SSAB AB (publ)

and welcome to this presentation of the SSABQ1 report. My name is Per Hillström. I'm Head of Investor Relations. And with us today, we have Martin Lindqvist, President and CEO, and also our CFO, Leena Clayadeus. If you look at the agenda, Martin will start with the first quarter in brief. Leena comes with the financials, bit more details, and then Martin at the end with the outlook and the summary. And at the end, there will be good time to ask questions, and we will come back to the instruction of that. So, with that, please, Martin, the floor is yours.

Thank you, Per. And good morning, everyone. If we start then with... The first quarter, we had, I would say, a strong start of the year. We had steel prices on high levels. We had raw material costs also being on high levels, and Lena will come back to that. We also had an unplanned stop or a shield heart in one of our blast furnaces in Rawa, which affected the first quarter. And that gave us slightly lower volumes than we had really planned for. But I think we managed to... use the volume allocations in a good way and continue to strengthen within our niche segments. We kept costs, SG&A, on the same level as Q1 2019, even though we were running operations at a very much higher activity level. We also continued to develop our safety culture and moving 12 months. We are now at an LTI frequency per million working hours. of 1.6 and year to date we are well below that. And we continue to see good development when it comes to special steels both when it comes to profitability but also shipments and volumes. Some words about Russia's invasion in Ukraine that has of course kept us very busy during the quarter. The strongest focus has been on our 76 employees in Ukraine and also on their families and relatives. Many of them have for the time being moved over to Poland where we have been able to take care of them and use our facilities and with the help of our Polish employees create some kind of a safe and sound environment for them. We stopped all sales to Russia and Belarus directly. We have also stopped all new purchases of iron ore and coal and other materials from Russia. We have been working hard to secure supply of raw materials, iron ore and coking coal and others, for the future. That has been a focus during Q1 and will continue to be a focus We have also decided to write down our assets in Russia and Belarus, and that is a one-off in the report and going forward we are fairly confident or confident that we will continue to source volumes enough to keep production running when it comes to raw materials but of course we will continue to see disruptions in the supply chains problems with containers problem with rail cars problems with the ships and so on and that we have been seeing for the last two years i would say If we then look at steel prices, and these are spot prices, and they started to move down in the beginning or end of last year and beginning of the quarter in Europe, but apparent demand increased during Q1 and spot prices went up. In U.S., prices stayed on a very decent or very good level. And when we look forward, we see that we will continue to have slightly higher prices, the contract prices, but we will also see higher raw material cost. And we expect that the peak we saw in apparent demand will normalize. So underlying demand stable, apparent demand more in line with real demand during second quarter. If you look at the divisions, we had strong performance in all divisions. In some of the divisions, we even had record earnings. In Europe, we were slightly lower than in Q4, but still on very good levels with an EBIT margin of 26%. Special steels, record earnings, EBIT margin of 27%. In America, of course, very strong performance with an EBIT margin of 40%. Rookie Construction had an EBIT margin of 10%, which is really good because Q1 is always seasonally the slowest quarter. So not a record quarter, but definitely a record first quarter. And the same goes for Tibnor with an EBIT margin of 9%. So all in all, good performance, good profitability in all divisions and all daughter companies. If we look at the green transition of the steel industry and what we are doing, we came out with a strategic decision to rebuild our facilities in Luleå and Rae when we released the Q4 report, and to accelerate that in order to meet customer demand. We are now, or we have started the feasibility studies for Luleå and Rae and the mini mills, and that is proceeding according to plan. What we are working quite hard with now is access to power or electricity, which will be a key factor, and that we are working with together with the governments in Sweden and Finland. We have also during the quarter announced two new strategic partnerships with Polestar, the automotive company, but also with Epiroc, We have also been recognized by the EU Innovation Fund that has decided to support not only hybrid, but also the Oxelösund conversion. For Oxelösund, we will get around 30 million euro in support from the Innovation Fund. With that, Lena.

