You may start, Daniel.
Thank you. Hi, and good morning and good afternoon, everybody. Welcome to ArcelorMittal's Q1 2019 Analyst and Investor Call. This is Daniel Fairclough from the ArcelorMittal IR team, and I'm joined on this call today by Germina Cristino, who is the Group Head of Finance. We're here to answer your questions on the results published this morning.
As usual, I'd like to remind you that this call is being recorded. Hopefully, everybody has had a chance to read our earnings statement published this morning together with a Q and A document and a presentation with detailed speaker notes. The idea of this call is that we will answer your questions. But before we move to your questions, I'd like to start with some brief opening remarks. Firstly, as you can see from the numbers, market conditions in the Q1 of 2019 have been challenging.
Demand in our core markets has been weak, and we can all see this weakness reflected in the indicators such as the Eurozone PMI and the year on year declines in auto production. This though has been further exacerbated by escalating imports into Europe, particularly for hot rolled coil. Unlike in other regions such as China, this weaker supply demand dynamic has constrained our ability to pass through higher raw material costs and this has led to a price cost squeeze and a significant deterioration in the results of our steel business. And this is why we announced production cuts earlier this week. We can though take some encouragement that China has been able to increase spreads in recent months, reflecting the benefits of the structural supply side reform that we've talked previously.
In our presentation today, we do have a chart, I think it's on Slide 5, showing the unusually low hot rolled coil price differential between Europe and China. As I say, it's unusually low. It's not unprecedented, but it is unusually low. And what you will see from that chart is that when this type of environment occurs, this dislocation occurs, it doesn't or it isn't sustained for extended periods. Relative to steel, our mining segment fared better, delivering improved results despite seasonally lower shipments.
This, of course, highlights the benefits of Arsenal Metals' vertical integration. And on a positive note, we have seen this quarter a lower than normal seasonal investment in working capital, which I think reflects our focus on the structural lease of the excess working capital accumulated in 2018, and this will continue through the course of this year. Q1 free cash flow was marginally positive, and that I think reflects some of the improvement that we've made in periods, particularly on our cost of interest. If you normalize for the working capital effect, the working capital investment this quarter and reflect on our target to release working capital this year and we're implying a minimum of $1,600,000,000 over the next three quarters, then hopefully you should be confident as we are that we can deliver healthy free cash flow in 2019 and demonstrate clear progress on debt reduction. These together with the Action 2020 progress and improved shareholder returns are our priority.
So with those brief remarks, we're ready to take your questions. We have a queue. So the first question we're going to take is from Efraim at Citi, please.
Hi. Can you hear me? A quick question on the cash flow statement, you had a $300,000,000 cash inflow from the FI hedge. Can you confirm that, that is going to that's a temporary effect and that will reverse in the coming quarters when the deal is completed?
Hi, Alfred. This is Jean Reno. Let me take this question. Yes, you're right. So yes, the impact of the hedging should reverse if the transaction when the SA transaction close.
Thank you. Can I also have a quick follow-up question, sorry? Just on the production cuts that you've announced, the 3 1,000,000 tons of production, clearly, that is is that a capacity impact or is that natural tons of shipments that you will be taking out of the market?
Sorry, Efem. Can you just repeat that question? But before we do so, I just wanted to go back to your previous question and just highlight again one of the remarks that I made on at the start of the conference call. If you look at the cash flow performance of the business this Q1, I think it should give you encouragement. The free cash flow was slightly positive.
I know it's only $25,000,000 but at least it was slightly positive. And especially when you consider that we did make a seasonal investment of working capital of $550,000,000 So given that we're telling you today that you can expect us to at least release $1,600,000,000 over the remaining three quarters of the year. Given the run rate of cash flow, excluding working capital investment in the Q1, that should make you quite encouraged about the cash flow outlook and the debt reduction potential over the remainder of the year. But sorry, I wanted to come back to your question, but I didn't catch it.
Yes. Sorry, for Nordea here earlier. The question was the 3,000,000 tons of production cuts that you've announced, is that on the basis of capacity or on the basis of shipments that you would be planning to make over the full year? So just want to kind of see if there is a utilization rate kind of haircut we need to take on that number?
