SSAB AB (publ)

we can drive our transformation from a position of strength. The level of earnings during the last years has been record high. We have achieved a 40% global market share in wear-resistance steels. And we have taken the lead in the green transformation of the steel industry. We plan for major investments in the Nordic operations, putting SSAB in a superior cost position The blast furnaces and coking plants will be closed and our CO2 emissions will largely be eliminated. Pilot shipments of fossil-free steel to customers already began in 2021. We will continue to increase the share of high-strength steels and premium steels. This will be done with industry-leading profitability and create value for all stakeholders. Join us when we're transforming the future of steel.

And welcome to the SSAB Q1 presentation. I am Per Hilstrom, I'm responsible for investor relations at SSAB. And presenting today, we have Martin Lindqvist, president and CEO, and Lena Kraelius, CFO. And if we have a look at the agenda, Martin will start here with an overview of the quarter. And then Lena will go into the financial details, and then Martin at the end with outlook and summary. And there will be good times also for questions. So by that, please Martin.

Once again, good morning and welcome to this Q1 presentation of 2023. Some highlights. We saw continued good results in special steels in America. We'll come back to that. We also saw a recovery on the European market where we had a weak second half and I would say also apparent demand-wise a weak fourth quarter. And we used that recovery, we were quick to adopt and adjusted production, started up the blast furnaces, blast furnace we had down for maintenance, planned maintenance in Rohe, and that was successfully started up in Q1, so we could take advantage of that recovery. During the quarter, we saw in all divisions, I would say, high and stable production. And if you compare the production volumes, we were in Q4 impacted by planned maintenance. We continue to improve our safety performance. As you know, one of our important targets is to become the safest steel company in the world. We are not there yet, but when we measure lost time injury frequency per million working hours, including contractors, we are down at 0.92, which is an improvement compared to last year. And we continue to strengthen our balance sheet. Typically, we don't generate so much net cash flow in Q1 because we build some working capital. But we had a net cash flow of almost 2.2 billion in the quarter. And then one have to remember that we yesterday paid out a dividend of approximately 9 billion. But the balance sheet continues to be in a decent shape. if we move into the divisions and start with special steels as said earnings on good levels underlying demand continues to be strong and as we said on the capital markets day we have been improving volumes and taking market shares we have had a volume increase the last 10 years of approximately six percent per year and that will continue can differ a bit between quarters but Q1 quite okay. And remember that Q4 was impacted by the yearly maintenance. And we also saw shipments recovery compared to Q4. And all in all, we made an EBIT margin of almost 25% in special steels. If you move into America's earnings continues on very good levels. We saw spot prices starting to move down a bit in Q4 and we saw on the market price recovery during Q1 and prices moving up slightly still on high levels into Q2. we had generally stable and good demand strong demand and we had maintenance in end of q3 and q4 beginning of q4 in americas but we had good shipments 476 000 tons in the quarter which is in line with the second quarter last year Europe, as said, we saw a weaker market versus one year ago, but sequentially a stronger market and stronger apparent demand in Q1 compared to Q4. And we saw low apparent demand, especially during this last part of Q4, and we saw some restocking also in the supply chain in the beginning of Q1. We had strong and stable production and raw had actually production record for a month in March. So that was good and we increased shipments with 17% compared to Q4 last year. We also saw that the spot prices turned around new year and started to move up and we are guiding for slightly higher prices into Q2. Tibnor also recovery versus Q4, and I would say stable underlying demand with the exception of the construction market, which is still very weak. And the big difference in profitability compared to Q4 is that we had higher negative revaluations in Q4 than in Q1, but we also saw a recovery in profitability. And rookie construction, weak market as expected in Q1, and we saw a more pronounced downturn versus Q4 than we normally see, but that's due to the weaker than normal construction market. We made a zero result of minus 9 million SEC, and we started to see the positive effects from the cost-saving programs we are running in rookie construction, and that will be more visible in the coming quarters. uh on our capital markets day and and during the beginning of q2 or end of q1 we launched in launched a new product family we call it ssab0 it is a steel produced with zero emissions in operations so scope one and scope two that is a third party verified we use we base that on recycled steel or recycled scrap using fossil free electricity biocarbon and biogas and we have that material now available on the market and are aiming for 40,000 tons this year. We have orders from leading companies like Volvo Group, Epiroc and Peab, and more will soon come. So it has been received very well on the market. And this is the first step, I would say, on our stepwise transformation to a fossil-free production system, where we have the zero steel available on the market right now. The next big step will be Oxelösund, the conversion of Oxelösund, It is going to be ready 2026. We will take the formal decision, the RFE, during the first half of this year. And when we do that transformation in Oxelösund, replacing the current blast furnaces and coke oven battery with an electric arc furnace, we will be able to take away 1.5 million tons of our own carbon dioxide emissions. And Oxelösund will be using either hybrid sponge iron or scrap or a combination of that. The next big step is planned to be 2028, when we will have the first mini-mill up and running, either in Luleå or Rae, and at the same time at that site, close the current coal-based system. In order to have that up and running 2028, we need to take a formal decision during 2024, and the first mini-mill will reduce our own carbon dioxide emissions with roughly 4 million tonnes per year. And then 2030, we're planning to have the second mini mill up and running. And in order to do that, we need to take the formal decision during 2026. And that will take away another four million tons of carbon dioxide emissions from SSAB per year. And that is the stepwise plan we have discussed and talked about. And this is just a reminder. So with that,