Thank you, Martin. Let's dive into the financials, analyzing a bit more. If we start with the sales, Q1 reaching a level of 31.6 billion, which is remarkable. And if we compare with the last year, Q1 being just below 20 billion, we are talking about deviation of around 60% higher sales level, which is then the opposite if we analyze the shipments. Shipments Q1 on the level of 1,664 kilotons. And compared to last year, it was above 1800. So we are having around 10% lower volumes. So clearly, when analyzing these graphs together, we can see that on average, the prices have been around 70% higher this year compared to last year, which is pretty well in line with the graph that Martin was already briefly showing. EBITDA and EBITDA margin Q1 on the level of 9.2 billion, 29%. When comparing to last year level, we have doubled the margin as last year we were on the level of 2.9 and 14.5%. And the graph here on the low side is illustrating the EBITDA per delivered ton. And Q1 this year being on the level of 5,500. And then compared to last year, it has been level 1,600. So quite remarkable improvement. And when we break down the impacts, clearly the biggest positive impact is with the prices. All the division contributing to this Special steel division over 50% higher average prices. Europe division over 70%. And with the Americas, we're talking about over 100% increase in price level. The biggest impact coming now from Europe with the biggest volumes. Then the deviation with the volumes compared to last year, minus 10%, as already mentioned. And there are different reasons with the lower volumes. We had this Raahe blast furnace repair activity that took five weeks. Reducing the volumes. Then we also saw lower volumes with automotive segment and also lower volumes coming through from the Americas division where we had some production disruptions as well. Raw material cost compared to last year is on a high level with an impact of 3.8 billion negative. Pellet actually was on pretty similar level this year compared to last year, but this is mainly now related to substantially higher coal prices and alloys. Fixed cost higher compared to last year. And this is coming through both from personal related cost. This year we had a higher portion of personal related bonuses. We didn't have those last year during Q1. Some higher level of repair activities, materials and services were higher. But also we can see that this cost increase with the variable cost is of course impacting also materials and services, which are here categorized as fixed cost. So the cost level has increased. Capacity utilization, negative impact, and this is now mainly from the Raahe site, but also partially from the America site, but substantially lower scale there. And in the other, we have some provision done for the custom payments related to Oxalos and Hamn. And then comparison to Q4, which was really good performance itself, just below 7 billion. Prices continue to go up. And here we have the biggest impact now coming through from Special Steel Division. Special Steel Division prices continued to go up on average 12%. Europe Division prices were relatively flat quarter on quarter. And America still continued to improve with 8%. Volumes compared to fourth quarter last year on a higher level. Q4 usually is a seasonally lower level. Variable cost. This is now coming through from the pellet and coal. Cost being on a higher level than Q4. Fixed cost lower. Q4 we had high annual maintenance activities, which we don't have during Q1. That's the deviation. And the same reason for the capacity utilization. Most of it coming from Raahe. And then the other having the provision I mentioned. All this generating really strong cash flow, high earnings in this case netted with the negative development of working capital, but that is mainly related to the accounts receivables along with the higher sales and higher sales prices. Taxes in line with the higher earnings and all this generating the strong cash flow just below 3 billion SEK. which is also illustrated here in this graph, which is still developing to positive direction. Net cash position improving year end. It was on the level of 2.3 billion, now 5.7 billion. Comparing Q1 last year, we were still negative. We had still a certain amount of debt. But all this cash definitely needed to remind that we have the dividend payment during April, 5.4 billion, which we actually have already paid out. This slide, we have not changed at all. Still, the cash need for the year estimated to be on the level of 8.5. Biggest part going definitely for the CAPEX activities, and this is now both RNC and strategic activities. The strategic projects ongoing at the moment are the Oxelösund conversion, as well as the mobile Q&T expansion. somewhat lower interest expenses and higher taxes along with the higher earnings. But no changes for this picture, as said. If we then talk about the raw material cost, which is having impact for Q2, negative impact, This graph is illustrating comparison year on year. And as I referred in the bridge already, pellet prices and their consumption cost being on a similar level during Q1 this year than it was last year. But then what we saw happening during last year was that the pellet prices started to go up Q1, Q2 and reaching the peak during Q3. somewhat lower Q4, but now we have already seen that Q1, it started to go up month by month and that cost will have an impact in Q2 definitely. Coking coal developing even more upwards throughout the whole year. And we already see higher cost impact during Q1. And it will come through also during Q2. So definitely higher variable cost impact for the coming quarter. Here we have this scrap graph illustrating Q1. on a lower level last year than what is this year, some more volatile scrap prices. On average, we're talking about 16% higher cost level this year compared to last year. But this is good to bear in mind when I give the floor back to Martin to talk about the outlook.

Thank you, Leena. If we then look into the second quarter and start with the markets, I think the underlying demand will continue to be on decent and good levels, with the exception of automotive, where we have experienced low demand for the last number of quarters. And that is, of course, due to lack of semiconductors and others. But apart from that, I would say healthy or not. Good demand or very good demand. If we look at service centers and apparent demand versus real demand, we see that inventory levels in US are on the low side. So there is no room, big room for destocking in North America. So apparent and real demand will be on the same level. And if we look at inventory levels in Europe, they are on more normal levels, and we can see and could see during Q1 some kind of wait-and-see mode. But apart from that, with the exception of automotive, good or healthy overall demand. And I would say that demand for QNT and advanced high-strength steels continue to increase according to our internal expectations. If we sum that up... We say that demand for steel, and this is apparent demand, is expected to normalize, and apparent demand being somewhat lower than in the first quarter, but underlying demand continue on the same level. And as said, global demand for high-strength steels will continue to increase. be good and increase and especially for q and t we will have higher or somewhat higher prices and as lena said counteracted by higher raw material cost and we will have shipments that are higher in special steels in america's and somewhat higher in in europe so q2 should also be a decent quarter and we expect to continue to see which we have seen the last i would say two years bottlenecks within transportations problems with getting containers ships trucks and so on but that's nothing new and nothing that we think will change short term at least but that we have been living with since 2020. so to sum it up a good quarter record earnings Continued good trend in safety. We will continue and have continued to generate strong cash flow and we will do that. And the working capital we are building during the first quarter is to a very, very large extent due to higher prices and increased sales. So that is accounts receivable and that will be over time cash on the bank. Our plan for fossil-free steel production continues and are on track. And we are announcing a number of new strategic partnerships during Q1. And we have got support from the EU Innovation Fund for the Oxelösund conversion. And we will continue to monitor the effects of Russia's invasion in Ukraine. with, of course, the strongest focus on continuing to support our employees and their families, but also make sure that we have raw material supply enough to continue to keep production on high levels. With that, Per, I guess we open up for questions.

Yes, we are ready now to open for questions and we have good time but I may suggest maybe in the first round that you keep it to one or two questions to let everybody a chance to speak here and as always also if you have more than one question state them one at a time to facilitate the process here for Lena and Martin to answer. We can maybe stop by checking here in the room in Stockholm if there are any questions here. No. Then I will ask the operator, please, to present the instructions for how to put the question. So, operator, please.

