OUTOKUMPU – POSITIVE EBIT EXCLUDING NON-RECURRING ITEMS AND OPERATING CASH FLOW IN SEASONALLY SLOW MARKET

outokumpu logo newOUTOKUMPU OYJ

INTERIM REPORT
November 5, 2014 at 9.00 am EET

Highlights in the third quarter 2014

For the first time since the merger with Inoxum, Outokumpu posted positive EBIT excluding non-recurring items of EUR 3 million. Continued cost savings and higher prices contributed positively, while at the same time performance was negatively impacted by lower deliveries in a seasonally slow market. Strong focus on net working capital resulted in better than estimated operating cash flow, which was positive EUR 23 million for the quarter.  

  • Stainless steel deliveries decreased by 4.6% to 644,000 tonnes1) (II 2014: 675,000 tonnes).
  • Underlying EBITDA2) was EUR 48 million (II 2014: EUR 75 million). The decline in profits was driven by lower deliveries, while at the same time an average base price increase of 10–20 EUR/tonne was achieved.
  • EBIT was EUR -9 million (II 2014: EUR -10 million). EBIT includes non-recurring items of EUR -12 million related to restructuring programs, as well as a higher than expected positive net effect of raw material-related inventory and hedging gains/losses of EUR 31 million (II 2014: EUR -7 million and EUR 3 million). Therefore underlying EBIT was EUR -28 million (II 2014: EUR -6 million).
  • Operating cash flow was EUR 23 million (II 2014: EUR -257 million) due to a successful reduction in working capital.
  • Net interest-bearing debt remained unchanged at EUR 2,068 million and gearing was slightly up to 96.4% (June 30, 2014: 92.5%).
  • In September, following good progress in its efficiency programs, Outokumpu announced further savings and efficiency potential and raised its ambition level in targeted total savings by the end of 2017 to EUR 550 million and cash release in net working capital to EUR 400 million by the end of 2015 compared to 2012. 

1) metric ton = 1,000 kg
2) Due to the revised metal hedging policy from the beginning of 2014 Outokumpu has adjusted the definition for underlying EBIT and underlying EBITDA: In addition to non-recurring items and raw material-related inventory gains/losses, Outokumpu now also excludes metal derivative gains/losses.

Group key figures          
    III/14 II/14 III/13 2013
Sales EUR million 1,799 1,753 1,609 6,745
EBITDA EUR million 67 70 -50 -165
EBITDA excl. non-recurring items EUR million 79 78 -50 -87
Underlying EBITDA 1) EUR million 48 75 -34 -32
EBIT EUR million -9 -10 -134 -510
EBIT excl. non-recurring items EUR million 3 -3 -133 -432
Underlying EBIT 2) EUR million -28 -6 -118 -377
Result before taxes EUR million -73 -48 -207 -822
Net result for the period from continuing operations EUR million -77 -49 -197 -832
excluding non-recurring items EUR million -65 -42 -196 -706
Net result for the period EUR million -77 -58 -238 -1,003
Earnings per share 3) EUR -0.18 -0.14 -1.79 -7.52
excluding non-recurring items 3) EUR -0.15 -0.12 -1.78 -6.56
Return on capital employed % -0.8 -1.0 -9.8 -10.3
excluding non-recurring items % 0.3 -0.3 -9.8 -8.7
Net cash generated from operating activities, continuing oper. EUR million 23 -257 43 34
Net interest-bearing debt at the end of period EUR million 2,068 2,068 3,861 3,556
Debt-to-equity ratio at the end of period % 96.4 92.5 170.7 188.0
Capital expenditure, continuing operations EUR million 25 33 40 183
Stainless steel deliveries, continuing operations 4) 1,000 tonnes 644 675 635 2,585
Stainless steel base price 5) EUR/tonne 1,110 1,093 1,043 1,103
Personnel at the end of period, continuing oper., excl. summer trainees 6)   12,385 12,365 12,798 12,561

1) EBITDA excluding non-recurring items, other than impairments; raw material-related inventory gains/losses and as of I/14 metal derivative gains/losses, unaudited.
2) EBIT excluding non-recurring items, raw material-related inventory gains/losses and as of I/14 metal derivative gains/losses, unaudited.
3) Calculated based on the rights-issue-adjusted weighted average number of shares, comparative figures adjusted accordingly. Comparative figures adjusted to reflect the reverse split on June 20, 2014. 
4) Excludes ferrochrome deliveries.
5) Stainless steel: CRU – German base price (2 mm cold rolled 304 sheet).
6) On June 30, 2014 Group employed in addition some 800 summer trainees.                                                                                                  

Business and financial outlook for the fourth quarter of 2014

Outokumpu estimates that the overall stainless steel operating environment will be lackluster in the fourth quarter. This is driven by the recent decline in the nickel price, which is negatively impacting demand in the distributor sector as well as the general economic slowdown especially in Europe and China.

