© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, welcome to conference call on the First Quarter 2019 Results of SCHMOLZ + BICKENBACH AG. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Clemens Iller, CEO, who will lead you through his conference. Please go ahead, sir.
This is Ulrich Steiner speaking. Hello, everybody. Thank you, Kai, for the introduction. Good afternoon, ladies and gentlemen. Welcome to the investors and analysts conference call on SCHMOLZ + BICKENBACH's figures for the first quarter. I would like to welcome you this morning from our -- this afternoon from our corporate center in Lucerne. With me are our CEO, Clemens Iller and our CFO, Matthias Wellhausen who will present the development of the first quarter immediately after my introduction. The media release, interim report, and following presentation are available for download on our website since 7:00 a.m. this morning. During today's conference call, we will make forward-looking statements as described in the disclaimer on Slide 2. These statements are based solely on our expectations or projections of future developments and may differ materially from actual results, performances, or achievements.With this, I now give the floor to our CEO, Clemens Iller. Please, Mr. Iller.
Thank you, Mr. Steiner. So to be correct, good afternoon. I think Mr. Steiner was still on American time but good afternoon, ladies and gentlemen. Thank you for dialing into the telephone conference this afternoon to follow the presentation of the first quarter results. Ladies and gentlemen, today I would like to start a little bit different and start with the conclusion of my presentation. My conclusion, or my headline would be good performance in difficult environments. I will, at the beginning of this conference call, give you some background and information on the quarter and my assessment of the business conditions in the first 3 months and then like normal, my colleague, Matthias, and CFO here, will explain the figures in detail before I talk about our expectations for the remainder of the year.And then as usual, you will have time to ask questions. So let us go into the presentation and start here with Chart 5, which shows the most important development at the first 3 months. After a significant decline in business activity in the fourth quarter, mainly in November/December at the last financial year, the dip in growth continued in the first 3 months of 2019. However, the downturn has slowed compared to November/December and has moved into a sideway trend at a lower level during the first quarter. In the short-term, we expect this sideways trend to continue. This is particular true for the European automotive industry, from which we have not yet seen any signs of a recovery.In other industrial segments such as mechanical and land engineering, business remains somehow stable overall but a decline in incoming orders was observed recently. Overall, this led to a lower EBITDA compared with the previous year.Cash flow, on the other hand, improved as production was further cut back to match lower demand and therefore, inventories could be reduced. In this respect, we achieved the goal we have already set our self in the last quarter of 2018.The impact on the market the environment on our results can be seen in the key figures on Chart 6. 551,000 pounds of steel were sold in the first quarter of 2019, 1.1% more than in the prior year quarter with 545,000 tons. This increase was driven by the Ascometal business unit, which was included in earnings for 3 months this year instead of just 2 months last year.On a comparable basis that is excluding Ascometal, sales volume declined by a single digit percentage. The 6.7% increase in revenues reflected the significant improvement in the price environment compared with the previous year. Higher sales prices led to revenues of EUR 884 million after EUR 829 million in the first quarter 2018.Despite the revenue increase, adjusted EBITDA decreased by 40% to EUR 42.2 million after EUR 73 million in the comparable quarter. This resulted in a smaller profit of EUR 700,000 after EUR 59 million in the previous year. In contrast to that, we achieved an improvement in free cash flow by revealing cash outflows to a significantly lower level than in a normal first quarter. Mr. Wellhausen will discuss this in more detail in his speech. However, let me say already that we have paid the necessary attention to the management of net working capital and above all, to the reduction of inventories, thus achieving a clear improvement in free cash flow. Let us now turn to Chart 7, which shows the development of raw material prices and key industry figures. The picture was mixed for raw materials as a whole. While the average price for nickel, by far our most important alloy metal, rose by 7% in the first quarter, scrap fell by around 2% and ferrochrome by 7%. If we compare this development with the average sales price achieved, we can state that base price made significant contribution to the rise in sales prices. Overall, the development of raw material prices in the first quarter remained supportive for our business. The oil and gas business, oil prices recovered significantly and were 33% higher than 3 months earlier. However, we were unable to benefit from this due to the structural challenges we currently face in our North American business. You will