Outokumpu Oyj New

Hello all, and welcome to Outokumpu's Q2 2024 results webcast. My name is Linda Häkkilä. I'm the head of investor relations here at Outokumpu. Today, we have our CEO, Heikki Malinen, and our new CFO, Mark Simon-Schar, as our main speakers. As per usual, we will first start with our presentation, and after that, we are happy to answer your questions. Before we start with the presentation, I would like to remind you about the disclaimer, as we might be making forward-looking statements. But now, without any further comments, I would like to hand over to our CEO.

Thank you, Linda, and a very good summer morning or afternoon or evening, wherever you may be. Thank you and welcome to Autocompos Q2 results webcast. Today, as you may know, is going to be my 16th and final webcast representing Outokumpu as the company's CEO. And as you know, in someone's time, I will be transitioning then to a new job. The last 16 quarters have been quite eventful. And I can tell you, standing here 16 quarters ago, well, it was COVID times. But anyway, a long time ago, the company and the world looked very different. So it's been a real remarkable journey here over that time. past four-year time period. But anyway, let's now focus and take a look at the second quarter. And as it says here on the title, we actually feel that we had good progress in the second quarter, and I'm very happy that we were able to get our profitability back up after a fairly challenging Q1 and the first months of the quarter. If we look at the results for the quarter overall, 56 million was our adjusted EBITDA, And if you look at some of the drivers of that, well, positive was that the current market recovery, which started, I would say, last summer, which has been a bit slow and modest, but anyway, the trajectory has been upward, helped us to continue our business development and we were able to get our volumes up and therefore make fairly good improvements in the European business. The US market, however, I have to say, after a multi-quarter, multi-period of fairly robust and even stable time of development, seemed to soften a bit as we headed into the latter part of the second quarter. So that is sort of the overall market backdrop against which we have been selling and producing our products. A challenge we faced in the second quarter was clearly that we had operational challenges in the Americas and in Calvert in particular. These were operational challenges. I can tell you that we've taken strong and decisive measures to rectify them. We made decisions specifically to find ways to adjust for some of the deficiencies. And I feel that our management in Calvert have all the, are taking now the right steps to mitigate them. So we're moving forward rapidly to solve the issues. In the beginning of the year, we were facing a political strike. Personally, I feel the strike was quite unnecessary, and as I quoted before, it's quite unfortunate that Otokumpu was hit so severely. The total negative impact financially for us was 60 million, and 30 million of that approximately was divided over the first and second quarter. The scrap market continued to remain tight for a number of variety of reasons. The good news here for us was that we were able to get all the scrap we needed. And I think given our large scale as a company buyer, we have been able to procure scrap at competitive prices and also take advantage when necessary of pricing anomalies in the market if they have arisen. A few words about our strategy journey, and I specifically want to comment on Europe. As you know, Europe accounts for about two-thirds of Autokumpu's business. It's really strategically extremely important for us, Tornio being almost like the heart of the company with our two large mail shops and huge facility and operations, and also our Kemi mine, which is the only chromium mine within the European Union. We are now taking decisions to start processes within the company to find ways how we can further optimize our supply chain from Finland to Germany. we are going to start discussing with our employees in Germany, in the Krefeld facility, how we can further develop and flexibilize our operations. Objective here is also to take advantage of the fact that after the Ukraine war, the energy markets have changed quite dramatically in Europe. And if we look at electricity prices, for example, in Finland vis-a-vis Central Europe and Germany in particular, electricity prices in Finland are almost half of what they are in Germany at the moment. So with Tornio being a huge facility where when we get Tornio full, we can benefit from our local cost sort of benefits. In other words, for example, scale and electricity, and we can make a lot of money again when Tornio is full. So related to that, we will start various discussions with our employees and in the coming months and as we head into next year, we are going to communicate more about possible investments related to improving our cost competitiveness. As said, we are Europe's cost leader and we are determined to maintain a strong cost competitive position also going forward. A few words about pricing. Now, as you know, I'm always a bit cautious to talk about pricing, but I do want to share this slide because I think it at least gives us some directional view about where things are going. These are transactional price data curves, the sources from CRU. When we at Otocompo report our pricing information, we always talk about BA Americas, and you need to remember that in BA Americas, we have Mexico, and the pricing level and the dynamics of the Mexican market are different. somewhat different than they are in the United States. So this chart only looks at the US, Europe in aggregate, and then China. Couple of points at the bottom, of course, what is somewhat worrisome is that the Chinese market remains fairly weak. You can see it from this price curve. There isn't any material improvement in pricing in China. In fact, the difference to other markets is again growing a bit. That would need to change. But of course, as we know, at the moment, the real estate, for example, market is very weak. And China's very weak. The Chinese really need to stimulate local demand in significant ways to get things going again and for us to start seeing some more robust pricing improvements in China. In Europe, as I said, the trough in terms of pricing was last year in the summer, probably about July of last year. And now gradually we have been moving upward Now, no dramatic movement, but anyway, the trend is clearly upward up until the end of the second quarter. And in the Americas, after coming down somewhat, we've had fairly stable pricing in the U.S. during the second quarter. On nickel on the right-hand side, this chart is a sort of a rolling chart which averages over a longer time period the price of nickel. On a day-to-day basis, of course, we can see significant volatility on the price of nickel on the LME. I just want to make one comment that If we look at prices today in nickel, about over 15,000, maybe 15,500. So even in this quite significant turmoil we've seen in financial markets and in the stock market, and also some commodity prices have swung up and down, nickel has held above 15,000, 15,500. And I think it's a good sign that nickel is holding up. I think it gives an indication that underneath there is fundamental demand. for the raw material and for base metals in general, which of course are a major cost component and also give an indication on the health and direction of the sector. Then looking at our deliveries on the upper left-hand side, looking at, of course, comparing to the COVID years, significantly lower levels, positive again that after a strike effect in Q1, We were up about 20,000 plus tons in the second quarter, about 5%. And now, of course, looking then for a Q3, which is probably about the same levels. And then let's see where next year takes us. At the bottom left, you can see our results on a quarterly basis. I asked you to add the 30 million, which was the impact of the strike on the Q1 and Q2 numbers to get a better sense for where the profitability was. So obviously far too low compared to where we want to be. And Mark Simon in his chart will talk a bit about how you see the longer term, our midterm and our thinking about profitability. And he will explain a bit more where we are and what have been the drivers behind the change. from where we want to be and where we are at the moment. And then on the right-hand side, you see the bridge. No major, really, topics other than what I said earlier. Compared to Q1, deliveries were up 5%. We had some realized pricing declines. And then, of course, we made some improvements on the cost side, giving then us the $56 million. I want to keep my opening comments here fairly short because I said Mark Simon is now going to start and he's a good start as a new CFO and I want to give some more time for Mark Simon for you also to familiarize yourself with him and he will talk a bit more today and I will keep my remarks more brief. But this last slide here in the opening section from my side really relates to sustainability. As I really said many times, Otokumpu, in our view, is the clear sustainability leader. Just look at this, for example, the safety performance. Our safety level and the trend is really remarkable. At 1.3 so far year-to-date, it's a really strong number. We know at Otokumpu we can do even better, much better, but the trend is very strong, and I challenge anyone to compare that to other companies. You know, Otokumpu is a very strong performer comparatively to many other companies on safety. On the recycled materials side, our recycled materials content has risen over the last year significantly, and even our LTM number this year, I mean, it's an impressive 95 all-time high. I know I'm very proud about that achievement. And then on the left-hand side, you have a couple of other points regarding the recognition we have seen, been receiving from outside rating companies that look at sustainability leadership. We're on many lists nowadays. So I think the fact that we are now being recognized for our performance is also positive. And then finally, I just want to say that When the energy crisis started in Europe, we set some very ambitious targets on energy efficiency savings. We are about halfway through that project. It will take us a bit longer to achieve the targets we set, but by the end of probably next year, we will be where we wanted to be. And again, we've saved significant amounts of energy on our course, improving our carbon footprint and doing good things for the planet. So with those words, let me hand it over to Mark Simon, and he will take you over to the next section. So please, Mark Simon.

