So good morning, and welcome to this Presentation of the SSAB Result for the First Quarter 2019. Welcome also to you that follow this on, on the webcast. We have my name is Per Hillström, I'm with Investor Relations, and with us today presenting, we have Martin Lindqvist, President and CEO, and also CFO Håkan Folin. And the agenda, Martin starts here with the summary of the first quarter and performance by division, then Håkan comes to explain the financial development, key figures, and then Martin joins again with the outlook, a few comments, and then we start with question and answer session, where we have questions both here in Stockholm and also from the, from the phone lines. So with that, please, Martin, take the floor is yours.
Thank you, Per. Excuse me. If you look at the markets for the first quarter, I would say all in all, fairly stable. If we look at Americas, we continue to see strong demand from all end segments. We saw some hesitation during the quarter from steel service centers and distributors. We also saw that spot prices trended downwards slightly from very good levels. In Europe, we saw stable demand with the exception of automotive, where we saw some lower demand, and some also here hesitations from distributors, and somewhat downward pressure on spot prices in Europe. But all in all, stable markets, good demand, and no drama at all during Q1.
If you then look at the figures for the first quarter, we ended up with an EBIT of SEK 1,674 million, which is SEK 760 million better than Q1 last year. I think we had really strong performance and results from SSAB Americas. We had good results from SSAB Special Steels. We had some problems in Europe with the blast furnace in Raahe, but all in all, fairly okay quarter. We saw higher prices, and we also saw, despite we were building working capital, which we typically do during the first quarter seasonally, and especially with the problem in the blast furnace in Raahe, we were also building raw material inventories. But despite that, I think the operating cash flow was quite good, SEK 1.1 billion.
So we continue to strengthen the balance sheet, and we will continue to generate strong cash flows going forward. If we look at the divisions, Special Steels, I said, continued strong demand in all segments, I would say all markets. EBIT up 244, we had an EBITDA margin of 17.3%. I think that is where Special Steels should be. What we also saw that we had fairly okay and fairly good and stable production, and that is, of course, the difference, a big difference compared to the prolonged stop we had in Q4 in Special Steels. We had higher prices, but we also saw higher costs of raw materials.
The shipments were lower than compared to a year ago, and that's not because of the market, that's because of the prolonged stop in Q4, so we were lacking slabs going into Q1. So that's why the volumes are lower than Q1 2018. Europe, yeah, Europe, as said, fairly stable demand, lower activity in automotive, and the reason for the lower profitability is the standstill of the blast furnace number two in Raahe, which cost us a bit more than SEK 200 million, and then higher raw material costs that squeezed the margins in Europe. We also had, due to the problems with the blast furnace, slightly lower shipments than we would have had otherwise. But apart from the problem in Raahe with the blast furnace, I would say solid performance in Europe as well.
Americas, 23% EBITDA margin in the steel industry, I think that's good. I think it's very good. I think solid performance. We had slightly lower shipments, and the reason for that was that we had severe weather in Midwest, in Montpelier, where we have one of our facilities. For a bit more than a week, we had more winter storms, more than minus 50 degrees Celsius. Some problems to get trucks and, and, and trains and so on. So that's why shipments came down compared to Q1 2018. But apart from that, a very good performance, and we are the market leader in heavy plate in North America, but we are also clearly the cost leader. We are the most cost-efficient plate producer in North America, and that's why we see these kind of margins when the market are strong.
Tibnor, fairly thin margins, stable demand in the Nordic region, EBIT down SEK 29 million compared to the previous year. Lower margins and also inventory revaluation, which we typically see then in the distribution business, when the spot prices are trending downwards. Ruukki Construction, a minus, yes, but this is seasonally. I think, the improvement in Ruukki Construction with almost SEK 50 million compared to Q1 2018, it is good. So they are moving in the right direction. They have control over costs, they're increasing volumes. I think they also made a solid performance.
... Håkan?
Thank you, Martin. Good morning, everyone. I will, as usual, go through the financial figures in some more detail, the bridges, cash flow, net debt, and also the raw material situation. If we start with an overview, we had very high sales, actually the highest we've had since the merger with Ruukki, at almost exactly SEK 20 billion. And we had that actually despite shipments not being so high. Shipments were actually overall 4% lower than they were, Q1 2018. So with the high sales and slightly lower shipment, obviously, we've had prices at a high level during the quarter. Profitability-wise, we had an EBITDA of close to SEK 2.8 billion, and an EBITDA margin of close to 14%.
