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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and welcome to the Q1 2018 analysts and investors conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Christina Kolbeck. Please go ahead.
Thank you, good afternoon, ladies and gentlemen, and welcome to our Q1 analysts and investors conference. With me today is Marcus Ketter, CFO, and Jens Wegmann, COO of the company. After the presentation, we are happy to answer your questions. With that, I'd like to hand over to Marcus.
Thanks, Christina. Welcome, everyone, and thanks for joining the call. It actually has been a very successful start of the year for us, and we are happy to present our latest results today. Let's go directly to Slide #4 to see our Q1 highlights. Shipments are pretty much on prior year's level, but please keep in mind that we sold Spain with 13,000 tons in Q1 2017. Nevertheless, we reported shipments of 1,584,000 tons. We were able to increase our sales again by 1.6%, especially due to a higher price level, although having a weaker U.S. dollar. We were able to increase our sales, while the U.S dollar lost 13% year-over-year. I think that shows that we're really well on track. Gross profit decreased from EUR 367 million in Q1 2017 to EUR 331 million in Q1 2018, resulting in a gross profit margin of 20.4%, coming from 22.9% last year. And again, main reasons for this development are price effects of EUR 40 million and FX effects of EUR 25 million. Coming to our EBITDA, we came in above our guided range of EUR 45 million to EUR 55 million and reached an EBITDA of EUR 56 million in Q1. However, last year's Q1 was outstanding, with EUR 76.6 million. But the steel cycle started earlier last year. For now, we reached a really good result under rising market conditions. Let's take a look at our digital sales. We are coming close to the 20% mark now, and we keep working to accelerate growth. With huge milestones ahead, XOM launched in Europe, and knowing that digitalization keeps supporting our customers more and more, we are confident to significantly increase our share of digital sales rate in the upcoming quarters of 2018.We are raising our fiscal year guidance. EBITDA should be slightly above last year's figure, and in case of further increase in steel prices, we see another upside potential. To sum it up, sales increased due to higher average sales prices. Gross profit and gross margin came down through FX and price effect, but we are quite optimistic for 2018, and with this, we are increasing our fiscal year guidance.Let's take a look at our latest development regarding digitalization. We keep changing the landscape of our industry. We are more and more offering product of third-party providers in our own proprietary Onlineshops. By now, we already integrated 8 third parties. Always our focus in this regard is to offer our customers a full range of products and with that, satisfy their needs in a way that was unknown in our industry. Our customers love the marketplace functionality, and we start to recognize another development. The customers which are already using these functionalities are getting used to the new status quo. They do not want to imagine how it would be to go back to the old processes. In 2018, we will roll out the marketplace functions in the U.K., the Netherlands, France, and Austria. Coming to the XOM slide, as we said in our last call, we launched our open industry platform XOM in February. That wasn't even 2 months ago, and by now, things are picking up. Our office is still in Berlin, but when XOM U.S. will be launched, we're going to open another office in the U.S. Chicago will be the city of choice. We were able to attract a wide talent and are growing. The smart and experienced people help us having a fresh view on our processes. The platform is running fully independently, and our first vendors are very positive about the start. The official approval of the German Federal Cartel Office, one of the most restrictive cartel offices worldwide, shows we have to mean what we say: XOM is fully independent. What next: XOM special. First of all, it really can disrupt the inconvenient trading business. It is a one-stop shop experience for every customer. XOM can present in every country. Klöckner could even sell through XOM to countries which couldn't be reached before and also means for us that we can reach new customers that haven't bought at Klöckner before. Next developments are: In Europe, we'll onboard further participants, and XOM will be launched in the U.S. in the second half of this year. The talk with venture capital investors are ongoing and the first financing round should also be closed in the second half of this year. I would like to hand over to Jens Wegmann now, who'll give us more color on the operations.
