SSab Swedish Steel AB (SSAAF) CEO Martin Lindqvist on Q1 2020 Results – Earnings Call Transcript

SSab Swedish Steel AB (OTC:SSAAF) Q1 2020 Results Conference Call April 27, 2020 3:30 AM ET

Company Participants

Per Hillstrom – IR

Martin Lindqvist – CEO

Hakan Folin – CFO

Conference Call Participants

Alain Gabriel – Morgan Stanley

Seth Rosenfeld – Exane BNP Paribas

Carsten Riek – Credit Suisse

Christian Kopfer – Nordea Markets

Bastian Synagowitz – Deutsche Bank

Anssi Kiviniemi – SEB

Ola Soedermark – Kepler Cheuvreux

Krishan Agarwal – Citigroup

Viktor Trollsten – DNB Markets

Gustaf Schwerin – Handelsbanken

Operator

Thank you and welcome to this presentation of the First Quarter from SSAB. With us today we have Martin Lindqvist, our President and CEO; and also Hakan Folin, our CFO. We are all at different locations here today, so I hope this will work. If I can ask for a next slide with the agenda, Martin, our CEO will start here by looking over Q1 and the outlook as well. Then Hakan will come back with the financials and then Martin comes back again with the summary, and at the end we have a Q&A.

So with that, I would ask you to put forward to slide number four here, recovery in Q1. And by that, we will ask you Martin, please start your presentation.

Martin Lindqvist

Thank you, Per, and good morning. If we look at Q1, we saw a sequentially improved demand, if we saw destocking end of Q4 which was some restocking beginning of Q1. We saw higher shipments and higher production. We also saw improved capacity utilization. And in Q4, we’re standing still with our planned yearly maintenance stocks, and we had no maintenance stocks in Q1. And during the quarter, we had stable production performance. And what we also saw was continued pressure in steel margins, and especially in standard products, and we saw the usual seasonal working capital buildup in Q1. Next slide please.

If we look at the operating profit by division, most of the divisions were asked more or less breakeven on EBIT levels with the exception of the Special Steels, where we saw EBIT margin of 10%. And as you know, when we have tougher times, I mean, the difference is as big as it gets and I think especially steels kept up fairly well in Q1, Americas, slightly positive, Ruukki Construction positive, which is good for this quarter and I would say is the best first quarter since we bought Rautaruukki back in 2014. SSAB Europe at breakeven, and Tibnor slightly positive. The next slide please.

If you look at the impact of the COVID-19 on SSAB operations, now we’ll come back to actions we take due to the ongoing crisis. But we saw — we have seen stable operation and production, so forth we saw in the end of March and beginning of April, somewhat higher sickly, but that has been, we have been able to manage that in a decent way.

We have taken a lot of actions to save called the health and safety of our personnel. We are to lot extent to trying to work from home. We have travel restrictions, no external visitors at the sites or at the offices. We are restrictive when it comes to face-to-face meetings and we have contingency plans for critical operations, which we have redundancies. So, if we would have a spread of COVID-19, we will still be able to run production. And we are focused enough on securing the supply chain with suppliers and critical material. And we haven’t seen any major disruptions due to that in the Q1. Next slide, please.

This is a picture showing the volatility in our industry and these are Nordic apparent steel demand growth year-over-year. And if anything in this industry even though COVID-19 is something completely new than maybe hard to relate to, but we are used to volatility and this big swings in apparent steel demand if you take, you see the growth for 2008 and 2009, and we are typically quite quick to introduce action and do things what we see that the market shifts. Having said that so of course this COVID-19 is nothing like we have seen before, so the outlook is for Q2 and onwards quite uncertain. Next slide please.

If you look at main customer segments and you recognize this picture we see in most of the segments a fairly weak demand. Heavy Transport and Automotive, they are a temporary close to even though some of them are already starting up the production. Construction Machinery, we also see lower production levels than we saw before. The only two areas where we see some kind of the heavy demand material handling and so forth also in construction but apart from that looking into Q2, we see lower volumes in the manual with the segments. Next slide please.

And when we describe the outlook, we say that once again the outlook is more uncertain than normal but we have some visibility in to Q2 and we expect the shipments for Americas as well as Europe to the contract shortly. We also expect volumes to go down in Special Steels, but somewhat less compared to the volumes for Standard Steel. But we look at prices in Q2 compared to Q1, they would be fairly flat, so you look low — somewhat lower for Special Steels and then lower for Americas. So, this will not be mainly prices should, this will be about volumes and we expect volumes in Europe and America to contract and go down the volumes of Special Steels. Next slide please.

