SSAB AB (publ)

to this presentation of the SSAB Q4 and full year report for 2022. My name is Per Hillström. I'm Head of Investor Relations. And with us today, here is President and CEO, Martin Lindqvist, and also our CFO, Lena Kralius. And the agenda, Martin will start to go through the year and the quarter, another record year for SSAB. Lena will go into the financial a bit more in detail. And then Martin will handle the outlook and the summary. And we finish off, as usual, with questions and answers. So by that, please, Martin, take the stage.

Thank you, Per. and good morning 2022 was i would say very volatile year with a lot of of things that we needed to handle with started with the invasion of ukraine problems with transports and so on but having said that we had a very good year and if we start with one of the most important kpis safety We continue to improve our lost time injury frequency. We were just above 1.0, which is, compared to the history, really good. And I would also say, compared to the industry, on a good level. We are not done. We need to come down to zero. And we have, of course, the ambitions to become the safest steel company in the world. We also had record earnings. The adjusted operating profit or EBIT was 29.3 billion SEK, which was the best year we've ever had. 21 was a good year, but this was more than 10 billion better for the full year. And we continue to generate decent and strong cash flows. Cash flow before dividend amounted to 14.2 billion SEK, so another year with strong cash flow generation. And when we ended the year, we had a net cash position of 14.3 billion, compared to not that many years ago, a net debt position. In Q4, we also took an impairment write-down of the goodwill related to the acquisitions of Ipsco and Ruki of 33.3 billion. that affected as a one-off the fourth quarter. And the board, we had a board meeting yesterday, the board will propose to the AGM a dividend of 8 kronor and 70 öre per share. And we have, as you know, a dividend policy of putting out dividend between 30 and 50% of net profit, and this is smack in the middle, 40%. The board will also ask the AGM for an authorization to buy back up to 10% of the shares in SSAB. If we move into the divisions, special deals, record earnings, we had strong price realization, good development of the product mix, and the EBIT margin for the full year was 24.6%, which is really, really good. Q4, prices and product mix held up very well. We had planned maintenance in Q4, but we also saw a slightly weaker apparent demand in Europe that impacted shipments and result, these two reasons, but still a very good profitability of 1.4 billion in Q4. Another strong achievement is our US plate operations, where we at the full year had an EBIT margin of 38.1%, so more than 38% in EBIT margin. We had record earnings and we continued to increase prices during the year. If we look at Q4, Still very good earnings of 2.7 billion. We saw that prices decreased somewhat in Q4 from very high levels. But all in all, a very strong achievement from North American plate or SSAB Americas. If we look into the plate-related divisions and start with SSAB Europe, for the full year, we had an EBIT margin of 17.1, which is slightly lower than we had in 2021. In Q4, we had a planned maintenance outage. We decided to do the maintenance on one of the blast furnaces in Råå that was planned for the second half of 2023. Given the low apparent demand in Europe, we decided to do that already in Q4. And the idea then was that if the market normalizes, we would start it up again early in January. And I think we started it up 2nd or 3rd January, so it's now up and running again. And we saw during Q4, as we knew we would see, lower realized prices. Tibnor, it's a function of the, I would say, Nordic strip market to a large extent. We saw weak demand, weak apparent demand at lower prices. In this turbulent environment, we managed to continue to take market shares on the distribution market in the Nordics in, I would say, all countries, Finland, Sweden, Norway, and Denmark. The main reason for the big negative result is the inventory losses that we take them when prices go down. So the underlying EBIT was much better, but including inventory losses, it was minus 403. And then rookie construction. typically run into a lower season in Q4 and Q1. And on top of that, the Nordic construction market slowed up. So they were around zero for the fourth quarter. So all in all, three high-performing divisions in the fourth quarter. The strip-related divisions with focus on the European business met lower apparent demand. If we then continue over to what we are aiming for in mid-term and long-term, 2022 was a very important year for the transition of SSAB. We actually delivered 500 tons of fossil-free steel to our strategic customers. We start now to see not only yellow goods, we see machines from Epiroc, trucks from Volvo and cars starting to use now fossil-free steel. We see from the partnerships we have in automotive, heavy transport, construction, machinery and material handling, and also construction, we see a strong demand for these kind of products and a huge interest for this development. And I would say overall, our transformation is on plan. And you know what we are going to do. We are going to replace the blast furnaces and coke oven plants with new integrated mini mills in Rae and Luleå. So build complete new mills in Rae and Luleå. And we are going to take away the blast furnaces and the coke oven battery in Oxelösund and install an electric arc furnace there as well. And this is nothing new for us because we have been running electric arc furnaces in our US operations for many, many years. This will give us much better flexibility, much shorter lead times and virtually no carbon dioxide emissions from our operations. And we are now in Luleå and Rae running our feasibility studies. They are ongoing. We have started in Luleå the public consultation process for the plant. We started that in Q4. And we have also, in hybrid development, continued to develop the technique. And we have, during the quarter, filed for a number of very, very interesting patents at the European Patent Office. One prerequisite for this is, of course, that we have fossil-free electricity. And this transformation will require, for SSAB's part, three to four terawatt hours more electricity than we consume today. But it is, in total, we are going to need less energy. We are just shifting from coal as an energy carrier into electricity. And this will also, the mini mills, help us to get more flexibility in the mix. So we could use either a sponge iron or scrap in the melt. And that will also help us to be able to reduce volatility, because what we are doing in the company, and you see effects of that during 2022, we are reducing, working with increasing flexibility, moving the product mix and everything in order to reduce low point profitability and have a more stable development or a stable situation when it comes to earnings in a very volatile industry. So I'm a strong believer in that the most stable steel company in this volatile industry will over time be the winner. And when we do this transformation, we will be able to reduce 10% of all the carbon dioxide in Sweden and all the carbon dioxide emissions in Finland, we will reduce with 7%. So we are also leading the way for the steel industry, showing that what was usually called a hard to bait industry, that this is actually possible. And I usually say that without the steel industry doing its homework, there will be no possibility to meet the targets we have set up in the Paris Agreement. On top of this, the three to four terawatt hours we need for SSAB, we will also need for Hybrids demonstration plant in Gällivare, another five terawatt hours for 2026 in order to start now to produce sponge iron in large scale. So with that, Lena, I hand over the financials to you.

