Our strategy includes three phases with each phase requiring strong and diligent execution and focus, creating the foundation for the next phase. Deleveraging the balance sheet will continue throughout all three phases. Ultimately, our vision is to be customer’s first choice in sustainable stainless steel.
First phase of the strategy ahead of plans
During the first phase, which is set to complete by the end of 2022, we wanted to strengthen our balance sheet and de-risk the company before entering the next phases of the strategy. The strategy is built on our strong foundation, starting with megatrends driving stainless steel demand, our people as our asset, and our stable operations as well as continuous improvement culture. In the first phase of the strategy, during 2021–2022, Outokumpu will prioritize de-risking the company through margin improvement, cash flow management and deleveraging the balance sheet.
Three clear improvement areas
When building the strategy, Outokumpu found three focus areas in which to improve performance in the first phase of the strategy: lean and agile organization, cost and capital discipline, and commercial excellence.
- In the lean and agile organization stream, the target has been to create cost savings by restructuring and reducing total employee headcount by approximately 1,000. The total targeted employee reductions of 1,000 was to be completed in full mostly by the end of 2021 and now the company has moved towards agility. Outokumpu’s aim is a full-time equivalent number of personnel below 9,000 during 2022.
- In the cost and capital discipline stream, the focus has been on increasing our raw material efficiency, maintenance optimization, and strict asset management as well as keeping our annual capital expenditure within EUR 180 million.
- In the commercial excellence stream, our target has been to improve product mix in all business areas, grow in the selected segments and leverage the leadership that we have in specialty grades.
Excellent progress in reaching our financial targets
With diligent execution in the three focus areas, we aim to reach the financial targets we set for the first phase of the strategy, both by the end of 2022.
The first target was to improve the EBITDA run-rate by EUR 200 million. During 2021, we were able to improve our EBITDA run-rate more than we had estimated one year ago and reached an improvement of EUR 198 million, which is 79% of our total target: as we have recognized new improvement areas, we are now aiming at EUR 250 million EBITDA run-rate improvement.
The second financial target we set for ourselves was to push the leverage ratio, or net debt to EBITDA ratio, to below 3, meaning that our net debt could only be three times as much as our EBITDA. We were able to reach this target already during the first half of 2021 and pushed this ratio further down to 0.4 by the end of the year. The directed share issue which we completed in May contributed positively as with the proceeds we paid some of the more expensive loans. We also redeemed our senior secured fixed rate notes due in 2024 already at the end of 2021. Although our leverage ratio target has been reached ahead of time, we will continue to deleverage throughout the first phase of the strategy.
Much of the EBITDA run-rate improvement in 2021 came from delayering the organization. We have reduced the organizational levels at Outokumpu. At the same time, we had to make a tough decision to reduce the number of employees by approximately 1,000 people to decrease our cost base and increase our competitiveness. These measures have now been nearly completed. At the end of the year, we had 9,096 employees as full-time equivalent on our payroll.
Our continuous improvement culture is demonstrated in the many good examples and success stories from cost and capital discipline and commercial excellence. For instance, in Europe, we signed a deal with Langh Ship for new cargo vessels traveling between Finland and Terneuzen, being able to both reduce our shipping costs and CO2 emissions at the same time. Across Outokumpu, a melt shop benchmarking activity resulted in an operating model allowing the company to optimize the use of raw material alloys in the melting process. In the Tornio melt shop, our operators solved an over-alloying issue, finding saving potential in alloying elements.
In Mexico, we found, for example, new applications and customers for our stainless steel grades in the solar power industry which was looking for a local, reliable source. We capitalized on our technical expertise, for instance helping a customer to reduce their down time by supplying coils that had already been welded together. Going forward, most of the impact on our financial targets will come from the measures within cost and capital discipline and commercial excellence.
Next phases of strategy
We are now strengthening the foundations of the company, and once we have deleveraged our balance sheet further, we will move onto the next phases of strategy. Deleveraging continues by the end of 2022 and in 2023–2025, we will strengthen the core of our business: making targeted investments in productivity so that we can further improve our profitability. At the same time, we will make additional investments to improve our sustainability performance. Beyond 2025, our strategy is to invest in growth and sustainability, which will bring us towards our vision to be the customer’s first choice in sustainable stainless steel.
“There is great value in the company, and we will unlock it with a clear strategy and determined implementation. Outokumpu has a solid foundation and is the industry leader in sustainability as well as in specialty grades. Our customers see us as their preferred partner. We have an experienced team and world-class, stable operations with a strong culture for continuous improvement. Outokumpu’s leadership is fully committed to the strategy.”
CEO Heikki Malinen
Updated on March 4, 2022.