Good morning, everybody, and very welcome to SSAB. We are going to present the results for the first quarter for 2013. Before I leave the floor to our CEO and our CFO, I would like to remind you that this is a webcast, so it's not only us here in Stockholm, but we also have an audience following us by phone and by their computer. Afterwards, of course, there will be a Q&A session, and I would appreciate if you then could state your name and the organization you represent. First of all, I'll leave the floor to our CEO, Martin Lindqvist.
Thank you very much. Good morning. Start with some highlights. Shipments increased compared to Q4, and, as we talked about last time, we saw in Q3 and Q4, we saw destocking, and we expected to see some restocking, and we saw some, call it, moderate restocking during Q1. So I would say now, apparent consumption and real consumption are more in line than they were during Q3 and Q4. In general, with some ups and downs, our contract prices were stable in Q1 compared to Q4, and we also saw the effect of lower iron ore and coking coal in the P&L during Q1, and the effect of that is roughly SEK 170 million compared to Q4. We had an EBIT loss of SEK 136 million.
It's a loss, but it's, little bit less worse than we saw in Q3 and Q4. We have talked about the efficiency and flexibility program that would be completed or finished during Q1. That program is, as we talked, I think, about already last time, completed now, and we will see the effects, full effects from quarter two, and, the full year-on-year effects from 2014. We had sales of SEK 8.8 billion, and an EBIT loss, as said, and an EBITDA per ton of 460 SEK per ton delivered steel. Not in line with the previous years, but better than we saw in Q3 and Q4. If we take a look at the segments, I would say no big changes.
If we start with heavy transport, we saw a fairly slow Q1, but looking forward, it seems to be at least picking up. The tank, rail car, and tank barge businesses in U.S., which is fairly important for us, has been stable. Automotive has been fairly okay, given the overall market and given a lot of other segments fairly okay, with an increase in U.S. and also good progress in Asia, but not that bad as these figures shows in Europe either. Construction equipment, bleak market, I would say, both in Europe and we see some also stocks of finished lifting equipment in especially China, I would say. Mining, fairly stable, with the exception of East Australia and Indonesia, and coal mining slowing down a bit.
But apart from that, no big changes what we have seen. And as you know, U.S. energy coal market has not been doing extremely well for the last couple of quarters or the last year. So I would say no major changes as we see. Energy, fairly good segment. There is in the market now some large, multiple-year line type projects being discussed, some of them fairly big. So this continues to be a strong market in North America, and the transmission tower business continues to be fairly solid, given the market sentiment. Service centers for the 8th or 10th quarter in a row, we continue to say that they are cautious, and they are a bit cautious still.
With the volatility we have seen in prices and everything, they are cautious, but we don't see any big inventories in the service center in North America as we saw a half year ago or so, but still cautious. If we look into the business areas, as said, here we saw the effects of the destocking, I would say, especially in the strip business, with higher volumes and shipments compared to Q4, but still lower than the same quarter last year. Local prices decreased for niche steel and increased with 1% for standard steel, so more or less, on average, the same prices. Niche products, 43% of the total shipments, and we saw, as said, increased apparent consumption of strip in this quarter.
So in EMEA, as you see on the volumes, on the shipments, this is, we are not running at full volumes. Americas, on the other side, we run at decent volumes. Here with the problem in the North American steel market, notice the difference between ordinary plate and scrap, and that difference is, has been sliding downwards during the second half of last year and is now on all-time low. So if it is, call it a volume issue in EMEA, it's a margin issue in the first quarter in Americas. Shipments were somewhat higher, or 11% higher compared to Q4 2012, but 6% lower than Q1 2012.
Prices decreased for niche steel and for standard steels versus Q4 somewhat, and the niche products accounted for 30% of the shipments. We had an outage from the end of March until the beginning or during April, and the effect of that in Q2 will be SEK 150 million affected negatively. The demand from the energy and heavy transport segments increased during the quarter and during the end of the quarter, but construction machinery or yellow goods is still on a fairly low level compared to historically. APAC, somewhat higher shipments compared to Q4 and somewhat higher shipments compared to Q1 last year.