recall that following the Finkl impairment in the fourth quarter, we have developed a turnaround plan and started to implement it, in order to return to the growth track in the United States and in Canada.What I said in qualitative terms at the beginning is underlined by the figures from the German mechanical engineering sector. Sales into this industrial sector were quite robust in the first quarter. However, order intake showed signs of falling demand. The German Industry Association [indiscernible] reported a 10% decline in order intake in the first 3 months compared with the same period a year ago.So here, too there are signs of a slowdown. The automotive industry customer's restraint was pronounced in the first quarter 2019. New car registrations in the European Union fell by more than 3% compared with the same quarter of the previous year. The slump in the automotive sector is illustrated by the production figures in the regions. Both in Europe and China, production fell by double-digit percentages and in the U.S. by 7.5%. The overall picture in the automotive industry was therefore not very positive. Before I hand over to Matthias, I would like to say a few words about the regional revenue development on Chart 8. Strongest growth in the first quarter was achieved in Central and South America, albeit from a low base, this region accounts for only about 1% of group revenues. So there is still a lot of room for improvement.As in the previous quarters, revenue growth in North America remained above average, mainly due to the sales and service units there, which operate as a sales arm for all business units. By contrast, growth in Europe, Asia, Africa, Australia was lower at 6.6% and 1.9% respectively in Europe. Ascometal's contribution, as a reminder, 1 month more than in the first quarter of 2018. It's visible also the momentum is now naturally flowing.In the second quarter, we will then be able to show comparable quarters for the first time, which leads us to the expected the reported gross momentum will again decline significantly.As already mentioned, the first quarter was difficult for our group. With the right measures, however, we have managed to limit the impact and in my opinion achieve a solid result. The second quarter, we will continue to do everything we can to navigate the Group successfully through the current stormy waters.But more about this after Matthias' detailed explanation on the first quarter results. Please.
Thank you very much, and good afternoon to you, ladies and gentlemen,. Thank you very much for taking the time today, especially as Ulrich Steiner continues to tell me that typical stocks are not very hip these days. But I'm convinced that particular in these times of a headwind, it's worthwhile to track opportunities and some good progress. And I hope that I can show you some of it.As usual, I will provide some additional information on the key financial figures in my presentation. And these are 2 major technical impacts reflected in these indicators when comparing with the previous year. On one hand, I'd like to highlight once more that Ascometal was not fully consolidated in the first quarter 1 year ago. It was only February and March in there after we took the assets into our books on the 1st of February 2018.On the other hand, we applied the accounting rules of IFRS 16 now for the first time in Q1 '19 and I will allude to these effects in the respective part of the presentation. Let us now first to Table 10, the drivers of the economic activity. Basically, it should be noted, first, that the quarter 1 in 2019 compared to a very high base in the previous year. As a reminder, we were talking about a market that was showing signs of overheating at that time.The current situation, on other hand, is characterized by the opposite, by the continuation of a very weak demand at the end of the previous year and the reduction in inventories now along the very change in our market. So here we are looking, so to speak, at the highest economic amplitude during the cycle.In terms of sales volumes, we see a slight increase of around 1%, up to 551 KT. Here, if we adjust for the effect of this 1 month, we see a decline by 28 KT equivalent to 5.8%. The decline in sales volumes was evident in all product groups. Stainless steels were holding up relatively good. The decline was limited to a little more than 2%. But quality engineering steel, when adjusted, declined by 6.5% [ to steel ] by 6.9%. And that was even though quality engineering steel benefited from the reduction of inventories from the previous quarter. You will probably remember that Swiss Steel had to hold back volumes in Q4 2018 due to the EU's safe cut measures. These volumes were now delivered in Q1 and this contributed 15,000 tons to the [indiscernible].Clemens already mentioned that we reduced production in order to meet the lower demand. We were at 592 KT in the first quarter. That was practically the same as 1 year ago. But if you also adjust here for the effect of 1 month additional consolidation of Asco, then production in the first quarter was down by 32 KT. That's 6.3%. So this production cut and the reduction of raw materials allowed them to reduce metal stocks, despite the declining sales volume. And I will come back to that later when we speak about the cash flow.The decline in production was largely achieved without layoffs, in particular