Earnings Transcript for OUTKY - Q1 Fiscal Year 2024

Linda Hakkila: Hello, all and welcome to Outokumpu's Q1 2024 Results Webcast. My name is Linda Hakkila. I'm the Head of Investor Relations here at Outokumpu. With me today, as our main speakers, we have our CEO, Heikki Malinen; and our CFO, Pia Aaltonen-Forsell. As per usual, we will first start with our presentations and after that, we are happy to take your questions. But before we start with the presentation, I would like to remind you about the disclaimer, as we might be making forward-looking statements. But without any further comments, I would like to hand over to our CEO.

Heikki Malinen: Thank you, Linda. Good afternoon and good morning to everybody. Welcome also to Outokumpu's webcast here to discuss our Q1 results. And it's nice to see you again after a couple of months. So today, we have a lot to discuss again. Let me start with this slide here, first of all and tell you that as you've probably seen, if you followed our announcements, Q1 was a pretty eventful quarter for Outokumpu. Looking at how the year started, the first 4, 6 weeks of the year were actually pretty good. Our order inflow in Europe was actually pretty nice. And I really felt after the first month that this is going to be quite a nice quarter. But then, unfortunately, events changed. Political strikes began at Outokumpu and basically our 3 smelters in the Ferrochrome plants and our 2 huge smelters in the steel plant were closed for 4 weeks. Also our port was shut. And of course, as you know, within the Outokumpu system, when Tornio is shut, of course, it does have material implications. We had to make 2 profit warnings and ultimately, we've had to guide down the results. So what started off as a really nice, good start ended up in what was, of course, not a satisfactory outcome. Political strikes, per se, have been a bit of a phenomenon in Finland. The government is moving towards adjusting the legislation and let's see what parliament decides but at least the proposal will be to sort of modify the legislation when it comes to political strikes that the duration would not be that long if they are -- if they take place. But anyway, for Outokumpu, this was, of course, a big -- an unfortunate start to the year. And we have worked very hard to try to mitigate the impact. We indicated initially that the first half year would probably take a hit of about €80 million. At the moment, we think it's probably going to be about €60 million. It's still a big number. And as I said, we are very sorry for the negative impacts for our customers, obviously, not something that we wanted to be happening here. But beyond that, if we look at the implementation of the strategy, our Phase 2 is going according to plan. Actually, we're a little bit ahead of plan. And today, we have announced that we are going to raise our performance improvement target for Phase 2 from €200 million to €350 million. Obviously, we have cost inflation. We have raw material costs rising. We see wage inflation and also we have now the impact of the strikes which we have to also financially recover. So, that is why we then decided that it was necessary to raise the performance target. So that is kind of where we ended up in Q1. And if we then look at the markets, what obviously is interesting is to see what happens with prices. I mentioned after the presentation in Q2 and then also in Q3 that I felt that as we headed up, we came out of the summer of 2023, that we felt that, that was the trough in commodity prices in Europe. And since then, we've seen gradual improvement in pricing that continued also in the first quarter. Nothing major but we can see gradual movement month-over-month on the price levels. And you can also see that with that fine light blue line on the curve on the left-hand side. So European prices have risen somewhat. We're obviously not where we used to be but anyway, the direction of movement has been positive from the standpoint of the producer. And in the United States, we've had some continued moderation of prices. If you look at the curve on the bottom, you can see the situation in China. The Chinese situation is, of course, complicated in the sense that China is such a huge player and Asia in general is such a huge player in the global stainless industry. I had already expected last summer that the Chinese government would have stimulated their economy and really gotten the, let's say, consumer activated to buy but that has not happened. And subsequently, we can see that the oversupply globally, stemming initially from Asia, just continues to burden the whole markets. And we see that, for example, in our case, in Mexico, there is increased imports from Asia. We've seen that be the case also in Latin America in some markets and so forth. In Europe, we haven't really seen that much massive import pressure in spite of the very weak situation in Asia and in China. On the right-hand side, we can see nickel. We have been trading somewhere between $16,000 and $18,000. We've had a couple of months even at $19,000. That seems to be momentarily, roughly the LME nickel price range where it is trading. Although many other commodities have actually moved up very robustly like copper but nickel is now moving sideways in that position. Then if we look at our deliveries, well, here it's again a tough story because if you look at the last 3 quarters, our deliveries have been somewhere above 400,000 tonnes which, of course, is clearly lower than we've seen in some of the past years. I want to make the comment here, as we look at our results, that if we had -- first of all, I want to make the comment that the deliveries, of course impacted now by the strike, were 10% less than in Q3 of 2020. So the volumes are really low, even lower than we saw in the midst of COVID in Q3 of that year. But if you then look at the results of the company, so even though the results are modest, Pia and I were just doing some modeling that if you look at the volume level today and compare that to the past, in the past, at this level of volume, we would have been clearly in negative EBITDA. So our performance improvement measures, our cost reduction measures have brought -- improved our breakeven point quite clearly. And even with this lower level of volume, we're still able to maintain positive EBITDA. Again, not at all happy with the absolute level but I do want to make the point here that our performance improvement measures have had teeth and they really have had an impact. On the right-hand side, you can then see the red bars. They just pretty much signify or show what the impact of the strike and declining volumes were. One thing I want to mention is, still, I want to come back to this scrap question because we have seen the scrap market tighten actually now for 2, 3 quarters. And this is not a phenomenon also in Europe but it's also the same situation in the United States. So intrinsics are moving upward. And so, one could ask, so if the market isn't that strong, so why is scrap market tight? Well, at least a couple of reasons. One is, in Europe, there used to be some volume coming from Russia. That volume is not coming anymore. Secondly, industrial activity in Europe and also in the United States on the manufacturing side is surprisingly low. And when it's low and consumers are not buying new washing machines, you don't have this normal turnover from the residential side, well, then the scrap volumes are not also circulating. And so, simply, there is not the amount of robust supply coming and that starts to tighten the market. I do, however, at the same time, want to make a comment here and say that we, as a company, have been able to get all the scrap we need. We have a good relationship with our suppliers, CRONIMET being one of them. We do not have to import any scrap from other regions, from other continents. So we get everything we need from Europe. We don't need to buy any extra primaries. And also, if you look at our working capital, given the structure of the supply with our scrap dealers, we don't need to carry any huge burden of working capital. And I think the way we've organized our supply chain is good in the sense that we don't have that working capital burden. Actually, our system is pretty efficient. Then a few words about sustainability. Well, I always want to make the comment about safety and you can see the trend -- long-term trend of the company. We've been working on this for decades. And today, if I look at that 1.2 TRI number and compare that, for example, to the chemical industry, we're starting to be here at chemical industry levels which of course, is a much more closed process than what we do in the steel side. So the direction of movement is right and good. And of course, we have many plants where the TRI number for last year and this quarter was 0. So there is a -- we're making good progress here. And in terms of recycled material rate, we are at very, very high levels, 95%, 96%. And our emission levels are going down. And then, a comment about shareholder returns. We're very happy that the -- our AGM approved the €0.26 dividend for each share. That has been paid in April. We have renewed our dividend policy 2 years ago in the summer at the CMD. We have completed a second share buyback which is related to our convertible. We have returned €144 million to our shareholders. So we have a strong commitment and dividends remain a very essential and key part of our equity story. Then, before I hand over to the presentation to Pia, let me just comment briefly on some of the recent announced changes. So, first of all, Pia, after working for about 5 years for Outokumpu, has announced that she is moving on to a new challenge. And I'm very, very happy that we were immediately able to appoint Marc-Simon Schaar, who you will then see in Q2 live here and next to me. Marc-Simon Schaar has been working for the company for over a decade. He has a very strong financial background. He has worked in many different roles. Last role, now he is in charge of all of our procurement, raw material procurement, general procurement and has been leading that very successfully. And I was very pleased that Marc-Simon is excited and willing to take on this very, very important role. So you will then see Marc-Simon briefly -- or not briefly but from August onward, when he then shares the podium with me. The other major news, of course, was my announcement that I have submitted my resignation and have decided to take on a new opportunity, working for another company, another industry. I have worked for Outokumpu in different roles, first as a Board member since 2012 after the merger for 8 years and then, of course, 4 years in the role of CEO. We may come back to this topic in the Q&A but I said, I do feel that I'm leaving the company in very strong hands and in many ways, in a very good shape, not only looking at it from the standpoint of where we lie in terms of the balance sheet. But maybe we come back to this question, if you have any, if you want to delve onto that a bit more. But with those sort of comments from me, let me hand it over to Pia and she will dive into the numbers and then I'll come back and make some general comments about how I see the coming near-term future. Thank you very much.

