Investor field trip to Calvert, US Michael Wallis

Investor field trip
to Calvert, US
Michael Wallis
President, Coil Americas
November 18, 2014
Disclaimer
This presentation contains, or may be deemed to contain, statements that are not historical facts
but forward-looking statements. Such forward-looking statements are based on the current plans,
estimates and expectations of Outokumpu’s management based on information available to it on
the date of this presentation. By their nature, forward-looking statements involve risks and
uncertainties, because they relate to events and depend on circumstances that may or may not
occur in the future. Future results of Outokumpu may vary from the results expressed in, or implied
by, the forward-looking statements, possibly to a material degree. Factors that could cause such
differences include, but are not limited to, the risks described in the "Risk factors" section of
Outokumpu’s latest Annual Report and the risks detailed in Outokumpu’s most recent financial
results announcement. Outokumpu undertakes no obligation to update this presentation after the
date hereof.
November 18, 2014
2
Contents
1. Outokumpu in brief
2. Coil Americas overview and markets
3. Coil Americas ramp-up
4. Summary
Appendix
November 18, 2014
3
Outokumpu – A global leader in stainless
steel
Outokumpu profile
Outokumpu global footprint
• Creates advanced materials that are
efficient, long lasting and recyclable –
helping to build a world that lasts forever
• Strong market position: Market share of
35% in Europe, 20% in NAFTA and 1% in
Asia1)
• Employs about 12,400 professionals in
more than 40 countries, with headquarters
in Espoo, Finland
• Shares listed in the NASDAQ OMX Helsinki
Key facts & figures (EURm)
Sales
EBITDA
Total assets
Personnel
USA
Cost efficient integrated
mill (Calvert). High
performance stainless
plate, bar and pipe
production units.
UK
Integrated stainless
production site,
specializing in long
products.
9M/14
6,745
5,170
-165
59
8,823
6,785
12,561
12,385
Coil EMEA
Coil Americas
APAC
Quarto Plate
Long Products
Other operations
1)
2)
3)
Germany
High quality stainless
steel production and
R&D units.
China
Cold rolling and
service centers.
Mexico
Cold rolling mill in San
Luis Potosí, Mexico.
Focus on ferritics and
tailored solutions.
Sales by business area (2013) 2)
2013
Finland
Modern fully integrated chrome
mine, ferrochrome works and
stainless steel production unit
and R&D center. Group HQ.
Sweden
Stainless production
units, plate products,
and R&D center.
7%
Consumer goods
7%
Automotive
6% 5% 4%
14%
~55% of sales is direct sales to end-customers 3)
Architecture & Building
64%
29%
Metal processing
17%
Heavy industries
Other
21%
21% 5%
Market shares 2013 are calculated based on cold rolled deliveries. Source: Eurofer April 2014, AISI March
2014, CRU February 2013
November 18, 2014
External sales
Graph shows direct sales only = ~55% of Outokumpu’s total sales in 2013
4
Q3 2014 in brief
EBIT excl. NRI (EUR million)
• EBIT excl. NRI positive for the first time since merger
Underl.
-82
EBIT
-87 -118
1, 2)
-90 -377 -45
-6
-28
3
• Positive EUR 23 million operative cash flow as a result of
focused net working capital management
-85
• Net debt stable
-125 -133
-48
-89
-3
• 9 months year-on-year improvement of EUR 209 million in
underlying EBIT due to savings and progress in ramp-ups,
particularly in Calvert
• Target for total savings raised by EUR 80 million to EUR
550 million by end-2017
III/14
II/14
I/14
2013
IV/13
III/13
• Achieved price increases avg. EUR 10–20/tonne in Q3
II/13
I/13
-432
Net debt and gearing
EUR million
116%
3,431
2012
188%
3,556
2013
92%
96%
1,733
2,068
2,068
I/14
II/14
III/14
76%
Transaction prices 304 stainless (USD/t) 3)
• Deterioration of market environment impacting Q4 outlook
• Imports into Europe further increased to 33% in Q3
• Nickel price down by ~17% since the end of Q2 4)
• Weaker economic outlook in Europe and China
5,000
Europe
2)
3)
4)
China
3,000
2,000
2011
1)
USA
4,000
2012
2013
2014
EBITDA excluding non-recurring items, other than impairments; raw material-related inventory gains/losses
and as of I/14 metal derivative gains/losses, unaudited.