Thank you. If you wish to ask a question, please dial 01 on your telephone keypads now to enter the queue. And if you find your question has been answered before it's your turn to speak, you can dial 02 to cancel. Our first question comes from the line of Alan Gabriel of Morgan Stanley. Please go ahead. Your line is open.

Yes. Good morning, everyone. Thank you for taking the time to take questions. I have two questions. I'll ask them once at a time. First one is on capital allocation. How far are you willing to go in building your net cash position? And have you had any incremental discussions with Swedish or European government officials regarding funding for your DCARB project? That's the first one.

Thanks. Well, as I said, our internal goal was to have a net cash position to be able to pay dividend without coming to net debt. We don't have any... I mean, as Lena said, we will have cash needs for investments going forward. But having said that, we expect the business to continue to generate strong cash flows. So I think it's a positive problem within brackets to have, but we haven't really... said anything new regarding cash flow generation, other than we will continue to generate strong cash flows and have a strong balance sheet so we can afford the investments we have ahead of us. On your second part of the question, we got this 30 million euro, which is positive from the EU Innovation Fund. I mean, I think the most positive thing with that was that they recognize us as one of very few substantial and important projects within the european union as i said last time we are not what is important for us is a level playing field that we are treated in the same way as all the other steel companies in europe but i am a strong believer in that we we the steel industry could and should afford this transition by themselves. But if other steel companies get subsidies or are treated in a favorable way, we expect to be treated in the same way. So no new answers since the question was up last time.

Thank you very much. And my second question is on the U.S. plate market. Clearly, one of your competitors is ramping up their mill. How do you expect the plate market to develop for your business? And should we see the SSAB America's profits as the last hurrah?

we expect the the us plate market to continue to be strong due to a lot of infrastructure needs and so on and we are also changing our production in in especially mobile where we are investing for more and more q and t capacities we will gradually increase the q and t capacity which is our focus and which is also what the market really asks for so that investments those investments will continue and then the general plate market we expected to stay strong in the future and the most important thing for us is that we keep the very good cost position we have, especially in Montpellier, where we produce mainly standard plates. So we are positive towards the U.S. plate market.

Thank you.

Thank you. And our next question comes from the line of Michelle Agarwal at Citigroup. Please go ahead. Your line is open.

Hi. Thanks a lot for taking my questions. I have two. The first one is on the special steel market. The guidance last quarter was for the stable pricing, and then we see the actual pricing in the Q1 are sort of higher versus the last quarter. So what has sort of positively surprised in terms of pricing? And then given the current level of margins in the special steel, how much of those kind of a structural uplift do you see you will be able to sustain for the special steel margin in medium to long term?

No, but maybe we missed out a little bit on the margin of price guidance in some of the divisions last time. And we didn't really foresee what happened in... February and the strong apparent demand but having said that I think special steels the prices are more stable but we have been able to increase them and compensate for increased raw material but the order intake and the demand has been so strong as well for special steels and for QNT and especially for abrasive resistant steel so we have been able to increase margins will they be on this level forever to be honest i don't know but we expect to continue to see strong margins and strong strong performance in special steels and to a larger extent regardless of business cycle if you compare to our business standard business in u.s which is the most volatile business we have i would say that special steels and the business we have in special steel is by far the least volatile and that's why we are focusing on business as well because the profitability over time is really good and much more stable so what we are doing now in the company within with the mix and everything is to stabilize trying to stabilize over time the profitability and to avoid the troughs of of the very low profitability, so stabilized profitability over time. And the way to do that is, of course, to increase productivity and cost efficiency, but also continue to improve the mix.

Got it. And then my second question is probably for Lena in terms of working capital. Q1 has seen a large outflow, 4.4 billion. How should we see the working capital evolution in the Q2?

Well, Q2 normally is the month when we start to prepare for these big annual maintenances. So we are building up to stocks to some extent. But of course, we have been discussing that it is very, very important that we keep a good track of our inventories going forward, especially if there is seen some uncertainty on the market. So I expect that it should be on a similar level than Q1.

And for me, having AR is almost as good as having cash on the bank account. So it will eventually turn into cash. So as long as we build working capital by AR, I think we can live with it. And if we measure net operating working capital over sales, we are still at competitive levels.

Okay. Thanks a lot.

Thank you. Our next question comes from the line of Seth Rosenfeld at BNP Paribas. Please go ahead. Your line is open.

Good morning. Thanks for taking our questions today. As a follow-up, please, with regards to the U.S. plate market first, you're sitting down at 9% from Q1 year-over-year. Your closest pair of new cores down roughly a third year-over-year. Can you give us some color on the market dynamic between the two leading players in U.S. Plate? Do you think you're taking share from Nucor and can it continue going forward? Start there, please.

No, but first of all, Nucor is a fantastic company and they are mainly within Strip. And in U.S., we are only within Plate. And Plate is for them a smaller part. So I don't have the exact figures of the Plate volume development, but I know that we have been Given the total size of the market, we have been taking market shares during 2021. And I would say also probably during the first part of the 22. We are at or around the 30% market share in North America for plate.

Thank you. And just to follow up your earlier comments with regard to shifting to more Q&Ts. Is that something of a concession that in the medium term, as Brandenburg ramps up in 2023, is that to be essentially prepared to cede some share in standard grade plate to allow room for Brandenburg to ramp up?