Pia Alexandra Aaltonen-Forsell: Very good. Thank you, Heikki. And I have to say, this feels quite special and a bit emotional as well, my last and final presentation here as CFO for Outokumpu. It's been a true pleasure and privilege, of course, to be in this role and also to serve all of you to the best of my ability. And I also want to say something about Marc-Simon. I'm not going to make a bad joke. I'm really going to say we worked side by side in some really tough spots. And I think the professionalism that Marc-Simon showed also, for example, during some refinancing events and during some other important events in Outokumpu history, I think, really shows me that he has what it takes to become here a really successful CFO of Outokumpu. But now, let me go to my presentation today. So first of all, repeating the strength of the balance sheet. We have the strongest balance sheet in the industry. That's the result of a lot of hard work and also a very consistent policy, the way how we have worked together with Heikki and also with the whole management team. So obviously, that's visible now with still a negative net debt figure at the end of Q1 and also through the fact that our position in terms of cash, in terms of liquidity remains strong. And that has enabled us to fully remain committed to our policy when it comes to shareholder returns. We have paid dividends of €110 million this year. We have also completed the second share buyback program. So I think all of those are really, really good and strong points. Let's then look a little bit at the announcement that we made today about hiking the target. And Heikki already mentioned this but let me take you through a few more details on that. So we announced that we will hike our strategy execution target when it comes to the EBITDA run rate from €200 million to €350 million. And first of all, if we think about what's the nature of these improvements, I would say it's about 50-50 into more corporate -- like operational efficiency, raw material efficiency, also costs and about half is more on the commercial side. And you may remember that when we launched the strategy Phase 2, we also talked about the fact that we wanted to be able to release some more capacity in Americas with very modest investments. So, we talked about some $20 million investment and 80 kilotonnes more capacity being released from our current platform. And I think we are very well on our way in terms of enabling that. So the investments have proceeded well. However, the market has not quite been there to absorb it. So that's something that we still have, let's say, ahead of us to benefit from. We also talked quite a lot about the throughput efficiency, especially in the commodity business in Europe. I think that has been really well projected as well. So we can see that already in reduced working capital, in reduced inventory needs but as well, there sort of placing that in the market still lies ahead of us. But we have also added here a number of cost measures. And I think the harshness of the market situation, the fact that we can see both sort of the price level under pressure now already for a longer period of time. We can also see actually that our volumes are quite low. So all of these measures have really been necessary already from that perspective and then adding the strike and, of course, the inflation that we have been going through in the last years all add up to the necessity of doing this. And on the inflation, I still want to say that even though inflation now is clearly slowing down more back to sort of historical levels in Europe, we have not had a deflation. So the cost levels remain elevated compared with a few years ago. So that's really the rationale. And someone asked me that you just keep doing these improvement programs, that why is the result then not every year up to several hundred millions more? And I would just say that we constantly live in a very dynamic market with a lot of changes. And I think that the fact that under this market pressure, we are able to do still a positive result in our EBITDA level in Europe, despite a very difficult situation. I think that's a proof point of the success of these programs. But now let's then look a little bit into the results. So I'll start with BA Europe. And I think we already commented quite many things here on the harshness of the market and Heikki also gave a good overarching view of the scrap situation, both in Europe and in U.S. So that's really valid for both and that's clearly adding as well to a squeeze on the margins that we can feel right now. Are there some good elements? Yes, there are definitely some good elements. We can see that inventories are now really low when we talk about distributor inventories that we can measure. And it also means that some sort of replenishment has started. Heikki talked about the activity that we could see on the order intake early in the year. Obviously, the strike situation was hurting us. We were not able to take as many orders but we can see again sort of a healthy order intake now that we are back after the strike event. And also Avesta and our more specialized grades, I think we have continued to enjoy a sort of reasonable or even good market situation in some sub-segments where it's energy, maybe it's green transition related, where projects are clearly still carried out, despite the fact that we haven't seen the interest rate cuts yet. So the market is gradually improving. It's clearly not improving in any sort of rapid speed but there is indeed a gradual improvement that we can see right now. The volumes, however, remain on a very low level. And I think if we would paint an even longer time series here, you would really see sort of the low market volumes that are prevailing currently. I will move to BA Americas. And here, I would also start by pointing out the volume. We had 150 kilotonnes quarter. And you could say that it's still a testimony to the U.S. market being in reasonable shape. What we can see, however, is that the market in Mexico has really been under a lot of pressure from imports. And there is a link here to the situation in Europe. The European demand has been weaker, price levels have been lower and there's been some measures to curb some of the imports. So holistically, this overcapacity that somehow originates in China but finds its way globally through maybe also third countries has also been flowing into Mexico. I assume not only Mexico, I'm sure also to other countries, for example, in Latin America. But all of this is adding to the pressure in Mexico. And clearly, Mexico is a market with less trade protection or clearly less trade protection than, for example, the U.S. And why is that important for Outokumpu? Well, if we look at our balance of capacity, if we look at our cold rolling capacity, out of the 600 kilotonnes cold rolling, we have 350 kilotonnes in the U.S. in Calvert and we have 250 kilotonnes in Mexico. That is really -- the majority of that really stays in Mexico. So, that market dynamic also is meaningful and important for us. So I don't think that this impacts at all our long-term view of the market. But short term, clearly, some of the turbulence globally now has somehow also been finding its way into the Mexican situation. Not so much the Americas situation, even though there are imports, they have been on a fairly stable level. What else is there to say? There's still one important topic, I think, relating to this quarter and also impacting the second quarter. And that's some issues that we've had on the operational side. We are just now out of a big maintenance break where we were repairing some of, for example, these exhaust ducts. And we have had some issues there already during the first quarter. We were now able to repair and fix all of that. But I think that has, to some extent, kept us from doing really sort of those top volumes in the quarter as well. And just to remind you, okay, so there was this Mexican situation but the 150 kilotonnes, I think, you should compare with sort of other top quarters where maybe we have done like 180 kilotonnes. So there was clearly some volume also missing on our side. And then, we could see the same issues on scrap as in Europe. So I hope that clarifies a little bit about our performance. And clearly, these operational issues are now -- should be something that we have in the past but they are still impacting also the second quarter. Maybe I'll take Ferrochrome a little bit more briefly. I think we were able to mitigate some of the strike impacts. However, we did also feel the strike during the first quarter here. So with that in mind, I think there was a very reasonable result of €22 million in the quarter. And when we think about the capacity utilization, we still have one of the smaller furnaces shut down until -- temporarily until August of this year. So it still talks about the market that is only maybe starting to recover. And of course, a big part of our Ferrochrome demand goes also internally to our stainless. And when those volumes have not been at the strongest level, that also impacts then Ferrochrome. My final slide on CapEx guidance for this year and also on the cash flow. So I think on the cash flow, I think it's enough to say that having this sort of big effect like a strike certainly put a really big pressure on our supply chain. So we did continue to buy raw materials. Obviously, we continue to operate in Americas despite the fact that we had some operational challenges. We continued also, of course, buying also in Europe. Avesta was operating as normal. And we also bought something for Tornio but we had a lot of disruption in our production and the flow was not sort of as smooth as it usually is. So with all of that in mind, I'm happy with the end result where working capital was really in the end balanced and kept under control also in this quarter. And now, just looking into where we are sort of headed for, obviously, we were still negative net debt at the end of Q1. Q2 sees a similar or slightly better sort of market environment but -- or results but we are paying the dividend. So clearly, that puts some pressure now on the debt in this second quarter. And then, finally, on CapEx, you recall that we said €600 million for the strategy Phase 2 execution and we are now really all in for delivering improvements. And that means that we will also stay consistently within the €600 million CapEx limit for these 3 years. We were €170 million last year, so we will hike this up a little bit this year to make sure that we can deliver all those improvements, so about €220 million. And I think that leaves a little bit north of €200 million then for the year 2025. But with that said, back to you, Heikki.

