SSAB Ab

Good morning and welcome to this presentation of the SSAB report for the second quarter. My name is Per Hilsum, I'm Head of Investor Relations and presenting today we have President and CEO Martin Lindqvist and our CFO Håkan Folin. If we take a look at the agenda, Matti will start to go through the record second quarter here for 2021. Håkan will go into the financial details, and then Matti at the end with the outlook and a summary. And after these presentations, we will open up for questions. But by that, please, Matti, start.

Thank you, Per, and good morning. The second quarter was a strong quarter in many aspects and the market was quite good. But the market is what the market is. And I think what I'm happy about on behalf of the organization is the solid internal performance that we show. And regardless of what the internal or operative KPI look at, we have seen a positive development, not only during the second quarter, but during the first half of 2021. We start with safety, and these are moving 12 figures, lost time injury frequency per million working hour. We're down at 2.3, and if we look at so far this year, we're at 1.6, which is starting to get really good. Efficiency has also improved over time. We have fixed cost per ton moving in the right direction. We had very stable and high production in not only in Q2, but also in Q1, so the first half of the year, very good. Of course, record earnings and a strong cash flow. So I would say that the internal performance in all divisions and all areas of the company has been improving and is going to continue to improve. Another important part of the second quarter was, of course, that we have now started to produce fossil free pellets or sponge iron. in our pilot plant up in Luleå. We have produced now way more than 100 tons and we will later this year start to roll fossil free steel and start the first deliveries to among others Volvo Group. We have also established strategic cooperation with both Volvo Cars and Volvo Group. We've also, during the quarter, issued sustainability-linked bonds with a huge interest from investors. We didn't really need the money, but we thought it was a good idea and we were happily, not surprised, but happy about the big interest from investors. If you look at the operating profit per division, I think they all did a good job. Special Steels, which is less volatile than the more standardized business in Special SSAB Americas, did 1.1 billion, 19% EBIT margin. Americas, we saw the effects of increasing prices, and I will come back to that. SSAB Europe also increased. on a good level profit-wise and then Tidnor I think has done an exceptional job and with a very strong performance in absolute terms of course lower than the steel divisions but very good achievement during the second quarter and then rookie construction continues to get better and better we have also seen over this period and this is an example from SSA Europe that the order intake continues at the high level we can see similar patterns in the other two steel divisions and in the other divisions. So the order intake has continued on a high and stable level. If we then look into the divisions and start with special steels, we saw high and stable production during the quarter. The shipments were almost 390,000 tons, the highest level ever, up 46% compared to the very tough second quarter last year, but up 3% compared to Q1 2021. And with an EBIT of 1.1 billion, we reached an EBIT margin of 19%, which is really good. Better prices, higher volumes and stable production. We will also, in order to the long-term increasing demand we see and the focus on specialties, we will from 1st of July move the Mobil plant from SSAB Americas into Special Steels in order to continue to develop that plant to a Special Steel mill with more and more QT production. That will have no major changes on divisional shipments or divisional profitability because Americas will still take care of the standard part in Mobil, but the ownership of the mill will move into Special Steels to increase focus and speed of transformation even more going forward. If we then look at, as I say, the Europe, strong market conditions, but I think what is good is that we have continued to move the product mix and high level of premium products and advanced high strength steels. And we actually saw, even though the problems automotive had with semiconductors, we saw a record level of automotive advanced high strength steel shipments. Even here, we had a high and stable production and we keep fixed costs at the low level. And the EBIT was 1.5 billion, summing up to 15%, which is really good for this division. 15% is a decent profitability. Moving over to America, we saw here as well high and stable production, good productivity, fixed cost kept at a low level, good demand with high shipments up 7% compared to Q2 last year and 3% compared to Q1 this year. An EBIT of 1.15 billion and an EBIT margin that increased to 24%, which is, of course, fairly good in the steel industry. Moving over to the other two divisions, Tidnor and Roke Construction. If you start with Tidnor, they have fulfilled now their cost efficiency program. They have taken down their fixed costs with more than 200 million per year, and that is fully done and fully visible. What I think is good also in Tidnor, they have managed to increase market shares in a strong market without losing profitability. Revenue up a lot compared to second quarter last year. And an EBIT of 449 million SEC gives an EBIT margin of 14%. Part of that, not the big part, but part of that is inventory gains, but it's about better cost efficiency, higher volumes, and better prices. So good performance from Tibnor during the second quarter. Looking at Tibnor, rookie construction, sorry, we saw... A solid internal performance with full focus nowadays on product business. As you might remember, we sold building systems last year, and we only now have the core part left, which is the product business. Revenue increased with 11% compared to the second quarter last year, and we ended up with an EBIT of 162 million, which is an EBIT margin of 10%. And we saw better volumes and better demand in both the roofing and the other part business unit called the envelopes and also a very good cost efficiency during the quarter. So with that, Håkan, I leave to you to go through the financials.