and then we will take a deep dive into the financials so please lena start your presentation

Thank you, Pär. Familiar slides, and let me start with the shipments. Q1, as already Martin also showed in previous slides, was a good quarter with shipment volumes increasing in all the divisions. Outcome, 1,737 kilotons increase compared to Q4. 235 kilotons, which is 15% higher shipment volume compared to Q4. If we compare to Q1, increase was not as big. It was around 70 kilotons and 4% higher during this year. And then if we look at the revenue development, we can see that from Q4 to Q1, revenue did not increase as much as it did with shipments, which is then indicating that the average prices were lower during Q1 compared to Q4. Also, when we are reflecting the revenue development from Q1 last year to this year, we can see that it's not increasing as much as it is with the shipment volumes, indicating also that the average price was lower this year compared to last year. Then the EBITDA graphs on the bottom of the slide illustrating that yes, EBIT improved during Q1 compared to Q4. And this is not driven by the increasing prices, but it is actually related to the higher activity level that also Martin mentioned. Let's dive into more details with the EBIT bridges. Let's start with the comparison to last year, Q4. EBIT level of 3.8, this year improving to the level of 4.7. As you can see also in this graph, the prices were lower. It was lower in all the steel divisions compared to Q4. Volumes 15% higher, contributing 1 billion positive to the EBIT. And the variable cost here, it is actually mainly related to inventory valuation and capitalized fixed cost. Raw material all in all was relatively flat compared to these quarters. In the US, scrap prices were going actually up from Q4 level. PCI was also increasing, iron ore on stable level, as well as coking coal. Fixed cost, lower during Q1. Q4, we were having higher portion of repair and maintenance cost. We had the blast furnace repair and also annual maintenance in Oksala soon taking place, Q4. And as already mentioned, the activity level was higher during Q1 compared to Q4, and the positive impact of this capacity utilization almost 700. And if we then compare Q1 result to last year. We can see that the prices are lower than last year in all the divisions and variable cost. We can see that this is a significantly higher compared to last year. During Q1 last year, we were not impacted with the peaking raw material prices. The peak took place during Q2 and Q3 last year. So comparison thus is having a significant difference with the variable cost base. Fixed cost being 750 million higher. And this is now half related to personal related cost and then half related to the materials and services being on a higher level. We have recruited more people to transformation operations, and we have also acquired entities by Tipuna and Ruukki Construction during last year. So those are the drivers behind the higher FTE. And of course, we have higher cost also related now to the transformation projects that we have ongoing. And the capacity utilization, less positive impact in this comparison. But last year, we were having challenges in Raahe with blast furnace and also furnace in Montpellier. If we then continue to cash flow, Already, Martin showed in the slides, we had a solid performance during Q1 with the cash flow. Lower EBITDA compared to last year. This is now comparison to the last year Q1 performance, but also less impact with the working capital. As said, during Q1, we are paying out big raw material invoices. We are doing winter stocking during Q4, and those invoices we are paying out during Q1. So that is the main driver behind this. Related to other, 480. That is due to these CO2 emission allowances that we were purchasing during Q1. Last year, we were actually swapping forwards with the positive impact. Financial items, 104 positive. That is related to high level of cash and higher interest compared to last year. And then the acquisition of shares and operation during Q1, that is related to Ruki Construction buying 70% of the shares of Design Talk in Sweden. All this is making our financial position even stronger compared to Q4. Last year we were at the year end on a level of 14.3 billion. At the end of Q1, we are on the level of 15.6. We launched new financial targets and the net debt equity ratio at the end of Q1 is slightly exceeding the given new target, which was plus minus 20%. But as said, after payout of dividend around 9 billion, this ratio will actually be on a level of 11. Raw material view already discussed briefly. Iron ore has been fluctuating during 22, but when we compare Q1 to last year level, it was on a fairly similar level and no big deviation compared to Q4. Coking coal, on the other hand, we can see here the significant increase during 2022, and we are still consuming these rather high-cost coking coals from our inventory. And to remind that, yes, we still have the PCI inventory with high prices, and we continue to consume that as well during this year. If we summarize the average raw material cost of Nordic mills, we were fairly stable, quarter on quarter, and we don't see a big increase either during Q2. U.S. scrap prices in the Brits, we already mentioned that the scrap cost was lower than last year during this first quarter of this year. But then when we compared to Q4, it was slightly higher. Prices increased during Q1, but then again, they started to level out at the end of the first quarter. Cash need of the business, we have revised this graph and figures here, but we didn't see a need to update this figure. We are still having the plan to have the capex need maintenance and strategic investments on a level of 5 billion. Oxelosound conversion being the biggest strategic project ongoing. And together with taxes, we estimate that it is still on the same level as previously illustrated, on a level of 10-11 billion for this year. So no changes to this plan. Maintenance cost, and this table is illustrating the big annual planned maintenances. As you can see and already said today, the Q1 we didn't have any big annual maintenances ongoing, nor will we have during Q2. What we have done, we have actually updated Q3 plans slightly. We have pushed forward some of the annual maintenance plans from Q3 to Q4 in Special Steel Division and Americas. But on the total annual level, we are having exactly the same cost as we had previously. So this is merely a timing difference.

