Outokumpu Provides Update on Operations, Short Term Outlook
02/13/2014 - Outokumpu reported its performance results for 2013, including an outlook for the current quarter.
Highlights in the fourth quarter 2013
Note: In the following report Terni remedy assets, the VDM business and certain service centers are reported as discontinued operations. All commentary in this report thus refers to Outokumpu’s continuing operations.
Outokumpu posted a fourth-quarter underlying EBIT loss of € 90 million and operating cash flow was positive at € 223 million. Good progress in synergies, cost saving and the ongoing ramp-ups of the Ferrochrome and Calvert operations were partially offset by lower deliveries.
Business and financial outlook for the first quarter of 2014
Outokumpu expects modest improvement in the underlying market demand for the first quarter. The company estimates sequentially higher delivery volumes and some improvement in base prices. The progress in the cost efficiency initiatives and synergies is estimated to be steady.
For the first quarter of 2014, Outokumpu estimates that the underlying EBIT will be better than in the fourth quarter, but still a loss. Operating cash flow is expected to be negative during the first quarter of 2014, driven by an increase in inventories related to anticipated higher deliveries. At current metal prices, marginal raw material-related timing gains are expected, if any. Outokumpu’s operating result in the first quarter 2014 could be impacted by non-recurring items associated with the Group’s ongoing restructuring programs.
This outlook reflects the current scope of continuing operations of Outokumpu.
CEO Mika Seitovirta commented: ”The year 2013 marked the beginning of the new Outokumpu after the acquisition of Inoxum at the end of 2012. Through the acquisition we gained not only significant cost savings potential and a stronger market share in all the key markets, but also a truly global position with a more diverse and balanced customer base and the broadest range of products in the industry.
“However, our journey started in strong headwinds. The demand for stainless steel remained even weaker than expected, particularly in Europe. Nickel price declined by over 18% from beginning of 2013 till year end, which negatively affected our financial performance. Furthermore, we were burdened by the remedy requirement of the European Commission that dictated the divestiture of the stainless steel operations in Terni, Italy and additional European service centers. The Terni remedy requirement did not only tie our time and resources, but also significantly hampered the ramp-up of the Calvert stainless steel mill in Alabama, USA.
“Despite these obstacles, we took decisive action to restructure our business back to profitability and to strengthen our balance sheet. We made good progress with synergy and cost savings measures, and the combined savings for 2013 reached € 199 million. We were also able to release € 351 million cash from our working capital during 2013 mostly due to inventory reductions. All in all, our losses got smaller last year but financial performance remained clearly unsatisfactory.
“During the fourth quarter, our sales developed slightly better than planned, especially in Europe. The ramp-up of the Calvert mill in the U.S. progressed in line with expectations, and we were able to continue reducing the losses. End of November, we also announced comprehensive measures to strengthen our financial position: the divestment of the Terni remedy assets, the VDM business and certain service centers to ThyssenKrupp, the renewal of our debt portfolio and a planned rights issue of about € 650 million to strengthen our financial position.
“This year has started with an expectation of a gradual economic improvement and this has also meant somewhat higher stainless steel demand compared to the slow fourth quarter of last year. The coming months will show whether this is driven by the typical industry seasonality or whether there is a more fundamental improvement under way. We have clear operational priorities for this year which include implementation of the savings programs, finalization of the Calvert ramp-up and improvement in customer satisfaction through enhanced delivery reliability. I am confident that we will continue to make significant progress in all key areas to return Outokumpu to sustainable profitability.”
Note: In the following report Terni remedy assets, the VDM business and certain service centers are reported as discontinued operations. All commentary in this report thus refers to Outokumpu’s continuing operations.
Outokumpu posted a fourth-quarter underlying EBIT loss of € 90 million and operating cash flow was positive at € 223 million. Good progress in synergies, cost saving and the ongoing ramp-ups of the Ferrochrome and Calvert operations were partially offset by lower deliveries.
- Stainless steel deliveries declined by 2.4% and were 620,000 metric tons1 (III 2013: 635,000 metric tons).
- The underlying EBITDA was € -1 million compared to € -34 million in the third quarter and the underlying EBIT was € -90 million (III 2013: € -118 million). The operational performance was in line with the third quarter due to somewhat positive price and mix effect while the delivery volumes were down. The result also includes a € 20 million refund of the renewable energy charge for continuing operations in Germany and about € 5 million in gains on the sale of non-core assets and positive impact from derivatives.
