Good morning, and welcome to SSAB. We are going to present to you the results for the second quarter this year. Before I leave the floor to our CEO, Martin Lindqvist, and our new CFO, Håkan Folin, I just would like to remind you that this is a webcast conference. So, we have you sitting here as an audience in Stockholm, but we also a lot of people calling in. After the presentations, there will be a possibility for Q&A session, and we would appreciate if you could then state your name and your organization, and of course, put one question at a time, because that makes it easier for us to answer your questions. We have plenty of time, so don't worry, you will have time for all your questions. Now, I'd like to introduce Martin Lindqvist.
Thank you. So good morning. Start with some highlights. We had an EBIT loss this quarter of SEK 115 million, more or less the same levels as we saw in Q1 this year. We had an operating cash flow of SEK 796 million. What affected us during the quarter was the planned outage in Montpelier that went according to plan. But we also suffered this quarter as well of the stronger Swedish krona. And if you do a comparison for the first six months this year, compared to the first six months last year, we have actually lost SEK 500 million compared to the strengthening due to the strengthening of the Swedish krona. Shipments more or less in line with Q1.
The restocking that we saw in Q1 came to an end in end of Q1 and beginning of Q2, and we have seen, I would say, consumption, real and apparent consumption being imbalanced during the second quarter. In general, contract steel prices for us were stable to slightly lower compared to Q1. We also saw the positive effect from the efficiency and cost-cutting program in EMEA. We were able to reduce our costs according to plan, fixed and variable costs, with approximately SEK 200 million compared to the year before, during the quarter. We will see, as said before, the full year effect of that from 2014.
The sales for us was just above SEK 8.8 billion, and the EBIT, as said, SEK -115 million, and the EBITDA per ton was just above 400 SEK per ton, more or less in line with what we saw in Q1. If we take a look at our segments, nothing much happened. They were pretty, I would say, the same as during Q1. In heavy transport, we saw truck registration continued down during the first six months. Automotive, the same pattern as we saw in Q1, slow in Europe, better in U.S. and better in Asia and China. Construction equipment, Chinese lifting segment, continued to be weak during the quarter, and we saw some starting or a starting point on some positive signs within the construction equipment segment in Europe.
What became weaker during the quarter was the mining segment in, I would say, many areas of the world, and especially, I would say, Australia. Energy continues to be fairly okay on fairly okay levels. We see now in the market several line piping inquiries ongoing. Wind towers is picking up from very low levels, and transmission towers are fairly strong, that market in North America. Service centers, very reluctant to buy even during Q2, but the inventory levels are low within the service centers, and they have not been restocking during the quarter. We go into the business areas in EMEA; we had an EBIT of SEK 56 million. Shipments slightly higher compared to Q1, and 8% higher compared to Q2.
Unchanged local prices for niche steel, and we managed to increase prices somewhat for standard steels. The niche products during the quarter accounted for 47%. We saw, as said, demand leveling off somewhat compared to Q1 as the restocking phase came to an end. In North America, we had the effect of the outage in Montpelier. Shipments were 2% lower compared to Q1, and 8% lower compared to Q2 last year. More or less unchanged local prices for niche steel and somewhat better prices for standard steel during the compared to Q1. The amount or the volume of niche products accounted for 30% of the total shipments. We will also take a planned outage in Mobile in Q3. It was originally planned for Q4.
We will do it in Q3 due to market reasons. We expect Q4 to be stronger than Q3, and then that's why we, we take the outage in Q3 instead. That will affect the earnings during the quarter with negatively with 50 million SEK. As said, the demand from the automotive segment remained good or strong, while demand from other segments were more hesitant. We were also out, I think, beginning of this week or late last week, together with Nucor and some other plate producers, and introduced a price increase for standard plates in North America, over $30 per ton. APAC, very slow volumes. Shipments were 12% lower than Q1 and 18% lower than Q2, and that is the Chinese lifting industry, and that was mainly in the Australian mining industry.