The company estimates lower delivery volumes and relatively stable stainless steel base prices in the fourth quarter. The fourth-quarter underlying EBIT is expected to be on a similar level as in the third quarter. Despite weaker market conditions and lower deliveries, Outokumpu’s financial performance is supported by continued progress in the company’s turnaround including the cost efficiency initiatives and synergies. With current price, the net impact of raw material-related inventory and metal hedging gains/losses on profitability is expected to be marginally negative, if any.

Outokumpu’s operating result may be impacted by non-recurring items associated with the ongoing restructuring programs. This outlook reflects the current scope of operations.

CEO Mika Seitovirta:

“As a result of relentless execution of our strategy for the first time since the merger with Inoxum Outokumpu delivered a positive EBIT excluding non-recurring items. This is a great milestone, especially when taking into account that during the third quarter the market dynamics in stainless steel shifted and the relatively healthy operating environment we saw in the first half of the year deteriorated. Imports into Europe averaged 33% in the third quarter, and even in the US imports exceeded 20%. Combined with the seasonally slow holiday period in Europe and maintenance breaks at our mills, our delivery volumes came down from the second quarter, as expected.

Despite the lower volumes and market developments, our EBIT excluding non-recurring items was EUR 3 million positive. The underlying EBIT, taking into account net hedging and timing impacts, came down from EUR -6 million to EUR -28 million in line with our expectations. With focused net working capital management efforts we turned the operating cash flow back to a positive track.

During the first nine months of 2014 we have improved our underlying EBIT by EUR 209 million compared to the same period one year ago. This is the result of our determined execution of our strategy: the restructuring in Europe, the progress in our ramp-ups particularly in the Calvert mill and the traction from our savings programs are all making a concrete, positive difference. The progress has given us confidence to further accelerate our turnaround and set the bar higher. Thus, as announced in connection with our Capital Markets Day in September, we aim to complete the synergy savings already in 2015, raise the total cost savings target and expand our net working capital efficiency program.

Given the current cautiousness and volatility in the market, the rest of the year in stainless steel is looking weaker than could have been anticipated at the start of 2014. We will continue to deliver against our plans during the rest of the year, and even with the lower volume outlook we estimate a similar level of underlying EBIT as in the third quarter. As we are actively selling for first-quarter deliveries we see positive signals for the start of 2015. Together with continued progress of our turnaround, we are looking optimistically towards next year.”

Calvert ramp-up

The repair work in the 54 inch cold rolling mill that was taken down for technical reasons in June is still ongoing and the line is expected to be back in operation in December. In August following the breakdown of the 54 inch cold rolling mill, Outokumpu took maintenance and repair measures in the two other cold rolling lines. The maintenance work was successfully concluded during the third quarter and both lines are back in operation. Outokumpu estimates the outages to have about 35,000 tonnes negative impact on deliveries during the second half of 2014, and the financial impact to be partly covered by insurance. While the lower volumes and production efficiency are additional challenges, Outokumpu confirms the Coil Americas’ EBITDA break-even target for the full year 2014. The delivery target of 530,000 tonnes for 2014 remains intact.

Outokumpu Group

Outokumpu is a global leader in stainless steel. We create advanced materials that are efficient, long lasting and recyclable – thus building a world that lasts forever. Stainless steel, invented a century ago, is an ideal material to create lasting solutions in demanding applications from cutlery to bridges, energy and medical equipment: it is 100% recyclable, corrosion-resistant, maintenance-free, durable and hygienic. Outokumpu employs more than 12 000 professionals in more than 30 countries, with headquarters in Espoo, Finland and shares listed on the NASDAQ OMX Helsinki. www.outokumpu.com