Outokumpu Annual Accounts Bulletin 2014: Clear improvement in financial performance and debt reduction in 2014, turnaround to profitability continues

OUTOKUMPU OYJ
ANNUAL ACCOUNTS BULLETIN
February 12, 2015 at 9.00 am EET

Strong operating cash flow and underlying EBIT of EUR -9 million in Q4. Clear improvement in financial performance and debt reduction in 2014, turnaround to profitability continues.

Highlights in the fourth quarter 2014

Outokumpu delivered underlying EBIT of EUR -9 million compared to EUR -28 million in the third quarter. Financial performance was negatively impacted by low delivery volumes in a subdued market, while base prices were stable and progress in the company’s savings programs continued to be good. Strong focus on net working capital management resulted in EUR 122 million operating cash flow.

• Stainless steel deliveries decreased by 10% to 568,000 tonnes¹⁾ (III 2014: 634,000 tonnes).
• Underlying EBITDA²⁾ was EUR 72 million (III 2014: EUR 48 million). The negative impact of lower deliveries was more than offset by stable prices and good progress in savings programs. EBIT was EUR -36 million (III 2014: EUR -9 million). EBIT includes non-recurring items of EUR -27 million related to net costs of the technical issues in Calvert (-21) and restructuring provisions (-6). Net effect of timing and raw material related inventory and hedging gains/losses was EUR 0 million (III 2014: NRI of EUR -12 million and net timing of EUR 31 million). Thus, underlying EBIT was EUR -9 million (III 2014: EUR -28 million).
• Operating cash flow was EUR 122 million (III 2014: EUR 23 million) due to a successful reduction in working capital, particularly towards the year-end. 
• Net interest-bearing debt was reduced to EUR 1,974 million and gearing was 92.6% (Sept 30, 2014: EUR 2,068 million and 96.4%).

Highlights of 2014

• Global stainless steel real demand in 2014 grew by 5.5% compared to 2013. In the Americas, consumption was up by 4.7% and also in Europe consumption grew by 3.8%. In APAC, growth was 6.1%. Stainless steel base prices (according to CRU) were up by 3.6% in the US and down by 1.9% in Europe, while transaction prices were up in all key regions driven by a rise in alloy surcharge. Imports into the EU reached 30.6% and in the NAFTA region 18.9% of total consumption in 2014.
• Outokumpu’s stainless steel deliveries for the full year were stable at 2,554,000 tonnes (2013: 2,585,000 tonnes). Deliveries in the Coil Americas grew in line with progress of the Calvert ramp-up and in Coil EMEA the change in mix towards higher margin products resulted in lower overall volumes.
• Sales were EUR 6,844 million (2013: EUR 6,745 million). Underlying EBITDA improved significantly to EUR 232 million (2013: EUR -32 million) and underlying EBIT to EUR -88 million (2013: EUR -377 million).
• Including non-recurring items of EUR -186 million (2013: EUR -78 million) and raw material-related inventory effects of EUR -31 million, the EBIT was EUR -243 million (2013: EUR -510 million).
• Operating cash flow was negative at EUR -126 million (2013: EUR 34 million).
• Balance sheet was strengthened significantly through refinancing and rights issue: net debt was reduced from EUR 3,556 million to EUR 1,974 million and gearing from 188.0% to 92.6%.

¹⁾ metric ton = 1,000 kg
²⁾ 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. 

Business and financial outlook for the first quarter of 2015

Stainless steel demand has improved from the year-end 2014 lows but outlook for the first quarter varies by region. In EMEA, order intake is improving and underlying demand remains relatively healthy, while Asia remains soft in the beginning of the year. In Americas, the pace for placing new orders is somewhat subdued with the uncertainty over the nickel price, but overall market conditions remain promising. In both key regions, distributors are still digesting high stocks partly due to recent high third-country import ratios.

