SSAB Ab

Good morning and welcome to this presentation of the SSAB Q3 report. My name is Per Hillström. I'm Head of Investor Relations at SSAB. And with us today here is our President and CEO Martin Lindqvist and also CFO Håkan Folin. We have a bit of a hybrid setup today. Martin has a bit of a cold, so he's not here with us in the room, but he will participate over the phone. And again, as usual, Martin will start with the overview of the quarter, and then Håkan will go into the financial details, and then Martin at the end with the outlook and the summary. And then, of course, it will be ample time to ask questions at the end, but we'll come back to that. So, by that, Martin, we can now see your first slide here, another record quarter for SSAB. Please, now you can start with your presentation.

Thank you, Per, and good morning. And I once again apologize for not being able to be in the room, but I have quite a cold, so I guess it's better for me to call in than to be in the room, even though I look forward to meet you all for the first time in one and a half years. But if we start with that picture, I would summarize Q3 and use the word solid internal performance in a strong market. And These are some of the KPIs. If we start with safety, we are moving in the right direction. This is long-term injury frequency per million working hours, and we are now rolling 12 at 1.9, which is much better than we have seen previously. If we take it year-to-date, it's even better. If we then move over to special steels, we could see that during the third quarter, even though we had an outage, we continue to grow the special steel volumes. And this is the best Q3 deliveries we have ever seen for the quenching temper. We also continue to improve the mix in Europe. Year-to-date, the premium mix is 43% of the premium share. And if we take... q3 standalone it was 45 and this is also an important part of our strategy to shift the mix towards less volatile and more profitable products and it all ended up in record high earnings of an op with an operating profit of 5.8 billion sec for the third quarter if we take the next slide pal another i would say remarkable event during the third quarter was that we rolled the first fossil-free plates in Oxelösund ever during the third quarter. And we didn't only roll fossil-free plates, but we also shipped them to one of our customers, Volvo Group, and they, during the quarter, also came out with a new product, the load carrier from mining and quarrying, which is made completely out of fossil-free steel. So this is One very important event on our journey to become the first fossil-free steel company in the world. And we have now proven that the technique works. And according to Volvo, the quality of the steel is as good as the steel we usually produce. We have also, during the quarter, signed a number of strategic partnerships. And on this picture, we have Mercedes. And it is an important partnership with Daimler Group. But in the future, we will use fossil free steel from SSAB. If we then take the next slide, Pat. If we look at the divisions, I would say that all divisions were performing very well and meeting record levels in profitability. The reason why special steel is a bit lower than Q2 is, of course, that Q3 is decreasing. quarter with planned maintenance outages. But even taking that into account today, did a billion in EBIT. Europe, 2.5, clearly the best quarter ever. And as I said, the Americas, almost 1.9 billion SEC in the quarter. Even Tidnor and Ruki Construction did very good profits and record profits. And of course, much better than previous third quarters in the history. If we take the next slide and move into divisions, Start with the special steels. I would characterize the quarter with a strong underlying demand, of course, affected by the maintenance outage in August. And then typically we also see the seasonal slowdown both in July, partly in July, but definitely in August. Shipments of 348 ktons, which is a record for the third quarter. It's 34% higher than the third quarter last year. And an EBIT or an operating profit of just north of 1 billion, equivalent to 17%. EBIT margin, which was of course due to better prices, higher volumes, but also very stable production. And as we have discussed before, now since the beginning of Q3, mobile, the plant in mobile is also part of special steel. So that mill is moved from America to special steels from first of July. If we move over to SSAB Europe, Strong market conditions during the quarter, of course, here as well. Somewhat of a seasonal slowdown, end of July, August. High share of premium, EBITDA 2.5 billion, which is 23% EBIT margin, which is, of course, a record level. Saw the effects of higher prices, higher volumes, better capacity utilization. And also here we had planned maintenance stops during the third quarter, which we typically have. And you can also see on the lower right part of the slide, they've tried to describe the development for automotive and advanced high steel trucks. are more resilient compared to the general automotive