Outokumpu Oyj: Outokumpu half-year report January-June 2024 - Good profitability improvement from the first quarter, driven by business area Europe
Outokumpu Corporation
Half-year report
August 8, 2024 at 9.00 am EEST
Outokumpu half-year report January-June 2024 - Good profitability improvement from the first quarter, driven by business area Europe
Highlights in Q2 2024Stainless steel deliveries were 468,000 tonnes (502,000 tonnes)*.
Adjusted EBITDA amounted to EUR 56 million (EUR 190 million).
EBITDA was EUR 56 million (EUR 185 million).
ROCE amounted to -8.7% (11.4%).
Free cash flow was EUR 35 million (EUR -2 million incl. discontinued operations).
Earnings per share was EUR -0.01 (EUR 0.21).
The negative financial impact of the political strike in Finland was approximately EUR 30 million.
The Annual General Meeting 2024 approved a dividend of EUR 0.26 per share for the year 2023. The dividend of EUR 110 million was paid in Q2.
On April 22, 2024, Marc-Simon Schaar was appointed as the new CFO of Outokumpu following the announcement that CFO Pia Aaltonen-Forsell will leave the company.
After the reporting period, on July 9, 2024, Kati ter Horst was appointed as the new President and CEO of Outokumpu as of October 9, 2024, at the latest, following the announcement that President and CEO Heikki Malinen will leave the company.
Highlights in Q1-Q2/2024
Stainless steel deliveries were 912,000 tonnes (1,007,000 tonnes)*.
Adjusted EBITDA amounted to EUR 94 million (EUR 394 million).
EBITDA was EUR 93 million (EUR 383 million).
ROCE amounted to -8.7% (11.4%).
Free cash flow was EUR 9 million (EUR 158 million incl. discontinued operations).
Earnings per share was EUR -0.07 (EUR 0.43)
The negative financial impact of the political strike in Finland was approximately EUR 60 million.
The most recent share buyback program was completed on February 29, 2024, and during the first quarter, Outokumpu repurchased 8,357,545 shares.
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Key figures(EUR million, or as Q2/24 Q2/23 Q1/24 Q1 Q1 2023
indicated) -Q2/24 -Q2/23
Sales 1,540 1,911 1,479 3,019 3,916 6,961
EBITDA 56 185 37 93 383 416
Adjusted EBITDA [1)] 56 190 38 94 394 517
EBIT 1 124 -19 -18 259 -100
Adjusted EBIT [1)] 1 129 -17 -16 273 274
Result before taxes -7 119 -29 -36 247 -133
Net result for the period -5 89 -23 -28 186 -111
Earnings per share -0.01 0.21 -0.05 -0.07 0.43 -0.26
Return on capital employed, rolling -8.7 11.4 -5.7 -8.7 11.4 -2.1
12 months (ROCE), % [2)]
Capital expenditure 37 38 59 96 53 170
Free cash flow[3)] 35 -2 -26 9 158 290
Stainless steel deliveries, 1000 468 502 444 912 1,007 1,906
tonnes
Net result for the period from all -5 89 -23 -28 192 -106
operations incl discontinued
operations
[1) ]Adjusted EBITDA or EBIT = EBITDA or EBIT - Items affecting comparability.
[2)] The balance sheet component in 2022 includes the equity component of discontinued operations.
[3)] The 2023 reference periods include discontinued operations.
During 2022, Outokumpu announced that it had signed an agreement to divest the majority of the Long Products business operations to Marcegaglia Steel Group and Outokumpu reclassified its Long Products businesses to be divested assets held for sale and discontinued operations. The divestment was completed on January 3, 2023, and the gain on sale of EUR 5 million was reported in discontinued operations. In this report, all the comparative numbers are reported as continued operations without the impact of the gain on sale, if not otherwise stated.
President & CEO Heikki Malinen
After four years as Outokumpu's CEO, I am proud of what the Outokumpu team has achieved. We are the leader in sustainable stainless steel with the strongest balance sheet in the industry. During my tenure, we have successfully de-risked the company and strengthened our core businesses, especially in the Americas. We have built a solid foundation for the third phase of the strategy. Our target remains to create long-term shareholder value. Since 2022, we have returned EUR 476 million back to our shareholders.
The company will be in good hands going forward. Kati ter Horst has been appointed as my successor and I wish her every success. Kati has extensive experience working in process industries, and she has been a member of the Outokumpu Board for eight years. Kati and I will ensure a smooth transition.
In the second quarter of 2024, Outokumpu's adjusted EBITDA increased to EUR 56 million and our operations normalized after the long political strike in Finland. The strike pushed down our adjusted EBITDA by approximately EUR 60 million during the first half of the year.
