Welcome all to Outokumpu Heikki Malinen Q4 2024 Pre-Sale Call. My name is Linda Häkkilä, and I'm the Head of Investor Relations here at Outokumpu. With me today, as our main speaker, we have our CFO, Marc-Simon Schaar. As per usual, we will first start with our update, and after that, we are happy to answer your questions. But now, without any further comments, I would like to hand over to our CFO. Thank you, Linda, and thank you everyone for dialing into this call, and a warm welcome also from my side. Before we step into the holiday season, I would like to summarize the main points of the last quarter of this year. As you all have probably seen, we issued a profit warning last Thursday. Due to the adverse development in business area Europe, our adjusted EBITDA in the fourth quarter is expected to be close to break-even or turn negative. This is driven by the weaker-than-expected stainless steel market, longer-than-planned annual maintenance break at the Tornio site in Finland, and a negative inventory value impact. When we gave our initial guidance for the fourth quarter, we expected to have a deteriorated market environment for both business areas, Europe and Americas, and our order book was relatively thin. However, during the quarter, it became evident that the European market was actually even weaker than expected, as we saw adverse development within both our stainless steel deliveries and realized prices. Looking at the drivers of the profit warning, I can say that the majority of the negative impact is market-driven and, to a lesser extent, from our own operations. So why is the European market then so weak? It seems to be a combination of various drivers: high interest rates, economic and political uncertainties, as well as an overall negative sentiment are limiting industrial investments and decreasing consumer confidence, and therefore reducing consumers' ability to consume. Also, the Purchasing Managers' Index has remained at below 50. As a consequence, the manufacturing sector continues to be weak, and imports from Asia have remained on the same high level, meaning there is an increased competition from that side. Distributor inventories are slightly below average levels in Europe. However, given the low demand situation, their days of inventories outstanding is considered high. Some of the distributors started to bring down their inventory values by the end of the year, negatively impacting Q3 deliveries. We, however, do observe some distributor restocking in our order intake. As stainless steel is a highly competitive industry and we have faced even more challenging market conditions in Europe, we are taking strict measures and have a full cost mode on. It is crucial to improve competitiveness continuously, and we want to ensure our market-leading position also going forward. We are now in a very weak part of the cycle, potentially at the bottom, but the market recovery seems to be taking a bit more time than initially estimated. However, market upticks will come, and we are well positioned to take advantage of it. As a result of the weaker-than-expected market in Europe, we expect our group stainless steel deliveries in the fourth quarter to remain within the given range of 0%-10% decrease compared to the third quarter, but to be closer to the lower end of that given range. We stated in our release last week as well that we also expect to have some adverse impact from maintenance work. We had already before communicated the planned maintenance break in Tornio, as that is expected to have approximately EUR 10 million negative impact on our Adjusted EBITDA in the fourth quarter. However, the maintenance break was prolonged, and as part of the prolongation, and as a result, our maintenance costs in the fourth quarter are expected to increase by additionally EUR 5 million-EUR 10 million on top of the initial estimate. The delay relates to a design error by an equipment manufacturer of a replacement component in relation to the high-pressure system of our hot rolling mill. Now the work is completed, and our operations are running normally. At our Tornio mill in Finland, we also had a one-day strike last week on Thursday due to the union labor contract negotiations. However, as the strike lasted only for such a short period of time, the impact was only some million and is not a driver for the profit warning as such. In addition to the market impacts and maintenance, we also stated in the release that we are expecting to have some negative inventory value impacts. These very much refer to the raw material impacts and changes in inventories and should not be mixed with the net timing and hedging impacts, which we report separately every quarter. We will give more guidance on this in connection with our Q4 results publication in February next year. We have now been talking a lot about our development in business area Europe, but I consider it important as it was the driver for the release. In business areas, Americas and Ferrochrome, we have not seen a similar type of adverse development during the quarter. The situation has not changed since we published our Q3 result in October. For business areas, Americas, if we move over here, we remain committed to our earlier communication in connection with our Q3 results that the market has continued to deteriorate. We do know now the outcome of the U.S. elections, which caused quite a lot of uncertainty in the market, but it's still too early yet to comment on any impacts. The post-election political stability has not yet resulted in better demand as far as we can see. However, we are very well