Earnings Transcript for SSAB-B.ST - Q4 Fiscal Year 2023

Per Hillstrom: Good morning and welcome to this presentation of the SSAB Year End Report. Another relatively strong year for us. Together with us presenting today is President and CEO, Martin Lindqvist; and CFO, Leena Craelius. And if we look at the agenda, we will have Martin starting by summarizing the year and the quarter, And then Leena, as always, will present the details on the financials. And then at the end, Martin will come back with the outlook. And then, we will also have good time for questions at the end of the conference. So by that, please, Martin, start your -- the presentation.

Martin Lindqvist: Thank you, Per and good morning. Start with some highlights in 2023. We had another strong year, not as strong as the record year last year, but still SEK 16.5 billion in operating result. We continue to generate strong cash flows. We had a cash flow before dividend -- net cash flow before dividend of SEK 16.2 billion and that gives us also a very strong cash conversion. We continue to develop our safety performance. We have, as you know, and we have talked about it before, the ambition to become the safest steel company in the world, we are not there really yet, but we are progressing. And I would say most of our major sites closed 2023 without any lost time injuries. We continue to lead the green transition. We have seen commercial shipments of SSAB Zero during 2023, and we continue with the pilot shipments of fossil-free steel and the transformation of the new Nordic assets have started now with the transformation in Oxelosund, then I will come back to that. If you zoom in then more on Q4, it was impacted by maintenance in both Special Steels, Europe and Americas, and we also saw, both in Q3, but also in Q4, a weaker European market. And we saw profitability going down in all three steel divisions sequentially compared to Q3. If you look at some business highlights and start with the high-strength steels or Q&T advanced high-strength steels in Q&T, we saw stable prices despite the weaker market. Special Steel prices were down 2% versus the record level in ‘22. We also saw that customers were more and more buying from stocks, favoring short lead times due to the uncertain environment. We saw a continued good growth in advanced high-strength steels to automotive, where we were outperforming the general steel market volume-wise. And we are, as you know, the world leader when it comes to the [indiscernible] advanced high-strength steels, especially for cold forming. And that is, of course, also helped by the introduction of SSAB Zero and the fossil-free journey that paves the way for new businesses. So we are into new platforms, working with new OEMs, and that volume will continue to grow the coming years. Another strong year on the US plate market. We increased our market share to 31%, 1 percentage point compared to ‘22. And, as said, we had a successful ramp up of the SSAB Zero production in Montpelier during the year. And we launched SSAB Zero as a new unique product in ‘23. That is a product based on recycled steel using fossil-free electricity, bio carbon, and bio gas. So no emissions, and we are not using emission offsetting or mass balancing allocation schemes. So this is 0.0 kilo carbon dioxide per kilo of steel. We had the ambition to produce and ship more than 40,000 tonnes in ‘23. We ended up shipping and producing 50,000 tonnes. And we have seen a huge interest for this product, not only on the European market, but also globally and especially, I would say, in US, and I will come back to that. And this is, of course, also one of the platforms to leverage future growth. When we look at partnerships, we, during Q4, announced three new partnerships. One, together with Scania, where we will decarbonize all steel deliveries from SSAB to Scania’s heavy-duty vehicles at the latest 2030. Sandvik, another important partnership, where they will use fossil-free steel initially in the production of their loaders and trucks, very important partnership. And then GE Vernova, that are now producing wind towers with the lowest carbon footprint in the wind industry using SSAB Zero. So three very important partnerships during Q4. And, we see, as said, strong interest from customers for these more environmental-friendly plate products in the North American market. We also see that the underlying demand is helped by the federal programs that drives investments in, I would say, especially energy and infrastructure. And on top of that, the demand for melted in America favors local producers. So when we look at the demand, the US plate demand, we expect that to once again, in mid-term reach historical peak levels of around 10 million tonnes, so very positive view on the North American plate market medium to long-term. We continue to run our transformation. Oxelosund is the first mill out where we are building now the electric arc furnace, and that will be up and running 2026, and then we will close the blast furnaces and the coke oven batteries. We have the environmental permit in place. We have secured a power allocation. And in January, just this Monday, we actually got the final permit for the power lines approved as well. So we are following our plan, and we had the start of the construction work in November visited by the Swedish Prime Minister. We have also now in January gotten the power allocation for our transformation up in Lulea. So I would say that to sum it up, so far so good. We are following our plans and keeping to our ambitions. With that, Leena, I hand over to you for financials.

