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Outokumpu - Solid profitability despite ferrochrome production challenges, Group adjusted EBITDA at EUR 199 million

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Outokumpu Oyj
Interim report
July 25, 2017 at 12.00 pm
 

Highlights in the second quarter of 2017

Outokumpu’s second-quarter adjusted EBITDA amounted to EUR 199 million, compared to EUR 66 million in the second quarter of 2016. The financial performance was positively impacted by robust market environment with significantly higher ferrochrome prices and by higher base prices in both Europe and the Americas. Furthermore, Outokumpu’s efficiency improvement measures continued to yield solid results. The performance was negatively impacted by low ferrochrome production. Adjusted EBITDA includes raw material-related inventory and metal derivative net losses of EUR 9 million (gains of EUR 15 million)1.

  • Stainless steel deliveries were 625,000 tonnes (629,000 tonnes).
  • Adjusted EBITDA2 was EUR 199 million (EUR 66 million).
  • EBITDA was EUR 209 million (EUR 62 million).
  • Adjusted EBIT3 was EUR 145 million (EUR 9 million).
  • EBIT was EUR 154 million (EUR 6 million).
  • Operating cash flow was EUR 150 million (EUR 54 million).
  • Net debt decreased to EUR 1,239 million (March 31, 2017: EUR 1,376 million).
  • Gearing was 48.4% (March 31, 2017: 55.0%).
  • Return on capital employed (ROCE) was 13.2% (6.2%). 

1) Figures in parentheses refer to the corresponding period for 2016, unless otherwise stated.
2) EBITDA excluding items classified as adjustments. Adjustments are material income and expense items such as restructuring costs, and gains or losses on sale of assets or businesses.
3) EBIT excluding items classified as adjustments.

Highlights during the first six months of 2017

  • Stainless steel deliveries were 1,264,000 tonnes (1,240,000 tonnes).
  • Adjusted EBITDA was EUR 493 million (EUR 95 million).
  • EBITDA was EUR 518 million (EUR 108 million).
  • Adjusted EBIT was EUR 382 million (EUR -19 million).
  • EBIT was EUR 407 million (EUR -6 million).
  • Operating cash flow was EUR 97 million (EUR 129 million). 
Group key figures              
    II/17 II/16 I/17 I–II/17 I–II/16 2016
Sales EUR million 1,659 1,379 1,757 3,416 2,765 5,690
EBITDA EUR million 209 62 309 518 108 355
Adjusted EBITDA 1) EUR million 199 66 294 493 95 309
EBIT EUR million 154 6 252 407 -6 103
Adjusted EBIT 2) EUR million 145 9 238 382 -19 57
Result before taxes EUR million 127 -22 224 351 -68 -13
Net result for the period EUR million 109 -20 182 291 -61 144
Earnings per share EUR 0.26 -0.05 0.44 0.71 -0.15 0.35
Diluted earnings per share EUR 0.25 -0.05 0.42 0.67 -0.15 0.35
Return on capital employed % 13.2 6.2 9.4 13.2 6.2 2.6
Net cash generated from operating activities EUR million 150 54 -53 97 129 389
Net debt at the end of period EUR million 1,239 1,485 1,376 1,239 1,485 1,242
Debt-to-equity ratio at the end of period % 48.4 69.1 55.0 48.4 69.1 51.4
Capital expenditure EUR million 31 28 19 50 60 164
Stainless steel deliveries 3) 1,000 tonnes 625 629 639 1,264 1,240 2,444
Personnel at the end of period 4)   10,254 10,645 10,420 10,254 10,645 10,600

1) Adjusted EBITDA = EBITDA – Items classified as adjustments.
2) Adjusted EBIT = EBIT – Items classified as adjustments. 
3) Excludes ferrochrome deliveries.
4) On June 30, 2017 Group employed in addition some 750 summer trainees (June 30, 2016: some 800).             

                                       
Business and financial outlook for the third quarter of 2017

Underlying stainless steel demand is expected to remain healthy in both Europe and the US. In the third quarter, typical seasonal slowdown is forecasted to have a negative impact on apparent stainless steel consumption. Consequently, Outokumpu expects business area Europe’s and Long Products’ stainless steel deliveries to decrease in the third quarter, whereas in the Americas, deliveries are expected to remain relatively flat compared to the second quarter. There is market pressure towards decreasing base prices in both Europe and the US.