Q4/13 includes positive effect of EUR 20 million EEG refund
November 18, 2014
Source: CRU September 2014, price for 2mm sheet cold rolled 304 grade
Nickel cash LME daily official settlement of USD 15,575/t as of November 3, 2014
5
EBITDA development per business area
Coil Americas
Coil EMEA
EBITDA excl. NRI (EUR million)
EBITDA excl. NRI (EUR million)
85
110
59
66
43
32
32
• Clear YTD improvement vs
2013 despite lower volumes
driven by synergies and cost
reduction programs
• Volume outlook for Q4 muted
due to lower nickel price and
destocking
-193
1
II
III
IV
I
II
I
III
2014
EBITDA excl. NRI (EUR million)
9
4
-3
I
II
III
2013
IV
• Demand and
prices in APAC
fluctuating
4
2 • Volumes
relatively stable
• Q3 impacted by
high raw
-2
material costs
earlier in the
I
II
III
year
2014
II
III
IV
2013
APAC
3
-50
-70
2013
4
-35
-38
3
I
-12
-19
• Ramp-up of the Calvert mill
progressing
• Q3 negatively impacted by
maintenance and repair in
Calvert cold rolling lines
affecting volumes and costs
• EBITDA break-even target for
the full year 2014 intact
I
II
III
2014
Long Products
Quarto Plate
EBITDA excl. NRI (EUR million)
EBITDA excl. NRI (EUR million)
• Ramp-up of the
Degerfors mill
ongoing
• Q3 volumes stable
vs. Q2
1
9
2
II
III
2013
IV
2
II
III
2014
2
0
-3 -3
-5
I
16
10
-1
-3 -2 -2
I
-3
I
II
III IV
2013
I
II
III
• Good business
conditions and
performance in the
US
• Q3 profitability down
due to lower
volumes vs.
exceptionally strong
Q2
2014
November 18, 2014
6
Key building blocks for Outokumpu
turnaround
Coil Americas
Good progress in ramp-up despite production issues in cold rolling mill
Delivery and EBITDA break even target confirmed (2013: EUR -193 million), indicating
significant y-o-y improvement. Full capacity and potential in place by the end of 2016
EMEA
restructuring
Profitability improvement driven by improved mix and benefits from restructuring and cost
saving programs
Next milestones are Bochum closure in 2015 and investments in Krefeld cold rolling (NIFO1)).
Quarto Plate
and Long
Products
QP: Ramp-up of the Degerfors investment is a high priority. With cost reduction and
efficiency improvement to deliver step change in profitability
LP: Cost efficiency optimization and growth through enhanced specialty focus
Savings
programs
Savings are well on track: Cumulative savings of EUR 340 million compared to 2012.
Higher ambition level: Overall target of EUR 550 million in 2017
Cash flow
Committed to EUR 300 million cash release from NWC by the end of 2014. New target of EUR
400 million by the end of 2015 bringing closer to best industry peers
Capital expenditure <EUR 160 million in 2014. Well invested asset base allowing moderate
CAPEX levels in the coming years
1)
NIFO: Nirosta Ferritic Optimization
November 18, 2014
7
Contents
1. Outokumpu in brief
2. Coil Americas overview and markets
3. Coil Americas ramp-up
4. Summary
Appendix
November 18, 2014
8
Coil Americas – Strong market presence
Outokumpu’s Americas Set Up
Calvert
Melting
900
Hot Rolling
870
Total stainless 2014, in thousand tonnes
Mexinox
Outokumpu‘s strengths in the Americas
Fully integrated, state of the
art, cost competitive
production facility in Calvert,
Alabama which is in the final
stage of ramp up
240
1501)
Cold Rolling
350
Specialized cold rolling mill in
San Luis Potosi, Mexico
250
2,400
Calvert Capacity
Commercial ramp up to full
production by end of 2016
Chicago Sales office
350
320
Established market presence
with long term customer
relationships and market
share of ~approx 20% in the
NAFTA region 2)
