial reporting are reviewed on a regular basis and revised when such action is required.Related instructions are communicated to all the parties involved as necessary. The main communication channelsemployed are Outokumpu's intranet and other easily-accessible databases. Face-to-face controller meetings are alsoorganised.

Outokumpu has established different networks and communities in which financial reporting and internal control issuessuch as application, review and revision are discussed and reviewed. These networks usually consist of personnel frombusiness units and other Group functions. The aim of these networks, communities and common instructions is to ensurethat unified financial processes and reporting practices are used throughout the Group. The networks and communitiesplay an important role in establishing the effectiveness of internal controls relating to financial reporting and in developingOutokumpu policies, instructions and processes.

Follow-upBoth management in Outokumpu companies and personnel in accounting and controlling functions are responsible forthe follow-up and monitoring of internal controls connected with financial reporting. The Internal Audit and RiskManagement functions also engage in follow-up and control activities. The findings of the follow-up procedures arereported to the Audit Committee and the Group Executive Committee on a regular basis.


Auditors AuditorsUnder its Articles of Association, the company shall have a minimum of one and a maximum of two auditors who areauditors or firms of independent public accountants authorised by the Central Chamber of Commerce of Finland. TheAnnual General Meeting elects the auditors to a term of office ending at the close of the next Annual General Meeting.Proposals to the Annual General Meeting on the election of auditors which have been made known to the Board prior tothe Annual General Meeting will be made public if the proposal is supported by shareholders holding a minimum of 10%of all the company's shares and voting rights and if 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 thecompany's financial statements. The auditors also report their findings to the Board of Directors on a regular basis. Theparent company, Outokumpu Oyj, is audited by KPMG Oy Ab, and the responsible auditor is Mauri Palvi, AuthorisedPublic Accountant. KPMG Oy Ab is also responsible for overseeing and coordinating the auditing of all Groupcompanies.

Both Outokumpu and KPMG Oy Ab highlight the requirement for an auditor to be independent of the company beingaudited. In its global independence policy, KPMG Oy Ab has stated its commitment to applying the Code of Ethics of theInternational Federation of Accountants (IFAC).

Outokumpu's Board Audit Committee continuously monitors the global level of non-audit services purchased by theGroup from KPMG Oy Ab. In 2009, auditors were paid fees totalling EUR 1 million, of which non-auditing servicesaccounted for EUR 0 million.

Outokumpu Annual Report 2009 – Auditors

Board of Directors Board of Directors

Ole Johanssonb. 1951, Finnish citizenB.Sc. (Econ.)Outokumpu Board member 2002–Chairman of the Board 2008–Vice Chairman of the Board 2004–2008Chairman of the Nomination and Compensation CommitteePresident and CEO: Wärtsilä Corporation 2000–President and CEO at Wärtsilä NSD Corporation 1998–2000Chairman of the board: Technology Industries of Finland 2007–2009Vice Chairman of the Board: Varma Mutual Pension Insurance Company, Confederation of Finnish Industries2007–2009Board member: Technology Industries of FinlandIndependent of the company and its significant shareholders.


Anssi Soilab. 1949, Finnish citizenM.Sc. (Eng.), B.Sc. (Econ.)Outokumpu Board member 2008–Vice Chairman of the Board 2008–Chairman of the Audit CommitteeCEO: Kone Corporation 1994–1999Vice Chairman of the Board: Normet Group OyBoard member: Outotec Oyj, Lindström Oy, DNA Oy, Attendo AB,Independent of the company and its significant shareholders.


Evert Henkesb. 1943, Dutch citizenB.Sc. (Ag. Econ.)Outokumpu Board member 2003–Member of the Nomination and Compensation CommitteeCEO: Shell Chemicals Ltd. 1998–2003Board member: Tate & Lyle Plc, SembCorp Industries Ltd, Air Products and Chemicals Inc.Member of International Advisory Board: CNOOC Ltd. 2008–2009Independent of the company and its significant shareholders.


Jarmo Kilpeläb. 1957, Finnish citizenM.Sc. (Econ.)Outokumpu Board member 2008–Member of the Audit CommitteeSenior Financial Counsellor: Prime Minister’s Office, Ownership Steering Department 2007–Senior Financial Counsellor: Ministry of Finance, Ownership Steering Unit 1996–2007Chairman of the Board: Hansel LtdVice Chairman of the Board: HAUS Finnish Institute of Public Management LtdIndependent of the company and its significant shareholders.


Victoire De Margerieb. 1963, French citizenPh. D. (Management), LL.M., M.Pol.Sc.Outokumpu Board member 2007–Chairman of the Board: Rondol Technology Ltd. (UK) 2008–Board director and member of the Audit Committee: Ciments Francais (France) 2006–Professor of Strategic Management: Grenoble Graduate School of Business 2003–General Manager: Péchiney Plastic Bottles 2000–2002Vice President: Sales & Marketing Péchiney Aluminum Canstock 1998–2000Independent of the company and its significant shareholders.


Anna Nilsson-Ehleb. 1951, Swedish citizenPh.D., M.Sc. (Eng.)Outokumpu Board member 2005–Member of the Nomination and Compensation CommitteeDirector: SAFER–National vehicle and traffic safety research center 2006–Managing Director: Universeum AB 1999–2004Consultant: Ohde & Co 2005–2006Board member: Svensk Bilprovning AB, Swedish National Space BoardIndependent of the company and its significant shareholders.


Jussi Pesonenb. 1960, Finnish citizenM.Sc. (Eng.)Outokumpu Board member 2009–Member of the Nomination and Compensation CommitteePresident and CEO: UPM-Kymmene Corporation 2004–Senior Executive Vice President and COO, Publication Papers: UPMKymmene Corporation 2001–2004Board member: UPM-Kymmene Corporation, Finnish Forest Industries Federation, Confederation of European PaperIndustries (CEPI)Supervisory Board member: Ilmarinen Mutual Pension Insurance CompanyIndependent of the company and its significant shareholders.


Leena Saarinenb. 1960, Finnish citizenM.Sc. (Food technology)Outokumpu Board member 2003–Member of the Audit CommitteePresident and CEO: Suomen Lähikauppa Oy (formerly Tradeka Ltd.) 2007–President and CEO: Altia Corporation 2005–2007Managing Director: Unilever Bestfoods Nordic Foodsolution 2003–2005National Manager 2002–2005 Suomen Unilever Oy and Board member 1999 and 2001–2005Chairman of the Board: the Finnish Grocery Trade AssociationBoard member: Suomen Lähikauppa Oy, Tuko Logistics Oy, Federation of Finnish CommerceSupervisory Board member: Varma Mutual Pension Insurance Company, LuottokuntaIndependent of the company and its significant shareholders.


Group Executive Committee Group Executive Committee

Juha Rantanenb. 1952, Finnish citizen,M.Sc. (Econ.), MBACEO 2005–Chairman of the Group Executive Committee 2005–Outokumpu Board member and Vice Chairman 2003–2004Responsibility: Group management, Communications and IR, corporate social responsibility and as of May 1, 2010Tornio Works and energy strategyEmployed by the Outokumpu Group since 2004President & CEO: Ahlstrom Corporation 1998–2004Chairman of the Board of Directors: Fennovoima Oy, Association of Finnish Steel and Metal ProducersVice Chairman of the Board: Moventas OyBoard member: Technology Industries of Finland, Stora Enso OyjBoard member and treasurer: International Stainless Steel Forum ISSFVice President: European Confederation of Iron and Steel Industries EuroferSupervisory board member: Varma Mutual Pension Insurance Company


Karri Kaitueb. 1964, Finnish citizen,LL.Lic.Deputy CEO 2005–Member of the Group Executive Committee 2002–Vice Chairman of the Group Executive Committee 2005–Responsibility: Group strategy, business development and M&A, new ventures, legal affairs & IPR, portfolio businessesand as of May 1, 2010 Environment, health and qualityEmployed by the Outokumpu Group since 1990Chairman of the Board: Destia OyVice Chairman of the Board: Okmetic Oyj, Outotec OyjBoard member: Cargotec Oyj


Jamie Allanb. 1956, British citizenExecutive Vice President – Supply Chain ManagementMember of the Group Executive Committee 2008–Responsibility: Production Excellence, Supply Chain Management operations, procurement and as of May 1, 2010Energy Procurement and SafetyEmployed by the Outokumpu Group since 1978Member of the British Stainless Steel Association


Bo Annvikb. 1965, Swedish citizen,M. Sc. (Econ.)Executive Vice President – Specialty StainlessActing Executive Vice President – Group Sales andMarketing February 2009–May 2010Member of the Group Executive Committee 2007–Responsibility: Special Coil and Plate, Thin Strip, OSTP, investment projects and as of May 1, 2010 Long Products andR&DEmployed by the Outokumpu Group since 2007Board member: Scandinavian Automotive Suppliers, Jernkontoret – The Swedish Steel Producer’s Association,MEGAB Metallgruppens Service AB, Employers’ Association of the Swedish Steel and Metal Industry Stål & Metall,Tibnor AB


Pekka Erkkiläb. 1958, Finnish citizen,M.Sc. (Eng.)Executive Vice President – General StainlessMember of the Group Executive Committee 2003–Responsibility: Tornio Works, Long Products, R&D, energy, procurement and enviroment, health, safety and qualityEmployed by the Outokumpu Group 1983–May 2010 at the latestBoard member: Jernkontoret – The Swedish Steel Producer’s Association, Grängesberg Iron AB, Oulun yliopisto


Pii Kotilainenb. 1960, Finnish citizen,M.Sc. (Econ.)Executive Vice President – Human ResourcesMember of the Group Executive Committee 2009–Responsibility: HR strategy and policy, and key HRprocesses: performance management (incl. compensation),resource management and HRD and leadership, and head office administrationEmployed by the Outokumpu Group since 2009


Esa Lagerb. 1959, Finnish citizen,M.Sc. (Econ.), LL.M.Chief Financial Officer (CFO)Member of the Group Executive Committee 2001–Responsibility: Financial and business control, treasury and risk management, IT and real estateEmployed by the Outokumpu Group since 1990Board member: Olvi Oyj


Kari Parventob. 1957, Finnish citizenM.Sc. (Eng.)Executive Vice President – Group Sales and MarketingMember of the Group Executive Committee from May 1, 2010 at the latestResponsibility: Group sales and marketing strategy, customer relationship development, end-user and project sales,distributors and processors sales, stock and processing development and Pricing officeEmployed by the Outokumpu Group since 2010


Investor Information Investor Information

Shares and share capitalOn December 31, 2009, Outokumpu Oyj's fully-paid and registered share capital totalled EUR 309 417 921.40 andconsisted of 182 010 542 shares. The company has one class of shares and each share entitles its holder to one vote ata General Meeting of Shareholders.

Listing of sharesOutokumpu shares are listed on NASDAQ OMX Helsinki. The trading symbol is OUT1V. Outokumpu's stock options2003B (trading symbol OUT1VEW203) are also listed on NASDAQ OMX Helsinki. The 2003C stock options are notlisted.

Treasury sharesOutokumpu held 1 040 888 of its own shares (treasury shares) at the end of 2009. Repurchases were made betweenApril 9 and November 27, 2001 and November 1 and 6, 2007. The treasury shares correspond to 0.57% of Outokumpu'sshares and voting rights.

State ownershipThe Finnish State holds 31.0% of Outokumpu shares and voting rights through its wholly-owned company Solidium Oy.According to an act passed by Finland's parliament in December 2007, the state's holding in Outokumpu can be reducedto zero.

Dividend proposalThe Outokumpu Board of Directors proposes a dividend of EUR 0.35 per share for the 2009 financial year. The effectivedividend yield is 2.6% and the average dividend payout ratio over the past five years is 92%.

Listing NASDAQ OMX Helsinki

Trading symbol OUT1V

Number of shares 182 010 542

2003B stock options OUT1VEW203

2003C stock options not listed

Outokumpu share basics

Outokumpu Annual Report 2009 – Investor Information

Outokumpu share price developmentThe closing price of Outokumpu's share on December 30, 2009 was EUR 13.26(Dec 31, 2008: EUR 8.28), up 60% during the year.

In 2009, the highest share price was 15.67 (2008: EUR 33.99) in August and thelowest share price was EUR 7.72 (2008: EUR 6.33) in January. The average pricewas EUR 11.49 (2008: EUR 18.99). At year-end 2009, Outokumpu's marketcapitalisation was EUR 2 413 million (2008: EUR 1 502 million), up by 61%compared to the previous year. Turnover in Outokumpu shares on the NASDAQOMX Helsinki stock exchange in 2009 totalled 355.1 million shares (2008: 511.1million) and amounted to EUR 4 079 million (2008: EUR 9 693 million). Averagedaily turnover during 2009 was 1.44 million shares (2008: 2.03 million shares).


Shares and shareholders Shares and shareholdersShare-related key figures

Principal shareholders on February 2, 2010

Shareholders by group on February 2, 2010

Distribution of shareholdings on February 2, 2010


2009 2008 2007 2006 2005

Earnings pershare € -1.86 -1.05 3.52 5.31 -2.01

Equity pershare € 13.54 15.50 18.53 16.87 11.31

Dividend pershare € 0.351) 0.50 1.20 1.10 0.45

Dividendpayout ratio % neg. neg. 33.9 20.7 neg.

Dividendyield % 2.6 6.0 5.7 3.7 3.6

Price/earningsratio neg. neg. 6.0 5.6 neg.

Developmentof shareprice

Averagetradingprice € 11.49 18.99 24.94 19.77 11.89

Lowesttradingprice € 7.72 6.33 18.48 12.60 9.63

Highesttradingprice € 15.67 33.99 31.65 30.39 14.72

Tradingprice at theendof theperiod € 13.26 8.28 21.21 29.66 12.55

Outokumpu Annual Report 2009 – Shares and shareholders

Changeduring theperiod % 60.1 -61.0 -28.5 136.3 -4.6

Change inthe OMXHindexduring theperiod % 19.5 -53.4 20.5 17.9 31.1

Marketcapitalisationat the end ofthe period 2) € million 2 400 1 492 3 820 5 369 2 272

Developmentin tradingvolume

Tradingvolume 1 000 shares 355 102 511 080 516 489 319 345 179 289

In relationtoweightedaveragenumber ofshares % 196.4 283.6 285.5 176.4 99.0

Adjustedaveragenumber ofshares 2) 180 825 569 180 184 845 180 922 336 181 033 168 181 031 415

Number ofshares at theendof the period2) 180 969 654 180 233 280 180 103 193 181 031 952 181 031 952

2003A stock options were listed on the NASDAQ OMX Helsinki from Sept. 1, 2006, until March 1, 2009 and 2003B stock options

have been listed since Sept. 3, 2007. 2003C stock options are not listed.

Notes:1) The Board of Directors' proposal to the Annual General Meeting2) Excluding treasury shares

Principal shareholders on February 2, 2010

Shareholder Shares %

Solidium Oy 56 440 597 31.0

The Finnish Social Insurance Institution 14 652 666 8.1


Ilmarinen Mutual Pension Insurance Company 6 721 927 3.7

Finnish State Pension Fund 2 431 600 1.3

Varma Mutual Pension Insurance Company 1 600 317 0.9

OP-Delta Investment Fund 1 268 706 0.7

Outokumpu Oyj 1 040 888 0.6

Suomi Mutual Life Insurance Company 1 000 000 0.6

Mandatum Life Insurance Company 922 324 0.5

Investment fund OP-Suomi Arvo 785 000 0.4

Nominee accounts held by custodian banks 47 890 998 26.3

Other shareholdes 47 255 519 26.0

Total number of shares 182 010 542 100.0

Shareholders by group on February 2, 2010

Shareholder group Shares %

Finnish corporations 6 238 570 3.4

Financial and insurance institutions 11 418 383 6.3

The public sector and public organisations

Solidium Oy 56 440 597 31.0

Finnish State Pension Fund 14 652 666 8.1

Other 14 586 375 8.0

Non-profit organisations 4 535 355 2.5

Households/private persons 24 205 114 13.3

Foreign investors 49 933 482 27.4

Total 182 010 542 100.0

Shares not transferred to the book-entry securities system 812

Distribution of shareholdings on February 2, 2010

Number ofshares

Number ofshareholdes % of shareholders Total shares % of share capital

Averageshareholding

1–100 8 673 24.4 563 150 0.3 65

101–1 000 20 646 58.2 8 787 289 4.8 426

1 001–10 000 5 753 16.2 15 166 627 8.3 2 636


10 001–100000 363 1.0 9 376 499 5.2 25 831

100 001–1 000000 50 0.1 16 069 278 8.8 321 386

> 1 000 000 7 0.0 84 156 701 46.2 12 022 386

Shares innomineeaccountsheld bycustodianbanks - - 47 890 998 26.3 -

35 492 100.0 182 010 542 100.0

Shares nottransferred tobook-entrysecuritiessystem 812


Board authorisations Board authorisations

Board authorisation to decide to issue shares and grant specialrights entitling to sharesThe Annual General Meeting of Outokumpu authorised the Board of Directors on March 24, 2009 to decide to issueshares and grant special rights entitling to shares as detailed below.

Pursuant to the authorisation, the Board of Directors has the right to issue a maximum of 36 000 000 shares through oneor several share issues or by granting special rights entitling to shares as specified in Chapter 10, Section 1 of theFinnish Companies Act, excluding option rights for Outokumpu management and personnel in accordance with anincentive plan.

Through the share issue and/or by granting special rights entitling to shares, a maximum of 18 000 000 new shares maybe issued, which at the time of the Annual General Meeting represented approximately 9.92% of the total number ofregistered shares. In addition, a maximum of 18 000 000 treasury shares may be transferred, which at the time of theAnnual General Meeting represented approximately 9.92% of the company's total number of registered shares.

The authorisation includes the right to decide on all other terms and conditions of the share issue and special rightsentitling to shares, including the subscription price and to whom shares or special rights may be issued. The Board ofDirectors has the right to issue shares and special rights in deviation of the pre-emptive subscription right ofshareholders.

The authorisation is valid until the next Annual General Meeting, however no later than until May 31, 2010. It has notbeen exercised by the Board.

Board authorisation to repurchase the company's own sharesThe Annual General Meeting of Outokumpu authorised the Board of Directors on March 24, 2009 to repurchase thecompany's own shares (treasury shares).

The maximum number of shares to be repurchased is 18 000 000, which at the time of the Annual General Meetingrepresented approximately 9.92% of Outokumpu's total number of registered shares. Based on this and earlierauthorisations, the company currently holds 1 040 888 of its own shares. The aggregate number of treasury shares heldby the company and its subsidiaries may not, however, exceed 10% of the total number of registered shares.

The price payable for these shares shall be based on the prevailing price of Outokumpu's shares in public trading at thetime of repurchase. The shares can be repurchased in deviation from the proportional shareholdings of currentshareholders. The Board of Directors has the right to decide on other matters and measures related to repurchasing ofthe company's shares.

The authorisation is valid until the next Annual General Meeting, however no later than until May 31, 2010. It has notbeen exercised by the Board.

Outokumpu Annual Report 2009 – Board authorisations

2003 stock option programme 2003 stock option programmeThe Outokumpu Annual General Meeting held in 2003 passed a resolution on a stock option programme for thecompany's management personnel. The total number of share options that may be issued is5 100 000, entitling holders of stock options to subscribe for 5 100 000 new Outokumpu shares during the period2006-2011. Based on a decision by the Board of Directors and in deviation from shareholders' pre-emptive rights, stockoptions marked 2003A, 2003B and 2003C were distributed to key persons in the Outokumpu Group in 2004, 2005 and2006. When deciding on the total number of stock options to be distributed annually and to each individual, the Board ofDirectors assessed the Group's earnings trend and performance by comparing, among other items, the trend in Groupearnings per share to trends in the same key ratio in peer companies.

The subscription price for shares subscribed for with 2003B stock options is the traded volume-weighted average price ofOutokumpu shares on NASDAQ OMX Helsinki from December 1, 2004 to February 28, 2005 (EUR 9.81), for stockoptions 2003C it is the trading volume-weighted average price of Outokumpu shares on NASDAQ OMX Helsinki fromDecember 1, 2005 to February 28, 2006 (EUR 10.44). On each dividend record date, the share subscription price ofstock options will be reduced by the amount of dividends to be decided after the close of the period for determining thesubscription price and prior to the share subscription. The subscription period for stock option 2003A ended on March 1,2009 and the subscription period for stock option 2003B will end on March 1, 2010.

Following the subscriptions for 2003 stock options, Outokumpu's share capital may be increased by a maximum ofEUR 1 916 784 and the number of shares by a maximum of 1 127 520. The number of shares that can be subscribed foron the basis of the stock options corresponds to 0.62% of Outokumpu's shares and voting rights.

2003 stock option programme

Stock OptionNumber of participants

Dec. 31, 2009Subscription

period

Dividend adjustedShare Subscription Price

Dec. 31, 2009

2003 B 39 Sep. 1, 2007–Mar. 1, 2010 9.81 €

2003 C 7 Sep. 1, 2008–Mar. 1, 2011 10.44 €

The number of sharessubscribed byDec. 31, 2009

An aggregatemaximum of shares

that can be subscribedwith the remaining

stock options

The number of stockoptions annulled by

Dec. 31, 2009

2003 B 804 805 224 015 671 180

2003 C 18 200 80 500 1 601 300

Increases in share capital 2005–2009

Number of shares Share capital €

Share capital on Jan. 1, 2005 181 250 556 308 125 943.50

Shares subscribed with 2003A options

Oct. 14 – Dec. 29, 2006, registered on Jan. 11, 2007 +33 323 308 182 592.60

Outokumpu Annual Report 2009 – 2003 stock option programme


Dec. 30, 2006 – Oct. 29, 2007, registered on Nov. 9, 2007 +23 539 308 222 608.90

Shares subscribed with 2003B options

Sep. 8 – Oct. 29, 2007, registered on Nov. 9, 2007 +14 379 308 247 053.20


Oct. 30, 2007 – Jan. 2, 2008, registered on Jan. 15, 2008 +400 308 247 733.20


Oct. 30, 2007 – Jan. 2, 2008, registered on Jan. 15, 2008 +1 000 308 249 433.20


Jan. 3 – Feb. 29, 2008, registered on Mar. 13, 2008 +11 955 308 269 756.70


Jan. 3 – Feb. 29, 2008, registered on Mar. 13, 2008 +10 187 308 287 074.60

Shared subscribed with 2003A options

Mar. 1 – May 5, 2008, registered on May 16, 2008 +38 208 308 352 028.20


Mar. 1 – May 5, 2008, registered on May 16, 2008 +57 264 308 449 377.00


May 6 – Jul. 7, 2008, registered on Jul. 18, 2008 +380 308 450 023.00


Jul. 8 – Sep. 8, 2008, registered on Sep. 19, 2008 +693 308 451 201.10

Shares subscribed with 2003C options

Jul. 9 – Sep. 8, 2008, registered on Sep. 19, 2008 +5 000 308 459 701.10


Sep. 9 – Oct. 24, 2008, registered on Nov. 3, 2008 +5 000 308 468 201.10


Jan. 1 – Feb. 9, 2009, registered on Feb. 18, 2009 +126 910 308 683 948.10


Feb. 10 – Mar. 1, 2009, registered on Mar. 11, 2009 +415 473 309 390 353.20


Apr. 29 – Jun. 4, 2009, registered on Jun. 16, 2009 +10 000 309 407 252.20


Oct. 30 – Dec. 17, 2009, registered on Dec. 31, 2009 +6 276 309 417 921.40

Share capital on Dec. 31, 2009 182 010 542 309 417 921.40


Share capital on Feb. 2, 2010 182 010 542 309 417 921.40

Treasury shares on Dec. 31, 2009 1 040 888 1 769 509.60

Number of shares outstanding on Dec. 31, 2009 180 969 654 307 648 411.80


Share-based incentive programmes Share-based incentive programmesOutokumpu's Board of Directors has confirmed that share-based incentive programmes are part of the incentive andcommitment scheme for the company's key personnel. The objectives are to reward key personnel for good performanceand support Outokumpu's strategy while at the same time directing management attention to increasing shareholdervalue over the long term. The programmes offer the possibility of receiving both Outokumpu shares and cash (an amountequal to taxes not exceeding 1.5 times the value of the shares at the time they are distributed) as an incentive, providedthat the targets set by the Board for each earning period are achieved.

Share-based incentive programme

Earnings period The number of people in scope on Dec. 31, 2009

2007–2009 129

2008–2010 155

2009–2011 139

Share-based incentive programme 2006–2010On February 2, 2006, the Outokumpu Board of Directors confirmed a five-year share-based incentive programmecomprising three earnings periods, each lasting three calendar years. These earnings periods commenced on January 1,2006, January 1, 2007 and January 1, 2008. The aggregate number of shares to be distributed during each earningsperiod cannot exceed 500 000. In accordance with targets confirmed for the earnings periods, the reward is based on therelative development in Total Shareholder Return (TSR) (amounting to 50% of the maximum reward) and achievingtargets set for Operational Excellence programmes (amounting to 50% of the maximum reward). The aggregate annualtotal payment of rewards (shares and cash) under the programme, together with other short-term and long-termincentives, must not exceed 200% of a participant's annual salary at the end of the earnings period. Rewards allocatedunder the programme for the earnings period (both shares and cash) will be reduced accordingly if the above limit isexceeded. Under the programme, participants must retain the shares in their possession for a period of at least twoyears from the date of distribution.

On February 2, 2010, the Outokumpu Board of Directors confirmed that the set targets for the earnings period2007–2009 were not met for either earning criteria. Therefore, no reward will be paid to the participants for the earningperiod 2007–2009.

If participants in the remaining earnings period 2008–2010 receive the maximum number of shares as a reward (a totalof 240 430 shares), the shareholding they obtain via the programme will amount to 0.13% of the Company's shares andthe voting rights.

