Outokumpu - Financial results continued to improve but cash flow was negative
Outokumpu Oyj
Interim Report
July 24, 2014 at 9.00 pm EET
Highlights in the second quarter 2014
Outokumpu’s operational performance continued to improve in line with management expectations. The second-quarter underlying EBIT1) loss was EUR 6 million. Operating cash flow was EUR -257 million.
- Stainless steel deliveries stayed on a constant level at 675,000 tonnes2) (I 2014: 676,000 tonnes).
- Underlying EBITDA1) doubled to EUR 75 million versus EUR 37 million in the first quarter and underlying EBIT was EUR -6 million (I 2014: EUR -45 million). The improvement shows a better product mix in deliveries and an average EUR 20-30/tonne higher base prices coupled with traction from cost savings benefits.
- EBIT was EUR -10 million (I 2014: EUR -188 million). EBIT includes non-recurring items of EUR -7 million as well as positive net effect of raw material-related inventory and hedging gains/losses of EUR 3 million (I 2014: EUR -140 million and EUR -3 million).
- Operating cash flow was EUR -257 million (I 2014: EUR -14 million) due to the increase in working capital.
- Net interest-bearing debt increased to EUR 2,068 million (March 31, 2014: EUR 1,733 million) and gearing to 92.5% (March 31, 2014: 75.9%).
1) 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 the metal derivative gains/losses.
2) metric ton = 1,000 kg
| Group key figures | |||||
| II/14 | I/14 | II/13 | 2013 | ||
| Sales | EUR million | 1,753 | 1,617 | 1,738 | 6,745 |
| EBITDA | EUR million | 70 | -78 | -86 | -165 |
| EBITDA excl. non-recurring items | EUR million | 78 | 34 | -40 | -87 |
| Underlying EBITDA 1) | EUR million | 75 | 37 | -2 | -32 |
| EBIT | EUR million | -10 | -188 | -171 | -510 |
| EBIT excl. non-recurring items | EUR million | -3 | -48 | -125 | -432 |
| Underlying EBIT 2) | EUR million | -6 | -45 | -87 | -377 |
| Result before taxes | EUR million | -48 | -262 | -236 | -822 |
| Net result for the period from continuing operations | EUR million | -49 | -267 | -231 | -832 |
| excluding non-recurring items | EUR million | -42 | -128 | -185 | -706 |
| Net result for the period | EUR million | -58 | -248 | -250 | -1,003 |
| Earnings per share 3) | EUR | -0.14 | -1.66 | -1.87 | -7.52 |
| excluding non-recurring items 3) | EUR | -0.12 | -0.71 | -1.53 | -6.56 |
| Return on capital employed | % | -1.0 | -18.3 | -12.0 | -10.3 |
| excluding non-recurring items | % | -0.3 | -4.7 | -8.8 | -8.7 |
| Net cash generated from operating activities, continuing oper. | EUR million | -257 | -14 | -175 | 34 |
| Net interest-bearing debt at the end of period | EUR million | 2,068 | 1,733 | 3,859 | 3,556 |
| Debt-to-equity ratio at the end of period | % | 92.5 | 75.9 | 152.9 | 188.0 |
| Capital expenditure, continuing operations | EUR million | 33 | 15 | 30 | 183 |
| Stainless steel deliveries, continuing operations 4) | 1,000 tonnes | 675 | 676 | 640 | 2,585 |
| Stainless steel base price 5) | EUR/tonne | 1,093 | 1,070 | 1,137 | 1,103 |
| Personnel at the end of period, continuing operations, excl. summer trainees 6) | 12,365 | 12,436 | 13,021 | 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 (June 30, 2013: some 700).
Business and financial outlook for the third quarter of 2014
Outokumpu estimates overall stainless steel demand and pricing environment to remain relatively healthy in the third quarter, with a seasonal slowdown in the European market. The company estimates somewhat lower delivery volumes and some improvement in stainless steel base prices in the third quarter. Outokumpu expects continued progress, although with a slower rate, in the cost efficiency initiatives and synergies.
For the third quarter of 2014, Outokumpu expects sequentially slightly worse underlying EBIT primarily due to seasonal impacts. Net impact of raw material-related inventory and metal hedging gains/losses on profitability is expected to be EUR 10-20 million positive.
Outokumpu’s operating result may be impacted by non-recurring items associated with the ongoing restructuring programs. This outlook reflects the current scope of continuing operations.
CEO Mika Seitovirta:
“During the second quarter we saw interesting developments in the stainless steel market. Nickel price continued its sharp increase, peaking above 21,200 US dollars per tonne in May and averaging 26% above the first quarter. Even more importantly, stainless steel demand continued to recover and base prices increased moderately in both Europe and US. Import levels into Europe were exceptionally high, close to 30%, reflecting the turbulence in the Asian stainless steel market.
Our financial performance developed in line with our expectations. There was a visible improvement in underlying EBIT compared to the previous quarter. Delivery volumes stayed on a similar level to the first quarter, and both product mix and base prices were better. These, together with continued progress on the savings programs resulted in improved financial performance. Looking at our biggest profitability improvement levers, we saw Stainless Americas to reach break-even quarterly EBITDA for the first time, and in EMEA we saw continued improvement in profitability despite lower delivery volumes.
The increase in nickel price and typical seasonal build-up of inventories had an anticipated adverse effect on cash flow. For the first half of the year, operating cash flow was EUR 271 million negative. While increase in inventories is typical for the second quarter, we still see further room for improvement in our inventory and net working capital management in general. Thus, we will continue focused efforts on these. Furthermore, as we execute the large scale industrial changes in Europe and ramp-up in the United States, it is crucial that we address any production and delivery issues promptly and take necessary corrective measures.
We have moved in to the second half of the year in a relatively healthy operating environment. The demand in Americas remains robust. In Europe we expect some slowdown for the summer period. Thus, we estimate lower delivery volumes for Outokumpu in the third quarter which will affect our financial results negatively. However, we remain confident that the positive momentum continues, and believe that Outokumpu is well positioned to continue towards profitability.”
News conference, conference call and live webcast today at 1.00 pm EET
A combined news conference, conference call and live webcast concerning publishing of the second-quarter 2014 financial results will be held on Thursday, July 24, 2014 at 1.00 pm EET (6.00 am US EST, 11.00 am UK time, 12.00 pm CET) at the hotel Kämp, in the Mirror Room (2nd floor), Kluuvikatu 2, 00100 Helsinki, Finland.
To participate via a 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
Participant code: Outokumpu
The news conference can be viewed live via Internet. Link to the webcast
The stock exchange release and the presentation material will be available before the news conference at www.outokumpu.com/Investors.
An on-demand webcast of the news conference will be available as of July 24, 2014 at around 4.00 pm EET at www.outokumpu.com/en/investors/webcasts.
For more information:
Investors: Johanna Henttonen, tel. +358 9 421 3804, mobile +358 40 530 0778
Media: Saara Tahvanainen, mobile +358 40 589 0223
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