February 5, 2020 / 7:27 AM / 14 days ago

Finland's Outokumpu shares up 12% on prospect of unit sale

(Reuters) - Shares in Finnish stainless steel producer Outokumpu (OUT1V.HE) rose 12% on Wednesday after the company said it would start a review of future options for its loss-making Long Products business unit, including possible consolidation.

FILE PHOTO: Outokumpu logo is seen at the company's head office in Helsinki, Finland May 22, 2018. REUTERS/Jussi Rosendahl/File Photo

The unit, which makes products such as bars, wire-rod, and wire for the oil, chemical and engineering industries, had 2019 net sales of 642 million euros ($709 million).

Outokumpu has mills making Long products in the English city of Sheffield, the United States and Sweden.

Analyst Petri Gostowski from equity research firm Inderes said the review could lead to divestiture of the unit as it would benefit from economies of scale.

“It is a rather small business area, it would be more efficient as part of bigger business. Its profitability is rather limited as a standalone,” Gostowski said.

For 2019, the unit fell to an underlying EBITDA loss of 7 million euros from a profit of 25 million a year earlier. The unit’s annual revenues fell 13% from a year earlier, while deliveries dropped 20%.

“In Europe, demand continued weak in the fourth quarter due to inventory destocking and a decrease in end-user demand, especially in the automotive segment,” Outokumpu said.

The 12% rise in Outokumpu shares to 3.71 euros took it to levels last seen in April 2019.

TURNS TO BRUSSELS

The company said it expected a seasonal improvement in the stainless steel market in the first quarter, which would help to boost its deliveries and lift its underlying operating profit.

Outokumpu reported a fall in fourth-quarter adjusted earnings before interest, tax, depreciation and amortization (EBITDA) to 73 million euros from 89 million a year earlier.

On Jan 20 it had said the number would be around 70 million euros.

“Deliveries were low mainly due to distributor destocking in the U.S., high import penetration in Europe and low activity in the global automotive industry. These effects were further exacerbated by low prices in Europe,” CEO Roeland Baan said in a statement.

Outokumpu has reported falling sales and profits in recent quarters as cheap Asian imports hit its sales in Europe.

Last year European Union governments approved limits to steel quotas to protect European manufacturers from the threat of surging imports following Washington’s imposition of steel import tariffs, but Outokumpu said more was needed.

“It is evident that the EU needs to implement stronger safeguards and other trade defense measures to ensure a level playing field for all market participants,” Baan said.

Reporting by Tarmo Virki in Tallinn and Boleslaw Lasocki in Gdansk; editing by Jason Neely and Timothy Heritage

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