Points of interest in Outokumpu Q2 2012 webcast

Outokumpu (OMX: OUT1V) reported Q2 2012 results last week. They were already mostly known since the company warned on weaker than expected development a few days in advance. Positives were that operating cash flow stayed on the plus side. The company has recently cut some 20 days worth of working capital (from 110 to 90 days of inventories, including raw materials and finished goods inventories) and in this way has released hundreds of millions of tied-in capital. Headcount reduction including summer trainees is now around 1000, with further negotiations ongoing.

Production costs were ”temporarily” higher than before on Q2 and ferrochrome segment performance was lower as planned as ramp-up continues with full performance expected in 2015. Efficiency improvement programs are going according to plan. Company is at 84.8% vs. <115% demand regarding debt-to-equity (gearing) covenants in revolving credit facility so the they are not that worried about that even if the event of a rapid increase in raw material prices

The uncertainty is showing and the underlying steel demand is softening a bit (from 0 to -5% in Europe). Nickel price is down and distributors were de-stocking during the quarter. Imports from China and Korea to Europe were growing during the spring but are still far behind last year (of around 20% of total European market). Domestic market in China regarding special grades is still showing satisfactory growth. Currency effects are balanced; gains from a stronger dollar are offset by losses based on a strengthening Swedish krona.

While in theory it should not be so, a weakening macro environment may in practise increase the likelihood of competition authorities’ approval or at least lead to less stringent conditions placed on the new entity, for the Inoxum transactions. Integration planning is already in full swing and Outokumpu still expects transaction to close during this year.

Q3 base prices are expected to be slightly lower, delivery volumes of stainless and ferrochrome are expected to be clearly lower and production costs should be down in Q3. Underlying operational result should come in about the same or slightly weaker than in Q2.