No, I mean, for us, it has nothing to do with Brandenburg. This is the strategy we have. And we see the long term increasing demand for Q&T and we are lacking capacities. We must increase Q&T capacity. And one obvious place to do that is in mobile and continue to invest in quenched and tempered capacity. And that's what we have been planning for, and that is what we will continue to do. So over time, you should expect to have more and more volumes, automobile being special steels and Q&T, and less volumes of standard plate. But that has nothing to do with Brandenburg or anything else. That is the strategy for SSAB. And as I said earlier, that is also important because over time, that is more profitable. Of course, a quarter like Q1, when America is doing 40%, We have slightly lower profitability in special steels, but over time, this is where we should focus and will focus.

Great. Thank you very much.

Do we have any further questions from the phones? I think we might have lost contact. We'll just hang on a bit and see if they can reestablish connection here. There seems to be something has happened with the connection, so we will take a five-minute break now and then try to come back in five minutes. Thank you for your patience. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. ... ... Yes, welcome back. Apologies here, there was some technical problems, but hopefully now we are up and running again. So operator, if you can hear me, if we can have the next question.

Sorry for the technical issues. Our next question comes from the line of Luke Nelson at JP Morgan. Please go ahead, your line is open.

Hey, thank you for taking my questions. My first one is just on the Q2 outlook for volumes. In terms of the qualitative comments, they appear quite conservative with demand normalising at a lower level. I'm just trying to square that comment with your actual guidance, which is actually sequentially showing an improvement across all key divisions. And also the order intake graph for Europe, which shows March was the highest level in a number of months. Can you maybe just sort of talk through the shipment guidance relative to what appears of more conservative qualitative comments? That's my first question.

No, but our comments regarding the market is more apparent demand and real demand meeting during Q2. We saw higher apparent demand than real demand in Q1. When we guide for volumes, we have the order book to a very large extent for Q2. So we are fairly or very certain of the volumes there. So it's more a sign, or you should interpret it as the market is, I mean, what we saw was a peak in apparent demand when customers were afraid that they wouldn't get volumes. So apparent demand being higher than real demand, that is more stabilizing now, but on good levels for Q2.

Okay, thank you. And so just in terms of the order intake, what's roughly the flow through between that into shipment? Sorry, the? The sort of flow through when the order intakes realized into physical shipment.

No, but I mean, as I said, we have, it depends, of course, but we have to a large extent already the order book for Q2. So that's why we can say whether volumes will end. And then there are, of course, some open volumes still, but that's typical in beginning of the quarter. So we have had good order intake and we continue to see decent order intake.

Okay, that's very clear. Thank you. And then secondly, if I may, just a sort of a longer term sort of strategic question, I suppose, just given... the Russia-Ukraine situation, which has caused pretty significant dislocations in supply, but also some pretty interesting developments from a demand point of view. In Europe, obviously, it's changed the perception around energy independence, and we've seen some pretty big numbers around renewable build-out. There's more talk about defence spending as well. Can you maybe just talk through about how you're positioned or I mean in terms of volumes or shipments or pricing how you could be positioned to benefit from say higher renewable build out and whether you're starting to see incoming inquiries from customers around that whether you're seeing more a sort of domestic european customers incoming looking to tie up long-term demand from you given your european position and then also on that defense point of view whether you have any exposure to that particularly in say special seals no but uh

We see and have seen since a couple of years, or since the pandemic started, more and more regionalizing of steel markets, especially for standard products. We see that in Europe, we see it in the US, and there is, of course, a lot of different factors behind that. But one is, of course, trade restrictions, quotas and so on. But it's also environmental issues. I mean, customers not be willing to ship standard material all over the world. So that this quality regionalization is continuing. And we also see that with transport problems and the ship that had the accident in Suez and so on. So we see more and more regionalized steel markets and less and less trade of standard products that that's one factor when it comes to the energy segment and especially in in us that is a very important segment where we see a good good future development and We also see, given what is happening now in Europe, one of our strong products groups is Armored Plate, where we see a very strong demand. Unfortunately, you could say, but from that segment, we see very strong and increasing demand. So there are some also effects like that, given the situation.

Thank you. Thank you. And our next question comes from the line of Christian Koffer of Handelsbanken. Please go ahead. Your line is open.

Thanks. Good morning, everyone. Firstly, I'm just trying to understand a little bit what happened in special fields in the first quarter, because you also said, Martin, that you have pretty good visibility when you report the numbers for the current quarter. So you guided stable prices, if I remember correctly, and then realized prices came up by 7%, which is quite meaningfully above your guidance. So just trying to understand how that was possible, because if you have secured the volumes, you should have secured the prices as well, yeah?

Yes, I apologize for that. I missed a bit on that one. We were given the very strong demand and the very strong order intake. that we saw in special steel, it was a possibility not only to increase prices, but also, I mean, you can think that special steel is just special steel products, which it is, but there is a mix potential in special steels as well. And given the very strong underlying demand, we have been working with a mix also within special steels. So more specialty products, less construction-related Q&T and so on. So there is a difference also within special steels. And we have been working with that mix, which also affects the average price level.

But you are not reporting any mix improvement in Q1?

It depends how you measure mix, but there is a variety of different products in special steels, and when you lack capacity, you try always to steer the capacity where the profitability is the highest.

Right. And then on Americas, you go to higher volumes in Americas, and But if I look back, typically, or call it maybe normal delivery levels in America, it's around 500,000 tons per quarter, right? So if I look at your guidance for Q2, it implies that you expect volume shipments to be lower than 500 or meaningfully below that. So my question is that the market is in the U.S. obviously very, very strong. So why aren't you able to ship more volumes?

We will ship more volumes in Q2.

Yeah, but ship normal volumes. I mean, if America typically is available to ship around 500,000 tons, you are not able to ship that in Q2?

