Ladies and gentlemen, thank you for holding and welcome to today's pre-silent call Q4 2019. At this time, all participants are in a listen-only mode. After the speaker's 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, and I would now like to pass the conference over to your first speaker today, Reeta Kaukiainen. Please go ahead.
Thank you. Good afternoon, and welcome to Outokumpu's Q4 pre-silent call, as the operator said. First of all, Happy New Year to all of you. My name is Reeta Kaukiainen, and I am the Head of Outokumpu's Communications and Investor Relations. Today, with me here in the call will be our Investor Relations Manager, Linda Häkkilä, of course, the host of the call, CFO, Pia Aaltonen-Forsell.
Today's call marks the start of our new practice, and going forward, we will arrange these types of pre-silent calls at the end of each quarter, and these calls are hosted by our CFO. After each call, a replay of the call will be available also on our website for further reference if needed. But let's get started, and I'd like to ask Pia now, talk us through the main topics regarding Outokumpu's Q4 and maybe some market development. Pia, go ahead.
Hey, good morning, everybody, and Happy New Year. I've heard that there are some bad storms in Finland, but I had hoped the rest of you at least have some good weather today. This marks a start of a new year, and I think it's also a good time to just sort of briefly look back at what happened last year. Obviously it was a year with very tough market conditions for Outokumpu, and at the same time, reading a lot of the reports on nickel and looking at some of the main inputs to our product, it's interesting actually to look at all the comments saying that it was a great year for nickel. Obviously it was, with really the huge rally during Q3.
We all know that we had a much calmer situation towards the end of the year. We had the prices returning to a more normal level, but still, when you look at the nickel development during the year, it is actually up from the start of the year to the end of the year, quite significantly. I think it is even closer to 30% when I am looking at some of the reports here right now. It has been quite a year, and obviously, one of the key messages that we want to share with you today is to give some updates on how the market has developed.
Obviously we have a number of things that are interlinked, and what I thought I would try to do today is obviously to comment on those independent factors and therefore leave you with a bit more of a picture of where we are today. I started with the nickel, and I think it is important also, obviously, for the dynamic of the European market situation generally and the import situation. From the statistics, you know, and we all can see that imports have continued on a high level still during the fourth quarter.
I think that there are actually some peaks from the statistics that are worth noting. I think earlier our key message has been, and we have clearly shared that although there are some countries that have been filling their quotas a bit quicker than what would be sort of the average through the sort of full 12-month period, the average still has been just sort of pacing according to filling the quotas by the end of Q2 of this year.
However, if you look at the hot rolled imports, you can see that China has actually filled 87% of the quota, and that was already, I have the stats from December, and it was about mid-December. It is clear that here has been some rather rapid movement. Of course, this could have a link to the ongoing actions by the European Commission, looking into the anti-dumping, and also looking into the countervailing duties when it comes to China and Indonesia, and then the anti-dumping for hot rolled for China and Indonesia and Taiwan.
Just to be clear, all of this was for the hot rolled. Obviously there is then also a link to the hot rolled quota seeing up quite a lot, or quite heavily for China already in 2019. All of these are significant items, and I think our actions and our work through the full year actually, and continuing into Q4, was to remain very active when it comes to lobbying, when it comes to informing commission and also individual countries and their representatives just about the situation that we have around the imports right now.
Also, just even from December, we have several examples of people visiting our site just to really learn more, people from the commission, very senior people from also representing Germany, et c. I think that we have had many opportunities to share the information, to educate and inform, and we have, of course, really tried to use that to give the sort of full picture of where we are. However, I do not have any update on when we would expect decisions other than what we have said before, and I think has been out there for a while to say that when it comes to these anti-dumping and countervailing duty measures or investigations by the Commission, that they are ongoing and probably a decision would be expected towards the summer of 2020.
However, we do have information that we will start to record all of the imports. So that remains, of course, also an important item because our experience from the previous investigations has then been that the measures have then also been, so to say, backdated or valid from the period of also the investigation when this recording of the volumes had started. Obviously, there's been some dynamic from the lowering of the nickel prices, when it comes to then price levels set for the imports, and that of course, is only what we can sort of look from the market movements from the outside.
