Outokumpu's short-term agenda focuses on improving the Group's cash flow, creating
balance sheet flexibility and restoring profitability. The actions consist of
disposal of non-core assets, separation and turnaround actions related to
loss-making units as well as actions to limit capital expenditure, cut costs
and strengthen the balance sheet. Some of the actions have already been
implemented. Related to the actions, Outokumpu
expects to record a total of some EUR 148 million of non-recurring asset
impairments and restructuring costs in the second quarter 2011. As a result, Outokumpu's reported operating profit in the quarter will
be significantly negative.
CEO Mika Seitovirta:
"We are now ready to move forward with the actions that are needed to
address our short-term issues: cash flow, balance sheet and profitability. Some
of the actions have been fast to execute whereas some will require more
fundamental changes and it will take some time until we see permanent
results."
Disposal of non-core assets
- Disposal of shares in Talvivaara
Mining Company Ltd and part of the shares in Talvivaara
Sotkamo Ltd announced on 1 June 2011
- Disposal of shares in Tibnor
AB announced on 24 May 2011
- Potential divestment of the shares in Fagersta Stainless AB
- Potential divestment of the brass-producing units in
Sweden and the Netherlands
The transactions that have already been realised have resulted in EUR 240 million of capital gains
and EUR 162 million cash inflow in the second quarter of 2011. Additionally,
there is a potential additional cash inflow of EUR 240 million if Talvivaara exercises the option to buy the remaining shares
in Talvivaara Sotkamo Ltd.
Loss-making units
Outokumpu has defined its tubular unit (OSTP) as a non-core asset and has decided
on a turnaround plan for the unit. OSTP produces welded stainless steel process
pipes and tubes as well as threaded and butt weld fittings. It has 11
production sites in Sweden, Finland, USA, Saudi Arabia, Estonia and Canada
employing some 970 people. The turnaround plan would mean separation of OSTP
from Outokumpu and managing the business through OSTP
Board. The plan includes significant streamlining of the production structure, optimisation of product portfolio and general cost
reduction. Outokumpu is also considering potential
partners that would provide industry and management expertise for the
implementation of the turnaround plan and potentially become owners of the
business in the future. Based on the plan some EUR 70 million of one-time costs
related to asset impairment and restructuring are expected for the second
quarter 2011.
Similarly, a turnaround plan on how to return Outokumpu's thin and precision strip mill Kloster to sustainable profitability has been prepared. The
business plan is based on simplification and optimisation
of the product mix, re-segmentation of the customer base and providing the
internal material feed mostly from Tornio. Within the next 12 months Outokumpu will evaluate whether the turnaround plan is
delivering sufficient results. If there was no visible progress towards clear
profitability improvement, Outokumpu would consider
partnerships, divestment or closure of the business.
Kloster is situated
in L�ngshyttan, Sweden and employs 275 people. Outokumpu will record an asset impairment of some EUR 60
million related to Kloster in the second quarter
2011.
In total OSTP and Kloster
made an operating loss of some EUR 50 million in 2010.
Capital expenditure, costs and balance sheet
Outokumpu will continue with its two major expansion projects, doubling the
ferrochrome production capacity and expanding the capabilities and capacity of
the quarto plate production, as planned. After the review of the capital
expenditure plans for 2011, the total capital expenditure is now expected to be
EUR 250-300 million.
As announced in April and May the actions to increase
efficiency and remove overlaps in sales, supply chain and supporting functions
will reduce some 350 jobs by the end of 2011. This will result in EUR 27 million
cost savings from 2012 and EUR 18 million non-recurring costs in the second
quarter 2011.
The total of the non-recurring asset impairments and
restructuring costs, EUR 148 million, will impact Outokumpu's
reported operating profit in the second quarter 2011. As a result, Outokumpu's reported operating profit in the quarter will
be significantly negative. The non-recurring capital gains, EUR 240 million,
will have a positive impact on the Group's financial income and net profit in
the quarter.
The second-quarter non-recurring capital gains, asset
impairments and restructuring costs will have positive 8 percentage point net
impact on Outokumpu's gearing.
On 1 June Outokumpu signed a
new three-year EUR 750 million revolving credit facility. The new facility has
a gearing covenant at 115%.