Thank you, Martin. pretty much was already covered in Martin's presentation. But if we have a look at the, first of all, the shipments, start with the steel shipments, we can see that the first half of the year, yes, it was strong, stable demand, volume still growing. And then we can see the lower demand on the second half of the year and mainly in the European market, as Martin already indicated, US holding up better and emerging markets as well. If we look at the sales graph, we can see that the prices, yes, they were increasing during the first half of the year, started to go down during the second half of the year. And then again, mainly related to European market demand coming down. Summing up these wonderful bars here, quarterly EBITDA for 22, and then analyzing the sales graph, we can say that the sales prices, they were well compensating for the higher raw material cost that we had, higher energy cost, logistic cost, higher maintenance and repair cost, fixed cost, and the lower activity level as well. And on top of that, making then billion higher result. so we can really be proud about the result in 2022. If we then look into Q4, analyzing Q4 2022 versus 21, Prices on group average level still positive impact. However, the only division here underneath is special steel division with higher prices. The other division already had the lower prices, so special steel compensating for that. We have also FX impact positive stronger US dollar in the price analysis impacting US. volumes lower and mainly with the Europe division, special steel division and rookie construction. Variable costs related to raw material cost being higher, PCI, coking coal, iron ore relatively flat compared to last year, and scrap prices slightly lower compared to last year. Fixed cost and capacity utilization were impacted with the oxaloosunt maintenance and the repair work in Raahe. Comparing to Q3, we can see the price development. During the fourth quarter, also the mix becoming slightly weaker. Prices came down in Europe division, in America's division, holding better still in the special steel division, as Martin said. Volumes only slightly higher. This mainly coming from the Europe division, having a higher portion of standard grades, thus impacting actually negatively the average price level. And the variable cogs here having positive impact, and this is primarily coming from the lower cost of US scrap. Other raw materials were relatively flat compared to quarter on quarter. And again, the maintenance and repair activities impacting the fixed cost and capacity utilization. What we were promising during Q3 result release, that we will focus on cash generation and releasing working capital. The outcome we can see here, it is actually providing more cash flow than the actual EBITDA. So organization did really, really good job with this task. And this is primarily again related to inventories. So we were heavily reducing inventories during Q4. Year-on-year comparison, more than 10 billion, better result. Change in working capital and the deviation here is mainly related to higher raw material cost in inventory. Maintenance capex on similar level, taxes being high, but as you know, a big part of this is related to 2021 result. Strategic capex up with the Oxelos on conversion program. And the dividend paid out this year, you can see here. And if the dividend is approved, what is proposed, the dividend payout this year will be around 9 billion. All this led to the very strong financial position that Martin already also showed, 14.3 billion net cash, positive net cash. And as already also mentioned, board yesterday proposed to have 8.7 SEG per share as a dividend corresponding to this 9 billion payable and the authorization for the mandate for share buyback program. The impairment on goodwill was done at the end of the year as a normal annual impairment test process. And it led to the write down of 33.3 billion. And it is not affecting the cash flow nor the taxes. Raw material prices. Iron ore leveling out. We saw an increase in prices at the end of the 22, mainly related to the China releasing lockdowns. And then, on the other hand, coking coal peaking during Q2 in year 22 started to... come down rather heavily, but to bear in mind that we do have this lag in the impact of our consumption cost. Iron ore is around one quarter and it is longer with coking coal. We do have quite substantial inventory still. So there is a longer lag with this price impact in our result. On average level, we can say that Q1 variable costs will be on similar level during Q1 than they were on Q4. What we know is that the scrap prices in US started to go up at year end and have gone up during January. So there we know that the cost will be higher during Q1 compared to Q4. I will end my presentation for this familiar graph, the cash need of the business. We were indicating that there is a need for 5 billion for this year. We didn't quite reach that, but we plan to ramp up and pick up and we plan to spend the 5 billion during this year. With that, Martin will tell about the outlook.

