Earnings Call: Q2 2021

Aug 5, 2021

Hello all, and welcome to follow Outokumpo's Q2 2021 Results Webcast. My name is Linda Hekkela, and I'm the Head of Investor Relations here at Outokumpo. With me today, we have our CEO, Heikki Malinen and our CFO, Pialdon and Porcel. But now before we start with the presentation, I would like to remind you about the disclaimer as we might be making forward looking statements. But now please, Heike, the stage is yours. Thank you, Linda. Good afternoon, good morning to everybody and also from my side, welcome to our Q2 event here today. It's really a pleasure for me to present these results because after a very good start to the year in Q1, Actually, Q2 was even better. We saw good profitability improvement within the company Across all of our business lines. Interestingly, if you look at the first year first half year result at €400,000,000 This is actually the 2nd best half year results since the merger with Inoxum in 2012. So Really pleased with how things have progressed in 2021, especially compared to a really tough 2020 Yeah. Our strategy execution is well on track. I'll talk a bit about that. We are making I would say we're a little bit ahead of schedule there. And then overall, if you look at the results, I can say that we also benefited from the market tailwind. In many subsegments of our business, we saw a very good demand, We sort of added up even further to the good quarter. If we then jump to Let me jump to the next slide and just look at these figures here. So on the left hand side, you can see the bars on a quarterly basis, CHF223 million group adjusted EBITDA compared to CHF177 1,000,000 in the first quarter. On the right hand side, you can see the bridge. I think the main events here for the quarter were deliveries, which increased about 3%. Our capacity utilization It was very high. So 3% was sort of a fair number in terms of how full the plans were coming into the quarter. We also realized price improvements across all of our regions, which is the 2nd green bar. And then you remember in the Q1, we had quite material and substantial timing and hedging gains In the Q2, those we did not have them in the same manner, and that's why we have a red bar there. But overall, 2 2023, I feel that that was a good achievement from the Outokumpu team. As I mentioned, for us, of course, the very big goal that we're trying to reach here is to deliver on our strategy, Which was to get the €200,000,000 EBITDA run rate improvement by the end of 2022. We have a number of initiatives, which relate to The cost structure of our so called lean and agile initiative, which, of course, relates to our headcount, our plan to reduce Headcount by approximately 1,000 FT feet feet feet feet feet feet feet feet Es. In this area, I can report that we are Very well on track in terms of execution. About 80% of the initiatives have now been completed. And by probably Early of early 2022, we should have this stream pretty much ticked off. So obviously, an important part to Help bring our fixed costs down and also lower than the breakeven point of the company. In terms of cost and capital discipline, You know that raw materials are account for over 60% of our cost structure. It's very important that we're able to further improve our raw material efficiency, and I was very pleased with what the organization was able to do In terms of, for example, improving yield levels, making sure we have much less Reuse of material returns of material and scrap scrapping was less. So good work in that area. And then I would just say that I said a bonus on this, of course, was a strong market, good demand across all segments. So Ended up delivering then the results we can see now. The market has changed Quite significantly since Q4 of last year. It's evident in the long lead times we have. We are now, for example, in home appliances, we are now in the Q3 where demand continues to remain very robust. Our lead times are taking us into the end of this year, well, also in some segments into beginning of next year, which historically seen is I think it's somewhat extraordinary. But anyway, that is the market. Customers are clearly prioritizing supply. If one has extra capacity, there is clearly demand out there in the market. In terms of raw material costs, Nickel continued to be really volatile in the quarter. We ended up this the Q1, remember in March, Nickel prices fell quite substantially. Then they were flat for a while, and then they started to rise again as we headed towards the End of the Q2 and early Q3. So a lot of volatility there. We have also seen in many other metals, moly, Titanium, iron, etcetera, we've seen price rises, which in other words for us means cost increases. And we worked very hard to mitigate and keep those cost pressures intact. On the ferrochrome side, We saw the benchmark price rise as we came into the Q2. Of course, for us in the ferrochrome business, this is, of course, an Important part of the profitability story. Over the last few years, import penetration into Europe has been a very big theme, Especially when the market was really weak and imports were adding, let's say, a lot of oversupply into the market. And now when you compare the Q1 and the Q2 to each other, pretty much flat in terms of cold rolled imports into