SSAB AB (publ)

Good morning and welcome to the presentation of the SSABQ2 report. My name is Per Hillström. I'm responsible for Investor Relations. And with us today is our President and CEO Martin Lindqvist and our CFO Lena Crayelius. And if we look at the agenda, Martin will start going through the quarter in brief. Then Lena will explain more details on the financials. And then Martin comes back with the outlook and summary. And then at the end, we will have a good time for questions. So by that, please, Martin, go ahead.

Thank you, Per, and good morning. I will start to go through the second quarter in brief. And the second quarter was a record quarter by many means. We had a combination of high realized prices, I would say solid, decent internal performance and good cost control. And we had an operating profit for the first time exceeding 10 billion in a quarter, 10.4 billion. And that is 29% EBIT margin. We continued to grow special steels. We reached almost 400,000 tons. in a single quarter, and we have been growing now special steels volumes with 8% per year since 2015. Safety performance continued to move in the right direction. We had moving 12, 1.56 in lost time injury frequency. And if we look year to date, we are at 1.1, including contractors, which is, I would say, in the steel industry, a very good performance. Not where we would like to be. We want to be at zero and being the safest steel company in the world, but still a good development. And we closed the quarter with a strong balance sheet with a net cash position of 7.2 billion. If we look into the divisions, we had record results for all divisions during Q2. We had a result of almost 2.4 billion in special steels, an EBIT margin of 27%. In SSAB Europe, we did just north of 4 billion SEC. meaning an EBIT margin of 28%, which is very strong. Then, of course, Americas with 3.5 billion and an EBIT margin of 40%, so very strong earnings and profitability in the three steel divisions. Tibnor had an EBIT of a bit more than 600 million and an EBIT margin of 13%, which is good and strong, and Roke Construction a bit more than 200 million and a margin of 10%. If we look at other important achievements during the second quarter, we continue to build up our unique value chain for fossil-free steelmaking. We continue to deliver volumes, pilot volumes to customers and partners. We also inaugurated our big hydrogen storage pilot up in Luleå during Q2, and it's now up and running. So what we aim to do and continue to do is to develop this fossil free value chain and start to produce fossil free steel in a big scale at the latest 2026 and then be completely fossil free around 2030. And we are following that plan. We see good development. We are now manning up the project office, hiring project leaders and so on. So far in line with internal expectations and plans. We saw during the second quarter also the first construction machine built by using fossil free steel from SSAB. And that one was delivered by Volvo to the construction company NCC during the second quarter. This was a big achievement. So now we start to see also finished products out in the market used by end users. And it has been received very positive from the end user side. Liana, some words about the financials.