I don't know the exact number, but we will see higher volumes in Q2. We came into Q1 with fairly low slab inventories, and then we had some challenges in Montpellier during Q1. So we will see higher volumes in America in Q2 compared to Q1. Where they exactly will end up will, of course, be dependent not only on production, but also the possibilities to get trucks, rail cars, ships and so on. So... And then finally for me, just... But just to be clear, Christian, we haven't taken down capacity.

Yeah, that's good to hear. Then finally, Martin and Lena, about the guidance for Q2, call it maybe on an aggregate level. So you guide for higher volumes, higher prices, but also higher raw material costs and the higher other costs as well, I guess. So if you take everything together, is it fair to say that you basically expect the underlying profitability to remain at approximately the same level in Q2 versus Q1.

Well, you know, Christian, that's your job, but we expect a decent Q2 as well, yes.

Okay, but just trying to understand how much you expect Roman telecoms to go up, because that you have in your... Of course, it's hard for me to... so much moving parts. I'm just trying to understand it.

And that's why we opened up a bit also regarding raw material in the report to make it somewhat easier in a very difficult situation for you guys to try to figure out where we will end up. But we expect a decent Q2 as well.

Yeah, okay. Thank you very much.

Thank you. And our next question comes from the line of Carsten Rieck at Credit Suisse. Please go ahead. Your line is open.

Thank you very much for taking the question. The first one is on Finnovoima. What are the strategic implications from writing down the investments in Finnovoima? Do you keep actually your stake in the joint venture for the nuclear power plant? And if not, could it affect the ramp up of the green steel operations in Raha and or your Swedish operations? That's the first one.

I mean, Fennovoima, they itself wrote down the investment to zero. We keep our stake in Fennovoima, but we wrote it down to zero. It will not affect the transition in Rohe because that was anyhow expected to come before Fennovoima was up and running. So midterm, it doesn't affect Rohe. other than we wrote it down to zero in order to be prudent.

Okay, perfect. The second question I had is how much did actually the absence of the plate volumes from especially Ukraine help your business in Europe in the current quarter? And will it also do that for the next foreseeable future? Because Ukraine is usually a big, big kind of plate exporter into Europe.

We don't sell any standard plate outside the Nordic region and fairly limited or very limited volumes overall in standard plates. Our standard plate market is in North America and that is locally produced in Mobile and Montpellier. So we are not on the European plate market with the exception of fairly limited volumes to the Nordics, where we typically don't see a lot of Ukrainian or from time to time some Russian material, but not typically any Ukrainian material.

Okay, perfect. Thank you very much.

Thank you. Our next question comes from the line of Patrick Mann at Bank of America. Please go ahead. Your line is open.

Thank you very much. Two quick questions. You spoke a little bit about the market normalizing from Russian-Ukraine disruptions and spoke about apparent versus real demand. I'm just wondering, longer term, how do you think or what do you think is solving for the iron units that Europe has lost as a result of Russia-Ukraine? I mean, do you think it's higher imports from other countries, higher domestic production, lower demand or some kind of combination of those factors. And then the second question is just, I mean, we've also seen much higher energy and electricity costs in Europe, which you are, you know, somewhat protected from. I mean, does this change your view on your strategic position in Europe to decarbonize? I mean, for example, building an EAF in you know, Spain seems a lot more challenging versus your position. So are you feeling more confident now that you're on the right track? Or how are you assessing your strategic position? Thank you.

No, I feel very confident that we are on the right track. And I think it is all about the relative position and the relative cost position of the relative cost of electricity. And I think being in the Nordic Nordics or Northern Nordics is the place to be. I'm also very positive because what we are aiming for, these mini mills, they are typically at the size that fits our business model very, very well. I mean, they are at similar sizes as we have in Luleå and Råå and Borlänge today. So I'm very confident that we are doing the right thing. And if anything, We have seen during the first quarter as well increasing interest and increasing demand for future deliveries of fossil-free steel. So I'm very positive, and I think we are in the right region. We have the right product mix. We have the right size for taking this step. And then your first question regarding raw material supply and iron ore supply into Europe. First of all, we are the only European country steel company within flat carbon that are 100% pellet dependent. So we typically in the history bought the absolute majority of our pellet needs from our partner LKAB. And then when the sanctions or the war started and the other supplier we have had historically were hit by sanctions and we stopped all purchases from that supplier and other suppliers potential suppliers in Russia it is still in the total scheme of it fairly limited volumes and we have been able to cover for those volumes and we will continue to work with LKAB and supply as much as possible via LKB. So I think we are in that aspect also in a very good position given the turbulence on the raw material market. How that will play out for the other players in Europe using a combination of pellets to a small extent and then mainly fines and running their own sinter plants, I don't really know. I can guess, but I don't really know how that will play out for them. But in relative terms, I would claim that SSAB is in a very good position in the turbulent environment.

Thank you. I mean, maybe just a quick follow-up there. I mean, do you think you could have greater ambitions then? I mean, given your relative energy position or relatively cost competitive, let's say, energy relative to the rest of Europe, do you think there's a chance to go for a bigger share of the market? Over time... Are you happy to focus on what you're doing now?

We are fully occupied with the plants and doing the feasibility studies in line with the plants we presented a quarter ago. But over time, I think there will be possibilities for SSAB to continue to develop the company and shift the mix and increase volumes of specialty steels and so on. But I have a hard time seeing that we would... invest in production elsewhere than where we are today. Thank you.