Thank you, Heike. Good morning and good afternoon, dear ladies and gentlemen. And also from my side, welcome to our Q2 webcast. My name is Mark Simon Schaar, and since the beginning of June, I'm the new CFO of Autocompo. Before I start with the update on our financials, I would like to continue on Pia's words from her last webcast and to thank her for the great leadership she provided and the strong balance sheet she left behind. Personally, the continuous and sustainable improvement of the total return for our shareholders through smart capital allocation, dividends according to our dividend policy, as well as maintaining a healthy balance sheet aligned with our strategy is at the top of my CFO agenda. As such, I'm happy to report that we maintained our strong liquidity position during the second quarter. Despite the dividend payment of 110 million euros to our shareholders and new leasing liabilities for two new liner vessels, our net debt level remained low and our balance sheet continued to be the strongest in the industry. Our cash and overall strong liquidity position, together with our capital discipline, provide us with a solid foundation to successfully navigate through times of uncertainties prepare for potential economic upturns, and invest for growth as part of our Phase 3 strategy. And all of this with a clear focus on continuously improving total shareholder returns with a clear commitment to our dividend policy. Before going into the financial performance of our business areas, let me remind you about the way we are ensuring our profit generation. namely our Phase 2 EBITDA run rate improvement targets, where the improvements are coming from, how the program developed during the second quarter, and the overall importance of the program, given the weak market environment we are currently operating in. When we launched Phase 2 of our strategy, our goal was to achieve an EBITDA run rate improvement target of 200 million euros by the end of Phase 2. Thanks to the dedication and hard work of our team, we have met this target more than one and a half years ahead of schedule in quarter one this year. When entering phase two, we initially focused on commercializing our new portfolio additions in the high margin advanced materials business with grades such as LO825 and Circle Green. In addition, we geographically expanded our established advanced material products as well as the new high-margin portfolio additions to the US and APEC by further strengthening our sales organization in the respective regions. On the cost-saving side, one of the key achievements relates to the improvement in our raw material and alloy efficiency in the commodity business. This includes an all-time high recycled content of 95%, the improvement in alloying efficiency, as well as alternative raw material sourcing. Building on this success and to combat the current weak market environment, we raised our EBITDA improvement target by an additional €150 million to €350 million in May this year. This new target will be reached through further improvements in operational performance and efficiency, along with further strengthening the commercial aspects of our business. On the commercial side, we look into further geographical expansion of our advanced material product portfolio into the growth markets Asia Pacific and the Americas. exploring new applications for established grades, and commercializing our new products in any markets, such as Sinecro 35 and Aloy 800. Given the expansion of our webshop and customer portals, we aim to capture additional multi-channel sales opportunities and will continue to release new features quarterly. On the cost savings, we are planning to achieve similar raw material improvements in our specialty grades production as we did in our commodity business. Furthermore, our restructuring plants in Germany, which we have announced in autumn last year, play another pivotal role. And finally, as part of our energy efficiency program, we have made great progress in the area of waste heat recovery, and we aim to further expand in this area. Overall, we have made really good progress and are well on track to achieve our increased target. Around 850 projects have been completed and over 250 projects are currently in implementation. I would like to emphasize that the program also enables us to improve our processes and build capabilities as a foundation for our phase three strategy. In the second quarter, our run rate improvements increased by 8 million euros. The somewhat slower pace is seasonally driven and also impacted by the strike and other temporary operational challenges we faced during the second quarter and mentioned by Heikki. Here on the slide, we give you some examples of our successfully implemented projects during the second quarter, mainly related to the introduction of new advanced material products as well as yield, quality and logistics improvements. Now, given the total run rate improvements of 500 million euros from phase one and the current status of phase two, the question is, where are those savings visible in our profitability? The answer is that the successful EBITDA run rate improvements enabled us to partially offset the significant market headwinds resulting from the weak market environment and the significant inflation we are faced with compared to the year 2019, meaning prior to the pandemic, the war in the Ukraine and other geopolitical tensions. And despite the exceptional weak market environment and the significant headwinds, we in Otokumpu remain fully committed to our early communicated normalized adjusted EBITDA run rate of 500 to 600 million euros, based and supported by our own profit improvement actions. As you can see on the slide, without our improvement measures compared to the EBITDA baseline of 2019 and prior to the pandemic, Otokumpu would have been clearly EBITDA negative today instead of the 217 million adjusted EBITDA generated in the last 12 months. Also be in mind that the market has been exceptionally weak during the past year, especially in Europe. Therefore, the additional 150 million euro increase in our EBITDA run rate improvements is of a fundamental importance as we are currently EBIT break-even and we must further improve from here. The gross impact from inflation and other headwinds, mostly one-off in nature such as the political strike in Finland, are among others driven by salary inflation, fuels, electricity, maintenance services, just to mention a few. As you can see, the stainless steel deliveries in the last 12 months are well below the level of 2019, which in itself was already a