- Including non-recurring items of € -29 million (III 2013: € -1 million) and raw material-related inventory gains of € 1 million (III 2013: € -15 million), the EBIT was € -118 million for the fourth quarter of 2013 (III 2013: € -134 million).
- Operating cash flow was positive at € 223 million (III 2013: € 43 million), mainly driven by a strong release of working capital.
- Net interest-bearing debt2 decreased to € 3,556 million (September 30, 2013: € 3,861 million), and gearing rose to 188.0% (September 30, 2013: 170.7%).
- Comprehensive actions to significantly strengthen Outokumpu’s financial position: the sale of the Terni remedy assets, the VDM business and certain service centers has been agreed with ThyssenKrupp in exchange for the € 1.3 billion loan note. Additionally extensive financial package, including renewing the debt portfolio and a proposed rights issue of approximately € 650 million.
- During 2013, global stainless steel demand increased by 5.6% compared to 2012. In the Americas and APAC regions, consumption rose by 4.0% and 7.9% respectively. Consumption in EMEA remained weak. The European stainless steel base price declined by 2.8% and nickel price came down by 18.2% during the year.
- Stainless steel deliveries for the full year declined by 5.3% to 2,585,000 metric tons (2012: 2,723,000).
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Sales were € 6,745 million, down by 15% (2012: € 7,961 million). Underlying EBITDA was €
-32 million (2012 € -66 million) and underlying EBIT amounted to € -377 million (2012: € -412 million). - Including non-recurring items of € -78 million (2012: € -308 million) and raw material-related inventory effects of € -56 million (2012: € -33 million), the EBIT was € -510 million (2012: € -754 million).
- Operating cash flow was positive at € 34 million.
Business and financial outlook for the first quarter of 2014
Outokumpu expects modest improvement in the underlying market demand for the first quarter. The company estimates sequentially higher delivery volumes and some improvement in base prices. The progress in the cost efficiency initiatives and synergies is estimated to be steady.
For the first quarter of 2014, Outokumpu estimates that the underlying EBIT will be better than in the fourth quarter, but still a loss. Operating cash flow is expected to be negative during the first quarter of 2014, driven by an increase in inventories related to anticipated higher deliveries. At current metal prices, marginal raw material-related timing gains are expected, if any. Outokumpu’s operating result in the first quarter 2014 could be impacted by non-recurring items associated with the Group’s ongoing restructuring programs.
This outlook reflects the current scope of continuing operations of Outokumpu.
CEO Mika Seitovirta commented: ”The year 2013 marked the beginning of the new Outokumpu after the acquisition of Inoxum at the end of 2012. Through the acquisition we gained not only significant cost savings potential and a stronger market share in all the key markets, but also a truly global position with a more diverse and balanced customer base and the broadest range of products in the industry.
“However, our journey started in strong headwinds. The demand for stainless steel remained even weaker than expected, particularly in Europe. Nickel price declined by over 18% from beginning of 2013 till year end, which negatively affected our financial performance. Furthermore, we were burdened by the remedy requirement of the European Commission that dictated the divestiture of the stainless steel operations in Terni, Italy and additional European service centers. The Terni remedy requirement did not only tie our time and resources, but also significantly hampered the ramp-up of the Calvert stainless steel mill in Alabama, USA.
“Despite these obstacles, we took decisive action to restructure our business back to profitability and to strengthen our balance sheet. We made good progress with synergy and cost savings measures, and the combined savings for 2013 reached € 199 million. We were also able to release € 351 million cash from our working capital during 2013 mostly due to inventory reductions. All in all, our losses got smaller last year but financial performance remained clearly unsatisfactory.
“During the fourth quarter, our sales developed slightly better than planned, especially in Europe. The ramp-up of the Calvert mill in the U.S. progressed in line with expectations, and we were able to continue reducing the losses. End of November, we also announced comprehensive measures to strengthen our financial position: the divestment of the Terni remedy assets, the VDM business and certain service centers to ThyssenKrupp, the renewal of our debt portfolio and a planned rights issue of about € 650 million to strengthen our financial position.
“This year has started with an expectation of a gradual economic improvement and this has also meant somewhat higher stainless steel demand compared to the slow fourth quarter of last year. The coming months will show whether this is driven by the typical industry seasonality or whether there is a more fundamental improvement under way. We have clear operational priorities for this year which include implementation of the savings programs, finalization of the Calvert ramp-up and improvement in customer satisfaction through enhanced delivery reliability. I am confident that we will continue to make significant progress in all key areas to return Outokumpu to sustainable profitability.”
