Ladies and gentlemen, thank you for standing by, and our apologies for the delay of the starting of the call due to high volume of calls we are facing because of the coronavirus situation. Thank you for your patience. We want to welcome to the Pre-silent call first quarter 2020 conference call. At this time, all the participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. I must advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker today, Reeta Kaukiainen. Please go ahead, ma'am.
Thank you, operator, and good afternoon and welcome to Outokumpu's Q1 pre-silent call also on my behalf. As you heard, my name is Reeta Kaukiainen, and I am the head of Outokumpu's communications and investor relations. Apologies for starting so late, but it seems that there have been some difficulties in connecting the calls to this event. There might be other people joining the call as we move on.
In today's call, our CFO, Pia Aaltonen-Forsell, will go through some of the main developments during the current quarter, and, of course, the coronavirus situation and its implications on Outokumpu and the stainless-steel market are among the key topics here. Since we started so late, let's move on, and I will hand over to Pia, and after Pia's few words, we will then have a Q&A session. Pia, please go ahead.
Thank you, Reeta, and good afternoon, everybody. I wish you are all safe and well at this point. Obviously, we have stayed in contact quite a lot, with also our virtual CMD happening only a while ago. I think the purpose of the call today is really to update you on the most recent situation when it comes to both our preparedness to face this coronavirus situation, how we are doing operationally and from a revenue perspective, as well as then try to answer any questions that you may have. First, I want to say that being, I would say, reasonably detailed already as to how we have prepared for the coronavirus situation in our CMD, I think what I want to add at this point is that our operations have continued normally.
We have also, maybe partially because of our geographic locations, been to the extent still protected and well, that we have not faced any sort of relevant business interruptions. I think we talked a little bit about the case in Italy, where we have had some days of closure earlier. Now with the recent events in Italy, we are also, from our service center perspective, having to stop operations for a while. However, from a group perspective, this remains maybe a smaller item. Otherwise, our operations are continuing as normal, and keeping our people safe and healthy is obviously our main priority at Outokumpu. Then for another, of course, extremely relevant question, which is then what do we see happening in the markets and how does this continue?
I think, obviously, if we start with Europe, we have constantly in a lot of context talked about the import penetration, and it still may be a valid point. Based on the latest statistics, we obviously still see import penetration into Europe, although not on such high levels as we saw in Q4. However, at this point, there are both, let's say, demand implications, obviously, through, for example, automotive.
You have all seen the news about them closing down production on a big scale, but at the same time, also supply implications based on information that is available out there in the market from, let's say, our competition and other sources. I can only confirm what we already said during the CMD, that from our perspective, we have still seen a continued sort of normal or solid order intake.
Obviously, as we have also explained in the CMD, we remain very aware that the way how the COVID-19 impacts the global economy, it is clear that inevitably this will also impact demand of stainless steel and impact Outokumpu. But for the time being, we have still continued to see, I would say, a rather solid or stable pattern here. Maybe for some of the other really, really relevant areas as well, when it comes to ferrochrome, obviously, there has been news already earlier from the supply side, from, for example, South Africa.
Now at the moment, the situation in ferrochrome is obviously from a global supply and demand balance, having a lot of impacts from really lockdowns and total stops of production in several countries. I can only reconfirm that we continue to operate normally out of Kemi-Tornio at this point in time. I think it is maybe good to just reiterate one more thing on really sort of scenario planning and a bit pressure testing our views about this year.
I think Roeland talked a bit to this in the COVID-19 section of our CMD, and he talked to the fact that we had prepared also sort of a credit crunch or really sort of low case scenario. Obviously, reading the news and various forecasts that are out there, some news point to sort of even sharper slowdown of the global economy during this year. We remain, of course, vigilant in the sense that we keep an eye on this, and we will also adjust our scenarios, if need be.
But at the moment, how we see the situation through the scenarios is still that they give us some form force as to the way of how we can manage and sort of steer and navigate through this storm, whether it comes to KPIs or whether it comes to liquidity. On the balance sheet, obviously, we talked earlier about the release of working capital of EUR 100 million this year, and the fact is that given the COVID-19 situation, cash preservation just comes even more important. So we are enforcing this message in the organization, keeping, of course, cash as a priority. In a time like this, obviously, we talk about inventories, but we also talk about tight management of receivables. So that definitely remains a priority.
We are also looking into the CapEx plan that we have. I can only confirm that we are working on this to sort of reevaluate, but we do not have an updated CapEx estimate for the year at this point in time. Rest assured that we are working on the topic and also looking into perhaps delaying or otherwise being able to preserve cash, also through the CapEx. Finally, maybe it is just good to give a bit of an update when it comes to the imports and the trade defense measures.
