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Executives

Johann Steiner – EVP, Human Resources and Health, Safety and Sustainability

Mika Seitovirta – CEO

Reinhard Florey – CFO

Analysts

Mikael Doepel – Handelsbanken

Neil Sampat – Nomura

Bastian Synagowitz – Deutsche Bank

Julie-Anna Needham – Deal Reporter

Stephen Benson – Goldman Sachs

Outokumpu Oyj (OTC:OUTKF) Q4 2013 Earnings Conference Call February 13, 2014 6:00 AM ET

Johann Steiner

Good afternoon, ladies and gentleman. And welcome to Outokumpu’s Fourth Quarter and Full Year 2013 Financial Results Meeting. Today we will have a presentation by our CEO, Mika Seitovirta, as well as our CFO Reinhard Florey. Mika will first discuss a bit the year as whole as well as our current situation. Reinhard will dig into numbers. Then Mika will then conclude the presentation. At the end, as always we will have a Q&A session and we’ll start the questions from Helsinki and then continue with the conference call lines.

But with this, I will now ask Mika to come and start the presentation.

Mika Seitovirta

Thank you, Johann. Welcome everybody. Today we have the pleasure of presenting to you our annual accounts from last year. And also the Q4 results of Outokumpu.

2013 was the first year of the new Outakumpu. It was a very tough year. But it was also a year when the company really started to change. And I hope I can give in our presentation, you the highlight what were the challenges, why the result as such was a disappointment. But on the other hand what are the things that are now moving forward exactly as we have announced before.

If we start from an overview of last year, if we take first the headwinds that we had. And then look at the tailwinds as well. First of all, it was a tough market environment especially in Europe. The overall situation in Europe when it comes to European competitiveness was not there. Industrial investments were not there. And that had an influence of course also in the end-demand of stainless steel.

Another thing was that there was an unfavorable development of nickel, nickel prices went down 18% during 2013. And on top of that, as we all know, we got the remedy demand from the European Commission which has then taken a lot of focus, time and all kinds of resources of the company. And now during the first quarter of this year, we are happy to leave that phase on the backyard. And we are able with full resources and energy look again forward.

The good things are that when it comes to our cost saving efforts, when it comes to our synergies we did indeed progress last year.

We also started our first big industrial chains and the first milestone was that the Krefeld melt shop was closed the 6, December last year. This is exactly as we have announced earlier and we are going to follow that path further as well. It’ 600,000 tons of capacity which we will reallocate and of course that cost and that synergy benefit is going to be for our overall financial benefit this year.

We also announced last year a new EMEA industrial plan. The core of the plan is that we will save €100 million additionally. And actually that is coming from two elements there from an additional headcount reduction of 1,000 people and a possibility to close Bochum melt shop earlier than planned.

Calvert, was not an easy challenge last year. However, if we look at quarter-by-quarter, so, we can see a gradual small positive development. And we were reducing losses. Q2 was minus 70 EBITDA, Q3 was minus 50, and Q4 was more or less minus 30. So, indeed we are moving although we had lot of challenges, especially with the oversized inventories and deliveries from Terni.

Ferrochrome production ramp up has been a success story so that has really gone well. We reached the volume target in production what we had in our plants. And that is going to continue in a favorable way this year as well.

P300, that’s our working capital program where we have set the target that we will come down to 93 inventory days at the end of last year. We were spot on there and that meant also that we freed cash €351 million out of that exercise.

The number would have been even bigger if we would have included all the units including VDM and so forth. So, then it would be closed with the €500 million. However, here we have now what we are presenting only the continuing operations in these numbers.

Then of course, how to strengthen the balance sheet and we had the arrangement where we sell VDM and Terni to ThyssenKrupp. In that connection, a complete refinancing package was renewed. And then plant right issue of €650 million. So we are still confident that all of these things will materialize during the first quarter.

And that means also that the closing of the original deal will happen during first quarter this year. And as you might have seen so the one-off (audio gap) items that the merger control is okay with this transaction.

If you look at the EBITDA numbers there, you can see a slight improvement between quarter three last year and between quarter four. It was very much in-line with our guidance as well. And the good news is really that the cash flow was the second quarter, consequent quarter positive which made actually the whole year cash flow for Outokumpu last year positive for €34 million.

Couple of words about the market. The stainless steel industry, we have a positive growth outlook. If you look at the global numbers here, provided by SMR, you can see that for this year there is 5% growth forecast and actually for the year after as well. These are of course the good news.

However, if you look at where the growth is coming, so last year was troublesome when it comes to Europe. We had negative end demand development in Europe that’s actually minus 1% as you can see. And our market share of course, our core and our heart of the business is in Europe. So we suffered during the first year from that.

But we have a good picture and a better picture for this year. In USA, in North America, where we have the Calvert ramp-up so it’s forecasted that there would be 4% growth, not only for the total Americas but also if you take out North American numbers. And that is a good sign. Together with the reassuring low energy prices, you will have a positive end demand for stainless steel in USA and that’s a good thing.