Thank you. And our next question comes from the line of Bastion Synagogues of Deutsche Bank. Let's go ahead. Your line is open.

Yeah, thanks and good morning. I only have two quick follow-ups, please. Just on your product mix, Martin, you mentioned Armour Plate and I imagine just over the last couple of years Armored plate probably hasn't been a product which has been heavily emphasized in your overall product mix, whilst obviously being very profitable. So what has been roughly like a volume run rate in that product or in that end market? And what is your volume capability on an annual basis in that segment? That would be my first question.

First of all, in special steels, we have, I would say, volume restrictions. We are fully, we're using all available production capacity so it is about changing the mix and take away something and and put in something else and right now armored plate is a small but very profitable product and and and segment for us and of course with increased spending in in different countries uh the interest is, of course, increasing compared to how it looked a couple of years ago. And we are also trying to help Ukraine to produce material for safety vests and so on. So it is, unfortunately, from a broader perspective, the interest has increased a lot recently.

Yeah, I definitely imagine. Could you maybe give us some numbers here? I mean, what's been the tonnage you shipped out last year and what would be your theoretical volume capability in that segment, even though that would mean you would have to take away something from somewhere and then allocate it into that business? But what's been our plate last year? And if you were running at full steam, what would be the volume number roughly?

I don't think that we have disclosed that yet.

We can come back to last year's number. But like Martin said, the capacity, that will depend on what we take away, dimensions, etc. So it's hard to give a sort of a new number there. But we can share the last year's number.

But we have higher capacity, not total capacity, but we can shift the mix if that would be required to more armored plate and less of other products.

Could you at least give us maybe a number which you could do in Armored Plate if you were running it at full steam?

To be honest, I don't have that from the top of my head. So Per will come back to you with the numbers for last year. But we can increase that capacity, yes. But then we need to take away something else.

Okay, that sounds good. I guess every time you're selling there, we'll probably come at you. at a few hundred euros per ton premium versus the other segments. So I guess it's still going to be an attractive business. So then my second question is just to follow up on Ellen's question earlier, just dwelling further on capital allocation and balance sheet. Is there an absolute target level for your net cash position, which you have in mind before you will consider other options such as additional shareholder returns? We always talked about building a bit of balance sheet buffer, but Obviously, your current cash generation run rate is so strong, you're going to generate the dividend in literally a single quarter or more than that. So is there an absolute net cash position which you're aiming for?

No. What I said last time, which I believe is the right answer, is that I mean, we should be able to pay dividend over time according to our dividend policy. I think that is very, very important. We should also be able to do our investments for the future, this transition into fossil free. And I was 100% convinced a year ago. Now I'm more than 100% convinced that this is the right way for SSAB. And I'm convinced because we see the huge interest from our customers and partners here. and their appetite for this in the future so we are now thinking how can we speed it up how can we do that in a smarter and more cost-effective way and that is what we call the internally the feasibility study and then i think that the dividend we paid now in beginning of april was a good decent level in in line with the dividend target so to say but We don't have a target saying that we should have a net cash position or anything. The only thing I'm saying that I have a hard time seeing, regardless of investments and so on, that we would end up in a tough net debt position anytime. And then, of course, it's a positive thing to think about how the shareholders want to use their money that is in the company if they want to have Of course, they want stable dividend over time, which we should deliver. And then if they want to have the money, stay and work in the company, or if they want to have some other, us to take some other measures. But that is, for me, a very positive thing to think about, because we are clearly in a different position than we were five, six, seven, eight, or three, four years ago. And as I said, I'm convinced that we will continue to generate strong cash flows.

Okay, thank you. Thanks, Martin.

Thank you. Our next question comes from the line of Grant Swarer at Bloomberg Intelligence. Please go ahead. Your line is open.

Good morning. Thanks for taking questions. Just a quick one on CapEx. Can you just remind us what the split is between sort of maintenance or sustaining CapEx versus strategic growth CapEx? And maybe just a A bit of a guidance in terms of how your capex spend will evolve throughout the year. It's obviously a bit like in Q1. It typically builds up to a crescendo in Q4. Are you going to follow the same sort of profile?

Usually throughout the years, the CAPEX development, well, also we can see that during Q1 that we are slightly behind the planned level, so there has been some delays and postponement with the projects, but the target is still... to reach the target of the CAPEX or the frame that we have set. So there is a bit of a hockey stick impact throughout the years. I don't have the split for you regarding the RNC and strategic money-wise, but of course the RNC is related to the maintenance activities and replacement activities to keep the current system up and running. And then the strategic, the big ones this year we have related to Oxelosund, the conversion program and also to mobile Q&T expansion. So those are the biggest ones.

But R&C is typically roughly plus minus something around 2 billion per year. Good difference between 1.6 to maybe 2.2, 2.3. But also now with the strategic plan we have, We will not, of course, for the existing facilities, we will keep them in shape, but we will not invest in them, all of them, call it going, concern them, because we know that around 2030 we will shift over to the minimals. So that will, of course, over time also take down the CAPEX needs in Rae, Luleå and Borlänge.

Thank you. Got it. Thank you. Just a quick follow up. But that impact, you're probably not going to see it in the next couple of years. That'll be more sort of lower staying business capex. That effect you'll probably only see towards, let's say, the middle of the decade. Or would you start to see it as early as next year, for instance?

But as Lena pointed out in her presentation, we will start to see capex spending now, especially in the Oxelösund conversion already this year and also the investments in mobile in increased QD capacity. But I agree with you. We can handle that with our cash flow.

Okay. Thank you. Thanks very much.