Outokumpu estimates higher delivery volumes quarter-on-quarter and base prices to be slightly down. Continued improvement in profitability is expected, resulting in slightly positive underlying EBIT for the first quarter. With current prices, the net impact of raw material-related inventory and metal hedging gains/losses on profitability is expected to be EUR 5–10 million negative.

Outokumpu’s operating result may be impacted by non-recurring items associated with the ongoing restructuring programs. This outlook reflects the current scope of operations.

CEO Mika Seitovirta:

“In year 2014 Outokumpu turned towards the right direction. The second year since the merger, we started to see tangible results of our strategy. Profitability was clearly improved, and the strengthened customer focus was reflected in improved delivery performance, which was a key theme for us in 2014. This year we continue the work to improve delivery accuracy and customer service, both essential to strengthen our market position despite competitive market.

The stainless steel market had two very different phases in 2014. The beginning of the year was upbeat, with a clear pick-up in demand compared to 2013, and a sharp increase in nickel price. Especially in Americas, both demand and pricing for stainless steel were robust, and even in Europe there was a 3.8% growth in consumption compared to the negative number a year before. However, as new uncertainties emerged to shadow the European economy, Asian imports reached new heights, and the nickel price started to descend, the environment turned much more difficult in the latter part of the year.

In Europe, we made progress on the restructuring and cost savings, and with a full year EBIT (excl. NRIs) of EUR 78 million compared to EUR -111 million a year ago, our Coil EMEA business area is on the road to recovery. In Americas, we completed the technical ramp-up of the Calvert mill. However, due to the technical issues and delivery performance challenges in the second half of the year we cannot be entirely satisfied with the speed of our progress. Coil Americas did improve its EBIT (excl. NRI) by EUR 180 million in 2014, but missed its target for a break-even EBITDA. Since the beginning of January all cold rolling lines have been back in operation, and we expect Coil Americas to step up its performance this year.  Through the seamless cooperation between Calvert and the cold rolling mill in Mexico, we strengthened our presence in this important market: our US market share increased from 15% to 18% and in the entire NAFTA market from 20% to 22%.

Across the company we continued the efforts to improve our cost competitiveness and working capital management. The savings of EUR 186 million during 2014 brought the total cumulated savings to EUR 385 million compared to 2012. This year we expect to make further steps towards the overall target of EUR 550 million by the end of 2017. In the past two years, we have released EUR 351 million from the net working capital achieving our target in the P300 program, and see further potential in this front.

During the last quarter of 2014, Outokumpu posted underlying EBIT of EUR -9 million compared to EUR -28 million in the third quarter mostly due to the progress in the savings programs and stable base prices. However, the subdued market was reflected in lower delivery volumes.  We ended the year with strong cash flow of EUR 122 million as a result of decisive net working capital management actions. In the first quarter we aim to further improve profitability but the cash flow is estimated to be negative reflecting higher volumes and showing also outflow related to earlier restructuring provisions.

Our 2014 net loss shows how much we still have work ahead of us. Thus, our goal remains firmly on improving our profitability and reducing our debt. In 2014, we took steps towards the right direction: we halved our net losses compared to 2013, and reduced our net debt from EUR 3.6 billion to below EUR 2 billion. This progress has given us confidence to continue the execution of our strategy, constantly raising the bar to return Outokumpu back to sustainable profitability.”

News conference and live webcast today at 1.00 pm EET

A combined news conference, conference call and live webcast concerning publishing of the 2014 Annual Accounts  will be held on Thursday, February 12, 2015 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

An on-demand webcast will be available via Internet at www.outokumpu.com/en/investors/webcasts as of February 12, 2015 at around 4.00 pm EET.

The stock exchange release and the presentation material will be available before the news conference at www.outokumpu.com/Investors.

For more information:

Investors: Johanna Henttonen, tel. +358 9 421 3804, mobile +358 40 530 0778

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 Nasdaq Helsinki. www.outokumpu.com