Yes. I think the thing to recognize is that in the case of Krakow and in the case of Asturias, these operations have been running in the Q1 and in the second quarter. So this is capacity and production that we're taking out of the market. The other element of the 3,000,000 tonnes is the slowdown in the ramp up at Toronto. Obviously, we were anticipating achieving a 6,000,000 ton run rate in the second half of the year, and we are going to slow down on that pace of ramp up.
So, the overall effect is a 3,000,000 ton annualized reduction in supply to the market, but it does incorporate, as I say, a slowdown in Toronto and cuts in Spain and Poland. And I think the main takeaway to have on this topic is really the tonnes that we're taking out of the market in the Q1, those tonnes had a 0 or negative contribution margin. So, the price in the market was only covering the variable costs and there was no absorption of fixed costs on those tonnes. So, if you think about where we are today, taking those tonnes out of the market has 0 EBITDA effect. And then the opportunity for us to attack the fixed costs of those tons in the coming months, that's the opportunity for us to improve the EBITDA relative to us not having taken action at this time.
Hopefully, that makes sense
to you.
So we'll move to the next question please from Sita at Bank of America.
I've got two questions. Firstly, on Ilva, with the delay in the ramp up, does that impact any of the realization of the synergies that you are targeting at that asset? And secondly, your cash needs of the business at $6,400,000,000 I do appreciate that you have the potential to see working capital unwind in the second half and that will or the remainder of the year and that will support free cash flow. But ultimately, in the Q1, you didn't generate much free cash. Is there any scope to see the cash needs of the business, particularly on the CapEx side dialed down from that $6,400,000,000 or is there no real headroom to shrink cash requirements elsewhere?
Okay, Cesar. So let me address your first question on synergies in UVA. So we are making good progress. I mean, I'm not so sure that you attended our presentation in Toronto, but we are clearly making good progress, particularly in some areas like procurement, commercial, as we have these activities now as part of our European platforms. Clearly, as we slow down our production with the ramp up, so that will have an impact.
So that will be some delay, but we remain optimistic that we should be able to capture the synergies that we have announced initially. In terms of the cash needs, Silas, so at this point, we are not updating the cash needs, our forecast. Typically, we do it in quarter 2. But at this point, as you know, the CapEx that we have, the increase that we have from last year, so the projects for Ilva that will continue. We have also the Mexico project and some carryover from 2018.
So we believe that those projects, they will be important for the company. So we are not at this point revising them. And some of the other aspects of the cash needs such as taxes, so they still take into account the level of profitability that we enjoyed in 2018. To the extent that you have a lower number for this year, then of course, we have to adjust for that.
So we'll move to the next question please from Ioannis at Macquarie.
The first one is on the sequential EBITDA bridge and how we should think about it. I mean, any color you can provide on the volume development in Q2 across the different divisions? And also any color on the spread development, especially for the divisions that you have some level of iron ore integration? I'll stop there for the first question. Thank you.
Yes. So thank you, Yannis. So in terms of the let's start with shipments. So we would expect our shipment performance year on year to improve considerably, given that we don't expect the operational issues that we faced last year, particularly in Europe and Asia. And on top of that, we continue to ramp up Iveragh to the 5,000,000 tonnes.
If you look on a quarter on quarter basis, so then what we have is, we have Kazakhstan then running at normal levels, following the exposures that we had in quarter 4 of last year and the ramp up in quarter 1. So then we will see production back to normal levels in Kazakhstan in quarter 2. And also, we will have Mexico running at normal levels as well. So the glass furnace in Mexico was the reline was completed at the end of February. So we will have the full impact of that now in quarter 2.
So CIS, we will see a significant improvement in terms of shipments, and we also expect normal seasonal pickup in shipments in Europe. So in terms of prices, so we have seen international prices, particularly Chinese prices improving in the Q1. So that will clearly benefit some of our parts of our business. So in particularly, CIS and also in part our Brazilian business, exports of slabs and to some extent also the domestic flat business. So and then, of course, you know where prices are in Europe.
So, Danny already mentioned that prices, the environment in Europe, in particular, is challenging. And in U. S, prices did stabilize during the Q1, and that's where we are.
