Outokumpu Oyj New

Hello all and welcome to Outokumpu's Q1 2025 results webcast. My name is Linda Häkkilä and I'm the head of investor relations here at Outokumpu. With me today as our main speakers, we have our CEO Katiteer Horst and our CEO Mark Simon Schar. 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, Linda, very much. And dear ladies and gentlemen, welcome to our first quarter of 2025 results call. Let's get then going. So our Q1 adjusted EBITDA improved clearly to Euro 49 million in a very volatile market conditions. Our deliveries increased by 11% on group level, 13% in the Americas and 11% in the business area Europe. The one week strike that we had in Finland had a 50 million negative impact on our group result. And this impact was then mainly in business area Europe. What I would like to especially highlight is the excellent result in business area Ferragrom. And it was actually the best result since Q2 2022. We also had a good quarter regarding raw material costs and recycled material content, which actually increased to all time high of 97%. This contributes positively to CO2 emissions. We also targeting 50 million short term cost savings as communicated earlier during 2025 and we are well on track to achieve that. If we then look at the market and especially talk a little bit about the Asian imports, both in Europe and in North America, I would like to state that we have kept our market positions in both continents, but Asian imports continue to be at a high level and they are putting pressure on prices, especially in a still muted demand environment. So during Q1, the share of Asian imports stood at 23% in Europe and 33% in North America. So in the EU, we clearly need urgent measures to create a level playing field and therefore we are actively participating through Eurofair, but also as Autocompo in the discussions with the Commission regarding the steel and metals action plan. So in these difficult market conditions, we concentrate mainly on our own actions to improve the performance. Then shortly commenting on our 350 million EPITA run rate improvement program. So after Q1, we are standing at 313 million of cumulative run rate improvements and will reach definitely the target of 350 million by the end of 2025. Key contributor to the 26 million improvement during Q1 was the closure of Dalbrook and transfer of the precision strip operations to Dillenburg. And we also benefited from scrap optimization and yield improvements in Calvert and Aavista. Let's then look at the group result a bit more in detail. So operationally, we had a very good quarter despite the one week strike in Finland that impacted our supply chain and result. As commented earlier, stainless steel deliveries increased by 11% from the previous quarter. And our cost position improved due to lower maintenance cost, but also because of the 11 million short term cost saving measures that we delivered during Q1. Also, our active raw material cost management compensated quite nicely for the negative impact from the pricing. Further, I'd like to highlight that Business Area Ferrochrome did an excellent job in electricity and cost optimization, which you also see in this bridge. Then the sustainability highlight of the quarter is our record high recycled material content due to the high scrap share. And this contributes both to lower cost and lower CO2 emissions. If I then start to comment a bit the safety performance during Q1, we did not reach our total recordable incident frequency rate target of 1.5, but landed with a rate of 1.9. This is still a world class level, but not a performance that we are satisfied with. And therefore we have taken prompt corrective actions to get back on the targeted level. We made good progress towards our 2030 SPTI target and EcoVadis renewed our platinum rating. And our chemimine, as communicated earlier, will be carbon neutral by the end of 2025. And this mainly results from the additional measures we take into further electrification of the mine. Alfala Val is one of our key Circle Green customers and our strategic partnership using Circle Green in innovative plate heat exchangers at Lax Hospital results now in 60% lower product carbon footprint. And we've seen that Alfala's competitors have also noticed what Alfala is doing as a pioneer and we have started also discussions with us on CircleTrain. And then I'm handing over to Mark Simon.

