Thank you for standing by, and welcome to the audio webcast and conference call for Outokumpu's first quarter 2015 financial results. At this time, all participants are in listen-only mode. There will be a presentation followed by a question and answer session. At which time, if you wish to ask a question via the phone line, you will need to press star one on your telephone. You can also register a question at any time during the presentation using the Q&A tab on the web. I must advise you this conference is being recorded today, Wednesday, 29th of April, 2015. Now turn the conference over to the speaker today, Johanna Henttonen. Please go ahead.
Good afternoon, ladies and gentlemen. Welcome to Outokumpu's first quarter 2015 audio cast recording. Today we will start with a presentation by management, continued with a question and answer session. First, our CEO, Mika Seitovirta, will go through the highlights of first quarter. After that, our CFO, Reinhard Florey, will discuss the numbers in more detail. Then at the end, Mika will again do the concluding remarks, and after that we will be ready for the questions and answers. With this, I will hand over to Mika, please.
Thank you, Johanna. Dear participants, thank you for joining this conference call. Now to Q1 2015 numbers and market conditions. First of all, Outokumpu achieved, as the new Outokumpu for the first time, a positive underlying EBIT of EUR 2 million during quarter one. This was very much driven by strong development of the restructuring in EMEA, but also because of strong volume development from Q4 to Q1. Other highlights during this quarter was that we managed to be break-even also with quarto plate now, which has been in challenging environment and suffering from supply chain problems. We are getting those problems very well under control now, and the first quarter was a good proof of that. It is also worth mentioning that our gearing developed positively and was 91% at the end of the first quarter. However, we were not without problems and challenges during quarter one.
First of all, in Americas it is clear that after the technical challenges we had with the cold rolling lines, it has been much more challenging to make the recovery and come back to the changed market and changed market conditions during Q1. Secondly, now it has also become evident that the market change is more dramatic than earlier expected and also probably more permanent than we have expected earlier. This is of course very disappointing, and it means, in practical terms, that Calvert ramp up is delayed between 6 - 12 months against our earlier plans. This is also what we communicated last week through the overall volume message, where we changed the earlier guidance for this year about Americas 620,000 tons to around 540,000 tons. Cash flow was slightly less negative than what we expected.
However, EUR -62 million, despite the net working capital release of EUR 75 million. It was negatively impacted very much because of the redundancy payments that were planned for the Q1. Talking about markets, here you can see what we have traditionally shown to you, SMR, stainless steel, end demand developments in different markets. First, the good news. The good news are that Europe has a positive end demand and seems to be more or less the bright spot now when it comes to stainless steel markets. However, as mentioned, a big change in U.S., although America's number is still positive. So the U.S. number is zero instead of forecasted growth only just a few weeks ago, still. It is clear that the overall economy is also softening there. It's related to oil price development. It's related to U.S. dollar strong development, which is impacting the overall economy.
It's also clear that the very low nickel value for the time being is also impacting demand. We need to understand that the imports to U.S. have increased a lot, especially from China. Looking into the base price development, it has been very flat and we have seen softening now both in Germany, meaning Europe, and in U.S. Nickel price, it's really low for a longer period already, and this is clearly impacting demand in U.S., where the inventory levels of the distributors are high. It's also impacting still a bit in Europe when it comes to Q1 numbers, especially the beginning of the year, the start was very slow. Here you can see the imports development. As we expected, you can see a declining trend in Europe because of the European Commission announcing the anti-dumping temporary tariffs.
The last year's level for more than 30% of imports has now come down during the first months to a level of roughly 20%, and we expect that still going down during the coming months. In U.S., if we take a look backwards, so 2013, there was 4% of Chinese imports. Last year, total number was 8% of Chinese imports. But at the end of last year, quarter four, it was on a level of 15%. One five. Now, the first two months are more or less the same level, meaning double digit numbers for Chinese imports. This is a big change, and of course, one of the triggering points on top of the U.S. dollar could be the European anti-dumping decision. Also, I think what has been impacting on that was our inability, quarter four, to deliver in U.S. according to the expectations.
Just to say it immediately, we have recovered from the technical problems. However, we haven't been yet able to be part of the market in the way that we planned. Looking into the different underlying EBIT developments here. So we have a solid plant development in EMEA, where the first quarter underlying EBIT was EUR 28 million positive. This development is very much according to our expectations and plans, and we can see that it's on a very firm track when it comes to actions and the market environment is favorable. Of course, about the market environment, we can see that the underlying demand is now pretty healthy in Europe. This is going to be seen in our future development and in our current development already. As we have communicated earlier, we will see the anti-dumping possible impacts only during the second half of the year.
This is important because at the time of the announcement of the anti-dumping, we had almost sold our second quarter volumes already. That is the reasoning why those possible impacts are going to be seen only during H2, and we are going to comment then, of course, in that connection. Coil Americas. After last year, this first quarter, clear disappointment, and the EUR -28 million is now the underlying EBIT for the first quarter, and that is clearly below our expectation. APAC. Stable development. There is a small loss, and that is very much related to the local market conditions for the time being. As you know, the end demand of stainless steel in China, especially, which is the major part of our operations in APAC. It has come down from double digits numbers to a level of 7%, is the latest forecast for the whole year.