Our stainless steel deliveries increased by 5% in the second quarter compared to the previous quarter. The scrap market remained tight in spite of low end-product demand. This impacted negatively our profitability throughout the quarter. Despite scrap market tightness, we have not had any issues in sourcing.
In business area Europe, adjusted EBITDA reached EUR 28 million. Stainless steel deliveries increased by 4% compared to the previous quarter. Our improved profitability reflects the gradual market recovery from the low point we saw in the third quarter of 2023.
Despite the continued recovery, the operating environment in Europe remains quite difficult. The European economy is confronted with multiple structural challenges resulting from the war in Ukraine, funding of the green transition and growing de-globalization. To ensure our profit generation in this type of an operating environment, we must accelerate efforts to improve our European cost competitiveness, especially within commodity stainless steel production. We are targeting further cost savings and aiming to optimize our commodity stainless steel production in Finland and Germany. Our mill in Tornio, Finland is the most cost-efficient mill in Europe with high volumes. We intend to further leverage the structural advantage of clean and price competitive energy in the Nordics. Outokumpu is the market leader in Europe, and we want to secure this position.
In business area Americas, adjusted EBITDA amounted to EUR 21 million while stainless steel deliveries increased by 7%. Profitability was, however, negatively impacted by the increased maintenance work resulting from temporary operational challenges. The market environment softened in the second quarter and imports into Mexico are disrupting the regional supply demand balance. Still, our long-term view on the U.S. market remains highly positive.
Business area Ferrochrome's adjusted EBITDA was EUR 22 million. The ferrochrome market has improved during the quarter and our position has strengthened as we own the only chromium mine in the EU area with the lowest carbon footprint globally.
Finally, as this is my last quarterly result as Outokumpu's CEO, I want to thank all of our employees, customers, suppliers and shareholders for the past years together. It has been a great journey. I look forward to seeing the company move into the next phase of growth as the economic cycle picks up. Outokumpu is ready to take full advantage of the next market upturn.
Outlook for Q3 2024
Group stainless steel deliveries in the third quarter are expected to remain stable compared to the second quarter.
Slow market recovery in Europe is expected to continue while the market environment for business area Americas is expected to remain soft.
The scrap market is expected to remain tight.
With the current raw material prices, some raw material-related inventory and metal derivative gains are forecasted to be realized in the third quarter.
Guidance for Q3 2024:
Adjusted EBITDA in the third quarter of 2024 is expected to be at a similar or higher level compared to the second quarter.
Results
Q2 2024 compared to Q2 2023
Outokumpu's sales in the second quarter of 2024 decreased to EUR 1,540 million compared to the reference period (EUR 1,911 million). Total stainless steel deliveries were 7% lower as the significant decrease in deliveries in business area Europe was partly offset by higher deliveries in business area Americas.
Adjusted EBITDA in the second quarter of 2024 decreased to EUR 56 million (EUR 190 million) and was negatively impacted by the political strike in Finland. The strike also indirectly impacted the company's operations in other countries through the disruption to internal material flows in both Europe and the Americas. The total negative financial impact of the political strike in the second quarter of 2024 on Outokumpu's adjusted EBITDA was approximately EUR 30 million.
In the second quarter of 2024, realized prices for stainless steel increased, driven by an increase in Europe, partly offset by a decrease in the Americas compared to the reference period. Profitability of both stainless steel businesses was burdened by the tightened scrap market. Variable costs decreased in Europe due to lower energy and consumable prices. The profitability of business area Ferrochrome was negatively impacted by the lower ferrochrome sales price. Raw material-related inventory and metal derivative losses amounted to EUR 8 million (losses of EUR 12 million).
EBIT amounted to EUR 1 million in the second quarter of 2024 (EUR 124 million). ROCE for the rolling 12 months was -8.7% (11.4%), due to lower profitability and the significant impairment booking related to the renegotiated hot rolling contract in business area Americas at the end of 2023.
Net result decreased to EUR -5 million in the second quarter of 2024 (EUR 89 million) and earnings per share amounted to EUR -0.01 (EUR 0.21). Net financial expenses in the second quarter of 2024 amounted to EUR 9 million (EUR 7 million) and interest expenses remained stable at EUR 16 million (EUR 16 million).
Q2 2024 compared to Q1 2024
Outokumpu's sales amounted to EUR 1,540 million in the second quarter of 2024 (Q1/2024: EUR 1,479 million). Total stainless steel deliveries increased by 5% from the previous quarter and there was positive development in both business areas Europe and Americas.
Outokumpu's adjusted EBITDA increased to EUR 56 million in the second quarter (Q1/2024: EUR 38 million). The total negative financial impact of the political strike on adjusted EBITDA was approximately EUR 30 million, the same as in the previous quarter.
