Responsible business practices

We aim to take economic, environmental and social responsibility into account in all our activities according to our core value - commitment to sustainability. Achieving sustainable financial performance was in focus in the challenging year 2015. For us, being a responsible business partner means that we fully respect laws and regulations, have solid governance practices, manage risks effectively, and behave ethically according to our code of conduct in all our relationships.

Governance is often considered to be a matter of mere compliance. However, we believe that the way how sustainability is managed and governed makes a big difference. We have a clear hierarchy of ethics guidance and decision making on sustainability issues.

Everything we do is first and foremost based on our mission and values. Our everyday work is guided by our Code of Conduct and other detailed policies. Through training and active dialogue on governance issues we ensure that our employees in each Outotec location are sufficiently empowered to operate efficiently and as guided by Outotec policies.

Building on common values

Outotec valuesWe want to encourage everyone at Outotec to consider their actions through one simple question: “Is this sustainable?” In addition to our core value of commitment to sustainability, we have three value statements:

  • Creating Leading Technologies. This means creating technology breakthroughs and leading the way, seeing change and complexity as opportunity, leveraging our expertise, encouraging innovation and rethinking as well as leading in sustainable technology.
  • Building Success Together. This means pursuing our mission, building long-term customer and supplier relationships, trust and respect, celebrating success together, taking care of life balance, leveraging diversity, and acting with courage.
  • Aspiring for Excellence. This means continuous improvement every day, setting the bar high, challenging the status quo, growing and renewing ourselves as individuals, staying humble and adaptive to learn, finding out what good looks like and flourishing in what we do.

 

Ensuring good governance

We have been developing a solid governance structure to ensure good governance, effective risk management, adequate controls, and the internal audit principles to support them. We follow the most recent Finnish Corporate Governance Code for listed companies issued by the Securities Market Association to avoid possible conflicts of interest. Outotec’s corporate governance is described in more detail in our Corporate Governance Statement 2015 at www.outotec.com/cg.

Outotec endorses ethical business practices and complies with national and international laws and regulations. We have zero tolerance for corruption and non-compliance with our Code of Conduct.

Outotec was not subject to any corruption-related suspicions in 2015, did not have to pay any fines, and was not exposed to any non-monetary sanctions for non-compliance with anti-corruption laws, competition laws or regulations, or any environmental laws.

However, Outotec was subject to a market position investigation in China by The Price Supervision and Anti-Monopoly Bureau of the National Development and Reform Commission of the P.R. China (NDRC), in September 2015. The investigation was closed after Outotec cooperated with NDRC to submit the requested further information.

Outotec has a Product Compliance Management process to ensure that the products and services engineered and delivered by the company worldwide are reliable and meet all applied safety standards during all phases of the product life-cycle. We follow negative impacts and incidents through our QEHS management system and product compliance management system as well as customer feedback collected after each major delivery and through customer surveys.

Outotec has not identified any significant negative impacts of its operations or products on employees’ or suppliers’ health and safety or labor practices, or on local communities. During 2015 no issues emerged concerning the rights of indigenous people.

However, after completion of the project delivery, the possibility remains that information on indirect negative impacts may not have been disclosed to Outotec by the customers or local communities.

The key role of the Board of Directors

At the end of 2015, the Board of Directors of Outotec consisted of seven members, all of whom are independent. Two of the Board members are female. One of the Board members is a Canadian citizen, and the other members are Finnish.

The work, duties, composition and committees of the board are described in our Corporate Governance Statement 2015. The Board of Directors conducts an annual evaluation of its operations and working methods.

In 2015, the Board of Directors’ special focus areas have related to current challenges in the macroeconomic environment, cost efficiency, project risk management, Outotec´s organizational structure and long-term strategy. The Board’s Audit and Risk Committee focused especially on project-related risk reviews and on Outotec’s internal risk management systems and internal controls.

The remuneration of board members is described in Outotec’s Corporate Governance Statement on pages 10-13. There is no correlation between the compensation for board members and Outotec’s social or environmental performance.

 

Outotec operates in accordance with the company’s own enterprise risk management policy, which specifies the objectives, principles, operating procedures, organization and responsibilities of risk management, as well as related reporting and monitoring procedures. The Executive Board is responsible for defining and implementing risk management processes, and for ensuring that risks are taken into account in strategic planning and operative business. The management evaluates strategic enterprise risks in the annual strategy process, and makes mitigation plans at least once a year. Our Business Units, Markets Unit with market areas and global functions are responsible for achieving their strategic targets and for mitigating and managing risks with support from our risk management, contract management and internal audit function.

Outotec’s strategic and operational risks are described at www.outotec.com/investors, and the company’s risk management policy, responsibilities and processes are set out in our Corporate Governance Statement 2015.

