Good morning, everyone, and welcome to SSAB's third quarter results presentation. My name is Andreas Koch, Head of Investor Relations. Our first speaker today is Martin Lindqvist, who will explain about the overall market situation, reflect upon the group numbers, as well as for the division. Our CFO, Håkan Folin, will then go deeper into the P&L, cash flow statement, and balance sheet. Martin will conclude the presentation with the outlook for Q4. In the end, we'll open up the floor for questions. Now I would like to hand over to Martin.
Thank you. And Håkan's last name is Folin, not Lindqvist. We are not brothers, even though we have the same haircut. 1.5 weeks ago, I was at the World Steel Association meeting in Chicago, and it was an interesting meeting, and most of you have probably read the short-term outlook. And as you know, they downgraded the outlook for 2015, and they also downgraded slightly the outlook for 2016. So there will be, in 2015, a small increase of apparent steel demand in Europe and a reduced apparent steel demand in North America, and China, fairly big decrease of steel consumptions. Other parts of the world are still growing, like Africa, Middle East, and Europe, outside EU 28. And then, of course, a big drop also, 2015, in Latin America, and I would say mainly Brazil.
So it is a tough steel world out there. I've also been visiting a number of customers during Q3, and it's clearly so that we are the preferred supplier among end users and OEMs. We are increasing volumes of our niche products, especially, I would say, Hardox, taking market shares. We are losing volumes on non-branded Q&T, and that is mainly to steel service centers in North America, and that is due to lower demand, and I will come back to that. We are also taking further measures to reduce costs, and I will come back to that. And we are also continuing with the, call it, program of synergies, and that is working well. A look into Q3, then, figures. The EBIT amounted to SEK -191 million, and that is exactly SEK 600 million less than Q3 2014.
Now, there are a couple of main deviations compared to Q3 last year. We had a negative currency impact of SEK 260 million compared to last year, and during the quarter, it was minus SEK 200 million, but compared to third quarter last year, minus SEK 260 million, and Håkan will come back to that. We had the relining of the big blast furnace up in Luleå this summer. It went according to plan, with one exception. We had a sub-supplier repairing a spare part of the blowing machine, and that took a couple of weeks extra, so we lost approximately 2.5 weeks in that process, and that cost us SEK 75 million more than we had anticipated. The biggest deviation, apart from that, is, of course, lower prices in North America.
They continue down, and if we compare to last year, prices in U.S. for standard plate are clearly lower, and we have not been able to fully compensate for that, of course, with lower raw material. Other highlights, and Håkan will come back to that as well. We have longer, now we have managed to extend the duration of the debt portfolio, so we have a more, much more balanced maturity profile. And we have this morning also announced additional measures to take down cost. Part of it, the raw part, is part of the synergy program, but we have also announced that we now do some other things or extra things as part of the ongoing restructuring within Ruukki Construction. Market, I would say, as expected, with one exception. Heavy transport and automotive, stable on high levels. Construction, machinery, and mining, stable on very low levels.
Energy is kind of for us in North America a divided market. Everything that is oil-related is slow, but wind tower is one example where we see very good demand. Construction material, yes, we saw in Q3 the typical seasonal pickup. It was not as strong as last year, but we saw the seasonal pickup. And then the disappointment, or where I was wrong, steel service centers. When we met last time, I said that destocking will come to an end during Q3. That has not happened. We have seen destocking among steel service centers all through Q3, and the demand or the apparent consumption from steel service center has been very low during Q3. If you look at the divisions, start with Special Steels. We had an EBIT of SEK 251 million. The big part of the currency, negative currency effect, hits Special Steels.
Of course, they are benefited from not having a summer outage this summer and also running the small blast furnace in Oxelösund the full third quarter. That is now closed. We closed it in beginning of October. But during Q3, due to the relining in Luleå, they were running the small blast furnace. We have lower volumes than Q3 last year, but it's mainly, I would say, or only non-branded Q&T. We have been able to increase volumes when it comes to Armox and Strenx, and those products are a bit more profitable than non-branded Q&T. So that is not even though we have lost volumes, we have not lost profitability due to better mix. If you look at SSAB Europe, the biggest difference is, of course, we have slightly lower prices or lower prices, but the biggest difference is, of course, the relining of the blast furnace.
The net cost in Q3 of the relining was SEK 180 million, but that was favorable in Special Steels and more negative in SSAB Europe. So the biggest deviation here is clearly the relining of the blast furnace compared to previous year. And now, as said, the blast furnace is, is relined and up and running. We lost 2.5 weeks for ex-- already explained reasons, but now it's delivering according to plan. We managed to do it cost-wise, within budget. And now it is-- this is important because this was now give us the opportunity to that flexibility, which was a key part of, of combining SSAB and Ruukki. So now we have a blast furnace fleet where, where we can flex and produce in a much more cost-effective way.
I would almost like to say, regardless of market situation, and that can be done now since end of September. Americas, as said, mainly prices explaining the drop and not compensated at all, fully or at all, by lower raw material prices. What has happened in the beginning of Q4 or in October, is that scrap prices has come down with additionally $50-$60 per ton. And what we have suffered from is non-existing correlation between scrap and iron ore. And now, since beginning of October, that correlation is back to where it has been over time. So scrap prices for the October buy is down between $50 and $60 per ton. Synergies, they are running slightly faster than the initial plan.
We were at the end of Q3, at the run rate, above SEK 750 million, and the P&L impact in Q3 was SEK 175 million. Now, when we look at it, we had before or initially said that the cost of realizing these synergies would be SEK 550 million. When we take a closer look now, more than half into the program, the current estimate is that the cost will be SEK 200 million instead of SEK 550 million. What we have done during the quarter, we have closed the color coating line in Borlänge and moved production to Hämeenlinna, and that was actually done 10 weeks earlier than the plan. We have negotiated and concluded the negotiations of staff reductions in Borlänge and Visby, in total, 270 people.