Niche steel prices somewhat lower compared to Q4, and following a recovery at the end of December, I would say, and beginning of this year, demand slowed somewhat during the end of the quarter. Material handling and mobile crane material handling is still fairly stable, but as said, the mobile crane, the demand from the mobile crane industry weakened, and that is due to a lot of finished products for them in inventories. Tibnor, we see the same pattern as in EMEA. Lower volumes, and the shipments were somewhat higher than Q4 2012, but almost 20% lower than Q1 2012. And we see lower shipments compared to the first quarter last year in all product groups.
Outlook and market environment, and World Steel Association changed their forecast somewhat or revised it downwards somewhat in the latest outcome, so they expect an increase of 2.9% in the global steel demand. In Europe, capacity utilization among the steel industry is still on a low level. In February, it was 73%, which is quite low, I would say. When we look into the supply chain, we say overall that the inventories are on normal levels after the modest restocking, so we don't expect any restocking or destocking effects in the near future. European strip spot prices have been under pressure from late March, April. As you know, we don't sell anything on spot. We have contract prices, but spot prices have been somewhat under pressure.
On the other hand, we see that the plate prices in North America have started to improve at least, and we have introduced a price increase from the first of April. So, Håkan.
Thank you. Let's go into figures now. I'll start with a couple highlights. Sales was about 20% lower than last year, same period, and of course, prices had a big impact here, about 10%, and volumes about 5%. And then the residual was mix and FX. Operating loss of SEK 136 million, and operating cash flow was SEK 85 million. Just to mention on what comes to cash flow, I've said that we continue to work with efficiency in working capital. Of course, when sales increase heavily in one certain period, we will get an impact in accounts receivables, and in Q1, we had an increase of accounts receivables of SEK 900 million.
Now, as I usually say to you as well, that I rather have money in accounts receivables than in inventory, and this is exactly what we've done in Q1 as well. The inventories had actually decreased by SEK 450 million. And FX had a negative impact in Q1 compared to last year, same period, of SEK 150 million. And just before we go into the EBIT comparison between Q1 this year and last year, I just want to mention that we had a dividend payment of 1 SEK per share in April. And if we go to comparison between these two periods, or years, we see the FX impact, 150, as I mentioned, and prices had a negative impact of SEK 850 million, and volumes 150.
Of course, the cost of goods sold on variable side had a positive impact, but the negative price impact couldn't actually be compensated by the lower costs. In addition, these variable costs, we also had a lower fixed cost, about SEK 140 million, and that's in the others. Then we had some other negative impacts as well compared to last year. And cash flow, here you can see that the accounts receivables hit in EMEA and also actually in Tibnor compared to last quarter, and that's why they have quite low operating cash flow. In total, operating cash flow was positive SEK 85 million, and the net cash flow was negative SEK 164 million.
This resulted that the net debt increased slightly to SEK 15.7 billion, and this gives a net gearing of 55%.... We still continue to have a very good liquidity preparedness, and, compared to rolling twelve months sales, it's about 29%. And just mention to you as well, what we've done during quarter, in preparedness, liquidity preparedness. We had prolonged one of the backup lines that we have, EUR 440 million backup line as well, increased by one year during Q1. The average term in the loan portfolio is 4.6 years, and the interest term is about one point fi- one point one. And, this picture shows you the maturity.
I suppose the first bar is a little bit too light, but that's the backup lines amounting to about SEK 11 billion. And the first years, 2013 maturities or commercial papers, they amounted almost SEK 900 million in Q1. And otherwise, I would say that the maturity profile is quite undemanding, but we are still continuing to work with this continuously. And here you can see that the debt cost continues to be the same levels as last quarter, and maturity is above 4.6 years. Couple words about raw materials. As you know, we had a contract with LKAB for purchases during Q3 and Q1, and that price went down 23% compared to the earlier contract.
