Outokumpu Oyj New

Hello all and welcome to Outokumpu's Q4 2024 results webcast. My name is Linda Häkkilä and I'm the Head of Investor Relations here at Outokumpu. Today, as our main speakers, we have our CEO Katiter Horst and our CFO Mark Simon Schaar. As per usual, we will first start with our presentations 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 very much Linda and very warmly welcome everyone to our Q4 and full year 2024 result call. So before I continue to discuss the result in more detail, I would like to say a couple opening words. So in today's geopolitical situation and with the ongoing tariff discussions, they are creating a lot of uncertainty for companies, industries and countries. That is in general not good for the investment climate nor for the economic growth in the world. Autocomp is of course a global player in stainless steel production in Europe and North America, and we are in principle clearly an advocate of free trade and fair competition. However, as Asian imports have increased significantly both in North America and in Europe, we do welcome the measures to establish a level playing field. and steel should also be seen as an infrastructure-critical industry worth protecting. Furthermore, Outokumpu is in a very key position. Outokumpu is the industry leader in sustainability, and stainless steel is part of the solution for the green transition. For instance, in electrification, transport and energy. Let's now then move to discuss our result. To summarize the year 2024, our adjusted EBITDA totalled 177 million in euros. The market conditions were difficult in terms of stainless steel deliveries and prices, but we kept our market positions. Number one in Europe with 31% market share and the clear number two in North America with 24% market share during the year 2024. Then ferrochrome this time actually contributed to 60% of our result and provided further stability. And there's clearly more interest for our low-emission, geopolitically well-located ferrochrome as the only producer in the EU area. Then we are clearly the industry leader in sustainability and safety. We are well on track with the emission reduction target, and our total recordable incident rate of 1.5 is really a world-class performance. And then despite the weaker profitability, we did maintain the strongest balance sheet in the industry and returned 144 million of capital to our shareholders. Given the current situation, we have continued to work on measures to improve our profitability. During 2024, we reached 101 million EBITDA run rate improvement, bringing the cumulative number to Euro 287 million by the end of the year. We will deliver the targeted 350 million improvement target by the end of this year, including both commercial and cost-saving actions. One recent structural change that I could give as an example is, for instance, the centralization of the advanced materials production in Germany to Dillenberg, while we were then also at the same time closing the Hockenheim Coal Service Center. This will deliver 50 million savings during this year. And due to the delayed market recovery, we have decided additional short-term cost saving actions to protect our result and financial position. And I move now to comment on that. So we will deliver 50 million of short-term cost-saving actions that will be coming into our result during 2025. And this includes a range of measures from improvements in procurement, operational efficiency, to cutting discretionary spending and postponing some of the recruitments. We have also decided to limit this year's capex to 160 million. We will definitely continue to take care of the needed maintenance, but we are then delaying somewhat some of the more strategic investments. Before we take a more detailed look at Q4 and the full year 2024 result, I would like to also comment on the market price development. As you can see from the left graph, market prices continue to decline in Europe during the Q4, while prices stabilized in Americas after a continuous decline since the beginning of 2023. At the same time, if you look at the right side of the picture, the LMEI nickel spot prices decreased then towards the USD 15,100 level towards the end of the year. And there are two key reasons for the continued price pressure on the market. Firstly, the low demand reflecting weak economic activity, low consumer confidence and basically no growth in industrial production, neither in Europe or Americas. Secondly, low-priced Asian imports have been flooding to the North American market and Europe, reaching 25% share in Europe and even 38% share in North America during the Q4. Next, I will then like to comment a bit our full year and Q4 result in more detail. So if we compare 2024 to the previous year, our group deliveries decreased by 6%. There was a difference, however, between Europe and America. So the deliveries decreased by 11% in Europe and they increased by 8% in America, coming from a low level in 2023. European demand was historically low during 2024, even lower than during the COVID year of 2020. Profitability both in Europe and Americas was negatively impacted by lower realized