challenging year from a volume and a pricing perspective. However, through our improved margin and metal risk management, we were able to offset these negative impacts. Our own profit improvement actions from strategy phase one and two are crucial to navigate through these exceptional times, paving the platform for our phase three strategy. And let's be clear, the concept of continuous improvement measures, given the nature of our industry, will remain a constant theme going forward. So to summarize, the analysis confirms our normalized EBITDA run rate of 500 to 600 million euros, despite the exceptional weak market environment and the significant inflationary price pressure in the global market, of which part is more permanent and the other part is expected to ease somewhat over time. But now let's have a look at the results of our business areas, starting with business area Europe. We started off this year quite nicely in our business area, Europe, with a strong order inflow in the first couple of weeks. But with the long political strike in Finland, the situation changed significantly with a very unfortunate negative 40 million EBITDA impact during the first six months in Europe alone. After the strike ended on April the 7th, Business Area Europe's financial performance improved by higher volumes and cost efficiency. However, the political strike still had a 20 million negative impact on our Q2 results in Business Area Europe. Overall, the market environment in Europe remained challenging with only a gradual market recovery, as said by Heike already, despite the low distributor inventory levels and low supply availability due to industry strikes. Asian imports into Europe increased during the second quarter after the relatively low levels we saw in quarter four of last year and quarter one of this year. However, the significant increase in shipping costs from Asia to Europe is expected to put some cap on this trend. From a sector perspective, a subdued real demand continued for construction, automotive and white goods. The positive trend in energy and renewables, especially in hydrogen, continued. So overall, in order to see an inflection in real demand, macroeconomic stimulus such as interest rate cuts are required. While the scrap market remained tight, we were able to offset the negative impact by our efficient raw material procurement initiatives during the second quarter. As the operating environment in Europe remains challenging, accelerated efforts to strengthen our cost competitiveness are required, as mentioned by Heike before. I will now move on to Business Area Americas, where we are able to increase our deliveries by 7% from the previous quarter. Although our volumes increased, the market environment softened in the U.S. towards the end of the second quarter somewhat, and imports into Mexico still disrupting the regional demand supply balance. The somewhat weaker profitability in business area Americas quarter on quarter was driven by lower overall realized prices, despite a stable base price environment, the tightness in the scrap market, the downstream impact of the political strike in Finland, and some temporary operational challenges in Calvert, which resulted in a higher cost base temporarily. While the new hot rolling agreement with AM&S carries higher tolling fees from the beginning of this year onwards, I have to say that the cooperation with our partner on-site was running well in the first half of this year. Despite the current softening in the market environment, I would like to emphasize that our long-term view on the U.S. market remains highly positive. Moving on to business era ferrochrome, where we had again a solid result in the second quarter given the negative impacts from the strike and lower production volumes in relation to the temporary closure of one of our smaller furnaces and hence a lower fixed cost absorption. The market has somewhat improved in the second quarter with higher deliveries as well as higher ferrochrome sales prices. In this context, let me please repeat our early announcement that one of our smaller furnaces, ferrochrome furnaces, will remain closed until fall this year or remain closed until fall this year. Taking now a longer-term perspective, I would like to show you an interesting graph from an external source indicating how Autocompo's position within the ferrochrome market is expected to strengthen in the long run. As you can see from the graph, the high carbon ferrochrome imports from South Africa into the European Union are expected to decrease. On the one hand side, this is due to the expected reduced capacity of ferrochrome production in South Africa, given the energy supply and other infrastructure challenges in the country. And on the other side, due to higher sustainability requirements in relation to the cross-border adjustment mechanism introduced by the European Union. Here I would like to remind us that our ferrochrome is globally the most sustainable ferrochrome with the lowest carbon footprint, 67% lower compared to the industry average. And as communicated earlier, we have plans to further reduce our ferrochrome emissions, for example, by using biocoque instead of fossil coke in our production. Looking at the current market environment, we also see that ferrochrome market seems to become more and more aware of sustainable topics. More and more customers are interested in low CO2 ferrochrome and are prepared to pay a premium, a green premium. Some customers even asked to confirm supplies for the year 2026. All of this supports the importance of our Ferrochrome business and how our position within the Ferrochrome market is expected to strengthen in the long run. Now my final comments relate to our cash flow in the second quarter and our capex frame until the end of 2025. The challenge in market conditions make active working capital management even more important, and I'm happy to report that we were successful here during the second quarter. Despite the weak market environment, we were able to report a positive cash flow before financing activities. However, and equally important, given our strong balance sheet, we have the flexibility to prepare for the next market upturn in line with any market needs. When it comes to CapEx, we repeat our target frame of €600 million for our Strategy Phase 2 until the end of 2025. And given our expected cash out of 390 million euros from 2023 and 2024, this provide us with the remaining capex frame of a bit north of 200 million euros for the year 2025. And now I will hand over back to you, Heike, to give us an update on the outlook.