If you then look at the actions we have taken so far in SSAB, and we are to typically planning for different scenarios. These are the actions have taken so far. We have further actions that that is ready to be implemented if and when need, but if we start with Special Steels, we have moved the annual planned maintenance outage into the summer from Q4, have introduced short-term work allowances. We are postponing capacity extensions/expansions project and overall very, very cost cautious, reduced the number of temporary employees, contractors, consultants. So in Europe, we have done the same and on top of that, we have, since mid-April or since weak, weak and half ago idled one of two blast furnaces. We are reducing the rolling production, the shifts forms, and also standing still, a weak, a month. We’re reducing rolling production with more than 25%, short-term work, and we also moved plant maintenances outages from end of Q3, Q4 into the summer.

In Americas, we have moved the planned maintenance outage in Montpelier into the second half of June and first half of July, and it will be less extensive than we planned towards. We’ve also idled production at least one week in automobile and one week in April, May and June. And we will also have reduced production in multiyear. And in Americas, as you know, we have the relative high show variable cost. We’re more flexible in that aspect. And overall, we’ve reduced external services postpone projects, we have reduced salary for the executive committee and higher managers, hiring, freeze and looks over investments.

So far, we have implemented savings with the manual effect for more than 1 billion, and we have reduced the investment level for the year of this year to somewhere between 2 billion and 2.5 billion and earlier communicate was 3 billion. We also came out in March. We had liquid assets and committed credit lines to above the 22 billion, so we have work towards with the financial fairness or readiness. And as said, we have planned for different scenarios and have the further actions to be implemented on a very short notice, if someone needed. Next slide please.

This is a picture we showed when we acquired Rautaruukki or Ruukki, and this picture shows the flexibility we have in the hot-end system, the part of the system that is typically least flexible and we were in Q1 standing still with one of the blast furnaces in Oxelosund, and as of April, we are standing still with one of the blast furnace system Raahe. And if it would get even worse, we have another step to close the big blast furnace in Oxelosund and start the small one. So, we’re currently adjusting capacity to the demand and the deliveries and the production volumes we see for Q2, and that’s would have been impossible or what’s impossible, if you take 2008 and 2009 as an example because then we were forced in SSAB and Ruukki stand-alone companies to run the blast furnaces.

Hakan, with that, I’ll turn it over to you in the financials.

Hakan Folin

Thank you, Martin, and good morning everyone. I will dive into some more details on the financials, including going through the pictures, cash flow balance sheet with focus on the debt and the liquidity situation. Some updates on raw materials situation and also as Martin showed to describe the change we have done in the planned maintenance outage for the year. Next slide please.

If we start looking at Q1, we saw a recovery from low levels in Q4. We saw sales increases 11%. We saw shipment increase with as much as 21% from Q1 and also 1 percentage point compared to Q1 last year. EBITDA bounce back from a negative level up to 7%, EBITDA margins in Q1, not at all level we were in Q1 ’19 where especially, as I say, the America both in Q1 and Q2 had 23% EBITDA margin. And translating into the EBITDA took per tonne delivered steel, it was SEK700 roughly per tonne delivered steel. Next slide please.

First look at how the result has developed and we’ll start with looking at Q1 versus Q1. Q1 last year we had an EBIT of close to SEK1.7 billion and now than SEK343 million, very big change is the impact coming from lower prices with over SEK2.2 billion. It’s mainly SSAB Americas. As I said, we have very strong profitability Q1, Q2 last year, but also coming from SSAB Europe.

But actually from Special Steel, we see a much more stable price situation than for the other divisions. Volume slightly increased basically coming from Europe. Variable cost close to SEK600 million, which is the large extent raw material, fixed costs somewhat, lower.

And then on the FX side, we have a negative impact on SEK150 million. Typically when the Corona is weak, we get a positive impact. However, it depends on versus which currency is and this time around, it has weakened more against dollar than euro, and we have a lot of raw material buy in dollars therefore we have a negative FX impacts.

Under absorption being positive from stable production, and then other positive, which is basically a lower amortization of surplus values from the acquisition. Typically in another way, one can put price and the variable cost given this was mainly raw materials together and then you see that we have a margin squeeze of roughly SEK1.7 million from last year. We were able to compensate them somewhat with high volumes lower fixed cost and that’s the production level, but only with roughly less than SEK300 million or so. But big more you speak compared to Q1 last year. Next slide please.

If we instead compared Q1 with Q4, the picture is rather different. In Q4, we had a negative EBITDA SEK1.1 billion leading up now to the positive EBIT, prices were down somewhat further. Spot prices were reduced during Q4, so on average, our realized prices were somewhat lower and clear increase in volume. Europe was the main contributor but also for Americas and Special Steel, we saw clearly testimonies in Q4 and Q1.

Also best on the variable COGS which was to a large extent related to maintenance outage in Q4. Fixed costs roughly same level. FX negative here as well somewhat different reasons. Here, we had — there are quite big sales with some of the lesser American currencies where they have very negative currency impact during the quarter and Brazil, Peru, Chile, Argentina, et cetera.

