SSAB AB (publ)

Good morning and welcome to this presentation of the SSAB Q1 report. My name is Per Hillström. I'm head of investor relations at SSAB. And with us today is Martin Lindqvist, president and CEO, and Håkan Folin, CFO. And we have the agenda today. We will start with Martin talking through the first quarter, strong quarter. And then secondly, Håkan comes in and gives a bit more details on the financials. And then Martin comes back with the outlook and a summary. And after that, we will open up for questions. But we will come back to that and the instructions. So with that, please, Martin, start.

Thank you, Per, and good morning, everyone. If we start with Q1, it was a very exciting quarter for SSAB where we took a number of fairly big steps towards our ambition to become a fossil-free steel company and also towards the ambition of creating the most efficient fossil-free value chain together with our partners LKAB and Vattenfall. We came out and described the deepened partnership we have with the Volvo Group, where we will start to supply them with the material, fossil-free steel, already this year for prototyping of their end products. We also came out with the decision of where to put the demonstration plant, the first full-scale production plant for hybrid sponge iron, which will be in Gällivare. Q2 is also very exciting because now in our pilot plant up in Luleå, we will start to produce fossil free sponge iron using hydrogen to reduce the oxide out of the iron oxide. So that journey continues and we continue to lead that development. If you look at other highlights we saw during the first quarter, good recovery, strong recovery, we saw better prices. higher volumes, and we also saw during the quarter very stable production and good performance, internal performance, good cost control during the quarter. We had an operating result of 1.4 billion, higher than Q4 2020, and we saw record quarterly earnings both for Special Steels and Tivnor. Internally, we continue to focus on the ambition to become the safest steel company in the world. We are not there yet, but we are taking steps in the right direction. If we measure lost time injury frequency moving 12, we were at the end of Q1 this year at 2.9. And if we look at year to date this year, we are well below 2. Of course, A big part of Q1 and the internal work was all the actions to limit the spread of COVID-19 and safeguard the health and safety of our personnel. I think given the circumstances, we were successful and production and other critical operation have been running according to plan. This is, as you all know, far from over, and these actions continue into the second quarter. This is order intake, monthly order intake in SSAB Europe. And this is a good proxy of how the market has looked. And we have seen a recovery since, I would say, second half of 2020 with good order intake all through the period of Q4 and into Q1. And that's why we also expect and know that Q2 will also be a strong quarter volume-wise. If we look at the KPIs for Q1, as said, market recovery strengthened. We saw better prices, higher volumes, an EBIT of 1.9 or almost 2 billion in Q1. We had a net cash flow of 1.2 billion, which I think is good given that we were building up working capital, especially AR during the quarter. And we managed to continue to reduce our net debt according to our internal plans. If we look at the divisions before we deep dive into them, we see that all divisions improved compared to Q1 2020 and had good development compared to a year ago. If we look at special steels, we see strong demand in most markets, I would say all markets. We had shipments at record levels in Q1, up 23% compared to Q1 2020 and 27% compared to Q4. We saw an EBIT of 904, almost 18% EBIT margin or 17.7. That was due to higher volumes and better prices, stable productions, and it was partly contracted by higher raw material costs, but also good cost developments. I would say that all the internal KPIs and special steels were at good levels. So a very strong quarter from special steels. If we look at Europe, we saw shipments up somewhat compared to Q1 2020 and Q4 2020. We saw automotive coming back and strong shipments to automotive in the first quarter. We saw an EBIT of 758 million SEC, better prices, higher volumes, better capacity utilization, good cost control, good safety performance, decent production stability. And, of course, the prices were partly, even here, contracted by higher raw material costs during the quarter. But Håkan will come back to that and the outlook for raw material linked to Q2. If we look at Americas, we saw during the quarter improving market conditions, good demand. We had shipments in Q1 affected by two things. We had some weather-related issues, especially in Montpellier. But we also, as we talked about last time we met – We went into the new year with fairly low slab inventory. So we had lower shipments compared to Q1 2020 and also compared to Q4 2020. We saw an EBIT of 268 million, higher prices, partly mitigated by higher raw material costs. And we also saw here a very good cost control or lower fixed costs compared to previous quarters. Tibnor, record earnings, I think a very strong internal performance. We saw, of course, that market recovery strengthened during the quarter. Revenue was up. But we also saw the effects not only of better margins and higher volumes, but also the full effect of the cost-saving and restructuring program Tibnor has been running. So they are on a very good level now. And as I said, the internal performance was nothing to complain about during Q1. Rookie Construction. A positive result, given that Q1 is typically the weakest quarter due to the product mix and the weather. We saw if we compare comparable revenues that they were higher than Q1 2020. At the graph, it looks like the revenue was higher, but in Q1 2020... building system was still a part of rookie construction, but comparable revenue was up 10%. We saw better volumes in roofing and envelopes, our two business units, and a decent market for being a first quarter. So with that talk, can I hand over to you and comments regarding financials?

