Newsflow on divestments, loan facilities and Terni expected

Steelmaker Outokumpu (OMX:OUT1V) was heavily loss making on Q1 2013 but that wasn’t a surprise to anyone. Synergy savings are on track and further cost cuts are coming ferrochrome expansion was touted as going very well. Calmert investment related purchases affected operating cash flow negatively, turning it slightly to the red overall. Net result was around -150 million with operating result narrowly positive.

Second quarter 2013 underlying result is expected on par or slightly weaker than Q1 as the company says the European market is softer than on Q1 at the moment. There will likely be one-off items related to cost cutting programme as well. From second half more benefits are expected to be realized while demand visibility is low as usual.

Terni deadline has been extended for a certain period of time with Outokumpu extremely tight-lipped not to reveal any more details. Regulatory issues should be once more behind this and if I were to speculate, such issues could be potential competition authorities concerns with Aperam (LuxSE: APAM) and or aversion on accepting bids from outside of the Euro area.

The debt situation of the company has been worrying investors. There is still some room with e covenants at 115% and ThyssenKrupp (FWB: TKA, LSE: THK) debt also counted in the current numbers despite not actually affecting that. The company is negotiating two loan facilities, with news on another expected by the end of June. It sounds like some divestment may be close by too as the management seemed to downplay any imminent rights issue.

Nordic steel companies combined Q4 loss measured in hundreds of millions

European steel industry still heavily loss-making and Nordic steel companies aren’t faring a whole lot better. Their fourth quarter results were brutal and so far there has been little improvement in market conditions during Q1. Below is an illustration just how weak a market we are in. The numbers are from Q4 2012.

Outokumpu (OMXH: OUT1V)

Operating result -76 million

Net result -309 million

SSAB (OMX: SSAB A)

Operating result of -665 million SEK (-80 million €)

Loss after financial items of -842 million (-101M€)

Net result of -227 (-27M€)

Rautaruukki (OMXH: RTRKS)

Operating profit -58 million

Net result -56 million

Scana Industrier (OSE: SCI)

Operating result -99 million NOK (-13M€)

Net profit of -132 million NOK (-17.5M€)

Now granted some of these numbers contain one-off items and at least the former three had positive operating cash flow. SSAB and Rautaruukki plan to pay a small dividend of 1 SEK and EUR 0.20 respectively. Out of the said companies SSAB has been making decent money in the United States as of late and New Outokumpu does begin to have a presence in other geographies as well but it is further away and Rautaruukki is even later to the party. Even still the Nordic industry is content to hear that EU might be considering protective measures and other types of support mainly due to companies to the south struggling even more.

Scana Industrier has nearly burned out its recent stock offering and looks to be in a bad shape. Outokumpu hinted it may have to tap into equity financing once more as well unless it finds other ways to strengthen balance sheet. It updated on the much anticipated Terni mill sale couple weeks back, merely stating that numerous parties have expressed interest.

FT talks Outokumpu

Financial Times spoke with Mika Seitovirta who is seen as the architech of what is set to be a global stainless leader in new Outokumpu (OMX:OUT1V). He continues to preach investor patience. That has been running thin since the Inoxum merger didn’t go through just like that and now the company is faced with the task of trying to close the divestment of the important Terni unit in Italy within the next six months in a difficult environment.

Add this to the fact that the company has been loss making for a number of years already, trailing many peers and it is no wonder the stock market price has been under pressure. It can still take at least a couple of years to start to see tangible results with planned closures also set to weigh on the bottom line. Outokumpu did pretty well with its Talvivaara divestments so far where as Fennovoima stake seems to be less attractive at the moment. Chromium mine expansion in Kemi on the other hand appears to be on track.

Outokumpu Inoxum deal approved

Finnish steelmaker Outokumpu (OMX:OUT1V) said that The European Commission has today approved the acquisition of ThyssenKrupp’s stainless division Inoxum by Outokumpu. It is subject to the divestiture of stainless steel mill in Terni, Italy, which would have been an important part of transaction synergies. The company is confident that there are many potential buyers for the unit Outokumpu targets closure of the deal by the end of this year.

