Homenaje al cine de la época de oro

January through December 2006 was good, at EUR 67.8 million (2005: EUR 80.2 million), but weakened slightly during the period from the previous year, because of strong growth and the fact that capital was tied up in project deliveries, inventories, and receivables. The working capital continued to be strong due to several new large

2003 2004 2005 2006 11.5 14.5 24.3 45.4

Return on investment

Net cash from operating activities

projects and related advance payments. At the end of December 2006, net working capital was EUR

-122.3 million (December 31, 2005: EUR -110.1 million). Liquidity was good and improved further with cash and cash equivalents at 2006 year- end coming to EUR 171.1 million (December 31, 2005: EUR 118.5 million).

The balance sheet remained strong and its total value increased due to the impact of business growth on inventories and receivables. Net interest-bearing debt at the end of December 2006 was EUR -170.0 million (December 31, 2005: EUR -116.1 million). The advance payments at the end of the period totaled EUR 194.8 million (December 31, 2005: EUR 102.8 million). Outokumpu Technology’s gearing was -118.0% (December 31, 2005: -104.9%), and the equity-to- assets ratio was 36.9% (December 31, 2005: 36.1%). The company’s capital expenditure was EUR 8.0 million (2005: EUR 12.1 million), which consisted mainly of replacements for machines, information technology, and of investments in new Intellectual Property Rights (IPRs).

Guarantees for commercial com- mitments, including advance pay- ment guarantees issued by the par- ent and other group companies, came to EUR 259.4 million at the end of December 2006, increasing from the 2005 level along with busi- ness growth (December 31, 2005: EUR 187.3 million).

In order to manage its fi nancing as an independent public company, Outokumpu Technology entered into a committed EUR 330.0 million multi- currency revolving guarantee issu- ance facility, which is a part of the fi nancing package provided to Outo- kumpu Technology by the mandated lead arranger of the initial public offering and which became effective upon the listing of the shares on the OMX Helsinki Stock Exchange. The

fi nancing package also includes a commitment for a EUR 50.0 million revolving credit facility and a EUR 20.0 million limit for foreign exchange, derivative and overdraft facility purposes. The guarantee facil- ity and the credit facility include cus- tomary covenants, provisions for the event of default, and terms for repre- sentation and warranties. Under the guarantee facility, the company is required to pledge a certain portion of its cash funds as security for the credit facility. Based on the outstand- ing total liabilities of EUR 260.2 mil- lion as of December 31, 2006, the required security amounted to approximately EUR 25.8 million. Outokumpu Technology continues to receive interest income on the pledged amount. Furthermore, the guarantee facility includes a covenant requiring that Outokumpu Technolo- gy’s liquidity (including the undrawn portion of the credit facility) not fall below EUR 30.0 million.

Share capital of Outokumpu Tech- nology has been presented in note 21 to the combined fi nancial state- ments on page 78.

Risk management

The Board of Directors is responsible for the company’s risk management. The CEO and the Executive Commit- tee are responsible for defi ning and implementing risk management procedures, and for ensuring that risks are taken into account in strate- gic planning. The business divisions are responsible for managing the specifi c risks related to their opera- tions. The company’s contract man- agement function facilitates the implementation of the risk manage- ment policy and develop ways of working for the whole company’s benefi t.

The external and internal auditors monitor the functioning of the risk management process. The compa- ny’s contract management unit com- pile quarterly risk reports to the Audit Committee, Executive Committee,

internal auditing staff and external auditors, based on information reported by the business divisions.

Research and technology development

Research and technology develop- ment (RTD) is a corporate function of Outokumpu Technology and the key area for the future success and development of the company. The RTD function focuses on improving and developing existing technologies in collaboration with the business divisions as well as on coordinating development activities and the commercialization of new technolo- gies.

Outokumpu Technology’s research and technology develop- ment expenses for the reporting period totaled EUR 19.2 million (2005: EUR 13.9 million), represent- ing 2.6% of sales. In total, Outo- kumpu Technology has 210 people working in research and technology development. The Pori Research Center employs 155 people and 12 people work at the Frankfurt Research Center.

