OUTOKUMPU TO CEASE ITS UK COIL PRODUCTS OPERATION IN SHEFFIELD
OUTOKUMPU OYJ STOCK EXCHANGE RELEASE OCTOBER 25, 2005 AT 1.30 PM
OUTOKUMPU TO CEASE ITS UK COIL PRODUCTS OPERATION IN SHEFFIELD Outokumpu has completed the review of its stainless steel cold rolling operation in Sheffield and the Board of Directors has today concluded that it is the intention of Outokumpu to cease the operations of its Coil Products Sheffield (CPS) business unit in the UK. This intention is subject to consultation that will immediately commence with the Sheffield workforce and the appropriate trade unions. The Groups Sheffield-based melt shop, long products and special strip units, as well as its UK sales and distribution centre are unaffected by this decision. As announced on September 26, 2005, as a temporary measure at that time, all new orders (excluding bright annealed grades) usually produced at CPS were to be transferred to Tornio in Finland. After now completing the more thorough review it is proposed that the loss making CPS production will cease altogether. This will confirm the ability of the Tornio Works, the most cost efficient and largest single-site stainless operation globally, to be operated with full load as of the fourth quarter 2005 and to deliver the full benefits of its low cost base. Juha Rantanen, Chief Executive of Outokumpu, said: "Todays announcement demonstrates our commitment to ensuring our global competitiveness. At the same time, however, we regret having to make the difficult decision involving our CPS colleagues. It is certainly not one that has been taken lightly, especially given the commitment and excellent effort of the CPS workforce over the years." The global stainless steel supply is gradually concentrating into three regional clusters: Europe, Asia and North America. The clusters are increasingly served by large integrated operations with decentralized service center networks. Europe, Outokumpus current main base of operations is suffering from over-capacity. CPS is a medium-scale, high-cost operation with complicated logistics and cannot compete with the clearly more cost-efficient integrated operations in the current and foreseeable market conditions. Outokumpus vision is to be the undisputed number one in stainless with success based on operational excellence. The first phase in the strategy is to reach the number one position in Europe. The cessation of operations at CPS will help the Group reach this goal and achieve its financial targets. CPS has some 570 employees. The cessation of operations at CPS is estimated to result in non-recurring write-downs of some EUR 100 million and provisions of some EUR 50 million, which will be recorded in the fourth quarter 2005 accounts. The effect on the Groups 2005 gearing will not be significant due to released working capital. The improvement of the Groups future operating profit level is estimated to be some EUR 50 million annually from the second half of 2006 onwards, compared to continuing business as usual within the current structure, and with the prevailing price and loading levels. In addition to ceasing the 300 000 tonnes per year operation of CPS, the operational capacity of the Sheffield melt shop (SMACC), already part of the September initiative, will be adjusted from 500 000 tonnes to 300 000 tonnes to provide feedstock only for the long products and plate operations in the UK, Sweden and the US. This is likely to reduce the SMACC workforce by some 100 employees and the consultation process on this with the appropriate unions is underway. As the Avesta Works in Sweden has been hot rolling SMACC slabs for CPS, the operational hot rolling capacity in Avesta will be adjusted to 450 000 tonnes to reflect the new operational structure. This will result in a review of shift levels in the Avesta hot rolling mill, and union negotiations in this respect will start in due course. In the new operational structure Outokumpus melting capacity will be 2.5 million tonnes, hot rolling capacity to match melting capacity and cold rolling mill capacity 1.6 million tonnes annually. Mr. Rantanen further stated: "As a company we are committed to looking after our people and treating them fairly. In commencing discussions with our CPS workforce and their union representatives, we seek to communicate all aspects of this process in an open, honest and timely way. Our aim in the next weeks and months is to work with union representatives to develop proposals that will support the transition of all CPS employees through this difficult time." Outokumpu will continue to deliver customers with its extensive selection of stainless grades and products, and complemented with commercial excellence will strive to retain or even increase market share in Europe. The UK market will continue to be served with Outokumpus stainless steel through its UK sales and distribution company, including the new service center in Sheffield, and all customer contacts will remain unchanged. Pending completion of the consultation process, cessation of operations at CPS is expected to take place by the end of the first quarter 2006. The Group will ensure that a carefully planned transfer of order load is in place. Outokumpu is committed to delivering to customers the best possible service in the UK and all its other markets. Outokumpus transformation to improve its performance and profitability in order to meet its financial targets is underway. The financial benefits from the cessation of operations at CPS will come on top of the benefits from the operational excellence programs and the fixed cost reduction program. As announced earlier, the total combined benefits from the commercial and production excellence programs are estimated to amount to EUR 40 million in 2007, EUR 80 million in 2008 and EUR 160 million annually in perpetuity. The target for the fixed cost reduction program is EUR 100 million from 2007 onwards, with some results already in 2006. For further information, please contact: Karri Kaitue, Deputy CEO, tel, +358 9 421 5506 Kari Lassila, SVP IR and Communications, tel. +358 9 421 2555 Eero Mustala, SVP Corporate Communications, tel. +358 9 421 2435 In Sheffield, please contact: CEO Juha Rantanen or Jamie Allan, SVP CPS, tel. +44 (0) 114 261 4059. OUTOKUMPU OYJ Corporate Management Eero Mustala SVP-Corporate Communications tel. +358 9 421 2435, mobile +358 40 504 5146, fax +358 9 421 2429 e-mail: eero.mustala@outokumpu.com www.outokumpu.com