Heikki Malinen: Thank you, Pia. So a couple of, let's say, slides here to finish my part of the presentation. So first of all, a few comments on how we see these opportunities in the market. So, first of all, of course, U.S. being such an important area for us, the stimulus in the United States, of course as the elections approach, is really remarkable. Even though we have rates at Fed funds over 5%, we're having this massive amount of federal government stimulus. And that seems to be keeping employment good and demand still at a reasonable level. Also, we're starting to see German PMIs bottoming. German service PMIs are clearly starting to start to move upward a little bit here. Manufacturing PMIs are not declining anymore. So hopefully, Germany starts to climb itself out of this more weaker period as well. As I mentioned already, we had the year started off with a better order book for Outokumpu and that sort of gradual improvement in demand seems to still continue. Distributor inventories, now after almost a 2-year decline in stocks, they clearly have bottomed. And gradually, the restocking just has to start to take place. They just cannot forever maintain so low inventories. And of course, when rates are very high, I understand that many companies don't want to hold working capital. But still, eventually, the buying to restock has to start. And then, we have all the green transition investments which, of course, they take their time until they come. But as we move here through the decade, gradually, they should start showing up also in terms of project orders, especially for our advanced products but also some commodity stainless, for example, hydrogen-related investments. Uncertainties, of course, as we all follow -- are following the U.S. Fed rate cut decision and also the ECB, I think for us, of course, it does mean, I think, 2 things. One is, of course, we know that a lot of companies are holding off restocking because the working capital is very expensive. And then, of course, we live in a buy now, pay later world. So when everything is happening based on leverage, so when rates are high, people postpone the purchase of a home, the purchases of home appliances are delayed and then, of course, car buying is also postponed. So rates do have a material impact on our business directly and indirectly. The war unfortunately continues. That is -- wars are always inflationary which is a problem. And then, we have this whole question of the unresolved Chinese or, let's say, Asian overcapacity but many of that -- most of that is somehow linked to China in the end. So I'll just call it sort of Chinese overcapacity. And that, of course, remains then to be seen how, in the future, that hopefully will be managed and resolved. Then let me finally summarize the outlook for the fourth quarter. So group stainless steel deliveries in the second quarter are expected to increase about 5% to 15% compared to the first quarter. The recent political strikes in Finland are expected to have a similar negative financial impact in the second quarter as in the first quarter. The scrap market is expected to remain tight, as we saw that in the first quarter. With current raw material prices, some raw material-related inventory and metal derivatives losses are expected and they will be realized in the second quarter. And our guidance for Q1 -- sorry, our guidance for Q2 is that the adjusted EBITDA in the second quarter of 2024 is expected to be at a similar or higher level compared to the first quarter. So, that, in a nutshell, is our presentation and we are happy now to entertain any questions that you may have. So, thank you very much.