Thank you, Cathy. Good. Next slide. Good morning. Good afternoon, everyone. And thank you for joining us today. As mentioned earlier, in times of uncertainty, financial resilience remains our top priority. In this context, I am pleased to report that with a successful execution of a new 200 million term loan, we have strengthened our total liquidity reserves to 1.2 billion euros. Alongside this, we are making good progress on our short term cost saving initiatives and we are firmly on track to limit our capital expenditures to 160 million euros for this year, fully in line with our earlier communication guidance in that way. As expected, our net debt increased somewhat in the first quarter to a level of 252 million euros thanks to an only moderate seasonal increase in working capital, reflecting our ongoing commitment to capital discipline. This limited the increase in our leverage ratio to only 1.3. Now, looking ahead, our convertible bond matures in July this year and we have already received the second conversion notice at the end of March. As you can see from my earlier statements, we are prudent in how we manage our financials and this enables us to take care of our shareholder returns. For the fiscal year 2024, we declared a dividend of 26 euros per share with the first installment of 13 cents per share paid out in April this year. With that, let's take a closer look at the performance of our business areas, beginning with business area Europe. Despite of the minus 15 million EBITDA impact from the strike in the first quarter, business area Europe was able to improve its profitability significantly, albeit from a low level. At the start of the quarter, we saw a slight uptick in order intake. However, the overall market sentiment remained cautious with customers continuing to adopt a wait and see approach. While March saw the first improvement in the manufacturing PMI in two years, the index remained below the 50 point threshold indicating an ongoing contraction in the area. Even with modest gains in both the manufacturing and the service PMIs across the Eurozone, the overall growth in Europe continued to be restrained by the economic headwinds impacting the current sentiment. On a more positive note, a BA Europe's profitability was supported not only by increased volumes, but also by lower raw material costs, less maintenance work and the successful implementation of our cost saving measures consistent with our earlier guidance. With that, let's now turn to the performance of business area Americas. Also in the North American market, uncertainty prevailed. At the beginning of the first quarter, the US manufacturing sector showed modest growth. However, as the quarter progressed and together with the new tariff measures, they began to weigh on the momentum in the market. In contrast, Mexico's manufacturing industry continued to contract, facing significant headwinds from external economic pressures and declining demand. At the same time, imports into the North American market declined slightly, but remained elevated by historical standards. Much like during the rollout of Section 232 in 2018, many importers accelerated their shipments in late of last year, beginning of this year, to stay ahead of the newly announced tariffs. This front-loaded effect temporarily stabilized import volumes, even as higher duties came into effect and put pressure on pricing in the North American stainless steel market. Now, supported by seasonal factors, our business area Americas delivered a strong performance with increased deliveries. Distributor inventories remained on similar levels in Q1 compared to Q4 of last year, and the energy as well as oil and gas sector continued to be stronger. Whereas on the other side, automotive and appliances see decreasing demand, driven by the weak economic conditions and cost increases caused by the tariffs. Besides the increase in deliveries, the BA's profitability was further supported by a strong cost performance. Together, these factors effectively offset the impact of lower prices, which we have seen in the market. While recent US economic data reflects a drop in consumer confidence and signs of renewed inflation and pressure, driven partly by the new tariffs, we saw a positive shift in customer behavior, meaning the demand for domestically produced materials has increased and improved our order intake during the quarter. Now, let's move on to business area, ferrochrome. The demand for our low emission European ferrochrome remained strong, with deliveries up by 24% quarter on quarter. We also benefited from a stronger US dollar, which supported an increase in our average sales prices. In terms of the broader market environment for ferrochrome in both the European and North American market, it remained subdued. Nevertheless, the demand for our sustainable and Western origin ferrochrome continued to hold up well. Meanwhile, chromite ore and ferrochrome prices in China showed some early signs of recovery, and ferrochrome producers in Southern Africa announced further capacity reductions. Now, on the cost side, costs were higher compared to the previous quarter, mainly driven or mainly due to lower fixed cost absorption, driven by lower production volumes in the first quarter. And the absence of the electrification aid received in Q4 of last year. However, our team successfully mitigated part of this impact through optimized electricity usage, particularly important given the seasonal volatility in winter energy prices. Thanks to the strong operational performance, I am pleased, and Katy mentioned it already, to report that this was our first or most profitable quarter in business area ferrochrome since the second quarter of 2022. And all of this once again demonstrates the strategic importance of our ferrochrome business. In this context, I think it's also worth noting that ferrochrome remains excluded from the recent US tariffs, reflecting its designation as a critical role material by the US administration. With that, let me now turn to a few final remarks on the group's overall financial position. As I mentioned earlier, our net debt increased somewhat in the first quarter to a level of 252 million euros, thanks to an only moderate seasonal increase in working capital. Now, looking ahead, we assume that the upcoming maturity of our convertible bond in July would support our net debt position in the second quarter. That said, please note that the first installment of our dividend, paid in April, resulted in a 55 million cash outflow, which will have an opposite impact in our net debt in the second quarter. Now, before handing it back to Katy, let me reiterate again that especially during these times of uncertainty and challenging market dynamics, we remain firmly focused on maintaining a strong and resilient financial foundation. With that, back to you, Katy. Thank