Thanks. So thanks very much. Another question on Brazil. It interesting to see shipments being strong. I was looking at the year over year shipments and both flat and long were pretty strong.
I guess, long is partly due to Votirang team. If you can provide a bit of color on the underlying long shipment development, that would be useful. And also on flat steel, you were pretty strong in Q1. And I'm just wondering, at the same time, you cut your demand forecast for the year. So how do I reconcile the 2?
Yes. So let's talk about the performance, the shipment performance in Brazil. So, what happened there is that in Q4 of '17, we had a significant destocking in Brazil. So traditionally, we have some we stopped some of the hot strip mill for maintenance. You have holidays, but we tend to then export more.
So we have the destocking. And then in Q1 of 2018, traditionally then we restock, so we have less shipments, we cut exports. And this time around, quarter 4 of 2018, we did not have we didn't have the destocking effect as much. So as a result, in quarter 1 of 'nineteen, we could ship more. And on top of that, the production is also higher year on year.
So that's and as long as you're right, I think most of the impact is coming from the integration of
Engine. Okay, great. Thanks. And just a quick follow-up for you. On genuine adjustment depreciation, you're guiding to $3,100,000,000 for the year.
But if I look at the Q1 run rate, it's closer to $2,900,000,000 And I was expecting that IFRS 16 is fully reflected in Q1. So how do we get from $2,900,000,000 to $3,100,000,000 for the year? Thank you.
So yes, so when we provide this guidance, Jan, as we also take into account we have taken into account FX And also, traditionally, in quarter 4, you have some higher depreciation because it's typically when you have your year end adjustments, so when you transfer some of your assets under construction to operations, so that's factoring this impact. We believe that the guidance is a good proxy for the number.
So, we'll move to the next question please from Christian at SocGen.
On your cost of operation in NAFTA, if you exclude the cost of raw material, in the Q1, in our calculation, it looks like we've had another sizable increase in underlying costs. Could you perhaps highlight if you know what the cost conditions are at the moment and what may be impacting this in the Q1, which may be not recurring?
Yes. So in NAFTA, so the cost is as per so you have some increase because of coal And also the costs went up in so as you know, coking coal was higher in quarter 4 and iron ore also went up. So there is a catch up impact, there is a lag impact flowing through our results in quarter 1. But other than that, there is nothing exceptional other than, of course, the impacts that we highlight coming from Vansa.
For those associates, that will be the only other impact you would be seeing in your Q1 in NAFTA?
Yes. So, in quarter 4, I mean, if you see in quarter 1 in NAFTA, so clearly,
if I walk you through the bridge,
you will see that the main impact is really coming from prices, right? So, the cost increases are modest and primarily linked to the points that I have highlighted. And then you have also a positive coming from volumes. So that walks you through from Q4 to Q1. Okay.
My second question is on your €150,000,000 impairment in Europe, which I gather is we should be adjusting the potential value of the assets you're selling too early, but still is that the case? And then also, what's the timing on that sale of these European assets? Should we still include them in our estimate in Q2 and in Q3? [SPEAKER ARNAUD DE PUYFONTAINE:] Yes.
So to the first point of your question, you're right. So the impairments reflect a reduction of the expected proceeds. And as we discussed last quarter, this is a negotiation among 3 parties. And in terms of timing, we would expect the transaction to close in the second quarter.
Okay. And can you give us an idea about the amount we're looking at in the end? We will like mid-three digit medians?
[SPEAKER CARLOS
GOMES DA SILVA:] Well, you have the book values in our 20 F for about 1,100,000,000. And then if you deduct the impairments now for about $150,000,000 then so you're going to be in the right ballpark.
Okay. Thank you very
much. Thanks, Christian. So we'll move to Alan at Morgan Stanley, please.
Yes. Good afternoon. Just one question from my side is on the your outlook appears
to have on demand appears to have deteriorated in the last 3 months. However, you have not changed your working capital release guidance, which stayed at $1,000,000,000 How do you reconcile those to facts given that falling prices should mechanically lead to a much larger working capital cash inflow?