Local prices were slightly lower compared to Q1, 1% lower, and demand continued to weaken during the period. The exception, I would say, is automotive, that continued to show some improvement. Tibnor, shipments 5% higher versus Q1, but 3% lower versus Q2, and these are overall shipments. We had somewhat lower shipments within strip during the quarter compared to Q1. In the result, we had a positive one-off effect of 57 million SEK. We sold an old warehouse down in Malmö that we have not been using for some time, and we were able to sell that during the quarter. And we had an EBIT effect from that of 57 million SEK. We had an operating cash flow, including that sales of that real estate of 91 million SEK in Tibnor during the quarter.
We increased, as said, the shipments in several product groups, but strip shipments declined during the quarter in Tibnor. Market environment and outlook, World Steel Association just yesterday released the figures for the first six months. The global steel production increased with 2%, and the Chinese steel production increased with 7%. The increase in Europe, or the reduction in Europe was 5%, and the reduction of the steel production in U.S. was 6%. When we look at the supply chain, not only in service center, but the full supply chain, we feel that the inventories are at balanced levels or slightly below normal levels, given the volumes and the sales, and we don't expect any major re- or destocking in Q3.
European strip spot prices have been under pressures, and plate prices have leveled off since mid Q2. We have seen some positive signs from other companies the last couple of days in price movements, but remains to be seen where, where the price are, are heading. And in US, as said, we, we, together with some other producers, introduced a price increase just recently. In China, strip prices stabilized during the end of Q2, and plate prices have been under some pressure. So with that, Håkan, some figures.
Thank you, Martin. Hi. I will give you some more details on the figures of the second quarter development. Our sales was SEK 8.9 billion. This was down 20% compared to Q2 last year. The reason for this is 10% of the prices, 2% lower volumes, and the remaining 6% is a combination of mix and FX. We had the EBIT, as Martin mentioned, of SEK -115 million. This was slightly higher than Q1, also higher than Q3 and Q4 last year, however, significantly lower compared with the same period last year, Q2. I will get back to you shortly and explain the reason for this lower EBIT compared to last year's second quarter. We had an operating cash flow of almost SEK 800 million.
This was also lower than the same period last year, but considering the difference in the EBIT, it was a cash flow we were satisfied with. We had both in the first quarter, and now in the second quarter, a negative impact of the strong Swedish krona. In this quarter, it was SEK 340 million, and combining the first and the second quarter, it was in total roughly 500 million SEK. Now, some key figures on this slide, where I would like to highlight two of them, one being the operating cash flow, and the second one, our net gearing. The net gearing now is 54%. It was 55% at the end of the first quarter, so we decreased it during this quarter with one percentage point.
If we look back one year in time, at the end of the second quarter last year, we had a net gearing of 56%, so during this year, we have decreased it with two percentage points. This is a page explaining then the change in operating profit, and comparing second quarter last year to second quarter this year. Second quarter last year, we had a profit of SEK 755 million, and there are two big factors impacting negatively. First one being the negative impact of the FX, as just mentioned, of SEK 340 million. Then the biggest factor being prices, which, comparing these quarters, impacts almost SEK 900 million.
We can feel this price impact across the three business areas, but it's especially significant for North America, where plate prices, ordinary plate prices, are clearly below where they used to be one year ago. We also have some impact from lower volumes of SEK 70 million, and also under absorption was higher in this quarter than last year, SEK 160 million. On the positive side, we had a, a good impact from the variable COGS. This is to a large extent, but definitely not exclusively, due to raw material. And we had positive impact from iron ore and from coke and coal, but also from scrap. Within other here, which is fairly small in company as a total, but we have a positive impact of lower fixed cost.
We have the real estate divestiture, as Martin mentioned, and we also have underlying negative result in Tibnor, comparing these two quarters. All in all, then, we move from SEK 7 million + SEK 755 million to -SEK 115 million. We talked about the operating cash flow before. If we move down in the cash flow statement, we also had a dividend to the shareholders during the second quarter of SEK 324 million, with SEK 1 per share. All in all, we had a net cash flow of +SEK 328 million. And this was, of course, the reason why we decreased the net debt during the second quarter. I will now spend some time and a few slides talking about our financial and liquidity situation at the end of the second quarter. We mentioned net gearing before of 54%.