Europe. It seems that the situation has somewhat stabilized, which, of course, from the standpoint of having A stable market with a level playing field. This is sort of what we have been expecting from the European Union. And here you can see the measures that the European Union has taken. A very big decision, of course, was that the quotas We've remained in place now for 3 years. We were advocating that quite vocally that, that should be the case. The quotas will rise on an annual basis somewhat, but still the mechanism itself stays intact, and that is really, really important. On the antidumping side, the investigations by the European Union have led to decisions by the union, and there are now duties in place for India and Indonesia. And then finally, this very big decision by the EU to start pivoting to a much more climate friendly Carbon neutral world, that decision, of course, impacts the whole steel industry and us also to a large degree. One thing I want to raise here is that in the decision or the proposal that the EU has made, they have basically said that it will only include Scope 1 emissions. And you may recall that in stainless, it is Scope 2 and in particularly Scope 3, Which are sort of the big emission, let's say, pockets or tickets. And it's our view that Scope 3 Should definitely be included in the longer term when the EU proceeds with that. And then on the right hand side here, you can see that How the quotas were utilized in that in the last quarter and nothing major in that area to report. Before we go into the financials, I want to take a few moments to talk about sustainability. And the reason I raise this Today is, first of all, we believe that for Outokumpu in particular, sustainability is going to become a key competitive advantage. It is we're moving into a world where this theme will become a bigger and bigger issue. ESG, I've been being the headline. And I really feel that it's important that I just report to you a couple of things. Today, I'm going to show a few specific slides, I'll have a couple of more generic slides, but my plan here is that as we go forward into the coming quarters, in each quarter, we would like to report On some area of ESG where we have made progress. So what I want to talk about today is safety. It's, Let's say, part of the S, so to speak, in ESG. From this curve, you can see that we have systematically been able to improve our safety record. The figures for the first half, as you can see from this chart, are absolutely they're the best we have had in history. We have many plans in the Autocompo system where we have not had a single recordable incident for a long, long time. And it just shows, I think, that underlying inside the Outokumpu, let's say, system, there has been a remarkable cultural change so that people really take Safety, very seriously. It also shows up sort of in the way we operate. I personally, every month, I have a CEO safety call. I get reports of every single incident we have globally, and we share the best practices across the whole system. So it is really A key part of the CEO agenda to make sure that this trend continues and that people are safe when they work at Autokumpu. At the Capital Markets Day in May, we announced our plans To head towards or to develop the company towards this SPTI target of 1.5, We were we already had the 2 degree target aiming to reduce our emissions so that by within by 2023, We would have been able to achieve a 20% reduction visavisortoft2014, 2016 level. That target we will achieve. Now we have a new target by the end of the decade, working together with SPTI, Achieve that 1.5 degree level. But technically, that means for us about a 30% approximately reduction in emissions. And that will have an Impact on how we where we invest in the company and how we invest. And here you can just see the data on our emissions. I want to draw your attention to the box in the middle where you can see Outokumpu's total emissions in the value chain, 1.5 tonnes of CO2 per tonne of stainless. And then you can see the data for others. Compared to agents, for example, our emissions Are 80% less. And I come back to this EU Fit55 Fit for 55 CBAM policy where they only included Scope 1, Outokumpu, of course, includes all of these emissions. And We really would like to see the Scope 3 be part of the policy of EU in the future. And then finally, just want to highlight that We are actively participating in different types of benchmarking exercises that these organizations do. And we have been Globally recognized as being really a strong leader in sustainability. So I'll come back to this team in the coming quarters and always highlight something Which we think is relevant and important for you to know when you think about different companies from an ESG perspective. But now let's go to the Financials in more detail, and I'll hand it over to Pia. Please. Thank you, Heike, and Good afternoon and good morning to you all. I certainly hope you are doing well and keeping safe. So let's have a look at the financials here, Starting first with a few important key figures. If we first look at the stainless steel deliveries, you see we were very much here according to our Expectations, a small increase compared also with the Q1. But let's keep in mind that in the good demand