core sector communique

Outokumpu's third quarter 2011 - profitability seasonally weak, significant improvement in cash flow

INTERIM REPORT

20 October 2011 at 9.00 am EET

Third-quarter 2011 highlights

- Underlying operational result some EUR -15 million (II/2011: EUR -5 million).

- Operating loss EUR -53 million (II/2011: EUR -169 million) including raw material-related inventory losses of some EUR -38 million (II/2011: some EUR -26 million), no non-recurring items (II/2011: EUR -138 million).

- Financial expenses of EUR 77 million reported under net financial income and expenses as a result of the fair valuation of the Group's stake in Talvivaara Sotkamo.

- Very strong operational cash flow of EUR 282 million (II/2011: EUR -66 million).

- Deliveries at 340 000 tonnes (II/2011: 348 000 tonnes).

- Change in corporate organisation and Group Executive Committee, job reductions planned.

Group key figures
		III/11	II/11	III/10	2010
Sales	EUR million	1 231	1 281	1 014	4 229
EBITDA	EUR million	4	-4	12	172
Operating profit	EUR million	-53	-169	-49	-83
- excluding non-recurring
items	EUR million	-53	-31	-49	-66
- underlying operational
result 1)	EUR million	-15	-5	-10	-91
Profit before taxes	EUR million	-157	21	-88	-143
- excluding non-recurring
items	EUR million	-157	-70	-88	-135
Net profit for the period	EUR million	-135	50	-56	-124
- excluding non-recurring
items	EUR million	-135	-33	-56	-115
Earnings per share	EUR	-0.74	0.28	-0.31	-0.68
- excluding non-recurring
items	EUR	-0.74	-0.18	-0.31	-0.63
Return on capital employed	%	-5.3	-16.1	-4.6	-2.1
- excluding non-recurring
items	EUR	-5.3	-2.9	-4.6	-1.7
Net cash generated from
operating activities	EUR million	282	-66	-111	-497
Capital expenditure	EUR million	67	50	40	161
Net interest-bearing debt
at end of period	EUR million	1 730	1 885	1 831	1 837
Debt-to-equity ratio at
end of period	%	79.7	82.0	74.9	77.3
Stainless steel deliveries	1 000 tonnes	340	348	307	1 315
Stainless steel
base price 1)	EUR/tonne	1 150	1 223	1 245	1 252
Personnel at the
end of period 2)		8 421	9 474	8 370	8 431
1) Operating profit excluding non-recurring items and raw-material
related timing gains and losses.
2) Stainless steel: CRU - German base price (2 mm cold rolled 304 sheet).
3) Personnel reported as head count. Up to 31 December 2010 reported as
full-time equivalent. Comparative figures restated.

The underlying operational result in the third quarter declined to EUR -15 million. The negative impact of somewhat lower base prices and a somewhat weaker mix was partly offset by a positive impact from metal hedging activities. Operating loss in the third quarter was EUR -53 million. Demand in Europe was adversely affected by normal seasonality and Outokumpu held its annual maintenance breaks at Group sites. Net cash from operating activities in the third quarter improved significantly and totalled EUR 282 million. The main reasons for the very strong cash flow were the reduction in working capital which resulted from lower metal prices and inventories being at lower levels than in the second quarter. EUR 331 million of cash was released from working in the third quarter. 

SHORT-TERM OUTLOOK

During the summer, demand for standard grades of stainless steel in Europe was impacted by the normal seasonal slowdown. Following the summer period, both global economic uncertainty and lower metal prices weakened underlying demand for stainless steel. Distributors are currently hesitant about placing orders. Inventories among distributors are however lower than normal. Lead times for standard grades continue to be 6-8 weeks.

Due to the weakened demand for stainless, Outokumpu expects the Group's delivery volumes in the fourth quarter of 2011 to be below the level achieved in the third quarter. As the conditions in the stainless markets softened, base prices declined towards the end of the third quarter but seem to have stabilised currently. Outokumpu expects its average base prices in the fourth quarter to be somewhat lower than the average for the third quarter.

Lower delivery volumes and lower average base prices are expected to lead to a somewhat negative underlying operational result^*) in the fourth quarter. At current metal prices, declined metal prices are expected to result in raw material-related inventory losses resulting in a clearly negative operating result for the fourth quarter. In addition, Outokumpu's operating result in the fourth quarter is expected to be affected by the Group's planned cost saving and restructuring programmes.

^*) Underlying operational result= Operating profit/loss excluding raw material-related inventory gains/losses and non-recurring items.

CEO Mika Seitovirta:

"Since the global economic sentiment has worsened after the summer and the stainless markets consequently have weakened, it is of extreme importance for us to take actions to improve our financial performance in every part of the company. In the current environment we will keep strong focus on continuing to improve our cash flow. Therefore we have announced new restructuring and cost cutting plans and introduced a new organisation structure."

  This report is unaudited.