Good morning, everybody, and very welcome to SSAB. We are going to present the results for the third quarter, and before I leave the floor to our CEO and our CFO, I just want to remind you that this is a webcast as well, so, there are also an audience following us on the web. After the presentations, of course, you will be able to ask whatever you want. Now, I leave the floor to Martin Lindqvist.
Thank you, Helena. So good morning. Starting with some highlights. The result of the EBIT for Q3 was SEK -665 million, and that was already communicated in March, where we said that we would have an EBIT of roughly SEK -700 million for the quarter, and I guess this is in line, or this is in line with that announcement. Given the result, the cash flow was fairly okay. What we saw during Q3 and what we talked about in that press release was destocking and weak demand in all, I would say, business areas, but of course, the biggest effects seen in EMEA, and what we experienced in Q3 was very low capacity utilization in the rolling mills and quite big under absorption effects.
for quenched steel, prices and volumes were relatively stable, but for standard steel, both prices and volumes came down during Q3. We have been running, and we communicated that as well, our efficiency program, when we started it, or after I've been running it for a couple of months, we saw there were possibilities to increase the speed, and that program, giving SEK 800 million, SEK 500 million in sustainable lower cost, and SEK 300 million in flexibility or lower costs when we are running at lower capacity utilization, will be finalized during Q1 2013, and we will see the effects gradually during 2013.
Sales, SEK 8.7 billion, with a negative EBIT of SEK -665 million, and that gives us an EBITDA per ton of just above zero in the with the steel delivered from the steel part of SSAB, so a very low result or very low EBITDA per ton delivered steel. We take a look at our important segments. There are some mixed pictures. The truck market in Europe is clearly slowing down. We have seen that in a lot of the truck producers' reports so far. Agriculture, especially in North America, is still positive, fairly positive, and the rail car, which is an important segment for us in North America, is also doing quite okay, buying both standard steels, niche steels, and also normalized plates.
Automotive, fairly okay in North America, fairly okay in Asia, and especially China, but in Europe, not that good, and we saw that sales comparable in September 2012 was down 11% in car sales in EMEA or Europe. Construction equipment slowed down among the big yellow goods producers, but the crane and lifting industry, which has been very slow so far in 2012, shows signs of increased activities and increased demand in China. Mining, the overall mining industry is slowing down, but we still see good opportunities with upgrading. The market penetration we have still in Asia and Latin America and Africa is not that high.
So we see, even though quite a few big mining projects are being postponed for the time being, we see opportunities in those areas for our types of steels. Energy, wind tower has slowed down or actually stopped in North America due to the end of production tax credits in 2012. That market will not go away, but it will be lower if they don't extend those tax credits, and I guess there have been some prefabrication to utilize these tax credits, but there will be also wind towers produced next year, regardless of tax credits, but it's definitely on a lower level compared to having tax credits. On the other hand, the line pipe demand is still decent, both in U.S., in Canada, and especially in Mexico.
Service centers, we have talked about a couple of quarters and said that they are very reluctant, and their order placement has slowed down further during Q3, and the inventory levels today is 3.3 months of consumption, so that is the highest level since 2009, right now in North American service centers. And as you remember, just below 50% of our standard volumes in North America are sold via service centers, just about 50% of standard volumes directly to end users. So service centers is, of course, for us and the North American steel industry, an important outlet. Going through the business areas, EMEA, we had an EBIT of SEK -644. Shipments were much lower compared to Q3 last year and Q2 this year.
We had the local prices unchanged for niche steel, but they decreased with 4% for standard steels during the quarter. The cost itself for the summer outage was about SEK 100 million, which is fairly usual for a summer outage for us. What we experienced during July, August, and September was a wait and see approach, and also destocking among our customers. And that was mainly for standard steels. Americas, shipments 12% lower than Q3 last year, and 14% lower versus Q2. Local prices for niche steel decreased by 2%, and for standard steels by 9% versus Q2. Automotive and construction machinery remained healthy. We saw a slowdown in material handling, and as said, among steel service centers. In APAC, we also saw lower volumes.