Established sales team
11
12
13
14
15
16
Mexinox Capacity
Rest of
SAM 190
Running at full capacity
11
12
13
14
15
Products have a good name in
the market regardless of
source
250
Outokumpu offers widest
product range
16
The only 72 inch wide
manufacturer in NAFTA
Service Center: Buenos Aires, Argentina
Sales office: in Sao Paulo, Brazil
BRA 450
Source: SMR Real Demand September 2014, Total stainless= rolled & forged
1) Sold to free market
2) Market shares 2013 are calculated based on cold rolled deliveries
November 18, 2014
9
Progress in Calvert ramp-up and
Coil Americas turnaround
Stainless Americas EBITDA excl. NRI 1)
1
-12
-19
-35
-38
-50
-70
I/13
II/13
III/13
IV/13
I/14
II/14
• Opportunities:
• Increasing market demand and healthy
pricing
• Continuing volume ramp-up
• Broadening portfolio and improving
quality
• Very good performance in Mexinox
III/14
EURm
Coil Americas expected to reach
break-even EBITDA in 2014
1) Non-recurring items
Comments
• Challenges:
• Recent technical issues in cold rolling and
maintenance and repair work
• Ongoing efforts to optimize raw material
mix and scrap ratios in Calvert
• Overall process stability
November 18, 2014
10
Healthy market demand in Americas
Demand in Americas [cold rolled]
Mio.t
3.0
2.5
2.5
2.3
2.2
2.0
1.9
0.1
0.2
1.5
0.2
0.1
0.2
0.2
0.2
0.1
2.1
1.9
0.1
0.2
0.1
0.1
1.0
1.3
0.2
1.7
0.1
1.7
0.3
0.1
0.1
0.2
0.2
1.3
0.3
0.1
0.2
0.1
0.2
0.1
0.1
0.1
1.6
0.3
0.2
0.2
0.3
0.3
0.2
0.3
0.2
0.3
0.2
0.3
2.7
0.2
0.2
0.2
0.3
0.3
0.3
0.2
0.2
0.2
0.3
0.3
0.3
1.8
1.8
1.8
2014
NAFTA:
+5.6%
Americas:
+5.3%
0.3
1.5
1.3
1.1
0.3
0.2
2.6
2.8
0.2
1.3
0.5
0.2
0.2
2.5
2.8
1.6
1.6
1.7
1.0
0.8
0.0
2005
2006
2007
United States
2008
2009
Mexico
2010
2011
2012
2013 2014f 2015f 2016f 2017f 2018f
Canada
Source: SMR September 2014, CRU August 2014
Brazil
Others
November 18, 2014
11
Long-term market share target of 25-30%
NAFTA cold rolled market size (in kt) and Outokumpu market share
2,500
OTK
+100
THIRD PARTY
+100
2,250
20%
OTK
+250
30%
22%
Q3/14
25%
2,000
20%
1,750
1,500
15%
1,250
10%
1,000
5%
750
500
0%
2006
2007
2008
2009
2010
CR consumption in NAFTA
2011
2012 2013f 2014f 2015f 2016f 2017f
CR capacity in NAFTA
Source: AISI September 2014, SMR September 2014, Outokumpu
Outokumpu CR market share
November 18, 2014
12
Development of US stainless steel prices
Base prices 304 stainless steel 1)
Transaction prices 304 stainless steel 1)
5,000
Nickel price
US transaction price
[$/t]
[$/t]
32,000
27,000
4,500
1,500
[$/t]
US base price
1,450
22,000
4,000
1,400
17,000
3,500
1,350
12,000
3,000
7,000
2,500
Jan
2011
2,000
Jan
2012
Jan
2013
Jan
2014
Source: CRU November 2014
1) 2mm sheet cold rolled 304 grade
1,300
1,250
Jan
2011
Jan
2012
Jan
2013
Jan
2014
November 18, 2014
13
Coil Americas market approach
Our channel structure in the Americas
Distributors
63%
Sales by end-use customer segments (2013)
Others; 21%
Automotive;
28%
Sinks &
Hoods; 6%
End users &
processors 37%
Pipe & Tube;
10%
Household/
Commercial
Appliances;
35%
November 18, 2014
14
Coil Americas focus industry groups
End-Use Industry Groups
Route to End-Use
Automotive
Household /
Commercial Appliances
Catering Food & Drinks
Market size: 643 kt
Growth rate: 2%
Market size: 609 kt
Growth rate: 4%
Market size: 305 kt
Growth rate: 3%
Sinks & Hoods
Heavy Transport
Others
Market size: 144 kt
Growth rate: 3%
Market size: 590 kt
Growth rate: 3%
Market size: 364 kt
Growth rate: 5%
Market sizes: Americas market, fat products 2014, Growth rates: CAGR 2014-2017
Others: Elevators, HVAC, Renewable Energy, Water Treatment, etc.
