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Interim Report for Third Quarter 2015

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Third quarter 2015

  • Sales volume increased by 3 percent and revenues by 2 percent compared to last year.
  • Order intake was at the same level as in the corresponding period last year.
  • EBITDA before restructuring expenses amounted to EUR 0 (7) million. The result was negatively impacted by the effects of falling scrap prices by EUR 5 million and by a weaker sales mix.
  • Operating profit (EBIT) amounted to EUR -12 (-5) including restructuring costs.
  • Cash flow from operating activities amounted to EUR 15 (18) million.
  • The group has decided to implement a restructuring program over the next two years in order to adapt the production structure and cost base to demand. The program will affect approximately 250 employees and is planned to provide annual savings of EUR 45 million with full effect from 2018. Restructuring costs of EUR 2 (0) million have been recognized during the period and mainly relate to the activities in the program which commenced in the third quarter.

January – September 2015

  • Sales volume and revenue were 2 percent lower compared to the same period last year. The decrease is mainly attributable to the first quarter.
  • EBITDA before restructuring expenses amounted to EUR 53 (65) million.
  • Operating profit (EBIT) amounted to EUR 20 (29) million including restructuring expenses.
  • Cash flow from operating activities amounted to EUR 14 (24) million.
  • Restructuring costs of EUR 2 (0) million were recognized during the period, see above.
  • On March 31, steel and metals distributor Ovako Metals Oy Ab (formerly Tibnor Oy) in Finland was acquired, which positively affected operating profit with a non-recurring effect of EUR 3 million.

Amounts in brackets in this report refer to the corresponding period in the previous year.

Group key figures

2015Q3 2014Q3 2015Q1-3 2014Q1-3 2014Full year
Sales volumes kton 150 145 525 538 697
Net revenue EURm 188 184 651 664 862
EBITDA before restructuring cost EURm 0 7 53 65 69
Adjusted EBITDA margin % -0.2 % 3.7 % 8.1 % 9.7 % 7.9 %
EBITDA EURm -2 7 51 65 69
EBITDA margin % -1.1 % 3.7 % 7.8 % 9.7 % 7.9 %
EBIT before restructuring cost EURm -11 -5 22 29 15
Adjusted EBIT margin % -5.6 % -2.4 % 3.4 % 4.4 % 1.8 %
Operating profit (EBIT) EURm -12 -5 20 29 15
EBIT margin % -6.5 % 2.4 % 3.1 % 4.4 % 1.7 %
Net profit/loss EURm -14 -8 0 0 -15
Earnings per share EUR -281 -166 9 5 -302
Cash flow from operating activities EURm 15 18 14 24 66
Net debt/equity ratio % 164 % 154 % 164 % 154 % 152 %
Return on capital employed (ROCE) % 1 % 5 % 1 % 5 % 3 %
Full time employees at end of period (FTE) No. 2,985 2,939 2,985 2,939 2,925

Comments from the CEO

"The third quarter was challenging for Ovako, with a significantly worse business climate than in the first half. Despite this, the sales volume was slightly better than in the same quarter last year. Sales and order intake were adversely affected by the downturn in the oil and gas segment, a weak market for construction equipment and a generally weak market for bearings. Growth in diesel injection and trucks, along with multiple new business, has balanced the volume during the quarter.

Results were impacted by normal maintenance shutdowns during the summer, as well as by very rapidly decreasing scrap and alloy prices. Normally, Ovako's results are not significantly affected by variations in input materials, but negative effects arise when prices fall very rapidly, which hampered the quarter's profits by EUR 5 million. The current level of profits is not satisfactory.

The underlying growth within the European engineering industry is expected to remain low in the coming years. This, together with significant excess capacity in Ovako's steel segment, led to the announcement of restructuring within the group, which is expected to last for two years. The program will involve the reduction of approximately 250 employees in the group as three units are closed. Negotiations with union representatives have begun. The goal is to reduce costs by EUR 45 million by 2018. All customers and lines of business are expected to be handled within the framework of the new structure.

Already approved investments in marketing and technology are being implemented according to plan, including the new metallurgical platform in Hofors. Future capital expenditure levels are expected to remain at EUR 30-35 million in the coming years, including EUR 10 million over two years to manage the structural changes. The capacity of the group after the change is expected to be 800-850 thousand metric tons, depending on the mix. Deliveries in 2015 are expected to amount to approximately 700 thousand metric tons.

Short-term outlook

The market is expected to remain weak during the fourth quarter, with seasonal inventory reductions among our customers towards the end of the year. Deliveries during the fourth quarter are expected to be slightly weaker than in the same quarter last year."

Tom Erixon
President and CEO

Stockholm, November 3, 2015

You will find the Report for Third Quarter 2015 on the website:
http://www.ovako.com/Financial-information/

Further information can be obtained from:
Kristina Grewin, External Communications Manager, 46 739 82 96 81
Nicholas Källsäter, Head of Group Business Control, 46 (0)8 622 13 23

Ovako develops high-tech steel solutions for, and in cooperation with, its customers in the bearing, transport and manufacturing industries. Our steel makes our customers’ end products more resilient and extends their useful life, ultimately resulting in smarter, more energy-efficient and more environmentally-friendly products.

Our production is based on recycled scrap and includes steel in the form of bar, tube, ring and pre-components. Ovako is represented in more than 30 countries, and has sales offices in Europe, North America and Asia. Ovako’s sales in 2014 amounted to EUR 862 million, and the company had 2,925 employees at year-end. For more information, please visit us at www.ovako.com

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Interim report stockholm Finland European EBITDA Hofors EBIT EUR Tom Erixon httpwwwovakocomenFinancial-informationInformation-to-Bond-Investors Presentation material Tibnor Oy ROCE FTE Ovako Metal EBITDAEURm

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The third quarter was challenging for Ovako, with a significantly worse business climate than in the first half. Despite this, the sales volume was slightly better than in the same quarter last year.
Tom Erixon