Research and development activi- ties proceeded according to plans and new technology products were accomplished. For example, Minerals Processing division launched a new FloatForce™ mechanism for fl otation technology and the fi rst large grind- ing mills based on the newly designed multi-pad hydrostatic bear- ings. New technology improving performance of lining system for semi- autogenous grinding mills was also installed to Gortez Gold Mines of Barrick Gold Corporation in the U.S.A.

In hydrometallurgy new develop- ments included a new atmospheric reactor design for leaching of copper and a method for direct leaching of zinc. An important step was taken in the marketing of the HydroCopper®

process when Erdenet Mining signed the engineering agreement for the

Report by the Board of Directors

fi rst production HydroCopper® _plant

to be built, in Mongolia.

A new Lurec™ system developed by Outokumpu Technology repre- sents the latest technology in high sulfur dioxide processing and will be built for Yanggu Xiangguang Copper Company in China. In development of Circo technologies, Outokumpu Technology has successfully con- ducted fi rst large-scale tests in a demonstration plant with the process for ilmenite prereduction. Outo- kumpu Technology has patented the Circosmelt® _{process, a combination}

of Circofer® _{prereduction and sub-}

merged arc furnace smelting for the production of titania slag.

In addition to Outokumpu Tech- nology’s own RTD operations, a sig- nifi cant amount of test work for the customers was carried out at the Frankfurt and Pori research centers. Further, the amount of automation has been increased in several pro- cesses, for example in grinding mill circuits, ferrous smelting process and in tankhouse technology.

Outokumpu Technology fi led 34 new priority patent applications in 2006 (2005: 26), and in the same period, 298 new national patents were granted (2005: 343).

Personnel

In 2006, Outokumpu Technology had, on average, 1,825 employees. At the end of the year, the company had a total of 1,797 employees (December 31, 2005: 1,802) in 18 countries. Because the company has been able to make effi cient use of its network of international contractors and temporary employees, the perma- nent personnel numbers have remained approximately at the same level as in 2005. Temporary employ- ees accounted for under 10% of the total number of employees, and contracted employees accounted for 10 to 30% of the company’s perma- nent employees, depending on the number of projects in process.

Outokumpu Technology’s ability to maintain and enhance its business and to provide high-quality technolo- gies and services will depend, to a large extent, upon its ability to retain, develop, and motivate the company’s experts, as well as to hire qualifi ed and experienced new personnel. In addition to the company’s own per- sonnel, Outokumpu Technology has developed an international network of subcontractors for engineering and manufacturing. The company continues its global programs to strengthen and improve the work culture to support performance improvements and continuous learn- ing.

The personnel fi gures of Outo- kumpu Technology have been pre- sented in Key fi nancial fi gures -table on page 86.

Changes in top management

The Extraordinary General Meeting elected a new Board of Directors for Outokumpu Technology Oyj on September 25, 2006. The Board of Directors comprises of Risto Vir-

Distribution of personnel by countries, % 2006 2005

Finland 43 41

Germany 16 19

Rest of Europe 11 10

Americas 15 17

Australia 10 8

Rest of the world 5 4

Personnel Dec 31, 2006 Dec 31, 2005

Minerals Processing 450 354

Base Metals 549 593

Metals Processing 429 482*)

Other Businesses 294 337

Corporate management and

service functions 75 36

Total 1,797 1,802

*) _{Reporting method in Germany included also subcontractors.}

rankoski, Chairman; Karri Kaitue, Vice Chairman; Carl-Gustaf Bergström, member; Hannu Linnoinen, member and Anssi Soila, member. The Board took offi ce on October 10, 2006.

The members of Outokumpu Technology’s new Executive Commit- tee as of October 10, 2006 are: Tapani Järvinen, President and Chief Executive Offi cer; Seppo Rantakari, Executive Vice President and Deputy CEO; Markku Jortikka, Executive Vice President and President – Base Met- als division; Jari Rosendal, Executive Vice President and President – Min- erals Processing division; Vesa-Pekka Takala, Executive Vice President and Chief Financial Offi cer and Peter Weber, Executive Vice President and President – Metals Processing divi- sion.