Operator: [Operator Instructions] The next question comes from Anssi Raussi from SEB.

Anssi Raussi: Yes. A few questions from me and first one is about BA Americas. So could you maybe quantify the impact of the strike in Finland and also these operational challenges like -- and I'm talking about the impact on EBITDA in BA Americas. I'm just trying to figure out the run rate.

Pia Alexandra Aaltonen-Forsell: Yes. Anssi, is it okay if I briefly answer that? I think, first of all, when we look at the strike impacts, €30 million was very much upstream in the first quarter. That's sort of natural. So those impacts, I would say, were broadly out of BA Europe and very much out of sort of Tornio direct deliveries. Q2 impacts are more downstream and there was 1 or 2 deliveries that were planned to go also to U.S. and Mexico. So that's why we mentioned it that there is actually some impact. But if you think that there is in total €30 million impact in the second quarter, only a part of this relates to the U.S. and it's definitely a smaller part. So we haven't given kind of the country split but it's not a double-digit number, let's put it that way. And if I may then just really briefly continue on the operational issues, you saw that we were still able to do 150 kilotonnes deliveries in the quarter. So I think there was a lot of sort of mitigating actions and sort of making things work. But it was very harsh and it was a lot of hard work. So obviously, on the margin, we lost something. We also are not really able to get sort of out of those issues before this maintenance break. We are out of the maintenance break now. But it's 7th of May today, so an early part of the quarter has also been impacted by that. So it means that we cannot kind of speed up from where we were in the first quarter before that.

Heikki Malinen: Maybe I'll just say about the duct failure. Of course, we have predictive maintenance which -- we carefully monitor all of our production lines to make sure that we don't have any unplanned needs for maintenance. But unfortunately, in this particular case, there was some damage to one of the ducts. And the unfortunate situation here was that it's a duct which is very, very high on the top of the furnaces and we needed a special crane which was able to lift a very, very large weight piece of equipment. And getting the crane in place and doing all the maintenance was just technically a bit of a challenge, especially when, of course, we need to make sure that everything is super safe. But anyway, the work has been completed, everything is okay. But as I said, it was a bit of a more complicated thing to manage this time. We will learn from this as well and do our best to make sure that doesn't happen again.

Anssi Raussi: Got it. The second one about BA Europe, so there have been some comments about the demand picking up in white goods but have you seen anything like this? And maybe, if so, how long does it take for you to see it in the scrap market activity?