market. So we see clearly that the advanced high strength steel part is structurally growing better than the market or less volatile than the average automotive market. The next slide, please, to America. We were during the third quarter in controlled order intake, which typically our prices are moving up, so we don't want to sell out too early. And I think the Americas organization handled that in a very good way. We saw good demand during the quarter, higher shipments, both compared to previous third quarter last year, but compared to many third quarters in history. We had a need of almost 1.9 billion, which is, of course, a record level. And we did margin of 31%, which is really good. So a strong quarter from America as well. If we take the next slide and start to look into Tidnår, another strong quarter for Tidnår, and they have really put the organization in place. They are finished with the structural cost efficiency program, and they are doing a very good job. They have saved more than 200 million on annual basis, and that, of course, is contributing to the record profits. Revenue was up with 75% versus Q3 last year, and we had an EBIT north of 500 million, equivalent to an EBIT margin of 17%. Due to higher volumes, better prices, and also prices are moving up some inventory gains. But overall, internal performance also in Tidnor was really good during the third quarter. Then, next slide. Rookie Construction, they continue in a steady pace to improve operating profit and how they run operations. They have a very solid performance, and nowadays they fully focus on the product business, envelope and roofing business. The rest of the business we have sold, so this is purely now product business. Revenue increased with 27% compared to Q3 last year, and they had a new bit of 229 million, or a new bit margin of 13%, which is good. So better volumes. They struggled, of course, with higher fee prices, but I think they handled it in a very good way and ended up with a good result during the quarter. So that's what comes.

Thank you very much, Martin. And I will give you, as usual, some more details on the financials in a very special quarter like this one. As a summary picture, this shows to a large extent why this was a really special quarter. If we start with sales over there, we reached a record level of sales with even more than 25 billion in sales. If we look at shipments, well, this is the one where we don't have record levels. We were higher now in Q3 than Q3 last year, which was, of course, very different. But we were in line with Q3 2019 and 2018. However, with a clearly improved mix level, as Martin discussed, we had record levels for special steel, which is the one we want to grow to improve the mix. And also within SSAB Europe, we are seeing very good development for our premium strategy there as well. So very... Same level of shipments, but clearly with a better mix than we've seen before. On the EBTA side, we had an EBTA of 6.6 billion and an EBTA margin of 26%, also this then a record quarter for us. But actually, the one that really sticks out is down here, EBTA per ton delivered steel. Given that shipments were lower than previous quarters but profits were higher, well, you do the math and we have a very strong EBTA per ton delivered steel of around 4,500 Swedish kronor per ton. If we then look what has happened between the quarter and we start comparing Q3 this year with Q3 last year, well, It's almost opposite world. Q3 last year was, of course, very weak, and Q3 this year has been very strong. We have a total improvement going from close to minus 1 billion to close to 6 billion in EBITDA, so almost 7 billion in difference between the quarters. A very large improvement is coming from prices, 8.7 billion when we add it up between the divisions, where the biggest items are in Europe and in SSAB Americas. We also had better volumes, and this is mainly coming from special steel. And of course, that's as we said before, that's where we want to see volume growth. Variable cogs impacting negatively with 2.2 billion. We say here higher raw material, especially iron ore, and that's even actually around 2.6 billion. But given that we were running operations with higher activity level, that also helps in terms of energy efficiency, yield levels, et cetera. So mitigating part of that raw material increase. Fixed costs are, of course, higher now in this quarter than they were a year ago. We are running operations at a significantly higher activity level. We were doing a lot of scrambling last year in terms of saving costs. Internally, we have actually mainly during this year compared fixed costs with how it looked in 2019. And when we do that and we look at year to date fixed costs, 21 versus 19, we are actually clearly lower despite higher activity levels. So a lot of the savings we did last year We have actually – they were not just temporary. We have managed to establish a lower cost level in the company. Some negative on FX, better capacity utilization. We took some prolonged maintenance out this last year, given the market