So, Alain, so what we discussed last quarter was that we overspent in working capital last quarter. So we said we have about $1,000,000,000 to be released. But we never said that that's the absolute number that you're going to see at the end of the year. Of course, there are other factors that will impact at the end of the year the capital the working capital release. Guess what we are seeing right now is that given that where we are right now, we would expect given that we have invested about $600,000,000 in quarter 1, we would expect that to reverse and on top of that, we would expect $1,000,000,000 to come through.
So, that's the minimum that we see right now.
Thanks, Alain. So, we'll move to Sylvain at Exane, please.
Good afternoon, gentlemen. Just three quick ones. First one on the cycle, if we're talking production cuts here, obviously, it suggests you've been surprised by the weakness in Europe. Curious to get a bit more color on your interpretation of that weakness, which seems to be very much led by Germany. Is it in the inventory cycle there?
Is there more worrying signs on some end markets, not just autos that you guys are witnessing already? And what in your mind do we need to see happen for the oil situation to stabilize on the steel price? My second question is regarding to TRQs. Obviously, quarters are going to reset over summer. What is your expectation of potential risk on long product prices there, given they'd be included?
And lastly, I know you haven't given a firm timeline on the reduction of debt towards $7,000,000,000 but whatever the timeline was, with this new weakness in Europe, would you say that the whatever timeline you had in mind is unchanged? Or is it the EBIT postponed now? Thank you.
Thanks, Sylvain. So we'll start with your first question on really what's going on in the European market. I think you will note today that we have reduced our demand forecast for the year. At the start of the year, we were anticipating about a 1% or up to 1% growth in the market. We're now anticipating up to 1% contraction in European demand in 2019.
And so, what's going on in terms of end markets? We can all see the weakness in automotive and that continues through the first half of this year. The better end market is construction. That continues to do quite well in Europe. And general industry general manufacturing is somewhere between those two markets.
But from a flat steel perspective, overall demand outside of automotive just isn't strong enough to absorb the tonnes that would have been going to the automotive market, especially when you consider the additional tonnes coming into Europe through imports. And the numbers are quite striking. If you look at hot rolled coil imports so far this year, the run rate of imports is about 1,500,000 tons. So, imports are up about 16%. The major source of the additional imports really is Turkey.
They account for the full uplift of HRC imports that the market has been facing in the 1st 3 months of this year. So, it is a combination of weaker than anticipated slightly weaker than anticipated demand, but the additional supply effect of imports, which has weakened the overall supply demand equilibrium, and that's why, as I said in the opening remarks, that we really struggled in Europe to pass through the increase in raw material costs, which other markets like China have been much more successful in achieving.
What needs
to change? Obviously, it would be helpful if the demand environment were to improve. I think a lot of commentators out there are anticipating that things should improve in the second half of the year led by autos. Clearly, if that comes to pass, that would help the supply demand situation. If exports to Europe, I.
E. Imports into the European region were to decline, that would also be helpful. If you look at the run rate of imports in the 1st 3 months relative to the quota levels for the next three quarters, it does suggest that the level of imports should come down. Somewhat that's dependent on your second question around what happens to the escalation of those quarters in July. And but then the third factor is domestic supply.
And obviously, we've done our bit just this week by removing 3,000,000 tonnes of capacity and production from the market. So ultimately, the market environment is going to be dictated by the supply demand situation. And there are 3 different moving factors there. I think we can be hopeful on demand. We can expect imports to come down because of the quotas.
And obviously, as I say, we've done our bit from a domestic supply standpoint to improve the situation as much as we can. In terms of the tariff rate quotas, this is obviously it's not an automatic 5% increase in the quota levels. This is still something that needs to be determined. There is flexibility there, and there are going to be discussions between all of the various different stakeholders between the commission and the various different stakeholders as to what is deemed appropriate to escalate those where, where given the demand environment, it's very difficult to generate any argument to suggest that the quota should be increased in July. So hopefully, the commission sees the sense and the logic of those arguments in their forthcoming discussions.