Thank you, Leena. So if we take then a look at Q1 and what we expect for Q1 and start with heavy transport, we see a neutral or slightly positive outlook when we look at it sequentially. We see improved supply chain for heavy trucks in Europe. We also see improvement for rail cars in US. Automotive, we see a neutral market or decent market going forward as well as for construction, machinery and material handling. When we look at the energy segment, we see good demand for wind power and other renewables and wind power and wind towers is a very important segment for us, for our plate business in Europe. The weak market we expect to see and see is construction. Of course, both dependent on seasonality, but also on higher interest rates and much lower construction activity, especially in the Nordics, but I would say even in Poland and other parts where we are present with rookie construction. But as you know, construction is a big taker of volumes for the whole steel industry. Less so for us, but it will affect. and then service centers we expect to see what we usually see low apparent demand and and reducing of stocks in q4 and then in q1 filling up stocks a bit and having apparent and real demand meeting each other If we look at how we guide, we of course realize that we live in an unsecure world with inflation, with the interest rates and the war in Ukraine. But we see a stabilization of the European market. We see that spot prices towards the end of the quarter in Europe is moving up. We see relatively stable demand in North America for the market for heavy plates, and we see that prices towards the end of the quarter, we have introduced price increases from mid-March. When it look high strength steels slowed somewhat in Europe, the apparent demand in Q4, but we expect a stable demand there as well. And Lena covered the raw material cost where we see they will be overall relatively stable. So when we guide for shipments, we say that in special deals, they will be significantly higher as in Europe and somewhat higher in America. And then we expect realized prices in Q1 being lower compared to Q4. And there is always a lag between spot prices and our contract prices. And we have the majority, a bit more than 50% for us is, as you know, quarterly prices. So if one would take the opportunity to sum up, I would say record earnings for the full year 2022 in a very turbulent world around us. Continued good trend in safety. We are not yet where we would like to be with the ambition of becoming the safest steel company in the world with no accidents or incidents. We are getting there, but this is an everyday's work and you can never give up. You need to continue to focus and continue to strive to become better. We saw the expected release of working capital in Q4 and a strong cash flow and a strong financial position at the end of the quarter. And I've said it many times, you should expect us to continue to deliver good and strong cash flows over the cycle, operational cash flows. Dividend, as said, a proposal is 8.7 kronor per share, corresponding to 40%, so smack in the middle of the dividend policy. And then an author asking for an authorization for share buyback program for up to 10% of the outstanding shares. The green transition, which is mid- to long-term, extremely important for SSAB, is moving on. We have, as said, done these pilot shipments of 500 tons to grateful and happy customers, and our transformation is on plan. But we need help. We need help with, I would say, mostly the most urgent topic for us is power transmission. So as long as we get fossil-free electricity at the right time, at the right place, we will be able to deliver on this very ambitious roadmap. So with that, Per, I guess there will be some questions.

Yes, and we can just start by checking here in Stockholm if there are any questions from the audience. Okay, then we will turn to the telephone conference. And before that, I just want to remind the audience that if you have more than one question, that's fine, but please state them one by one. And maybe also in the first round to limit to two to three questions. We have good time. So there will also be a second round, I guess, in case any further topics. So by that, please, operator, can you present the instructions?

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Christian Agarwal with Citibank. Please go ahead.

Hi, can you hear me?

Yes, we can hear you, Krishan.

Yeah, yeah, yeah. Thanks a lot for taking my question. I'm more interested in hearing Martin's thought on the underlying demand trends in Europe. I mean, your guidance is for volumes to go up significantly higher, which is more than 10%. Can you help us put the inventory deep stocking trend into the perspective and how the demand for your products are shaping up for the Q1?