And then under absorption, positive with SEK900 million, we had a lot of maintenance outage in Q4, we also idled the Raahe blast furnace during Q4. Other being negative is the biggest portion there is that we have an insurance compensation in Q4 last year. What we can say that we bounced back in Q4 was a bit of an abnormal quarter with a lot of destocking and our maintenance outages and then we bounce back a bit from that now in Q1. Next slide please.

On the cash flow side, we had a slight negative operating cash flow, mainly due to the low result and also we have built up a working capital. On the working capital side, I’d say that was rather expected, and the normal season pattern, we had SEK1.4 of build up in this quarter, if we compare with Q1 last year, we had SEK1.3. And so, that’s typically what we have in Q1 and especially, if we compare with Q4 then we had the release over as much as SEK2.2 billion. So one, we have one way ahead such being released in with ongoing de-stocking. It was quite expected that we would have a bounce back in Q1. But otherwise, we compare Q1 this year with Q1 last year the difference is basically on the earning side. Working capital is the same level, maintenance expenditure also same level as well. Next slide please.

If we then move from the capital side to the balance sheet and look at our debt situation, we have net debt now of SEK12.7 billion; net yield of 20%, it was 16% a year ago, it was 19% at the end of ’19. The duration of our loan portfolio has decreased quite a bit to 5.2 years from 6.3. The main reason for that is that we have increased our commercial paper quite a lot. I’ll come back to that shortly. And commercial papers are usually from one to three or up six months in maturity times.

And we have increased those that have a spillover effect than on the average duration of the loan portfolio. We have increased our liquidity assets and committed credit lines rather significant during the quarter. They’re now SEK22 billion, and which corresponds to 29% of our revenue. At the end of the ’19, so one quarter ago, it was 13% so an increase is 16 percentage points, partly through this increase in commercial paper, but also through new loans and bilateral RCF agreements.

And we have other actions in place and options we’re looking at in order to secure additional liquid buffer, if we think that’s the right thing to do. And the reason why we have done this is of course, the current uncertainty in the overall market situation and also on the credit market. And we wanted to make sure that we moved as fast as we could and secure significant liquidity assets and credit lines.

So we have SEK22 billion as said and if we look on the graph on the right hand side, you can see that we have had SEK10 billion maturing in the coming three years. Five of those are maturing in 2020 and roughly four is commercial papers. So, we’ll see if we prolonged those or we pay that. So, we definitely have secured quite the long-term liquidity preparedness. Okay, next slide please.

We added this one to show you what are the cash needs of the business, and cash needs we define as capital expenditure, interest paid and also taxes paid, exclude changed in working capital. In last year, the cash need was around SEK4.6 billion, this year we expected to be between 3 and 3.5. As Martin said, we have postponed some of the CapEx projects and the expansion of these and also the start of the conversion.

It does not mean that, we are changing the target of being able to produce full side feeds into the market in 2026 and basically we are contracting the ramp-up here of these whole projects, but the mission is unchanged and still the same to be the first in the market for this. Well taxes paid to be rather stable this year as last year, and then we will have lower paying taxes in 2020. We have quite been paying taxes in 2019 in the U.S. So overall, lower cash need of the business in ’20 versus ’19. Okay, next slide please.

If we move on to the raw materials side, purchase prices for both iron and ore and coal have been fairly stable in the quarter. For iron ore, they were up one percentage point versus Q4. This means that’s from the P&L perspective where we say that for our renewal, we have between half and one quarter lag. It will basically be the same impact in Q as in Q1 no change from that. For coking coal, the average purchase price is continued slightly downwards. We saw the trend throughout 2019 and continue in Q1, down with 5%. So we’ll get somewhat lower coking coal cost in the P&L in Q2 verses Q1. Next slide please.

We move on to the U.S down and look at the scrap prices. The scrap spoke prices decrease in Q1; however, our purchase prices were actually up 22% which sounds to be some logical number. The reason is that the spot prices increase. They were increasing throughout Q4 2019 as you can see in the growth. So on average the implied high prices for us. What we’ve seen so far in Q2 is that the spot price have decreased rather short in our — given the weaker demand from the steel producers. Okay, next slide please.

And finally then from my side, if you work on the plant maintenance outages in 2020, we have changed the timing of this, quite a bit for two reasons. One is that if we can do with in the third quarter instead of the fourth, we can lower the cost of this, given that we can reduce the number of summer temporaries that otherwise would be working with bonding the production. And also we know that Q4 from non perspective is more showbiz going to be clearly weaken in Q1 this might very well spill over in Q3 as well where we have the summer period and then we obviously don’t know the large uncertainty right now, but potentially then could see a better moment in Q4 and then we want to have done as much as that main outages as possible.

Okay, given the word back to you then, Martin, to summarize it.

