core sector communique

Outokumpu’s second quarter 2012 – Weaker profitability, continued positive cash flow

OUTOKUMPU OYJ

INTERIM REPORT

20 July 2012 at 9.00 am EET

Second-quarter 2012 highlights:

- Underlying operational result was some EUR -39 million (I/2012: EUR 2 million)

- Operating loss was EUR 80 million (I/2012: profit of EUR 3 million) including raw material-related

inventory losses of some EUR 8 million (I/2012: gains of EUR 14 million) and net non-recurring items

totalling EUR -33 million (I/2012: EUR -13 million)

- Operating loss excluding non-recurring items was EUR 47 million (I/2012: profit of EUR 15 million)

- Positive operating cash flow of EUR 23 million (I/2012: EUR 116 million)

- Total external deliveries at 402 000 tonnes (I/2012: 418 000 tonnes)

- Divestment of remaining Brass operations and part of the Group’s stainless steel stock locations

Group key figures
		II/12	I/12	II/11	2011
Sales	EUR million	1 254	1 304	1 281	5 009
EBITDA	EUR million	-12	60	-4	80
Adjusted EBITDA 1)	EUR million	19	59	55	169
Operating result	EUR million	-80	3	-169	-260
excluding non-recurring items	EUR million	-47	15	-31	-109
underlying operational result 2)	EUR million	-39	2	-5	-66
Result before taxes	EUR million	-130	6	21	-253
excluding non-recurring items	EUR million	-97	19	-70	-318
Net result for the period	EUR million	-122	12	50	-186
excluding non-recurring items	EUR million	-89	24	-33	-244
Earnings per share 3)	EUR	-0.09	0.04	0.18	-0.64
excluding non-recurring items 3)	EUR	-0.06	0.08	-0.12	-0.85
Return on capital employed	%	-8.6	0.3	-16.1	-6.5
excluding non-recurring items	%	-5.0	1.6	-2.9	-2.7
Net cash generated from operating activities	EUR million	23	116	-66	338
Capital expenditure	EUR million	93	79	50	255
Net interest-bearing debt at the end of period 4)	EUR million	1 691	1 644	1 885	1 720
Debt-to-equity ratio at the end of period 4)	%	84.8	78.4	82.0	82.5
External deliveries	1 000 tonnes	402	418	365	1 449
Stainless steel external deliveries	1 000 tonnes	380	399	348	1 391
Stainless steel base price 5)	EUR/tonne	1 182	1 185	1 223	1 181
Personnel at the end of period		8 453	7 968	9 474	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 June 2012 and 31 March 2012 adjusted to exclude the effect of the rights issue. Debt-to-equity ratio, including the effect of the rights issue, on 30 June 2012 is 24.1% (31 March 2012: 66.6%). 

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 second quarter was EUR -39 million. Weaker profitability resulted from a weaker product and geographic mix, higher production costs and slightly lower delivery volumes of stainless steel. Ramping up production at the new concentration plant in Kemi also had a negative impact on profitability. Outokumpu’s operating loss in the second quarter totalled EUR 80 million and included some EUR 8 million of raw material-related inventory losses resulting from lower metal prices as well as EUR -33 million of non-recurring items. Net cash from operating activities in the second quarter totalled EUR 23 million and remained positive for the fourth consecutive quarter. The main contributor to positive cash flow was reduced levels of working capital. A total of EUR 74 million was released from working capital in the second quarter. Group net loss in the second quarter totalled EUR 122 million and earnings per share totalled EUR -0.09. Return on capital employed in the second quarter was -8.6%. Outokumpu’s gearing at the end of the second quarter was 84.8% and net interest-bearing debt increased to EUR 1 691 million.

SHORT-TERM OUTLOOK

The economic uncertainty in Europe has increased resulting in shorter visibility for future stainless steel demand with underlying demand expected to be flat or slightly softer. Normal seasonality and the declining nickel price have had an adverse effect on distributors buying behaviour. Lead times for standard grades continue to be normal at 6–8 weeks and distributor inventories are estimated to be at or below normal levels.

Mainly impacted by normal seasonality, Outokumpu’s average base prices for stainless steel in the third quarter are expected to be slightly lower than in the second quarter. As a result of the slowdown in demand during the European holiday season and annual maintenance breaks at Group mills, Outokumpu’s third-quarter external delivery volumes (stainless and ferrochrome) are expected to be clearly lower than in the second quarter. On the other hand, compared to the second quarter, the Group’s product and geographic mix in the third quarter is expected to improve. The production cost increase in the second quarter is expected to be partly reversed in the third quarter.

Outokumpu’s underlying operational result*) in the third quarter is therefore expected to be approximately at the same level or slightly weaker than in the second quarter. At current metal prices, marginal raw material-related inventory losses are expected as a result of the decline in the nickel price. Outokumpu’s operating result in the third quarter could be impacted by small non-recurring items associated with the Inoxum transaction and the Group’s on-going cost-cutting programmes.

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

CEO Mika Seitovirta:

“After a solid start of the year, demand for stainless steel slowed during the second quarter. Economic uncertainty in Europe, a declining nickel price and consequent destocking by distributors all had a negative impact. Even though our average prices were rather stable and our on-going cost reduction programmes had a positive impact, the weaker product mix and lower volumes resulted in unsatisfactory results. Despite our weaker than expected performance we were still able to deliver positive operational cash flow for the fourth consecutive quarter. Our focus in the third quarter will continue to be on customers, cash flow and cost efficiency.

Outokumpu’s on-going EUR 100 million cost-saving programme is progressing as planned and its full effects will be visible in Group results from the beginning of 2013. I am also pleased with our progress in reducing levels of working capital. We have released some EUR 650 million of cash from working capital over the last twelve months.

We expect the Inoxum acquisition to be finalised by the end of this year. To ensure that the targeted significant synergy savings are delivered as quickly as possible, preparations for the integration process are already under way. I am confident that the combined entity will be well positioned to deliver excellent service to our customers, while achieving cost-efficiency that enables us to return to sustainable profitability.”

The attachments present the Management analysis for the second quarter 2012 operating result and the Interim Review by the Board of Directors for January-June 2012, the accounts and notes to the interim accounts. The report is unaudited.