situation that Heikki also has described, We are operating at really high capacity utilization levels, and therefore, I would say a good achievement here with these volumes In the quarter. And then if we look at some of the other key figures, the EBITDA of the quarter at EUR 220 €3,000,000 Nice round figure also if you combine it with the €177,000,000 from the Q1. So still improving there. And maybe from my perspective, really, on the group level as well, remembering that we had a fairly significant Timing and hedging gain in that Q1, and certainly, they are back to a sort of low level of that gain in this quarter. So operationally, I think we have really been improving throughout the Q2 here. Net result, that's €129,000,000 Then the operating cash flow here at €6,000,000 And I think that's Worth some further attention, I will come back to that and the working capital changes here during the presentation. Our net debt is down. We had an equity issue in the month of May, used that to repay debt, and that clearly impacted And really lowered here our net debt level. Leverage is now at 1.8%. And you remember that for the strategy Phase 1, we set the target of being at the leverage below 3x net debt over EBITDA or leverage. And I would say here, we have really been able to accelerate the improvements, and we'll come back a little bit to that as well in the presentation. And maybe then a final just confirmation of something Heikki said earlier, but looking here at the advancements in strategy When it comes to the restructurings, obviously, from the personnel number, we can now see that we are very close to the 9,000 level Already at the end of the Q2, and certainly, this gives good confidence that by the end of this year, we will be clearly below that 9,000 level. So let's have a look at the BA still with a bit more detail for each of them. Obviously, you see here our business area, Europe, where the EBITDA for the quarter reached €98,000,000 And just looking more first from the market perspective, you see that the delivery increase was maybe modest. However, we did have a good step up when it comes to prices. And I think this is really reflecting the stronger market environment where we are And first of all, just sort of taking a step back and trying to look at that market improvement, we are clearly still in this rebound phase From the very low COVID levels, that is for sure. And this sort of restocking cycle somehow Makes an attempt, but then again, if we look at distributor inventory levels, we can see that they are as they were in Q1, still at the end of Q2 as well, They are at even much lower levels than what they typically are, so lower than average levels. So these restocking attempts Are, I would say, still ongoing at this point in time. I think that's also visible from the order book going forward. I mean, we We practically are booking 5, 6 months ahead at this point in time. So we have a lot of visibility also Towards the end of the year and particularly towards Q3. And then when you reflect that Into the price here, a final point from my side there would be that even though it looks as if there is a Good price increase here realized in the quarter. Please keep in mind that this is only rebounding from very low levels. So if we just look at where the price levels are right now and back to some of the earlier graphs as well, I mean, we are still only rebounding from very low COVID levels there. Finally then, if we look at some of the other elements here, you see that there's a big negative from the net of timing and hedging. I mean, the figure itself was not very big in the quarter, but it was very positive in the Q1. So in that sense, this is more of a bridge impact that you can see here in this slide. Maybe one word more from the sort of risk side. Clearly, Through the quarter, and I would say increasingly through the quarter, we have seen that supply chain issues are also visible through Many of, for example, consumables that we are using or if we think about freight availability, logistics, etcetera. So it is clear That the whole market and the system is under more pressure. I think we have been successful in mitigating those. Also, if you look at the European figures, There's really not any inflation to really sort of mention in the realized figures here yet. But obviously, these are sort of Themes in the market that we continue to follow. But I would then like to really speak a bit more to the BA Americas. And here also, the market rebound from COVID is really visible and at the same time, a very strong macro environment generally in the market, particularly in the U. S. So I would say we are in a good market position right now. And that has clearly also been an opportunity for us To operate on a high capacity utilization level and to really give us that opportunity to have a good look At our portfolio, be able to address the number of leakages, continue with really, really important yield improvements, which gets Like more and more importance here as we are sort of fine tuning and fine tuning and improving and improving. And I think Overall, if I look at the result that we have here, €65,000,000 in the quarter, yes, We had a little bit of positive boost from net of timing and hedging as well, not as much as in the Q1, but still a good