And then the final question just on the timing. I think, obviously, we haven't set out externally the anticipated pace at which we achieve our net debt target. I think clearly, the weaker EBITDA environment is does have an impact on our free cash flow generation. But as we've talked about earlier in this call, both myself and Jan Reno are trying to highlight to you that there is a lot of benefit within the balance sheet from the working capital investment that we've made in the past couple of years. And that's our opportunity to deliver healthy levels of free cash flow this year even though EBITDA is going to be weaker.
So we will take the next
Daniel, where do we stand on SR what are we looking for in terms of updates or signposts either from you all or the market?
Yes. Thanks, Phil. It's pretty simple. So, our resolution plan for SR has been approved by the NCLT. So, what we're now waiting for is the final NCL80 ruling on how the funds are going to be dispersed between the financial and operating creditors.
So, this is not an issue for Oslo Mittal, but rather an issue for the Committee of Creditors. Once the NCLEP makes its ruling, which is anticipated fairly soon, then we're ready to proceed. So, we would expect to conclude the acquisition during the course of the Q2 or Q3 at the latest.
Is there any further concessions or caveats that you may have to make depending on the ruling? Or do you feel like you've taken care of all of those issues?
Yes, that's the important point to take away here that our resolution plan has been approved. So this really is a discussion between the Committee of Creditors and the NCLAT about how the payment from ArcelorMittal is going to be distributed between the financial and operating creditors. There's no requirement or room for us to make further concessions.
Okay. And then just a second question, if I could, on Calvert and within the U. S. Are you all still pursuing an exemption there? Has anything come down in terms of the denial because we've seen lots of denials in the last 2 to call it 6 weeks in the marketplace, but just was curious about the standing of that request.
Thanks.
So, no, we don't have any problems there. We've got the source of slab coming from Brazil, and that's exempted from the tariffs. Sorry, I think I misinterpreted your question. So there's no progress update on the exemption request. We'll move to the next question please from Luke at JPMorgan.
Hi, guys. Just to follow-up on the Ilva curtailments from earlier this week. Just trying to connect the decision from the side trip that 6,000,000 tons was the key to getting the returns above the cost of capital and at that level it was resilient to market conditions. Obviously, you can all see it's a tough market in Southern Europe, raw material price, etcetera, etcetera. But given the potential through the cycle value creation from Milva, were there not other assets that would have had less valuation impact?
Or has something changed in the outlook for that asset? And then just to follow-up more generally, do you expect other market players to follow your lead on curtailments? Or to what extent is this going to be a function of lost market share in HLC?
Great, thanks. So, I'll take those two questions. So, maybe just starting with your question on what our peers might do or may or may not do and the impact on market share. The first important takeaway that you should have is that domestic producers in Europe have already lost market share. So imports are up and they've taken market share away from the domestic players.
Our relative market share versus the rest of the domestic producers is unchanged and it will not change. So, we will continue to maintain our share of domestic production. The second point or your first question on our plans for Ilva and the strategic opportunity and the competitiveness of that asset going forward. You're absolutely right that it's important for Ilva to achieve high rates of production in order to achieve its full opportunity as a low cost operator within the European system and therefore an asset with good levels of profitability equal to that of the rest of our European asset base. That hasn't changed.
All of the structural opportunities and advantages that you saw and witnessed on the site visit, they're absolutely still in place. So this is a large scale coastal Japanese style facility, good access to raw materials. This is going to be a very competitive low cost facility. But the reality is that it would be irresponsible of us to increase output from that facility into a market that can't take that demand. So, if we go ahead and increase the production at Toronto as per the previous plan, we're just going to be further exacerbating the situation.
So, the disciplined step for us to take is to slow that ramp up down, take capacity outside take capacity out of the market from other areas of our portfolio and make sure that our level of production is appropriate to the level of demand. And at such a time as that demand environment improves, we're going to be ready to increase the level of output from Toronto and ramp it up to that 6,000,000 ton rate that we talked about on the site visit. Does that help?
Yes, very clear. And a follow-up question, if I may, just on the green border adjustment, which you talked about again on the Monday announcements. Can you just give a bit more color on what exactly you would expect or hope for around that and maybe the time frame that this could realistically be implemented in Europe? Thanks.