our flexible working time accounts and holiday arrangement made this adjustment possible. So we would reduce the labor cost along with the production or the labor volume along with the production.Demand was still rather weak at the end of the quarter and there was no significant increase in volume dynamics as Clemens was already alluding to. This you see also reflected in our order book and the current uncertain market environment, the customers are reluctant to place orders, especially as investments have not yet been entirely adopted along the automotive value chain.The order backlog as Of March 31 was 18% lower than 1 year ago and 7% further down again year-end. A decline from the first to the fourth quarter is rather unusual for us and it illustrates the challenging conditions and apparent demand in our markets. Going to Table 11 and looking at revenue and prices. Revenue rose by 6.7% to EUR 884 million, which is obviously a stronger increase than sales volumes and that is on the back of higher average sales prices. The ASP amounted to [ EUR 1,605 ] per ton in the first quarter. This was up 5.5% versus previous year's Q1 and then 0.5% even up compared to the preceding quarter.However, this small increase versus Q4 '18 reflects a mixed effect. I said earlier that the decline in volumes at stainless steels was rather less pronounced and as these stainless steels have structurally higher prices due to their higher ally content and their higher weight now in the portfolio then translates into increased average prices for the group. So technical effect.The base prices remain largely stable versus Q4. This applies in particular to specialist steel and Customer Individual Solutions. However, as Clemens has already explained, the pressure on prices for commodities has intensified in recent weeks. So this leads us to expect that the sales prices have exceeded that peak, at least in the short-term. Nevertheless, we still expect an overall reasonable price environment in 2019, also based on our yearly contract.Chart 12, continuing with EBITDA and group results. Adjusted EBITDA reached EUR 42.2 million, down 40% versus prior year's quarter and that was 3 reasons. Number 1 is [indiscernible] sales volumes. We have seen that the increases either from the consolidation of Asco, which is still undergoing restructuring and is not yet contributing to EBITDA. So the EBITDA carrying volumes decreased along obviously, as we have just discussed, and with corresponding impact and was visible in the earnings.Secondly, the reduction in semi-finished and finished goods in our inventory led to a lower absorption of fixed costs and had an additional negative effect on EBITDA. The second reason. But both of these were further exacerbated by cost inflation, which we could neither pass to higher sales prices nor offset by cost improvements yet. The cost inflation was in particular driven by personnel and energy costs and in addition, we had still benefited from stocks of low cost [ electrodes ] in quarter 1 '18. Obviously, this benefit was now gone in quarter 1 '19 and we saw a cost increase.Now for the full year 2019, we will be able to offset the inflated factor costs by executing our efficiency enhancement program. This has a potential for the year of EUR 40 million. But in the first quarter, we were not yet able to meet our pro rata target, also due to volumes. However, we will see savings accelerate in the course of the year and catch up against the unfavorable inflation effect during the course of the year.Finally, we had a positive impact from the application of IFRS 16 to the tune of EUR 2.5 million for the record. Of course, the lower adjusted EBITDA also results in a lower margin and a lower EBITDA per ton. You see the margin decreased from 8.5% to 4.8% in quarter 1 '19. The adjusted EBITDA per ton reached EUR 77 after EUR 129 1 year ago. The one-time adjustments to the EBITDA during quarter 1 amounted to EUR 3.4 million and as you may expect, a large part of this attributable to integration costs for Asco.Unadjusted EBITDA was even more down than this previous year by 62%. The reason you know that is that previous year entailed a favorable impact from the bad weather to the tune of EUR 46 million from the acquisition of Ascometal. Hence, this disproportionate decline. After all, the Group results for the first quarter was breakeven, slightly positive at several hundred thousand euros. And I'll come to the final chart that is the development of cash flow and financing on Table 13. Both figures developed as expected by us, even though we are very satisfied in particular with the free cash flow in the first quarter. You probably remember my comments in quarter 4 '18 regarding the cash flow. At that time, I had said that we had planned a more ambitious cash flow for that fourth quarter. In particular, we wanted to reduce net working capital by an additional EUR 50 million in quarter 4.However, due to the EU safeguard measures, the stock levels for the rolling [indiscernible] and the hesitant call offs from the consignment stocks by automotive suppliers -- automotive customers -- we were not able to deliver this in the short-term. Now we have done it.You see that in our results. From the cash flow statement, we were able to release more than EUR 50 million from a reduction of inventories. As a result, the net working capital rose by only EUR 57 