Share-based incentive programme 2009–2013On February 3, 2009, Outokumpu's Board of Directors confirmed a new share-based incentive programme which will lastfive years and comprise of three earnings periods, each lasting three calendar years and commencing on January 1,2009, January 1, 2010 and January 1, 2011. The Board of Directors decides on the persons who are entitled toparticipate in the programme for each earnings period. The aggregate number of shares to be distributed for eachearning period cannot exceed 500 000.

On February 2, 2010, 134 people were confirmed as participants in the programme for the 2010–2012 earningsperiod. In accordance with targets confirmed for the 2010–2012 earnings period, the reward is based on the relative

Outokumpu Annual Report 2009 – Share-based incentive programmes

development in Total Shareholder Return (TSR, 2/3 of the maximum reward) over the three-year earnings period andEarnings per share (EPS, 1/3 of the maximum reward). The aggregate annual total payment of rewards (shares andcash) under the programme, together with other short-term and long-term incentives, must not exceed 200% of theparticipant's annual salary at the end of the earnings period. Rewards allocated under the programme for the earningsperiod (both shares and cash) will be reduced accordingly if the above limit is exceeded. Under the programme,participants must retain the shares in their possession for a period of at least one year from the date of distribution.

If participants in the 2009–2011 and 2010–2012 earnings periods receive the maximum number of shares as a reward (atotal of 824 900 shares), the shareholding obtained via the programme will amount to 0.45% of the Company's sharesand voting rights.

Share ownership planIn accordance with the share ownership plan of the Outokumpu Group, members of the Outokumpu Group ExecutiveCommittee have an obligation to purchase Outokumpu shares with 10% of the income they receive from stock options.Members of the Group Executive Committee are also obliged to hold Outokumpu shares acquired or received underincentive programmes that correspond to the value of their annual gross base salary.

Outokumpu Annual Report 2009 – Share-based incentive programmes

Management shareholding Management shareholdingOn January 31, 2010, members of the Outokumpu Board of Directors and the Group Executive Committee held a totalof 93 264 Outokumpu shares, corresponding to 0.051% of shares and voting rights.

If all the 2003B and 2003C options are exercised and if the remaining earning period in the 2006–2010 share-basedincentive programme and the 2009–2011 and 2010–2012 earning periods in the 2009–2013 share-based inventiveprogramme yield the maximum number of shares, shareholdings and aggregate voting rights held by the memberd of theGroup Executive Committee will increase by 0.047 percentage points on the basis of stock options, and by 0.11percentage points on the basis of the share-based incentive programme.

Details of management shareholdings can be found at Board of Directors and Group Executive Committee.

Outokumpu Annual Report 2009 – Management shareholding

Information to shareholders Information to shareholders

Annual General Meeting 2010Outokumpu Oyj's 2010 Annual General Meeting (AGM) will be held on Tuesday, March 30, 2010 at 12 pm (EET) at theMarina Congress Center in Helsinki, Finland. In order to attend the Annual General Meeting a shareholder must beregistered in the Company's shareholders' register maintained by Euroclear Finland Ltd on March 18, 2010.

Nominee-registered shareholders who wish to attend the AGM should temporarily re-register the shares under their ownname. Such re-registration must be made no later than March 18, 2010. In order to arrange a temporary re-registration,nominee registered shareholders should contact their bank or other custodian.

Shareholders who wish to attend the AGM must notify Outokumpu by no later than March 24, 2010 at 4 pm (EET).Notification can be made by on the internet at www.outokumpu.com/agm, email to [email protected], by telephoneto +358 9 421 5519 or by fax to +358 9 421 2223.

Notification can also be made in person or by a letter addressed toOutokumpu OyjShare Register, PO. Box 14002201 EspooFinland.

The letter must reach Outokumpu on March 24, 2010 at the latest.

A shareholder may attend and vote at the meeting in person or by proxy.

However, in accordance with Finnish practice, Outokumpu does not send proxy forms to its shareholders. Shareholderswishing to vote by proxy should submit their own proxy forms to Outokumpu during the registration period.

Additional information on the AGM is available on the company's website: www.outokumpu.com/agm.

Dividends in 2010The Board of Directors proposes to the AGM 2010 that a dividend of EUR 0.35 per share be paid for the financial year2009.

Financial reports in 2010Investor information is available at Outokumpu's website www.outokumpu.com. The website also covers annual reports,interim reports, as well as stock exchange and press releases, which are published mainly in English and Finnish.

Alternatively financial reports can be obtained fromOutokumpu Oyj/Corporate CommunicationsRiihitontuntie 7 b, PO Box 14002201 EspooFinlandtel. +358 9 421 4070 or email [email protected].

Outokumpu Annual Report 2009 – Information to shareholders

Subscriptions to the emailing list for stock exchange and press releases can be made on the websitewww.outokumpu.com or via the above-mentioned e-mail address.

Shareholder mailings are made on the basis of the contact information in the shareholders' register maintained byEuroclear Finland Oy. A shareholder should inform his/her account operator, or in case of a nominee-registeredshareholder the relevant bank or other custodian, about changes in contact details.

Investor RelationsThe main task of Outokumpu's Investor Relations function is to support the correct valuation of the Outokumpu share byproviding information about the company's business and strategy, activities, financial position, thus enabling the marketsto form a true and fair view of Outokumpu as an investment prospect.

Our aim is to communicate in open, timely and clear manner and to treat all parties equally.

Outokumpu observes a three-week silent period prior to the publication of financial statements and interim reports.During these periods, we do not arrange meetings with investors and analysts or comment on performance and marketdevelopments.

Should you require further information about Outokumpu, please contact one of the following:

Päivi LaajarantaIR AssistantTel. +358 9 421 4070,Send e-mail to Päivi LaajarantaPäivi Laajaranta coordinates meeting requests.

Ingela UlfvesVice President – Investor Relations and Financial CommunicationsTel. +358 9 421 2438,Send e-mail to Ingela Ulfves

Päivi LindqvistSenior Vice President – Communications and IRTel. +358 9 421 2432,Send e-mail to Päivi Lindqvist

Annual General Meeting March 30

Ex-dividend date March 31

Record date for dividend April 6

Dividend payout April 13

AGM and dividend

Financial Statements Bulletin February 3

Annual Report week starting February 22

Financial calendar


First-quarter interim report April 27

Second-quarter interim report July 22

Third-quarter interim report October 21


Stock exchange releases 2009 Stock exchange releases 20093.2.2009 Outokumpu takes further actions in response to the weak stainless steel market

3.2.2009 Outokumpu Annual Accounts bulletin 2008 – operating loss in difficult market conditions

3.2.2009 Notice of Annual General Meeting – Outokumpu's AGM to convene on March 24, 2009

3.2.2009 Outokumpu establishes a new long-term share-based incentive program

18.2.2009 Shares subscribed with the Outokumpu Oyj 2003 A stock options and the increase in share capital

24.2.2009 Outokumpu – change in the Executive Committee

2.3.2009 Outokumpu's Annual Report 2008

9.3.2009 Outokumpu's Board of Directors confirmed the share-based incentive reward for the earning period 2006–2008

11.3. 2009 Shares subscribed with the Outokumpu Oyj 2003A stock options and the increase in share capital

24.3.2009 Statutory negotiations in Outokumpu result in temporary lay-offs in Finland

24.3.2009 Resolutions of Outokumpu Oyj's Annual General Meeting 2009

24.3.2009 Outokumpu Board decisions at their first meeting

15.4.2009 Outokumpu – publishing of the first-quarter 2009 financial results

23.4.2009 Outokumpu's first quarter 2009 interim report – significant operating loss, very strong cash flow

7.5.2009 European Commission's fine for Outokumpu related to copper air-conditioning tube cartel remains unchanged

13.5.2009 Outokumpu – Financial reporting schedule for the year 2010

16.6.2009 Shares subscribed with the Outokumpu Oyj 2003C stock options and the increase in share capital

25.6.2009 Outokumpu to adjust production capability due to higher order intake

29.6.2009 Outokumpu Oyj signed EUR 900 million revolving credit facility

9.7.2009 Outokumpu – publishing of the second-quarter 2009 financial results

23 .7.2009 Outokumpu's second quarter 2009 interim report – difficult market with some signs of improvement, operatingloss declining

13.10.2009 Outokumpu – publishing of the third-quarter 2009 financial results

22.10.2009 Outokumpu's third quarter 2009 interim report – Financial performance on improving trend in weak markets

22.10.2009 Outokumpu – listing timetable of the stock options 2003B and 2003C

Outokumpu Annual Report 2009 – Stock exchange releases 2009

1.12.2009 Shareholders' Nomination Committee at Outokumpu

11.12.2009 Outokumpu appoints Kari Parvento Executive Vice President – Group Sales and Marketing

31.12.2009 Shares subscribed with the Outokumpu Oyj 2003B stock options and the increase in share capital

Outokumpu Annual Report 2009 – Stock exchange releases 2009

Review by the Board of Directors Review by the Board of Directors for2009

Determined actions taken as stainless steel markets hit by theglobal recession2009 was an exceptional year for the stainless steel industry in many ways. The global recession had a significant impacton the industry, especially in Europe. During the first part of 2009, demand was extremely weak and stainless steelmarkets were characterised by heavy destocking. Some recovery occurred in the summer but markets softened againtowards the end of the year. In 2009, China was the only market in which demand grew and production significantlyincreased.

The very difficult market conditions in 2009 forced Outokumpu to take drastic short-term measures to cut costs andsecure its balance sheet and liquidity. Cost-cutting actions included production cuts and personnel adjustments. Theongoing recession limited progress towards strategic targets and the Group postponed the majority of its plannedinvestment programme. Outokumpu's strategy is aimed at achieving a more stable and profitable business model byincreasing the share of sales to end-user and project customers as well as building more stable relationships with keydistributor customers. Other objectives include increasing the proportion of value-added special grades and products aswell as non-nickel containing grades of stainless steel.

Group sales for 2009 totalled EUR 2 611 million (down by 52% from the previousyear) and stainless steel deliveries were 1 030 000 tonnes, down by 28% from thelevel in 2008. Operating loss totalled EUR 438 million (2008: EUR -63 million) andunderlying operational result was EUR -340 million (2008: EUR 305 millionpositive). Net cash from operating activities was good at EUR 198 million (2008:EUR 664 million).

Return on capital employed was -11.7% (2008: EUR -1.6%) and gearing was48.2% (2008: 38.4%). Although Outokumpu's financial target of a return on capitalemployed higher than 13% was not reached, gearing remained below the Group'starget of less than 75%. Earnings per share totalled EUR -1.86 (2008: EUR -1.05).The Board of Directors is proposing to the Annual General Meeting 2010 that adividend of EUR 0.35 per share be paid for 2009 (2008: EUR 0.50).

Very weak stainless steel markets with historically low deliveriesin EuropeThe global recession resulted in demand for stainless steel being very weak at the beginning of the year. Heavydestocking along the whole value chain resulted in significant production cuts by producers especially in Europe withcapacity utilisation at the historically extremely-low levels of 50–55%. Demand for stainless steel mainly from distributors,recovered somewhat in the summer and stabilised towards the end of the year. Metal prices were at very low levels atthe beginning of the year but began to rise after the spring, mainly as a result of improving demand in China. Baseprices, which had fallen to very low levels in historical terms, began to recover after the first quarter. Compared to 2008,apparent consumption of stainless steel in 2009 is estimated to have decreased by 29% in Europe and by 8% globally. InChina, however, apparent consumption is estimated to have increased by 31%. The average German base price for2mm 304 cold rolled sheet in 2009 was 1 161 EUR/tonne, 2% lower than in 2008. The transaction price for stainless

Outokumpu Annual Report 2009 – Review by the Board of Directors

steel averaged 2 036 EUR/tonne in 2009, 27% lower than in the previous year. The main reason for this was the muchlower metal prices in 2009. (CRU)

Sales and deliveries

Sales

€ million 2009 2008 2007

General Stainless 2 065 4 147 5 321

Specialty Stainless 1 239 2 705 3 456

Other operations 243 258 237

Intra-group sales -935 -1 636 -2 101

The Group 2 611 5 474 6 913


1 000 tonnes 2009 2008 2007







Total deliveries 1 030 1 423 1 419

Group sales for 2009 declined to EUR 2611 million (2008: EUR 5 474 million) dueto the very low delivery volumes and lowertransaction prices for stainless steel.Delivery volumes declined to 1 030 000tonnes (2008: 1 423 000 tonnes). Sales byGeneral Stainless were down by 50% andsales by Specialty Stainless were down by54%.

The European share of Group sales was74% in 2009 (2008: 78%). Asia and theAmericas accounted for 14% (2008: 8%)and 10% (2008: 11%), respectively.


Operating profit

Profitability

€ million 2009 2008 2007

Operating profit

General Stainless -259 -6 220

Specialty Stainless -149 -101 337

Other operations -31 38 21

Intra-group items 1 6 11


Share of results in associated companies -12 -2 4

Financial income and expenses -25 -69 206

Profit before taxes -474 -134 798

Income taxes 142 24 -138

Net profit, continuing operations -332 -110 660

Net profit, discontinued operations -4 -79 -18

Net profit for the financial year -336 -189 641

Operating profit margin, % -16.8 -1.2 8.5

Return on capital employed, % -11.7 -1.6 13.9

Earnings per share from continuing operations, € -1.83 -0.61 3.63

Earnings per share, € -1.86 -1.05 3.52

Operating loss in 2009 totalled EUR 438million (2008: EUR -63 million). In 2009, netnon-recurring items of EUR −20 millionwere included in the operating loss (EUR 5million of restructuring provisions mainlyrelating to Sweden and EUR 15 million ofwrite-downs from the cancelled melt-shopcapacity expansion in Avesta, Sweden). In2008, non-recurring costs of some EUR 83million were included in the operating loss.Raw material-related inventory losses ofsome EUR 78 million are included in theoperating profit (2008: some EUR 285million). Underlying operational result for2009 was some EUR -340 million (2008:EUR 305 million). While extremely-low delivery volumes were the primary reason


for the weak result, a somewhat negative price and product mix and a reduced contribution from ferrochrome productionalso had negative impacts. The cost savings achieved had a mitigating effect. Loss before tax totalled EUR 474 million(2008: EUR -134 million).

The Group's cost-saving programmes, initiated in December 2008, delivered more than earlier estimated EUR 150million. The fixed-cost savings achieved in 2009 totalled EUR 185 million, half of which are expected to be sustainable.Some EUR 20 million of total cost savings are related to the closure of Sheffield Special Strip in the UK.

Capital structure

Key financial indicators on financial position

€ million 2009 2008 2007

Net interest-bearing debt

Long-term debt 1 038 1 219 1 046

Current debt 705 581 464

Total interest-bearing debt 1 742 1 800 1 510

Interest-bearing assets -548 -711 -589

Net assets held for sale -11 -16 -132

Net interest-bearing debt 1 183 1 072 788

Shareholders' equity 2 451 2 794 3 337

Return on equity, % -12.8 -6.2 20.0

Debt-to-equity ratio, % 48.2 38.4 23.6

Equity-to assets ratio, % 50.6 52.4 56.5

Net cash generated from operating activities 1) 198 664 658

Net interest expenses 22 54 5

Notes:1) Cash flows presented for continuing operations.


During 2009 Outokumpu's net interest-bearing debt increased only marginally byEUR 110 million and totalled EUR 1 183million at the end of 2009 (Dec 31, 2008:EUR 1 072 million). Outokumpu's balancesheet was relatively strong at the end of theyear with gearing at 48.2% (Dec 31, 2008:38.4%), well below the Group's target ofbelow 75%. At the end of 2009, the Group'sequity-to-assets ratio stood at 50.6%.

In June 2009, Outokumpu signed a three-year EUR 900 million revolving creditfacility. This committed credit facility forgeneral corporate purposes replaced thefive-year EUR 1 billion facility signed inJune 2005. At the end of 2009 this facilitywas undrawn. In addition, two bilaterallong-term revolving credit facilitiesamounting to more than EUR 200 millionwere signed in 2009. Consequently,Outokumpu has committed undrawn creditfacilities totalling EUR 1.1 billion.

Net cash generated from operatingactivities in continuing operations in 2009was good and totalled EUR 198 million(2008: EUR 664 million). Cash releasedfrom working capital as a result of lowermetal prices and reductions in inventorylevels totalled EUR 548 million. Cash andcash equivalents totalled EUR 112 million (2008: EUR 224 million) at the end of the year.

Capital expenditure and the postponed investment programme

Capital expenditure

€ million 2009 2008 2007

General Stainless 129 332 57

Specialty Stainless 93 170 69


The Group 245 544 190



Capital expenditure by the Group in 2009 totalled EUR 245 million. The largest investments in 2009 were themodernisation of the No. 2 annealing and pickling line in Tornio, expansion of the service centre in Willich in Germany,establishment of a service centre in China, the doubling of production capacity in special grades at Nyby in Sweden andthe expansion of quarto plate production capacity in New Castle in the US. The service centre in China is planned to startoperation in the spring 2010 and the investment at New Castle is planned to be finalised at about the same time.

In December 2008 as the global recession had started, Outokumpu decided to postpone almost its entire investmentprogramme worth some EUR 1.5 billion for a period of at least 12 months. The programme included an expansion offerrochrome production capacity in Finland, investments in bright-annealed production capacity at Tornio Works inFinland, expansion of quarto plate production capacity in Degerfors in Sweden, the expansion of melting capacity inAvesta in Sweden and the construction of service centres in Europe. In October, a decision was made to cancel theinvestment in expanded melting capacity at Avesta as no need for additional melting capacity is seen in the medium-term. Continuation of any project in the Group's investment programme is subject to a separate decision based on anupdated feasibility study. Further decisions on the postponed investments will be made by the end of 2010.

Excluding decisions on any new investment projects, capital expenditure by the Group in 2010 is expected to be belowEUR 200 million. This figure includes annual capital expenditure on maintenance and the finalising of some ongoinginvestment projects.

Personnel adjustmentsAs a response to the very weak demand for stainless steel because of the ongoing recession, Outokumpu took a numberof actions to adjust to the poor market conditions. Production was cut back heavily and consequent adjustments ofpersonnel numbers through both temporary and permanent layoffs were implemented.

In Finland, the low order load resulted in temporary layoffs for most employees at the Tornio Works. Some 250employees at the Kemi Mine and the Ferrochrome Works were temporarily laid off from March until the end ofSeptember. Approximately 1 600 employees working on other steel production lines, maintenance and support functionswere temporarily laid off in sequences starting from March. In September, some 700 employees were taken back and theremaining 900 who had been laid off temporarily returned to work in October. Some 50 permanent job reductions havebeen made in Finland.

In Sweden, a total of some 400 job reductions were made in 2009. The number of working shifts was reduced andrelated temporary lay-offs were implemented.


In the UK, the closure of Sheffield Special Strip, reduced production in the Sheffield melt-shop and actions taken in theservice centre and the sales company resulted in approximately 350 job reductions and temporary adjustments due toreduced working shifts.

Approximately 150 job reductions were implemented in other countries.

Operational Excellence programmesOutokumpu's Operational Excellence programme was launched in 2005 and originally comprised Production andCommercial Excellence. In 2007, the programme was expanded to include Supply Chain Excellence. Targets includedimproving Group performance by EUR 40 million in 2007 and by EUR 80 million in 2008 (compared to 2005). Thetargeted benefits were achieved in both years and benefits totalling EUR 86 million were delivered in 2008. In 2009, theOperational Excellence programme delivered benefits totalling EUR 150 million compared to 2005. The original target ofEUR 200 million by 2009 was not achieved mainly as a consequence of the very low delivery volumes of stainless steeland the lower metal prices.

The original target of EUR 300 million of benefits in 2010 will not be reached considering the current run-rate of deliveryvolumes. However, Outokumpu's Operational Excellence programmes continue to be a high-focus area and the intentionis to achieve higher benefits than in 2009 (EUR 150 million).

Class actions regarding the sold fabricated copper productsbusinessIn 2003, the European Commission issued its judgment on Outokumpu's participation in a European price-fixing andmarket-sharing cartel involving copper air-conditioning tubes during 1988–2001. A fine of EUR 18 million was imposedon the Group. In 2004, Outokumpu lodged an appeal with the Court of First Instance for Europe regarding the basis forthe calculation and the level of the fine. According to a decision issued by the court in May 2009, the amount of the fineremains unchanged.

In a cartel investigation concerning sanitary copper tubes, the European Commission issued its judgement in September2004 and imposed a fine of EUR 36 million on the Group for participation in cartel activities. Outokumpu lodged anappeal with the Court of First Instance for Europe in 2004 regarding the level of the fine. In August 2009, Outokumpupaid the fine of EUR 36 million in advance. The final decision from the Court of First Instance concerning the sanitarytubes case is expected during 2010.

In 2003, Outokumpu booked provisions for fines in both of these cases. Fines totalling EUR 54 million and interesttotalling EUR 9 million was paid in 2009.

Outokumpu exited the copper fabrication business by divesting a major part of the company's business in 2005 and theremainder in April 2008.

Customs investigation of exports to Russia by Tornio WorksIn March 2007, Finnish Customs authorities initiated a criminal investigation into the Group's Tornio Works' exportpractices to Russia. It was suspected that a forwarding agency based in south-eastern Finland had prepared defectiveand/or forged invoices regarding the export of stainless steel to Russia. The preliminary investigation focused onpossible complicity by Outokumpu Tornio Works in the preparation of defective and/or forged invoices by the forwardingagent.


In June 2009, the Finnish Customs completed its preliminary investigation and forwarded the matter for consideration ofpossible charges to the prosecuting authorities. The process of considering possible charges is expected to becompleted in the spring of 2010.

Immediately after the Finnish Customs authorities began their investigations in 2007, Outokumpu initiated its owninvestigation into the trade practices connected with stainless steel exports from Tornio to Russia. In June 2007, basedon its own investigation, a leading Finnish law firm Roschier Attorneys Ltd. concluded that it had not found evidence thatany employees of Tornio Works or the Group had committed any of the crimes alleged by the Finnish Customs.

Roschier has subsequently, at Outokumpu's request, examined the preliminary investigation material produced by theFinnish Customs' and concluded that it contains no evidence that any Outokumpu employees committed forgery or thealleged accounting offences by the Finnish Customs. Outokumpu's Auditor, KPMG Oy Ab, has also stated thatsuspicions related to the making of false financial statements are groundless.

Outokumpu has stated that neither the Group nor its personnel have committed any of the crimes alleged by the FinnishCustoms.

Risk managementOutokumpu operates in accordance with the risk management policy approved by the Board of Directors. The riskmanagement policy defines the objectives, approaches and areas of responsibility in risk management activities. Riskmanagement supports the Group's strategy and also helps to define a balanced risk profile from the perspective ofshareholders as well as other stakeholders such as customers, suppliers, personnel and lenders. Outokumpu hasdefined risk to be anything that might have an adverse impact on activities that the company has undertaken to achieveits objectives. Risks can thus be threats, uncertainties or lost opportunities that relate to present or future operations.

In 2009 risk workshops were implemented with management teams from most of the Group's business units and severalcorporate functions such as Energy and Legal Affairs and IPR. Workshops included the identification of differentbusiness, operational and financial risks, the evaluation and mitigation of these risks in connection with strategic planningand performance management processes. During the year, Outokumpu also initiated a systematic crises managementprogramme. Corporate-level crises management teams were trained in the handling of situations presenting differentchallenges.

No major damage to Group property or business interruptions occurred in 2009. The most significant risks realisedduring the year were connected with structural issues in stainless steel markets and the global recession, with the latterhaving an impact on steel markets and also on the Group's willingness and ability to implement planned investmentprojects.Strategic and business risks

The most important identified strategic and business risks include structural overcapacity and weak market conditionsaffecting stainless steel production, fierce competition in stainless steel markets and Euro-centricity of Group operations.

Demand for stainless steel remained depressed in Outokumpu's main served markets. Increased stainless steelproduction capacity, especially in China, is creating a situation of gradually developing global overcapacity. Outokumpuhas taken actions to address these strategic and business risks by maintaining cost efficiency and delivery reliability inthe Group's operations, developing its distribution channels and aiming to increase sales to end-users and buildingstable relationships with key distributors. During 2009 Outokumpu also expanded its operations in China by investing in anew service centre in Kunshan in Shanghai. Activities at this new facility will focus on special products and grades andoperations will begin in the spring of 2010. Outokumpu continues to study ways of strengthening its position outsideEurope in future years.


Operational risks

Operational risks arise as a consequence of inadequate or failed internal processes, employee actions, systematic orother events such as natural catastrophes and misconduct or crime. Key operational risks include major fires oraccidents, variations in production performances, unsuccessful project implementation and a lack of progress towardsachieving a strong corporate culture and a one-company approach.

To minimise damage to property and business interruptions that could result from fire at Outokumpu's sites, the Grouphas systematic fire and security audit programmes in place. Part of this type of risk is covered by insurances. In 2009,some 40 security and fire-safety audits were carried out using the Group's own resources, often jointly with technicalexperts from insurers and insurance brokers. Outokumpu also continued developing its corporate security during 2009with a focus on crisis management.

Outokumpu has been systematically developing the performance of its operations through excellence initiatives. Evenso, risks associated with not being able to adapt production capacity to meet wide fluctuations in demand can have animpact on the company's business. The Group is mitigating these types of risks in two ways: by expanding itsOperational Excellence programmes; and by building on strong Group-level functions such as Supply ChainManagement and Group Sales and Marketing to enhance strategy implementation.

Outokumpu's aim is to achieve a strong and unified corporate culture throughout its organisation. For all Grouppersonnel, the approach is to create "One Outokumpu", but this type of cultural change can take time. While it provides agreat opportunity to increase operational effectiveness by increasing cross-cultural cooperation, corporate cultures thatare one-country based or too independent can have an adverse effect on progress from an operational perspective,endangering the achievement of strategic goals. The implementation of strong Group-level functions such as SupplyChain Management and Group Sales and Marketing is a vital component in driving forward the one-company approach.