That is impacting volumes, and that is impacting price levels and also raw material prices for the time being. Quarto plate. Last year, clearly loss-making operation through the supply chain problems and due to ramp-up of the new investment in Degerfors, Sweden. However, with the new management, with the new task force that we have put in place there, you can see a steady development to a break-even. We are by no means satisfied with the break-even result, but this means that we start to get the volumes out from there in the planned way, and our delivery performance has encouragingly improved during the last months and weeks. Long products. EBIT of EUR 3 million positive first quarter. Market hasn't been easy, and in comparison with the fourth quarter, you need to remember that there was a EUR 6 million one-off from Wildwood, which was improving the number.
Against last year's first quarter, we are still more or less on the same level. Challenging market environment, but very efficient business area and business for us at the time being. Now, once more, concerning Americas. We have already gone through the main reasons, but it is probably worth repeating them once more. The first one being the more challenging recovery from the technical breakdown of our cold rolling mills. Technically, they are fixed now. They are all firing all three lines in a good way. However, we haven't been able to get the new orders, what we expected and planned that we would get, and we haven't been able to get either the right and planned mix for our mill. Asian imports clearly higher. I mentioned to you already the numbers.
We are still on a high level, more than 10% in the beginning of the year. Then, of course, low nickel impacting the distributors because they have high inventory levels for the time being. This is also something that is going to impact very much our Q2, which you have seen in our guidance for the Q2. We have a new interim head there. José Ramón Salas has been the managing director of Mexinox, and he is now running the business area after Mick Wallis decided to leave the company. We have also moved engineering skills. We have moved other resources there, and we are forming task forces to tackle the problems, and we are very confident that we will tackle them. However, we need to be realistic as well.
We are delayed 6-12 months because of the dramatic market change and how that is impacting our numbers. I will give over to Reinhard. So Reinhard, please.
Thank you, Mika. Good afternoon from my side. Let me briefly go through the key financials in an overview. We can see that regarding our delivery volumes, we have been up some 52,000 tons compared to the last quarter of last year. However, still some 56,000 tons less if we compare it on a year-on-year basis, which means that our deliveries grew by 9.2% quarter-on-quarter, but were still significantly lower due to the overall more cautious demand side that we have seen in the market, specifically in the U.S. If we are looking at the profitability, Mika has mentioned that our underlying EBIT for the first time has come up with a positive value of EUR 2 million. This is EUR 11 million better than in the fourth quarter and significantly better than the first quarter of 2014 by EUR 47 million.
Regarding the reported EBIT, our result is EUR 26 million better than in the last quarter at a level of EUR -10 million. Our operating cash flow is negative as expected and also commented earlier. However, it has rather been better than our expectations, taking into account that we had a significant cash outflow from both the one-time effects from redundancy payments due to our restructuring payments, some EUR 56 million, as well as cash-relevant bookings from our derivatives in a level higher than EUR 80 million. CapEx has stayed at a rather modest level of EUR 26 million, and we can see that in total we also have a EUR 7 million net effect from raw material related inventory and derivative gains in total here. If we look at the one-time effect between our underlying EBIT excluding NRI and the total EBIT, I have explained the EUR 7 million from the hedging respectively timing effect.
We have a EUR 19 million booking of non-recurring items in our Coil Americas business that still relates back to the issues that we have with the cold rolling lines in the second half of 2014, reflecting some impact on our abilities to deliver still in Q1. Regarding this, we do not anticipate that there will be further non-recurring items in the coming quarters from this effect, so this more or less reflects the impact for 2015. If we go to our cost savings programs, our efficiency programs, we have continued our improvements here.
In the first quarter, we have improved by EUR 35 million, EUR 25 million coming from our P250 program and EUR 10 million from more or less completing our synergy program now close to the anticipated EUR 200 million with EUR 195 million. Still, EUR 50 million are anticipated to be captured during the rest of the year, and we are very confident that this will be the case, if not overachieved. In terms of one-time effects, we have now in total provisions taken of almost EUR 200 million. Still only a level of EUR 28 million in maximum to come in the coming quarters. The total level of EUR 220 million of one-time effect stays unchanged, even if we are making very good progress on the cost-saving program. Regarding the cash out, I have already mentioned that some EUR 56 million in first quarter have been recorded from redundancy payments.
We are expecting that roughly about EUR 40 million still to come in the rest of the year for 2015. In 2016, there is an anticipation of cash out of some EUR 50 million. Coming to the specific detailed results of our business areas. Starting with business area Coil EMEA. EMEA has clearly a positive trend, mainly resulting from the restructuring from the synergies and from solid market conditions. We have seen also that, as a consequence, partly as anticipation, partly as direct reaction of the anti-dumping measures imposed from the EU. The imports from China and Taiwan have been decreasing. In general, we have seen that Q1 order intake has started slow due to the high stock levels. However, picked up quite well at the end of Q1 so that we are confident about Q2.
The deliveries are up by more than 11%, some 40,000 tons compared to last quarter. However, and as said, regarding these cautious market conditions still at the beginning of Q1, clearly below the comparable quarter from 2014. Specifically, the restructuring effect and the effects from the high utilization rates in Tornio and Avesta have contributed to a good profitability. So our underlying EBIT has risen to EUR 28 million. We also have a positive effect from our hedging and timing effect of almost EUR 20 million in there, so that our EBIT excluding NRI has risen to a level of EUR 48 million for EMEA. Within EMEA, in our ferrochrome, we have experienced some technical issues that led to unplanned maintenance outages, so that in general, our delivery volumes also from the external side has decreased now to a level of 22,000 tons.