million seasonally and that was significantly less than usually for the season. The previous year, just as a comparison, this had been EUR 115 million. THIS YEAR, EUR 57 million.And including Asco, by the way, last year it was EUR 220 million. So good progress. All in all, cash outflow was around EUR 80 million less than a year ago. The improvement year-on-year was particularly strong as the effect of the acquisition of Ascometal was of course reflected in the previous year. This, we did not repeat.We will continue to reduce inventories during the course of the year further. We see more potential for reducing inventories by at least a further EUR 50 million by the end of the year and this is especially for electrodes as well as for semi-finished and finished products. And we will release another substantial amount of cash through these measures.Our success to date, is by the way, also reflected in the net working capital displaced figure. You see that after a ratio of 29.3 in Q4 '18, it stood now at 28.0 at the end of quarter 1. The reported net debt increased by almost EUR 100 million to EUR 752 million. That is almost EUR 100 million. Most of this attributable to the accounting effect of IFRS 16. This effect amounted to EUR 59 million and if you adjust for this, the change is only EUR 38 million and it means that the increase in debt is below the usual seasonal movement, again, reflecting the good progress on the working capital.The leverage, though, rose from 2.8 to 3.6. And this is clearly a higher leverage than our group is aiming for in the medium term. And it reflects the sharp cyclical downturn in the industry. As we have indicated in the full year result conference, our banks are well acquainted with the cyclical nature of our business and the dynamics of this ratio. We have therefore proactively agreed to establish additional temporary headroom on the leverage for the year 2019. So headroom was absolutely adequate at the end of quarter 1. We do not expect the leverage to improve in the short-term because the subdued demand continues into Q2 and will weigh on the EBITDA compared to previous year during the quarter, though we should be able to offset the cost inflation, as I mentioned earlier.However, we feel that we have adequate headroom not only for the leverage, as displayed on the left chart here. The unused credit lines and funds at the end of the first quarter were [ entered ] and amounted to approximately EUR 350 million. Debt reduction remains at the top of our agenda and we have ample levers at our hands just here through the cycle. With this, Clemens?
Thank you, Matthias. Ladies and gentlemen, let's jump over 14 directly to Chart 15. Shown on this Chart 15, we believe that demand and thus our operating performance in the fiscal year 2019 will continue to be affected by the prevailing political risks and uncertainties. In the first quarter, growth forecasts for the global economy were further lowered after the economic slowdown in the first 3 months. Despite repeated announcement, important conflicts such as trade disputes or Brexit remain unresolved. We believe that these issues will continue to weigh on the market in the second quarter. Also, we expect demand to gradually normalize over the course of the quarter and believe in a more pronounced recovery in the second quarter of the year.This is also due to the fact that the inventory cycle is probably close to a turning point. Of course, such forecast assumes that there will be no disruptive macroeconomic environments, such as customs duties on German car exports to the United States. Overall, despite all the uncertainties, we are convinced that we will see growth in our special long steel industry in 2019. This brings me to the outlook on Chart 16. Regardless of the macroeconomic development, the main focus in 2019 will be on the industrial integration of Ascometal. In view of the unfavorable market environment, we will currently consider, for example, an earlier closure of the Les Dunes rolling mill. The second focus in the repositioning is Finkl. This is necessary to restore the business unit profitability to the level we can expect in the current robust market situation in the U.S. In addition to these 2 special topics, we also must continue to work on efficiency and profitability through continued improvement measures in the group to compensate the constant cost inflation, especially for wages and energy. As Matthias has already said, we have set ourselves a target of EUR 14 million in permanent savings for 2019. And last but not least, we will return investments in working capital to normal levels. In view of the numerous uncertainties and contradictory signals with regard to the future of global economic path, reliable forecasts for 2019 fiscal year are subject to a high degree of uncertainty. Schmolz + Bickenbach expects demand gradually normalize in the coming months with a continued recovery in the second half of the year. And based on this assumption and the further implementation of the measures at Ascometal and Finkl, we forecast adjusted EBITDA in the range of EUR 190 million to EUR 230 million for the current fiscal year. And from today's point of view, we will end up more towards the lower end of this guidance. With this outlook, I will close the presentation. Thank you for your attention and hand over to Mr. Steiner to open the Q&A session.