Thank you. And our next question comes from the line of Marcus Brandheiser of Kepler Chevro. Please go ahead. Your line is open.

Yes, thanks for that good question. One follow-up, Martin, on the plate side in Europe. So we're seeing very high pricing due to the supply disruptions from Ukraine and Russia. What is your view today how long that, you know, dislocations and high prices can be maintained. And in that context, what kind of opportunities do you see to produce more plate in Europe? And I think what you mentioned, you're only in the standard market in the Nordics. Isn't there any reason to produce more and use the price premium you're getting for plates right now? That would be my first question.

We don't have that capacity. We have a plate mill in Råe that is partly producing standard plate. But in Oxelösund, there is no room for standard plate production. And I think it would be a mistake to short-term start to produce standard plate in Oxelösund because the demand for QNT and more advanced products is so high. And even though I'm in Oxelösund, Back to the example with North America with an EBIT margin of 40% in Q1. That was obviously higher than the EBIT margin we had in special steels. But over time, what is so important for us is to continue to grow the niche business, continue to develop the product mix, because I think it's very, very important that we continue to secure the downside, so to say, make sure that the stability in the earnings is... and we see less and less volatility. And given the size we have and given the knowledge, I'm 100% convinced that that is within specialty and we should continue to focus on that and not short-term try to optimize standard plate volumes. But having said that, in raw we can produce standard plate and we are doing that. But that is mainly and only for the Nordic market and that's the way it will be in the future as well.

Okay, so maybe I had wrong numbers in mind. So I thought your plate mill is kind of five, six hundred thousand tons large, but you're probably running well below that capacity level.

We are producing volumes of special steels there as well. So the standard volumes is not that. We are using that for other things on the products.

Okay, makes sense. Then the second question is on your price guidance for Europe. You're seeing somewhat higher prices. When shall we expect the price spike in the European flat steel market to become more visible? And how much of this price movements have been already discounted and reflected in Q1. So I would have maybe expected a more positive price outlook in Europe.

No, but if you follow spot prices and there is typically a quarter lag or something before it hits our P&L, The majority of the volumes we have are quarterly prices, and we will see higher prices in Q2 compared to Q1, as we have said. And I think a good proxy is to follow the spot price development in Europe and then apply quarters, lag or something. and then of course the third part is to look at the mix and what we saw in q2 as well as what we have seen the last one and a half year or so is a negative mix effect of automotive being slower and we are only in the advanced high strength steels within automotive so The high-grade martensitic steels up to 2,000 megapascal. So, I mean, that is, of course, overall disturbing the mix a bit because we don't see that growth due to lack of semiconductors and others. But we still have, in the other segments, a positive mix shift. But overall, it doesn't show because of automotive.

Okay. Okay, fine. On the plate market side, how do you think about the sustainability of these high plate prices? Do you think these disruptions might continue for more time? To what extent do you think this can be mitigated by plate imports or slave imports from Brazil, China, What are you seeing in the market to how this tightness or perception of tightness is developing?

First of all, if you talk about Europe, for us, that is only a Q&T market, quenching temper plates, and we don't see much of import because of... they don't have those capabilities in Latin America or in Asia. If you take the standard plate market in the U.S., there are still quotas, and there are also, with this infrastructure package, there is also, when it comes to governmental spendings in Asia, different areas it needs to be melted in u.s so i don't see in that aspect import from other parts of the world playing a huge role we will still see imports into u.s because u.s is or north america and u.s is structurally undersupplied so it needs import but i see a short-term and mid-term, and also long-term, good demand for plate, underlying demand for standard plate in North America, for infrastructure, for energy, and other segments.

Okay. Thanks for clarifying that, yeah.

Thank you. Our next question comes from the line of Kevin of Handelsblatt. Please go ahead. Your line is open.

Hello, thanks for taking my question. I have a long-term question concerning decarbonization and the market for green steel. A lot of, especially German, steel producers rely on natural gas as a transition technology for their decarbonization. Looking into rising gas prices, what is your expectation? Will this exacerbate the expected shortage of green steel in the future? And what are the implications for SSAB? Thanks.

We have chosen a different route. We are going to use hydrogen and we are going to produce the hydrogen with fossil fuel electricity in electrolyzers. So that's the route we have chosen and what we are focusing on. What others are doing and the reasons for them to do that, you need to ask them.

But it will influence the market for green steel in the future as it can be expected that the shortage will get even more short in the future when a lot of people can produce the way they wanted to.

Maybe, maybe, but... What we have decided to do together with our partners, LKAB and Vattenfall, is not only to produce steel without any emission, but to create a value chain without any emissions, all the way from the iron ore is up in the mountains in northern Sweden until a finished plate or a finished coil or whatever it is out at customers. We have chosen to call it slightly different maybe compared to other European steel producers definition of green steel and fossil free steel and fossil free value chain. So in that aspect we might be a little bit hardcore but that is what customers and partners appreciate and what they really want. And we have that possibility because we have fossil free power generation in the Nordics and we are continuing to build out fossil-free power generation. We will not be dependent on natural gas in our transition.

Thank you. Thank you. And our next question comes from the line of Andrew Jones at UBS. Please go ahead. Your line is open.

