Challenges brought by the global economic situation
The on-going global economic downturn has had a significant effect on the stainless steel industry, Outokumpu's customers and also the Group. The market situation at the beginning of 2009 was uncertain and difficult. The crash in the financial markets at the end of 2008 and the resulting economic downturn reduced demand for stainless steel substantially and, in common with other stainless steel producers, Outokumpu had to cut back production.
During the first half of 2009, destocking activities by distributors led to reduced production levels. After the summer, purchasing activity recovered somewhat due to reduced production, increases in metal prices and an end to destocking among distributors. Some softening in market was visible towards the end of the year. Since production remained at unsatisfactory levels until the end of the year, deliveries by Outokumpu declined 28% to 1 030 000 tonnes (2008: 1 423 000 tonnes). Return on capital employed in 2009 was negative at 11.7% and the Group's 13% target for this was not achieved. Despite a difficult year, Outokumpu's debt-to-equity ratio remained at a relatively good level of 48.2%, below the Group target of a maximum of 75%.
Good cashflow also guarantees uninterrupted business with the company's suppliers and adds value for other stakeholder groups.
Outokumpu's current financial priority is to restore profitability by managing price and grade mix, optimising loading at mills and ensuring cost efficiency. In a volatile market situation, a strong balance sheet ensures flexible access to financing. Good cashflow also guarantees uninterrupted business with the company's suppliers and adds value for other stakeholder groups.
Facing the situation
Group's cashflow from operating activities weakened compared to 2008 but remained strong amounting to EUR 198 million (2008: EUR 664 million). Main contributors were the reduction of working capital and lower metal prices. To guarantee necessary levels of liquidity and long-term financing, Outokumpu signed a three-year Revolving Credit Facility of EUR 900 million in 2009 to replace the previous five-year facility of EUR 1 billion. At the end of the year, in addition to cash reserves, the Group had some EUR 1.1 billion of previously-negotiated loans and binding loan commitments from its debtors. Secured financing will help us to live through the financial crisis relatively unscathed while continuing to add value for all our stakeholders.