Outokumpu Oyj New

Hello all and welcome to Outokumpu's Q1 2024 results webcast. My name is Linda Häkkilä, I'm the head of investor relations here at Outokumpu. With me today as our main speakers we have our CEO Heikki Malinen and our CFO Pio Aaltonen-Forsell. As per usual, we will first start with our presentations, and after that, we are happy to take your questions. But before we start with the presentation, I would like to remind you about the disclaimer, as we might be making forward-looking statements. But without any further comments, I would like to hand over to our CEO.

Thank you, Linda. Good afternoon and good morning to everybody. Welcome also to Outokumpu's webcast here to discuss our Q1 results. And it's nice to see you again after a couple of months. So today we have a lot to discuss again. Let me start with this slide here first of all and tell you that, as you've probably seen, if you followed our announcements, Q1 was a pretty eventful quarter for Outokumpu. Looking at how the year started, the first four, six weeks of the year were actually pretty good. Our order inflow in Europe was actually pretty nice. And I really felt after the first month that this is going to be quite a nice quarter. But then, unfortunately, events changed. Political strikes began at Outokumpu, and basically, our three smelters in the ferrochrome plants and our two huge smelters in the steel plant were closed for four weeks. Also, our port was shut. And, of course, as you know, within the otokumpu system, when torneo is shot, of course, it does have material implications. We had to make two profit warnings, and ultimately, we've had to guide down the results. So, what started off as a really nice, good start ended up in what was, of course, not a satisfactory outcome. Political strikes per se have been a bit of a phenomenon in Finland. The government is moving towards adjusting the legislation, and let's see what Parliament decides, but at least the proposal will be to to sort of modify the legislation when it comes to political strikes, that the duration would not be that long if they take place. But anyway, for Otokumpu, this was of course a big and unfortunate start to the year. And we have worked very hard to try to mitigate the impact. We indicated initially that the first half year would probably take a hit of about 80 million euros. At the moment, we think it's probably going to be about 60. It's still a big number, and as I said, we're very sorry for the negative impacts for our customers, obviously not something that we wanted to be happening here. But beyond that, if we look at the implementation of the strategy, our phase two is going according to plan. Actually, we're a little bit ahead of plan. And today we have announced that we are going to raise our performance improvement target for phase two from 200 million euros to 350 million euros. Obviously, we have cost inflation. raw material costs rising, we see wage inflation, and also we have now the impact of the strikes, which we have to also financially recover. So that is why we then decided that it was necessary to raise the performance target. So that is kind of where we ended up, you know, Q1. And if we then look at the markets, What obviously is interesting is to see what happens with prices. I mentioned after the presentation in Q2 and then also in Q3 that I felt that as we headed up, we came out of the summer of 2023, that we felt that that was the trough in commodity prices in Europe. And since then, we've seen gradual improvement in pricing that continued also in the first quarter. Nothing major, but we can see gradual movement month over month on the price levels. And you can also see that with that fine light blue line on the curve on the left-hand side. So European prices have risen somewhat. We're obviously not where we used to be, but anyway, the direction of movement has been positive from the standpoint of the producer. And in the United States, we've had some continued moderation of prices. If you look at the curve on the bottom, you can see the situation in China. The Chinese situation is, of course, complicated in the sense that China is such a huge player and Asia in general is such a huge player in the global stainless industry. I had already expected last summer that the Chinese government would have stimulated their economy and really gotten the, let's say, consumer activated to buy, but that has not happened. And subsequently, we can see that the oversupply globally stemming initially from Asia just continues to burden the whole markets. And we see that, for example, in our case in Mexico, there is increased imports from Asia. We know we've seen that be the case also in Latin America and some markets and so forth. In Europe, we haven't really seen that much massive import pressure in spite of the very weak situation in Asia and in China. On the right-hand side, we can see nickel. We have been trading somewhere between 16,000, 18,000. We've had a couple of months even at 19,000. That seems to be momentarily roughly the LME nickel price range where it is trading, although many other commodities have actually moved up very robustly, like copper, but nickel is now moving sideways in that position. Then if we look at our deliveries, well, here it's again a tough, tough story, because if you look at the last three quarters, our deliveries have been somewhat about 400,000 tons, which of course is clearly lower than we've seen in some of the past years. I want to make the comment here as we look at our results that if we had, first of all, I want to make the comment that the deliveries, of course, impacted now by the strike were 10% less than in Q3 of 2020. So the volumes were really low, even lower than we saw in the midst of COVID in Q3 of that year. But if you then look at the results of the company, so even though the results are modest, Pia and I were just doing some modeling that if you look at the volume level today and compare that to the past, in the past, at this level of volume, we would have been clearly in negative EBITDA. So our performance improvement measures, our cost reduction measures have brought, improved our break-even point quite clearly. And even with this low level of volume, we're still able to maintain, you know, positive EBITDA. Again, not at all happy with the absolute level. But I do want to make the point here that our performance improvement measures have had teeth, and they really have had an impact. On the right-hand side, you can then see the red bars. They just pretty much signify or show what the impact of the strike and declining volumes were. One thing I want to mention is still I want to come back to this scrap question because we have seen the scrap market tighten actually now for two, three quarters. This is not a phenomenon also in Europe, but it's also the same situation in the United States, so intrinsics are moving upward. And so one could ask, so if the market isn't that strong, so why is the scrap market tight? Well, at least a couple of reasons. One is in Europe, there used to be some volume coming from Russia. That volume is not coming anymore. Secondly, industrial activity in Europe and also in the United States on the manufacturing side is surprisingly low. And when it's slow and consumers are not buying new washing machines, you don't have this normal turnover from the residential side, well, then the scrap volumes are not also circulating. And so simply, there is not the amount of robust supply coming, and that starts to tighten the market. I do, however, at the same time want to make a comment here and say that we as a company have been able to get all the scrap we need. We have a good relationship with our suppliers, ChroniMed being one of them. We do not have to import any scrap from other regions, from other continents, so we get everything we need from Europe. We don't need to buy any extra primaries. And also, if you look at our working capital, given the structure of the supply with our scrap dealers, we don't need to carry any huge burden of working capital. And I think the way we've organized our supply chain is good in the sense that we don't have that working capital burden. Actually, our system is pretty efficient. Then a few words about sustainability. Well, I always want to make the comment about safety. And you can see the long-term trend of the company. We've been working on this for decades. And today, if I look at that 1.2 TRI number and compare that, for example, to the chemical industry, we're starting to be here at chemical industry levels, which, of course, is a much more closed process than what we do in the steel side. So the direction of movement is right and good. And, of course, we have many plants where the TRI number for last year and this quarter was zero. So we're making good progress here. And in terms of recycled material rate, we are at very, very high levels, 95%, 96%, and our mission levels are going down. Then a comment about shareholder returns. Well, very happy that our AGM approved the $0.26 dividend for each share. That has been paid in April. We have renewed our dividend policy two years ago in the summer at the CMD. We have completed the second share buyback, which is related to our convertible. We have returned 144 million euros to our shareholders. So we have a strong commitment and dividends remain a very essential and key part of our equity story. Then before I hand over to the... presentation to Pia, let me just comment briefly on some of the recent announced changes. So first of all, Pia, After working for about five years for Otto Kumpu, has been announced that she's moving on to a new challenge. And I'm very, very happy that we were immediately able to appoint Mark Simon Schaar, who you will then see in Q2 live here next to me. Mark Simon Schaar has been working for the company for over a decade. He has a very strong financial background. He's worked in many different roles. Last role now, he's in charge of all of our procurement, raw material procurement general procurement and has been leading that very successfully and i was very pleased that mark simon is excited and willing to take on this very very important role So you will then see Mark Simon briefly, or not briefly, but from August onward when he then shares the podium with me. The other major news, of course, was my announcement that I have submitted my resignation and have decided to take on a new opportunity working for another company, another industry. I have worked for Otokunbu in different roles, first as a board member since 2012 after the merger for eight years, And then, of course, four years in the role of CEO. We may come back to this topic in the Q&A, but as I said, I do feel that I'm leaving the company in very strong hands and in many ways in a very good shape, not only looking at it from the standpoint of where we lie in terms of the balance sheet. But maybe we come back to this question if you want to delve on to that a bit more. But with those sort of comments from me, let me hand it over to Pia and she will dive into the numbers and then I'll come back and make some general comments about how I see the coming near term future. Thank you very much.