However, I think that it's still valid and we should still confirm that the movement that we have seen towards much more effective pricing, it is still there, and we really have this sort of split into the different types of businesses, the annual contract types of businesses, and the other businesses where our customers are looking for longer term contracts, be that, for example, automotive, where the quality, the certainty of supply also mean a lot, and where we would still have the typical or the previous prevailing conditions of also then the alloy surcharge and longer-term contracts to go with that.
But especially when it comes to spot deals, it's clear that we are now typically being asked by customers to do effective pricing, and that's where we are in Europe. Generally, we've been through a cycle of a lot of contacts and a lot of negotiations with customers also about next year's annual contracts, and I think generally the message is there have been, should I call it stable, or should I just say that without big surprises, despite the fact that the market conditions through the year have been quite challenging. And I think that's a good sign that we have these long-lasting customer relationships where there's a number of factors that are really important.
And there it seems that we have continued on quite a normal path. Now I have focused pretty much on Europe, and I would still briefly like to go over to Americas and just to continue with a few sort of market stats. We do see at the moment, a very long period of de-stocking through 2019 resulting in lower than average distributor stock levels. And we have also seen a period of negotiations, and I think I said already in some meetings earlier during the autumn that anecdotally there are some new customers, there are customers that are willing to do and make annual contracts through sort of the autumn negotiation period.
And I think it just, now that we are through that period, I think that what we have just seen is that we still have the willingness by customers to really interact, go into longer-term contracts as normally. And we are also getting some traction with new customers. Things are proceeding the way how we have expected them to proceed. The very low inventories that we see at the moment are, of course, a sign that at some point, de-stocking should occur. We don't know whether it will occur now or in half a year.
We can only look at the moment at lower than average distributor stock levels. I think in very short, those were some of the remarks. I think we have also sent out a brief letter this morning reiterating and reconfirming our guidance for the fourth quarter. Obviously, we had expected the fourth quarter to be a slower quarter when it comes to demand, lower volumes, and also expected the EBITDA, the adjusted EBITDA, to be on a similar level compared with Q3, and we remain with that same guidance at this point. With that said, I think I would really like to open up for Q&A.
Thank you very much.
At this point.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. You can cancel your request at any time by using the hash key. Once again, it is star one to ask a question. Your first question comes from the line of Harri Taittonen of Nordea. Please go ahead. Your line is open.
Thank you, and good afternoon, Pia, Reeta, and Linda. Maybe could I clarify a couple of sort of one-off type items. First of all, the strike impact in Finland, was it any sort of material impact that you could see? No, because SSAB at least they sort of indicated that the impact for them at a fairly material number. Also, is it too early to ask about the kind of indication for the timing and hedging item, how it could pan out in Q4? Because it was about—
Indeed.
—EUR -30 million in Q3. So those two questions, please.
It was. Harri, maybe I start with the timing hedging, because obviously it was a big negative in Q3, and I think also in our guidance, which I did not repeat in that detail, but we were quite clear to say that we did not expect that same negative. If you just think about sort of the movements in the nickel that we had during the third quarter, it was from EUR 12,000 up to EUR 18,000, and then it came a little bit down by the end of the third quarter. Now again then during the fourth quarter, the movement has been down, with a slight uptick at the end of the year, but not at all in so dramatic, let us say, parts.
My assumption, just kind of looking at those movements, would be that when we say that we did not expect a similar negative, we were still looking at nickel prices that had been declining. For me, just the math of what we have seen is that there is some opportunity for a positive movement. But we didn't see nearly as volatile movements during fourth quarter 2019 as there was during the third. I hope that—
Right. Yes.
—that is enough of sort of indication of where we are. You know that we haven't really shared the exact volumes that we have in the hedging. And they also vary a little bit, because just really with what we are hedging, we are hedging sort of the trading, when we know that we have something in inventory ready to be sold, when we know that we have a fixed price sales contract, then we are hedging the other end of both of those contracts. And at the same time, we have been hedging a part of our base stock in Europe, so a part of the sort of nickel throughout our process. And all of those elements obviously are contributing in this case.
Mm. Sure. So it is kind of not impossible that the item will be positive so that the delta would be more than EUR +30 million, theoretically, without giving guidance.