Thank you very much, Martin, and good morning, everyone on the line. So I will give you some more details of the figures. We look at the EBIT bridges, the balance sheet and also the raw material side. Starting with an overview, we had better prices and higher shipments, which improved our results in terms of sales. As Martin said, we were almost at 20 billion, which was second highest quarter in this three year comparison period. Shipments of more than 1.8 million tons, 3% higher than in Q1 last year and 3% higher than in Q4, which was actually on a very high level. And we also had the, call it the right shipments. We had very high shipments from special steel and also automotive within SSAB Europe on a very high level. And you can actually see that in the graph down to the left in terms of EBTA margin, where we had the margin of close to 15%. which was the highest margin in this three-year comparison period. And naturally, that also results in a high EBITDA per ton delivered steel of close to 1,600 Swedish kronor per ton. If we then look at the development between the quarters, and we start with looking year over year, we had an improvement of more than 1.6 billion from Q1 last year to Q1 this year. Very strong increase in price coming from prices, 1.6 billion. This is mainly SSAB Europe and Americas. We also had an improvement coming from volumes. And here it's the main EBIT impact is coming from the higher volumes in special steel because that is where we are earning the most money per ton we are selling. This was partly offset then by variable COGS with clearly higher raw material cost. That was actually higher than the 430 we see here in the graph, but we were running production in a stable way, and then we usually have better variable COGS as well. Then we had a few other smaller positive items. We managed to keep control of the cost, 100 million betters and positive effects. We were running production at a higher utilization level, 70 million kroner, So all in all, stable production is helping the result. But to shortly then, we have better margins, we have somewhat better volumes, and also stable production with control of the cost situation. So yielding in total more than 1.6 billion. If we instead look sequentially, the figures are obviously different, but the components are actually to a very much large extent the same. Here we improved 1.4 billion, and it's coming from higher prices in Europe and Americas, offset them by higher raw material cost. It's coming from higher volumes from special steel. These are the bigger items. Then we have slightly higher fixed cost. And one should remember that in Q4, we still had a lot of temporary layoffs, short-term working hours, et cetera. We are now running production and overall at a very high activity level. Slightly negative FX. but better capacity utilization with increased stable production and also increased production, resulting in 1.4 billion positive. We managed, and despite that we were building working capital, we managed to have a positive net cash flow of 1.2 billion in Q1, operating cash flow of 1.4 billion. And we were building working capital, and especially on the accounts receivable side, given the increased sales and higher prices. We had quite low investments during Q1, only 211 on maintenance and then 100 on strategic. That will creep up then in the coming quarters, and we are still guiding for the same amount for the full year, 3 to 3.5 billion. I'll come back to that shortly. The balance sheet then. We have a well-balanced maturity profile and this headline, it's a bit boring, but we've actually had the same headline now for quite a while, but it's been on this level for a while as well. Long portfolio of 5.6 years, so quite long duration. In terms of liquid assets, we did a lot of actions a bit more than one year ago in Q1 2020 when COVID was starting to spread. We were up at more than 30% liquid assets over sales. Now we have reduced that down to a bit more than 20%. For the majorities in 2021, it's mainly referring to short-term commercial papers. We continued in Q1 to reduce our net debt. We are now down at 8.9 billion Swedish kronor. It was 12.7 a year ago, and we're down at the net gearing level of 15%. And given the development we see now and the outlook we'll come back to, our expectation is that we will continue to reduce net debt for the remainder of the year. So what do we need the cash for then that we are generating? We're expecting here for these items taxes, interest and investment. That will be around 5 billion. We have a range here of 4.8 to 5.3. CapEx at Z, 3 to 3.5, clearly higher than last year. We are now We have started the Oxelösund conversion then into EAF-based production, and we've also restarted the capacity expansion of Quench and Temper products in the mobile facility. Interest paid will be roughly on the same level as last year, no major difference. Taxes paid will definitely increase, given that we expect higher profitability overall for this year compared to last year, but around 5 billion in total for these items now. If we then move over and finally from my side and look at raw material, we have and we are definitely seeing higher prices for iron ore. Our own purchase prices were 40% higher in Q1 versus Q4. And this will have an impact of a result in Q2. Already in Q1, we had an impact of the higher prices that we were paying in Q4 versus Q3. But this has continued now into Q1. And we have also actually seen that the spot prices for iron ore have so far into April, which is almost the full of April now, we have seen spot prices increase in April as well. So this will clearly have an impact. On the coke and coal side, those have increased as well, but definitely not as much as iron ore. And for us, they're up 11% of our purchase prices than in Q1 versus Q4. But so far in April, Contrary then to iron ore, coal prices have stabilized. In the U.S., for our North American business, we're using scrap, as most of you are well aware of. And scrap prices on the spot market, they increased in Q1. Our own purchase prices were 36% higher in Q1 versus Q4. And here we turn the scrap around faster than we do for iron ore and coke and coal, so part of this we've already seen in the P&L. We have seen somewhat lower spot prices on scrap in April. And with that, Martin, back to you and the outlook and summary. Thank you, Håkan.

