Good morning, and welcome to this presentation of the SSAB year-end report. My name is Per Hillström. I'm Head of Investor Relations at SSAB, and here we have the agenda for today. We start with our President and CEO here, Martin Lindqvist. He will discuss the year and the quarter. We also have Håkan Folin, our CFO; he will look into the financials in more detail. And then Martin will come back at the end with a summary. And after that, we open up for questions, as usual, both from here in Stockholm and also from the phone lines. So by that, Martin, please take the stage.
Thank you, Per, and good morning. We'll start with going back a quarter, and I showed this picture last time we met, and this was the feeling going into Q4 with a long queue in a traffic jam. And if you could say that this was the order intake or the momentum into Q4, I would say that Q4 was maybe running in this one line. And when we look at Q4, it was a challenging quarter. We saw a weaker market, especially in Europe. We saw destocking, we saw lower shipments. We adjusted our production to the demand. We had one of the blast furnaces, one of two big blast furnaces in Raahe idled for six weeks. We saw a margin squeeze in both Europe and in the US.
We had quite big planned maintenance outage with a cost of totally SEK 850 million. And then we had a strike in Finland that costed us roughly SEK 250 million. We managed to keep up operating cash flow on a decent level, I would say, and that was due to release of working capital. If then, if Q1 or Q3, the end of Q3, beginning of Q4, was a queue in a traffic jam, and this was Q4, when I look into Q1 and the first half of the year, I think the destocking is over, and we look at the order intake and the order book, I would say that order intake has normalized. Of course, there is still a question mark, what is the underlying market? Is it 80, 90, or 100 km/h ?
Hard to say, but definitely better order intake. We don't have any planned maintenance outages or stops during the first half of the year either. And we expect to see higher production levels and higher shipments compared to Q4. So how do we then express that in the outlook for Q1? Well, we expect in North America demand for heavy plate to be fairly stable, underlying demand. In Europe, underlying demand expected to increase from relatively low levels, and continued good demand for high-strength steels, I would say, also especially related to Europe. Prices somewhat lower for Europe and special steels, and more stable for Americas. And if we look at volumes, Q1 compared to Q4, we expect higher volumes in all three steel divisions. To sum up the full year then, well, sales were up, but profitability was down.
We more than halved the profitability compared to 2018, and the biggest contributor to that drop was, of course, SSAB Europe. We continue to have a decent, I would say, not a good, but a decent operating cash flow. And with dividend and acquisitions, and so on, we kept the net debt and the net gearing fairly stable or slightly higher than end of 2018. If we look into the divisions, I would start with Special Steels, and we saw slower demand during 2019, especially in Europe, with lower shipments. We increased EBIT and EBITDA compared to the previous year. We did one important acquisition, Abraservice, during the second half of the year. That will be helpful over time for us and an important channel to the market.
What we prioritize now is what we discussed during the capital markets day, to continue to grow shipments, and I will come back to that. To shift volumes to more higher strength steels and, and, and better, from more from stocks and own channels, fully utilizing the production capacities. We are moving on, struggling on with the targets we set up for 2022. If you look at Europe, it was a year with lower shipments, lower prices, and higher raw material costs. We had, especially during the second half of the year, I would say, an exceptional margin squeeze. That was also shown in the result, where the EBITDA margin ended up at 3% for the full year, compared to 30% the year before.
The strategic priorities are still valid: Nordic home market position, automotive advanced high-strength steels, and increase the premium mix within SSAB Europe. Americas, a very good first half of the year, a more challenging second half of the year, with a big outage in Q4 in Mobile. Overall, EBITDA margin of 16.3% for the full year is not that bad, even though, as said, first half with 23% was of course better than the second half, but still industry-leading profitability. That is what we are focusing on, keeping the industry-leading profitability, change the mix step by step, and also change the way of approaching the market and approaching the customer. So that's that work is ongoing. If you look at Tibnor, this is a function of the Nordic market slow down during the second half of the year.
We also started a program in Tibnor to change the setup and the profitability and the efficiency. That program is according to plan, or even ahead of plan, and will be fully implemented end of June this year, and we will start to see positive effects of that program already during end of Q1 and during Q2. Ruukki Construction, clear improvement in profitability compared to 2018. Still a lot of things to do, and the strategic target here is to, at the latest, 2022, have an EBITDA margin above 10%. We reached 7.2% last year, which is a clear improvement compared to 2018, and we will continue to see that improvement in the coming years.
They did a, I would say, a decent and a good 2019, and I expect them to continue to perform in a very good way. Håkan, financials.
