Outokumpu recently announced it would cease the operations of its Coil Products Sheffield (CPS) business unit in the UK. The decision follows a thorough review of its stainless steel cold rolling operation in Sheffield.

The Group’s Sheffield-based meltshop, long products and special strip units, as well as its UK sales and distribution centre are unaffected by this decision.

Outokumpu had previously announced that 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 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, "Today’s 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."

Global supply of stainless steel is gradually concentrating into three regional clusters in Europe, Asia and North America. The clusters are increasingly served by large integrated operations with decentralized service center networks. Outokumpu’s current main base of operations — Europe — is suffering from over-capacity. CPS is a medium-scale, high-cost operation with complicated logistics; it can no longer compete with the more cost-efficient integrated operations in the current and foreseeable market conditions.

Outokumpu’s 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. Cessation of operations at CPS will help the Group reach this goal and achieve its financial targets.

CPS has some 570 employees. Cessation of operations at the facility 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 Group’s 2005 gearing will not be significant due to freed working capital. The improvement of the Group’s 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 meltshop (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 U.K., Sweden and the U.S. 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, Outokumpu’s melting capacity will be 2.5 million tonnes, with hot rolling capacity to match melting capacity and cold rolling mill capacity will be 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 U.K. market will continue to be served with Outokumpu’s stainless steel through its U.K. 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 U.K. and all its other markets.

Outokumpu’s 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.