positioned to Mr. Trump's new term in office as we are a local producer in the United States. Looking at the overall demand for business area Americas, it is low, and especially in the United States. It seems that the industry is living hand-to-mouth with buying only what is absolutely needed. Distributor inventories are low, and we have not yet seen any clear signs of restocking. Most buyers are neither buying imports nor domestic and simply waiting to see how things play out. The sentiment overall is weak, and the next big wait-and-see event appears to be the inauguration. If we then look at the imports in the U.S., imports remain still high in both the United States and Mexico. Regarding business area Ferrochrome, if we move over, we have not seen any deterioration. We delivered a solid result in Q3 as the demand for our low-emission Ferrochrome remained good despite a weak overall Ferrochrome market. We ramped up our third Ferrochrome furnace already in October, as communicated, in order to optimize our energy consumption. Now, as part of our guidance, we also stated that assuming the current raw material prices that we saw then, we expect to realize some net of timing and hedging losses in Q4. As we have not yet obviously closed our books and are still in the middle of December, I'm not able to provide any detailed updates on that at this point in time. Then, maybe as a last point, I would like to say a few words about cash flow and net debt. We will continue and further strengthen our actions to manage net working capital, and we are aiming to push down our inventories, and with regards to our net debt development in the fourth quarter, it is well under control, but we do expect to see a slight increase given the market dynamics, which I explained before. Also, I would like to emphasize that our liquidity position is strong, and it is expected to remain that way. With these words, I would like to close my short introduction and start the Q&A session. Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Please stand by while we compile the Q&A queue. Our first question comes from the line of Tristan Gresser from BNP Paribas Exane. Please go ahead. Your line is open. Yes, hi. Thank you for taking my questions. Maybe first on the guidance, just to clarify, so there will be some timing losses that you guided for back in Q3, but on top of that, you'll see also an inventory negative impact in Q4. Are you able to quantify that impact of the inventory? And I believe this is largely due to the nickel falling. Is that correct? Hello, Tristan. Thank you for your question. So to answer your first part here, yes, it is coming on top. That is what I can say at this moment. In terms of magnitude, as we have not closed the book yet, I'm not in a position, and we'll come back then in our release in February next year. And then when it comes to the drivers, of course, that very much relates also to the timing of the purchases and as such. But at this point in time, unfortunately, I'm not in a position to give any further comments on that one. Okay. So the hedging loss and the raw material loss, that's the reason why you could still be either break-even or negative EBITDA in Q4. Is that fair? No, that I think we can't say. There are a couple of other elements still which is then driving the result. Okay. And just to follow up on the net debt guidance, slightly or up, was that slightly up quarter on quarter? Just to confirm, the CapEx guidance isn't changing any other cash elements you would point for Q4, and would you still expect a mid-double digit? I think that's how you characterize the working capital release in Q4. So on the working capital, the net debt comment I made before is driven by inventories or working capital as such. Again, it's the result of the market situation which we have seen. However, it's also very important that we remain committed to our strict capital discipline over here, and we continue working on an efficient working capital level. Okay, but you're still going to see a working capital release in Q4. Is that fair? Against the third quarter? In the fourth quarter, would you still see a working capital release? Going forward, we aim to release, yes, but expect that net debt level to be slightly higher than. Slightly higher. Okay. And last question. Okay. That's very helpful. Thank you. And last question for me. I mean, since Q3, obviously, Trump has made some threats about tariffs and notably Mexico. I think we touched on last earnings call, but if you can maybe from your angle now, the flows between Mexico, how would that potentially impact your business? And have you started to address, I don't know, the U.S. administration or the Mexican administration to see if there is some room of maneuver there? But interested to have your thought on the Mexican-U.S. border situation into the coming months. Yes, very good point. I think it's yet too early to say really on the impact and also of the likelihood of the tariffs and also of the timing and the length of the tariffs being in place. As I mentioned in our last call in the webcast as well, that there is only a minor volume coming from Mexico into the U.S. But overall, we look at our business from a global perspective, and we are then, whatever the situation is, being well prepared to address any of the topical outcomes. But it's yet too early to comment or to speculate on the potential items which I just mentioned. Okay. Thank you very much. I appreciate the answers to my question. Thank you. Thank you, Tristan. Thank you. We'll now move on to our next question. Our next question comes