Thank you. Let me grab that piece of technology here. So thank you, Mark, Simon, and it's great to have you here in your new role, excited about having you work here as a CFO of the company. So we're happy to have you. Okay, so a few words from my side before we go into the Q&A. And as I've said, we've been ready here pretty much to rock and roll and get our mills up and running, ready for the next upturn. It has been, I would say, a bit of a waiting game here When are we going to see the triggers that the markets really, really start going up? As Mark Simon said, we have a number of issues starting from the situation on the interest rate markets. But there are a number of opportunities ahead of us. If I first talk about them, the U.S. market, as we've said, has been overall, it's been robust. Our view about the long-term situation in the U.S. is very positive, and we're very excited to be one of only two suppliers in the United States with our additional Mexican position. The European market recovery, when it comes, could be quite significant. We've had significant stocking now for over two years, and we know that there is going to be a significant amount of underlying demand when liftoff eventually starts. We don't know the exact amount of distributor inventories, but as I said, they must be already fairly low after such a long period. The green transition is an important secular trend in the world and in particular in Europe. We're waiting to see what the new European Commission is going to do, but as said, in the long term, Otokumpu is extremely well positioned to take advantage of the green transition. The ferrochrome example that Mark Simon just gave, I think, is really sort of a further strength for Otokumpu as we go forward. There are, of course, a number of uncertainties. The U.S. elections can bring all kinds of volatility, but I think still fundamentally the U.S. has always come out even stronger after areas or times of turbulence. The timing of the rate cuts still remains uncertain, but as I said earlier, many of our end-use markets are very macro-driven. They're very sensitive rates, so we will need to see quite material rate cuts in both the United States and in Europe. The war in Ukraine and peace hopefully there soon is an important uncertainty. However, I want to say that just imagine once the war is over and the rebuilding starts, how big and sort of a demand push that could give to stainless when most of Ukraine needs to be rebuilt. So waiting for that moment to happen. And then, of course, we have the recovery in China. Huge market, a lot of potential waiting for the trigger. Against that backdrop, so the very short-term outlook for the third quarter is that the group stainless steel deliveries in the third quarter are expected to remain stable compared to the second quarter. The slow market recovery in Europe is expected to continue while the market environment in business area America is expected to remain soft. The scrap market is expected to remain tight. With the current raw material prices, some raw material related inventory and metal derivative gains are forecasted to be realized in the third quarter. And our guidance for Q3 2024 is that our adjusted EBITDA in the third quarter is expected to be at similar or higher level compared to the second quarter. I want to finish off my part of the presentation or our joint presentation with this slide and just kind of summarize five key points about how Outokumpu will continue to develop and create shareholder value. we have the most efficient global asset base in our industry. We have a strong position in Americas, and with Tornio, we have a leading cost competitive position in Europe. Also, I want to say that when we look at our current volumes vis-a-vis how much we delivered in COVID, we actually have capacity to easily scale up an additional 30% more volume when the demand comes. We're the leader in sustainable stainless steel. Our emissions per ton are clearly by far the lowest in the industry, and we have introduced Circle Green, which is by far the absolute lowest in emissions globally. We have committed to very smart capital allocation. We have a commitment of 600 million euros for phase number two, and we intend to stick with that. We now have the strongest balance sheet in the industry. We have good liquidity. And overall, as said, we're committed also to making sure that we stay on this journey. And then finally, long-term shareholder returns are important to us. Over the last four years, we have returned nearly 480 million euros to our shareholders. And from a management standpoint, we are very committed to our current dividend policy. So with those words, I want to stop here and give it back to Linda and the operator, and let's begin the Q&A. 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.