Even more so, we have adjusted our production target for 2015 to a total of 470,000 tons. As anticipated already the last time, we are expecting to have a planned maintenance period in Q2, which specifically in this quarter will lower our output from the ferrochrome. We are seeing that in general, if we are looking at the development of the underlying EBIT, that this quarter has been the best in a row, also comparing our total 2014 performance. So you can clearly see the positive trend that our EMEA business area is taking here. Coming to Coil Americas. As mentioned, Americas came out with a disappointing profitability in this quarter. The commercial ramp-up has slowed down and the volumes stayed at a flat side.
Even more so, we have to say that the flat deliveries have been mainly due to a low order intake. This low order intake has continued throughout Q1, which will also then impact our second quarter. The market conditions have clearly turned out to be more difficult than in the last quarter, mainly due to the high pressure from the rising imports. Specifically, the imports from China have reached a record high, and in combination to the low nickel price, which in the U.S. dollar environment is not mitigated like in Europe by the exchange rate, we also see an impact on profitability from that. The disappointing earnings have specifically also been impacted by a lower margin from the product mix, so our product mix, according to the lower utilization level, has not materialized in the way that we had anticipated.
Accordingly, also some higher operative costs than anticipated due to lower utilization have materialized. None of technical nature, more of functional nature in correspondence with our lower utilization rate. Then, of course, if you look at the euro rate, the translation of the stronger U.S. dollar versus the weaker euro and a loss gives also a negative translation impact in the euro number. As mentioned, we have this booking of EUR 19 million NRI, which brings our EBIT excluding NRI to EUR - 30 million and the reported EBIT to EUR - 49 million. Moving to our Asian business area, Asia -Pacific, quite solid performance in a difficult market environment. So compared to first quarter 2014, clear improvement. However, compared to the last quarter, a smaller, weaker performance. This is mainly driven also by the fact that the Chinese New Year reduced the market demand in first quarter also quite significantly.
We cannot overlook that also the general market conditions in China have not been easier through a slightly reduced GDP growth, as well as also some effects from the anti-dumping situation of exports to Europe. Our profitability, certainly also in Asia, has been impacted negatively by the nickel price and the overall price pressure. But if we see that the deliveries still have been more or less stable, we think that this is a quite stable and good performance still. In our quarto plate business, and Mika has already indicated that we are really making progress there. Our breakeven number for the underlying EBIT is a clear progress, if you compare to all the quarterly results in last year that have been entirely negative.
We are seeing that both our operative programs of debottlenecking and ramping up are showing progress, as well as some better order intake that we are now able to take helps us in that. However, overall market environment still continues to be weak, and we are seeing that specifically also the project sector is still quite sluggish, both in Europe as well as in Asia. Our long products business still on a solid, positive underlying EBIT, EUR +3 million compared to EUR +2 million in the same quarter last year. It is a slow start in the market, which is relatively weak. A little bit comparable to the market of the quarto plate. We are seeing that the low nickel price has some negative impact here as well, as well as the weakness of the oil and gas sector. U.S. situation is relatively stable, specifically from the price.
We are seeing that this is moving sideways, whereas we are seeing in Europe some weakening trends. We are still confident also regarding the profitability development of our long products division. With that, I would come to our operating cash flow data. Here we can say that while the operating cash flow is negative with EUR 62 million, this digests some specific cash-out situations. Most pronounced, EUR 56 million cash out from redundancy payments from our restructuring programs in Europe, specifically Germany, but then also change in derivatives of EUR 82 million. We managed to offset that by a positive number regarding our net working capital development, some EUR 75 million improvement in our net working capital. The CapEx has been kept at a quite low level, EUR 26 million as accounting CapEx, EUR 31 million as CapEx cash out.
This all leads to a situation with also our financing activities that we have a cash and cash equivalent, which is roughly EUR 100 million higher than the last quarter at a level of close to EUR 300 million. Our overall liquidity reserves are at EUR 1.3 billion, just about EUR 100 million lower than at the end of the year 2014. Looking at our situation regarding debt and refinancing and the financing maturities, we have seen that there was a positive development of our gearing number from 93% to 91%. Not so much due to reduction of the net debt. The net debt has risen by EUR 60 million to slightly above EUR 2 billion now. Our equity has been strengthened by mainly two effects.
The first is the equity effect that we have from our convertible bond and also some translation effects from our U.S.-based assets that are, of course, coming in at a higher value from the translation. If we are looking at the debt maturity profile, the successful placement of the EUR 250 million convertible bond in February has now added to a longer-term maturity. The EUR 289 million now in 2020. Our bond in end of 2014, that is maturing in 2019, has given us maturities of close to EUR 300 million in 2019. The rest of the bulk number of the maturities actually is in 2017. You can see that the utilized level of the facilities of EUR 850 million in 2017.