Due to the global financial crisis and the weakness in stainless steel market almost the entire already-announcedinvestment programme was postponed at the end of 2008. Some investments, such as the service centre expansion inWillich in Germany and the establishment of a new service centre in China are however continuing and will be finalisedearly in 2010. In preparation for the future, Outokumpu is aiming to further develop its project management methods tosupport the implementation of investment projects and to manage risks related to the Group's entire project portfolio. Atthe end of the third quarter, Outokumpu decided to permanently cancel the investment project which would haveprovided additional melting capacity in Avesta in Sweden.

Financial risks

Financial risks include market, liquidity, refinancing, country and credit risk. One consequence of the global economiccrisis is that sales-related credit losses have increased to some extent; but much of these losses are covered by creditinsurance. At the end of 2009, Outokumpu updated its principles concerning the management of country and credit risk.Implementation of these principles will take place gradually during 2010.

A weak Swedish krona has been mainly beneficial for the Group because of a significant amount of krona-denominatedfixed and variable cost. Changes in the price of nickel and the value of the US dollar have an impact on Group earnings,cash flows and the balance sheet. Outokumpu also has exposure to changes in interest rates, credit risk related tocertain loan receivables and risks connected with equity prices.

During 2009 Outokumpu hedged part of the forecast risk associated with cash flow in Swedish krona and sterling,hedged against rises in interest rates associated with fixed part of financing costs and continued nickel risk hedging toreduce the impacts of any price changes on earnings.


Liquidity and refinancing risks are taken into account in capital management decisions and, when necessary, in makinginvestment and other business decisions. In 2009, Outokumpu signed a three-year revolving credit facility of EUR 900million. This facility was fully undrawn at the end of the year.

Environment, Health and SafetyEmissions to air and discharges to water remained within permitted limits and the breaches that occurred weretemporary, were identified and caused only minimal environmental impact. Outokumpu is not a party in any significantjuridical or administrative proceeding concerning environmental issues, nor is it aware of any realised environmental risksthat could have a material adverse effect on the Group's financial position.

At approximately 540 000 tonnes (2008: 820 000 tonnes), carbon dioxide emissions under the EU Emissions TradingScheme were at a very-low level in 2009 due to reduced levels of production. During the year, the Group sold 454 000tonnes (2008: 1 022 000 tonnes) of carbon dioxide allowances for EUR 6 million (2008: EUR 22 million). Outokumpu'scarbon dioxide allowances in the UK, Sweden and Finland were proved sufficient for the Group's production.

Occupational safety continues to be a major focus area within the Group and Outokumpu has a separate safety functionresponsible for safety management and development.

In 2009, the lost-time injury rate (i.e. lost-time accidents per million working hours) was 5.9 (2008: 9.0), slightly higherthan the Group's 2009 target of less than five. No severe accidents were reported in 2009. The target for 2010 is lessthan four.

Corporate ResponsibilityIn March 2009, Outokumpu was selected as a member of the Kempen/SNS Smaller Europe SRI Universe, a conceptlaunched by Kempen Capital Management. Membership is only offered to companies with the very highest standardsand codes of practice in three areas: business ethics, human resources and the environment.

In September, the results of the annual review carried out for the Dow Jones World and Dow Jones STOXXSustainability indexes by the Sustainable Asset Management Group (SAM) were published. Outokumpu retained itsmembership in both indices and received the highest possible score in two sustainability criteria: environmental reportingand occupational health and safety.

Once again, Outokumpu received an award in 2009 for being Finland's best corporate responsibility reporter.

Research and DevelopmentGroup expenditure on research and development in 2009 totalled EUR 19 million or 0.7% of sales (2008: EUR 20 millionand 0.4%). Outokumpu has research centres in Tornio in Finland and in Avesta in Sweden. Some process andtechnology development work is also carried out in production units. R&D operates in close cooperation with the Group'scommercial organisation and customers, and direct feedback regarding customer needs serves as input for furtherproduct development. The R&D function employed almost 200 professionals in 2009. Outokumpu also conductsresearch in collaboration with research institutes and universities.

In 2009, the main focus was on further developing new low-nickel and nickel-free stainless steels to reducing the effectsof volatile nickel prices. Much effort has been put into developing duplex grades which offer a good combination ofstrength and corrosion resistance. Ideal applications for duplex grades include large, heavy-wall tanks, where weightsavings of as much as 20% can be achieved. Customers have shown growing interest in LDX 2101®. New applicationsare continually being developed and the production technology has been improved.


Non-nickel ferritic grades represent another opportunity to reduce the influence of the nickel price on raw material costs.Optimum process parameters and product properties for standard ferritic grades have been studied intensively atproduction scale. The primary focus has been on surface quality, formability and corrosion resistance. Four differentgrades, mostly intended for use in indoor applications, kitchen utensils, domestic appliances and the transportationsector, are now part of the Group's product portfolio.

Cr-Mn-Ni grades (200 series), a third opportunity to reduce the use of nickel, also represent an interesting alternative inmany applications. The most common grade is 201, the chemistry of which has been modified by Outokumpu. Thecorrosion-resistant properties of this grade are almost equal to those of standard austenitic 304 (Cr-Ni), and it alsofeatures higher strength and good formability.

In application development, the traditional focus has been on the process industries where stainless steel plays adominant role in the manufacturing of industrial equipment used in the Pulp and Paper, Oil and Gas, Desalination andChemical segments. Outokumpu's R&D experts provide both customers and the Group's commercial personnel withadvice on product properties and material selection. The 10th edition of the Outokumpu Corrosion Handbook waspublished in the autumn. For more than 60 years, the handbook has been a reliable source of essential information formetallurgists, design engineers and fabricators around the world.

In addition to new products and new applications for stainless steel, the Group's R&D operations focus on innovativemanufacturing processes that reduce costs, result in lower emissions, shorten lead times and improve quality levels. Themain subject of environmental research in 2009 was slag utilisation. Studies of the properties of different slag productsand the development of new applications continue.

Personnel

Personnel

Dec 31. 2009 2008 2007

General Stainless 3 753 3 938 3 571

Specialty Stainless 3 361 4 006 4 099


The Group 7 606 8 471 8 108

In 2009, the Group's continuing operations employed an average of 7 941 people(2008: 8 551) in some 30 countries. At the end of 2009, the number of peopleemployed by the Group was 7 606 (2008: 8 471). The net decrease in the numberof people employed was 865 (2008: increase of 363) caused by actions to adjustto the very weak stainless steel markets in 2009. Personnel expenses in 2009totalled EUR 446 million (2008: EUR 520 million).

Outokumpu's development programmes, including management developmentprogrammes and the Production Excellence training programme, continued during2009. The first eight Stainless Pro Graduates completed their two-yearprogramme and transferred to new positions within the Group. Seven StainlessPro Graduates are expected to complete their training in August 2010.

Almost all Group employees participated in Performance and DevelopmentDialogues in 2009, but the goal of 100% participation was not achieved.


The Outokumpu Personnel Forum (OPF) 2009 held its 18th annual meeting in Espoo, Finland. The Group WorkingCommittee appointed by the OPF - a forum for continuing dialogue between personnel and management - met six timesduring 2009.

The fifth O'People personnel survey was conducted in 2009. The response rate was 72% (2008: 75%) and the overallO'People index was almost unchanged at 617 (2008: 621).

Ideas for fast actions, a web-based survey for Outokumpu employees, was organised in the spring. Participants wereencouraged to contribute concrete ideas on how to get through difficult times, where to cut costs and how to improveoverall Group performance.

Organisational change and appointmentsIn December, Mr Kari Parvento was appointed EVP – Group Sales and Marketing and a member of Outokumpu Group'sExecutive Committee as of May 1, 2010 at the latest. He will report to CEO Juha Rantanen. Group Sales and Marketinghas been headed by Mr Bo Annvik, EVP – Specialty Stainless, on a temporary basis since February 2009 when MrAndrea Gatti, former EVP – Group Sales and Marketing at Outokumpu, assumed the role of Corporate Vice Presidentoutside the Executive Committee. Mr Gatti left Outokumpu in December 2009.

In addition to his current duties, Mr Pekka Erkkilä, EVP – General Stainless, took over management of the Tornio Worksin September 2009. At the end of 2009, Mr Erkkilä resigned from Outokumpu Oyj to join Outotec Oyj as of May 1, 2010at the latest.

Shares and shareholdersAccording to the Nordic Central Securities Depository, Outokumpu's largest shareholders by group at the end of 2009were the State of Finland through Solidium Oy (31.0%), foreign investors (27.4%), Finnish public sector institutions(15.4%), Finnish private households (13.6%), Finnish financial and insurance institutions (6.1%), Finnish corporations(3.4%) and Finnish non-profit organisations (2.5%).

Shareholders that have more than 5% of the shares and votes in Outokumpu Oyj are Solidium Oy (31.0%) and theFinnish Social Insurance Institution (8.1%).

At the year-end, Outokumpu's closing share price was EUR 13.26 (2008: EUR 8.28), up 60%. The average share priceduring the year was EUR 11.49 (2008: EUR 18.99) with EUR 15.67 (2008: EUR 33.99) as the year's highest price andEUR 7.72 (2008: EUR 6.33) as the year's lowest price. At the year-end, the market capitalisation of Outokumpu Oyjshares totalled EUR 2 413 million (2008: EUR 1 502 million). Share turnover in 2009 was significantly lower than in 2008,with 355.1 million shares being traded on the Nasdaq OMX Helsinki Ltd exchange (2008: 511.1 million). The total valueof share turnover in 2009 was EUR 4 079 million (2008: EUR 9 693 million).

Outokumpu's fully paid share capital at the year-end totalled EUR 309 million and consisted of 182 010 542 shares. Theaverage number of shares outstanding during 2009 was 180 825 569.

Annual General Meeting 2009The 2009 Annual General Meeting (AGM) approved a dividend of EUR 0.50 per share for 2008. Dividends totalling EUR90 million were paid on April 3, 2009.

The AGM authorised the Board of Directors to decide to repurchase the Group's own shares. The maximum number ofshares to be repurchased is 18 000 000, currently representing 9.92% of total number of registered shares. Based on


earlier authorisations Outokumpu currently holds 1 040 888 of its own shares. The AGM authorised the Board ofDirectors to decide to issue shares and to grant special rights entitling to shares. The maximum number of new shares tobe issued through the share issue and/or by granting special rights entitling to shares is 18 000 000, and, in addition, themaximum number of treasury shares to be transferred is 18 000 000. The authorisation includes the right to resolve upondirected share issues. These authorisations are valid 12 months or until the next AGM, however no longer than May 31,2010. To date the authorisations have not been used.

The AGM decided on the number of the Board members, including the Chairman and Vice Chairman, to be eight. EvertHenkes, Ole Johansson, Jarmo Kilpelä, Victoire de Margerie, Anna Nilsson-Ehle, Leena Saarinen and Anssi Soila werere-elected as members of the Board of Directors, and Jussi Pesonen was elected as a new member. The AGM re-elected Ole Johansson as Chairman of the Board and Anssi Soila as Vice Chairman of the Board. The AGM alsoresolved to form a Shareholders' Nomination Committee to prepare proposals on the composition and remuneration ofthe Board of Directors for presentation to the next AGM.

At its first meeting, the Board of Directors of Outokumpu appointed two permanent committees consisting of Boardmembers. Anssi Soila (Chairman), Jarmo Kilpelä and Leena Saarinen were elected as members of the Board AuditCommittee. Ole Johansson (Chairman), Evert Henkes, Anna Nilsson- Ehle and Jussi Pesonen were elected as membersof the Board Nomination and Compensation Committee.

KPMG Oy Ab, Authorised Public Accountants, was re-elected as the Company's auditor for the term ending at the closeof the next AGM.

Shareholders' Nomination CommitteeOutokumpu's Annual General Meeting of March 24, 2009 decided to establish a Shareholders' Nomination Committee toprepare proposals on the composition of the Board of Directors along with director remuneration for the following AnnualGeneral Meeting. The representatives of Outokumpu's three largest shareholders registered in the Finnish book-entrysecurities system on November 2, 2009, which accepted the assignment. The Shareholders' Nomination Committee ofOutokumpu consists of the following three shareholders: Solidium Oy (Kari Järvinen, CEO), The Social InsuranceInstitution of Finland (Jorma Huuhtanen, Director General) and Ilmarinen Mutual Pension Insurance Company (HarriSailas, CEO). Kari Järvinen acts as Chairman the Committee. Ole Johansson, the Chairman of Outokumpu's Board ofDirectors, and Evert Henkes, member of Outokumpu's Board of Directors, serve as expert members. The Shareholders'Nomination Committee is required to submit its proposals to the Board of Directors of the company no later thanFebruary 1, 2010.

Corporate governance statementThe statement is presented as a separate report and disclosed together with the financial statements and the report bythe Board of Directors.

Events after the review periodAccording to a seismic research report produced by the Geological Survey of Finland in late 2009, the mineral resourcesat the Kemi Mine could turn out to be significantly greater than earlier estimates. The intrusion containing Kemi chromiumore extends to a depth of 2–3 kilometres, possibly to four kilometres and the chromitite layer possibly extends to a depthof at least 2–2.5 kilometres or more.

Proven ore reserves at the Kemi Mine total some 37 million tonnes and the quantity of mineral resources totals some87 million tonnes (estimated to a depth of 1 kilometre). The new information indicates the existence of resources


sufficient to allow centuries of mining activity even with doubled annual production volumes (the previous estimate was70–80 years). Outokumpu's mineral resources will not be updated based on these findings.

Short-term outlookNo major improvement in the underlying demand for stainless steel is yet visible. Distributors' cautious buying behaviourcontinued over the year-end. During the past few weeks, order intake has however been more encouraging. Lead timeson standard grades for mill-deliveries are normal at 6-8 weeks. Inventory levels at distributors in Europe are estimated tobe at normal levels. Outokumpu's delivery volumes of stainless steel in the first quarter are expected to be at the samelevel or slightly higher than in the fourth quarter of 2009 (277 000 tonnes). Base prices began to decline during the fourthquarter 2009 but stabilised around the year-end. Thus, Outokumpu's average base prices for all flat products in the firstquarter of 2010 are expected to be 50–100 EUR/tonne lower than the average in the fourth quarter. CurrentlyOutokumpu sees potential for some base price increases.

Outokumpu's underlying operational result in the first quarter is expected to be at the same level or somewhat weakerthan in the fourth quarter of 2009. If metal prices remain at current levels, no major raw material-related inventory gainsor losses are anticipated. Cash flow is expected to remain negative in the first quarter without any major impact ongearing, which will remain well below the Group's set maximum level of 75%.

Board of Directors' proposal for profit distributionIn accordance with the Board of Directors' established dividend policy, the payout ratio over a business cycle should beat least one-third of the Group's profit for the period with the aim to have stable annual payments to shareholders. In itsannual dividend proposal, the Board of Directors will, in addition to financial results, take into consideration the Group'sinvestment and developing needs.

The Board of Directors is proposing to the Annual General Meeting to be held on March 30, 2010 that a dividend of EUR0.35 per share be paid from the parent company's distributable funds on December 31, 2009 and that any remainingdistributable funds be allocated to retained earnings. The suggested dividend record date is April 6, 2010 and thedividend will be paid on April 13, 2010.

According to the Group's financial statements on December 31, 2009, distributable funds of the parent company totalledEUR 850 million. No material changes have taken place in the company's financial position after the balance sheet dateand the proposed dividend does not compromise the company's financial standing.

In Espoo, February 2, 2010

Board of Directors

Ole JohanssonAnssi SoilaEvert HenkesJarmo KilpeläVictoire de MargerieAnna Nilsson-EhleJussi PesonenLeena Saarinen


Auditors’ report To the Annual General Meeting ofOutokumpu OyjWe have audited the accounting records, the financial statements, the report of the Board of Directors, and theadministration of Outokumpu Oyj for the year ended on December 31, 2009. The financial statements comprise theconsolidated statement of financial position, income statement, statement of comprehensive income, statement ofchanges in equity, statement of cash flows and notes to the consolidated financial statements, as well as the parentcompany's balance sheet, income statement, cash flow statement and notes to the financial statements.

The Responsibility of the Board of Directors and the ChiefExecutive OfficerThe Board of Directors and the Chief Executive Officer are responsible for the preparation of the financial statements andthe report of the Board of Directors and for the fair presentation of the consolidated financial statements in accordancewith International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the fair presentation of theparent company's financial statements and the report of the Board of Directors in accordance with laws and regulationsgoverning the preparation of the financial statements and the report of the Board of Directors in Finland. The Board ofDirectors is responsible for the appropriate arrangement of the control of the company's accounts and finances, and theChief Executive Officer shall see to it that the accounts of the company are in compliance with the law and that itsfinancial affairs have been arranged in a reliable manner.

Auditors' ResponsibilityOur responsibility is to perform an audit in accordance with good auditing practice in Finland, and to express an opinionon the parent company's financial statements, on the consolidated financial statements and on the report of the Board ofDirectors based on our audit. Good auditing practice requires that we comply with ethical requirements and plan andperform the audit to obtain reasonable assurance whether the financial statements and the report of the Board ofDirectors are free from material misstatement and whether the members of the Board of Directors of the parent companyand the Chief Executive Officer have complied with the Limited Liability Companies Act.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements and the report of the Board of Directors. The procedures selected depend on the auditor's judgment,including the assessment of the risks of material misstatement of the financial statements or of the report of the Board ofDirectors, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevantto the entity's preparation and fair presentation of the financial statements and the report of the Board of Directors inorder to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimates made by management, aswell as evaluating the overall presentation of the financial statements and the report of the Board of Directors.

The audit was performed in accordance with good auditing practice in Finland. We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion on the Consolidated Financial StatementsIn our opinion, the consolidated financial statements give a true and fair view of the financial position, financialperformance, and cash flows of the group in accordance with International Financial Reporting Standards (IFRS) asadopted by the EU.

Outokumpu Annual Report 2009 – Auditors’ report

Opinion on the Company's Financial Statements and the Reportof the Board of DirectorsIn our opinion, the financial statements and the report of the Board of Directors give a true and fair view of both theconsolidated and the parent company's financial performance and financial position in accordance with the laws andregulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. Theinformation in the report of the Board of Directors is consistent with the information in the financial statements.

Opinion on the discharge from liability and disposal ofdistributable fundsThe consolidated financial statements and the parent company's financial statements can be adopted and the membersof the Board of Directors and the Chief Executive Officer of the parent company can be discharged from liability for theperiod audited by us. The proposal by the Board of Directors regarding the disposal of distributable funds is incompliance with the Limited Liability Companies Act.

Espoo, February 2, 2010KPMG OY AB

Mauri PalviAuthorised Public Accountant

Outokumpu Annual Report 2009 – Auditors’ report

Consolidated income statement Consolidated income statementDownload excel

Income statement

€ million Note 2009 2008

Continuing operations

Sales 3 2 611 5 474

Cost of sales 8 -2 764 -5 276

Gross margin -153 199

Other operating income 6 28 57

Selling and marketing expenses 8 -135 -122

Administrative expenses 8 -126 -134

Research and development expenses 8 -19 -20

Other operating expenses 7 -32 -42

Operating profit -438 -63

Share of results in associated companies 15 -12 -2

Financial income and expenses 10

Interest income 17 20

Interest expenses -38 -74

Market price gains and losses -2 -2

Other financial income 5 11

Other financial expenses -6 -24

Total financial income and expenses -25 -69

Profit before taxes -474 -134

Income taxes 11 142 24

Outokumpu Annual Report 2009 – Consolidated income statement

Net profit for the financial year from continuing operations -332 -110

Net profit for the financial year from discontinuedoperations 4 -4 -79

Net profit for the financial year -336 -189

Attributable to

Equity holders of the Company -336 -189

Minority interest -0 -0

Earnings per share for result attributable to the equityholders of the Company

Earnings per share, € 12 -1.86 -1.05

Diluted earnings per share, € -1.86 -1.04

Earnings per share from continuing operations attributableto the equity holders of the Company

Earnings per share, € -1.83 -0.61


Earnings per share from discontinued operationsattributable to the equity holders of the Company

Earnings per share, € -0.02 -0.44


Consolidated statement of comprehensive income



Other comprehensive income

Exchange differences on translating foreign operations 29 -75

Available-for-sale financial assets


Fair value changes during the financial year 34 -37

Reclassification adjustments from other comprehensiveincome to profit - 5

Income tax relating to available-for-sale financial assets -9 8

Cash flow hedges

Fair value changes during the financial year 23 -65

Reclassification adjustments from other comprehensiveincome to profit 1 -5

Income tax relating to cash flow hedges -6 18

Net investment hedges

Fair value changes during the financial year 1 13

Income tax relating to net investment hedges -0 -3

Share of other comprehensive income of associated companies 5 -

Other comprehensive income for the financial year, net oftax 77 -140

Total comprehensive income for the financial year -259 -329

Attributable to

Owners of the parent -259 -329

Non-controlling interests -1 -0


Consolidated statement of financial position Consolidated statement of financialpositionDownload excel

Consolidated statement of financial position


ASSETS

Non-current assets

Intangible assets 13 566 584

Property, plant and equipment 14 2 097 2 027

Investments in associated companies 1) 15 152 156

Available-for-sale financial assets 1) 18 98 67

Derivative financial instruments 1) 25 7 9

Deferred tax assets 11 42 37

Trade and other receivables 27

Interest-bearing 1) 140 132

Non interest-bearing 55 55

Total non-current assets 3 157 3 067

Current assets

Inventories 26 1 016 1 204

Available-for-sale financial assets 1) 18 14 8


Trade and other receivables 27



Cash and cash equivalents 1) 28 112 224

Total current assets 1 674 2 252

Receivables related to assets held for sale 1) 4 20 22

Outokumpu Annual Report 2009 – Consolidated statement of financial position

TOTAL ASSETS 4 850 5 341

EQUITY AND LIABILITIES

Equity attributable to the equity holders of the Company

Share capital 309 308

Premium fund 706 702

Other reserves 37 -13

Retained earnings 1 735 1 984


2 451 2 794

Minority interest 0 1

Total equity 29 2 451 2 795

Non-current liabilities

Long-term debt 1) 32 997 1 170


Deferred tax liabilities 11 100 216

Pension obligations 30 65 64

Provisions 31 17 28

Trade and other payables 33 1 2

Total non-current liabilities 1 221 1 529

Current liabilities

Current debt 1) 32 652 501


Income tax liabilities 11 3 5

Provisions 31 26 48

Trade and other payables 33




Total current liabilities 1 170 1 012

Liabilities related to assets held for sale 1) 4 8 6

TOTAL EQUITY AND LIABILITIES 4 850 5 341

Notes:

1. Included in net interest-bearing debt.


Consolidated statement of cash flows Consolidated statement of cashflowsDownload excel

Consolidated statement of cash flows


Cash flow from operating activities


Adjustments for

Taxes 11 -142 -24

Depreciation and amortisation 13, 14 211 206

Impairments 10, 13, 14 15 30

Change in net realisable value in inventory 26 -97 91

Share of results in associated companies 15 12 2

Gain/loss on sale of intangible and tangible assets 6, 7 -13 -1

Interest income 10 -17 -20

Dividend income 10 -3 -10

Interest expense 10 30 75

Net profit for the financial year of discontinued operations 4 4 79

Other adjustments -4 138

-4 565

Change in working capital

Change in trade and other receivables 254 336

Change in inventories 291 418

Change in trade and other payables 41 -358

Change in provisions -38 -23

548 373

Dividends received 3 12

Interest received 8 8

Interest paid -57 -77

Outokumpu Annual Report 2009 – Consolidated statement of cash flows

Income taxes paid 36 -29

Net cash from operating activities 198 664

Cash flow from investing activities

Acquisition of subsidiaries, net of cash 5 - -204

Purchases of available-for-sale financial assets 18 -2 -1

Purchases of property, plant and equipment 14 -209 -306

Purchases of intangible assets 13 -21 -9

Proceeds from disposal of subsidiaries, net of cash 4, 5 - 49

Proceeds from sale of property, plant and equipment 14 10 8

Proceeds from sale of intangible assets 13 7 23

Change in other long-term receivables -2 0

Net cash from investing activities -216 -440

Cash flow before financing activities -19 223

Cash flow from financing activities

Share options exercised 4 1

Borrowings of long-term debt 69 341

Repayments of long-term debt -345 -229

Change in current debt 212 24

Borrowings of finance lease liabilities 61 1

Repayments of finance lease liabilities -5 -7

Dividends paid -90 -216

Proceeds from the sale of other financial assets 18 0 0

Other financing cash flow -1 3

Net cash from financing activities -97 -83

Net change in cash and cash equivalents -115 141

Cash and cash equivalents at the beginning of the financial year 224 86


Foreign exchange rate effect on cash and cash equivalents 3 -5

Net change in cash from discontinued operations 4 0 2


Cash and cash equivalents at the end of the financial year 28 112 224

Cash flows presented for continuing operations.