Thank you, Lena. Now we will listen to Martin again with the outlook and also closing with the summary. Please, Martin.

Thank you, Per. So if we take a look at the segments and illustrate it here with the usual segments, I would say that heavy transport continues to be Strong. We see good demand for heavy trucks in Europe. We see stable demand on a high level from rail cars in the US, so definitely green. Automotive construction, machinery and material handling, more stable or neutral, with stable demand for the coming quarter. Energy, good demand, especially from wind power and other renewables, and especially in North America. And then, of course, the weakest segment, construction, where we see the European market and especially the Nordic market being impacted by inflation, higher interest rates, etc. And we will see some seasonal improvement in Q2 versus Q1, which we typically see when the winter season ends, but on a much lower level than we usually see on this market. And then service centers, I would say, neutral. We saw restocking in Europe in the beginning of Q1, and inventories are in Europe now. on a fairly low normal level. On the other hand, we continue to see low inventory levels among steel service centers in the US. So all in all, neutral and fairly stable. If we then look at our guidance, we expect the European demand to be stable in Q2. The heavy plate market in North America is expected to continue on a good level. High strength steels, good in several markets, several segments. We see an uncertainty regarding the second half of the year against the background of higher interest rates and high inflation. But when we guide for Q2, sequentially over Q1, We expect somewhat higher shipments from Special Steels in Europe and stable shipments from Americas. When we look at prices, we see stable prices in Special Steels, higher prices in Europe and somewhat higher prices in SSAB Americas. So to sum it up, strong quarter. I'm particularly happy with the successful ramp up of production after the previous quarter and the maintenance outage we had with one of the blast furnaces. We continue to see a good trend in safety. We are not where we would like to be yet, but we are slowly and steadily getting there. We continue to generate good cash flow, given the seasonality we typically have in the cash flow generation with a slightly weaker Q1 than in the coming quarter. We closed the quarter with a strong financial position and we see a decent outlook for Q2. And we continue to lead the green transition. And one point of proof of that is, of course, the launch of SSAB0 that is based on recycled steel and no scope one or two fossil carbon emissions. So with that, Per.

Thank you, Martin. And then we will prepare now for the question and answers. Before we start, I'd just like to remind you that if you have more than one question, please state them one at a time. It will make the process much easier. So by that, I will ask the operator, please, to present the instructions for the Q&A session. So please, operator.

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 one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. We kindly ask you to use handsets when asking questions. Anyone who has a question may press star and one at this time. The first question is from Gresser Tristan with BNP Paribas. Please go ahead.

