Direct and indirect financial impacts

Our long-term financial targets involve profitability and continuous growth. The challenging market environment in 2016 has, however, weakened our financial performance. We strive for transparency in our operations, and we base our decisions on sound business reasons and commercial rationale.

Outotec’s approach to economic sustainability is demonstrated by our long-term financial targets involving profitability and continuous growth. We strive for transparency in our operations, and we base our decisions on sound business reasons and commercial rationale. Our approach is also reflected in our three material themes:

  • Responsible business practices
  • Sustainable supply chain
  • Stakeholder dialogue

Direct economic value generated and distributed

Outotec’s financial performance deteriorated in terms of order intake, sales and profitability in 2016. Our order intake in the Minerals Processing segment started to increase from the second quarter, which together with related cost savings contributed to the segment’s good profitability. Our Metals, Energy & Water segment’s order intake remained weak, however. A lack of major orders and increased risk provisions especially in one large project significantly weakened the segment’s result.

To adapt our operations to the weak markets, Outotec launched a new cost structure program in November 2015, aiming to reduce fixed costs by EUR 70 million during 2016. The targeted savings were achieved, and the program was closed in December 2016. However, cost saving actions will continue, particularly in the Metals, Energy & Water business unit, to improve profitability.

The total wealth created by Outotec in 2016 was EUR 344 million (2015: 456 million) (G4-EC1). Our total procurement spend was EUR 714 million (746 million).

Outotec provides employment for approximately 4,200 people in 34 countries. Wages and salaries in 2016 amounted to EUR 329 million (353 million). In 2016, Outotec had to reduce 650 jobs globally due to weakened market situation, which had negative direct impacts on the communities concerned.

As the company’s result before taxes was negative, no dividend was paid to shareholders from 2015. Neither were there any contributions to charities.

At the end of 2016, Outotec’s market capitalization was EUR 914 million (623 million).

Indirect economic impacts (G4-EC8)

As a large-scale buyer of goods and services, we play an important role in supporting local businesses. This generates employment and drives socio-economic development in local communities. In large projects, as many as several hundred local engineers and other specialists, contractors and service providers may work for us as suppliers or subcontractors.

Outotec’s project implementation can consists of over 10 million working hours at customers’ sites. Most of this work is done by local suppliers or subcontractors. Where Outotec has long-term service contracts with customers, maintenance and service personnel are normally hired locally and trained for their specific tasks after the plant has been built.

Large mines and processing plant investments – built with Outotec technology – considerably boost the development of the host country and its economy. They may create hundreds or thousands of new jobs, while also leading to the establishment of new industrial plants and growth of businesses along the value chain from natural resource extraction to finished products. In such greenfield plant deliveries by Outotec, the indirect economic impacts are considered significant. In 2016, although we received fewer large plant orders than previous years, Outotec used approximately the same amount of subcontractors, over 2,200, working under our supervision at project sites.

The fact that Outotec’s financial result was negative had indirect negative impacts on societies in the form of less taxes paid. As some customers postponed their new investments, this meant lower local employment rates in those locations. The reduction of 650 jobs globally by Outotec had indirect negative impacts, which, however, were not considered significant in any of Outotec’s location.

80% of Outotec’s manufacturing calculated by value is sourced from external suppliers. Most of our suppliers in 2016 were based in Finland, Germany, Brazil, Australia, and South Africa; though Outotec has also developed best-cost-country sourcing in China, India, Eastern Europe and Mexico. Our spending on local suppliers contributes to local employment and regional development. In 2016, 64% (43%) of our customer-related purchases were sourced locally (G4-EC9).


Value creation

 

R&D activities generate jobs and enhance skills

Outotec also contributes indirectly to society through R&D activities. Ongoing research and development activities run together with our external partners received EUR 2.3 million (3.0 million) in public funding. We additionally subcontracted work packages out to universities and mainly small and medium sized enterprises for more than twice this sum (over EUR 5 million). This generates many local jobs, while also enhancing skills and knowledge development.

Fair and non-discriminatory tax policy

As a globally operating company, Outotec faces a variety of tax laws, regulations, practices and interpretations. The international tax environment is sometimes challenging to navigate, but we are committed to being a responsible and compliant taxpayer in each country where we operate. We pursue transparency and non-discrimination in our tax practices, and do not engage in aggressive tax planning. Our tax management has a proactive approach.

In addition to local corporate income taxes, we pay, collect and remit many other taxes and tax-like payments, such as value added and sales taxes, payroll taxes and capital taxes. Our total tax contribution varies depending on the geographical distribution of sales, which in turn is affected by our product mix and locations of customer projects. We promote open communication with the local tax authorities wherever we operate.

Outotec delivers large projects, and in some countries there may be only one project ongoing. For this reason, we cannot disclose country-specific financial information as it could breach our commitments concerning access to project-related confidential information. Also, the destinations of our sales typically do not correspond with the places in which the work and sales activities are performed, value created and where the income must be reported and taxes paid. Providing country-specific tax information would not give a comprehensive picture of the fairness of the tax distribution in Outotec’s case.

In 2016, Outotec paid a total of EUR 6.4 million in corporate income taxes (3.3 million). The table below lists the tax rates affecting us in the countries where we were subject to corporate income taxation in 2016.

Country

Effective income tax, %

Australia

30.0

Austria

25.0

Brazil

34.0

Bulgaria

10.0

Canada

25.8

Chile

35.0

China

25.0

Finland

20.0

Germany

29.2

Ghana

25.0

Greece

29.0

India

30.9

Indonesia

25.0

Kazakhstan

20.0

Mexico

30.0

Mongolia

10.0 – 25.0

Morocco

10.0 – 31.0

Mozambique

32.0

Namibia

32.0

Netherlands

20.0 – 25.0

New Caledonia

30.0

Norway

25.0

Peru

28.0

Philippines

30.0

Poland

19.0

Qatar

10.0

Russia

20.0

Saudi Arabia

20.0

Serbia

15.0

South Africa

28.0

Spain

25.0

Sri Lanka

28.0

Sweden

22.0

Turkey

20.0

United Arab Emirates

0.0

United Kingdom

20.0

United States

38.0

Zambia

35.0

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