You can start now with the Q&A.
[Operator Instructions] Our first question comes from [indiscernible] from Insight Investments.
Several questions on my side. First of all, on the expected recovery in the second half, do you already see any indications of the recovery? And what makes you believe that will be the case? And just to check, what scenario is baked into that lower end of the EBITDA guidance of EUR 190 million? Does it also include some recovery in the second half or EUR 190 is basically stable performance?
Okay. That was 2 questions. Is there anything else?
I also wanted to CapEx and on covenants if possible after.
Okay. So let me maybe start with why we are thinking that the business will recover. First of all, as you know, we are working in every country of the world and what we see at the moment is that it's quite mixed. So we've seen, for example, recently, quite a good even above budget situation in Brazil.We have seen also in some European countries some good development. But it's also true that we see a weak development in Germany, for example, which was the locomotive for quite a while in Europe. So it just shows me that there is also business going on. It's not everywhere the same dull situation. Secondly, on auto, I mean, we have mentioned that I think during our last session on the yearly results, one of the reasons I think what auto is facing is this new testing standard [ VLTB ] or [ WTLT ] standard. And here, we are seeing clearly and hearing that also of course from one of our shareholders that is in the automotive business that this kind of bottleneck seems to open up. So new models are coming and that also gives a push.And last but not least, as we said, the inventory cycle. Please have in mind that our business normally we are delivering not to Volkswagen, or BMW, Mercedes directly. We're delivering to Bosch, or even a sub-supplier from Bosch. So everybody in the last year has built up a little safety stock because it was so overheated.In a downturn, they are emptying the stock first and then they start again. So that I think will happen also for us and therefore, we will see hopefully in the second quarter then a normalization. On the second question, what was that?
The [indiscernible] do imply that the second half indeed will see a recovery to achieve EUR 190 million. Is that a prerequisite to the EUR 190 million that you have a recovery in the second half? I think we can say that.
It's clearly true that already in our budget, of course, we have forecasted the first quarter to be weaker, than, for example, 3 and 4. So therefore, yes, it includes a certain recovery.
Great. And one more on CapEx. The CapEx in the first quarter '19 was around 20, which is kind of lower than the run rate you would expect. Do you expect to change the guidance for full year '19 for CapEx or is it still the same? Is it just timing issue?
First of all, I have to say that we are, by nature, I think if you follow a steel mill, in our CapEx normally, we have quite a huge portion of kind of variable CapEx because it is associated to the production level you have. You need to replace [ rows ] and so on. If you are taking out production, like we said, you need less [ rows ]. That means also less CapEx, of course. So it's kind of related.But for our big projects that we have announced in the last year, for example, the Swiss project or the French project, most of this is on the way. You could not even stop it if you would like. So it would not also make sense spending 80% and then stopping and not maybe earning and harvesting on the fruit if the market now is increasing again.
Nevertheless, there is a certain scrutiny, obviously, in a period of downturn on the CapEx that has cemented that this will not touch on the strategic projects. But rather on that portion that is where you have, let's say, room to maneuver on the timing. So that is obviously a lever that we can still use. However, the quarter 1 figure is a normal one in our normal timing.