figure. But the underlying performance has certainly improved. And I think by now, with many quarters of positive development, I think we have also shown The strength of the underlying improvements that we have been working with over, of course, an extended period of time. But clearly, a very strong market situation here. Maybe a final word on the market situation. Also here, inventories at distributors remain at lower level than average as we speak. From the cost side, you can see that some cost increases have indeed already occurred, and that's, I would say, particularly highlight the freight costs here. That has been something where we have already observed prices going up. Okay. And then over to ferrochrome. And certainly, a different type of market here, very tight market still even as we speak, Looking at spot prices in China increasing, and I think it's important to look here at sort of both Size of the equation. So obviously, demand side is there as you look at the stainless and sort of observe the good market momentum there. But then from the supply side, I think certainly a number of issues have occurred. And I think that's still really impacting the market and the prevailing price level that we can observe. And you can see that also during the Q2, this positive Price improvements impacting our results. And then on the other hand, from our own internal performance, Some cost increases, some of them related to the overall €10,000,000 maintenance increase that we had Throughout the group, there is a small section here on ferrochrome, but certainly also a number of other fixed costs have increased throughout this quarter in And I think that's a bit of a mixed bag of several items. So maybe that's just worth a more general comment that you can see Overall, the cost increases here were negative, about €8,000,000 compared with the 1st quarter. And then finally, Long Products BA and yet again, especially if you look at the year on year figures comparing the Q2 of last Yes. Well, that's a very weak comparison point, but the delivery increase has been very significant. And if you look into the details compared with the Q1, You even see that this has really been sort of the core product offering of long products as well and less of the semis, the slabs, which is good also from here a mix perspective, certainly. You see also here in Long Products some cost increase, but I would Here, say it's clearly on the back of the growing volume. And overall, if I look at the success of the turnaround program that Long Products Management Working with I think we are making good progress there and actually, particularly on the cost side, have already made a lot of those advances, and they are already now baked in here in the figures that are clearly improved. Then let's change gears here a little bit and talk about our cash flow. So Maybe still the starting point, obviously, for the cash flow being that we have good profitability in the quarter, and that's certainly Sort of the first cornerstone here. We have a pretty significant investment into working capital. And If I put that into perspective, I would say during COVID, during particularly the year 2020, We were really driving inventories to very low points, reflecting the markets that was slower, the demand that was slower. And if we now compare the situation where we have seen an improved demand throughout the Q1 and into the second quarter, Obviously, gradually, we now try to build up a bit higher inventory position to be better able to serve our customers. So a part of this inventory increase for sure is something we would also like to sustain Going forward. But I just want to say that out of this Q2 impact, we had about CHF 96,000,000 of inventory increase, And 40% of that was purely from the higher metal prices. So even just comparing quarter on quarter and particularly if you look From a year ago or from year end, there is really quite a significant delta from the price level alone. Another important part here is obviously the accounts receivables. And if I just look from sort of the health of the business And the health of the balance sheet in particular, of course, I think we have extremely good control of our overdues. So this is really a function of prices increasing, volumes being strong through the quarter and I would say particularly towards the end of the quarter as well. So we clearly have realized a lot of sales where we now have the receivables building up. And then again, if I just look a bit forward And look into sort of the development into the Q3 and into the Q4 as well, Then clearly, I would say we need to be prepared to make some investment into working capital for the full year as well to be able to serve However, we still have the seasonality in our business that typically means that we build working capital in the first half of the year, and we have some releases in the second half of the year here. Well, you do see some other facts in this picture as well. I'll touch them really briefly. The provisions, obviously, on the back of the big restructuring that we are also now seeing, giving us some lower cost levels, but Clearly, there is a price to be paid for that. We have had quite significant provision payouts early in the year. So this will become a little bit easier towards the end of