Yes. Let's start with the shipment volumes. The outcome of Q2 being 1,711 kilotons. Improvement versus Q1 of 3%, while being 8% lower than last year. The main reason for this deviation It is linked to this incident we had during Q1 that we told about related to Raahe blast furnace and Chilthardt being idled most of the Q1. The startup took place in March and then Q2 was still the ramp up phase. The transportation and logistic challenges that we've been reporting, there was a slight improvement during Q2, not fully resolved yet, but the situation at the end of Q2 was slightly better than end of Q1. Then also to repeat what Martin already showed in the previous slides, the special steels had the record shipments, almost 400 kilotons. So that's indicating also that the premium decent. If we then look at the sales graph, the revenues 35.5 billion, improvement from Q1 of 12%, which is then the sales going up 12% and shipments 3%, that's telling the story of the improved sales prices. EBITDA per ton delivered steel improved during Q2 compared to Q1. And maybe if we just summarize once again the strong performance, it is with more stable production, continued good cost control and the higher prices all leading up to the EBITDA total of 11 and EBITDA margin then almost 32%. If we look at the analysis a bit more, comparing to the Q2 last year, and here we are comparing the operating profit outcome of 10.4 billion this year versus last year 4 billion. Biggest positive impact definitely with the sales prices. And if we compare the average sales prices of steel divisions versus last year, with special steel division, we are talking about 55% higher price level. With Europe division, 64% and America's 67%. Also, Rukki Construction and Tipno contribute positively for the positive result. Volume being 8% lower as already illustrated in the previous slide and the main reason being the Europe division with 140 kilotons lower shipment volumes. Then if we look at the variable cost, the variable cost had a negative impact And this is now coming mainly through with the PCI, coking coal. Alloy scrap energy and logistics costs were higher compared to last year, while the iron ore was relatively flat. Fixed cost, they were higher this year. We did have some higher manning this year. We also took this full profit sharing for 2022 at the end of Q2 in line with the good result. And then we had some higher repair and maintenance work done during this year. Also to mention that the cost for external materials and services is somewhat higher this year along with inflation. And also some minor item to mention that some of the costs related to transformation program starting to occur, which is telling that things are starting to happen. FX rate had a negative impact of 140 million SEK with the weaker Swedish crown versus US dollar and euro. Capacity utilization also linked to this ramp up phase in Raahe. And then if we look at the comparison versus Q1, Prices developed still positively. Special steels and Europe division, around 10% increase in prices. Americas, 4%. Tipno and ruuki construction also contributing positively in this comparison. Volumes already mentioned, the 3% increase, and the increase coming mainly from Americas and special steels. The variable cost from quarter one to Q2 did go upwards, and this is coming from all the main raw materials. Fixed cost having negative impact this month or this quarter being the summer quarter with higher level of summer workers, temporary personnel. Full profit sharing that we already mentioned in the previous slide, and then some higher repair and maintenance activities. FX deviation the same as versus last year. And the capacity utilization in this comparison, it is positive. And that's also related to this ramp-up of Raahe blast furnace. The positive item in other is related to the provision we did for oxylosun harm during Q1. Then let's continue to analyze the strong cash flow. Good earnings partially offset with negative impact from working capital. Inventories have gone up in value with higher raw material cost. And we have some higher raw material volumes as well. We were securing during Q2 the safety stock for raw materials to secure the production for coming months. We also have some higher accounts receivables, which is then related to higher sales prices. The net operating working capital over net sales ratio is still on a lower level than last year, end of Q2 being on a level of 18.7%. Last year was 20%. So we are in good control with the net working capital still. Taxes on a high level, as we have been indicating, this is mainly now related to the outcome of 2021. So far, we have paid almost 3 billion in taxes. And I said that's related to previous year result. Also to mention, in April, we did the payout of the dividend, 5.4 billion. But when we compare the cash flow from current operations this year versus last year, we were doing a better result. All this led to the financial position of net cash of 7.2 billion at the end of Q2. The cash need for the business, this slide we have not updated or changed since last time. We still see that the cash need for business for this year is 8.5 billion, with the 5 billion related to strategic investments, including Oxelösund conversion and the expansion of this QL line in Mobil. Interest expenses are expected to decrease. Our rating was improved to BBB-, and we have a lower level of debt. And also, the taxes will be higher than already discussed in the previous slide. Then, if we continue to discuss a bit more about the raw materials that had developed upwards since Q1 and last year, That development unfortunately will continue also for Q3. This graph on top illustrating iron ore prices. As in the bridge, we also referred to the deviation from last year being relatively flat. the cost will be slightly higher for Q2 and then thus impacting Q3 cost, but minor negative impact with the pellets, which is then the opposite of the development of coking coal, which is the graph illustrating below the price development going heavily up during this year. So the prices during Q2 will have an impact in Q3 of consumption cost. And we are talking around 30%, 35% even increase quarter on quarter with the coal cost. So definitely having impact to our margins. But on the other hand, the scrap spot prices developing downwards. Our purchase prices during Q2 were somewhat higher than Q1, but now the latest development with spot prices is that they have gone down. You can see the July prices on this graph. Before I let Martin continue with the outlook details, a reminder that Q3 is the quarter of maintenance outage. Here the table illustrating that during Q3 we start the maintenance in Special Steel Division. We have maintenance ongoing in Europe and Americas. And compared to last report, we have shifted the audits in Americas from October to September, thus shown in the different quarter here. But then I let Martin continue to tell details about the outlook.

Thank you, Lena. So if we then look at the market segments for third quarter, we start with heavy transport. I would say that the market is on average fairly neutral. There are, of course, risks for further production stops in the EU to heavy duty trucks due to shortages. But on the other hand, we see good activity in rail cars and marine in the US. So I would say overall neutral automotive. Yes, also neutral risk of further production stops due to shortages. We continue to see an underlying structural growth in advanced high strength steel, which is what we deliver to to automotive. Construction machinery, a bit more uncertain with the weakness in China, but I would say on average between neutral and weak. And material handling, we continue to see good demand from especially the mining segments. And energy, very strong and solid demand from wind powers, transmission poles and so on. So that is definitely green. Then, of course, construction. We are, as everyone else, expecting a slowdown in construction activity. due to rising inflation, rising interest rates and so on. And then the big swing factor, as always, service centres. When we look at the service centre segments, which we are most dependent on in the US, we see low inventory levels, lower than normal. On the other hand, service centres are speculating on lower plate prices going forward, but there is no... big room for inventory takedowns in the US service centers. And then, as always, we expect a seasonal slowdown in Europe, in the Nordics in July, as always, and then in the rest of Europe in August. looking at spot prices and the development during q2 and that will be eventually seen then with a slight lag in in our contract prices we see the development of the european strip prices that are now back on the level or even slightly lower than the level we saw in beginning of of this year The plate prices in US has, depending on what graphs you look at, but been stable or going slightly down the spot prices during the second quarter. And this leads us to what we see then for Q3 in our order book when it comes to prices. So for special steels, we expect stable prices. For SSAB Europe, we expect significantly lower prices due to the development of the spot prices in Q2. And then in Americas, we expect lower prices. On top of this, we expect to see continue over time a stronger and stronger development of the product mix. And if we look at shipments in special steel, somewhat lower due to the outage. In Europe, lower due to outage. And then in America, significantly lower because of the outage in September that was moved from Last time we said October, now we do it in September in order to keep the equipment up and running and better safe than sorry to do it slightly earlier. All in all, Q3 will be a maintenance quarter for us. We have a fairly good view of the market, and then, of course, things can happen. We expect to see a seasonal downturn in Europe, and we expect to see a relatively stable heavy plate market in North America. So if we sum it up, I would say that good earnings at record levels in all divisions and for the group in total. continued good trend in safety continued good cash flow generation and a strong balance sheet some uncertainty in the market outlook but we have structurally the last couple of years improved our ability to manage any downturn whenever it comes and we are ready and prepared for that our plan for fossil free Steel production is on track. We have, as said, continued with pilot shipments to partners and customers, and we are on plan. And this transition, of course, requires sufficient availability of fossil-free electricity in time. But if that is solved, we are in a very good position to deliver on our targets and our plan. And with that, Per.