If we are talking about earlier maturities, of course, short-term debt, this is not entirely maturing in the narrow sense because there is a lot of pension lease as well as commercial papers included there. So, only smaller amount really maturing. This is the rest of the bond that we have out there maturing in June 2015, and the main part in 2016 is also our bond that we have here placed. Then looking into the development of the P400 program, and our networking capital side. Here, as said, EUR 75 million positive development in the first quarter 2015 brings us now to a level of EUR 426 million, slightly above our total yearly target.
Of course, we have to take into account that with specifically EMEA business bound to pick up further in this year, there will be some networking capital effect, but still we are more than confident that we will keep a level of EUR 400 million or higher in the total improvements since the end of [2012] in cash extraction from our networking capital. The development of the inventory days has been to the positive. We took the level of 100 days of inventory from last quarter down to 97 days. However, this is still a good part from our target of 86 days. So significant efforts being applied in this area. It is to be mentioned that the numbers of days of inventory have a little bit changed definition in that context compared to last year.
This is very much that we have changed in order to have a better management impact from this key performance indicator for our business area in taking into account the forward-looking business. So the order intake and the deliveries one quarter in advance, which is much more in accordance to the actual inventory level at a day at the end of a quarter. So that it is much easier and much more efficient to steer from the business areas with this key performance indicator that we are giving you in this definition also. This concludes my detailed explanation of the numbers for Q1, and I would give back to Mika for the outlook and the guidance.
Thank you, Reinhard. If we look at the market for the second quarter, the key markets are obviously EMEA and U.S. Here you can see EMEA numbers provided by SMR now in April. I think when it comes to Europe and the end demand growth that are forecasted here is a very right one. We share the view that there is growth. However, when it comes to Americas, and especially now, of course, U.S. being the thing here. So the whole year, as you remember, was forecasted now by SMR to be zero. We think that this is a slightly positive view between the quarters as well because the market situation is completely different than before. So it's imports, it's nickel, it's the overall economy which is softening, and it's the very high inventory levels that currently exist there.
Here is our business and financial outlook for Q2 2015. Market outlook for stainless steel varies by region. In Europe, order intake improving and underlying demand remaining relatively healthy. In the Americas, pressure from Asian imports continues, and low nickel prices puts constraints on distributor sector. Market pressure in the APAC under continues. Outokumpu estimates flat delivery volumes quarter-on-quarter. Deliveries expected to increase somewhat in Europe and decrease in Americas. Slightly negative underlying EBIT in Q2 for the group driven by weaker profitability in Coil Americas. With current prices, the net impact of raw material related inventory and metal hedging gains, losses on profitability expected to be marginal, if any. So here we need to remember. Europe, we see strong performance to continue. Americas, weaker profitability.
And then for the second quarter, we need to remember as well the ferrochrome maintenance break, which is having a negative profit impact during that quarter. However, our priorities are clear. Turning Coil Americas back on track. I mentioned already about changes, and I mentioned already about the resources we are putting there, and we are absolutely confident we will get back on track with this development, and we will get adjusted to the new market conditions that we are facing there. Of course, continuing all the profitability improvement programs that we have on the other business areas, that will, for sure, continue and give us positive improvement. Savings programs we have overachieved, and our aim is to overachieve even during the coming quarter and the coming year as a whole.
And what we have said of our target 2017 to get to a level of EUR 1.5 billion in net debt. So that is very high priority for management. We are taking all the efforts already now in order to be able to get there. Then we see further potential. We have been able to perform well when it comes to P400, but net working capital management, we can further develop our capabilities there and have a direct impact then also in our cash flow. Johanna, that was it. I think it is time to move to Q&A.
Yes. Thank you, Mika. Thank you, Reinhard. Operator, we are now ready to take the questions.
Thank you. As a reminder, you can submit a question via the Q&A tab on the web at any time. Alternatively, if you wish to use the telephone line, please press star one on your telephone and wait for your name to be announced. Your first question on the phone line comes from Michael Shillaker of Credit Suisse. Please go ahead.
Yeah. Thanks very much for taking my questions. My first question, if I may. Quarto plate, which has been a sort of annoying little loss-making business. It's not been devastating, but it's just not been profitable. That seems to be potentially turning around. Is this a trend that you think? Obviously, you've had the volume increase in Degerfors, but is this something you think you can continue, and we can actually see a profitable number out of this business this year? Or are we just seeing a bit of a seasonal uptick and actually into the summer we're going to decline again like last year? Quarto plate is the first question. Second question, I'd like to dig a little bit more into what's going on in the Americas, if I may.
When the release came out last week, it looked like a lot of what was going on was, A, the technical issues from last year, and B, clearly the market, the destock, and the nickel, but you've also obviously had a management change. Can you tell us really what is going on? How much of this is market? How much of this is management? And how on top of this are you in terms of your roadmap, regardless of the market, to ramping this facility up? Because you're now talking about a 6- to 12-month delay. But when we look back at peers in other similar businesses like thyssenkrupp and Vallourec, who've tried to ramp up new assets into tough markets, frankly, they've taken potentially years, and they're still not profitable. So how on top of you are this? How much is it market?
How much is it management? And how clear are you that this really is only a 6- to 12-month delay that we've got on the profitability, and that it's not something that's just an awful lot more difficult to ramp up than we all first thought? Thank you.