In Europe, SMR is forecasting plus forward this year. We don’t really share that positive picture, we think it’s too early to say and make that conclusion that the chains could be that big. However, what we clearly see is that is going to be better this year, even in Europe than it was last year.

China continues and Asia actually the whole APAC continues with strong growth numbers. And our specialty strategy is going to benefit of course from that fact.

You have seen our strategy roadmap many times. You have seen, we have the restructuring we have the profitable growth there. We want to be extremely consequent in implementing this. And when it comes to restructuring, when it comes to synergies, efficiency programs, transformation of the culture and the way we’re working. And also strengthening the balance sheet.

So, we manage last year to take all the boxes. And that is extremely important because that is the foundation of getting Outokumpu back to profitability. To get the right cost levels through the synergies and other savings that we can do. And on the other hand, to get the balance sheet now through these arrangements so that we can finance the further restructuring which is still ahead of us.

On the growth side, it goes without saying that the key lever is the Calvert ramp-up. And that is the number one thing for us this year. Then we will continue of course with Ferrochrome. And then further developing our specialty strategy and on (audio gap) that I mentioned the APAC. So this is very much valid for us still and the way forward.

On synergies maybe just one thing, originally we promised to deliver €50 million. We gave an outlook in connection with the Q3 reporting that we would deliver €75 million. At the end of today the number was €95 million, which is a very good number.

The headcount reduction we said that our plan is to reduce 770 people last year. We had reduced indeed pretty close to that number create 766 jobs.

The same positive development on the cost side goes for the P150 project. Originally, €50 million outlook in connection with Q3 €75 million and actually we exceeded that as well, so it’s €104. When we calculate all the measure now together because this program is going to continue still this year, until we are there up to €150 million.

So we don’t have any gap between the measures and the final numbers. So this is going to be delivered this year. P300, we have exceeded the target, we will exceed the targets all-in-all, original target was 300, you can see that we are now already in €354 million there.

And then, as I mentioned the EMEA plan, as announced before. So we stick to that number of €100 million.

The balance sheet maybe the one which I didn’t mention here was the CapEx. We took very forceful measures in order to reduce our CapEx spending because if you remember, 2012, it was some €760 million. Now we were down for the continuous operations, €183 million. If you would include VDM here, so it would be around €250 million here.

This year, we will also be under €200 million. So the big projects are now behind. We will capitalize on those investments so that we get return out of it. And we would concentrate on the maintenance investment. And of course on the announced investments like the investment in Krefeld so that we can close the bend rod site and move that operation to Krefeld.

We also announced and it’s good to remember here two disposals of non-core assets, namely the Tornio electricity network and then the Luvata loan receivables so that is done. I will still come back a little bit to ramp-up of Ferrochrome here and ramp-up of Calvert later on.

What we also announced today was the outcome of the strategic reviews of our thin and precision strip operations in Sweden and Germany. If we go couple of years back actually, the first time we announced about Kloster was 2011, when we said that if we can’t fix it, we need to sell it or we need to close it.

And we have been trying several years to do different improvement programs there but we never reached the profitability. And now it’s time for the final conclusion here. So we have decided to discontinue with the Kloster operation. At the same time, we have said here that we continue with the Nyby operation and we continue with the Dahlerbrück operation.

It is sad news for Kloster but business wise we don’t have the means to make it profitable. So that’s why we are aiming towards the plant saved cost, fixed cost of €15 million. We have done the major part of the impairments there. So, this will be very small cash cost at the end of the day.

And we try to save as many of the profitable products of course that we can and supply then from an alternative supply route to our cost effects. All this will happen during this year.

Strengthening of the balance sheet, I will not go into details, you know the contents here. And you can later on ask questions if you want to. I just want to highlight this is, we are very confident this is going to happen now. The deal is going to be closed during this quarter still.

And as mentioned tomorrow it’s the extraordinary shareholder’s meeting. And in that meeting the board is seeking for the authorization in order to do the €650 million right issue.

This picture is very important for us as well, because it’s very much about cost in form of synergies, in form of fixed and variable costs and in form of EMEA restructuring plant. €380 million 2015, and then by 2017 we will have all-in-all €450 million of savings for Outokumpu.

We were able to reduce the losses in Calvert, because obviously the major part of the losses here is coming from Calvert and that is not a secret. It’s a typical ramp-up picture where until you go over certain levels of volumes, you will have losses. And as you remember, we also had an over-delivery from Terni, which we couldn’t control because of the European Commission. And that meant that we couldn’t use our own efficient melt shop as much as possible.

Now, out of that problem I would say 90% is really solved now. We will still have some deliveries during the first quarter, second quarter no deliveries. So, then we are on our own which is a very good thing.

At the same time, we can see that in Calvert operations, our yields are improving there, which means that we get it more and more often right first time. We are able to improve our delivery precision towards our customers. And when this continues it means that we can increase the volumes. And it also means that we don’t have to rework as much as in the beginning of the ramp-up. So, we believe that we are going to have breakeven EBITDA for the full year 2014.