Leena Craelius: Thank you. Let us start by looking at the steel shipment performance. As the graph is illustrating, the outcome in Q4 was 1,491 kilotonnes, which was deviating 19 kilotonnes from Q3 and 11 kilotonnes from last year or the previous year, Q4. So rather stable performance in this comparison. And if we briefly do the analysis versus the outlook we gave, we were indicating Special Steels to have the stable volumes and Europe and Americas somewhat lower volumes. And the outcome was that Europe and Americas was relatively stable, while the Special Steels was 11% lower and the reasons being that the demand in the European market was lower than anticipated. To mention on top of that, we did have some logistic challenges at year end related to weather conditions, and that was causing some delays in Special Steels and Europe division. Then if we look at the revenue performance, SEK 26.5 billion in Q4, which was then drop of 10% compared to Q3 a 13% compared to previous year. And again, if we do a quick analysis compared to the outlook that we gave, we were indicating that Special Steel’s division will have somewhat lower prices. Europe division is significantly lower and Americas lower. And the outcome was that with Special Steels, we were spot on with the outlook, while Europe division was slightly better compared to outlook and Americas slightly lower compared to outlook, driven by the market price development. EBITDA performance, Q4, SEK 3.4 billion compared to SEK 5.3 billion in Q3 and compared to SEK 4.6 billion in previous year. So let’s have a look more detailed analysis in the quarterly comparison. We start by comparing Q4 operating result of SEK 2.4 billion, with Q3, SEK 4.4 billion, the drop of SEK 2.6 billion. And as you can see from the graph, the biggest impact was with prices. All divisions had lower prices in Q4 compared to Q3. Biggest impact coming from Europe division and Americas, which both were contributing slightly below SEK 1 billion negative impact, while Special Steel division was still holding prices slightly better and the impact was less than SEK 400 million. Volume was 19 kilotonnes lower, and this was coming mainly from the Special Steel division, as already commented. Variable cost, Nordic mills had lower raw material and energy cost, and they were contributing positively, while the scrap and alloys in Americas was slightly higher during Q4. Fixed cost, negative impact, but that was mainly due to the more extensive maintenance activities during Q4 compared to Q3. We had maintenance activities in Oxelosund, Mobile and Raahe strip mill, and on top of that, smaller maintenance activities at other sites. Also to bear in mind, that Q3 is seasonally lower when it comes to personal cost. That is the holiday season and Q4, thus more normal quarter when it comes to personnel related cost. Minor impact of the FX related to balance sheet reevaluated items and the capacity utilization also giving a negative impact, with lower production, which was then again mainly related to the annual maintenance outages. We were also running a bit lower pace to keep the inventory levels in good control for year end. The other in this graph is related to insurance compensation in US, which was actually related to the incident during ‘22 with the burn through in the furnace. Then if we compare Q4 ‘23 versus previous year, the drop is SEK 1.4 billion and again, fairly similar graph as previous slide, biggest impact coming from the prices. On average, prices were 10% lower during ‘23 than ‘22. The biggest impact coming from division Americas, with over SEK 1 billion negative impact, Europe division slightly less than SEK 1 billion impact. And again, Special Steels division holding prices better than other steel divisions. Also, Ruukki Construction and Tibnor had lower prices. Volume deviation, 11 kilotonnes, again related to Special Steels. And also in this comparison, the raw material in Nordic Mills, energy cost was lower than the previous year and scrap cost was slightly higher. Fixed cost, higher. We had more extensive maintenance during ‘23 compared to previous year. And also personnel costs slightly higher with the index increases. Also transformation office related costs were slightly higher. Minor impact with the FX and the capacity utilization in this graph actually positive impact. We had higher production in Q4 during ‘23. Just to remind that 2022, we had the blast furnace repair in Raahe and the other similarly related to the insurance compensation. If we then have a look at the cash flow performance, table comparing year-on-year, quarters and full year and maybe just to pick some things from Q4. First of all, of course, stating that good performance with working capital, targets set in the divisions to reduce the inventories, the targets were met, good performance by the organization. The acquisition of shares and operations was related to [indiscernible], acquisition done by Tibnor. And the contribution to affiliated companies was related to hybrid. And on a separate line item, you can see the purchase of owned shares, which is then related to the share buyback program we started at the end of October. Briefly comparing full year performance. Lower earnings were well supported by the positive impact in the working capital. Other is related to purchases of CO2 emission allowances. Previous year, we were swapping forward, and this year, we were purchasing more of the allowances. Strategic investments, slightly lower than previous year, but this is not related to any delays in the projects, rather the timing of the costs. And we were indicating that we would be spending SEK 5 billion CapEx this year, but we turned out to spend only SEK 4.5 billion. But these costs will be moved forward to next year. And as in the report stating, we estimate to spend SEK 5.5 billion next year. Dividend paid close to SEK 9 billion and the purchases of owned shares, as already comment, related to share buyback program and the net cash flow performance was close to SEK 6 billion, which is then leading to net cash position, SEK 18.2 billion. The frameset for the share buyback program was SEK 2.5 billion, and we will continue the program during Q1, and we will finalize it before the coming AGM in April. And the idea is to propose to renew the mandate for the share buyback program also next year. The dividend proposal is SEK 5 per share, and this would mean around SEK 5 billion payout in the second quarter this year. Raw material view, iron ore as well as coking coal prices were increasing during Q4, as did the scrap price picking up towards year end, leveling out in January. And the outlook for Q1 is that the cost of consumption when it comes to raw materials is somewhat higher. And I will end my part with this maintenance cost estimate updated for this year. The difference compared to ‘23 is that, we will have more extensive maintenance in Americas at the Montpelier mill. Last year, we had the maintenance in Mobile mill, but this year, it will be in Montpelier and a bit more extensive maintenance in Lulea coming summer, but otherwise, fairly similar timing-wise and plan-wise with maintenance this year as well as the last year. And then I give it back to Martin.

Martin Lindqvist: Thank you, Leena. So looking into the near term future and the coming quarter or Q1. When we look at the market, we see that the underlying demand is fairly stable with two exceptions. We expect or I would say that construction is also stable, but on weak levels, especially in the Nordic region. But heavy transport in Europe slowing down from very high levels, slowing down a bit positive in US for railcars and vessels. Automotive, signs of the slowdown in Cardamom in Europe, but structurally growing advanced high-strength steel markets, and as said, are into new platforms, into new OEMs, ramping up in front of fossil-free and zero deliveries. Construction machinery, more mixed pictures, strong demand and stable demand in North America, slightly weaker in Europe and China. Material handling, stable demand, mining and recycling, energy, very good demand for wind power and other renewables, especially in US, which is, of course, a very important segment. And then the swing factors, Steel service centers, I would say neutral underlying, but potential for some restocking in Q1 compared to Q4. So when we sum it up, we expect to see seasonal improvement, which we typically see in Q1, both for Europe and Special Steels. In Q4, we’re, as Leena mentioned, impacted by planned maintenance. We will have no planned maintenance in Q1. And we guide for significantly higher shipments in Special Steels, higher in Europe and Americas, and somewhat lower prices in the three steel divisions. And the market prices or the spot prices started to increase again end of Q4, end of December. And we will have some delays as always in that, because we only sell on quarterly prices, half year prices and yearly prices. So we will have some delay, but the market prices will impact the realized prices with a certain delay, as said, typically between half and quarter and one quarter. So if we sum it up, I would say that ‘23 was a good year, good level of earnings. Q4 planned maintenance and weak European market, continue to generate strong cash flows. Cash conversion, which is one of the internal KPIs came out very good at 107%. We continue with the share buyback program. And as Leena said, the Board will propose to the AGM to pay out SEK 5 per share in dividend, which is exactly 40% or around 40% according to our financial targets. We continue to lead the green transition into fossil-free steel. All required permits in place for the Oxelosund transformation, Also now the power allocation in place for Lulea, and we continue to see strong demand for SSAB Zero, actually, stronger demand than we were hoping for. So that’s very positive as well. So all in all, we closed a good year and good performance, and we continue to focus very much on low profit becoming more and more flexible, more and more agile when it comes to costs, continue to develop the product mix into more stable products. And that work is far from over, and we will continue to work with that as continuous improvements. And that will, in relative terms, continue to strengthen SSAB. So with that, Per.