Yes, thank you, Martin and Lena, and we are We can now move into the Q&A. We would ask you to maybe stick to a couple of questions in the first round. There will be good time here to come back also. And if you have more than one question, please state them one at a time to make the process smoother. So by that, please, operator, present the instructions.

Thank you. Excuse me, this is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Alan Gabriel with Morgan Stanley. Please go ahead.

Yes, good morning, everyone. Martin, my first question is for you. So the cash build is happening much faster than expected. And even if your profits moderate, this would continue to some extent. Capital return is a board decision, but you now have more flexibility to invest more in the business. If this continues, what would be your investment priorities or where would you be investing more in the near term? That's my first question.

No, but we have clearly made up our mind. We will invest in fossil-free steelmaking. Right now, we are investing in QL6, of course, and we will continue to build out capabilities within special steels. And the new quenching capacity of 100,000 tons will come on stream as we speak, which is much needed for the market. But apart from that, we will do maintenance investments. And I would say over time, fairly, in relative terms, lower maintenance investments because we are planning for the minimum. So we are devoted and 100 percent focused on that. And that is what we are going to do in the future. We will continue to generate strong cash flows. We will continue to strengthen the balance sheet. And we need to in some way or form in the future also handle that. But currently we don't have any mandate for doing anything.

Thank you. That's very clear. And the second question is for Lina. So the cost components, as we head into Q3, you've given some color on the coking coal, which if I may confirm, you're talking about a 30% increase in price Q on Q. And what about the other cost components like iron ore and scrap in light of your aim to diversify away from Russia or Russian raw materials? That's my second question.

If I start with iron ore related to Russia, we actually did find some replacement for Russian iron ore, which was more expensive and that will be taken in use in Q3 and that will have an impact in the Europe division cost base. Otherwise, iron ore expected to be relatively flat quarter on quarter. With coke and coal, as already illustrated, the prices have gone up and that will of course have an impact in the cost base around 30 percent higher cost. What we didn't have a graph on is still the PCI coal that we were also sourcing elsewhere than Russia with higher prices. So that will definitely have also a negative impact. Alloy is relatively flat, but definitely biggest negative impact with coal and PCI coal.

Thank you.

The next question is from Tom Zhang with Barclays. Please go ahead.

Yes, good morning. Thanks for taking our questions. I've just got two, please. First, from the Americas, you're guiding for weaker pricing and you sort of flagged what prices have come off a little bit. One, it looks like some peers are trying to push price hikes through again. And two, normally I would have, I think you said before, even though the US is very spot-based, there is normally a sort of one-quarter lag. And we've only really seen plate prices come off through early June. Is there anything else that we're missing in the Americas in terms of maybe

mix or something else that means you're expecting weaker pricing yeah no i mean as i showed on the graph prices have come down a bit a little from from very high levels and that is what we expect to see in the contract prices and the invoicing prices for q3 no dramatic changes but but still slightly lower

Okay, that's clear. And then maybe Lina, wanted you just on the sort of net cash position, it was sort of helped out by 2 billion of FX and derivative revaluations. Could you maybe just run us through any big drivers within that? And also, what are the risks that unwinds in the future as if sort of FX rates move back? Or is it not really a risk in your eyes?

Definitely the impact of this revaluation of derivatives, which is then related to financial assets liabilities in foreign currencies, that has been revaluated over quarters. It has been last year negative, this year it has been positive. Difficult to predict what the outcome will be after next quarter, but as a risk wise, we don't consider that as a risk. It is a normal revaluation process.