Ferrochrome business, we reached production level of 434,000 tons. As you remember, the fully ramped up ferrochrome production is going to be 530,000 tons that’s 2015. And this year’s target is 490,000 tons.

I don’t see any obstacles here, I think the ramp up is really going well also for this year. And this is already now a very profitable operation. Also there was a slight increase in the ferrochrome contract price for the first quarter, 5%. But it was into the right direction.

In this connection, so let’s take a drill down to numbers and I would like to invite my colleague Reinhard here, our CFO, who will tell you about the financial performance of the company.

Reinhard Florey

Thank you, Mika. Welcome from my side. I would like to lead you through our financial results for quarter four 2013 and the full year 2013.

If we have a look at the quarter four first, what we tend to see is that the operational numbers have been further decreasing from Q3 in terms of deliveries. We have had a reduction from 635,000 to 620,000 tons in deliveries. And overall, our sales dropped from €1.6 billion to €1.5 billion in the respective quarter.

However, if you look at the financial performance, both in underlying EBITDA, EBIT – but specifically in the operating cash flow, we were able to show clearly better numbers. Looking at the EBIT number first, we have to see that there are two extraordinary effects in quarter four. The first is the reimbursement of the renewable energy charge in Germany, with the amount of €20 million that was I would say finally paid to Outokumpu in the fourth quarter. And there is an extraordinary positive result from the sale of the 12 new grid in the value of some €5 million in there.

So, all-in-all, what we can say is that we are quite up to what we have predicted that it is about the same level of quarter three. But of course with all that we can show better numbers.

Most important for us is that operating cash flow, with an overall value of €223 million has been tremendously positive and also the CapEx level with 45 has been in the range of the reduced CapEx that we have applied all over the year.

If we compare quarter four 2012 to quarter four 2013, we see that again on the operative side, deliveries were lower, sales were lower. However, all the profitability numbers have been improving. So I think that underlines the effort that this company has undertaken over the year to improve on this side.

Looking at the full year numbers, 2013, we see first of all that we have compared to 2012 some €150 million lower – 150,000 tons of lower deliveries from 200,000 – €200 million of lower sales. But then again, regarding all the profitability numbers, it’s on the improving side. But specifically what is important is (audio gap) the positive operating cash flow of €34 million which helped us also de-leverage this company. And I will show that also on the net debt side we had an improvement from quarter three to quarter four.

CapEx, as Mika has already indicated, significantly lower than the last year where we had some €760 million of CapEx, in this year only €183 million. All of these numbers, and you have seen that we have in quarter three restated the numbers now on a comparable basis so that all these numbers do not include VDM anymore, they do not include of course Terni that has been out before and all the service centers that are in the remedy package.

Let’s have a quick look to our business areas, the performance in the business areas and the development over the year. What we can see on the left hand side on the EBITDA level that there has been overall performance of more than €80 million positive EBITDA from the EMEA side. And the last quarter contributed with €27 million however please bear in mind that they are these extraordinary effects, specifically here in EMEA.

This clearly shows that the first half of 2013, from the business environment has been clearly better than the second half. And Mika has already taken his remarks on the outlook regarding 2014.

On the Americas, most important to note is that as of quarter two, there has been a constant improvement in terms of the profitability. Still at a loss, this is due to the ramp up phase. But it is clear that we had by the beginning of the second quarter 2013 overcome the situation where you add more losses, the more you produce. Now we are improving the profitability than what we’ve produced. And this is important on our road to the breakeven EBITDA that we have promised for 2014.

Then APAC, we see on moderately positive level over the year, a slight negative number on Q4, due to some evaluations from stocks. Then on specialty stainless, we see in quarter four, clearly an improvement compared to quarter three with positive EBITDA of €13 million.

On the EBIT side, we still see and this is all excluding our non-recurring items that our business areas are on a negative level. And there we can already emphasize that this is our two focus areas for 2014 to bring EMEA back on a profitability level and improve also in our Americas site.

Let us look a little bit on one specific influencing factor both regarding the prices as well as some non-recurring items. The nickel price as you can see has during the year 2013 decreased from a level of close to €18,000 to a level down to €13,000 then recovering a little bit back to €14,000.

This has overall resulted in negative effect from timing in some €56 million in 2013. You can also see that there has been in 2012, some similar developments in the beginning of the year but with some improvement later on. So that the loss in 2012 from timing effect was a little bit north of €30 million. So, we had a stronger negative effect from the nickel pricing and timing impact in 2013.

If we look at the operating cash flow. At least clearly has been I would say the focus of the management in order to stabilize the financial situation and also de-leverage the company. And this certainly had a clear success in the last quarters. We had already a small positive operating cash flow in the third quarter. But then in the fourth quarter with €223 million, all the measures specifically from our P300 programs came into action. And most of that really comes from inventory reduction.