Heikki Malinen: Well, I think in terms of white goods, if you can look at the large white good suppliers, so you know that the last 2 or 3 quarters have been very, very difficult for them. And as I said, of course, there's -- the rate level and the uncertainty that consumers face, of course, that drives and postpones their decision to buy. But there are some indications of pickup here. I would caution you to assume it's going to be a rocket launch like we saw after COVID. But it does seem that we're starting to hit -- we've hit toward the bottom here in that respect. Now, in terms of the scrap side, it is really a question -- more of a question that we need to get the overall industrial machine to run in Europe and then we will have more scrap running through. And this isn't only about the home appliances. There's the chemical industry, many other sectors which are also using a lot. The whole German economy is very export-driven, as you know. And so, the German economy also has to start running its machines and then the volumes will start picking up. But as I said -- as I mentioned, for Outokumpu, we are able to get everything we need. Our scrap sourcing is completely under control. We get what we need and we have good relationships. And as I said, we don't need -- we don't have a system where we need to carry a big working capital burden which is, of course, a positive for us.

Anssi Raussi: Okay. And finally, about your guidance, what kind of scenario you see that your EBITDA would remain flat and not increase in Q2? After all, your volumes are increasing. You have mentioned that prices have maybe bottomed already and now the impact from the strike is also guided to be flat Q-on-Q. So what do you see here as a risk?

Pia Alexandra Aaltonen-Forsell: Right. So I would maybe say a few topics that we need to keep a clear eye on and one of them obviously being the sort of tightness in the scrap market. We start to be already mid-quarter soon. So, soon enough, we'll sort of know the situation until the end of the quarter. But that has been a situation that has been developing early this year and got tighter and tighter. So obviously, we need to keep a tight eye on that one. We also need to keep an eye on the operational issues that we did face, for example, in the Americas and now that the recovery is prompt, as we have assumed and at least we have been really successful until now that the maintenance break went as planned. But however, that's also something to keep an eye on and that brings some variation. And then, there has been volatility in the nickel price. And obviously, much of the things for the second quarter is already locked in but they're still on the hedges, probably something that remains open as well as then the hedging results. So I think there's sort of a number of topics that we'll just merit to be monitored as per usual.

Heikki Malinen: Maybe -- still when talking to some of our suppliers who have been following the scrap industry for decades, so they're basically saying that they have not seen a situation like we're seeing now when industrial activity is so low and the sort of scrap supply is so reduced. That is fairly uncommon. Typically, the system circulates much better. So waiting really for the industrial activity to restart and consumers to buy and then scrap should start flowing again normally.

Operator: The next question comes from Tristan Gresser from BNP Paribas Exane.

Tristan Gresser: If I may follow up on the scrap market, with the comments you made, it really doesn't seem you will start to see some sign of easing even in Q3. So you basically rely on industrial activity to pick up to finally see this headwind move away. So do you expect that to happen in Q3? Or do you expect more of the same? And also, I would be interested, on a spot basis, have you witnessed some improvement in margins in recent weeks? Because we've been talking about higher prices. If I look at the price at the chart, the differential between prices, minus cost of scrap, it still has increased. So I would be curious to know if you've seen that happening in both Europe and the U.S. That's my first question.

Heikki Malinen: Well, I think on prices, as you know, we have also a lot of contract business. And of course, when you have capacity available and if there is, of course, spot demand, then of course, you have a chance to price it on a spot basis. But it is, of course -- that's a good question, how long will it take for the European machine to start -- sort of restart and reset? We don't have a point of view on how long that will take. What we can talk about only now is Q2 and we see it is still somewhat sluggish here. As I said, we can get the scrap we need. I'm not worried about that. But when you look at the overall cost side, as Pia said, so at the moment, that pressure is still there. Of course, we're doing everything we can to reduce. We're working on our yield. We're looking at all kinds of ways to reduce our metal costs, our metal usage. We have a lot of stuff going on in the company to reduce the cost of metal that we use ourselves in terms of the amount and then optimize that all the time to find the right mix of metals. But as I said, this may take a while before the machine restarts but as I said, we don't have any formal point of view on that, unfortunately, to share with you.

Tristan Gresser: All right. That's clear. And the second question is on the import pressure in Mexico that you've seen of late. I believe the Mexican government has put in place some license requirements and has also hiked tariffs for a number of steel products. Do you think that's enough and that's going to move the needle and that's going to bring more relief into coming quarters? And given that you will see operational issue alleviate and maybe the import situation turning a bit better -- you referenced 180,000 tonne of volumes in the U.S. as a good quarter. Should we expect that level to be reached, maybe not in Q2 but in the second half of the year?

Heikki Malinen: In terms of Mexico, the United States has also raised their concern about the import volume into the Mexican market. Some of that, of course, ultimately will then flow also, at least in terms of finished goods, into the United States. For us, a good part of the sales we do -- a good part of the production we do in Mexico actually remains in Mexico. So we're an active participant in the Mexican market which is a long-term advantage, I believe. We're the only supplier -- stainless producer on location in Mexico. But as I said, for the time being, this global oversupply seems to be putting pressure on Mexico as one of the markets. And at least we don't see at the moment that, that tariff in itself will completely mitigate the issue simply because the oversupply is too large with Asia being too quiet, so to speak. In terms of then -- the 180,000 tonnes, what do you -- what point of view would you like to share?

Pia Alexandra Aaltonen-Forsell: I think it's a historical figure, of course, as well depending on the mix. But I just think it shows the opportunity that is there and that we are still not at the top of the market. So definitely, I think we are sort of climbing towards that with some improvements quarter-on-quarter, as we seasonally will see the weakest quarter then in Q4. So will we reach there in Q3? I definitely would not make any statements about that yet.

