Outokumpu's new plan to improve financial performance in Europe
2 October 2013
Outokumpu Headquarters in Espoo, Finland
Finnish steel company Outokumpu announced plans for further structural changes in its European operations on Oct. 1st. The plans are aimed at improving its financial performance and efficiency, and ultimately at returning the company to profitability.
While Outokumpu has already implemented significant cost savings as a result of the merger between the company and Inoxum at the end of 2012, the company’s cost structure continues to be unsustainably high in the current market environment.
The stainless steel market has remained challenging during 2013, mainly driven by the continued economic weakness in Europe and the global overcapacity in the industry. Outokumpu has continued to be heavily unprofitable in 2013, with a net debt of €3.0 billion at the end of June 2013. Industry overcapacity and imports from Asia continue to put pressure on prices and profitability, and there are no signs of a material improvement in the market environment. For example, in Europe alone, there are more than 1,500,000 tons of overcapacity in cold rolled production. In addition, as previously reported, the Terni remedy requirement by the European Commission resulted in lower synergy potential than originally planned.
Therefore, Outokumpu is now introducing a new industrial plan along with efficiency measures for its operations in Europe. Specifically, the planned changes include:
- Acceleration of the Bochum melt shop closure in Germany to achieve more efficient production structure and higher capacity utilization rates.
- Reduction of the annealing and pickling capacity by 200,000 tonnes in Finland and the cold rolling capacity by 300,000–350,000 tonnes in Germany to increase capacity utilization and lower costs.
- Optimization of the company’s service center network by closing service centers in Barcelona, Spain and Langenhagen, Germany.
- Further cost savings through leaner overhead and organization in all sites, functions, and activities across the European operations.
The CEO Mika Seitovirta said: “The announcement introduces a solid industrial plan to turn Outokumpu back to profitability. In our European coil business we will have a two-pillar strategy: Tornio in Finland will be the cost leader in high volume austenitic and ferritic standard grades with excellent cost structure and high quality while our German operations will be the cold rolling center for premium tailored materials for the most demanding end-customer segments. We will reduce production capacity to increase utilization rates and discontinue the least profitable sales. Furthermore, we will optimize our service center network and streamline the organizational structure to drive down further costs.”
“While painful, these measures are necessary to achieve turnaround in this difficult environment. Implementing these plans will significantly accelerate our savings to reach 380 million euros already in 2015 and thereby significantly improving our financial performance. With this plan, we will ensure the continuation of stainless steel production in Europe and better job security for the remaining more than 10,000 Outokumpu employees in Europe,” Mika Seitovirta continued.
The planned structural changes announced are expected to result in up to 1,000 additional job reductions in Europe, bringing the total planned global reduction to 3,500 jobs. The industrial plan is expected to result in additional savings of more than €100 million, with the overall anual savings programs expected to result in €300 million in 2014 and €450 million in 2017.
Planned changes in Germany
Outokumpu plans to close the Bochum, Germany melt shop during 2014 instead of the originally planned end of 2016. A review of the economic viability shows that the closure of the Bochum shop clearly would bring higher cost savings compared to any other viable scenario. The closure is expected to impact approximately 450 jobs in Bochum.
In Benrath, the plan is to proceed with the NIFO (Nirosta Ferritic Optimization) investment program according to the original timeline, meaning that Benrath production will be transferred to Krefeld and the Benrath site will be closed by the end of 2015. In order to enable the production transfer and strengthen Krefeld’s role within the company, Outokumpu plans to invest €100 million to the Krefeld site. The closure of the Benrath site is expected to impact 480 jobs. However, part of the Benrath workforce will be offered positions in Krefeld, while early retirement solutions will also be offered.
Outokumpu will work closely with ThyssenKrupp, who has committed to offer alternative jobs for up to 600 of the affected Outokumpu employees in Germany as part of the original Inoxum transaction agreement.
After the planned closures, Outokumpu Nirosta will consist of two efficient and specialized high quality production sites, Krefeld and Dillenburg, with a combined annual cold rolling capacity of 450,000–500,000 tonnes. Krefeld will also have a central role in the company’s R&D strategy with a focus on customer driven innovation and new product applications.
Due to the ongoing, separate strategic reviews, the announcement excludes the Dahlerbrück precision strip and VDM units. Decisions on the Dahlerbrück unit will be made by the end of November 2013. The ongoing strategic review of VDM units is expected to be completed by the end of this year.
As Germany is the biggest market and employs most of the company's workers (approximately 5,500 people), it continues to play a central role for Outokumpu. Also, Germany continues to have a vital role in the company’s production, R&D, sourcing, and commercial strategy.
Planned changes in Finland
According to the plan, the majority of the current production in Bochum will be transferred to Tornio, Finland by the end of 2014. In addition, the company plans to take one annealing and pickling line (annual capacity 200,000 tons) out of use in Tornio to meet the current market demand. The plan is expected to impact up to 100 people in Tornio and in Terneuzen, the Netherlands combined. According to the planned structure, Tornio continues to have a key role in Outokumpu’s melting, austenitic cold rolling, and R&D strategy. Today’s announcement will not impact the company’s ferrochrome operations in Tornio nor the chromite mine operations in Kemi.
Operations in Sweden
In the planned production structure, Avesta has an important role in Outokumpu’s melting and special grades strategy and is a key site for specialty grades R&D. The earlier announced strategic review of the cold rolling operations in Kloster and Nyby is proceeding according to the planned timeline and the company expects to make decisions by the end of 2013. Today’s announcements do not have any impact on the Degerfors quarto plate and long products operations that have a key role in Outokumpu’s specialty business.
Negotiations with employee representatives to start immediately
Outokumpu will start negotiations with employee representatives on the planned measures immediately, in full respect of local legislation and practices and upon consultation with the competent bodies of the unions and employee representatives.
Outokumpu is the global leader in stainless steel and high performance alloys. It creates advanced materials that are efficient, long lasting, and recyclable – thus building a world that lasts forever. Stainless steel, invented a century ago, is an ideal material used to create lasting solutions in demanding applications from cutlery to bridges, energy, and medical equipment. It is 100% recyclable, corrosion-resistant, maintenance-free, durable, and hygienic. Outokumpu employs more than 15,000 professionals in more than 40 countries, with headquarters in Espoo, Finland and shares listed in the NASDAQ OMX Helsinki. In Italy, the company has 4 branches in the North. www.outokumpu.com
Outokumpu CEO Mika Seitovirta
Outokumpu site in Tornio