Martin Lindqvist

Thank you, Hakan. Then if we move to Slide 23 and the strategic targets, even though the uncertainty short term is a bit bigger than usual, we have not changed our ambitious for the targets for 2022 and feel confident that we will be able to meet the volume targets for Special Steel and the sales targets for SSAB Services, Premium shares in Americas and Europe, and also the market share in the Nordics, and we are keeping that pace, and overtime until 2022, we feel very confident that we will reach the strategic targets.

And if we go to next slide, even though we are delaying some strategic projects or volume expansion projects, we have not changed our ambition when it comes to becoming the first producers of fossil-free steel. And the pilot plant remains on track and will be ready this summer and start to ramp up this fall and this is a picture which you see the massive building and the equipment around it and that will start according to plan. This then go to next slide and the last summary slide.

We saw in Q1 recoveries, as Hakan showed, from low levels in Q4, and Q2 outlook is very uncertain, but long-term we see that we are on the right way, and we were quite quick to take actions given the outlook for Q2 and onwards. And we’ve taken several measures to reduce costs and increase cash flow once to continue to strengthen the balance sheet, and we have different scenarios plans and more actions to be introduced on very short notice, if and when needed.

We have decent balance sheet with strong balance sheet, and as Hakan mentioned, liquid assets and committed credit lines exceeding SEK22 billion and a fairly limited the cash needs for the rest of the year. So despite the great uncertainty, looking at short term forward, be continued to focus on developing the Special Steel business and the transition to fossil-free steel. And as we saw Q1, the Specialty Steel business is typically overtime keeping up with less volatility and better profitability compared to more standardized businesses.

So with that, Per, we are ready to take questions.

Per Hillstrom

Yes, thank you, Martin and Hakan. And I know that some of you have had issues dialing into ask questions. It’s been a long queue. The queue is shorter, so you could try again. If you’re just listening into the webcast, you can also email me your question, and we can take those as we go along here. So by that, please operator, present the instructions for the Q&A.

Question-and-Answer Session

Operator

Yes, sir, thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Alan Gabriel. Your line is now open. Please go ahead.

Alan Gabriel

Good morning gentlemen. Just one question from my side is on the Americas business. How do you see the outlook for that, for that particular end of the market, given the weakness in your core markets there, especially in oil and gas and the heavy transports? And what are you doing to counter the negative impact of this market slump, so to speak? Thank you.

Martin Lindqvist

No, we expect as we say in the report, lower volume in Americas in Q2, and we have a more flexible system with the electric arc furnaces and nonunionized plants where we, more or less pay for planned yield for volumes, so we have lower cost. But having said that — more flexible, more variable costs than fixed costs, but having said that, we have moved the monthly outage that was originally planned for Q4, they’re moving back into the second half of June, first half of July, and we have also planned to stand still a week in mobile. So, we’re adjusting production to the demand we see in North America for the coming quarter or quarters.

Alan Gabriel

And as a follow-up on that question, how does your fixed cost structure differ from the Americas to the rest of the business? If you can just give us a bit of numbers on what percentage of your costs are fixed in America versus the rest of the group? Thank you.

Martin Lindqvist

Hakan, do you take that?

Hakan Folin

One can say is that in terms of the salary payment for the Americas people, it’s much more flexible given that they’re paid on and production bonuses, so it’s not — it doesn’t flex with production totally. But if we produce less, we will clearly pay out less to our own workers. And then we also have contractors on site for example managing our scrap yards and they are also typically paid on how much scrap they’re emptying into our electrical arc furnace during a certain time period. And I don’t have exactly percentage on the top of my hand, but it is clearly much more flexible than our Nordic operations.

Martin Lindqvist

And what we typically do when times are a little bit tougher, we reduce the number of contractors and use our own personnel. So we have flexibility in that way as well.

Operator

Thank you. And we’ll now take our next question and this comes from the line of Seth Rosenfeld. Your line is now open. Please go ahead.

Seth Rosenfeld

If I may with regards to Special Steels, can you just give us a bit more color what drives your confidence in the argument of Special Steels may outperform other businesses into Q2? And to what extent is this just an element of volume relative to price stability? And then if you can give us a bit of color than what you’ve seen in terms of order intake, order backlog in this business over the past couple of weeks? Thank you.

Martin Lindqvist

I mean we are, when it comes to quenched and tempered steel, we are the high quality producer in the global marketplace. And we saw in — I mean, when we only give prognosis for Q2 where we see the order book and order intake. And we saw in 2Q or in Q1, we saw decent order intake with the exception of Asia and especially China. And then end of Q1 beginning of Q2, so far we have seen that Asia has bounced back and China has bounced back.

So, when we look at the order book and the order intake, we expect less of a drop in, in Special Steels. And what we have also see is the slightly lower prices, but more just being less effective as well. So, I mean, this is what we see now in the order book for Q2, but also what is over, well different business cycles, that Special Steels keeps up slightly better than the more standardized business.