Hi all, and thank you for the presentation. I have a couple of questions. I start with the Ferrochrome supply-demand situation. So first of all, are you planning to ramp up your third furnace during September this year, and do you think that there's enough demand for your full capacity in latter half of this year, or will you be somewhat underutilized?

If I maybe start and comment on that, um, I think overall, when we look at the demand situation, what I can only say is, first of all, what Mark Simon said, we have customers who are already asking for 20, 26 deliveries. So I think the overall trend in our position on ferrochrome and low-carbon products is very, very solid. However, and this comment will then apply also to the stainless steel side as well, is – We're now in the midst of August. A lot of customers are on vacation. And we really need to get into the first weeks of September when folks return back from holiday to really see what are they going to do regarding the second half of the year. So I think there's a bit of an uncertainty as far as what's the stance going to be. And I think within four weeks, we'll know. how this second half of the year will really start going. So unfortunately, this is as much as I can tell you, Ansi, at the moment. I think we'll be wiser in about four weeks' time. Sorry for not being able to share more just today.

Okay, I understand. And actually, to continue on Ferrochrome, can you remind us what was burdening? profitability in Q2? Like you mentioned fixed cost, but the margin was clearly lower than in Q1. So is this something which we should expect to continue

Thank you, Ansi. Maybe I take that question. We have faced some temporary operational challenges in our Ferrochrome setup with the two furnaces we were running here. And, of course, we also had the impact, the strike-related impact in Ferrochrome. But, again, both of them, as I mentioned, temporary in nature and not expected here to happen. continue in the third quarter.

Okay, Karik. And the last one is about your BA Americas. What was the impact of this maintenance break related to operational challenges? And will this have an impact on Q3 numbers as well?

Well, maybe I'll still take that. The impact in the second quarter is around, I would say, 10 million euros in that area, Ansi.

Okay, and it didn't continue until Q3.

Well, as Heikki mentioned, we have some temporary topics here, which will then also go into the second quarter. But we are working on this very, very hard together with the team over there to get the things back under control.

Okay, thank you.

Thank you.

The next question comes from Tom Jong from Barclays. Please go ahead.

Hi, good afternoon. Thanks for taking our questions. Two for me, please. The first one, just on the guidance, I know you kind of talked around it a little bit, but, you know, when I look at, there should be quite a lot of levers, right, for Q3 to be better than Q2. You're going to have $30 million roll off from the strike impact. You're not going to have as much of this America's maintenance, that $10 million. You're not going to have these temporary challenges with running the two furnaces in Ferrochrome. You've guided to raw material gains instead of losses. You mentioned Europe is still continuing to improve. Volumes are stable, which is sort of better than normal seasonality. Where's the sort of negative lever that we're sort of missing that means you could still be stable on EBITDA next quarter?

Maybe if I can start and then you can continue. Thank you, Tom. I think it's important here to add on what you were saying. You mentioned the quarter-on-quarter improvement of 30 million due to the strike impact in Q2 not being there in Q3. Here I think it's important to understand that half of that 30 million in the second quarter was driven by sales and the other half was driven or impacted by costs. So as we're guiding a stable volume forward, I think that should give you a bit of an indication how to think about the bridge or quarter-on-quarter impact into the third quarter. And then probably on the other side, as Heike and I were already mentioning, that we saw a somewhat softening market environment in the U.S., in the Americas, and that is also something to take into consideration.

I agree with you. I mean, there was some hesitation as we headed into the July period in North America and in the U.S. particular. I mean, what is sort of behind that, you know, It could be just the general volatility and uncertainty about the macro in the U.S., but that sort of uncertainty and softness leads us to be conservative, and we want to get more assurance that the trajectory after the vacation period will be as robust as we hope it to be. So, of course, we will do our utmost to generate maximum profits for Q3, but we earn on the side of being conservative here for the time being until we get more data.

That actually leads me quite nicely to the second question, which was really just about Americas. So to clarify, is U.S. that sort of negatively surprised you? Because you mentioned some comments earlier in the pre-published statements that sounded like U.S. was still okay. I would have guessed that maybe Mexico was facing a bit more in the way of import pressure. Maybe that was bringing down prices. So could you just give a little bit more color, basically, on the Mexico versus U.S.? ? splits and, you know, whether there's any potential that you could send material from Mexico into the U.S. if needed. Thank you.

Yeah, the split is roughly, I would say, given the production volumes, what we have, 600 kilotons production capacity in the U.S., 250 kilotons production capacity in Mexinox. That should give you, Tom, I think, a bit of a fair understanding of the split here.

Got it. And just in terms of, you know, in Q1, you were already mentioning Mexico was quite weak. Has that gotten any better, worse, stable, or is it really just the U.S. that's sort of softened a little bit into July?

Yeah, I would say Mexico more stable. I mean, the bottom line here is like some of these other emerging markets where Asian volume is flowing in, they don't have the same tariff protection regimes as we have in the United States and in Europe. And, of course, now with very, very weak Asia and China, you know, product is, of course, flowing and trying to find a home anywhere on the planet where there might be demand. And Mexico, I think probably Brazil, Mexico is one of the areas where that overflow seems to be coming in.