Yes. Thank you, Marcus. You just reported on the first column -- pillar of our 2022 Klöckner strategy, and I'm now happy to give you some updates on pillar 2 and 3; pillar 2 being the higher value-add business. I'm delighted to share with you that the commissioning of our aluminum cut-to-length line at Becker has successfully been concluded, all of that even 4 days earlier. The product quality is extremely good and better actually than we expected at this point in time. Aluminum remains to be an attractive sector in automotive growing with 9% in Europe and 20% worldwide. And now at Klöckner, we're well prepared to participate in this strong market growth. Another interesting development in Becker is, as you know, we had commissioned our slitter, which is running quite well at this point in time. We have now filed a new patent, which is related to what we call a dry slitting, that is an item which puts us in the field as the differentiator because we will not have to use any oil or any other media for cutting, which has a very positive effect on the quality of the surface as we do it right now.With these latest developments, we can say that we have now Europe's most modern aluminum service center, and we can call ourselves a full liner in the aluminum business. On the right-hand side, you see the third pillar, our efficiency programs and related improvements. To VC2, I will comment in a moment. For now, on One Europe and One US, our efficiency programs here we are well on track with an EBITDA contribution of EUR 3 million in the first quarter. Below you can see what's ahead of us for the full year in 2018, EUR 15 million for Europe, $4 million for the United States and EUR 5 million in 2019 for Europe and $5 million for the U.S. and then remaining $6 million for the U.S. in 2020. So both of these programs are fully on track.Now let's go to the next page to the VC2 program. VC2 stands for value creation at the core, with a clear focus on accelerating the Klöckner 2022 strategy and to also add additional levers for value creation. And the value creation goes in both ways here. On one hand, on the rational side, so our growth in profitability and profitability improvement as well as also, let's say, on moving and mobilizing the organization, and therefore, also focus on the actual values how we work together. The program has 3 core pillars. As you can see on the left-hand side, we are dedicated on working around existing and new business models. In the middle, you will see the profitable growth where the focus is on being clear how our business mix is structured between, let's say, commodity, contract and project business. And the third pillar is a dedicated pillar working on operational excellence, harmonizing our digital core processes to realize an integrated and digital, let's say, supply chain in order to benefit, let's say, from reduced process cost. So all in all, it's a comprehensive initiative, which goes worldwide for the entire group and it incorporates the existing programs, like mentioned before, like One Europe, One US and others. So we will have one dedicated initiative to transform Klöckner towards our 2022 strategy. So Marcus, I hand over back to you.
Okay. Thanks, Jens. Now coming to the slide here of business process outsourcing. Let me now introduce one of our new initiatives, a shared service center for finance activities in Europe -- or for Europe, I have to say. It's -- digitalization efforts are not only centered around our core business model but also great importance in our support function as we see great benefits that means through the use of robotics in accounting, for example. We have explored various options in this area and came to the conclusion that partnering with a Tier 1 service provider for business process outsourcing will maximize our benefits rather than establishing our own service center organization. The request for proposal is already concluded, and we started with the implementation phase. The business process outsourcing is expected to be already up and running by the end of this year.By implementing the BPO for our European organizations, in Germany, the U.K., Switzerland, Netherlands, Austria and Belgium, we not only streamline our finance and accounting processes but also create cost savings by labor arbitrage and also due to productivity improvement in a range of EUR 4 million to EUR 5 million annually from 2019 and onwards yearly. One-off costs will be around EUR 8 million, of which EUR 6 million will be incurred in the second quarter of this year. To sum it up, with the BPO, we will bring our finance and accounting functions to the next level, supporting our digitalization efforts in business and generate significant cost savings of EUR 4 million to EUR 5 million annually starting next year.Let us start with shipments, sales and gross profit in the first quarter now. Shipments remained almost stable year-over-year at 1.6 million tons, that means just 0.1% up. Adjusted for the sale of our Spanish business in Q1 of 2017, shipments were even up by 1.0%. Quarter-over-quarter shipments increased following the usual seasonal pattern by 9.8%. In Europe, reported shipments came down by 2.6% year-over-year due to sluggish business in Great Britain due to Brexit and also in France, while shipments in Germany and Switzerland improved year-over-year. In the