Good morning, everyone, and I will take you through some numbers and also explain what the reasons were for the shift in profitability between different quarters. As Martin already said, Q4 was a tough and challenging quarter, where we had a weaker market and also maintenance outages that impacted. We had sales being down compared to Q4 last year with 12%, mainly because of lower shipments. Shipments were down in all divisions, and in total, around 9%. And we had a slightly negative EBITDA, and hence, also when we do the EBITDA per ton, also slightly negative. So what happened then when we compare Q4 last year to Q4 this year, where we had a profit last year of a bit over SEK 1 billion, and this year, negative of SEK 1.1 billion, so a shift of SEK 2.1 billion? The biggest change was in price.
That impact was - SEK 1.8 billion, and especially for SSAB Americas, prices were significantly lower now in Q4 than last year. It also had an impact on SSAB Europe, while actually for Special Steels, prices held up fairly well, which is, you know, in line with the strategy we have for Special Steels, more stable market and definitely more stable pricing. We saw lower volume, as said, in all three steel divisions. Variable COGS, to a large extent, raw material, not so big change, fairly neutral, but there, it's very big difference within that component. For iron ore, we had clearly higher cost this Q4 than last year, while for scrap, on the other hand, costs were clearly lower in North America.
Fixed cost, positive this year compared to Q4 last year with SEK 330 million, related to the savings action we've been taking. We've been reducing temporary manning, we've been doing these temporary layoffs in Finland, we've been using flexibility system in Sweden, and that's clearly been paying off in terms of fixed cost. The weaker krona helped on the FX side, and then we have a big negative chunk coming from under absorption. We've been running the, especially the European production system at the lower level, including idling of one of the blast furnaces in Raahe, and that's SEK 500 million difference compared to Q4 last year. Then we have an other item here impacting positively. Two main points. One is that on EBIT level, we have lower amortization on surplus value. Obviously, not impacting EBITDA, but impacting EBIT.
And then we also got an insurance compensation from the production problems we had in Raahe during Q1. We now in Q4 got an insurance compensation. But all in all, the difference then of a bit more than SEK 2 billion is, it's three main items. It's the prices, it's the volumes, and it's down the absorption. If we look at Q3 compared to Q4, then deviation is not as big. We have a slight positive result, SEK 300 million, so it's 1.4 difference, but actually, the components are the same. Prices here is SEK 800 million, mainly Americas again, somewhat from Europe, too. Volumes, also down in all divisions, and the impact of 400 is roughly evenly split between the three. Raw material, somewhat negative, I'm sorry, not raw material, variable COGS, somewhat negative, raw material are not.
But on the other hand, we have the maintenance outages, and when we are running production at a lower level, we usually get less efficiency in the overall output. Fixed cost is slightly higher than Q3, but as many of you know, we usually, we always get lower fixed cost during Q3 when we have the summer period in Nordics. But now, given the actions we've been taking, it's actually almost on the same level in Q4 as in Q3. FX, no big change. Under absorption, a bit more than -SEK 400 million , related to the maintenance outages in Mobile, in Oxelösund, and also the overall lower production level. It's the same items impacting positively as when we looked year-over-year, the insurance and the lower PPA.
So all in all, not as big deviation compared to Q4 last year, but the same items: price, volume, and under absorption. If we move on to cash flow, then. We said it's fairly okay or decent cash flow. It's SEK 1.3 billion here during the quarter, despite the slightly negative EBITDA, but definitely helped to a large extent by the change in working capital of more than SEK 2 billion. We also, if you go down to the very bottom row, we also had a slightly positive net cash flow for the quarter of around SEK 400 million. If we look at full year operating cash flow of SEK 5.2 billion, lower than last year when we had almost SEK 6 billion. On the other hand, we have SEK 2 billion less coming from earnings.
So we have been able to release working capital during the year instead of building that up. Net cash flow for the year down here in the bottom, slightly negative at SEK 300 million. On the other hand, we've been paying out dividend, and we've been making three acquisitions during the year as well. And how this then translates into the balance sheet, well, this is actually rather stable situation. Net debt, excluding IFRS 16, is at around SEK 10 billion or slightly below, up somewhat compared to Q3, due to some FX changes, but no big changes. Net gearing 16%, and we have a long duration over debt portfolio at more than seven years. And if we look at what we have outstanding now for the coming three years, it's SEK 4.6 billion.
So it's a rather low level of refinancing that we need to perform in the coming three years. So overall, the balance sheet and the debt situation is at a fairly stable level, so I will leave it like that for now. And we move on to something where we have seen quite a lot more changes during this year, the iron ore prices. Red line here is, sorry, raw material. Red line here is iron ore. We had a very steep increase here during the first half of the year, and now we have seen that our purchase prices have gone down quite a lot in the second half. And in Q4, prices were down with 26% compared to Q3, and this is both then because of fines going down, but also because of our pellet premium have been reduced.