Pluses and minuses all the time.

Okay, sure. Thanks.

The next question is from Seth Rosenfeld with BNP Paribas. Please go ahead.

Good morning. Thanks for taking our questions. I have a question, please, with regard to special steel pricing. In the past, you've emphasized the relative stability of special steel prices versus the more commodity-grade products, but QT still saw a really remarkable increase in both divisions. With the Q3 guidance for special steel stable versus a significant decrease in Europe, what's the implication here? Do you believe that special steel has now structurally reset higher, or are we going to see simply a delayed contraction perhaps going into Q4? Thank you.

I mean, over time, especially steel prices and especially margins are much more stable. The reason why we have been able to increase prices is that demand has exceeded our ability to produce a production capacity. Now we are taking more production capacity on stream as we speak. thousand yearly tons in in our investment in mobile in alabama but we had the possibility now to push up prices to to compensate and more than compensate for increased raw material but that was mainly i would say due to that the demand was so much bigger than our our capacity but it is also i mean a mixed shift within special steel. So special steels, I mean, is Q and T, but there are different grades of Q and T as well. And we have now launched very high grades of Hardox, Hardox 600 and so on. And they start to get traction. We also expect going forward, not maybe visible from quarter to quarter, but more and more protection steel being produced. And those are typically uh the the volumes and the products where we have the best margin so there are call it mixed differences in in margins and prices within special steels as well but we as said in the beginning we have been growing now special steels volume wise with average 7.7 percent per year since 2015 and we expect that journey to continue

Thank you. Just one follow-up and a second question, please. With the ramp of mobile nearing now, is the expectation to be willing to sacrifice price in order to ramp up those volumes, or would there be a willingness to continue to keep the market tighter?

No. That's not the expectations.

You could see that supply-demand tightness persist, even with the ramp of new capacity.

That differs, of course, over time, but it is 100,000 tons yearly volumes. We could easily have sold those volumes during the first half of this year.

Okay, thank you very much.

The next question is from Alan Spence with Jefferies. Please go ahead.

Yeah, thanks. Good morning. Actually, a follow-up to Seth's question around special steel, but actually more on the order book. Can you comment on the shape of that and what kind of visibility you have and what that means for second half utilization of special steels?

We look at the order book for special steels. I would say that it is what we guide for. We say somewhat lower volumes, but that is due to the maintenance out there. So the order book for Q3, and that's typically what we see the coming quarter, is in good shape.

You haven't even been doing Q4 yet.

We have some volumes for Q4 as well.

Okay. On the tonnages around the fossil free that you have delivered to the customer so far, can you share a little bit of feedback about what they've been saying about the quality of the steel?

Very positive feedback and no quality differences compared to the ordinary steel we produce. And you need to remember that what we do is we produce sponge iron and they are iron units. So it is really a virgin material, a fossil free virgin material that we then melt in electric arc furnaces.

i mean we have the same quality and the same properties as we have on on our normal steel which is received very positively from our customers so very very good and positive feedback great okay and this last that is a clarification one for me for lena um that additional tax from last year that needs to be paid this year is that fully done or is there more that needs to be paid in the second half of the year we would say that most of it is is now done Okay, thank you very much.

The next question is from Patrick Mann with Bank of America. Please go ahead.

Thanks. My first question is I just wanted to ask about your exposure to natural gas. Where in the business is it being used? And, yeah, that's the first question. I've got one other follow-up. Thanks.

We do use natural gas in our production with the relatively limited volumes. We have that gas in use in Hämeenlinna and also to some extent in Raahe. The exposure, if you are now referring the risk related to natural gas, we have done some good work securing the sources for natural gas in Hämeenlinna. We are buying from baltic region let's call it that way and then in in in raha we are also able to switch to propane if needed so we have rather limited risk when it comes to to natural gas thanks very much that's clear um and then i had a follow-up question i think from tom austin uh the 2.1 billion adjustment to the cash balance now i understand it's

you know, you're not emphasizing it and it can be positives or negatives. I just wanted to confirm, is the major driver of that the dollar? Yeah.

It's related both to dollars and euros.

Yeah. Okay. Thank you very much. That's all. Thanks.

The next question is from Luke Nelson with JP Morgan. Please go ahead.

Hi, thanks for taking my questions. Firstly, just on labour, actually, can you just remind us of where things stand in terms of negotiations with labour force in Finland, Sweden and America and maybe expectations around the inflation that could come through from personnel charges?