This leads to a situation that overall we have a free cash flow for 2013 of only minus €74 million. And we had net cash from financing activities which means drawing into our credit line of €459 million. But that was balanced to an increase on the cash and cash equivalent side of €385 million plus. And I think this is also the good news where you can see that the stabilization of the financial position clearly has taken place.

In total, we see that we also had an positive impact from the sale of the Luvata receivable as well as from the Tornio electricity network, some €140 million from the Luvata receivable and some €63 million from the Tornio network. In total, some €297 million of net working capital has been released in 2013.

In the last bullet point, you see that we anticipate that in Q1, due to the reviving industrial environment and also the expectation of higher deliveries, we will also see some increase in our net working capital which will probably lead to a negative cash flow from that side. So that should be taken into account.

Regarding our capital structure, I already indicated in the beginning. We have been able to reduce from the end of the third quarter to the end of the fourth quarter, our net interesting bearing debt. So, this clearly has been reduced by more than €300 million.

If we look at the total equity side, the total equity has been reduced. And all (audio gap) reduction of the equity side of about €1 billion coming to an equity value of €1.9 billion that we have in our balance sheet right now.

We have, regarding our gearing ratio which is now at 188%, changed the way of calculating that. We have adjusted it more to the way how the market is used to calculate the gearing ratios. So, we see that from end of quarter three to quarter four, this has increased by some 17 percentage points to 188. And I will come to the impact from our financial restructuring package including the transaction little bit later on.

What is important to note is that our liquidity reserves are slightly above €1 billion. And within this liquidity reserves that is more than €600 million of cash and cash equivalent and to risk is available lines that we have in our credit lines as well as in our pension related lines.

If we now look at the situation of the divestiture impact, we will see that the divestiture impact and the cancellation of the loan load that against decay of almost €1.3 billion. This will of course have extremely positive impact on our gearing and on our net financial debt.

So, the impact will be some 68 percentage points of improvement from 188% to 120%. And that is only coming from the transaction, from the €1.28 billion of loan loss going away.

With the other action specifically, the rights issue there will be additional positive impact. That would influence the gearing in Q4. Of course there will be a slight negative impact from our negative anticipated negative cash flow but much more so if a much bigger positive impact from the plant right issue, which will strengthen our equity side.

The third part of our financial restructuring efforts that have been the focus specifically in the second half of 2013, was the shift of maturities in our credit lines. And here you can see the situation of the current maturity profile before the conclusion of project (inaudible) and the transaction to the debt maturity profile that is estimated after that.

What you can see is that there is tremendous shift into the year 2017, so three years ahead, which will allow us to do all the necessary measures of restructuring, ramping up and optimizing our profitability basis.

You can see that there are some maturities in 2014, clearly lower than in the original plans. And that more or less in ‘15 and ‘16, there is the main part in our bond facilities €250 million in 2015 and €250 million in 2016 that have to be applied.

So, overall, the situation is that we’ll have after the closing of the transaction, a new €900 million revolving credit facility maturing in 2017. We will have a new liquidity facility in the magnitude of €500 million. And we will also have the ability to shape majority of our bilateral lines with their maturities also until the year 2017.

Regarding the synergies and regarding the work on improvement from this program, we have clearly exceeded the targets that we have put to ourselves at the beginning of the year. We had anticipated that it would be €50 million, we have increased that target to €75 million. And we have been successful in delivering some €95 million out of the €200 million of the synergies.

We have also said that the forecast for 2014, we have put ourselves now a target to deliver in total more than €170 million of the synergies.

There are many contributions from procurement in there specifically also on the raw materials side. But then large and continuously increasing share of the production optimization of all the industrial synergies that we have in this concept of the merger.

And of course while there will be not a lot of increasing of the procurement synergies in 2014, the major part of the increase of another €75 million or more will come from this industrial side, now that the melt shop in Krefeld is closed, and all the other industrial synergies are being at rest as well.

One of the consequences from these industrial synergies of course is also the headcount reductions. We have been successful in reducing the headcount on a comparable basis to 766 people on the lower side. And our target is that this will be reduced further by another 750 person.

So that the headcount in total for these two years, would decrease by 1,500, out of the 3,500 that we have anticipated until 2017.

The second impact from our improvement project specifically is in the area of net working capital and cash extraction from our net working capital. And what you can see here that we have exceeded our target of €150 million, by far we have come out within that working capital reduction of €351 million in 2013.

And this even is more than the original complete target for 2014, but we have already anticipated that we will further increase on these savings.

What has happened, you can see that on the right side graph. We have reduced specifically the tons in our inventories by 27% over the year. While there was still a slight increase in the first and second – beginning of the second quarter, this has been reversed in the third (audio gap) 2013 successfully. So that in total, the inventory days could be reduced to a level of 88 on a continued operations basis. And this is the number that does not include our ferrochrome productions.

With that, I would give back to Mika for our outlook and targets.

Mika Seitovirta

Thank you Reinhard. Again, couple of words about the market, how we see it in quarters. And again, we rely on SMR which we feel has normally given the best and most reliable outlooks.