Just looking at the quotas and how much they have been being used, maybe one sort of data point that is interesting is that the residual quota for the sort of rollover from the first quarter, 82% of the previous residual quota had been utilized today. There is a little bit of rollover there. On the hot rolled side, obviously, the earlier story already, of China having used all of its quota since January.
You have for sure noted that we had to postpone the AGM. This is very much sort of the pattern right now in Finland, where the government has put in place a lot of actions in that area to prevent big gatherings of people and really sort of recommending people to stay at home, as you are well aware of. I think with that said, I would like to stop my presentation and really make sure that we have time for Q&A. Operator, please, can we move next to the Q&A section?
Sure, ma'am. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. This will only take a few moments. If you wish to cancel your request, please press the hash key. Once again, star one if you wish to ask a question. Our first question on the line comes from Bastian Synagowitz. Please ask your question, sir.
Yes, good afternoon. Pia, I have got a couple of questions, actually, and maybe starting with the current situation. I think when we last talked, and I think also at the Capital Markets Day, obviously, you said, I think the order book development was still very, very good. I mean, obviously there were a couple of disruptions you've obviously had for the obvious reasons. I think automotive is one area you highlighted. Could you just give us any sense? I mean, has the trend, I would expect, obviously, started to worsen a bit more steeply in the last few days, and I guess it's really more a question of days we're talking about here.
Yes. I still think, you know, that my overall message is that it continues to be solid or stable, sort of from that perspective. I mean, obviously there are some sectors, and I do think automotive is very notable there, where we know from the public news even that there are definitely sort of lower demand at this point. But if I would try to describe the overall situation, sort of excluding that, it's difficult, yes, to really see a pattern whereby we would have less orders. Obviously, I think the key question is then could we expect cancellations at a later point? And I think this is just a very valid question that could be triggered by the COVID-19 situation. However, that's not something that we would see at this point either.
Maybe on a detailed level, for Long Products, obviously, we have talked about weaker markets already earlier, based on the last year's annual reports, et c. And I think that there is also some dependencies to some industries that are clearly suffering at the moment there. But maybe from a group perspective, that follows the overall pattern that we have the automotive being impacted, and generally otherwise, do not see yet any sort of disturbance. But we remain very careful.
Yep. Yeah, sure. I guess visibility is low enough. Just when you say things are very stable, when you say very stable, you refer versus the first quarter base in the other sectors, ex-automotive?
Yeah, when I say stable, I say that they are according to our expectations. When you look at sort of the seasonality, Q1 and Q2 tend to be good quarters from a volume perspective.
Okay. Just in terms of the first quarter, obviously, when we heard your business heads actually talking in the first quarter, all of them were really positive on how the first quarter had actually gone. Is there any indication you could give us in terms of the magnitude of the volume increase in the first quarter versus the previous? I do not know, is there any color you could give us?
Yeah. I think it's actually, remembering Q1 last year, that was still, from a volume perspective, even more than solid. That was for sure a good quarter.
Yeah.
It is actually a good reminder to look there, because when we compare with Q4, it's obvious that there's been an uptick, and you heard that also from the BA heads being very confident on our performance. That's also very much aligned with our guidance. I still think we need to say that we are not at the top of the global economic development right now. I don't really want to comment too detailed because we haven't given any real guidance vis-à-vis last year. But clearly last year, Q1 was a very strong quarter.
Okay. Fair enough. Then maybe switching over more towards your raw material situation. One thing we've seen in China, obviously, when the whole thing started to develop, was basically that there were massive disruptions, I think particularly with regards to scrap collection and I was wondering, have you seen any impact on particularly your scrap supply, where you've maybe been forced to actually rely more on maybe primary raw materials with deep sea supply, rather than basically the scrap supply route, which is obviously much more based on smaller truckload logistics and so on, when it comes to collection?
Yes. It's a really relevant question, and I still want to say that we would always keep an eye also on the cost levels. In some special or extreme situations, primary raw material might be a really good option, not only because of availability, but also pending the price balance. Generally what I can say is that scrap availability in a situation where a lot of countries are in lockdown, and it obviously makes people move around less. In many countries, there are recommendations that you shouldn't unnecessarily move around, et c. It's possible that all of this would have an impact on scrap availability. Then, of course, some of the material also comes directly from industry. Depending on how much the industry is stopping or not stopping, there could also be consequences.
I have to say that in this very unique lockdown situation, that is clearly a risk. It is not a risk that we would have in any way flagged in terms of our Q1 guidance or in terms of any of our talks or the CMD or anything. I don't recall any of the BA heads really commenting in detail about that. It's clear that we have been able to manage this risk very properly, but this is something that we just need to keep an eye on.