Consolidated statement of changes in equity Consolidated statement of changesin equityDownload excel

Consolidated statement of changes in equity

Attributable to the equity holders of the Company

€ millionSharecapital

Premiumfund

Otherreserves

Fair valuereserves

Treasuryshares

Cumulativetranslation

differencesRetainedearnings

Non-controlling

interestsTotal

equity

Equity on Jan. 1, 2008 308 701 16 57 -27 -82 2 364 - 3 337

Total comprehensive incomefor the period - - -0 -85 - -56 -189 1 -329

Transfers within equity - - 0 - - - -0 - -

Dividends - - - - - - -216 - -216

Share-based payments - - - - - - 2 - 2

Share options exercised 0 1 - - - - - - 1

Equity on Dec. 31, 2008 308 702 15 -28 -27 -138 1 961 1 2 795

Total comprehensive incomefor the period - - - 50 - 28 -336 -0 -259

Transfers within equity - - -0 - - - 0 - -

Dividends - - - - - - -90 - -90

Share-based payments - - - - 2 - -1 - 1

Share options exercised 1 3 - - - - - - 4

Equity on Dec. 31, 2009 309 706 15 22 -25 -110 1 534 0 2 451

Outokumpu Annual Report 2009 – Consolidated statement of changes in equity

Notes to the consolidated financial statement Notes to the consolidated financialstatementsNotes to the consolidated financial statements are presented in the PDF file below. Notes are also available in thedownload centre of this report.

Link to PDF

Link to Download centre

Outokumpu Annual Report 2009 – Notes to the consolidated financial statement

Key financial figures of the Group Key financial figures of the GroupDownload excel

Key financial figures of the Group

2005 2006 2007 2008 2009

Scope of activity

Sales € million 5 016 6 154 6 913 5 474 2 611

- change in sales % -2.1 22.7 12.3 -20.8 -52.3

- exports from and sales outside Finland, of totalsales % 94.2 94.4 95.1 95.5 94.6

Capital employed on Dec. 31 € million 3 599 4 371 4 125 3 867 3 634

Operating capital on Dec. 31 € million 3 756 4 553 4 340 4 046 3 692

Capital expenditure € million 164 187 190 544 245

- in relation to sales % 3.3 3.0 2.8 9.9 9.4

Depreciation and amortisation € million 207 221 204 206 211

Research and development costs € million 22 17 18 20 19


Personnel on Dec. 31 8 963 8 159 8 108 8 471 7 606

- average for the year 9 579 8 505 8 270 8 551 7 941

Profitability

Operating profit € million 57 824 589 -63 -438

- in relation to sales % 1.1 13.4 8.5 -1.2 -16.8

EBITDA € million 342 1 048 790 149 -212

Share of results of associated companies € million 1 8 4 -2 -12

Outokumpu Annual Report 2009 – Key financial figures of the Group

Profit before taxes € million -8 784 798 -134 -474

- in relation to sales % -0.2 12.7 11.5 -2.4 -18.2

Net profit for the period from continuing operations € million -24 606 660 -110 -332

Net profit for the period from discontinuedoperations € million -339 357 -18 -79 -4

Net profit for the financial year € million -363 963 641 -189 -336

- in relation to sales % -7.2 15.7 9.3 -3.5 -12.9

Return on equity % -15.9 37.5 20.0 -6.2 -12.8

Return on capital employed % 1.3 20.7 13.9 -1.6 -11.7

Return on operating capital % 1.3 19.8 13.2 -1.5 -11.3

Financing and financial position

Liabilities € million 3 355 3 270 2 521 2 541 2 391

Net interest-bearing debt € million 1 537 1 300 788 1 072 1 183


Net financial expenses € million 67 48 -206 69 25

- in relation to sales % 1.3 0.8 -3.0 1.3 0.9

Net interest expenses € million 65 62 58 54 22


Interest cover 0.9 13.6 14.9 -1.5 -21.0

Share capital € million 308 308 308 308 309

Other equity € million 1 754 2 763 3 029 2 486 2 142

Equity-to-assets ratio % 38.2 47.9 56.5 52.4 50.6

Debt-to-equity ratio % 74.5 42.3 23.6 38.4 48.2

Net cash generated from operating activities 1) € million 465 -22 658 664 198


Dividends € million 81 199 216 90 63 2)

Notes:

1. Cash flows presented for continuing operations.

2. The Board of Directors' proposal to the Annual General Meeting


Quarterly information Quarterly informationDownload excel

Quarterly information

Income statement by quarter 1)

€ million I/08 II/08 III/08 IV/08 2008 I/09 II/09 III/09 IV/09 2009

Continuing operations

Sales

General Stainless 1 304 1 222 933 687 4 147 476 501 496 592 2 065

- of which intersegment sales 284 337 216 157 993 97 100 107 117 421

Specialty Stainless 786 778 630 512 2 705 371 278 258 332 1 239


Other operations 64 63 69 62 258 66 58 56 62 243


Intra-group sales -465 -514 -362 -295 -1 636 -233 -220 -224 -259 -935

The Group 1 689 1 549 1 270 966 5 474 679 617 587 728 2 611

Operating profit

General Stainless 81 125 -35 -177 -6 -157 -52 -38 -12 -259

Specialty Stainless 42 44 -63 -123 -101 -82 -37 -21 -10 -149

Other operations -20 4 29 25 38 -12 -5 -4 -9 -31

Intra-group items -3 1 3 4 6 2 0 -3 2 1

The Group 100 174 -66 -271 -63 -249 -94 -65 -29 -438

Share of results in associated companies 0 1 -2 -1 -2 -3 -0 -6 -3 -12

Financial income and expenses -20 -8 -14 -26 -69 0 -11 -11 -4 -25

Profit before taxes 80 166 -82 -298 -134 -252 -105 -81 -36 -474

Income taxes -19 -36 9 71 24 64 20 26 32 142

Net profit for the period from continuingoperations 61 130 -73 -228 -110 -188 -85 -55 -4 -332

Outokumpu Annual Report 2009 – Quarterly information

Net profit for the period from discontinuedoperations 2 -74 -1 -5 -79 0 -2 -1 -2 -4

Net profit for the period 63 56 -74 -233 -189 -187 -87 -56 -6 -336

Attributable to:

Equity holders of the Company 63 56 -74 -233 -189 -187 -87 -55 -7 -336

Minority interest - - - -0 -0 -0 -0 -0 0 -0

Stainless steel deliveries by quarter 2)

1 000 tonnes I/08 II/08 III/08 IV/08 2008 I/09 II/09 III/09 IV/09 2009

Cold rolled 228 192 177 141 739 133 145 124 143 545

White hot strip 120 94 64 51 330 59 69 66 69 263

Quarto plate 33 35 27 25 120 19 18 14 16 67

Tubular products 19 19 16 16 70 16 13 12 12 53

Long products 15 15 15 11 55 10 9 11 10 40

Semi-finished products 34 35 25 16 109 10 14 12 27 63

Total deliveries 449 391 323 261 1 423 247 268 238 277 1 030

Notes:

1. Full year figures are audited.

2. Figures are not audited.

Outokumpu Annual Report 2009 – Quarterly information

Share-related key figures Share-related key figuresDownload excel


2005 2006 2007 2008 2009

Earnings per share € -2.01 5.31 3.52 -1.05 -1.86

Cash flow per share 1) € 2.57 -0.12 3.64 3.68 1.09

Equity per share € 11.31 16.87 18.53 15.50 13.54

Dividend per share € 0.45 1.10 1.20 0.50 0.35 2)

Dividend payout ratio % neg. 20.7 33.9 neg. neg.

Dividend yield % 3.6 3.7 5.7 6.0 2.6

Price/earnings ratio neg. 5.6 6.0 neg. neg.

Development of shareprice

Average tradingprice € 11.89 19.77 24.94 18.99 11.49

Lowest trading price € 9.63 12.60 18.48 6.33 7.72

Highest trading price € 14.72 30.39 31.65 33.99 15.67

Trading price at theend of the period € 12.55 29.66 21.21 8.28 13.26

Change during theperiod % -4.6 136.3 -28.5 -61.0 60.1

Change in the OMXHindex during the period % 31.1 17.9 20.5 -53.4 19.5

Market capitalisationat the end of theperiod 3) € million 2 272 5 369 3 820 1 492 2 400

Outokumpu Annual Report 2009 – Share-related key figures

Development intrading volume

Trading volume 1 000 shares 179 289 319 345 516 489 511 080 355 102

In relation toweighted averagenumber of shares % 99.0 176.4 285.5 283.6 196.4

Adjusted averagenumber of shares 3) 181 031 415 181 033 168 180 922 336 180 184 845 180 825 569 4)

Number of shares atthe end of the period 3) 181 031 952 181 031 952 180 103 193 180 233 280 180 969 654

Notes:

1. Cash flows presented for continuing operations.

2. The Board of Directors’ proposal to the Annual General Meeting.

3. Excluding treasury shares.

4. The average number of shares for 2009 diluted with the 2003A, 2003B and 2003C options was 180 970 017. These have a

diluting effect of 0.00 euros on earnings per share in 2009.

Outokumpu Annual Report 2009 – Share-related key figures

Definitions of key financial reports Definitions of key financial figuresDownload excel

Definitions of key financial figures

Capital employed = Total equity + net interest-bearing debt

Operating capital = Capital employed + net tax liability

Research anddevelopment costs

=Research and development expenses in the income statement (including expensescovered by grants received)

EBITDA = Operating profit before depreciation, amortisation and impairments

Return on equity =Total equity (average for the period)

Net profit for the financial year× 100

Return on capitalemployed (ROCE)

=Capital employed (average for the period)

Operating profit× 100

Return on operatingcapital (ROOC)

=Operating profit

Operating capital (average for the period)× 100

Net interest-bearingdebt

= Total interest-bearing debt – total interest-bearing assets

Interest cover =Profit before taxes + net interest expenses

Net interest expenses

Equity-to-assets ratio =Total equity

Total assets – advances received× 100

Debt-to-equity ratio =Net interest-bearing debt

Total equity× 100

Earnings per share =Net profit for the financial year attributable to the equity holders

Adjusted average number of shares during the period

Cash flow per share =Net cash generated from operating activities

Adjusted average number of shares during the period

Equity per share =Equity attributable to the equity holders

Adjusted number of shares at the end of the period

Dividend per share =Dividend for the financial year

Adjusted number of shares at the end of the period

Dividend payout ratio =Dividend for the financial year

Net profit for the financial year attributable to the equity holders× 100

Dividend yield =Dividend per share

Adjusted trading price at the end of the period× 100

Price/earnings ratio(P/E)

=Adjusted trading price at the end of the period

Earnings per share

Average trading price = EUR amount traded during the period

Outokumpu Annual Report 2009 – Definitions of key financial reports

Adjusted number of shares traded during the period

Market capitalisationat 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 averagenumber of shares during the period

Outokumpu Annual Report 2009 – Definitions of key financial reports

Income statement of the parent company Income statement of the parentcompanyDownload excel

Income statement of the parent company

€ million 2009 2008

Sales 216 228

Cost of sales -122 -145

Gross margin 94 83

Other operating income 1 19

Selling and marketing expenses -55 -45

Administrative expenses -51 -62

Research and development expenses -2 -3

Other operating expenses -350 -64

Operating profit -364 -71

Financial income and expenses 379 367

Profit before extraordinary items 15 296

Extraordinary items - 40

Profit before appropriations and taxes 15 336

Appropriations

Change in depreciation difference -0 0

Income taxes 1 -2

Outokumpu Annual Report 2009 – Income statement of the parent company

Profit for the financial year 16 334

The parent company’s financial statements have been prepared in accordance with Finnish accounting standards (FAS ). The

parent company’s complete financial statements (available only in Finnish) can be read on the company’s internet pages

www.outokumpu.com.

Outokumpu Annual Report 2009 – Income statement of the parent company

Balance sheet of the parent company Balance sheet of the parent companyDownload excel

Balance sheet of the parent company

€ million 2009 2008

ASSETS

Non-current assets

Intangible assets 19 22

Property, plant and equipment 55 39

Financial assets

Shares in Group companies 3 380 4 046

Loan receivables from Group companies 488 460

Shares in associated companies 18 18

Other shares and holdings 21 19

Other financial assets 137 130

4 044 4 675

Total non-current assets 4 118 4 735

Current assets

Current receivables

Interest-bearing 175 133


264 656

Cash and cash equivalents 64 164

Total current assets 329 820

TOTAL ASSETS 4 447 5 555

Outokumpu Annual Report 2009 – Balance sheet of the parent company

EQUITY AND LIABILITIES

Shareholders' equity

Share capital 309 308

Premium fund 712 709

Retained earnings 834 590


1 872 1 942

Untaxed reserves

Accumulated depreciation difference 1 0

Liabilities

Non-current liabilities

Interest-bearing 903 1 469


904 1 470

Current liabilities

Interest-bearing 1 558 1 947


1 670 2 142

Total liabilities 2 574 3 613

TOTAL EQUITY AND LIABILITIES 4 447 5 555

Outokumpu Annual Report 2009 – Balance sheet of the parent company

Cash flow statements of the parent company Cash flow of the parent companyDownload excel

Cash flow statement of the parent company

€ million 2009 2008

Cash flow from operating activities


Adjustments for

Taxes -1 2

Depreciation and amortisation 7 7

Impairments 346 2

Profit and loss on sale of property, plant and equipment 0 1

Interest income -33 -55

Dividend income -411 -460

Interest expenses 56 145

Change in provisions 0 0

Group contributions - -40

Exchange gains and losses 25 -41

Loss on the sale of copper tube business - 57

Other adjustments 1 1

-9 -379

Change in working capital

Change in trade and other receivables 80 -88

Change in trade and other payables -57 117

22 29

Dividends received 411 460

Interest received 27 43

Interest paid -80 -143

Income taxes paid 24 14

381 374

Net cash from operating activities 410 358

Outokumpu Annual Report 2009 – Cash flow statements of the parent company

Cash flow from investing activities

Acquisition of subsidiaries and other shares and holdings -2 -341

Purchases of property, plant and equipment -2 -11

Purchases of intangible assets -26 -26

Proceeds from disposal of subsidiaries and other disposals 320 57

Disposals of property, plant and equipment 7 0

Disposals of intangible assets 0 22

Change in loan receivables -30 176

Net cash from investing activities 267 -123

Cash flow before financing activities 677 236

Cash flow from financing activities

Borrowings of long-term debt 61 311

Repayments of long-term debt -683 -130

Change in current debt -352 -41

Dividends paid -90 -216

Cash flow from group contributions 326 79

Shares subscribed with options 4 1

Other financing cash flow -42 -115

Net cash from financing activities -776 -113


Net change in cash and cash equivalents in the balance sheet -99 123

Outokumpu Annual Report 2009 – Cash flow statements of the parent company

Statement of changes in equity of the parent company Statement of the changes in equityof parent companyDownload excel

Statement of changes in equity of the parent company

€ million Share capital Premium fund Retained earnings Total equity

Equity on Jan. 1, 2008 308 708 807 1 823

Profit for the financial year - - 334 334

Dividends - - -216 -216

Shares subscribed with options 0 1 - 1

Equity on Dec. 31, 2008 308 709 924 1 942

Profit for the financial year - - 16 16

Dividends - - -90 -90

Shares subscribed with options 1 3 - 4

Equity on Dec. 31, 2009 308 712 850 1 872

Distributable funds on Dec. 31

€ million 2009 2008

Retained earnings 834 590


Distributable funds on Dec. 31 850 924

Outokumpu Annual Report 2009 – Statement of changes in equity of the parent company

Contact us Contact OutokumpuOutokumpu Oyj

Corporate ManagementRiihitontuntie 7 B / P.O. Box 14002201 ESPOOFinland

Tel. +358 9 4211Fax +358 9 421 3888

You can also contact us by filling in the form below

Investor relations

Päivi LaajarantaIR AssistantTel. +358 9 421 4070,Send e-mail to Päivi LaajarantaPäivi Laajaranta coordinates meeting requests.

Ingela UlfvesVice President – Investor Relations and Financial CommunicationsTel. +358 9 421 2438,Send e-mail to Ingela Ulfves

Päivi LindqvistSenior Vice President – Communications and IRTel. +358 9 421 2432,Send e-mail to Päivi Lindqvist

Corporate responsibility

Liisa JalankoVice President – Corporate responsibilityTel. +358 9 421 3265Send e-mail to Liisa Jalanko

Environmental issues

Juha YlimaunuSenior Vice President – Environment, health, safety and qualityTel. +358 9 421 2688Send e-mail to Juha Ylimaunu

Outokumpu Annual Report 2009 – Contact us

Human resources issues

Heli AlénVice President – Human Resources DevelopmentTel. +358 9 421 2603Send e-mail to Heli Alén

Financial issues

Mika PyyskänenSenior Vice President – Corporate ControllerTel. +358 421 5512Send e-mail to Mika Pyyskänen

Contact form

SubjectHow may we help you?

Fields marked with asterisk (*) are requiredFirst name *Last name *CompanyCountry *State/provinceCityZip code *Phone *E-mail address *Concerning this request, I prefer to be contacted by *

Phone

E-mailSign up

Sign me up for Outokumpu press releases by email

Submit

Outokumpu Annual Report 2009 – Contact us

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Outokumpu Oyj | Financial report 2009

Outokumpu Oyj is a Finnish public limited liability company organised under the laws of Finland and domiciled in Espoo. The parent company, Outokumpu Oyj, has been listed on the NASDAQ OMX 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, Riihitontuntie 7 B, P.O. Box 140, 02201 Espoo, Finland or via e-mail [email protected].

Outokumpu is an international stainless steel company. Customers

in a wide range of industries use our products and services worldwide. In 2009 Outokumpu Oyj and its subsidiaries in continuing operations (together “the Outokumpu Group” or “the Group”) have been organised into two segments: General Stainless and Specialty Stainless. In 2009, Outokumpu operated in more than 30 countries and employed some 7 900 people. The Group’s sales amounted to EUR 2.6 billion, of which 95% was generated outside Finland.

Basis of preparation

The consolidated financial statements of Outokumpu have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union. The consolidated financial statements are presented in millions of euros and have been prepared under the historical cost conventions, unless otherwise stated in the accounting principles. All figures presented have been rounded and consequently the sum of individual figures can deviate from the presented sum figure. Key figures have been calculated using exact figures.

The consolidated financial statements of Outokumpu for 2009 have been prepared on going concern basis.

Applied amended standards and interpretations in 2009

Outokumpu has applied the IFRS 8 – Operating segments as of January 1, 2009. According to IFRS 8, segment information should be based on management’s internal reporting structure and accounting principles. Outokumpu’s segment information has already earlier been based on management reporting structure and therefore the operating segments are the same as they were previously, General Stainless and Specialty Stainless. Otherwise this standard has mainly impacted the presentation of financial statements. In addition, Outokumpu has adopted the following amended standards as of January 1, 2009: IFRS 2 Share-based Payments – Vesting Conditions and Cancellations (Amendment)IFRS 7 Financial Instruments: Disclosures (Amendments)IAS 1 Presentation of financial statementsIAS 27 Consolidated and Separate Financial Statements - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate (Amendments)IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation (Amendments)

Amended standard IAS 1 – Presentation of financial statements has impacted the presentation of income statement and statement of changes in equity and thus changed the presentation of financial statements. Other amended standards had no material impact on Outokumpu’s financial statements for 2009.

Outokumpu has adopted the following new interpretations in 2009:

IFRIC 13 Customer Loyalty ProgrammesIFRIC 15 Agreements for the Construction of Real EstateIFRIC 16 Hedges of a Net Investment in a Foreign OperationIFRIC 18 Transfers of Assets from CustomersAnnual improvements to IFRSs

These changes have not had material impact on Outokumpu’s financial statements for 2009

Adoption of new and amended standards and interpretations

Outokumpu will adopt in 2010 the following new or amended standards and interpretations:

Amended IFRS 3 Business Combinations Changes extended the scope of IFRS 3 and have an impact on the outcome of the business combinations, for example the amount of goodwill to be recognised. Contingent purchase price is valued at fair value and any subsequent change in it will be booked to income statement. Expenses relating to the acquisition will be recognised directly to income statement instead of capitalisation. Amended IAS 27 Consolidated and Separate Financial Statements Amendments in the standard have changed the accounting treatment of acquisitions and disposals, which take place in stages. Amended IAS 39 Financial Instruments: Recognition and measurement The amendment provides clarification in relation to hedge accounting. It clarifies the hedging of one-sided risk and the inflation risk of financial assets and liabilities.Amended IFRS 2 Share-based payments Amended IFRS 2 provides additional guidance on how share-based payments between Group companies should be recognised. IFRIC 9 Reassessment of Embedded Derivatives and IAS 39 Financial Instruments: Recognition and Measurement – Embedded Derivatives (Amendments)IFRIC 17 Distribution of Non-cash Assets to ownersIFRIC 18 Transfer of Assets from Customers

In addition, Outokumpu will apply Annual improvements to IFRSs.

Outokumpu will adopt the following amended standards and new interpretations in 2011 or later. IAS 32 Financial Instruments: PresentationIAS 24 Related party disclosuresIFRS 9 Financial Instruments: Recognition and measurementIFRIC 14 Prepayments of a minimum funding requirementIFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

Outokumpu investigates the impacts of the new standards to consolidated financial statements during 2010.

Notes to the consolidated financial statements

1. Corporate information

2. Accounting principles for the consolidated accounts


Use of estimates

The preparation of the financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Accounting estimates are employed in the financial statements to determine reported amounts, including the realisability of certain assets, the useful lives of tangible and intangible assets, income taxes, inventories, provisions, pension obligations, impairment of goodwill and other items. The basis for the estimates is described in more detail in these accounting principles and in connection with the relevant disclosure to the financial statement. Although these estimates are based on management’s best knowledge of current events and actions, actual results may differ from the estimates.

Principles of consolidation

The consolidated financial statements include the parent company Outokumpu Oyj and all 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. Associated companies, where Outokumpu holds voting rights of 20–50% and in which Outokumpu has significant influence, but not control, over the financial and operating policies, are included in the consolidated financial statements using the equity method. When Outokumpu’s share of losses exceeds the interest in the associated company, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of the associated companies. The interest in an associated company is the carrying amount of the investment under the equity method together with any long-term interest that, in substance, forms part of the investor’s net investment in the associated company.

Acquired companies are accounted for using the purchase method according to which the assets and liabilities of the acquired company are measured at fair value at the date of acquisition. The cost of goodwill is the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Subsidiaries acquired during the financial year are included in the consolidated financial statements from the date of their acquisition and disposed subsidiaries are included up to their date of sale.

All intra-group transactions, receivables, liabilities and unrealised margins, as well as distribution of profits within the Group, are eliminated.

Minority interest is presented separately from the net profit and disclosed as a separate item in the equity.

Discontinued operations

A discontinued operation results from a decision, pursuant to a single disposal plan, to divest an operation comprising a separate major line of business for which the assets, liabilities and net financial results may be distinguished physically, operationally and for financial reporting purposes. The result from discontinued operations is presented in the income statement as a separate item after the profit from continuing operations. Comparative income statement figures are restated accordingly. Comparative balance sheet items are not restated but presented separately from the assets and liabilities of continuing operations from the date they have been classified as discontinued operations.

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 reportable operating segments are General Stainless and Specialty Stainless. Pricing of inter-segment transactions is based on arm’s length prices. Operating segments are determined based on differences in product range and information provided internally to the CEO who is Outokumpu’s Chief Operating Decision Maker. Operating segments’ operating profit is reported to the CEO regularly in order for him to review its performance and make decisions about resources to be allocated to the segment. Operating profit is defined in management reporting in similar way as in these accounting principles.

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

Foreign currency transactions

Items 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 currency of the parent company. Group companies’ foreign currency transactions are translated into 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 balance sheet date. Foreign exchange gains and losses resulting from the settlement or translation of monetary interest-bearing assets and liabilities denominated in foreign currencies and related derivatives are recognised in financial income and expenses in the income statement. Foreign exchange differences arising in respect of other financial instruments are included in operating profit under sales, purchases or other income and expenses. Income statements and cash flows of subsidiaries, whose functional and reporting currencies are not the euro, are translated into euros at the average exchange rates during the financial period. Their balance sheets are translated at the exchange rates prevailing at the balance sheet date and the translation differences are entered in other comprehensive income. When a subsidiary is sold, accumulated translation differences are recognised are reclassified from other comprehensive income to income statement as part of the gain or loss on the sale.

Revenue recognition

Sales are recognised after the significant risks and rewards that are connected with ownership have been transferred to the buyer, and the Group retains neither a continuing managerial involvement to the degree usually associated with ownership, nor effective control of those goods. Usually this means that sales are recorded upon delivery of goods to customers in accordance with agreed terms of delivery.

Outokumpu ships stainless steel products to customers under a variety of delivery terms. The used terms are based on Incoterms 2000, terms of trade published and defined by the International Chamber of Commerce Terms of Trade.

The most common delivery terms used by Outokumpu are “C” terms, whereby the Group arranges and pays for the carriage and certain other costs, though the Group ceases to be responsible for the goods once they have been handed over to the carrier in accordance with the relevant term. Sale is recognised when goods are handed to the carrier.

Less frequently are used “D” terms, under which the Group is obliged



to deliver the goods to the buyer at the agreed destination, usually the buyer’s premises, in which case sales are recognised when the goods are delivered to the buyer. Also “F” terms, where the buyer arranges and pays for the carriage, thus sale is recognised when the goods are handed over to the carrier contracted by the buyer, are less frequently used.

Revenues from services are recorded when the service has been performed. Sales are shown net of indirect sales taxes and discounts.

Research and development

Research and development costs are expensed as they are incurred, except for qualifying development costs, which are capitalised when it is probable that a development project will generate future economic benefits, and certain criteria, including commercial and technological feasibility, have been met. Capitalised development expenses, comprising materials, supplies, direct labour and related overhead costs are amortised on a systematic basis over their expected useful lives.