you, Mark Simon. I think then we can move directly to our outlook for Q2 2025. Outlook for Q2 2025, group stainless steel deliveries in the second quarter of 2025 are expected to increase by 0 to 10 percent compared to the first quarter, which was impacted by the strike in Finland. The maintenance break in business area Ferragrom is expected to have up to euro minus 10 million impact on adjusted EBITDA in the second quarter. And also the opportunities for electricity optimization are more limited during the summer months. And with the current material prices, some raw material related inventory and metal derivative gains are forecasted to be realized in the second quarter. And geopolitics and significant uncertainty related to tariffs might impact the global economy and consequently, Outlook's operating environment deliveries metal prices and foreign exchange rates. And then the guidance for Q2 2025, adjusted EBITDA is in the second quarter of 2025 is expected to be at the similar or higher level compared to the first quarter. Before I move to summarize, I still wanted to comment shortly on our geographical footprint in terms of the US tariff situation. We've been getting some questions on this along the way, and I thought might be good to try to clarify it even with one slide. So as you know, we have stainless steel production in Europe, in the US and Mexico. And majority of our European stainless steel is sold in Europe. Advanced materials has a more global reach and export some volumes to the US. But as these products are not manufactured in the US, the US tariffs have not really impacted our business. And then in America's we melt and hot roll stainless steel in Calvert and cold roll either in Calvert or in Mexico. And then the hot rolled material that is shipped from Calvert to Mexinox does not have tariffs. And then the material that we cold roll in Mexico mainly serves the local market. And then finally, as already mentioned by Mark Simon, ferrochrome is considered a critical raw material and therefore bringing it to US does not have a tariff. So I hope this clarifies the setup that we have in Autokumpu. And then to summarize, we have strong market positions and we have a geographically diversified footprint. We have the strongest balance sheet in industry and this really provides us with financial resilience in these kind of uncertain times. And we continue to do our own actions. We continue to improve our competitiveness with short and long term cost measures. And have reduced our capex now to 160 million for this year. And I'm very excited to present our new strategy during the capital market day on June 11th. So I welcome you all to join us then. And thank you for your attention today. I think we are now ready to start the Q&A.

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 Tristan Gressa from BNPP Exane. Please go ahead. Yes, thank you for taking my questions.

The first one is on the cost savings you had. I think it was 11 million euro in Q1. I think in the past you mentioned that the total cost savings would be around 50 million euro if I'm talking about the same thing. So when would you expect the remaining 40 million euro to flow through?

Tristan, good afternoon. The remainder 50 million euros is expected to be split equally over the next quarter.

Okay, that's clear. So you have a bit more cost savings coming through than in Q2. You have the strike alleviation, you have higher volumes and you have those raw material gains instead of being zero in Q1. So you have a bit of support there. So I'm trying to understand in which scenario would you see your stable guidance materialize? I'm not sure if it's stable to higher but trying to understand what could go wrong on the sequential basis, how we should think about it.

I think when we think about the guidance, it's important what Kati said and the guidance itself said that we are in a time of uncertainty. And maybe the prudent is also being guided, prudent and conservative going forward. But given the uncertainty, this is why we are guiding for similar or higher. But we do see a positive development in our underlying business.

Maybe just one final question on the guidance. If I look at stainless prices in Europe, they kind of stabilize, maybe a little bit down. But scrap prices have come down quite a bit. So in terms of spread, I know there is a lot of uncertainty in the market. But when you look at your business in Europe, you mentioned pricing pressure and spread contracting in Q1. Now in April, have you seen a stabilization or improvement in the orders you're taking in?

Yeah, I think it's better to talk about the spread indeed than prices or raw material cost alone. I think we see a kind of stable or positive trend in that right now going forward.

All right. Perfect. Thank you. Appreciate it.

The next question comes from Adana Ikoku from Morgan Stanley. Please go ahead.

Hi, good afternoon. Thank you for taking my questions. Just first on the shipments outlook for Q2, can you help us understand if you expect this increase at a similar level across the US and Europe? And maybe if you could just touch on how the different end markets are performing across the two regions? Thank you.

Yes. So the guidance of 0 to 10 percent, the range that applies to both Europe and the Americas, Adana. And then on the end user side, I think as I commented before, on the European side, we don't really see an uptick given the current economic environment and also the uncertainty driven by the tariffs is definitely still subdued. And in the US also here, we don't really see a real and clear improvement in the underlying demand.