And starting with this picture and looking over the segments, I think it was a while ago since we saw all this much green on this picture. So we see. Strong demand in most of the segments and most of the markets. Heavy transport, heavy truck production at a high level, of course. Shortage of semiconductors, we see the same in automotive. Rail cars still on a muted level. Construction machinery, good trend in the main markets. Material handling and mining being strong. Energy a bit two-folded. Low activity in oil and gas, of course, but good activity within wind power and transmissions. Construction seasonally, we will see an improvement versus Q1, which we typically see. And then service centers, they are both in Europe and in U.S. having a low inventory level. So we should expect to see also in Q2 some restocking in the supply chain. So overall, a strong to healthy market outlook for Q2. If we then look at our guidance and look at the volume and pricing outlook, we say that for special steels, we will see somewhat lower shipments. And the reason for that is not related to the market, but we had record shipments in Q1 and we should not maybe expect that in Q2 because we have also lowered due to the very strong demand, lowered our inventories in our sales stocks, so somewhat lower volumes in special steels, but in Europe and America, sequentially somewhat higher. In special steels, we expect the realized prices to be somewhat higher, and in Europe and America, significantly higher. So all in all, the demand we see, what we see is we expect demand to be very strong in Q2, driven both by underlying demand and by customer restocking, and demand for high strength steel is also estimated to be very strong. And prices will be partly, as said, contracted by higher raw material costs into Q2. But overall, a decent outlook. So to sum it up, Q1, strong demand, stable production, record earnings from Special Steel and Tivnor, good cost control, good safety performance. We have a positive outlook for Q2. We generate a positive net cash flow. despite building up, especially AR, during the quarter. And we expect to continue to generate positive cash flow and, as Håkan said, continue to reduce the net debt. As said in the beginning, very important quarter for SSAB strategically with our development, our leading position in fossil-free steelmaking, the strategic cooperation with AB Volvo. shipments for fossil free steel for concept vehicles already this year. A demonstration plant now decided where to build it, 1.3 million tons of fossil free sponge iron, which will be the feedstock for fossil free steel and the feedstock for the conversion in Oxelösund. And during Q2, now in May, we will move over in the pilot plant to use hydrogen to reduce the oxide out of the iron oxide. So we will see the first volumes during Q2 to a fossil-free sponge iron and then fossil-free steel. So with that, Per, I think we open up for questions.

Yes, thank you. Thank you, gentlemen, for the presentation. And before we jump into the questions, just as usual, a reminder, you're perfectly fine to ask more than one question, but please state them one at a time to make this process smoother. So by that, we'll ask then please the operator to present the instructions.

Thank you. If you wish to ask an audio question, please press 01 on your telephone keypad. If you wish to withdraw from your question, you may do so by pressing 02 to cancel. Once again, please press 01 on your telephone keypad if you wish to ask an audio question. There will be a brief pause afterwards for questions to be registered. Our first question comes from Alan Gabriel from Morgan Stanley. Please go ahead.

Good morning, gentlemen. I have two questions from my side. I'll start with the first one. On capital allocation, you have set an objective of a net debt to equity ratio not exceeding 35%. We are at 15% today, and it's coming down very quickly on spot prices. What will you be prioritizing with the success cash? Are you willing to tolerate a near net cash position at the end of the year, or will you be flexing your dividend policy? I think that's the first one.

To answer that one, which is a very good question, of course. But, I mean, our focus is to continue to generate strong cash flow. And then what we at the end do with the balance sheet, so to say, is more a question for owners and the AGM. But I expect us to continue to reduce net debt. So that's what we are planning for and aiming for.

Okay, thank you. And the second question is on working capital. So assuming today's pricing environment prevails, How much more working capital will you need to invest in during the remainder of the year?

During the second quarter, you should expect that we will continue to build some working capital, given that prices, our own prices, as we just guided for, will be higher in Q2 than they were in Q1. So we will continue to build working capital in Q2, yes. And then for the rest of the year, if prices would, let's just assume that prices flatten out during Q2, then we should not need to build any more working capital during the rest of the year. But that remains somewhere where prices head in Q3 and Q4.

Understood. Thank you. Our next question comes from Jack O'Brien from Goldman Sachs. Please go ahead.

Good morning and thanks for the presentation. My first question is just on the restocking comments and your broader market comments. Obviously, we know that inventories are extremely low right now, but To what extent have customers been restocking through the first quarter as it stands? How much further do you think that has to go? And I added to that, given the strong order intake, how much visibility does that give through the rest of the year?

We haven't seen much of restocking during Q1. That has been underlying demand. And if you measure... inventories at service centers end of Q1, both in Europe and North America, they are very low. So we have not seen a big element of restocking in Q1.

And in terms of the visibility that your current order intake provides for the rest of the year?

No, but we see a strong order intake. I've seen a strong order intake for Q2, and that's what we are guiding for. And then Lead times are a bit longer, so there are discussions also further on. But what we guide for is Q2.

Understood. Just the second question is just if we think of the last six, 12 months, to what extent do you think your market share has changed in your key regions?

We have seen that we have continued to have good market share in North America. We have actually increased our market share gradually and structurally on the Nordico market with a lot of good work within Tiv Norden, Roke Construction and SSAB Europe, but also some minor add-on acquisitions. And if we look globally on Q&T, I think we have also strengthened our market share. So my overall conclusions in the markets and the segments where we were active, we have not during the first quarter lost market share, I would say, rather significantly. on the margin the opposite.

Great. Thank you. Our next question comes from the from Exxon BMP. Please go ahead.

Good morning. Two questions, please. First on special steel, and then secondly on U.S. plate, please. On special steel, obviously very good performance in the first quarter of strong volumes. Can you walk us through the market dynamics there? In the past, you've talked about customer upgrading, although there's been some concern that with already high prices for commodity-grade products, upgrading could be a bit more difficult. What's the interest from customers in moving these premium products when the entire supply chain is already so expensive? And can you talk us through kind of how we're seeing both volumes and ultimately the margin performance into Q2? Thank you.