from the line of Bastian Synagowitz from Deutsche Bank. Please go ahead. Your line is open. Yeah. Hi, good afternoon all. Thanks for taking my question. My first question is actually on the market situation and actually maybe starting off with Europe here. So I mean, obviously, you've been going through the high-level drivers of why the market is weak, but I'm more curious what specifically has been the demand dynamic throughout the fourth quarter. I mean, when we look at Fastmarkets transaction prices, it seems like after having seen a bit of a recovery move, I would say for the last couple of months, I guess the November prices have started to slip. So I mean, are you seeing that really there has been a very strong sort of change in trend throughout November into December now that the market has, after actually stabilizing, maybe recovering again, faded and actually corrected strongly in Europe? Is that what you have perceived as well? And if so, what do you think has been driving this? Would it just be general cautiousness and again, restocking, or what has the situation been? That's my first question. Okay. On the market situation in Europe, I think on the pricing side, I'm not in a position to comment anything going forward, but just would like to remind my earlier comment I made that the market situation is driven both by the demand and the price side as well, which we have seen here so far. But then if we think about the current situation, we definitely see as a part of the typical cycle that end of the year distributors and also customers are also cleaning their inventories, reducing their inventory stock levels. And again, as then also driven by a typical seasonality, then going forward, Q1 or the first half of a year is typically stronger. I think that is as much as I can say at this point in time, Tristan. Okay. Got it. And sorry, I'm not sure I probably caught your earlier comment. Do you already see any signs for at least a small rebound into Q1 in your sort of early Q1 order book, or is it just too early to say? That is just too early to say, and that is also part of why we gave further information to the market on Thursday. Got you. Okay. Understood. Okay. And then just again, walking through the bit, I mean, if you sort of, I guess, we look at the situation in terms of also the change guidance, I guess the European ferrous operations will obviously be probably barely break-even, most likely negative, maybe even if we back out the maintenance item. And I guess the fact that Tornio obviously has one of the most competitive, if not most competitive assets in Europe, the fact that that is not profitable on a cash basis is obviously very worrying. So is imports part of the issue here as well, or is it really mostly domestic demand? I think it's a combination of both. It is the domestic demand, but also from the public available information which we have seen. I think we reported on higher import levels in Q3, and referring back to my earlier comment, those have stayed at that or expected to stay on that level for Q4. I mean, when you look at the, I guess, the initiatives now launched in Europe yesterday to potentially tighten the safeguard measures, is this something you're banking on in terms of at least fixing the import in-gate, or is there anything else which makes you a little bit more comfortable on the European side with regards to import? Because again, when we look at Europe, in principle, you could call it three and a half big players, and there is a market issue, but certainly, I think it's a reasonably consolidated market. So I'm wondering, do you think that the safeguard tightening would potentially help you? Yes, absolutely. That is definitely the case. But also when I look at the price differential between Europe and the Asian market as well, I probably see, I can't give you the exact timing, but a further improvement in the import levels even without these tariff discussions, which we really appreciate here and which are currently ongoing. And then last question. I mean, when you look at the demand side, I guess we've been taking obviously a big step down. Clearly, part of that has been a cyclical element. Part of that will also be, again, restocking, has been restocking. But I guess the question is how far that is actually structural. And I guess there have been more articles suggesting that obviously parts of this also maybe in saying this are possibly of structural nature. Do you see any examples among your customers, and if so, which end markets, where you really think that this could be really a structural softening with maybe demand maybe not coming back? No, no, I can't say that. I think this is really a topic of the further development around interest rates in here, then I think next one is how do German elections play out and what to expect from a potential new government, what are stimulus packages, potential ones playing a role over here, and I must say that also looking, we see the uncertainty in the market and people being cautious, but at some point in time, looking at the inventory levels throughout the supply chain, there is, as I mentioned also in what I said before, a market recovery to be expected. Okay. Understood. Great. Thanks so much. Thank you, Bastian. Thank you. Once again, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We'll now move on to our next question. Our next question comes from the line of Maxime Kogge from ODDO BHF. Please go ahead. Your line is open. Yeah. Good afternoon. So first question is on current lead times. Can you just tell us how long they are currently? Because I