So of course, if to add a little bit, maybe there's been a lot of communication about investments coming to Europe on infrastructure on defense. But the timing of that is still uncertain. So that still needs to be seen what the impact of that is. If there would be an end of the war in Ukraine, of course, that would support European economy as well. And America's, it's a better situation for local producers for sure. But really seeing the market picking up, projects picking up, investments picking up is not something we have seen yet.

OK, thank you. And just a quick one on working capital, if you could clarify your expectations for Q2 and the rest of the year.

We don't give guidance for the rest of the year, but in terms of Q2, I think it's best to think about stable or somewhat reducing networking capital.

Perfect. Thanks very much.

As a reminder, if you wish to ask a question, please dial, pound key,

five, on your telephone keypad. The next question comes from Tristan Gresser from BNPP Xane. Please go ahead.

Tristan Gresser, BNPP Xane, your line is now unmuted. Please go ahead.

Can you hear me? Yes. Sorry, it's me again. I was asking about the Ferrochrome division. I mean, it had strong performance in Q1. I know you mentioned that you were going to have some maintenance in Q2, but what's the outlook for the division in terms of volumes, maybe prices or costs or any kind of color you can give? And I know you mentioned some different dynamics between the spot market and your contracts. Could you say how much or what's the split currently and how has it evolved over the past year or so?

Yes, and if we think about the second quarter and in terms of volumes, I think, as I mentioned before, the overall market is somewhat subdued, definitely. But at the same time, we also see capacity reductions within the industry. The demand for our Ferrochrome still is holding fairly well. We don't see any significant change here in the second quarter. And

I would maybe say in a longer-term look that with the CPAM coming in, let's say now exactly in what form in 26, has also had probably the impact that we have more longer-term contracts now in Ferrochrome. And there's more interest from the market to have more of those. So it looks quite solid going forward, the demand for our Ferrochrome.

Okay, so there's no reason really to see this Q1 performance as an outlier. And could you share how much of your shipments or volumes of Ferrochrome is actually getting the premium?

All volumes. All volumes. All volumes. Okay,

all right. And maybe just another question on the European trade policy outlook. I mean, we've seen the layout of the Sea Action Plan and the timing spread out between Q2 to Q4 this year. What will you be most looking at in terms of announcement in the coming month? What is the most important thing in your opinion? And also, if you can spend a little bit of time discussing the potential melt and pour rule that could have an impact on stainless, we'd be keen to have your view there. Thank you.

Yeah, so if I start with that. So we've been in several discussions with the Commission. And I think the good thing is to mention is that they understand what the situation is and they see the importance of steel in Europe. Then how quickly we would get new measures that will really have an impact is of course always the question. But why the Melted and Poured has also been brought in these discussions is that the key issue here currently is that the stainless steel is melted either in Indonesia or China, and then it travels to Europe through several different countries being cold-salted or hot-salted here and there. And this actually creates a problem of circumvention, which has been very difficult for the Commission to stay behind. And melted and poured rule would mean, in stainless steel at least, that you would really kind of look at and follow the steel where it has been melted, which would give some more tools to avoid the loopholes of circumvention. So I think in that sense it could be one way. The other way could be of course different kind of measures and tariffs, looking at them in a different way. So there are different discussions ongoing, and I'm sure the Commission at least understands the urgency that the industry is putting there now in this current market environment. But it's difficult to say when, but work is ongoing.

All right, that's very clear. So there is a probability of that still happening in 2025.

I think it's the probability of something happening now, and then I think there's a bigger probability for different measures in the summer of 2026. So two moments probably.

Yes. All right. Thank you very much.

You're welcome.

As a reminder, if you wish to ask a question, please dial pound key five on

your telephone keypad. The next question comes from Dominic O'Kane from JP Morgan. Please go ahead.

Hello. I just wanted to ask a quick question on the convertible bond. Could you just maybe give us a little bit more details on how you intend to redeem the convertible bonds?

Yes. Well, at the moment, as I mentioned, we expect that the convertible bond will convert in July this year. And that is our base case scenario. That is what we're thinking about, the convertible bond. Okay. Thank you. Thank you.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you very much. So thank you, everyone, for joining us today, listening to us. Thank you for your questions. And then looking forward to seeing many of you during our capital markets day on June 11th. Bye now.

Thank you. Bye bye.