Annual Report 2010 - Outokumpu

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Management discussion of financial
performance
Updated strategic priorities
Major investments
Excellence Programmes
Market review
Disappointing result in recovering market conditions
Balance sheet and financing
Dividend
Economic value added
Factors affecting Outokumpu's profitability
Outokumpu and stainless steel markets going forward
Disappointing result in a recovering market – strategic priorities adjusted
and major investments announced
Rebounding from the economic crisis and difficult market conditions that prevailed in 2009, global demand for stainless
steel increased in 2010 driven mainly by consumer-led industries and demand from Asia. The pick-up in overall demand
was clearly evident during the first half of the year, which also marked Outokumpu's return to profit as a consequence of
increased delivery volumes, higher base prices and raw-material related inventory gains resulting from increasing metal
prices. The impact of a significant inflow of Asia-produced material in the summer and autumn periods on European
market dynamics and base prices was clear. Despite relatively healthy levels of demand following the European summer
holiday period, Outokumpu's result remained in negative territory throughout the second half of the year owing to lowerthan-average
seasonal deliveries and softening base prices. To maximise cash flow, inventory levels were also strongly
reduced as the end of the year approached, resulting in high operating costs in the fourth quarter. The continuing lack of
investment-driven end-use demand constrained Outokumpu's profitability throughout 2010, an effect that was particularly
evident in special grades and products. Consequently, Outokumpu's annual result was disappointingly negative.
The aims of Outokumpu's strategy are achieving stable, industry-leading profitability and high levels of customer
satisfaction. Adjusted strategic priorities were announced and implemented in 2010, and the focus is on improving
performance in the Group's current operations as well as investing additional effort in developments expected to yield
future growth. To support achievement of Outokumpu's strategic objectives, the Group announced major investments of
more than EUR 544 million during the year. These include a project to double Outokumpu's ferrochrome production
capacity in Tornio in Finland and increased stainless steel quarto plate capabilities and production capacity at Degerfors
in Sweden.
In overall terms, it appears that market conditions are continuing along the path of gradual improvement. On the other
hand, the European market for stainless steel can be expected to remain challenging, and will continue to be affected by
over-capacity and regional imbalances between supply and demand. In early 2011, the overall economic development
indicates improved stainless steel markets for the year.
Outokumpu Annual Report 2010 – Outokumpu – Management discussion