In... Sweden, we have an agreement expiring, I think it is end of March next year. So it's too early to tell. In Finland, we also have an agreement. I don't really from the top of my head know. I think it is a yearly agreement which expires next year, but I'm not sure. And then in U.S. we are, I mean, We are a non unionized plant, so we have these local agreements with all our employees and the difference between our European operations and our U.S. operation is that we have in U.S. mainly we have a completely different pay structures. We pay for prime tons of prime years. a very big part of the salary being variable so when we produce a lot like we do now salaries are definitely much higher and then if we have a standstill or an outage or something else we pay less so much more flexible solution with a fairly i would say limited increase in base pay but big flexibility. So times like this, salaries are really good in U.S., in our U.S. operation. But in Sweden, I think we have a three year contract that expires end of March next year. You should not expect any salary inflation during the second half that has not been seen during the first half, so no salary inflation quarter over quarter or half year over half year.

Okay, that's very clear. Thank you. And then just on working capital, obviously a sizable build and you talk through some of the moving parts on building inventories, raw materials. Can you just talk through on how you see that moving into Q3 and Q4? And then also specifically within that, is there any finished goods build up of note?

I mean, what we typically do, a couple of parts in that. I mean, typically before a maintenance quarter, we build up inventories in volume. We have also been building up, as Lena said, raw material inventories in volumes to secure that we have enough raw material to keep production running for this year. And given the uncertainty with raw materials and so on, occurred together with the invasion of Ukraine. We have been building up safety stocks and other stocks. But the biggest part of it is, of course, inflation or prices. And we have also been building working capital in accounts receivable. So, I mean, if prices are moving down, when they are moving down, you should expect us to release working capital. But in volume, we mainly build up for the summer outage and safety stocks. And then, of course, we have also some build-ups in volumes in finished goods due to transportation issues, problems to get hold of boats, trucks, railway wagons and so on. So on the margin, that has also affected it. So we have some build-up of finished goods in volumes as well. And that is, of course, a backlog from Q2 moving into Q3. It's a combination, but I would say the majority is related to the price component.

Okay, and then I suppose just to push on that, just given comments on raw materials potentially still being or coming through elevated, should we not be expecting a significant release in Q3, but more significant Q4? Or is there some flexibility to maybe release amount in Q3?

I don't know, Leon, if you have an answer on that, but I wouldn't expect a massive build up of working capital in Q3. in Q3. And as Lena said, we measure, of course, in absolute terms, in relative terms. But one very important KPI for us is net operating working capital over sales. And we continue to improve there. Still room for improvements, but we continue to improve. And the only thing we know is when the business cycle turns, typically we release working capital.

Okay, great. Thank you.

The next question is from Grant Sporre with Bloomberg Intelligence. Please go ahead.

Hi, good morning. Thanks for taking our questions. I just have one. It's only the sort of negative adjustment on EBITDA. It was relatively low this quarter compared to last year. If you could just take us through what's entailed in those adjustments, that would be very helpful. Thank you.

You mean, Grant, you mean on the other line in the Q&A?

Yeah, that's correct.

The adjustments during Q2. Let me see.

Yeah, the line that is always a bit negative.

Are we talking about the items affecting comparability or?

No.

Sorry, I don't follow the question.

Okay. Sorry, I didn't mean to be pedantic, but I think in the first half, I'm just going through the results now, I think it was sort of nearly negative 800. And then I think it's somewhere around 300, if my memory serves correct.

In the other, we had during Q1, we had the provision for oxaloosunt harm and... Provisions for Russia and others. But that's in the one of items. I'm not sure if this is now including the items affecting comparability. Let's come back to the question. Let's come back to this one.

Yeah. Okay, fine. Thank you.

The next question is from Rohus Brownizer with Kepler Chevrolet. Please go ahead.

Yes, hi, morning all. A few things from my side. The one is, again, on natural gas. What shall we think about the timeline until current gas spot prices are hitting a balance sheet? I wouldn't consider that in the Nordics there is any comparable mechanism as like in Germany where utilities could shift from contract to spot at any time if needed. So what would be the time frame until, based on your contract structure, it's hitting you?

We have already seen effects of that. And we have also, especially in Sweden, we have been taking extra cost to make sure that we don't have any Russian molecules in the natural gas. So we have already seen costs, increasing costs for natural gas. It's not for us a big issue. I mean, our main energy source is coking coal. And from that, we use all the gases. So the only place really where we use natural gas is in the non-integrated mill like Hemelin and partly in Borlänge, and that is to warm up reheating furnaces. But we have alternatives there as well. So natural gas is not the big cost in relative terms for SSAD. But the cost inflation that has been on natural gas has already been seen in the P&L to a large extent.

Okay.

And then, of course, it depends where it moves from here.

So when it comes to the whole downstream process, are you seeing any other substitution or any mitigation strategies other than propane? Anything which is feasible right now?