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.

Outokumpu warns on Q2 2012 result

Finnish steel maker Outokumpu (OMX:OUT1V) found out after the fact that its second quarter was weaker than previous guidance. The company was guiding for around break-even or slightly negative underlying operational result and describes the now expected -40 million Euros “slightly weaker”. Uncertainty in Europe, declining nickel price and destocking among distributors were given as main culprits but production costs have also increased, adversely affecting profitability. Operating loss including raw-material related inventory losses and non-recurring items should be around 80 million Euros.

Outokumpu sells half of its European storage sites

Outokumpu (OMX:OUT1V) is divesting parts of its stocking operations to multi-metal distributor Amari Metals. The 10 stock operations in nine countries constitute half of Outokumpu’s European warehouses. They employ around 100 people, who will be moving to Amari. The transaction should close in Q3 and is expected to net 15-20 million Euros in cash, depending on the stock value at closing. Outokumpu will take a ”marginal impairment” in Q2 accounts for the deal. Outokumpu is focusing on the operations in the remaining centres and closer cooperation with independent distributors.

The Inoxum acquisition competition authorities review is still ongoing. Outokumpu has a long ride ahead even if the deal is mostly agreed to, as it will then be unable to do the necessary savings from German operations for a number of years, facilitating a need for heavy savings and divestments elsewhere to try to ride out the interim. Recent heavy steel price decline has has weighed heavily on the share price and it is languishing far below recent emission price.

EC to investigate Outokumpu Inoxum deal in depth

The European Commission said in a press release that it has opened an in-depth investigation under the EU Merger regulations into the proposed merging of ThyssenKrupp’s stainless steel division Inoxum into Finnish Outokumpu (OMX:OUT1V), aiming to make a stainless steel world leader. The commission said preliminary investigation indicated potential serious competition concerns in various markets for production and distribution of stainless steel flat products, where only three producers would remain in the EEC area.

There was no mention of other parts of the deal. In some cases the Commission can ask for changes regarding a particular portion of the deal, such as a later divestiture of a particular unit. A decision is expected by the end of September. Outokumpu’s market value has been under severe pressure following a completed rights issue to finance the acquisition. It is up in today’s trading action. It had been expecting the Commission will want to take a closer look at the major proposed deal.

White-collar walkout at Tornio

Hundreds of clerical workers from Outokumpu’s (OMX:OUT1V) Tornio smelter have left their workplace early today to protest against latest round of employee cuts announced in connection with Q1 2012 interim report. They will return to work on Monday. The previous round of co-determination negotiations ended in job cuts just months ago.

It would appear there is considerable angst within various employee groups in Nordic countries, since they will be the ones bearing the initial burden of job cuts following redundancies created by the Inoxum acquisition. Former ThyssenKrupp workers are protected for quite some time by agreements between Outokumpu and local metals union drafted so that the union would allow the acquisition to proceed.

Outokumpu returns to profit, guidance cautious

Steel maker Outokumpu (OMX:OUT1V) managed to lift its operating result to a very small plus with a raw-material related inventory gains. After tax profit numbers are also slightly in the black with EPS of 0.06 Euro. Distributors were restocking standard grade stainless steel, which led to improved demand, which has remained rather stable during Q2 thus far. Cash flow from operations was a clear positive with 116 million.

The 1 billion rights offering aimed to chiefly finance Inoxum acquisition was oversubscribed. Outokumpu plans to include Ulrich Albrecht-Früh and Reinhard Florey from Inoxum’s management team in its Leadership Team. The company expects to cut some 150-200 jobs in Tornio, Finland and a few also from Terneuzen, The Netherlands as a part of a new round of job reductions.