Yes, hi, good morning, and thank you for taking my questions. I have two. The first one is on special skill. Back in Q4, you flagged some potential softening, and now you had really strong results in Q1 and guide for ASP resilience. So trying to understand a little bit what has changed over recent months and looking ahead, how much visibility do you have meaning can current pricing levels that look pretty much elevated can be defended further out during the year based on your current assessment of future supply and demand? Thank you. That's my first question.

Of course, the growth in special steels differs a bit between quarters, but what we see and what we have seen is a strong underlying demand. And as I said, we have been growing the volumes with six, seven percent per annum in average the last ten years, and we expect that to continue. And as we also during the capital markets day, we launched new growth targets for those type of products. Underlying demand is strong and we expect it over time to continue to be strong and then it can vary between different quarters and of course between different years. Prices, well you should expect them to be, we'll call it margins, to over time be more stable than for standard products. I mean, this is the core of SSAB's strategy to continue to grow within special steels and especially for abrasive resistant steel within Q&T and specialty products.

All right, that's helpful. And maybe my second question then on capital allocation. Back in Q4, you announced your intention to do a buyback program. You got the AGM approval. but you didn't announce a program today. So why is that given you a very strong balance sheet even after the dividend payment? Has anything changed, or are you still looking to announce a program in coming on for the year?

No, nothing has changed. As you said, I mean, we got the mandate from AGM, I think it was one and a half week ago, or a week ago. We paid out the dividend yesterday, so let's come back to that topic. But now we have the mandate that we asked for, and then we'll come back. So nothing has changed, no.

All right, thank you.

The next question is from Mr. Gabriel Allen with Morgan Stanley. Please go ahead.

Yes, good morning. Thank you for taking my question. So, Martin, you have laid out clear budgets to build out the minimals and invest in hybrids, which are must-haves to produce your green steel. Are there any nice-to-have investments that you think will help you or help give you some competitive edge with respect to raw materials? Are there any merits that you think in investing in DRI or any scrap collection companies? Thank you.

No, but I mean, as I said, we have a stepwise strategic plan or directional decision to do this. And as I described during my presentation, part of the presentation, we have the upcoming decision now for the conversion of Oxelösönd. I'm very pleased with the development in hybrid, and as we have discussed before, the patents that are filed and the R&D work that has been going on. We have learned a lot and have very good ideas that we are now patenting, so that's very promising for the future. I'm also very happy and proud about SSAB 0, the possibility to be first on the market with steel produced without any scope 1 and 2 emissions. And I'm also very pleased with the big interest from the market and also that we have established now a premium for these kind of products. So we continue with our plans and are moving on. But as I also described quite in detail during the capital markets day, we are very confident when it comes to our own ability and the cooperation within hybrid. But there are of course some external factors that needs to be in place. We are still struggling with power supply and effect distribution in Luleå as one example. We don't know exactly when we will get electricity in Oxelösund. So it is ongoing work. And then what we will need to do in in investments for the future of course we should not do nice to have investments we should do must have investments and we will have a completely new and state of the art production system in the nordic mills after the conversion and then we'll take it from there

Thank you. As an extension of this question, are you not worried that you're falling behind on scrap collection or security, basically, because many of your competitors are already buying scrap collection companies, but you have not. Is that an important aspect or an important part of your clean transition that you might have overlooked, or are you comfortable with your security there?

We plan to use a combination of scrap and fossil free sponge iron. What is important for us is to go after scrap at the source. So first of all we have a lot of internal scrap that we will use and then we will use return flow from customers and that will be virgin scraps so to say so off cuts and so on so as part of of the strategic partnerships we are forming now with a number of increasing number of customers that is a vital part of getting scrap at the source back to the mills So that's our solution on that problem. Having said that, we are also in a small scale. We bought a company in Finland in Q4 that is working with scrap collections. We are testing out that market as well. But the main source will be to get scrap at the source back to the mills.

Okay, thank you.

The next question is from Okain Dominic with JP Morgan. Please go ahead.

Hello, thank you for taking my question. I think your guidance for Q2 is very clear. Higher shipments, higher or stable prices, lower raw material prices. So it's reasonable to assume we get some margin expansion. So I'm just trying to sort of look ahead to Q3 and I understand the guidance is slightly uncertain, but I assume your order books are open or opening for Q3. So is it reasonable to assume that we should be expecting at least stable margins as we look forward to Q3? Thanks very much.

