Outokumpu - Improving financial results and continued progress in efficiency programs
OUTOKUMPU OYJ
INTERIM REPORT
April 29, 2014 at 9.00 am EET
Highlights in the first quarter 2014
In line with management expectations Outokumpu’s operational performance continued to improve in the first quarter and underlying EBIT1) loss was EUR 45 million. Operating cash flow was EUR -14 million.
- Stainless steel deliveries grew by 9.1% and were 676,000 tonnes2) (IV 2013: 620,000 tonnes).
- Underlying EBITDA1) was EUR 37 million compared to EUR -1 million in the fourth quarter and underlying EBIT was EUR -45 million (IV 2013: EUR -90 million). The improvement was mainly due to higher delivery volumes, benefits from the cost savings programs and somewhat higher base prices. Operational performance in the fourth quarter also included EUR 20 million EEG refund and EUR 5 million gain on sale of disposed assets.
- EBIT was EUR -188 million (IV 2013: EUR -118 million). EBIT includes non-recurring items of EUR -140 million as well as the net effect of raw material-related inventory and hedging gains/losses of EUR -3 million (IV 2013: EUR 1 million3)).
- Operating cash flow was EUR -14 million (IV 2013: EUR 223 million) despite higher volumes and prices, mainly driven by stringent control of working capital.
- Net interest-bearing debt came down significantly to EUR 1,733 million (Dec 31, 2013: EUR 3,556 million) and gearing improved to 75.9% (Dec 31, 2013: 188.0%), due to the divestment of Terni and VDM to ThyssenKrupp as well as the completed rights issue.
- Agreement with the German labor unions regarding the company’s restructuring plan in Europe was reached in March. Implementation of the plans proceeds. The original target of annual savings of EUR 100 million by the end of 2017 remains intact.
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 metal derivative gains/losses. See “New definition of underlying profitability” for detailed information.
2) metric ton = 1,000 kg
3) IV/13 excludes metal derivative gains/losses.
Note: Terni remedy assets, the VDM business and certain service centers are reported as discontinued operations until February 28, 2014.
| Group key figures | |||||
| I/14 | IV/13 | I/13 | 2013 | ||
| Sales | EUR million | 1,617 | 1,531 | 1,867 | 6,745 |
| EBITDA | EUR million | -78 | -29 | 0 | -165 |
| EBITDA excl. non-recurring items | EUR million | 34 | 0 | 2 | -87 |
| Underlying EBITDA 1) | EUR million | 37 | -1 | 5 | -32 |
| EBIT | EUR million | -188 | -118 | -87 | -510 |
| EBIT excl. non-recurring items | EUR million | -48 | -89 | -85 | -432 |
| Underlying EBIT 2) | EUR million | -45 | -90 | -82 | -377 |
| Result before taxes | EUR million | -262 | -232 | -147 | -822 |
| Net result for the period from continuing operations | EUR million | -267 | -260 | -145 | -832 |
| excluding non-recurring items | EUR million | -128 | -181 | -143 | -706 |
| Net result for the period | EUR million | -248 | -364 | -152 | -1,003 |
| Earnings per share 3) | EUR | -0.07 | -0.11 | -0.05 | -0.30 |
| excluding non-recurring items 3) | EUR | -0.03 | -0.09 | -0.05 | -0.26 |
| Return on capital employed | % | -18.3 | -9.9 | -6.1 | -10.3 |
| excluding non-recurring items | % | -4.7 | -7.4 | -6.0 | -8.7 |
| Net cash generated from operating activities, continuing oper. | EUR million | -14 | 223 | -58 | 34 |
| Net interest-bearing debt at the end of period | EUR million | 1,733 | 3,556 | 3,671 | 3,556 |
| Debt-to-equity ratio at the end of period | % | 75.9 | 188.0 | 131.1 | 188.0 |
| Capital expenditure, continuing operations | EUR million | 15 | 45 | 68 | 183 |
| Stainless steel deliveries, continuing operations 4) | 1,000 tonnes | 676 | 620 | 691 | 2,585 |
| Stainless steel base price 5) | EUR/tonne | 1,070 | 1,057 | 1,177 | 1,103 |
| Personnel at the end of period, continuing operations | 12,436 | 12,561 | 13,092 | 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.
