Outokumpu Oyj New

Good afternoon. Welcome to Outokumpu's second quarter 2025 result webcast. My name is Ulla Paajanen, and I'm currently in charge of Outokumpu's investor relations. With me today are our speakers, CEO Kati Terhorst and CFO Mark Simon Schaar. Kati will tell us about the highlights of the quarter, our strategy development and the outlook. Mark Zeman will concentrate on financials and business areas. Before handing it over to Kati, please let me remind you about our disclaimer, since we might make forward-looking statements during the presentation. Please, Kati, the floor is yours.

Thank you, Ulla. So hello everyone and welcome also from my behalf on our Q2 results call. Before I go forward and dive into the result of the Q2, I would like to give a couple of comments on the current trade environment and how it impacts Autokumpu. So if we start with the US-EU trade agreement on stainless steel, and what does it actually really mean for us? So first of all, I would like to start by saying that if you look at our European deliveries, only about 2% of our European deliveries have traditionally been exported to the US. So from that perspective, directly to Autokumpu, it's not such a big issue. Then, on the other hand, we are a local player in America, and the tariffs protect our business in America. But then if you look at it from a European perspective, what the indirect impact is in this very weak demand environment, then when we couple that with low-priced Asian imports that have increased, and then the European steel industry can't export the way it used to export, then of course that puts pressure on Europe and it puts really pressure on the capacity utilization what we're having. So the indirect impact is bigger. it's still now uncertain what the future exactly will be. We currently, after the trade agreement, have 50% tariffs still on steel and aluminium. There are different voices, maybe a quota system underway, but I have at least not heard that being confirmed from the US side. So we need to follow that and see what happens. Then on Mexico and US, we are expecting announcement on the deal, agreement at some point of time. As you have seen in the press now almost daily, there are announcements of different agreements between US and different countries. So I would think that Mexico-US agreement also comes in the coming weeks. And there we are, of course, hoping that the tariffs for steel would be lower or then at least that the melted and poured principle would somehow be applied. And then, of course, what we in the end hope is that actually the tariffs would come on USMCA borders and not between the countries in North America. Then maybe still commenting also what's going on in Europe. What is EU Commission doing as part of the steel and metals action plan? There I think the most important thing right now ongoing is that we are looking at the new safeguard measures that would replace the old ones that expire in any way end of June 26. And that consultation process now is ongoing with a deadline of 18th of August. And then I think the expectation is that at least latest somewhere in September, as the commission has promised at least, we would hear what the new trade measures would be. At the same time, the commission is looking at CBAM. There are some discussions if we could include some still intensive customer segments in the CBAM. And then how do we work with the possible loopholes? And there we should also hear something before CBAM carbon border adjustment mechanism comes in force in January 26. And then the third one, I think, where we are also actively participating is creating LEED markets in Europe for sustainable steel, environmentally green steel. And that's about defining the environmental criteria that would be used for carbon and stainless steel and the thresholds. So there's a lot of important topics on the table. but the outcomes and the timings are uncertain, and therefore we can not just wait and kind of see when these measures come in place, but we need to really take our own action in this difficult market environment in Europe. If we then turn to our result and commenting on that, so our result improved to 75 million during the second quarter and the stainless steel deliveries increased by 3% on a group level, 2% in Europe and 7% in Americas. As I said, the uncertainty of tariffs, geopolitical tensions actually caused additional uncertainty during the quarter. And we saw this also in the way our customers were reacting to the market conditions. What I'm very happy about, our safety result improved to 1.2 TRFRI rate and our recycled material content was very high, remaining at 97%. And then if we look at our short-term cost-saving measures, we are very well on track with that. So after the first half of the year, we delivered now 29 million euros, when the target has been until now 50 million, and we are increasing it to 60. Then we also, during Q2, launched our new growth-focused strategy Evolve, and I will come back to some comments on that a bit later. As you can see from these pictures, the US steel tariffs have lowered the share of imports to the US. And at the same time, especially Asian producers have increased their share in Europe. And this is exactly what we said earlier that would happen with these 50% tariffs. And in addition to this, then we have a lot of Indonesian slabs coming to Europe. I think the highest volume is probably being now exactly in