As you can see, that's actually also during this period the highest we've had, and as Martin pointed out, especially driven down by the very strong result in SSAB Americas. And if you combine a high EBITDA, but not so high shipments, obviously, when we look at it per ton, we see a very high level of EBITDA per ton, almost 1,600 SEK, which is also the highest we've had during this time period. So all in all, from a profitability point of view, it was a strong quarter. And if you compare them to Q1 last year, where did this come from? Because Q1 last year, we had a result of 916, and the improvement then is SEK 758 million, up to 1,674.
Well, the main impact is coming from clearly higher price level, result impact of close to SEK 2 billion. That's being offset a bit by lower volumes. We had lower volumes in all three steel divisions, actually, and especially in Europe, given the Raahe blast furnace standstill. This was actually somewhat compensated by higher volumes in Tibnor and in Ruukki Construction. Then we have fairly higher variable COGS. Raw material is the main part, but on top of that, we also have higher maintenance costs, partly driven down by the standstill in Raahe. That also implies that we have to ship slabs from Luleå or from Oxelösund to Raahe, and then we get high transport costs as well. Fixed cost is somewhat higher than Q1 last year, SEK 270 million.
We had higher maintenance costs in this quarter. We have an overall salary increase year over year, and also when we are running production and result as we are in Americas, their salaries, we call it fixed cost, but their salary is actually, to a large portion, variable, depending on the performance, so we are paying out higher salaries in Americas, given those results. One important thing, which I've talked about before, to bear in mind, is that even though we have higher fixed costs, we have not increased our manning. We keep our fixed manning on exactly the same stable level, and then if needed, we flex using temporary manning, which means that if, or rather when, the downturn will come, we will be also rather fast in adjusting our manning level. FX, no big impact, under-absorption - other, which is mainly under-absorption, also no big impact.
Some impact there from running Raahe blast furnace a bit lower. But all in all, this result improvement then of close to SEK 800 million, it's basically coming from better margins, where we had significantly higher cost, more, much more higher, sorry, much more higher prices than we have higher cost. If we instead compare to Q4, the picture looks quite different. Here we have smaller improvements, but in very many areas, and we have a result improvement here of more than SEK 600 million, somewhat on price. This is Special Steel, and Europe, and it's to a very large extent, mix. When we had to lower volumes in Europe, given the Raahe incident, we obviously cut the lowest priced volume first, which means that we actually had a fairly decent price development in Europe.
Volumes better than Q4, and in Q4, we had maintenance outage in all three steel divisions, and this is mainly coming from Special Steel and from Europe. Variable COGS is, well, it's almost zero, but it's somewhat positive, despite raw material increases, but in Q4 with the maintenance outage, we started up the second blast furnace in Oxelösund. We had a lot of different small variable COGS that added up. So despite raw material increase, we actually basically are net then, compared to Q4. Fixed cost lower, which they should be, given the maintenance outage, and especially the prolonged maintenance outage we had in Oxelösund. We had high fixed costs in Q4, and we are seeing that bounce back now in Q1. Somewhat positive on FX, weaker Swedish krona. Other, SEK 54 million.
It's quite a large positive impact from under-absorption, given we did not have this maintenance outage. On the other hand, in Q4, we also had an insurance compensation in SSAB Europe of more than SEK 100 million. So all in all, that adds up to SEK 54 million. So some small improvements in all areas, giving us the result, then, of close to SEK 1.7 billion. Cash flow, we continue to have a strong cash flow. We had an operating cash flow of SEK 1.1 billion. We had a net cash flow of SEK 500 million, and we had that despite then building working capital of more than SEK 1.2 billion. And this is very seasonal. If you look at Q1 last year, we were also building working capital. On the other hand, in Q4, we typically release working capital.
When sales slow down in the end of Q4, we release working capital, but then when sales start going up again in Q1, we build working capital. So we don't expect that this should be a trend that will continue in the coming quarters. We've also had somewhat higher CapEx, as we have guided for before. Maintenance CapEx being up by SEK 70 million or so, also strategic CapEx year-over-year being up by SEK 50 million. So as we have said, we will have somewhat higher CapEx in 2019 compared to 2018. And with the positive net cash flow, we are continuing to reduce our net debt. We are now down at SEK 8.1 billion in net debt, excluding IFRS 16 changes, which is a reduction of more than SEK 3 billion compared to where we were one year ago.
