Outokumpu Reports Unsatisfactory Financial Results
Developments in the third quarter 2013
In line with management expectations, Outokumpu posted higher underlying EBIT losses of € -126 million versus € -80 million in the second quarter 2013. On a positive note, operating cash flow was positive at € 124 million driven by working capital release. Good progress in synergies, cost saving programs and the ongoing ramp-ups of the Ferrochrome and Calvert operations were more than offset by weak market and declining prices.
Update on Terni
During the third quarter of 2013, global stainless steel demand decreased by 6.2% versus the second quarter. While all the markets were down, EMEA was the hardest hit with a decline of 19.1%. European stainless steel base price was down by 6.8% and average nickel price by 7.1%. During the first nine months stainless steel demand in the EMEA region declined to 5.2 million tonnes (I-III 2012: 5.3 million tonnes).
During the third quarter of 2013, Outokumpu’s stainless steel external deliveries declined by 1.4% and were 647,000 tonnes (II 2013: 656,000 tonnes). In the first nine months of 2013, the Group had stainless steel deliveries of 2,006,000 tonnes, down by 6.3% compared to same period a year earlier (I-III 2012: 2,141,000 tonnes).
The underlying EBITDA for the third quarter was € -35 million compared to € 12 million in the second quarter and the underlying EBIT was € -126 million (II 2013: € -80 million). Higher losses were mainly driven by lower base prices and negative mix impact from the fact that the relative share of APAC and Americas in the deliveries increased at the expense of higher margin business of EMEA and HPSA.
Including non-recurring items of € -1 million (II 2013: € -46 million) and raw material-related inventory effects of € -15 million (II 2013: € -38 million), the EBIT was € -142 million for the third quarter 2013 (II 2013: € -164 million). For the first nine months of 2013, non-recurring items were € -49 million (I-III 2012: € -168 million) and raw material-related inventory effects were € -57 million (I-III 2012: € -30 million) with an overall EBIT of € -388 million (I-III 2012: € -385 million).
Operating cash flow was positive at € 124 million (II 2013: € -160 million) mainly driven by working capital release. For the first nine months of 2013, operating cash flow was € -81 million and underlying EBITDA € -6 million.
Net interest-bearing debt decreased to € 2,981 million (June 30, 2013: € 3,041 million), and gearing was 131.8% (June 30, 2013: 120.6%).
The Terni divestiture continues with an extended time frame that the European Commission granted earlier in the year. Discussions continue with a number of interested parties. Simultaneously with the Terni sale process, Outokumpu has held discussions with the European Commission about the remedy package but this has not resulted in any change to the overall situation with the Terni divestiture. Outokumpu is working intensively to complete the divestment and targets to sign a transaction during the remainder of the year.
Update on strategic review of VDM, the high performance alloys business of Outokumpu
The strategic review of VDM operations continues as planned and is progressing well. As part of this review process Outokumpu is assessing divestment options, and thereby engaged in discussions with several potential buyer candidates. Outokumpu expects to finalize the strategic review by the end of the year.
Business and financial outlook for the fourth quarter of 2013
Outokumpu expects no major improvement in the market demand for the rest of the year and overall visibility continues to be weak. The company estimates sequentially lower delivery volumes, some improvement in base prices, and similar product mix as in the third quarter. The progress in the cost efficiency initiatives, synergies, and cash release programs is expected to be steady.
For the fourth quarter financial performance, Outokumpu estimates the underlying EBIT to be on approximately the same level or slightly worse than in the third quarter. At current metal prices, marginal raw material-related timing losses, if any, are expected. Outokumpu’s operating result in the fourth quarter could be impacted by non-recurring items associated with the Group’s ongoing restructuring programs.
CEO Mika Seitovirta commented, “The stainless steel market continued to be weak during the third quarter. Global demand for stainless steel declined and the market in Europe was particularly depressed, driven both by continued economic weakness and the slow summer season. Our financial results remained unsatisfactory but were in line with our expectations. A clear positive was that our operating cash flow was positive at € 124 million driven by our systematic efforts to release working capital throughout the company.
“We continued to deliver post-merger synergies and other savings ahead of plans to support our financial performance. On the operational side, the ramp-up of our ferrochrome operations in Finland is progressing well and it continues to play a key role in our competitiveness going forward. The investment in Calvert is also gradually coming on stream and will strengthen our position in the important US market. “In Asia we are leveraging our local presence, and in the quarter this was evidenced by improved order intake and higher delivery volumes.
“We at Outokumpu are committed to turn the company back to sustainable profitability and to strengthen our financial position. Since we do not expect any material improvement on the demand side and the global overcapacity in stainless steel persists it is essential that we continue to focus on our customers while at the same time implementing the ongoing cost savings and working capital efficiency programs. On top of that we are accelerating our restructuring actions in Europe with our new industrial plan. Our current restructuring plans are necessary to return Outokumpu to profitability and will result in total cost savings of € 380 million in 2015. The negotiations on the sale of the Terni remedy assets are ongoing with several parties and we plan to sign an agreement by end of the year. We are also finalizing the strategic review of VDM. In addition, we have multiple actions ongoing to strengthen our balance sheet.”