Q2. So this just underlines the importance of having and creating a level playing field for European producers in the steel markets. If we then move forward, I would like to comment a bit on the EBITDA bridge from Q1 to Q2. So we went from 49 million to 75, and the key contributors here were the higher deliveries and lower raw material cost. We also had some positive impacts from the net of timing and hedging, as well as our cost-saving measures that we've been executing all the time. Then a comment on Ferrochrome. Ferrochrome continues to have a robust result, I would say. But in Q2, the result was driven by somewhat weaker US dollar, as we all know, and then higher maintenance cost. Then you know we've been running this EBITDA run rate improvement program with a target to receive 350 million by the year end this year. This program was started in the beginning of the phase two strategy and now then comes end in the end of this year. And if we look at where we are now after Q2, so cumulatively we have delivered 328 million of run rate improvements. So we are well on track to reach this 350 million target by the end of the year. And especially then commenting on what we delivered during the Q2. We delivered 50 million on this program in Q2. And the impact was mainly coming from two businesses, Americas, when it has to do with optimizing our route to the market and yield improvements. And then in Europe, it was about our product portfolio optimization so that we could efficiently use our scrap. And then let's look at the safety and our safety performance, safety and environmental performance. So I'm very, very happy that we are back on track on our safety performance after a bit more difficult Q1. I would say that this cumulative result, where we are now after the first half of the year, DRFI, so total recordable incident frequency rate of 1.5, it is really world class level in the process industry. Of course, the ultimate target is zero. Every incident is one too much. But I have to say I'm happy about this performance. Then also, as commented earlier, our high recycled raw material content at 97% is really helping us also to work towards our SPTI targets. And it's also a good thing from a cost perspective. Then we also, during the Q2, we got the reward of being in the 25th place in the corporate night's top 50 list in Europe. And we are advancing very well towards the carbon neutrality regarding our chemimine by the end of this year. Commenting then a bit of Circle Green, our very green steel product with more than 90% lower emissions. We have now announced a new partnership with Alstom and there we are delivering our low emission Circle Green for their newest range of metro cars. And this is actually one of, this is our biggest Circle Green deal in the mobility segment. It's a nice way to highlight as well that this is a good area, for instance, trains, where the Europe could really develop the lead markets for green steel, for instance, through public procurement. Then before I hand over to Mark Simon, I'd like to very shortly revisit the key messages from our new Evolve strategy that we presented during our Capital Markets Day on 11th of June. So as part of the new strategy, we are really targeting on increasing the value of Outokumpu by driving the cost competitiveness in standard stainless steel. And that goes both for Europe and America, our current business. And then we are looking for profitable growth in areas where there's a higher growth percentage, where the margins are higher and there's less cyclicality. And that is very much then also about advanced materials and alloys. And then we have talked about a new technology that absolutely can revolutionize the way we think about metals and how we could produce green metals. And there we are also taking steps forward. Important from shareholder perspective, we are committed to hold our strong balance sheet. And next to that, we are also focused on the shareholder returns. Maybe one comment on capital allocation. So we have classified our businesses either to foundational or transformative, and this guides our capital allocation. So in our foundational business, standard stainless steel, we are not looking for growth. We are looking for investments that improve our cost competitiveness, which you can also see it's very needed in the European environment. And then the transformative investments are for growth. And if we look at them, the key initiatives we have announced in the evolved strategy, we're proceeding well with those. And just as the reminder on foundational business than the stainless steel, it's about the Tornio investment, where we are looking at the new annealing and pickling line. It would bring profit improvements in Europe through efficiency, low energy cost in the north. And then we would take two lines down in Krefeld in Germany. Then we are ongoing Avesta, a feasibly study where we're looking at high nickel alloys and investment in the melt shop. So that's ongoing. And we are preparing in US for the pilot line regarding our new technology and next step in developing it. And then on America's growth, I would say it's these two areas, advanced materials and alloys, as well as the new technology where America's growth would also be based on going forward when it's beyond the stainless steel. And then I think it's time to discuss the financial position and more details of our different businesses. And Mark Simon, the floor is yours.

