Outokumpu half-year report
by Hans Diederichs
Outokumpu’s sales decreased to EUR 1,701 million (EUR 1,883 million). The second-quarter adjusted EBITDA of EUR 91 million was lower than EUR 136 million in the second quarter of 2018 mainly due to a 13% drop in stainless steel deliveries. Spot base prices were substantially lower year-on-year but Outokumpu’s realized prices remained relatively flat driven by improved customer and product mix in all business areas. Ferrochrome profitability was negatively impacted by the lower benchmark price. Raw material-related inventory and metal derivative losses were EUR 16 million compared to gains of EUR 1 million in the second quarter of 2018. Other operations and intra-group items’ adjusted EBITDA decreased to EUR -11 million (EUR 5 million).
H1 2019 compared to H1 2018
During the first half of 2019, Outokumpu’s sales decreased to EUR 3,415 million (EUR 3,553 million). Adjusted EBITDA decreased to EUR 145 million (EUR 269 million), heavily impacted by weaker stainless steel demand. Deliveries during the first six months of the year were 8% lower compared to the same period last year. Graphite electrode and other input costs were higher on average and the Ferrochrome result was lower due to the lower benchmark price. Raw material-related inventory and metal derivative losses were EUR 29 million (losses of EUR 4 million). Other operations and intra-group items’ adjusted EBITDA amounted to EUR -10 million, EUR 25 million lower than during the first half of 2018 which was positively impacted by gains from emission allowance derivatives.
EBIT was EUR 16 million (EUR 176 million) and net result amounted to EUR -33 million (EUR 74 million) during the first half of 2019.
President & CEO Roeland Baan
“Outokumpu’s second quarter adjusted EBITDA of EUR 91 million was a satisfactory result in a very tough market environment. I am particularly pleased with our commercial and operational performance in business area Europe – our product mix was strong, and we maintained our market share. In addition, our continued self-help measures including cost-savings and selected development activities yielded tangible results.
Our ongoing focus on working capital resulted in strong operating cash flow, and our net debt decreased to EUR 1.3 billion.
The stainless steel market remains difficult. In Europe, we are still battling with cheap Asian imports despite the permanent safeguards that became effective in February. The import penetration is back at 30% and the start of the new quota period on July 1 has already led to a further jump in imports. The steel industry is in continuous dialogue with the European Commission to improve the effectiveness of the safeguards. Conversely, imports into the US have stayed at relatively low levels, however, due to the continued distributor destocking, we don’t see significant volume upside in the short term in the Americas.
Due to these challenges, coupled with seasonally lower demand, we are facing a tough third quarter, and we expect the challenges to influence the stainless steel market for the rest of 2019.
Despite the unprecedented adverse market circumstances, we have been able to maintain our profitability on a reasonable level, which demonstrates the power of the strategic actions we have executed since 2016. For example, we have improved our customer and product mix substantially in all business areas, and our continued efficiency and productivity gains are bringing us significant cost benefits. We are confident that by pursuing these actions further, we will be able to navigate through the current challenging period and at the same time, secure our competitiveness for the market recovery.”
Outlook for Q3 2019
The third-quarter stainless steel market is expected to be challenging. In addition to typical seasonal slowdown in Europe, the underlying stainless steel demand is expected to be further burdened by high import volumes from Asia and weakness in certain customer segments. Consequently, Outokumpu expects its third-quarter stainless steel deliveries in Europe to be lower compared to the second quarter. In the Americas, deliveries are expected to remain at a stable level.
The Ferrochrome result will be negatively impacted by the lower ferrochrome benchmark price, as well as weaker demand. The planned maintenance shutdown of a ferrochrome furnace scheduled for September-October is expected to have a total cost impact of up to EUR 10 million during the second half of the year.
Outokumpu expects its third-quarter adjusted EBITDA to be lower than in the second quarter of 2019 (Q2/19: EUR 91 million).
Source: Outokumpu Oyj Photo: Fotolia