November 21, 2012 3:22 pm

Outokumpu urges patience on profits

Mika Seitovirta, CEO of the Finnish steel group Outokumpu©AFP

Standing firm: Outokumpu chief executive Mika Seitovirta hints it will take two years to return to profit

Outokumpu has hinted it will take at least another two years to return to profitability after creating the world’s largest stainless steelmaker through its €2.7bn takeover of ThyssenKrupp’s Inoxum.

The combination of the two lossmaking businesses catapults Finland’s Outokumpu ahead of South Korea’s Posco in terms of global cold rolling capacity, but the fact that it could take until 2015 for the Finnish company to post profits again underlines the deep malaise in the sector.

The takeover of Germany’s Inoxum by Outokumpu was approved by the European Commission earlier this month, and marks the long-awaited first step in the consolidation of an industry plagued by overcapacity, rising costs and weak demand.

Mika Seitovirta, Outokumpu’s chief executive, declined to say when the company might return to profitability, noting the continued difficult outlook for demand, particularly in its main European market.

But after outlining a series of measures to cut costs, extract €200m in synergies and increase production in the US, when asked if that meant profitability would be reached in 2015, he said: “You are listening carefully . . . There is some patience needed from investors.”

Outokumpu recorded a net loss of €186m last year, while Inoxum was weighed down by €800m in writedowns.

However, the forced divestment by Brussels of the prized Terni mill in Italy has caused some analysts to question the merits of the deal, while the group’s biggest shareholder, the Finnish government’s holding company, has said Outokumpu underestimated the antitrust risks.

Shares in the Finnish group, which financed the acquisition through a €1bn rights issue earlier this year, are trading at a third of their level before the deal was announced.

We don’t love tonnes as the industry often does, but euros and returns

- Mika Seitovirta, Outokumpu

Mr Seitovirta said the divestment changed neither the logic of the deal nor the promised €200m in synergies to be gained through shutting production in Germany, and combined procurement and sales. He also underlined that ThyssenKrupp would have to partially compensate Outokumpu for any forced divestment.

Inoxum brings new sectors and countries to Outokumpu, which had a strong focus on the capital goods industry and northern Europe. The ThyssenKrupp unit is strong in the consumer goods industry – where stainless steel is used in products such as washing machines – and has a large presence in central Europe. The combined company will have about 12 per cent global market share and 40 per cent in Europe.

Outokumpu is planning to close two melt shops in Germany, with Krefeld due to shut in 2013 and Bochim in 2016, allowing it to run its other plants at a higher capacity.

Mr Seitovirta pledged to focus on profitability rather than size. “We don’t love tonnes as the industry often does, but euros and returns,” he said.

He also emphasised the growth opportunities the takeover would bring, including an increased presence in both the US and Asia, a doubling of capacity by 2015 of the alloy ferrochrome used in stainless steel production, and a push into high-performance alloys.

ThyssenKrupp – which is under pressure after putting up for sale what were meant to be its two landmark steel projects in Brazil and the US – received a 29.9 per cent stake in Outokumpu in the deal.

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