Avesta Sheffield: Year-end Report for April - December 2000.

Business Editors

STOCKHOLM, Sweden--(BUSINESS WIRE)--Feb. 22, 2001

The Avesta Sheffield AB (publ) last financial year was from 1 April to 31 December 2000.

From 1 January 2001, the financial year is the calendar year.

-- The combination of Avesta Sheffield with Outokumpu Steel was completed on 22 January 2001. The new AvestaPolarit Group is now operational, and Avesta Sheffield is a subsidiary of AvestaPolarit Oyj Abp.

-- The profit after financial items for the nine-month financial year improved significantly to SEK 860 million (219m). This corresponds to earnings per share after full tax of SEK 3.92 (1.04). Deliveries for the 2000 calendar year were an annual record for the Group.

-- The result after financial items for the third quarter was a loss of SEK -10 million (123m) after providing for merger costs of SEK 50 million. This corresponds to earnings per share after full tax of SEK -0.15 (0.63) for the quarter. Output was reduced in December to adjust stocks in line with sharply reduced demand.

-- The reduction in demand in the third quarter was caused by stock reductions, mainly by stockists. Underlying usage of stainless steel continues to grow and demand will increase as stock adjustment ends. Prices are also expected to recover after a period of weakness.

-- The Board of Directors has decided to recommend that no dividend be paid in respect of the 2000 financial year as the Board of AvestaPolarit Oyj Abp will separately decide on any dividend to be paid to shareholders of AvestaPolarit.

                                           April -            April -
                                          Dec 2000           Dec 1999
Net sales                      (SEKm)       14,871             10,814
Operating result before        (SEKm)        1,341                666
depreciation
Result after financial items   (SEKm)          860                219
Net result for the period      (SEKm)          620                164
Earnings per share after tax   (SEK)          3.92               1.04
Return on equity after tax     (%)              10                  3
Return on capital employed     (%)              12                  4
Net borrowings at financial    (SEKm)       -2,260             -2,317
year-end

"Avesta Sheffield's merger with Outokumpu Steel has now been successfully completed. Our first task now will be to integrate the two combining companies quickly and effectively to secure operational benefits and start realising the synergies. As we progress through this integration period, we must naturally ensure that our business is run in the most cost- efficient manner, so that we can continue to offer customers the best products and services available. By projecting a single brand to the market we will remind existing and potential customers of the values we stand for and we can also support our employees in the process to integrate several cultures in a truly multinational environment," says Avesta Sheffield's CEO, Stuart Pettifor.

AvestaPolarit is formed

Avesta Sheffield and Outokumpu Steel combined on 22 January 2001 to form AvestaPolarit, a leading and growth-oriented stainless steel company. The company is the world's second largest stainless steel producer with net sales in excess of EUR 3 billion. This new company employs about 8,900 people and has major production facilities in Sweden, Finland, the UK and the United States.

The combination was carried out through an Exchange Offer in which shareholders of Avesta Sheffield were offered one Outokumpu Steel share for each Avesta Sheffield share. Shareholders representing 94.7 per cent of the shares and voting rights approved the Exchange Offer during the initial acceptance period. This met the conditions set for completion of the combination. After the initial acceptance period for the Exchange Offer, Outokumpu Oyj owns 56.4 per cent and Corus Group plc 23.6 per cent of AvestaPolarit. The acceptance period was subsequently extended, for the shares not tendered during the initial acceptance period, until 2 February 2001. This increased the level of acceptance of the Exchange Offer to 98.6 per cent, and reduced the holding of Outokumpu Steel to 55.3 per cent and Corus Group plc to 23.2 per cent. In order to increase the liquidity of the share, Outokumpu Oyj has agreed to reduce its holding to not more than 40 per cent within three years. Outokumpu Steel Oyj was renamed AvestaPolarit Oyj Abp on 24 January 2001. AvestaPolarit's share was listed on the OM Stockholm and Helsinki Exchanges on 30 January 2001.

Avesta Sheffield AB, now a 98.6 per cent owned subsidiary of AvestaPolarit Oyj Abp, will be delisted from the OM Stockholm Exchange on 23 February 2001. The process has now commenced for compulsory redemption of the remaining shares that were not exchanged for AvestaPolarit shares.

GROUP

Market

In contrast to the improvements achieved in the stainless steel market during the first half of 2000, there has been a marked turnaround in terms of both demand and prices in the European market during the final quarter. The period has been characterised by heavy de-stocking, resulting in weaker than expected consumption. European coil shipments reflect this softening of demand, showing a decline of almost seven per cent compared to the corresponding final period in 1999.

The fall in nickel prices was a further contributing factor responsible for customers reducing inventory levels. As alloy surcharges have fallen in response to declining nickel prices there has been a move to liquidate stocks, which had been built up by speculative demand during the first half of 2000.

Market sentiment was also adversely affected by a slowdown in economic growth, particularly in the USA, and the potential impact this could have on the global economy.

Demand in Asia continued to lose momentum during the final quarter. A combination of a rapid slowdown in domestic consumption in some of the key South East Asian economies, and worries that manufacturers dependent on the US market would suffer in response to the slowdown in the US economy, resulted in weak market activity. The picture was similar in the USA, where high levels of inventory amongst stockists and end users, coupled with the sudden deceleration of growth in the US economy, contributed to underlying demand remaining subdued.

Base prices for coil products were adversely affected by the weaker market conditions. Base prices in Germany for example fell by six per cent compared to the previous quarter. This downward trend was also apparent, but even more severe, in Asia where prices fell by around eleven per cent.

For other products, however, there has been less volatility in both volume and pricing terms. Quarto plate consumption continued in line with recent trends, as project-related activity encouraged further marginal signs of improvement. Long product performance was also in line with expectations. Precision strip demand was robust in all segments, remaining largely unaffected by the de-stocking cycle currently affecting coil. Orderbooks were strong, which enabled base price improvements to take place during the quarter.

Net sales

Delivered tonnage of 676,000 tonnes (645,000) for the nine months to December was 5 per cent up on the same period last year, which is in line with the normal underlying growth of the stainless steel market. Deliveries in the third quarter totalled 216,000 tonnes (223,000), which was 3 per cent below the same period last year. Although end-user demand remained firm through the quarter, order intake from stockists has remained subdued since the summer as they have reduced their stock levels. These stock reductions resulted partly from the falling nickel price during the nine-month period, but also from high deliveries by producers during the first half of 2000.

Net sales for the nine months to December were SEK 14,871m (10,814m), which was an increase of 38 per cent compared with the same period last year. Net sales for the third quarter were SEK 4,929m (3,789m). Of the 30 per cent year-on-year increase in net sales in the third quarter, 29 per cent relates to price and mix improvements, including the effect of the Alloy Adjustment Factor, whilst 4 per cent is a result of improved exchange rates, offset by a reduction of 3 per cent due to lower deliveries.

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