Per Hillstrom: Thank you. Thank you, Martin and Leena for the presentations. And now we can open up for the Q&A. And before that, just to remind people, it’s perfectly okay to ask more than one question, but please state them one at a time to make the process run a bit smoother here. So by that, I will ask the operator now to present the instructions. So, operator, please.

Operator: Thank you so much. [Operator Instructions] And now we’re going to take our first question and it comes from the line of Adrian Gilani from ABG Sundal Collier. Your line is open. Please ask your question.

Adrian Gilani: Yeah. Hi. A couple of questions from my end. I guess, first of all, I want to start in Europe with, I think most of us expect a negative operating profit here and you surprised us on the upside. But looking into Q1 with somewhat lower prices, but on the other hand, higher volumes and no maintenance, do you expect that that profitability can be maintained in Europe into Q1 as well?

Martin Lindqvist: Well, as you said, we guide for volume and prices, and that’s what we guide for. But we saw that spot prices in Europe started to move upwards towards the end of Q4. And then, as I said, we will have, as always, some lag you saw that on the downside. You also see that on the upside. So we have a certain lag in the P&L due to that we are selling the majority of the volumes on quarterly contracts.

Adrian Gilani: Okay. I understand. Then a bit more of a long-term question. Also, I know you don’t guide for CapEx more than one year ahead, but given that you are now going to be taking the investment decision for the first mini-mill at some point this year, Can you say anything about whether we will start seeing much of that CapEx already in 2025 or are we talking sort of ‘26 and beyond for that?

Martin Lindqvist: Let’s come back to that guidance when we are ready to take the decision. But we are lining up now to get the preconditions in place to be able to take that decision during 2024. So, so far so good and one important step was, of course, the power allocation in Lulea, but another very important step even though we have already taken the decision, was, of course, the final decision of the -- for the power line in Oxelosund as well. So, so far so good would be the conclusion.

Adrian Gilani: Okay. I understand. A final one from my end as well. Following strong cash flow now in Q4, you once again go below sort of the lower end of that given target that you set up. And given that you have the mandate that need to buy back SEK 5 billion in shares, is there any reason you chose to sort of not increase that’s the ongoing program that you have right now?

Martin Lindqvist: No. But we took the decision of the Q3 when we were reaching the financial targets, and now we’re aiming to pay out around SEK 5 billion as well. So you should expect us to stick to the financial targets and act accordingly. And as Leena said, we, the Board is planning to ask the AGM for another mandate or for long mandate and I guess we will try to do that most of the years or every year. So, I think we have the instruments to tackle the balance sheet if and when it becomes too strong.

Adrian Gilani: Okay. Thank you. That was all for me.

Operator: Thank you. Now we’re going to take our next question. Just give us a moment. And the question comes from the line of Alain Gabriel from Morgan Stanley. Your line is open. Please ask your question.

Alain Gabriel: Yes. Good morning. Good morning. Thank you for taking my question. I have three of them. Firstly, the pricing in the Americas, the price outlook seems to be a bit out of sync with the prices reported by plants. How can we reconcile the divergence there? And can you give us some color on the near term market dynamics? And in the US, you’ve clearly elaborated in the medium to long-term, but how are you seeing it in the short-term given the lower lead times? That’s the first question. Thanks, Martin.

Martin Lindqvist: No. But I think we are positive to the US plate market. And if anything, I mean, prices are -- spot prices are moving up a bit now from very high levels. So we are positive, both short-term, mid-term, and long-term. And as a market leader, I think we have benefited, of course, from the strong underlying demand. And then, of course, one important part is this, SSAB Zero steel that we are now shipping and producing in US and the huge interest for that. And that is also helping us to grow market presence, grow interest from new and existing customers, of course, and that is very positive both short, mid and long-term.

Alain Gabriel: Thank you. My second question is slightly longer-term, I guess LKAB has taken over the implementation of hybrid. It’s true that you have access to technology, but why is this sudden change in strategy there? And how can you ensure that you get your fair share of the economics when it comes to securing green sponge iron when your largest shareholder is sitting on the other end of the bargaining table?

Martin Lindqvist: No. But as you know, Hybrit is a joint venture together with LKAB and Vattenfall. We said from the beginning that we will optimize the synergies within the value chain and share the synergies in a good way. And it makes a lot of sense For LKAB to build a pilot plant up by their mine in [indiscernible], and we will get the volumes from that pilot plant. So I’m not worried about that. So I think for SSAB and for the joint venture, is a very positive thing.

Alain Gabriel: Thank you. And last a quick question is on the insurance payment in the Americas. Can you reiterate how much you said was the insurance payment in Q4?

Leena Craelius: It was around SEK 200 million.

Alain Gabriel: Thank you very much. That’s all I have. Thanks.

Operator: Thank you. Now we’re going to take our next question. Just give us a moment. And the next question comes from the line of Krishan Agarwal from Citi. Your line is open. Please ask your question.

Krishan Agarwal: Hi, thanks a lot for taking my question. I actually, if I can. The first one is on Europe. So I mean, the volumes in the Q4 was better and then you’re guiding for significant increase in the Q1 as well. Can you walk us through which of the industries that are contributing to the positive outlook on the volume? And then have you taken the possible restocking into your guidance for the Q1?

Martin Lindqvist: But Q4 is always and especially, I would say, the second part of December is always hard to predict. And typically, what you see, if spot prices are moving down, apparent consumption or apparent demand is very slow during the second half of December, if spot prices are moving and companies are typically restocking. And typically, you see restocking in Q4. But if prices are moving down, you see that more pronounced. Now spot prices started to move up towards the later part of Q4 or second half of December from very low levels, but still. And then you typically don’t see that, call it, destocking or as pronounced as when prices are moving down. So it was more effect of that apparent demand slightly better than we feared.