Income taxes The Group income tax expense includes 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. The income tax effects of items recognised in other comprehensive income are similarly recognised. The share of results in associated companies is reported in the income statement as calculated from net profit and thus including the income tax charge. Deferred income taxes are stated using the balance sheet liability method, as measured with enacted tax rates, to reflect the net tax effects of all temporary differences between the financial reporting and tax bases of assets and liabilities. The main temporary differences arise from the depreciation difference on property, plant and equipment, fair valuation of net assets in acquired companies, fair valuation of available-for-sale financial assets and derivatives, intra-group inventory profits, pension and other provisions, untaxed reserves and tax losses and credits carried forward. Deductible temporary differences are recognised as a deferred tax asset to the extent that it is probable that future taxable profits will be available, against which the deductible temporary difference can be utilised. Goodwill and other intangible assets

Goodwill arising on an acquisition represents the excess of the cost of the acquisition over the fair value of the net identifiable assets, liabilities and contingent liabilities acquired. Goodwill is stated at cost and is not amortised, but tested annually for impairment. In respect of associated companies, the carrying amount of goodwill is included in the carrying amount of the investment.

Other intangible assets include customer relations, capitalised development expenses, patents, copyrights, licenses and software. Other intangible assets are stated at cost. Other intangible assets acquired in a business combination are valued at fair value at the date of acquisition.

Development costs or acquisition costs of new software clearly associated with an identifiable product, which will be controlled by the Group and has probable economic benefit beyond one year, are recognised as an intangible asset and depreciated over the software’s expected useful life. An intangible asset is recognised only if it is probable that the future economic benefits that are 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.

Other intangible assets are amortised on a straight line basis over their expected useful lives. Periods of amortisation used for intangible assets are the following:Intangible rights up to 20 yearsSoftware up to 10 years

Property, plant and equipment

Property, plant and equipment acquired by the Group companies are stated at historical cost, except the assets of acquired companies that were stated at their fair values at the date of acquisition. The carrying value of the property, plant and equipment in the balance sheet represents the cost less accumulated depreciation and any impairment charges. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised during the period of time that is required to complete and prepare the asset for its intended use.

Property, plant and equipment are depreciated on a straight line basis over their expected useful lives, which are the following:Buildings 25–40 yearsHeavy machinery 15–20 yearsLight machinery and equipment 5–15 years

Land is not depreciated and mine properties are depreciated using the units-of-production method based on the depletion of ore reserves. Expected useful lives of non-current assets are reviewed at balance sheet date and, where they differ significantly from previous estimates, depreciation periods are changed accordingly. Ordinary repairs and maintenance costs are charged to the income statement during the financial year 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. Major renovations are depreciated on a straight line basis over the useful lives of the related assets. Gains and losses on sales and disposals on property, plant and equipment are determined by comparing the received proceeds with the carrying amount and are presented in other operating income or expenses and thus included in operating profit.

Government grants

Government or other grants are recognised 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 are recognised as revenue on a systematic basis over the useful life of the asset as a reduced depreciation expense. In the balance sheet, investments grants are deducted from the value of the asset they relate to.

Impairments

Property, plant and equipment and other non-current assets, including goodwill and intangible assets, are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Goodwill is tested at least annually. For the purposes of assessing impairment, assets are grouped at the lowest cash generating unit level for which there are separately identifiable, mainly independent, cash inflows and outflows. An impairment loss is the amount by which the carrying amount of the assets exceeds the recoverable amount. The recoverable amount is the asset’s value in use. The value in use is determined by reference to discounted future net cash flows expected to be generated by the asset. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable



amount. However, the reversal must not cause that the adjusted value is higher than the carrying amount that would have been determined if no impairment loss had been recognised in prior years. Impairment losses recognised for goodwill are not reversed.

Leases

Leases of property plant and equipment, in which the Group has substantially all the rewards and risks of ownership, are classified as finance leases. Finance lease liabilities are capitalised at the commencement of the lease term at the lower of the fair value of the leased property or the estimated present value of the underlying lease payments. Each lease payment is allocated between the capital liability and finance charges, so as to achieve a constant interest rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in interest-bearing liabilities with the interest element of the finance charge being recognised in the income statement over the lease period. Property, plant and equipment acquired under finance lease contracts are depreciated over the shorter of the useful life of the asset or lease period. Leases of assets where the lessor retains all the risks and benefits of ownership are classified as operating leases. Payments made there under, and under rental agreements, are expensed on a straight-line basis over the lease periods.

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. Upon initial recognition, the finance lease asset is measured at the lower of the fair value of the leased property or the estimated present value of the underlying lease payments and recognised in interest-bearing receivables. Interest income from the finance lease asset is booked to income statement so as to achieve a constant interest rate on the finance balance outstanding.

Financial instruments

Financial instruments are classified as loans and receivables, held-to-maturity investments, available-for-sale financial assets, financial liabilities at amortised cost and financial assets and liabilities at fair value through profit and loss. Equity securities are classified as available-for-sale financial assets and convertible loan receivables are classified as financial assets at fair value through profit and loss. Liquid interest-bearing securities are classified as financial assets at fair value and included in cash equivalents.

Available-for-sale financial assets, as well as financial assets and liabilities at fair value through profit and loss, are measured at fair value and the valuation is based on quoted rates and market prices as well as appropriate valuation methodologies and models. Unlisted equity securities for which fair value cannot be reliably measured are recognised at cost less impairment. Fair value changes of available-for-sale financial assets are recognised in other comprehensive income. Significant or prolonged decline in the fair value will lead to impairment write-down, which is recognised in profit and loss. In the event available-for-sale asset is disposed of, the accumulated fair value changes are released from other comprehensive income to the income statement. Purchases and sales of available-for-sale financial assets are recognised at the trade date.

Loans and receivables as well as all financial liabilities, except for derivatives, are recognised at the settlement date and measured at amortised cost using the effective interest rate method. Transaction costs are included in the initially recognised amount. Material expenses relating to revolving credit facilities are recognised as expenses during the expected maturity of the loan arrangement. The need for impairment is assessed separately for each loan receivable and when realised, it is

deducted from the carrying value. The impairment shall be based on evidence that it is probable that the Group will not be able to collect the loan receivable according to initial terms. Financial assets and liabilities at fair value through profit and loss are recognised at the trade date and measured at fair value.

All derivatives, including embedded derivatives, are initially recognised at fair value on the trade date, and are subsequently re-measured at fair value. Determination of fair values of the derivatives is based on quoted market prices and rates as well as discounting of cash flows.

Fair values of currency forwards, cross-currency and interest rate swaps, metal forwards and emission allowance derivatives are determined by discounting the future nominal cash flows with relevant interest rates and then converting the discounted cash flows to the base currency using spot rates. Fair values of electricity forwards are determined by discounting the base currency denominated values with relevant interest rates. The fair value of currency, interest rate and metal options is determined by utilising commonly applied option valuation models. Optionalities included in electricity derivatives are measured at fair value with own valuation models.

Part of derivatives and other financial instruments may be designated as hedging instruments, in which case hedge accounting is applied. If hedge accounting is not applied, fair value changes of derivatives are recognised in other income and expenses. However, if the derivative is assigned to financing activities, the fair value changes are recognised in financial income and expenses. In the case hedge accounting is applied, the accounting for hedging instruments is dependent on the particular nature of the hedging relationship.

Hedging programmes are documented according to the requirement of IAS 39 and designated hedging instruments are subject to prospective and retrospective testing of effectiveness. Fair value changes of derivatives, which are assigned to hedge forecast transactions (cash flow hedging), are recognised in other comprehensive income to the extent that the hedge is effective. Such accumulated fair value changes are released into income in the period when the hedged cash flow affects income. The ineffective portion of the hedging instrument is recognised immediately in income.

Fair value changes of financial instruments, which are assigned to hedge translation risk related to net investments in foreign operations, are recognised in other comprehensive income to the extent that the hedge is effective. Accumulated gains and losses from hedges are recognised as income only if the hedged subsidiary is sold or liquidated. The ineffective portion of the gain or loss of the hedging instrument is recognised in financial income and expenses.

All recognised fair value changes to other comprehensive income are net of tax.

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less. Investments in liquid fixed income funds are included in cash equivalents. Bank overdrafts are included in current liabilities in the balance sheet.

Emission allowances

Emission allowances are intangible assets. Purchased CO2 allowances

are recognised at cost, whereas allowances received free of charge are recognised at nominal value, i.e. at zero. A provision to cover the obligation to return emission allowances is recognised provided that emission allowances received free of charge will not cover the actual emissions. Revenues from the sale of excess allowances are recognised as other operating income in the income statement.



Inventories

Inventories are stated at the lower of cost or net realisable value. Cost is determined by the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads, but excludes borrowing costs. Net realisable 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.

Trade receivables

Trade receivables are carried at their anticipated realisable value, which is the original invoice amount less an estimated valuation allowance for impairment of these receivables. A valuation allowance for impairment of trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables.

Treasury shares

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

Provisions

Provisions are recognised in the balance sheet 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. Provisions can arise from restructuring plans, onerous contracts and from environmental, litigation or tax risks.

Employee benefits

Group companies in different countries have various pension plans in accordance with local conditions and practices. The plans are classified as either defined contribution plans or defined benefit plans. The contributions to defined contribution plans are charged to the income statement in the year to which they relate. The present value of the obligation of defined benefit plans is determined using the projected unit credit method and the plan assets are measured at fair value at the measurement date. In calculating the Group’s obligation with respect to a plan, the extent to which the cumulative unrecognised actuarial gain or loss exceeds the greater of the present value of the defined benefit obligation and the fair value of plan assets by more than 10% is identified. That excess portion is recognised in the income statement over the expected average remaining working lives of the employees participating in the plan.

Share-based payment transactions

The stock options are valued at fair value on the grant date and recognised as an expense in the income statement during the vesting

period. The stock options have been granted while previous Finnish Limited Liability Companies Act was enacted. The expense of the stock options determined at the grant date reflects the Group’s estimate of the number of stock options that will ultimately vest. The fair value is determined at the grant date using the Black-Scholes-Merton option pricing model and relevant statistical methods. The non-market criteria are not included in the fair value of the option but taken into account in the number of options that are assumed to vest. Outokumpu updates at each annual and interim closing the estimate of the final amount of the options that will vest.

The share-based incentive programmes are accounted partly as equity-settled and partly as cash-settled. The equity and cash settled parts both include market and non-market based vesting criteria. In determining the fair value of the earning periods at the grant dates, and also at later dates in relation to the cash-settled part of the programme, statistical models have been applied in addition to market prices. The impact of non-market based vesting criteria is assessed at each annual and interim closing. The programme includes a mechanism to limit the payout in certain situations. These conditions have also been taken into account in the valuation.

The estimated expenses and changes in the value estimates of all share based incentive schemes are accrued and recognised in the income statement according to IFRS 2. When the options are exercised, the proceeds received, net of any transaction costs, are credited to share capital and the share premium reserve.

Operating profit

Operating profit is defined as follows: operating profit 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, amortisation, possible impairments, and other operating expenses. All other items of the income statement are presented below the operating profit. Exchange gains and losses and fair value changes in derivatives are included in operating profit, if they arise from business-related items. Otherwise they are recorded in financial items.

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 profit attributable to the equity holders of the company by the weighted average number of shares in issue during the year, excluding shares purchased by Outokumpu and held as treasury shares. Diluted earnings per share are calculated as if the warrants and options were exercised at the beginning of the period. In addition to the weighted average number of shares outstanding, the denominator includes the incremental shares obtained through the assumed exercise of the warrants and options. The assumption of exercise is not reflected in earnings per share when the exercise price of the warrants and options exceeds the average market price of the shares during the period. The warrants and options have a diluting effect only when the average market price of the share during the period exceeds the exercise price of the warrants and options.



Outokumpu’s business activities were organised into two reportable segments in 2009: General Stainless and Specialty Stainless. The performance of the segments is reviewed based on segment operating profit which is defined in the accounting principles for the consolidated accounts. The review is done regularly by the CEO based on internal management reports. Outokumpu’s segments were based on management reporting also in 2008 and hence the comparative information has not changed.

Demand and consumption of stainless steel grow faster than any other metal in the world. Outokumpu is one of the largest producers of stainless steel and widely recognised as a leader in technical support as well as research and development. End-user industries using stainless steel are, for example: architectural, building and construction industries, chemical, petrochemical and energy industries, process industries and resources, transportation as well as catering and appliances.

General Stainless

General Stainless comprises two business units: Tornio Works and Long Products. The main products are hot and cold rolled coil and sheet. Tornio Works is the largest stainless steel integrate in the world, including also the Kemi chromite mine and the ferrochrome smelter in Tornio in Finland. Long Products consists of a melt-shop in Sheffield in the UK, a hot rolling mill for long products in Degerfors in Sweden as well as wire rod and bar production in Europe and in the US.

Specialty Stainless

Specialty Stainless comprises three business units: Special Coil and Plate, Thin Strip and Outokumpu Stainless Tubular Products (OSTP). The main products are hot and cold rolled sheet, quarto plate, tubes and various fittings and precision strip. Steel used by the Specialty Stainless units comes mostly from the melt-shops in Avesta, Sweden and Sheffield, the UK, the latter being a part of the General Stainless segment.

Specialty Stainless is strong in tailored solutions and demanding customer applications in stainless flat and tubular products. Specialty Stainless serves customers with high requirements on the stainless steel properties such as steel grade, shape, thickness or surface finish.

Other operations

Other operations consists of activities outside General Stainless and Specialty Stainless segments as well as industrial holdings. Such business development and Corporate Management expenses that are not allocated to the businesses are also reported under Other operations. Sales of Other operations consist of sale of electricity, internal commissions and services.

3. Segment information


Operating segments

Reconciliation

2009€ million

General Stainless

Specialty Stainless

Reportablesegments total

Otheroperations Eliminations Group

External sales 1 643 946 2 589 22 - 2 611Inter-segment sales 421 293 715 221 -935 -Sales 2 065 1 239 3 304 243 -935 2 611Operating profit -259 -149 -408 -31 1 -438Share of results in associated companies - - - -12 - -12Financial income - - - - - 22Financial expenses - - - - - -46Profit before taxes - - - - - -474Income taxes - - - - - 142Discontinued operations - - - - - -4Net profit for the financial year - - - - - -336

Substantial items without payment transaction included in operating profit

Write-down of Avesta melt-shop investment - -15 -15 - - -15Redundancy provision - -5 -5 - - -5Depreciation -127 -56 -184 -1 - -185Amortisation -14 -6 -20 -6 - -26

Non interest-bearing assets 2 952 1 326 4 278 304 -340 4 241Investments in associated companies - - - 152 - 152Other interest-bearing assets - - - - - 396Deferred tax assets - - - - - 42Assets classified as held for sale - - - - - 20Total assets - - - - - 4 850

Non interest-bearing liabilities 530 291 821 64 -336 549Interest-bearing liabilities - - - - - 1 742Deferred tax liabilities - - - - - 100Liabilities classified as held for sale - - - - - 8Total liabilities - - - - - 2 399

Operating capital 2 421 1 035 3 457 240 -4 3 692Net deferred tax liability - - - - - -58Capital employed - - - - - 3 634

Capital expenditure 129 93 222 23 - 245



Reconciliation

2008€ million

General Stainless

Specialty Stainless

Reportablesegments total

Otheroperations Eliminations Group

External sales 3 153 2 298 5 451 23 - 5 474Inter-segment sales 993 407 1 400 235 -1 636 -Sales 4 147 2 705 6 852 258 -1 636 5 474Operating profit -6 -101 -107 38 6 -63Share of results in associated companies - - - -2 - -2Financial income - - - - - 32Financial expenses - - - - - -100Profit before taxes - - - - - -134Income taxes - - - - - 24Discontinued operations - - - - - -79Net profit for the financial year - - - - - -189

Substantial items without payment transaction included in operating profit

Thin Strip restructuring in the UKImpairments - -31 -31 - - -31Items related to personnel adjustments - -35 -35 - - -35

Redundancy provision - -17 -17 - - -17Depreciation -129 -57 -186 -1 - -188Amortisation -6 -6 -12 -6 - -18

Non interest-bearing assets 3 121 1 454 4 575 279 -283 4 571Investments in associated companies - - - 156 - 156Other interest-bearing assets - - - - - 556Deferred tax assets - - - - - 37Assets classified as held for sale - - - - - 22Total assets - - - - - 5 341

Non interest-bearing liabilities 458 280 738 65 -278 525Interest-bearing liabilities - - - - - 1 800Deferred tax liabilities - - - - - 216Liabilities classified as held for sale - - - - - 6Total liabilities - - - - - 2 547

Operating capital 2 663 1 174 3 837 214 -5 4 046Net deferred tax liability - - - - - -179Capital employed - - - - - 3 867

Capital expenditure 332 170 502 42 - 544



€ million Finland Sweden The UKOther

EuropeNorth

AmericaAsia andAustralia

Othercountries

Interarea Group

2009Sales by destination 1) 142 154 147 1 481 251 407 28 - 2 611Sales by origin 2) 1 449 1 102 457 684 217 85 6 -1 390 2 611Operating profit 2) -239 -111 -17 -54 -13 -7 0 2 -438Non-current assets 2) 3) 1 719 533 76 244 60 31 0 - 2 663Operating capital 2) 2 140 880 168 381 86 42 1 -5 3 692Capital expenditure 2) 111 54 12 35 15 18 - - 245

2008Sales by destination 1) 246 331 250 3 470 562 522 93 - 5 474Sales by origin 2) 2 880 2 389 1 033 1 031 456 165 13 -2 493 5 474Operating profit 2) 85 -1 -79 -71 -2 -3 -0 7 -63Non-current assets 2) 3) 1 736 516 65 235 46 14 0 - 2 612Operating capital 2) 2 309 972 183 459 90 34 1 -1 4 046Capital expenditure 2) 120 146 19 226 19 13 - - 544

1) Sales by destination is presented for external sales.2) Sales, operating profit, non-current assets, operating capital and capital expenditure are presented by the locations of the Group companies.3) Excluding financial instruments, deferred tax assets and post-employment benefit assets.

Geographical information



4. Discontinued operations

Specification of discontinued operations and assets held for sale Income statement

€ million 2009 2008

Sales 31 267Expenses -31 -269Operating profit -1 -2Net financial expenses -1 -4Profit before taxes -2 -6Income taxes 0 -0Profit after taxes -1 -6

Impairment loss recognised on the fair valuation ofthe Outokumpu Tube and Brass division’s assets and liabilities -3 -6Loss on the sale of copper tube business - -66Taxes - -After-tax result from the disposal and impairment loss -3 -73

Minority interest - -Net profit for the financial year from discontinued operations -4 -79

Balance sheet

€ million 2009 2008

Assets Intangible and tangible assets 2 2Other non-current assets 2 3Inventories 11 9Other current, non interest-bearing assets 5 8

20 22Liabilities

Provisions 2 2Other non-current, non interest-bearing liabilities 1 1Trade payables 3 2Other current, non interest-bearing liabilities 2 1

8 6

Cash flows

€ million 2009 2008

Operating cash flow 3 -8Investing cash flow -3 -9Financing cash flow 0 19

0 2

Outokumpu Brass

Outokumpu Brass rod business produces brass rods for applications in the construction, electrical and automotive industries. The brass rod plant is located in Drünen in the Netherlands and the unit also has a 50% stake in a brass rod company in Gusum, Sweden. Outokumpu Brass employs some 150 employees. The assets and liabilities of brass rod business are presented as held for sale. Outokumpu intends to divest the brass rod business.

Outokumpu Copper Tube

In June, 2008 Outokumpu sold its remaining copper tube assets to Cupori Group Oy. Outokumpu received EUR 52 million as consideration of the sale. A capital loss of EUR 66 million was booked on the transaction. The assets sold comprised the copper plumbing installation and industrial tube manufacturing companies in Pori in Finland, Zaratamo in Spain, Västerås in Sweden and Liège in Belgium, as well as the copper tube sales companies in France, Germany and Italy.


5. Acquisitions and disposals

Purchase price allocation

€ millionPurchase price 224Acquisition related costs 4Fair value of acquired assets and liabilities -148Goodwill 79

Acquired cash and cash equivalents -27Cash impact of the acquisition 200

Acquired assets, liabilities and contingent liabilities

€ million Seller’s book values Fair values

Non-current assetsIntangible assets 0 47Property, plant and equipment 33 33Non-current financial assets 11 11

Current assetsInventories 168 168Current financial assets

Interest-bearing 6 6Non interest-bearing 156 156

Cash and cash equivalents 27 27Non-current liabilities

Interest-bearing -25 -25Non interest-bearing -21 -33

Current liabilitiesInterest-bearing -95 -95Non interest-bearing -147 -147

114 148

Acquisitions

Year 2009

In 2009 Outokumpu made no aqcuisitions.

Year 2008 In 2008, Outokumpu made three acquisitions, which are presented in the paragraphs below. If all these acquisitions had occurred on January 1, 2008, management estimates that Outokumpu Group consolidated sales for 2008 would have been EUR 5 718 million and consolidated profit EUR -182 million. This estimate is based on the actual transactions of the acquired companies with Outokumpu and third parties.

SoGePar

In July 2008, Outokumpu acquired all the shares in an Italian distributor of stainless steel SoGePar Group with final purchase price of EUR 224 million. Outokumpu also took on debt in the company with amount of EUR 87 million. SoGePar has been consolidated into Outokumpu’s accounts with effect from August 1, 2008.

In the acquisition Outokumpu obtained stainless steel service centers in Castelleone in Italy and in Rotherham in the UK, stock operations in Italy, the UK, Belgium, Finland, France and Ireland, as well as a commercial office in Germany and a representative office in Turkey.

The purchase price has been allocated to the assets, liabilities and contingent liabilities at their fair value. Part of the purchase price has been allocated to customer relationships, which are amortised during their estimated lifetime of four years. The goodwill recognised on the acquisition is attributable mainly to the skills and market knowledge of the acquired business’s work force and to the synergies that are expected to be achieved from integrating the company into the Group’s existing sales and marketing organisation. Also synergy benefits are expected when utilising Outokumpu’s own production facilities to supply material to the acquired units.

Between August 1 and December 31, 2008, SoGePar sales was EUR 143 million and result for the period was EUR 37 million negative.


Outokumpu Armetal Stainless Pipe Co., Ltd

In February 2008, Outokumpu Stainless Tubular Products (OSTP) and Saudi Arabian tube manufacturer Armetal, a company in the Al-Hejailan Group, agreed to form Outokumpu Armetal Stainless Pipe Co., Ltd, a 51/49 stainless steel tubular joint venture located in Riyadh, Saudi Arabia. The joint venture company was founded and has been consolidated into Outokumpu’s accounts with effect from October 1, 2008. Minority interest of 49% is presented separately from the net profit and disclosed as a separate item in the equity. Outokumpu has invested in the company EUR 1 million as equity and granted loans for the company. The joint venture acquired Armetal’s stainless steel

tubular production in October 2008. The purchase price of the business was EUR 15 million. Purchase price premium has been allocated to customer relations, contractual intangible rights and buildings. Fair value allocations are amortised and depreciated in the course of their estimated life time of 5–20 years. Goodwill recognised on the acquisition is mainly attributable to the entry to a new market area and the skills and market knowledge of the acquired business’s work force.

Between October 1 and December 31, 2008, Outokumpu Armetal Stainless Pipe sales were EUR 1 million and result for the period was EUR 0 million negative.

Avesta Klippcenter

In July 2008, Outokumpu acquired the operations of Avesta Klippcenter AB in Avesta, Sweden. Avesta Klippcenter’s main business is to process stainless steel material from Outokumpu’s mills in Sweden for remelting in Avesta’s melt shop. Through the acquisition Outokumpu’s raw material handling capacity increased, and it secures competitive supply for Avesta stainless steel melt shop. The total consideration was some EUR 8 million. Some EUR 1 million of the purchase price has

been allocated to customer relations and machinery and equipment. Goodwill of EUR 2 million arising from the acquisition consists mainly of synergy benefits when acquired business is united to the operations of Avesta’s melt shop. The company has been consolidated into Outokumpu’s accounts with effect from July 1, 2008.

Between July 1 and December 31, 2008, Avesta Klippcenter sales were EUR 2 million and result for the period was EUR 1 million.

Disposals

Year 2009

In September 2009, Outokumpu Stainless Tubular Products (OSTP) sold its square and rectangular tube business in Jakobstad to the Finnish company Stalatube Oy. The sale had no significant impact on Group’s result and cash flow.

Year 2008

In June 2008, Outokumpu sold its remaining copper tube assets to Cupori Group Oy. See note 4. Discontinued operations.

5. Acquisitions and disposals

Purchase price allocation

€ millionPurchase price 15Acquisition related costs 0Fair value of acquired assets and liabilities -11Goodwill 4

Acquired cash and cash equivalents -Cash impact of the acquisition 15

Acquired assets, liabilities and contingent liabilities

€ million Seller’s book values Fair values

Intangible assets 0 4Property, plant and equipment 2 3Inventories 4 4

6 11


6. Other operating income

7. Other operating expenses

€ million 2009 2008

Gains on sale of intangible and tangible assets 14 27Other income items 14 5Market price gains and losses from derivative financial instruments - 25

28 57

€ million 2009 2008

Losses on sale of intangible and tangible assets -1 -26Impairment of intangible and tangible assets -15 -6Other expense items -3 -10Market price gains and losses from derivative financial instruments -13 -

-32 -42

8. Function expenses by nature

€ million 2009 2008

Raw materials and merchandise -1 307 -3 090Fuels and supplies -245 -364Energy expenses -161 -221Freights -133 -192Maintenance -75 -113Employee benefit expenses -446 -520Rents and leases -25 -26Hire processing -27 -38Depreciation and amortisation -211 -206Production for own use 5 9Change in inventories -221 -521Other expenses -200 -271

-3 044 -5 552

Non-recurring items in operating profit

€ million 2009 2008

Write-down of Avesta melt-shop investment -15 -Redundancy provision -5 -17Thin Strip restructuring in the UK - -66

-20 -83

Expenses by function include cost of sales, selling and marketing, administrative as well as research and development expenses.

In 2009, auditors were paid fees totalling EUR 1 million (2008: EUR 3 million), of which non-auditing services accounted for EUR 0 million (2008: EUR 1 million).