Americas segment, shipments were up in Q1 2018 year-over-year by 4.0% due to the robust demand. Our U.S. operations grew even stronger as the market. KMC 4.7% year-to-date up, U.S. market just 2.6% year-to-date up. This is also the reason for the even more pronounced increase of 9.0% quarter-over-quarter. Sales increased year-over-year by 1.6%, slightly more than shipments due to higher average sales prices and despite a significantly weaker U.S. dollar. On a like-for-like basis, using prior year exchange rates, sales increased by 8.7%. In Europe, sales increased year-over-year by 4.8% due to higher prices. Sales in the Americas segment in euros decreased by 3.4% despite higher average sales prices due to a weaker U.S. dollar. Adjusted for the currency effect, sales were up by 11.5% due to the positive impact of the Section 232 tariff decision on U.S. steel and aluminum prices. Gross profit decreased by EUR 36 million year-over-year to EUR 331 million. There are 2 main reasons for this decline in Q1 2018: a negative FX translation effect from the U.S. of EUR 25 million and a margin contraction in Europe. Thus, the gross margin came down year-over-year from 22.9% to 20.4%. Also keep in mind that we heavily benefited from windfalls in Q1 of last year, approximately EUR 25 million to EUR 30 million, whereas windfalls were significantly less this year. To sum it up, shipments remained almost stable year-over-year, with robust demand in the U.S. and lower shipments in Europe. Sales slightly increased due to higher sales prices despite a weaker U.S. dollar. We will now focus on the EBITDA for the group. In Q1, EBITDA came in at EUR 56 million compared to EUR 77 million in Q1 of last year. We saw positive volume effect of EUR 5 million mainly due to above-market growth in the Americas segment, which was overcompensated by a negative price effect of in total EUR 15 million. The negative price effect was entirely related to the Europe segment, with EUR 21 million due to margin contraction and less windfalls, mainly in France, U.K. and at Becker Stahl-Service. On the contrary, the Americas segment had a positive price effect of EUR 6 million. Our One Europe and One US measures contributed EUR 3 million in the first quarter. We also saw higher volume-driven OpEx for shipping and personnel costs. The other effects largely related to the negative FX effect of minus EUR 5 million mainly from translating our U.S. dollar results into Europe.Overall, the EBITDA margin was 3.4% in comparison to last year's first quarter of 4.8%. To sum it up, EBITDA for Q1 was EUR 56 million, below previous year quarter of EUR 77 million, which was strongly benefiting from windfall gains. Additionally, we were able to grow volumes EUR 5 million, but saw an overcompensating negative price effect of in total EUR 15 million.So let's focus on our segments now. EBITDA in Europe came down from EUR 54 million to EUR 31 million. The volume effect was negligible, minus EUR 1 million. While we saw improvements in Germany and Switzerland, shipments in France and Great Britain were below last year's level, in Great Britain due to Brexit. While group results benefited strongly from windfall profits in Q1 2017, this was not the case in the first quarter of 2018, as you can see from the negative price effect of EUR 21 million. Accordingly, the EBITDA margin for the European segment came in at 3.0%. Q1 2017 in comparison was higher with 5.5%. In the Americas segment, we saw a slight increase in EBITDA from EUR 30 million to EUR 32 million in 2018. We realized both a positive price and a positive volume effect of EUR 6 million each. The price effect was realized primarily in the last month of the quarter following the mid-quarter Section 232 decision to apply tariff of 25% and 10% on steel and aluminum imports, respectively. The volume effect resulted from the strong growth of our U.S. operations, which exceeded the already solid overall growth of the U.S. market. Volume-driven OpEx increased by EUR 7 million, primarily shipping and personnel expense. We had, however, a considerable negative effect -- translational effect of EUR 5 million due to a lower U.S. dollar exchange rate. However, the EBITDA margin for the Americas segment came in higher at 5.4% in comparison to Q1 2017 where that margin was 4.8%. To sum it up, in Europe, EBITDA came mainly market-driven down from EUR 54 million to EUR 31 million. In the U.S., we saw positive market price -- market effects which were only partly compensated by a business-driven high OpEx and a weaker U.S. dollar, which still resulted in an increase of EBITDA to EUR 32 million that was slightly above prior year's level.Let us focus on financing now. As you can see, our cash flow from operating activities came in at minus EUR 143 million. Starting from an EBITDA of EUR 56 million, we saw a seasonal increase in net working capital, which led to a cash out of EUR 193 million. Also bear in mind that we came from a really low net working capital at year-end. And the interest payments of EUR 7 million, tax payments of EUR 8 million and cash in for other operating assets and liabilities of EUR 10 million. For example, for supplier bonuses. Cash flow from operating activities was a negative EUR 143 million. Gross CapEx in Q1 was EUR 40 million. We had cash inflows from asset disposals of EUR 2 million so that our