Outokumpu third quarter interim statement – Challenging quarter due to a weak market and a sharp increase in the price of nickel, Group adjusted EBITDA at EUR 45 million
Interim statement
October 31, 2019 at 9.00 am EET
Outokumpu third quarter interim statement – Challenging quarter due to a weak market and a sharp increase in the price of nickel, Group adjusted EBITDA at EUR 45 million
Highlights in Q3 2019
- Stainless steel deliveries were 533,000 tonnes (582,000 tonnes)1.
- Adjusted EBITDA was EUR 45 million (EUR 128 million).
- EBITDA was EUR 45 million (EUR 128 million).
- Operating cash flow was EUR 12 million (EUR 61 million).
- Net debt was EUR 1,336 million (June 30, 2019: EUR 1,307 million).
- Gearing was 51.4% (June 30, 2019: 49.8%).
- Return on capital employed (ROCE) was 1.0% (June 30, 2019: 2.9%).
Highlights in Q1–Q3 2019
- Stainless steel deliveries were 1,738,000 tonnes (1,894,000 tonnes).
- Adjusted EBITDA was EUR 190 million (EUR 397 million).
- EBITDA was EUR 176 million (EUR 404 million).
- Operating cash flow was EUR 228 million (EUR 171 million).
- Net result was EUR -60 million (EUR 103 million).
1 Figures in parentheses refer to the corresponding period for 2018, unless otherwise stated.
Q3 2019 compared to Q3 2018
Outokumpu’s sales decreased to EUR 1,590 million (EUR 1,733 million) and adjusted EBITDA to EUR 45 million (EUR 128 million). Profitability decreased significantly primarily due to 8% lower stainless steel deliveries reflecting a weak stainless steel market particularly in Europe, as well as raw material-related inventory and metal derivative losses of EUR 31 million (gains of EUR 3 million) caused by a sharp rise of the nickel price. Ferrochrome profitability was negatively impacted by the lower benchmark price. Raw material mix, on the other hand, improved in both business area Europe and the Americas. Other operations and intra-group items’ adjusted EBITDA was EUR 14 million (EUR -4 million), positively impacted by gains from derivatives and the sale of emission allowances.
Q1–Q3/2019 compared to Q1–Q3/2018
During the first nine months of 2019, Outokumpu’s sales decreased to EUR 5,006 million (EUR 5,286 million). Adjusted EBITDA decreased to EUR 190 million (EUR 397 million). Weak stainless steel market has led to significantly lower base prices. On the other hand, pricing has been supported by improved product and raw material mix. Deliveries during the first nine months of the year were 8% lower compared to the same period last year. Ferrochrome profitability was suffering from lower ferrochrome benchmark price, but part of this impact was compensated by record-high production. Raw material-related inventory and metal derivative losses during January-September were EUR 60 million, significantly higher than the losses of EUR 1 million during the first nine months of 2018. Other operations and intra-group items’ adjusted EBITDA amounted to EUR 4 million (EUR 11 million).
EBIT was EUR 3 million (EUR 241 million) and net result amounted to EUR -60 million (EUR 103 million).
| |
|||||||||||||
| Group key figures | Q3/19 | Q3/18 | Q2/19 | Q1-Q3/19 | Q1-Q3/18 | 2018 | |||||||
| Sales | EUR million | 1,590 | 1,733 | 1,701 | 5,006 | 5,286 | 6,872 | ||||||
| EBITDA | EUR million | 45 | 128 | 91 | 176 | 404 | 496 | ||||||
| Adjusted EBITDA 1) | EUR million | 45 | 128 | 91 | 190 | 397 | 485 | ||||||
| EBIT | EUR million | -13 | 65 | 33 | 3 | 241 | 280 | ||||||
| Adjusted EBIT 1) | EUR million | -13 | 75 | 33 | 17 | 244 | 279 | ||||||
| Result before taxes | EUR million | -30 | 36 | 17 | -47 | 155 | 175 | ||||||
| Net result for the period | EUR million | -27 | 29 | 6 | -60 | 103 | 130 | ||||||
| Earnings per share | EUR | -0.06 | 0.07 | 0.01 | -0.14 | 0.25 | 0.32 | ||||||
| Diluted earnings per share | EUR | -0.06 | 0.07 | 0.01 | -0.14 | 0.25 | 0.32 | ||||||
| Return on capital employed | % | 1.0 | 6.9 | 2.9 | 1.0 | 6.9 | 7.0 | ||||||
| Net cash generated from operating activities | EUR million | 12 | 61 | 177 | 228 | 171 | 214 | ||||||
| Net debt at the end of period | EUR million | 1,336 | 1,205 | 1,307 | 1,336 | 1,205 | 1,241 | ||||||
| Debt-to-equity ratio at the end of period | % | 51.4 | 44.5 | 49.8 | 51.4 | 44.5 | 45.1 | ||||||
| Capital expenditure | EUR million | 56 | 56 | 49 | 156 | 156 | 260 | ||||||
| Stainless steel deliveries | 1,000 tonnes | 533 | 582 | 584 | 1,738 | 1,894 | 2,428 | ||||||
| Personnel at the end of period 2) | 10,507 | 10,459 | 10,483 | 10,507 | 10,459 | 10,449 | |||||||
| 1) Adjusted EBITDA or EBIT = EBITDA or EBIT – Items classified as adjustments. |
|||||||||||||