Market price gains and losses from derivative instruments included a gain of EUR 16 million from ineffective cash flow hedges in 2008.

Market price gains and losses from derivative instruments included a loss of EUR 8 million from ineffective cash flow hedges in 2009.


10. Financial income and expenses

€ million 2009 2008

Dividend income on available-for-sale financial assets 3 10Interest income

Loans and receivables 14 16Bank accounts and deposits 3 4Fair value through profit and loss - 0

Gains on the sale of available-for-sale financial assets 0 0Other financial income 2 1Total financial income 22 32

Interest expensesFinancial liabilities at amortised cost -37 -77Finance lease arrangements -2 -3Derivatives -0 6

Capitalised interests 8 3Impairment losses on available-for-sale financial assets - -24Other financial expenses -14 -4Total financial expenses -44 -99

Exchange gains and lossesDerivatives -17 79Other 25 -71

Other market price gains and lossesDerivatives -9 -11Other -0 1

Total market price gains and losses -2 -2

Total financial income and expenses -25 -69

Exchange gains and losses in the income statement

€ million 2009 2008

In sales -2 75In purchases 6 -45In other income and expenses -7 -10In financial income and expenses 7 8

4 27

9. Employee benefit expenses

€ million 2009 2008

Wages and salaries -311 -356Termination benefits -9 -25Social security costs -47 -54Pension and other long-term employee benefits

Defined benefit plans -19 -10Defined contribution plans -45 -55Other long-term employee benefits -3 -6

Expenses from share-based payments -2 -0Other personnel expenses 1) -8 -14

-446 -520

1) In 2009 (2008: EUR 0 million) no profit-sharing bonuses based on the Finnish Personnel Funds Act were recognised.


11. Income taxes

Income taxes in the income statement

€ million 2009 2008

Current taxes -4 -6Deferred taxes 146 30

142 24

The difference between income taxes at the statutory tax rate of 26% in Finland and income taxes recognised in the consolidated income statement is reconciled as follows:

€ million 2009 2008

Hypothetical income taxes at Finnish tax rate on consolidated profit before tax 123 35Difference between Finnish and foreign tax rates 30 20Tax effect of non-deductible expenses and tax exempt income 6 -7Tax effect of losses for which no deferred tax benefit is recognised

-13

-29

Changes in the carrying amounts of deferred tax assets from prior years

1

1

Taxes for prior years -1 -2Impact of the changes in the tax rates on deferred tax balances -0 4Tax effect of net results of associated companies -3 -1Effects of consolidation and eliminations -0 0Other items -1 1Income taxes in the consolidated income statement 142 24

Deferred income taxes in the balance sheet

€ million 2009 2008

Deferred tax assets 42 37Deferred tax liabilities -100 -216Net deferred tax liability -58 -179

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.

The gross movements of the deferred income tax balances

€ million 2009 2008

Net deferred tax liability on Jan. 1 -179 -215Translation differences -2 9Recognised in the income statement 146 30Recognised in other comprehensive income -23 26Acquired subsidiaries - -29Net deferred tax liability on Dec. 31 -58 -179

Exchange gains and losses comprise EUR 24 million net exchange loss on derivative financial instruments (2008: EUR 75 million net gains). Exchange gains and losses on derivatives, which are related to financing activities include the ineffective portion from hedges of net investment in foreign operations EUR 0.1 million gain (2008: EUR 0.2 million loss). Market price gains and losses recognised in operating profit including also exchange gains and losses are presented in the notes 6. Other operating income and 7. Other operating expenses.

Non-recurring items in financial income and expenses

In 2009, there were no non-recurring items in financial income and expenses. In 2008, non-recurring loss of EUR 21 million from impairment of Belvedere shares was included in the financial expenses.

10. Financial income and expenses


11. Income taxes

Movement in deferred tax assets and liabilities during the financial year

2009€ million Jan. 1

Translation differences

Recognised in the income

statement

Recognised in other

comprehensiveincome

Acquiredsubsidiaries Dec. 31

Deferred tax liabilitiesDepreciation difference and other untaxed reserves -198 -4 13 - - -189Fair value adjustments -16 -0 6 -2 - -12Effects of consolidation and eliminations -1 - -0 - - -1Other taxable temporary differences -66 -0 18 - - -49

-282 -4 37 -2 - -252

Deferred tax assetsTax losses carried forward 25 3 104 - - 132Fair value adjustments 8 - 13 -21 - -Pension obligations 9 -0 3 - - 12Effects of consolidation and eliminations 4 - -1 - - 3Other tax deductible temporary differences 57 -0 -10 - - 46

103 2 108 -21 - 193

Net deferred tax liability -179 -2 146 -23 - -58

2008€ million Jan. 1

Translation differences

Recognised in the income

statement

Recognised in other

comprehensiveincome

Acquiredsubsidiaries Dec. 31

Deferred tax liabilitiesDepreciation difference and other untaxed reserves -230 8 25 - -1 -198Fair value adjustments -8 - 23 - -31 -16Effects of consolidation and eliminations -1 - -0 - - -1Other taxable temporary differences -62 1 -5 - - -66

-301 8 43 - -32 -282

Deferred tax assetsTax losses carried forward 20 -0 5 - - 25Fair value adjustments 0 - -18 26 - 8Pension obligations 7 0 2 - - 9Effects of consolidation and eliminations 10 0 -6 - - 4Other tax deductible temporary differences 50 1 3 - 3 57

86 1 -14 26 3 103

Net deferred tax liability -215 9 30 26 -29 -179

Aggregate deferred taxes recognised in other comprehensive income

€ million 2009 2008

Cashflow hedging 10 17Available-for-sale financial assets -4 5Net investment hedging -6 -Other comprehensive income in associated companies -2 -

-1 21

Deferred tax assets of EUR 82 million (2008: EUR 53 million) have not been recognised in the consolidated financial statements because the realisation of the tax benefit included in these assets is not probable. Majority of these unrecognised deferred tax assets relate to tax losses amounting to EUR 246 million (2008: EUR 163 million). EUR 6 million of these tax losses (2008: EUR 4 million) will expire within next five years

and the rest earliest in 2015. The consolidated balance sheet includes deferred tax assets of EUR 57 million (Dec. 31, 2008: EUR 23 million) in subsidiaries, which have generated losses in current or in prior year. The recognition of these assets is based on result estimates, which indicate that the realisation of these deferred tax assets is probable.


12. Earnings per share

2009 2008

Result attributable to the equity holders of the Company, € million -336 -189

Weighted average number of shares, in thousands 180 826 180 185

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

-1.86 -1.05

Earnings per share, €From continuing operations -1.83 -0.61From discontinued operations -0.02 -0.44

2009 2008

Result attributable to the equity holders of the Company, € million -336 -189

Weighted average number of shares, in thousands 180 826 180 185Effect of 2003A share options, in thousands - 340Effect of 2003B share options, in thousands 137 432Effect of 2003C share options, in thousands 7 38Diluted average number of shares, in thousands 180 970 180 995

Diluted earnings per share, € -1.86 -1.04From continuing operations -1.83 -0.61From discontinued operations -0.02 -0.43

Diluted earnings per share is calculated by adjusting average number of shares outstanding to assume conversion of all diluting potential shares. The Group has diluting options (2003 option programme). The options have a diluting effect, when the exercise price with an option is lower than the market value of the Company share. The diluting effect is the number of shares that the Company has to issue gratuitously because the received funds from the exercised options do not cover the fair value of the shares. The fair value of the Company’s share is determined as the average market price of the shares during the period.


13. Intangible assets

Intangible assets, acquired

€ million Patents SoftwareCustomer

relationships Other Goodwill Total

Historical cost on Jan. 1, 2009 4 38 46 120 482 690Translation differences - 1 - 2 0 3Additions 1) 0 1 - 1 - 2Disposals -0 -0 - -0 - -1Reclassifications - 2 2 -5 5 5Historical cost on Dec. 31, 2009 4 41 48 119 488 700

Accumulated amortisation and impairment on Jan. 1, 2009 -2 -31 -4 -63 -6 -106Translation differences - -1 - -2 - -2Disposals 0 0 - 0 - 0Reclassifications - 0 - -0 - -0Amortisation -0 -3 -12 -11 - -26Accumulated amortisation and impairment on Dec. 31, 2009 -2 -34 -16 -75 -6 -134

Carrying value on Dec. 31, 2009 2 7 32 43 482 566Carrying value on Jan. 1, 2009 2 7 42 57 476 584

Historical cost on Jan. 1, 2008 4 39 - 118 405 566Translation differences - -2 - -6 -1 -9Additions 1) 0 3 - 8 - 11Acquired subsidiaries 0 0 46 0 78 125Disposals -0 -4 - -1 - -6Reclassifications - 2 - 1 - 3Historical cost on Dec. 31, 2008 4 38 46 120 482 690

Accumulated amortisation and impairment on Jan. 1, 2008 -2 -33 - -56 - -91Translation differences - 2 - 3 - 5Disposals 0 3 - 0 - 4Reclassifications - 0 - -0 - 0Amortisation -0 -3 -4 -10 - -18Impairments - - - - -6 -6Accumulated amortisation and impairment on Dec. 31, 2008 -2 -31 -4 -63 -6 -106

Carrying value on Dec. 31, 2008 2 7 42 57 476 584Carrying value on Jan. 1, 2008 2 6 - 62 405 475

1) Construction work in progress related to intangible assets is presented in the corresponding item of PPE.

When the asset is taken into use, it is reclassified to the appropriate asset account.


13. Intangible assets

Amortisation by function

€ million 2009 2008

Cost of sales -12 -13Selling and marketing expenses -12 -4Administrative expenses -2 -2Research and development expenses -0 -0

-26 -18

Goodwill allocation to the segments

€ million 2009 2008

General Stainless 417 416Specialty Stainless 65 60

482 476

Impairment testing of goodwill

Goodwill is allocated to the Group’s cash-generating units (CGUs) according to the business organisation. The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations are based on the cash flow projections in the strategic plans approved by the management for 2010. Projections for 2011–2014 are based on conservative price and delivery forecasts. Fixed costs for 2010 are based on 2010 budget and they are planned increase by inflation rate in the following years. The price of stainless steel used in the cash flow projections is below its long-term average. The deliveries for 2010 are based on Outokumpu’s internal forecast and for the following years, deliveries are based on objective external view on market development. The change in working capital is driven by volume.

Cash flows beyond the five-year period are calculated using the terminal value method. Growth rate assumption in the terminal value calculation is kept conservatively at zero.

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, market risk premium, industry specific beta, cost of debt and targeted capital structure. The discount rate has been calculated using the same methodology as in 2008. The WACC used in the calculations was 9% in 2009 (2008: 9%).

The most important assumptions in value-in-use calculations are discount rate, the deliveries of stainless steel and margins. In sensitivity analyses, all these assumptions were tested. According to the performed sensitivity analysis, it does not appear probable that a decrease of five percent in stainless steel deliveries or margins for 2010–2014 would lead to impairment write-down. Also, if used discount factor would decrease by one percent point, it would not lead to impairment write-down. If both deliveries and margins would decrease simultaneously by five percent for 2010–2014, the recoverable amounts would decrease marginally below their carrying value as at December 31, 2009.

As a result of the performed impairment tests, no impairment losses have been recognised.

Emission allowances

Outokumpu’s sites covered by EU’s Emissions Trading Scheme (ETS) are the production plants in Tornio (Finland), Avesta, Degerfors and Nyby (Sweden) as well as Sheffield (the UK). In the European Union, a new emission trading period started in 2008. Outokumpu will receive 1.3 million tonnes of emission allowances annually until 2012, which is estimated to be enough for the current production capacity within the Group’s European production sites. Emissions trading is expected to continue after 2012 and Outokumpu follows the development of the EU Climate and Energy package, and the renewal of the ETS. In order to decrease the cost of compliance to ETS, Outokumpu has also invested in the Testing Ground Facility (TGF), a Nordic carbon fund managed by the Nordic Environmental Finance Corporation. States and companies can invest in the carbon fund, which purchases emission allowances for its investors from projects that benefit the environment.

Purchased carbon dioxide allowances are accounted for as intangible assets at cost, whereas carbon dioxide emission allowances received free of charge are accounted for at nominal value, i.e. at zero. A provision to cover the obligation to return emission allowances is recognised in case the emission allowances received free of charge will not cover the actual emissions. The actual carbon dioxide emissions in the units that belong to the Emissions Trading Scheme were some 540 000 tonnes in 2009 (2008: 820 000 tonnes). The emissions did not exceed the amount of allowances received free of charge in 2009 and Outokumpu sold 454 000 tonnes of emission allowances for EUR 6 million (2008: 22 million).

See note 20 for information on the management of the emission allowance price risk.


14. Property, plant and equipment

€ million LandMine

properties Buildings

Machinery and

equipment

Other tangible

assets

Advances paid and

construction work in

progress 1) Total

Historical cost on Jan. 1, 2009 39 33 838 2 749 99 262 4 021Translation differences 1 - 9 52 1 7 69Additions 7 1 22 104 0 111 246Disposals - - -1 -22 -0 -0 -23Reclassifications -0 1 22 100 6 -133 -4Historical cost on Dec. 31, 2009 47 35 891 2 983 106 247 4 309

Accumulated depreciation and impairment on Jan. 1, 2009 -2 -3 -345 -1 606 -37 -0 -1 994Translation differences 0 - -5 -32 -0 -1 -38Disposals - - 0 19 0 - 20Reclassifications - - 0 -0 0 - 0Depreciation - -0 -30 -148 -6 - -185Impairments - - -1 - - -14 -15Accumulated depreciation and impairment on Dec. 31, 2009

-2 -3 -381 -1 767 -43 -15 -2 212

Carrying value on Dec. 31, 2009 45 32 511 1 215 63 232 2 097Carrying value on Jan. 1, 2009 37 30 494 1 143 62 262 2 027

Historical cost on Jan. 1, 2008 38 33 830 2 890 98 94 3 984Translation differences -3 - -26 -154 -1 -6 -190Additions 1 - 19 54 0 227 301Acquired subsidiaries 1 - 20 14 0 0 36Disposals -0 - -11 -95 -0 -0 -108Reclassifications 2 0 6 41 2 -53 -2Historical cost on Dec. 31, 2008 39 33 838 2 749 99 262 4 021

Accumulated depreciation and impairment on Jan. 1, 2008 -2 -2 -341 -1 627 -32 -0 -2 004Translation differences -0 - 17 98 0 0 115Disposals - - 9 74 0 - 83Reclassifications - - 0 -1 -0 -0 -0Depreciation - -1 -29 -151 -5 - -188Accumulated depreciation and impairment on Dec. 31, 2008

-2 -3 -345 -1 606 -37 -0 -1 994

Carrying value on Dec. 31, 2008 37 30 494 1 143 62 262 2 027Carrying value on Jan. 1, 2008 36 31 490 1 263 66 94 1 980

Depreciation by function

€ million 2009 2008

Cost of sales -177 -180Selling and marketing expenses -3 -3Administrative expenses -4 -4Research and development expenses -1 -1

-185 -188

Borrowing costs amounting to EUR 8 million was capitalised on investment projects during the financial year (2008: EUR 3 million). Total interest capitalised on Dec. 31, 2009 was EUR 50 million (Dec. 31, 2008: EUR 46 million). Outokumpu determines separate capitalisation rates for each quarter. The average rate used during 2009 was 3.16%.

1) Advances paid and construction work in progress includes also intangible assets.

When the asset is ready to be taken into use, it is reclassified to appropriate asset account.


14. Property, plant and equipment

15. Investments in associated companies

€ million BuildingsMachinery and

equipment Total

Historical cost 9 132 141Accumulated depreciation -3 -29 -32Carrying value on Dec. 31, 2009 5 103 109

Historical cost 9 71 80Accumulated depreciation -2 -22 -24Carrying value on Dec. 31, 2008 7 49 56

Assets leased by finance lease agreements

€ million 2009 2008

Investments in associated companies at costHistorical cost on Jan. 1 138 139Translation differences 0 -0Historical cost on Dec. 31 139 138

Equity adjustment to investments in associated companies on Jan. 1 17 24Change in translation differences 1 -3

Dividends received during financial year -0 -2Share of results in associated companies 1) -12 -2Share of other comprehensive income in associated companies 7 -Equity adjustment to investments in associated companies on Dec. 31 14 17

Carrying value of investments in associated companies on Dec. 31 152 156

Associated companiesDomicile Ownership, %

ABB Industriunderhåll AB Sweden 49Fagersta Stainless AB Sweden 50KDAB i Västerås AB 2) Sweden 50Outokumpu Nordic Brass AB Sweden 50Rapid Power Oy Finland 33Talvivaara Sotkamo Ltd. 3) Finland 20

Principal associated companies

€ million Domicile Assets Liabilities Sales Profit Ownership, %

2009Fagersta Stainless AB Sweden 68 29 93 -8 50Rapid Power Oy 4) Finland 201 147 31 1 33Talvivaara Sotkamo Ltd. 3) 5) Finland 715 624 3 -22 20

2008Fagersta Stainless AB Sweden 77 32 212 -3 50Rapid Power Oy Finland 220 166 50 0 33Talvivaara Sotkamo Ltd. 3) Finland 776 599 0 -6 20

1) In principle, the consolidated results of the associated companies are based on a 12-month calendar period. However, in 2009 Outokumpu’s share of Talvivaara Sotkamo Ltd’s profits is

consolidated from the 15-month period ending at September 30, 2009 (June 30, 2008–September 30, 2009).

In connection with the aquisition, a fair value of EUR 82 million was allocated to ore reserves. The depreciation of the fair value allocation was started in January 2009 applying a

straight-line depreciation method over a period of 24 years, which is the expected excavation time of the ore reserves. The depreciation is presented as part of the share of results in

associated companies.2) Formerly Kopparlunden Development AB 3) Formerly Talvivaara Project Ltd.4) Rapid Power Oy’s figures for 2009 are based on the information on November 30, 2009.5) Talvivaara Sotkamo Ltd’s figures for 2009 are based on the information on September 30, 2009. These figures are included in Talvivaara Mining Ltd’s consolidated accounts

published for the period ending on September 30, 2009.


Measured at

Category inaccordance with IAS 39

Amortisedcost Cost

Fair valuerecognised

in othercomprehensive

income


throughprofit or loss

Carryingamount

Dec 31, 2009Fair value

Dec 31, 2009

2009 € millionNon-current financial assetsAvailable-for-sale financial assets a) - 13 85 - 98 98Trade and other receivables

Interest-bearing b), c) 139 - - 1 140 60Non interest-bearing b) 55 - - - 55 55

Hedge accounted derivatives e) - - 0 - 0 0Derivatives held for trading d) - - - 7 7 7

Current financial assetsAvailable-for-sale financial assets a) - 3 11 - 14 14Trade and other receivables

Interest-bearing b) 9 - - - 9 9Non interest-bearing b) 493 - - - 493 493

Cash and cash equivalents b), c) 99 - - 12 112 112Hedge accounted derivatives e) - - 0 - 0 0Derivatives held for trading d) - - - 16 16 16

796 17 96 35 943 863

Non-current financial liabilitiesLong-term debt f) 997 - - - 997 958Trade and other payables f) 1 - - - 1 1Hedge accounted derivatives e) - - 25 - 25 25Derivatives held for trading d) - - - 16 16 16

Current financial liabilitiesCurrent debt f) 652 - - - 652 652Trade and other payables

Interest-bearing f) 7 - - - 7 7Non interest-bearing f) 438 - - - 438 438


2 095 - 33 53 2 181 2 142

16. Carrying values of financial assets and liabilities by measurement category

Categories in accordance with IAS 39:a) Available-for-sale financial assetsb) Loans and receivablesc) Financial assets at fair value through profit and lossd) Derivatives held for tradinge) Hedge accounted derivatives f) Other financial liabilities


Measured at

Category inaccordance with IAS 39

Amortisedcost Cost


in othercomprehensive

income


throughprofit or loss

Carryingamount

Dec 31, 2008Fair value

Dec 31, 2008

2008 € millionNon-current financial assetsAvailable-for-sale financial assets a) - 15 52 - 67 67Trade and other receivables

Interest-bearing b), c) 130 - - 1 132 93Non interest-bearing b) 55 - - - 55 55

Hedge accounted derivatives e) - - 1 - 1 1Derivatives held for trading d) - - - 9 9 9 Current financial assetsAvailable-for-sale financial assets a) - 0 7 - 8 8Trade and other receivables

Interest-bearing b) 25 - - - 25 25Non interest-bearing b) 650 - - - 650 650

Cash and cash equivalents b), c) 205 - - 19 224 224Hedge accounted derivatives e) - - 11 - 11 11Derivatives held for trading d) - - - 81 81 81

1 064 15 71 110 1 262 1 223

Non-current financial liabilitiesLong-term debt f) 1 170 - - - 1 170 1 106Trade and other payables f) 2 - - - 2 2Hedge accounted derivatives e) - - 48 - 48 48

Current financial liabilitiesCurrent debt f) 501 - - - 501 501Trade and other payables

Interest-bearing f) 26 - - - 26 26Non interest-bearing f) 378 - - - 378 378


2 077 - 49 53 2 179 2 115

Categories in accordance with IAS 39:a) Available-for-sale financial assetsb) Loans and receivablesc) Financial assets at fair value through profit and lossd) Derivatives held for tradinge) Hedge accounted derivatives f) Other financial liabilities

16. Carrying values of financial assets and liabilities by measurement category


17. Hierarchy of financial assets and liabilities measured at fair value

2009 € million Level 1 Level 2 Level 3 Total

AssetsAvailable-for-sale financial assets 60 - 36 96Trade and other receivables, interest-bearing - 1 - 1Cash and cash equivalents - 12 - 12Hedge accounted derivatives - 0 - 0Derivatives held for trading - 22 - 22

60 35 36 131

LiabilitiesHedge accounted derivatives - 33 - 33Derivatives held for trading - 53 - 53

- 86 - 86

Reconciliation of changes on level 3 1)

€ million Available-for-sale financial assets

Carrying value Jan. 1, 2009 39Translation difference 2Fair value changes recognised in OCI -5Carrying balance Dec. 31, 2009 36

1) The calculation is based on closing rates.

Fair value hierarchy is based on source of inputs used in valuations:

Level 1: Fair values are based on public quatationsLevel 2: Fair values are based on market rates and prices, discounted

future cash flows and, in respect of options, on evaluation models.

Level 3: Fair value measurement is not based on observable market data, as there are no reliable market source available. The valuation method is chosen so that information available for the valuation and the characteristics of the valuation object can be adequately taken into account.

The fair value of the level three relates to Swedish krona denominated investment to an unlisted company and an investment to carbon fund.

Valuation of unlisted company is based on realised reported figures. The valuation consists of following parameters: earnings per share of the company (EPS), P/E ratio of the market, equity per share ratio and long-term average dividend per share ratio. The only parameter directly tied to any market value is the P/E-ratio, otherwise the value is affected by changes in earnings, equity and dividends in the company. Other parameters remaining unchanged, 10% change in P/E-ratio translates approximately 5% change in the fair value. 10% change in the other parameters do not have material effect on the value.

The fair value calculation of investment in the carbon fund (TGF) is based on the estimated amounts of Kyoto-credits received from the projects as well as estimated market prices of such credits. Main risk factors related to projects have been taken into account in the evaluation of amount of the credits received from the fund.


18. Available-for-sale financial assets

€ million 2009 2008

Carrying value on Jan. 1 75 139Translation differences 2 -7Additions 2 1Disposals 0 -0Fair value changes 34 -35Impairment losses - -23Gains on disposals in the income statement 0 0Carrying value on Dec. 31 112 75

Less:Non-current listed equity securities -49 -14Non-current unlisted equity securities -50 -53Current available-for-sale financial assets 14 8

Listed equity securities 60 21Unlisted equity securities and other investments, at fair value 36 39Unlisted equity securities and other investments, at cost 17 15

112 75Fair value reserve of available-for-sale financial assets

Fair value 112 75Acquisition value -61 -59Fair value reserve before tax 51 15Deferred tax liability -4 5Fair value reserve 46 20

19. Share-based payment plans

Listed equity securities are recognised at fair value, which is based on quoted market prices. The significant or prolonged decline in the fair value will lead to impairment if the fair value has been below the acquisition value by more than predefined percentage during last three quarters.

Valuation methods used for unlisted equity securities have been chosen so that information available for the valuation and the

characteristics of the company’s business can be adequately taken into account. More information on valuation method can be found in note 17. Hierarchy of financial assets and liabilities measured at fair value.

The unlisted equity securities, whose fair value cannot be reliably determined are measured at cost. The amount includes EUR 12 million (2008: EUR 10 million) investments in power utility companies on Dec. 31, 2009.

Outokumpu has a stock option programme for management (2003 stock option programme) and two share-based incentive programmes. The stock option programme has three parts, 2003A, 2003B and 2003C and share-based incentive programmes are for years 2006–2010 and 2009–2013. Both stock option programme and share-based payment programmes are part of the Group’s incentive and commitment-building system for key employees, and the objective is to encourage recipients to work in the long-term to increase shareholder value. The objective of the programmes is to reward for good performance, which supports the Group’s strategy and at the same time to direct management’s attention to increasing the Outokumpu’s shareholder value over a longer period of time.

The first earning period for 2006–2010 incentive programme was ended on December 31, 2008. Based on the achievement of the targets, the Board confirmed that the participants would receive 50% of the maximum number of shares. Altogether 177 715 shares were distributed to 125 persons in March 2009. Outokumpu used its treasury shares for the reward payment, which means that the total number of shares of the company did not change.