overall cash flow from investing activities came in at minus EUR 12 million. Thus, free cash flow was minus EUR 155 million. Accordingly, the net financial debt increased from EUR 330 million to EUR 472 million in Q1 due to the increased working capital financing requirement of EUR 193 million, with some minor FX translational effect of EUR 4 million and inflows from the settlement of FX swaps plus EUR 9 million used to hedge intercompany financing GBP and U.S. dollars. To sum it up, free cash flow came in at minus EUR 155 million due to seasonal net working capital buildup. Net debt, respectively, increased from EUR 330 million at the end of the previous year to EUR 472 million.Let's take a look at our funding portfolio and maturity profile now. Currently, we have utilized approximately EUR 0.6 billion of our facilities, a moderate increase versus year-end as we also used our cash reserves for financing of our working capital increase in Q1. In March, we signed new bilateral financing agreement with our 3 Swiss core banks, reduced the total commitments to CHF 130 million to reflect the funding requirements by our Swiss group. The new term is 4 years and the maturity is March 2022. In addition, we executed the first extension option of our syndicated loan in April. The new maturity is May 2021. Taking into account both transactions, the volume weighted residual term of our core facilities is close to 3 years now. And the next major maturity is our ABS U.S. program in July 2019. The financial result in Q1 2018 is minus EUR 7.0 million, which is EUR 1.2 million below Q1 2017 related to FX effect and also cost improvements.To sum it up, financing is very solid with strong headroom on our committed debt facilities, a solid equity ratio and a low gearing. I would like to hand over to Jens now who will give us the business outlook.
Yes. Well, thank you, Marcus. So let's go to Page 17 and get started with Europe. Well, I've just returned from a trip to the major countries and I can report that in general, in most of the markets, there is a positive atmosphere in terms of, let's say, market development and steel demand resulting into an increase of 1% to 2%. There are still remaining uncertainties on the effect of the U.S. Section 232 on our European markets and the status of the related negotiations. And we will have to see what the mid and long-term impact will do to the European countries. If we go to the construction sector on the upper left-hand corner, the business is rather flat this year. Even if construction business is running good for many countries, we still have the uncertainties in our U.K.-based business, as we reported, also especially with the insolvency of Carillion, one of the largest construction companies in the U.K.On the machinery and mechanical engineering, it's on a good way, and further growth is expected. So the order intake seems to be very positive, up for now and also wide investment growth and further steps supports, let's say, our view on this segment. On the energy side, on the other hand, we do not see any positive indicators. Subsequently, we expect 2018 to be rather flat. In automotive sector, we had a very good year in 2017. The signs are promising that 2018 will be good as well as the most European countries, again exception is the U.K., again due to the Brexit negotiations and related uncertainties. Shipbuilding is booming in Europe, and we expect the market to grow decently in 2018. As we reported before, we have good orders on hand, one of them being with Meyer shipyards where we have 3 to 5 cruise ships per year until 2022 secured in our order books and of course, this is a good news for the entire sector. Looking now on the lower end to the United States, I also just returned from the States, and I can also report that the market is in a very good mood, even though the results of the Section 232 discussions also here remains still unclear. But I also visited some of our suppliers, some of our mills. The atmosphere here is very positive at this point in time, and the real steel demand is up by around 3% for 2018. Here, the construction sector, as you can see on the lower hand side of the slide, is very strong right now, especially residential building is very promising. The infrastructure bill remains a wildcard, but if it comes, it would be a push for the entire sector in this respect. Manufacturing and machinery and heavy equipment also looks very promising for 2018 and is connected with the strong expected growth also of the energy sector on the next right-hand side there and the growing demand for rebuilding activities. Then the energy sector itself increase seems to continue also in 2018, especially oil and gas and mining could be a leading driver again. However, also wind is expected to grow by 30% in 2018. After a difficult year in 2017 with a decrease of 3%, the automotive sector should be flat in the U.S. for 2018, maybe with a potential slight rise. But the year started a bit weaker than the auto industry had expected. Thus, we look at it rather flattish. The same applies here for shipbuilding. At this time, we do not see any positive indicators in the U.S. nor are there any downturns, let's say, to be expected. Therefore, this sector for the market -- for the year 2018 is flat. So all in all, the outlook for both Europe and the U.S. are rather positive.
