Outokumpu - Unsatisfactory results in a weaker than expected market environment
OUTOKUMPU OYJ
STOCK EXCHANGE RELEASE
April 25, 2013 at 9.00 am EET
Highlights of the first quarter 2013
The first quarter 2013 closed with lower underlying EBIT losses versus the fourth quarter 2012 despite the challenging environment and weaker than anticipated seasonality support.
- During the first quarter of 2013, global stainless steel demand declined by 1.2% compared to Q1 2012. European stainless steel base prices increased by 3% and the average nickel price was up by 2% for the quarter compared to Q4 2012. On a year-on-year basis the average transaction price declined by 5.6%.
- Outokumpu’s stainless steel external deliveries reached 703,000 tonnes (Q4 2012: 644,000 tonnes, Q1 2012: 758,000 tonnes). Sequential growth was driven by seasonality while the year-on-year reduction highlights the weak economic environment and the price increases implemented by Outokumpu during the first quarter.
- Outokumpu was able to increase stainless steel prices in Europe despite the weak market, even if not to the full extent targeted.
- The underlying EBIT for the first quarter 2013 improved to EUR -77 million (Q4 2012: EUR -162 million). Reduced losses were mainly driven by overall higher deliveries, somewhat higher prices, cost savings and the Ferrochrome ramp-up. The profitability improved in all Business Areas compared to Q4 2012 with main improvements in High Performance Stainless and Alloys (HPSA) and Stainless Coil EMEA (EMEA). Compared to Q1 2012 the underlying EBIT decreased (Q1 2012: EUR -21 million).
- Including non-recurring items of EUR -2 million (Q4 2012: EUR -142 million) and raw material-related inventory effects of EUR 3 million (Q4 2012: EUR -3 million), the EBIT was EUR -82 million (Q4 2012: EUR -307 million).
- Operating cash flow was negative at EUR 46 million (Q4 2012: comparable data not available) mainly driven by the Calvert melt shop ramp-up related working capital increase.
- Net interest-bearing debt increased to EUR 2,891 million (December 31, 2012: EUR 2,620 million), leading to a gearing of 103.3% (December 31, 2012: 88.8%).
During the first quarter Outokumpu continued the divestment process of the Terni operations and related assets as required by the European Commission. Following an ongoing dialogue and consultation with the
Commission, the timeline for the transaction has been extended to accommodate the required EU regulatory process. Outokumpu expects to release further information during the second quarter of 2013.
Business outlook for the second quarter of 2013
Outokumpu reiterates its expectations of a soft first half year with improvements in underlying EBIT during the second half of 2013.
For the second quarter Outokumpu expects sequentially flat or slightly lower delivery volumes, weaker product mix and increased uncertainties from the nickel price development. These developments are expected to be partly compensated by the positive effects of the Ferrochrome and Calvert ramp-ups.
Therefore, we expect the second quarter underlying EBIT loss to be equal or slightly worse than in the first quarter. Outokumpu’s operating result in the second quarter could be impacted by non-recurring items associated with the Group’s on-going cost-cutting programs.
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 | |||||
| I/13 | IV/12 | I/12 | 2012 | ||
| Restated 1) | |||||
| Sales | EUR million | 2,221 | 1,004 | 1,304 | 4,538 |
| EBITDA | EUR million | 12 | -67 | 61 | -50 |
| Adjustments to EBITDA 2) | EUR million | 5 | 59 | -1 | 121 |
| Underlying EBITDA | EUR million | 17 | -9 | 60 | 71 |
| EBIT | EUR million | -82 | -220 | 3 | -385 |
| Adjustments to EBIT 3) | EUR million | 5 | 145 | -1 | 217 |
| Underlying EBIT | EUR million | -77 | -76 | 2 | -168 |
| Result before taxes | EUR million | -140 | -269 | 7 | -524 |
| Net result for the period from continuing operations | EUR million | -139 | -309 | 12 | -536 |
| excluding non-recurring items | EUR million | -137 | -170 | 24 | -336 |
| Net result for the period | EUR million | -152 | -309 | 12 | -536 |
| Earnings per share 4) | EUR | -0.07 | -0.21 | 0.04 | -0.46 |
| excluding non-recurring items 4) | EUR | -0.07 | -0.11 | 0.09 | -0.29 |
| Return on capital employed | % | -5.8 | -19.4 | 0.4 | -8.2 |
| excluding non-recurring items | % | -5.7 | -7.1 | 1.7 | -4.0 |
| Net cash generated from operating activities | EUR million | -46 | 45 | 116 | 266 |
| Capital expenditure, continuing operations 5) | EUR million | 82 | 2,885 | 79 | 3,155 |
| Net interest-bearing debt at the end of period 6) | EUR million | 2,891 | 2,620 | 1,495 | 2,620 |
| Debt-to-equity ratio at the end of period 6) | % | 103.3 | 88.8 | 80.0 | 88.8 |
| External deliveries | 1,000 tonnes | 721 | 351 | 418 | 1,495 |
| Stainless steel external deliveries 7) | 1,000 tonnes | 703 | 337 | 399 | 1,428 |
| Stainless steel base price 8) | EUR/tonne | 1,177 | 1,167 | 1,185 | 1,172 |
| Personnel at the end of period, continuing operations | 15,705 | 16,649 | 7,968 | 16,649 | |
| 1) Figures for 2012 have been restated due to change in accounting principle of defined benefit plans and other long-term employee benefits, | |||||
| and adoption of revised IAS 19 standard. | |||||
| 2) Non-recurring items, other than impairments; and inventory gains/losses, unaudited. | |||||
| 3) Non-recurring items and inventory gains/losses, unaudited. | |||||