Very good. Thank you, Heikki. And I have to say this feels quite special and a bit emotional as well. My last and final presentation here as CFO for Outokumpu. It's been a true pleasure and privilege, of course, to be in this role and also to serve all of you to the best of my ability. And I also want to say something about Mark Simon. I'm not going to make a bad joke. I'm really going to say we worked side by side in some really tough spots. And I think the professionalism that Mark Simon showed also for example during some refinancing events and during some other important events in Outokumpu history, I think really shows me that he has what it takes to become here a really successful CFO of Outokumpu. But now let me go to my presentation today. So first of all, repeating the strength of the balance sheet. We have the strongest balance sheet in the industry. That's the result of a lot of hard work and also a very consistent policy, the way how we have worked together with Heikki and also with the whole management team. So obviously that's visible now with still a negative net debt figure at the end of Q1. And also through the fact that our position in terms of cash, in terms of liquidity remains strong. And that has enabled us to fully remain committed to our policy when it comes to shareholder returns. We have paid dividends of 110 million this year. We have also completed the second share buyback program. So I think all of those are really, really good and strong points. Let's then look a little bit at the announcement that we made today about hiking the target. And Heikki already mentioned this, but let me take you through a few more details on that. So we announced that we will hike our strategy execution target when it comes to the EBITDA run rate from 200 million euros to 350 million euros. And first of all, if we think about what's the nature of these improvements, I would say it's about 50-50. into more like operational efficiency, raw material efficiency, also costs, and about half is more on the commercial side. And you may remember that when we launched this strategy phase two, we also talked about the fact that we wanted to be able to release some more capacity in Americas with very modest investment. So we talked about some $20 million investment and 80 kilotons of more capacity being released from our current platform. And I think we are very well on our way in terms of enabling that. So the investments have proceeded well. However, the market has not quite been there to absorb it. So that's something that we still have, let's say, ahead of us to benefit from. We also talked quite a lot about the throughput efficiency, especially in the commodity business in Europe. I think that has been really well projected as well. So we can see that already in reduced working capital, in reduced inventory needs. But as well, they're sort of placing that in the market still lies ahead of us. But we have also added here a number of cost measures. And I think the harshness of the market situation The fact that we can see both sort of the price level under pressure now already for a longer period of time. We can also see actually that our volumes are quite low. So all of these measures have really been necessary already from that perspective. And then adding the strike and of course the inflation that we have been going through in the last years all add up to the necessity of doing this. And on the inflation, I still want to say that even though inflation now is clearly slowing down more back to sort of historical levels in Europe, we have not had a deflation. So the cost levels remain elevated compared with a few years ago. So that's really the rationale. And someone asked me that you just keep doing these improvement programs that, you know, why is the result then not every year, you know, up to several hundred millions more? And I would just say that, you know, we constantly live, you know, in a very dynamic market with a lot of changes. And I think that the fact... that under this market pressure we are able to do still a positive result in our EBITDA level in Europe despite a very difficult situation. I think that's a proof point of the success of these programs. But now let's then look a little bit into the results. So I'll start with BA Europe. And I think we already commented quite many things here on the harshness of the market. And Heikki also gave a good overarching view of the scrap situation, both in Europe and in the US. So that's really valid for both. And that's clearly adding as well to a squeeze on the margins that we can feel right now. Are there some good elements? Yes, there are definitely some good elements. We can see that inventories are now really low when we talk about distributor inventories that we can measure. And it also means that some sort of replenishment has started. Heikki talked about the activity that we could see on the order intake early in the year. Obviously, the strike situation was hurting us. We were not able to take as many orders, but we can see again sort of a healthy order intake now that we are back after this strike event. And also, Avesta and our more specialized grades, I think we have continued to enjoy a sort of reasonable or even good market situation in some subsegments where it's energy, maybe it's green transition related, where projects are clearly still carried out. despite the fact that we haven't seen the interest rate cuts yet. So the market is gradually improving. It's clearly not improving in any sort of rapid speed, but there is indeed a gradual improvement that we can see right now. The volumes, however, remain on a very low level, and I think if we would paint an even longer time series here, you would really see sort of the low market volumes that are prevailing currently. I will move to BA Americas, and here I would also start by pointing out the volume. I mean, we had 150 kilotons quarter, and you could say that it's still a testimony to the U.S. market being in reasonable shape. What we can see, however, is that the market in Mexico has really been under a lot of pressure from imports. And there is a link here to the situation in Europe. I mean, the European demand has been weaker, price levels have been lower, and there's been some measures to curb some of the imports. So, holistically, this overcapacity that somehow originate in China but finds its way globally through maybe also third countries, has also been flowing into Mexico. I assume not only Mexico, I'm sure also to other countries, for example in Latin America. But all of this is adding to the pressure in Mexico, and clearly Mexico is a market with less trade protection, or clearly less trade protection than, for example, the U.S. And why is that important for Outokumpu? Well, if we look at our balance of capacity, if we look at our cold rolling capacity, you know, out of the 600 kilotons cold rolling, we have 350 kilotons in the US in Calvert and we have 250 kilotons in Mexico. That is really the majority of that really stays in Mexico. So, you know, that market dynamic also is meaningful and important for us. So, I don't think that this impacts at all our long-term view of the market, but short-term, clearly, some of the turbulence globally now has somehow also been finding its way into the Mexican situation. Not so much the American situation, even though there are imports, they have been on a fairly stable level. What else is there to say? There's still one important topic, I think, relating to this quarter and also impacting the second quarter. And that's some issues that we've had on the operational side. We are just now out of a big maintenance break where we were repairing some of, for example, these exhaust ducts, and we have had some issues there already during the first quarter. We were now able to repair and fix all of that, but I think that has to some extent kept us from doing really sort of those top volumes in the quarter as well. And just to remind you, okay, so there was this Mexican situation But the 150 kilotons, I think you should compare with sort of other top quarters where maybe we have done like 180 kilotons. So, you know, there was clearly some volume also missing on our side. And then we could see the same issues on scrap as in Europe. So I hope that clarifies a little bit about our performance and clearly these operational issues are now should be something that we have in the past, but they are still impacting also the second quarter. Maybe I'll take Ferrochrome a little bit more briefly. I think we were able to mitigate some of the strike impacts. However, we did also feel the strike during the first quarter here. So with that in mind, I think there was a very reasonable result of 22 million euros in the quarter. And when we think about the capacity utilization, we still have one of the smaller furnaces shut down temporarily until August of this year. So it still talks about the market that is only maybe starting to recover. And of course, a big part of our ferrochrome demand goes also internally to our stainless. And when those volumes have not been at the strongest level, that also impacts then ferrochrome. My final slide on CapEx guidance for this year and also on the cash flow. So I think on the cash flow, I think it's enough to say that having this sort of big effect like a strike certainly put a really big impact. pressure on our supply chain. So we did continue to buy raw materials. Obviously, we continue to operate in Americas, despite the fact that we had some operational challenges. We continued also, of course, buying also in Europe. Avesta was operating as normal and we also bought something for Tornio. But we had a lot of disruption in our production and the flow was not sort of as smooth as it usually is. So with all of that in mind, I'm happy with the end result where working capital was really in the end balanced and kept under control also in this quarter. And now just looking into where we are sort of headed for, obviously we were still negative net debt at the end of Q1. Q2 sees a similar or slightly better sort of market environment or results, but we are paying the dividend So clearly that puts some pressure now on the debt in this second quarter. And then finally on CapEx, recall that we said 600 million euros for the strategy phase two execution and we are now really you know really all in for delivering improvements and that means that we will also stay consistently within the 600 million capex limit for these three years we were 170 last year so we will hike this up a little bit this year to make sure that we can deliver all those improvements so about 220 And I think that leaves a little bit north of 200 then for the year 2025. But with that said, back to you, Heikki.