mean, it's a bit hard to understand the profit warning in the sense that I mean, when you did the guidance, it was already end of October. Considering there are like four-to-six weeks of lead times, I mean, we should have had the impact only in terms of sales, I mean, only from early or mid-December, but yet the adjustment has been quite steep. Yeah. So can you walk us through these elements? Yes. I think what is important here to take into consideration, Maxim, is what I mentioned earlier, is when we gave the guidance after the Q3 results, we have seen a very thin order book going forward, and the volumes have not come in that magnitude as being expected, basically. Yes, I think that's it. Can you give us more color on the various end markets? Do you see this weakness in the European market more driven by the consumer goods side of your business, or rather by the capital goods side? Yes, I think it's both. We need to see on the project business side, same comment as I mentioned earlier on interest rates definitely and interest rates have come down, but there is certainly a lag then as well before we see the impact and the backlog going forward support, so there is not a lack of projects or something like that. The pipeline is quite healthy, I would say. It's about the timing when the market really picks up here and also supported then by the interest rate cuts we have seen and also going forward to see further, and then on the end consumer side, I think here the topic of uncertainty, further stimulus being needed. There is no particular industry, I would say. Maybe what we can see at the moment is that while everyone is talking so much about automotive and we hear the news from the automotive sector that the demand is compared to that level we're operating in. I'm not saying that we're operating in a high demand level, but given the switch from a higher demand for hybrid cars in here, which require more stainless steel consumption, that is probably something I can highlight here. Do you see your advanced grades actually resisting better than the rest of the portfolio? I've noticed not necessarily so. Sorry, can you repeat your question? Yeah. Do you see your, I mean, talking again about the sectors and markets, do you see your advanced categories, advanced grades performing better, resisting more than the rest of the portfolio? No, I wouldn't say so. As I mentioned earlier, projects currently being on hold, the pipeline being healthy, but it is still not yet really taking off at the moment. Okay. That's fair. And just the last one on ferrochrome, we see prices drifting down. And what should we take of the weakness here? Do you think it's due to the competition from weak Chinese prices, or is it rather due to low semi-finished steel demand in Europe? I heard there was also more South African production on the market. So what's your view on the dynamics here? Yes. I think overall what we can see is that there has been a very healthy level of chromite ore exports from South Africa to Africa to China and surprisingly high production, but the inventory levels are very high, the demand being very low as such that's driving the price levels on the ferrochrome market. And that is why I described the overall market to be weak. However, I would like to remind the special situation and strategic positioning of our ferrochrome operations together with our chromite ore mines and our CO2 footprint over here where we're able to capture a premium on our products. And that is also why I refer to a solid Q3 result over here and made also the statements then for Q4. Okay. And on this topic particularly, are you able to provide the share of your production where you can get a green premium? Is it basically broad based throughout the whole? We are not selling any ferrochrome without a green premium. Okay. That's helpful. All right. That's it, Biyan. Thanks for the precise answers. Thank you, Maxime. Thank you. Once again, as a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We'll now move on to our next question. Our next question comes from the line of Igor Tubic from Carnegie. Please go ahead. Your line is open. Thank you, operator, and thank you for the presentation. I just wondered, can you share anything more about your end markets and give some more color about what segments have been deteriorated more in Europe compared to what you expected? Thank you. Yes, absolutely. We don't see, I mean, I refer back to what I said on the automotive side, but other than that, don't see a very clear differentiation between the categories at the moment. So that's as much as I can say right now. Okay, and can I just ask you, can you just help me to understand what's included in the heavy industries that you have in your annual report? Is it trucks or yellow goods, or what's included in there? Hi, Igor. This is Linda speaking. I can get back to you with regards to those categorizations if you want to have a more detailed discussion around that. Okay. Thank you. That was all for me. Thank you. There are no further questions at this time, so I'll hand the call back to Linda for closing remarks. Thank you, operator, and thank you everyone for participating in our call today. Before we close the call, I would like to remind you that we will start our silent period on January 14th and will continue until we publish our Q4 results on February 13th. Thank you now once again, and happy holiday season. Yes, indeed. Also from my side, happy holidays and Happy New Year, and then looking forward to see you all back then in February next year. Thank you so much, and stay safe and healthy.