Outokumpu interim report January–September 2022: Strong adjusted EBITDA of EUR 304 million delivered, share buyback program launched
Outokumpu Oyj
Interim report
November 3, 2022 at 9.00 am EET
Outokumpu interim report January–September 2022: Strong adjusted EBITDA of EUR 304 million delivered, share buyback program launched
Outokumpu classifies its Long Products businesses to be divested as assets held for sale and reports the businesses as discontinued operations. All figures and comments in this report refer to continuing operations unless otherwise stated.
Highlights in Q3 2022
- Stainless steel deliveries were 491,000 tonnes (546,000 tonnes)*.
- Adjusted EBITDA increased to EUR 304 million (EUR 288 million).
- EBITDA was EUR 304 million (EUR 288 million).
- ROCE rose to 26.8% (12.0%).
- Operating cash flow (incl. discontinued operations) amounted to EUR 238 million (EUR 180 million).
- Net debt (incl. discontinued operations) decreased to EUR 90 million (June 30, 2022: EUR 289 million).
- Gearing (incl. discontinued operations) decreased to 2.2% (June 30, 2022: 7.3%).
Highlights in January–September 2022
- Stainless steel deliveries were 1,656,000 tonnes (1,704,000 tonnes).
- Adjusted EBITDA amounted to EUR 1,146 million (EUR 668 million).
- EBITDA was EUR 1,146 million (EUR 668 million).
- Operating cash flow (incl. discontinued operations) amounted to EUR 489 million (EUR 213 million).
- Net result was EUR 775 million (EUR 376 million).
| Key figures, continuing operations | Q3/22 | Q3/21 | Q2/22 | Q1–Q3/22 | Q1–Q3/21 | 2021 | |
| Sales | EUR million | 2,339 | 1,845 | 2,686 | 7,598 | 5,160 | 7,243 |
| EBITDA | EUR million | 304 | 288 | 491 | 1,146 | 668 | 968 |
| Adjusted EBITDA 1) | EUR million | 304 | 288 | 491 | 1,146 | 668 | 980 |
| EBIT | EUR million | 241 | 229 | 431 | 961 | 494 | 674 |
| Adjusted EBIT 1) | EUR million | 241 | 229 | 431 | 961 | 494 | 728 |
| Result before taxes | EUR million | 225 | 212 | 413 | 920 | 442 | 610 |
| Net result for the period | EUR million | 207 | 178 | 338 | 775 | 376 | 526 |
| Earnings per share | EUR | 0.46 | 0.40 | 0.75 | 1.71 | 0.87 | 1.21 |
| Diluted earnings per share | EUR | 0.42 | 0.37 | 0.69 | 1.58 | 0.80 | 1.13 |
| Return on capital employed, rolling 12 months (ROCE) 2), 3) | % | 26.8 | 12.0 | 27.6 | 26.8 | 12.0 | 17.6 |
| Capital expenditure | EUR million | 37 | 30 | 30 | 98 | 113 | 171 |
| Stainless steel deliveries | 1,000 tonnes | 491 | 546 | 560 | 1,656 | 1,704 | 2,254 |
| Personnel at the end of period, full-time equivalent 4) | 8,602 | 8,492 | 8,480 | 8,602 | 8,492 | 8,439 | |
| Key figures, including discontinued operations | Q3/22 | Q3/21 | Q2/22 | Q1-Q3/22 | Q1-Q3/21 | 2021 | |
| Net result for the period | EUR million | 189 | 182 | 385 | 825 | 394 | 553 |
| Earnings per share | EUR | 0.42 | 0.40 | 0.85 | 1.82 | 0.91 | 1.26 |
| Diluted earnings per share | EUR | 0.39 | 0.37 | 0.78 | 1.68 | 0.84 | 1.17 |
| Return on capital employed, rolling 12 months (ROCE) 3) | % | 28.7 | 12.6 | 29.9 | 28.7 | 12.6 | 18.4 |
| Net cash generated from operating activities | EUR million | 238 | 180 | 104 | 489 | 213 | 597 |
| Net debt at the end of period | EUR million | 90 | 749 | 289 | 90 | 749 | 408 |
| Debt-to-equity ratio at the end of period | % | 2.2 | 24.6 | 7.3 | 2.2 | 24.6 | 13.1 |
| 1) Adjusted EBITDA or EBIT = EBITDA or EBIT – Items classified as adjustments. | |||||||
| 2) According to definitions of key figures balance sheet component includes discontinued operations’ assets and liabilities. | |||||||
| 3) Outokumpu has redefined its capital employed and ROCE definitions in Q2/2022. Comparative information has been restated accordingly. | |||||||
| 4) On June 30, 2022, the Group employed, in addition, some 800 summer trainees. | |||||||
*Figures in parentheses refer to the corresponding period for 2021, unless otherwise stated.