We are also reducing our net gearing. It's now at 13. It was at 21 one year ago, so an 8 percentage point decrease there. And we have a duration of the loan portfolio, which is actually now over six years. And if we look at our maturities, at the end of March, we had SEK 6 billion maturing in the coming three years. We have actually now, during April, already repaid more than half of the 2019 maturities. It was a bond that was maturing that we have repaid. So it means that the situation now for the coming three years in terms of maturities is. It's very stable, and it's very much under control. We were sitting on unusually a lot of cash at the end of March, reason being that we had this bond maturity coming up.
We have also now paid out dividend, and we have completed acquisition of Sanistål , so we were preparing ourselves for that. But now, in the end of April, we will see a totally different cash position. But all in all, the debt and the maturity situation, I would say it's, it's balanced, and it's very much under control. Finally, for me, on the raw material side, and starting with iron ore and coking coal, we have seen these prices continue to increase, and especially iron ore have increased quite a lot during Q1. If we look at our purchase prices, they have increased with 50% in Swedish kronor, and they increased with 14% in dollars. And iron ore, partly, or maybe even mainly because of the Vale accident during Q1, iron ore prices have really spiked, during this quarter.
We have also seen coking coal prices increase, not as much, but they have increased with 8% our purchase prices during Q1. And as Martin said, in Luleå, we basically don't have any iron ore inventory. We get transport by train from LKAB on a daily basis. So there, we have already started to see the impact of these higher costs in the P&L. But for the other Nordic operations, and including the coking coal, the higher raw material impact will mainly hit the P&L now during the second quarter. For our U.S. operation and for scrap, the situation actually looks quite different. Over time, iron ore and scrap typically follow each other, but they have not done so far now. Our purchase prices were relatively stable during the quarter, where they were 3% lower than in Q4.
We have actually also seen in April that scrap prices have went somewhat downwards in April, which will obviously then impact our performance during the second quarter. Okay, back to you, Martin.
Thank you. So looking ahead into the second quarter then, and in our segments, the overall picture is that we see demand in the segments that are important for us being either strong or healthy. If we start with heavy transport, we see the good demand on high levels in Europe, especially for the heavy truck. In U.S., good activity in both rail cars and barges, which is important for us. Automotive, yes, weakening trend in the main markets for automotive as a total, but we also see continued structural growth in advanced high-strength steels, the area where we are active. Construction machinery, slightly lower momentum, but at a very high level. Material handling, we see continued high activity within mining in several regions, and it's both investments and maintenance.
Energy, solid demand in wind energy in U.S. We see also high activity in U.S. oil and gas sectors. So overall, in these segments, strong or healthy demand in Q2. Construction, yes, good underlying demand, but some hesitation, especially in residential building in Scandinavia or the Nordic region. And then, as always, the steel service centers, they are in a wait-and-see mood. On the other hand, month on hand for steel service centers are not at any high level, so eventually, they need to start to buy. But we call it healthy underlying demand, but as always, some swings in the apparent consumption. And our guidance, we say that in North America, demand for heavy plate is expected to continue to be good in the second quarter.
In Europe, demand is expected to be somewhat weaker, and global demand for high-strength steels in Q&T is expected to continue to be strong. Prices in Q2, somewhat lower for Europe and Americas, and stable for Special Steels. Håkan pointed out we will see higher raw material costs, especially for iron ore, and that will be visible in SSAB Europe and in Special Steels. Then in the beginning of the quarter, slightly lower scrap prices in North America. What we also have done during the second quarter, we call them internally bolt-on acquisitions. We have made two acquisitions. We have bought the Sanistål in Denmark, which makes us or strengthen our position in the Nordic market. We will become a very important and big distributor now in Denmark. So Tibnor bought Sanistål.
I think that makes sense because we cover the market, our home market, in a better way. We bought Piristeel, or the majority of Piristeel, and we can buy the rest on an earn-out model. So we are planning to buy 100% of Piristeel. That is to complement Ruukki Construction Roofing business unit. This within roof safety. Both these two acquisitions are made, including synergies, at very attractive levels. I think when we continue to strengthen the balance sheet, we are also looking for more opportunities on small and mid-size bolt-on acquisitions, where we can strengthen our position within our core business, the Nordic region, globally, Specialty, America for plate, and so on. And we'll continue to look, and we have a couple of plans and ideas going forward as well.