And finally, on covenants, you mentioned that you have increased the headroom with the banks for basically -- if you can give any indication of how significant is the current headroom and for how many quarters have you agreed with the banks? Do you need to agree once more next quarter or do you have some runway?
We have an agreement for the year 2019. That means for each of the testing periods, which is always after 1 quarter. So for 4 quarters we have such an amendment and as I said, the headroom that we have at the end of quarter 1 is adequate that you translated into a percentage and you understand where we are.This is proactively done because our banks know the dynamics of the ratio, which is always reacting very strongly in such a downturn because of the ATM, the last 12 months EBIT metric for the EBITDA. And so we agreed that proactively that's why this is not a matter of concern.
[Operator Instructions] The next question we received is from [ Daniel Koenig ] from [ DJE ].
This is [ Daniel Koenig ] from [ Bank Mirabo ]. I have one general question. You complained about higher personnel costs and higher energy costs. And you've probably seen some proposals in terms of CO2 where it should be. I'm wondering what in -- why the context is the impact on energy and if you have such a scenario where energy prices and electricity prices are much, much higher how that would impact your competitive position.
One thing that we at the moment know for sure is the increase on the wages, on the salaries, on the personnel side. So actually, if you just see this new tariff agreement in France, Germany, and so on, it means roughly EUR 14 million to EUR 15 million per year increase in cost energy. Of course, you have to understand, if we produce, the energy will be less just by nature. So but of course, the megabyte hour is becoming more expensive and depending on how much finally we'll use and this will have also an impact.I don't know, you have a number already, Matthias, for that? Or?
No.
Then CO2, you mean the CO2 certificate most likely. Here, I have to say that obviously, this is a difference in our industry, in the way that we produce with electric arc furnaces. We are the major part where we need CO2 certificates is only for our furnaces, which is comparable pretty small. While, when you look to the big guys in this industry that use blast furnaces, here, you are creating a lot of CO2 and they are, of course, consuming a lot of CO2 certificates.So actually, this will be rolled over from the energy companies to us. But then you have to see that in Switzerland, for example, we still have a different mix. We use a lot of hydropower. We use a lot of here nuclear power. So it's really depending. France, the same. But obviously, we would get then higher energy prices and not have to apply for CO2 certificate.
To be clear, I'm more discussing the indirect impact of higher CO2 certificate prices. Because it's arguably probably 40% to 50% of higher CO2 prices will be reflected in higher wholesale electricity prices. So there isn't an impact of higher CO2 on electricity prices and thus, you have probably higher electricity prices and costs.
That's what we said. At the moment, we are facing a kind of price increase, which most likely incorporates it as well. But then again, it depends on the energy mix, like in Germany, where you want to reduce the nuclear power more and more. Here in Switzerland, for hydropower, there is no CO2 whatever exhaust. And that is of course very different in the world.
Maybe to give a quantitative assessment, the share of energy cost in our total cost is to the tune of 7%, including gas. So you have an idea of what the impact of any kind of increase would be on that. Our answer will always be to increase capacity utilization and on the other hand, to further improve our energy efficiency. Likely, for instance, do right now in Switzerland with the walking beam [indiscernible] at Swiss Steel, which is improving the electricity and gas consumption significantly.And finally, [ Mr. Koenig ], please have in mind that obviously, you know, if this cost comes down to all competitors as well, then obviously, we have to roll it over to the customer. The worst thing for us is if we have some countries that do not have to pay this kind of certificate price, and in the European countries, you have to pay. So therefore, this is also important for the future.
[Operator Instructions] The next question we received is from [ Glenn Zand ] from Commerzbank AG.
Just a simple question. The bad will that you had, the EUR 40 something million, is that included in the adjusted EBITDA number of the first quarter of 2018? Or are you excluding that?
It is excluded from the adjusted EBITDA but it is part of the IFRS EBITDA.
Okay. And then I'm going to have you repeat yourself probably. But just going back to the outlook, I mean you said in your statements that in the automotive size, that you're really not seeing any type of improvement. But then you're expecting a kind of just out of -- just expecting some type of recovery just to happen in the second half.But are you seeing any, like, tangible evidence now from your customers that things are going to get better in the second quarter? Something tangible can you give us?