I think upgrading potential and interest for upgrading is very strong. And especially with high raw material price, the productivity becomes so important for mining companies and others. So we don't see any less interest in upgrading. We have also now a number of interesting and new products moving out in the market where we see a lot of interest within the hard ox grades and so on. We also have, I mean, special steel is a variety of different products. We see very strong demand for what we call in special steels specialty products where we have even, I mean, the best margin. So we have not seen any signs of reduced interest to upgrade. I would say quite the opposite. And then Q1 was very strong, and it was in many aspects a record quarter for steel. special steel, but that was a combination of good demand, good cost control, and also, which is very important, stable production and ability to get out the volumes.

Thank you. For special steels into Q2, how can we think about the margin progression? Obviously, that's been lagging, the more commodity-grade and spot-oriented businesses, but any sense on the further upside there?

Margins and prices on special steels are, over time, much more stable or less volatile than standard steels. But as we guide, we will see somewhat higher prices and counteracted partly by higher raw material costs. But you should expect over time a much more stable margin and price development for special steels than standard products. And that's both up and down.

Thank you. Sorry, just one last question on the U.S. Your closest peer, Nucor, is making quite a bit of noise about U.S. wind energy, the interior growth for them going forward, especially with Biden's infrastructure bill. Can you talk through your current exposure to U.S. wind and the opportunity to make sure that you don't lose share as Nucor is growing new capacity in targeting wind?

But we have had good market share in North America over time and also in Q1, and If there will be in the future infrastructure bill or spend or focus on infrastructure, I think that will, of course, be for us very positive. So, yeah, good market share development, strong market share in North America and very positive outlook. That's what we see right now.

Excellent. Thank you. Thank you. Our next question comes from Alan Spence from Jefferies. Please go ahead.

Good morning. Thanks for showing that order intake graph again. If I combine it with the 3Q20 presentation, it looks like March 2021 was the highest monthly total since June 2019 when the data began. But can you just give us a rough sense of how Q1 or March orders would have compared against the 2018 performance?

I don't remember actually from the top of my head in terms of what we can say about Q1 order intake for SSF Europe. It's been I would say the order intake has been as high as we have wanted it to be because we also have some allocation restrictions and we don't take orders way out in time. So the idea with showing that graph was more to show that it's been a very good recovery since a tough year last year, and that recovery continued into Q1. So we are more or less fully booked already now for Q2. If we would have had more allocations, we could have sold more.

Okay, thanks. And for Americas, are you able to perhaps quantify the impact from weather? And then also kind of how are those slab inventories going into Q2?

Slab inventories are still on the low side. We expect somewhat higher volumes in Q2 than in Q1, but we still have a little too low slab inventory. The weather-related impact was especially in the Montpelier mill. You can see that also in the production data that we had some Lower production in Montpelier than we previously had. And to make it simple, you can say maybe we lost around one week of production due to the weather-related issues.

Thanks. And just the last one from me. Just in Europe on product mix, how are you seeing demand for the coated products come back as we enter spring?

I would say a fairly normal pattern, and we see good demand for painted products as well. So call it a normal seasonal pattern on a high level.

Okay, thanks, guys. Thank you.

Thank you. Our next question comes from Carson Mike from Credit Suisse. Please go ahead.

Thank you very much. Good morning, everybody. First question on the inventory. The inventory increase was rather muted given the increase in steel and raw material price, in my view. I think you hinted already on the second quarter catch-up, but is there – Is this coming too forward, not only the inventory increase from the steel prices itself, but you need to restock at some point as well? Could we see actually higher inventories here due to the volume impact? That's the first question.

We are sitting on a bit too low inventories, especially on special steel side in their stock locations, also somewhat on Europe. No, ideally we would like to fill up those inventories a little bit. If the demand continues at this level, there's of course the trade off for us to choose between filling the inventories up for long-term or actually delivering to our customers who want the material now. So you should not expect a huge increase in inventory volumes, no.

Okay, perfect. The second question I have is on the customer side, given the increase in steep prices we have seen so far, Do you get any pushback from the customers on those high prices, or do they accept it without any moaning?

We don't get any major pushbacks. The pushback we get is rather related to volumes.

Interesting. Okay, that were the two questions from my side. Thank you very much.

Thank you. Thank you. Our next question comes from Ansi Kurnim from S&P. Please go ahead.

Thanks, guys, for taking my questions. Two of them. First one is on price realization. I mean, that was the key driver driving Q1 earnings up. Could you talk a little bit about the timing of price realization? What should we expect when we enter into Q1? We saw a big delta in Q1, but should we expect even larger delta when we enter into Q2? How does it work? Thanks.

We do have a lag in prices. It varies a bit between divisions and also it varies a bit depending on how long order book we have. But you should expect for especially special steel and for Americas that they will have significantly higher prices in the second quarter compared to Q1. Sorry, Americas and Europe. And then somewhat higher for special steel. And as Martin said before, both prices and margin are much more stable for special steel than for the more, call it more standard divisions than Europe and Americas. So you will see significantly higher prices in Q2 for Europe and Americas.

But you don't want to kind of indicate will it be higher compared to Q1 development or lower?

What we said is that we will see significantly higher, which means actually more than 10% higher for both of those divisions.

Okay, thanks. Then just... Small question on Deepinor. I mean, record margins, record profits, to which extent it was due to higher selling prices and to which extent the restructuring and a better operational performance. Thanks.

It's a combination, higher prices that gives also inventory gains. But I would say the program they have been running with lowering structurally costs with a bit more than 200 million on a yearly basis is now I mean, being seen, we started to see it in Q4, but that is in place, and so it's a combination. But the underlying performance was really good due to that program and other measures. And then, as I said, they have been also taking market shares on the Nordic market, which was also planned for and done a lot of actions to do that.