Another important project is the HYBRIT project. That is moving on. As you all know, this is our project to produce steel without carbon dioxide. Here you can see a recently taken picture up from Luleå, and you can see the ice is still on the Baltic Sea. But we are now in the phase of erecting the pilot plant. The pilot plant will be ready and start to produce summer next year. We are, together with Vattenfall and LKAB, investing in this pilot plant, SEK 1.4 billion. Out of that, the Swedish Energy Agency contribute with SEK 530 million, but the rest of it is splitted between the three owners of HYBRIT.
And this is, of course, an important project for us in order to be fossil-free as a company at the latest, 2045. And the next, call it, big event, will be in Oxelösund, when we, the first of January, 2026, will have changed the whole system into a fossil-free production plant, and will be, compared to today, and we will take away a lot of the carbon dioxide emissions that we emit currently. So this is a very important project, and it's running according to plan, and if anything, we try to speed it up even more. So to sum it up, I would say strong, very strong results from Americas. Good results from Special Steels. Overall, a decent quarter. Relatively good outlook for the second quarter. We have two main priorities when we look into operation. The most important one is within safety.
We have the target of being the safest steel company in the world. We are definitely there in our U.S. operations. We're approaching in our operations in Borlänge, but as a company, we still have a lot of work to do. And then, of course, production stability and continuous improvements. It's about preventive maintenance, about risk analysis and becoming better and better in predict how we should maintain and run our operations. We will continue to focus on debt reduction. We will continue to focus on strengthening the balance sheet, and I think that gives us a good platform to continue to grow the company strategically over the, over time. And we should be able to, to work with these smaller and mid-sized bolt-on acquisitions whenever them, they present themselves or when we can find them, and, and without having to look at the balance sheet.
Overall, I would say a decent quarter. With that, Per.
Yes, then we can open up for questions. We can start here in Stockholm, and please state your name and company. And so if you have more than one question, please let Martin and Håkan answer them one by one. We facilitate the whole thing. So please, we're starting here already. I see some hands.
Ola Södermark, Kepler Cheuvreux. On back of your guidance and the very strong margins in Americas, you're guiding for maybe lower scrap prices in Americas in the second quarter, and slightly lower prices, but can we expect the very high margins to remain for a second quarter in the same ballpark?
The margins in Americas for Q2 as well.
There shouldn't be any big change from?
What we can see is where the scrap prices were moving in the beginning of April and what they will be exactly in June, it's hard to predict. But typically, I mean, the seasonal pattern for scrap is that it typically peaks somewhere in Q1 due to problems of collecting scrap, weather-related problems, and so on. But it all depends. And then, of course, when the U.S. dollar, which is not the case right now, but when the U.S. dollar is weak, you typically also see a lot of scrap export. That's not the case now. So the normal seasonal pattern would be to have gradually lower scrap prices during the spring compared to the winter.
When it comes to Europe and the European spot market for hot rolled coil, has been quite weak, and we have seen, prices picking up, spot prices picking up in China, but not directly here in Europe. Can you elaborate and, explain your view on the European steel market?
Yeah, but typically, when raw material prices are moving up, as they have been doing now with fines and pellets, you see spot prices also moving up, and that has not been the case. We have seen a slightly decreasing spot prices if you measure hot rolled coils in Germany, as an example. And the only explanation to that is, of course, supply and demand. And we have seen some, especially in Southern Europe, some import coming in as well, so even though we have trade restrictions in Europe as well. So it is, I guess, the supply and demand. And, I mean, the biggest reason for that, for raw material prices moving up, or one big reason is, of course, the problems in Brazil.
... What can we expect going forward in Europe?
But as usual, my visibility is at best the coming quarter. So, you should expect what we are guiding for the coming quarter, and then what happens after the summer is anyone's guess, more or less.
Hi, it's Johannes Grunselius, Handelsbanken . Two questions for me. On the raw material side, I mean, you highlight this in your annual report, the sensitivity. But Håkan, you mentioned in your part of the presentation that some of the impact was already seen in Q1 from high raw materials in Luleå. Is it fair to assume a number between 100-200 million SEK as a negative effect in Q2, quarter-over-quarter?
For SSAB Europe, you mean?
Yeah, and Special Steel. I mean, how much negative delta will you have for the quarter, would you say, from higher coal and higher pellets?