In the end, it's also a function of what is the situation amongst us and our competitors, how much we are producing, and also the demand for scrap in that sense and the pattern therein. This remains an area where we just have to keep a very close eye and I wouldn't like to give a very strong statement that this is for sure no problem in, for example, Q2. We just have to keep monitoring it.
Mm-hmm. Yeah, sure. I think it could change also any time, I guess. But so far.
Yeah.
Seems like we haven't had a major disruption or impact.
I think that's it.
Okay. On chrome and ferrochrome, am I right that there hasn't been an actual settlement for the second quarter benchmark price so far?
No, I don't think it's been announced yet.
That's at least how I.
In terms of hedging.
I understand it.
Mm-hmm. In terms of the hedging, given the trend of the nickel price, I guess we can, by now, expect a positive impact on your hedging?
Mm-hmm. I don't think there will be a big impact from hedging in Q1, just looking at where nickel was end of the year and where it ended up yesterday. So there could be some impact. But typically, we should maybe also then expect with lowering metal prices that there could as well be some timing losses and potentially some upside from the hedging. In an ideal situation, of course, it would balance out. But, yeah. Obviously, I haven't seen the final Q1 figures there yet,
Mm-hmm. Okay. My last questions, and sorry for asking so many, but my last questions are more on the liquidity side. If I look at your liquidity profile, obviously it looks very solid. You're keeping a very large pile of liquidity. On top of the end of the last quarter, have you been securing any additional liquidity? Then also, when it comes to, particularly your dividend, you're obviously pushing out your AGM. We've seen quite a few companies and managements literally U turning on dividends and also one of your Nordic peers, I think last week, had gone from 100% to 50% to 0%. What's your thinking on that side?
Yeah. If I first start with liquidity measures since year-end, obviously there's been several quite important steps. The pension loan, EUR 120 million, it was a refi that we did in March, but it was important because it pushed out EUR 80 million of maturities from the next two years. At the same time, it was a sort of a 10-year instrument that we did. We have also been very active in the commercial paper markets, securing also some, what I would call, longer maturities from a commercial paper perspective.
But it means that we have sort of evened out the profile that we don't have the typical one to three months, but we also have four months, five months, six months, seven months, eight months, et c, all until Q1 of next year, so that we have a more balanced maturity also of the commercial papers. I think that's been good. The commercial paper market in Finland has been very, I don't want to use the word shut down, but very sluggish, with only a few times since mid-March.
So it's good that we have sort of a balanced profile there as well. That's why I want to mention it. Obviously then, we did repay the convertible bond in February. So there's been a lot of movement. Also, as a precautionary measure in this COVID-19 crisis, we have internally agreed that we want to keep a bigger sort of, can I call it, dry cash or dry powder available, that we have more really secured as cash than we would sort of under normal business conditions. This is the policy that we put in place during March.
Mm-hmm. Okay. On the dividend side?
That dividend question is more difficult for me to answer. I exactly know what you refer to, and I think that there's been a lot of companies that have already been really directly impacted by the COVID-19, and we've seen a lot of I saw one summary that was nine-page long around dividend cancellation. So I absolutely understand the question, but it's difficult for me to answer because it's only when the AGM is then summoned again, when the board will make that proposal. So this remains on something that will be confirmed once the new AGM summon is sent out.
Mm-hmm. I also understand that it is mostly obviously not just a board decision, but also a board suggestion. I would have thought that probably you as the CFO, obviously you still got to have an important role in terms of what is your advice and so on. So I just wanted to check if there any indication you could give us on this front, on whether you are actually proactively suggesting to keep a very conservative, proactive stance here or
Mm. I think I can only confirm that, obviously this is a topic that we are working on for obvious reasons. But I think that is about as much as I can say today.
Mm-hmm. Okay. Fair enough. Thanks so much for taking all of my questions, Pia, and hope you are all keeping well.
Yes. No problem.
Okay. Thanks. Bye.
Yes. Thank you. You too. Bye.
Thank you. Our next question comes from the line of Ule Seppä. Please ask your question.
Yes, hello and good afternoon.
Good afternoon.
If I can come back to ferrochrome topic. Given that not any benchmark price is set for second quarter and what is happening in the South Africa and ferrochrome industry, what are you seeing there? What should we expect, and what are your expectations, and how does it work without any benchmark price? Do you use spot prices or
Well, I think what I find strange, but what still is the fact is that we have not really seen, or at least yesterday when I checked, we have not really seen any movement in the Chinese or Shanghai price for ferrochrome. This is the fact that the market there has not reacted to the fact that there is really a big supply disturbance, given all of the COVID-19 lockdowns and really production shutdowns that we know for a fact are there as well. Obviously, what remains unknown is really are there some inventories out there? It seems there are some, for sure, based on at least my information. And then to what price would those inventories be sold out potentially? And then obviously also how quickly China is turning back into normal production.