Yes, thanks. So, I think, conceptually, it should be quite straightforward. So, as we all know, there is a cost of producing carbon in Europe, which is a cost that the importers into Europe do not face. And so it's a simple concept and ask that at the border, there is an equalization, so that the importers of steel into Europe face the same cost of carbon that the domestic producers in Europe also face. In terms of the speed of implementation, that's not something that I'm in a position to talk about at this stage.
I think there has been headway that we've been making as an industry and it's not just steel that's asking for this, there are other industries such as aluminum, which are also pursuing the same objectives, a level playing field of domestic tonnes or cost of carbon for domestic tonnes versus the imported tonne. And so from our perspective, clearly, the sooner that such an instrument could be put in place, the better. But we'll have to wait for some more developments before we can comment on that more specifically.
Thank you.
Great. Thanks. So, we'll move to the next question please from Alan at Jefferies.
I've had a couple of questions on volumes and the first is a bit of a follow-up to what Yanis was asking earlier. If we think about sequential volumes in Europe into Q2 and we take the 3,000,000 tons annualized, that works out about 500,000 tons for a 2 month period. Should we quite simply think about 500,000 tons lower quarter on quarter for shipments there? Or is there actually any real underlying demand that could leave us flat from a shipment basis quarter on quarter? And then secondly, in the mining division, I believe the guidance for the full year is still for flat ish year on year, but obviously it was a bit of a weaker Q1.
Will there be a significant step up in volumes and then the flat lining thereafter? Or will it be a case of slowly improving production throughout the remainder of the year?
So let me take your question. So in terms of the volumes in Europe, so as I said earlier, I would expect the traditional the seasonality in quarter 2. So quarter 2 is our stronger quarter. We would expect that to be the case also this year. I also said that earlier that we continue to ramp up the UVA from the 4,500,000 to 5,000,000 tonnes.
So we will continue we will see an improvement in shipments coming from IRVA. So the way we think about it it globally, looking at the year as a whole, it's relatively simple. So you should take our you have our market share. So we're going to be adding Ilva. Of course, you have to discount the remedies and then you have the impact coming from the apparent steel consumption that you have our forecast.
Of course, you have to take into account that in the first half, we still have the shipments from remedies, but that's in a nutshell how you should think about evolution of our shipments in Europe year on year. Clearly, we're going to be protecting or maintaining our market share visavis domestic players. And in terms of the mining division, so in quarter 1, it's typically we have some seasonality. So if you look on a year on year basis, you will see that our marketable shipments, it's stable marginally up. So that is just seasonal.
And then we remain confident that overall volumes for the year should be relative stable.
What about if I think about that sequentially through the remainder of the year? Is that a step up than a flat lining? Or is it slowly improvement?
So you will see an improvement in quarter 2 in line with the seasonality that you will see in prior years.
All right. Thank you.
Thanks, Alain. So, we'll move to the next question please from Myles at UBS.
Thanks. Just following up on a couple of those. With the catalmon's 3,000,000 tons, do you have any confidence that your competitors will follow? Do you think prices margins are so thin for the marginal players that you will see others follow and this could become a more meaningful move? Also, the discussions around the quotas, the escalation, When are they taking place?
Are they taking place now up till the 1st July? Or could it take a bit longer and is kind of retrospective adjustment to what imports can be in Europe?
Yes. So I think in terms of the discussions around the escalation and that's taking place in the coming weeks in order to make a decision as to what should and will happen in terms of any escalation on the 1st July. I don't think we anticipate that it would drag into the Q3 and therefore require any sort of backdating. I think it will be resolved during this current quarter. In terms of our approach to managing capacity relative to demand in Europe.
As I hopefully made the point previously, our intention here is not to allow our market share to go down. Our market share of domestic production in Europe will be maintained. And the question really is the level of demand for our tonnes given the weak economic environment, which has been deteriorated further from a steel perspective due to the very high levels of imports. So the right decision for us is to take those tonnes out of the market. What makes sense for our peers, I can't comment on.
But I reiterate that we won't be allowing our market share of domestic production to decline. Great. So, thanks a lot. And we'll move to maybe the last question. Oh, no.