Realized prices for stainless steel decreased slightly in both Europe and the Americas in the second quarter. Scrap market remained tight throughout the quarter, but the negative impact was mitigated through efficient procurement of raw materials. Maintenance costs slightly increased during the second quarter, however, overall cost decreased mainly due to improved cost absorption after the strike. Raw material-related inventory and metal derivative losses amounted to EUR 8 million in the second quarter (Q1/2024: losses of EUR 4 million).
EBIT amounted to EUR 1 million in the second quarter 2024 (Q1/2024: EUR -19 million). ROCE for the rolling 12 months was -8.7% (Q1/2024: -5.7%). ROCE development was driven by a lower profitability and the significant impairment booking related to the renegotiated hot rolling contract in business area Americas at the end of 2023, impacting both the second quarter as well as the first quarter of 2024.
Net result in the second quarter amounted to EUR -5 million (Q1/2024: EUR -23 million) and earnings per share was EUR -0.01 (Q1/2024: EUR -0.05). Net financial expenses amounted to EUR 9 million (Q1/2024: EUR 11 million) and interest expenses EUR 16 million (Q1/2024: EUR 16 million).
Q1-Q2/2024 compared to Q1-Q2/2023
During January-June 2024, Outokumpu's sales decreased to EUR 3,019 million (EUR 3,916 million). Total stainless steel deliveries were 9% lower compared to the previous year as deliveries decreased significantly in business area Europe and increased in business area Americas.
Outokumpu's adjusted EBITDA decreased to EUR 94 million in January-June 2024 (EUR 394 million). The decrease in profitability was mainly driven by lower stainless steel deliveries in Europe, and the negative impacts resulting from the tightened scrap market and the political strike in Finland. The negative financial impact of the political strike on adjusted EBITDA was approximately EUR 60 million. Due to the political strike, the majority of Outokumpu's stainless steel and ferrochrome operations in Finland as well as the Port of Tornio in Finland were shut down for four weeks. The strike also indirectly impacted the company's operations in other countries through the disruption to internal material flows in both Europe and the Americas.
Realized prices for stainless steel slightly increased in Europe, while they decreased in the Americas. Profitability was somewhat supported by decreased variable costs, mainly due to lower electricity and consumable prices. Lower profitability in business area Ferrochrome was mainly driven by lower the ferrochrome sales price. Raw material-related inventory and metal derivative losses amounted to EUR 12 million in January-June 2024 (losses of EUR 18 million).
EBIT amounted to EUR -18 million (EUR 259 million) in January-June 2024. ROCE for the rolling 12 months was -8.7% (11.4%), mainly due to lower profitability and the significant impairment booking related to the renegotiated hot rolling contract in business area Americas at the end of 2023.
Net result declined to EUR -28 million (EUR 186 million) in January-June 2024 and earnings per share was EUR -0.07 (EUR 0.43). Net financial expenses amounted to EUR 20 million (EUR 15 million) and interest expenses EUR 32 million (EUR 31 million).
Adjusted EBITDA by Q2/24 Q2/23 Q1/24 Q1-Q2/24 Q1-Q2/23 2023
segment (EUR
million)
Europe 28 52 4 32 174 148
Americas 21 110 24 44 178 285
Ferrochrome 22 36 22 44 52 96
Other operations and -15 -8 -11 -26 -9 -12
intra-group items
Total adjusted 56 190 38 94 394 517
EBITDA
Items affecting Q2/24 Q2/23 Q1/24 Q1-Q2/24 Q1-Q2/23 2023
comparability in
EBITDA (EUR million)
Europe 0 -1 2 2 -7 -52
Americas - -3 - - -3 -16
Ferrochrome - - - - - -3
Other operations 0 -2 -3 -4 -2 -31
Total items 0 -5 -2 -2 -11 -102
affecting
comparability in
EBITDA
Total EBITDA 56 185 37 93 383 416
A live webcast and conference call today, August 8, at 3.00pm EEST
A live webcast and conference call to analysts, investors and representatives of media will be arranged today at 3.00 pm EEST at https://outokumpu.videosync.fi/q2-2024/register hosted by President and CEO Heikki Malinen and CFO Marc-Simon Schaar.
To ask questions, please participate in the conference call by registering at https://palvelu.flik.fi/teleconference/?id=50049024. After registration you will receive phone number and a conference ID to access the conference call. If you wish to ask a question, please dial *5 on your telephone keypad to enter the queue.
All the interim report materials, a link to the webcast and later on its recording will be available at www.outokumpu.com/en/investors.
For more information:
Investors: Linda Häkkilä, Head of Investor Relations, tel. +358 400 719 669
Media: Päivi Allenius, SVP - Communications and Brand, tel. +358 40 753 7374, or Outokumpu media desk, tel. +358 40 351 9840, e-mail media(at)outokumpu.com
Outokumpu Corporation