We typically don't guide for what exactly the figure will be, but the majority of the impact you will still see. The majority of the increased purchase prices that we showed before will still come in Q2. And also during Q1, one should remember that during Q1, on average, the prices, or not on average, the prices were increasing during the quarter. So if you can say, even if you got some of it in Q1, that was maybe more on the January and February increase, but then they actually continued to increase spot market during March. So the vast majority will come in Q2.
Would you say it's, it's a more of a negative effect than SEK 200 million? It sounds like that.
That's your interpretation.
Then, very nice margins in Special Steel, eventually. So congratulations to that. Can you talk a little bit how much more capacity you have left for when it comes to the Hardox products, as a first one? And also, if you can sort of take advantage of the strong, you know, market demand that we have now in terms of, you know, increasing sales to geographies or, you know, perhaps small, medium-sized companies, if there's a better business case there for at the moment.
Well, I think, as we said, the last time we met, we are investing now in Mobile to take up capacity with another 100,000 tons. And I think, we have decided to have production as the bottleneck, yeah, over time. I mean, we invested a lot during, was it 2007 and onwards, and it may be a bit too early then, but we will gradually continue to increase capacity for Special Steels. We have, we are running Oxelösund at decent levels. We are running Mobile currently at decent levels. We are running the other sites for Special Steels at decent level. We will be able to meet the targets and a bit more than the targets we have set for 2020.
But over time, we need to continue to invest in capacity, not in total capacity, but in QT capacity. And, and, so that's what we are going to do. And, and Mobile is obviously one important step. And as we talked about last time, the, the payback for that investment is very attractive because 50% of it is increased, or less than 50% is volume increase. The more than 50% is lower costs on production today. So we are taking away bottlenecks, and we'll continue to do that. But it's also important to work with productivity and have stable production and increased productivity, and we measure that every week, every month, every quarter, and have targets to increase production stability, but also productivity over bottlenecks.
Do you see any possibilities for pushing out a richer mix or selling more to areas where you have higher margin geographies, for instance?
Yes.
Yeah. But you don't want to sort of give any flavor what that could imply?
No, but I said, I think, Q1 was a solid performance in Special Steels, and I've been talking about it for a long time. There is a big potential in Special Steels, and I mean, one quarter is one quarter. We need to show a number of quarters now that the potential is really there. But when it's working, and Q1 was not delivery-wise a fantastic quarter, but production stability was good during the first quarter, and then you see where Special Steel should be.
Do we have any follow-up from the floor? No. Then we can start to take questions from the phone lines, and then I will ask the operator, please, to present the instructions.
Thank you. Ladies and gentlemen, if you have questions for the speakers, please press zero one on the telephone keypad now. We have the first question, Krishan from Citigroup . Please go ahead. Our next question, Ioannis from Macquarie, please go ahead. Ioannis, your line is open.
Hearing...
Our next question? Our next question, Anssi from SEB, please go ahead.
Yeah, hi, it's Anssi from SEB. Most of my questions have been already asked, but perhaps one question left. Has the abnormal situation in iron ore markets affected to your yearly contract negotiations, and how you see down- dynamics in on that side? Thanks.
We are, with LKAB, then our main iron ore supplier, we have a contract, delivery contract that lasts from first of April until end of March. We are still in negotiations with LKAB before the contract that will start on the first of April, now 2019. That is actually not abnormal. We typically are never done before that period starts, and we obviously still get the shipment from LKAB, and then we will set the, if there are any changes in the price mechanism afterwards. So, no major change. No, discussions are still ongoing.
Okay, thanks.
Thank you. Our next question, Gustaf from Pareto. Please go ahead.
Hi, Gustaf from Pareto Securities. Two questions from my side. Firstly, on your realized pricing per ton in Europe, where I believe the sequential drop was surprisingly low, even if we account for both the lag and the mix effect, well, given the spot price development. I mean, how much in Europe is actually mix improvement? And can you quantify anything on the sequential negative price impact for Q2?
Yeah, in Q1, since we had the problems in Raahe with the standstill of one of the blast furnaces, we lost some shipment volumes, and therefore, we had to cut some volumes. And then when we do that, obviously, we, we cut the volumes with the lowest margins first, and the lowest margins are typically the one with lowest price as well. So therefore, in Q1, we had a somewhat higher price than we, than we would have thought, given that we got the better mix in Q1. In Q2, where we expect volumes to be higher, we will also have a slightly worse mix from that point of view. And we have said, as we guided for, that we will have somewhat weaker prices in SSAB Europe in Q2.