Krishan Agarwal: Understand. And the second question is on the Special Steel, where I mean, the guidance -- medium-term guidance is 1.5 million tonne prices are still holding better. 2023 you’re running at 1. 3 million and probably, some of the volumes will come back up in 2024. So does it sound kind of a positive thing for the pricing given that the mix will get better and then the spot is still holding well? Is that a fair way to look at the Special Steel pricing dynamics?

Martin Lindqvist: Sorry, Krishan. We didn’t fully catch you there. Were you asking about the second quarter prices or?

Krishan Agarwal: Special Steel.

Leena Craelius: In general, I guess.

Per Hillstrom: Special Steel for the second quarter.

Martin Lindqvist: Or in general?

Krishan Agarwal: No. In general.

Leena Craelius: In general. The pricing.

Per Hillstrom: In general.

Leena Craelius: Pricing mechanism.

Martin Lindqvist: No. But, I mean, Special Steel price or prices for Special Steel products, they are much more stable over the business cycle than any other prices, and I think that is visible if you compare ‘23 to ‘22. And then there is always, of course, a mix within Special Steels. I mean, typically, we have stronger prices on stock sales than direct mail. If you take Hardox 500 Tuf, the prices are much higher than for Hardox 450 and so on. And so it’s a mix within there as well. But overall, the prices and the margins are much more stable and should be much more stable over the business cycle. And then, of course, when we see a slowdown in Europe, you can see some volumes or you can see a volume drop which is fairly typical, but that usually comes back. And if you look at Special Steel’s long-term, we have since 2000 been able to grow the volumes with 7% to 8% per year on average. Not every year, but some years, slightly more, some years, slightly lower. So it is, volume-wise, still volatile but slightly volatile, but the overall trend is 7% to 8%. And that is what we are expecting as well going forward as an average or around that number with more and more, call it, stable margins and stable prices. So that’s the whole business model, and that’s also an important part when we talk about mix shift in our product portfolio. So every kilo we can have into 500 Tuf, will make a huge difference compared to other kilos or other volumes.

Krishan Agarwal: Understand. And then the third and the final question is on the timing of the buyback. So Just a clarification from my side. You have the accrual for the 10%, while the SEK 2.5 billion is almost like 5% something like that. So, once you finish the SEK 2.5 billion buyback, should we assume that the next round of the buyback will automatically get started or you will have to have mid quarter announcement or something like that?

Martin Lindqvist: No. But you should expect us to finalize the buyback program of SEK 2.5 billion. And why did we choose SEK 2.5 billion. It was a combination of things. I mean, we are sticking to our financial targets, and we want to give you confidence and that we are sticking to the financial targets. And then also there are limitations how many shares we can buy all the traded volumes. And the traded volumes are typically a little bit lower in December and so on. So SEK 2.5 billion until the next AGM was a good number that we will execute on. And then as the Board is planning to ask the AGM for a renewed mandate. And if they get that, we will come back if and when we launch the next share buyback program. So, no drama, it’s fairly, I would say, straightforward, at least from my point of view.

Krishan Agarwal: Yeah, yeah. Yes, yes. Understand. Okay. Thanks a lot.

Operator: Thank you. Now we’re going to take our next question. And the question comes from the line of Johannes Grunselius from DNB. Your line is open. Please ask your question.

Johannes Grunselius: Yes. Hi, everyone. It’s Johannes here. A few questions. My first question is on your comments about significant better volumes for Special Steel Q1 versus Q4. If you can elaborate a little bit what’s behind this, any particular end segment? Or is it more about the inventory cycle? And also perhaps if you can give us some idea what you mean, because significant is, I guess, more than 10% up right?

Martin Lindqvist: Now, that’s the definition we have. And, I mean, it’s seasonality. It’s -- we don’t have any, maintenance outages. We had it both in Mobile in Q4, and we had it in Oxelosund. So I would say, the underlying trend is definitely there, as I said we expect the underlying trend to continue with, call it, 5%, 6%, 7%, 8% growth over time per year will differ between quarters, will differ between years, but we see no reason to doubt the underlying trend, and that’s what we expect, and that’s what we see on the market. And then we are guiding for the volumes in Q1, but it’s a combination of seasonality, strong good underlying demand and no maintenance outages at the Special Steel mills.

Johannes Grunselius: Okay, got you. Then I have a question on advanced high-strength steel. Apologies if you said this before, but I might have missed it, but could you remind us about the share you had of AHSS steel in the fourth quarter and how you see this ratio is developing because you’re heavily alluding to good growth there?

Martin Lindqvist: Maybe, Per, you have that.

Per Hillstrom: Yeah. Johannes, you can see in the slide, the total shipments for the year, and those are fairly stable over the quarters. And we can come back also with the number, but that will give you an idea of roughly how much. If you divide it by 4, roughly also what --

Martin Lindqvist: Sure. So what we see when we come -- when it comes now, we are launching a number of new grades and new products for these advanced high-strength martensitic steels, we have also invested in capacity in the continuous annealing line in Borlange that we are ramping up. And as said, this, SSAB Zero in the fossil-free journey and the partnerships with big OEMs has also helped us into new platforms. So we are quite positive when it comes to the development of automotive volumes in the coming years.

Johannes Grunselius: And on the Zero products, that’s my final question actually. I think you said here in the presentation, 50,000 tonnes delivered this year. How do you see that for the next few years? And maybe more emphasize on 2024. And if you can remind us about the premium, if that has changed compared to what you’ve indicated before?

Martin Lindqvist: No. We have the same premium. And the problem we have or the problem -- the challenge we have is, the bottlenecks are bio coal and bio gas. And to get enough of that, the demand is clearly there, and I’m really happy that we managed to do 50,000 tonnes with a target of producing at least 40,000 tonnes. And I’ve said to the American organization that we should do whatever we can to increase the volumes, because the market and the interest is definitely there. So and now we are, to be honest, allocating volumes to customers, unfortunately. We are working hard with bio coal and bio gas to get the precondition in place. And as we have said before, we invested a year ago in Montpelier quite a lot in order to be able to do this. So it has been -- actually the interest has been beyond my expectations which is positive.