We, as you know, we took a planned outage earlier, almost three quarters earlier than previous plan because we realized that the apparent demand in Q4 would be lower than the underlying demand or the real demand. And we expected to see low volumes, especially the second half of December with a lot of customers taking holidays instead of working over the weekends. And that's what we saw. We also expected to see steel service centers reducing volumes and working with, call it working capital management then. And when we look forward, look at the order book, look at the order intake and also the volumes in the supply chain, we see that there will be higher shipments in Europe. I mean, the market in Europe has been, I would say, decent and fairly stable during 2022. And then it has been bottlenecks. It has been bottlenecks in transport. It has been bottlenecks in semiconductors and so on. And they are not completely gone, but they are getting better and better or easier and easier to deal with. And we see, especially when it comes to transport, that's easing up. It's not perfect yet or not normal yet, but it is easing up. And that's why we are then... on a fairly stable market guiding for higher volumes or significantly higher volumes in Q1.

I understand. And then concerning the business in the US, the plate business, I mean, you have recently announced the plate price hike. And plate prices are relatively higher level compared to the other product into the US. So can you help us understand what is driving that trend in the plate market?

It's supply and demand. We see a strong and stable demand in the US. And you're right, I mean, plate prices, even though they came down a bit in Q4, they are still on high levels and margins are on high levels. And when we look forward, we see a lot of needs for plate going forward as well with investments. We see wind towers, strong demand. We see good demand for new OEMs. We see rail cars now starting to pick up. So it is, I would say, a function of that we see. Good order intake, good demand.

Okay, thanks a lot.

The next question is from Tristan Grasser with BNP Paribas Exane. Please go ahead.

Yes, hi, thank you for taking my questions. I have two, please. The first one on shareholder returns, you flagged that the dividend proposes in line with your policy, but can you discuss a little bit of buyback? How should this be viewed within your capital allocation strategy and explain a little bit the reason behind it? Also, as you're soon to embark in really large decarbonization investments, What gives you the necessary confidence to launch this buyback? And maybe if you can link that to maybe the earnings power you can see on a more normalized basis if it's higher than in the past. Thank you.

I mean, to start with the last part of the question, I think what we are really working hard with is to stabilize earnings and lift low point profit. And it's a number of things. I mean, one big part is, of course, the mix. We know that the volatility in more advanced products like special steels and advanced high strength steels and so on, they are lower over the cycle. lifting low profitability points and have more stability in earnings. And we do that also by constantly looking at possibilities to create flexibility in the production system, in the costs and so on. So we can adjust production, adjust the cost level and so on. And you could say smooth out is probably a bad expression, but even out a bit. I think it's so important, this focus to lift the low point profitability. Then when we look forward, I mean, first of all, the dividend is, as I said, in the middle of the range and after a record year with it. 29.3 billion in EBIT and a very good net profit. You should expect us to live by the dividend policy. And then when we look at the company and the possibilities to continue to generate strong cash flows, we see that we can do the investments required. It will be more dependent on when we get the outer circumstances in place, like fossil-free electricity and power transmission. Then I think having a mandate of a share buyback program is good. And then you can use that when you feel that the balance sheet is strong. And I think that the net cash position of 14.3 billion is a strong balance sheet. And for the time being, we don't need to pile up cash. We should be able to return cash to shareholders. And that's the main thinking and reasons behind these two proposals.

Okay, that's very helpful. The second question is on special steel. Can you discuss a little bit market conditions and how do you expect 2023 to develop in Europe and rest of the world? You mentioned that demand has softened a bit in Europe, but you only guide for 5% price decline. So does that mean you're continuing your price over volume strategy there? And if that's the case, How should we think about the 1.6 million ton target on the volume? Is it still achievable for this year? Thank you.

I think in special steels, it's so easy to think that special steel is just special steels. But there is a broad variety of products within special steels. And what we are doing also within special steels, we are moving the mix. And we have some products that are... profitable and we have some products that are extremely profitable and we are I mean launching now new products like hardox high tough hardox 500 and they are starting to ramp up and we're introducing I mean what was 10 years ago a niche products 400 Brinell or hardox 400 is now I would say a commodity and we don't really produce that anymore so we are moving the mix as a total, but we are also improving the mix. We have this part of Special Steel that is, we call it Specialty, which is expandable rock bolts and some other very, very interesting products. We have these Aramox and protection plate products as well. So it is about moving the mix. So I would say, What we need to achieve is a combination of both, keeping up the stability in the earnings and the profitability and expand volumes. And we have been investing quite a lot in order to be able to do that. We are now taking into the phase two of the QL6 phase. or the next expansion of the QL6 was taking on stream end of Q4, beginning of Q1. So we can increase with a bit more than 100,000 tons on yearly production. So we see that there is still a lot to do on the market development, on product development, application development. If you look back in history, we have been able to grow the QT business with, I think it's around 7 to 8% per annum. And we expect to continue to see that growth. Not every quarter, sometimes a little bit lower, sometimes a little bit more, but over time, so to say. And when we discuss with the customers and partners and big OEMs, there is a big interest for these kinds of products. So we're trying to keep up the profitability on a stable level. I mean, last year was really, really good, but keep stability, which it usually is, and continue to expand volumes and invest for expanding volumes. And we will invest when we see that production becomes a bottleneck. That's the plan.