Results
Q3 2022 compared to Q3 2021
Outokumpu’s sales increased to EUR 2,339 million in the third quarter of 2022 (EUR 1,845 million) and adjusted EBITDA amounted to EUR 304 million (EUR 288 million). ROCE increased to 26.8% (12.0%). In the third quarter of 2022, total stainless steel deliveries decreased by 10% compared to the reference period, while higher realized prices for stainless steel supported profitability in both Europe and Americas. In the third quarter of 2022, variable costs were at a higher level due to significant cost inflation in electricity, gas, and ferrosilicon prices. However, the higher ferrochrome sales price had a positive impact on the group's result, while the optimization of ferrochrome production led to lower production volumes. Raw material-related inventory and metal derivative losses amounted to EUR 107 million, mainly due to negative timing impacts as various metal prices deteriorated significantly during the quarter (gains of EUR 17 million). Other operations and intra-group items’ adjusted EBITDA amounted to EUR 7 million (EUR -8 million).
Q3 2022 compared to Q2 2022
Outokumpu’s sales decreased to EUR 2,339 million in the third quarter of 2022 (Q2/2022: EUR 2,686 million) and adjusted EBITDA amounted to EUR 304 million (Q2/2022: EUR 491 million). At the end of September, ROCE stood at 26.8% (27.6%). In the third quarter, total stainless steel deliveries declined by 12% compared to the previous quarter, while positive metal impacts supported profitability. Realized prices for stainless steel declined slightly in Europe and remained at a previous quarter's level in Americas. Costs increased during the third quarter and profitability was negatively impacted by significant cost inflation, especially in the price of electricity, but also in freight, fuels, and slag formers prices, and higher maintenance costs. Also, the optimization of the ferrochrome production combined with decreased ferrochrome sales price negatively affected the group's result. Raw material-related inventory and metal derivative losses amounted to EUR 107 million in the third quarter compared to gains of EUR 66 million in the previous quarter. The realized impact in the third quarter was mainly driven by negative timing impacts as various metal prices deteriorated significantly during the quarter. Other operations and intra-group items’ adjusted EBITDA amounted to EUR 7 million (Q2/2022: EUR -26 million).
January–September 2022 compared to January–September 2021
During January–September 2022, Outokumpu’s sales increased to EUR 7,598 million (EUR 5,160 million) and adjusted EBITDA amounted to EUR 1,146 million (EUR 668 million). ROCE was 26.8% (12.0%). Total stainless steel deliveries were 3% lower in January–September 2022 compared to the same period last year. In 2022, realized prices for stainless steel were at a remarkably higher level in both Europe and Americas, and ferrochrome sales price also increased, all having a very positive impact on profitability. However, significant cost inflation, especially in electricity, gas, and ferrosilicon prices increased variable costs compared to the previous year. Raw material-related inventory and metal derivative losses amounted to EUR 83 million in January–September 2022 compared to gains of EUR 60 million in the previous year. Other operations and intra-group items' adjusted EBITDA amounted to EUR -33 million (EUR -32 million). EBIT increased to EUR 961 million (EUR 494 million) and net result to EUR 775 million (EUR 376 million) in January–September 2022.
President & CEO Heikki Malinen
Our third-quarter performance was solid. We delivered EUR 304 million of adjusted EBITDA, which is the best third-quarter result in Outokumpu’s history. We also reached a significant milestone by reducing our net debt to an all-time low level of EUR 90 million, and our balance sheet is now stronger than ever. This enabled Outokumpu's Board of Directors to approve a share buyback program of a maximum of 20 million shares.