Okay. Thanks, Jens. Let's take a look into the future. We anticipate Q2 sales to be seasonally higher and expect our EBITDA to be between EUR 65 million and EUR 75 million. For the fiscal year, we expect higher sales due to a higher price level. Due to the latest price increases, we are raising, as I said earlier, our EBITDA guidance. We expect now that the fiscal year EBITDA should be slightly above last year's result, not as anticipated on the last year's result. We see even further upside potential in case of further increase in prices. So again here, we are quite optimistic for 2018. Thanks for listening, and we are now open for your questions.
[Operator Instructions] Our first question comes from Seth Rosenfeld from Jefferies.
Just I'd like to better understand your expectations for pricing in the U.S. market, if you can please expand a little bit there. I think you commented earlier that you expect sustainability at current levels, even taking into account the latest round of price hikes. What drives that level of comfort? Can you perhaps touch on where you see inventory levels at your own sites and also at your customers? And talk a bit about the competitiveness of imports in the U.S. market right now.
On the pricing side for the U.S., of course, we have seen some developments on the flats, especially where we have seen the most, let's say, upside so far. And right now, we also don't see, let's say, that this will change. So overall pricing remains, let's say, stable on that sector. Again, once through the Section 232, I think that is the biggest influence on the market right now and the related uncertainties what comes out. That is at the moment in the discussion. On one hand, you have the tariff discussion where certain countries, some -- Europe, for instance, currently being excluded until May. And on the other hand, you have the discussions on potential quotas for countries. So that means, you had a certain shipment level from last year, and you get a certain percentage of what you should the year before and relate to that. So that was that. The imports, let's say, are rather limited, and the domestic market is very strong. If we look at, for instance, long products, the beam prices are up by $130 per ton since January, sheets are up $180 per ton since January, inventory level at mills are terribly weak at this particular sector. So you also need to make sure that you secure your supplies in this respect. Stainless, with the 232, quickly changed the landscape, with rising prices to start picking in the market. And aluminum, I mean, you still see high premiums and -- but we also saw a little bit softening actually in the beginning of this week.
That brings up one follow-up question. When we have in the past seen periods of policy uncertainty like this and sharply rising prices, one of the concerns we often have is that distributors and also end-market consumers might essentially place double orders, so placing order from an import source and a domestic source, given the uncertainty over where the material will ultimately come from. Have you seen any of that behavior at your own sites or from competitors and consumers? And then in generally speaking, where do you think inventory levels are at your customers? Have they been building inventories? Or they're also quite tight?
Well, for us, we don't secure double sources. I mean, we procure mainly domestically in the United States. So from that perspective, we can't say that. Inventory levels, I mean depending on what sector you are in, that can differ, but for us, it's essential that we have very strong ties and partnerships to the supply sites. And I will mention that I was just over there, we visited some of our key suppliers, and in that respect, I think we are fairly well positioned.
Our next question comes from Carsten Riek from UBS.
A few questions from my side. The first one is on the U.S. This is again, you're simply assorted. You had a significant price increase here. You could also see that over the bridge. How much of the earnings you've got in the U.S. business actually included so-called one-offs, the windfall gains because of rising steel price levels? That's the first question. The second question, you mentioned rightly that U.K. is currently very weak. You still have the U.K. business. Could we expect any further restructuring here? Or even the disposal of the assets, is something like that on the agenda? And the last question I have is on your leverage, the financial leverage, the 2.4x net debt-to-EBITDA. We reached a level which is not really supporting for significant M&A. And here I ask with regard to Thyssenkrupp's Materials Services business or at least parts of it. In case you could -- would consider such a step, would be your current financial strength enough to deal with Materials Services?