In terms of absolute net debt, we had a slight decrease to SEK 15.6 billion. Our liquidity preparedness is strong, measuring in terms of versus annual rolling sales, it's 27% if we include commercial paper, slightly lower if we would exclude those. At the end of the second quarter, we had outstanding commercial paper of approximately SEK 500 million. In our loan portfolio, the average maturity now is four and a half years. It used to be 5.2 a year ago, so it has decreased slightly, but it's still on a high level. Our average interest rate is one year. I will show you now on the next slide how the duration has developed over time. Or sorry, I'll first show you how the maturity moves over time.
What we can see in 2013 maturing is the commercial paper. Then we have approximately SEK 2 billion in 2014, a little bit more than SEK 3 billion in 2015, and the big chunk we have out in 2017. And this is something we work with continuously, moving these blocks further ahead in time. Now, here comes the slide with the historic development of the debt cost and also the maturity duration. As mentioned, we are on 4.5 years. We've been on a slightly decreasing trend. However, where we are right now, it's still higher than almost all period during 2008 until 2011. So it's still, for us, a comfortable level.
Our interest rate, which is on the line, is slightly below 3%, and it's been fairly stable on this level since Q3 last year. Finally, I will talk a little bit about the trends in the raw material prices. We did, during this quarter, sign a new contract with LKAB. We signed a yearly delivery contract, however, with quarterly prices. So the delivery contract is from first of April this year until end of March last year. And for the second quarter, we had increase in prices compared to the first quarter of 70% in U.S. dollar. However, in Swedish crowns, the increase was only 6%. For coke and coal, we had, during the quarter, lower prices with approximately 4% compared to Q1.
And finally, for scrap in the U.S., which we obviously use for our U.S. mills, the prices at the end of the second quarter were approximately 10% lower than at the end of the first quarter. Okay, Martin, and back to you.
Some words about the outlook. When we look at steel demand, we expect steel demand in Northern and Eastern Europe to be fairly stable. We expect Southern Europe to continue to be very weak. In the US, we expect steel demand during the latter part of the second half of this year to improve somewhat, driven by the economic recovery. We expect China to stabilize, while growth in the mining industry, and I would say particularly in Australia, is expected to continue to be weak the rest of this year. When we look at the inventory levels in the supply chains, they seem to be in balance, at, I would say, rather low levels throughout the value chain.
In Q3, we will have the effect of the planned outage to or the moved outage in Mobile, and we will have usual outages in the Swedish production system. The efficiency program will continue to deliver expected results for the coming quarter. And as said, the full year effect will be seen in 2014 compared to previous years. So with that, I think, Helena, we open up for questions.
Absolutely. So please go ahead, Julian. Just wait for the microphone, please.
Good morning to you. It's Julian Beer from SEB Equities. Two questions, if I may, please. Given that in EMEA, prices were higher in the second quarter, that you had the cost cuts and that niche content increased, I was a bit surprised that the sequential profit improvement wasn't greater than it actually was. Have you seen a deterioration in the mix within either the ordinary or the niche tonnage shipments?
I mean, we have seen mix is always shifting, and I'm not 100% sure how the mix exactly looked in EMEA during the second quarter, to remember that.
We can say some of the segments which are driving the plate market more, the Q&T, like mining and construction equipment, have been fairly slow, while others driving AHSS have been a little bit more positive.
So, so that could be an explanation?
That's the mix drift we have seen between plate and strip. And then, of course, we have positive effects as well. I mean, you typically see better volumes of the painted material, and that affects prices. That mix effect during the summer.
I know it's tricky to forecast too far into the future, but how would you normally expect that mix to develop in the second half versus the first half within EMEA?
It differs a lot between different years, but we are not expecting the mix to get worse, if you put it like that.
Okay. Now, on a more positive note, it seems that, to me, that your guidance of flat shipments in Q3 versus Q2 is a little bit unusual. I think historically, you've normally seen a fall in tonnage given the normal summer shutdown. Is that flat direction expected to be seen in all geographies, or is it going to be a growth somewhere and a fall somewhere else?