Yeah. Of course, it's possible. And obviously the positive delta is already big, just if EUR -30 million is not repeating. And I think with the nickel movements, there is even a possibility for some positive impact there. But as said, it also depends on exactly what the volumes have been in the nickel hedging. And they tend also to vary a little bit.
Sure. Okay. How about the strike impact? I mean, the sort of Boliden—
Yeah.
—like feel for that, I mean, in comparison to the Nordic peer of yours?
Yes, indeed. I have to say that a strike is always serious. And I think from an operations perspective, we had to put in a lot of actions, a lot of mitigating actions. And we had a very good cooperation, I would say, also locally, just to try to make things work regardless. And I think that's why also, we haven't sent out any message about some major negative impact. So I cannot really see that we should give such statements as—
Yeah.
—SSAB has to answer, then why it was so negative for them. Of course, this is a serious situation. I am not saying that. But I think that with our situation and our mitigating actions, we do not see any major impact from the strike as it was during third quarter . I think there has also been some good news now about at least the technology at the resource, and agreements now about not continuing the strikes in that area. However, the electricians might still be continuing their efforts.
Yes. Okay. Thank you very much. Thanks.
Thank you. Your next question comes from the line of Alan Spence of Jefferies. Please go ahead.
Thank you. Just got a couple ones. First one, just about your comments around the decline in nickel pricing. I think through the summer, you guys mentioned that it did not really incentivize any de-stocking as a lot of customers had expected to either fall back or that the view that it was not sustainable. Now that it has come back some, have you seen any improvement in buying appetite from those customers now that the nickel prices have subsided?
Mm. I think there is a link both, at least for me, I see a link between, okay, what we have in the inventories and then always the sort of the balance, especially now if we talk about Europe, then the balance of the imports with the nickel price. I think we probably saw a combination of all of these playing out. Therefore, we haven't seen the de-stocking that obviously in Europe occurred somewhere more towards the end of the summer or early in the autumn. It was not really something that we would have noticed. As you have seen, the European producers' volumes overall were very low in the third quarter.
So there was really an import pressure probably in Europe to some extent impacted them also on the stock levels. I cannot really say that. We have seen the low levels in Europe throughout the second half of the year. In Americas, I think by now, the de-stocking just continued through 2019, and it's now on low levels, the inventory. So perhaps that gives some opportunities for the future. But also there, trying to say that what would be the date when the re-stocking would continue, I don't want to speculate about that. It could be later in the year as well. It could happen quicker. That is not something we could comment on right now.
Okay. Thank you. I've just got two more housekeeping questions. The real estate sale, could you tell us what the approximate book value was of that, so we can judge the P&L impact?
I think there was a rather low book value, which you can also see from the fact that the P&L impact, which we have adjusted for, so it's not visible in the adjusted EBITDA. But Linda or Reeta, maybe you can still confirm. I think we have published the P&L impact.
Yeah, Reeta here. I think we had it. It was EUR 60 million+ something. We can check it for you and confirm the exact figure. It's around there. Yeah, about EUR 60 million.
Yeah. If need be, we can come back to this, but I just want to put it in the context that this is a piece of real estate that we had used for a production site that we had closed down. I think under those conditions, typically, you will end up with rather low book values, which then also calls for quite significant P&L impacts when a sale under the conditions that we managed to do right now is realized.
Okay, thank you. The last one, your comments about the annual contracts in Europe being maybe positively surprising to us, but stable. I just want to confirm that comment was more about volumes as opposed to pricing or margin.
I think you hit a good point here. I don't think that we have been too vocal about where the pricing levels have ended. There is obviously a link between the general price level and the price level of the annual contracts. But also the fact that we are not commenting it, I think you should read it as that there is no major change. However, my comment was more about sort of the volume, the way of conducting the negotiations and everything. Obviously, with a lot of uncertainty in the market through the year, I think it's important to have that dynamic of the longer-term contracts, and of the kind of slightly different nature of that business, giving some stability also going forward.
Okay. Thank you.
Hey, just adding the number that we were checking about the transaction. It was EUR 68 million.
EUR 68 million is the P&L impact?
Yeah, it was in the release, actually—
It is.
—that we put out in it, yeah.
Yes.
Okay. All right. Thanks for confirming.
That's the P&L impact, yes.
Thank you.
Thank you. Your next question comes from the line of Carsten Riek of Credit Suisse. Please go ahead.