Okay. Got it. The price increases in the U.S., which resulted in windfall profits of approximately EUR 10 million to EUR 15 million in the first quarter. U.K., we don't have that on our divestment agenda. We will monitor actually what the results going forward are in regards to Brexit. You know, as in the past, if necessary, we will do further restructuring. We have not made any decision in regards to U.K. restructuring yet but monitoring closely how the results are evolving there. Then leverage, 2.4, actually we improved quite significantly, as you can see here from our history, but, of course, our own financial strength would not be enough to do such a deal. That deal definitely needed to be supported by equity investment. And how that structure would look like I cannot tell because we have done no plans actually on how to do this, but definitely it cannot be just done via debt raising.
Our next question comes from Rochus Brauneiser from Kepler Cheuvreux.
Rochus Brauneiser from Kepler Cheuvreux. Can I get back to your guidance revision again? I take your point that you were motivated by the realized price increases in the first part of the year, but I guess on the other hand, as you correctly said, there is a lot of uncertainty around how Section 232 finally plays out with all the tariffs which might come in place and counteractions. So I don't know how much visibility you have on the second half. And if I do a simple math and, let's say, you have EUR 125 million for the first half, which at the midpoint, this leaves about EUR 97 million to EUR 106 million, if I assume 1% to 5% growth. So if I also take into consideration this EUR 10 million, EUR 15 million of windfalls, I think the delta is hardly -- it is still not reflecting the full volume effect, which is usually at the 10% down in the second half. So there is not so much buffer in terms of pricing dynamics for the second half of the year. But maybe you can help, what are the kind of support factors for the second half. And how you get to this optimism in terms of upgrading the guidance now?
Well, we had a pretty good Q1, as a start. Then actually, our guidance for the second quarter there, so it's EUR 65 million to EUR 70 million. As you said, I mean in the first half, if you take the middle of the guidance without saying that this is more realistic than anything else but just assuming you are -- you come to the like EUR 125 million, EUR 126 million for the first half. And then if we said that this is above, then we need to have the numbers you just mentioned around EUR 100 million. And then there is a difference between first and second half of EUR 25 million. If I deduct, let's say, EUR 10 million, then actually we are below the first half operating. So EUR 125 million minus EUR 10 million is EUR 115 million, and we assume EUR 100 million for the second half of the year. We don't think that this is unrealistic. We see a strong market, actually volume wise in the U.S., we grew faster than the market. We don't foresee that the prices will go down in the U.S. currently. It could go up further. Let's see what the outcome of Section 232 tariffs are. And looking at Europe, we see stable prices. We do not see that prices are coming down or that steel volume are diverted from the U.S., meaning less -- that imports led to exports through this [indiscernible] into Europe, we don't see that. So all in all, we are quite optimistic when looking at the market. And also what Jens mentioned, all the programs we have in place for operational excellence and cost efficiency improvements in addition to that makes us optimistic that we can be above last year's EBITDA, but that means that we would still be even without the windfall profits below the first half of the year, which I think is, in general, also a realistic scenario.
Okay. Maybe let's come to operational cost. I guess you mentioned before that you had cost increase. And I guess you gave a number in euros for the first quarter. How much was the OpEx cost increase in dollars? And are you planning any mitigation measures to keep the costs under control? Particularly, transportation is an issue. Anything you can report there?
Yes, let me -- so for the Americas segment, let me just get here to the right slide. I can give you -- U.S. actually, there was -- in the first quarter, we were down the OpEx by EUR 5 million in comparison to the first quarter of 2017. We were up -- sorry, we were up EUR 5 million by the -- in comparison to Q1 2017. So that's the number, EUR 5 million up.
I'm referring to Page 13.