Okay, fair enough. Then secondly, on working capital, how much of the build up in Q1, which looks unusually high, was related to Raahe ?
But portion of it, because when we don't produce, we build up raw material inventory, so it was unusually high. So, I mean, last year was maybe not in money, but volume-wise, was more a normal quarter, Q1 last year.
That then, on top of the draw was part of why the working capital buildup was unusually high. But then on top of that, the higher raw material prices also impact the working capital buildup.
Great. Then perhaps just the last question on your automotive shipments in Europe compared to a year ago, I mean, how much lower are there as a % , percentage of the total shipments?
They are slightly lower. They are not down that much, but they are somewhat lower than Q1 last year. And if you, I mean, we have, as you know, we have a strategic growth target to increase automotive quite a lot. So, I mean, historically, when we're compared year-over-year, we have almost always had higher shipments of automotive. Now, they were down, but they were not down by much. I don't remember. It was a few percentage. But slightly down.
Okay, thank you very much.
Thank you. Our next question, Peter from Bank of America Merrill Lynch, please go ahead.
Bank of America Merrill Lynch. I've got a question on the U.S. market. Can you talk about your perception on what's happening in that market with a lot of new capacity being announced by your competitors? I know that most of it is not in plate, but there are a few announcements for plate, which we think could add over 2 million tons of capacity into the U.S. market by the end of next year. So firstly, your perception on that, and then secondly, can you talk about how you see your position in the market, over the next two years, considering new capacity coming online, how you intend to defend your market share? Thank you.
The biggest announcement has been with the mill, and Nucor is planning to build in Kentucky, and if I'm not mistaken, that is coming on stream 2021. So I have a hard time seeing 2 million tons at the end of, of, in that short period, and then there are some other debottlenecking. But, but I think the, the, the U.S. plate market is, structurally undersupplied, so it's re, relies on, on, on import, and, and the import is, typically between 20%-30%, every year. So, so there is room for more capacity. But the big capacity being built, or at least announced so far, is, as you point out, is, within strip, and we are not, producing strip in U.S.
But of course, it will, over time, change the market dynamics a bit, but we also see over time, growth in plate. So we think that it is room for more plate capacity in North America.
And then just a follow-up point, there on the import comments. So imports have been falling into the U.S., and I suppose your argument is that new capacity will displace imports, so not much to worry about. And historically, arguing that displacing imports is where new capacity will go as not really being a great argument in steel, tends to result in a price war first. Can you talk about where you actually see imports going to the extent we get quotas under USMCA? I know that trying to second-guess what Trump wants to do is challenging, but maybe you can give us a perspective on what you actually see happening in the U.S. market, as it relates to quotas and Section 232. Thank you.
Well, I'm not a political expert and not a macro expert either. So what I can comment is the view we have for the coming quarter, and then overall, we see increasing demand for heavy plate structurally in North America. What will happen with quotas and tariffs and so on in the long run? My guess, I guess, is as good as anyone's, so I don't have a clear view on that.
... Okay, thank you.
Thank you. Our next question, Nelson from JP Morgan, please go ahead.
Morning, guys. Just back on the question around the sensitivity to iron ore. You've previously indicated around SEK 650 million group level impact for a 10% change, and that's earnings. Just to confirm, that is, is that the type of run rate we should be factoring in, obviously quarterly adjusted run rate, for Q2 in Europe and Special Steels, just for iron ore? And then also, is it possible to give that sensitivity for an operating earnings basis, and also any split between the Europe and Special Steels division? That's my first question. And then secondly, not sure if you, if you answered this, apologies if you have, but just the IFRS 16 adjustment to EBITDA, the divisional split of that. Thank you.
If I start with the second question, on group level, the EBITDA adjustment on IFRS 16 was positive, down SEK 173 million, so it increased EBITDA level. By division, the largest impact is in Europe. If I recall correctly, I think it's SEK 56 million, and then Special Steel is the second one with SEK 48 million. And then you have the other three are at similar level, but it's based on size. So Americas is slightly more, and then you have Tibnor, and then you have Ruukki Construction. But we can provide that, we can provide that exact split as well, but that's roughly how it looks like.