Shipments of niche products were 20% lower versus both Q3 last year and Q2 2012. We were able to increase prices somewhat for niche steels during the quarter. Automotive, the demand remained fair, and we saw a slowdown in construction machinery in parts of heavy transport. Tibnor, we also experienced lower volumes, both compared to Q3 last year and Q2 this year. And that was not only for our types of products, but it was all product groups that Tibnor sales were affected during Q3.
So if we take a look at the market environment and the outlook, World Steel Association released a new demand forecast two weeks ago during the annual meeting in New Delhi, and they have revised it down, the steel consumption, and they now expect an increase of 2.51% in 2012 compared to 2011. They've also revised down the consumption this year in Europe, and China, and North America. What we see going forward is that demand for quenched steel expects to be fairly stable, and within standard steel, demand in Europe is expected to remain weak. In U.S., we see a seasonal slowdown during the end of the year and some destocking, as we typically see every year.
What we have seen during Q3 was continued high import volumes into North America of all types of steel products, but I would say especially what we really follow is for standard plates. The Chinese market is, was during Q3, cautious due to uncertainty related to these announced, previously announced stimulus packages. With that, I hand over to Marco.
Thank you. Good morning. Just start with a couple of highlights. Sales amounted to SEK 8.7 billion, compared to SEK 10.9 billion a year ago. And just like Martin mentioned, the operating loss was SEK 655 million, according to the announcement that we made in mid-September. Cash flow was still very good, SEK 843 million on operating level, and we also had a reduction on net debt by SEK 1 billion to SEK 16.4 billion, and net gearing was at 56%. I will go get back to those different items here in detail. I think I jump immediately to this slide. You can see that last year we had a +SEK 511 million EBIT, and now it's -SEK 665 million. And the major items that has affected the result is, of course, prices.
We've seen a slowdown in the market in general, and the prices have gone down both in Europe but also quite heavily in North America, due to scrap prices has declined. And these scrap prices and steel prices follow each other quite closely on the standard products. And just like we guided you in mid-September, we saw a very heavy or weaker demand in Europe, and that affected our volumes. And here you can see that volumes impact of EBIT was minus 240 compared to last year.
Of course, in connection to that, also, the production levels were lower than last year, which gave us a higher under absorption of fixed costs, and that's SEK 110 in the quarter. Excuse me, cost of goods sold could not offset the whole price decrease that we've seen during the period compared to last year. The main items here are actually scrap prices in North America, but also pellet prices in EMEA. Others, just a couple words about that, it's SEK -226, and it contains mainly 2 items. We had a negative revaluation of accounts receivables and payables in our balance sheet due to the different FX rates that we had.
The other item is the 55 for efficiency program in EMEA. So those are the two major items here, and that concludes to -SEK 665 in EBIT. And even the negative result in EMEA resulted actually a positive operating cash flow, and this is actually coming from working capital reductions. And you see that the net cash flow was positive as well, which, of course, gave us a reduction in our net debt as well, together with a revaluation of our debt, due to the fact that major part of debt is in US dollars. The debt decreased by SEK 1 billion to SEK 16.4 billion. And as I mentioned, net gearing was stable compared to last quarter, 56%.
We continue to have very excellent liquidity preparedness, and if you just relate that to last 12 months sales, it's 26%. And the term of the loan portfolio is quite stable. It's about 5 years. And here you can see the maturity profile of the debt portfolio, but also the cash and backups that we have in the company. So we don't have a major maturities until 2014, and those that you can see in 2012 and 2013 are mainly commercial papers. And this is something we continue to work with our maturity profile, secure that we are quite happy with it.
In this picture, you can see the duration and debt cost, and as I mentioned before, I think that we are quite satisfied with the situation that we have in our balance sheet. Just a couple words about the currencies. We hedge our major currencies. Here you can see the gross flow of currencies in 2011, and there's two major currencies that we have. That's U.S. dollar and euro. What we do is that the net flow is about SEK 7-8 billion in value in both of these currencies, mainly coming from the European business. We buy our raw materials mainly in U.S. dollars, and we sell about half of EMEA's sales in euro.