Thank you very much for your questions. If we first start with the quarto plate. Last year was a big disappointment, and you are right if you look the years back. So it hasn't been a profitable business. However, after last year's bad performance, we clearly took different action there, and we changed the management there, and we put awfully lot resources on developing the bottlenecks that we had there. Now, this is bringing clearly results, and we have a different kind of thinking about the market, about the production, about pricing, about the products we should produce. And although the market is not brilliant for the time being, it's still okay, and we have a good global market share and a good platform and knowledge and the engineering skills for the projects that we can capitalize over there. Last year, every quarter was clearly negative.
We were loss-making each and every quarter. We have absolutely no plans to fall back from this. We try to develop this now week by week, month by month, quarter by quarter. We are very ambitious there and a lot of good energy by the new management there. Americas. Yes, the technical issues. This is really the starting point because it is important to understand that when we were off the market, the customers were, during the last year, forced to buy from somewhere, which obviously increased the imports, together with the fact that when you have a strengthening dollar, it was more attractive for imports to come because of that reason as well. Now, we fixed the technical problems, and they are firmly fixed. We have found the root causes, and that is not an issue.
However, we misread our ability and the market, how fast we can come back in this kind of a new market situation that was created. Clearly, we thought that we would have a much stronger mix and order intake during the first quarter already. After we have announced that we are back there. We have not lost the customer confidence. We believe that when the inventory levels are back to normal, of course, we can improve. But we also think that because of the economy there impacting the market, that is maybe a more permanent change for some time in the market than what we believed still a couple of months ago. Clearly, Mick Wallis has decided to leave the company, and we have now a new interim management. We are in the middle of the search process. I would say that we had technical issues.
We have had a lot of technical ramp-up issues, which are normal. We have had abnormal things like the cold rolling breakage, but now we are more on the market side. As we told you earlier, we have finalized the technical ramp-up, and that means that we can produce all the products that we have promised to our customers. That is a valid statement still. But the market environment is much different, and that is now really hitting us because we were not having the recovery from the technical problems yet, and then the market has changed. It will be a longer time before we are on a normal utilization level. If you are not on a normal utilization level, you have clearly higher costs. That is the reason behind the challenge we have at hand.
Okay. I understand the profitability implications, but I still do not fully understand, because it sounds like you are in control of the technical issue, and the market is just out of your hands. The market is what the market is. Why does a management change basically change anything? Why was it so important to change management when really it is the market that has been the problem? Are you looking for someone to go more marketing-orientated now as opposed to technical?
The second question, really to help us out even further, given that your starting point, even though it is a tough market for profitability in the Americas, is still better this year than last, even though it is going to be a tough year and volume is going to be the same, would you expect profitability to be the same or would you expect, given the starting point is better, profitability for the year to be better than last year?
First of all, I need to be clear on this one that the management change, Mick Wallis has decided to leave. So it was his decision.
Okay.
I think this is important to you that we really mean what we write down. So this is how it was. Secondly, what I could add here, because we are not giving a guidance for any kind of other things than the deliveries estimate, which is about 540,000 tons. So we are not giving a profitability guidance there for the business area. We stick to this way because it is a very unpredictable market, it is very unpredictable pricing, and things can sometimes turn faster, the better, and sometimes they are more permanent. When we do not have the exact knowledge how this is going to develop, so we stick to the volume guidance only in this time.
What is important as well, because you were talking about the ramp-up, so we have been using the terminology of commercial ramp-up as well, and it is clear that until we are in the market positions and in the full utilization. So that is not something that we had never planned for this year. If we are delayed one year, so it is the two to three years project to get to the full utilization.
Of course. Okay. All right. Thanks a lot.
Thank you.
Your next question comes from the line of Seth Rosenfeld of Jefferies. Please go ahead.
Good afternoon. Seth Rosenfeld at Jefferies. A couple of questions looking at the outlook for European business. You mentioned on the call the imports have already fallen from a 33% demand in Q4 down to 23% in Q1. Do you expect imports to fall further throughout the course of this year? Just questioning what makes you confident that imports will continue to weaken because they are already well off the peak seen back in the third quarter of last year. The follow-up for that, obviously we have seen in the past imports into Europe being priced at a significant discount to domestic European sales, perhaps dragging down those benchmark prices. Are you seeing still the imports coming in at that discount or perhaps has that spread in price between imports and domestic sales started to close? I will leave it there for the first.
Thank you for the questions. Yes, you are right. Our market feeling for the time being is that the imports are going to go further down. Of course, if the imports have been more than 30%, I suppose no one is expecting that 30% is going to disappear. That is also important to understand because there are also other imports than only Chinese or Taiwanese imports. You have imports from Korea, you have imports from India and so forth. However, clearly the level what we see today, we still expect that from that level it would go down. Now, it is a bit early days to say that what kind of discount levels there would be. We need to remember that the fact is that we are still in April. We have seen one quarter. We have seen only part of the quarter after the announcement.
The real impact, and this is important, the real impact will come only H2. The reason being, what we mentioned earlier, that really, at the time of the announcement, we had already sold our Q2 volumes. So clearly, whatever impact it will be, the major part is only H2 Q3 and Q4. Hopefully that answered your question.