Okay, that's very clear. Thank you.

The next question is from Dominic O'Kane with the JP Morgan. Please go ahead.

Morning. Thanks so much for taking my questions. I have three quick questions. Just again, going back to capital allocation and I guess the buyback. With the dividends and the buyback, you'll be seeing a lot of cash move out of the business in the first half of the year. So about 15 billion SEC How should we think about your thinking about the balance sheet longer term? And again, that question is really directed to the sustainability of a potential role in buyback program. My second question is just... Please, let's take them one at a time.

We expect, as I've said many times now, to continue to generate good cash flow. We should be a business with good cash flow generation. We are not planning to put the company in a situation where we have a big net debt, but we are not going to pile up unnecessary much cash either, because that belongs to the shareholders. have a balanced profile of the balance sheet is, as I see it, important. And even though we are working hard and striving to become less volatile, we need to remember that we are in a volatile environment and in a volatile industry, and that requires a decent strength of the balance sheet. So you should put that into the equation and also see that dividend in line with the dividend policy and also a strong belief that we will continue to generate decent cash flows over time. And we have of course done the simulations and the planning for a lot of different scenarios for the coming transformation of SSAB and we see that we that will not be the main bottleneck. The main bottleneck will be the availability of fossil free electricity at the right time, at the right place.

Thank you, that's very clear. And then just two follow-up questions on the accounts. So for Q4, within the other line, you had $323 million. Could you maybe just help us dig into that number a little bit more? And how should we think about that for Q1? And similarly, big release of working capital for Q4. Do you think you're now towards the end of that inventory destocking? Can we expect maybe a little bit more working capital release in Q1?

I will take the second question and then let Lena answer the first one. We have been, for the full year, we have been building working capital. And a large part of it is, of course, prices. But we have also... I mean, when Russia invaded Ukraine, we bought a lot of alloys. We bought a lot of raw material from Russia. especially we bought 100% of the PCI coal, we stopped that immediately. And when you do that, you need to in a hurry find other suppliers, you need to test the new material and then you typically buy more than you will actually consume because you don't really know if the raw material is such or PCI or something else will work in the process. So when we closed 22, we had, I think, more than 400,000 tons of PCI coal in stock. And we need, under normal circumstances, a little bit less than 200. So there are pluses and minuses. Yes, if sales continue and prices continue, we will probably build some working capital, but we still have possibilities to release working capital from raw materials. We are focusing a lot on cash conversion, making sure that the result we make ends up as free cash flow. And then that will of course be dependent on the market and prices and so on. But some possibilities on raw material, probably building up some other stocks. But we should not... I mean, we have not done something abnormal in Q4, and we have not done something abnormal in 2022. It is, to a large extent, the price component, the working capital build-up of almost... Was it 9 billion or so for the full year? So working capital management will always be a priority, regardless if we have a high net debt or a high net cash position.

something in the other line being positive now in Q4. That line is related to this elimination of intercompany transactions and we have reduced the inventories in our divisions, thus the group level elimination is positive in Q4. So it is moving up and down depending on the inventory levels and the transfer prices we have within the divisional transactions.

Okay, thank you.

The next question is from Arocus Brownizer with Kepler Sugar. Please go ahead.

Yes, hi, good morning all. Martin, I have a quick question on the situation in Oxalis and your first stage of your conversion program. Give us an update where you stand now on the permissions for the transmission lines for Calivari and also for the Axel Sund. I think you mentioned before that this is still a priority. So I guess this is obviously taking a bit longer. So any color where we are and when you expect the decision on the demo plant actually.