Tristan Gresser: Okay. That's clear. And just the debottlenecking operation in the U.S., I think you managed to unlock around 50,000 tonnes back in Q4 out of the 80,000 tonnes. Any update there?

Pia Alexandra Aaltonen-Forsell: We still have work to do on that remaining 30 kilotonnes. So those projects are still ongoing. But I think the really key question here is when will sort of the market opportunity be there to benefit from this.

Tristan Gresser: All right. Perfect. All the best for whatever lies next for you, Pia.

Operator: The next question comes from Ioannis Masvoulas from Morgan Stanley.

Ioannis Masvoulas: First question is on the -- for both Heikki and Pia. As you're leaving the company on a far stronger financial and operating position, from your perspective, what do you think the main priority should be for the new leadership team once the transition completes?

Heikki Malinen: Well, of course, I'll try and give you a short answer. Of course, I'd like to talk about this for a while but just -- I mean, where are we today? Well, we know our balance sheet is the strongest in the industry. We're financially -- we have a lot of -- a strong backbone. We have a management team which is strong, good sustainability record. We're well ahead in terms of Phase 2. Of course, I think if the economy stays tough here for a bit of a longer time, of course, the new management -- the new CEO and the CFO, of course, have to make sure of getting us through this tougher financial period. And for us, of course, it means very much, cost control, being very efficient and trying to increase -- further improve the productivity in the company. But then going forward, it's going to be all about Phase 3 and making the right choices in terms of capital allocation. The dividend policy, the focus on shareholder returns, I think the company and the Board are very committed to this. So how to then find the right set of investment options that provide us the longer-term returns? That is a fundamental strategic choice. And I think the new management then, both CFO and CEO, will have to make those choices. We're making a lot of good background work here and analysis to compare different alternatives. We have a lot of investment ideas from where we can choose but it's more about making the -- creating the right package, then sequencing that over multiple years and looking at how do we make sure that those investments then really return what they need to and that the investments are executed in a way that really they are on budget and on time and all that good stuff. So I think that's probably going to be some of the priorities to how I see them at the moment for the new. Anything you would like to add?

Pia Alexandra Aaltonen-Forsell: Yes. I'm sure Marc-Simon is watching this. So Marc-Simon, make sure the balance sheet stays strong, then all of this other stuff will be possible.

Ioannis Masvoulas: Very clear. Second question, just on the guidance for Q2. You mentioned negative raw material effects despite the rise in nickel prices and I guess that's separate to the comment on scrap. Can you remind us your hedging policy here and what drives the guided loss for the quarter?

Pia Alexandra Aaltonen-Forsell: Thanks. So first, I would say, when we talk about the raw material-related inventory gains and losses, I'll just say it's -- historically, it's been a lot about nickel and it's really nickel where we also can hedge. If I would look where there is maybe some kind of a bit of negative momentum right now, it actually relates to Ferrochrome, so just to sort of put that out there. But if I return to nickel and how we hedge, I would say we have, let's say, some ability here to make judgment. But we have a very conservative core of the policy which really relates to where we have certain commitments in terms of buying and selling there. We also then need to go in and hedge accordingly. And then, we are not hedging inventories in full but there we have some opportunity to flex, maybe also dependent on the market situation. I was really happy with how this risk management policy worked last year, where sort of holistically, the position on nickel timing and hedging was very close to zero in a year that was played by a rapid deterioration in the nickel price. Now, obviously, we're sort of seeing the opposite movements but I think still this has worked out in a good way for us.

Operator: The next question comes from Bastian Synagowitz from Deutsche Bank.

Bastian Synagowitz: Yes. I do have a quick follow-up on Americas, if that's okay. I guess, if we look at the bridge which you are providing in your chart deck, you're not referencing to the new hot rolling agreement which has started as of January 1. So could you please give us the all-in impact from the new agreement versus the fourth quarter? And then also, was there any impact from customer commitments in Europe which you tried to honor via supply from the Americas? And if so, how much? That's my first question.

Pia Alexandra Aaltonen-Forsell: So I think to start with, on the customer commitments, it did not kind of go the way that we would have delivered out of U.S. or Mexico to Europe. So, that did not impact the figures here. And then, we have not really disclosed the full commercial impact of the new hot rolling agreement. However, at the point where we disclosed that we have entered into this agreement, we said that we believe that our sort of sustainable EBITDA level in dollar terms which used to be $200 million, is now we see it at a level of $170 million. And we have impacts both on the sort of variable side of it and the fixed side of it. But really, when you look at the bridge, as obviously you have done, you will see that what major impacts were from Q4 into Q1, it was this lower price level, really impacted a lot also by what's going on in Mexico, as we have discussed and then the tighter scrap market situation.

Bastian Synagowitz: Okay. And then just on the outlook here and also in the context of the $170 million midterm EBITDA perspective which you -- I guess which you're providing and which you're still committed to, it doesn't really seem, at least for the moment, that like the current market situation is unwinding. I think maybe some volumes are coming back. Obviously, some of the operational issues are dragging on but then we still obviously have the pressure in Mexico, as you say and I guess, also the tighter scrap market and maybe that will unwind later but doesn't seem to be for the moment. Even besides that, do you think that you could get this back towards the, say, $170 million run rate level in Q2 or Q3?

