Outokumpu half-year financial report – Second-quarter adjusted EBITDA declined to EUR 45 million due to weak global demand caused by COVID-19 pandemic

Outokumpu half-year financial report – Second-quarter adjusted EBITDA declined to EUR 45 million due to weak global demand caused by COVID-19 pandemic

Highlights in the second quarter of 2020

• Stainless steel deliveries were 523,000 tonnes (584,000 tonnes)¹.
• Adjusted EBITDA was EUR 45 million (EUR 91 million).
• EBITDA was EUR 45 million (EUR 91 million).
• Operating cash flow was EUR 72 million (EUR 177 million).
• Net debt remained relatively flat at EUR 1,243 million (March 31, 2020: EUR 1,249 million).
• Gearing was 49.2% (March 31, 2020: 48.0%).

Highlights in the first half of 2020

• Stainless steel deliveries were 1,111,000 tonnes (1,205,000 tonnes)
• Adjusted EBITDA was EUR 151 million (EUR 145 million).
• EBITDA was EUR 151 million (EUR 131 million).
• Operating cash flow was EUR 40 million (EUR 216 million).
• Net result was EUR -15 million (EUR -33 million)

¹ Figures in parentheses refer to the corresponding period for 2019, unless otherwise stated.

Q2 2020 compared to Q2 2019

Outokumpu’s sales decreased to EUR 1,420 million in the second quarter of 2020 (EUR 1,701 million) and adjusted EBITDA decreased to EUR 45 million (EUR 91 million). Stainless steel deliveries in the second quarter declined by 10% compared to the reference period in 2019. Realized prices were lower compared to prior year especially in Europe, but also in the Americas. Profitability was positively impacted by lower input costs and fixed costs and includes also EUR 3 million of government support to avoid layoffs and other positive one-off items of some EUR 8 million. Raw material-related inventory and metal derivative losses were at the level of the reference period, EUR 16 million. Lower ferrochrome benchmark price had a negative effect on business area Ferrochrome’s profitability. Other operations and intra-group items’ adjusted EBITDA was EUR -7 million (EUR -11 million).

Q2 2020 compared to Q1 2020

Outokumpu’s sales decreased to EUR 1,420 million in the second quarter of 2020 (Q1/20: EUR 1,615 million) due to weaker global stainless steel demand. Adjusted EBITDA decreased to EUR 45 million (Q1/20: EUR 106 million). Volumes were lower in all business areas and the total stainless steel deliveries declined by 11% compared to the previous quarter. Raw material efficiency was weaker compared to the first quarter, but one-off items supported profitability in the second quarter. Raw material-related inventory and metal derivative losses decreased by EUR 6 million compared to the first quarter.

H1 2020 compared to H1 2019

During the first half of 2020, Outokumpu’s sales decreased to EUR 3,035 million (EUR 3,415 million) while adjusted EBITDA increased to EUR 151 million (EUR 145 million). Deliveries in the first half of 2020 declined by 8% compared to the same period last year and realized prices were lower in both Europe and the Americas. Higher nickel price and positive raw material impacts supported profitability while the lower ferrochrome benchmark price had a negative impact on result compared to the first half of 2019. Raw material-related inventory and metal derivative losses were EUR 38 million (losses of EUR 26 million). Other operations and intra-group items’ adjusted EBITDA amounted to EUR -13 million (EUR -10 million).

EBIT was EUR 29 million (EUR 16 million) and net result amounted to EUR -15 million (EUR -33 million) in the first half of 2020.

Group key figures		Q2/20	Q2/19	Q1/20	Q1–Q2/20	Q1–Q2/19	2019
Sales	EUR million	1,420	1,701	1,615	3,035	3,415	6,403
EBITDA	EUR million	45	91	106	151	131	266
Adjusted EBITDA 1)	EUR million	45	91	106	151	145	263
EBIT	EUR million	-16	33	45	29	16	33
Adjusted EBIT 1)	EUR million	-16	33	45	29	30	30
Result before taxes	EUR million	-38	17	22	-16	-18	-41
Net result for the period	EUR million	-37	6	22	-15	-33	-75
Earnings per share	EUR	-0.09	0.01	0.05	-0.04	-0.08	-0.18
Diluted earnings per share	EUR	-0.09	0.01	0.05	-0.04	-0.08	-0.18
Return on capital employed	%	1.1	2.9	2.3	1.1	2.9	0.8
Net cash generated from operating activities	EUR million	72	177	-32	40	216	371
Net debt at the end of period	EUR million	1,243	1,307	1,249	1,243	1,307	1,155
Debt-to-equity ratio at the end of period	%	49.2	49.8	48.0	49.2	49.8	45.1
Capital expenditure	EUR million	57	49	52	109	100	221
Stainless steel deliveries	1,000 tonnes	523	584	588	1,111	1,205	2,196
Personnel at the end of period 2)		10,213	10,483	10,315	10,213	10,483	10,390
1) Adjusted EBITDA or EBIT = EBITDA or EBIT – Items classified as adjustments.
2) On June 30, 2020 the Group employed, in addition, some 540 summer trainees (June 30, 2019: some 710).