Okay, that's all from me. Thank you very much.

Thanks, Hans-Erik.

Thank you. Our next question comes from Patrick Munn from Bank of America. Please go ahead.

Good day, guys. Thank you very much for the call. I had a follow-up from the previous question, I think, just around prices and how we should think about that coming through into Q2. It might be helpful if we can get an idea of how much of your sales are on contract and over what kind of period those contracts would be. So that would be my first question, if you could give us more detail around that.

That also varies a bit by division. If we start with Americas, it's a fair amount that is on quarterly contracts, and therefore we naturally have a lag on those. And we also have a fair amount, which is on spot prices. But even with spot prices, you also get the lag because the orders we take now, we don't deliver now. There are a few months or at least one or two months lead time. So even on spot orders, you will see a lead time. So to simplify it, you could say it is almost a quarter lag between spot prices and realized prices for us. If you take Europe there, we also have on top of the quarterly contract and some spot prices, we also have some half year and a very small amount yearly contracts. So the half year contracts or the yearly ones are obviously not renegotiated now, but the quarterly ones will be. But also for Europe, you can say it's to simplify it a bit. It's almost one quarter lag for special steel is a bit different because and more difficult maybe for you to to assess because they're. you don't have spot prices in the same way. And again, repeating myself a bit, but they are not moving as fast as they are moving for Europe or for America. But also for special steel, there is a quite big amount that is still quarterly prices for special steel, roughly half or something like that.

Thank you. That's really helpful. And then the second question I had was, in the market where you've got, you know, like at the moment where there's just It's so tight and it's, you know, you obviously can't satisfy all your customer orders. Can you help us understand a little bit how do you manage or how much flexibility do you have between kind of special and I suppose more commodity grade steels, you know, in your kind of dual plants? And how do you choose how to allocate your production and the raw materials? Do you know what I mean? Is there a mixed impact?

I think we have some flexibility, of course. But we are trying to max out now special steels and special steel products because that's our most important segment. So we try to do as much as possible within that segment. So that's what we are trying to do. And then, of course, we also... try to honor volumes to call it long-term customers.

Okay. Thank you very much. That's all. Thanks. Thank you. Our next question comes from Rorke Sparmeister from Kepa Shibura. Please go ahead.

Yes. Hi. Morning all. Most questions are being well answered, but maybe a brief follow-up on the comments you made on restocking. As you said, you're not really seeing restocking taking place in a meaningful way, even though you mentioned that in your outlook statement. Maybe can you give us a sense what you think about supply elasticity going forward? Would you see there's a better ability for clients and service centers to restock what's your view on the supply dynamics worldwide outside of China? Maybe that's the first question, then I have a small follow-up.

I mean, we do it exactly as you do. We look at the inventory levels in the supply chain and realize that we are on low levels. And that usually means, of course, that we need to see some restocking to come up to a more, call it, normalized level given the sales volumes. So that's... our only reflection. We expect to see some restocking in Q2. I mean, today they are buying from hand to mouth and still fairly low inventory level. So at some point of time it needs to be restocking in the supply chain. But we haven't seen that in Q1 to any large extent at all.

We are writing about it in the report that there is demand for restocking, but I would say so far there has not been supply enough for restocking. even if probably some of our customers and service center have wanted to do some restocking, it's just not been possible for them yet at least to restock.

Yeah, I think this is exactly what I was trying to point to. How do you think will be that demand for restocking be satisfied? Would you expect there is still a bit of a headroom among the European production base? Or do you think that at some point in time, there will be more supply coming up worldwide because global price levels are that high now.

I guess so. I know that some of our competitors have had weather-related problems and so on in Q1, so we might see higher supply. But as I said, I mean, our visibility is into Q2, and as Håkan said, we are – we have a very good order book in for Q2. So we will not see that in SSA being Q2.

Right. And then briefly on your margin evolution at specialty, it's, I think, pretty impressive how the margin has gone up. Can you help me a little bit to understand the dynamics of the margin per ton improvement quarter on quarter? Was that more of a fixed-cost absorption story, or is it that the pricing component has done well despite the fact that you're flagging that the price is not necessarily moving so much compared to the other two divisions?

It's a combination of a lot of things, but as Håkan pointed out, we have seen very good production levels. We have also structurally worked with production stability, yield development, so we saw very good production stability. good demand, good cost efficiency, good yields, good sequence length. So it was in many aspects a strong quarter. And then you see margins like this. So it's a combination of a lot of things.

And I would also add actually mix within special steel, even though we only present special steel as one division and as kind of a lump sum of volumes. There's, of course, also mixed differences within special steels and they have been working quite a lot with trying to improve their relative mix, and I think that has been successful.

There are a couple of product groups with very impressive margins that we are focusing on.

Okay. That helps a lot. Well done.

Thanks.

Thank you.

Our next question comes from Gustav Schreng from Handelsbanken. Please go ahead.

First, if you can comment on the growth rate for shipments in material handling during Q1 and perhaps also the visibility you have there. I would assume that it's going to improve quite a lot in coming quarters looking at order intakes for mining suppliers recently. That's my first one.