Thank you, Pia. So a couple of... let's say, slide here to finish my part of the presentation. So first of all, a few comments on how we see these opportunities in the market. So first of all, of course, the U.S. being such an important area for us. The stimulus in the United States, of course, as the elections approach is really remarkable, even though we have rates At Fed funds over five, we're having this massive amount of federal government stimulus, and that seems to be keeping employment good and demand still at the reasonable level. Also, we're starting to see German PMIs bottoming. German service PMIs are clearly starting to move upward a little bit here. Manufacturing PMIs are not declining anymore. So hopefully, Germany starts to climb itself out of this more weaker period as well. As I mentioned already, the year started off with a better order book for Outokumpu, and that gradual improvement in demand seems to still continue. Distributor inventories now, after almost a two-year decline in stocks, I mean, they clearly have bottomed, and gradually the restocking just has to start to take place. They just cannot forever maintain so low inventories. And of course, when rates are very high, I understand that many companies don't want to hold working capital, but still, eventually, the buying to restock has to start. And then we have all the green transition investments, which, of course, they take their time until they come. But as we move here through the decade, gradually they should start showing up also in terms of project orders, especially for our advanced products, but also some commodity stainless, for example, hydrogen-related investments. Uncertainties, of course, as we all follow, following the US Fed rate cut decision and also the ECB. I think for us, of course, it does mean, I think, two things. One is, of course, we know that a lot of companies are holding off restocking because the working capital is very expensive. And then, of course, we live in a buy now, pay later world. So when everything is happening based on leverage, so when rates are high, people postpone the purchase of a home, the purchases of home appliances are delayed, and then, of course, car buying is also postponed. So rates do have a material impact on our business directly and indirectly. The war, unfortunately, continues. That is, wars are always inflationary, which is a problem. And then we have this whole question of the unresolved Chinese or, let's say, Asian overcapacity, but most of that is somehow linked to China in the end. So I'll just call it sort of Chinese overcapacity. And that, of course, remains then to be seen how in the future that hopefully will be managed and resolved. Then let me finally summarize the outlook for the fourth quarter. So group stainless steel deliveries in the second quarter are expected to increase about five to 15 percent compared to the first quarter. The recent political strikes in Finland are expected to have a similar negative financial impact in the second quarter as in the first quarter. The scrap market is expected to remain tight, as we saw that in the first quarter. With current raw material prices, some raw material related inventory and metal derivatives losses, They are expected, and they will be realized in the second quarter. And our guidance for Q1, sorry, our guidance for Q2 is that the adjusted EBITDA in the second quarter of 2024 is expected to be at a similar or higher level compared to the first quarter. So that, in a nutshell, is our presentation, and we are happy now to entertain any questions that you may have. So thank you very much.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Ansi Rousey from SEB. Please go ahead.

