Outokumpu - Good progress on synergies, cost saving and ferrochrome offset by weak market and disappointing progress in Americas
OUTOKUMPU OYJ
STOCK EXCHANGE RELEASE
July 24, 2013 at 9.00 am EET
Developments in the second quarter 2013
In line with guidance, the second quarter 2013 showed flat underlying EBIT losses versus the first quarter 2013 in a challenging environment with a continuously falling nickel price leading to lower deliveries and lower margins.
- During the second quarter of 2013, global demand was up by 3.8%, but the stainless steel demand in the important EMEA region declined by 1.9% compared to Q1 2013. European stainless steel base prices decreased by 4% and the average nickel price declined by 14%. The first half of 2013 showed a year-on-year flat stainless steel demand in EMEA region of 3,645 tonnes (H1 2012: 3,663 tonnes).
- During the second quarter of 2013, Outokumpu’s stainless steel external deliveries declined by 7% compared to Q1 2013 and reached 656,000 tonnes (Q1 2013: 703,000 tonnes). In the first half of 2013 the group achieved deliveries of 1,359,000 tonnes, down by 8% compared to the first half 2012 (H1 2012: 1,478,000 tonnes).
- The underlying EBIT for the second quarter 2013 was EUR -80 million (Q1 2013:
EUR -77 million). Losses were mainly driven by overall lower deliveries, the continued decline of the nickel price and the weak performance of the Americas operations. As a result of the continued weakness, the first half of 2013 underlying EBIT was EUR -157 million compared to the first half of 2012 with EUR -93 million. - Including non-recurring items of EUR -46 million (Q1 2013: EUR -2 million) and raw material-related inventory effects of EUR -38 million (Q1 2013: EUR -3 million), the EBIT was EUR -164 million for the second quarter 2013 (Q1 2013: EUR -82 million). For the first half 2013 non-recurring items were EUR -47 million (H1 2012: EUR -150 million) and raw material-related inventory effects were EUR -41 million (H1 2012: EUR -5 million) with an overall EBIT of EUR -246 million (H1 2012: EUR -248 million). The non-recurring items in H1 2013 mainly related to ongoing restructuring activities and headcount reductions as well as the settlement paid for the Carrier legal case.
- Operating cash flow was negative at EUR -160 million (Q1 2013: EUR -46 million) mainly driven by the negative EBITDA and increase in working capital. For the first half of 2013 cash flow was EUR -206 million compared to EUR 139 million in the first half of 2012.
- Net interest-bearing debt increased to EUR 3,041 million (March 31, 2013: EUR 2,891 million), leading to a gearing of 120.6% (March 31, 2013: 103.3%).
Update on Terni
The Terni divestiture continues with an extended time frame that the European Commission has granted. Discussions continue with a number of interested parties. In addition, Terni has instigated both cost saving and working capital management programs, each in the range of EUR 70 million, to improve Terni’s financial standing. Outokumpu is bound by a number of commercial obligations regarding the remedy assets during the divestment period, including continued sourcing of stainless steel from Terni by Outokumpu’s BA Americas. Outokumpu is working intensively to complete the divestment and targets to sign a transaction during the second half of the year.
Business outlook for the third quarter of 2013
Outokumpu lowers its expectation of improvements in underlying EBIT during the second half of 2013. This is due to the continued deterioration of the nickel price, the weak market demand, especially in Europe, in a seasonally sluggish quarter and weaker performance of the Americas business.
For the third quarter, company expects the EBIT to be on approximately the same level as in the second quarter. This includes, at current metal prices, further raw material related timing losses and further non-recurring items associated with Group’s ongoing restructuring programs. The underlying EBIT is expected to be worse than in the second quarter.
Note: This report contains comparisons to both Outokumpu stand alone as well as comparable figures for the combined entity based on management estimates. Tables that are marked as ‘comparable’ show the combined entity comparisons. In the text itself only comparable numbers are stated and analyzed.Terni is reported as a discontinued operation.
