Outokumpu’s third quarter 2012 – Continued positive cash flow but unsatisfactory profitability in a challenging environment
OUTOKUMPU OYJ
INTERIM REPORT
24 October 2012 at 9.00 am EET
Third-quarter 2012 highlights
- Underlying operational result was EUR -57 million
- Operating loss was EUR 89 million including raw material-related inventory losses of some EUR 18 million and net non-recurring items totalling EUR -14 million
- Operating loss excluding non-recurring items was EUR 75 million
- Positive operating cash flow of EUR 83 million
- Total external deliveries at 325 000 tonnes
- Outokumpu maintained its membership in the World Dow Jones Sustainability Index (DJSI) for the sixth consecutive year
- Ferrochrome expansion project to be finalised ahead of schedule and below budget
- In connection with the Inoxum transaction, Outokumpu submitted a binding remedy commitment in October to ensure the approval of the transaction. Despite the remedy commitment, the company expects to achieve annual synergy savings of approximately EUR 200 million.
Group key figures | |||||
III/12 | II/12 | III/11 | 2011 | ||
Sales | EUR million | 974 | 1 254 | 1 231 | 5 009 |
EBITDA | EUR million | -32 | -12 | 4 | 80 |
Adjusted EBITDA 1) | EUR million | 0 | 19 | 42 | 169 |
Operating result | EUR million | -89 | -80 | -53 | -260 |
excluding non-recurring items | EUR million | -75 | -47 | -53 | -109 |
underlying operational result 2) | EUR million | -57 | -39 | -15 | -66 |
Result before taxes | EUR million | -132 | -130 | -157 | -253 |
excluding non-recurring items | EUR million | -117 | -97 | -157 | -318 |
Net result for the period | EUR million | -116 | -122 | -135 | -186 |
excluding non-recurring items | EUR million | -101 | -89 | -135 | -244 |
Earnings per share 3) | EUR | -0,08 | -0,09 | -0,48 | -0,64 |
excluding non-recurring items 3) | EUR | -0,07 | -0,06 | -0,48 | -0,85 |
Return on capital employed | % | -9,8 | -8,6 | -5,3 | -6,5 |
excluding non-recurring items | % | -8,2 | -5,0 | -5,3 | -2,7 |
Net cash generated from operating activities | EUR million | 83 | 23 | 282 | 338 |
Capital expenditure | EUR million | 98 | 93 | 67 | 255 |
Net interest-bearing debt at the end of period 4) | EUR million | 1 714 | 1 691 | 1 730 | 1 720 |
Debt-to-equity ratio at the end of period 4) | % | 90,8 | 84,8 | 79,7 | 82,5 |
External deliveries | 1 000 tonnes | 325 | 402 | 355 | 1 449 |
Stainless steel external deliveries | 1 000 tonnes | 311 | 380 | 340 | 1 391 |
Stainless steel base price 5) | EUR/tonne | 1 155 | 1 182 | 1 150 | 1 181 |
Personnel at the end of period | 7 366 | 8 453 | 8 421 | 8 253 | |
1) EBITDA excluding raw material-related inventory gains/losses and non-recurring items, unaudited. | |||||
2) Operating result excluding raw material-related inventory gains/losses and non-recurring items, unaudited. | |||||
3) Calculated based on the rights-issue-adjusted weighted average number of shares. Comparative figures adjusted accordingly. | |||||
4) 30 September 2012 and 30 June 2012 adjusted to exclude the effect of the rights issue. Debt-to-equity ratio, including the effect of the | |||||
rights issue, on 30 September 2012 is 25.9% (30 June 2012: 24.1%). | |||||
5) Stainless steel: CRU - German base price (2 mm cold rolled 304 sheet). | |||||
Raw material-related inventory gains or losses | |||||
The realised 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 unrealised timing impact consists of the change in net realisable 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 realised in the cash flow of Outokumpu only after the raw material has been sold, it is referred to as being unrealised at the time of the booking. |
Outokumpu’s underlying operational result in the third quarter was EUR -57 million. The positive effects resulting from lower production costs and a better product mix compared to the second quarter were offset by lower delivery volumes and lower prices. Certain maintenance break related issues at the Group’s ferrochrome operations in Tornio resulted in some short production stoppages in the third quarter. Outokumpu’s operating loss in the third quarter totalled EUR 89 million and included some EUR 18 million of raw material-related inventory losses resulting from lower metal prices as well as EUR -14 million of non-recurring items.