| 4) 2012 figures calculated based on the rights-issue-adjusted weighted average number of shares. | |||||
| 5) Oct 1–Dec 31, 2012 and Jan 1–Dec 31, 2012 include Inoxum acquisition of EUR 2,720 million and acquisition-related finance leases and | |||||
| asset purchases of EUR 79 million. | |||||
| 6) March 31, 2012 adjusted to exclude the effect of the rights issue. Debt-to-equity ratio, including the effect of the rights issue, | |||||
| on March 31, 2012 was 67.8%. | |||||
| 7) Excludes ferrochrome deliveries, includes high performance alloy deliveries. | |||||
| 8) Stainless steel: CRU - German base price (2 mm cold rolled 304 sheet). | |||||
| 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. | |||||
| Group key figures, comparable | |||||
| I/13 | IV/12 | I/12 | 2012 | ||
| Sales | EUR million | 2,221 | 2,067 | 2,648 | 9,458 |
| EBITDA | EUR million | 12 | -117 | 73 | -176 |
| Adjustments to EBITDA 1) | EUR million | 5 | 59 | -5 | 203 |
| Underlying EBITDA | EUR million | 17 | -58 | 68 | 27 |
| EBIT | EUR million | -82 | -307 | -58 | -692 |
| Adjustments to EBIT 2) | EUR million | 5 | 145 | 37 | 344 |
| Underlying EBIT | EUR million | -77 | -162 | -21 | -348 |
| Capital expenditure, continuing operations 3) | EUR million | 82 | 254 | 181 | 821 |
| External deliveries | 1,000 tonnes | 721 | 658 | 777 | 2,853 |
| Stainless steel external deliveries 4) | 1,000 tonnes | 703 | 644 | 758 | 2,786 |
| Personnel at the end of period, continuing operations | 15,705 | 16,649 | 17,351 | 16,649 | |
| 1) Non-recurring items, other than impairments; and inventory gains/losses, unaudited. | |||||
| 2) Non-recurring items and inventory gains/losses, unaudited. | |||||
| 3) Oct 1–Dec 31, 2012 and Jan 1–Dec 31, 2012 include acquisition-related finance leases and asset purchases of EUR 79 million. | |||||
| 4) Excludes ferrochrome deliveries, includes high performance alloy deliveries. | |||||
| 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:
“The first quarter of 2013 was marked by the start of the combined entity after Outokumpu’s acquisition of Inoxum took effect on December 28, 2012. Integration of the new Outokumpu has progressed well and we are implementing the new strategy with full speed. Importantly we have been able to maintain a high level of customer service and satisfaction during the first months of the combined entity.
The stainless steel market remained challenging during the quarter, mainly driven by the continued economic weakness in Europe and partially also in the US. The first quarter is typically supported by strong seasonality but this year the seasonality had a more muted effect than previous years. This resulted in lower than targeted stainless steel base price increases during the quarter. We will continue to aim for higher prices during 2013 in order to support the turnaround of Outokumpu.
On the positive side, results of our High Performance Stainless and Alloys, specifically specialty stainless, and EMEA units clearly improved from the fourth quarter 2012 – driven by volume growth, price increases, cost savings, and the Ferrochrome production ramp-up. Acquisition-related synergy savings amounted to EUR 16 million and we are well on target to reach the planned EUR 50 million synergy savings this year. However, overall profitability remained at an unsatisfactory level and we are taking decisive actions to turn Outokumpu back to profitability.
During the quarter, our operating cash flow turned negative, mainly driven by the planned ramp-up of the Calvert, US melt shop. Our focus is on working capital management and improved financial performance and operating cash flow for the remainder of the year.
The P150 savings program is progressing as planned and we expect to achieve EUR 30-50 million savings in 2013 and to reach the planned annual EUR 150 million savings in full by end of 2014. As part of the synergy and P150 savings programs, we have today announced further details on planned headcount reductions to significantly reduce our operating expenses. With the new planned actions, we expect the global headcount reduction to reach 2,500 by 2017.
Outokumpu’s transformation requires tough decisions but I’m confident that the chosen strategy and actions will enable us to turn to profitability and maximize the opportunities we have as the global leader in stainless steel and high performance alloys.”
A combined news conference, conference call and live webcast concerning the first-quarter 2013 financial results will be held on April 25, 2013 at 1.00 pm EET (6.00 am US EST, 11.00 pm UK time, 12.00 pm CET) at hotel Kämp, conference room 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 April 25, 2013 at around 4.00 pm EET at www.outokumpu.com/Investors/Webcasts.
For further information:
Investors:
Tamara Weinert
tel. +358 9 421 2438, mob. +358 40 751 7194
Media:
Saara Tahvanainen
tel. +358 9 421 3265, mob. + 358 40 589 0223
Outokumpu Oyj
Outokumpu is the global leader in stainless steel and high performance alloys. Our advanced materials are the ideal choice for demanding applications ranging from cutlery to bridges, energy plants to medical equipment. Stainless steel contributes to a sustainable and long lasting world as it is a 100% recyclable, corrosion-resistant, maintenance-free, durable and hygienic material. Outokumpu employs approximately over 16 000 professionals in over 40 countries, with the Group’s head office in Espoo, Finland and shares listed on the NASDAQ OMX Helsinki. www.outokumpu.com