Material handling was actually one of the few segments that were really stable also last year, but it has continued on a good level, so for special steel, it's actually been other segments that have been coming back more, like heavy transport and construction machinery. But overall, the demand from material handling is good. And as Martin said, they're also looking with the high prices for, for example, iron ore, but also other raw materials. We do expect material handling to stay on a high level with an increased focus on productivity and efficiency.

All right. And then the second question, just on the incident you had in Luleå with the roof during the quarter, I think you commented when it was back up that you didn't expect it to affect shipments because of inventory. Was that the case? And was there any sort of earnings impact to talk about here in Q1?

We did lose some production of slabs in Luleå, but we could manage that by inventory and also by using slabs from Rae to Borlänge. In terms of shipments, no real impact. In terms of production, we lost some production in Luleå. Maybe I think it was in the end 15 or up to 20,000 tons. So not the major result impact, no, but slightly.

Okay, great. Thank you.

Thanks.

Our next question comes from Christian Kopper.

from nordea please go ahead when iron is now open okay thanks operator um firstly on question on the steel market uh just wondering a little bit with with this extremely strong price that we see on the screen so what kind of risk do you see what what keeps you you know wake at night is it primarily weakening demand or is it increased imports into europe or you know increased supply perhaps

If you have a hard time sleeping, you should not be in this business, Christian, as you know. So nothing really. Of course, there are always risks. And the market is obviously a bit different compared to a very different compared to a year ago. I think what is important to realize that this pandemic is not over yet. And we are still I mean, the world is still struggling with it. And that is, of course, one unknown that we need to handle. We have been successful so far of keeping the disease out to a good extent given the circumstances at our mills. But that is, of course, a big question mark. Where will this go and when will this eventually be over? That is one big question mark, yeah.

But you're not so afraid of a lot of volume coming in from other places outside Europe.

What we see right now is a strong demand in, I would say, many other regions than Europe, in Asia, North America, and so on. So, of course, there will always be trade flows over time, but we are used to that. That's what we are living with. Sure.

On special steels, obviously, exceptional margin here in Q1, I just if if i understood you correctly if you said that martin or or hawk and i don't remember but yeah i think you said you expect prices in special steels to go up in q2 but you expected raw materials to partly take out uh you know the impact from higher prices i just wanted if that was a correct you know interpretation of your words yes okay but so so that means Basically, if everything remains equal with the same volumes, okay, now you guide for slightly lower volumes. But they're just trying to understand the underlying profitability of special steel. So you should be able to keep, you know, very high margins in the current climate.

Yes, and then as Håkan pointed out, I mean, a bit sloppy maybe, but we talk about special steel volumes. But there is a difference within special steels, and there is – potential for further mix improvement over time as well, not maybe quarter over quarter, but there are some products that are, call it, impressively profitable. And so there is still, I mean, we are not ready with special steels. There is mixed improvements. We are now also investing in volume and capabilities in mobile. So you should expect special steels to be on a journey, not at the end state.

And finally, is there a scenario where you would consider to take the final small blast furnace up and running again?

Not really, to be honest. I mean, we have enough slabs in Oxelösund to... support Oxelösund and also the slab need for Borlänge. So I would say that that would be... I mean, if we would start, it wouldn't give so much to restart that blast furnace, and that would mainly then, I guess, end up as overtime hot-rolled coils, which is not our preferred product. So you should not expect us to reignite the small blast furnace in Oxelösund.

Okay, fine. And then finally for me on the... I don't remember if you talked so much about it today, but the electric arc furnace in Oxelösund in 2026, right? So that is, is the risk there still, the risk primarily attached to getting the high voltage cable? Yes. In the time, yeah, okay, so how does it look there? Is that a thing happening or, you know?

It's looking... on the margin better and better but but that's still the unknown i mean the thing that we can't influence fully ourselves but but it's moving in the right direction so we are still confident that we will be up and running 2026. okay thank you very much and our next question comes from oscar lindstrom from danske bank please go ahead

Hi. Good morning, everyone. Two questions from my side. I'll take them one at a time. The first one is something that a couple of questions have been around here, but I mean, on mixed change, I mean, given the strong demand, are you able to, on top of higher prices, to also sort of have a positive mix change in coming quarters as you're able to sort of pick more attractive orders and...

So higher end product. What we typically see, I mean, is the seasonal mix improvement in Europe, of course, with more color-coded and so on. But on top of that, we try to prioritize, call it the most profitable mix as well, when we are short of volumes on a total level.

So, yes, we should expect a positive mix, in fact, on top of the seasonal one in coming quarters.

I mean, you should expect a seasonal mix change and then we gradually, but that is more a long-term work. But you should expect us over time to continue to improve our mix, yes.

All right. My second question is a little bit on sort of projects here and what you're going to do with the cash. I mean, you're now restarting the Quench and Tempered project in Mobile. I mean, number one, could you please remind us of the impact of that project and if anything has changed since when it was launched? And what kind of pipeline do you have of other expansion projects that you could do and sort of start relatively quickly in these good market conditions?

Yeah. The one thing that has changed for what we call the expansion of QL6 in North America is the timing, since we put that on hold last year in order to preserve cash. So the startup of it will be mid-end next year instead of the end of one year earlier, since we basically delayed it one year. And that will add close to 100,000 tons of new quenching temperature capacity, mainly for the North and South American markets. We, of course, and if you ask the divisions, they have a hundred of ideas of new investments and interesting projects, et cetera. And we have increased our expected investment level from what we've done before. And I would say there's not lack of ideas. Then if we could turn on the switch for new production capacity today, which would be available tomorrow, we would be able to do that. These projects are, of course, more long-term, and therefore we evaluate every individual project, and it needs to be not just profitable in the extremely strong market we see right now, but also over a cycle.