We have today also called for negotiations of workforce reductions in Raahe as part of the synergy program. That will be a bit more than 200 jobs in Raahe. We have done a couple of other things. As said, today, we announced that as part of the ongoing restructuring program in Ruukki, we will take down costs with approximately EUR 25 million. It's about closing sites, moving sites, specializing sites, and reduce the manning with approximately 300 people. During Q3, we have also invested in coal injection in Raahe, and I would say that that is mainly or partly due to environmental reasons and partly due to cost reasons. Now, that is up and running, so we will go from oil injections to coal injection. We will have a much better, call it, carbon dioxide effectiveness in the blast furnaces.
As I've said before, our blast furnace system in Luleå is the most carbon dioxide effective system in the world, and now, after this, we will be on par with Luleå in Raahe as well. But on top of that, going from oil injection to coal injection, will, at current oil prices as we have today, save us on a yearly basis, another 200 million SEK, compared to where we stand today. So when we sum this up, and I take the starting point, first of September, when we got the new organization in place and the two companies together, we will, with these actions, reduce the yearly costs, run rate mid-next year, be 2 billion SEK, with these three areas: synergies, Ruukki Construction, and coal injection in Raahe. And with that, Håkan, some more details about the result.
Thank you, Martin. Good morning, everyone. I will give you some more details of the figures. I will also go through the result development from previous quarter and also from third quarter last year. And finally, also some more details on the raw material development during the quarter. Starting with some key figures, we had an EBITDA in the quarter of SEK 750 million, which corresponds to 5.5% of sales. We had in the quarter a negative operating cash flow of SEK 116 million, but when we look at it, after three quarters, we have a positive operating cash flow in total of SEK 2.1 billion. Going to the result development then and starting comparing Q3 with Q2. We had a profit in Q3, Q2 of SEK 300 million, and now a loss of -SEK 190 million.
It's explained by lower prices, approximately SEK 250 million, coming mainly from Americas, where prices continue down also in the third quarter. It's also coming from volume, where we have a seasonally lower volume in Europe and in special steel, and this is to a large extent, actually Europe. Then we have a big positive impact of COGS, variable COGS and also fixed cost. It's coming from lower raw material cost, it's coming from more synergies realized, and it's also for fixed costs, it's coming from between Q3 and Q2, periodization impact when you have the summer vacation reserves dissolved in the Nordic regions. Comparing to Q2, we also had a negative FX loss of SEK -150 million, and we had lower utilization rate. But big items being prices and lower volumes and FX.
Comparing to Q3 last year then, then we had a profit of a bit more than SEK 400 million, so the difference is SEK 600 million, pretty evenly. And here you can see it's a huge drop in prices of more than SEK 1.1 billion. And that is, to a very large extent, is the prices in North America, where prices were down with approximately 25% year-over-year. We also had some lower volume, also North, mainly North America or Americas division, but that's not at all impacting as much as the price pressure. This is partly compensated on the cost side with, again, lower raw material, but also the synergy impact you see here. However, you have the negative impact of the relining, it's part of the COGS and the fixed cost as well.
Then compared to last year, we have negative FX with SEK 260 million. It is, to a large extent, it's revaluation of balance sheet items, but it is also, compared to Q3 last year. Since we are buying a lot of raw material in U.S. dollar, and the U.S. dollar have strengthened a lot since last year, that's also impacting the FX result here. So the big items then from last year to this quarter is the prices in North America, it's the FX losses, and it's the Luleå relining. Some words on the cash flow development, where, as said, we had a negative operating cash flow in the quarter, very much impacted by high maintenance expenditures, which out of these SEK 600 million, approximately SEK 300 million were for the Luleå relining.
If we look at it, at where we are year to date, we have a net cash flow down of more than SEK 800 million positively, and that's, I would say, despite high level of maintenance CapEx, but also we have fairly high strategic CapEx this year, which is the largest single item here is this, PCI coal injection that Martin mentioned before. But all in all, still after three quarters, net cash flow positive SEK 800 million. Moving on to the balance sheet, we have a stable net debt and a stable gearing. The net debt is SEK 24.8 billion as of the end of third quarter, which is in line with the end of 2014, somewhat lower, and also in line with the end of Q3 last year.
Our gearing, or net debt to equity ratio, is at 55%, which is down one percentage point since year-end. Moving on, looking at our maturity profile, we think it's a very balanced maturity profile for the year to come. We have increased the average maturity to up to 4.8 years. That's actually up 1.1 years compared to where we were last year. When we look at it, we have a small amount still maturing in 2015, which is only commercial paper. Then we have a fairly balanced here in 2016 and 2017, and even a bit lower onwards. What we have done in the quarter is that we have repaid in advance some of the loans maturing in 2015.
We have also moved part of the maturities we have here in 2017, we have moved them to 2020 and onwards, which gives us then both an increased average, but also a more balanced maturity. In 2016, I think that's worth pointing out as well, approximately half of the maturities we have in 2016 are commercial papers. Finally, final point, which is nothing new, but I think it's still worth to point out, is that in our debt portfolio, we have no financial covenants whatsoever. Looking then at the development of the duration, we had a slightly decreasing trend here, but since Q2 last year, we have been quarter and quarter and quarter increasing our duration, and now being at close to 5 years on average, it's a level where we are very comfortable with.
The interest rate during the quarter was, you can say, was basically unchanged. It was up from 2.34 to 2.36. Reason for that is that, the loans that we repaid in the quarter had a lower interest rate than our average, so the average interest rate went up somewhat. But of course, if we repay loan, the total interest we will have to pay will go down. Moving on to raw material and starting with iron ore and coking coal. Prices were fairly stable during Q3. Both for iron ore and coking coal, they dropped slightly in July, but since then, been fairly stable, actually.
Iron ore now at around $55, coking coal at around $80 somewhat. For us, our prices for iron ore was down 1% in Q3, what we were buying, compared to Q2, both in US dollar and SEK. What we also did in Q3 is that we signed a price agreement with Severstal for continued deliveries. These deliveries will be both to Raahe and, but also to Oxelösund. Given the logistical setup we have with LKAB in Luleå, we will not use the Severstal pellets in Luleå. For coking coal, prices were down a little bit more. They were down with 8% in US dollar and 5% in Swedish krona. So all in all, both iron ore and coking coal, slightly down, not as dramatic as we have seen before, but still somewhat on a downwards trend.