It’s important to notice that I think that we will have, in stainless steel market as well a new reality here and we are not able to always to look for the old seasonality’s any longer. It has to do also with the nickel price. If we look at 2012, and we look the end of that year, we clearly saw an increase in nickel price. And then followed by restocking. And then when the nickel came down, also the end-demand consequently went down on the volumes.

Now, actually this year-end 2013, the nickel has been pretty stable. So it has been between US$13,500, US$14,500 all the time. And whatever that means it could be that the bottom there has been reached.

However, despite of that – we and also the outlooks and forecast show that there would be modest increase in the underlying demand this time. And I think this is really interesting and we need to live this year a little bit further down so that we can see how much is, it really going to be.

As you can see, this is how SMR is splitting the 4% in EMEA. If you look at the EMEA report, the pattern is a bit more clear and even growth numbers in end demand right from the beginning of the year. So, it’s 4% and it’s 4% all-in-all what is included in this forecast.

Our guidance based on that, as I told you, we are expecting modest improvement in the underlying market demand. Yes, we are doing that. We are also expecting sequentially higher delivery volumes and some improvement in base prices. The progress in the cost efficiency initiatives and synergies that will be steady. And that’s why we ask demand that our underlying EBIT is to be better than in Q4 2013. But still at a loss.

Our operating cash flow to be negative during Q1 mainly driven by an increase in inventories related to anticipated higher deliveries. At current metal prices, marginal raw material related timing gains if any.

Operating result in Q1 could be impacted by non-recurring items which of course are associated with the group’s ongoing restructuring programs. And this outlook, reflects the current scope of continuing operations of Outokumpu.

And the updated target, we have mentioned most of them but this is just to summarize that for instance CapEx, yes, it will be under €200 million this year as well. Ferrochrome production 490,000, 2015 still 530,000 tons is valid. The savings coming from P150 synergies and EMEA restructuring program, altogether €450 million by 2017, €380 million by 2015.

And then business area, Americas where we see the loss fees to be reduced gradually. And EBITDA breakeven for the full year 2014. And the delivery volumes of about 530,000 tons.

Our priorities for this year are very clear. Once more, number one thing is the ramp-up of Calvert. It’s the biggest lever in our profitability for this year. Number two, is taking care of EMEA restructuring but also taking care of the German market.

Last year, was the year of integration. This year, we can focus all our energy outside the organization and that means towards the customer. Yes, we lost some market share last year, however we were already improving towards the end of the year. And we believe that this year is going to be very different from that point of view. We have in the biggest European market, which is Germany, we have 50% market share. And we’re going to stick to that.

The implementation, flawless execution of all the savings programs, no changes whatsoever against the previous. And then, delivery reliability. This is where we want to be the best in the industry and really show that we get it right in the delivery and we get it right in the quality and first time right in production.

Last year was a tough year. This year will still include a lot of restructuring but we are moving into the right direction. Thank you.

Question-and-Answer Session

Johann Steiner

Thank you both Mika and Reinhard. I believe we are now ready to start the Q&A session. And we will start the questions from Helsinki audience and then continue with the conference call participants. (Operator Instructions). So I think we’re ready.

Mikael Doepel – Handelsbanken

Thank you, Mikael Doepel from Handelsbanken. Few questions, first of all on the net working capital which you mentioned. How big is the tie-up which you expect in Q1. And if you would assume that the SMR demand forecast is correct, what do you expect the total change working capital would be for this year?

Reinhard Florey

This is a very good question. And the anticipation of what will happen is that we are a little bit more cautious than SMR. So, we are not taking into account in our review that there will be a 4% growth already visible in the first quarter.

So, therefore we would see that these negative and negative impact from restocking our inventory due to the deliveries, that is overall a dynamic that that is a restocking exercise going on throughout the industry. So, we have by delivering some more volumes also to improve in our inventories and get that right.

The second is, that we are still in the U.S. on a ramp-up which requires also some additional net working capital. We have not disclosed exactly what the volume would be but it is clear that the exercise and the influence that we have to reduce the overall or improve the efficiency and to reduce the days of inventory will go on.

So, that is an operational trend that increases on our net working capital but there is also some counter measures. So that will be in our view a negative differential that will lead to an improvement but an increase in the net working capital. We do not give a number but you can then see that it’s not in that magnitude that maybe just volumes will imply.

Mikael Doepel – Handelsbanken

Okay, thank you. Then in terms of your interest expenses, you gave some time last year a guidance for 2013 of what they would be roughly on a full-year basis. Can you give that guidance for 2014 as well?

Reinhard Florey

Yes, let me give you here a precise answer. In 2013, we had some interest expenses of €210 million. We are expecting that our interest expenses for 2014 will be in the range of €120 million to €130 million. So that will be lower, simply due to the fact that our overall net debt will be significantly lower. And specifically also the interest that we have to pay on the loan note due to some group Terni fall away.