During 2014 –2015, Outotec’s project risk management tools have been renewed to improve project risk management in the sales and delivery phases. The key objective of the process is to identify and manage risks and opportunities intelligently and transparently. It is  not only about avoiding risks, but about recognizing and managing them at an early stage to reduce or avoid negative impacts.

Project risk management at Outotec covers all stages of a project starting in the sales phase and continuing through the bidding, negotiation, and execution phases up until the end of the warranty period.

Identified risks and mitigation measures are documented in risk assessments, which are then used as a basis for specifying appropriate follow-up actions. These actions may include the abandonment of a proposal to a customer. Outotec’s internal audit system aims to verify that the company’s operations are efficiently managed and profitable, and that risk management and internal controls are at a sufficient level. Our internal audit function reports administratively to the CFO and, in matters related to the internal audit reports, directly to the Board’s Audit and Risk Committee and the CEO.

Outotec’s internal and external audit processes take into account any corruption suspicions and fraudulent acts that may occur. Training sessions are held in connection with audit activities at our market area operations to train employees in anti-corruption policies and procedures for the purpose of preventing misconduct and crimes, and virtual training sessions on anti-corruption are available to all employees.

In 2015, specific audits were conducted in our Sub-Saharan Africa and Middle East market areas, covering our company-wide delivery process, and for our Moroccan service projects. Follow up audits were also run for our supply function and our Indian and Russian offices.

Outotec’s Executive Board is responsible for our sustainability agenda. The Executive Board approves the sustainability strategy, targets and reporting. Our General Counsel, who is a member of the Executive Board, has had overall responsibility for corporate responsibility since October 2015, when the former Head of Marketing, Communications & Corporate Responsibility left the company. Responsibility for sustainable products and services lies with the Technology and Product Board, chaired by the CTO. Decisions, actions and commitments are reported to the Board of Directors.

Managing sustainabilitySustainability is integrated into all relevant organizational functions, such as Human Resources & Communications, Supply, Legal & Contract Management, and QEHS. We additionally have a sustainability working group, who coordinate the work and meet several times a year.

Outotec’s Sustainability Advisory Council, established at the end of 2014, advises the company regarding sustainability trends, strategies and reporting, and gives input on how stakeholders view the economic, social and environmental impacts of our decisions. The Council is not part of Outotec’s formal governance. In 2015, the Sustainability Advisory Council met twice.

Sustainability related personal targets are included in the annual bonus plans of Outotec’s QEHS, environmental and sustainability managers and several Executive Board members. Inventors working with new, patentable solutions also receive monetary rewards for their inventions. Furthermore, Outotec rewards all employees for making proposals that improve the sustainability of the company’s internal processes.

Our Code of Conduct, which we defined on the basis of our values in 2012, gives everyone at Outotec ethical guidance on many issues. The Code of Conduct has been approved by the Board of Directors and communicated to employees through e-learning and classroom training sessions since 2013.

By the end of 2015, a total of 3,527  employees had completed training on the Outotec Code of Conduct, corresponding to 73 percent of our personnel. In addition, a total of  3,645 employees have completed virtual training on anti-corruption; 3,082 employees on competition law and 3,366 employees on intellectual property rights.

Compliance helpline for raising concerns

Outotec’s Chief Compliance Officer (CCO)reports directly to the Board Audit and Risk Committee on a quarterly basis regarding any material compliance cases and developments.

Outotec has a compliance helpline available to both internal and external stakeholders. This helpline enables anyone to raise concerns or seek advice regarding ethical behavior or Outotec’s Code of Conduct. All compliance concerns raised are treated confidentially, and there is a clear no retaliation policy against anyone raising a question or concern in good faith. More severe compliance cases may be submitted to Outotec’s Compliance Board, which consists of the Chief Compliance Officer, the General Counsel, the Chief Financial Officer and the Head of Human Resources.

During 2015 we saw increased activity through the compliance helpline in our Sub-Saharan Africa and Middle East market areas, where we held classroom-training sessions on our Code of Conduct and compliance topics. This has clearly encouraged people to contact the CCO with their questions and concerns. During 2015 the compliance helpline was also opened in Germany, and our German personnel received virtual training on the Code of Conduct and anti-corruption issues.

We will continue to promote the compliance helpline during 2016, with a special focus on retraining our employees on the Code of Conduct, anti-corruption and other compliance topics through our e-learning platform. Focus areas will include building trust in the compliance system and raising awareness in different locations.

We follow up on our performance by monitoring the number of filed, addressed and resolved grievances about labor practices or impacts on society. Altogether 17 registered cases (2014: 21) were brought to the attention of the CCO directly or through the compliance helpline during 2015.