Yes, thank you for the presentation, Heikki, Pia and Linda. A few questions from me and first one is about VA Americas. So could you maybe quantify the impact of the strike in Finland and also these operational challenges and talking about the impact on EVTA in VA Americas? But they're trying to figure out that run rate.

Yeah. Ansi, is it okay if I briefly answer that? I think, first of all, when we look at the strike impacts, 30 million was very much upstream in the first quarter. That's sort of natural. So those impacts, I would say, were broadly out of BA Europe and, you know, very much out of sort of Tornio direct deliveries. Q2 impacts are more downstream, and there was... There was one or two deliveries that were planned to go also to U.S. and Mexico. So that's why we mentioned it, that there is actually some impact. But if you think that there is in total 30 million impact in the second quarter, only a part of this relates to the U.S., and it's definitely a smaller part. So we haven't given kind of the country split. But, you know, it's not a double-digit number, let's put it that way. And if I may then just really briefly continue on the operational issues. You saw that we were still able to do 150 kilotons deliveries in the quarter. So I think there was a lot of sort of, you know, mitigating actions and, you know, sort of making things work. But it was very harsh and, you know, it was a lot of hard work. So obviously on the margin we lost something. We also are not really able to get sort of out of those issues before this maintenance break. We are out of the maintenance break now, but I mean, it's 7th of May today. So an early part of the quarter has also been impacted by that. So it means that we cannot kind of speed up from where we were in the first quarter before that.

Maybe I just say about the doctor failure. Of course, we have predictive maintenance, which we carefully monitor. all of our production lines to make sure that we don't have any unplanned needs for maintenance. But unfortunately, in this particular case, there was some damage to one of the ducts. And the unfortunate situation here was that it's a duct which is very, very high, on the top of the furnaces, and you needed a special crane which was able to lift a very, very large weight piece of equipment, and getting the crane in place and doing all the maintenance was just technically a bit of a challenge, especially when, of course, we need to make sure that everything is super safe. But anyway, the work has been completed, everything is okay, but as I said, it was a bit of a more complicated thing to manage this time. We will learn from this as well and do our best to make sure that doesn't happen again.