On February 3, 2009, the Board of Directors of Outokumpu approved the second share-based incentive plan to be offered to the

key management of Outokumpu for years 2009–2013. The programme will last five years, comprising three earning periods of three calendar years each. The earning periods commence on January 1, 2009, January 1, 2010 and January 1, 2011. The Board approves the number of participants, final allocations and performance criteria separately for each earning period. The aggregate number of shares distributed for each earning period cannot exceed 500 000 shares. The amount of reward will be determined and paid to the participants on the basis of the achievement of performance targets after the financial statements of the last year of earning period have been prepared. No new shares will be issued in connection with the programme and therefore the incentive plan will have no diluting effect.

IFRS 2 Share-based payments standard has been applied for the above mentioned incentive programmes. The total estimated value of the programmes is EUR 21 million at December 31, 2009. This value is recognised as an expense in the income statement during the vesting periods. By December 31, 2009, a total of EUR 16 million has been recognised as an expense in the income statement, of which EUR 2 million in 2009 (2008: EUR 0 million).

More information on Outokumpu’s options and share-based incentive programmes can be found in Outokumpu’s annual report.



Option programme

General terms and conditions of the option programme

2003A 2003B 2003C

Grant date June 12, 2003 Feb. 10 and Sept. 15, 2004March 22, 2005 and April 1–Oct. 1, 2007

The number of options granted 742 988 1 148 820 1 205 000The maximum number of options granted on Dec. 31 - 939 714 80 500Exercise price, € 1) 7.25 9.81 10.44

Term of contract June 12, 2003–March 1, 2009 Feb. 10, 2004–March 1, 2010 March 22, 2005–March 1, 2011Vesting period June 12, 2003–Aug. 31, 2006 Feb. 10, 2004–Aug. 31, 2007 March 22, 2005–Aug 31, 2008Conditions of the agreement The Group’s earnings per

share in 2003 and share price performance outperforming the share price trend of peer

companies. The additional earnings criterion for Group

Executive Committee members was the Group’s

gearing.

The Group’s earnings per share in 2004 and share price

performance outperforming the share price trend of peer

companies. The additional earnings criterion for Group

Executive Committee members was the Group’s

gearing.

The development of the Group’s operating profit

(EBIT), and development of the Group’s total shareholder

return (TSR) compared to a peer group. The additional

criterion for Group Executive Committee members was the

Group’s gearing.1) Paid dividends have been deducted.

Number of options and weighted average exercise prices of, and movements in, share options during the year

2009 2008

Options

Weighted averageexercise price

€/share Options

Weighted averageexercise price

€/share

Outstanding at the beginning of the year 1 587 294 9.28 1 719 381 10.48Forfeited during the year - - -2 000 10.94Exercised during the year -558 659 7.34 -130 087 9.14Expired during the year -8 421 7.25 - -Outstanding at the end of the year 1 020 214 9.86 1 587 294 9.28Exercisable at the end of the year 1 020 214 9.86 1 587 294 9.28

The weighted average remaining contractual life for the share options outstanding as at December 31, 2009 was 0.2 years (2008: 0.9 years).In 2009 nor in 2008, no new options were granted.

The fair value of equity-settled share options granted is estimated at the grant date using the Black-Scholes-Merton option pricing model, taking into account the terms and conditions upon which the options were granted.

Share-based payments included in employee benefit expenses

€ million 2009 2008

Equity-settled share-based payment transactions -1 -2Cash-settled share-based payment transactions -1 2

-2 -0

Total carrying amount of liabilities for cash-settled arrangements on Dec. 31 2 3


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

programme for 2006–2010

Share-based incentive


Earning period, 2007–2009 Earning period, 2008–2010 Earning period, 2009–2011

Grant date Feb. 1, 2007 Jan. 31, 2008 Feb. 3, 2009Vesting period Jan. 1, 2007–Dec. 31, 2009 Jan. 1, 2008–Dec. 31, 2010 Jan. 1, 2009–Dec. 31, 2011Vesting conditions:

Market Share price performance outperforming share price trend of peer companies.

Share price performance outperforming share price trend of peer companies.

Share price performance outperforming share price trend of peer companies.

Non-market Achieving targets set for the Excellence

programmes.

Achieving targets set for the Excellence

programmes.

-

Other relevant conditions A salary-based limit for the maximum benefits.

A salary-based limit for the maximum benefits.

A salary-based limit for the maximum benefits.

The fair value of share-based incentive programmes are determined using statistical model.

Inputs of the modelShare-based incentive


Share-based incentive


Earning period, 2007–2009 Earning period, 2008–2010 Earning period, 2009–2011

Share price at the grant date, € 28.10 21.01 8.54Share price at the balance sheet date, € 13.26 13.26 13.26Reference ratio annualised volatility at the grant date, % p.a. 25.9 28.1 52.3Reference ratio annualised volatility at the balance sheet date, % p.a. 34.1 34.1 42.7Estimated forfeit ratio at the grant date, % p.a. 10.0 8.0 6.0Estimated forfeit ratio at the balance sheet date, % p.a. 5.0 5.0 5.0Actual forfeit ratio, % p.a. 1.9 4.7 2.6Estimated outcome of market criteria at the grant date, % 41.1 51.5 62.3Estimated outcome of non-market criteria at the grant date, % 100.0 50.0 -Estimated outcome of market criteria at the balance sheet date, % 0.0 19.9 50.6Estimated outcome of non-market criteria at the balance sheet date, % 0.0 0.0 -


Share-based incentive programmes


The objective of financial risk management is to reduce the impact of price fluctuations and other factors of uncertainty in financial markets on earnings, cash flows and balance sheet, as well as to ensure sufficient liquidity. The objective of capital management is to secure the ability to continue as a going concern and to optimise the cost of capital in order to enhance value to shareholders. The main objective of insurance management is to provide protection against insurable catastrophe risk and to reduce earnings variation caused by hazards.

The Board has approved the risk management policy, which defines responsibilities, risk management process and other main principles of risk management. The Board oversees risk management on a regular basis. In 2009, the CEO approved changes to country and credit risk management principles. The new principles have been embedded in the Financial Risk Policy. 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. Business units and functions hedge their currency and nickel price risk against Treasury and Risk Management function, which does most of the derivative contracts with banks and other financial institutions. The function is also responsible for managing liquidity and refinancing risk as well as interest rate risk and emission allowance price risk. Credit risk management is decentralised, but Treasury and Risk Management function monitors this risk as well. The Group’s energy function is responsible for managing energy price risk.

The Treasury and Risk Management function purchases a substantial part of Group’s insurances. The most important insurance lines are property damage and business interruption, liability, transport and credit. The Group’s captive insurance company retains a selected part of insurable risk.

Market risk

Market risk is caused by changes in foreign exchange and interest rates, as well as commodity, energy and security prices. These price changes may have a significant impact on the Group’s earnings, cash flows and balance sheet. Sensitivity of financial instruments to market risk is described in note 24.

Outokumpu uses derivative contracts to mitigate above-mentioned impacts of market price changes. Hedge accounting is applied to hedges of forecasted electricity purchases of Finnish production sites (electricity price risk) and committed currency denominated electricity purchases (EUR/SEK spot rate risk). Also derivatives, for which hedge accounting is not applied, have been entered into for the purpose of reducing 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. Nominal amounts and fair values of all derivatives are presented in note 25.

Foreign exchange rate risk

A major part of Group’s sales is in euros and US dollars. A significant part of expenses arise in euros, US dollars and Swedish kronas. In Europe, Outokumpu’s products are priced mainly in euros and therefore production costs in Swedish krona (some 4 billion kronas a year) in particular gives rise to a significant foreign exchange risk impacting on earnings.

Outokumpu hedges most of its fair value risk, e.g. risks related to currency denominated accounts receivables, accounts payables, interest-bearing debt, cash and loan receivables. Cash flow risk related to firm commitments is hedged to a large extent, whereas forecasted and probable cash flows can be hedged selectively and with separate decisions only. In 2009, Outokumpu hedged forecasted cash flows by purchasing Swedish kronas and British pounds. In the end of the

year there was also a decision to reduce currency hedging of a loan receivable from Luvata Fabrication Oy. The Group’s fair-value currency position is presented on a more detailed level in note 21. Foreign exchange exposure.

Outokumpu does not hedge income statement translation risk. The total non-euro-denominated equity of the Group’s foreign subsidiaries was EUR 888 million on Dec. 31, 2009 (2008: EUR 1 075 million). Some 61% of the total net investment exposure is denominated in Swedish krona and 14% in British pounds. At the end of the year there were no hedges related to net investment exposure (2008 hedging ratio: 9.3%).

Interest rate risk

The Group’s interest rate risk is monitored as cash flow risk (impact of rate changes on net interest expenses) and fair value risk (impact of rate changes on fair value of monetary assets and liabilities). In order to manage the balance between risk and cost in an optimal way, a significant part of loans have short-term interest rate as a reference rate. Cash flow risk is reduced with interest rate swaps, where Outokumpu pays fixed rate and receives variable rate. In 2009, interest rate options were also made with the aim of reducing impacts of interest rate increase on earnings.

Swedish krona and euro have substantial contribution to the overall interest rate risk. Approximately 87% of the Group’s interest-bearing liabilities have an interest period of less than one year and the average interest rate of long-term interest bearing debt on Dec. 31, 2009 was 2.0%. Interest rate position is presented on a more detailed level in note 22. Currency distribution and re-pricing of outstanding net debt.

Commodity 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 Nord Pool ASA. Timing differences between raw material purchase and pricing of products, changes in inventory levels and the capability to pass on changes in raw material and energy prices to end-product prices, all affect hedging requirements and activities.

Nickel price is the most important commodity price risk for Outokumpu. A majority of stainless steel sales contracts include an alloy surcharge clause, with the aim of reducing the risk arising from the time difference between raw material purchase and product delivery. The Group’s nickel exposure includes price fixed purchase orders, nickel-containing material in inventories, price fixed sales orders and forecasted but not yet ordered deliveries for the upcoming few weeks. This, typically long (surplus), position in nickel is partly reduced with derivatives so that the permanent amount of nickel in business activities (base stock) is being left mainly unhedged. Nickel derivatives are used to reduce the impacts of price changes on earnings. Based on a separate decision, a significant part of the base stock was hedged in the end of 2009. Metal price changes have a major impact on the Group’s working capital and thus cash flow from operations. This risk is not hedged with derivatives.

Many of Outokumpu’s main sites are participating in the EU Emissions Trading Scheme (ETS). Realised and forecasted carbon dioxide emissions and granted emission allowances are monitored and assessed also centrally. Emission allowance price risk is managed with the aim of securing the cost of compliance for the current trading period and reducing the cost of compliance e.g. by investing in a carbon fund and by swapping EUAs to Kyoto credits within the limits set in ETS.

The Group has energy intensive production processes using electrical energy, liquefied petroleum gas, natural gas and other fuels. Electrical energy used by the Group’s Nordic production sites is purchased and managed centrally while at other sites electrical energy is purchased locally. Electricity price risk is reduced with fixed price

20. Financial risk management, capital management and insurances


supply contracts, ownerships in energy producers and with the use of derivatives. Electricity derivatives are used to manage short- and medium-term price risk and hedge accounting is applied to part of the contracts. Hedge accounted derivatives are presented in note 25. Fair values and nominal amounts of derivative instruments.

On Dec. 31, 2009 the Group had electricity derivatives of 0.8 TWh (Dec. 31, 2008: 1.3 TWh). Electricity consumption of the Group’s Nordic production sites was 2.1 TWh (2008: 2.7 TWh).

Security price risk

Outokumpu has investments in equity securities, loan receivables and investment funds. On Dec. 31, 2009 the biggest investment in listed equity securities was Talvivaara Mining Company Plc and the most significant loan receivable was from Luvata Fabrication Oy. Fund investments were made to two fixed income funds and one money market fund. Apart from currency risk related to loan receivables, securities have not been hedged with derivatives.

Country and credit risk

Country and credit risk management principles were updated in the end of 2009. According to the new principles many related processes will be harmonised, decision-making related to customer credit risk will be moved to sales organisation and capabilities related to credit control will be developed further.

All external sales must be covered by approved credit limits or secured payment terms. Credit control policy applied in 2009 as well as new credit control principles enable unsecured credit limits but most of the outstanding trade receivables have been covered by credit limits granted by insurance companies. Credit insurance policy typically covers some 85% of an insured credit loss. Part of the credit risk related to trade receivables is managed with bank guarantees, letters of credit and advance payments. Country risk related to Outokumpu’s business activities is monitored and reported at the Group-level.

On Dec. 31, 2009 the maximum exposure to credit risk of trade receivables was EUR 427 million (2008: EUR 571 million). Some 85% of trade receivables are covered by insurance or secured payment terms (2008: 94%). The Group’s trade receivables are generated by a large number of customers. However, there have been some single customer credit risk concentrations during the last year and in Italy Outokumpu had many unsecured limits at the end of the year. The biggest amounts of receivables by country were Germany (17%), Italy (12%) and the United States (9%). Age analysis of accounts receivables is in note 27.

Loan receivables are typically not insured or secured in any other way. A significant portion of all interest bearing loan receivables was a receivable from Luvata Fabrication Oy.

The Treasury and Risk Management function monitors credit risk related to receivables, including receivables related to derivatives, from financial institutions. Outokumpu seeks to reduce these risks by limiting the counterparties to banks and other financial institutions with good credit standing. For the derivative transactions, Outokumpu prefers to have ISDA framework agreements in place. Investments related to liquidity management are made in short-term deposits and liquid financial instruments with, as much as possible, low credit risk.

Liquidity and refinancing risk

Outokumpu raises most of its interest-bearing debt centrally. The Group seeks to reduce liquidity and refinancing risk by having sufficient amount of cash and credit lines available and by having

balanced maturity profile of long-term debt. Efficient cash and liquidity management is also reducing liquidity risk.

In 2009, Outokumpu Oyj agreed on EUR 900 million Revolving Credit Facility, which was fully undrawn on Dec. 31, 2009. In the same connection, a few existing loan agreements were reviewed and changed. Other committed credit facilities totaling EUR 246 million were agreed on and these facilities were also fully undrawn on Dec. 31, 2009. Additionally, Outokumpu agreed during 2009 on EUR 50 million pension loan, EUR 61 million finance lease and EUR 38 million in other long-term loans. The domestic commercial paper programme was increased to EUR 800 million of which EUR 504 million was used on Dec. 31, 2009.

The main funding programmes and standby credit facilities include the Finnish Commercial Paper Program totalling EUR 800 million, the Euro-Commercial Paper Program totalling USD 250 million, the committed Revolving Credit Facility of EUR 900 million (maturing in June 2012), a committed credit facility of EUR 100 million and a committed credit facility of SEK 1 500 million. On Dec. 31, 2009 the Group had committed and available credit facilities, available and undrawn TyEL pension loans in Finland, and other agreed and undrawn loans totalling EUR 1 341 million. More information on liquidity and refinancing risk is presented in note 23.

Capital management

The Group’s capital management objective is to secure the ability to continue as a going concern and to optimise the cost of capital in order to enhance value to shareholders. As part of this objective the Group seeks to maintain access to loan and capital markets at all times despite the cyclical nature of the industry in which Outokumpu operates. The Board of Directors reviews the capital structure of the Group on a regular basis.

Capital structure and debt capacity are taken into account when deciding new investments. Practical tools to manage capital include application of dividend policy, share buybacks and share issues. Debt capital is managed considering the requirement to secure liquidity and the capability to refinance maturing debt. Outokumpu seeks to avoid having financial covenants in its debt. Despite this principle, the new Revolving Credit Facility and some loans negotiated thereafter include a financial covenant, which is tied to gearing.

The Group’s internal capital structure is reviewed on a regular basis with an aim to optimise the structure e.g. by applying internal dividends and equity adjustments. Net investment in foreign entities is monitored and the Group has capability to hedge related translation risk.

Outokumpu’s captive insurance company, Visenta Försäkrings Ab, has to comply with capital adequacy requirements set by authority. During the reporting period Visenta has been well capitalised to meet externally imposed requirements.

The management monitors capital structure on the basis of gearing ratio, which is calculated as net debt divided by total equity. Net debt is calculated as total borrowings, including all interest-bearing liabilities, less interest-bearing assets, all marked with 1) in the consolidated balance sheet. Other definitions can be found on page 68.

The Group’s financial target is to maintain the gearing ratio below 75%. Financial objectives include also a return on capital employed of over 13% and always the best among peers. Weighted average cost of capital (WACC) is defined and applied to monitor efficiency of capital use and to provide market driven guidance for managing capital structure and for making capital allocation decisions.

On Dec. 31, 2009 net interest-bearing debt was EUR 1 183 million (2008: EUR 1 072 million), total equity EUR 2 451 million (2008: EUR 2 975 million) and debt-to-equity ratio 48.2% (2008: 38.4%). The increase in net interest-bearing debt and debt-to-equity ratio during 2009 resulted primarily from net loss for the financial year, investments



21. Foreign exchange exposure

22. Currency distribution and re-pricing of outstanding net debt

Fair value exposures to currency risk of EUR reporting companies

2009 2008

€ million SEK USD GBP Other SEK USD GBP Other

Trade receivables and payables 4 16 27 14 3 12 22 12Loans and bank accounts 1) 801 119 44 -68 579 111 50 -67Derivatives -450 -66 -65 66 -236 -92 -58 67Net exposure 355 69 5 12 346 31 14 12

Fair value exposures to currency risk of SEK reporting companies

2009 2008

€ million EUR USD GBP Other EUR USD GBP Other

Trade receivables and payables 60 30 1 11 100 58 1 19Loans and bank accounts 1) 23 12 5 2 23 11 3 2Derivatives -141 -72 -15 -18 -142 -63 -1 -19Net exposure -58 -30 -8 -5 -19 5 3 2

1) Includes cash, interest-bearing liabilities and receivables.

1) Includes cash and cash equivalents, interest-bearing liabilities and receivables.2) Includes nominal value of interest rate and cross currency swaps, interest rate options and currency forwards earmarked to the interest-bearing net debt. Currency forwards are not

included in average rate calculation. Year 2008 table has been changed respectively.3) The effect of one percentage point increase in interest rates to financial expenses over the following year.

Dec. 31, 2009

€ millionCurrency Net debt 1) Derivatives 2)

Averagerate, %

Duration,year

Rate sensitivity 3)

EUR 1 277 -692 2.3 1.1 2.5SEK 251 660 2.2 1.5 5.2USD -111 102 10.5 > 10 0.8Others -29 -47 1.8 0.2 -0.6

1 388 23 8.0

Dec. 31, 2008

€ millionCurrency Net debt 1) Derivatives 2)

Averagerate, %

Duration,year

Rate sensitivity 3)

EUR 1 019 -631 4.2 1.9 0.6SEK 416 566 4.2 0.7 7.4USD -134 62 7.6 10.1 0.2Others -11 -39 3.4 0.2 -0.3

1 291 -42 7.9


and dividend payment. Increase in net debt was limited by significant reduction in working capital. Insurances

Outokumpu’s business is capital intensive and key production processes are rather tightly integrated and have other

interdependences as well. Property damage and business interruption is the most important insurance line and substantial part of the insurance premiums relate to these types of risks. Other significant insurance lines include transport, credit and liability.

Visenta Försäkrings AB can act as direct insurer and as reinsurer. The company is registered in Sweden and it has assets worth almost EUR 30 million. Visenta underwrites e.g. credit insurance policies and property and business interruption insurance policies for Group companies.


2008 Balance sheet Contractual cash flows

€ million Dec. 31. 2009 2010 2011 2012 2013 2014–

Bonds 225 - - 75 150 - -Loans from financial institutions 959 208 275 96 92 162 126Pension loans 160 29 29 37 24 21 21Finance lease liabilities 55 4 5 4 4 4 33Other liabilities 272 260 3 2 - - 7Interest payments 26 66 37 32 21 12 18Interest rate derivatives -9 -3 -0 -1 -6 - -Trade payables 236 236 - - - - -Other derivative financial instruments 12 2 4 6 - - -

801 352 251 285 199 205

On Dec. 31, 2008 the Group had cash and cash equivalent marketable securities amounting to EUR 224 million and committed and available credit facilities, undrawn TyEL pension loans in Finland, and other agreed and undrawn loans totalling EUR 1 010 million.

23. Liquidity and re-financing risk

2009 Balance sheet Contractual cash flows

€ million Dec. 31 2010 2011 2012 2013 2014 2015–

Bonds 225 - 75 150 - - -Loans from financial institutions 615 108 81 157 65 73 130Pension loans 182 29 40 30 27 15 41Finance lease liabilities 111 6 8 8 8 14 67Other liabilities 517 509 1 - - - 7Interest payments and facility charges 8 41 28 14 10 9 16Interest rate derivatives 11 6 2 1 -1 3 -0Trade payables 301 301 - - - - -Other derivative financial instruments 52 28 9 11 5 - -

1 028 243 372 115 114 261

On Dec. 31, 2009 the Group had cash and cash equivalent marketable securities amounting to EUR 112 million and committed and available credit facilities, undrawn TyEL pension loans in Finland, and other agreed and undrawn loans totalling EUR 1 341 million.

24. Sensitivity of financial instruments to market risks

2009 2008

€ million Income

statement

Other

comprehensive

income

Income

statement

Other

comprehensive

income

+/-10% change in EUR/USD exchange rate -5/+6 - -2/+3 -+/-10% change in EUR/SEK exchange rate -5/+6 -23/+28 -2/+2 -17/+21+/-10% change in EUR/GBP exchange rate -0/+0 - -1/+1 -+/-10% change in USD nickel price -4/+3 - -3/+3 -+/-10% change in electricity price +0/-0 +2/-2 +1/-1 +1/-1+/-10% change in share prices - +8/-8 +0/-0 +6/-6+/-1% parallel shift in interest rates +8/-8 - -6/+6 -

Sensitivity analyses apply to financial instruments only. Other assets, liabilities and off-balance sheet items such as sales and purchase orders, are not in the scope of these analyses. The flat price variation for nickel, electricity, currency and share prices are assumed to be 10%. The variation of interest rates is assumed to be 1% parallel shift on interest rate curve. The calculations are net tax.


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

25. Fair values and nominal amounts of derivative instruments

2009 2009 2009 2008 2009 2008

€ million Positive fair valueNegative fair

value Net fair value Net fair valueNominal amounts

Nominal amounts

Currency and interest rate derivativesCurrency forwards 12 54 -42 0 1 784 1 920Interest rate swaps - 3 -3 2 199 200Cross-currency swaps 5 13 -8 7 212 46Currency options, bought 1 - 1 - 30 -Currency options, sold - 0 -0 - 31 -Interest options, bought 2 - 2 - 78 -Interest options, sold - 2 -2 - 78 -

Tonnes TonnesMetal derivatives

Forward and futures nickel contracts - - - -0 - 4 729Nickel options, bought 2 - 2 14 13 290 16 758Nickel options, sold - 4 -4 -14 13 290 11 478Forward and futures copper contracts 0 1 -0 -0 1 275 4 925Forward and futures zinc contracts 0 0 -0 -0 400 1 025

Emission allowance derivatives 1 0 0 1 404 000 270 000

TWh TWhElectricity derivatives 1 10 -8 -11 0.8 1.3

Stock options - - - 0Total derivatives 22 86 -63 -1

Less long-term derivativesCurrency forwards - 20 -20 -37Interest rate swaps - 2 -2 1Cross currency swaps 5 13 -8 7Interest options, bought 2 - 2 -Interest options, sold - 1 -1 -Emission allowance derivatives 0 - 0 0 Electricity derivatives 0 5 -5 -10

Short-term derivatives 16 45 -29 37


Hedge accounted cash flow hedges 2009 2008

Nominal amounts, SEK million

Fair value € million

Other comprehensive

income, € million

Nominal amounts, SEK million

Fair value € million

Other comprehensive

income, € million

Maturity 1–5 years 1 449 -10 -9 1 106 -11 -12Maturity 5–10 years 2 047 -13 -14 2 160 -21 -23Maturity > 10 years 36 0 0 488 -4 -5

3 532 -23 -23 3 755 -37 -39

Hedge accounted electricity derivatives 2009 2008

€ millionNominal

amounts, TWh Fair value

Other comprehensive

incomeNominal

amounts, TWh Fair value

Other comprehensive

income

Remaining maturity < 1 year 0.2 -4 -3 0.1 -1 -1Remaining maturity 1–2 years 0.3 -5 -4 0.5 -10 -7

0.6 -8 -6 0.5 -11 -8

Hedges of net investments in foreign entities2009 2008

Currency Nominal valueFair value,

€ million

Other comprehensive

income, € million Nominal value

Fair value, € million

Other comprehensive

income, € million

SEK million - - 15 962 11 14GBP million - - 0 - - 0

- 15 11 15

Forecast purchases of electricity for the Finnish production facilities are hedged with electricity forwards. The effective portion of unrealised gains and losses on hedges, net of tax is recognised in other comprehensive income. Other fair value changes are recognised

as gain or loss. The effective portion of realised gains and losses on hedges is recognised in income as adjustment to purchases in the period when the hedged cash flow affects income. Other realised gains and losses are recognised in other operating income and expenses.

Net investment in foreign entities is hedged with currency forwards. The effective portion of gains and losses on the hedging instruments, net of tax, is recognised in other comprehensive income. The ineffective

portion is recognised as gain or loss in financial income and expenses. There are no open hedges at the reporting date.

25. Fair values and nominal amounts of derivative instruments

Outokumpu has hedged currency spot risk related to SEK denominated long-term electricity supply agreement for the Finnish production sites. The currency derivatives, which hedge the currency risk, mature in other periods (years 2010–2013) than the underlying cash flows of electricity purchases. The derivatives will be prolonged later to mature with the underlying cash flows. The effective portion of hedges is recognised in other comprehensive income net of tax and will be recognised in income at the same period as the underlying hedged cash flows affect income.