Seth Rosenfeld

Just to follow up, can you give us a bit of color in terms of the geographical mix of special fields specifically in terms of your export exposure to Asia, given that’s going to be, I guess, the key boost into Q2?

Martin Lindqvist

But we have global business, and I mean, we have a lot of volumes in Europe and America but also other parts of the world. And if the order intake from Asia and especially China was, it’s not non-existing but very low in Q1, we have seen that coming back and become slightly stronger than even the more million so far in Q2.

Operator

Thank you and your next question comes from the line of Carsten Riek. Your line is open. Please go ahead.

Carsten Riek

Two questions from my side. The first one is the start of the excellent conversion will be postponed as you mentioned in your presentation. What does that exactly mean as you mentioned the pipeline will be probably on schedule? How do we actually postpone it? Is that just a CapEx you postpone into 2020 and the ramp up into 2026? Is just not affected at all?

Martin Lindqvist

What they are aiming for and what they’re planning for is to have Oxelosund, the new Oxelosund up and running Q1 2026, and we haven’t changed. We have some slack in the time plan. So, we have reduced the initial pace. We’re still doing a lot of things, but we have reduced it. So the ambition of producing fossil-free steel in Oxelosund in Q1 2026 has not changed.

And the pilot plant is ready this summer or second half of the summer. So that will be up and running. We have already today also in the production system to electric arc furnaces. So what we’ll do? We will start to do trials both in the pilot electric arc furnace we have up in Lulea, but also start to do pilots in and testing in North Americas. So, we haven’t changed the overall planned scheduled, but we have delaying some investments due to preserve cash, given the situation right now.

Carsten Riek

The second question I have is on volumes because you rely heavily on blast furnace operations in Europe of course, but it looks like the electric arc furnace operations are currently better place given this current market weakness. Do you expect a harder hit on the blast furnace operations volumes versus your electric arc furnace operations in North Americas?

Martin Lindqvist

Its two different markets, I mean, if take flat carbon where we are in the Nordic and mainly in Europe. That is very large extent it’s not 100% blast furnace base. And I think as of last Friday, I think there were 18 blast furnaces idled in Europe. But of course with electric arc furnaces, you have much more flexibility to stop blast furnace take some time, and also then you ramp it up again, it takes a couple of weeks, so over a week or two. And electric arc furnaces have pushed and red or the green bottoms of different markets and different ways of running it.

Then overtime the first, I mean, between the scrap and iron ore coking coal where from time to time, it is first of all the correlation is quite big. So, I mean, we are competing with blast furnaces. Other blast furnaces in Europe and in North America, we compete with both blast furnace and electric arc furnaces, but we largely extent I would say. If you take place, it’s us and the Nucor running electrical are furnaces in America, the other also running blast furnace.

Operator

And your next question comes from the line of Christian Kopfer. Your line is now open.

Christian Kopfer

Just a few follow-up, so firstly on the CapEx, just so I understand it correctly, if you looked at the average call it CapEx for the next five years that’s still 300 billion annually plus 200 million?

Martin Lindqvist

Yes, lower this year 2020. That may to be seen, but it will go, but that’s what we’re planning for right now, yes.

Christian Kopfer

Yes. But you can’t see any call it cost deflation on the orders that you have to do on the CapEx side because of the slow economy that you’re able to push down cost or anything?

Martin Lindqvist

We are looking into that of course and I think it’s too early to pay, but I guess that could be something for going forward, yes.

Christian Kopfer

On the prices, just one thing on the Q1 results on Europe where you said that prices were down 7% versus Q4, but if I remember correctly you got somewhat lower prices, which is — so it seems like prices came in much lower than you expected, such as a fair comment on it. So what was that drove that declining prices in Q1 Europe?

Martin Lindqvist

Do you want to take it, Hakan?

Hakan Folin

Thanks. Yes, I think that’s a fair comment, Christian. A few reasons, one, is we renegotiate those quarterly half year and annual contracts in Q1versus Q4, and that’s quite big impact. Second reason is that, we did given the week or the situation in Q4, we did take a few spoke orders, and that was delivered in Q1 that also drove down the average price level. So in that sense, yes, the price was a bit more than they’re somewhat lower, that we guided for correct.

Christian Kopfer

And finally for me then, on the cost savings that you expect more than SEK1 billion on annual basis, what pace should have something that during the course of this year?

Hakan Folin

You should expect us to have full pace in Q2. So we took the actions, March beginning of April, so you should see affects all that in Q2.

Operator

Thank you. And your next question comes from the line of Bastian Synagowitz. Your line is now open. Please go ahead.

Bastian Synagowitz

Yes. Good morning gentlemen. I have two questions please. My first one is such on the cash needs which you have been tingling out. It seems like you still have about 600 million to 700 million in taxes and others. Could you please specify what is basically flowing into this number? Is there still elect from the taxes of last year maybe a year isn’t suggesting on the slide or why is this important even lower? Thank you.