The majority of these cases related to employee and management relations, conflicts of interest, or compliance with internal policies and processes. In addition, one serious forensic case arose, where investigations and actions are ongoing. During the year we also saw a clear increase in cyber fraud attempts, in line with global trends. 

Our external stakeholders have not used our compliance helpline on Outotec’s website.

 

Respecting human rights

Outotec supports and respects the protection of internationally proclaimed human rights, and this commitment is reflected in our Code of Conduct. We are committed to treating people with dignity, and every individual is equally entitled to enjoy human rights without discrimination. We do not provide goods or services that we know will be used to carry out human rights abuses, and we work towards the effective abolition of the use of compulsory, forced or child labor.

Outotec joined the United Nations Global Compact Initiative in December 2010, and we are committed to its principles.

Outotec does business globally, and has acquired companies in countries where human rights risks are widely recognized. As part of the integration of the acquired companies in 2015, Outotec has been providing training on its global policies, Code of Conduct and labor practices to the employees and local managers of acquired companies in the Middle East and Africa.

In 2015, as a preliminary step towards conducting human rights assessments at Outotec, we commissioned a Master’s thesis study assessing current drivers in relation to the implementation of human rights at Outotec. The study involved interviews with selected representatives of Outotec’s key functions, and set out a plan for human rights implementation and assessment. Outotec will consider conducting further human rights assessments in future, taking into consideration the challenging financial situation. We will also continue to support and advance human rights in our operations and in dealings with our business partners. During 2016 we will particularly review our Code of Conduct from the human rights perspective.

Financial performance deteriorated

Outotec’s approach to economic sustainability is demonstrated by our long-term financial targets involving continuous growth and profitability. Robust business allows us to pay dividends to our shareholders, salaries to our employees, and taxes to governments.

 

Generation of added valueDue to the weakened market situation, Outotec’s financial performance further deteriorated in 2015. The total order intake remained on the previous year’s level, but sales contracted because customers initiated fewer investment projects and made slower progress on existing projects.

Our 45 million euro cost savings program launched in 2014 reached its gross cost reduction targets, but its net effects were diluted by lower than planned resource utilization, currency exchange effects, and extraordinary IPR litigation costs.
As profit before taxes was negative, the Board of Directors proposed to the Annual General Meeting that no dividend would be paid to shareholders from 2015.

To adapt our operations to the accelerated weakening of markets, Outotec launched a new cost structure program in November 2015 aiming to reduce fixed costs by EUR 70 million during 2016.

The total wealth created by Outotec in 2015 was EUR 455.6 million (2014: 457.8 million). Our total procurement spend was EUR 745.6 million (2014: 944.8 million), a 21 percent decrease compared to 2014, mostly due to fewer large customer projects. As a 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 2015, 43 percent of our customer-related purchases were sourced locally.

At the end of 2015, Outotec’s market capitalization was EUR 623 million (2014: 803 million).

As a globally operating company, Outotec faces a variety of tax laws and regulations. International taxation is not always an easy environment in which to navigate, but our principle is clear: we want to pay the right taxes in the right places. We aim to be transparent and non-discriminatory in our tax practices. Our Board of Directors has decided on an approach in which no aggressive tax planning is done, nor will Outotec maintain any legal entities in the so-called tax havens, unless a justified business reason arises. Currently there are no such entities.

In 2015, Outotec paid a total of EUR 3.3 million in taxes (2014: 30.3 million). Our average effective tax rate was 25.1 percent (2014: 28.7%). The tax rate tends to vary depending on the geographical distribution of sales, which in turn is affected by our product mix and the locations of customer projects. The table on the right lists the tax rates affecting us in the countries where we operated in 2015.

There has been extensive public discussion about total transparency on taxes paid in individual countries. Outotec delivers large projects, and in some countries there may be only one project ongoing. Revealing country-specific financial information in such cases could breach our commitments concerning access to project-specific confidential information. Also, the destinations of our sales typically do not correspond with the places in which the work and activities connected to the sales are performed, where value is created, and where the income must be reported and taxes paid based on globally applied tax principles. For these reasons, we do not believe that providing country-specific tax information would give a comprehensive picture of the fairness of the tax distribution in Outotec’s case.

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
India 33.1
Indonesia 25.0
Kazakhstan 20.0
Mexico 30.0
Mongolia 10.0
Morocco 30.0
Mozambique 32.0
Namibia 33.0
Netherlands 25.0
New Caledonia 30.0
Norway 27.0
Peru 28.0
Poland 19.0
Qatar 10.0
Russia 20.0
Saudi Arabia 20.0
South Africa 28.0
Spain 28.0
Sweden 22.0
Turkey 20.0
United Arab Emirates 0
United Kingdom 20.0
United States 38.0
Zambia 35.0