I guess just to follow up on that with regards to the timeline and when this actually benefit pricing and perhaps benefiting your P&L. When you think about the potential for subsequent price hikes across the European region, to what extent are you keeping in mind the risk of what the following European Commission decisions will be, thinking about the anti-subsidy measures in May and a continuation or extension of the anti-dumping duties in September? Is there a policy angle for when you think about price hikes, or is this really just an issue of your volumes and the fact that you have already fully locked in Q2?
As we have mentioned earlier, I think the overall impact, it is of course about volumes and it is of course about prices as always. The overall impact for the second half will be positive. We have said that we are welcoming this commission decision. At the same time, we need to remember that it is a temporary tariff we are talking about today, and only in September we will get the final decisions from the commission that whether they are permanent or not. Also the commission will take, in the meantime, their standpoint on the anti-subsidy things where we have no further information that we could report to you. You are asking that whether we think that our behavior in the market would pose some kind of a risk for the final decision. That is not impacting.
Under current circumstances, we are working exactly according to our plans, which we have prepared for different scenarios, and there is no such thinking at all.
Okay. Thank you very much.
Thank you.
Your next question comes from Luc Pez of Exane. Please go ahead.
Hi, gentlemen. Two questions, if I may. First of all, on Europe and effective base price you are talking about with regards to Q1, which is showing some continued price pressure, whereas volume were quite good on the one hand. Secondly, CRU base prices are fairly steady. Could you elaborate a bit more as to whether we are discussing discount pricing in order to secure volumes or not? That would be my first question. The second one, with regards to working capital requirement, looks to me that you are ahead of your guidance of cash release on that front by end 2015. Is it to say that we should expect some buildup going forward? Thank you.
Concerning your first question about possible discount pricing. Your analysis of the pricing what we have also communicated and disclosed here is correct, first of all, but there is absolutely no discount pricing in order to get the volumes. That is not our strategy at all. We are always going for value. It is always a question about mix and market conditions. There was no change in the market conditions concerning the first quarter. But definitely no discount pricing to get the volumes. Reinhard, maybe you take the other question.
Yes. Thank you. Regarding the cash release, of course, we are feeling very positive about the ability to already overachieve our target in first quarter. Still we have to keep in mind that the development of the market, development of nickel, always has to be taken into account over the full year. Therefore, we are having, of course, a very balanced view on the way going forward. We wouldn't exclude to continue a positive trend here. It is a clear management focus to further look at the extraction of net working capital. If we see that in our days of inventory, there is still room for improvement. We also have to take this as a positive signal here. However, as said, we have to see about the market conditions. If demand picks up quite significantly, we have also to carry a higher absolute volume there.
If also some changes in nickel prices, which we currently do not foresee, but this is not a long-term ability to foresee nickel prices, we also have to take that into account.
Thank you.
Your next question comes the line of Cedar Ekblom of Bank of America. Please go ahead.
Thanks very much. Hi, gentlemen. I have got a couple of questions. I need to go back to the U.S., please, because I do not actually understand 100% the dynamic that is going on there. You are saying that from an operational perspective, there is no reason why the facility should not be ramping up and why shipments should not be improving. So just a few questions on the market then. Destocking, where are we in terms of stocks in the U.S. at distributors? How much more destocking do you think needs to happen in order to get to levels where maybe distributors start looking at buying again? Then secondly, you are talking about flat demand in the U.S. market, and then you are talking about flat volumes at Calvert. Does this mean that Calvert is not competitive against imports?
Because the way that Calvert has been sold in the past is that this is a very competitive asset producing appealing products. The idea is that Calvert would be displacing import volumes out of the U.S. market. I just do not understand why, if there are no technical issues, why you are choosing. Is it a situation of you actually choosing to limit volumes in the U.S. market rather than trying to ramp up and take market share from imports? Then in the European market, you have obviously had this marketing approach of price over volume, so looking to target the higher value products. That has obviously been probably a good decision in an oversupplied market. Are you using the same marketing strategy in the U.S.? Is that the reason why you are not pushing more volumes?
Is that an appropriate strategy for an asset that is in ramp-up where you should be targeting market share in the near term, and then in the long term maybe looking at pricing? The U.S. situation just does not really square for me unfortunately and I do not feel like the questions that have been asked have adequately answered it, unfortunately. The last point, on the European business. I see that you are restarting the annealing line at Tornio. Can you just discuss why you are doing that? That was turned off as part of the restructuring program. In terms of your cost savings, does turning that asset back online do anything to your cost-saving targets? Thanks. Sorry to go back on the U.S. It is not clear to me what is really going on there.
Thank you for the questions. You can come back to U.S. questions as many times as you wish. No problem with that. Really the thing in the U.S. is that when we got the cold rolling problematics and the breakages, it meant that we were forced to close last year's order intake and the year earlier than we normally do. Because we could not tell to our customers at what time point we can again deliver to you before the problems were fixed. That meant that we were really a long period away from the market and we could not build a normal order book, what we would normally have at the year-end and in the beginning of the year. However, when we were ready, the customers had bought already. So they took imports because imports could deliver and we could not say what our delivery time was.
The market worsened. When the market worsened, it meant that suddenly they had all their steel in their inventories. Now when we say that we are ready to deliver, they believe that they would probably have a better inventory level and could restock again maybe Q3, but not before that. So it is really a commercial problem. It is not related to our strategy. I fully agree what you say. We want to get higher utilization for Calvert. We want to gain share in U.S. with the right products and we still need to add one more thing. Of course, the volumes we got have been of different mix than what we expected. All these together make that we have such a high impact now in our profitability, that it is difficult to catch it up. Therefore we are saying that we are delayed because of that reason.