Martin Lindqvist

It’s typically question for you, Hakan.

Hakan Folin

Now, Bastian, your own reflection was right. It’s, to a large extent, a consequence of earnings from previous years where we pay the taxes later on, yes. And I mean then of course — sorry, it also depends also I mean on the results and how the year develop. So, I would say it’s more likely that it will be lower than that it will be higher, yes.

Bastian Synagowitz

And if they already like a benefit, like a tax credit you’re actually receiving or the positive impacting factor for the European business? Or is that still negative as well?

Hakan Folin

No, it’s no positive outcome.

Bastian Synagowitz

And then just on working capital, could you have any indication on maybe the potential for working capital release you see this year? Obviously, the business clearly went down. There’s a lot of uncertainty around I guess what the demand will do towards the end of this year. I think that’s pretty clear. Yet again in this environment, it should be some scope for you to get working capital. And could you give us any sort of the quantification on what you think you could do maybe as a minimum?

Hakan Folin

I think the best way, I mean, there are two aspects, one is what they’re trying to do structuring and in order to become more efficient in our working capital needs, and that we’re continuing working on despite the current situation. And then, you have the impact from a lower business, of slower business environment. I think the best way is to look at previous year, so you can also take Q4 as an example where we have low demand, we have low deliveries, which then also has an impact on our accounts receivable as an example.

So it very much depends on how, if you take a for full year it depends so much on the business environment development during the second half of the year, which as more concerned before it is much more uncertain than we were used to. So it’s hard to give a quantification my best advice would be to look at what do you expect and then compare with similar situations maybe say like Q4 last year or like 2015, 16.

Bastian Synagowitz

Okay like in principle, I guess, you’ve just talked two things that you can probably cut working capital to a lower level versus what you achieve end of last year I suppose?

Hakan Folin

Yes, I mean we are doing structural things in order to improve and in order to over time become more efficiently working capital.

Bastian Synagowitz

Do you look at the business from an maybe all in cash basis? I mean, would you be as confident to say that you do expect to end the year even on a lower net debt number? Or do you think that may be actually a challenge given what’s already going on in the operation? What was the technology in that curve uncertainty of your earnings for the second half or at least until fairly high?

Martin Lindqvist

But I think, it’s so of course depends very much on where the business will go with the rest of the year. But structurally as Hakan come pointed out more things to do when it comes to cash flow generation and working capital release, so everything has equal. We should continue to strengthen our balance sheet.

Bastian Synagowitz

And just one more question on the business, have you been noting any sort of market share changes in the past couple of weeks maybe from the different disruptions? So anything interesting which have been noting maybe in the European or the U.S. market?

Martin Lindqvist

No, not really, I mean, we’ll have a stable and fairly high market share in North Americas. We have that in Nordic region as well. So no big swings, no.

Bastian Synagowitz

And have you been maybe receiving any requests from customers maybe solicitating maybe some volumes maybe which we are not doing that much business with usually?

Martin Lindqvist

There have been some smaller examples of that, yes.

Operator

Thank you. And then your next question comes from the line of Anssi Kiviniemi. Your line is now open. Please go ahead.

Anssi Kiviniemi

It’s Anssi from SEB. First of all, starting with the guidance, you guide for shipments to contract sharply in Europe and Americas. So I mean, you can see your order books and business momentum, but we cannot see that. So kind of what should be a good starting point for us to think about the Q2 lower deliveries in Americas and in Europe and also perhaps in Special Steels?

Martin Lindqvist

But, I mean, with the Automotive, to a large extent, standing steel and also heavy transport to be consumers of steel. Of course, the water intake has gone down and the volumes will be lower. So, that’s what the steel industry in generality. And also, with the partial lockdown or what do you call it in North America volumes are and oil price volumes are lower. I think in Latin terms, we might, with a market penetration we have and the products they have, we should be okay, but we clearly see in Q2 due to their own goal in COVID outbreak, lower volumes and that’s what are guiding for.

Anssi Kiviniemi

Okay. Kind of, could you elaborate a bit on, is it 10%, 20%, 30%? What is the kind of right ballpark?

Martin Lindqvist

We haven’t seen that. I mean Q2, but it will go down, we haven’t said that in absolute percentage how much it will be, but we’ve said that now is that it will go down less in specialty compared to the more standardized business which is kind of typical.

Anssi Kiviniemi

Okay. Then on SSAB Europe in Q1, I mean, there was a threat of industrial strikes in Finland, probably some postponements of the impacts also coming from Q4. Were there some kind of extra cost during Q1 because when I look at the margin, it was a little bit on the soft side?

Martin Lindqvist

It was, I mean as Hakan mentioned, we had — prices were down slightly more than we guided for 3% margin, squeeze and continued margin, squeeze in Q1. And then we took some spot orders, as Hakan mentioned, and the Q4 network delivered in Q1. But overall, if you take fixed cost or SG&A, there will not any major cost effects of strikes and so on in Q1, some below from Q4, but not any major cost.