And when we sign a long-term contract on raw materials, we hedge that, and simultaneously we also hedge the sales referring those raw material purchases. So we get FX impact, but we have a delay, so when currency goes up and down, it usually takes a longer time for SSAB to get that impact in their PNL. We just, actually yesterday, agreed the new price, what comes to pellet with our supplier, LKAB. That price is valid for Q3, Q4, and Q1 next year. And compared to current agreement that we have, which is valid for Q2 and Q3, the price was, went down about 23%. Although, remember that we will not get any impact in the fourth quarter due to the inventories that we have, so the impact will come after the year-end.
Coal, we buy on a monthly basis from Australia and annual based from United States. And those monthly prices that we purchased in Q3 were about 10% lower than quarter before. And, the coal price is the annual price for U.S. coal is about 30% lower than the previous annual contract. Scrap, we buy continuously to our American business, and, that goes up and down quite heavily. And, those who saw the picture I showed you in the Capital Markets Day, we've seen that it's been very volatile the past quarter, actually. Prices went up heavily towards end of July, beginning of August, and then they have gradually going down again. And that's all I had. And back to you, Martin.
Thank you. So looking forward then. We don't expect any major changes in demand for Q4 compared to what we see right now, or what we saw in Q3. We expect, as said, prices for quenched steels being fairly stable going forward. We expect a continued pressure on prices for standard steel, given the direction raw material has taken. And, as Marco said, the impact from lower iron ore costs of about 200 million SEK will affect the earnings in Q1 2013. And the efficiency program runs according to plan. And what we are doing is, as you know, the efficiency program and cost reduction program is to, with a target to break even at 70% capacity utilization in our Swedish operations. We're also working with top-line growth.
We are launching our new quenched steel products from QL7 and QL6. We are working, as we talked about during the Capital Markets Day, a lot with upgrading projects with these kind of products. There are possibilities to further increase flexibility throughout operations, and we are working with that. We have, in Sweden, taken out 10% of the white-collar positions, and we have just recently given 450 blue-collar employees notice, and we have also good opportunities to continue to work with our asset optimization in the group, and we will continue to focus on our financial strength and our balance sheet. So to sum it up, decent cash flow generation during the quarter, despite the challenging environment.
We continue to work with flexibility in EMEA, and we have a very flexible setup in North America, and our North American mills already. As said, no major change in the outlook for Q4, and the shipments from the new and installed and up-and-running facilities are gradually increasing, and we talked a bit about that during the Capital Markets Day. So in a difficult market, we continue to focus on our strategy and to maintain and further strengthen our position within high-strength steels, but also on our two important home markets, North America for standard plates and Nordic region for standard strips. That's the last picture. This is the nominees to the Swedish Steel Prize 2012. And if you want, then these are typical projects that we have done together with our customers using high-strength steel or quenched and tempered heavy plate.
We will have the announcement of the winner within a couple of weeks here in Stockholm, and we have about 400 customers globally attending that meeting. So this is one important way for us to promote the usage of Advanced High-Strength Steel globally. With that, I think we open up for questions.
Yes, and I would like to ask you to, when you have a question, to say where you come from and your name and so on, and also to put one question at a time, then it will be easier for us to follow up. I will make sure to remember you. I will make sure that you will have the time you need for all your questions. So please, go ahead. Yes?
Hello, Joakim Ahlberg, Cheuvreux. I have a question on the inventory to begin with here. It's a quite substantial decrease or release of SEK 1 billion. Can you specify a little bit on the inventory and the diff on the price and volumes? And then maybe how much have you done on the receivable and payable side as well there?
When it comes to accounts receivable and payables, that's pretty much flat out between the major parties. Is inventories itself. And one big part is that we now buy coal from Australia on a need basis, so we don't build up the same inventories that we've done before. So we have a new contract there.
Going forward, this means that you can have a leaner organization there, and does this imply a further release in Q4 as well?
I mentioned it before, that we continue to work with the new processes and ways of getting more efficient handling of working capital, and this is one of those results in our efforts to do that. I hope that we never can just tick off that box and say that now we're done. What we try to focus on is capital turnover, and of course, with the lower sales, there are possibilities if we want to stay on the same capital turnover. But I mean, no huge effects. We have actually been quite effective the last one or two years to work with working capital.
Okay, and moving over to USA, it seems a little bit now, everything we see, that this might be a little bit of a lost year to drop in the economies. And I only have a question of, you, you see a seasonal weakness, but do you see anything more than that, currently?
