Outokumpu Financial Statements Release 2018 – Outokumpu's progress in 2018 overshadowed by exceptional market environment, Group adjusted EBITDA at EUR 485 million

Financial statements release
February 7, 2019 at 9.00 am EET

Outokumpu Financial Statements Release 2018 – Outokumpu's progress in 2018 overshadowed by exceptional market environment. Group adjusted EBITDA at EUR 485 million.

Highlights in the fourth quarter of 2018

  • Stainless steel deliveries were 534,000 tonnes (561,000 tonnes)1.
  • Adjusted EBITDA was EUR 89 million (EUR 82 million).
  • EBITDA was EUR 92 million (EUR 82 million).
  • Operating cash flow was EUR 43 million (EUR 104 million).
  • Net debt increased to EUR 1,241 million (September 30, 2018: EUR 1,205 million).
  • Gearing was 45.1% (September 30, 2018: 44.5%).

Highlights of 2018

  • Stainless steel deliveries were 2,428,000 tonnes (2,448,000 tonnes).
  • Adjusted EBITDA was EUR 485 million (EUR 631 million).
  • EBITDA was EUR 496 million (EUR 663 million).
  • Operating cash flow was EUR 214 million (EUR 328 million).
  • Net result was EUR 130 million (EUR 392 million).
  • Return on capital employed (ROCE) was 7.0% (11.3%).
  • The Board of Directors proposes a dividend of EUR 0.15 per share for 2018.

1 Figures in parentheses refer to the corresponding period for 2017, unless otherwise stated.

Q4/2018 compared to Q4/2017

Outokumpu’s sales increased to EUR 1,586 million (EUR 1,463 million). The fourth-quarter adjusted EBITDA of EUR 89 million was higher than EUR 82 million in the fourth quarter of 2017 driven by improved mix in Europe and higher base prices in the US, as well as an insurance compensation of EUR 32 million in business area Ferrochrome. These positive impacts were partly offset by lower stainless steel deliveries, as well as higher graphite electrode and other input costs. Raw material-related inventory and metal derivative losses were EUR 15 million compared to gains of EUR 6 million in the fourth quarter of 2017. Other operations and intra-group items’ adjusted EBITDA of EUR -4 million (EUR -13 million) includes a loss of EUR 5 million resulting from an interpretation change related to guaranteed minimum pensions in the UK.

2018 compared to 2017

In 2018, Outokumpu’s sales increased to EUR 6,872 million (2017: EUR 6,356 million). Adjusted EBITDA decreased to EUR 485 million (2017: EUR 631 million) burdened by higher graphite electrode, other input and freight costs of approximately EUR 140 million. In Europe, base prices reached historically low levels due to heavy import pressure while in the US, base prices increased. Improved product mix in both regions had a positive impact on the result. Earnings were further supported by improved cost efficiency and reliability of the mills. Raw material-related inventory and metal derivative losses were EUR 16 million (losses of EUR 10 million).

EBIT amounted to EUR 280 million (EUR 445 million) in 2018 and net result to EUR 130 million (EUR 392 million). The net result includes EUR 34 million (EUR 125 million) of previously unrecognized deferred tax assets mainly in the UK.

Group key figures   IV/18 IV/17 III/18 2018 2017
      restated     restated
Sales EUR million 1,586 1,463 1,733 6,872 6,356
EBITDA EUR million 92 82 128 496 663
Adjusted EBITDA 1) EUR million 89 82 128 485 631
EBIT EUR million 38 30 65 280 445
Adjusted EBIT 1) EUR million 35 29 75 279 414
Result before taxes EUR million 20 0 36 175 327
Net result for the period EUR million 27 128 29 130 392
Earnings per share EUR 0.07 0.31 0.07 0.32 0.95
Diluted earnings per share EUR 0.07 0.29 0.07 0.32 0.90
Return on capital employed % 7.0 11.3 6.9 7.0 11.3
Net cash generated from operating activities EUR million 43 104 61 214 328
Net debt at the end of period EUR million 1,241 1,091 1,205 1,241 1,091
Debt-to-equity ratio at the end of period % 45.1 40.1 44.5 45.1 40.1
Capital expenditure EUR million 104 84 56 260 174
Stainless steel deliveries 1,000 tonnes 534 561 582 2,428 2,448
Personnel at the end of period   10,449 10,141 10,459 10,449 10,141

Outokumpu has adopted IFRS 15 – Revenue from Contracts with Customers retrospectively. Comparable financial figures for 2017 have been restated accordingly.
Further information on changes to Outokumpu's accounting principles and restatement impacts can be found in the Financial Information section of this report.
1) Adjusted EBITDA or EBIT = EBITDA or EBIT – Items classified as adjustments.