It will differ between geographies, but overall, we expect flat volumes. We see them increase somewhat in certain regions and decrease in other regions, but overall, the expectation right now is flat volumes at, remember that, the low levels as we saw in Q2.
It may be rather unusual, but given that you didn't overproduce your input still in the first, sorry, the second quarter in EMEA, could you be caught short in Q3, given your maintenance downtime?
We don't expect that, no. But that would be, of course, due to a better market, and we would be welcoming that. Not being short, but, but a better market.
Thank you very much.
Okay. Yes, please go ahead.
Hi, Gustav Sandström, Erik Penser Bank. A question regarding the cost savings program. Has any of your assumptions regarding the impact of the full program changed, in regards to the SEK 800 million?
No.
Great. Also, regarding competition in Europe, given the strong Swedish krona, has the competition worsened for you versus your dollar-dominated peers?
Yeah, of course. I mean, we have said in the beginning, we have lost, call it, in competitiveness, SEK 500 million, approximately, compared to last year. So we have, in that respect, lost competitiveness, yes.
Great. Thank you.
Okay. Any other questions? Yes, please.
Morning, Johannes Grunselius here, ABG. Curious about what you see now in North America. You are making the plant shutdown. It comes a bit earlier than previously expected, right? So you must see a stronger market in Q4 versus Q3. Can you elaborate on that magnitude? How much weakness do we see in Q3, and how much of a strength do you expect in Q4?
Well, it's hard to tell, but when we look at a lot of leading indicators in North America and see that there is economic recovery going on, and that we expect the market to gradually improve, our conclusion is that Q4 will be slightly better than Q3. And then we just did the math and decided to move the outage into Q3. And as we have said before, we need an outage every eighteenth month or every second year, and we just need to be a bit pragmatic when we take them. And our conclusion right now is that it's better, due to market reasons, to take it in Q3 compared to Q4.
I have a question on the iron ore and the new price level. When will that start impacting your P&L and your cash flows?
There is typically a lag of a quarter, so that will impact in the P&L in Q3. I mean, cash flow-wise, it has impacted Q2.
Okay. It's already in Q2?
To a large extent, yes.
Okay. Okay. Thanks.
Any other questions from here? If not, we will ask you who are calling in, and please go ahead.
Ladies and gentlemen, as a reminder, if you would like to ask a question via the audio lines, please press zero one.
Do we have anyone on the line?
Yes, we have the first question from Mr. Alessandro Abate from JP Morgan.
Good morning, and, please go ahead.
Good morning to everybody. Just a question on the cost-saving programs you have in EMEA. How much of the total has been translating into advantage into Q2, if I may know it? Thank you.
Well, the full year effect is expected to be SEK 800 million, and what we have seen in Q2 is roughly SEK 200 million divided between fixed costs and variable costs. So we have seen the effect in Q2.
Thank you very much. That's all for me. Thank you.
Thank you. Next question, please. The next question comes from Ms. Cedar Ekblom , from Bank of America.
Thanks very much. Two quick questions. First one, can you just comment on the extent that you're seeing imports into the US market at the moment? With prices going up, is there potential that any of that gets eroded via imports? And then secondly, can you just comment more generally about the trends that you're seeing in plate and niche steel globally? It's products that in the past, we used to see quite a healthy premium to see for these versus, say, CRC. But in the last two years, we've seen that premium come down quite dramatically. And I just wanted to get an understanding if you think that that's a permanent compression in that premium because of increased capacity globally, or if you think that this is a short-term blip because you've got weak trends in some of your key end markets. Thank you.
To start with the first question then, I'm not 100% updated on the import of plate to North America the last couple of weeks. But we saw a very strong import from mainly Asia into North America or U.S. during this late part of Q3 and Q4. And then it leveled off a bit in Q1, and then it came back, and that, of course, depends on a lot of things, on the exchange rate, the consumption in China, and so on. So we should expect import to continue, but if it will increase or decrease going forward is always very hard to have a clear opinion on. But there is, over time, always import of plate into to North America.