It's always hard to tell. I mean, as we said when we released Q2, North America is slowing down. We see that within mining, I would say, especially for energy coal, you know, due to lower gas prices. And where U.S. will go, I'm not extremely worried, to be honest. And the only thing I know with the flexibility and the cost position we have, we should at least be one of the best steel companies in North America. And then where the market will go short term, long term, that's always hard to have a very clear opinion on. But I'm convinced and that we will do, compared to North American steel industry, a very good job.
Perfect. Thank you.
Okay. Next question, please.
Good morning, it's Julian Beer from SEB Ens kilda. On the theme of plates in the US, there seems to have been a step down in US plate demand. Nucor also made the comment in their Q3 report that plate was noticeably weaker. Your service centers seem to be seeing less demand. You've mentioned some areas where you've seen weakness, such as wind towers, construction, and mining. Is there a broader reduction in demand from other segments of the US plate-using economy that maybe your service centers have commented to you?
I think this is, to a large extent, I would guess, or say, destocking. And, of course, there are some segments performing a bit worse and some segments performing a bit better. I wouldn't say that we see a big, overall decrease in plate demand. What we have seen during Q2 and Q3, and probably still see, is, higher import levels, with plates from Asia. That is not, of course, in the long run, sustainable, due to, the cost position, landed cost to customers. We have seen that the last couple of quarters, and I would say more in Q3 than in Q2.
Okay, on that issue, I think you said after Q2 that your direct selling approach to customers meant that you weren't experiencing at that time any market share issues due to competition from imports. Has that changed in Q3?
... I wouldn't say that, no. I wouldn't say that. We have a somewhat different go-to-market approach, with, I would say, a larger portion direct business and a lower portion compared to other plate producers in general, service center business. We have probably or maybe lost some volumes, when it comes to imported volumes, but I wouldn't say that we have lost market share in North America, no.
So it's just more of the impact on pricing?
Impact on pricing and overall volumes.
Okay, great. Could you say what volume of slabs you sold in Q3 in EMEA?
About 33,000 tons.
Thanks for that. And then finally, on iron ore, at 23% lower U.S. dollar terms, contract now. If you look at the Swedish krona terms, taking into account the hedge levels on the currency side, both in the last contract and the new contract, how much lower is the new contract in SEK terms?
SEK 200 million in Q1, roughly.
Sorry, say again, please.
SEK 200 million in Q3, Q1.
Sorry, the percentage price reduction in-
Flat.
Flat. Okay.
I mean, same as US dollar, $23.
Very good. Thank you.
Okay. Any further questions? If not from here, we will turn to those of you calling in. Please go ahead.
The first question from the line of Sara Ekblom from Bank of America. Please ask your question.
Thanks very much. Two quick questions. One, on your commentary on pricing into Q4, particularly in the U.S. market, you said that the inventory levels at service centers are 3.3 months, which obviously is, you know, probably the highest we've seen since 2009, and demand is weakening. So I'd just like to understand how you think that that translates into generally flat, you know, quenched steel prices into year-end. Those two just don't seem to square for me. I would expect prices to be lower in the U.S. market into year-end than, you know, are these price hikes that we've seen announced actually gonna stick with those kind of sort of backdrop of inventories and demand? And then the second question on tax.
I believe that the tax rate in Sweden was recently lowered, and I'd just like to understand what impact you could have in your Q4 numbers from tax treatment of your deferred tax liabilities and assets. Are we gonna have a one-off gain in the Q4 numbers? Thank you.
When it comes to your first question, prices of quench and temper heavy plate typically behave differently compared to standard prices. Standard prices for plate in North America follows scrap prices very much. For Q&T, there is a different pricing mechanism, and there's a different, call it, market for quench and temper. So we expect prices, regardless of where scrap goes, to be much more stable. When it comes for ordinary products, they, as said, they typically follow scrap prices. And we don't sell one single kilo anywhere in the world of quench and temper via distributors. We sell it directly to end users.
The way we sell it is, by doing customer development projects and selling it out of a more, call it, a life cycle discussion, kind of price setting than any extras on hot rolled coils or extras over scrap. So it's a different pricing model. That's why they don't follow each other. And when it comes to tax, there's a proposal to lower the Swedish tax rate from 26.3 to 22. If that goes through, we will get an impact about, based on 2011 figures, about SEK 300 million, which we'll take up in Q4.