We believe fully, and we are confident that we will be competitive against imports when we get the right utilization and the right mix back now and we get rid of the last waves of the technical problems that we had. This is really the thing.
Okay. That makes perfect sense. Can I just follow up before you go on to the European point? In terms of stock levels at customers, do you have a sense of where they are now? Are customers coming to you yet to order for Q2, Q3, or are you still out of the market?
Well, we are still actually out of the market. There are very few customers who order at all, and I think it's an industry-wide problem for the time being. It's not only us. As I mentioned, we can see that we have very short delivery times now there. We are competitive when somebody is needing something, so we can do it in four weeks for the time being. That's a good starting point. But we believe that general volume-wise, bigger major restocking that could only happen maybe Q3.
Okay. That makes perfect sense. Then just on the European annealing line?
Yes. In Europe, clearly when the anti-dumping decision came, we saw an opportunity here to maximize profits. We decided that we restart that line and it's going to be in use very soon. We can also then earn more money in the Europe than what we planned. So it's a very rational decision in the new market situation.
Does it affect your cost cutting targets?
No.
Okay.
We can match with the original targets even without this.
Okay. Very helpful. Thank you.
Thank you.
Your next question comes from Bastian Synagowitz of Deutsche Bank. Please go ahead.
Yes, good afternoon, gentlemen. I have just a couple of questions left. Firstly, can you please give us a bit more color on the long products business and whether we can expect a similar curve in profitability like last year? You had some pretty strong views in the quarto plate on this front, so maybe you can share your views on long products as well. Secondly, you mentioned some problems with the ferrochrome smelter again. Maybe you can please quantify how much negative impact you baked into your guidance for underlying EBIT in the second quarter. Thank you.
Thank you for the question. First, about long products. Of course, we are again, and sorry for that, we are not disclosing any profitability outlook for the full year here. It is, from the nickel point of view, a different market this year for long products than last year. Also, we have customers in Asia, and in Asia we have a different market situation than last year. So market is, for them, not as strong as last year. This we can say based already on the first quarter. Still, we are having a solid business and especially in the U.S., so it's going still very well. Concerning the ferrochrome impact. What we could say is that the impact is EUR 10+ million . It's more than EUR 10 million for second quarter.
Okay. Thank you.
You are welcome.
Our next question comes from Stephen Benson of Goldman Sachs. Please go ahead.
Hi. Thanks. I had a couple of questions related to the Americas. Could you just let us know, roughly, how much of your volumes are going through distributors there and how much goes through the master distributors versus the tier two? Secondly, just on the timeframe, you have full year results on February the 12th. I would have thought you would have had pretty good visibility on your order book through till the end of the first quarter then, but we haven't heard about these order issues until last week. What happened in between? Was this a case of you had the orders, nickel fell, all the orders got canceled, or was there something else going on? Because I would feel that you probably get updates on these orders almost weekly.
Okay. First of all, it has been a very rapid change in a situation where you have a very low order book, if I start from your second question here. What we knew in February was clearly what's going to happen during the first quarter. When you start from a low order book, of course, you need to sell to that particular quarter instead of selling longer lead times like we did last year when we had six months lead times, and now we have only a couple of weeks. That made it unfortunately possible that before we understood that there is a much bigger change, of course, we followed these things daily and weekly, and then we just realized that, no, we are unable to catch the volumes there.
It has been a very rapid change in a situation where you do not have order book that you could live with for a longer time. That is the reason, actually. Concerning the distributors, it is two-thirds roughly from the volumes that is going to distributors. Of course, that is a given fact. We want to have it that way as well because in order to get the volumes, what we need in U.S. especially, these are the customers that we need to take good care of. It is very much concentrated to the bigger tier one and less tier two customers. That will probably be broadened as we can increase the utilization and get the growth into the order intake as well.
Okay. Your comment earlier about the mix was an issue for Q1. Is it mix of customers that you are selling to, or is this like the products? What do you mean, or can you give us a bit more color on that?
Well, I would say it is more about the products than about the customers.
Okay, and one of your larger U.S. competitors has commented that inventory levels at distributors are now at more normal levels now, about three months. That underlying real demand is actually pretty good in the U.S. It is just unusual that you see a very different picture to them.
Well, if we talk about the real end demand to start with, we believe that zero that we saw in the SMR statistics is a very real outlook for this year when it comes to growth. The underlying demand has, of course, not completely disappeared, but the stock levels are high currently, and this is what the customers are clearly telling us. This is our understanding. As we mentioned earlier, we see that maybe third quarter there might be no change because they can deliver still from their own stocks.
Okay. Thank you.
Thank you.
Your next question comes from Johannes Grasberger of Nordea. Please go ahead.
Hi, gentlemen. It's Johannes Grasberger from Nordea. Just about the ferrochrome situation again. Maybe you could explain a bit where that break is actually coming from, because if I understood it correctly, it's an unplanned maintenance break. Maybe a few words on that first.