For coke and coal, it's not as dramatic changes for an iron ore, but it's been steadily moving downwards during the year, and now in Q4, our purchase prices were 22% lower than they were in Q3. And for the North American operations, the scrap prices, on average, they were actually our purchase price were down 12% during Q4 compared to Q3. But when we look at spot prices here, you can see that they have clearly increased during November, during December, and also now in January, and that will spill into our consumption cost during Q1. While for, if we go back here, for iron ore, it's typically around one quarter of a lag for us. For, for coal, it's a little bit more.
But when we look at scrap, it's usually a month or a month and a half, from where spot prices will actually increase, and hit our P&L. Finally, then for me, an outlook on the maintenance outage that we will have next year. We will not have any maintenance outage during the first half of the year. We will have a small amount in Europe in Q3, and then just as for this year, the majority of the outages will be in Q4 in 2020. If we summarize it, we are expecting to have slightly below SEK 1 billion this year, compared to a bit over SEK 1.1 billion last year, so around SEK 160 million in lower maintenance cost, this year compared to 2019. The big difference is, in Americas.
Here, we had outage in Mobile, and that's a larger facility. That's where we have our Q&T line. In 2020, we will have it in Montpelier, and therefore, slightly lower cost. Okay.
Okay. So to sum it up, during 2019, we continued to develop our portfolio. We closed the deal of buying Sanistål, Piristeel , and Abraservice. We have added with these three acquisitions, sales of roughly SEK 3 billion, and strong channels to the market, where we have control over the channel to the end users. We also sold or started to divest building systems within Ruukki Construction. So I think the portfolio is pretty much where we would like to have it. 2019 was also a strong year when it came to safety and safety improvement. This is one way of measure it. This is LTI frequency.
We are not where we would like to be, because we want to be at zero, but we did a fairly decent progress during 2019 and took down the LTI with 31% and took down the severity with the LTIs a lot during the year. We also increased our ambitions when it comes to fossil-free steel making. We stated that we would be first in fossil-free steel making, and as you know, we will inaugurate our big pilot plant up in Luleå this summer, and we will be ready to supply the market with fossil-free steel already Q1 2026. We are continuing to invest in our niche areas, in high-strength steels and premium capacity. We took during the outage in Mobile; we invested in a multi-cooling new cooling technology.
We are investing for advanced high-strength steel capacity in Borlänge, and we are also investing in QL6 in Mobile. So a lot of things happened long term or in order to meet the strategy long term during 2019. If you look at dividend, the board will propose the AGM to have unchanged dividend. And the reason for that is that we expect to continue to perform good in relative terms, and expect to continue to generate strong cash flows and strengthen the balance sheet over time. If you take it in percentage, it is slightly more than our dividend policy, which is typically between 30%-50%, and this, with 2019 as a year, it is 144%.
But I think this is the right way, and we have the balance sheet and the future, to do this without any problem. If you look at the strategic targets that we presented during the capital markets day, it is about growth, not in total volumes as such, but shift continue to grow Special Steels from 1.3 million tons to 1.6 million tons, to continue to grow SSAB Services, to continue to strengthen the mix, both in Americas and SSAB Europe, and, to keep the market shares, especially on the important Nordic home market. And that is what we are going to deliver on, and that is what we are going to continue to work on short term, mid-term, and long term. So to sum it up, Q4 was a challenging quarter. We had weak markets. We had destocking, especially in Europe.
We had extensive planned maintenance. We had production adjusted to lower demand in Q4. We had a decent, I would say, operating cash flow and a decent balance sheet, and we keep the dividend or proposed to the AGM to keep the dividend unchanged, unchanged. When we look into Q1, we see improving apparent demand and no planned maintenance outages. So with that, Per, I guess there will be one or two questions.
Yes. Thank you, Martin and Håkan. It's time for questions now, and if we start here in Stockholm, and please let us know your name and your company before you ask a question. And it's perfectly fine to ask more than one question, but please pose them one at a time to make this process smooth. So please, we can start right away here at the front.
Thank you very much. Gustaf Schwerin from Handelsbanken. Two questions from my side. Firstly, on the apparent demand now for Q1, you mentioned that you expect destocking to be over. Specifically on the U.S. business, how much of that is just steel service centers driven? And also, if you can say anything on the underlying demand in the U.S., especially for some key segments like energy and air transport.
I think, yeah, it's always hard to say. I mean, it's a completely different order intake than what we experienced the second half of Q3 and beginning of Q4, so strong order intake. Part of that is, of course, end of destocking, and to some extent, probably restocking as well. So what is really the underlying demand? I would say fairly stable and not moving in any direction. We don't see any huge drops in underlying demand. We don't see any huge increases either, but we see a good order intake, and that is, I mean, the difference in, I would say, to a large extent, difference in apparent demand. That would be my guess without knowing 100%.