If we move to scrap, then the situation is quite different, actually, where we saw sharp price declines during Q3, and these have also continued now into Q4. The spot prices, and we buy scrap for our use operations on the spot market, they were down 30% in Q3 versus the beginning of Q3, and when you compare year-over-year, they were down as much as 46%. And as you can see here on the chart, they have continued going down somewhat in October. And that brings us to the correlation between iron ore, that Martin talked about before, where we have been suffering, and we've been a bit frustrated in our North American operations, that scrap hasn't followed iron ore, which it has done historically.
If we look at this chart, it's an index starting in the beginning of 2012, and for two years, you can see that iron ore, being the black one, and scrap, being the gray one, they were basically following each other. But then here, something happened in the beginning of 2014, where iron ore went down sharply, but scrap did not really follow. But what we see now, in beginning of October, it has actually converged again, the scrap prices and the iron ore prices. And this is very important for our North American operations, because during the last year, year and a half, we have lost some of our, competitive edge against the integrated players.
But now, when these prices have converged again, it gives us back our competitive advantage, both against the locally iron ore-based producer, but also against the largest portion of the import coming into North America, since that is based on iron ore-based production.
So some words about the outlook. We don't foresee, in underlying demand, any big changes. We don't think that the wait-and-see sentiment we have seen in Q3 in North America will continue for heavy plate. Unfortunately, I was saying last time we met that, we expected the destocking to be over in Q3. We expect the destocking to continue into Q4, because it was not over end of Q3. But the underlying demand will be stable, among our customers. Then there will always be some kind of seasonal downturn in Q4, and I will come back to that. In Europe, we have the same view. Underlying demand, fairly stable for fourth quarter, but with a seasonal downturn end of Q4.
Demand for high-strength steels and quench and temper, fairly unchanged during Q4, and we expect shipments to be slightly or somewhat higher in Q4 compared to Q3. We will also take a maintenance outage in Oxelösund in November, and the negative impact or the cost effect of that or the negative impact of that will be approximately SEK 100 million. It is less than it normally is during the summer, when we have the summer stop. That is because the maintenance outage will be a bit shorter than normal, and we will, to a larger extent, use our own personnel. If you look at the segments, I would say no big changes from Q3. We expect heavy transport and automotive to be stable on high levels, and construction, machinery, and mining to be stable on very low levels.
We expect to see the same pattern in the energy segment as well. Construction material will typically go down seasonally in Q4, and we don't expect any major changes in steel service centers either. The destocking will come to an end, yes. When? I don't really know. I was pretty sure last time. I don't give you any prognosis of that this time, because then I run the risk to be wrong once again, and I really don't like that. My last picture is about Swedish Steel Prize, 2015, and these are the finalists: Facchini from Brazil, Terex Cranes from Germany, Ponsse from Finland, and Milotek from South Africa. What they have in common is that they are using advanced high-strength steels, either to increase productivity, or to reduce weight, or to reduce or increase payload, or reduce fuel consumption or energy consumptions.
I think these are very good examples of how you can utilize advanced high-strength steels. In a lot of these cases, also, you see fairly big environmental benefits. I think that is also important, and it was discussed also during the meeting in Chicago with World Steel Association, the increasing importance of doing the right things environmentally. This, I think, is probably the best contribution we do when it comes to reduce emissions and reduce fuel consumption, and so on. On top of being the most carbon dioxide effective producer of steel in the world. By these customers and other customers using our products, and reducing weight, and reducing emissions, and increasing payloads, and typically doubling life length, I think this is the real contribution that SSAB can do in that aspect.
There will, as always, or since 17 years, at least, be the Swedish Steel Prize in Sweden in November, and one of these will be then the winner of Swedish Steel Prize. So I'm really looking forward to that final, and see whom of these very good examples who will actually win the Swedish Steel Prize. And with that, Andreas?
Mm-hmm. We're now opening up the floor for questions, and, let's start with the audience here in Stockholm. Olof, please go ahead.
Yes, talking in the report about prices leveling out in North America, could you please add something extra to that? Should we interpret that you've announced price increases, or what's coming from the competitor side?
I think it will depend, be dependent on so many things. I mean, we have seen that imports are slightly lower in Q3 than previous. They are still on a high level. We saw that scrap is coming down, and domestic prices in the U.S. are fairly similar now to import prices. And as Håkan pointed out, with this reduction in scrap, we will not have a competitive disadvantage, at least among the imported material and the domestic integrated mills. I think it's hard to say exactly where prices will go. They have been fairly volatile the last year or so. But if they are stable, it will be positive for us with the reduction of scrap, and we will not have any competitive disadvantage.
But where they will be at the end of Q4, it will. It's very hard to tell, I would say, this time.
Another question, then, please, on this new iron ore agreement with Severstal. Could you please indicate roughly how much of your iron ore purchases in SEK that now come from Severstal?
It will be. I said it will not be at all to Luleå, and it will be, it will be both for Oxelösund and for Raahe. It will be below half of the production that will be Severstal pellets.
Thank you.
Steven?
Good morning. It's Julian Beer from SEB. Can I ask three questions on your savings programs? Firstly, are you raising your target for the restructuring savings launched at the time of the Ruukki merger from SEK 1.4 billion to SEK 1.6 billion? And if so, could you give some detail as to where the improvements are coming from?
What I said in that page was a bit, I said more than 1.4 and more than 200, so those for Ruukki Construction, and I said EUR 25 million. So, and the, I mean, if that is EUR 25 million, and then the restructuring program in, or the PCI is currently 200, then it's slightly more. But as said, I mean, we are very confident that we will deliver at least 1.4, and it's going a bit better than planned and a bit faster than planned.
Where do you think the increases over the original 1.4 are coming from?
But you always have a plan when you start something like this. We had an industrial plan, and some things turns out better, and some things, of course, turns out a bit worse. And then you find new things when you start to combine and when you learn from each other and see things that we do in Raahe that we could do in Borlänge and vice versa. It's a lot of different things. It's not one or two or three projects. It's a lot. We run a lot of projects, and they have been, in total, a bit more successful than we anticipated and a bit faster. I think the closing of the color coating line is a good example. It's always tricky to move production. You have different paint systems and so on, and you need to harmonize and merge products.