Johannes Grunselius: Okay. Interesting. But how much can you actually make practically of this product?

Martin Lindqvist: As I said, it will depend on volumes of bio coal and bio gas. And we are working hard with that.

Johannes Grunselius: Okay, okay. Thank you.

Martin Lindqvist: Because I said, I mean, we are taking a very hardcore definition. So it’s 0.0 kilo carbon dioxide per kilo steel. No mass balancing, no allocations. So this is the way we have defined it and the way our customers and partners like to see it.

Johannes Grunselius: Thanks.

Operator: Thank you. Now proceeding to next question. And the next question comes from the line of Patrick Mann from Bank of America. Your line is open. Please ask your question.

Patrick Mann: Good day, Martin, Leena, Per. Thank you very much for the presentation. I just wanted to ask about the Nordic transformation plan now. Am I right that with the power allocation at Lulea now, that’s probably the preference for which one it gets invested in first, I seem to remember that was the preference, but, possibly power allocation meant you might have to go for Raahe first? Is that not an issue anymore? Is it now fully up to just the economics of the investment case as to which one goes first? That’s my first question. Thank you.

Martin Lindqvist: That’s a very correct description. Now we have of the preconditions in place with the exception of, of course, environmental permits, but that is -- work is ongoing both in Finland for Raahe and for Lulea. So we wanted to have them standing at the same starting line. So we were -- so we will be able to take the best financial decision. I mean, look at the RFEs, look at the payback, look at the internal rate of return and what makes most sense. And that stage, as you said, we have reached now during Q1. So that’s very positive. So now we will be able to take that decision during 2024, how we sequence which one we actually start with. And that’s positive. That was not the case last time we met. Then we knew that we wouldn’t -- the formal answer was that we didn’t have any power allocation for Lulea. Now that’s in place.

Patrick Mann: Okay, great. Thank you for that. And then the second question is just can you remind us with Hybrit how the contribution will work from the JV partners and when you would expect to put anything in there? And what do you think that could be? Thanks very much.

Martin Lindqvist: No. But as Leena said, during Q4, I think we paid --

Leena Craelius: SEK 20 million.

Martin Lindqvist: SEK 20 million or something as contribution into Hybrit. And we are continuing to running these pilot trials and developing the IT, sending in patent applications and so on and learning more and more day by day, quite interesting findings in this very important R&D project. But the good thing is that, we are not just doing R&D. We are actually using also, as you know, the volumes coming out from the pilot plant to produce pure fossil-free steel and shipping that to customers like Volvo, Volvo Cars and others so they can start to prototype and even do low serial productions of fossil-free or equipment produced by fossil-free steels. So it has been really, really a positive development so far.

Patrick Mann: Okay. So just so I’m a 100% clear, so with LKAB deciding to build the plant next to the mine, that’s on their balance sheets, on their books. There’s no capital call on SSAB. Is that right?

Martin Lindqvist: That’s not the current plan. No.

Patrick Mann: Okay. Thank you. Got it. Thanks very much.

Martin Lindqvist: But the volumes will go to SSAB.

Patrick Mann: Yes. Yeah. Yeah. Got it. Thank you.

Operator: Thank you. Now we’re going to take our next question. And the question comes from the line of Andrew Jones from UBS. Your line is open. Please ask your question.

Andrew Jones: Hello. Hi. Just as a follow-up on the earlier question about US play lead times. I mean, clearly, they’re pretty low at the moment. I’m wondering what your expectations are for the demand pickup you would expect to see from some of this IRA spending. I mean, I’m guessing not much of that is in the current demand stats. But, could you give us an idea for what sort of demand uplift you expect through 2024 and, how we should think are phased and, like, when do you expect to see that pickup in demand really coming through? Thanks.

Martin Lindqvist: As I tried to explain in my presentation, my part of the presentation, we -- the combination of things, I mean, inflation reduction act is favoring infrastructure and energy. It will be bridges. It will be wind tower. It will be offshore wind. It will be a lot of other areas that are smack in the middle of the plate market. And that in combination with the requirements of not only produced in Americas, but also melted and Americas leads us to believe that it’s far from impossible that we will see the US plate market coming back to historical peak levels of around 10 million tons, and that’s what we are expecting to see in the coming years. Exactly when that happens and how this will be phased quarter-by-quarter is, of course, impossible, but we have a strong belief in the North American plate market.

Andrew Jones: And just but nearer-term, do you expect some further deterioration in spot prices in the coming months, potentially before that demand comes through?

Martin Lindqvist: What we see right now is spot prices moving up into Q1. And we are also guiding for higher volumes in Q1, and that’s what we are guiding for. And as said, I mean, the spot prices started to move up late Q4, and that’s why we have a bit of a delay in the P&L, which we typically have. But apart from that, no drama at all on the market. And we need to remember that, if you compare plate prices and plate margins spot -- on spot, they are moving up from high levels. And our capacity utilization has been, if you compare, with overall the North Americas steel market, it has been quite good in relative terms.

Andrew Jones: Okay. And that’s clear. Thank you.

Operator: Thank you. Now we’re going to take our --

Martin Lindqvist: Coming back to that once again and with the risk of repeating myself. Once that we’re on top of Inflation Reduction Act and all the others is, of course, the launch of SSAB Zero and the huge interest of SSAB Zero also in the North American market.

Andrew Jones: Thank you.

Operator: Thank you. Now we’re going to take our next question. And the question comes from the line of Christian Kopfer from Handelsbanken. Your line is open. Please ask your question.

Christian Kopfer: All right. Thanks for that. Just a few questions from my side. Firstly, on the balance sheet, I can see in the balance sheet that you take -- I mean, you have exceptionally strong net cash position, obviously, but you still carry some SEK 6 billion in long-term debt. What’s your thoughts about that? I mean, [indiscernible] take that down significantly. I guess, you have to pay a lot of interest on that?