This will give an impact in Q1 and Q2, due to about one quarter lag that we have in, in iron ore. So still in, in Q2, P&L wise, we will get the same prices in, in raw materials, what comes to iron ore, as we had in Q1. We haven't signed any new contract with LKAB for deliveries for Q2 yet. We are in negotiations with them, and we'll see when we will sign. As you've seen, the spot prices have a tendency to go down right now, and, we'll see what levels we will sign the new contract with them and what period as well. Coal we buy from Australia, about 60%-70% of our needs, and that's both in a monthly basis. And, and here as well, you've seen the prices has gone down.
The remaining part of coal is bought from US, and that's an annual contract. The annual contract ended in the end of March, and the new contract starting from first of April, same here, as I said, in LKAB contract, we don't know yet the price. We don't know yet the contract length. We are in negotiations with our suppliers. Scrap has been somewhat volatile, and the prices has been somewhat higher in Q1 compared to Q4. Let's go back to you, Martin. Thank you.
When we look forward, we see that the market is not getting worse, but we see continued economic uncertainty in Europe. Volumes are expected to increase somewhat in Q2 versus Q1. As said, we will see an effect in Q2 of the unplanned outage in Montpelier. We talked about the strip prices. That's on the spot market, at least at the end of Q1, beginning of Q2, have been under some pressure. We talked about the recovery we have seen in the beginning of second quarter for U.S. plate prices. The completion of the efficiency program within SSAB EMEA will start to affect the quarterly results from Q2, and the full year effect will be seen 2014, year-over-year. But quarter-over-quarter, sequentially, we'll see that already in Q2.
With that short introduction, I think we open up for questions.
Absolutely, and I say that here, we would appreciate if you state your name and your company, and also if you could put one question at a time, and I will assure you that we will make it possible for everybody to ask their questions. So we start with those of you who are in Stockholm. Please go ahead. Yes, over here, please.
Thanks. Christian Kopfer, Nordea Markets. Firstly, that you said that you expect volume to be up somewhat in Q2 compared to Q1. Is it possible to give some kind of breakdown between the different areas?
No, overall, volumes will be somewhat higher, and you typically see that, but I would say it will be for EMEA for sure, and also for APAC. I don't have the figure exactly for Americas, but overall volumes are up somewhat.
Thanks. And also, what kind of segments are driving the pickup in EMEA?
Well, it's not a pickup in that respect, but as said, I mean, heavy transport looking somewhat better going into Q2. Some other areas, automotive looking, but from low levels, so not a massive. A better, a massively better business cycle. I mean, as said, we expect Europe to move more or less sideways.
Okay. And then finally for me on Americas, you expect prices, as it seems at least slightly up, at least in the beginning of Q2 compared to Q1. If you also compare that to scrap prices, would you say that if we just adjust for that, you will have a maintenance stop in Montpelier ?
Well, we saw scrap, as Håkan Folin mentioned, we saw scrap prices coming up somewhat in Q1, and we also saw a peak so far, at least, during March. Since then, scrap prices have gradually come down, and they are trending down. As said, we have introduced the price increases together with the rest of the plate producers in North America. Also, as said, I mean, what we saw in Q1 was an all-time low between the margin over scrap, so to say. It was down at, I think, official figure is $400 per ton, and it is typically higher. So we expect that margin to at least not getting worse.
Okay, thanks.
Okay. Any questions here? Yes, Julian.
Thank you. It's Julian Beer from SEB. You and your peers tried to raise ordinary plate prices in the U.S. last November, and it's clear now that that attempt failed completely. Are you more confident now about the stickiness of your first of April price hikes? And if so, how has the market changed since last November?