Okay. And that would just be a one-off charge, and then obviously after that, you'd get the lower tax rate coming, or one-off gain, and then you'd get the lowest tax rate coming through from next year?
That's correct.
Okay. Thanks very much.
Thank you for calling. Next question, please.
Your next question from the line of Alexander Hessel of Morgan Stanley. Please ask your question.
Good morning, this is Alex at Morgan Stanley in London. I have a question on the EMEA business. Can you give us the overall capacity utilization? I think you indicated some 60% for the strip business. The following question on that is, I mean, the niche products are still doing fine, and you said also that the destocking mainly was in the ordinary products. Is it fair to say that at least this destocking effect should reverse into the fourth quarter so that we see some kind of volume improvement in the EMEA business?
Okay. As said, that during Q3, we had very low capacity utilization. I would say in July and August, taking away the summer stop, below 60%. And I don't really remember the question, it was- when we measure utilization rate, we typically talk about rolling, because that's where we produce the finished products. We take blast furnaces. As you know, we have been, we have had one of the blast furnaces idle, then we have been running the other two blast furnaces at reduced speed. But in Oxelösund, we were more running at call it 80% or 80+, in the Oxelösund system. So the big hit in volumes and under absorption was in the strip system.
... Okay, and, on page 8 in your, interim three board, you show basically the negative impact of SEK 110 million from underutilization. Can you explain a bit more? Is it just in major business? Because I saw that the impact from lower utilization rates could have a bigger impact during the third quarter.
Yeah, the 110 is compared to last year, and last year, we have extended outages as well. So it means that we have run this quarter quite low capacity utilization, and the major part is from EMEA. There's only slightly coming from United States, a very small part.
Yeah, right. And the reason for that is that we have a much more flexible system in our mills in North America compared to the Swedish mills.
So the proportion of fixed cost is much higher in the Swedish mills compared to U.S., where the proportion of variable costs are much higher.
Okay, and, sorry, the last question on EMEA. I mean, basically, you indicated that the niche products in quenched should be more or less stable. So what could come back is the destocking effect in terms of ordinary products, which are probably not heavily profit generation at all. So we could see a worsening in mix in the European business in terms of niche products versus ordinary products?
I don't really underst... Uh.
We have to guide that, not specifically.
We have not guided for that, but I mean, when, if I don't see that we will see a worse destocking during Q4. We maybe see the same kind of destocking, maybe some extra destocking at the end of the year. We have typically not seen the same pattern for niche products when it comes to destocking. But the big hit in the result is low capacity utilization, low volumes of ordinary products, and quite big impact from under absorption. Where that will go in Q4 remains to be seen.
Okay, thank you.
Thank you for calling. Next question, please.
Next question from Ola Södermark, from Swedbank. Please ask your question.
Yes, hello, and good morning. Just a follow-up question on capacity utilization and in the Americas. I know that you maybe don't want to give any forecast, but could we expect that the capacity utilization in the Americas are at the same level in Q4 as in Q3?
The steel industry in North America, including us for standard products, has—we have fairly short lead times right now, so we don't have the full visibility yet for Q4. But I can't really. My feeling is that I can't really see the North American market, given the imports and everything, getting worse.
Okay, and a question on asset allocation. What kind of areas and magnitude of the values of assets you can kind of sell or lease out or something?
Well, it's a good question. But when we are talking about flexibility, we are not talking about assets. We're talking about the flexibility part is to, in to a larger extent, concentrate on what we really do in what is our core business. We're discussing, do we really need to do everything we do today, tomorrow as well? But we are not talking about any asset sales or that kind of discussions. Then, of course, there are always smaller parts of any business that is not core, so to say, but that is only smaller parts. So you should not expect us to sell, have any massive sales of assets.
Okay, thank you.
Thank you for calling, and the next question, please.
Next question from the line of Neil Sampat from Nomura. Please ask your question.