| Group key figures, comparable | ||||||
| II/13 | I/13 | II/12 | 2012 | |||
| Sales | EUR million | 2,064 | 2,221 | 2,551 | 9,458 | |
| EBITDA | EUR million | -72 | 12 | -91 | -176 | |
| Adjustments to EBITDA 1) | EUR million | 84 | 5 | 108 | 203 | |
| Underlying EBITDA | EUR million | 12 | 17 | 17 | 27 | |
| EBIT | EUR million | -164 | -82 | -190 | -692 | |
| Adjustments to EBIT 2) | EUR million | 84 | 5 | 118 | 344 | |
| Underlying EBIT | EUR million | -80 | -77 | -72 | -348 | |
| Result before taxes | EUR million | -228 | -140 | n/a | n/a | |
| Net result for the period from continuing operations | EUR million | -225 | -139 | n/a | n/a | |
| excluding non-recurring items | EUR million | -179 | -137 | n/a | n/a | |
| Net result for the period | EUR million | -250 | -152 | n/a | n/a | |
| Earnings per share | EUR | -0.12 | -0.07 | n/a | n/a | |
| excluding non-recurring items | EUR | -0.10 | -0.07 | n/a | n/a | |
| Return on capital employed | % | -11.7 | -5.8 | n/a | n/a | |
| excluding non-recurring items | % | -8.4 | -5.7 | n/a | n/a | |
| Net cash generated from operating activities, continuing oper. | EUR million | -160 | -46 | n/a | n/a | |
| Net interest-bearing debt at the end of period | EUR million | 3,041 | 2,891 | n/a | n/a | |
| Debt-to-equity ratio at the end of period | % | 120.6 | 103.3 | n/a | n/a | |
| Capital expenditure, continuing operations 3) | EUR million | 42 | 82 | 168 | 821 | |
| Stainless steel external deliveries, continuing oper. 4) | 1,000 tonnes | 656 | 703 | 720 | 2,786 | |
| Stainless steel base price 5) | EUR/tonne | 1,137 | 1,177 | 1,182 | 1,172 | |
| Personnel at the end of period, continuing operations, | ||||||
| excl. summer trainees 6) | 15,540 | 15,705 | 17,068 | 16,649 | ||
| 1) Non-recurring items, other than impairments; and inventory gains/losses, unaudited. | ||||||
| 2) Non-recurring items and inventory gains/losses, unaudited. | ||||||
| 3) Jan 1–Dec 31, 2012 includes acquisition-related finance leases and asset purchases of EUR 79 million, but excludes Inoxum acquisition of EUR 2,720 million. | ||||||
| 4) Excludes ferrochrome deliveries, includes high performance alloy deliveries. | ||||||
| 5) Stainless steel: CRU - German base price (2 mm cold rolled 304 sheet). | ||||||
| 6) On June 30, 2013 Group employed in addition some 700 summer trainees (June 30, 2012: some 800). | ||||||
Raw material-related inventory gains or losses
The realized timing gain or loss per tonne of stainless steel is estimated based on the difference between the purchase price and invoice price of each metal in EUR per tonne times the average metal content in stainless steel. The unrealized timing impact consists of the change in net realizable value ─ NRV during each quarter. If there is a significant negative change in metal prices during the quarter, inventories are written down to NRV at the end of the period to reflect lower expected transaction prices for stainless steel in the future. As this timing impact is expected to be realized in the cash flow of Outokumpu only after the raw material has been sold, it is referred to as being unrealized at the time of the booking.
CEO Mika Seitovirta:
“Outokumpu’s underlying result in the second quarter was in line with expectations but continued on a disappointing course. Our sales and profitability were negatively affected by the 20% decline in nickel price since beginning of the year, poor economic environment and challenges in our Americas operations. On the positive side, our ferrochrome operations and synergy cost savings efforts continued to progress ahead of plans. Our first half Ferrochrome production reached 209,000 tonnes boosting our confidence in reaching our full year production target of 400,000 tonnes. Inoxum acquisition-related synergy savings reached EUR 39 million during the first half, indicating that we will exceed our original target of EUR 50 million savings in 2013.
During the second half, we will continue to focus on achieving additional savings across all of our operations to mitigate the weak stainless steel market outlook. Our ongoing savings programs and synergies are expected to result in annual savings of approximately EUR 300 million by end of next year. We also have a clear action plan in place to improve our performance in our Americas operations. In terms of cash flow we continue to have strong focus on working capital management and minimization of capital investments in order to manage our balance sheet. The newly announced EUR 900 million revolving credit facility provides us with good flexibility in liquidity management.
I expect the second half of 2013 to continue to be challenging for Outokumpu given the weak economic outlook. We are only six months into operations of new Outokumpu and the headwinds of the market are not making it easier to execute the transformation of the company. However, we have seen the positive results of the restructuring we started in the old Outokumpu context two years ago and now we will do the same transformation for the new Outokumpu. I am confident that our ongoing strategic restructuring and growth initiatives will bear fruit in the coming 18 months.”
News conference, conference call and live webcast today at 1.00 pm EET
A combined news conference, conference call and live webcast concerning the second-quarter 2013 financial results will be held on Wednesday July 24, 2013 at 1.00 pm EET (6.00 am US EST, 11.00 pm UK time, 12.00 pm CET) at 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 1452 555 131
US & Canada: +1 866 682 8490
Participant code: Outokumpu
The news conference can be viewed live via Internet. At the end of this release, please find a direct 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, 2013 at around 4.00 pm EET at http://www.outokumpu.com/en/investors/IR-events/webcasts/Pages/default.aspx.
For more information:
Investors: Tamara Weinert, tel. +358 40 751 7194
Media: Saara Tahvanainen, tel. +358 40 589 0223
Outokumpu Group
Outokumpu is the global leader in stainless steel and high performance alloys. 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 16 000 professionals in more than 40 countries, with headquarters in Espoo, Finland and shares listed in the NASDAQ OMX Helsinki. www.outokumpu.com