First of all, in Oxelösund, we have got the permission from Energimarknadsinspektionen in Sweden that we will get the power line. That is appealed, and we knew that that would be appealed. I think it's 40 persons that have appealed that to Mark- och Miljödomstolen, to the lower court, so to say. And then Mark- och Miljödomstolen needs to take a decision, and it's very hard to say when they will take that decision. And depending on that decision, if they would be as positive as Energimarknadsinspektionen, that might be appealed to the higher court, Mark- och miljööverdomstolen, and then they could either say, well, you know, we have a decision in Mark- och miljööverdomstolen, or they can say, we will not take this up, or they can say, this is so important, we will take it up, and then it will take some more time so it's very hard to say exactly when we will get the permission because we we are now in in into the court process so the court process is starting but we are working as Lena showed we are doing the investments and we will invest in electric arc furnaces in Oxelösund that's That's no doubt about it. And then we are dependent on the court process and how fast that will go and if there will be additional appeals or not and so on. So we know at least that we have the decision from Energimarknadsinspektionen, which is very important. Then when it comes to Luleå and Rae, I would say that Rae is moving on quite nicely. In Luleå we are working then with the power transmission together with authorities and the municipality up in Luleå and that work is ongoing as well. But the most important part, short-term or mid-term, is the development in Oxelösö, and we are working hard with that. But now that process is beyond our influence or control.

Right. But based on what you're saying or not saying, the plan still is that you are being available with the green steel production with the 1.3 million ton by the end of 2025, I guess.

Beginning of 2026, we have said, but I'm saying that we are still on plan. We have not seen anything that we need to change the plans. But as I said, the good thing is that we have already delivered 500 tons of fossil-free steel, and we start to see now the first applications also out in the market being used, not just as demonstration examples, but actually being used in production. So that's very positive. building the market and building the interest for these kind of products. So we are working very hard and I am myself spending quite a lot of time discussing with authorities and politicians and try to do whatever I can to speed up that process. But as I said, it is not fully in our control.

That makes sense. Then I have another question on the market outlook for Europe. So 2022 was an outstanding year for the plate business because of what happened in Ukraine and the resulting bottlenecks from there. How do you look at the market now for 2023? So we are seeing some easing of bottlenecks and some other suppliers are coming to Europe, how do you see, how stressed, how tight will be the market for the current year and how do you see demand in Europe actually moving?

First of all plate, standard plate in Europe for us is a very small segment. We only deliver standard plates in the Nordic region. And we have had good demand for the fairly limited volume we have for standard plate in the Nordics. And when we look at the order book and the visibility we have is typically one quarter, that will continue in Q1. So we are a very marginal producer of standard plate. We have one plate mill in raw and we produce, what is it, roughly 200, 250,000 tons or something on a yearly basis.

Yeah. And then maybe more generally on demand, I think you made clear in your remarks that the destocking process is really coming to an end. So what is your think?

around the underlying demand right now you move into soft landing camp or you're a bit more careful on the real underlying demand for 23 euro well if you talk about strip products i would say for q1 stable demand and we guide for significantly higher volumes in in shipments then So we see that the contract prices will be lower because, as I said in the beginning, there is a lag between spot prices and contract prices. But we also see that spot prices towards the end of the quarter is starting to move up. And that is, of course, a positive indication if that stands. But I would say overall, fairly stable underlying demand with some segments being quite good and some segments like construction being quite weak, but in total stable. So for us, it's more a situation of what we produced and what we have in the order book. And I said it was very low volumes in Q4 due to very low apparent demand. And then when we took that outage to three quarters earlier than the previous plan, we thought that maybe Q4 is the low point and then it's better to do that outage and plan maintenance instead of waiting to Q3, 23, where the

when the market hopefully is slightly better than what we saw in q4 okay would you say that the your comments on fairly stable real demand is this just for the q1 or is this your Generally thinking for the whole year.

The visibility we have is the coming quarter. Then we have the order book and the order intake. So that I can say for sure. Then you never know. I mean, when we talked a year ago, I couldn't dream of an invasion of Ukraine. So there is always possibilities for black swans or what you call it to come up. So it will also, of course, be very dependent on the macroeconomic situation and what happens with the war in Ukraine and so on. But for Q1, then I don't know, of course, but then we have the order book and the order intake, and that's the visibility we have.

Okay, that makes perfect sense. Okay, thank you very much for your answers. Thank you.

The next question is from Bastian Sinagowicz with Deutsche Bank. Please go ahead.

Yes, good morning. Thanks for taking my questions as well. I just wanted to get back to hybrid and your green transition. So I first of all wanted to check where do you stand on securing the additional finding support which you talked about in the third quarter. And then also on CapEx, so beyond the 5 billion CapEx budget you're guiding for, for 2023, can you please update us also on the financing for hybrid itself? Are there any possible additional needs for capital injection into hybrid in 2023 and 2024 as well?