Thank you, Kati. Good morning, good afternoon everyone, and thank you for joining us today. Given the times of uncertainty, financial resilience continues to remain our top priority. As such, I am happy to report that our balance sheet strengthened, with our leverage ratio improving to 0.8 from the first quarter. Our NADEPT improved despite the dividend payment thanks to the conversion of our convertible bond and a reduction in working capital supporting a positive cash flow during the second quarter. Our liquidity remained on a strong level of 1.1 million euros and our CapEx estimate for the full year of 160 million euros, as communicated earlier, still remains valid. Now, going forward, we will continue with our focus on capital discipline, given the weak market environment we're currently operating in. Let's now have a look at the performance of our business areas. The demand from end users in Europe remained weak across key sectors with no signs of immediate recovery. The manufacturing PMI improved somewhat in Europe, but still being below 50. Now, when we're looking at the different segments, first starting with construction, be it private, infrastructure or industrial projects. It is still a weak environment despite lower interest rate levels and improvements in that sector are still to come. Also, the demand in the oil and gas and process industry, especially on the chemical industry, is weak due to the uncertainty in outlook, as well as the cyclicality, especially in the oil and gas sector. The demand for automotive and appliances was stable during the second quarter, but still on a low level. And in appliances, we saw some demand increase three, four months ago, but that was not sustainable. On a more positive note, the demand related to the energy transition is stronger. Same for aerospace, defense and nuclear projects on a global level. Distributor stock levels have increased and combined with rising uncertainties, the demand remained low and only limited to immediate needs. At the same time, imports increased, as Kati pointed out, and are on a high level, especially compared to the European demand situation. The low demand and high level of Asian imports have put pressure on prices, which had been notably lower compared to the prior periods. The improved profitability in beer Europe was supported by lower costs, and here especially from the raw material side. Now let's move on to business area Americas. Like in Europe, the US manufacturing PMI remained below 50, indicating a recessionary industrial environment. However, there had been a trending shift in procurement from imports to domestic producers in the US. But as Katja also pointed out, imports into the North American market remained still on a high level and particularly driven by the Mexican market. Of course, going forward, current tariffs might further support local producers in the US. If we then look at the Mexican market, here the relative weakness still remains and current tariffs limit its ability to support the US domestic demand. However, a potential trade agreement between the US and the Mexican could present an upside opportunity for our Mexican operations. From a market perspective and compared to prior month, distributor inventory levels increased in June above year-to-date average levels, especially due to continued weak demand in the US, as I pointed out earlier. If we then look at the different segments, we saw that pipe and tube being stronger, supported by infrastructure investments on the one hand side and also by the oil and gas industry and projects over there, which is then being supported by the US administration. On the other side, weaker sectors include appliances and automotive, primarily driven by lower consumer confidence, higher interest rates and inflation, and therefore less demand. However, given the shift towards domestic producers, especially the demand for appliances remained on a stable level for us in our business. In addition to higher volumes, our business area America's profitability was further supported by lower raw material costs, which were partly offset by lower fixed cost absorption due to the working capital reduction. Now let's move on to business area Ferrochrome. The demand for our low-emission European Ferrochrome remained solid. In addition, we learned that producers in Southern Africa continue to report further capacity reductions, which are supporting the overall global supply-demand balance. In total, approximately 3 million tons of capacity are now being taken out. In the second quarter, our ferrochrome deliveries increased by 6% quarter-on-quarter. And in line with our guidance, the profitability of BA Ferrochrome was impacted by higher costs due to the planned maintenance and as well as lower sales prices due to the weaker US dollar. At the same time, and due to the price volatility in the Finnish electricity market, we continue to benefit from the electricity usage optimization. Usually, electricity prices are more stable during the summer month, but due to the various geopolitical events, volatility remained high during the second quarter than we originally expected. As a critical raw material, Ferrochrome is still excluded from the current US tariffs. I think that's very important to note. And yes, with that one, let's turn now to a few final remarks on the group's overall financial position. As you can see, we continued our capital discipline during the second quarter and reduced our net debt position by 83 million euros to a level of 169 million. The reduction was supported by the conversion of our convertible bond and our active working capital management during the quarter. These positive drivers were partly offset by the first dividend payment, which we made in April and with a total cash out of 55 million euros. With that, I will now hand it over back to you, Kati.