First of all, I think we said stable Romantil into Q, relatively stable. As you know, and we have discussed this many, many quarters, the visibility we have is the coming quarter. We have the order book. We have the order intake. We haven't opened up for Q3 yet. It's still early in the quarter. So the visibility for the second half is stable. Very, very limited, as always. And as we say in the report, we don't know, but we can see what is happening around us with high inflation, high interest rates. And that's why we say we are, what do you call it, cautiously optimistic for the second half, but very limited visibility. Okay, thank you.

The next question is from Sina Govid-Fastian with Deutsche Bank. Please go ahead.

Yeah, good morning all. So my first question is also on the demand side in your order book. So I was wondering whether you could maybe give us a bit of color on your order book length in the Americas and then also in Europe. And then I'm wondering also whether there has been any change in the dynamics in some of your key end markets over the last couple of weeks. That is my first question.

No, no real changes the last couple of weeks. I mean, as we said during the presentation, what is weak and what we expect to continue to be weak is the construction market for pretty obvious reasons. Apart from that, I would say stable underlying demand is what we see in 2020. And then we have these swings in apparent demand, which we saw in Q4 and we typically see in Q4. And then some restocking and better apparent demand into Q1. Then we have seen reports from some OEMs within especially heavy transport being fairly positive for this year as well. So I would say overall stable demand into Q2.

Thanks, Martin. And then I think you talked about some cost savings which you're working on in rookie construction. Is there any way you could quantify this for us, please?

No, not really. I mean, rookie construction is a fairly small divisions, but we are taking measures now in structural cost improvements given the market situation. And that is what we typically do. We do this. We use time banks. We use short-term layoffs. But we also work with structural efficiency measures. And that's what we are doing. We saw some of it in Q2. LQ1, we will see more of it in Q2. but that is already implemented and ongoing.

Okay great. Then my last question is also coming back to the energy transition. So I guess we've seen some of your peers signing some agreements for power supply and I guess to be leading the energy transition you will also need to put in place I guess the hydrogen infrastructure pretty soon whether you're going to do that or whether that's going to be done within hybrid. I guess you talked about some of the challenges on the electricity side. So what is the situation now in Oxelosund and by when do you expect to have like a firm, I think, infrastructure agreement in place for the hydrogen side, which you obviously need to really convert Oxelosund as you're planning to?

The remaining question mark in Oxelösund is actually power transmission. We have the effect allocation, we have the environmental permit. We have gotten... Excuse me for taking this in Swedish, but we have gotten the decision from Energimarknadsinspektionen, the authority responsible for this, that is appealed to the lower court, Mark- och Miljödomstolen. They are working with it and will come with a decision this year or this fall, hopefully. And that decision can then be appealed to a higher court, Markomiljööverdomstolen, and then they need to decide if they take it up or if they just push it back and say that the decision in Markomiljööverdomstolen stays as it is. We don't know when. We know that we will with high certainty get the power transmission or the cable, the power line, but we don't know exactly when. But we still stick to the target of having the electric arc furnace up and running 2026 with the knowledge we have today.

And so just to be 100% clear, so the power transmission constraint at the moment, this is basically for the electric arc furnace, correct? So this is what you're referring to? Yes. And then how does it look like on, I guess, on your feed for green hydrogen for the DRI plant? Is there any bottleneck as well, or is that basically all pretty much cleared already?

No, that process is also ongoing, started in the hybrid development company for the first plant called demonstration plant up in Gällivare. So that work is also ongoing. It takes a bit of time in Sweden. That's the process we have chosen to have for some strange reasons, but it takes some time in Sweden and we are in that process and in line with the plans we have. Or the plans are adopted to that process.

And what is the timeframe until when you would have to have approval to really make your timeline? Is there like a timeframe by when you obviously just need to get this in place to be able to work on the rest of the infrastructure, do the construction work, et cetera?

But what we have said from hybrid is that we will have that plant up and running during 2026. And that plan still stays. Okay.

Okay, so basically probably you would still have time until like probably 2024 if needed to probably still do and finish all of the construction work on time, I suppose. Okay, perfect. Thank you.

The next question is from Bronisie Rokus with Kepler. Please go ahead.

Yes, hi. Bronisie from Kepler. Arjen, just to questions. The one is on your guidance. I think your reference to the market environment demand has been improving when it comes to some restocking activity. Season is on your side in Q2. Prices are recovering. So in that sense, you could argue that the guidance for the second quarter still contains quite a bit of cautiousness when it comes to to the potential earnings improvement. Maybe you can share a bit more color. Maybe I'm misreading that, but maybe you can share a bit of color. What would be the main obstacles you see for any improvement in the earnings? That's the first question. And the second question is on your outlook remarks where you talked about the uncertainty for the second half. Is there anything beyond the kind of high-level factors you mentioned, interest rates, et cetera, which points you to some cautiousness? Are you getting any signals from specific industries except construction, which we know that there is a bit more discomfort or any worry that demand activity might slow down in the second half? That's it from my side.