Got it. Thanks. The second one about VA Europe. So there have been some comments about the demand picking up in white goods, but have you seen anything like this? And maybe if so, how long does it take for you to see it in a scrap market? activity.

Well, I think in terms of wide goods, you can look at the large white good suppliers so you know that their dust two or three quarters have been very very difficult for them and i said you know of course there's a the rate level and and the uncertainty that consumers face of course that drives and postpones uh you know their decision to buy but there are there are some indications of pickup here um i would i would caution you to assume it's going to be a you know rocket launch like we saw after kovid But it does seem that we've hit the bottom here in that respect. Now, in terms of the scrap side, it is really more of a question that we need to get the overall industrial machine to run in Europe, and then we will have more scrap running through. And this isn't only about the home appliances. There's the chemical industry, many other sectors which are also using a lot. The whole German economy is very export-driven, as you know, and so the German economy also has to start running its machines, and then the volumes will start picking up. But as I said, as I mentioned, for Otto Kumpel, we are able to get everything we need. Our scrap sourcing is completely under control. We get what we need, and we have good relationships. And as I said, we don't have a system where we need to carry a big working capital burden, which is, of course, a positive for us.

Okay, thanks. And finally about your guidance, like what kind of scenario you see that your EBITDA would remain flat and not increase in Q2? Like after all your volumes are increasing, you have mentioned that prices have maybe bottomed already and now the impact from the strike is also guided to be flat Q1Q. So what do you see here as a risk?

Right. So I would maybe say a few topics that we need to keep a clear eye on. And one of them obviously being the sort of tightness in the scrap market. I mean, we start to be already mid-quarter soon. So, you know, soon enough we'll sort of know the situation until the end of the quarter. But that has been a situation that has been developing early this year and got tighter and tighter. So obviously, we need to keep a tight eye on that one. We also need to keep an eye on the operational issues that we did face, for example, in the Americas. And now that the recovery is prompt, as we have assumed, and at least we have been really successful until now that the maintenance break went as planned. But however, that's also something to keep an eye on and that brings some variation. And then there has been volatility in the nickel price. And obviously, you know, much of the things for the second quarter is already locked in. But they're still, you know, on the edges, probably something that remains open as well as then the hedging results. So, I mean, I think there's sort of a number of topics that will just, you know, merit to be monitored as per usual.

but maybe it's still renewable. Talking to some of our suppliers who have been, you know, following the scrap industry for decades. So they're basically saying that they have not seen a situation like we're seeing now when industrial activity is so low and the sort of scrap supply is so reduced. That is fairly uncommon. Typically, the system, you know, circulates much better. So waiting really for the industrial activity to restart and consumers to buy, and then scrap should start flowing again normally.

Great. That's really helpful. Thank you.

The next question comes from Tristan Gresser from BNP Paribas Exane. Please go ahead.

Yes. Hi. Thank you for taking my questions. If I may follow up on the scrap market, the comments you made, it really doesn't seem you you will start to see some sign of easing even in Q3. So you basically rely on industrial activity to pick up to finally see this Edwin move away. So do you expect that to happen in Q3, or do you expect more of the same? And also, I would be interested on the spot basis, have you witnessed some improvement in margins in recent weeks? Because we've been talking about higher prices. If I look at the chart, you know, the differential between prices minus cost of scrap, it still has increased. So I would be curious to know if you've seen that happening in both Europe and the US. That's my first question.

Well, I think on prices, as you know, we have also a lot of contract business. And, of course, when you have capacity available and if there is, of course, spot demand, then, of course, you have a chance to price it on a spot basis. But it is, of course... That's a good question. How long will it take for the European machine to restart and reset? We don't have a point of view on how long that will take. What we can talk about only now is Q2, and we see it is still somewhat sluggish here. We can get the scrap we need. I'm not worried about that. But when you look at the overall cost side, as Pia said, so at the moment that pressure is still there. Of course, we're doing everything we can to reduce. We're working on our yield. We're looking at all kinds of ways to reduce our metal costs, our metal usage. We have a lot of stuff going on in the company to reduce the cost of metal that we use ourselves. in terms of the amount and then optimize that all the time to find the right mix of metals. But as I said, this may take a while before the machinery starts. But as I said, we don't have any formal point of view on that, unfortunately, to share with you.

All right, that's clear. And the second question is on the import pressure in Mexico that you've seen of late. I believe the Mexican government has put in place some license requirements and has also hiked tariffs for a number of steel products. Do you think that's enough and that's going to move the needle and that's going to bring more relief into coming quarters? And given that you'll see... operational issue alleviate and maybe the import situation turning a bit better? You reference, you know, 180,000 ton of volumes in the U.S. as a good quarter. Should we expect that level to be reached? Maybe not in Q2, but in the second half of the year? Thank you.