Our stainless steel deliveries fell by 12% in a softening market with exceptionally high imports. Distributors accelerated de-stocking of commodity grades, while end-user demand remained stable.
Business area Americas contributed once again strongly with a very high adjusted EBITDA of EUR 135 million. The US market has been exceptionally robust, but it has been clearly showing signs of weakening in the third quarter.
The energy crisis and related uncertainty cast a shadow across the quarter especially in business areas Europe and Ferrochrome. Despite the challenges in the operating environment, adjusted EBITDA for business area Europe’s amounted to EUR 128 million.
Due to high electricity prices, we have been optimizing our ferrochrome production, which has led to lower production volumes, and adjusted EBITDA for business area Ferrochrome declined to EUR 34 million. We also decided to delay the restart of one of our three ferrochrome furnaces to at least the end of the first quarter of 2023.
Energy has become a major challenge in Europe. Therefore, we raise our energy efficiency improvement target to 8% by the end of 2024. To reach our new ambitious target, we will prioritize investments related to energy efficiency in the coming years and increase the annual capital expenditure for that by EUR 20 million for years 2023 and 2024. Annual capital expenditure for these years will remain limited to EUR 200 million.
We are determinedly progressing with our strategy. We concluded the first phase six months ahead of schedule and since then we have been ramping up the second phase. Having two customer-differentiated business lines, Advanced Materials and Stainless Europe, is proving to be a successful move in serving the specific needs of the two customer groups.
We have continued our strong emphasis on sustainability to further improve Outokumpu’s position as the sustainability leader in the stainless steel sector. Earlier this year we launched our emission-minimized product, Circle Green, which has raised interest and demand among our customers across segments.
In September, we announced our plans to investigate a biocoke and biomethane plant investment in Tornio, Finland. With this project, we aim to significantly reduce our direct CO2 emissions and increase energy self-sufficiency in Finland.
Market uncertainty will continue in the fourth quarter and beyond, and the global economy faces a risk of recession. Outokumpu is much more resilient than ever before, and our significantly strengthened balance sheet gives us the stamina and strength to see us through these challenging times.
Outlook for Q4 2022
Group stainless steel deliveries in the fourth quarter are expected to decrease by 0–10% compared to the third quarter.
The European ferrochrome benchmark price decreased to USD 1.49/lb for the fourth quarter.
Ferrochrome production continues at 50–60% of its full capacity due to a furnace shutdown and the optimization of the ferrochrome production, caused by exceptionally high electricity costs.
With current raw material prices, raw material-related inventory and metal derivative losses are expected to be realized in the fourth quarter.
Guidance for Q4 2022:
Adjusted EBITDA in the fourth quarter of 2022 is expected to be lower compared to the third quarter.
A live webcast and conference call today, November 3 at 3.00 pm EET
A live webcast and conference call to analysts, investors and representatives of media will be arranged later on the same day, at 3.00 pm EET at https://outokumpu.videosync.fi/2022-q3-results, hosted by President and CEO Heikki Malinen and CFO Pia Aaltonen-Forsell.
To ask questions, please participate in the conference call by registering at https://call.vsy.io/access-8575. After registration you will receive phone number and a conference ID to access the conference call. If you wish to ask a question, please dial *5 on your telephone keypad to enter the queue.
All interim report materials, a link to the webcast and later on its recording are available at www.outokumpu.com/en/investors.
For more information:
Investors: Linda Häkkilä, Head of Investor Relations, tel. +358 40 071 9669
Media: Päivi Allenius, VP – Communications, tel. +358 40 753 7374
Outokumpu is the global leader in stainless steel. The foundation of our business is our ability to tailor stainless steel into any form and for almost any purpose. Stainless steel is sustainable, durable and designed to last forever. Our customers use it to create civilization’s basic structures and its most famous landmarks as well as products for households and various industries. Outokumpu employs some 9,000 professionals in more than 30 countries, with headquarters in Helsinki, Finland and shares listed in Nasdaq Helsinki. www.outokumpu.com