On the raw material side, yes, you should, you can use the sensitivity that we have in the iron ore, that we have in the annual report regarding iron ore, obviously then adjusted for quarterly. The split between Europe and Special Steel, the majority of it is in Europe, given that Europe produces a lot more than we do in Special Steel. And you should also remember that part of Special Steel sales is actually produced in Americas using scrap. So that's also why we stated earlier that the main impact will be on Europe, but there will also be an impact on Special Steel for the increased raw material price.
Thank you.
Thank you. Our next question, Bastian from Deutsche Bank, please go ahead.
Yes, good morning. I've got three questions, please. My first one is on Special Steel, where you clearly had a very strong quarter. I just, I was wondering, has there been any product mix effects in there, or is this purely due to the fact that the quarter has been running very smoothly from an operational standpoint? And maybe also, you've guided for stable prices in the second quarter. Could you please also let us know whether there will be any major changes in product mix, which we should be expecting? Then secondly, on the U.S., you guided for both cost and prices to drop in the second quarter. It seems like the spot price correction in plate is accelerating a little bit. Should we expect that your overall margins will actually remain stable?
Or given that there is a bit of a time lag as to how the plate prices come through, maybe you can give us a bit of color on that front as well. And I've got one more question on the strategy, but I'll just hold off before you answer the first ones.
I can hardly remember the first question, but if I start with the second, we typically we are not selling so much on the spot market in the U.S., and typically we have a lag. You see that when prices go up and when prices go down. So we typically have a lag of something between a half and one quarter, so... And we also have an order book, so we are pretty sure where the prices, or have pretty good visibility where the prices will end up in Q1, and that's what we are guiding for, so slightly lower. And then, the questions about question about-
Product mix in Special Steels.
It was nothing special in the first quarter, and we are not expecting to see any special changes in the product mix in the second quarter either. I mean, we are gradually trying to move the product mix within Special Steels as well. But I would say that in Q1, there were no one-offs or anything like that. It was a normal quarter, slightly lower volumes due to the reason we have talked about the prolonged stop in Q4, and I would say decent production stability. And that shows what Special Steel should be able to do when it comes to margins.
Got it. Thanks, Martin. Just a quick follow-up on the U.S. situation. You mentioned the lag. So from that point of view, and given the visibility which you've got, I think we can probably expect that the plate margins in the U.S. are going to be fairly stable in the second quarter. Is that a fair assessment?
Yeah, of course, that's a fair assessment, but that will depend, of course, where the scrap prices will go in May and June. So that's the unknown factor, so to say.
Okay, clear. Okay, thanks, Martin. Then just one more question on the strategic front, you did two small acquisitions. We also indicated that you obviously keep scanning the market, and there may be a second remedy package coming into the market here in Europe after the Ilva deal last year. It's probably early to say, but from today's point of view, is there anything in there which could be interesting for you in either packaging or automotive?
Not in packaging, no. That's not our business. We haven't, I mean, the things that have been out on the market so far and communicated on the market so far could have been some smaller parts of some packages that we could have been interested in, but no, none of the whole packages that have been out on the market. And what we have understood so far from also the ongoing combination of Tata and Thyssen and their suggestions, we don't see anything there that would fit our business.
But as I said, we are trying to put ourselves in a position where we can at least take an educated look and have an educated view on whatever presents itself or what we can find, and without being too scared about the financial strength of SSAB, and that's what we are aiming for, and we'll continue to aim for.
Great. Thanks a lot.
Thank you. Our next question, Kevin from Goldman Sachs, please go ahead.
Yeah. Hi, good morning, guys. Can you just give a quick sort of color on lead times in your different steel producing units, and where you see inventories as well?
You mean inventories in, for us or in the market?
Downstream in the market.
When we look at the external statistics, and when we look at, I mean, as one example, steel service centers and month on hand, we don't see any abnormal levels of inventory. So, no, I think it's fairly normal.
And what about the lead times for you at the moment in the different divisions?
I think they are as expected. As I said, we have a pretty clear view of Q2, and in Special Steels, the lead times, of course, are longer than they are in the other two divisions. But we have, I would say, maybe slightly longer lead times than average on the market, which we typically have.
Okay. Thank you.
Thank you. Our next question, Oskar from Danske Bank, please go ahead.
