Rautaruukki eyes takeovers, upbeat on prices

By Terhi Kinnunen

LONDON (Reuters) - Finnish steel company Rautaruukki (RTRKS.HE: Quote, Profile, Research, Stock Buzz) plans more acquisitions and could borrow to fund its growth ambitions, Chief Executive Sakari Tamminen told the Reuters Global Mining and Steel Summit in London on Tuesday.

Rautaruukki has in recent years shifted its focus from steel making to engineering and construction and has made a series of acquisitions to become the number one steel construction group in northern and eastern Europe.

"We are working with a number of potential acquisitions continuously. I would say that at the moment we are at the stage where the growth is not so much based any more on our succeeding in acquisitions; it's more driven by organic than it was, say, two years ago," Tamminen said.

He declined to give more details on possible negotiations, but said the company had dropped potential deals in the past when valuations were too rich.

"I want to avoid overpaying," he said.

Heavily geared only four years ago, the company has eliminated its debt, in part via divestment gains, and despite a series of purchases of companies with annual sales of up to 100 million euros ($134.5 million).

It has paid cash for most of its takeovers, but Tamminen said Rautaruukki would be happy to borrow if suitable acquisition targets are found.

"Net gearing around zero is not the most effective," he said, adding the company was targeting net gearing of 60 percent. With equity of 1.8 billion euros, that meant it had scope to borrow some 1-1.2 billion euros, he said.

Rautaruukki intends to pay out between 40 and 60 percent of earnings per share as dividends. Where the next dividend falls depends on what acquisitions it makes, he said.

He said share buybacks were not a priority, noting the company needed a strong balance sheet to pursue growth opportunities.

Tamminen said Rautaruukki was not planning to exit steel making, but aimed to have sales from its steel and non-steel businesses roughly in balance by the end of this year.

Tamminen repeated Rautaruukki's upbeat outlook for 2007, with strong demand letting it pass on higher raw material costs.

"We have seen that demand has continued at about the same type of good level as we saw in 2006 in the first quarter. We haven't seen any particular change," he said.

"The underlying demand is good and the trend is upward. We don't expect -- and I don't think anyone expects -- any drastic changes," he said of the outlook for steel prices.

Asked whether the company would be able to raise prices in the third quarter, Tamminen said: "It depends on the product but the trend is slightly upward."  Continued...