The nickel price decline and weak product mix should contribute to lower base prices for stainless steel in the short term. Although ferrochrome contract prices for Q2 are higher, planned shutdowns connected to ongoing investments are expected to affect result from these operations in Q2. The share has risen 5% for the day.

TeliaSonera down as Finnish government sells shares

Finnish state owned investment company Solidium sold 89 million shares in TeliaSonera (OMX: TLSN) through an overnight accelerated book-building offering to international and Nordic institutional investors at just over 5% discount to yesterday’s close. TeliaSonera has retreated 3.5% in today’s trading, still leaving a nice overnight return to those institutions taking part.

Solidium said it is using the proceeds to finance equity investments in Outokumpu, Outotec and Talvivaara. All of these companies originated from Outokumpu. When you add TeliaSonera into the mix, the government has a poor track record in investing in this lot. It now tries to regain billions burned in years past. At least this time Solidium did manage to make a small gain vs. book value.

Outokumpu trading ex-subscription rights

Outokumpu (OMX:OUT1V) decided on a 1 billion Euro fully underwritten share issue with pre-emptive rights for existing shareholders to finance the short term needs related to Inoxum acquisition. The share is trading ex-rights starting from today. One existing share gave a subscription right to subscribe for seven new shares at a subscription price of 0.79 € per share.

The number of shares will grow from 183,018,749 to maximum of 1,457,038,776. This means that the offer shares will represent 87.4% of all shares in Outokumpu. Based on yesterday’s closing of 5.06 Euros per share, the theoretical value of an existing share would be around 1.32 Euros ((5.06+0.79*7)/8), which is where the stock opened at. It has since climbed to 1.42 handle.

Industrial copper tubing overpricing suit returns to court

United States Court of Appeals reversed an earlier dismissal from a District Court relating to a complaint filed by Carrier Corporation, a subsidiary of United Technologies Corporation (NYSE: UTX), against Outokumpu (OMX:OUT1V) relating to an alleged worldwide cartel in industrial copper tubing for air conditioning and heat exchangers and related applications. The Appeals Court decision returns the case into District Court.

Outokumpu divested the related operations in 2008 to private equity firm Nordic Capital but agreed to indemnify the company for any potential damages pertaining to this complaint. Carrier is seeking unspecified damages due to alleged overcharges. Outokumpu says the claims are baseless. In 2009 Outokumpu was fined 18 million Euros for European price-fixing and market-sharing cartel in copper air-conditioning tubes.

Grade two nuclear event at Tornio smelter

Outokumpu (OMX:OUT1V) and Finnish Radiation and Nuclear Safety Authority STUK have said that a source of radiation which ended up in Tornio melting furnace has exposed four meltshop employees to a minor amount of radiation. One of the workers was potentially exposed to approximately ten millisieverts of radiation, which is below the average radiation dose limit is 20 millisieverts per annum over a five year period and the annual maximum of 50 millisieverts.

The radioactive element was identified as americium which is used in things like smoke detectors, spectrometers and other application requiring high sensitivity. STUK says that this event causes no danger to people outside the smelter. Outokumpu will conduct follow-up measurements at the site over the weekend.

Outokumpu confirms agreement in principle on Inoxum acquisition

Outokumpu (OMX:OUT1V) confirmed that it has reached an agreement with ThyssenKrupp to combine the German conglomerate’s stainless steel unit with Outokumpu. The transaction values Inoxum at 2.7 billion Euros, comprising of a 1 billion Euro cash payment and new shares in Outokumpu totaling 29.9% of total share capital. In addition to this Outokumpu will issue a 235 million Euro loan to ThyssenKrupp and will assume 422 million Euros of liabilities from it.

The companies gave significant concessions to workers union. Bochum melt shop will stay in operation until the end of 2016 and there will be no compulsory redundancies in Germany until the end of 2015. Krefeld meltshop will be closed before the end of 2013. Out of the total job cuts of 850 in Germany, ThyssenKrupp will offer alternative jobs to up to 600 people.