Not for 2023, 2024. We don't really, or I don't really know yet, but not for 2024. And just to be clear, what I was talking about, or at least what I meant when we talked about this in Q3, is the importance of a level playing field. And we are not in that aspect dependent on financial help, but we think it's so important that we have equal treatment for all steel companies in Europe. And now we see some examples and some other signs that that might not be the case. So we are stressing that issue, the level playing field. But as Lena showed in her presentation, the capital need for 2023, we are fairly certain of. We know the capital need and the investments. And the investments will now, in this transition, start to increase a bit over 2022. And that is mainly the transformation of Oxelösund. Then, of course, we spend a lot of cost on the planning and on the transformation office. hiring project leaders and so on in order to do this mid-term to long-term as well. But we will start now to invest more money in order to transform Oxelösund. But what is really important to remember as well then, the option was not to do nothing because we need to do this, either do this transformation, which makes a lot of sense and it is very profitable. The alternative would have been then to build a new coke oven battery, which makes no sense. We are working as hard and as fast as we can but as said many times now we are also dependent on things that are partly at least or to a large extent out of our control when it comes to power transmission and those things.

Thanks for that. Just on the financing support, have you at least seen some early indications? Do you feel like the government is open to still help you on the financing side and basically close the gap to what some of the other governments are doing? Or is this a situation where you obviously went ahead with good intention in the sense of doing it on your own and now as they know you want to do it on your own, they basically just leave you with it? Have you been receiving any early response?

It's not black or white. And let's come back to that question if and when we have something to say. But I must say that from the government in Sweden and Finland, they look at this in a very positive way. And they also realize that the steel industry needs to do their homework in order for us to... meet the Paris Agreement, but they also realize that this is at the end also a very important matter for competitiveness, not only for SSAB, but for the value chain and the demand and the customer interest is there and that they realize and recognize.

Okay, thanks for that. Then my second question is just coming back on your cost guidance for raw material costs. Your lead guide for cost to be flat on a group level in the first quarter and on the other side, it's pretty clear that scrap costs are rising. So does this mean that on the European glass furnace operations, you're still expecting cost to come off? I think that's the guidance. I just want to confirm that that assumption is correct.

Well, during Q1, the cost of consumption in the beginning at least will be on a very similar level than Q4. Minor reduction could be happening at the end of Q1, but only minor. We do have the high inventories with coals, PCI coals, and yes, also inventory with iron ore. So we don't see the benefit of the cost reduction yet. It will come a bit later.

Excellent. Thanks, Lina, and thanks for taking my questions.

The next question is from Christian Kohl with Kalanish Steel. Please go ahead.

Yes, good morning everybody. Martin, I have a question on the outlook regarding the realized prices, which you say will be lower in the first quarter, although the spot prices are rising at the moment? Is that because the contracts are quarterly and were signed at an earlier stage? And by that logic, would that mean that in the second quarter, the prices, the realized prices should be higher?

No, but you're correct. There is a time lag. We have very, very limited volumes on spot. And we typically have quarterly contracts. That's the majority of the contracts. Then we have semiannual contracts and annual contracts. And you typically sign the contracts, I would say, mid or early second half of the previous quarter. So that's why we know where the prices will go. and then you're correct that right now the spot prices have been improving and if that that is typically a good indication where the contract prices will move with the lag okay thank you very much the next question is from ellen gabriel with morgan stanley please go ahead

Good morning, and thank you for taking my questions. I have two questions that are one at a time. First one is on capital allocation. You now have a very different financial framework than you have ever had in the past. Do you think it's time to revisit your capital allocation policies? And what factors do you consider in the trade-off between dividends and buybacks? That is my first question.

Without answering it, we will have a capital markets day in the end of March, and we might come back to that topic then.

Thank you. And my second question is on the Nordic system, the transformation. So you seem to be exclusively focused on the downstream via investments in minimals, which is somewhat different to what you are doing at Oxyloson. It seems that the value along the value chain is mostly in the green iron making or producing the green sponge iron. Are you not worried that by focusing on the downstream exclusively, you are leaving lots of value on the table further upstream?

But I think that is a misunderstanding. What we are focusing on is to create a fossil-free value chain together with partners, starting up when the iron ore is in the mountains beneath the ground until finished products and trying to find synergies and smarter ways of working along that value chain. How that will look exactly in the future, we don't really know. What we know today is that hybrid is focusing on developing the technique of producing fossil-free sponge iron and is planning to do this pilot plant. And then it could, as we have discussed before, it could look a bit different in different parts of the world. I mean, we are producing steel today in Sweden, Finland and US. the exact setup we don't really know yet and that could that might differ a little bit between regions as well but the plans we have communicated so far we are sticking to and moving on along to those plans.

Thank you.

The next question is from Andrew Jones with UPS please go ahead.