Yes, I'm referring to our U.S. dollar OpEx, which you asked for, right? So we're up EUR 5 million year-over-year, just the Americas segment. Does that answer your question, Rochus? Or did you ask for something else? I thought you wanted to know what the U.S. dollar increase actually is. And we are up in the U.S. due to higher volumes we are having and due to some overtime we have to pay because we increased here in the Americas quite significantly actually our volume. And that's why the OpEx is up.
Okay. The number in euro was EUR 7 million, I guess. And I -- just -- what is more important is that, how is -- are there any plans how to mitigate this cost increases? Is there anything you can do in the shipping side to get keep that under control? I mean, the labor.
As I mentioned beforehand, we have the One US program, which is basically related to, let's say, efficiency improvement, cost reduction. Where we built this One US organization, we used to have in the regions almost 3 setups for flat group, heavy carbon and special products. We are incorporated under One US in one facility. So we are heavily working on reducing our fixed costs related to the U.S. setup. And also, in regards to transportation cost, I mean this is a part of our focus in the supply chain cost optimization, which is also an integral part of the VC2 program activities. So the cost development is in a clear focus.
Okay. Last question on your digital share targeted. I think the idea is to accelerate apparently during the course of the year. What is the kind of territory you want to get in terms of digital shares from the 19% you have achieved right now?
So it's going to be in the mid-20%. That's our goal for this year.
[Operator Instructions] Our next question comes from Tom Zhang from Crédit Suisse.
I've just got 2. Sorry, if I missed it earlier. You very helpfully quantified the Q1 windfall profits EUR 10 million to EUR 15 million. Could you just let us know what you have baked into your Q2 guidance? And then secondly, with respect to lead times and backlogs, have you seen any changes in the last few months from customers as to how far out your customers are looking for orders for? Just trying to get a sense of, with prices elevated, whether or not there is any change in the realization period and that how long do you see this coming onto the P&L fold?
Okay, in short, for Q2, windfall profits are expected around EUR 10 million plus or minus.
Yes, I mean, lead time are increasing, in particular in the U.S., of course, related to the strong demand. Depending on the sector where we are in it differs, but it's in the range of 6 to 8 weeks in that prospectus.
Would you be prepared to give any differentiation by sector, whether or not you're seeing anything particularly interesting from any certain end market?
At this particular point, I don't have that.
Our next question comes from Kevin Hellegård from Goldman Sachs.
Most of my questions have been answered. But could you just remind us what windfall gains or losses you had in Europe and Americas last year in 2Q?
Q2 -- there were -- so we're just -- there were basically no windfall profits in Q2. We had to -- we had an announcement that we expect it, but there was very strong Q1 and then in Q2, we had basically no windfalls last year.
Okay. Perfect. And I think your tax rate came in around 24% for 1Q. Should that be like -- is 30% still your guidance on tax?
Yes, our guidance is still slightly above 31%, that's still the guidance we have. But with the U.S. tax rate, that might come down a little bit, but not to the level actually we have seen now in Q1 with 24%, but it could be slightly below 31%. We will give you a new tax guidance on that when we have that baked in.
Our next question comes from Luc Pez from Exane BNP Paribas.
A couple of questions left. First of all, just to clarify from the previous one. With regards to the guidance you're communicating for Q2 and full year, do you think with the divestiture [indiscernible] you're talking with BPO cost-saving initiatives? That's the first question. Second question, with regards to European market, you were referring in the comments on the impact -- negative impact as I understood from the Section 232 uncertainty lately on the European market. Can you elaborate a bit more? I would appreciate. And last question related to TK Maxx and your digitalization strategy, how do you reconcile your willingness to move forward on the digitalization side and, let's say, appetite or willingness to consider such a bid because I understand that cultural differences and the time to integrate such a business would jeopardize your digitalization strategy. So how do you arbitrate between the 2?
Okay. Good. So I'll take the BPO cost question and the TK Maxx and digitalization one, and Jens is going to do the Section 232 question. So first to the BPO costs, they are not included in our guidance. So you need to deduct these costs from our guidance. And TK Maxx and digitalization, yes, that of course is something we also see. We are quite excellent underway with our digitalization strategy. Taking on a group like TK Maxx means, of course, a lot of restructuring, which needs to go on. That would be the other side where we are looking at and, say, how does that fit. So as Gisbert also today in his call was saying, we will be looking at, of course, such a deal if that comes to the market, which is currently not at the market. But of course, we will look at that and then of course, one of the considerations is how does that fit actually with our digitalization strategy taking on such a merger. So this is definitely not a done interest from our side, but of course, we will be looking at it. Then the questions which you raised and also a question about financing, which another analyst raised will be coming up, and we need to answer that at that point in time.
