Outokumpu Oyj New

Hello all, and welcome to Outokumpu's Q3 2024 results webcast. My name is Linda Häkkilä. I'm the head of investor relations here at Outokumpu. Today, as our main speakers, we have our new CEO, Kati Terhorst, and our CFO, Mark Simon-Schar. As per usual, we will first start with our presentations, and after that, we are happy to take 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, very much. And good afternoon to everyone. I am Katitea Horst, and I studied at Outokumpu's president and CEO on the 1st of October. I'm honored to have this opportunity to lead Outokumpu to its next strategy phase. And having been part of Outokumpu's board for eight years has given me valuable insights from the board perspective. And then prior to joining Outokumpu, I have served as the divisional CEO for IMEA at the Belgian family-owned company Aliaxis. And Aliaxis is the global leader for advanced fluid management solutions, which enables access to water and energy. But then most of my career, I have spent and worked in different countries for Stora Enso, which is a leading provider of renewable materials. And my latest position at Stora Enso was as executive vice president of the paper division. Then turning to Outokumpu, one of my first priorities is to ensure smooth CEO transition and to build the future strategy of the company together with a leadership team. While doing this, we will ensure the delivery of our set targets in the strategy phase two by the end of 2025. I'm very proud of the fact that Outokumpu is the undisputed leader in sustainability in the stainless steel. And this is the position we definitely aim to keep. And last but not least, our focus will be on delivering total shareholder value. Let's now then move to discuss Autocompost's performance during the third quarter. We reported a solid adjusted EBITDA, and this was driven by good results, especially in business areas Europe and Fevercrow. Then, taking a little bit closer look at the result, our adjusted EBITDA increased to 86 million euros from 56 million euros in Q2 2020. I will come back a bit later in more detail on the drivers behind this improvement. Then on the group level, our stainless steel deliveries were 2% lower than in Q2, so basically stable and in line with our guidance. Our Business Area America's result reflects the deteriorated market conditions in North America. On the other hand, Business Area Europe's profitability clearly improved, supported by good margin management. I was also very happy to see that business area Ferrochrome delivered solid operational performance. Further, I can say that we are very well on track to deliver on our EBITDA improvement program. We are also making firm progress towards our 2030 SBDI target on carbon dioxide reductions. Then why don't we continue discussing the market situation a little bit. The graph on the left side shows the stainless steel transaction price development reported by CRU. We can see that stainless steel market prices have been under pressure during the quarter, especially in the US. And this is very much the result of a very low market demand, coupled with increasing imports from Asia. In Europe, the share of cultural stainless steel imports rose to 27% in Q3, while the share of imports in the U.S. was 28%, and in North America, including Mexico, even 37%. Then on the right side of the graph, nickel price has decreased during Q3, which is a reflection of the current weak global economic situation, resulting in oversupply of nickel. However, we observe nickel price resistance level somewhere between 15,000-16,000 U.S. dollars per tonne, before any adjustment or bigger changes on the supply chain. Let's now then come back in a bit more detail on the Q3 adjusted EBITDA development. As already stated earlier, the €30 million profitability improvement versus Q2 was very much thanks to the good performance in business areas Europe and Federal Chrome. Compared to Q2, our stainless steel deliveries were stable in business area Europe, while they decreased by 8% in business area Americas. Our overall deliveries were on historically low level due to the weak market environment, even lower than in the COVID year of 2020. At the same time, we have been able to maintain our market shares with a leading position in Europe and being clearly the strong number two in North America. The political strike in Finland earlier this year did not impact our result in Q3. Therefore, the production volumes both in business area Europe and Ferrochrome clearly increased during the quarter. Also during the quarter, our realized prices for stainless steel remained stable both in Europe and Americas, but the production mix in Europe was slightly weaker. Then good margin management, including positive raw material impacts in business area Europe, as well as good operational performance in business area Federal Chrome, really contributed to the quarter's profitability. And business area America suffered from lower volumes and a clear margin squeeze. Then net of timing and hedging gains for the third quarter were 10 million euros compared to losses of 8 million euros in the second quarter. Moving then to sustainability. I'm very honored to say that Outokumpu is the undisputed sustainability leader in stainless steel. And I'm especially happy with a good progress towards our emission reduction target and that our recycled material content has remained at 95%, which is the highest in the industry. We are also on track to make our chrome mine in Finland carbon neutral by 2025. In addition, our safety performance is at world-class level and we work very hard every day to make sure that everybody gets home safe. In September, Autokumpu also attended the United Nations General Assembly in New York and we partnered with Climate Week to advocate the role of stainless steel in green transition. We were pleased about the attention we got for our achievements and the white paper that we launched during that week. And Mark Simon will now then continue in more detail to discuss our financial position and the key developments in our three business areas. Please go ahead, Mark Simon.