Martin Lindqvist: No. But we have positive financial net, as you see. But I mean, we have decided that it is prudent for us to have as one example, a sustainability linked bond that is appreciated by the market and by investors and so on. And you could always, of course, argue about that. Do we really need to carry any gross debt at all with the balance sheet? But that is decision. And we think it is important, and that helps us also in discussions with investors and so on. And it seemed like a positive thing. But, of course, we have a strong balance sheet and we are not yet mentally used to that being a problem, but we are trying to be clear and try to stick to our financial targets. And that’s why we launched a share buyback program. That’s why we -- the board is also proposing a dividend according to the financial targets. So you should expect us to stay true to the financial targets and act accordingly. And then we just want to make sure that we have all possibilities to do that.

Christian Kopfer: Yeah. All right. Then on the realized prices in Europe was definitely better there. And I expect it here. And I think you said it as well --

Martin Lindqvist: There is all now you know that, Christian, it’s always a slight delay, and it’s hard to predict exactly how that delay comes. But when prices are moving down, they are slightly slower to move down in our P&L and vice versa. And that’s what we saw, I guess, in Q4 in Europe, and that’s what we are guiding for in Q1 as well. That delay factor, which is typically half quarter or a quarter.

Christian Kopfer: Yeah. And then for -- maybe one follow-up on Special Steels. Well, my feeling is that, this area continues to, call it, outperform when it comes to prices versus your guidance or expectations or is that fair or to say that? Or is it that because previously you have said that in your guidance, you’re not including mix. And as I remember, Martin, you always talk about that you should more or less or always continue to improve mix over time, not quarter-over-quarter, but over time.

Martin Lindqvist: And that --

Christian Kopfer: Is that also what we are seeing, to be honest?

Martin Lindqvist: No. But this is what we are seeing over time. And as I said, I mean, there is -- if you take one of the, I would say, many very promising products that are now ramping up, the Hordox 500 Tuf, Of course, the prices are higher than for a Hordox 450 steel. Hordox 450 is an excellent product, but Hordox 500 Tuf is something completely different with good -- very good bendability, very good weldability. We can compare to Hordox 450, maybe decrease the weight with another 30%, 40% or up to 40% we can decrease spendings. We can decrease -- so there is a huge difference. I mean, of course, when you sell thinner and thinner and more and more high-performing plates there will be, call it, less tonnes than compared to standard products, but the profitability per tonne is very different. And, of course, the stability or the volatility is much, much lower. So that’s the day-to-day work that you’re referring to, and that’s what we internally call when we focus on low point profit. Mix improvement, cost efficiency, capital efficiency. As I said, we measure cash conversion and so on. And it’s -- I wouldn’t call it a daily struggle, but we call it continuous improvements, try to do things slightly better today than yesterday, slightly better this week than last week. And that’s a never ending story, and we are far from done and still see potential. And that’s what you will gradually see. Not huge differences quarter-by-quarter, and sometimes we will see -- might see a slight backlash, but as I said, we have been able to grow the Special Steel volumes with 7% to 8% for now more than 20 years. And we expect to do that over time. And then, of course, we need to invest and we need to do the bottlenecking and so on. So but that comes with it.

Christian Kopfer: That’s great. Finally for Leena. I see that you managed to release a lot of working capital for 2023. Of course, you tied up a lot in 2022. But on the point where you are now, call it, rolling four quarters or whatever. We see continued potential to take out working capital? Or will it be tough from here?

Leena Craelius: Well, quarter one usually is the season when we are also restocking, to mention that we also --

Christian Kopfer: Just talking about over time. I mean Quarter one just over time.

Leena Craelius: Over time, of course, we want to improve, as Martin already said, that continuous improvement. But if we compare now the outcome in the ‘23 and then plants going forward. For sure, still try to push the improvement through. But just to comment that Q1 is usually the one the quarter when we are also restocking. And this is going high up, so it will have an impact in the accounts pay or the receivables. So we don’t see the performance to continue on the Q4 level.

Christian Kopfer: No, no, no. Of course. But I just looked at what -- the amount you tied up in capital in 2032 was more than SEK 8 billion and you freed up -- you freed some capital of SEK 4.8 billion that’s what we guide -- that were just, should we be able to return to the level that you were by end of 2021 when it comes to working capital all the time?

Leena Craelius: All the time, yeah.

Martin Lindqvist: But I mean, we need to remember that ‘22, the war in Ukraine started, and all of a sudden, we had to find new sources for PCI coal for a lot of other things. And in that turbulence in the beginning, we did what we thought was right at that time, and I still think it was the right decision. We had to qualify new product -- new materials. We had to buy from new vendors, we had to buy more than we needed. And then as we have talked about during ‘22 and ‘23, it takes some time to sweat it out. But and the cash conversion for ‘23 was 107%. You should not expect us to have cash conversion above 100%. But we should be coming better and better when it comes to working capital efficiency. And then, of course, the biggest shift will be when we have the mini-mills up and running, because then we will be able to release a lot of working capital -- work in progress and so on. So, but it is, as Leena said, part of the continuous improvements.

Christian Kopfer: Yeah, got it. Thank you very much.

Operator: Thank you. Now we’re going to take our next question. And the question comes from the line of Bastian Synagowitz from Deutsche Bank. Your line is open. Please ask your question.

Bastian Synagowitz: Yeah, hi, and good morning all and thanks for taking my questions as well here. I just have two quick follow-ups actually. The first one is on the pricing dynamics in Europe. And I guess, Martin, you’ve been outperforming your own pricing guidance in Europe quite a few times in a meaningful way over the last few quarters. I guess you’ve been talking about these pricing legs, but would you say that, I guess, in the context of the price -- current price dynamics in the spot market, I guess, also given the fact that usually automotive is actually one of the very strong sectors in the first quarter that your pricing guidance for Q1 may again be a little bit on the conservative side? That is my first question.

Martin Lindqvist: I mean, we are guiding, as said, not about mix, we are guiding about prices and what we expect -- what we see and what we expect to see in the order book. But, of course, as I said, we expect to continue to see good demand for our automotive products, and they are not standard products. They are niche products, advanced high-strength steels. So we expect to continue to see that those volumes being much more resilient and growing over time. So then how that exactly will play out in Q1 or a single month or a single quarter is, of course, hard to predict. But over time, you should see that effect.