In terms of Mexico, you know, the United States has also raised their concern about, you know, the import volume into the Mexican market. Some of that, of course, ultimately will then flow also, at least in terms of finished goods, into the United States. A good part of the production we do in Mexico actually remains in Mexico, so we're an active participant in the Mexican market, which is a long-term advantage, I believe. We're the only supplier, stainless producer, on location in Mexico. But as I said, for the time being, this global oversupply seems to be putting pressure on Mexico as one of the markets, and at least we don't see at the moment that that tariff in itself will completely mitigate the issue, simply because the oversupply is too large, with Asia being too quiet, so to speak. In terms of then the 180,000, what point of view would you like to share?

I think it's a historical figure, of course, as well, depending on the mix. But I just think it shows the opportunity that is there and that we are still not at the top of the market. So definitely, I think we are sort of climbing towards that with some improvements quarter on quarter. as we seasonally will see the weakest quarter then in Q4. So will we reach there in Q3? I definitely would not make any statements about that yet.

Okay, that's clear. And just the default toll-making operation in the U.S., I think you managed to unlock around 50,000 tons back in Q4 out of the 80,000. Any update there?

We still have work to do on that remaining 30 kilotons. So those projects are still ongoing. But I think the really key question here is when will sort of the market opportunity be there to benefit from this?

All right. Perfect. Thank you very much for the answers and all the best for whatever lies next for you, Pia.

Thank you so much, Tristan.

The next question comes from Ioannis Mazvoulas from Morgan Stanley. Please go ahead.

Thank you very much for the presentation. First question is for both Heike and Pia. As you're leaving the company on a far stronger financial and operating position, from your perspective, what do you think the main priority should be for the new leadership team once the transition completes? Thank you.

Well, of course, I try to try and give you a short answer. I'd like to talk about this for a while, but I mean, just I mean, where are we today? Well, we know our balance sheet is the strongest in the industry. We're fine. Actually, we have a lot of a strong backbone. We have a management team which is strong, good sustainability record. We're well ahead in terms of phase two. Of course, I think if the economy stays tough here for a bit of a longer time, of course, the new management, the new CEO and the CFO, of course, have to make sure of getting us through this tougher financial period. And for us, of course, it means very much cost control, being very efficient and trying to increase, you know, further improve the productivity in the company. But then going forward, it's going to be all about phase three and making the right choices in terms of capital allocation. The dividend policy, the focus on shareholder returns, I think the company and the board are very committed to this. So how to then find the right set of investment options that provide us the longer-term returns, that is a fundamental strategic choice. And I think the new management then, both CFO and CEO, will have to make those choices. We're making a lot of good background work here and analysis to compare different alternatives. We have a lot of investment ideas from where we can choose, but it's more about creating the right package than sequencing that over multiple years and looking at how do we make sure that those investments then really return what they need to and that the investments are executed in a way that really they're on budget and on time and all that good stuff. So I think that's probably going to be some of the priorities, how I see them at the moment for the new. Anything you would like to add?

I'm sure Mark Simon is watching this. So Mark Simon, make sure the balance sheet stays strong, then all of this other stuff will be possible.

Very clear. Thank you. Thank you very much for the comments. Second question, just on the guidance for Q2, You mentioned negative raw material effects despite the rise in nickel prices, and I guess that's separate to the comment on scrap. Can you remind us your hedging policy here and what drives the guided loss for the quarter?

Thanks. So first, I would say when we talk about the raw material related inventory gains and losses, I'll just say it's historically it's been a lot about nickel and it's really nickel where we also can hedge. If I would look where there is maybe some kind of a bit of negative momentum right now, it actually relates to ferrochrome. So just to sort of put that out there. But if I return to Nikol and how we hedge, I would say we have, let's say, some ability here to make judgments, but we have a very conservative core of the policy, which really relates to, you know, where we have certain commitments in terms of buying and selling, there we also then need to go in and hedge accordingly. And then we are not hedging inventories in full, but there we have some opportunity to flex, maybe also dependent on the market situation. I was really happy with how this risk management policy worked last year, where sort of holistically, you know, the position on nickel timing and hedging was very close to zero in a year that was plagued by, you know, a rapid deterioration in the nickel price. Now, obviously, we're sort of seeing the opposite movements, but I think still this has worked out in a good way for us.

Thanks very much.

The next question comes from Bastian Sinagowitz from Deutsche Bank. Please go ahead.

Yeah, thanks and good afternoon all. I do have a quick follow-up on America, if that's okay. I guess if we look at the bridge which you are providing in your chart deck, you're not referencing to the new hot-rolling agreement, which has started as of January 1st. So, could you please give us the all-in impact from the new agreement versus the fourth quarter? And then also, was there any impact from customer commitments in Europe, which you tried to honor via supply from the Americas? And if so, how much? That's my first question.

So I think to start with on the customer commitments, it did not kind of go the way that we would have delivered out of US or Mexico to Europe. So that did not impact the figures here. And then we have not really disclosed the full commercial impact. of the new hot rolling agreement. However, at the point where we disclosed that we have entered into a disagreement, we said that we believe that our sort of sustainable EBITDA level in dollar terms, which used to be 200 million, is now we see it at the level of 170 million. And we have impacts both on the sort of variable side of it and the fixed side of it. But really, when you look at the bridge, as obviously you have done, you will see that what major impacts were from Q4 into Q1. It was this lower price level really impacted a lot also by what's going on in Mexico, as we have discussed, and then the tighter scrap market situation.