| 2) On June 30, 2019 the Group employed, in addition, some 710 summer trainees. | |||||||||||||
| Outokumpu has adopted IFRS 16 – Leases on January 1, 2019 using the modified retrospective approach. Comparative information has not been restated. |
|||||||||||||
| More information on the changes to Outokumpu's accounting principles and transition impacts is presented in the end of this report. | |||||||||||||
President & CEO Roeland Baan
“The third quarter proved to be as tough as we had predicted. Our adjusted EBITDA decreased to EUR 45 million largely due to weak demand and increased imports to Europe resulting in low deliveries and price pressure. This situation was particularly true for business area Long Products, reporting over 30% lower deliveries year-on-year. Additionally, the sharp rise of the nickel price led to hedging losses throughout our business.
The weakness in the European stainless steel market is expected to continue. The EU’s revised safeguard measures enforced since the beginning of October have not yet had noticeable impact. However, the market should get more balanced as import quotas get filled. We also welcome the announcement by the European Commission that they have started anti-dumping investigations and countervailing duties against China and Indonesia.
We expect the fourth quarter to be similar to the third with limited upside in the market. While the nickel hedging losses will not be repeated, rising imports, typical seasonality in the US and higher maintenance costs will have a negative impact on our profitability.
Our focus on reducing net debt remains unwavering. We have already reached our 2019 target to reduce net working capital by EUR 150 million, well ahead of plan. In the fourth quarter, we will get further support for our cash flow from the EUR 90 million cash proceeds related to the real estate sale in Benrath that was announced in May 2019.
While the market trends are not working in our favor, we continue to pursue our efficiency and productivity improvements. We have started additional actions including personnel negotiations in Germany and business area Long Products to enhance the competitiveness of our European operations. The long-term growth prospects for stainless steel remain sound, and as the industry leader, our aim is to keep our position in all market circumstances.”
Outlook for Q4 2019
The stainless steel market is expected to remain subdued. The European market is suffering from continued import pressure from Asia and low underlying demand whereas in the US, we expect to see the normal fourth-quarter seasonality. Consequently, Outokumpu expects its fourth-quarter stainless steel deliveries to be lower than in the third quarter of 2019.
The planned annual maintenance work at the Tornio stainless steel mill is expected to have up to EUR 15 million negative impact on business area Europe’s profitability.
Assuming the current raw material prices, the losses from raw material-related inventories and metal derivatives from the third quarter are not expected to be repeated in the fourth quarter.
Outokumpu expects its fourth-quarter adjusted EBITDA to be at a similar level to the third quarter of 2019 (Q3/19: EUR 45 million).
Conference call today at 3.00 pm EET
A conference call for investors and analysts will be held on Thursday October 31, 2019 at 3.00 pm EET (9.00 am US EST, 1.00 pm UK, 2.00 pm CET). The results call will be hosted by Outokumpu’s CEO Roeland Baan and CFO Pia Aaltonen-Forsell. To participate in the conference call, please dial in 5−10 minutes before the beginning of the event:
Finland: +358 9 424 50 806
UK/Europe: +44 20 71 92 8000
US & Canada: +1 631 510 74 95
Confirmation code: 6589229
The event can be viewed live at https://edge.media-server.com/mmc/p/36iufb5j.
The stock exchange release and the presentation material will be available before the event at www.outokumpu.com/investors.
A recording of the event will be available at www.outokumpu.com/en/investors/ir-events/webcasts as of October 31, 2019 at around 6.00 pm EET.
For more information:
Investors: Tommi Järvenpää, VP, Investor Relations, tel. +358 9 421 3466, +358 40 576 0288
Media: Reeta Kaukiainen, EVP, Communications & IR, tel. +358 50 522 0924
Outokumpu Oyj
Outokumpu is the global leader in stainless steel. We aim to be the best value creator in stainless steel by 2020, through our competitive edge of customer orientation and efficiency. 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 10,000 professionals in more than 30 countries, with headquarters in Helsinki, Finland and shares listed in Nasdaq Helsinki. www.outokumpu.com