The second question regarding premium for niche steel. There is a premium on niche steel, but also we affect, we are affected, of course, from the segments, as you mentioned. When mining is turning down and construction equipment and lifting important segments for us, then premiums are a bit pressed, and especially volumes are pressed. But we don't expect the premium for niche steel to go away. We expect them to be fairly stable over time. But then it could differ between quarters and over years. But we expect them to continue to be there and to be fairly stable.
Okay. And then just a follow-up question. Can you comment on what your competitors are doing in niche steel? To what extent there is being capacity added by some of your key competitors?
Within, I don't see any huge capacities being added, but I would say within advanced high-strength steel or the strip market, competition has been increasing for the last couple of years, and will, I guess, continue to increase, and that is to a large extent driven by the automotive sector. So for strip, I expect the competition to increase-
Okay, great. Thank you.
As in the last years.
Okay, thanks.
Calling. Next question, please. Next question comes from Mr. Stefan Benson, Goldman Sachs.
Hi there. I had a couple of questions. Firstly, the mining CapEx globally is expected to certainly internally here anyway expect to keep falling for the next one or two years, maybe. And also, the shipbuilding market also looks quite weak, and I think there's a lot of plate that heads into that market. But your, how are you going to offset those sort of structural declines in those key end markets in 2014?
Well, for the shipbuilding markets, we are not into the shipbuilding at all, but that will, of course, maybe give some secondary effects. But we have other markets for ordinary plate that are fairly strong, like energy, line pipes, wind towers. So, I mean, we will continue to focus on our segments and increase our efforts in those segments.
Okay. And how long can you carry on at maintenance CapEx? I think the guidance this year is around SEK 1 billion. Is that right? And, you know, for how. I know you've done a lot of investing the last few years, but how much longer can you carry on at that level?
We can, I mean, SEK 1 billion, give or take a couple of hundred million, is our maintenance CapEx level. We can, as we have said before, take that down to maybe 500, 600, 700 million SEK a certain year, and that is, of course, not sustainable. But the maintenance CapEx of a billion is sustainable over time. Then it's up to us how to decide when we do strategic investments. And as you know, we have just spent more than SEK 5 billion the last couple of years in strategic investments. And we have said that before, we are now in a situation where we have the capabilities and the capacity we need for the coming years.
Just finally, the big working capital swing in the quarter, could you give us any more detail on that and perhaps what we could expect for the next couple of quarters?
We continue to focus on being more effective in working capital. We see, sometimes we see some positive effects, and some quarters you don't see any effect. It's a long time work. And then, of course, there is a portion of, call it, capital management as well. I mean, how you treat AR and AP, but there is always room for improvements when it comes to inventory levels, supply chain setups, and stuff like that. But you should not expect us to, over time, reduce working capital substantially quarter by quarter.
Could you give us an example of, like, what you've done in the quarter to improve it by so much? And I guess, year-on-year, for the full year 2013 versus last year, what should we be anticipating?
We haven't given any guidance for the full year. I mean, we report it quarter by quarter.
Okay. Okay, thanks very much.
Thank you. Next question, please. We have a question from Mr. Neil Sampat, Nomura.
Hi there. I have two questions. Firstly, on the new iron ore quarterly contracts with LKAB, could you just give us an indication of whether they will be more based on spot prices within the current quarter, or would they be based on the lagged pricing contract? And then secondly, with reference to the Mobile outage, I mean, if there's gonna be SEK 50 million of costs in Q3 associated with that, that would imply that the bulk of the maintenance will take place in Q4. But if you expected North American demand to be stronger in Q4 than in Q3, why are you not taking more of the maintenance outage upfront in Q3, so that you're able to service more orders in Q4?
Well, the outage was originally planned for Q4 and Q1, and we moved what we could, given the timing and everything, to Q3. And there will be the first part of the outage in Q3, and the second part of that outage in late Q4 or Q1, as we plan right now, Q1. But it wasn't possible to move the full outage to Q3.
Okay.
The iron ore contract, I mean, we decided to sign a quarterly price contract because that is, I mean, what a lot of the competition do. With the volatility we have seen, we felt that that was the best way. As you know, we have up until now had yearly price contracts, but this year we decided to go for a quarterly contract, more in line with the market.
Is it, is it more of a spot-based quarterly contract?