All right. And then secondly, I think you said roughly SEK 40 million for the under absorption effect from Raahe. If you could just clarify what that was and the quarter out of the total. And then perhaps, I mean, what's the plan now? It's up and running from January first. Obviously, one part of it was just reducing slab inventory, so what's your plan for that furnace in coming quarters?
If I start with the second part of the question, I mean, the plan was, as you said, I mean, if we would have been running the blast furnace, we would enter into 2020 with too much slab inventories. So we decided to take it down for six weeks. It's always a risk, I would say, to take down and start up the blast furnace during the winter. And maybe we were lucky this time, and maybe we were helped by the mild winter, but it started according to plan, and that's always very nice when it starts according to plan. So the blast furnace is up and running and producing and came up as we hoped, and we will continue to run that. We have no plans to take that down in any foreseeable future.
In terms of under absorption, that was part of the under absorption I showed on the bridge there, and I'd say it's between roughly SEK 75 million, maybe. We stood a little bit longer than we initially planned.
Thank you.
Ola Södermark, Kepler Cheuvreux. Special steel, the volumes were maybe a little bit lower than I had expected in Q4, and I expect a little bit more stable volumes. Can you talk a little bit about it and how it's looking into Q1?
It is, there is a difference between volumes in special steel. Special steels have the responsibility to sell all the hot rolled products above 700 MPa, and 700 MPa, and maybe 900 MPa; they are a bit more strict products, more volatile than if you take Hardox and those more advanced grades. I would say that for the advanced grades, the volumes were much more stable, and the margins were much more stable, and the volatility came in, into the, call it, more strict related products, and that's typically what we see. So there is a difference within the product portfolio of specialty steels as well. So the advanced products, the Q&T products, the plate products, much more stable.
If you take Specialty products, which is a small segment within specialty, that was actually growing. So, the dip or the lower volumes were more to the strip-related advanced high-strength steels.
There were developments during the quarter for less specialized items?
Better. At the end of the quarter-
Okay.
Into Q1.
You also talked about some insurance compensation. Is possible to quantify it in SSAB Europe?
Around SEK 200 million. You're right, in SSAB Europe, yes.
Raw material prices are coming down quite a lot for both coal and iron ore. We are going to see the most of the effects in Q1, but are we going to see, assume stable prices from now, are we going to see continued effects in Q2?
We will see most of the effect in Q1, if you assume stable prices going forward. Some of the coking coal will come a bit later, but most of it in Q1.
Thank you.
Okay, do we have any further questions here in Stockholm? It seems not. So I will then ask the operator to present the instructions for the people on the phone line. So please, operator.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero-one on your telephone keypad. Our first question comes from the line of Krishan Agarwal from Citigroup. Please go ahead.
Hi, this is Krishan from Citigroup. Thanks for taking my question. Can you please discuss the magnitude of the recovery you are expecting in the first quarter 2020 volume, given the base in the fourth quarter 2019 is so low? So should we expect the volumes to reach to the level of first quarter 2019, or if there is any shortfall, can you broadly discuss the range of the, you know, shortfall versus the last year's same quarter? Second question is on the-
Please, one at a time. No, we expect Q1, I mean, Q1 is filling up in a decent way. So we expect to run Q1 with good capacity utilization and have quality normalized volumes, and that means higher than Q4 then.
Understand. Understand. And then the second question is more of a housekeeping. You had a SEK 90 million adjustment when you calculate the IFRS net debt, and then in the footnote, you have given that it is basically from the derivative adjustment and then some acquired net debt. Can you quantify, as in what was the amount for the acquired net debt?
Sorry, I don't have that figure in my head, but we can definitely get back to you on that.
Okay, no worry. Thanks a lot.
The next question comes from the line of Seth Rosenfeld.
A clarification, the acquired net debt during the quarter was from the acquisition of Abraservice, but the exact amount we can come back to, too.
Sure.
The next question comes from the line of Seth Rosenfeld from Exane. Please go ahead.
Good morning, Seth Rosenfeld at Exane. Two questions. I'll start out first with the outlook for fixed cost, please. You flagged, I believe, SEK 420 million of cost under absorption in Q4 due to the lower volumes on a Q-over-Q basis. With production expected to increase, and as you mentioned, and normalize in Q1, should we expect that full SEK 420 million cost of under absorption to reverse in Q1 on top of the benefit of higher volumes on top line? We'll start there, please.
I can't tell you the exact number because I really don't know, but you should expect that to come down a lot. We will run production at better capacity utilizations during Q1. Clearly, better capacity utilization.