Pia Alexandra Aaltonen-Forsell: Maybe this year, as we have experienced, it now has come with many surprises and this is maybe a bit of a transition year from what was a deteriorating market situation into something -- back into something more normal. So when exactly is then that pivot point? I think that's maybe a bit difficult to foresee. However, as sort of a direction, I'm sure that we are heading again back towards that $170 million annual run rate. So the sort of the speed of the movement here, I think, is dependent on many also external and macro factors that are sort of big themes that maybe kind of would take up too much time to comment here.

Bastian Synagowitz: Okay. Perfect. And then, lastly, on cash flow and your investment line in particular and I'm wondering how much the actual underlying CapEx number has been and how much has been the part attributable to CRONIMET. The way I understood it is that like roughly €45 million difference to last year's CapEx number have been attributable to CRONIMET. And so, you actually spent €15 million [ph] underlying but I'm not quite sure I got the statements right.

Pia Alexandra Aaltonen-Forsell: I think that is a little bit of a harsh conclusion. I wouldn't go sort of quite that far. We have quite -- we have also some of the CapEx that is under this header of energy efficiency and strengthening the core, where I think we have now, let's say, successfully launched some projects, some projects both in, for example, Tornio and Avesta as well. So I would not attribute that all. We have not disclosed the exact figure for that but that is sort of jumping the gun a bit. So it's a smaller number that is coming through the share purchases.

Heikki Malinen: But still for the whole 3-year period of Phase 2, it's the €600 million. So the €220 million is a bit of a bigger number. But then, in 2025, it will be a little bit of a smaller number, so adding up to €600 million.

Bastian Synagowitz: But the CRONIMET number obviously is -- obviously not included in the €220 million, right? So I was just wondering how much of the €220 million budget you spent...

Pia Alexandra Aaltonen-Forsell: It is -- apologies, Bastian, if I understood that wrong. It is included. When we talk about the CapEx, it's really kind of the full cash out, including also these other types of investments, for example, in the share format.

Bastian Synagowitz: Okay, including CRONIMET. Okay. That is a good clarification. Then just looking at the overall CapEx budget of the, I guess -- and the cash flow outlook for the rest of the year, you talked about working capital because of what's happened due to the strike. I guess you've been clearing at least maybe some of your distributor -- own distributor network inventory. And it seems like you're may be still freeing up some further working capital in the second quarter. But I guess maybe in the second half, at least, if the business is picking up, maybe -- you may have to rebuild some inventory and enhance working capital. What do you -- what's your outlook here for the free cash flow? From the free cash flow side, would you be confident to say that you expect to be able to generate cash this year?

Pia Alexandra Aaltonen-Forsell: Well, I think it's pretty much -- where we stand right now is still a good balance. I actually think that we already during Q2 might have a little bit of investment into working capital, particularly if we consider some of the seasonality, some of the maintenance breaks in Europe during Q3, etcetera. There's probably a bit of buildup that we will at least try to do. Let's see now -- I mean, this is a tight situation following the strike just to rebalance the system in Europe here again. So I would say, in terms of working capital, what I would expect is somewhat of an investment, particularly towards the end of the year. I would not call or deem this material. Our working capital is at the level of about €900 million right now. In some earlier sort of top years, we have been a little bit over €1 billion. The fluctuation will not be hundreds of millions. But certainly, from what I see right now, I could imagine that we would go €100 million up from the previous year. And that still remains to be confirmed by Marc-Simon as kind of the plans for the remainder of the year, get more clarity. And then, I think this CapEx figure is quite clear. So then, it's really up to the recovery then of the market and how results can pick up towards the end of the year. And I think that's really what we need to observe. So it's definitely still possible but I think it's too early to give the prediction for the end of the year, given just that the market development will be a key to that. And as I said, the market development is also depending on some very sort of big macro events such as, for example, lowering of interest rates, etcetera.

Bastian Synagowitz: Okay. Excellent. Very clear. And also from my side, all the best for your next steps.

Operator: The next question comes from Moses Ola from JPMorgan.

Moses Ola: A few from me. So firstly, please, just on the delivery impact, so the impact on deliveries in the first quarter from strike direct impact in Europe and Americas, is it possible if you could just quantify what that direct impact was, please?

Pia Alexandra Aaltonen-Forsell: I think there's -- maybe sort of big picture, I can give a little bit of a flavor for that. We initially thought that we would be able to increase our volumes quarter-on-quarter with maybe roughly 10%. And what we saw here in the end that we were pretty flat quarter-on-quarter. And that impact was really more from Europe, sort of the downstream impact, including Americas can be then visible to some extent in the second quarter. So that's sort of as much as I can say. I think the mitigation actions that we did that also took the strike impact in total, down from €80 million to €60 million, are those that are then also benefiting Q2 so that the Q2 impact, the downstream impact is not as harsh as we initially thought.

Moses Ola: So within the 5% to 15% higher quarter-on-quarter guidance, that still relates to the Americas as well, despite the downstream impact that you've expected?

Pia Alexandra Aaltonen-Forsell: It does. You're right. Absolutely.

Moses Ola: Okay. And then, just second question is related to the Americas market. So given the ongoing weakness in Mexico and the lower pricing environment, do you feel that there is perhaps maybe a risk into the U.S., given Mexico is a key supplier into the U.S.? So if you look at the import share of deliveries for the U.S. from Mexico, in your experience, do you see that could become a risk over time if the lower pricing environment in Mexico is retained?

Heikki Malinen: So far in the past, we have not seen that flow through. So at the moment -- of course, cannot forecast about the future but at least at the moment, we're not getting a signal from our own organization saying that would be a concern.