So coming back to this issue of mix change, you said... I mean, you, you talked a little bit about the development in Q1 and maybe what we could expect in Europe for Q2 sequentially. I'd like to come back to sort of the bigger picture for sort of mix change in your divisions for the full year 2019, and possibly also if you could say something about 2020 versus yeah, versus 2018. Should we expect sort of an underlying positive mix change in all divisions?
Yes.
Or should that be zero?
Yes. I mean, we have set strategic targets for growth in the important areas, and we follow them up every month, and we presented them at the Capital Markets Day 1.5 years ago, almost two years ago, and with volume targets for 2020 in a number of areas. And we are well on our way to reach those targets, and you should expect us to reach them. So, I mean, I said many times, we will not increase the total production, but we will gradually continue to shift the mix.
Of course, in Europe, because there is a big difference if you compare hot rolled coils sold on the spot market compared to cut-to-length or other types of more advanced products. So that you should expect... And as Håkan pointed out, we have had maybe unusually strong product mix in Europe due to that we had to decide what products we were going to sell and deliver because of the problem in Raahe. But typically, underlying, we also, over time, have a stronger mix seasonality-wise in Q2, so that will also be seen. But overall, the product mix in Europe was unusually strong due to the lack of volumes.
But you should expect us to continue to improve the mix during 2019, and you should expect us to improve it even further in 2020.
And this is true for all your divisions? Or is there any sort of anything which stands out here now that you're, what is it, a year and a half into your, well, second year into your program?
No, I think, maybe we are slightly behind when it comes to automotive growth, slightly. We are well ahead of the target or the sequence target when it comes to Q&T and so on. So overall, I think, pretty much in line or slightly ahead.
Also, on the sort of mix impact of these, initiatives?
Yes. Yeah, exactly.
All right. Interesting. Thank you.
Thank you. Our next question, Yannis from Macquarie. Please go ahead.
Can you hear me now? Hi, can you hear me now?
Yes, we can hear you.
Okay, perfect. Two follow-up questions on my side. The first, again, on raw materials. Is it fair to assume that you're better able to pass on the high raw material costs at Special Steel relative to SSAB Europe? And related to that, what's the average lag for iron prices to feed through to the P&L at Special Steel? And I will leave it there for the first question.
But if you look at Special Steels, the margins in Special Steels, they are typically more stable over time. So in that aspect, yes. The more advanced products, the more stable margins. So compared to more standardized products, yes.
... In terms of lag for special steel, I would say it's, for iron ore, it's a quarter from when we buy it until it hits the P&L.
The full impact of the Q4 cost inflation, that was again another 15% in Q4, that's already pretty much reflected in your Q1 numbers, right? For Special Steels.
Yes. Yes. We had clearly higher raw material P&L impact in Q1 versus Q4 for special steel. Correct.
Perfect. And then the second question, at SSAB Americas, you highlighted the adverse weather in Q1. Could you potentially quantify the impact that had during the quarter?
No, but you can see that if you compare volumes, I would say, compared to Q1 2018, so, that's where you see it.
Okay. That's fair enough. Thanks very much.
Thank you. Our last question, Colin Stem from Jefferies, please go ahead.
From Jefferies. Just one question around shareholder return. So M&A looks unlikely to be of a size that would dramatically alter your balance sheet, and free cash flow should be strong this year. I'm just wondering if you would consider adjusting the dividend policy to improve shareholder returns kind of above the target, you know, the current 30%-50% range of profit.
But I think what is important for a healthy company is to have a stable development of dividend, and stable and increasing development of dividend. Then if the balance sheet becomes too strong, there are known techniques of distributing the cash flow. So that is, I mean, more question for the owners. But what we are operationally focusing on is to continue to generate strong cash flows because we see still potential in working capital, we see still potential in earnings. So when we look at it, everything else equal, we will continue to strengthen the balance sheet. And then how we use that stronger and stronger balance sheet, I think that's easier. I mean, the important part is to strengthen the balance sheet.
So we are, I mean, able and capable of also developing the company strategically, regardless of the business cycle. And we should, of course, be cautious how we—if and how we spend that capital, of course, because it is really the owner's capital. So, I don't know if that answers your questions, but I'm fine with the dividend policy as such.
Okay. So I guess something to revisit year-end, potentially. Thank you.
Thank you. As there are no further questions, I will now hand the session to Per Hillström. Please go ahead.
Yes. Did we have any follow-ups here in Stockholm? Seems no. Then we conclude this presentation, and thank you for the attention, and we wish you a nice day. Thank you.