Well, what we have seen is lower imports. What was obvious during Q3 and a large part of Q4 was very high import volumes of standard plates into the North American market. That is, of course, one explanation. Another explanation could be that the North American plate market is not getting worse, if in any direction, the opposite then. And I talked a bit about energy in this market with big line pipe projects and some other areas that are looking fairly okay. So... And you're right, I mean, there was a problem for the steel industry in North America to get the steel prices to stick. But what we have seen so far with the price increases, they seem to stick.
And a brief follow-on, just a clarification on Christian's question. You said that you're expecting higher shipments in Q2 in EMEA, but you're also saying that you think that the restocking of standard strip has probably come to an end in Europe. Could you just try and balance those?
I'm not talking about massive volume increases here, but we overall the volumes will come up in Q2, and that will differ, of course, between regions and between segments, and from in many cases as you see in the report, fairly low volumes. But we are not expecting the volumes to get worse, if any direction the opposite, but no massive increases. We are not expecting a booming business cycle around the corner.
Would you expect your strip production rates at Borlänge to continue at the same pace as Q1?
I think it's too early to say, but, but, we are not expecting them to be back on Q3 and Q4 levels.
Okay. Thank you.
Thank you very much. Any other questions from the floor here? Otherwise, we will turn to you that are calling in. Please go ahead.
Thank you. The first question comes from Mr. Alexander Haissl from Morgan Stanley. Please go ahead.
Good morning, this is Alexander Haissl, Morgan Stanley in London. My first question would be on the EMEA business. Can you give us utilization rates for the strip business as well as for the niche business during the first quarter? That would be my first question.
Thank you.
Totally in EMEA, the utilization rate was roughly 75%, lower in the beginning of the quarter, and somewhat better at the end of the quarter.
Is the strip business being above the 70%?
Sorry?
The strip steel business, the ordinary steel business, was it above 70%?
I don't have the exact deviation between the strip and plate business, but overall, 75%. And I said, somewhat better in the end of the quarter compared to the beginning. It was a tougher start than an ending.
Okay, my second question would also be coming back to the volume indication that you have given for the EMEA business. I mean, taking the first quarter run rate, the first quarter run rate is 10% above 2012 level, if I just would annualize it. So how do you see the business then basically developing into the second half? I know there is a limited visibility, but it seems the starting run rate to me is quite high, that you've shown in the first quarter. Do you see this run rate to be sustainable throughout the year?
Well, I wish I could answer that question. As you said, the visibility is not that good. What we see right now is how it will look in Q2. What will happen during the second half of the year is too early to say.
Okay, my next-
If you have any good knowledge that I lack, so I would be more than happy to share that with you.
I mean, I don't think that the run rate is sustainable, but let's see, we can discuss by the end of the year. My next question is just on the free cash flow... I mean, can you give any indication how you expect working capital developing into the second quarter? Because for the first time, as I'm aware, over the last couple of quarters, you showed a negative free cash flow, despite the fact that CapEx was really at a low level. Is the cash flow something you're really worried about right now to generate positive cash flow?
No, I'm not. As Håkan said, I would rather have the money on the bank account than having it in accounts receivable. But when volumes are increasing, it's given that the accounts receivable are increasing. I would be more worried, more worried if we started to build inventories. But we have seen a continued good work and efforts within inventories. And my feeling is that we are not ready—I mean, we are not perfect yet, so I expect inventories to continue to come down. And when I look up on this, and when we look up on it internally, these are, I would say, to a large extent, structure changes. Because typically, when volumes increase, you could expect inventories to come up as well, due to work in progress, finished goods, and everything.
So, as said, we are far from perfect, and there are still opportunities within the inventories. But the main reason, as Håkan Folin explained, was that we increased accounts receivable with SEK 900 million during the quarter, and that is almost at least as good as have the money as free cash flow, because it will eventually turn out to be free cash flow.