I was a bit, not skeptical, but I mean, you're always a bit thinking what could go wrong, and in this case, it went better than we thought, and we could close it 10 weeks early under plan. That is one example.
Okay, so it's more, a little bit here and there on existing programs-
Yes.
rather than finding brand-new things to do?
Yes.
On the PCI savings, which are savings calculated based on an old CapEx program, is the SEK 200 million annualized savings compared to the prices that you are paying in Q3 2015, or is it based on the oil prices that persisted back in 2014?
The current oil prices.
From Q1, we should be looking at SEK 50 million quarter better income in Europe than Q4 because of this program?
Yes.
You will see a small portion of it in Q4 as well, but,
But what we are doing-
Not much
The PCI investment is up and running, but we had inventory of oil, so we use up that because we will not need it in the future. So we'll do that during Q4, and then it will be fully empty, the inventory of oil, beginning of end of this year, beginning of next year, and then we will go with 100% to PCI.
Okay, is that an EBIT or an EBITDA impact?
I would say both. So there's no CapEx associated?
Well, you will have, we have CapEx for it, so you, okay. It's an, it's an EBITDA impact, the full of it, and then you will have some depreciation to it.
That's correct.
I mean, that sounds. It's a great return. What kind of CapEx was involved in that program?
It's, I don't have the exact figure, but I would say it's around SEK 400 million or something.
Have you got any more of those programs that you can fill?
No, but it, and actually, when the decision was taken, the oil price was higher, so this is at current oil price.
Yeah. No, fair enough.
But it's not only saving costs, as I said, it's also, you could call it an environmental investment, because this will also do a lot to that, to the emissions.
Finally, on the construction savings, if markets for that business were to recover to previous volumes, would you have to rehire to deliver?
No.
So this is just a back-office saving, effectively?
It's a lot of different things. I mean, it's about specializing sites, emerging sites, and so on, so, and back office administration, things like that. Yes.
Thank you very much.
Let's go to Johannes.
Thanks. It's Johannes from Handelsbanken. I think you're saying now that we should expect somewhat better shipments, right, quarter-over-quarter in the fourth quarter? Having said that, the Q3 is very seasonal weak, but could you give some, some color on what kind of sort of year-over-year expectations you have on your addressable market? And if you can say something about 2016, is it fair to assume a bit of growth, or what's your thinking there?
If you look at World Steel Association's forecast, one should expect some growth then for 2016. But as you know, Q4 volumes will be very dependent on the price sentiment going into 2016. If everyone is expecting lower prices, we will see lower apparent demand compared to the opposite, so to say. So I think it's hard to say, because December is always tricky. If people expect, or customers expect, or the market expect lower prices in Q1, they will probably destock as much as possible and wait to buy after first of January, and typically also close down production. And in such a scenario, the deliveries after, I would say, the tenth or fifteenth of December, will be lower than if the opposite happens.
It's always tricky, but typically we see a seasonal slowdown, but that could be mitigated by a more positive price sentiment going into Q1. That is the biggest, I would say, swing factor.
And you're referring to World Steel Association indicating some growth in the steel market to Europe. Is that what you also believe? I mean, if you look at your discussions with clients.
I would say fairly stable in Europe, as I said, for Q4 and then Q1, we are still, I mean, starting up those discussions. But I don't really see the underlying demand, why that should either collapse or spike.
Just a question on the balance sheet where the net working capital now increased in the quarter. Over the last few quarters, it has decreased. What should we expect in the near term there?
The opposite.
Lower Net working capital?
Yeah.
Yeah. And the magnitude-
That was effect, of course, partly effect of the relining as well. The relining being delayed, working capital release also being delayed.
Thank you.
James?
Thanks. It's James Gurry from Credit Suisse. Just two quick questions. You were in the U.S. recently. What's your expectations on the potential for anti-dumping in your specific segment, segments and products, and the timing and what the impact might be? And the smaller blast furnace that has been taken offline, do you expect to bring it back, or do market conditions indicate that it's sufficient to keep it offline?
Start with the blast furnace. Then, well, we have had it closed for a fairly long time, or idle, I would say. And then we brought it back to service due to the relining, to get the balance of slabs in a better position. And then when the relining was done, we idle it again, and for the time being, I don't see any need for restarting that blast furnace. And then when it comes to measures in North America against plate import, I know there is a lot of discussion, but at the end, I guess it's a political process, and political processes, at least for me, are very hard to give any predictions on.
Are you more encouraging or leading the way or taking initiative towards it?
To start with, I'm a strong believer, and we are a strong believer in the combination of free and fair trade. But short term, I think this could be one way of helping the industry in parts of the world to get rid of over capacities. So, short term, I'm not against it, given the how the market and the export looks, and especially when you look also how the export is handled in different countries. But where it will end up, my guess would be, if I had to guess, that we will see some kind of trade barriers.
Do I have any more questions in the audience? Hjalmar, please, go ahead.
Thank you. On SSAB, your shipment was down around 70%, I think, from Q2. Was that around what you expected, or was that weaker than expected for the seasonal downturn?
I would say roughly in line. It's the seasonal pattern, and then, I mean, we had, of course, with the delay of the blast furnace, we probably lost some shipping volumes as well.
... Okay, and the question on the Borlänge closing the savings effect, is that mostly the employee re-reduction, or are there fixed costs coming down on top of that as well?
When you close a line, there is more than just salaries, of course. But that is part of the Synergy program, and as planned, with the exception of the timing.
All right. Just a question on Oxelösund, you had a positive impact in Q3, as it was running, the other blast furnace. How much will the negative effect be in Q4 when you shut it down?
Compare Q3 to Q4, it will be in the neighborhood of SEK 75 million-SEK 100 million.
Okay, thanks.
Anders?
Hey, Anders Grefberg. You said there was a negative price, a decrease in price of 25% in U.S. What about the price level in Europe?