President & CEO Roeland Baan

“2018 marked an exceptional year for the European steel industry. The unforeseen trade disruption caused by the US steel tariffs led to a surge of low-cost imports into Europe and to heavy price pressure that put a strain on the entire European steel industry.

In the midst of the market turbulence, we kept our focus on areas that were within our control. We made great progress in improving our safety performance, operational reliability and cost efficiency. Furthermore, our organizational health improved for the second year in a row reaching the second quartile.

Full-year adjusted EBITDA amounted to EUR 485 million (EUR 631 million) reflecting the unstable markets and substantially higher input costs. In Europe, we defended our margins through a significantly improved product mix whereas in the Americas, higher costs together with misalignment between commercial and supply chain processes led to disappointing financial results. In order to improve the business area’s performance, we have made changes to commercial and supply chain processes and we are revamping the Americas’ commercial organization. Furthermore, we are investing in ferritics capabilities in our Calvert mill to expand our product offering into a segment that represents over one third of the US stainless steel market.

Our net debt rose to EUR 1.2 billion mainly due to unsatisfactory inventory management. Hence, strengthening of our balance sheet and reducing net debt are key priorities for 2019.

The EU’s permanent safeguards that are now in force are expected to stabilize the import situation in Europe during 2019. In addition to decisive execution of our must-win battles and improving our profitability in the Americas, a balanced market in Europe is crucial for us to reach our 2020 targets.”

Outlook for Q1/2019

The stainless steel market is expected to remain challenging in the first quarter due to high distributor inventory levels.

Outokumpu expects its stainless steel deliveries to be higher than in the fourth quarter of 2018.

In the Americas, first-quarter financial performance is expected to remain weak. Initiated actions to improve business performance are expected to yield results as the year progresses.

The Ferrochrome result will be negatively impacted by the lower ferrochrome benchmark price.

Outokumpu expects its first-quarter adjusted EBITDA to be lower than in the fourth quarter of 2018 (Q4/18: EUR 89 million).

Financial and market data available online

An Excel file including key financial and market data for the Group and business areas is available at www.outokumpu.com/en/investors. The data will be updated on a quarterly basis after the results announcements.

Conference call today at 3.00 pm EET

A conference call for investors and analysts will be held on Thursday, February 7, 2019 at 3.00 pm EET (8.00 am US EST, 1.00 pm UK, 2.00 pm CET). The results call will be hosted by Outokumpu’s CEO Roeland Baan and CFO Christoph de la Camp. To participate in the conference call, please dial in 5−10 minutes before the beginning of the event:

Finland: +358 9 2319 3039
UK/Europe: +44 203 009 5709       
US & Canada: +1 646 787 1226
Confirmation code: 8258019

The event can be viewed live at https://edge.media-server.com/m6/p/uaeogknz.

The stock exchange release and the presentation material will be available before the event at www.outokumpu.com/investors.

A recording of the event will be available at www.outokumpu.com/en/investors/ir-events/webcasts as of February 7, 2019 at around 6.00 pm EET.

For more information:

Investors: Tommi Järvenpää, tel. +358 9 421 3466, +358 40 576 0288

Media: Reeta Kaukiainen, tel. +358 50 522 0924

Outokumpu Group

Outokumpu is the global leader in stainless steel. We aim to be the best value creator in stainless steel by 2020, through our competitive edge of customer orientation and efficiency. The foundation of our business is our ability to tailor stainless steel into any form and for almost any purpose. Stainless steel is sustainable, durable and designed to last forever. Our customers use it to create civilization’s basic structures and its most famous landmarks as well as products for households and various industries. Outokumpu employs 10,000 professionals in more than 30 countries, with headquarters in Helsinki, Finland and shares listed in Nasdaq Helsinki. www.outokumpu.com