Hi, Jens. Just one question on the cost evolutions. We've sort of touched on it already in the talk about sort of flattish profitability quarter on quarter. I just want to better quantify some of those rising costs. I mean, we can see, you know, the one quarter lag, the impact of the raw material index prices. But can you talk to some of the other cost inflating items and potentially quantify them? I mean, I would have assumed the power cost inflation in Sweden and the US is relatively small. You know, potentially changing some of your suppliers of raw materials might add some transport costs. Maybe you could talk to the impact of changing your suppliers and what impact that could have. and maybe any other factors i mean are labor costs likely to increase materially quarter on course or any other factors that you can point to to help us better understand the the offsetting factor of these rising costs thank you no but you're right i mean we we see cost inflations in in many areas it comes with raw material underlying cost inflation but also

finding new suppliers and so on. And so we see cost inflation there. We see, as Leanna pointed out, cost inflations in a lot of areas. And we were able to cover that with increased prices in Q1. And we were able to increase margins. And what we are saying for Q2, without being very specific, is that we will continue to see increased prices. And then we say that those price increases will be to... some part or to a large extent counteracted by raw material inflation and other types of inflation in SSAB. But all in all, as I said many times now, Q2 should be a decent quarter as well, regardless of that, profit-wise.

Yeah, and just on your raw material supply, can you just remind us, how much iron ore and coke and coal you were sourcing from Russia, Belarus before, and do you have definitive agreements in place for replacement of that supply from other suppliers yet, or is that still a work in progress?

But we sourced, I think, roughly 10% of the iron ore last year from Russia, and this year very limited volumes, and that has been taken care of. It is still a work in progress, but I'm very convinced that we will be able to... get the raw material we need for this year. And then we need to continue to find alternative sources and alternative suppliers. But we actually started, or the supply organization, the purchasing organization, actually started that work already in January.

What about on the coal side? Because behind all it seems like LKAB is the fallback. But what about the coal side? How much exposure did you have and where are you looking to replace that?

The biggest exposure was for PCI coal. And we have been working now since January to find alternative suppliers. And as I said, I'm convinced that we will have enough supply. for this year, and then we will continue to look at alternatives and start working with suppliers to get other PCI coal than Russian PCI coal. But so far, we have managed. Okay, cool.

Okay, thank you. Thank you. Our next question comes from the line of Svesh Sharma at Goldman Sachs. Please go ahead. Your line is open.

Hi there. So I have one question. So we understand that some of the 2 billion of taxes from financial year 21 are to be repaid in financial year 22, as we've previously flagged. Could you advise how much of this has already been recorded in the first quarter? And how shall we be thinking regarding the timing of the remaining payment during the year?

Thank you. You mean now the taxes we did not pay in 21? Yes. That will be delayed until this year.

Yeah.

Some of that was paid in Q1.

Some of that was paid in Q1, but of course we still have payables occurring in Q2. I don't have the exact figures now to give out. But you saw the tax payables in the cash flow report.

Sure. Do you know how much of that will be repayable during the remainder of Q2?

No, we don't have an exact guidance on Q2, you mean, or much of the overhang. It will be a part of it, but we cannot give you a clear number.

Okay, thank you.

Thank you. And once again, if there are any further questions, please dial 01 on your telephone keypads now. And we've had one further question come through. That's from Seth Rosenfeld at BNB Paribas. Please go ahead. Your line is open.

Thank you. Just two quick follow-ups, please. On Tibnor, obviously very strong results in Q1. Can you give us any update on your sense of profitability going forward for this business with spot prices beginning to moderate as we expect cessation of those windfall gains? And then secondly, Ruki saw somewhat a seasonally strong performance in Q1 as well. Give us an update on what drove that strength and sustainability in the Q2. Thank you.

If we start with Tidnor, we are growing and taking market shares and we are building out the network. In Sweden, we call it Handelstolsgruppen, so we are building out with more outlets, and we expect volumes to continue to increase over time. We expect to take market shares in the Nordics, both organically, but we are doing quite a few also smaller and mid-sized acquisitions within Sweden. within Tivnor. Then of course when market prices if and when they turn we will see revaluation of stocks in Tivnor but I think the underlying profitability regardless of windfalls should continue to improve in Tivnor and that's the plans they have and that's what we expect to continue to see. If you take rookie construction, I mean, Q1 is typically the weakest quarter from a seasonal point of view with winter in the Nordics. And that was also the case in Q1 this year. But having said that, the profitability was still, for being a first quarter, very good. And they managed to handle... the market price development of their raw material, color-coded material in a good way, and increase margins. But they should seasonally be better in Q2 and Q3 than in Q1.

Great. Thank you very much.

Thank you. And we've got one further question. That's from the line of Tom Zhang at Barclays. Please go ahead if your line is open.

Morning. Thanks very much. Just one very quick clarification just on the sort of European shipment guidance. So you already mentioned most of that is sort of apparent demand and real demand normalizing. But just given that strong order intake, could you just confirm you haven't seen any noticeable change in order cancellations in April as a sort of panic from the Ukraine-Russia situation fades?

No, we haven't.

Okay, so the increase in European shipments, I mean, we would have expected maybe a bit more of a reversal from Raha, but it's very much just less restocking demand is the only real driver.

No, but we, as I said, we expect higher volumes, and part of it is due to the shield heart we have in ROAS. We will have higher production in Q2, but the market is there for higher volumes. So we have, yeah. And we have not seen any increasing numbers of cancellations or not even problems for customers to pay their invoices. I would say quite the opposite.

Okay, that's very clear. Thank you.

Thank you. And that seems to be the final question in the piece. I'll hand back to our speakers for the closing comments.

Okay, thank you, and that concludes today's conference. Again, apologies for the technical problems, but we thank you for the attention, all the good questions. Thank you, Martin and Lena, and we wish you a nice day.

Thank you.