Moses Ola: Okay. And then, just finally on the Ferrochrome business, so you've reported the deliveries separate from production which is useful. And I see in 2023, you built up around 50,000 tonnes of Ferrochrome stock. And even into this quarter as well, production outpaced deliveries. Do you feel that your current utilization rate is still appropriate, given still the weakness in downstream demand? And how do you expect that inventory -- how do you expect to work through that inventory into the rest of the year?

Pia Alexandra Aaltonen-Forsell: I think we will see some lower inventories already at the end of Q2. Where we are right now? I think we have the -- one of the smaller furnaces is temporarily closed and that's planned to continue until August. And I think with that, we are balancing the system and sort of finding a pathway here to a more optimal inventory. I would just say with much of the uncertainty that there has been with this sort of rapid movements, strikes, all sorts of issues, of course, there is probably sort of a bit of a higher inventory level that we want to maintain long term compared with maybe very low historical values. But nonetheless, I would say from where we see the inventory at the end of Q1, we still expect it to be somewhat lower at the end of Q2.

Moses Ola: Okay. That's understood. And wish you both the best on your future endeavors.

Operator: The next question comes from Maxime Kogge from ODDO BHF.

Maxime Kogge: My first question is on the plan to expand cold rolling in capacity to align it in the U.S. with your hot rolling mill agreement at your melt shop capacity. Are you still on track to take a decision by early 2025? I think that was a deadline that was previously mentioned. And what do you think of the project in the current environment?

Pia Alexandra Aaltonen-Forsell: Yes. Absolutely, Maxime. Thanks for the question so that we can talk about it. I think our underlying view of the U.S. as an attractive market certainly remains. And as I said before as well, we have already unlocked some capacity in this Phase 2 execution and now certainly sort of also await the moment when we can actually deliver that to the market. So our work continues in the background. And I think, of course, as always, if there's any relevant update, we will share it. But I think there's background work we need to do and the team is working on and we will continue to do that now. And it's sort of the February timeline then of next year that still is relevant at this point in time.

Maxime Kogge: Okay. And second on Mexico, is it fair to assume that you will remain there either loss-making or only barely profitable, given that you have no real competitive advantage? You've not integrated upstream. You suffer the competition from [indiscernible] imports. So is that country bound to remain in a difficult situation for the foreseeable future? Or do you see way -- you see room to revert the situation?

Pia Alexandra Aaltonen-Forsell: I almost believe, Heikki, you also want to answer but let me just first say, at least clearly from my side, I don't think we are at a competitive disadvantage. We are the only producer with locally anchored. And I think this sort of a situation, where there are global -- big global pressure and excess volumes somehow seek an outlet, this can also be mitigated by proper trade policy and kind of stabilize the situation. So I think there's probably a path forward which brings back the balance. But of course, right now, the situation is tough, as you have also alluded to.

Heikki Malinen: Maxime, thanks for the question. Somehow I feel like I'm looking at it completely different from another angle than you are because, as I said before, from a geopolitical standpoint, we believe Mexico will become a very fundamental place for manufacturing for the U.S. market and we will see less, for example, home appliances be produced in Asia for U.S. exports. Of course, depending on now who is going to be running the White House, time will tell what happens to U.S. import policy vis-à-vis Asia and China in particular. But we believe near-shoring or friendshoring, as they call it, will become a big theme. And long term, Mexico is an exciting place to be. And as I said, we're the only one on location. So I don't really see any disadvantage. I actually see a superior advantage for us. We can provide local support, local service, fast delivery and tailor-made customer demand locally vis-à-vis importing it from somewhere else. So I'm actually very pleased with our situation. But as I said, the import pressure at the moment is a bit of a headache. But I'm sure, eventually, that also will be mitigated like it's been solved in many other jurisdictions as well.

Maxime Kogge: Okay. That's clear. And just the last one on potential share buybacks because I think you still have a bit of buybacks to realize to fully cover the dilution from the convertible. So what are your plans in that respect, notably [ph] in terms of timing?

Pia Alexandra Aaltonen-Forsell: Yes. So you are correct that we currently have about 33 million shares in treasury and sort of currently looking at about 45 million shares that would be necessary for then the repayment of the convertible in July of 2025 and that still obviously remains sort of a tool. We could still use the share buybacks for that purpose. And of course, there are also then other ways of settling that. So, at this point, we have not announced more share buybacks. So let's see then probably for Marc-Simon to answer then in the next calls.

Maxime Kogge: Okay. And good luck both of you for your next endeavors and especially Pia [ph] with whom I had the pleasure to meet here.

Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Heikki Malinen: So thank you very much and once again, excited to have you join us here for this 1 hour. Let me finish you off with a couple of thoughts. So first of all, as I said, the first quarter started off pretty well for us. Unfortunately, we had the strike but it's now sorted out and we are on our way for recovery. We have also made a decision to raise our run rate target for Phase 2 from €200 million to €350 million to boost our returns. Secondly, we also made a comment that we feel confident that the Americas business area can deliver, under normal circumstances, €170 million -- sorry, $170 million adjusted EBITDA performance. And then thirdly, as a company and management and also the Board, we are committed to strong shareholder returns and we stick with the dividend policy. So, that is sort of the backbone of all of our doing. I look forward to seeing you again in the second quarter, in August, when we release our results. And as I said, wish also, Pia, all the best in your -- next part of your journey.

Pia Alexandra Aaltonen-Forsell: Thank you so much, Heikki. Thank you, all.