Is this the last question? One more after this. So, we'll move to the next question from Bastian at Deutsche Bank.
Good afternoon, gentlemen. I've got 2 questions on the silver remedy assets. Could you please update us on the performance of the remedy asset assets? Have they been contributing every day in the Q1? And are they expected to be profitable in the Q2?
And then secondly, I understand that the €150,000,000
impairment you took was related to emission credits,
which you have now handed what has happened there? Is this a pure cash equivalent? And basically, this actually suggests that the ECB has either been taking the view that the price was too high or have they basically been forcing you to strengthen the balance sheet of the assets financially before you hand them over to Liberty?
And then maybe also related
to that, can you maybe let us know how much of the cash in we will get in the Q2? And then when the residual amount will be booked and whether this is conditional to any other moving parts? Thank you.
So, I'll take the first question certainly on this topic. As you know, it's not our policy to talk about specific unit level performance and certainly not in this circumstance given the confidential nature of the process. In terms so I'll then hand over to Jean Reno.
Yes, Hassan. So we are not yet in a position to speak openly about the exact terms of the transaction even though we know that there was a press release. But clearly, I mean, the €150,000,000 is just a change in the consideration. So the additional impairment that we are taking now for 150,000,000 is linked to the fact that the consideration will be reduced visavis the our expectations in the previous quarter.
Okay. But you can't give us exactly the number which we can expect then in the second quarter? Suspect?
Well, substantially, we should be receiving a substantial amount upfront, and that will be also a deferred consideration.
And can you at least tell us whether you expect the rest to be booked in this business here?
[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] I cannot
comment right now, Bastian. Okay. No problem. Then just one follow-up on Brazil. Do you see any constraints from iron ore?
Are your operations receiving enough raw material to keep up production?
Yes, absolutely. So operations remain stable. We had a good performance in Brazil. And so far, we don't we have no shortage of materials in Brazil.
So for our last question, we're going to go back to Ioannis at Macquarie.
That's great. Thanks very much. Just a couple of follow ups from me. The first again, just on what Bastian was asking about. My understanding was that when you took the impairment in Q4 for the remedy package, book value was closer to $900,000,000 So the $150,000,000 that you announced today is incremental.
Is that right? Or am I missing something?
So, no, I think the numbers are the same.
Maybe there was some confusion
about dollars, euros. So, in now you take another $150,000,000 impairment. So we now you take another $150,000,000 impairment.
So we
are down to $1,000,000,000 or slightly below $1,000,000,000 and that's the math. And you can see that very clearly in our 20 F. So in terms of maybe I can elaborate a little bit more on the impairment, on the reason of the impairment. I think this is public in any case. So as part of the negotiation, we were expecting to receive some excess CO2 credits, which now following the final negotiations with the commission, will stay in the companies.
So that's why this money that we were expecting to receive, we're not going to receive anymore. And as a result, you have this extra impairment now in quarter 1.
That's clear. Thanks very much. And just a quick follow-up for Daniel. You talked about maintaining your relative market share in the European Flat Steel segment. Are you referring just to the spot market or to the overall flat steel market?
Because I guess taking 3,000,000 tons out of the spot market where you are the biggest player probably has a pretty meaningful impact in terms of market share?
Yes. So before I answer that question, I just want to make an additional supplementary point to what Gennarino was just talking about. So he said that we will receive a substantial part of the consideration for the asset sale to Liberty upfront and that there will be an element deferred. But it's not long term deferred. That would still be, I think, what you could consider as a in the short term, maybe not this calendar year, but wouldn't be deferred over a long period of time.
And so then to come to your market share question, I really don't want to embellish further on the point that I made previously. I think it's just clear that from our perspective, we will adjust our rate of production as we address the available demand. But it would not be at the expense of losing market share, whether that be of the spot market or of the total flat steel market. And here, I'm talking about the share of domestic output or production, which is obviously the apparent steel consumption less any change in imports. Great.
So, I don't think there are any further questions. So, on behalf of Jamie and myself, I'd like to thank everybody for joining us on the call today. I think we're due to see many of you in the coming days weeks at the various events and conferences that we're going to be attending. So thank you very much for your continued interest.