The CapEx for the full year, I think in the past, you indicated is SEK 1.4-1.5 billion. Is it still a valid figure, given the low figure that we've seen in the first quarter? Or can we expect somewhat lower investments this year?
You should expect us to be mainly doing maintenance CapEx. And as I've said before, that is roughly SEK 1 billion, give or take SEK 200 million. But call it 1.2 or something then in maintenance CapEx, and I wouldn't expect any big strategic investments. So roughly 1.something then.
My last question, I'm sorry, it's more strategic in nature. I mean, your losses in Europe are down quite, quite significantly, but we have seen some volume bounce, some support from lower raw materials. What would change your mindset in terms of taking also more structural measures if losses, if the business continues to make a loss? Because in reality, we're still at SEK 50 million loss and could end up for a full year easily in a loss as well. What would change your mindset that the cost savings might not be sufficient to generate profits in Europe?
Well, we are continuously looking into different ways of restructuring our business. We have closed one galvanizing line, and we are continuously looking into things. So, I mean, I wouldn't say that I have a clear mind what we could do and not could do, but I can't give you an answer on that.
Would you rule out being taking a part of a consolidation? Would you rule out such a scenario, or would you just focus on creating shareholder value?
Well, we are not one of the big consolidators. We are a fairly small and niche-oriented steel company. I mean, you can't... I mean, I don't know what to answer on that question.
Okay, fair enough. Thank you. Thank you, Lars.
Okay, thank you so much for calling. The next question, please.
The next question comes from Mr. Neil Sampat from Nomura. Please go ahead, sir.
Hi there. Just, I guess, just a quick follow-up on, on one of the previous questions on cash flow. Could you give us a sense, is it the case that if volumes are higher, receivables are probably going to be higher in Q2, and then coupled with the dividend, that the net cash flow in Q2 will also be negative? Is that a fair assumption?
Not necessarily.
Okay. And then secondly, could you... You've mentioned the SEK 150 million impact of the maintenance outage at Montpelier in Q2. Could you confirm whether there was any impact on the Q1 result?
We said, I think last time, that we had an impact of totally up to 150-200. So, some impact in Q1, yes.
Okay. And then finally, I guess in the past, on this SEK 800 million cost saving program in Europe, you've mentioned that you'd get the full benefit at lower utilization rates. I'm assuming something around 60% in the strip business. Where we are today, assuming no changes in the utilization rate, could you give us a sense of what kind of quarter-on-quarter incremental impact you'd expect from those cost savings beginning in Q2?
Well, when we launched the project, with the actions, we said that 500 out of the 800 would be sustainable cost savings, and 300 would be flexibility. So 500, if they are, they are sustainable, will be seen then, and 300 out of the 800 will be dependent on capacity utilization.
Just to clarify, we haven't seen any of that SEK 500 million yet in the Q1 number?
Well, it's not that easy. Of course, you have seen some minor effects, but overall, you could say no, no material effects, no.
Okay. Thank you.
Thank you. Next question, please.
The next question comes from Mr. Fredrik Agardh from Handelsbanken. Please go ahead, sir.
Yes. Hi, thank you. A question on the shipments in EMEA. Are there any slab sales or slab shipments of slab sales in that number for the first quarter?
Some 20,000 tons or something.
Okay. And the financial impact of that, what's that? What would that be if you separate that out?
Not, not much.
Not much at all. Okay. And then turning to your raw materials, what was the Swedish krona impact from iron ore, scrap, and coal sequentially, the change in the quarter?
... It depends, of course, what you compare with. And now the U.S. dollar is about 6.6 or something. And when we sign the contract, that's when we actually know exactly what we're gonna have and what kind of contract we're gonna have. But as you know, we buy all coal and iron ore in U.S. dollars, so of course, that will have an impact if it's six or seven. It totally depends which period you're comparing, and also when we sign and what levels we're gonna have in that case.
Okay, I was thinking the improvement or the worsening effect from Q4, just rolling it over, when you compare it to what the earnings impact was in Q4 and Q1, so.
