Stock Exchange Release
September 17, 2007 at 9.00 a.m.
Outokumpu enters the next phase in its strategy development aiming at delivering a more stable and profitable business model whilst also addressing the most attractive growth opportunities. In this respect the following decisions have been made:
- To increase the share of value-added special grades sales, an EUR 550 million investment will be made in Avesta, Sweden.
- To increase the share of sales to end-use and project customers, the service center network will be strengthened in China and Italy.
- The successful Operational Excellence programs will be further expanded, with new targets for 2009 and beyond.
As announced in January 2005, Outokumpu's vision is to be the undisputed number one in stainless, with success based on operational excellence. The path to reach the vision was divided into two main phases: firstly, ensuring the number one position in Europe with building and strengthening operational excellence, and secondly, achieving global leadership in stainless by multiplying operational excellence. The ultimate goal is to secure a significant and sustained increase in shareholder value.
In accordance with this plan, the emphasis has been so far on internal improvements and strengthening of the financial performance, as well as on developing the quality of the current asset base. Today, both the Production Excellence and Commercial Excellence programs are proceeding at full speed delivering this year at least the planned EUR 40 million benefits, with the ultimate target of EUR 160 million to be delivered from 2009 onwards. In addition, the EUR 100 million group-wide fixed cost reduction program was completed in 2006 delivering full results this year. This comes in addition to the closure of Coil Products Sheffield, which was completed last year delivering an extra EUR 50 million annual fixed cost savings. The sale of shares and listing of Outokumpu Technology (now Outotec Oyj) last year and the subsequent sale of the remaining minority share in Outotec practically completes the targetted restructuring of the Group.
Outokumpu is today a pure play stainless steel company with a strong balance sheet and is well positioned to accelerate its profitable growth.
Second phase starting in Outokumpu's strategic development
The Board of Directors has reviewed Management proposals to enter into the second phase in the strategy development towards the undisputed number one position in stainless. This phase will concentrate on developing and securing a more stable and profitable business model to balance the effects of the volatility of the stainless steel standard products market, and will address growth prospects with respect to both the size and geographical coverage of the Group.
The Board of Directors has approved the Management's proposal to start implementing the new strategy phase. This will entail the increasing of the share of direct end-user and project sales from the current 35% to at least 50% in five years time. It will also include the expanding of the value added special products capacity, while at the same time maintaining cost leadership in standard grade volume production.
The transformation towards more end-user and project sales requires investment into the Group's service capability. Earlier this year new service centers were announced to Poland and India. Now, a decision has been made to invest some EUR 70 million in the restructuring and expansion of the Group's service center in Italy from the current 40 000 tons to some 110 000 tons from 2010 onwards. Also a new service center will be built in China near Shanghai with a capacity to stock and process some 30 000 tons of mainly special grades from 2010 onwards. The investment in China will be some EUR 20 million.
The increase of the value added special products capacity includes a broadening of the grades manufactured and namely an increase in the production of low-nickel duplex grades. Growth targets will also include the increasing of ferritic grades production capacity (stainless steel without nickel). These grades will help reduce the earnings cyclicality driven by volatile nickel prices.
There is an increasing underlying high demand for the value-added special grades. It is a market with high barriers of entry, and a very limited number of players worldwide who can provide the level of service and product range that Outokumpu targets. Margins in special grades are higher and more stable than in the current standard grades. With the special products offering Outokumpu is getting closer to the end customer and can offer them tailor-made services that enable customers to extract better performance out of Outokumpu's products and hence realize themselves attractive cost savings or an improvement of their product offering. This results in the customers' willingness to pay a premium for Outokumpu's services, fuel long-term relationships, and for Outokumpu an increased share of more profitable and stable revenues reducing the cyclicality of earnings.
As the first step in increasing of the value added special products capacity, Outokumpu has decided on an EUR 550 million investment, over the next three years, in stainless steel special grades capacity in its Avesta Works in Sweden. The investment will increase the finished products capacity of Avesta from the current 250 000 tons to some 650 000 tons with mainly duplex grades, starting in 2010. The return on capital employed from the expansion is estimated to be clearly higher than the Group's 13% target. (See separate release for more details.) The investment decisions on other expansion projects will be made later this year.
To widen the geographical coverage of the Group, in addition to the above mentioned service centers in India and China, Outokumpu is currently conducting a feasibility study on the building of a 250 000 ton stainless steel cold rolling mill in India, as announced earlier this year.
Operational Excellence programs to be expanded
Encouraged by the success of the on-going Production and Commercial Excellence programs the Board of Directors has approved Management plans to expand the excellence initiatives with supply chain management. The first phase of the Supply Chain Excellence program will concentrate on procurement. The addition of the new initiative into the Operational Excellence programs will increase the total current EUR 160 million benefit target for the year 2009 to EUR 200 million, and the target from 2010 onwards to some EUR 300 million.
For further information, please contact:
Kari Lassila, Senior Vice President - IR and Communications, Outokumpu Oyj,
tel. +358 9 421 2555, kari.lassila@outokumpu.com
Eero Mustala, Senior Vice President - Corporate Communications, Outokumpu Oyj,
tel. +358 9 421 2435, eero.mustala@outokumpu.com
OUTOKUMPU OYJ
Corporate Management
Ingela Ulfves
Vice President - Investor Relations
tel. + 358 9 421 2438, mobile +358 40 515 1531, fax +358 9 421 2125
e-mail: ingela.ulfves@outokumpu.com
www.outokumpu.com