prices for stainless steel and unfavorable impacts from a tighter scrap market. But I would also like to note that without the Finnish political strike impact, our result would have been around 240 million. If we then add the impact of the operational issues that we had during the first half of the year in Americas, then we would have come to something like 280 million, so 100 million more than we are now reporting. And these issues in Americas have been solved. Let's then turn to look at the Q4 in isolation. So the key message that we have here for Q4 is that the stainless steel market in Europe turned out to be weaker than we expected, both in terms of volumes and prices. Our deliveries in Europe decreased by 9% and in Americas by 7% versus Q3. Realized prices were lower in Europe and relatively stable in Americas. In addition, we had a negative raw material impacts and our costs were higher, mainly due to the prolonged maintenance in Tornio, as we communicated earlier. And then business area Ferrochrome continued to perform very well in Q4 through their efficient production and energy optimization. After this, I would like to turn to discuss our sustainability performance. So Autocomp is the clear sustainability leader in our industry, and I'm extremely proud of that. We have by far the best safety performance in global steel sector, and indeed our total recordable incident frequency rate of 1.5 is a world-class level, also in the broader global process industry. Then our high scrap rate at 95% is the key contributor to our low carbon footprint for stainless steel. And we are tracking very well towards our SPTI target, reaching now 32% reduction in our emission intensity by the end of 2024 compared to the 2016 baseline. Then in line with our smart decarbonisation strategy, we will reduce CO2 emissions in ferrochrome production by gradually moving and replacing the fossil coke with biocoque. And to support this plan, we have now decided, that was announced earlier, decided to invest in biocarbon production in Germany. And to support Ferrochrome further, our chrome mining chemi will be carbon neutral by the end of 2025. And we are also experiencing increasing customer demand and interest for our low emission minimized, let's say, emission minimized Autokumpu Circle Green that we launched already more than a year ago. One note that I would like to also do here and end is that in this geopolitical situation where we are, managing the supply chains has become even more critical. And I would like to highlight in that regard that the Ecovaries has ranked Outokumpu among the top 1% of companies in the world assessed by the platinum rating. And now I would like to hand to Mark Simon Schreier to discuss further our financial strength.

Thank you, Kati. Good morning, good afternoon, everyone. Welcome also from my side to our webcast. In times of weak economic environment, securing the financial strength of a company is paramount. Kati already talked about us addressing our cost and earnings trajectory, and I will now continue with providing you an update on our financial position and liquidity at the end of last year. Let me share with you then the following overview. I must say I'm very pleased that our net debt decreased quarter on quarter to a level of 189 million euros, keeping our net debt to adjusted EBITDA ratio at 1.1. Here, please remember that our target is to stay at a leverage ratio of one during normal market conditions, from which we are currently far away. Adjusted for the impact of the political strike in Finland during the first half of the year, the leverage ratio would have even been below one. Due to swift measures to address the current market environment, we were able to improve our liquidity reserves to a strong level of 1.1 billion euros. At the same time, our 2024 annual capex was at 260 million euros. As Kati pointed out, we adjusted our capex plan for the financial year 2025 to 160 million euros, which decreases our phase two capex target by almost 50 million euros to a level of 550 million. During times like this, we must carefully manage our spending with a clear focus on smart capital allocation and especially the right timing of those. Let us now have a look at the performance of our business areas, starting with business area Europe. In Europe, we were faced with tough market conditions towards the end of last year, which led to an unsatisfactory result. The deliveries of 287 kilotons in quarter four were the lowest amount at least since 2015 and 12% less than a year ago. While imports increased year on year up to a level of 25% in the fourth quarter compared to a level of only 19% during 2023, we were able to keep our market share relatively stable in Europe, despite of the political strike impact in Finland earlier in the year. Given the low demand and high import pressure, realized prices decreased quarter on quarter. At the same time, we had increased raw material costs due to the impact of higher prices from earlier periods when we had to replenish our supply chain following the political strike. These higher costs negatively impacted our profitability in the fourth quarter. In