I think it is Carsten Riek from Credit Suisse. Just two questions from my side. The first one is on the restructuring efforts, because I read in the newspaper, in a German newspaper, that there will be 252 jobs cut in Krefeld by the end of 2021. When do you expect the cash out for that? Is it already a 2020 kind of issue, or do you drag it out until 2021? The second question I have is on the Chinese consumption. It looks like China is currently very weak. We have seen in November the import numbers are almost approaching zero, while the export numbers keep going. Does it have a negative read across to the margin level in 2020, in your opinion? Thank you.
Yes. I am sorry, there is a little bit of a noise on the line, but I hope you all can hear me. First of all, about the cash out impact on the German restructuring. I think still at this point, I can just comment the principle of it. I think it is important to see that typically, the cash out would occur at the point where the person would actually be leaving the company. There is a link with that. If we conclude somebody that they leave during 2020, then very likely the cash out would occur then. As you have read in the newspapers, there are a range of agreements probably going to happen and of course, it is true for PSLs, but we also have other sites in Germany.
Yeah.
It is very likely there will be cash out in 2020, but some could even be in 2021.
Okay. And the comments on the Chinese?
Yeah, I think that is a really interesting sort of area to be looking into. As I said before, when we look at the import situation for the hot rolled in Europe at the moment, we have Chinese quota filling up very much. It was 87% when I checked last time. So that is a lot because kind of half of the period is still remaining. We also have the European Commission investigation.
So it seems that there is not much room for Chinese imports into Europe during 2020 or the first half of 2020 in the current quarter period. So, the dynamic within China is obviously really interesting and really important. It impacts, of course, anything from the ferrochrome pricing to a lot of other factors. But whether China would have then pushed a lot of product into Europe, there simply is not much room in the quota. So that is why I would just say that there has to be some limited impact of this, because there are limits to the imports, as we see it right now.
Okay. Could it be actually diverted, so that instead of sending quotes directly from China, you trim the edges and all of a sudden it does not come out of China, it comes out of a different country which still has a quota?
Yeah, that is such a good question. If you really look at what countries do not really use the quota, U.S. is really low utilization. Well, that does not seem likely. There are other countries in Asia where the quotas utilization also on hot rolled is still pacing on the average or even slightly below that. So yes, in those quotas there would be room, but could they really do that? I cannot answer that. Indonesia has pretty much used all of its residual quota. So, theoretically in some of the quotas there are some room, but could they really do that? That I cannot really answer.
Okay, fair point. Thank you very much.
Thanks.
Thank you. Your next question comes from the line of [Andy Bunhinka] of Moore Capital. Please go ahead.
Hi, Pia. Good afternoon. It's Andy from Moore Capital. Just a clarification please. If I understood your first comment correctly, any nickel hedging gains are not included in the adjusted EBITDA guidance that you've given. Is that right?
Yes. I think, I'm sorry again, I hear some noise all the time in the background, but I hope you can hear me well. In the guidance, what we have said is that we do not expect the big negative that we had, so it was EUR -30 million in the third quarter to repeat in the fourth quarter. Of course, if you then think of sort of a delta, of course, that's a positive delta because the negative doesn't repeat. That's how far the guidance goes.
Okay. The building blocks that you've given for Q1 2020, you've talked about seasonality. Is 2019, when we look at Q1 2019, is that a good proxy to get a sense of what sort of shipment uplift we should expect in EMEA for shipments?
Yeah. Generally, when I think about seasonality, I think it's something that really repeats over the years, potentially even repeating over many years. I still think, I don't think Q1 2019 was bad, but there is always of course points maybe looking a bit longer back in history. Generally, 2019 was the year with really tough trading conditions for Outokumpu.
Got it. Thank you.
Thanks.
Thank you. There are no further questions at this time.
Okay. Thank you, operator. If that's all, then there is no point in continuing the call. This was our first pre-silent call, and as said, we will continue this going forward, and you will get the invitations through email as this one. And of course, always the information will be available on our website as well. Our silent period will start next Monday and continue until the Q4 and full year results have been announced on February 5th. Until then, thank you all for your participation in today's call, and have a great weekend. Thank you and goodbye.
Thank you, ladies and gentlemen, that does conclude your conference for today. Thank you for participating, and you may now disconnect.