Even though I think there are, from a pricing perspective, some good indications that could drive the price upwards, there are also unknowns, and I guess that is also why we do not see yet the reaction really in the market on the price. I think it is always, my economic background tells me that the market is always right. We do not really see that movement in the price in the market yet, but there are for sure some sort of tell signs that could indicate a better price level, but that remains to be seen.
How does it work for you now? We are entering the second quarter. Are you.
Yeah.
Charging first quarter prices or?
How it works for us obviously is that we have some contract structures, obviously, where the benchmark price is important, and as you know, we are not really sort of mixed up in setting that. To some extent, we have to wait and see what that information is, and then obviously there would be something done on spot prices, et c. There could be kind of a number of options, depending on then the specific customer and the relationship there.
Okay. When it comes to restructuring or overview of Long Products, you didn't talk about it at the CMD. I know that it's ongoing.
Yes.
What happens there now that it is a challenge when we have these challenging markets?
Yeah. I think that's a very fair question, and I think first as a starting point, just a reminder that we talked about a strategic review that could end up with a lot of different end results. We talked about a time schedule during 2020. Obviously now a lot of the work that one would typically do under such circumstances is more difficult because we can't really travel, we can't meet people, we can't look at the sites.
There's a lot of things that are, at the moment, more tricky and at that sense, we have to take that into account in not being too bold on the time schedule. But at this point, I don't see any reason to change the year-end schedule that we have given from the start. But we may have to come back to that once we really see how long this situation continues.
Okay. Thank you very much.
Thanks.
Thank you. Our next question comes from the line of Pekka Silvasti. Please ask your question.
Hello. Pekka Silvasti from Nordea Markets. Good afternoon.
Hi, Pekka.
My first question would be regarding the European market.
Yes
Your possible increase in the market share. Earlier in the week, we saw some price increases in the European market because of shutdown of Italian mills. Now we can most likely expect that the Spanish mills also will be shut down. Do you see scope for further price hikes in Q2? What is your kind of ability to take some market share in Europe at the moment?
Well, our ability to take market share, I would say at the moment, our operations are running normally, compared with others who are more unfortunate. I really want to say that this is an unfortunate situation, of course, that we have countries that are so badly affected and that is just a very tough situation for sure. In the end, we do not know for how long period. Just with general economic theory, I would say, if there is really disturbances in supply, that there is less supply than demand, that could, of course, help on the pricing side. Definitely that is a positive background indicator. Again, we face the unknowns.
We do not know for how long, if these are prolonged shutdowns or if they are very temporary. We also do not know really the demand situation, as I said before, even though we have a solid order intake situation, obviously this could change very rapidly. This COVID-19 situation is just putting a lot of unknowns there. That was a very cautious CFO answer, I have to admit that Pekka. I really think there are some positive signs, but let us not take that for given yet, because there are too many things that we simply do not have information about.
Yeah, that is true. Thank you for that. Then maybe second question regarding the net working capital release that you mentioned earlier. Is the target of about EUR 100 million release in net working capital still intact, or are you aiming for more?
Mm. It is intact for the full year at this point in time. But as I said, we have put a lot of focus on the cash preservation at this point, and following that, we are obviously looking into whether it would be possible even to reach sort of higher levels in some areas. So we are working on that. But I think sort of at the moment, the full year EUR 100 million target is kind of the official one.
Then I still want to add that you know we have seasonality in working capital, like typically Q1, we are building up working capital, receivables, et c, when sort of the volume seasonality is typically sticking upwards during Q1. And obviously now, given the situation, we need to be extremely conservative also when it comes to inventories sort of through the full year.
I do not say that we would not normally be careful, but now we even need to be conservative.
Okay. Thank you. That is all from my side.
Thanks, Pekka.
Thank you. We have no further question at this time. Please continue, ma'am.
Thank you. Thank you, operator. If there are no further questions at this point of time, I think we are then ready to conclude the call. Once again, apologies for the slow start, but there seems to be quite a bit of activity on lines going on during these days. A recording or replay of this call will be available on our website later today, latest by tomorrow morning. I would also like to remind everybody that our silent period will start on Monday, next Monday, April 6, and continue as usual until the quarterly results are published, which will take place on the 6th of May . Until then, thank you again. Have a great rest of the day and stay safe. Goodbye.
That does conclude your conference for today. Thank you for participating. You may now all disconnect. Speakers, please stand by. Thank you.