Operational risks

Operational risks are related to inadequate or failed internal processes, employee actions, systems, or other events such as natural catastrophes and misconduct/crime. These types of risk are often connected with production operations, logistics, financial processes, projects or information technology and, should they materialise, can lead to personal injury, liabilities, the loss of property, suspension of operations or environmental impacts. Outokumpu's operational risks are partly covered by insurance.

Corporate culture and One Company approach

Outokumpu's objective is to achieve a strong and unified corporate culture throughout the company's organisation. To further this aim, the "One Outokumpu" concept has been created, but this kind of a significant culture change takes time. The change can be seen as an opportunity to increase operational effectiveness in operations by cross-cultural cooperation between people. Even so, country-based or overly independent corporate cultures can restrict operational progress and achievement of strategic goals. Implementation of strong Group-level functions such as Supply Chain Management and Group Sales and Marketing play a vital role in furthering the One Company approach.

Investment projects

Outokumpu's announced major investment programme was postponed almost entirely at the end of 2008 due to the global financial crisis and weakened markets for stainless steel. Some investments such as the service centre expansion in Willich, Germany and the new plate service centre in China are however being carried out. As preparation for the future, Outokumpu is aiming to further develop project management methods to support the implementation of investment projects and manage risks related to the whole of the Group's project portfolio. The proposed investment in additional melting capacity at Avesta, Sweden was permanently cancelled at the end of the third quarter of 2009, resulting in an asset write-down of EUR 15 million.

Variations and lack of flexibility in production performance

Outokumpu has systematically developed the Group's operative performance through excellence initiatives, with a significant number of the company's personnel being trained to implement these improvement measures in both commercial and production operations. However, risks associated with not being able to adapt capacity to meet fluctuating levels of demand and experiencing excessive variations in production performance can have an impact on the Group's business operations. For example, if the Group is not able to ramp up its production to meet fluctuating demand due to delays in product output resulting in reduced delivery reliability, this might have negative financial impact. As mitigation against such risks, Outokumpu is expanding the Group's Operational Excellence programmes and enhancing strategy implementation by strengthening Group-level functions such as Supply Chain Management and Group Sales and Marketing.

Major fire or accident

Most of the Group's production is located in large industrial areas and comprises a number of separate buildings and production lines. Stainless steel production by Outokumpu also involves the integration of production and logistics between the Group's facilities in Tornio (Finland), Terneuzen (the Netherlands), Avesta (Sweden), Sheffield (the UK) and other locations. Production is capital intensive and a large part of the Group's operating capital is tied up in these facilities. Fire or a serious mechanical breakdown can lead to major damage to property or the loss of production, or have other indirect adverse effects on Group operations. Outokumpu monitors such risks by continuously evaluating its production facilities and processes from a risk management perspective and by arranging insurance coverage for a large proportion of these risks.

Corporate security

Outokumpu continued to develop the Group's corporate security in 2009 with a focus on crisis management. Systematic auditing of site security continued at numerous sites and the audit results generated many initiatives to enhance security levels. Outokumpu also has a fire-safety audit programme linked to the company's insurances. In 2009, approximately 40 audits were carried out using the Group's own resources, and on many occasions these were conducted jointly with technical experts from the company's insurers and insurance brokers. With the aim of harmonising different practices within the Group, a significant number of Group-wide instructions relating to fire safety and security were reviewed and updated in 2009. These instructions were prepared in cooperation with the Outokumpu Security Working Group (OSWG), the operational body for personnel at Outokumpu sites whose responsibilities include safety and security.