Anssi Kiviniemi

Okay. That’s clear. Then the last question, working capital when we are going now into Q2, lower deliveries usually, Q2 is slightly negative on working capital side. So now it should be well on the positive side, right?

Martin Lindqvist

You shouldn’t expect us to continue to be in the working capital.

Operator

And your next question comes from the line of Ola Soedermark. Your line is now open. Please go ahead.

Ola Soedermark

Thank you. Ola Soedermark, Kepler Cheuvreux. Follow-up on the previous question about your volumes for coming quarter, I know that great certainty and so on. You highlighted that in previous crisis volumes are being down by 20% to 40% in the quarter also taking down rolling capacity in Europe 25%, is it fair to assume that volume are going down by 20% to 30% in the second quarter excluding specialist?

Martin Lindqvist

We haven’t been so explicit, but we haven’t chosen one of the blast furnaces and we are taking down rolling production more than 25%. So, we are expecting different capacity utilization or much lower capacity utilization in Q2 compared to Q1 that’s one.

Ola Soedermark

And then come to maintenance outage and we’re upbringing forward at the maintenance stops. Do you see any bottlenecks there? Or do you see any problems to carry out to maintenance stops, when it comes to spare parts or expertise that may have to be flown — flying in?

Martin Lindqvist

We thought to prepare in March or to discuss with suppliers and so we don’t expect any major programs that we wouldn’t have the move that. So, we felt it was a good time to do it during the summer for the reasons Hakan mentioned because we don’t see any full production capacity, and we can save money on temporary employees and summer workers and so on. So no, we expect today to run or do the annual maintenance according to what we have planned and communicated, so no major problems as we see right now.

Operator

Thank you. And your next question comes from the line of Krishan Argawal. Your line is now open. Please go ahead.

Krishan Agarwal

Hi, thanks a lot. My most of questions have already heard. If I can ask a longer term question on Tibnor and you have guided for SEK200 million worth of sales coming from the second half onwards. Is there any effect on potential savings being realized in this current environment?

Martin Lindqvist

But what we have said, I mean, the structural changes and savings in Ribnor, they are according to plan. And then of course, they are also on top of that part of the overall saving program. So they have their part in that as well, on top of the SEK200 million, and the SEK200 million or will be sorted in more visibility in Q2, but they are according to plan or even slightly ahead of plan.

Operator

Thank you. And your next question comes from the line of Viktor Trollsten. Your line is now open. Please go ahead.

Viktor Trollsten

Yes. Hi, good morning. Thanks for taking my questions. Yes. So first of all, I would just like to ask you on the strategic CapEx in Mobile that you are now delaying. Is that changing how you view the, let’s say, ramp-up profile for the strategic targets in Special Steels, let’s say, for 2021? Will production be more back-end loaded now versus before?

Martin Lindqvist

I mean, delaying something always means — I mean, delaying time as well, but I think it’s a good way to do. First of all in order to focus on preserving cash, but also the possibility to have, I mean, first of all, we don’t have — want to have too many external contractors on the site right now. And it also matter of I mean the ongoing COVID-19 outbreak and how we handle production and how we handle our own people.

So, we don’t want to have a lot of contractors running around, if you understand what I mean at the site either. So, it’s a combination. But — and we don’t — we expect, as I said during my presentation, we expect to meet our strategic target for 2022 to anyway. But, it is a combination of preserving cash being cash cautious, but also taking care of our employees and make sure that we do everything we can to avoid big outbreak at one of our plants.

Viktor Trollsten

Okay. Fair enough. And then also, maybe you could comment a bit on what you have heard from your customers in last couple of weeks. Because at least what I can see and from my perspective, we have seen production opened up in certain sectors. Is that something that you haven’t seen yet? And is that included in your guidance for Q2?

Martin Lindqvist

I said, it remains to be seen in what pace they open up and so on, but what we have seen is that in Asia as an example and especially in China, the order intake in Q1 was, if not non-existing but at a very fairly lower level and that has changed at least for the time being. So, we see stronger, in relative terms, order intake from very low levels. And then what happens, when the automotive industry opens up and heavy transport and so on, and at what pace they’re opening up remains to be seen. But what we are guiding from is the order book we have right now and the order intake we have seen in the last weeks or the last month.

Viktor Trollsten

Okay, okay. Now that’s clear. And just finally, on my side, in terms of pellet premiums, I’m just curious if you could comment somewhat on that because you had positive effects from variable cost in the quarter. Is the full impact from pellet premiums? Is that coming in this quarter? Or could we have some more impact in the quarters to come? And is that also a relative benefit or a relative negative for you versus other steelmakers?

Martin Lindqvist

If I take the second part of the question and Hakan can take the first one. I mean, it did the first over time, but typically what you see, when the volumes are lower, you see other steel companies using more funds than pallets and we are not able to use fines because we don’t have any sinter plants.