Short-term, not really. Mid-term to long-term, yes, definitely. But short-term, not really. We are working a lot with looking into electric heating of reheating furnaces and so on. But the big steps will be taken when we transform into fossil-free steelmaking. On the margin, we are looking at other alternatives, but it's not so easy to have these big reheating furnaces heated by electricity. But we are looking into hydrogen and so on and other solutions. But short term, quarter over quarter, no difference.

On auto outlook, I guess what you're saying, Martin, is not necessarily sounding like you're warming up to the demand perspectives for auto. What is the kind of visibility that the call of rates are finally picking up from here? What kind of sense you have right now?

To be honest, no clear view. What we see is that the substitution from into more and more advanced high-strength steel is continuing. And when we look at our automotive volumes compared to the general market of automotive, We have been better than index, so to say. So we see still this structure growth of advanced high strength steels. And that is going on. And then, of course, we have a couple of new platforms and a couple of new cars that we are now starting to deliver. And we typically have that every year. And then, of course, it depends on the development of those volumes. But what we clearly see is a very strong interest for fossil free steel in the future. And we start to ramp up volumes according to that, not only to have zero until 2026 and then something. So we start to ramp up, we start to do prototypes, we start to work with partners and so on and see huge interest. So overall, I would say that we will follow the overall automotive trend, with the exception that we only produce advanced high strength steel. And that is as part of the total volume that that that is growing compared to taking market shares within automotive. So we will be dependent on the total automotive market, but we will have a structural growth on high strength steels. And then we will ramp up volumes in advance of 2026 when we can start to produce fossil free steel in larger scale for the automotive sector. Maybe, I mean, not a clear answer, but that's how we see it. And that's what we see, so to say.

No, no, I think it's fine. And maybe finally on phosphate-free, any kind of takeaway or lessons learned from what happened with one of your competitors who kind of has thrown the towel on DRI?

I think, Rukus, you have to specify. Who has thrown in the towel?

No, I mean, I think one of your competitors in Europe has sold its DRI facility to a competitor. You mean the first facility out of losses?

First facility in the US.

Yeah, so what I'm so apart from, you know, I'm not we don't have to discuss operational things, but from a more technical standpoint, is there anything looking at this? we can take as a lesson from there?

I think for them it must have been a strategic decision if they want to produce that in US and using it in Europe. I don't really know because I don't know the background and why they took the decision. But what we have learned during this process and the process started already 2016 is that it's not that easy to produce fossil free sponge iron. And we have also developed a lot of interesting techniques and have some interesting IP pending. So it's not easy, but so far we have managed to overcome the problems we have had. And at the end, it's up to the customers and to judge if the quality is good enough and if we are doing the right thing. And so far it has been a very positive response. So that's what we know right now. But you need to remember that we are only now producing in the pilot plant, we are producing one ton per hour, so fairly small volumes. And we're using those volumes together with partners for them to do prototypes and small serial productions. We've also developed the possibility to produce fossil-free powder. We have invested in a 3D printing facility together with that in Oxelösund. So we are now also within automotive and some other segments doing prototypes together with partners so we are i mean following our internal plan and and so far it looks very promising and it continues to look promising very good thank you very much thank you the next question is from bastian sinagovitz with deutsche bank please please go ahead

Yes, good morning all. I only have two quick questions left, please. And the first one is for Lina. Lina, could you give us a quick update on your cash tax rate and also some broad guidance on the spillover in cash taxes, which you're expecting from 2022 into your 2023 cash flow at this stage? That is my first question.

Regarding the tax rate, I'm looking at now, it's around 20%.

And we expect to pay around that level as well over time.

And the problem with earning a lot of money also means a lot of taxes paid. Exactly.

It's always a nice problem. What's the number you expect to be spilling over into next year, given that there has been a reasonably large number from last year spilling into this year's cash flow? Is there going to be a large cash flow, or is it going to be more balanced in the year 2022?

Hopefully, we will pay a lot of taxes in 2023 as well, because that means that we will earn a lot of money in 2022.

I would say, Bastian, you typically see this delay that you earn it in the year and then you pay a lot of taxes in the beginning then of next year. So I wouldn't see that it would be a different seasonality here going forward.

So if you use 20% as a proxy and then you hope that we make a lot of money, then we'll pay a lot of taxes beginning of 2023, which will be very positive in that aspect. Not paying taxes as such, but having a strong result.

Okay, thanks. And then the second question is just on your decarbonization strategy. So I'm wondering, have you already decided which DRI technology you're aiming to go for and also when do you expect to place the order for the DRI plant within the hybrid Chevy?

But we will continue to develop our own technique and build on what we have learned in the pilot plant. So we are now in the phase of finalizing the feasibility study and we'll take the decision, I guess, during the fall. But the technique is developed by ourselves and then we will build equipment and buy components and build it together with our partners in hybrid, LKAB and Vattenfall.

