CORRECTION: Outokumpu Annual Accounts Bulletin 2015: Underlying EBIT of EUR -11 million in the fourth quarter, balance sheet strengthened significantly in 2015
ANNUAL ACCOUNTS BULLETIN
February 11, 2016 at 9.55 am EET
Outokumpu corrects Annual Accounts Bulletin 2015 at 9.00 am EET as follows: in the first paragraph of the "Highlights of 2015" summary market development percentage figures have been corrected according to the "Stainless steel demand" section on the page 11 of the report.
Corrected release and report can be found below.
Highlights in the fourth quarter 2015
Outokumpu’s underlying EBIT was EUR -11 million, compared to EUR -67 million in the third quarter. The improvement was driven by Coil EMEA. EBIT was EUR 341 million and net debt EUR 1.6 billion, both significantly supported by the divestment of Shanghai Krupp Stainless Co., Ltd. (SKS).
- Stainless steel deliveries were stable at 574,000 tonnes (III 2015: 570,000 tonnes).
- Underlying EBITDA was EUR 50 million (III 2015: EUR 13 million) and underlying EBIT was EUR -11 million (III 2015: EUR -67 million). As delivery volumes remained stable and prices under pressure, the reduction in losses was mostly due to improved cost management. Furthermore, extension of the useful life of property, plant and equipment was implemented in the quarter.
- EBIT was EUR 341 million (III 2015: EUR -77 million). EBIT includes non-recurring items of EUR 381 million (III 2015: EUR -2 million). These comprise of a EUR 409 million capital gain, excluding taxes, on the divestment of SKS, redundancy provisions of EUR -23 million and impairments of EUR -6 million in Coil EMEA, and EUR 2 million insurance compensation in Coil Americas. The net effect of raw material-related inventory and metal derivative gains/losses was EUR -29 million (III 2015: EUR -8 million).
- Operating cash flow was EUR 2 million (III 2015: EUR 67 million).
- Net debt decreased to EUR 1,610 million (Sept 30, 2015: EUR 2,012 million) and gearing was 69.1% (Sept 30, 2015: 96.5%).
- On October 26, Outokumpu announced the appointment of Roeland Baan as President and CEO of Outokumpu as of January 1, 2016.
- In December 2015, Outokumpu divested its entire 60% share in SKS in China following its strategy to differentiate in the APAC region with specialty grades and tailored solutions. Likewise, the divestment of Fischer Mexicana was concluded.
- Following the divestments, Outokumpu prepaid and cancelled EUR 100 million of its EUR 900 million revolving credit facility and signed an amendment and extension for the remaining amount.
Highlights of 2015
- Global stainless steel real demand in 2015 grew by only 1.6% compared to 2014. Deceleration was driven by slowing economies in emerging markets, notably China, general weakness in global manufacturing, and the deteriorated nickel price. Demand in the APAC region grew by 2.4%, and in the EMEA region by 0.2%. In Americas, demand shrank by 1.4%. The average nickel price for the year was 11,808 USD/tonne, 30.0% lower than in 2014.
- According to CRU, European transaction prices were most resilient, with a decrease of 3.3% from 2014. Transaction prices in the US were down 17.8% and in China 20.4%. In Europe, most of the decline in transaction prices came from the alloy surcharge (-4.1%), whereas the base price was down by 2.4% from 2014. The US base price eased by 3.4% and the alloy surcharge by 29.4%.
- Average imports into the EU are estimated to have declined to 24.7% of the total consumption from 30.6% in 2014. In the NAFTA region, imports are expected to have risen to around 23.7% versus 19.5% in 2014.
- Outokumpu’s stainless steel deliveries for the full year declined by 6.8% and were 2,381,000 tonnes (2014: 2,554,000 tonnes). The decline was most prominent in Coil EMEA and Coil Americas, while the overall product mix continued to improve with less semi-finished products delivered.
- Sales declined by 6.7% to EUR 6,384 million (2014: EUR 6,844 million).
- Outokumpu closed the Synergy and P250 savings programs at the end of 2015 with full achievements. The EMEA restructuring program continues into 2017 as planned. Likewise, the P400 program to release cash from net working capital was completed. As Outokumpu’s performance remains unsatisfactory, new savings and efficiency measures are planned.