the year, but we still have some, I would say, maybe 20,000,000, twenty €5,000,000 remaining for the rest of the year there as well. And then finally, you can see our CapEx has been very much aligned with the annual target of €180,000,000 that we have here. And then from the strategy execution side, actually, I think Heikki really gave super good highlights, Obit. Still just looking at overall here, the elements of it. If I look at the 123 cumulative Run rate savings that we have until the end of June, I would first say restructuring is really The change that where the execution was very early in this program, and it's clear that we are now approaching about €50,000,000 run rate impact from That and that's also something that will sort of start to fade out now. What I mean is that we are starting to reach the targets that we set initially here. Another important portion of this is clearly what we call cost and capital discipline. So that's really the Cost side of the equation, we have here seen the improvements quite a lot actually from the melt shop and then also yield generally. But I would say sort of throughout the categories and the work that we are doing there on the cost side, and we are getting almost as much or almost CHF 50,000,000 as well then from this on a cumulative basis. And then from those commercial initiatives that we have described earlier, it is a little bit more than CHF 20,000,000 in this time period. So I really think going forward now, we will see more and more delivery out of the commercial initiatives, And we will also continue to see a strong delivery from the cost initiatives, whereas the restructuring is it's not yet fully done, But it's certainly we have reached most of the targets there already now. So generally, I would say, we have had A very prompt and actually even early delivery on many of these. And on the right hand side, just wanted to share with you The implementation pipeline in terms of the number of initiatives that we already have implemented, that's 707 And then 1,007 initiatives that we have in progress as we speak. And then maybe sort of a few concluding slides on the balance sheet side. I still wanted to recap first on the equity issue. I think it's also important to link that now To the lower debt level that we have and then also to the positive impact that we have to our cash flow and profitability As on a run rate basis, we are now able to lower our interest cost with €18,000,000 And we have also subsequently Seeing the Moody's upgrade of our credit rating, which certainly is also a good step forward. And then when you look at the net debt development here on this slide, you can see that we now reached the level of €897,000,000 At the end of the quarter. And just sort of linking back to my earlier comments about seasonality also from a cash flow perspective, Obviously, this is something where we will continue to ensure that we can deliver cash flow and continue to reduce the debt also throughout the remaining part of this year. And you see that our leverage here is at 1.8x net debt over EBITDA. And then my final slide really on the funding structure. Still think it's a super relevant thing, but happy to report, of course, that If you look at this slide, you see that we have extended maturities of our revolving credit facilities. We have a lower amount of Commercial paper issued at the moment, and you can see it in our debt maturity profile here, where clearly now a lot of the maturities into the year 2024. And you can also see that a fairly significant part actually of our facilities are undrawn at this point on time. And generally, from a debt structure perspective, I think we have a balanced mix of various instruments here. So with that said, I think a positive development when it comes to our Financing and certainly, we continue to be active in this area and fine tune and make sure that we have the best portfolio possible also on the funding side. So with the seasonal pattern, the European ferrochrome benchmark price remains stable at US1.56 dollars per pound for the 3rd quarter. Plant maintenance costs in the 3rd quarter are expected to increase by approximately €10,000,000 compared to the 2nd quarter. And With current raw material prices and exchange rates, significant raw material related inventory and middle derivative gains and losses are not expected In the Q3, adjusted EBITDA in the Q3 of 2021 is expected to be at a similar level Compared to the Q2. So that is the outlook for the Q3. And now Pia and I are pleased to take any questions you may have. Thank you. Thank you for the presentations, Heitje and Pia. Please, operator, we are ready to take questions from the line. Thank you. And the first question comes from Luke Nelson from JPMorgan. 