Fine. Thank you. And then, specifically on the U.S. market, obviously, you've seen broad-based weakness in flat steel price in the U.S. during the course of the second half of last year. Hot-rolled coil, cold rolled gals have all bounced very significantly over the past two months. Plate has lagged dramatically. Can you comment on why you believe the U.S. plate market is currently a relative loser versus other products, and what could potentially drive some strengthening going into 2020? Thank you.
I think there is, from time to time, a lag between different markets. And a couple of years ago, plate were lower than, or lagging strip products. And we saw the opposite during end of last year and beginning of this year. So there could be a time lag that differs a bit over time. What we see when we look into our order book in Q1 is we have good order intake, good demand. We see that the lead times are extending. So we'll see what happens with steel prices or plate prices compared to strip prices and so on. But they should typically, at least over time, follow each other, but there could be different lags.
Exactly what the lag depends on each and every time, that differs as well. But you should expect them to follow over time, and you should also expect that, I mean, decent volumes and slightly longer lead times for us, and good capacity utilization.
Okay, just one follow-up on the U.S. There hasn't been very good data available on the actual pace of recovery. Are you able to quantify how the recent price hikes have been absorbed or not by customers? Have they been successful to date?
Some of them, yes, there has been a couple of price increases, and as usual, the first price increase is typically to stop the prices to fall, and then we introduce price increases, and they stick in the market.
Thank you very much.
And the next question comes from the line of Ioannis Masvoula s from Morgan Stanley. Please go ahead.
Hi, good morning, gentlemen. Two questions from my side. The first on working capital, a big quarter in Q4, you released a record amount, SEK 2.2 billion, and the question here is: how much of that should we expect to reverse in Q1, especially given the restart of the blast furnace in Finland? Thank you.
No, but you should, I mean, when sales are increasing, you should, of course, expect us to build some accounts receivables and so on. So that will come. But we still, I mean, looking at it a bit, call it midterm, to just slightly longer than just Q1, we still see potential in releasing working capital. And we are running now a net operating working capital project and have done a lot of benchmarking and see that we, even though we have done a lot the last couple of years, we still see continued potential to release working capital and become more capital efficient.
Okay. And the second question on the dividend. Payout ratio well above the guided range, and the question here is: given the low gearing levels, would you be comfortable levering up the balance sheet modestly to continue paying an attractive dividend, or should we see that today's announcement as a one-off? Thank you.
You should, I mean, you should expect us to continue to strengthen the balance sheet and generate good cash flow. Last year, we did some acquisitions and so on, but you should, over time, expect us to continue to strengthen the balance sheet. And, I mean, keeping the dividend is a sign of that. So I wouldn't say it's a one-off. I, I'm a strong believer in a stable dividend over time. So, yes, it was slightly higher or higher than the range we have given, but that range should be seen over time, not every single year.
That's very helpful. Thank you very much.
The next question comes from the line of Luke Nelson from JP Morgan. Please go ahead.
Morning. A couple of questions from me. Firstly, on CapEx, at the Capital Markets Day, you guided an average SEK 3 billion over 2020 to 2025. So is that at an appropriate level for 2020 spend? Could you just give a bit more granularity on that? That's my first question.
Yes, that's an appropriate level for 2020 as well.
Does that include or exclude HYBRIT spend? If not, how much?
HYBRIT, that's not really CapEx, because that's what we inject as equity, if needed, into the HYBRIT company. So it includes the transition that we're doing in Oxelösund in terms of starting building the new electric arc furnace and related activities. It does not include potential equity injection into HYBRIT no.
Okay. And second question, just on net debt, there was a SEK 950 million negative impact from derivatives and revaluation effects. Can you just articulate whether you expect that to reverse? And if so, under what price scenarios would that happen?
That depends very much on the, on the exchange rate differences. During the quarter, we had a quite, significant change in the Swedish krona versus the U.S. dollar, and that's what triggered that main impact. If that's gonna reverse or not, that obviously depends on, if the, if it will go the other way around in Q1. So that's hard to say, but that was the reason why it happened in Q4.
Okay, that's fine. And final question from me, just, it sounds like there's still a threat of strikes in Finland. Can you provide any additional granularity around where those risks currently sit, from where, from where you're sitting, please? Thank you.
They are postponed for two weeks, and the negotiations are ongoing, so we hope that they will come to a solution where we can avoid strikes during Q1. So, but, I'm not part of the negotiations, and I don't have the latest update, but I know that the discussions are ongoing, and the start of potential strikes is postponed for two weeks.
Thanks a lot.
The next question comes from the line of Carsten Riek from Credit Suisse. Please go ahead.