Yeah, if U.S. dollar is at this level as we have today, then we're gonna have a positive impact.
Yeah, but in Q1, this quarter that you just reported, how much have you gained or lost in coal, iron ore, and scrap?
SEK 150 million.
So what's the net effect in the U.S. and EMEA?
In Q1 or?
Yeah, Q1 versus the fourth quarter last year.
SEK 150 million is total FX impact in Q1, in fact.
Okay, but I was thinking about raw materials.
We haven't specified exactly how much of that is raw materials.
Okay, no, I know. So that's, that's the reason for my question. Okay. All right, well, that's fine. I have all my other questions answered. Thank you very much.
Thank you so much for calling, and next question, please.
The next question comes from Mr. Alessandro Abate from JP Morgan. Please go ahead, sir.
Yeah, good morning to everyone. I just have one question which is related to SSAB Americas. If you can give a little bit more color on the ramp-up of the quenched and tempered plates, because I was taking a look at the Q1 2013 versus Q1 2012, niche percentage. Out of the total seems to be relatively stable. I mean, do you see any kind of, a significant visible progression in the shift towards niche, in 2013? Or if you have any kind of, a slowdown or a stabilization of the demand in the iron ore, if you see, the energy driving a significant uptick in the rest of the year? Thank you.
Well, we are roughly following the plans, but what we saw in Q1 was some of the big yellow goods producer taking outages and a slower demand in Q1 than normal, so to say. But apart from that, we are more or less following the plans, but it differs from quarter to quarter. So demand was maybe during Q1 somewhat lower than expected.
Yeah, just a follow-up on this question. I guess that you definitely need to ramp up the niche percentage in terms of output because you have the new plants of quenched and tempered plates. Do you see more a matter of volume at the moment, or you see a matter of price, that there is no visible uptick at the moment? I mean, if you reduce the price of the quenched and tempered plates, are you gonna be able to shift the output towards niche [tonnage/products during 2013, or you see relatively stable things?
Well, my guess would be, without knowing, reducing price would increase volumes, but we are not going down that route. I mean, we continue to have fairly stable prices, and by doing customer development projects together with customers, showing all the benefits they can get out of using these kind of material, we expect to follow up the ramp-up curve. But it could differ from quarter to quarter, but in the long run or medium term, we are convinced that we will do that. But a certain quarter, due to production outages among customers and stuff like that, it could be ups or downs.
Okay, thank you very much.
Compared to the trend line.
Okay, thank you for calling. I don't think we have anyone else calling in. Any additional questions from, from the floor here? Yes.
Do you expect to build up inventories in the same way before the summer in Sweden as you did last year?
We will have a normal summer outage this year, and we will stop the blast furnace for I think it's two weeks, as we always do. So, yeah, I don't remember exactly how long the outage was last year. It was a bit longer, so you should expect that we build up the slab inventory before we close down the blast furnace, but in that case, somewhat lower compared to last year.
Okay, you've been running a reduced hours program in Sweden. Could you tell us how much that benefited the costs by in Q1 and when that program will finish?
It will finish end of May, 28th of May or something. And I think the total effect over the program is SEK 80 million.
Over two quarters?
Yeah, I think it's from first of February to end of May.
Okay, great. And, if iron ore reference prices stay where they are now for the next few weeks while you negotiate, would you expect any material difference between a future LKAB contract and the one that you've just expired?
That will fully depend on when we close the contract. But the trend seems to be at least the last couple of weeks and looking forward downwards, so.
Sorry, say that again, please.
The trend on iron ore prices seems to be during the last couple of weeks and looking forward, downwards, so.
Oh, okay. I understand. How long can you drag on negotiations for? Maybe a couple of years?
Until we are ready to sign.
Okay. Thanks very much.
Okay, if there are no additional questions, we thank you so much for coming. Thank you.
Thank you. Thank you.