Year-over-year, it's down somewhat.
Yeah.
It's definitely not down as dramatically, Q3 versus Q3 as in U.S., but it's down slightly in Europe as well.
And still you have much lower raw material prices?
Yes.
Okay, good. What about the market situation in China? Have you stepped out of China, or are you still there, or?
We are still there, and we are selling our most advanced products, Hardox, Strenx, and some other products, but it's not... I mean, China is a tough market. We are not selling any standard product there or close to standard products. It's only the most advanced, like Armox, Hardox, and Strenx, and some Domex volumes.
Yeah. Okay. Last and final question: the portion of scrap, the portion of raw material costs, compared to the total cost of steel, do you have some rough idea?
What do you mean?
How big a portion is the raw material cost in the total cost?
That depends actually a lot, if it's if it's iron ore-based or if it's scrap-based, and given also-
Both of them.
Given also now the how much the scrap has changed recently and how much the iron ore has changed recently. I don't have the figure. We have it actually in our annual report. I don't have the figure in my head. I can check it for you afterwards.
Okay, thank you.
Yeah, but yes, scrap and iron are about the same magnitude. Scrap a little bit more earlier, but now they are more in par with it. Okay, let's take some questions over the phone. Operator, please go ahead.
Thank you very much, sir. Ladies and gentlemen, should you wish to ask a question, please press zero one on your telephone keypad and wait for your name to be announced. If you wish to cancel that request, you may press zero two. There will be a brief pause while questions are being registered. Once again, it's zero followed by one if you wish to ask a question. And our first question comes from the line of Carsten Riek from UBS. Please go ahead.
Thank you very much. Two questions from my side. The first one is on the realized prices, because if I look at this in special steels as well as Europe, they were holding up pretty well. Actually, they were going up, defying the odds so far. What caused the stronger realized steel prices so far, and why do you believe you can actually hold that level, or do you see downside here, on the steel price, realized steel prices? Second question on the FX impact of around SEK 200 million. Where is it exactly coming from? Because it's a comparatively high number, and if I remember correctly, you only have one warehouse in Brazil, in Curitiba or so. Is it because of shipments from Europe or because of shipments from U.S.?
If you could shed a bit of lag on this, that would be helpful. Thank you.
Okay. If I start with the first question, prices were in Special Steels, fairly stable. So this is, as I tried to explain during the presentation, I would say mainly a mixed effect with, slightly more Hardox. We lost volumes in total, but that was, non-branded, mainly to steel service centers in U.S. We kept the volumes, or actually increased the volumes, for Hardox and, and to some extent for Strenx as well. And so, so I would say the price increase in that aspect, the average price increase, is a mixed effect.
Also in Europe, because in Europe it was also, because if you look at this quarter-over-quarter, it was from 7,161 to 7,248, and that's the third consecutive in... Well, the second consecutive increase, sorry.
It's a combination of mix and contracts.
Okay. So you still have the contracts in place. When they are renegotiated, you will actually feel the heat here as well?
Well, over time, for the niche products or the most advanced products, prices are fairly stable, so.
Okay, good.
Then the second question I let Håkan answer.
Okay. On the FX impact, we said approximately -SEK 200 during the quarter, where a large portion of that was revaluation of balance sheet items. Also, as we said, a large portion of that was Brazil. Brazil is a very important market for us. For special steel, it's actually has been their sixth largest market globally. And you're right, we only have a warehouse there, but what we do also have is, since we have a fairly large business there, we have inventory there, we have accounts receivable there, and we have internal accounts payable going from Brazil back to our other entities. Then when the real not just drops, but it actually falls as a stone, which happened during Q3, then when we revaluate these balance sheet items, we get the hit in the Brazilian company.
Oh, okay.
And that's what happened in Q3, and what we're doing now is looking into what we can do to mitigate this going forward, so we will not see that-
Okay.
-effect again.
Brazil is-
Predominantly steel... steel over to Brazil?
Yes, you can say.
But Brazil is to a very large extent, close to 90%, a market where we sell out of stock.
Ah, okay. Yeah, that explains it. Okay, perfect. Thank you.
EU and the U.S. I just wanted to know whether you have materially filed for petition against unfair trade or not, and in this case, if you haven't done it yet, what the rationale for that, considering that there is a wave of anti-dumping petitions filed already in the U.S., something is coming up in Europe? The second one is related also to Brazil. You said that just trying to take measures to reduce the exposure to the Brazilian currency. I would like to get a little bit more clarity on that, what the steps might be. The third one is related to the recent announcement that you are entering advanced high-strength steel for automotive. How does it change in terms of breakdown of sales?
What kind of expectation do you have in terms of uplift to your sales and potentially earnings going forward? And the last one is related to transmission pipeline in the US, and one of your competitors, Steel Dynamics, has said that there is recovery. Some other players are saying exactly the same thing, and whether you are still seeing some positive impact going forward. Thank you.
If we start with the anti-dumping measures in Europe and U.S., I mean, that in Europe, it's mainly an issue discussed, I would say, by between Eurofer and the Commission, and I'm not 100% updated exactly where they stand on that one. In U.S., I also... In U.S., I know that the steel companies and American Iron and Steel Institute is discussing that as well when it comes to plate. And I don't know exactly where those discussions are, but there has been no decisions made yet. But if I follow, if I read what has been said, it's moving in that direction. But I don't know if and when that will happen.
Martin, sorry, just wanted to interrupt you one second, because in the U.S., a lot of players, big players, have filed petitions for anti-dumping. I mean, I just wanna know whether you are proactively pursuing these kind of petitions or not, or just waiting the events, the way they're gonna be. So that's my question. Also, because you're one of the largest player in the U.S., if not the largest, together with Nucor, and the same things is in Europe. So I just wanna know the dynamics in terms of filing this petition for anti-dumping. Thank you.
We are active in the discussions in U.S., but we are not leading the discussions.
Okay, thanks.
And Brazil.
