Outokumpu reports EUR -67 million underlying EBIT for the third quarter of 2015: Weak profitability in difficult markets, strong operating cash flow

OUTOKUMPU OYJ
INTERIM REPORT
November 5, 2015 at 9.00 am EET

Underlying EBIT of EUR -67 million. Weak profitability in difficult markets, strong operating cash flow

Highlights in the third quarter 2015

Outokumpu's underlying EBIT was EUR -67 million, compared to EUR -25 million in the second quarter of 2015. The decline in profitability was driven by weak markets and lower deliveries particularly in Coil EMEA, while Coil Americas' profitability showed some improvement. Operating cash flow was EUR 67 million, and net debt was reduced by EUR 104 million.

  • Stainless steel deliveries were 570,000 tonnes1) (II 2015: 616,000 tonnes).
  • Underlying EBITDA 2) was EUR 13 million (II 2015: EUR 57 million) and underlying EBIT2) was EUR -67 million (II 2015: EUR -25 million). The decline was driven by lower delivery volumes, downward pressure on base prices and higher scrap costs.
  • EBIT was EUR -77 million (II 2015: EUR -26 million). The net effect of raw material-related inventory and metal derivative gains/losses was EUR -8 million (II 2015: EUR -1 million). EBIT includes non-recurring items of EUR -2 million in the third quarter (II 2015: no non-recurring items).
  • Operating cash flow was EUR 67 million (II 2015: EUR -41 million).
  • Net debt decreased to EUR 2,012 million (June 30, 2015: EUR 2,116 million) and gearing was 96.5% (June 30, 2015: 96.4%).
  • On September 30, Outokumpu announced the divestment of 50% stake in Fischer Mexicana joint venture for USD 63 million. The closing is expected in the fourth quarter of 2015.
  • After the review period on October 19, Outokumpu announced the divestment of 55% of SKS shares in China. The cash value of the transaction is about EUR 370 million. Fischer Mexicana and SKS divestments combined are estimated to reduce Outokumpu's net debt by about EUR 460 million and gearing by 37 percentage points in the fourth quarter.
  • After the review period on October 26, Outokumpu announced the appointment of Roeland Baan as President and CEO of Outokumpu as of January 1, 2016. Mika Seitovirta stepped down from the CEO position with immediate effect, and Reinhard Florey, Outokumpu CFO is now the interim CEO until Baan joins the company.

1) Metric ton = 1,000 kg
2)EBIT/EBITDA excluding non-recurring items, raw material-related inventory gains/losses and metal derivative gains/losses

Group key figures
III/15 II/15 III/14 2014
Sales EUR million1,487 1,694 1,799 6,844
EBITDA EUR million3 55 67 104
EBITDA excl. non-recurring items EUR million6 55 79 263
Underlying EBITDA 1) EUR million13 57 48 232
EBIT EUR million-77 -26 -9 -243
EBIT excl. non-recurring items EUR million-74 -26 3 -57
Underlying EBIT 2) EUR million-67 -25 -28 -88
Result before taxes EUR million-113 -65 -73 -459
Net result for the period EUR million-115 -62 -77 -439
Earnings per share 3) EUR-0.27 -0.14 -0.18 -1.24
Return on capital employed %-7.6 -2.5 -0.8 -5.8
Net cash generated from operating activities EUR million67 -41 23 -126
Net debt at the end of period EUR million2,012 2,116 2,068 1,974
Debt-to-equity ratio at the end of period %96.5 96.4 96.4 92.6
Capital expenditure EUR million29 35 25 127
Stainless steel deliveries 4) 1,000 tonnes570 616 634 2,554
Stainless steel base price 5) EUR/tonne1,060 1,057 1,110 1,082
Personnel at the end of period, excluding summer trainees 6)11,560 11,665 12,385 12,125
1) EBITDA excluding non-recurring items, other than impairments; raw material-related inventory gains/losses and metal derivative
gains/losses, unaudited.
2) EBIT excluding non-recurring items, raw material-related inventory gains/losses and metal derivative gains/losses, unaudited.
3) 2014 figures calculated based on the rights-issue-adjusted weighted average number of shares.
4) Excludes ferrochrome deliveries.
5) Stainless steel: CRU - German base price (2 mm cold rolled 304 sheet).
6) On June 30, 2015 Group employed in addition some 800 summer trainees.

Business and financial outlook for the fourth quarter of 2015

Outokumpu estimates the current subdued stainless steel market situation to continue for the rest of the year, even though the end-user demand outside the Oil & Gas sector is expected to remain healthy. Stock levels among distributors are expected to gradually decrease, but there is no significant rebound in buying activity short-term with the nickel price remaining low and distributors typically curtailing their buying and managing their inventories towards year-end. Import pressure in both Europe and USA is likely to persist.