In addition, the company has a Management Committee consisting of the Executive Committee mem- bers and the following persons: Martti Haario, Senior Vice President – Marketing Development;

Ari Jokilaakso, Senior Vice President – Human Resources; Kari Knuutila,

Senior Vice President and Chief Tech- nology Offi cer and Ilkka Virtanen, Senior Vice President – Business Development (until December 31, 2006).

Financial targets and dividend policy

Outokumpu Technology’s fi nancial targets and dividend policy are derived from the company’s strategy. The company has defi ned sustain- able profi table growth as its objective and has the following fi nancial tar- gets: an average annual increase in earnings per share in excess of 10%; an annual operating profi t margin always above 5%; and a strong balance sheet providing operational fl exibility and enabling Outokumpu Technology to fi nance further devel- opment of its operations including potential acquisitions.

Board of Directors of Outokumpu Technology has adopted a dividend policy whereby it is in their intentions to propose for the approval of the company’s shareholders dividends representing approximately 40% of the company’s annual net income for the preceding fi nancial year. The amount of future dividends, if any, is subject to company’s future earn- ings, fi nancial conditions and strat- egy.

Events after the reporting period

In January, Outokumpu Technology signed an agreement with the JSC Krasnoyarsk Non-Ferrous Metals Plant for delivery of a silver refi nery installation to Russia for the world’s biggest platinum-group-metals refi nery in Krasnoyarsk, Siberia. This project further enhances Outokumpu Technology’s position as the market leader in precious metals technolo- gies.

The company concluded an agreement in January with the lead- ing Chinese zinc producer, Hunan

Zhuye Torch Metals Co. Ltd., for the design and delivery of a zinc plant expansion with new environmentally sound leaching technology. The value of the contract is nearly EUR 30 million.

Also in January, the company announced a contract with the world’s largest nickel and platinum- group-metals producer, MMC Norilsk Nickel, for the modernization of a Flash Smelting production line at the Nadezha metallurgical plant in Norilsk, Russia. The value of the contract is some EUR 16 million, and this project was already in the clos- ing backlog at year-end, due to the effectiveness of the contract.

In Australia, Outokumpu Technol- ogy signed an additional contract with Boddington Gold Mine for the delivery of a complete thickening circuit; the thickening contract fol- lows an earlier order for a complete fl ash fl otation circuit.

Outlook for 2007

The mining and metals industry remains robust and the underlying supply and demand imbalance encourages the industry to invest both in greenfi eld projects and expansions. Outokumpu Technology’s strong existing and growing order backlog provides a solid base for 2007. Due to the timing issues in certain projects, some projects that were assumed to become effective during the fourth quarter of 2006, and strengthen the existing backlog even further, are expected to be closed during the fi rst quarter of 2007. Management is confi dent that the company has the resources and capacity to meet the expected further growth in its market in 2007.

In 2007, the management expects similar sales growth than during 2006. Operating profi t will grow clearly from 2006.

Board of Directors’ proposals for profi t distribution

According to the fi nancial statements for December 31, 2006, the parent company’s distributable funds total EUR 17.6 million, of which the net profi t for the fi nancial year is EUR 7.4 million. The Board of Directors of Outokumpu Technology proposes to the Annual General Meeting that a dividend of EUR 0.35 per share be paid from Outokumpu Technology Oyj’s distributable funds and that any remaining distributable funds be allocated to retained earnings. The suggested dividend record date is April 5, 2007, with the dividend to be paid on April 17, 2007.

There have been no substantial changes in the fi nancial position of the company after the balance sheet date. According to the Board of Directors, the liquidity of the com- pany is good and the proposed profi t sharing will not affect the solvency of the company.

Espoo, February 5, 2007 Board of Directors

Risto Virrankoski, Chairman Karri Kaitue, Vice Chairman Carl-Gustaf Bergström Hannu Linnoinen Anssi Soila