Next one, if I understood you correctly, what are we then doing to reduce this exposure? Well, it's very much said about internal payment from Brazil to, especially Europe or Sweden. So what we will do is that we will overall, in Brazil, we will focus on only the very most high profitable products, and we will reduce the overall balance sheet and the internal accounts payable back to Sweden, and that's something we will do now in during Q4.
The third question, as I understood it, was about new products into automotive. Yes, we are launching a number of new products or new grades to automotive. We have a new martensitic, 700 megapascal, steel for chassis details that has been launched in Q3. We have some high strength tubes that have been launched. We have also new products on its way out to the market, being tested now among OEMs, which is galvanized material from hot rolled. So we have a number of new products into the automotive sector, and so far, they have been very appreciated among the customers. So we have a, I would say, positive view on our possibilities to reach the market and serve the market with these new products.
These new products are developed, of course, together with the automotive companies. They are typically products that they like and that they would like to have.
Martin, just one question, the 700 megapascal, how does it relate to your competitors? I mean, the product you are developing together with the automotive players, how does it stack up versus competition?
It's not 700 megapascal, it's 1700 megapascal.
Okay, okay.
Which is a huge difference.
That's why I was wondering.
No, but I mean, we are only in small, small segments of the automotive sector, typically safety details like seat rails, side impact beams, crash boxes, and so on. And we have a, call it a long history of being in the forefront of developing products. Of course, competition will also develop similar products. So for us, it's about to continue to be very active together with the big automotive OEMs and develop products. And I mean, I think I mentioned last time during the call, a new steel grade where we can compete with... That we roll from and can compete weight-wise and energy absorption-wise with press hardened material for certain details at a completely different cost. We have also steel grades where we compete with aluminum.
So for us, it's part of the ongoing business to develop new products for interesting applications in the segments we target. And automotive is not the only example. We do that for lifting, we do that for heavy transport, we do that for mobile cranes. And as I usually bluntly put it, I mean, we are mainly in the business of developing steel into segments where you would lift and move material, and automotive is one of those segments. So we are just in a handful or five, six segments where we focus all our efforts. And automotive is parts of automotive is such a segment. And then the fourth question, I don't know if I exactly remember it, but it was about pipelines in U.S., wasn't it? If you please could repeat it.
On the summer, right there.
I mean, where you see an uptick in terms of demand for pipeline, and mostly it's a transmission, not really exploration and production. As some of your competitors have already confirmed, that is happening. Whether do you see this kind of uplift, whether you see a positive impact on your sales in the U.S.?
What we see is that there are some pipeline projects out on the market. When they will materialize and how they will materialize, it's a bit too early to say. But we see, yes, we see some pipeline projects now on the market for beginning of 2016.
Thank you.
Let's take a question here in the audience. Stockholm, Julian Beer had a couple of questions.
You guessed correctly, it was a couple of questions.
Mm-hmm.
With regard to the refinancing, I think I'm correct in remembering that your previous 2017 maturities were about SEK 8 billion, and now you're down to SEK 6 billion, which might suggest that you didn't move on all of your bank debt to 2020+. Do you still intend to try and move forward other bank maturities for 2017 in the near term? And what sort of response have you been getting to banks at this stage? Are they happy, provided you pay a higher margin, or are some of them reaching their limits to a double B credit rating like SSAB?
No, we moved part. You're correct, we didn't move as much as we actually could have moved. We moved part from 2017 to 2020. And actually, in this particular case, this was our decision that we did not want to move the whole part. We wanted to only move part of it. And we will continue to work with not just the 2017, but also the 2016, to move as much as we can. Although, as we said, you know, we are now at 4.8 years. It's, you know, 2017 was a little bit of a peak before, and now it's fairly stable. So we will continue to try and move both 2016 and 2017 onwards, but as of now, we're very happy with what we achieved, especially for 2017.
The reason for we need to have a more balanced maturity profile is that we have done more. I mean, the relining is done, the PCI investment is done, the strategic investments are done, so we will see lower CapEx years, the coming years, compared to 2014, and we should, everything else equal, have a fairly decent cash flow.
No, I understand. I was just wondering why you chose not to move out more of the 2017 bank debt at this stage. Is it because you expect terms to become easier in the next year?
It's also because we believe we will have, as Martin said, reasonable cash flow, so we don't see the need of moving more, but rather see that we can keep it and pay back in advance instead.
Given that, do you feel that you'll have money available to pay a dividend for 2015?
That's a good question that we are not going to answer.
Okay, let's see if I have any further questions on the phone.
Thank you. Our next question comes from the line of Robert Redin from Carnegie. Please go ahead.
Yeah, hi. A question on the US. Please, you said the destocking and wait and see will continue into Q4, but into 2016, what are the signals from your customers, the direct volumes you have, what are they indicating?
If you take direct volumes, we see them being stable for Q4. When will the destocking be over? Well, I guessed last time, and I guess I also guessed when we released Q1 reports. I will not guess this time because I've been wrong two times. So, I don't know, to be honest.
Yeah, but, I mean-
That is among steel service partners.
Are they positive? I mean, they're stable in Q4, but are they positive going into 2016, you think, or, or?
It differs, of course, between segments and customers, but I don't see any big that they should... I mean, you saw the report from Caterpillar today, or a bit more, call it, hesitant for 2016, but you have other examples of customers being a bit more positive. So I would say fairly stable is my impression, at least when I talk to them overall.
Okay. All right, cool. And on, on Europe, then, you talked about iron ore and coal being flat-ish, basically. And, and, and at least if you look at spot steel prices, they've been sort of falling in Europe. So, and that comes through to your P&L with the light due to the contract. But are you then seeing sort of a realized lower, margin over, over input costs going forward, do you think?
As you point out, that will depend on the prices. We have seen spot prices coming down in some regions more than in other regions, and we are in the middle of the discussions now or for Q4 and starting with Q1 soon. So I don't really know. Depends, different between, I mean, standardized steels, yes, a bit tough and more pressure, other products, less pressure, and so it's too early to say.
Of course, yeah. All right. And on those trade cases that have been filed in the U.S., they've then all been sort of delayed. What's the industry sort of understanding of why that delay has come about?
I can't really answer that question because I don't have that knowledge. I've not been following it in such detail.