You confused me there for a short time, taking two questions at the same time, but I will try to answer them. Sorry for that. No problem. Q2, we are not guiding for results. We are guiding for volumes and prices and what we see in the order book and in the order intake. And then we let you draw the conclusions from that. And I think... the guidance we give is what we see in the order intake and in the order book and where we are very confident as we usually are when it comes to the coming quarter the second half is As said, the visibility is very low. Why are we then saying like we say? Because I mean, you never know. And I think it's better to be a bit more cautious and hope for the best, of course, but plan for not the worst, but plan for something that is not as good. What we know or think we know, we don't know. But what we think we know is that the construction industry will not bump back. during the second half. It's always hard to predict, especially Q3, because we have the vacation period in the Nordics in July and then we have the vacation period in the rest of Europe in August. I've been in this industry now for 25 years and know that it's always hard to predict. And then you better be a bit cautious. So, I mean, no alarming signals from any segments or anything like that. Just being cautious and be prepared. Because we have seen now two years in a row with strong performance on the market, strong earnings. We continue to see that. So, nothing more than that.

Okay. I think that's clear. On the first part of my question, I know that you don't guide earnings, right? But when you're saying... Romans are flat to maybe a bit down here and there. And prices are stable to slightly up. Then it points to rather some margin expansion than contraction. And volumes are also seen slightly up. So this points to some improvement. And when you look at the spot prices in the market, they are not doing badly. We have seen a significant rebound in the prices. So is there anything I'm missing in terms of

cautious pricing wording because the the price recovery actually was not marginal it is quite substantial when you look at the november laws um maybe any any anything you can add but i mean first of all we have a combination of quarterly contracts annual contracts and semi-annual contracts and we will see the price increases in the quarterly contract contracts then we are not I mean, to 200 percent selling on I mean, the correlation between our prices for standard products and spot prices are quite high, but it's not one. So we have a different pricing structure to many aspects. And then, of course, the niche products and especially the special steel products, they are priced in a different way. So they don't follow spot prices. They are typically or at least the margins are typically much more stable over time. So I mean, we are guiding for what we are seeing in the order book and in the order intake. And then we see that spot prices started to move up in Europe. We're increasing prices in quarterly contracts in SSAB Europe. in America's the price drop stopped during q1 we have introduced two price increases and the market has followed so that's why there was a guiding for on the quarterly contracts for the open contracts higher prices in in in q2 and then for special steels they have a different pricing model that we guide for stable prices and that's what we guide for and that's what we see in the in our order book

No, that makes sense. Thank you very much, Martin.

Then we will ask the operator if there is any further questions.

Yes, sir. The next question is from Jones Andrew with UBS. Please go ahead.

Hi, Martin. Thanks for taking the questions. Just one on your general track record. I mean, you seem to beat consensus in most quarters we go into now. just from a big picture perspective, I'm wondering what you think that analysts are missing when we come into your results, because I'll say over the last couple of years, there's been a very, very consistent trend of not just, you know, small beats to consensus. Quite often you've absolutely smashed the earning forecast. So I'm wondering structurally what may have changed in SAB, I mean, compared to say the sort of lean years of 2019 and 20, Aside from, obviously, the uplift in market prices that we can all model, what sort of magnitude of structural EBITDA gains do you think that SSAB has made over the last several years, whether it be in cost efficiencies or improved premiums on products or whatever it is? And if we look at medium-term consensus, which is around 11 billion SEC, I wonder how you think about that. Do you think that's fair or do you think that we are too conservative? And if so, potentially in what areas?