situation, and then some other. But all in all, it's, of course, a very different situation now in Q3 versus last year. We see it in better volumes, and we see it especially on the margin and the utilization side. If we instead then compare Q3 now with Q2, we compare two really good quarters. We still have an improvement of around 1.7 billion. And also here, prices are impacting significantly, mainly again for Americas and for Europe. We have a negative impact on volume of close to 800 millions. This is because we have a season slowdown in Europe and we had a plain maintenance outage in Europe. So it's a natural and traditional pattern that we see. Variable cost higher, you know, the development within iron ore, that's the main impact we see there. And then on fixed costs, they're basically at the same level in Q3 as in Q2. Usually we see lower fixed costs in Q3 because we have these vacation reserves. This year they are on the same level, mainly because we've had accruals for performance-related projects salaries both in the nordic system but also in america's where we have quite a large portion of the salaries being variable depending on production and market situation fx quite minor capacity utilization again it's a planned maintenance outages and then we have some others but all in all the improvement from q2 to q3 is mainly because we have better margins we have A strong net cash flow also for this quarter. It's 2.8 billion, despite that we were actually building as much as 2.7 billion in working capital. Why were we doing that? Well, because of the increased sales prices, we're building AR and we're also building inventory, especially on the price component side, given the iron ore development and lately actually also the coke and coal development. Year to date, we are at net cash flow of as much as 7 billion Swedish kronor. And of course, the net cash flow has an impact on our net debt. We are seeing a significant reduction in net debt. So far this year, if we compare to one year ago, we are down from close to $13 billion to almost down to $3 billion. So it's almost a $10 billion difference compared to a year ago. And we are net gearing at only 5% now, 22% one year ago. In terms of our... Our debt, well, for the coming plus two years, we have maturities of 3.4 billion. And, of course, you've seen the cash flow generation. So this is very much under control. This might stick out a bit. Our duration of the loan portfolio has increased. The reason is that we have used the cash that we have generated to pay back short-term debt. And, therefore, the overall duration has increased. Our forecast for cash needs of the business is basically unchanged. It's around five billion for the year. We are saying that CapEx three to three and a half is what we have guided for throughout the year. We can see now that with only one quarter less left, it's more likely we'll be closer to the three billion than to the three point five. And otherwise there is no changes. So around five billion in cash needs. If we then move to the raw material side, here there has been quite, if the previous picture was unchanged, here we have seen a lot of development. This is showing our purchase prices. And for iron ore, our purchase prices were 13% higher in Q3 versus Q2. But for those who follow the spot market, you know that the sharp increase we have seen from iron ore all of a sudden turned in Q3 and then dropped significantly, now re-established somewhat, but still it's a, On spot market, iron ore is much, much lower than it was a quarter ago. So our purchase prices are up. But for the coming quarters, if the situation is the same as it is right now, we will definitely see lower purchase prices for iron ore. For coke and coal, on the other hand, they were not moving so much for a long time while iron ore was moving up. But now during the last quarter, spot prices have moved up a lot. Our own purchase prices were actually 34% higher in Swedish krona. So we have seen a huge increase, and if this continues, our increased purchase prices will also continue for Coke and Coke. Scrap in the U.S., on the other hand, there we have seen a much more stable development. Our own purchase prices in Q3 was more or less unchanged versus Q2. We saw a slight, this is spot market, we saw a slight decrease in October, but all in all, not huge changes on the scrap market in the U.S. Finally, then for me, a few words about the maintenance outages remaining in 2021. Usually we only show this picture maybe for the coming year and then we have it in the appendix. But the reason I brought it out now is that we have a change here because since we have moved the ownership of the mobile mill from Americas to Special Steel, we also have a change in split of the cost for this outage between Americas and Special Steel. And given that so far the majority of the products produced in Mobil is still standard plate, we also have the majority of the cost being with Americas. But the cost for the outage as such in total is the same, but just a split between the divisions. And with that, Martin, back to you.