So coming then to Section 232, we reported on the effect on the United States, so short-term price supporting, so positive market stabilization. On the other hand, the uncertainty, what will happen to Europe, the European-related export or on the other hand, import to the U.S. is about 5 million tons. All in all globally, it's about 13 million tons we're talking about, and the question is where will that go, at what price level? And that is related to the uncertainty. Looking into Europe, for instance, Turkey is a strong supplier to the United States. If they would be excluded or tariffed, then the question also here where will that go with the direction of the European market. And with that, that creates, let's say, the uncertainty related to the effects what it will have. I mean, currently, as mentioned, we are benefiting on the positive price development in the U.S. and have to see what happens, let's say, on the European side.
We will now take a follow-up question from Seth Rosenfeld from Jefferies.
Just one follow-up. Can you talk a little bit about the development of the XOM industry platform? Can you give us an update on the number of third-party suppliers you've signed up? I noticed in the presentation it appears that Outokumpu is being flagged as perhaps the only third-party supplier. So how are those discussions coming along? Is there interest in your competitors to join this? And then, I guess, with you planning on raising additional equity for this business in second half of the year, do you think that it will be feasible if you do not at that point have a more diversified selling partner for the industry platform?
Okay, Seth. So there's high interest in the XOM platform. Currently, as you said, Outokumpu is participating in the platform. Also from our side, it's Klöckner-Deutschland Germany and also Becker Stahl-Service center. However, the onboarding process is not as fast as in the business-to-consumer sector because processes and interfaces are far more complex, and we have to, let's say, adjust to that. Nevertheless, we expect to see that in the coming months, we see more and more other third parties coming to the platform. And if we get more traction, then we think it's also feasible to get more finance -- to get financing -- equity financing in the second half of the year. And when we have more traction on the platform, then of course is also better timing to do so because then the value of the platform is considerably higher as what -- as when you do this at an earlier stage, that's also something we have been looking at and, say, what's the right timing. We said before that we are already talking to VCs, which we are. However, timing is also a good question because more traction, more value and that's why we said second half of the year could be a good point in time to do so.
[Operator Instructions] Our next question comes from Matthias Pfeifenberger from Deutsche Bank.
Sorry to be on the windfalls, but if you just strip out the EUR 10 million to EUR 15 million for Q1 and EUR 10 million for Q2 and also the EUR 25 million for Q1 last year, it actually shows a weaker underlying performance on the EBITDA at least this year versus last. And then basically the equation for the second half is EUR 100 million that you baked into the guidance versus EUR 75 million last year -- in the second half last year. So the underlying performance is weaker year-to-date and you're saying it's going to improve by EUR 25 million to EUR 30 million in the second half on a year-on-year basis. So am I missing something or was H2 driven by any negatives, any windfall losses last year?
Well, we are not standing -- we're not standing still of course in regards to our performance. So when you compare here actual over what our guidance is, there are, of course, windfall profits of EUR 40 million, which we said -- which we had in last year, then we had some windfall profits this year, which we've just said. We expect that our One Europe and One US programs actually will have additional EBITDA effect of EUR 19 million. We expect actually that we're going to have a positive price and product mix effect also due to our higher value-add strategy of EUR 10 million to EUR 12 million. We expect also to see some growth, which we assume with EUR 10 million a year, and these are all the factors why we are saying that we see that EUR 100 million in the second half of this year is feasible when you look at that. So that's what we also baked in.
There are no further questions over the phone. So I'd like to turn the call back to our speakers for any additional closing remarks.
Okay. So thanks, everyone, for participating in this call. And I hope that we will -- yes, that everything -- that you have a good day. Thanks. Bye.
This concludes today's call. Thank you for your participation. You may now disconnect.