Thanks for that, Pia. Then just on the outlook here and also in the context of the 170 million midterm EBITDA perspective, which you're providing and which you're still committed to, it doesn't really seem, at least for the moment, that the current market situation is unwinding. I think maybe some volumes are coming back, obviously. Some of the operational issues are dragging on, but then we still obviously have the pressure in Mexico, as you say, and I guess also the tighter scrap market. Maybe that will unwind later, but it doesn't seem to be for the moment. Even besides that, do you think that you could get this back towards the 170 million run rate level in Q2 or Q3?

Maybe this year, as we have experienced it now, has come with many surprises. And this is maybe a bit of a transition year from what was, you know, a deteriorating market situation into something back into something more normal. So when exactly is then that pivot point? I think that's maybe a bit difficult to foresee. However, you know, as sort of a direction, I'm sure that we are heading again back towards that 170% million annual run rate. So the sort of the speed of the movement here, I think, is dependent on many also external and macro factors, you know, that are sort of big themes that maybe kind of would take up too much time to comment here.

Okay, perfect. And then lastly on cash flow and your investment line in particular, And I'm wondering how much the actual underlying CapEx number has been and how much has been the part attributable to Cronymet. The way I understood it is that roughly 45 million difference to last year's CapEx number have been attributable to Cronymet. And so you actually spent 15 million underlying. but I'm not quite sure I got the statements right.

I think that is a little bit of a harsh conclusion. I wouldn't go quite that far. We have quite, you know, we have also some of the capex that is under this header of energy efficiency and strengthening the core, where I think we have now, let's say, successfully launched some projects, some projects both in, for example, Tornio and Avesta as well. So I would not attribute that all. We have not disclosed the exact figure for that, but that is sort of jumping the gun a bit. So it's a smaller number that is coming through the share purchases.

But still for the whole three-year period of phase two, it's the 600 million. So the 220 is a bit of a bigger number, but then in 2025, it'll be a little bit of a smaller number. So adding up to 600.

But the cronimate number obviously is not included in the 220, right? So I was just wondering how much of the 220 budget you spent.

It is, apologies, Bastian, if I understood that wrong. It is included. I mean, when we talk about the capex, it's really kind of the full cash out, including also these other types of investments, for example, in the share format.

Okay, including cronimate. Okay, that is correct. Good clarification. Then just looking at the overall capex budget and the cash flow outlook for the rest of the year, you talked about working capital because of what happened due to the strike. I guess you've been clearing at least maybe some of your distributor or own distributor network inventory and seems like you may be still freeing up some further working capital in the second quarter, but I guess maybe in the second half at least if the business is picking up, you may have to rebuild some inventory and working capital. What's your outlook here for the free cash flow from the free cash flow side? Would you be confident to say that you expect to be able to generate cash this year?

Well, I think it's pretty much, you know, where we stand right now is still a good balance. I actually think that we already during Q2 might have a little bit of investment into working capital, particularly if we consider some of the seasonality. I mean, some of the maintenance breaks in Europe during Q3, etc. There's probably a bit of buildup that we will at least try to do. Let's see now. I mean, this is a tight situation following the strike just to rebalance the system in Europe here again. So I would say in terms of working capital, what I would expect is somewhat of an investment, particularly towards the end of the year. I would not call or deem this material. Our working capital is at the level of about 900 million right now in some earlier sort of top years. I mean, we have been a little bit over a billion. I mean, the fluctuation will not be hundreds of millions, but certainly from what I see right now, I could imagine that we would go 100 million up from the previous year. And that still remains to be confirmed by Mark Simon as kind of the plans for the remainder of the year. get more clarity. And then I think this capex figure is quite clear. So then it's really up to the recovery then of the market and how results can pick up towards the end of the year. And I think that's really what we need to observe. So it's definitely still possible, but I think it's too early to give the prediction for the end of the year, given just that the market development will be a key to that. And as said, the market development is also depending on some very sort of big macro events such as for example lowering of interest rates etc okay excellent very clear thanks so much pia and also from my side all the best for your next steps well thank you so much the next question comes from moses ola from jp morgan please go ahead

Thank you so much for taking my question. A few from me. So firstly, please, just on the delivery impact, so the impact on deliveries in the first quarter from strike direct impact in Europe and America, is it possible if you could just quantify what that direct impact was, please?

Yeah, I think there's maybe sort of big picture. I can give a little bit of a flavor for that. I mean, we initially thought that we would be able to increase our volumes quarter on quarter with maybe roughly 10%. And what we saw here in the end that we were pretty flat quarter on quarter. And that impact was really more from Europe, sort of the downstream impact, including America's can be then visible to some extent in the second quarter. So that's... That's sort of as much as I can say. I think the mitigation actions that we did that also took the strike impact in total down from 80 million to 60 million are those that are then also benefiting Q2 so that the Q2 impact, the downstream impact, is not as harsh as we initially thought.

I mean, so within the 5% to 15% higher quote-unquote guidance, that still relates to the Americas as well, despite the downstream impact that you've spoken about.

It does. You're right. Absolutely.

Okay. And then just a second question is related to the American market. So given the ongoing weakness in Mexico and the low pricing environment, do you feel that there is perhaps maybe a risk into the U.S. given Mexico is a key supplier into the U.S. if you look at the import share of deliveries for the U.S. from Mexico? In your experience, do you see that that could become a risk over time if the lower pricing environment in Mexico is retained?