Understood. So I'm reading that as sort of Mexico has had input pressure, has continued. U.S. has been a little bit more demand issues heading into July, uncertainty and softness. That is correct. Thank you very much, Antanabek. Thank you.

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

Yes, hi. Thank you for taking my question. The first one is just a little bit on Q2 results. A month ago, you kept your guidance table to higher levels. But in the end, Q2 EBITDA ended up 50% higher quarter-on-quarter. And it seems inventory losses, shipment strike impact, all that were guided. They came as guided. So I really wonder what positively surprised there. That's my first question.

I think, Christian, if I can take that first, then we, I think, initially forecasted negative impact from net-off timing and hedging. And as the market has further developed, so did our purchasing pattern, so did our sales pattern. The impact was more positive than originally being forecasted. Okay, that's clear.

And then the second question, a bit long question, so bear with me, but it's with the EBITDA target slide you put out. So two years ago, when you talked about the 500, 600 million target, you said it included phase one and phase two uplift. But phase two was hiked by 150 million earlier this year. and the normalized target was not increased. So that would imply that the normal market that you expect to return to, and that's kind of the last bar chart, is not the same as the one you expected two years ago. And at the time, I think it was based on full utilization, historical base price. So my interest here is where do you think you're going to fall short, and where is the market different on the structural basis that On the volume side, on the pricing side, is that Europe that you see lower on a normal basis? Is that America is trying to get a little bit colder there?

A very good question, Tristan, and let me try to answer as follows. You are absolutely right and spot on. Compared to the prior years, I think we have further been impacted by very high inflation, global inflation, which we have seen over here. And hence, also looking at our current operational not operational, but financial performance, we clearly have to increase here our cost saving, continuous cost savings improvements in order to get there. If the market would fully return and also back to the level of where we made the statements back then, the reference period you're referring to, then I would say there's a further upside potential. But I would rather to be on the conservative side as well, because as I mentioned, inflation, part of it is permanent. The other part is then also maybe easing over time, that there is no imminent other negative impact as you might interpret into it.

Okay, that's clear. All right, I'll leave it there. Thank you.

Welcome.

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

Hello, thank you very much for the presentation. First question from my side is on the U.S. market. What do you see on the base price development in the near term? Are prices holding up or are you expecting some weakness in the coming months based on your order book? And within that, if we look at the broader America's business, is there any way to separate Mexinox and give us an idea whether this asset is EBITDA positive given the current import pressure? Thank you.

Maybe if I comment on the base price first, and then you comment on Mexico. So I said we don't make any forward-looking statements regarding pricing, but as I can see on base prices overall, it would seem that they have been holding up fairly stably. So that is the situation. Of course, customer by customer, there may be some change, but overall I would say reasonably stable as far as base price is concerned. Mm-hmm.

Okay. And when we think about EBITDA in here, the way how we're running the business, not only in the Americas, but also in Europe, this is fully integrated. We are looking end-to-end through the margin over here. And this is why we're reporting it from a global perspective. And then with a centralized sales team, also then really here looking at maxing NOx more from a cost center perspective. perspective.

Okay, yeah, that's fair. Thank you very much. And then second question, if we look at slide 14 with the normalized EBITDA bridge, you maintain the range of 500 to 600 million euros despite the costlier tolling agreement in the US. And a big part of how you get to that number is strategy phase two gains that have not been realized yet. But if we were to look at the first part of the left side of the bridge between 2019 to 2024, there is a lot of inflation that eats into those gains. Is that also being captured when we look at the 500 to 600 million euro range? Or is there a risk that if inflationary and competitive pressures continue to take hold, you might undershoot your expectation?

Thank you, Yanis, if I answer that one as well. As I mentioned in my presentation, Yanis, we are fully committed to that range. And what you also see in that bucket is, for example, as I mentioned, a couple of one-off items, such as the political strike, which I have not adjusted for then going forward. So to clearly answer your question, no, I don't see a risk. Thanks so much.

The next question comes from Igor Chubik from Carnegie. Please go ahead.

Thank you and thank you for the presentation. I just wanted to ask a question about in Q1 you said that you maintain your guidance for or have a guidance for Americas of 170 million US dollar as a normalized adjusted EBITDA level. Is it fair to assume that you will reach those numbers going forward as well or have you changed your view on that?

I think I mentioned in my part of the presentation that our view on the Americas, despite the current softness in the market, remains extremely positive. And as such, also our target here, normalized run rate of 170 million U.S. dollars remain.

Okay, thank you. And just another question also. Can you say anything about how the mix looks like in America and Europe?

Well, maybe I take that. If you think about in Europe about the commodity business, whereas the advanced materials business, the mix is fairly stable. We don't see any changes in here. That is what I can report. The Americas over here, here we have more on the commodity side, our commodity business. Maybe from a market environment perspective, we don't see any change in our market share here from the data which we have seen so far. Of course, when looking into different sectors, then I think it's clear, and I mentioned this as well, that there is a subdued real demand in appliances, white goods, and also in construction, right? And we also see that now... as we speak and probably also going forward based on what we hear also from the press and the OEMs that the automotive sector might be struggling at the moment a bit.