- EBIT improved significantly to EUR 228 million and earnings per share was EUR 0.23 driven by the divestment of SKS (2014: EUR -243 million and EUR -1.24).
- Excluding net non-recurring items of EUR 360 million (2014: EUR -186 million) and raw material-related inventory effects of EUR -31 million (2014: EUR 31 million), the underlying EBIT was EUR -101 million (2014: EUR -88 million).
- Operating cash flow was negative at EUR -34 million (2014: EUR -126 million).
- The balance sheet was strengthened through divestments: net debt was reduced from EUR 1,974 million to EUR 1,610 million and gearing from 92.6% to 69.1%.
|Group key figures|
|EBITDA excl. non-recurring items||EUR million||21||6||73||165||263|
|Underlying EBITDA 1)||EUR million||50||13||72||196||232|
|EBIT excl. non-recurring items||EUR million||-40||-74||-9||-132||-57|
|Underlying EBIT 2)||EUR million||-11||-67||-9||-101||-88|
|Result before taxes||EUR million||352||-113||-75||127||-459|
|Net result for the period||EUR million||308||-115||-56||86||-439|
|Earnings per share 3)||EUR||0.74||-0.27||-0.13||0.23||-1.24|
|Return on capital employed||%||34.5||-7.6||-3.5||5.8||-5.8|
|Net cash generated from operating activities||EUR million||2||67||122||-34||-126|
|Net debt at the end of period||EUR million||1,610||2,012||1,974||1,610||1,974|
|Debt-to-equity ratio at the end of period||%||69.1||96.5||92.6||69.1||92.6|
|Capital expenditure||EUR million||65||29||54||154||127|
|Stainless steel deliveries 4)||1,000 tonnes||574||570||568||2,381||2,554|
|Stainless steel base price 5)||EUR/tonne||1,057||1,060||1,053||1,056||1,082|
|Personnel at the end of period||11,002||11,560||12,125||11,002||12,125|
|1) EBITDA excluding non-recurring items, other than impairments; raw material-related inventory gains/losses and metal derivative|
|2) EBIT excluding non-recurring items, raw material-related inventory gains/losses and metal derivative gains/losses, unaudited.|
|3) 2014 figures calculated based on the rights-issue-adjusted weighted average number of shares.|
|4) Excludes ferrochrome deliveries.|
|5) Stainless steel: CRU - German base price (2 mm cold rolled 304 sheet).|
Business and financial outlook for the first quarter of 2016
The year 2016 has started with downward revisions to economic growth outlooks and pressure in the materials sector. Outokumpu estimates no meaningful pick up in the stainless steel markets for the first quarter, and while distributor stocks have come to more normalized levels, the low nickel price continues to curtail distributor buying activity. On the positive note, demand among end-customers outside of Oil & Gas has remained healthy. In both Coil EMEA and Coil Americas order intake levels are on track for the ongoing quarter and the lead-times from the mills are competitive.
Market uncertainties warrant prudence in the outlook statement. Outokumpu estimates first-quarter delivery volumes to remain at the a similar level as in the fourth quarter of 2015 and the Group’s underlying EBIT to be still negative. With current nickel prices, the net impact of raw material-related inventory and metal derivative gains/losses on profitability is expected to be approximately EUR 30 million negative.
Outokumpu is finalizing plans for new savings from operational improvements and working capital optimization. The scale, details and time frame for these will be communicated in the next couple of months. Outokumpu expects that already in the first quarter continued cost streamlining will mitigate some of the current downward pressure on base prices as well as increase in scrap costs.
This outlook reflects the current scope of operations. Outokumpu’s operating result may be impacted by costs associated with restructuring programs.
CEO Roeland Baan:
“For the last quarter of 2015, Outokumpu posted an underlying EBIT loss of EUR 11 million. The divestments in Mexico and China reduced the net debt significantly; pushing Outokumpu’s gearing to a more robust level of 69 percent and improving our financial stability. These transactions also helped us to reach a positive net result for the full year.