So far in the past, we have not seen that flow through. So at the moment, of course, cannot forecast about the future, but at least at the moment, we're not getting a signal from our own organization saying that would be a concern.

Okay, thank you. And then just finally on the ferrochrome business, so you reported the deliveries separate from the production, which is useful. And I see in 2023, you built up around 50,000 tons of ferrochrome stock and even into this quarter as well, production outpaced deliveries. Do you feel that your current utilization rate is still appropriate, given still the weakness in downstream demand, and how do you expect that inventory, how do you expect to work through that inventory into the rest of the year?

I think we will see some, you know, lower inventories already at the end of Q2. Where we are right now, I think we have one of the smaller furnaces is temporarily closed, and that's planned to continue until August. And I think with that, we are balancing the system and sort of finding a pathway here to a more optimal inventory. I would just say with much of the uncertainty that there has been with this sort of rapid movement, strikes, you know, all sorts of issues, of course, there is probably sort of a bit of a higher inventory level that we want to maintain long term compared with maybe very low historical values. But nonetheless, I would say from where we see the inventory at the end of Q1, we still expect it to be somewhat lower at the end of Q2.

Okay, that's understood. Thank you very much and wish you both the best on your future endeavors.

Thank you.

The next question comes from Maxim Koga from AutoBHF. Please go ahead.

Good afternoon. My first question is on the plan to expand cold rolling capacity to line it in the U.S. with your hot rolling meal agreement and your milk shop capacity. Are you still on track to take a decision by early 2025? I think that was a deadline that was previously mentioned. What do you think of the project in the current environment?

Yes, absolutely, Maxim. Thanks for the question so that we can talk about it. I think our underlying view of the US as an attractive market certainly remains. And as I said before as well, We have already unlocked some capacity in this phase two execution and now certainly sort of, you know, also await the moment when we can actually deliver that to the market. So our work continues in the background. And I think, of course, as always, if there's any relevant update, we will share it. But I think there's background work we need to do. and the team is working on and and we will continue to do that now and uh and uh it's sort of the the february timeline then of next year that that still is relevant at this point in time okay and um on mexico um i mean is it fair to assume that you will remain there um either loss making or only barely

profitable given that you have no real competitive advantage, you are not integrated upstream, you suffer the competition from import, so is that country bound to remain in a difficult situation for the foreseeable future or do you see a way, do you see room to revert the situation?

I almost believe, Heikki, you also want to answer, but let me just first say, at least clearly from my side, I don't think we are at a competitive disadvantage. We are the only producer with locally anchored. And I think this sort of a situation where there are global you know, big global pressure and excess volumes somehow seek an outlet, you know, this can also be mitigated by proper trade policy and kind of stabilize the situation. So I think there's probably a path forward which brings back the balance. But of course, right now the situation is tough, as you have also alluded to.

Maxim, thanks for the question. Somehow I feel like I'm looking at it completely different from another angle than you are, because as I said before, from a geopolitical standpoint, we believe Mexico will become a very fundamental place for manufacturing for the U.S. market, and we will see less, for example, home appliances be produced in Asia for U.S. exports. Of course, depending on now who is going to be running the White House, time will tell what happens to U.S. import policy vis-a-vis Asia and China in particular. But we believe near-shoring or friend-shoring, as they call it, will become a big theme. And long-term, Mexico is an exciting place to be. And as I said, we're the only one on location. So I don't really see any disadvantage. I actually see a superior advantage for us. We can provide local support, local service, fast delivery, and tailor-made customer demand locally vis-à-vis importing it from somewhere else. So I'm actually very pleased with our situation, but as I said, the import pressure at the moment is a bit of a headache, but I'm sure eventually that also will be mitigated, like it's been solved in many other jurisdictions as well.

Okay, that's it. And just the last one on potential share buybacks, because I think you still have a bit of buybacks to realize to fully cover the dilution from the convertible. So what are your plans in that respect, notably in terms of timing?

Yes, so you are correct that we currently have about 33 million shares in treasury and sort of currently looking at about 45 million shares that would be necessary for then the repayment of the convertible in July of 2025. And that still obviously remains sort of a tool. We could still use the share buybacks for that purpose. And of course, there are also then other ways of settling that. So at this point, we have not announced more share buybacks. So let's see then, probably for Mark Simon to answer then in the next calls.

Thank you very much.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

So thank you very much. And once again, excited to have you join us here for this one hour. Let me finish you off with a couple of thoughts. So first of all, as I said, the first quarter started off pretty well for us. Unfortunately, we had the strike, but it's now sorted out. and we are on our way for recovery. We have also made a decision to raise our run rate target for Phase 2 from 200 to 350 million to boost our returns. Secondly, we also made a comment that we feel confident that America's business area can deliver under normal circumstances 170 million dollar adjusted EBITDA performance. And then thirdly, as a company and management and also the board, we are committed to strong shareholder returns and we stick with the dividend policy. So that is sort of the backbone of all of our doing. I look forward to seeing you again in the second quarter in August when we release our results. And as I said, wish also Pia all the best in your next part of your journey.

Thank you so much, Heikki. Thank you all.