Mikael Doepel – Handelsbanken

That’s clear. Thank you. Just one final question, in terms of the rights issue, will you come out with the details straight away after the EGM or what is your timetable in terms of that?

Mika Seitovirta

Well, concerning the rights issue, so, I said we have the EGM tomorrow. Then some time after that the board of Outokumpu will have a meeting. And in connection with that meeting the board of Outokumpu will also come out with the terms and conditions. We haven’t given any specific date for that yet. We expect that to happen during the first quarter.

Mikael Doepel – Handelsbanken

Okay. Thank you.

Johann Steiner

Any other questions from Helsinki? If not at this time, I think we could take some of the questions from the conference call lines. So, operator, please be ready.

Operator

(Operator Instructions). Our first question comes from Mr. Neil Sampat from Nomura. Please go ahead, sir.

Neil Sampat – Nomura

Hi, good afternoon. I had two questions. Firstly, I was wondering if you could update us on whether you’ve seen any change in the input dynamics since the beginning of the year in the European market both from China and also from countries like Turkey as well?

And then secondly, a question on market-share. So your shipments were down 3.5% in Q4 and you’ve probably seen upper shipments were up 15%. Could you maybe try and reconcile these two figures and maybe discuss what you’re seeing in terms of your market share within Europe?

Mika Seitovirta

Yes, thank you for your questions. First of all, to the imports. The imports have arrived during last year as they typically do quite a lot. So I think we have seen all the numbers between 20% and 27%. The average being somewhere around 24% for last year.

Now, out of that 100% of imports, so 70% is coming from Asia. And from that 70%, the two biggest ones are China and Taiwan followed by then Korea. There are no major shifts between those three countries and their shares. It has been pretty stable, of course bearing in mind that there is this variation between 20% to 27%.

We believe that that will stay there and that will be about the same level, still depending very much on exchange rates, on the nickel price developments against nickel pick iron and so forth.

From Turkey, we don’t see any changes towards Europe so no major changes on that one. Concerning our market share, if you just look at 2012, you look at our continuous operations and Europe it has been around 40%. Last year it has been between 33% to 38% that is the variation. We don’t have the final numbers yet for the whole year.

And as I mentioned earlier, so last year was very much about integration taking the headwinds and then getting the new organization to move. This year we are clearly working a lot with that energy also towards our customers and gradually gaining some share back as well.

Neil Sampat – Nomura

Okay, thank you.

Operator

(Audio gap). Please go ahead, sir.

Bastian Synagowitz – Deutsche Bank

Yes, good afternoon. It’s Bastian from Deutsche. My first question is from Tornio. What is your current utilization rate and could you please give us any sense for what your contribution margin is from the per ton basis for any additional tons you sold. I guess, it varies across product but your operational leverage should be pretty strong. So, any corridor you could provide us would be very helpful? And maybe as topic, is what taking my next one.

Mika Seitovirta

Thank you for your question. As you might know, so unfortunately we are not giving the utilization rates by nil. We are giving them on a group level, where we have been more or less still last year between 70% to 75%. And of course this year, with the volume allocations and with the Calvert (ph) taken out only at the very end of the year concerning the melt shop of Krefeld. So we will have a different picture for this year.

I could tell you though that Tornio, there has been a good improvement in the utilization rates already now. However, there is still a space to increase that and that is also part of the plans. So all the volumes which will be reallocated are not yet reallocated. So there is room to improve and we have the tools to improve. And that is not dependable actually how the market is going to develop. So that’s the good thing.

The contribution margin put on, we are not giving that number either to the outside world. And because we believe that it would be too sensitive information. And I have to say I’m sorry that I can’t help you on that one. So, unfortunately not.

Bastian Synagowitz – Deutsche Bank

Okay, no problem. And maybe my next point is basically whether you could give us some guidance on the positive effect which we should expect in Q1 and Q2 from the fact that you no longer buy it. Obviously some residual volumes in the first quarter but not anymore in Q2.

So, basically thus the guidance for breakeven everyday also you were referring to earlier when it comes to Calvert, does that refer to the full year or do you refer to being breakeven on a quarterly run-rate basis?

Reinhard Florey

We have clearly the full year in our guidance. This means that even in the average of the year 2014, we will be EBITDA breakeven or positive. It is clear that we will not see the full effect in the first quarter. And then of course in the second quarter, we will have the benefit of this shipment from Terni discontinuing.

This also will not be a full effect that we will see in quarter two but then probably in quarter three, because you have some of the lead times in between. But that clearly is one of the key influencing factors. The other of course is to ramp-up where we are improving really day by day as we can say not only in volume but specifically in our way of producing, which means the yield trade will be improved, the scrap rate will be decreased, the way how we can live up to the total portfolio of our grades and (audio gap). So all that contributes very much to the improvement that we foresee in 2014.