Thank you very much. Just, two small questions from my side. The first one is on the insurance, compensation, because you mentioned it's SEK 200 million. We have seen a year before, another SEK 100 million. My question is: Are there any negative, is there any negative impact on the insurance premium post those payments? Because usually, insurance premiums, kick up after those payments. That's the first one.
Over time, that might be the case, but not short term.
Okay, so there's no kind of short-term negative. The second one, what makes you actually that confident to keep the dividend at SEK 1.50? You already mentioned the improving volumes. How do you see actually the steel price side going forward, especially in Europe?
But I said I'm confident with keeping the volumes, given the cash flow generation I expect, 2020 and the coming years. So that's what I said. How steel prices will develop during 2020, it's too early to say. We have a fairly good view that we communicate in the outlook for Q1, and then we have seen that maybe spot prices have started to move in the right direction. But we haven't started any discussions or any negotiations for Q2 yet. It's too early.
Okay, perfect. Thank you.
The next question comes from the line of Alan Spence from Jefferies. Please go ahead.
Yeah, thanks. Just two left from mine. The first one kind of following up on what Luke was asking about. Appreciate you don't have the clarity whether a strike in Finland will go ahead, but if there was one to repeat, is the impact that you guided to being the one in December, a similar number we should think about? Or are there any kind of additional measures you can put in place ahead of time to mitigate that?
We are working with that, of course, and trying to mitigate what we can. This time, I mean, we during Q4, it was a strike among electricians, blue collars, and some others, also in the some short strikes in the harbor of Rauma. We have, or they have agreed on a collective agreement with the blue collar. So this is, as I understand, it white collars and senior salaried employees. Then it depends how long the strike is and what will happen. But it's I mean, everything else equal, it is, call it, slightly easier to run production. Or call it slightly more complicated to run production when we have strikes among blue-collar employees compared to if we have it with white-collar employees.
But we have white-collar employees also, of course, being very vital for the production. So it depends how this potential strike would look and how we can try to mitigate. But we are working with different scenarios and following it, the negotiations and what happens in Finland very closely.
Okay, that's helpful. Thank you. And then just another one on Tibnor and the cost savings there, the SEK 200 million run rate as of the second half of this year. Medium term, do you think you can sustainably hold on to those cost savings, or is there some risk that that margin will get transferred to customers?
Well, we will definitely reduce the costs with at least SEK 200 million. And then, of course, the reason is, I mean, the idea is to increase profitability to a level where it should be, because they have not been performing the last couple of years on acceptable levels. And we talked extensively about that during the Capital Markets Day, and that's the idea. And looking into the program, it is slightly ahead of plan, so I'm not worried that we want to meet that. Then, what happens with the profitability is, of course, also a mechanism of steel prices and competition and so on. But, I'm very convinced that we will meet the cost saving target as such.
Thanks. And just one last one, going back to the dividend. Given what you've said so far, it sounds like, you know, under the current outlook, you have, you know, SEK 1.50 per share might be a base level dividend we can think about for 2020?
But what I said is that, I mean, if you take the dividend policy and apply that on the EPS of 2019, the dividend should be, of course, mathematically lower. But we are confident for the future, and we think that the balance sheet currently is not in a very bad shape, and if anything, it will become stronger and stronger. So that's that was the reasoning behind the keeping the dividends. So we're quite confident-
Okay, thank you.
When we look at our possibilities midterm.
Thank you very much.
The next question comes from the line of Christian Kopfer from Nordea. Please go ahead.
Thanks, operator. Just a few follow-ups from my side. Firstly, on Americas, if you could comment a little bit on the inventory levels that you see on your customers. You have previously said that they are on very low levels. Is that still relevant or?
Uh, yes.
Have you seen them change this a bit, or in any direction?
Well, we haven't seen the latest statistics, but we have seen that, the order intake in Americas has been on good levels.
And as you also said, Martin, so that the underlying demand is perhaps stable in Americas, but still, prices have been struggling quite a lot, and but import level, imports seem to have come down quite materially. So, do you see? Is the destocking phase, is that the real, call it, the reason for the weak trend, would you say?
I would say that destocking was a big part of the explanation during Q4. And then, of course, the current order intake we see and have seen lately is that only destocking or not? Well, there is a huge... I mean, there is a difference when destocking is over. So, so no, we have had good order intake since, I would say, beginning of December or something.
Right. And then on Europe, do you have any... What's your contract structure these days? Is it primarily-
It's a combination of one year, half year, and quarterly contract, with the majority being quarterly contracts. So, but, I mean, into Q1, there is always a combination. I mean, that's where you typically renegotiate the half year contracts and the yearly contracts. So it is a mix, but I would guess that, what is it? What, 60%-65% being quarterly contracts.
Okay. Have you already signed the prices for the half year contracts or?