First of all, we are not always beating consensus. I think we missed consensus a bit in Q4, if I don't remember wrong. Then secondly, there are every quarter some analysts that are more or less smack on where we come up. So consensus is, of course, in some ways, maybe a bit of a strange figure. But coming back to the other part of your question, I think we are what we are. focusing on is to we call it put put the company in order and and i try to explain a bit about it maybe not in a very pedagogic way during the capital markets day what we are aiming for so we're mainly aiming for four areas of structural improvements i would say the most important part is the product mix and moving as much of volumes from standard products into premium products or special products and I showed the difference in margins but also the difference in volatility. So every kilo we can move from black coils outside Scandinavia as one example into something else improves a lot. Then secondly we run this SSAB1 program, the continuous improvements, where we have the target of having improvement of one billion sec per year. And a big part of that are structural efficiency measures like yield improvements, like cost efficiency, like changing sequence length and so on. So we are gradually independent on market situation, trying to work with structural improvements that will give us a much better resilience in the downturn because I mean on the peak of the cycle whenever that is everyone is making a lot of money and and we are not valued on on those performance levels but if we can lift the bottom of the cycle, the profitability, that is worth much, much more. And we call that internally lifting low point profits or increasing stability. So that's what we are working with within four areas. And as I showed on the Capital Markets Day, and this is my opinion, and I've done calculation on it, we have structurally since 2015, lifted the profitability structurally with with a bit more than five billion sec per year and that work is far from over and that's what we are going to continue to focus on with with the most one of the most important or the most important part being the mix shift and that's why i keep on coming back to the volume growth in in special steel that is so important So that's, and we have worked the same way with the balance sheet. So we have said that let's try to do our outmost regardless of business cycle to put the company in a good situation. And for me, this is a relative game. So we should, of course, be beating competition on the top of the cycle, but even more importantly, on the bottom of the cycle. So that's the focus we run internally.

No, that makes a lot of sense. And just one more on hybrid. I'm wondering what you see as the potential hold up to getting that project moving forward more. We sort of haven't really heard a huge amount about it. It wasn't a big focus in the capital markets day. I mean, what's the timeline for hybrid to actually get into production? And what are we likely to see in terms of news flow over the next year on that project?

but as i said we we expect to take the decision now during the first half of 23 with the conversion in oxford we have as we said on the capital markets day we have done quite a lot of investments so far but but the formal last big decision is the electric arc furnace and that will be hopefully taken now or will be taken out during the first half of the year then we continue to work hard and very focused and to be honest sometimes struggle a bit with electricity power supply and also effect allocation especially in in lulu we are it's moving a bit faster in finland In Oxelösund, as we have discussed, we are not in a wait-and-see mode, but this is being processed now by the lower court, Markomiljödomstolen. We expect some decision here within the coming six months, which is in line with the time plan. Still a lot of, not a lot, but a few unknowns that we are working very hard with. And together with the political system, together with the authorities, we do that both in northern Sweden and in northern Finland. And if anything, it moves a bit quicker in northern Finland than it does in northern Sweden.

I was thinking more specifically about the pilot project, the 1.3 million-some hybrid plant. I mean, when are we expecting to see that start to move forward in terms of the actual construction phase?

That will be in due time before 2026, because then it will be up and running. Then we are three companies within the hybrid and we have our own, I mean, decision making processes. But you should expect that to follow the plan and some news coming out later this year. Okay, thank you.

The next question is from Kogue Maxima with ADO. Please go ahead.

Yeah, good morning. So the first question is on actually the tight supply in Europe right now, given that two of the largest producers in Europe are meeting difficulties, I mean, because of planned and unplanned outages on the market. on the units to produce. And I was wondering if you would benefit from that in Q2 and perhaps in Q3, given that is expected to last well into summer, or if that was not really of that much help, given your focus on the Nordic region and on some categories of steel that are not necessarily the ones that are affected by these shortages. So that's my first question.

But to give a general comment on the European market, we have seen some changes. First of all, we have seen capacity being taken away. We have also seen, due to the invasion of Ukraine, we have seen Russian material being away from the market. We have seen effects of Azovstal being away or destroyed by the Russians. We also see now that the marginal cost for a European steel producer when they need to buy emission rights is up to 200 euro per ton. So we don't see this hunt for volumes that we would have maybe seen five, six, seven, eight years ago due to that. And then we see some of our colleagues having short term at least some difficulties and of course that affects the European market and that's I guess why we have seen part of the explanation why we have seen also increasing spot prices on the European market and we see so far fairly limited import into Europe as well.

Okay. And the second question is on energy cost. It seems that in Q1, your energy cost, I mean, natural gas and electricity were already a lot lower than in Q4. And is now Q1 a good, I mean, is Q1 now a normalized quarter in that respect? Or should we expect energy, lower energy prices to have a further positive impact in Q2?

prices, they have stabilized. So they had a tremendous peak during 22. So they have stabilized that we can see also in our figures. And I would say the similar development also with the electricity prices. I don't have a good outlook going forward, but we have seen that it has come down.