I just wanted to say, maybe you noticed today we have announced that Rolf Schenken will start here at Autokumpu on October 1st as the new head of advanced materials, member of the executive or leadership team. When we made the decision to separate Europe into the standard products or commodity side and the advanced materials, the objective really was also to get the advanced materials to become a global powerhouse, in more value-added products that go into more complex industrial applications. And so with the recruitment of Rolf, and we also have a new head of commercial who has started in spring of this year. So those two individuals plus our technical people are going to accelerate our efforts to grow the advanced materials business. And, of course, therefore, hopefully the share of the mix, as far as that business is concerned, from a value creation standpoint, will increase in the years to come. So important that the Rolf and the guys get up to speed and deliver now in their new roles. Exactly.

Okay. Thank you.

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

Good morning. Thanks for taking my questions. First, I'm sorry to insist on Mexico, but you provided some useful information about the respective share of U.S. and Mexican capacity, but is it possible to know approximately which part of the Mexican output is sold domestically and what other part is sold to the U.S.? ? And given the very high competition we see in Mexico, are you hopeful that the government will step in and take some measures to hike tariffs? What can we expect in that respect?

Maybe if I start with the material flow, Maxime, this is, if we think about, of course, we deliver from Calvert to Maxino, San Luis Potosi, we have cold rolling facility over there. There is only little or insignificant material moving back from Mexico into the U.S. market. This is as far as I can see. Then further on, we understand that there is pressure from the U.S. government on the Mexican government on working – against this import circumvention, basically, from Asia via Mexico into the U.S. market. And there are talks about certain texts or duties to be put in place.

Anything? No, that's exactly. I mean, we will see after the election whether it's Trump or Harris, which way U.S. trade policy goes. But I would assume both candidates will push for tougher trade.

Okay. And, and, and yeah, in that respect, my understanding is that the plan to possibly expand your controlling mean in the U S is not at all, um, jeopardized or, um, challenged by, by, by the current situation we're seeing both in the U S and Mexico, right?

I don't see that the Mexican situation, uh, has any material impact at the moment on the U.S. business. I think they're somewhat separated. But, of course, if a significant number of our customers in the U.S. were to decide, you know, to go into Mexico and produce there, and the situation would change, of course, that would be a risk. But I don't see any signs of that at the moment.

But at the same time, we are the only stainless steel producer in Mexico with a cold rolling facility in place, right? Yeah.

Lastly, on imports, they have picked up quite significantly in Europe and the US. Given the increasing pricing differential between Europe and Asia, should we fear a further rise in import pressure in the coming quarters, according to you? Conversely, in the U.S., given the new molten port concept that seeks to prevent some imports from being smuggled to Mexico, can we hope for lower import pressure, conversely, in that region going forward?

Sure. Of course, trade flows initially are very dependent on what happens in China and Asia, as I mentioned earlier. very much depends now on does the Chinese government start to stimulate domestic demand or not. So if the stimulus comes here, and I at least saw in Bloomberg some indication that the Chinese were noticing that the measures so far they've taken haven't really had any material impact. So if this changes, I think it will take away some of the import pressure. Also, freight rates have been fairly high. That's a positive for us. Any logistics issues on the Suez Canal, positive for us because it's a heck of a long journey through south of Africa. Honestly, we can only talk about scenarios. It's impossible to say which direction this is going. But, of course, we hope that the tariffs and the CBAM, all of these things, plus our own decarbonization journey, will help to maintain a robust position for us, but also European suppliers vis-à-vis Asian imports. It isn't only an issue for us. It's for all of the European companies that are trying to – manage in this global trade imbalance, if I call it that, with Asia having so much capacity.

Okay, helpful. Yes, thank you, and good luck to you, Heki, for your next endeavor.

Thank you very much.

Thank you.

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

Yes, good afternoon all. My first question is a quick follow-up on Americas and actually Calvert specifically. Could you please explain exactly what is the issue there? And then also, I think you said earlier you had these 10 million maintenance charges. Can you just briefly confirm that this is the entire group number for the second quarter? I think, as you seem to expect, this level to drag on into the third quarter as well. Can you maybe share with us whether there is any maintenance due in the fourth quarter as well, and if so, how much? I'll stop here for now.

So if I first comment on the operational point. So first of all, I want to make this clear what Mark Simon said earlier, that the collaboration and cooperation we have with AM&S, which are a partner who do the hot rolling on the other side adjacent to us, that that collaboration, cooperation is going very well actually. And we've been happy with the performance and things are going fine. And I'm very pleased with the agreement we made with AMNS, you know, a bit of a year ago. So that's been a positive, you know, decision for us. But the specific operational issues, I can say they are not technology-related, so that we do not have a technology problem. They are more specifically related to our internal processes within the, let's say, the upstream part of the facility. Things we can control, things we can change will require some capital, not a lot of money, but some money, and it'll take some time here to organize ourselves to get those solutions in place. But as I said, we know what we need to do. Our management team has made proposals in Calvert on what they need. Those investments have been approved, and now it's time to execute. So I think that hopefully we will start making good improvements in short order.

Maybe if I can probably add to that one as well, if that's okay with you, then I would like also to remind us that we do have maintenance work, maintenance break scheduled in our Swedish facilities in the third quarter. And as such, if we think about maintenance costs quarter on quarter, then you should think about that. middle single-digit numbers in additional maintenance costs over here.

And Bastian, you wanted to ask, please continue, sorry. Yes, sorry to not let you go with that.

Like on Calvert again, you say upstream. Is this related to the hot rolling mill or is that related to the mail shop? And I guess what has changed versus before? Because it was obviously a very smooth running operation, so I'm really wondering what has changed.