Bastian Synagowitz – Deutsche Bank

Thank you. Now, basically if you just take only the technical effect of putting the capacity over from Terni to Calvert, then if we would not take basically quarter four and then just go further on to quarter three this year, assuming all other parameters remain stable. This is, should we think about this as €15 million per quarter impact just from – basically from the fact that you no longer buy a Terni or how much would that be roughly?

Reinhard Florey

Well, I think the calculations you are making are certainly not far from reality. You can see that if we say we are coming to a breakeven and then we see that we still have some significant €30 million to €40 million loss at the last quarter. And that of course, not all the contributions can’t adjust from these effect from Terni falling away. So, as we cannot give a specific number, but I can certainly say if you take that account, your calculations go in the right direction.

Bastian Synagowitz – Deutsche Bank

Okay. Thank you. And then, my last question is on cash flow again, and I guess this is really what is key for you. If you clean up your expected Q1 operating cash flow for the working capital change which we will have. Would you already be profitable on an operating cash flow basis, obviously before CapEx?

Reinhard Florey

I may not have understood the question exactly. You mean, on a positive operating cash flow?

Bastian Synagowitz – Deutsche Bank

Yes, exactly. So, if you take your operating cash flow, would you expect in Q1, with all the improvements, obviously you worked back working capital, I mean, have you already or would you already reach profitable level there on operating cash flow basis, net adjusting for working capital changes?

Reinhard Florey

No. We anticipate there will be an operating cash flow that might still be slightly negative.

Bastian Synagowitz – Deutsche Bank

Okay. And is there basically a quarter and the course of the year where you think you will reach a point where, at least taking current market conditions as given where you think that you would be sustainably breakeven on operating cash flow already?

Reinhard Florey

Well, most certainly that is always the task of a company like ours. It is very clear that that is of course some seasonal effects that you would have if you have effects from restocking in the market, you have to live-up to that. You have to live to the opportunities you have in the market.

And then you’re at a new level, and then you will stabilize that and that I have already mentioned that of course our strong effort in optimizing specifically on the days on inventories are going on. And we will see an improvement on that specific value as a target for Outokumpu still in 2014.

Bastian Synagowitz – Deutsche Bank

Okay. Thank you. And thanks for taking my questions.

Mika Seitovirta

You’re welcome.

Operator

Our next question comes from Mr. (inaudible). Please go ahead.

Unidentified Analyst

Hi, I’m considering negative effects from nickel on the company’s earnings. I was wondering what you are doing to avoid future falls in nickel affecting the company’s financial result?

Mika Seitovirta

Thank you for the question. There are several things of course how we try to improve our business model and be less connected to volatility of nickel. Maybe I start from the product portfolio because one of the key things in the transaction was obviously that we are not so dependent on austenitic products only, which was the case with the standalone Outokumpu which are containing nickel.

And now we have a much more balanced portfolio including variants to give you an example. A big thing for last year, was that we introduced new pricing model, daily alloy surcharge. And that has been effectively in use already from the beginning of the year.

We have three different models there, where the first model is that you can pick up any day between the order or the delivery for the nickel value or you pick up your order date, it’s the second variant. And then the third variant is kind of a flex model which we are introducing as from May, where you can take any average period between the order and the delivery of our products.

And of course this is a tool providing to our customers, better way, more stable way to work with the real demand instead of speculation. For us, it means also that we believe that we can manage whether the timing change there and we can also get a more stable order flow.

Maybe Reinhard, would you like to comment about the hedging policies in this connection as well?

Reinhard Florey

We have in order to stabilize this situation also introduced in the context of the daily alloy surcharge and ability of our company to hedge the exposure of our raw materials to a much larger degree than that has happened in the past.

So, we are able by systems by collectively netting our short and long positions within the company, have an active hedging role that we are doing at the LME. We have established a metal base in our procurement department and of course this is directly linked into our risk management system in the risk department in our financial area.

So, this gives us the opportunity to leverage the opportunities that we create by this new pricing system. But specifically also by our new awareness about our exposure regarding nickel. And that will mitigate the negative effect that we still have seen in 2012 and 2013 from the nickel movement.

Unidentified Analyst

Okay. Thank you. And then I was also wondering in your outlook, you say that you expect some improvement in base prices for the first quarter of 2014. And I was wondering if that’s also the case in your expectations for Europe alone and how much you are expecting it to improve by?

Reinhard Florey

Regarding the base prices, that is indeed an expectation that specifically in Europe we would see an improvement of the base prices. We should not forget that base prices have seen quite a significant decrease throughout the year 2013 compared to 2012.

So there is room for improvement, specifically also with the situation that we are taking out significant capacity not only in the hot side with melting and hot rolling but also some capacity on the cold rolling side which should contribute to a stabilization of the market and give us the opportunity to serve our customers with our best products to adequate prices.

Unidentified Analyst

Okay. And if this is the case for both flat and longs or is it more a case for an improvement in flat prices but no so much for long?

Reinhard Florey

Thank you for the question. What we see of course is very much targeted also regarding the forecast that we see in SMR on the flat side. The long products’ is a very interesting business for us. And there is in contrast to the flat business not such a thing, like a standard grade as such that you would price and that you would follow-up the pricing.