Yes.
Okay. Okay, and then in terms of FX hedging, I think historically you've tended to take out an FX hedge when you take out the annual contract. How will you run that going forward?
We will continue to hedge raw material supply.
Is it annually or at every quarter?
No, during the contract length.
Okay.
Thank you, Neil .
Okay, thanks.
Thank you very much. Next question, please. The final question comes from Mr. Sampsa Karhunen , DNB.
Hello, good morning. Just a couple of questions, if I may, starting from the EMEA region. I was wondering, now that we've seen the spot prices of iron ore starting to climb, in your client negotiations, typically, I would expect that the clients are pretty well aware of the kind of raw material cost going more forward. Have you seen any signs of more acceptance to kind of potential price rises in the hot rolled coil type of a business in Europe?
Well, we saw some big producer being out yesterday, increasing prices for strip, and we have seen some signs, but yeah, we'll see.
Oh, okay. Then, in the U.S. plate market, the prices have been still a little bit weakening. I was wondering, as the scrap price has stabilized, how much do you think that there still might be kind of downside in the, in the plate pricing? Obviously, if you're deciding to close some of the or do some of the, maintenance work in Q3, you probably still expect that the Q3 is going to be a soft quarter. Do you think that there is, in this scrap market environment, would you expect the prices to start to stabilize quite soon on plate?
Well, as said, we introduced the price increase just recently of $30 per ton.
We'll see where the prices go. I mean, what we have said is that we expect the fourth quarter to be somewhat better than the third quarter, and that's the main reason why we moved the outage.
We don't expect any uptick in Q3. I mean, Q3 will be fairly on the same level as demand-wise as Q2.
Mm, very good. Then I was wondering on the special grades competition, have you seen in your client base any kind of diversification of purchases? Is there some of the competition coming really exactly into your market, for example, in what comes to mining business, for example?
Not really, not any big differences. You can see lower volumes from our segments, and we've gone through that. Then you can see also, during tougher times, that people go to a somewhat larger extent for good enough material or standard materials, but that differs also over quarters. So not any, I would say, not any big swings within competition or within behavior.
Very good. On mining, I wanted to ask more precisely, when you're talking about this kind of slower activity in the mining, is it more related to new investment type of business, or are you seeing also in the consumable parts of the-
I would say, mainly within new investments, but we also see in the aftermarket, a slowdown, yes. But the main difference is in new investments. Postponing investments, or stopping new investments.
Very good. And lastly, on the working capital, am I getting it wrong with the kind of rising iron ore prices, obviously, the working capital should start to increase gradually going forward?
Yeah, to some extent, due to that, of course, but we, I mean, in, we had the increase in the balance sheet, so to say, already in Q2, so.
I mean, the main effect will be in the P&L.
Yes. Very good. Thank you so much.
Thank you. The next question, please.
We have one further question from Mr. Alexander Haisl , Morgan Stanley.
Hi, good morning. This is Alex Heisel, Morgan Stanley, London. I have a few questions. The first question is on the volumes. What makes you confident that volumes are stable into the third quarter? I mean, if you just take your first half year volumes for the group, and we just multiply it by two, this would imply 11% year-over-year growth. And, if I remember right, also, after the first quarter call, you indicated a slight increase in volumes. Now we've been slightly down.
Yes.
So what's the volume risk? I mean, normal seasonality, I would agree that in the second half this year, we won't get a destocking effect, but normally, seasonal, in particular in Europe, it should be down. So what's the volume risk in Europe?
As we mentioned before, we see volumes developing differently across areas, and, as you mentioned, there's more seasonality in the European business than we see in Americas. And when we say stabilized, you, you should probably view that more stabilized, somewhat down, than stabilize, stabilizing being up.
Yeah, I mean, that's all, all I saw, the stabilization, but probably not assuming flat volumes, right, in Europe, because that would imply that you have basically no seasonality at all in the second half.
We will, in the third quarter, we will have seasonality in Europe. That's correct assumption.
Okay. The other question, hopefully you did not say yet, on the iron ore contract. In the past, you have indicated what the costs will be, how the costs will go up. I think it was SEK 200 million support in the first quarter and second quarter. Can you give us an indication how these new contracts will impact PNL in the third quarter?
