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Third quarter highlights
- Satisfactory underlying operational result of some EUR 60 million positive.
- Strong net cash flow of EUR 242 million from operating activities.
- Weaker stainless steel markets due to seasonality, postponed purchases by distributors and weaker end-use demand.
- Intention to close Thin Strip business in Sheffield announced.
- Investment program under review, decisions on potential changes by the end of 2008.
Group key figures III/08 II/08 III/07 2007 Sales EUR million 1 270 1 549 1 227 6 913 Operating profit EUR million -66 174 -256 589 Non-recurring items in operating profit EUR million -66 – -11 14 Profit before taxes EUR million -82 166 -277 798 Non-recurring items in financial income and expenses EUR million – - – 252 Net profit for the period from continuing operations EUR million -73 130 -210 660 Net profit for the period EUR million -74 56 -214 641 Earnings per share from continuing operations EUR -0.41 0.72 -1.17 3.63 Earnings per share EUR -0.41 0.31 -1.19 3.52 Return on capital employed % -6.3 17.2 -22.3 13.9 Net cash generated from operating activities EUR million 242 103 161 676 Capital expenditure, continuing operations EUR million 317 56 47 190 Net interest-bearing debt at end of period EUR million 1 096 939 1 016 788 Debt-to-equity ratio at end of period % 35.0 29.1 29.8 23.6 Stainless steel deliveries 1 000 tons 323 391 238 1 419 Stainless steel base price 1) EUR/ton 1 143 1 307 710 1 304 Personnel at the end of period, continuing operations 2) 8 711 8 884 8 049 8 108
1) Stainless steel: CRU – German base price (2 mm cold rolled 304 sheet). Please note: Between July – October 2007, European prices for some stainless grades were quoted on a transaction price basis, therefore base prices are the calculated value of transaction price minus alloy surcharge for this time period (CRU). 2) End-June figures include summer trainees.
SHORT-TERM OUTLOOK
As a result of the global economic crisis, uncertainty related also to the stainless steel market has clearly increased and visibility is currently very short. Demand from consumer driven end-use segments, such as white goods and construction has weakened further. Demand from many investment-driven segments is currently healthy but there is more uncertainty about future demand as the financial turmoil has weakened the investment climate and the availability of project financing is uncertain.
The falling nickel price has resulted in distributors further postponing their purchases in expectation of lower transaction prices for stainless steel. In Europe, inventory levels for standard grades held by distributors continue to be at a normal level. Outokumpu is now selling standard grades for deliveries in November.
Stainless steel base prices seem to have stabilized and prices are roughly at the same level in Europe and Asia. Outokumpu does not currently expect further price erosion from current levels. CRU is forecasting the October base price for German 2mm cold rolled 304 stainless steel sheet at 1 080 EUR/t.
Delivery volumes for the fourth quarter are expected to be at about the same level or slightly above volumes in the third quarter.
Outokumpu's underlying operational result in the fourth quarter of 2008 is expected to be slightly positive. At current nickel prices, further nickel-related inventory losses of some EUR 50-100 million including the impact of hedging are expected in the fourth quarter, which would turn Outokumpu's operating profit negative. The low nickel price is, however, expected to release substantial amounts of working capital and result in continuing strong cash flow from operations in the fourth quarter.
CEO Juha Rantanen:
"In these highly uncertain times, strength comes from having good cash flow and a strong balance sheet. Supply chain management will remain a high priority for us also going forward. Nickel, our most important raw material, has now reached its lowest price level in five years and this will improve our cash flow through lower working capital. Lower raw material costs will make stainless steel an even more attractive and competitive material. In the short-term, however, the decline in the nickel price is negative for our profits. We are highly committed to our strategy of selling more to end-use and project customers as well as promoting special and non-nickel containing grades. At the same time, we need to evaluate whether some of the related investments need to be postponed or redesigned due to global economic uncertainty."
Global growth in demand for stainless steel continued to weaken during the third quarter and markets remained oversupplied. The whole business environment was affected by significantly weakening financial markets. The apparent consumption of stainless steel in the third quarter is estimated to have remained fairly stable globally but to have declined by 17% in Europe compared to II/2008. Global melting production was cut by 10% due to the poor business environment, and in Europe production was 18% down from the previous quarter. In addition to demand weakness, the slowdown was also a result of normal seasonality and the distribution sector postponing its purchases due to the falling nickel price. Demand softened further, especially in consumer-driven segments such as construction and white goods. In investment-driven segments, lower levels of project activity were evident due to the uncertain market situation.
The average base price for 2mm cold rolled 304 stainless steel sheet in Germany in the third quarter declined to 1 143 EUR/ton (II/2008: 1 307 EUR/ton). As a result of the falling nickel price, the average alloy surcharge for the third quarter declined to 1 582 EUR/ton (II/2008: 1 888 EUR/ton). The average transaction price in the period was 2 737 EUR/ton (II/2008: 3 195 EUR/ton). (CRU)
Among alloying materials, the price of nickel declined by 26% from around 22 500 USD/ton to below 16 000 USD/ton and the average price of nickel was 18 961 USD/ton in III/2008 (II/2008: 25 682 USD/ton). Since the end of September, nickel has declined further and is currently about 10 000 USD/t.
Ferrochrome markets turned to oversupply during the review period due to weakening demand for stainless steel. The quarterly contract price for ferrochrome for the third quarter was 2.05 USD/lb (II/2008: 1.92 USD/lb). The quarterly contract price for the fourth quarter has been preliminary settled at 1.85 USD/lb. The average price of molybdenum increased slightly to 33.75 USD/lb. The price of recycled steel fell to 465 USD/ton, 18% down on II/2008. – Press Release