So what you're saying is you're basically developing your entirely own DRI technology here?

It is a difference doing this with natural gas and doing this with the hydrogen. And it is much more complicated doing it with hydrogen. And that's what we have been developing since 2016. And that's why we decided to build a pilot plant, because it is different. And that's what we continue to do. And as I said, so far, the results have been very good and very promising, not only according to us, but also according to the users. And that's why I mentioned why we continue with this. We call it pilot shipments then, because they come from the pilot plant towards these strategic partners we have chosen. And that's why I also showed the picture of the first fossil-free vehicle being produced by Volvo Construction Equipment and delivered to an end user. And then we will see what the end user thinks about that. dump truck or dumper body or dump truck. But so far so good. And it's not just buying any off the shelf DRI plant and then use hydrogen instead of natural gas. You could try and do that, but then I wish you all the best of luck because it won't work.

That's very interesting. So basically, you're not relying on like a single plant engineering partner here, i.e. Primetals or Tenova or whoever that may be?

No, but we will never become an equipment manufacturer, but we do as we usually do. We develop the technique ourselves and develop the equipment and then we buy components and then we build it. And we will work with many partners like we have done in the pilot plant. It will be called a pilot plant, but in bigger scale, taking into account all the lessons we have learned by running a pilot plant, because the pilot plant is really a pilot plant, and it is part of the R&D research and development project.

Okay, very interesting. Thanks, Martin.

The next question is from Victor Trollstam with Danske Bank. Please go ahead.

Yes, thank you, operator. Good morning, Martin, Lena and Per. Thanks for taking my question. So just firstly on your CapEx commitments, we have seen some other players talking about CapEx overruns and CapEx inflation. Just if you could walk us through your CapEx scenario for firstly Uppsala Sund, I think the largest Pascal was here in 2022, but also 2023. Is that already committed upon or would you say that they are risk for for a higher cap in that project?

Part of it is committed. Part of it is not. Of course, there is always a risk of continued inflation and we see inflation when it comes to investments. We have already seen that we have, I would say, to a large extent, taking that into account when we have given you the figures or all the guidance. So I would say up until now, at least no big deviations.

Okay. Okay. No, that's clear. And I guess, you know, you keep your 22 guidance. It's a sort of an indication that you have some headroom in, in your, in your budget. Yes. And all of, And I guess the same then for the coming investment phase in the European restructuring or the investments in the European operations. When you work on that pre-visibility study, have you seen any changes in terms of capex inflation as to when you started with it?

Yes, but that's in line with the figures we have given externally, because there is, of course, as always, some headroom in those figures as well. So, so far in line, and then what will happen in the future, hard to tell. But of course, we have both continuances and some other, which you typically have when you give a figure in an early stage. Continuances and other, call it risk factors.

Okay, now that's comforting.

So up until now, we don't see any reason to change those figures.

Okay, now that's clear. And then second question, and just if you could give any flavor on the European market, what you're seeing and hearing, at least on the screens, it seems like the European prices have sort of stabilized. Oh, I know you don't guide... No, I don't.

But what is important to remember is a couple of things. First of all, there is, I wouldn't say no, but very limited structural overcapacity left in Europe. I think we also see much better discipline in Europe, and that is of course helped by the current cost of emitting carbon dioxide. And the average European steel producer emits around two tons carbon dioxide per ton of steel. And if the cost of emission rights are 90 euros, something around 90 euros, the marginal cost is close to 200 euros per ton for a European steel player. We are in that aspect in relative terms a bit more, I would say, lucky because we only emit 1.6 or something ton carbon dioxide per ton of steel and that gives us more free allocations due to the benchmark system and then we have as we have discussed before since 2018 also been buying emission rights because we we took a decision we thought it was cheap back in the day so we said let's buy every month We are not fully covered and we will see costs already this year, but in relative terms, we are quite okay. But this cost of carbon dioxide emissions would prevent the European steel players to hunt for marginal volume, so to say. And then, of course, we have seen this much less or the import from Russia has gone away and from Belarus, but mainly from Russia, which was a big supplier to the European steel markets. I would say that Even though, of course, the invasion of Ukraine is a big catastrophe and not good at all, it has, I mean, had effects on supply and demand. So I would say the European market is not, as it was a couple of years ago, four or five years ago, structurally oversupplied. And a big part of the import has gone for the time being. And my guess would be that it will take quite a long time before we start to use Russian steel in Europe again.

No, that's clear.

So the market has structurally changed a bit due to that. And now we start to see discipline. We see discipline in the market. We see competitors in Europe taking down production volumes and taking out blast furnaces. And one explanation to that is, of course, the marginal cost of producing steel.

Yeah, that's clear. Thank you for that. I'll stop by tonight. Thank you.