I said the price increase of, was it 16% in U.S. dollar and 6% in Swedish krona?
Yeah, but, yeah.
And that was all.
Can you quantify slightly, is SEK 50 million impact roundabout?
I don't think we do quantify it, but that's what we had in the second quarter, and what we bought, and most of that you will see in the third quarter in the PNL.
Okay. My other question is on the average prices. I mean, in the second quarter, you've seen an uplift of 3% for ordinary steel because of the higher prices from the first quarter of this sort of PNL. Is it fair to assume that your average prices should go down in Europe in the third quarter, given the weakness that we've seen during the second quarter?
We don't give any price guidance for Europe, but, we are not expecting any huge swings upwards or downwards, and you have some seasonality, and you have, as said, I mean, some price pressure in Europe during the second part of Q2, so.
Okay. The other question is on APAC, which was at least much weaker than what I've expected into the second quarter. Can you give us any feeling how this business will develop into the second half and also mid to long term? I think in the past, you indicated a 10% margin, if I remember right.
Yes.
So what are the real issues here, and how difficult is it to get back on track here?
We, I mean, what we suffered from in second part or late part of Q1 and Q2 is very low volumes, and that was driven by lifting, which is a very important segment for us, and high inventory levels of
F inished machines in the lifting segment, and also the effects from Australia and mining, the mining segment. So how that will play out going forward, well, we are not expecting the market to get worse, and then we'll see.
Okay, but it's not that you need, you see basically new competitors entering the market, and there is, let me say, some pressure on market share in the region. So it's more market driven rather than,
It's market driven, but we also see some Japanese competitors being a bit more active due to FX. They have a slightly better cost position compared to a year ago.
Okay. Okay, the last question that I have is also on free cash flow generation. I mean, the main swing you have seen in the into the second quarter was trade accounts payable have been up to more than SEK 600 million. Is it sustainably high level, the payables, or? Because, I mean, inventories and receivables have been slightly up during the quarter, so the main driver was the payables during the quarter on a sequential basis.
No, that differs between quarters, but typically what you see, before the summer starts, you see a buildup of accounts payable, when we buy equipment or spares, for the summer, you typically see that seasonality effect. And then there is effect of, call it, cash management and some other effects, but that will differ, over time. When we look at the inventories, you should not expect any big swings in inventories. There is still room for improvement, but, I mean, as you have seen in the history, this differs a lot between quarters.
S orry, the very last question, the slide you provide on the bridge. I was just wondering, I mean, if like Europe on a year-over-year comparison, your volumes have been up 8%, and profitability is from SEK 383 million to SEK 56 million on the year-over-year comparison. On top, you have cost savings. Your cost base was low in the second quarter. I was just wondering, aside from FX, how you would explain this huge underlying deterioration on the European business, which is basically a drop of more than SEK 300 million over a year-over-year comparison, despite volumes being up quite significantly?
There are obviously several more factors impacting. One is, price pressure, which, in Europe also has been tough. And second one, as you also can see partly in the bridge, is the under absorption, which is mainly from the European business more than from the American part.
But in Europe, you have been up 8% year-over-year, so the under absorption is more reflecting Americas than APAC, I guess. But if you just take Europe, which was up 8% year-over-year, you should even have a positive effect from better utilization.
Well, we were up in terms of shipment, but actually in terms of the production, and the under absorption is actually mainly related to Europe.
Okay, got it. Many thanks. Thank you.
Thank you so much. If we don't have any additional questions from those of you calling in, I would like to turn to you here in Stockholm. Julian, please, go ahead.
Thanks very much. Try to be quick. The pricing of your ordinary steel in EMEA in Q3. I think spot HRC prices fell around 8% between March and June, but you seem to be hinting at a more modest Q2 to Q3 average price trend for your ordinary steel. Does that suggest that you're selling your steel at shorter and shorter lead times so you can actually realize, let's say, more spot developments?
Well, not really, but the underlying trend in the market with low inventories in the supply chain typically gives demand for shorter and shorter lead times for the full industry.
