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Outokumpu Reports Negative Operating Results in Weak Market Environment
02/15/2013 - Outokumpu reported weak operational results for 2012 and says the 2013 starting point for the new Outokumpu is more challenging than anticipated due to continued weakness in the markets for stainless steel in Europe and globally.
Outokumpu has published its Annual Accounts Bulletin 2012. Both Annual Accounts and Q4 income statement comprise stand-alone Outokumpu. Balance sheet items, headcount and share information take into account Inoxum values and other related changes as the transaction was closed at the end of December 2012.
Highlights of the fourth quarter 2012
The continued challenging market environment led to a negative underlying operational result of € -76 million in the fourth quarter 2012.
• After the typically weak summer season, Outokumpu's external stainless steel deliveries were up and reached 337,000 tonnes (III/2012: 311,000 tonnes).
• Even with higher deliveries, the fourth quarter result was below that of the third quarter due to continued weakness in prices, product mix and slightly increased costs. The underlying operational result was €
-76 million (III/2012: € -56 million).
• Including non-recurring costs of € 139 million (III/2012 € -14 million) and raw material related inventory losses of € 5 million (III/2012: € -18 million), the operating result was € -220 million (III/2012: € -89 million).
• Operating cash flow remained positive and amounted to € 45 million (III/2012: € 83 million)
Highlights of 2012
The underlying operational result for 2012 remained weak at € -168 million. Highlight of the year and the starting point for the company's turnaround was the closing of the Inoxum transaction.
• Stainless steel deliveries for the full year increased to 1,428,000 tonnes (FY 2011: 1,391,000 tonnes).
• The year was marked by a weak market environment, especially during the second half, leading to an underlying operational loss of € 168 million (FY 2011: € -61 million). Including non-recurring items of € -200 million (FY 2011: € -146 million) and raw material-related inventory losses of € 17 million (FY 2011: € -43 million) the operating loss was € 385 million (FY 2011: € -251 million).
• The primary reasons for the weak performance were declining stainless steel base prices, a weaker product mix and the decline in nickel prices. Contributing to the loss were also the costs related to finalization of the expansion of ferrochrome production and the impact this had on production.
• Operating cash flow for the full year remained strong at € 266 million (FY 2011: € 338 million).
• Following the Inoxum transaction, net interest-bearing debt increased to € 2,620 million (December 31, 2011: € 1,720 million), leading to a gearing of 88.7% (December 31, 2011: 83.9%).
• The highlight of 2012 was closing of the Inoxum acquisition. This transaction is the starting point for the company's turnaround - synergy savings and mill closures will lead to higher capacity utilization and market leadership.
• The Board is proposing that no dividend be paid for 2012 (2011: no dividend).
New efficiency measures
The company starts new efficiency measures in addition to the implementation of the expected € 200 million synergy savings: new programs established with the target of € 150 annual cost reductions and a € 300 million reduction of net working capital. Both programs are expected to be fully implemented by the end of 2014, and show first positive effects already in 2013.
Short-term outlook
Outokumpu’s stainless steel delivery volumes in the first quarter of 2013 are expected to be in the range 680,000-750,000 tonnes. Stainless steel prices are expected to remain at the same level or slightly higher than in the fourth quarter of 2012, but remain below the levels achieved in the first quarter of 2012. In January, Outokumpu introduced price increases which are expected to take effect towards the end of the first quarter.
Outokumpu expects the first quarter underlying operational result to be slightly worse than the stand alone Outokumpu fourth quarter 2012 underlying operational result.
CEO Mika Seitovirta’s comments:
“For Outokumpu, 2012 was characterized by the global economic slowdown and our announcement of the Inoxum acquisition. The soft demand in Europe resulted in continued negative results for the full year despite the significant cost savings programs. The difficult market situation highlighted the importance of the strategic restructuring of Outokumpu that the Inoxum transaction will enable.
“Outokumpu’s fourth quarter was disappointing but developed in line with our expectations in a challenging environment. Sequentially, our delivery volumes increased somewhat but prices remained flat, reflecting the weak market conditions, especially in the important specialty stainless segments. On the positive side, we finalized the Ferrochrome expansion project ahead of time and planned costs that will double our annual ferrochrome production capacity to 530,000 tonnes. Operating cash flow remained positive due to the rigorous focus on managing working capital. Even with strong implementation of our cost savings programs, profitability remained at an unsatisfactory level.
“The Inoxum acquisition was finalized at the end of the quarter and we began implementing our new strategy to return to sustainable profitability. The transaction will enable us to reduce our fixed costs significantly. It expands our business in both Asia and the Americas, where we see healthier market environments. Ramp-up of the new integrated mill in Calvert, Ala., and our Ferrochrome production are two key priorities in 2013.
“Unfortunately, due to continued weakness in the markets for stainless steel in Europe and globally, the starting point for the new Outokumpu is more challenging than we anticipated 12 months ago. We will be implementing the targeted € 200 million of synergy savings in a decisive manner and will also be seeking further opportunities to make savings during 2013. Our focus on cash flow generation - minimizing capital expenditure and implementing tight management of working capital - continues. Therefore, we have established two new efficiency programs: P150 for a € 150 million annual cost reductions and P300 for a € 300 million reduction of net working capital. We expect these two programs to be fully implemented by end of 2014 and to show first positive effects already in 2013. We are also determined to achieve further price increases to improve profitability. We will also evaluate different alternatives to strengthen the balance sheet.”