Bastian Synagowitz: Okay. I guess most of your peers would see typically like a seasonally lower fourth quarter in auto and then like a pretty strong pickup actually into Q1. But you say that, that is difficult for you to say at this point?

Martin Lindqvist: No. But we are guiding for a seasonally stronger quarter in Q1 compared to Q4, volume-wise.

Bastian Synagowitz: Okay.

Martin Lindqvist: Then as said, we have a certain lag when it comes to prices when they are realized in the P&L compared to where the spot market prices are moving. But we also need to remember that in Q4, we were -- I mean, if you take into account the average cost, marginal cost for emission rights, we were and that is typically for a standard euro -- for average European producer is around EUR 200 per tonne with the current emission prices. And we were at just above EUR 400 per tonne or so for hot rolled coils, which is typically or historically at least has been around the rock bottom prices.

Bastian Synagowitz: Okay. All right. And then my second question is just on the timing for the decision for Raahe and Lulea, I think last quarter you said that you expect the feasibility study at least for Raahe, I guess, to conclude in the first quarter. Could you give us a bit more color on, like, when you actually expect to decide on whether you go ahead with Raahe or Lulea? I mean. This is something which you basically have in mind for the first half, maybe second quarter or rather later this year?

Martin Lindqvist: No. But I think we have said that during the first of ‘24, and we still stick to that. So no updates. I mean, we are working with the feasibility studies for both Raahe and Lulea. And as said, what is new compared to when we met last quarter is that, now the preconditions with, as I said, the exceptions of environmental permits both for Raahe and Lulea is in place. We know that we have power allocation. We will have a power line in place in both Raahe and Lulea in time, so to say. So it’s ongoing work and no changes. So I mean, as I said before, we wanted to have them standing at the same starting line and then look at the calculations and sequence them in the best possible way for SSAB long-term.

Bastian Synagowitz: Okay, great. Thanks.

Operator: Thank you. Now we’re taking our next question. And the question comes from the line of Tristan Gresser from BNP Paribas Exane. Your line is open. Please ask your question.

Tristan Gresser: Yes, hi. Thank you for taking the question. Just two quick follow-up and maybe I missed that. But I saw your guidance for CapEx for next year well, this year at 5.5. Could you provide the total cash needs for the year, including interest and taxes?

Per Hillstrom: Yeah. We didn’t include a slide, Tristan, but we said also I mean, you have the CapEx, and then, Leena, we don’t expect anything on interest, really.

Leena Craelius: No.

Per Hillstrom: Plus or minus.

Leena Craelius: Minus.

Per Hillstrom: And then we have the tax, and that will depend on the result. So you have the CapEx needed and then you have some tax payment. That’s what we look at.

Tristan Gresser: Nothing specific to flag there, okay.

Leena Craelius: No.

Tristan Gresser: And my second question is on the Special Steel business again, so, yeah, the volume -- could you discuss more precisely a bit the demand trends you’re seeing by end markets, notably the mining segment. And just wanted to confirm then review with the volume, the starting point you will have, do you view the 7%, 8% volume growth is still a likely scenario for this year? But yeah, first, maybe a bit of color on the demand volume market given the weakness you’ve had.

Martin Lindqvist: But we saw a weaker demand in Europe during Q4 and during the second half. We see other regions with stronger demand, but, overall, the underlying demand is increasing. I mean, the interest of gaining productivity with lower weight, higher payload, less fuel consumption and so on is definitely there, even maybe more pronounced than historically. And then on top of that, the possibilities when we can start to produce fossil-free and Zero Steel in Oxelosund 2026 also gives a lot of possibilities, and these partnerships with big blue chip companies, big OEMs using also a lot of Q&T is positive. So I’m saying that we -- when we look into it, we see no reason at all to doubt that we will continue to grow over time in the same, I would say, phase or the same pace with the same pace as we have seen historically. Then that can differ one year compared to another -- the previous year or one quarter compared to previous quarter, but the underlying trends are definitely there. And we are not working with a static product portfolio either. And that’s why I’m talking about 500 Tuf, which is a fairly new product now that is ramping up on the market. It has been there for a couple of years, but it always takes time to ramp it up. But now we see possibilities. We see, unfortunately, you can say from another perspective we see in volume -- interest for Armox and armored plate growing around the world. So the structural underlying demand is definitely there. And then when we can introduce new and more advanced products and products where we are clearly unique like the 500 Tuf globally. That also helps the growth. And then, of course, we need to match that with the bottlenecking in further investments, and we have been investing quite a lot in Mobile to take up capacity. So it is, in that sense, an iterative development, but it goes hand in hand. And we don’t want to have -- I mean, we will continue to grow capabilities and capacity in line with how we are building the market.

Tristan Gresser: Okay. No that’s clear. Maybe a quick follow-up then just to clarify. So you’re not seeing that weaker demand in Europe further deteriorating into entering 2024. Is that correct? Is it stable? Or it is the weak performing --

Martin Lindqvist: The parent demand is, of course, so dependent on a lot of other things. I’m talking more about the underlying real demand and the growth of real demand. The parent demand will be impacted by geopolitical turbulence, by problems with freights, not being able to use the Suez Canal and so on. So that will be ups and downs. It will be dependent on weather conditions, a lot of other things. But I’m more talking about the structural underlying demand growth and there we haven’t changed our mind. We are still very positive.

Tristan Gresser: All right. Thank you very much.

Operator: Thank you. Now we’re going to take our next question. And it comes from the line of Moses Ola from JPMorgan. Your line is open. Please ask your question.

Moses Ola: Hi, everyone. Thank you for taking, my question. I just have two questions here, please. I’ll take them one at a time. So first one, again, it’s also just on the pricing outlook. Obviously, your guidance here in Europe is a bit more cautious. But I just wanted to actually more discuss on the overall pricing power that you see here in Europe. You’ve talked about how you see potential demand risks from ongoing geopolitical tensions, specifically at the Red Sea. But do you actually also see that that perhaps can contribute to lower supply here in Europe due to lower imports. And in that scenario, do you believe that the pricing power here in Europe can be strong despite a weaker demand? That’s my first question.

