Outokumpu (OUT1V) Q4 2016 earnings summary

Executive summary

• FY16 returned to positive EBIT of €45m from a €100m loss in 2015, following eight consecutive loss years; cost reductions, commercial execution and higher volumes drove the turnaround.

• Vision targets by 2020: €500m EBIT, minimum 12% return on capital employed and gearing no higher than 35%.

• Net working capital fell €307m, exceeding the €200m target; strong cash generation enabled debt reduction and a €0.10/share dividend.

Financial highlights

• FY16 deliveries rose strongly YoY, led by the Americas; sales declined as realized prices fell in Europe and the U.S.

• Q4 underlying EBIT was €38m vs. €32m in Q3; FY16 underlying profitability improved substantially YoY.

• Operating cash flow reached €319m for FY16, including ~€200m in Q4; net working capital release exceeded €307m.

• Q4 net income was lifted by €189m deferred tax income, producing a positive FY net result.

• A €9m supplier back-invoicing charge affected Q4 Americas EBIT; it covered services from 2015–16 and was recorded as underlying.

Outlook and guidance

• Q1 adjusted EBITDA expected above €250m; guidance excludes positive inventory and nickel valuation effects.

• Q1 deliveries expected higher in Europe and significantly higher in the Americas vs. Q4; cost savings to continue and higher ferrochrome contract prices to support European profitability.

• FY17 net debt target below €1.1bn, including the planned dividend; Q1 working-capital growth from higher prices and volumes expected to weigh on cash before conversion later in the year.

• CapEx expected at €150m–€200m in 2017 and a similar range thereafter, with possible 2019–20 increase for the Kemi mine.

• Ferrochrome annual capacity outlook maintained at 500,000–520,000 tons; limited maintenance planned for furnace one.