Outokumpu Reports Second Quarter 2013 Results and Outlook
07/26/2013 - Outokumpu said it has made good progress on synergies, cost saving and ferrochrome, but these were offset by weak market and disappointing progress in the Americas region as it reported its second quarter 2013 results.
Developments in the second quarter 2013
In line with guidance, the second quarter 2013 showed flat underlying EBIT losses versus the first quarter 2013 in a challenging environment with a continuously falling nickel price leading to lower deliveries and lower margins.
- During the second quarter of 2013, global demand was up by 3.8%, but the stainless steel demand in the important EMEA region declined by 1.9% compared to Q1 2013. European stainless steel base prices decreased by 4% and the average nickel price declined by 14%. The first half of 2013 showed a year-on-year flat stainless steel demand in EMEA region of 3,645 tonnes (H1 2012: 3,663 tonnes).
- During the second quarter of 2013, Outokumpu’s stainless steel external deliveries declined by 7% compared to Q1 2013 and reached 656,000 tonnes (Q1 2013: 703,000 tonnes). In the first half of 2013 the group achieved deliveries of 1,359,000 tonnes, down by 8% compared to the first half 2012 (H1 2012: 1,478,000 tonnes).
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The underlying EBIT for the second quarter 2013 was € -80 million (Q1 2013:
€ -77 million). Losses were mainly driven by overall lower deliveries, the continued decline of the nickel price and the weak performance of the Americas operations. As a result of the continued weakness, the first half of 2013 underlying EBIT was € -157 million compared to the first half of 2012 with € -93 million. - Including non-recurring items of € -46 million (Q1 2013: € -2 million) and raw material-related inventory effects of € -38 million (Q1 2013: € -3 million), the EBIT was € -164 million for the second quarter 2013 (Q1 2013: € -82 million). For the first half 2013 non-recurring items were € -47 million (H1 2012: € -150 million) and raw material-related inventory effects were € -41 million (H1 2012: € -5 million) with an overall EBIT of € -246 million (H1 2012: € -248 million). The non-recurring items in H1 2013 mainly related to ongoing restructuring activities and headcount reductions as well as the settlement paid for the Carrier legal case.
- Operating cash flow was negative at € -160 million (Q1 2013: € -46 million) mainly driven by the negative EBITDA and increase in working capital. For the first half of 2013 cash flow was € -206 million compared to € 139 million in the first half of 2012.
- Net interest-bearing debt increased to € 3,041 million (March 31, 2013: € 2,891 million), leading to a gearing of 120.6% (March 31, 2013: 103.3%).
Update on Terni
The Terni divestiture continues with an extended time frame that the European Commission has granted. Discussions continue with a number of interested parties. In addition, Terni has instigated both cost saving and working capital management programs, each in the range of € 70 million, to improve Terni’s financial standing. Outokumpu is bound by a number of commercial obligations regarding the remedy assets during the divestment period, including continued sourcing of stainless steel from Terni by Outokumpu’s BA Americas. Outokumpu is working intensively to complete the divestment and targets to sign a transaction during the second half of the year.
Business outlook for the third quarter of 2013
Outokumpu lowers its expectation of improvements in underlying EBIT during the second half of 2013. This is due to the continued deterioration of the nickel price, the weak market demand, especially in Europe, in a seasonally sluggish quarter and weaker performance of the Americas business.
For the third quarter, company expects the EBIT to be on approximately the same level as in the second quarter. This includes, at current metal prices, further raw material related timing losses and further non-recurring items associated with Group’s ongoing restructuring programs. The underlying EBIT is expected to be worse than in the second quarter.