But we have very different dimensions, qualities and ways of processing the products. So of course we are using this tool also to improve our profitability in the long product and in the contemplate side.

Unidentified Analyst

Okay. Thank you.

Operator

Our next question comes from Julie-Anna Needham from Deal Reporter. Please go ahead.

Julie-Anna Needham – Deal Reporter

Hi there. I just wanted to talk about the rights issue. Are you able to say what kind of level of support you’re hearing from investors outside the 52% that you’ve already committed? And also on the timing of that, you’re going to have to make it quite quickly if you’re going to do it within the first quarter, because there will only be six weeks left after this weekend?

Reinhard Florey

Yes, thank you very much for the comment. First of all what we are seeing is that there is a very positive attitude about this rights issue, in context with the total measure package that we have put up to stabilize the financials and the balance sheet position of Outokumpu.

So, if you see clearly the difference of what we have achieved in terms of net financial debt, in terms of the equity side with that in terms of the maturities, that is clearly a package including the rights issues, where we are seeing very positive reactions down there.

Of course, until this is not done, we cannot exactly see how this works out. But please bear in mind that this is fully underwritten that we have the 47% that are not yet in the hands of commitments of investors fully underwritten by our banks that are mandated for performing this rights issue. So, in that respect we are extremely confident but specifically also with sentiment in the markets towards our efforts here we are optimistic.

In terms of timing, you are right. But it is exactly as you hear from us that we will be in the market with this right issues still in quarter one 2014.

Julie-Anna Needham – Deal Reporter

Okay. Thanks very much.

Operator

Our next question comes from Stephen Benson from Goldman Sachs. Please go ahead, sir.

Stephen Benson – Goldman Sachs

Hi there, just three questions from me. The first is on antidumping duties. We’ve seen a few other countries in recent months put antidumping measures in place on Asian imports. Is there any discussion about doing this for Europe and if so, kind of where are we in those discussions?

Mika Seitovirta

Thank you for the question. Concerning the antidumping is of course for our stainless and our steel organizations in general. It’s their task to follow-up the development.

And indeed, if needed, so also to react on those. So, it’s a continuous process what we are doing to our central organizations and having the conducts also with different authorities. So, there are no specific projects going on, on that, it’s an ongoing process. If we need to react of course, then we react.

Stephen Benson – Goldman Sachs

Okay. And the second thing was just on the first quarter and the full year outlook. What could we expect in terms of impairment charges or restructuring charges in the first quarter or the full year? And if you could quantify that would be helpful?

Reinhard Florey

We have not been giving statement on the full year. However, what we have stated in the very beginning already when we came up with the concept of our €200 million of synergies is that we anticipated that that will be about €160 million of one-time effect. Out of which certain percentage has been taken in 2013 already. And the rest would be in the years 2014, ‘15 and only a smaller part of that in 2016. So, that is the best guidance I can give you on that.

Stephen Benson – Goldman Sachs

Okay. There is no way we could get a split on what’s left for ‘14 and ‘15?

Mika Seitovirta

Even more complex matter than that because as you know the EMEA restructuring plan that we announced €100 million savings plan. The one-offs related to that are not included in the original €160 million which was announced in the connection of the transaction.

And what we said already last time and we are slightly delayed of that timetable what we thought at that time that would be possible is that after we have finalized the negotiations with the unions and we know the full package how it’s going to be materialized and what does it mean. So then we are in a position to give a possible delta number and the timing of that. So that is still open and we are not speculating yet on that one. It’s the outcome from the negotiations.

Stephen Benson – Goldman Sachs

Okay. And just my last question was on – sorry, go ahead.

Reinhard Florey

You can have a certain lead into that if you just look at the headcount reductions that we have anticipated. Without the EMEA restructuring which is another 1,000, we have anticipated 2,500 of headcount reduction. And we have said 677 have taken place in 2013, 650 will take place in 2014 and the rest in ‘15 and ‘16. So, that might help you a little bit.

Stephen Benson – Goldman Sachs

Okay, thank you very much. And the last question was, are there any additional asset sales that we could see this year and if you had a number in mind, I recall a number being talked about up there €120 million possible of asset sales this year?

Mika Seitovirta

I don’t think that we have given out any number for asset sales for this year. And we are definitely not going to do it this time either. But what I would like to say is that we are of course all the time going to where we are against what we have promised. And we can only make a general statement in this connection that nothing is excluded. Nothing is off the table in that respect either. But there is no number for that.

Stephen Benson – Goldman Sachs

Okay. Thank you very much.

Operator

(Operator Instructions). There are no further questions registered on the telephone. Please go ahead speakers.

Johann Steiner

Thank you. Anymore question from Helsinki audience? Okay. Excellent. So many thanks for participating in this conference. We come back with our Q1 results on the 29, April. Thank you so much.

Mika Seitovirta

Thank you very much.

Reinhard Florey

Thank you.

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