Outokumpu expects nearly 250 million annual synergies by 2017 after the agreement with the workers union IG Metall seizes to hinder cost cutting measures. The deal is subject to Outokumpu’s Board approval later today and regulatory approvals. The speculation from yesterday was pretty much spot on. Outokumpu plans to conduct a 1 billion Euro fully underwritten rights offering in connection with the transaction.

This morning Outokumpu opened up around 5% over 7.7 Euro but in the five minutes that the stock remained open for trading it managed to slump as low as 6.6 Euro and ended up in the middle of that range on a massive volume as Outokumpu requested for a trading halt. The share will reopen in few minutes time and the initial reaction seems to be a major disappointment in the concessions made and the hefty cash payment.

Day of reckoning for proposed Outokumpu ThyssenKrupp deal lies ahead

Conflicting reports surfaced within very short time period today on the eagerly anticipated deal that is being discussed between Finnish steelmaker Outokumpu (OMX:OUT1V) and German industrial giant Thyssenkrupp. Thyssenkrupp is looking for ways to exit stainless steel business with least costs and greatest potential reward possible. Its stainless unit Inoxum is the somewhat larger player in the discussion.

Just before market close in Europe, report from newspaper Die Welt suggested that a deal in 2.7 billion Euro vicinity, depending on Outokumpu’s valuation, is all but made. Outokumpu’s current market cap is around half of that number. This would create a world leader in stainless steel with over ten billion in annual revenue and 18 000 employees.

The whispers are that Thyssenkrupp would get ”under 30%” holding in Outokumpu. This would mean it would not need to consolidate the company. The shares would be frozen for a year so Thyssenkrupp could not exit immediately. Thyssenkrupp would also be able to move some of its debt into ”new” Outokumpu.

While others point out that due to obvious benefits for Outokumpu such as access to Central European market and complementary product offering, others feel that 2.7 billion is very steep bill to foot. If Outokumpu needs to pay a part of it in cash, how is it going to get the money? Certainly one would think a potential issue might not be limited to only shares being planned to be allotted to Thyssenkrupp.

Earlier the reports said that German workers union IG Metall could be blocking the merger. Die Welt also acknowledges that tough negotiations with the unions are still ahead but seems to think the companies are willing to compromise and give very generous terms for the employees of the two factories in Germany that may face closure. Harsh rhetoric would also be typical union negotiation tactics.

Competition authorities will certainly also want to look into this arrangement if the companies reach a definite agreement. Outokumpu’s annual accounts are due on Wednesday morning. Outokumpu swinged wildly on Monday as reports broke out but was regardless mired deeply in the red for the entire day and did not have the time to gain back more than a portion of that at market close. The stock is still up nearly 50% from when the news of ongoing negotiations first broke.

Outokumpu talks stainless with ThyssenGroup

Finnish stainless steel company Outokumpu (OMX:OUT1V) confirms ongoing preliminary discussions with ThyssenKrupp for strategic options, including potential joining of ThyssenGroup’s stainless steel unit Inoxum (the former Stainless Global into which ThyssenKrupp Stainless AG was incorporated) and Outokumpu after the news had become public. ThyssenGroup is reporting Inoxum as a discontinuing operation and wants to carve it out either via IPO, spin-off or sale.

Outokumpu said that negotiations are ongoing and no assurances can be given on what their result might be. The company will announce further news when appropriate. Outokumpu popped more than 10% at market open.

Outokumpu still languishing

Stainless steel supplier Outokumpu (OMX:OUT1V) still hasn’t been able to shake off the negative vibe and the company is guiding for yet another minus result for third quarter. Second quarter operational result was slightly negative but capital gains of 242 million Euro lifted net profit for the period to 50 million Euro.

The company says that demand for stainless steel weakened towards the summer as customers are destocking due to declining nickel price. As a result of this and consequential inventory losses from metal stock means third-quarter operating profit is expected to be clearly negative. Outokumpu’s stock market price is down to 7.6 Euro, a fall of 3.3%.