There is no, as I said, the hot rolling is going fine. And that's, of course, the main thing, because, of course, that is the process, which is a big process. And, of course, if that wasn't working, you know, we would have all kinds of issues. So that is fine. There's no reason to be concerned. It really relates to partially to the melt shop, also partly to our raw material in feed. Materials we can completely fix ourselves. It will take a bit of time. It is not technology-related, so it can be completely fixed. And as I said, Tamara and the team know what they need to do, and we look forward to seeing the improvements soon.

Okay, cool. Thank you. Then just on the maintenance break, so it's got to be like a mid-single-digit incremental stand on maintenance versus Q2. In the fourth quarter, is there going to be – a similar level of maintenance or is it going to be higher or is it going to be lower in the fourth quarter?

Well, first of all, we don't give yet guidance on quarter four, but I think what we can say is that we are going to have maintenance work in our tonal facility. This is as much as I can say at the moment.

Okay. Understood. Okay. And then secondly, on cash flow, I guess metal prices have moved quite a bit. What is your latest view on working capital and how it develops in the second half for the full year? I guess your second quarter performance was clearly a little bit better versus what you indicated earlier. So has your view for the full year changed and what is the current status quo?

Yes. Thank you. What we expect in the third quarter is that we see a somewhat increase in our working capital in order to prepare for the maintenance break I was just referring to in the fourth quarter in our Tornio operations. And as such, I would say a... maybe a bit higher double-digit increase in our working capital and as such also probably on the net debt level side. But as Heike was saying as well, we need to see how the market is going to develop after we are coming back from summer breaks, basically, and we will observe and adjust accordingly to any market needs over here. But at any times, we will keep our efficient and active working capital management.

And for the full year, what is the increase you're expecting? Like, is it going to be an increase at all?

Well, as I said, we need to see how we're working out after the summer break and so forth. But I would see then for the fourth quarter, based on what I just mentioned, somewhat a relief towards the end of the year. But this is, again, against the market situation. What is it right now, Bastian?

Understood. Great. And then just last question, please. I think in your statements I saw this comment that you obviously aim to leverage the structural cost advantage of, like, having access to clean and, I think, cheap energy in the Nordics. What do you mean with this? Because I guess if one is cynical, one could read this as the intention to run a very aggressive volume and cost leadership strategy. I'm pretty sure that's not the case, but maybe we can just elaborate a little.

But it basically means that, you know, we have an integrated supply chain from the chemi mine, the ferrochrome operations, the stainless facility, and then into Germany, Krefeld. And the two things, of course, if you look at cost competitiveness, you know, you have your fixed cost and your variable costs. And we are now telling you that we are going to accelerate our plans to try to improve our cost competitiveness further. There are structural cost questions relating to our Craven downstream facility. I mentioned we are discussing the discuss with the unions about what options we have. to more flexibilize our work there. And then secondly, I mentioned the fact that after the war, the electricity price difference between Finland and Germany in particular has really spread. I mean, we're basically almost talking about, you know, double difference here. So it is our intention to look for ways how we can even more leverage, you know, the local cost electricity advantage we have up here in the north. and that will require some investments at some stage. My successor, Cathy, and Mark Seaman will then report back to you when we have, you know, when we're ready to make decisions. Just wanted to give you a heads up that we are going to start to pre-pone that plan. Initially, it was a bit thought we would do it later. We're now going to bring it a bit forward in time.

Okay. I mean, it seems like this is coming on top of the 150 million additional earnings improvement. Is there already a number you could put to this?

No, no number yet, Bastian. As I said by Heike, this is only an early announcement. And as I said, together with our new CEO, Kati, we will then report more when we have solid information available for you. That's it. But to be clear, it is on top, has nothing to do with EBITDA run rate savings here. This needs to be detached from each other.

Got it. Okay, perfect. Thank you.

Thank you, Bastian.

We will be taking no more further questions. Thank you for your interest.

Thank you.

So, ladies and gentlemen, this is, as I said, it's my last quarterly talking with you about Otokumpu topics. I want to finish off with a couple of thoughts from my side. As I said, I think there are two things I'm especially proud about. Today, Otokumpu is really number one in sustainability. in CO2 levels in the industry and globally. I think that's a massive achievement we've made. And also the fact that we basically now have the strongest balance sheet. When I started, we were sitting on a massive amount of debt. Today, we basically are de facto debt-free. A big thanks to all the people within the Otokumpu team who have contributed to this massive effort. I also want to thank our customers, our suppliers, and, of course, all of you in the financial community and our investors who have placed their trust on us during my tenure. Over the coming weeks, Kati Dehorst, who has been appointed my successor, Kati and I will work very closely to ensure a very smooth transition from me to her to make sure that all the plans we put in place can be then in a very systematic way implemented when she comes. Obviously, as new CEO, she will have to make her own choices, but I think as she's been on the board and she's committed to the current journey of the company, I think we have a We know roughly where we're going here. So I think we're going to have a great CEO, and I look forward to seeing her in the new job. And then finally, I want to just say that if we look at Autocumpo, I mentioned that in Europe, for example, we have potential to go increase our volumes from current levels even up to 30% compared to where we were in COVID. This company is ready for a liftoff. We just need to get the markets going, and we can move forward and make a lot of money. So with those words, I wish all of you a great continuation of the summer, and thank you once again. Goodbye.