As a reminder, if you wish to register for a question, please press star and 1 on your telephone. The next question is from Christian Agarwal with Citibank. Please go ahead.

Hi, Martin. Thanks a lot for taking my question. Most of them have been asked if I can ask a quick clarification on America's volume. So you're bringing the outage from October to September, and that probably is driving your guidance for significantly lower shipment in Q3. Does it also mean that the volume hit you are taking in Q3 probably is

will not be seen in the q4 because seasonally it is lower and hence probably we have seen some kind of a splattish kind of outlook for q4 volumes but the reason why we move one would claim that it would be better to have the outage from a market perspective in q4 than than q3 we are moving the outage one month from october to september and the reason we do that is that we don't We don't want to risk any production disruptions or unplanned outages. We go through the production equipment and felt better safe than sorry. In the perfect world, we would have kept it in Q4, but now we moved it four weeks to make sure that we don't have any production disruptions. So that's the reason. And then, of course, that's the main reason why we guide for the volumes, because we will have this outage, which we typically have every 18th to 24th month. in U.S. instead of every year. So that's the main reason.

I understand. So would you agree that the other way to look at it is that because the market in the U.S., the plate market has been strong, you had to pre-pone it, the outage, without much of the kind of advanced notice, and hence you couldn't stock it up.

Sorry, and you couldn't?

Stock up the volumes. You couldn't build an inventory.

Okay, if you mean we haven't... No, no, but we have been... We have some backlog, but we have been delivering everything we have been producing with the exception then of supply chain issues, lack of transport and so on. So we have some backlog into Q3 in Americas as well, but there was no possibility. The market didn't allow us to build up any inventories for Q3.

Yeah, yeah, that's what I meant. Okay, okay. Sorry, good to know. Okay, okay.

Thanks a lot. Okay. The next question is from Robert Radin with Carnegie. Please go ahead.

Hi. Just to follow up, maybe I didn't listen properly when you went through that slide, but you had a bullet on the summary slide talking about structurally improved ability to manage downtrends, if you could say something about about the building blocks for them?

No, but it is a couple of building blocks. It is about the mix and the stability in the mix. We have been uh reducing the volumes of hot rolled coils a lot and i mean we have not been building volumes overall and we we should not be building volumes but we should be developing uh the mix if you take special states i said we have grown that since 2015 with 7.7 or 7.8 percent a year if you look at the premium mix in ssab europe which is not the same products, but more resilient and more stable. We have gone from 25% in 2015 to 43%. We have been doing a lot of structural improvements. We're working with this continuous improvement program of SSAB1, which is focused on structural improvements. We have the synergies and the structural things we did with the rookie acquisition amounting to a bit more than 3 billion. We have been selling, call it non-strategic, low-performing businesses. And we have been acquiring businesses within downstream, as I say, the services within Tibnor, within Rookley Construction. So our market coverage when it comes to service, the small and fragmented market has increased also quite a lot over the years. And there we see much better stability in earnings. So what we are... really working hard with is to increase flexibility of course and then also take up the earnings in the bottom of the cycle because that is as i see it the most important part so and that is structural work in swedish we say gnetan the everyday work look at the structure do structural changes become slightly better and we call that system uh in internally ssav1 and and that's what we are doing so and if you do a I did that with some of you back of the envelope calculation and looked at what have we achieved compared to using 2015 as a proxy. It is quite a lot of money that we structurally have improved the SSAB with. Then what will happen in the next downturn and how deep will that be? I don't really know, of course, but I know that SSAB is in a much better shape as a company than we were five years ago or even 10 years ago. And then, of course, on top of that, we have decent strength in our balance sheets. We don't have to take any decisions in order to solve that, so to say. So I would claim that SSAB is structurally a much better company today than we were 2015. And I would also claim that going a couple of years in the future we will be even better and that's what we are focusing on the things we can influence ourselves and take up trough profitability perfect thank you so much your next question is a follow-up from patrick mann with bank of america please go ahead um it was just a quick

You brought forward the U.S. pushing Europe out one quarter. Was that just to better align? What was the thinking behind pushing Europe back a quarter?

Now you're referring to RAHE. I think that was related to the strong plate demand. So I think that was the reason that considered that we can also do it during Q4. as well as Q3. So that was the main reason.

Which we would have typically done. So the opposite reason for US. In US, we felt we had to do it in Q3. In raw, we felt that given the strong plate market, we could delay it a month or two, given the status of the equipment and call it the risk assessment.

Makes sense. Thanks very much. That's all. Thanks.

There are no more questions registered at this time. I will give the floor back to the speakers for any closing remarks. Thank you.

Okay. Thank you very much. Thank you for good questions. Thank you, Lena and Martin. And by this, we conclude today's conference and wish you a nice weekend.

Thank you. Bye-bye.

Thank you. Bye-bye.