Outokumpu Oyj - Company Announcement

Outokumpu announces new vision and measures to improve competitiveness and financial performance

OUTOKUMPU OYJ
STOCK EXCHANGE RELEASE
April 5, 2016 at 9.00 am EET

Outokumpu announced today its new vision and measures to drive competitiveness
and further improve the financial performance of the company, and shared its
long-term financial targets. The company also outlined changes to its
organizational structure, including a new financial reporting structure. 

Says Outokumpu CEO Roeland Baan: “In the past three years Outokumpu has
reshaped its industrial footprint to build a strong presence in Europe and
Americas with excellent assets, and made significant strides in deleveraging
the company. While we now have a world-class industrial foundation and a robust
financial position, the true profitability potential of the company is far
higher than the current financial performance shows.  To bridge that gap, we
must significantly improve our competitiveness.” 

New vision and long term financial targets

Outokumpu’s new 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 1.2 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. 

“Our vision captures the essential elements of our competitiveness – customer
orientation and the efficiency of our operations – and focuses our efforts on
the areas where we need to excel in order to create the best value for our
customers, shareholders and employees”, Baan describes. 

The six areas Outokumpu will focus on to reach its vision:

  1. Safety: standardized and disciplined approach to safety that correlates
     with improved quality and operational efficiency, leading to a top decile
     position in the industry.
  2. High performing organization: a lean, simple and flat organization that
     takes its lead from the market trends and requirements, and drives a high
     level of individual accountability that is enforced through vigorous
     performance management.
  3. Word-class supply chain: the role of supply chain function elevated to
     drive optimal matching of market demand and the manufacturing capabilities,
     managing manufacturing programming and planning, required resources and
     logistics. This will allow our production units to focus on achieving a
     benchmark level in cost efficiency.
  4. Manufacturing excellence: implementing a standardized operating model to
     ensure continuous productivity gains in all the mills across the company,
     leading to industry benchmark competitiveness.
  5. Americas: the single biggest profitability improvement lever for Outokumpu,
     with significant improvement potential in both cost and market position.
  6. Portfolio: continuous review of product portfolio, assets and operations to
     maximize the profitability of the business and minimize complexity.

Says Baan: “These changes require a fundamental change in how we are organized,
how we execute our business, interact with our customers and partners, and
operate as a unified team. The work has started in all areas, and we expect
benefits to start materializing from the start. However, reaching the full
potential and run rate impact will take some years. This triggers the need for
a set of immediate measures to force a step change in our cost and competitive
position.” 

Near term changes and efficiency measures

The immediate actions are additional to the ongoing efficiency and cost savings
programs, and target the following areas: 

  -- Organizational set-up: a simplified organizational set up with three
     business areas, less management layers and a lighter cost structure. In the
     new set-up, Outokumpu will have three business areas: Europe, Americas and
     Long Products. These will be market led, with strong focus on key customer
     segments and an efficient regional sales network, served by a highly
     effective supply chain and the world-class mills that concentrate on
     manufacturing excellence and cost competitiveness.

Europe and Americas will cover Outokumpu’s entire flat products offering in
these two markets, including all coil and plate business. Outokumpu’s sales
network in APAC region will be part of the business area Europe. Europe will be
headed by Roeland Baan, Outokumpu CEO; Americas by Michael Williams, current
Head of Coil Americas; and Long Products continues to be led by Kari Tuutti.
The planned organization is to be effective as of June 1, 2016, current
organization and responsibilities remain valid until then. 

  -- 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. The EUR 400 million baseline for the EUR 100 million
     SG&A cost reduction target includes EUR 58 million of costs that were
     reported as cost of sales in 2015. The corresponding costs for 2016 will be
     reported as SG&A costs.
  -- At least a EUR 200 million cash release from net working capital by the end
     of 2016, particularly through reduction of inventory carry (stainless
     operations only, excluding ferrochrome operations, and assuming current
     metal prices).

Outokumpu will commence consultations with employee representatives in full
accordance with local legislation and practices regarding the planned changes
that are expected to lead to a reduction of up to 600 jobs. The expected job
reductions will be global, and proceed in line with the local practices in each
country. At this stage, Outokumpu will now start the consultation process in
Finland regarding a reduction of up to 140 jobs, and in Sweden for a reduction
of up to 90 jobs. In addition, Outokumpu plans to outsource certain
manufacturing support operations in Tornio that would impact approximately 100
employees. 

All in all, the plans announced today, with the efficiency measures that are
already ongoing particularly in EMEA are expected to reduce Outokumpu’s
personnel from the 11,000 at the end of 2015 to a level of 9,300 in the coming
years. 

New reporting structure as of the first quarter of 2016

Outokumpu will report its financial results according to the new segment
structure already as of the first quarter 2016, and expects to publish the
restated historical financials of the new segments for the past two years prior
to the first quarter reporting. Outokumpu will have three reportable segments:
Europe, Americas and Long Products. The current European Quarto Plate business
and APAC business will be reported as part of Europe, and the US Quarto Plate
business under Americas. 

Conference call today at 3.00 pm EET (2.00 pm CET)

Outokumpu will host a conference call and webcast for analysts, investors and
media today, April 5, 2016 at 3.00 pm EET (2.00 pm CET). To participate the
conference call, please dial in 5–10 minutes before the beginning of the event:
UK/Europe: +44 20 3427 1912, US: +1 212 444 0481 using access code 4118528. The
webcast can be followed online. A recording of the webcast will be available at
www.outokumpu.com/en/investors/IR-events/webcasts after the event. 

For more information:

Investors: Johanna Henttonen, tel. +358 9 421 3804, mobile +358 40 530 0778

Media: Saara Tahvanainen, tel. +358 9 421 3265

Outokumpu Group


Outokumpuis a global leader in stainless steel. We create 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 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 11,000 professionals
in more than 30 countries, with headquarters in Espoo, Finland and shares
listed in Nasdaq Helsinki. 
www.outokumpu.comoutokumpu.com/stainless-newschoosestainless.outokumpu.com

Attachments:

Outokumpu_new_vision_and_measures_05042016_EN.pdf