addition, our fixed costs were higher driven by the maintenance work which was concluded in the fourth quarter. Variable costs seasonally increased due to slightly elevated energy prices. Furthermore, we had less gains from net off timing and hedging quarter on quarter. Now looking at the market environment, the manufacturing industry remained in contraction with a PMI below 50. For a proper demand recovery, consumer confidence and industrial production needs to improve. This requires a supportive and reliable investment climate with competitive energy prices, lower interest rates and overall more visibility. Generally, investments are made with a long-term perspective in a stable and predictable investment environment. Therefore, from an industry perspective, the European demand situation in appliances, construction, chemicals, heavy industries and automotive had not improved yet, but the energy, marine and mining sectors continued to run better. Additionally, we have seen distributors to notably replenish their inventories. So far, the update on business area Europe, and let's move over now to business area Americas. In the fourth quarter, the US manufacturing sector experienced a continued contraction. Overall, while there were signs of improvement in November, the manufacturing sector faced challenges throughout the quarter, including subdued demand, policy uncertainties, and inflationary pressure. In Mexico, the manufacturing sector also continues to face challenges with a PMI below 50. Concerns in the automotive sector, rising insecurity, protectionist policies and competition from Asia with currently only minimal tariffs are contributing factors. At the same time, imports into the North American market rose by three percentage points to 38% in the fourth quarter, double the level in 2020. The imports were predominantly coming from Asia, and while imports also increased year on year, we were able to keep our market share in North America stable at 24%. In this market environment, distributor inventories stayed on low levels, but given the low demand situation, the inventory days remained on a relatively high level. While the low demand situation was visible in all sectors, oil and gas continued to be on an okay level. As a result of that and given the typical Q4 seasonality, our stainless steel deliveries decreased in Q4 while we maintained our market share as mentioned before. The negative impact from production and deliveries was offset by lower variable costs and a positive impact from a property tax settlement in the U.S., Going forward, we expect the US market to be supported by increased domestic production and more infrastructure investments to come. But now let's continue with our business area, Ferrochrome. While the Ferrochrome market also remained challenging, I'm very pleased with the business area's improved result in quarter four, certainly benefiting from our unique, low-emission, European-based product. The main driver for the profitability improvement versus the third quarter was a strong cost performance in both variable and fixed costs. This was partially offset by a negative impact from lower internal deliveries, as we have seen before. Overall, the market outlook for our unique Ferrochrome remains positive and is even further supported and accelerated by the CBAM implementation starting in 2026. In these times of political uncertainty, it is important to remember that we are the largest producer of ferrochrome in the Western world. Most of the world's ferrochrome production happens in BRICS countries. And then furthermore, I would like to highlight our announcement earlier in January that our mineral reserves estimates doubled based on our underground drilling results. The updated total estimated reserves corresponds to a turnover of approximately 15 billion euros based on January through September 2024 average prices. In this context, I would like to remind that there is sufficient ore availability until 2050s without any major investment needs in our chromite ore mine in Kemi, Finland. Now my final comments relate to our strong financial position. As mentioned earlier, I'm happy to say that our net debt decreased quarter on quarter well below 200 million euros, supported by active working capital management, which we intensified after we saw the further weakening of the market. We will continue with our active working capital management and smart capital allocation, which is vitally important in the current market environment. The increase in net debt during the last year was mainly driven by the soft earnings, including the unfortunate negative impact of 60 million euros from the political strike in Finland. Total capital returns to shareholders of 144 million euros, including both dividend payments and share buybacks. and additional lease liabilities of 34 million euros for our three new liner vessels. Especially during these times of a challenging market environment, we maintain our strong focus on and take decisive actions to keep Otokumpu's financial condition healthy. With this financial update, I would like to thank you for your attention and hand over back to you, Kathi.