All right, cool. Okay, so those are my questions. Thanks.
Thank you. Our next question comes from the line of Bastian Synagowitz from Deutsche Bank. Please go ahead.
Yes, good morning. It's Bastian from Deutsche. So I've got three questions left. Firstly, again, on the FX impact in Brazil, can you please explain how quickly you are able to change the terms of doing business there, and whether we may see a similar effect also in the fourth quarter? Then secondly, on cost cutting, I guess the current measures mostly address the European business, which is in some sense logical, as this is probably where you've got the largest need and also room to take out costs. But clearly, the U.S. market is under pressure as well, and many of your U.S. peers have started to restructure. Is there anything on that front which you've got in the pipeline?
And then lastly, on the Q4 impact of maintenance, can you confirm that the SEK 100 million maintenance cost in specialty steel is to come on top of the SEK 70 million impact from the BOF idling in Oxelösund, or is this just the same, really? Thank you.
I can start with U.S., then I'll let Håkan take the other two questions. Yes, of course, we are running programs, but we do that all the time in U.S. The U.S. business is a bit different. It's, to a very large portion, variable costs. Even salaries are, to a large extent, variable cost. We mainly pay for prime yield, which is fairly typical, which is typical in electric arc-based mini mills. So of course, we do things in U.S., we call them ROCE programs and Six Sigma programs, and take down the part that is fixed, and also becoming more effective when it comes to variable cost. But in U.S., compared to the mills in Finland and Sweden, there is a completely different mix between fixed and variable.
As one example, a lot of the things we do in U.S., outside the core business, is outsourced. I think we produce, or we have the capacity to produce 2.6 million tons in U.S. with 950 employees. Rest of it, like scrap handling and a lot of other things that are outside, call it, the core alliance and are outsourced on variable contracts. So if we don't do it, we don't pay for it. So there is a different setup and a different, completely different setup and a completely different structure.
Okay, thank you.
If I take the other two then, Bastian, starting with the maintenance. Yes, you're correct. The maintenance is. We have idled the last furnace now, and that will then, compared to Q3, will give a negative impact for special steel. And on top of that, there will be a maintenance outage where we will stop the production in rolling and downstream for approximately two weeks, and that's the SEK 100 million that you're referring to. Coming back then to your FX question on Brazil, I would just like to say that, first of all, the SEK 200 million, it's not only Brazil. Brazil is the largest portion of it, but it's not only. But, and, we are now taking the actions which we are expected to finalize in Q4.
Assuming we do that within time, and assuming that the real would not drop again as much as it did in Q3, actually, so far, it has strengthened in Q4, no, then we will not see this impact again. We are assuming we will not see them, basically.
Okay, got it. So basically, thinking about specialty steel now in the fourth quarter, basically, we obviously we're gonna get the negative impact of of SEK 100 million. We get another 75 negative impact from basically the lower operational your lower utilization rates. And then effectively, we have to add back roughly SEK 150 million. So all of these items effectively net themselves off in the fourth quarter, and then we're gonna have whatever prices and and volumes will do. Is that fair or?
Sounds reasonably fair.
Yeah. What—I mean, just, could you give us a sense of what specialties prices, prices are doing? Because, it's obviously much more of an OTC market. Have those really held up given the price pressure which we've had in the spot market? Or you actually sense that part of the, where spot weakness is spilling over into the specialty, specialty materials as well?
Of course, you see always price moves in special steel as well, but they are at a lower magnitude, both up and down, so they are, over time, much more stable.
But does it mean that in the fourth quarter, they will be stable as well, and we've seen part of the pressure, or we will see price weakness in specialty steel in Q4 as well?
We have not been that specific about prices for Q4, but the price pressure will be less on special steel.
Okay, all right. Thank you.
Thank you. Our next question comes from the line of Christian Kopfer from Nordea. Please go ahead.
Thanks, operator. Good morning. Just to clarify on this balance sheet reevaluation of the receivable, what business area was affected by this?
... special steel had a major impact, but there was also some in Europe.
Thanks. And that effect was included in EBITDA, or was it only included in EBIT?
Both.
Okay. On spot price, I think you, Martin, mentioned that you see heavy plate prices in U.S. quite in line with current import price. What kind of level are we talking about currently? Is it around $500 per ton, or?
I don't remember the exact figure, but I mean, it's official statistics, so—but I don't remember the figure.
Okay.
-in detail.
Okay, finally, for me then, special steel, you previously said that you expect special steel volumes over time to grow in the region of 4%-5% on a yearly basis. Is that still relevant for 2016 or what do you think there?
I think it's over time relevant still. It is very relevant. But as I said, I mean, part of the volumes or big part of the volumes that are dropped is what we call a non-branded Q&T, which we typically sell then to steel service centers in U.S. Hardox, on the other hand, is volumes are increasing. So it's... And you see that as a mixed effect then in special steel. Then over time, I mean, the big two of the big segments being yellow goods and mining and construction equipment and lifting, four segments then or three segments. They are stable for the time being on very, very, very low levels.
When we look into Q4, we expect them to stay on these low levels.
Okay. Thanks, guys.
Thank you. Our next question comes from the line of Oscar Lindström from Danske Bank. Please go ahead.
Thank you. I have four questions. The first one, just, I couldn't quite hear what the answer was before, but was the positive impact on Special Steels from the Oxelösund blast furnace in Q3, was that SEK 50 million?
I said, between 75 and 100.
That's it.
The other three questions then. First of all, the steel imports into Europe, you know, we hear about them, but how is that affecting your markets and segments now? And how do you see that developing in 2016? And then the other question would be, you mentioned that volumes in Q4 could be impacted by, or would be impacted by price expectations for Q1, and it seemed as if you were saying that, you know, if customers expected prices to increase. Are there any signals that prices, you know, could or should rise in Q1?
I-
Sorry, go ahead.
If we take them one by one, to start with, with the last question then. No, I mean, it's too early to say where the price sentiment will be for Q1, but that was more a general comment that is valid for every year, I would say. You typically see a seasonal slowdown in Q4 or in December, and then apparent steel consumption will be, as always, very dependent on the price sentiment going into Q1, and that is nothing special for this year. That is valid for, I would say, every year during my 17 years in the steel industry at least, and probably before that as well. When it comes to steel import into Europe, we have seen a sharp increase of standard plate, mainly into Southern Europe.