Good morning. I've got two questions. Firstly, I just wanted to clarify the guidance of break-even in EMEA. Is that running at a 70% utilization rate across Borlänge and Oxelösund, or is it just in the standard strip business? And if so, I think it was asked earlier. I'm not sure I quite caught the answer about what percentage utilization you've been running at, I guess, year to date, in EMEA overall. And the second question was just to clarify on the under absorption impact in Q3. You mentioned that's a SEK 110 million year-on-year impact. Am I right in thinking that the quarter-on-quarter impact would be more like SEK 200 million-SEK 250 million?
To start with the first question, the cost efficiency and flexibility program is to run the strip system, and that is Borlänge and Luleå break even at 70% and Oxelösund system at 80%, which are very low capacity utilization rates. That program will be finished during Q1, and as we said, you should expect the effects of that to be seen gradually during 2013. But all the actions will be taken before the end of Q1 to reach that target. And so far, we are well on our way, and we have communicated the biggest actions we have done so far.
But there is still some work to do, but, I'm 100% convinced that we will be able to finalize that program before the end of Q1. The second question was?
Under absorption.
Under absorption. Yes, compared to Q2, the under absorption is, of course, much bigger than compared to Q3 last year.
... Is the quantum the kind of SEK 200 million-SEK 250 million, right? If I remember correctly, the outages last year were impacting about SEK 100 million-SEK 150 million.
No, between Q2 and Q3, it's more.
Okay. Thank you.
Thank you for calling. We have another question, please.
Next question from the line of James Gurry from Credit Suisse. Please ask your question.
Hi, guys. Thanks very much. Yeah, it's James Gurry here from Credit Suisse in London. Just want to know if the, if the foreign exchange rate, if the kroner stays where it is throughout 2013, do you have another cost-cutting program that you'll have to announce early next year? And perhaps related to that, can you tell us, with your current outlook, what's the first chance that you might open the, the smaller blast furnace again? When, when's the first chance that you might bring that back online?
Start with that question. What we see right now, we see no, we don't see it necessary to open the small blast furnace in Oxelösund. Then when it comes to cost cutting, I think to reach a break even at 70% in a process industry is quite a good target, and that we will deliver on. Then, I mean, being more cost-effective is a never-ending work. That's a lot about continuous improvement and not necessary big programs. But so we will never stop trying to be more and more effective.
Okay, great. And if I just might follow up, what's the chance that you might have more carbon emission sales in the final quarter?
We haven't discussed that. I mean, carbon emissions for us is something that we... I mean, we haven't decided that.
Thanks a lot.
Okay, thank you for calling. Next question, please.
Your next question from the line of Alexander Villar from Carnegie. Please ask your question.
Yes, good morning, Alexander Villar, Carnegie here. I have a question concerning the inventory release, and you mentioned regarding coal purchases, that that has reduced your working capital by, or capital need by SEK 500 million. Is that in the third quarter numbers, and is that compared to the Q2 result, or is that something that will show in your inventory figures going forward?
Oh, that is in the Q3 numbers.
Okay. And also regarding those changes in that, in those contracts, given that you have 30%-40% in, in the yearly American contracts, are you gonna, are you looking to, to renegotiate those next year also, and through that, reducing the, the inventory need further?
As I said, we continuously try to improve our processes and our need of working capital, so that could be one of the areas we work with.
Okay. And when is that up for renegotiation, that yearly contract?
That yearly contract ends end of March.
Okay. Great. One more question regarding APAC, the margin, the low margin there, is that entirely volume related, or is there more pricing pressure?
No, it's totally volume related.
Okay. Thanks a lot.
Okay, thank you for calling. I think that ends the phone calls. Do we have any additional question from the audience here in Stockholm? Yes, please go ahead.
Thank you very much. A follow-up, just again on the break-even target. The target for break-even in the Swedish operation is 80% utilization at Oxelösund, 70% through the Luleå-Borlänge system, and assumes sales of all products. Is that correct? What do you mean by that, sales of all products? Of strip and quenched and tempered and advanced high-strength steels?
Okay.
It's basically it's the net result, which will be break even after these cost cuts go through, provided-
Yes.
you get the utilization levels.
Yes.
Okay. Thank you.
Okay. Any further questions? If not, we would like to thank you for the attention. Thank you for coming.
Thank you very much.
Thank you very much.