Second Quarter 2012 Results:
Outokumpu’s underlying operational result in the second quarter was € -39 million. Weaker profitability resulted from a weaker product and geographic mix, higher production costs and slightly lower delivery volumes of stainless steel. Ramping up production at the new concentration plant in Kemi also had a negative impact on profitability. Outokumpu’s operating loss in the second quarter totaled € 80 million and included some € 8 million of raw material-related inventory losses resulting from lower metal prices as well as € -33 million of non-recurring items. Net cash from operating activities in the second quarter totaled € 23 million and remained positive for the fourth consecutive quarter. The main contributor to positive cash flow was reduced levels of working capital. A total of € 74 million was released from working capital in the second quarter. Group net loss in the second quarter totaled € 122 million and earnings per share totaled € -0.09. Return on capital employed in the second quarter was -8.6%. Outokumpu’s gearing at the end of the second quarter was 84.8% and net interest-bearing debt increased to € 1 691 million.
Short Term Outlook:
The economic uncertainty in Europe has increased resulting in shorter visibility for future stainless steel demand with underlying demand expected to be flat or slightly softer. Normal seasonality and the declining nickel price have had an adverse effect on distributors buying behavior. Lead times for standard grades continue to be normal at 6–8 weeks and distributor inventories are estimated to be at or below normal levels.
Mainly impacted by normal seasonality, Outokumpu’s average base prices for stainless steel in the third quarter are expected to be slightly lower than in the second quarter. As a result of the slowdown in demand during the European holiday season and annual maintenance breaks at Group mills, Outokumpu’s third-quarter external delivery volumes (stainless and ferrochrome) are expected to be clearly lower than in the second quarter. On the other hand, compared to the second quarter, the Group’s product and geographic mix in the third quarter is expected to improve. The production cost increase in the second quarter is expected to be partly reversed in the third quarter.
Outokumpu’s underlying operational result (operating result excluding raw material-related inventory gains/losses and non-recurring items) in the third quarter is therefore expected to be approximately at the same level or slightly weaker than in the second quarter. At current metal prices, marginal raw material-related inventory losses are expected as a result of the decline in the nickel price. Outokumpu’s operating result in the third quarter could be impacted by small non-recurring items associated with the Inoxum transaction and the Group’s on-going cost-cutting programs.
CEO Mika Seitovirta’s Comments:
“After a solid start of the year, demand for stainless steel slowed during the second quarter. Economic uncertainty in Europe, a declining nickel price and consequent destocking by distributors all had a negative impact. Even though our average prices were rather stable and our on-going cost reduction programmes had a positive impact, the weaker product mix and lower volumes resulted in unsatisfactory results. Despite our weaker than expected performance we were still able to deliver positive operational cash flow for the fourth consecutive quarter. Our focus in the third quarter will continue to be on customers, cash flow and cost efficiency.
Outokumpu’s on-going € 100 million cost-saving program is progressing as planned and its full effects will be visible in Group results from the beginning of 2013. I am also pleased with our progress in reducing levels of working capital. We have released some € 650 million of cash from working capital over the last twelve months.
We expect the Inoxum acquisition to be finalized by the end of this year. To ensure that the targeted significant synergy savings are delivered as quickly as possible, preparations for the integration process are already under way. I am confident that the combined entity will be well positioned to deliver excellent service to our customers, while achieving cost-efficiency that enables us to return to sustainable profitability.”
Outokumpu's plants in Finalnd, Sweden, the UK and the U.S. produce a wide range of stainless steel products including hot and colled rolled, precision strip, tubular and long products together with a comprehensive range of fittings, flanges and welding consumables. The company is headquartered in Espoo, Finland, and employes some 8,000 people in more than 30 countries.