Outukumpu Reports Quarterly Results in Challenging Stainless Steel Market
04/30/2013 - For the second quarter, Outokumpu expects sequentially flat or slightly lower delivery volumes, weaker product mix and increased uncertainties from the nickel price development to be partially offset by the positive effects of its Ferrochrome and Calvert ramp-ups.
Highlights of the first quarter 2013
The first quarter 2013 closed with lower underlying EBIT losses versus the fourth quarter 2012 despite the challenging environment and weaker than anticipated seasonality support.
- During the first quarter of 2013, global stainless steel demand declined by 1.2% compared to Q1 2012. European stainless steel base prices increased by 3% and the average nickel price was up by 2% for the quarter compared to Q4 2012. On a year-on-year basis the average transaction price declined by 5.6%.
- Outokumpu’s stainless steel external deliveries reached 703,000 tonnes (Q4 2012: 644,000 tonnes, Q1 2012: 758,000 tonnes). Sequential growth was driven by seasonality while the year-on-year reduction highlights the weak economic environment and the price increases implemented by Outokumpu during the first quarter.
- Outokumpu was able to increase stainless steel prices in Europe despite the weak market, even if not to the full extent targeted.
- The underlying EBIT for the first quarter 2013 improved to € -77 million (Q4 2012: € -162 million). Reduced losses were mainly driven by overall higher deliveries, somewhat higher prices, cost savings and the Ferrochrome ramp-up. The profitability improved in all Business Areas compared to Q4 2012 with main improvements in High Performance Stainless and Alloys (HPSA) and Stainless Coil EMEA (EMEA). Compared to Q1 2012 the underlying EBIT decreased (Q1 2012: € -21 million).
- Including non-recurring items of € -2 million (Q4 2012: € -142 million) and raw material-related inventory effects of € 3 million (Q4 2012: € -3 million), the EBIT was € -82 million (Q4 2012: € -307 million).
- Operating cash flow was negative at € 46 million (Q4 2012: comparable data not available) mainly driven by the Calvert melt shop ramp-up related working capital increase.
- Net interest-bearing debt increased to € 2,891 million (31 December 2012: € 2,620 million), leading to a gearing of 103.3% (December 31, 2012: 88.8%).
During the first quarter Outokumpu continued the divestment process of the Terni operations and related assets as required by the European Commission. Following an ongoing dialogue and consultation with the Commission, the timeline for the transaction has been extended to accommodate the required EU regulatory process. Outokumpu expects to release further information during the second quarter of 2013.
Business outlook for the second quarter of 2013
Outokumpu reiterates its expectations of a soft first half year with improvements in underlying EBIT during the second half of 2013.
For the second quarter Outokumpu expects sequentially flat or slightly lower delivery volumes, weaker product mix and increased uncertainties from the nickel price development. These developments are expected to be partly compensated by the positive effects of the Ferrochrome and Calvert ramp-ups.
Therefore, we expect the second quarter underlying EBIT loss to be equal or slightly worse than in the first quarter. Outokumpu’s operating result in the second quarter could be impacted by non-recurring items associated with the Group’s on-going cost-cutting programs.
CEO Mika Seitovirta:
“The first quarter of 2013 was marked by the start of the combined entity after Outokumpu’s acquisition of Inoxum took effect on 28 December 2012. Integration of the new Outokumpu has progressed well and we are implementing the new strategy with full speed. Importantly we have been able to maintain a high level of customer service and satisfaction during the first months of the combined entity.
"The stainless steel market remained challenging during the quarter, mainly driven by the continued economic weakness in Europe and partially also in the U.S. The first quarter is typically supported by strong seasonality but this year the seasonality had a more muted effect than previous years. This resulted in lower than targeted stainless steel base price increases during the quarter. We will continue to aim for higher prices during 2013 in order to support the turnaround of Outokumpu.
"On the positive side, results of our High Performance Stainless and Alloys, specifically specialty stainless, and EMEA units clearly improved from the fourth quarter 2012 – driven by volume growth, price increases, cost savings, and the Ferrochrome production ramp-up. Acquisition-related synergy savings amounted to € 16 million and we are well on target to reach the planned € 50 million synergy savings this year. However, overall profitability remained at an unsatisfactory level and we are taking decisive actions to turn Outokumpu back to profitability.
"During the quarter, our operating cash flow turned negative, mainly driven by the planned ramp-up of the Calvert, US melt shop. Our focus is on working capital management and improved financial performance and operating cash flow for the remainder of the year.
"The P150 savings program is progressing as planned and we expect to achieve € 30-50 million savings in 2013 and to reach the planned annual € 150 million savings in full by end of 2014. As part of the synergy and P150 savings programs, we have today announced further details on planned headcount reductions to significantly reduce our operating expenses. With the new planned actions, we expect the global headcount reduction to reach 2,500 by 2017.
"Outokumpu’s transformation requires tough decisions but I’m confident that the chosen strategy and actions will enable us to turn to profitability and maximize the opportunities we have as the global leader in stainless steel and high performance alloys.”
Outokumpu is the global leader in stainless steel and high performance alloys. Our advanced materials are the ideal choice for demanding applications ranging from cutlery to bridges, energy plants to medical equipment. Stainless steel contributes to a sustainable and long lasting world as it is a 100% recyclable, corrosion-resistant, maintenance-free, durable and hygienic material. Outokumpu employs approximately over 16 000 professionals in over 40 countries, with the Group’s head office in Espoo, Finland.