Uh, yes.
Can you say anything on-
No, we guide for prices for Q1, but we have signed the contracts for Q1 with maybe one or two exceptions, maybe. But we have signed the full year contracts, half year contracts, and all quarterly contracts, all the contracts up for negotiation for Q1.
And we guide for somewhat lower prices in Europe, Christian, and the reason is these longer term contracts that we have signed, because they will be lower. Then in Q4, we had some spot deals, which we will not need to have in Q1, which will help prices, but will be then offset by the longer term contracts.
Right. That's understandable. And you said that mix was a little bit negative, right? For Americas in Q4, but you are working on improving the mix, so-
No, but we were standing still, we were standing still.
The mix in Q1 to be.
No, but we were standing still in Mobile due to the maintenance outage, and, and from Mobile, we produced the more, call it, advanced products or the fatter mix or the better mix.
Yeah.
So we were running Montpelier, which is typically, I mean, a mill for cost-efficient standard steel production or standard plate production.
All right. And then finally, then, can you just say what—what was your total cost for iron ore pellets and coking coal in 2019?
Total cost in absolute terms, or?
Yeah, in absolute. So I have the figure for 2018, but I just want to see-
Oh, okay.
If you have the updated figure.
We have to get back on that, Christian. I don't have it in my head.
Okay. All right. Okay, thank you very much.
The next question comes from the line of Anssi Kiviniemi from SEB. Please go ahead.
Thank you. Hi, guys, it's Anssi from SEB. A couple of questions left from my side. First of all, looking at your inventory level that you have on, on yourself, how happy are you with the current level as we are entering into 2020, given the current market outlook?
I think there is always room for improvements, but I would say there are possibilities to become more efficient when we measure capital turnover. I wouldn't say that the inventory is, maybe with the exception of coking coal, much too high. But having said that, there are still possibilities when we look into it to become more efficient. But we don't have slab inventories and inventories that gives any reason for concern. And the reason for that is, of course, that we took the decision to close the blast furnace in Raahe. But that means also that we didn't consume the coking coal we expected to consume. And you know that we take in coking coal before the ice season, and then we pile up stocks during the winter.
So, we have not consumed coking coal in the volumes we expected to do in normal winter. Iron ore or pellets, we can flex more with, because then we have transports all over the year. So with the exception of coking coal, I wouldn't say that any big worries, but still potential to become more and more effective.
Okay, thanks. Then second one is on savings. You basically, since reported Q4 result, you highlighted in yourself, I think it was some SEK 300 million positive impact current, comparing to last year. So what should we expect when we enter into 2020, in Q1 and Q2? Will the savings continue? And kind of, could you give some kind of indications on that side?
We will continue to be cost cautious, and we have implemented some things that we will continue to run and some measures. On the other hand, I mean, we will not use short-term layoffs in Finland and so on, and flex security measures in Sweden, because we will run production at the different levels. We will not take those, call it, short-term flexibility measures, but we will, on the other hand, not increase temporary manning either. So, it's more like the short-term actions we took in Sweden and Finland, and that will not be the case in Q1 compared to Q4.
Okay, thanks. That's clear. Then my last question is on the Finnish industrial strike. I mean, two weeks, that's a long period, and running the blast furnaces without the white collars, can you do that for two weeks? Or should we expect that if the strike situation escalates, you need to idle your blast furnaces in Raahe? Or kind of, how should we think about that?
It's a good question. I think it's a bit too early to answer, because that will depend on how the potential strike will look. Let's come back to that. I still hope and think that they will be able to solve this problem with the 24 hours in for white collars in Finland. But we have different scenarios, and we are trying to take or prepare for the measures to mitigate as much as we can the potential the negative effects of a potential strike. But, of course, it will affect us if it is, if it will be a strike, yes.
Okay, thanks. That's, that's fair and clear. That's all from my side. Thank you.
The next question comes from the line of Bastian Synagowitz from Deutsche Bank. Please go ahead.
Yeah, good morning, gentlemen. My first question is on special steel. The profitability of that business obviously used to be very stable, and now you're saying that prices are coming down, but obviously costs are coming down as well. If you look at the overall profitability of the portfolio in special steel, could you give us some steer on whether you expect that to be stable from what you see in your order backlog when you compare it to the first half of last year? And when you still, I think, had EBITDA ton margins north of SEK 2,000 . That is my first question.
It will depend on the mix, but if you take product by product, we expect the margins over time to be fairly stable. We will see some effects, as Håkan pointed out, on lower raw material cost and slightly and stable prices. It will depend very much on the mix. The mix differs a bit, or the volatility in the portfolio differs a bit, with higher volatility of 700 material, strip-related advanced high-strength steels, and less volatility on Hardox and Strenx plates. But over time, we still believe and see that there is a potential to continue to increase margins in Special Steels with better big mix and higher volumes.