We are not active on that market with standard plate, but of course, it puts a pressure on prices overall of standard plate in Europe. We have also seen during 2015 an increased import of hot rolled coils, mainly into, I mean, more severe, the further south you come in Europe, as always. And that has also put pressure on those prices for standard steels in Europe. And the export has increased mainly from one country then.
Right, a-
Being a big steel producer in Asia.
Right. And then my final question regards this PCI investment, which I believe was planned since quite a way back, but you're now saying that there's a SEK 200 million, you know, a new cost save coming from this.
Well, this is not a new cost save. This is an effect of this investment and at current oil prices. So shifting from oil injection to a much more energy and efficient system as coal injection, and we have coal injection today in Luleå and in the blast furnaces in Oxelösund. And so this is a recalculation of what we will actually have in terms of lower costs, given the current oil prices.
Right. Okay, so it's, it's not something that's changed in this investment, that means that-
No, the only change in this investment, I would say then, is that oil prices today are a bit lower than when the decision was taken, but it's still a very good investment.
All right. Thank you.
Not only for the cost, as said, but also for the energy efficiency.
Wonderful. Thank you.
Thank you. Our next question comes from the line of Ankit Agarwal, Agarwal from Citi. Please go ahead.
Hi, thanks a lot for the call. I have one question on scrap prices in the U.S. They had been quite resilient in third quarter versus the falling steel prices. Would you be able to quantify the impact from higher scrap in the third quarter? I mean, if you can give an approximate figure or a range, and also what the impact, if any, you expect in the fourth quarter? Thanks.
Not fully sure if I understood, but I'll try to answer that. The scrap prices, as you said, are clearly down in Q3, and they've been going down month-over-month. And for us to turn the scrap from when we buy them, or from when you see the market spot prices into the P&L, that is approximately a month, month and a half before we see that, depending a little bit on how much we have scrap we have in stock. So you can expect that our cost for scrap will, of course, also be lower in Q4 than in Q3. Although the big drop that happened now on the market in October, we will not see in our books in October, we will see it rather in November or in December. But you...
Since from a simple point of view, you can look at the market-based spot prices for scrap and then put the delay on a month and a half or so on it.
Okay, but would you be, in any way, able to quantify the impact? Because in third quarter, at the beginning, the scrap prices were quite resilient, compared to the steel prices. Steel prices have been going down since. And, if you could quantify to some extent what the impact was, negative impact was from that.
I think you see that in the result in SSAB Americas. If you compare the Q2 result with the Q3 result, you see a big negative deviation, and that's basically coming from, as you said, plate prices dropping more than the scrap prices have dropped. Now, what we have seen during the last month and a half is actually scrap prices dropping more, at least so far, than plate prices have dropped on the market. If that holds, well, then we would see a margin expansion again.
Okay, thanks.
Thank you. Our next question comes from the line of Michael Buhmann from M.M. Warburg Please go ahead.
Good morning. Just a question on your CP lines. I was wondering, can you remind me of what your access to CP was, sort of, through the financial crisis in 2008, 2009? Whether you had constant access to those lines, and also, what your backup facilities are in excess, should, sort of, the CP market drop away? Thank you.
First start with the backup facilities. We have revolving credit facilities, a few of them, and also cash, and in total, that amounts to SEK 10 billion, and those are for general corporate purposes. So if we would need them, then we can basically use them. So that's SEK 10 billion. I would unfortunately not be able to remember exactly how the CP development for us was back in 2008, 2009.
Okay, thank you.
Question for us?
Thank you. Our next question comes from the line of Cedar Ekblom from Bank of America. Please go ahead.
Thanks very much. One last question, gentlemen, just on the U.S. business. You said that you are not leading the debate in terms of potential trade protection in the U.S. market. And I'd just like to understand why this is not being tackled more aggressively, considering that you've seen a two-thirds decline in profitability in your U.S. business year-over-year. Should you be doing more to try and protect your market position and profitability? Thank you.
Well, to be a bit more clear then, we are, as a company, part of that, those discussions. Then Chuck Schmitt, who is the President of SSAB Americas, he's also the chairman of American Iron and Steel Institute, and in that aspect, he's of course, very active in those discussions.
Okay, and then just a follow-up question. So to the extent we don't get any meaningful trade protection in either Europe or the U.S., because a lot of people have been hoping for that, but it seems that, it's not coming through, and steel prices are reflecting a very negative outlook in terms of demand. Is there a plan B for SSAB, considering the fact that the gearing is more than 5x net debt to EBITDA, profitability is very much under pressure, despite the fact that you have put in significant cost-cutting initiatives.
You know, is this a situation of a slow trend lower in profitability, or are you, as a management team, willing to take much more aggressive action to restructure the footprint, restructure the product offering or focus the product offering and, you know, potentially create a more viable return profile for the business going forward, assuming the macro doesn't improve? Obviously, the plan B.
Well, the plan B is the plan A. I mean, as I said, when I presented also the relining of the blast furnace, we have now much more flexibility to, if that would be needed, idle blast furnaces without stepping out of any profitable business, which we, as a standalone, old SSAB had come to an end, where we had the big blast furnace in Luleå and the big one running in Oxelösund. Now we have, as I think I showed a couple of times also when we announced the combination, we have much more possibilities to gradually flex with the production. And the toughest part to flex with is always the hot end, and especially blast furnaces. In U.S., it's different because, I mean, it's practically a red and a green button.
You either start the electric arc furnace and or you keep it closed. So, but now we have that opportunity as well in the European system, and that is a big change compared to where we were a year ago. And that change, that possibility has now materialized after the relining in Luleå is ready.
Okay, thank you.
Thank you. We have no further questions at this time, so I will hand the conference back to you.
Okay, thank you. If there are no further questions, we'd like to thank you all for joining us today. If you have further questions, please pass them to the IR team. Thank you.
Thank you.