Insider information: Outokumpu has successfully negotiated a long-term extension to its partnership with AM/NS until 2051 for the procurement of hot rolling services in business area Americas
Outokumpu Oyj
Insider information
November 29, 2023 at 9.30 pm EET
Insider information: Outokumpu has successfully negotiated a long-term extension to its partnership with AM/NS until 2051 for the procurement of hot rolling services in business area Americas
Outokumpu announced on August 3, 2023, that it is exploring options to strengthen its position in the U.S. as a part of phase three strategic preparations. The company announced that it has an ongoing feasibility study, where it seeks to increase its existing cold rolling capacity and investigates different options for its hot rolling arrangements in Calvert, Alabama, U.S. With respect to the latter, one option under consideration was to build an own hot rolling mill.
The hot rolling agreement with ArcelorMittal Nippon Steel (AM/NS) is a heritage of Outokumpu acquiring Inoxum, the stainless steel division of ThyssenKrupp, in 2012. As a consequence of the transaction, Outokumpu expanded its global footprint to the Americas. In the U.S., the transaction included melt shop and cold rolling operations in Calvert, Alabama, but hot rolling services continued to be procured externally.
Outokumpu has now extended the existing tolling agreement with its current partner AM/NS on mutually acceptable terms until October 1, 2051. The contract is subject to four years prior written notice with the earliest effective termination date being October 1, 2042.
“We have been carefully assessing how to best arrange our operations in the U.S. to achieve our commercial ambitions in the North American market, and the extension to the existing tolling agreement is a capital efficient solution. Building our own hot rolling mill would have been a significant investment, at least one billion dollars. Continuing the agreement in partnership with AM/NS allows us to keep our balance sheet strong and to direct our investments to other areas in line with our strategy. This is the best solution for our shareholders and enables a faster path to growth in the North American market,” says CEO Heikki Malinen.
As a next step, Outokumpu continues to assess the possible cold rolling capacity expansion in the U.S. to meet the increasing demand for locally produced sustainable stainless steel.
“North America is an attractive and robust market with a favorable regulatory environment, and we want to further strengthen our position there. Also, having a geopolitically diverse asset portfolio benefits the whole company as we have seen during the recent quarters. As we have extended the hot rolling contract, we can now shift our focus more towards the evaluation of a possible cold rolling capacity expansion, which would enable us to directly increase our cold rolled deliveries and grow in North America,” says CEO Heikki Malinen.
The company is committed to its dividend policy and aims to distribute a stable and growing dividend to be paid annually. Outokumpu’s financial targets also remain unchanged.
The extended hot rolling agreement will, however, decrease business area Americas’ normalized annual EBITDA run-rate from USD 200 million to USD 170 million and result in a non-cash impairment booking of approx. USD 280 million in the fourth quarter of 2023. The impairment that is treated as an adjustment item will be booked in business area Americas. The amount of the impairment is still preliminary and subject to 2023 year-end closing procedures. As a result of the preliminary impairment booking, the annual depreciation will decrease by approximately EUR 30 million going forward.
An audiocast and a conference call to analysts, investors and representatives of media will be arranged tomorrow on Thursday, November 30, 2023, at 3.00 pm EET at https://outokumpu.videosync.fi/2023-11-30-audiocast. The event is hosted by President and CEO Heikki Malinen and CFO Pia Aaltonen-Forsell.
To ask questions, please participate in the conference call by registering at https://palvelu.flik.fi/teleconference/?id=10012188. After registration you will receive phone number and a conference ID to access the conference call. If you wish to ask a question, please dial *5 on your telephone keypad to enter the queue.
For more information:
Investors: Linda Häkkilä, Head of Investor Relations, tel. +358 400 719 669
Media: Päivi Allenius, VP – Communications, tel. +358 40 753 7374 or Outokumpu media desk, tel. +358 40 351 9840
Outokumpu is the second biggest stainless steel producer in the U.S. market. The company has currently 900 kilotons of melt shop capacity, 900 kilotons of hot rolling capacity from AM/NS under the extended contract and 600 kilotons of cold rolling capacity. 350 kilotons of cold rolling capacity is located in Calvert, Alabama and 250 kilotons in San Luis Potosi, Mexico.
Outokumpu is the global leader in stainless steel. The foundation of our business is our ability to tailor stainless steel into any form and for almost any purpose. Stainless steel is sustainable, durable and designed to last forever. Our customers use it to create civilization’s basic structures and its most famous landmarks as well as products for households and various industries. Outokumpu employs approximately 8,500 professionals in close to 30 countries, with headquarters in Helsinki, Finland and shares listed in Nasdaq Helsinki. www.outokumpu.com