Okay, understood. And now looking into your order book, when you look into those mix effects you mentioned, do you see, rather profitability expansion from your mix in the first half of 2020? Or, is profitability getting a little bit worse or just stable? Any color you could give us on that?
No, but I would say that the order intake we have had, and the order book we have now is more normalized compared to Q4. So, we continue to see increasing demand for the more advanced products, but we also see that the lower quality, the products with higher volatility, the order intake has come back compared to Q4.
Okay, perfect. Thank you. Then I have another question following up on the energy transition strategy. When will you decide on the investment for the upstream infrastructure of the demonstration plant at the HYBRIT JV, i.e., the electrolyzer and the DRI plant, and whatever is required there? And what are the capital requirements for the demonstration plant as a whole?
We are working with that plan right now, so it's a bit too early to say. But we will come back to that. But the work is ongoing, and we're working together in the HYBRIT Development AB, together with Vattenfall and LKAB, and we'll discuss that and come to some kind of conclusion during, I would say, during this year or the first half of this year. So let us come back to that.
Okay. So there, there's no actual guidance on, like, what the capital requirements will be also for you on top of the CapEx, which you have already laid out?
No, not for the demonstration plant. For the pilot plant, that will be finalized this summer, we know what it is, and I mean, compared to the figures we talk about, that is minor investments for SSAB. But we need to come back to the demonstration plant, because that is a full-scale production plant, and that investment will be done by HYBRIT. So the three companies together, and then there will be some other investors or yeah, in that as well, potentially.
Okay, got it. Will these investments into HYBRIT already start this year as well, potentially?
No, but they are already ongoing with the pilot plant. For the demonstration plant, I would say maybe minor investments this year. I mean,
Minor investments.
The pre-studies and so on, and they are already ongoing.
Okay, perfect. Thank you.
Just as a reminder, if you two wish to ask a question, please press zero one on your telephone keypad now. Our next question comes from the line of Oskar Lindström and from Danske Bank. Please go ahead.
Yes, good morning. Couple of more or less follow-up questions from my side. I mean, the first one is on your price guidance for special steels in Europe in Q1. You're saying that your prices should be slightly lower, but does the better order books mean that you will have a better mix, Q1 versus Q4? Did I get that, understand this correctly?
For Europe, yes, because in Europe, we took some spot orders during Q4, which we will not do in Q1. On the other hand, as I said before on the pricing, we now have renegotiated the yearly and the half-yearly contract, and given where spot has gone during 2019, those will be with lower prices. But from a mix perspective, overall, yes, Q1 will be better than Q4 for Europe. For special steel, we will have a continued good mix in special steel as well, but there, we are not taking the spot dates as we did in Europe, so it's not a big change there. That is more a factor that, as I showed in the bridges, we have been holding up the prices for special steels very well. We will see a slight decline, we expect, during Q1.
On the other hand, we also see lower raw material costs. So margin-wise, gross margin-wise for special steel, it's not a big difference between Q1 and Q4.
But... So you're not saying that in Europe, for example, the more positive mix could or will compensate for the lower prices that you've contracted?
No.
Okay. Fine. My second question, also on the HYBRIT, how will you report the, y ou know, when will the net debt of the JV start to impact your net debt?
No. It's a 33% joint venture, so we will not consolidate HYBRIT.
All right, and the capital injections, could you have to see when they come?
Yes.
Yeah.
Okay. And then the final question is on the dividend for the year. You're saying now that you're focusing more on the balance sheet and keeping a stable dividend. Should we see this as being a slightly new thinking versus the kind of guidance for 30%-50% of EPS?
No. You should... We still have our target when it comes to dividend. What, what I said was that second half of 2019 was a bit special, and Q4 was a bit special. Looking forward, we, we see strong possibilities for the companies. We felt that and we also see possibilities to continue to strengthen the balance sheet and I don't see the balance sheet being a huge problem as a starting point where we stand today. So that was more the reasoning behind it.
Okay, so we shouldn't see that this is the kind of dividend you'll have as long as you can keep this type of balance sheet? It will continue to be EPS-based.
That's a matter for the owners and for the AGM to decide. But this is the proposal for the AGM for 2020, and then let's come back in a year and see what we propose then for the upcoming AGM in 2021.
All right. Thank you very much. Those were my questions.
As there are no further questions, I'll hand it back to the speakers.
Okay, thank you. Do we have any follow-ups here in Stockholm? Seems no. Okay, so then we can conclude today's conference. Thank you, gentlemen, and thank you for the attention, and we wish you a nice day.
Thank you.
Thank you.