At the end of the year, we closed the synergy and P250 programs as planned, achieving the targeted EUR 470 million of savings since the merger with Inoxum. While Outokumpu has now successfully implemented the industrial restructuring and established a strong presence in both Europe and Americas, the current unsatisfactory financial performance shows that these improvements are not enough. We need to become much more resilient in our operational performance to safeguard our financial stability regardless of external conditions.
After a thorough analysis of the company’s operations, we are confident about what needs to be done to improve the financial performance and competitiveness of Outokumpu both short and long term.
On an immediate term, we will take swift and precise measures to address three particular areas: overhead costs, general procurement and working capital. We are targeting a substantial reduction in our sales, general and administrative (SG&A) costs as well as in general procurement. In working capital reduction the focus will be specifically in inventory management, because despite the earlier efforts our level of inventories is still too high. The scale, details and time frame for the savings and working capital reduction will be communicated in the next couple of months.
To drive long-term competitiveness, we will have a renewed vigor in manufacturing excellence, because there is significant potential to increase efficiency and lower our production costs. Outokumpu has made a huge effort to form a strong, well-balanced industrial footprint. Now, we will take a very systematic approach to make the most of this competitive advantage: improve the efficiency of our manufacturing processes and bring the operational capability and productivity to a world class level. This will also further enhance our commercial capability through improved quality and delivery reliability, thus enabling differentiation through superior customer experience.
Our outlook for the first quarter reflects the current market realities: nickel price is at a 12-year low, with a 44% drop year-on-year. The economic growth expectations across the globe are minimal, with commodity markets and prices under pressure. There is little reason to expect the stainless steel market to be any better, but Outokumpu must and will be. We expect Coil EMEA to further benefit from the new industrial set-up and a gradual profitability improvement in Coil Americas. The measures we will take across the entire company to improve cost efficiency and reduce working capital are geared towards further reducing our debt.
During the first weeks as the Outokumpu CEO, I have visited all our main sites, and what I have witnessed has only strengthened my belief in this company. The competence and passion of our people, and their will to succeed are a strong foundation to build upon. The quality and capabilities of our mills can compete with the best that I have seen in the metals industry: modern, well maintained equipment with a high level of automatization. We will now move ahead from the merger and integration phase into an era of strong customer orientation and steady operational improvements with a lean, efficient cost structure. This will give us the power to successfully compete and perform in any market condition, and enable us to create solid, long-term value to our shareholders.”
Board of Directors’ proposal for profit distribution
In accordance with the Board of Directors’ established dividend policy, the pay-out ratio over a business cycle should be at least one third of the Group’s profit for the period, with the aim of having stable annual payments to shareholders. In its annual dividend proposal, the Board of Directors will, in addition to financial results, take into consideration the Group’s investment and development needs.
According to the parent company’s financial statements on December 31, 2015 distributable funds totaled EUR 2,149 million, of which retained earnings were EUR 26 million.
The Board of Directors is proposing to the Annual General Meeting scheduled for April 6, 2016 that no dividend be paid from the parent company’s distributable funds and that net result for the financial year 2015 be allocated to retained earnings.
News conference, conference call and live webcast today February 11, 2016 at 3.00 pm EET
A news conference, conference call and live webcast will be held on Thursday, February 11, 2016 at 3.00 pm EET (8.00 am US EST, 1.00 pm UK time, 2.00 pm CET) at the restaurant Bank, in the Auditorium ( 1st floor), Unioninkatu 20, 00130 Helsinki, Finland.
The Annual Accounts will be introduced by Outokumpu’s CEO Roeland Baan and CFO Reinhard Florey.
To participate the conference call, please dial in 5-10 minutes before the beginning of the event:
UK/Europe: +44 203 364 5374
US & Canada: +1 855 753 2230
The webcast can be viewed live online. Link to the webcast.
The stock exchange release and the presentation material will be available before the event at www.outokumpu.com/en/investors.
A recording of the event will be available at www.outokumpu.com/en/investors/IR-events/webcasts/ as of February 11, 2016 at around 6.00 pm EET.
For more information:
Investors: Johanna Henttonen, tel. +358 9 421 3804, mobile +358 40 530 0778
Media: Saara Tahvanainen, tel. +358 40 589 0223
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 11,000 professionals in more than 30 countries, with headquarters in Espoo, Finland and shares listed in Nasdaq Helsinki.
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