So, we are already using 100% pallets and that can differ, if you take some of the European players. They can use both fines and run their own sinter plants or use pellets. And typically, what you see in a tougher market situation that they usually use fines. So that, I mean, the advantage or disadvantage depends with the pallets, if iron ore prices goes down, but the pellet premium is more stable then we can have a short-term disadvantage. Hakan?

Hakan Folin

Yes, on the first part of your question, we have our purchase prices for iron ore which includes the pellet premium where more or less unchanged in Q1 versus Q4. And for iron ore, it takes around half a quarter up to a quarter until we see the impact from when we buy it in the P&L. And the half of quarters maybe for Lulea, where we have very a little iron ore stock and we get daily deliveries from LKAB and then longer in Raahe and Oxelosund, but given that our purchase prices were unchanged in Q1 versus Q4, unless there is big movements in Q2 and our P&L cost for iron ore will more or less be changed in Q2 compared to Q1.

Viktor Trollsten

Okay. That’s very clear. Just a quick follow-up on the pellet premium, it sounds like if other steelmakers go for fines rather than pellet, I suppose, in a downturn, the pellet premium should come down if demand is lower. Or am I thinking about it wrong?

Hakan Folin

No, it should, it should, but then there is always a lag and short-term, it can differ this. But all the time, you have to be completely right.

Operator

Thank you. And your next question comes from the line of Gustaf Schwerin. Your line is now open. Please go ahead.

Gustaf Schwerin

Gustaf Schwerin, Handelsbanken here. Sorry if this has already been answered. I had some issues connecting earlier. Two questions, I’ll start with the first one. I mean, I understand that there is a lot of uncertainty at this point, but if you compare the slowdown in your European-U.S. order books of last week comparing to the financial crisis. I mean, what is the feeling? If I remember, correctly, I think you had one moment much order in Europe but with some…

Per Hillstrom

Now the line went dead for Gustaf

Martin Lindqvist

I couldn’t really follow your question. Now, we can hear you.

Gustaf Schwerin

Okay, I’ll take it then, sorry. No, so I mentioned, I mean it’s understandable that you see a lot of uncertainty at the moment, but just this last week, if you compare the slowdown in your order book versus the financial crisis [technical difficulty]?

Martin Lindqvist

Sorry, but I couldn’t really hear that question. Could you here it, Hakan, if you wants to take it? I couldn’t.

Hakan Folin

I think the question was comparison between the situational and the financial price 2008, 2009 in the trending orders, how quickly deteriorates, right Gustaf?

Per Hillstrom

Now, we lost him.

Martin Lindqvist

We can take the next question.

Operator

At the moment sir, we have no further questions that came through. [Operator Instructions]

Martin Lindqvist

Yes, I mean, in the meanwhile we can take a question here that come in from [Olivia] at Bank of America Merrill Lynch. And the first one is. What is the state funding for labor in Sweden and Finland? I guess, she means wanted to support the employees can get for when they are temporary made of?

Hakan Folin

On that system, this is somewhat between Sweden and Finland, but there is both in Sweden and Finland, the state or the government is taking part of the cost; and if you’re in Sweden, reduce working time with up 80%. The cost or order negative effect for the employee is little bit less than 10%, and from the Company or the state to take this right now is really decent portion of that cost from the Company. I don’t have the exact figures, but we are following as said, the low local rules in every country where we are active. And this is somewhat between Sweden and Finland and it differs also in other countries.

Martin Lindqvist

Yes, so I think the second question, you have been commenting on that, but maybe just to repeat the order book situation across the businesses for the first deal businesses that is just shortly how it looks?

Hakan Folin

No, we see bigger impact of the more –on the more standardized products so to say and less of an impact in the more specialized products like quenched and tempered and Special Steels. So — but that we also typically see over the business and that’s what we see this time as well. So less impact in specialty and more impact on more standardized products in Europe and in Americas.

Operator

Yes, then please, maybe repeat instructions in case we have any follow ups from phone line.

Operator

[Operator Instructions] And we have a question that came through, sir. The question comes from the line of Viktor Trollsten. Your line is now open. Please go ahead.

Viktor Trollsten

Thanks a lot, just a follow-up. Could you maybe remind us, for Q2, how much of that is already in the order books? And how much is on spot, so to speak? How much do you already have in the order books?

Martin Lindqvist

We have SEK8 billion, I would say to a large extent may in our order book, so the visibility is fairly decent for Q2.

Operator

Thank you once again. [Operator Instruction] It seems like no further questions that came through, sir. You may continue.

Per Hillstrom

Okay, thank you. But by that, thank you for the attention, and we wish you a pleasant day. So, thank you very much from SSAB.

Martin Lindqvist

Thank you.

Hakan Folin

Thank you and bye.

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