President & CEO Heikki Malinen

“In the COVID-19 world, securing the health and safety of our employees and people around us has been a top priority at Outokumpu. Thanks to our proactive actions, the COVID-19 impact on our people and operations has been limited, and consequently our customer service and deliveries have continued largely uninterrupted. I am proud of our employees’ hard work and ability to adjust to the new ways of working under these exceptional circumstances.

The pandemic started to impact Outokumpu in April with lower demand and declining order intake. As a result, Outokumpu’s deliveries decreased by 11% in the second quarter and adjusted EBITDA declined to EUR 45 million. The EUR 125 million convertible bond that was successfully launched in July is an important funding element that improves our debt maturity profile in these harsh times.

In business area Americas, deliveries were down by 20% from the first quarter due to continued distributor destocking and COVID-19. By improving operational efficiency, we have been able to bring down the break-even point significantly enabling positive results even with lower production volumes.

Business area Europe’s result was burdened by lower deliveries, continued price pressure and high import penetration. As a response to lower demand, production has been adjusted with temporary shutdowns and shorter working hours in all operating countries. On the positive side, productivity has continued to improve, and we have maintained our market position.

The European Commission’s decision in June to increase the import quotas by 3% was a major disappointment for the European steel industry. As the import pressure from Asia continues, there is an urgent need to create a long-term solution beyond the current safeguard quota period ending in June 2021 to secure the viability of the European steel industry.

Since starting as the CEO of Outokumpu in mid-May, I have taken a deep dive into Outokumpu’s operations and discussed with a large group of employees globally to build a good understanding of the company. I am impressed by our operations and the knowledge and expertise of our people which together provide a good foundation for our future.

Despite some signs of gradual market recovery, the operating environment continues to be difficult. The normal third-quarter seasonality will prevail, now further challenged by COVID-19. Therefore, our short-term focus will be on cash generation, securing liquidity and tight cost control. We have also decided to accelerate the Long Products’ strategic review with new management. For the longer term, we are currently in the process of formulating a new vision, strategy and targets for Outokumpu for the coming years. These will be communicated before the announcement of the third quarter results.”

Outlook for Q3 2020

Due to the global economic uncertainty caused by the COVID-19 pandemic, Outokumpu will not give quarterly guidance on adjusted EBITDA until further notice.

The COVID-19 pandemic and related measures are expected to have a significant impact on the stainless steel industry throughout 2020.

Due to seasonally low quarter, especially in Europe, combined with the continuing COVID-19 situation, Outokumpu expects its stainless steel deliveries to decrease in the third quarter for the whole Group by approximately 10% compared to the second quarter. The European stainless steel market remains challenging as a result of continuing import and price pressure.

The planned maintenance work at the Ferrochrome mill in Tornio, Finland is expected to have approximately EUR 15 million negative impact on the third-quarter result.

Live webcast and Conference call today at 3.00 pm EEST

Outokumpu will arrange a live webcast and a conference call for investors and analysts on the result publication day, Friday, August 7, 2020 at 3.00 pm EEST (8.00 am US EST, 1.00 pm UK, 2.00 pm CET). The event will be hosted by Outokumpu’s CEO Heikki Malinen and CFO Pia Aaltonen-Forsell.

You can participate in the event and ask questions through a live webcast at https://webcast.reloadmedia.fi/player/login/?video=S202007291617430 or via the conference call.

For the conference call, please dial in 10−15 minutes before the beginning of the event:

Finland: +358 9 4245 0806
UK/Europe: +44 20 71 92 8000
US & Canada: +1 631 510 7495
Confirmation code: 1428255

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 https://www.outokumpu.com/en/investors/financial-calendar/webcasts at the latest on Monday August 10, 2020.

For more information:

Investors: Marja Mäkinen, VP, Investor Relations: tel. +358 40 671 2999

Reeta Kaukiainen, EVP – Communications & IR, tel. +358 50 522 0924

Outokumpu Oyj