Source: SMR September 2014
Distributors
Tubes, Pipes & Metal
Processing
November 18, 2014
15
Contents
1. Outokumpu in brief
2. Coil Americas overview and markets
3. Coil Americas ramp-up
4. Summary
Appendix
November 18, 2014
16
Calvert mill
Finishing
Connection Bay
Hot Annealing Line
Carbon Hot Strip Mill
Cold Annealing Line
Slab Yard
Cold Rolling Mills
River Terminal
Stainless Melt Shop
November 18, 2014
17
Highly cost competitive operations
• Raw materials
o Scrap ratio of 80-85%, above industry average
o Annual austenitic scrap usage of approximately 400,000 t
o Scrap supply quality is good
o Proximity to many scrap collection yards in the US
o Global procurement/sourcing
o In-house ferrochrome supply
• Energy
o Long-term contract with Alabama Power, Outokumpu is #1
customer
o Long-term contract with Sempra Gas, one of the largest
suppliers in the South
• Offshore drilling in the Gulf of Mexico offer ample
resources
• Labor
o Highly competetive labor costs
o Workforce versatility supported by experts from other
Outokumpu units during ramp-up
November 18, 2014
18
Ramp-up phases and financial ambition
Calvert commercial ramp-up
• Ramp-up to full production capacity
• Maximize synergies of Mexinox & Calvert
• Focus on market penetration and margin
improvement
B
Calvert technical ramp-up
• Stabilize production
• Complete product offering
• Improve efficiencies
2011
2012
BA Americas
Financial ambition level
2013
A
2014
2015
2016
2014:
EBITDA
break-even
November 18, 2014
19
A
Melt shop ramp-up proceeding
Tonnes per month
Temporary impacted by repair
work in cold rolling lines and
active inventory management
70000
60000
50000
40000
30000
20000
10000
0
Q1
Q2
Q3
2013
Q4
Q1
Q2
Q3
2014
November 18, 2014
20
Calvert is successfully expanding portfolio
at high pace
Grades
Finishing
201
2B/2D
CMP
36"
48"
TK
OTK
OTK
2012
Jan-13
Jan-14
60"
72"
36"
48"
60"
72"
36"
48"
60"
A
OTK
72"
36"
Aug-14
48" 60"
72"
POL
201 LN
2B/2D
CMP
POL
301
(6 & 6.6% Min Ni)
2B/2D
CMP
POL
304 / 304L / 304HS 2B/2D
CMP
POL
316L / 316L HS
2B/2D
CMP
POL
321
2B/2D
CMP
POL
409
2B/2D
430
2B/2D
POL
439 / 439M
2B/2D
POL
Fully qualified
Under development
No current development ongoing
November 18, 2014
21
Combined Mexinox and Calvert offering to
meet customer requirements
2010 NAFTA production portfolio (Mexinox)
2014 NAFTA production portfolio (Mexinox + Calvert)
Stainless steel grades
300 Sheet
96
Slabs
300 Coil
409
Stainless steel grades
430
300 Sheet
42
300 Coil
409
430
November 18, 2014
22
Slabs
248
128
Hot-rolled
black strip
Production capabilities
Hot-rolled
black strip
Production capabilities
A
Hot-rolled
white strip
Cold-rolled
strip (2B)
Cold-rolled
strip (BA)
Extra-wide
72"
Hot-rolled
white strip
Cold-rolled
strip (2B)
Cold-rolled
strip (BA)
Extra-wide
72"
OTK - MXX
OTK - USA
A
Work share model of Mexinox and Calvert
Synergies through optimized work share Regional < > Product
Calvert
Regional
Main focus on the US (~70%)
Mexinox
Regional
Main focus on Mexico (~50%)
- cross regional supply when:
a) lack of capabilities of local mill
b) production cost advantages
Product specialization
• Austenitics
• 72” wide
• Polished
• Continuous mill plate
Product specialization
• Automotive ferritics
• Medium & light gauges
• Bright Annealed/Rolled-On/
Polished
• Blanks & Circles
November 18, 2014
23
Calvert ramp-up improves profitability through
higher volumes and capacity utilization
Calvert delivery volumes 2011 - 2014
Tonnes
150,000
Status update
Calvert capacities (annual):
• Melt shop 900 kt
• Hot rolling 870 kt
• Cold rolling 350 kt
100,000
•
Repair work in 54-inch cold
rolling line ongoing, back in
operations in Dec.