So the further upside, but limited perhaps into Q2.

What do you mean, Maxime, if we expect lower energy prices in Q2?

I mean, spot prices were lower in Q1 versus Q4. I mean, spot market prices, but that didn't really... totally i mean that didn't totally affect your results at this stage so i wondered if there was more to come in that in that on that front um in the following quarters well we don't see it at the moment we don't see a big increase in energy prices for second quarter either okay okay thank you for any further questions please press star and one on your telephone

The next question is a follow-up from Professor Tristan with BNP Paribas. Please go ahead.

Yes, hi. Thank you for taking the follow-up questions. Just two quick ones. One on the carbon credits you bought in Q1. Can you tell us how much of the $480 million that was? Can you give us maybe an update of your situation for the year and if we should expect further buying activity for the coming quarters? And the second one is a quick one on working capital moving into Q2. You have higher prices, higher volumes. Is it fair to assume another, let's say, meaningful investment in working capital? Thank you.

Shall I take the emission allowance purchase? That's all related to the CO2 emissions. As you know, we have this hedging policy. We are on regular basis buying CO2 emission allowances for future need. And last year we had lower production than planned. So we were pushing forward some of these forward contracts. So now we are buying them back. So it's merely related to that. Last year positive, and now we are compensating that push forward. So that was all related to that.

And then working capital, I mean, when volumes and prices are moving up slightly, you should, of course, expect us to have higher accounts receivables. I think Finnish goods are in pretty decent shape. You shouldn't expect any big movements. We still have, on the cold side, especially for PCI, we still have high inventories that we need to sweat out during... during the rest of the year so i wouldn't say that i foresee any abnormal movements compared to previous what we have seen previously in the balance sheet when it comes to working capital all right that's uh that's helpful thank you the next question is from alexis peter with sm please go ahead

Hi, my name is Alexis and I'm a journalist for Sörmlands Nyheter. Martin, how much is the facility in Oxelösund that the result was so good during the second quarter? I can take it in English too. How much is the site in Oxelösund?

Do you want me to answer in Swedish or English?

Gärna svenska.

Oxelösund är en otroligt viktig del av Special Steel. Det är där vi producerar våra mest avancerade produkter. Den har naturligtvis en otroligt viktig del i resultatet för Special Steel. Special Steel består egentligen av två produktionssajter på den globala marknaden. Det är Mobil och Oxelösund. I Oxelösund är det där vi producerar de kanske allra mest avancerade produkterna. Even if we produce maybe 90% of the spectrum in mobile also, Oxelösund is incredibly important. It has a large part in the success of Special Steel in the first quarter, but also historically. And it is expected to have it also in the future.

You sounded a little worried earlier about the power management here. When do you think there can be an answer from the authorities about a green light? It's so hard to answer.

I feel worried, maybe a wrong expression. I have only respect for that we are in a process that we have neither insight nor control over. Incredibly happy and grateful that we received a positive message from the Energy Market Inspectorate. As expected, the message was complained by a number of landowners. to Markomiljödomstolen. That process is ongoing. I think Markomiljödomstolen is working on it, as far as I can understand, in a good way and according to the timetable. And then we'll see what they come up with for a decision, and if that decision in that case, which is possible, is complained to Markomiljödomstolen. So I'm more... Orolig ska inte se, men men respekt för processen och inser att vi har väldigt liten påverkan eller insyn i processen, utan den får ha sin gång. Men processen har inte gjort det vi har sett hittills, har inte gjort att vi haft anledning att ändra vår målsättning och ha Oxelösund omställt och klart under 2026.

Men då tackar jag så mycket för.

Yes, operator, do we have any further questions?

For any further questions, please press star and 1 on your telephone. Gentlemen, there are no more questions registered from the conference call at this time.

Okay, thank you. Thank you for all the good questions, and thank you, Martin and Lena. And this concludes today's conference, and we wish you a pleasant day.

Thank you.

Thank you. We can drive our transformation from a position of strength. The level of earnings during the last years has been record high. We have achieved a 40% global market share in wear resistance deals. And we have taken the lead in the green transformation of the steel industry. we plan for major investments in the nordic operations putting ssab in a superior cost position the blast furnaces and coking plants will be closed and our co2 emissions will largely be eliminated pilot shipments of fossil-free steel to customers already began in 2021 We will continue to increase the share of high-strength steels and premium steels. This will be done with industry-leading profitability and create value for all stakeholders. Join us when we're transforming the future of steel.