SSAB Ab

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.