Net cash from operating activities in the third quarter totalled EUR 83 million and remained positive for the fifth consecutive quarter. The main contributor to the Group’s good cash flow was further reductions in levels of working capital. A total of EUR 156 million was released from working capital in the third quarter. The Group’s net loss in the third quarter totalled EUR 116 million and earnings per share totalled EUR -0.08. Return on capital employed in the third quarter was -9.8%. Excluding proceeds from the rights offering, Outokumpu’s gearing was 90.8% at the end of the third quarter, above Outokumpu’s maximum target level of 75%. Excluding proceeds from the rights offering, net interest-bearing debt increased to EUR 1 714 million.
SHORT-TERM OUTLOOK*)
Demand for stainless steel is expected to grow slightly in the fourth quarter as a result of normal seasonality. No visible recovery among investment-driven end-use segments has taken place and distributor inventories are currently estimated to be below normal levels.
Outokumpu’s average base prices for stainless steel in the fourth quarter are expected to be approximately at the same level as in third quarter. Outokumpu’s fourth-quarter external delivery volumes (stainless and ferrochrome) are expected to be at the same level or slightly higher than in the third quarter.
Outokumpu’s underlying operational result**) is expected to be approximately at the same level as or slightly weaker than in the third-quarter. At current metal prices, no significant raw material related timing impact is expected. Outokumpu’s operating result in the fourth quarter could be impacted by non-recurring items associated with the Inoxum transaction and the Group’s on-going cost-cutting programmes.
*) Short-term outlook for current standalone Outokumpu. In the event that the combined entity would start operations before 31 December 2012, Outokumpu will publish its results for the quarter ending 31 December consolidating Inoxum into Outokumpu from the closing date to year-end (31 December 2012).
**) Underlying operational result=operating result excluding raw material-related inventory gains/losses and non-recurring items.
CEO Mika Seitovirta:
“Outokumpu’s third quarter developed in-line with our expectations with profitability remaining at unsatisfactory levels. The beginning of the quarter was seasonally slow but customer activity picked up in September. Seasonality and continued economic and nickel price weakness resulted in lower volumes and prices for the quarter. The oil and gas customer segment was one of the few customer segments in which we continued to see solid activity. Most other end-use segments were affected by the weak economy, especially in Europe.
We continued to implement our on-going cost-cutting and working capital programmes to manage our financials in this challenging environment. We were very happy to see the fifth consecutive quarter of positive operational cash flow – EUR 83 million for the quarter – as well as continuing reductions in our fixed costs. We expect to see the full effect of the Group’s EUR 100 million cost-savings programme from the beginning of 2013.
We made good progress in the ferrochrome expansion project and we expect to be able to finalise the project ahead of schedule with EUR 30 million lower capital expenditure than originally planned – a great achievement from the project team. We plan to start ramp-up of the new ferrochrome smelter in Tornio during the fourth quarter.
In October we filed a binding remedy commitment in connection with the Inoxum transaction and we expect the European Commission to make its decision regarding the transaction by 16 November. We expect to be able to finalise the transaction by end of 2012. Despite the remedy, the strategic importance of the transaction remains unchanged and we expect to achieve annual synergy savings of approximately EUR 200 million. I am very excited to start the implementation of the much-needed structural change and creating the new global leader in stainless steel.”
The attachments present the Management analysis for the third quarter 2012 operating result and the Interim Review by the Board of Directors for January–September 2012, the accounts and notes to the interim accounts. The report is unaudited.
For further information, please contact:
Investor relations
Kari Tuutti, Communications, IR and Marketing
tel. +358 9 421 2432, mob. +358 40 717 0830
kari.tuutti@outokumpu.com
Media relations
Saara Tahvanainen, Communications
tel. +358 9 421 3265, mobile + 358 40 589 0223
saara.tahvanainen@outokumpu.com
News conference and live webcast today at 1.00 pm EET
A combined news conference, conference call and live webcast concerning the third-quarter 2012 financial results will be held on 24 October 2012 at 1.00 pm EET (6.00 am US EST, 11.00 am UK time, 12.00 pm CET) at restaurant Bank, conference rooms 12–14, address Unioninkatu 20, 00130 Helsinki.
To participate via a conference call, please dial in 5-10 minutes before the beginning of the event:
UK +44 1452 555 131
US & Canada +1 866 6828 490
Sweden +46 8 5063 0779
Reference Outokumpu Q3 webcast
The news conference can be viewed live via Internet. Please find a direct link to the webcast at the end of this announcement.
The stock exchange release and 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 24 October 2012 at around 3.00 pm EET at http://www.outokumpu.com/en/Investors/Pages/Webcasts.aspx.
OUTOKUMPU OYJ