The lower ferrochrome contract price and low delivery volumes are expected to have a significant negative impact on third-quarter earnings. The maintenance of the damaged ferrochrome furnace has been completed and the furnace is currently being ramped up. The furnace is expected to return to normal operations during the third quarter.

As alloy surcharges have decreased faster than raw material input costs, raw material-related inventory and metal derivative losses are expected to have a sizeable negative impact on Outokumpu’s earnings in the third quarter.

The seasonally slower market, decreased ferrochrome prices and low ferrochrome delivery volumes, and raw material-related inventory and metal derivative losses are expected to lead to significantly lower third-quarter adjusted EBITDA compared to the previous quarter (EUR 199 million).

CEO Roeland Baan:

“During the past 18 months, we have made a marked step change in our business through developing our commercial and operational excellence, improving efficiency and driving our cost-base down. Reflecting on 2017 to date, the financial result of almost EUR 500 million of EBITDA for the first half of the year demonstrates the significant improvements we have achieved.

Having said that, we still have a lot of unlocked potential in our operations to be captured, and the whole organization is geared towards harvesting the full benefits through rigorous deployment of Outokumpu’s must-win battles. I am extremely proud of the enthusiasm, dedication and commitment that I see in all our sites globally, and can confirm that we are well on our way to fulfill our 2020 vision and financial targets.

Out of our six must-win battles safety is a top priority in our everyday work. While our safety performance has improved, the tragic accident that led to the loss of life in Degerfors, Sweden in May, shows that we need to step up our safety behavior even further. Until we have reached our safety targets, we cannot be satisfied with the company’s overall performance either.

Turning focus to the second quarter, our financial performance was strong. Earnings increased significantly in all business areas compared to the same quarter in 2016. Although the results were supported by higher ferrochrome and stainless steel pricing, I am particularly pleased about the continuing improvements in our base operations. In the second quarter, we continued to exceed the targets we have set ourselves on productivity gains and efficiency. Commercially, we maintained delivery volumes and increased base prices in a period where distributors started to destock in expectation of lower transaction prices.

At the same time, it is obvious that our results could have been even better. Continuing problems with one of our ferrochrome furnaces have negatively affected our results. Lower raw material prices also added to downward pressure. Still, business area Europe’s adjusted EBITDA increased by more than 130% year-on-year amounting to EUR 178 million. Both the Americas and Long Products yielded solid adjusted EBITDAs of EUR 27 million and EUR 7 million respectively, in stark contrast to last year’s comparative quarterly losses.

Reducing net debt continues to be one of our main priorities. Second-quarter cash flow amounted to EUR 150 million, and as a result, our net debt decreased to EUR 1,239 million. We are confident that we can achieve our net debt target of less than EUR 1.1 billion by the end of 2017.

The third-quarter will obviously be affected by the typical seasonality, decreased ferrochrome prices and lost ferrochrome production volumes due to the maintenance stop in July. In addition, the steep drop in raw material prices will lead to lower margins as expensive raw materials will work their way through the system. On the fundamentals, however, we maintain our positive view on the stainless market and expect the underlying stainless steel demand to remain healthy both in Europe and the US.” 

Conference call today at 3.00 pm EET

A conference call for investors and analysts will be held on Tuesday, July 25, 2017 at 3.00 pm EET (8.00 am US EST, 1.00 pm UK, 2.00 pm CET). The results call will be hosted by Outokumpu’s CEO Roeland Baan and CFO Christoph de la Camp. To participate in the conference call, please dial in 5-10 minutes before the beginning of the event:

UK/Europe: +44 20 3427 1919           
US & Canada: +1 646 254 3363
Confirmation code: 6700111             

The event can be viewed live at  http://edge.media-server.com/m/p/simipc89. 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 July 25, 2017 at around 6.00 pm EET.

For more information:

Investors: Tommi Järvenpää, tel. +358 9 421 34 66, mobile +358 40 576 0288

Media: Reeta Kaukiainen, tel. +358 50 522 0924

 

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 some 10,000 professionals in more than 30 countries, with headquarters in Helsinki, Finland and shares listed in Nasdaq Helsinki. 
www.outokumpu.com      outokumpu.com/stainless-news      choosestainless.outokumpu.com   

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