Martin Lindqvist: For standard strip in Europe, we don’t have any pricing power, to be honest. We follow the general price trend. Then the power we have is to continue to improve the mix. So we are following the market price development when it comes to strip in Europe and that is typically led by ArcelorMittal and others. And then, of course, that pricing power is, of course, dependent on, as you said, the import volumes and things like that. So I don’t have a clear answer to your question, but our pricing power for strip in Europe is very limited. And then in the Nordic region, we have somewhat of a pricing power due to proximity, due to quality, and so on and but it northern -- or call it the Nordics is still a reflection of the general price in Europe. But as said, I mean, the prices bottom out at levels that has at least historically been trough levels. Because you have to, nowadays, also add the marginal cost of emission rights, because there is no steel company in Europe having 100% or free allocations covering 100% of the production capacity. And that’s why we also saw a weak quarter like Q4 this year and -- Q4 2023 and also Q4 2022, we saw companies idling blast furnaces.

Moses Ola: Thank you for that. And then the other question I had was just into your AGM. Obviously, you’ve already talked about seeking a mandate for share buyback, but also with the ongoing progress at Oxelosund with FID due at Raahe and Lulea and the opportunity to bring low CO2 steel volumes to market, do you view now it could be the right time to further strengthen the links between your CO2 emissions targets with executive compensation? Is this something that you will also be looking to present to shareholders at the AGM?

Martin Lindqvist: That’s already implemented in the long-term incentive program. So there we have targets not only on TSR and relative TSR, but also on volumes of SSAB Zero.

Moses Ola: Okay, good. Anything in terms of guiding towards the actual CO2 reduction targets themselves or more on the volume side?

Martin Lindqvist: No, it’s more about the volumes. I mean, we know the CO2 reduction. We will take away roughly 1.5 million tonnes of carbon dioxide emissions in Sweden 2026. And then when we do the first mini-mill, we will take away another, is it 2.5 or something, million tonnes. So that’s -- I mean, that is what we have promised to execute. And then finally, we will take away all 10 million tonnes of carbon dioxide emissions that we are emitting. So in the LTI program, the way it’s structured, it’s one component, call it -- I wouldn’t call it an ESG component, but quality sustainability component then is the volume of SSAB Zero.

Moses Ola: Okay, understood. Thank you.

Operator: Thank you. Now we’re going to take our next question. And the question comes from the line of Cole Hathorn from Jefferies. Your line is open. Please ask your question.

Cole Hathorn: Good morning. Thanks for taking my question. Just like to get some color on what you’re seeing in your auto contract negotiations for 2024. And then following-up on the last question regarding shipping impact into Europe. Do you see any impact from the shipping potentially supporting prices or as another derivative potentially supporting your customers looking at getting more safety stocks or kind of building some of their supply chains for steel at all? Thank you.

Martin Lindqvist: I think, what we see is, we clearly see, I would call it, for more I wouldn’t say only standard products. But for more standardized products, we see more and more regional supply and a bigger interest since the COVID, since the war in Ukraine, since the turbulence in the world, we see more and more interest of regional supply in Europe and other parts the world. In US, it’s pretty obvious with this demand of melted in Americas. So the import is still visible, but is, I would say, less and less of a factor. And then the first question.

Per Hillstrom: Sorry, Cole. Can you repeat the first question?

Cole Hathorn: I’m just wanting to know any color you can provide on your annual auto contract negotiations?

Martin Lindqvist: No. But we don’t guide for that. We guide for the coming quarter. But what we are into, I mean, we are gradually growing the number of platforms. And as I said, the number of OEMs where we are in, and that’s why we expect the volumes to continue to grow in a decent way the coming years. But commenting -- we don’t comment on what do you call it, price negotiations. And we just comment on realized prices the coming quarter.

Cole Hathorn: Thank you. And then maybe just one follow-up. I mean, on the demand for SSAB Zero, am I right to assume that the majority of that customer demand is from the auto end markets? Or are there other areas that are seeing the pull through demand for SSAB Zero? Thank you.

Martin Lindqvist: No. But, our guess was that, both for fossil-free and Zero would be mainly Europe and only automotive. Now during Q4, I think or beginning of Q1, we saw the first building built in the Nordics out of fossil-free steel. So construction yes definitely very interested. Heavy transport, lifting, wind towers, I said. So if anything has surprised us in a positive way, it has been a huge interest from many regions and many segments that we didn’t really put into our, call it, calculations. So it’s much broader than automotive, but a strong interest from automotive, definitely. But, I mean, if you take even now as one example, building now, wind towers out of SSAB Zero or you see railcars and tank cars built out of SSAB Zero, you see construction equipment built out of SSAB Zero, you even start to see now bridge contracts asking for fossil-free steel or SSAB Zero.

Cole Hathorn: Thank you.

Operator: Thank you. And now we’re going to take our last question for today. And it comes from the line of Andrew Jones from UBS. Your line is open. Please ask your question.

Andrew Jones: Hi. Just a follow-up on the Red Sea issues. I mean, you didn’t comment on the sort of impact on BO4 market, which I guess is probably a margin positive. But in terms of your costs for shipments out of Europe and in terms of sea freight, can you just remind us approximately what your costs were in the fourth quarter or maybe in 2023 overall in terms of sort of international sea freight? And if you have any sort of guidance around some cost pressure that you could see on the business coming from that issue and [indiscernible]?

Leena Craelius: I don’t have a figure to give for the sea freight cost regarding last year. But for sure, if we comment that, of course, these Suez Canal challenges is also impacting our cost when we import the raw material from Australia. But we don’t have now figures to give related to freight cost or estimates even.

Martin Lindqvist: But, of course, we are impacted as anyone else.

Leena Craelius: Yes.

Andrew Jones: Sure. Understood. Okay. Thank you.

Operator: Thank you. There are no further questions. I would now like to hand the conference over to our speakers for any closing remarks.

Per Hillstrom: Okay. Thank you very much. So this we can conclude the conference today. Thank you, Leena, Thank you, Martin. Thank you, the audience. Thank you for listening in. A lot of good questions. But thank you for us, and we wish you a nice day.

Martin Lindqvist: Thank you.

Leena Craelius: Thank you.