So, no, there's not going to be a bunch of new projects announced sort of the second half of this year from you guys, or?

Not because of that we have high steel prices at the moment, no. There might be that we present new investment, but then it's because we think these are the ones that long-term will continue to develop SSAB with more high-end, high-strength steel products. That might come, but that will be regardless of the current high steel prices.

All right. Thank you. Our next question comes from Bastian Sinekowicz from Deutsche Bank. Please go ahead.

Yes, good morning, gentlemen. Only two quick ones left from my side. Just firstly, on your maintenance schedule, which I saw you adjusted a little, I'm wondering whether you still see any scope to push out the maintenance even further to capture the very strong margin environment in the second half of this year, and maybe in that context, in the context of your slab inventory being suboptimal, as you said earlier, have you fully maxed out your leeway to improve your output yields while feeding its crap into your European system? Those are my first questions.

In terms of maintenance, we adjusted but only minor and that's more related that we know more than we knew before. But we are looking at can we shorten a day here or a day there. But most of these for different reasons we need to keep them at a certain length and we need to do them at this time when we are planning to do them. So overall you should not expect that we will be able to know skip the outage in special steel or anything like that they will be more or less according to the schedule that we presented in the report and in terms of scrapping the blast furnaces yes we are definitely doing that and to a large extent that's also for one reason why you can see very high crude steel production in special steel okay perfect then um my second question is really more on the strategic side and just coming back on this h2 queen sphere project

So from what I understand, the second financing round for the project is done. And it was said so far that he wouldn't be interested to participate. I just wanted to confirm again that you or any of the entities you're involved in did not participate in the first or second financing round. And I guess what I would like to understand is just whether you would rule out a scenario similar to US Steel in the US, which obviously took over and consolidated Big River Steel after the project had been developed off balance sheet.

But we have not participated in any financing round. And we have our ambition to lead this development. And we are investing and working together with Vattenfall and LKAB and now Volvo and some other partners to create what we call a fossil-free value chain all the way from the iron ore up in the mountain in the north until finished products out with end users. So that's what we are aiming for. And that's our strategy and our ambition and our target to continue to lead that development. Then, of course, it's positive that other companies get inspired by what we do. But apart from that, we have our own agenda, and we will continue to work with that one.

Got it. Okay. So no change, really, versus before. That's been very clear. Thanks so much, Martin.

Our next question comes from Alan Gabriel from Morgan Stanley. Please go ahead.

Yes, I have two follow-up questions, short if I may. On Tibnor, how much of these profits were driven by windfall gains and how much of these profits can be repeated again in Q2? That's the first one.

We don't specify that exactly how much was the windfall gains, but it was a significant amount of the result, yes. And if you look only into Q2, well, So far, we have seen prices increase also in Q2. And if that trend continues, you would see inventory windfall gains also in Q2 for Tibnor.

Okay, that's very clear. And the second question is on the cash needs. So the total figure you've guided for is 5 billion at the midpoint, which is predicated on 2019 EBITDA levels. Is that correct? And if so, how should we think about that level? Is it fair to say it's going to rise to 6 to 6.5 billion if you take the Q1 EBITDA annualized?

It's fair to say that if the full year EBTA is higher than in 2019, you should expect that the taxes paid will be higher as well then. And to simplify it also, Alan, you can say that the higher the profit we have, the closer both the P&L tax and the cash tax will be to roughly 20%, which is then the average tax rate in our core markets.

Okay, very clear. Thanks. Thank you. Our next question comes from Christian Aderwal from Citigroup. Please go ahead.

Hi, thank you for taking my question and apologies for my crockery voice. I'm suffering from the cold. You mentioned about adjusting the main schedule for Q3 and Q4. And then you've got it for, you know, stronger order book for Q2 in Europe. So is it fair to assume that these are sort of a quick step for you to have a better or lower than not useful technology in the European business going into the Q3?

Sorry, Christian. Was your question on the maintenance schedule for SSAB Europe, if we can shorten it or…

Well, the question is that, okay, you've reduced the maintenance expenses for Q3 in Europe, and then you got it for a standard order book. So is it fair to assume that the usual seasonality in the Q3 in Europe is going to be lower this year?

If the maintenance will be lower this year in Europe compared to 2020?

Yes. They will be according to the schedule that we presented. I don't know exactly how it was compared to 2020, but I think it's roughly on the same level. On the top of my mind.

Yes, it's slightly higher.

Last year it was slightly lower last year because then we were using a lot of our own personnel as we were not producing as much, and this year we are producing more, and then we need to take in some more external people, so slightly higher this year, but more or less not a big change.

Understood. And then moving on to the Americas, the scrap prices have been going up. Would you be able to quantify the mix of the scrap and book between the prime scrap and the shredded scrap there?

Yeah, you can say it's a little bit on definitions, but the way we define it, prime is quite small it's mostly in alabama where we have the cutie lines so the way we look at it not more than 10 15 is prime mostly is shredded what you see on for example shredded midwest it's usually a good indication okay okay got it that's all from my side thank you

Just as a quick reminder, if you wish to ask an audio question, please press the 01 on your telephone keypad. Once again, that's the 01 on your telephone keypad if you wish to ask an audio question. Our next question comes from Andrew Jones from UBS. Please go ahead.