4) Excludes ferrochrome deliveries.
5) Stainless steel: CRU - German base price (2 mm cold rolled 304 sheet).
New definition of underlying profitability
Following the change in Outokumpu’s metal hedging policy in the beginning of 2014, Outokumpu has changed the definition of its underlying profitability. The new definition of the underlying profitability follows the company’s underlying profit development by eliminating the impact of non-recurring items, raw material related inventory gains/losses and metal derivative gains/losses.
Raw material-related inventory gains/losses as well as metal derivative result is presented as net effect. The historical figures were not adjusted as the new hedging policy was implemented in the beginning of 2014 and is not applicable to past periods.
Business and financial outlook for the second quarter of 2014
Outokumpu extends its cautiously optimistic view of the markets for the second quarter. Underlying demand is estimated to continue recovery and the recent rally in the nickel price is expected to have a positive impact on market dynamics. The company estimates similar or somewhat higher delivery volumes and some improvement in base prices for the second quarter. The steady progress in the cost efficiency initiatives and synergies is expected to continue.
For the second quarter of 2014, Outokumpu estimates that the underlying EBIT will improve, but will be still at a loss. At current metal prices, net impact of raw material-related inventory and metal derivative gains/losses on profitability is expected to be marginal.
Going forward, Outokumpu’s operating result is likely to be impacted by non-recurring items associated with the Group’s ongoing restructuring programs, but significantly less than in the first quarter. This outlook reflects the current scope of continuing operations of Outokumpu.
CEO Mika Seitovirta:
“The first quarter was important for us for many reasons: we completed the divestment of Terni and VDM, finalized comprehensive financing arrangements and carried out a rights issue. As a result, we have a significantly stronger balance sheet and improved financial position. At the end of the quarter we also reached an agreement with the labor unions in Germany to proceed with the closure of the Bochum melt shop and the restructuring measures in EMEA at an accelerated pace.
During the first quarter, the stainless steel market started to pick up as well. There was modest improvement in the underlying market demand, sequentially higher delivery volumes and some improvement in base prices. We estimate continuing positive trend and remain cautiously optimistic about the market sentiment.
Despite higher deliveries we managed to continue tight control over our inventories, and thus delivered a better cash flow for the first quarter than we originally estimated. We remain focused on safeguarding the cash flow. However, the strong increase in nickel price and typical seasonal build-up of inventories may have an adverse effect on the operating cash flow in the coming months.
Our financial performance developed in line with our expectations. The one-off costs affecting the first-quarter results are related to the measures we are taking to improve our profitability, in particular the planned closure of Kloster in Sweden and the EMEA restructurings in Germany. There was a visible improvement in the underlying EBIT sequentially and year-on-year. We are going towards to right direction, but we still have a lot of work ahead of us before we are back to sustainable profitability.
Our focus thus remains on our customers and the completion of our turnaround plan. The ramp-up of Calvert is our single biggest profitability lever this year. During the first quarter we progressed according to plans, thereby supporting our goal of break-even EBITDA for Stainless Americas this year. The restructuring and savings programs are also starting to gain traction. We will continue to explore opportunities to build on the good development of our efficiency measures to fundamentally change the cost levels of our operations and reach sustainable profitability.”
News conference and conference call today at 1.00 pm EET
A combined news conference, conference call and live webcast concerning publishing of the first-quarter 2014 financial results will be held on Tuesday, April 29, 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. 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 April 29, 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, mob. +358 40 5300 778
Media: Saara Tahvanainen, tel. +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 in the NASDAQ OMX Helsinki. www.outokumpu.com