•
Maintenance and repair
measures in two other cold
rolling lines concluded
 Approx. 20kt lost in Q3
50,000
Hot band / rolled
Cold Rolled
2015
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
Q4 2012
Q3 2012
Q2 2012
Q1 2012
Q4 2011
Q3 2011
Q2 2011
Q1 2011
•
0
B
Delivery target of 530 kt for
Coil Americas in 2014 intact
Yield
+ Delivery performance
+ Reworking ratio
= Cold rolled production and deliveries
November 18, 2014
24
Leveraging existing customer base to grow
market share while developing new channels
Existing customers
New customers
• Complete cold and hot rolled
offering
• Replacement of own and other
imports
• Service centers able to enter new
customers with wider Outokumpu
offering
• Leverage high market share position
with home appliance sector
• ‘Made in America’ supports
requirements of potential new
customers
• Investigate opportunities in
automotive sector
• Pipe & tube industries in NAFTA
• South American markets
• 61”–72” offering
B
Targeting 25-30% market share in NAFTA
November 18, 2014
25
Contents
1. Outokumpu in brief
2. Coil Americas overview and markets
3. Coil Americas ramp-up
4. Summary
Appendix
November 18, 2014
26
Coil Americas well positioned for continued
growth
Strong #2 local producer
in the US market
•Aim to be partner of choice in NAFTA region
•Established customer base, experienced sales team
•Replacement of own and other imports
Integrated, low-cost
production across NAFTA
•Most advanced production site worldwide
•Efficient logistics, low energy costs, good availability of
scrap and other raw materials
•Increase to full production yields higher utilization rate
Broadest portfolio that
supports and develops
local demand
•Full product range with unique 72” wide capabilities
•Wider offering allows service centers to enter new
segments
•Melted in America
Leveraging Outokumpu’s
leading technical
expertise
•Global R&D
•Established local presence and technical expertise
•Global footprint & resources
November 18, 2014
27
Coil Americas priorities
Execution of the technical ramp up
• Stabilize production
• Complete product offering
• Maximize utilization rates
Maximize profitability
• Commercial ramp-up: Focused
market penetration
• Maximize synergies between
Mexinox and Calvert
• Targeting EBITDA breakeven for the
full year 2014
• Attractive long-term EBIT and
return-on-asset potential
November 18, 2014
28
Appendix
November 18, 2014
29
Outokumpu Americas milestones
1976 Mexinox established
2007 Calvert greenfield project (USD 1.5 bn investment)
2010 First coil produced at Calvert mill
2011 First 74” coil produced at Calvert mill
2012 First melt at Calvert mill
Dec. 2012: Inoxum transaction: two leaders each with over 100 year legacy come
together to form the new Outokumpu
• Over 2,500 employees form the Americas team
• 2014 Record months in sales and production
•
•
•
•
•
•
November 18, 2014
30
Outokumpu Mexinox
•
•
•
•
•
•
•
Cold rolling capacity of 250,000 tonnes annually
Founded in 1976: 37 years of cumulative know-how in stainless steel
Excellent reputation – highly respected both in the US and in Mexico
Focus on ferritic, tailored material solutions
Close collaboration with end-customers
Strong market share in the Mexican market
Largest importer into the US
November 18, 2014
31
Outokumpu Mexinox
November 18, 2014
32
Calvert - fully integrated and state of the art
mill
Calvert mill strengths
Latest production technology and
equipment
• Full product range
• High quality
• High efficiency
Unique 72 inch coil capability
Efficient logistics
Low energy costs
Good availability of scrap and other
raw materials
Workforce versatility
Hot rolling shared service with
AM/NS, 25 year contract
November 18, 2014
33
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