Why invest in Outokumpu?
Outokumpu is executing a large-scale transformation in its operations with a target to return to the sustainable profitability. Following the merger with the German steel conglomerate Inoxum in 2013, Outokumpu has consolidated its production capacity in Europe, established a strong foothold in the Americas, and decisively implemented cost efficiency measures and saving programs in order to lower the overall cost level of the company. As a result, today Outokumpu is a global leader in stainless steel with a unique global production set-up.
Outokumpu strategy focuses on areas, where the company aims to further increase its operational efficiency to make the most of the Group’s assets and leverage its strengths to differentiate from competitors. In order to leverage its strong presence in the most attractive key markets, Outokumpu builds on its strong legacy in quality, innovation and technical expertise, and systematically improves delivery performance and customer relationships in order to provide the best customer experience in the industry.
Operational efficiency measures will drive further improvements in production and resource utilization, for example through minimizing yield losses. Outokumpu has efficient, well-invested production plants/facilities located right at the heart of the most important stainless markets. Outokumpu will now systematically drive operational improvements to unleash the potential of these assets.
The procurement of raw material used in production of stainless steel, such as ferrochrome, chromium, nickel and molybdenum, remain as a key focus area: raw materials represent almost 60% of the total costs, and are therefore a significant area for efficiency improvements. Outokumpu has its own chrome mine located in Kemi, Finland, and integrated ferrochrome operations in Tornio, Finland, which give Outokumpu a unique competitive advantage. Outokumpu also further increases the utilization of recycled material: Outokumpu’s average recycled material use of 80% is already higher than the industry average of 60%. The Group targets to increase the levels further not just because of its vast sustainability agenda, but because of the clear impact on lowering raw material costs.
Outokumpu’s vision has been defined as: to be the best value creator in stainless steel by 2020 through customer orientation and efficiency. Connected to this vision, defined measures of success focus on profitability and further deleveraging:
- EBIT of EUR 500 million
- ROCE of 12%
- Gearing of <35%
These group level targets are expected to be reached by the end of 2020 at the latest. While the global demand for stainless steel continues to grow, Outokumpu takes a conservative approach on the market growth and metal price assumptions, and expects the targeted profitability improvement to come primarily through efficiency and cost improvements in the current scope of business, supported by further strengthening of Outokumpu’s cost competitiveness and market position particularly in Americas.
Outokumpu considers gearing (debt-to-equity ratio) to be a relevant key indicator for the health of a company in the cyclical stainless steel sector, and thus targets gearing to be below 35%. As a first milestone, Outokumpu is targeting to reduce its net debt to EUR 1.1 billion by the end of 2017, driven mainly by the expected improvement in operational performance as well as a significant uplift in net working capital efficiency.
In short term, Outokumpu targets EUR 100 million reduction in sales, general and administrative costs (SG&A) by the end of 2017 against the baseline of EUR 400 million at the end of 2015.