Outokumpu's Annual Accounts Bulletin 2012: Positive operating cash flow but negative operating results in a weak market environment

OUTOKUMPU OYJ
STOCK EXCHANGE RELEASE
February 14, 2013 at 9.00 am EET


Outokumpu has published its Annual Accounts Bulletin 2012. Both Annual Accounts and Q4 income statement comprise stand-alone Outokumpu. Balance sheet items, headcount and share information take into account Inoxum values and other related changes as the transaction was closed at the end of December 2012.

Highlights of the fourth quarter 2012

The continued challenging market environment led to a negative underlying operational result of EUR -76 million in the fourth quarter 2012. 

• After the typically weak summer season, Outokumpu's external stainless steel deliveries were up and reached 337,000 tonnes (III/2012: 311,000 tonnes).
• Even with higher deliveries, the fourth quarter result was below that of the third quarter due to continued weakness in prices, product mix and slightly increased costs. The underlying operational result was EUR
  -76 million (III/2012: EUR -56 million).
• Including non-recurring costs of EUR 139 million (III/2012 EUR -14 million) and raw material related inventory losses of EUR 5 million (III/2012: EUR -18 million), the operating result was EUR -220 million (III/2012: EUR -89 million).
• Operating cash flow remained positive and amounted to EUR 45 million (III/2012: EUR 83 million)

Highlights of 2012

The underlying operational result for 2012 remained weak at EUR -168 million. Highlight of the year and the starting point for the company's turnaround was the closing of the Inoxum transaction. 

• Stainless steel deliveries for the full year increased to 1,428,000 tonnes (FY 2011: 1,391,000 tonnes).
• The year was marked by a weak market environment, especially during the second half, leading to an underlying operational loss of EUR 168 million (FY 2011: EUR -61 million). Including non-recurring items of EUR -200 million (FY 2011: EUR -146 million) and raw material-related inventory losses of EUR 17 million (FY 2011: EUR -43 million) the operating loss was EUR 385 million (FY 2011: EUR -251 million).
• The primary reasons for the weak performance were declining stainless steel base prices, a weaker product mix and the decline in nickel prices. Contributing to the loss were also the costs related to finalization of the expansion of ferrochrome production and the impact this had on production.
• Operating cash flow for the full year remained strong at EUR 266 million (FY 2011: EUR 338 million).
• Following the Inoxum transaction, net interest-bearing debt increased to EUR 2,620 million (December 31, 2011: EUR 1,720 million), leading to a gearing of 88.7% (December 31, 2011: 83.9%).
• The highlight of 2012 was closing of the Inoxum acquisition. This transaction is the starting point for the company's turnaround - synergy savings and mill closures will lead to higher capacity utilization and market leadership.
• The Board is proposing that no dividend be paid for 2012 (2011: no dividend). 

New efficiency measures

The company starts new efficiency measures in addition to the implementation of the expected EUR 200 million synergy savings: new programs established with the target of EUR 150 annual cost reductions and a EUR 300 million reduction of net working capital. Both programs are expected to be fully implemented by the end of 2014, and show first positive effects already in 2013.

Group key figures 2012

The following table shows Outokumpu stand-alone income and combined balance sheet figures: 

1) Figures for July 1–Sept 30, 2012 and Jan 1–Dec 31, 2011 have been restated due to change in accounting principle of defined benefit plans and other long-term employee benefits.                                                                            

2) EBITDA excluding raw material-related inventory gains/losses and non-recurring items, unaudited.  

3) Operating result excluding raw material-related inventory gains/losses and non-recurring items, unaudited.

4) Calculated based on the rights-issue-adjusted weighted average number of shares. Comparative figures adjusted accordingly.
5) Includes Inoxum acquisition of EUR 2,720 million and acquisition-related finance leases and asset purchases of EUR 79 million.

6) Sept 30, 2012 adjusted to exclude the effect of the rights issue. Debt-to-equity ratio, including the effect of the rights issue, on Sept 30, 2012 is 26.8%.               

7) Stainless steel: CRU - German base price (2 mm cold rolled 304 sheet).
8) Excluding Terni operations.

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.

Short-term outlook

Outokumpu’s stainless steel delivery volumes in the first quarter of 2013 are expected to be in the range 680,000-750,000 tonnes. Stainless steel prices are expected to remain at the same level or slightly higher than in the fourth quarter of 2012, but remain below the levels achieved in the first quarter of 2012. In January, Outokumpu introduced price increases which are expected to take effect towards the end of the first quarter.

Outokumpu expects the first quarter underlying operational result to be slightly worse than the stand alone Outokumpu fourth quarter 2012 underlying operational result.

CEO Mika Seitovirta:

“For Outokumpu, 2012 was characterized by the global economic slowdown and our announcement of the Inoxum acquisition. The soft demand in Europe resulted in continued negative results for the full year despite the significant cost savings programs. The difficult market situation highlighted the importance of the strategic restructuring of Outokumpu that the Inoxum transaction will enable.

Outokumpu’s fourth quarter was disappointing but developed in line with our expectations in a challenging environment. Sequentially, our delivery volumes increased somewhat but prices remained flat, reflecting the weak market conditions, especially in the important specialty stainless segments. On the positive side, we finalized the Ferrochrome expansion project ahead of time and planned costs that will double our annual ferrochrome production capacity to 530,000 tonnes. Operating cash flow remained positive due to the rigorous focus on managing working capital. Even with strong implementation of our cost savings programs, profitability remained at an unsatisfactory level.

The Inoxum acquisition was finalized at the end of the quarter and we began implementing our new strategy to return to sustainable profitability. The transaction will enable us to reduce our fixed costs significantly. It expands our business in both Asia and the Americas, where we see healthier market environments. Ramp-up of the new integrated mill in Calvert, USA and our Ferrochrome production are two key priorities in 2013.

Unfortunately, due to continued weakness in the markets for stainless steel in Europe and globally, the starting point for the new Outokumpu is more challenging than we anticipated 12 months ago. We will be implementing the targeted EUR 200 million of synergy savings in a decisive manner and will also be seeking further opportunities to make savings during 2013. Our focus on cash flow generation - minimizing capital expenditure and implementing tight management of working capital - continues. Therefore, we have established two new efficiency programs: P150 for a EUR 150 million annual cost reductions and P300 for a EUR 300 million reduction of net working capital. We expect these two programs to be fully implemented by end of 2014 and to show first positive effects already in 2013. We are also determined to achieve further price increases to improve profitability. We will also evaluate different alternatives to strengthen the balance sheet.”

For further information, please contact:

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

News conference and live webcast today at 1.00 pm EET

A combined news conference, conference call and live webcast concerning the Annual Accounts 2012 will be held on February 14, 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:   +44 8 445 718 957
US & Canada: +1 866 682 8490
Other countries: +44 1452 555 131
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 February 14, 2013 at around 3.00 pm EET at www.outokumpu.com/en/Investors/Pages/Webcasts.aspx.

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