While Outokumpu expects continued progress in the ongoing profitability improvement programs, market uncertainties warrant prudence in the outlook statement. Outokumpu estimates fourth-quarter delivery volumes to be at a similar level as in the third quarter. The Group's underlying EBIT for the fourth quarter is estimated to be still at a loss. With current prices, the net impact of raw material-related inventory and metal derivative gains/losses on profitability is expected to be approximately EUR 40-50 million negative. This outlook reflects the current scope of operations without the announced divestments and includes the change in estimated useful lives of property, plant and equipment with a positive impact of approximately EUR 7 million on underlying EBIT in the fourth quarter. For additional details on the change see page 19 in the report.

The divestments of the Fischer Mexicana joint venture stake and the 55% share in SKS are planned to be completed in the fourth quarter. The one-time positive impact of these transactions on the Group net result is estimated to be about EUR 360 million in total.

Outokumpu's operating result may be impacted by non-recurring items associated with the ongoing restructuring programs.

Reinhard Florey, Outokumpu CFO and interim CEO:

'The stainless steel market was very difficult in the third quarter. In addition to the normal seasonal weakness, the market suffered from the extremely low nickel price: the 9,500 USD/tonne in August was the lowest in six years, and it has continued to trade around 10,000 USD/tonne since then. This showed as weak demand and continued destocking among distributors, even though the underlying end-customer demand has remained healthy in both Europe and the Americas. While destocking is expected to continue for the rest of the year, the strength of underlying demand gives us confidence in the eventual turn of the stock cycle.

Our third-quarter operational performance was a clear disappointment. Due to the weak market and low volumes, Coil EMEA fell behind the targets. Coil Americas improved, but in the challenging market conditions the turnaround is slow. In Quarto Plate the pace of profitability improvements has not been sufficient at all. As a Group, we recorded an underlying EBIT loss of EUR -67 million compared to EUR -25 million in the second quarter. We estimate that the subdued market conditions will prevail for the rest of the year. Against this backdrop we estimate that the fourth-quarter delivery volumes will be on a similar level as in the third quarter, and the underlying EBIT to be still at a loss.

Despite the challenging operating environment, we have decisively continued to streamline our costs, improve our operational efficiency and strengthen our financial position. We achieved a positive EBITDA and cash flows during the quarter. Our net debt came down to EUR 2.0 billion, gearing was stable at 96.5% and liquidity amounted to EUR 1.3 billion. All these are important for Outokumpu's financial stability.

As part of our deleveraging efforts, we continued to divest non-core assets. We have signed two agreements: one to divest our joint venture stake in Fischer Mexicana and the other to divest the 55% of our shares in the SKS mill in China. We expect to complete these transactions by the year-end and thereby significantly reduce our net debt and enhance financial stability further.

We are entering the next phase of development with a new leader: Roeland Baan has been appointed as the President and CEO of Outokumpu as of January 1, 2016. In the meantime, we continue to serve our customers in core markets with increased efforts, and determinedly drive the ongoing efficiency measures and cost savings to improve the financial performance of the company.'

Conference call on Thursday, November 5, 2015 at 3.00 pm EET

A conference call will be held on Thursday, November 5, 2015 at 3.00 pm EET (8.00 am US EDT, 1.00 pm UK time, 2.00 pm CET). To participate, please dial in 5-10 minutes before the beginning of the event:

UK/Europe: +44 1452 560 304

US & Canada: +1 631 621 5256

Event code: 18543407

The event can be followed online: link to the audiocast

A recording of the event will be available at www.outokumpu.com/en/investors/IR-events/webcasts as of November 5, 2015 at around 6.00 pm EET.

Presentation material will be available before the event at www.outokumpu.com/Investors.

For more information:

Investors: Johanna Henttonen, tel. +358 9 421 3804, mobile +358 40 530 0778

Media: Saara Tahvanainen, tel. +358 40 589 0223

Outokumpu Group

Outokumpu is a global leader in stainless steel. We create advanced materials that are efficient, long lasting and recyclable - thus building a world that lasts forever. Stainless steel, invented a century ago, is an ideal material to create lasting solutions in demanding applications from cutlery to bridges, energy and medical equipment: it is 100% recyclable, corrosion-resistant, maintenance-free, durable and hygienic. Outokumpu employs more than 12 000 professionals in more than 30 countries, with headquarters in Espoo, Finland and shares listed on the Nasdaq Helsinki. www.outokumpu.com

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