Maybe what we could add here is the customers that we have, particularly for automotive industry, so-called yearly contracts that get negotiated either partially during the last quarter of the previous year or first quarter current year.And these contracts have been finalized. The volumes reserved in such contract are basically all indicating in total an increase in off take, which has not happened right now but it is an indication of what the plans are of the OEMs and also of the supply chain. Furthermore, what we see is very obvious, a destocking in the supply chain that has also very obviously not finished yet. But this is a natural, so to speak, a natural driver to bring apparent demand back on track after a certain period of time. The problem is that it's very, very hard to assess when these developments will bite into the demand for us.We were rather optimistic at the year-end that this could happen right at the beginning of quarter 2. But now we have to see it is obviously somewhat delayed into quarter 2. That is what we see. This would be typical indicator.The third one, I think Clemens was mentioning that also, obviously, the global demand, which also is impacting our automotive customers on the second and third [ tier ] and China is important. And we do see a certain, let's say, kind of life, I should say coming back. And so these 3 elements keep us optimistic, reasonably optimistic, I would say that during quarter 2 we will see some improvement.
So I don't want to put words in your mouth. So what you're saying somewhat is that it's unlikely that this weakness is going to drift into the third quarter and we might have some type of revision of your guidance coming in the second half for the 2019? That's somewhat unlikely from what you're telling us?
I think you should really, as I said, do not put the words in our mouth. Because obviously, I think everybody at the moment is looking at the automotive industry and everybody wants to have kind of expectation how that developed. We are only supplier. We can only follow what these customers are telling us and this indication at the moment says that yes, it's turning. But I'm not producing cars.
The next question is from Michael Posnansky from M&G Investments.
Two from me. Firstly, I was wondering if you could give us any indication of your outlook for base prices given the current order backlog and deliverable that it's at. And then sort of secondly, continuing on that, I was wondering, as you look to rebuild the order book, should we expect the margins that you're sort of rebuilding the order book with to fall due to the sort of mixed effects?
I have to say that the situation like always in steel is very different in terms of which product you're looking at. We have seen, for example, as you know, we are categorizing normally 3 big groups, tool steel, stainless steel, and then engineering steel.And we are seeing that, for example, for stainless steel, there is no decline in prices. It's even the opposite way. And for specialty, it's the same. We have just -- Matthias was talking about this long-term contract automotive. I can tell you we've just with a major big one made a 3-year contract with price increase. So it's not that all prices are going down here.What happens normally is that commodities are more under pressure and here, indeed, we have seen in the last 2 or 3 months heavy pressure and then also some decline. So overall, I have no number how this is leveling out at the end. But what we are hoping is, of course, the let's say commodity part is stabilizing and coming back. And then we would, let's say, continue on the other grade in the price ranges that we have before.
Is your question answered, Mr. Posnansky?
Yes.
[Operator Instructions] As far as there are no further questions, I'll hand back to Mr. Steiner for the webcast questions.
Thank you, Kai. There is one question -- basically 2 questions. I think one regarding covenants has already been answered in detail. This question from [ Nicholas Remy ] from [ Belth ] Management and he wants to know what is the total working capital outflow you're expecting for the full year 2019.
So obviously, working capital itself is subject to activity and is subject to price development. However, if you normalize for that total ratio, it is EUR 100 million in total that we will, at least, that we will be reducing structurally versus the end of 2018. EUR 50 million we have done during the first quarter and another EUR 50 million is going to follow during year-end.
Thank you, Matthias. So Kai, back to you. Are there any more questions on the line?
Actually, there are still no questions via the telephone lines. So I'll hand back to you.
Okay. Then I think always clear. We're certainly available later on if you have additional questions for us. Thank you for attending today's conference call, for your interest in Schmolz + Bickenbach. As I said, if you have any further questions, do not hesitate to contact us later.We look forward to continue our dialogue with you. Thank you very much and goodbye.
Ladies and gentlemen, thank you for your attendance. This conference has been concluded.