Thank you, Martin. And good morning, everyone. And as usual, I will give some more details on the figures, including bridges, balance sheet, cash flow and raw material. If we start with an overview, and as Martin said, this was a very strong quarter from many different aspects. We had a sales of almost 24 billion in the quarter. We had shipments also at a very high level, at 1.8 million tons. And this means that we have been running production at a very high level in order to get this much shipments out. An EDTA margin for the group of 21%. And then finally, down to the right on this slide, EDTA per ton delivered steel of almost 3,000 Swedish kronor per ton. If we look at the bridges and comparing Q2 last year with Q2 this year, it's really comparing two extremes. Where in Q2 last year, that's basically where the world stopped after the outbreak of COVID-19, And now this quarter then being a very, very strong quarter. But anyway, the changes are coming from more than $4 billion in prices. This is mainly within Europe and America. That's where we saw the prices go down the most, and that's also where we've seen the prices go up the most. Also coming a lot from higher volumes, 1.6 billion, Europe and special steel. America has maintained quite high volumes throughout last year, but now we see a strong comeback for Europe and special steel. Then we have a negative of 1.6 billion in variable COGS, especially on the higher raw material cost, with iron ore being the dominating factor. Fixed cost higher than last year of around 500 million. Of course, we are running at a much, much higher activity level, but actually the fixed costs are still clearly lower than they were in Q2 2019, which is more relevant to compare with for this item. Some small change in FX, quite a big change in capacity utilization as we are running at a much higher activity level, and then something on other, small change on other. But all in all, then, more than $4 billion in positive impact coming from prices, volumes, and better capacity utilization. If we compare with Q1, then, instead, which is more reasonably quoted to compare with, we still have an improvement in EBIT of more than $2 billion. We see prices here improved by 2.9 billion, again, mainly Europe and Americas. We see slightly higher volumes, mainly from rookie construction, higher raw material costs, somewhat higher fixed costs, but again, still on a clearly lower level than two years ago. Small item on ethics, something on capacity utilization. We were running at the very full level in Q1 as well, but managed to increase production somewhat in Q2. and a small item other. But to simplify it, you can say that the difference between Q2 and Q1 is really that we have better margins now in Q2 than in Q1. We haven't come to that yet so far in this presentation, but we also had a very strong net cash flow in the second quarter. We had a net cash flow of more than 3 billion Swedish krona. And this is despite the working capital buildup of around 600 million. which I think, given the circumstances where the market is, is actually on a quite low level. But all in all, a net cash flow of more than 3 billion. And if we look at where we are year to date, then we have generated 4.2 billion in net cash flow. This has, of course, resulted then in a significant reduction of net debt. We have a net debt now at 6.5 billion Swedish kronor. It was almost double a year ago. And out of this 6.5 billion, around 2 billion is IFRS 16 related items. We've also reduced our net gearing, which is now down at 11%. For this slide, I think we have kept the headline for quite a few quarters now, which says that we have a well-balanced maturity profile. For the coming three years, we only have 4.7 billion in maturities. And if we look at 2021, isolated of 2 billion, most of these refer to commercial papers. We have liquid assets and committed credit lines right now at 16.6 billion, which is 22% of sales. This is more than we need at the moment, but it's a combination of two factors. One is that we took up extra facilities at the outbreak of COVID-19 to make sure that whatever happened, we would have enough liquidity, which we obviously have had. And the second factor is that we had an exceptionally strong net cash flow now in Q2 of 3 billion. So this is a bit more than we need, and we will adjust that going forward. Cash needs of the business, we say we need around 5 billion, and for cash needs we mean taxes, net interest, and capex. Capex is going to be higher than last year, or 3 to 3.5 billion. It's mainly then that we have restarted the capacity expansion of quenching temper material in Mobile, converting then Mobile more and more from a standard plate site into a specialty plate site. We've also started the oxyzone conversion for fossil-free steelmaking. If we turn them to raw material, we are seeing higher prices for both iron ore and coke and coal. So far, in our purchase prices, it's mainly being seen for iron ore. Our pellet prices were 18% higher compared to Q1. This will have an impact on the result in Q3. If we compare it to one year ago, it's actually up as much as 90% the iron ore cost. So far in July then, spot prices have stabilized for iron ore. For coke and coal, what you see in the graph then is not so big changes for our purchase prices. They were 8% higher in Q2 than in Q1. But what we saw in Q2 was that spot prices started to increase quite significantly in Q2. It's not yet seen then in our own purchase prices. We will see it in our purchase prices in Q3 and in the P&L Q4 and onwards. But there are no prices of plus 18% in Q2. Those will definitely have an impact in Q3 on the P&F. For our U.S. operations then, the scraps brought prices increased in Q2. They were up 7% compared to Q1. What we see so far for the third quarter, they have stabilized here at a fairly high level then. Finally from my side a few words about our planned maintenance outages. We will now in Q3 have maintenance outages in Special Steel in Oxelösund and we will also have it in some of the Nordic sites in SSAB Europe. The cost for this is 645 million but this only includes the direct maintenance cost and also the lower capacity utilization under absorption. But it does not include the lost margins we will have. And when we produce less, obviously, when we have the maintenance outages, we will produce less. And that means we will have lower shipments in Q3 for special steel in Europe, which will have an impact on profitability as well. Okay. Turning back to Martin and the outlook.