So, Q3 average prices, you could capture perhaps any uptick that happens in the next few weeks?
Well, we have a steel quarterly contract, so no.
Sorry, it couldn't capture it?
N o.
So an 8% fall in the spot price from March to June could be reflecting your Q2 to Q3 trend?
Not really, no. We don't, I mean, behave exactly like spot prices behave. We have quarterly contracts, so there is a lag, and the quarterly contracts are set in a somewhat different pattern compared to spot prices.
Okay. A lag and a dump then. Okay, how much slab did you sell in the quarter compared to Q1?
We didn't sell any slabs in Q2.
Okay. And then finally, some investors continuously focus on the risk of a forced equity issue, either because of a goodwill impairment in the US operation or due to refinancing challenges. So two questions: Could you detail what kind of debt facilities will need to be refinanced in 2014 and 2015? And then secondly, could you give an assessment of the risk of impairment of IPSCO goodwill in the next year? Thank you.
If you take the IPSCO part first, I mean, that's something we do an impairment test. We look into it. We so far see no reason for any write-down.
We don't see it now?
No, we don't. We have. We did it last year, we don't see any reason now either. In terms of the debt facilities maturing in 2014 and 2015, well, there are a few of them, and they are actually various. There are some loans, but there are also some other facilities. So it's a little bit of a mix between bank and capital market.
Okay. Now, the capital market still seems reasonably open.
Yeah.
The banks, do you expect them to be more challenging with you when it comes to negotiating?
I think if we continue with our decrease in our net gearing, which we have done, we don't see a big issue at the moment.
Thanks a lot.
Thank you. Next one.
Right. Johannes Krusell here again, ABG. Just a question on Tibnor. Underlying it was then a breakeven, right? And you had better shipments, quarter over quarter, year over year, et cetera. But what's the reason for the lower underlying earnings?
Well, we had lower shipments in strip and some other product groups, but overall, somewhat higher shipments, and then it's margin pressure.
Should we expect that sort of depressed margin for the next coming quarters, would you say?
Depends where the steel prices will move.
But it's not nothing, I mean, unusual or extraordinary in the underlying results-
No.
No? Then a question on the cash flows on America specifically. It was down -$350, according to the report. There must be something, you know, unusual in that number. Can you help us with that?
We have been building some, AR, and we have also increased inventories somewhat during the quarter.
So that should then turn the other way around in Q3?
AR will eventually get into the check account or into cash, and I mean, that depends fully on the sales volumes, if they will continue to increase or not.
Okay, that's all for me. Thanks.
Thank you so much. Any additional questions? Well, if not, we thank you so much for the attention. There is one more person calling in, so please go ahead. Nope, nobody there?
You have one further question via the phone.
Yes, please go ahead.
The question comes from Mr. Stefan Benson, Goldman Sachs.
Hi there. Just one follow-up for the CFO on the impairment. I mean, in 2009, second quarter, you were doing a 12% EBITDA margin. You know, it's not the case today. You don't see the reason to do an impairment. What would drive you or cause you to see the need to do that? Like, what would have to change given your loss making in the U.S. today?
What would have to change is if we see something that's fundamentally different with the U.S. market. Now, obviously, we've had some tough quarters, the plate industry has, but long term, we still see good prospects, and we still believe that the result we had in these few quarters will definitely improve going forward.
Even with mining quite bad, you know, maybe product from shipbuilding flowing in, that could lead to global oversupply in the plate market. Then there seems to be some structural factors that have changed.
But there are some other markets or segments that are improving and are on good levels, like energy and so on, and we still have the best cost position among the plate producers, so we are not worried.
Okay. But yeah, okay. Energy is up 40% from the peak, last peak. I mean, where, where can it go from here?
Was that a question or?
No, that was more just a statement.
Comment.
Sorry. Yeah, just a comment.
Yeah.
But, okay, we'll. And the next impairment test would be at the end of this year?
Yeah.
Okay. All right. Thank you.
Thank you very much. Now, I don't think we have any more calls, and no further questions here, so I would like to thank you so much for coming.
Thank you.
Thank you.