The ineffective portion of the hedges (year 2009 loss EUR 8 million, year 2008 gain EUR 16 million) is recognised in other operating income and expenses. Year 2010 electricity deliveries have been postponed to year 2011 due to amendments made in supply agreement in year 2009. Part of the currency hedges have been closed and hedging relationship terminated as the underlying forecasted cash flow is not expected to occur. After changes in hedging relationship EUR 1 million loss was transferred from other comprehensive income to other operating expenses.


26. Inventories

€ million 2009 2008

Raw materials and consumables 265 381Work in progress 340 402Finished goods and merchandise 410 421Advance payments 0 0

1 016 1 204

27. Trade and other receivables

€ million 2009 2008

Non-currentInterest-bearing

Loans receivable 139 130Financial assets at fair value through profit and loss 1 1

140 132

Non interest-bearing Trade receivables 1 0Defined benefit pension assets 53 54Other receivables 1 0

55 55

CurrentInterest-bearing

Loans receivable 9 24Accrued interest income 0 0

9 25

Non interest-bearing Trade receivables 427 571Income tax receivable 15 51Prepaid insurance expenses 7 8VAT receivable 20 42Grants and subsidies receivable 1 1Other accruals 30 16Other receivables 9 13

508 701

Allowance for impairment of trade receivablesAllowance on Jan. 1 6 6Additions 10 1Deductions -3 -1Recovery of doubtful receivables -0 -0Allowance on Dec. 31 13 6

At the end of 2009, EUR 34 million (Dec. 31, 2008: EUR 131 million) was recognised as expense, with which the carrying value of the inventories was written down to reflect its net realisable value (NRV). 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 coming prices for the products to be sold is estimated according to management’s best knowledge in NRV calculations. Due to fluctuation in nickel and other alloy prices the realised prices can deviate significantly from what has been used in NRV calculations on the closing date.


27. Trade and other receivables

28. Cash and cash equivalents

€ million 2009 2008

Cash at bank and in hand 98 203Short term bank deposits 1 2Cash equivalent marketable securities 12 19

112 224Bank overdrafts 1) -12 -5

99 2191) Presented in current interest-bearing debt on the balance sheet.

Age analysis of trade receivables

€ million 2009 2008

Neither impaired, nor past due 367 467Past due 1–30 days 44 72Past due 31–60 days 8 16More than 60 days 7 17

427 571

Fair value of interest-bearing non-current loan receivables is estimated to be EUR 49 million (2008: EUR 91 million). Difference between the fair value and the carrying amount relate to a loan receivable from Luvata Fabrication Oy. In determining the fair value of the receivable, the priority position versus other financing, capitalisation of interest, market credit spreds, and level of market interest rates have been considered. Also the scenario of premature repayment has been taken into account in the valuation. Carrying amount on current receivables is reasonable approximation of their fair value.

The maximum exposure to credit risk at the reporting date is the carrying amount of the loan and trade receivables. Risks related to trade receivables are presented in more detail in note 20.

Fair value of cash and cash equivalents does not significantly differ from the carrying value. The effective interest rate of cash equivalent marketable securities at the end of 2009 was 0.94% and the average maturity 2 days. Investments in fixed income funds are included in the cash equivalent marketable securities.


29. Equity

Share capital and premium fund

€ millionNumber of shares

1 000 Share capital Premium fund Total

On Jan. 1, 2008 180 103 308 701 1 010Shares subscribed with 2003A option rights 52 0 0 0Shares subscribed with 2003B option rights 68 0 1 1Shares subscribed with 2003C option rights 10 0 0 0On Dec. 31, 2008 180 233 308 702 1 011Shares subscribed with 2003A option rights 542 1 3 4Shares subscribed with 2003B option rights 6 0 0 0Shares subscribed with 2003C option rights 10 0 0 0Distribution of treasury shares 178 - - -On Dec. 31, 2009 180 970 309 706 1 015Treasury shares 1 041Total number of shares on Dec. 31, 2009 182 011

Fair value reserves

€ million 2009 2008

Available-for-sale financial assets reserve 46 20Cash flow hedge reserve -30 -47Reserve of other comprehensive income in associated companies 5 -

22 -28

Other reserves

€ million 2009 2008

Reserve fund 12 14Other reserves 3 1

15 15

2010 1) 2009 2008

Dividend per share, € 0.35 0.50 1.20Total dividends, € million 63 90 216

1) The Board of Directors’ proposal to the Annual General Meeting

According to the Articles of Association, the maximum number of Outokumpu Oyj shares is 706 million. Account equivalent value of a share is EUR 1.70, and the maximum share capital is EUR 1.2 billion. No treasury shares have been purchased in 2009 or 2008.

Fair value reserves include movements in the fair values of available-for-sale financial assets and derivative instruments used for cash flow hedging and a share of other comprehensive income in associated companies.

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

Distributable fundsOn Dec. 31, 2009 the distributable funds of the parent company totalled EUR 850 million.

Dividend per shareThe dividends paid in 2010 will be decided at the Annual General Meeting on March 30, 2010. This dividend payable is not reflected in the financial statements.


By function Defined benefit pension plans

Other long-term employee benefits

€ million 2009 2008 2009 2008

Cost of sales -5 -12 -3 -5Selling and marketing expenses -2 -2 -0 -0Administrative expenses -13 3 -0 -1

-19 -10 -3 -6

Defined benefit cost Defined benefit pension plans


€ million 2009 2008 2009 2008

Current service cost -5 -7 -1 -1Interest cost -19 -20 -2 -2Expected return on plan assets 19 25 - -Recognised net actuarial gains and losses -1 -0 0 -0Employee contributions 1 2 - -Past service cost -0 -0 0 -3Gains and losses on curtailments and settlements -14 -9 0 -

-19 -10 -3 -6

Actual return on plan assets 39 -51 - -

Amounts recognised in the balance sheet Defined benefit pension plans


€ million 2009 2008 2009 2008

Present value of funded obligations 354 281 - -Fair value of plan assets -334 -288 - -Present value of unfunded obligations 24 26 38 34Unrecognised actuarial gains and losses -67 -42 -4 -1Unrecognised past service cost -0 -0 1 1Net liability -22 -24 34 34

30. Employee benefit obligations

Pension and other long-term employee benefits

Amounts recognised in the income statement

€ million 2009 2008

Defined benefit pension plans -19 -10Defined contribution pension expenses -45 -55Other long-term employee benefits -3 -6

-67 -71

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

ITP-pension plans operated by Alecta in Sweden and plans operated by Stichting Bedrijfspensioenfonds voor de metaalindustrie in the Netherlands are multi-employer defined benefit pension plans. However, it has not been possible to get sufficient information for

the calculation of obligations and assets by employer from the plan operators, and therefore these plans have been accounted for as defined contribution plans in the financial statements.

Other long-term employee benefits relate to retirement medical arrangements in the US for retirees and their families and on long-term employment benefits in Finland. In Finland the employees are entitled to receive an one time indemnity after 20 years of service.


Balance sheet reconciliation Defined benefit pension plans


€ million 2009 2008 2009 2008

Net liability on Jan. 1 -24 -21 34 29Translation differences -3 7 -1 1Net periodic cost in income statement 19 10 3 6Contributions paid into the plans -15 -22 -2 -2Acquired subsidiaries - 2 - -Net liability on Dec. 31 -22 -24 34 34

€ million 2009 2008

Defined benefit pension and other long-term employee benefits 65 64Defined benefit pension assets -53 -54Net liability 12 10

Movement in plan assets

€ million 2009 2008

Fair value of plan assets on Jan. 1 288 398Translation differences 15 -72Contributions paid into the plans 14 22Benefits paid by the plans -21 -14Expected return on plan assets 19 21Actuarial gains and losses 20 -66Curtailments and settlements -2 -Fair value of plan assets on Dec. 31 334 288

The expected contributions to be paid to the plans in 2010 are EUR 13 million.

Historical information

€ million 2009 2008 2007 2006 2005

Present value of the defined benefit obligations 416 341 426 485 515Fair value of plan assets -334 -288 -398 -414 -375Deficit in the plan 83 53 28 71 140

Allocation of plan assets

% 2009 2008

Equity securities 41 39Debt securities 3 43Real estate 4 5Bonds 41 -Other (insured plans) 11 13

100 100



31. Provisions

€ millionRestructuring

provisionsEnvironmental

provisionsOther

provisions

Provisions on Jan. 1, 2009 46 20 10Translation differences 3 1 1Increases in provisions 8 0 3Utilised during the financial year -32 -3 -2Unused amounts reversed -7 -4 -0Provisions on Dec. 31, 2009 19 13 12

€ million 2009 2008

Non-current provisions 17 28Current provisions 26 48

44 76

Provisions are based on best estimates on the balance sheet date. The restructuring provisions relate to the closures of Coil Products Sheffield and Sheffield Special Strip, the personnel reductions in the Swedish production sites, and the restructuring of Stainless Tubular business in Finland. The restructuring provisions in the UK are partly non-current, and the outflow of economic benefits related to these provisions is expected to

take place mainly within 2 to 3 years. Majority of environmental provisions are for closing costs of landfill areas and removal of problem waste in facilities in Finland and in the UK, and the outflow of economic benefits related to these provisions is expected to take place mainly within 2 to 3 years. Other provisions comprise mainly provisions for litigations as well as onerous contracts and claims. These are mainly current provisions.


Discount rate

Future salary increase

expectation Inflation rate

Future benefit increase

expectationExpected returnon plan assets

Medical costtrend rate

% 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008

The US 5.50 6.50 3.50 3.50 - 2.00 - - 7.50 8.50 7.20 8.00Finland 5.00 6.00 3.50 3.50 2.00 2.00 2.10 2.10 5.00 6.00 - -The UK 5.65 6.10 4.95 4.30 3.70 3.05 2.95 2.15 6.42 6.15 - -Germany 5.37 6.00 2.00 2.00 2.00 - 1.00 - - - - -Italy 4.80 4.80 - - 2.00 3.40 4.05 4.05 - - - -Sweden 3.70 3.70 3.50 3.50 2.00 2.00 2.00 2.00 - - - -Austria 5.00 6.00 3.00 3.00 - - - - - - - -Netherlands 5.00 - - - 1.90 - - - - - - -

Actuarial assumptions

Effect of 1% change in medical cost trend rate(other factors remaining unchanged)

€ million Increase Decrease

On defined benefit obligations 6 -5On service cost and intrest cost 1 -1


€ million 2009 2008

Non-currentBonds 225 225Loans from financial institutions 507 751Pension loans 153 132Finance lease liabilities 105 51Other long-term liabilities 7 12

997 1 170

Current Loans from financial institutions 108 208Pension loans 29 29Finance lease liabilities 6 4Other current liabilities 509 260

652 501

The fair value of non-current interest-bearing liabilities is EUR 958 million (2008: EUR 1 106 million). The fair values are determinated by using discounted cash flow method taken into consideration market credit spread. Carrying amount on current interest-bearing liabilities is reasonable approximation of their fair value. Part of the loans have financial covenants.

32. Interest-bearing liabilities

Finance lease liabilities

Minimum lease payments

€ million 2009 2008

Not later than 1 year 10 81–2 years 10 72–3 years 10 73–4 years 11 74–5 years 8 6Later than 5 years 79 34Future finance charges -16 -13Present value of minimum lease payments 111 55

Present value of minimum lease payments

€ million 2009 2008

Not later than 1 year 7 51–2 years 7 52–3 years 8 43–4 years 9 54–5 years 6 4Later than 5 years 75 31Present value of minimum lease payments 111 55

Bonds

€ million Interest rate, % In currency 2009 2008

Fixed interest rate2004–2011 5.000 EUR 75 million 75 75

Floating interest rate 2007–2012 1.115 EUR 150 million 150 150

225 225

Finance lease liabilities include lease payments on a building, which has been subleased with a finance lease agreement. Finance lease receivable relating to this agreement is EUR 7 million (2008: EUR 8 million).


33. Trade and other payables

34. Commitments and contingent liabilities

€ million 2009 2008

Non-currentOther non interest-bearing liabilities 1 2

CurrentInterest-bearing

Accrued interest expenses 7 26

Non interest-bearingTrade payables 301 236Advances received 2 4Accrued employee-related expenses 64 68VAT payable 2 5Withholding tax and social security liabilities 15 15Other accruals 40 33Other payables 12 16

437 378

Group Parent company

€ million 2009 2008 2009 2008

Mortgages and pledges on Dec. 31Mortgages on land 185 189 - -Other pledges 1 5 - -

Guarantees on Dec. 31On behalf of subsidiaries

For financing - - 93 35For commercial and other guarantees 22 55 19 46

On behalf of associated companiesFor financing 1 5 1 5

Other commitments 53 59 53 59

The Group has pledged real estate mortgages created in the Tornio production plant for a value of EUR 138 million as security for its pension loans.

Outokumpu Oyj is, in relation to its shareholding in Kymppivoima Tuotanto Oy and Etelä-Pohjanmaan Voima Oy, liable for the costs, commitments and liabilities relating to electricity provided by Rapid Power Oy. The net debt of Rapid Power Oy at the year end 2009 amounted to approximately EUR 126

million (2008: EUR 144 million), out of which Outokumpu is liable for one third. 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. The net debt of Tornion Voima Oy at the year end 2009 amounted to approximately EUR 52 million (2008: EUR 54 million), out of which Outokumpu is liable for under one fifth. These liabilities are reported under other commitments.


34. Commitments and contingent liabilities

Present value of minimum lease payments on operating leases

€ million 2009 2008

Not later than 1 year 11 111–2 years 8 82–3 years 7 63–4 years 6 54–5 years 5 4Later than 5 years 25 24Present value of minimum lease payments 62 59

35. Disputes and litigations

Operating leases include lease agreements on Group companies’premises. The current duration of these agreements vary between 4–13 years.

Group’s off-balance sheet investment commitments totalled EUR 62 million on Dec. 31, 2009 (Dec. 31, 2008: EUR 93 million).

The Group has entered into long-term (15 years) supply agreements of industrial gases for the production facilities in Tornio, Avesta and Sheffield. These agreements do not qualify as finance lease agreements.

In March 2001, the European Commission initiated an investigation concerning alleged participation by Outokumpu Oyj and Outokumpu Copper Products Oy in a price and market-sharing cartel with respect to copper tubes in the European Union. Outokumpu has cooperated fully with the European Commission in connection with the investigation. The investigation involving Outokumpu was subsequently divided into two separate proceedings: investigation into alleged price fixing and market sharing in the industrial copper tubes sector and investigation into alleged price fixing and market sharing in the sanitary copper tube sector.

Pursuant to its investigations the European Commission has in its decision of 2003, found Outokumpu Oyj and Outokumpu Copper Products Oy having infringed the applicable EU competition laws by participating in agreements and concerted practices consisting of price fixing and market sharing in the industrial Copper tubes sector during a period between 1988 and 2001. As a result, the European Commission imposed an aggregate fine of EUR 18 million on Outokumpu Oyj and Outokumpu Copper Products Oy. In 2004, Outokumpu made an appeal to the Court of First Instance for Europe regarding the basis for the calculation and the amount of the fine. According to decision issued by the Court in May 2009, the amount of the fine remained unchanged.

In the investigations in the sanitary copper tube sector the European Commission has given its decision in September 2004 and imposed Outokumpu Oyj and Outokumpu Copper Products Oy an aggregate fine of EUR 36 million on participation to a cartel. Outokumpu lodged an appeal also in this matter in 2004 to the Court of First Instance for Europe regarding the amount of the fine. In August 2009, Outokumpu paid the fine of EUR 36 million in advance. The final decision from the Court of First Instance concerning the sanitary tubes is expected to be made during year 2010.

In 2003, Outokumpu booked provision for both of these fines. Outokumpu paid the fines in 2009. Interest totalling EUR 9 million has been paid for both of these cases.

Outokumpu exited from the copper fabrication business by divesting a major part of the business in 2005 and the remainder in 2008.

Related to the above cartel investigations of the European Commission Outokumpu Oyj, Outokumpu Copper Products Oy and Outokumpu Copper (USA), Inc. have been served in October 2004 and are defendants in class action cases filed in the federal district court in California (USA) which alleges that the named Outokumpu companies have infringed the US antitrust laws. Although Outokumpu considered that the allegations in all these proceedings lacked merit, a settlement was made in October 2009 whereby the claim was settled with a nominal settlement amount.

In addition, there are purported class actions pending against these same companies in the state court of Tennessee, on behalf of so-called

indirect purchasers of copper plumbing tubes. Outokumpu believes that the allegations in these proceedings lack merit and continues defending itself.

Based on the above-mentioned EU cartel investigations Carrier Corporation filed a lawsuit against Outokumpu Oyj and Outokumpu Copper Franklin, Inc. i.a. in April 2006. The complaint alleges a worldwide price fixing and market allocation cartel with respect to copper tubing for air conditioning and related applications (ACR Tube) for at least the period from 1989 to 2001. The complaint requests damages due to alleged overcharges (without specifying a particular amount of damages). In July 2007 Carrier’s complaint was dismissed. Carrier filed an appeal which is still pending in the Court of Appeals.

In connection with the transaction to sell the fabricated copper products business to Nordic Capital, Outokumpu has agreed to indemnify and hold harmless Nordic Capital with respect to the above referred US lawsuits.

In March 2007, Finnish Customs authorities initiated a criminal investigation into the Group’s Tornio Works’ export practices to Russia. It was suspected that a forwarding agency based in south-eastern Finland had prepared defective and/or forged invoices regarding the export of stainless steel to Russia. The preliminary investigation focused on possible complicity by Outokumpu Tornio Works in the preparation of defective and/or forged invoices by the forwarding agent.

In June 2009, the Finnish Customs completed its preliminary investigation and forwarded the matter for consideration of possible charges to the prosecution authorities. The process of considering possible charges is estimated to be completed in the course of spring 2010.

Immediately after the Finnish Customs authorities began their investigations in 2007, Outokumpu initiated its own investigation into the trade practices connected with stainless steel exports from Tornio to Russia. In June 2007, based on its investigation, a leading Finnish law firm Roschier Attorneys Ltd. concluded that it had not found evidence that any employees of Tornio Works or the Group had committed any of the crimes alleged by the Finnish Customs.

Roschier has subsequently, at Outokumpu’s request, examined the preliminary investigation material produced by the Finnish Customs’ and concluded that it contains no evidence that any Outokumpu employees committed forgery or the accounting offences alleged by the Finnish Customs. Outokumpu’s Auditor, KPMG Oy Ab, has also stated that suspicions related to the making of false financial statements are groundless.

Outokumpu has stated that neither the Group nor its personnel have committed any of the crimes alleged by the Finnish Customs.

In addition to the litigations described above, some Group companies are involved in disputes incidental to their business. Management believes that the outcome of such disputes will not have a material effect on the Group’s financial position.


37. Events after the balance sheet date

Key management consists of the members of the Board of Directors, CEO and other members of the Group Executive Committee. There were no outstanding loans receivable from key management on Dec. 31, 2009 (Dec. 31, 2008: EUR - million). More information on key management’s employee benefits can be found in the Outokumpu annual report.

According to a seismic research report produced by the Geological Survey of Finland in late 2009, the mineral resources at the Kemi Mine could turn out to be significantly greater than earlier estimated. The intrusion containing chromium ore extends to a depth of 2–3 kilometres, possibly to four kilometres and the chromitite layer possibly extends to a depth of at least 2–2.5 kilometres or more.

Proven ore reserves at the Kemi Mine total some 37 million tonnes

and the quantity of mineral resources totals some 87 million tonnes (estimated to a depth of 1 kilometre). The new information indicates the existence of resources sufficient to allow centuries of mining activity even with doubled annual production volumes (the previous estimate was 70–80 years). Outokumpu’s mineral resources will not be updated based on these findings.

Employee benefits for key management

€ million 2009 2008

Short-term employee benefits 4 4Post-employment benefits 2 1Share-based payments 1 1

6 7

36. Related party transactions

1) Loans to associated companies include current and non-current receivables.

The interest rates of loans granted to associated companies are based on market rates. EUR 9 million of the loans mature by the end of 2010.

Outokumpu has related party transactions with its key management and associated companies. The principal associated companies are listed in note 15. Investments in associated companies. Subsidiaries are presented in note 38. Subsidiaries on Dec. 31, 2009.

Transactions and balances with associated companies

€ million 2009 2008

Sales 0 0Purchases -8 -13Dividends received 0 2Interest income 0 1

Long-term loans receivable 2 -Current receivables 9 7Current trade payables 1 0

Loans receivable on Jan. 1 7 9Withdrawals 4 -Other movement 2) -1 2Loans receivable on Dec. 31 1) 11 7


38. Subsidiaries on Dec. 31, 2009

CountryGroup

holding %

General Stainless

Eurotec N.V. Belgium 100Outokumpu AS Norway 100Outokumpu A/S Denmark 100Outokumpu Asia Pacific Ltd China 100Outokumpu Baltic Oü Estonia 100Outokumpu Benelux B.V. The Netherlands 100Outokumpu Brasil Comercio de Metais Ltda. Brazil 100Outokumpu B.V. The Netherlands 100Outokumpu Chrome Oy Finland 100Outokumpu Distribution Oy Finland 100Outokumpu Gebouwen B.V. The Netherlands 100Outokumpu Ges.m.b.H Austria 100Outokumpu GmbH Germany 100Outokumpu India Private Limited India 100Outokumpu Istanbul Dis Ticaret Limited Sirketi *) Turkey 100Outokumpu Kft. Hungary 100Outokumpu K.K. Japan 100Outokumpu, Lda. *) Portugal 100Outokumpu Ltd Ireland 100Outokumpu Middle East FZCO UAE 100Outokumpu Nordic AB Sweden 100Outokumpu N.V. Belgium 100Outokumpu Pty Ltd Australia 100Outokumpu (Pty) Ltd South Africa 100Outokumpu Rossija Oy *) Finland 100Outokumpu S.A.S. France 100Outokumpu S.A. Spain 100Outokumpu (S.E.A.) Pte. Ltd. Singapore 100Outokumpu Shipping Oy Finland 100Outokumpu S.p.A. Italy 100Outokumpu Sp. z o.o. Poland 100Outokumpu S.R.L. Romania 100Outokumpu s.r.o. Czech Republic 100Outokumpu Stainless B.V. The Netherlands 100Outokumpu Stainless Coil, Inc. The US 100Outokumpu Stainless Holding GmbH Germany 100Outokumpu Stainless Ltd The UK 100Outokumpu Stainless Oy Finland 100Outokumpu UAB Lithuania 100Sogepar Ireland Limited Ireland 100Sogepar UK Limited The UK 100ZAO Outokumpu Russia 100

Specialty Stainless

Avesta Klippcenter AB Sweden 100Outokumpu Armetal Stainless Pipe Co. Ltd. Saudi Arabia 51Outokumpu Prefab AB Sweden 100Outokumpu Press Plate AB Sweden 100Outokumpu PSC Benelux B.V. The Netherlands 100Outokumpu PSC Germany GmbH Germany 100Outokumpu Stainless AB Sweden 100Outokumpu Stainless Bar, Inc. The US 100Outokumpu Stainless Pipe, Inc. The US 100Outokumpu Stainless Plate, Inc. The US 100Outokumpu Stainless Steel (China) Co. Ltd. China 100Outokumpu Stainless Trading (Shanghai) Co Ltd China 100

CountryGroup

holding %

AS Outokumpu Stainless Tubular Products Estonia 100Outokumpu Stainless Tubular Products AB Sweden 100Outokumpu Stainless Tubular Products Ltd. Canada 100Outokumpu Stainless Tubular Products Oy Ab Finland 100Polarit Welding, Inc. The US 100Rullformningscentrum i Fagersta AB 2) Sweden 80SH-Trade Oy Finland 100AB Örnsköldsviks Mekaniska Verkstad Sweden 100

Other operations

2843617 Canada Inc. Canada 100AvestaPolarit Pension Trustees Ltd The UK 100GKAB i Västerås Aktiebolag 1) Sweden 100Granefors Bruk AB *) Sweden 100Orijärvi Oy *) Finland 100Outokumpu Alueverkko Oy *) Finland 100Outokumpu Exploration Ventures Pty. Ltd. Australia 100Outokumpu Metals Off-Take Oy *) Finland 100Outokumpu Mines Inc. *) Canada 100Outokumpu Mining Australia Pty. Ltd. Australia 100Outokumpu Mining Oy Finland 100Outokumpu Nickel Resources B.V. The Netherlands 100Outokumpu Stainless Holdings Ltd The UK 100Outokumpu Stainless, Inc. The US 100Outokumpu Stainless Steel Oy *) Finland 100Outokumpu Treasury Belgium N.V./SA *) Belgium 100Outokumpu Zinc Australia Pty. Ltd. Australia 100Outokumpu Zinc B.V. *) The Netherlands 100Pancarelian Ltd. *) Bermuda 100Princeton Gamma-Tech, Inc. The US 100Viscaria AB *) Sweden 100Visent Invest AB Sweden 100Visenta Försäkrings AB Sweden 100

Discontinued operations

Outokumpu Copper Brass SA France 100Outokumpu Copper Fabrication AB *) Sweden 100Outokumpu Copper Gusum AB Sweden 100Outokumpu Copper HME B.V. The Netherlands 100Outokumpu Copper LDM B.V. The Netherlands 100Outokumpu Copper Nonferro Metall GmbH Germany 100Outokumpu Holding UK Limited The UK 100

Foreign branches

Outokumpu Asia Pacific Ltd., branch office in Republic of KoreaOutokumpu Asia Pacific Ltd., agencies in China and TaiwanOutokumpu Baltic Oü, branch office in LatviaOutokumpu (S.E.A.) Pte. Ltd., agency in Vietnam

This list does not include all dormant companies or all holding companies. The Group holding corresponds to the Group’s share of voting rights.

1) Name change2) Founded*) Shares and stock held by the parent company

Outokumpu – an international stainless steel company

Documents

Transcript of Outokumpu – an international stainless steel company