Thank you, Kati. And good morning, good afternoon, dear ladies and gentlemen. Also welcome from my side to our Q3 webcast. Given the challenging market environment, our cash and liquidity position remained healthy in line with our financial target of net debt to EBITDA below one time during normal market conditions. The increase in net debt during the third quarter is driven by a temporary increase in working capital. I will come back to more details on the development at the end of my presentation. Our planned capex for this year is expected to be somewhat lower at 210 million compared to the early communicated level of 220 million euros. For strategy phase two, we remain committed to our capex frame of maximum 600 million euros. But of course, we continue to take future market developments into account when managing prudently our capital expenditures. Overall, total shareholder returns remain a high priority. Now looking at our phase two EBITDA run rate savings, we continued to make good progress during the third quarter in which we increased our run rate improvements by 24 million euros, predominantly in business area Europe. Year to date, approximately half of the impact comes from cost savings and half from commercial initiatives. Main contributors were improved raw material efficiency, the geographical expansion of our advanced materials business to the Asia-Pacific region, and the optimization of our product mix. With a cumulative gross annualized EBITDA run rate improvement of 265 million by the end of Q3, we are very well on track to achieve our overall target of 350 million euros by the end of 2025. But now let's have a look at the performance of our business areas and starting with business area Europe. Given the challenging market conditions and typical seasonality, the financial performance of the business area was very solid with a significant improvement in profitability after the recovery from the political strike earlier this year. Despite seasonally lower demands in Q3, our deliveries remained flat quarter on quarter. Stable prices and a somewhat weaker mix were offset by improved raw material cost performance. While the scrap market remained tight most of the quarter, we were able to offset the negative impact by our continued efficient raw material procurement initiatives. During Q3, the business area was benefiting from hedging gains related to the decrease in nickel price, quarter on quarter. And these positive impacts were partly offset by higher fixed costs due to the annual plant maintenance shutdown in Avesta in Sweden. Overall, the market environment started to deteriorate during the third quarter. And according to third-party data, industrial production is shrinking and the purchasing manager index continue to be below 50, indicating a market contraction. As such, order intake started slow after the end of the summer holiday period. Supported by low supply availability in Europe during the first half of this year, as well as a very weak demand situation in China, imports into Europe continued to increase. Distributor levels also slightly increased against a weak and historically low demand situation. From an industry perspective, the demand from appliances, construction, pulp and paper, heavy industries and automotive remained subdued, whereas a positive trend in the marine, aerospace, defense, and energy sector could be observed. Let's now move over to business area Americas, where the market continued softening. While the overall U.S. economy seems to be resilient and supported by the services industry, the manufacturing sector, relevant for our stainless steel demand, has weakened notably. On top, cold-rolled stainless steel imports into the US market increased to the highest level in the last four years, while at the same time, we were able to keep our market share stable. Nonetheless, continued focus on trade policy, especially on circumvention, is needed going forward. Out of the 13 kilotons reduction In volumes from quarter two to quarter three, four kilotons relate to the flooding in our mill in Mexico, which resulted in postponement of customer deliveries into Q4. The challenging market situation, driven by lower demand and increased import penetration, together with higher raw material costs, had a negative impact on our margins. From a segment perspective, only oil and gas is performing somewhat better, all else being weak. Looking at distributor inventory levels in the U.S., they remained below historical averages, and no restocking has taken place yet. One of the reasons could be the restraint and wait-and-see attitude regarding the outcome of the presidential elections in the U.S., Well, overall, a market recovery might depend on the completion of the US election in early November and for sure on further interest rate cuts as well as an improved economic situation in China. Now, looking at our Ferrochrome business, the business area delivered again a very solid result. While the overall ferrochrome market is weak with significant overcapacity in China, the demand for our low-emission ferrochrome with European origin remained resilient. The main drivers for the profitability improvement quarter on quarter are an improved fixed cost absorption after the recovery from the political strike and B, lower variable cost supported by lower electricity prices and improved mine efficiency. From an operational perspective and in line with our earlier communication, we ramped up our temporarily closed third furnace during October, not necessarily to produce more volumes, but to take advantage of optimizing our electricity usage given the price volatility in the market. Now, my final comments relate to our cash flow development in the third quarter. As you can see from the graph on the left, our cash flow and hence the increase in our net debt during the third quarter is driven by a temporary increase in working capital, which was driven by the recovery from the political strike. as well as the preparation for the annual planned maintenance shutdown in our Tornio operations during the fourth quarter. Given the weak market environment and our aim to maintain a healthy balance sheet, we will focus on reducing working capital during the fourth quarter to improve our net debt level accordingly. With this financial update, I would like to thank you for your attention and And over back to you, Kati.