Martin, thanks for the opportunity to ask. Just on the plans and other mini-mills, I know the feasibility studies are ongoing, but can you talk about the timing of when we expect to see completion of those and when this spending is likely to ramp up? And annually, what's your latest thinking on the scale of the total group capex once you get started on those projects? That's the first one. I'll just come back with a second on something else.

Let me pause that question until I think we will cover part of that very important question during the capital markets day. But as said, I mean, today we don't really know. And the reason for that is when we will be able to execute that. And the reason for that is of course, that we don't know exactly when we will get fossil free electricity or the power transmission of the fossil-free electricity. In Oxelösund, we are fairly certain that we will get it in time, so that plan stands. In Luleå, we don't know yet. That work has just been started. In Ra, even though it moves on quite nicely, we don't know there either. We are working with the government and the authorities in Finland as well. To be honest, we don't really know and that's why we have said, I think we have phrased it around 2030 or so, there are possibilities to do it slightly earlier, but we can also handle if we have to do it due to the power transmission slightly When we look at it, an optimal situation for us is to do it in order to avoid blast furnace relinings and big investments or investments in production facilities that we will not run long term. But then, of course, it is so important with these minerals. We reduce lead times a lot, and I mean a lot, and that will release working capital. needs but we also increases flexibility so this is also an integrated and important part of what I talked about before reducing the low point profits and and stabilize earnings over the cycle which I think is also very important and then last but not least the huge interest from from customers and and coming back to these 500 tons which is not a lot in the scheme of it but but We see the demand, we see the interest, and we could sell much more than 500 tons today, I can promise you, if we had the ability. So we are really working hard.

Okay. And just as a couple of thoughts to that. One is just on pricing of that product. I mean, you've been quite... in commenting on green premiums in the past, but how are you feeling as we go through time and you're selling more of these volumes? What are you thinking about the potential for green premiums in the longer term once you have meaningful volumes of the product on the market? And also, just on that issue with the permitting and so forth, does the new government have a materially different the view to getting some of these projects moving compared to what we've seen when the green party was more uh you know it was it was in the correlation how are you um how are you seeing the changing landscape with regard to regulation

To be honest, I don't see any difference. I think the new government in Sweden, they understand this perfectly well, and they are very positive, and they see the same picture as we see, I think, that this is... This is, first of all, this is business development. This is developing new products. This is developing new corporations within the supply chain. So at the end, this is about competitiveness. And the market is there. The customers are there. And then it is also very good for the climate. So it's a win-win-win-win, you could say. And they realize that. And I think they are They have publicly said it. I mean, we had the EU Commission together with the Swedish government up in Kiruna a couple of weeks ago, the full EU Commission, and we had the possibility, me and John Mostrom and some others, Martin Lundstedt from Volvo, to explain this value chain and what we are aiming for. So I think there is a big interest, and then they just need to help us with authorities and others in order to make this happen. When it comes to premium, I'm convinced that there is a premium and we see that there will be a premium. The reason why I'm a bit cautious is that you never know how long that premium will be there, because I hope that this will be the new way of producing steels. And then you will rather have call it a cost advantage or some advantages compared to traditional steelmaking due to emission rights, due to cost, due to flexibility and due to the market being willing to pay slightly less for traditional steel, so to say. So in our calculations, we have been pretty cautious when it comes to premium for green steel. We think we know that there will be a premium. It depends how long it will last, but that's not taken into the calculation in order to justify these investments.

Okay.

Thank you. The last question is from Young Jang with Bank of America. Please go ahead.

Thank you for taking my question. Good morning all. I've just got a quick one on the timeframe of the buyback. Would you give us a bit of guidance of under what timeframe are you looking to do the share buyback?

No, but what you're typically doing, I guess, so I'm not trying to tell you something that you don't really know, but the board has decided to ask the AGM for a mandate, and that mandate they will have until the next AGM, and then they need if they want to ask for another mandate, so it's the earliest to start after the AGM. How you do it and how you sequence it and so on will be a later decision. But the decision is to ask the AGM for that mandate. And that mandate is valid until the next AGM. And then you need to come back. So it's too early to say.

Thank you very much.

Yes, operator, we did not have any more questions. Then I will thank Martin and Lena. Thank you also for... For all the good questions, before we leave, just like Martin said, we will have the capital market stay here 28th of March in the central of Stockholm. And then also a site visit to Luleå for those who are interested in that. So please don't forget to register here on ssab.com.

for this event so you save a seat so we will be more than happy to host you up in lulu as well and if you haven't seen this and have the opportunity i would really recommend you to see this hybrid facility and and this groundbreaking new technology so by that we thank you for the attention and we wish you a nice day thank you very much thank you