Yes, thank you for the question. Firstly, as we are growing like we did last year and we will do this year as well. It's about ramping up the new furnace, but it's also keeping the tempo with the old furnaces that we have and the smelters especially. We have had some technical things there which have impacted that we haven't been able to have max throughput there. Now, we need to fix it in a proper way, and that's why we take the five weeks maintenance break because we don't want to take the risk for the rest of the year's volumes. The normal maintenance break would have been four weeks, so there's one week more, and we believe that then through that, we can increase the volumes exactly to the level of 470,000 tons.
Because of this extra and that we were not able to take the max throughput during Q1, it means that we had a lower level than originally planned, which was to 500,000 tons. This is nothing that we wouldn't have seen before. We know exactly how we do that maintenance work and how that technical capability that has to be there is going to be there. Nothing which is sort of new here.
Will there be any material CapEx impact from this maintenance?
No, nothing.
Okay. All right. On the volume side, what is a fair number on the ferrochrome volumes? Are we talking about a drop of, let us say, 30,000 - 40,000 tons in Q2?
30,000 tons.
Okay. All right. The quarto plate, that was discussed pretty well as that too. Just thinking about this comment of planned step change in quarto plate profitability, can you give further light on that? Are we talking about break even on EBIT line for quarto plate already this year?
We are not giving that guidance for the full year. I can assure you that we are not happy with break evens. We need to get it profitable ASAP, and we are gradually working up with the volumes. It is a long way, of course, because the capacities that we are having at hand is 150,000 tons. We are still below 100,000 tons volumes here. We are doing it in a gradual way so that we do not create more problems. We learned also something last year, so no really fast changes, but the improvements are there. We have done a lot in the cost side as well. We believe that on a slightly longer term, we can create a good business for that.
Okay, the quarto plates Degerfors volumes. I am reading the report, I see that those are guided at 95,000 tons this year. What was the number for Degerfors last year?
We will check the number for you.
It was somehow lower than—
It was lower than that one, but I am sure that you have the exact number somewhere as well. The capacity I was referring to, the 150,000 tons, that is the Degerfors capacity. What we now have there after the investment.
Okay. The final question then, just a small flip back question to ferrochrome. Assuming that you did not have this unplanned maintenance break in the second quarter, would the EBIT guidance have been different?
Well, we gave you just in the previous call an estimate about what the size of that or the impact of that is, and I can only repeat what I said. It is more than EUR 10 million.
Okay, thanks very much.
Thank you.
Your next question comes the line of Hjalmar Ahlberg of Kepler Cheuvreux. Please go ahead.
Thanks. Hello. Just the last question on Americas. Could you say something on how you are looking on the volumes quarterly? Next quarter will be down, and the 540,000 tons implies quite high deliveries in the second half. How will you achieve that?
Yes, you are right that the volumes are hit, of course, we believe mostly during Q2. Of course, with all the efforts that we are doing currently in the market, we believe that we can then catch up part of that. However, knowing Q1, knowing the outlook for Q2, still on a whole year basis, we believe that we will stay flat against last year.
Yeah. If you take your previous guidance of 620 kilotons, how does your trajectory compare to that? Was that more first half or was that second half as well?
Was that what? Excuse me.
The previous guidance, but that's also quite heavy on the second half of the year, or was it more evenly spread?
It was more evenly spread, because we had an increase in the volume 15% according to our plans 2014 against 2013, and we were planning another 15%. Of course, we saw the market development in a very different way. Also we saw our recovery from the technical breakage of the cold rolling lines in a very different way. So it was much more even.
Thanks. Just one on Europe as well. You mentioned that the annealing and pickling restart was potential from the anti-dumping tariffs. What kind of else, kind of volume and price improvements do you see in the second half? Anything that you can elaborate more on? Thanks.
Unfortunately, and I am sorry for that, we are not in a position to give anything specific, and we have reasons for that. First of all, we are not yet leaving the second half of the year, and we do not know the final level of the tariffs either. We can only say that we believe that that is positive, and we are preparing different scenarios actually that work. Only at a bit of a later stage we can give you that kind of information.
Okay, thanks.
Thank you.
Your next question comes from Luc Pez at Exane. Please go ahead.
Hi, gentlemen. One follow-up question, if I may. With regards to the insurance claims that you were discussing in the previous quarterly results related to technical issues you face in the U.S. There is no mention whatsoever on this anymore. Is it something that is never going to happen, or shall we still factor in some EUR 15 million or so positive contribution over the course of 2015?
Well, thanks for the question. Regarding the insurance, first of all, we always said it is insurance as well as claims. So it is something which is not just in one dimension. The other thing is that, of course, in an insurance case, there is a certain time lag of payments from the insurance, and it is also not entirely predictable what amounts are there. That is why we are not guiding in more detail there. But we have said that the non-recurring item bookings, the one-offs, are in the equivalent of the damage that we have been suffering. And that is exactly the basis on which we discuss on the legal as well as on the insurance front.
Thank you.
There are no further questions at this time. Please continue.
All right. Many thanks, operator. So we will do the closing remarks from this end then. Thank you all for participating in this call today, and we look forward to seeing you soon again. Our next event will be our capital markets day in Berlin on 27th of May, and then our second quarter report will be out on 23rd of July. Thank you. Bye-bye.
Thank you. That does conclude our conference for today. Thank you for participating.