Hi, James. I've got a couple of questions. First of all, on your green steel, the strategic cooperation with UBS, With Volvo, I was wondering if you discussed anything regarding pricing and the potential premium for your green steel products as part of that agreement. And if you could give us some sort of steer as to what sort of green premiums might be expected with these sort of sales going forward. That's the first one. And then just secondly on... If I take the first one first then.

I mean, that's part of the corporation as well to try to figure out what the market... the end customers are willing to pay what premium they are willing to pay for fossil-free equipment, so to say. So that is part of the cooperation.

But have you, I mean, if you were making a sort of decent guess as to what customers are willing to pay based upon all the conversations, not just with Volvo, but with?

It's a combination of without quantifying it, it will be a premium product. But then also the combination is more interesting to talk about the margins and that will also be dependent on the costs of emitting carbon dioxide. So it will be a premium product with a premium margin. Without quantifying. You need to remember that we are starting now in Q2 to produce this fossil-free steel at fairly low volumes. The big volumes will come 2026, and the market will develop towards that as well. But what we have seen is a very big interest from different customer groups and different segments.

Okay. Okay, fair enough. And just on the second question I was going to ask, you've obviously mentioned that you haven't seen significant impact of restocking during Q1. And, you know, customers are still sort of hand to mouth. Personally, I'm a bit surprised by that, given the strength of pricing compared to what we see in the end markets. And you've got auto, which is sort of kind of stuttering because of the semiconductor thing. Non-residential constructions, obviously, not back to previous levels. So it seems like in most end markets, we're not really back to sort of, say, 2018 markets. I mean, where are you seeing that strength if it's not in non-resi or if auto is kind of not really booming right now? Where is that incredible strength coming from to justify a tight market when pretty much all European bus fences are switched on and we still see prices climbing every day? What do you put that down to?

We see strength in the markets in almost all segments. And I think also even if you take auto and yes, they will be having maybe some semiconductor shortages, but they were starting from quite low inventory levels, which, I mean, excuse me, during COVID last year, most customer segments, including service centers and distributors, they were reducing their inventories quite a lot because no one knew where and how long this would last. And now what we are seeing is that it's not that they're restocking up to high inventory levels, it's more that customers are restocking up to still to fairly lower inventory levels. So we see it across most segments. And then you're right that now most blast furnaces in Europe are restarted again, but that actually happened quite a lot during Q1 as well. So all that capacity has not been online yet either.

Okay, so you are saying that Although it's not restocking at service centers, there has been a certain amount of restocking at the customer end, from a low level to a kind of mediocre level, but the demand growth has been more kind of restocking than real demand from what you should see.

No, I wouldn't say that. I say there is a demand for restocking, but the restocking has not really happened yet because there has not been supply in the market, so It might be that the restocking will happen now in Q2 and into Q3. But there is demand for restocking, but we haven't really seen it taking place yet, at least not among our customers. And we've been very careful to make sure that the volumes we have, we are distributing them or allocating them between the customers so we don't get the big restocking impact at certain customers. Okay. Okay, thank you.

Our next question comes from Luke Nelson from JP Morgan. Please go ahead.

Hey, apologies for the late question. Just on the market environment and just on safeguards, can you just remind us again of the sort of critical path towards a decision? And then maybe if you have any views around the potential for it to be re-rolled. Obviously, WTO has come out last month and said it needs to prove that it continues suffering from the steel industry, which appears unlikely given the current profitability. Just be interested to your views and the likelihood that it may indeed be rolled. That's my first question.

Look, you were referring to the safeguard quotas in Europe and that is coming up now for a possible extension mid this year. Yeah, OK.

I don't have any insights on that one, actually.

What we can say is. There is a lot of noise in the market that these safeguard quotas need to be taken away, and it's hurting the steel-consuming industry in Europe. But what we are actually seeing is that they're not being filled up. I don't have the exact figure right now from the top of my head, but in Q1 overall, it was actually quite a low level that were being used. So it's a bit strange, the quite tough discussion that they need to be removed while they're, on the other hand, not being used.

Very clear. And just the last one from me, just following up on the prior question on the Volvo agreement, not necessarily on the pricing dynamics, but maybe how you think the evolution of those contracts might move in terms of sort of annual or more of a reference to spot pricing or sort of volumes. How do you think that could potentially evolve? Basically... will they be sort of a product or a customer where they end up being quite sticky in terms of volumes to specific steel producers?

We are not there yet. I mean, we are now starting to produce the first batches of fossil free steel in Q2 and at fairly low volumes. We will gradually ramp it up. That question is more valid from 2026 when we have big volumes in serial production. So let's come back to that. But I mean, For us, this is nothing strange. I mean, SSAB is typically working together with customers and end users, developing new products, new steel grades, new ways of working. So this is, in that aspect, what we are used to and what is in our DNA.

Sorry, can you jump back? And then on a sort of a 2026 to 2030 timeframe, do you ultimately think these – the product group for green steel will be sort of more of a an annual contract basis uh similar to sort of auto contracts that we see at the moment or um would they be more variable sort of quarterly or is it still just too early to tell i think it's too early to tell sure thank you thank you there appears to be no further questions registered so i'll head back to the speakers

Okay, by that we thank you for all the questions, and then we are ready to close this Q1 call. So we thank you for the attention and wish you a pleasant day.

Thank you.

Bye-bye.

Thank you very much. Thank you.