3 from me. I'll take them 1 after each other. Firstly, on pricing and mix, the waterfall chart, Pete, you talked us through for Europe and Americas Maybe it looks like a bit more of a larger price effect than I was expected in those two segments for Q2. Can you maybe just talk about to what extent there was a mix effect helping within that the waterfall quarter on quarter? And then secondly, just in terms of underlying base price or price improvements, How much can we expect to see in Q3? You talked about more pricing to come. Can you maybe give a sense What we can expect in Q3? That's the first question. Certainly. Thank you, Luc. And first, on the pricing mix, I think the really short answer there would say that for Europe, it was really about pricing. And actually, We were not in a significant way improving the mix. So even, I would say, on the contrary, Maybe slightly weaker than in the Q1 overall. So in Americas, on the Other hand, I would say that we were able to do some optimization in this good demand situation, and it means for us Sort of from a portfolio perspective. So a little bit of actually positive mix there. Even though when we talk about mix in Europe, We really typically tend to talk about the value added grades, the progress, etcetera, how we can add them. And that plays less of a role certainly for Americas. But Within sort of the Americas portfolio, we have been able to make some improvements there. So I would say that would be sort of the short answer to it. And then obviously, when you talk about pricing going forward, I would say the visibility that we have obviously It's into the order intake. And certainly, I think our comments are also If you look at CRU data or any data out there, it's clearly visible that there has still been order or price increases also occurring during the And with the long order books that we have right now, I think it's just good to keep in mind that any orders that we would have booked in Q2, We would be delivering them towards the end of Q3 or maybe into Q4. In Americas, it goes a little bit quicker. It's between 3 4 months this lag. So there is like this whole sort of motion moves a little bit quicker there. But overall, just still keep in mind that we do have a number of longer term contracts that some of them even agreed sort of late last year. So that's why when you observe the improvements that we had during the Q2, I think that's it's just from the order intake, obvious, that, that sort of positive movement can continue also into 3rd. Okay. That's very clear. Thank you. 2nd question on inventory and hedging gains, which I think was around 7 €1,000,000 which implies a fairly big quarter on quarter headwinds. Can you maybe just break out what Was an inventory effect and what was a hedging or derivative effect? It just seems at odds with one of your peers That reported recently, where they guided to more of a positive effect in Q2. Yes. I would say sort of the timing component is here really. It's the bigger one clearly. And yes, I sort of I actually noted the same. So the hedging component is not big here. Sorry, I don't have fear on top of my mind, but sort of SEK 7,000,000 comes to mind As but just to say, the hedging impact was not significant at all. This was really more around what we call timing impact. And maybe to answer to your question because I did note the same, just need to say that, Of course, it depends sort of on the metals that you have and the particular impact, whether it's more nickel and whether it's more ferrochrome Or whether it's maybe more MOLI or something else even that we would have kind of built into our mix. And then it also just depends on where we have the inventory, when did we book it in, etcetera. So still keep in mind that the sort of gross value of the inventory is actually huge. Just look at the balance sheet, Talking certainly above €1,000,000,000 So even these small changes have a big impact. So I understand your question, But I think as you know, per se, the fact is we had more sort of the timing had a little bit more impact here than the hedging. Okay. That's clear. And then final question for me is just maybe more for Heikki on ferrochrome and more on The ferrochrome market, obviously, we're seeing a lot of changes, which I think you alluded to, Russia export tariffs, China issues in Mongolia, I think recently Zimbabwe banned the chrome exports as well. Can you maybe just give a sense around How you see this market developing over the medium term? Are you seeing any additional opportunities to extract small value? Obviously, The development at Kami will provide some optionality there, but sort of opportunities from a market perspective that we're not Otherwise, I'd be interested to hear your thoughts. Right. Thank you. Well, first of all, I have to say that coming into Q3 Yes. So coming into Q2, we were wondering how the ferrochrome price would ultimately develop because historically it has been quite volatile. I think at least we were somewhat surprised that the price the market really tightened again In the Q2 as much as it did, and that has seemed to continue even into the month of July through the supply issues. You mentioned Electricity power shortage, power cuts in Mongolia, the Russian attacks, different types of cybersecurity In South African ports and rioting and so forth, which all of that has sort of constrained further the supply of ferrochrome. Obviously, what happens in the 3rd Q4 will be, I think, very much impacted by supply side issues. If the supply constraints remain in place, obviously, that would probably maintain the situation as it is. However, if there is, of course, there is sufficient global supply of ferrochrome to meet the demand, So if those constraints go away, of course, then the market would be in a different level of balance. I think overall for Outokumpu, Our mine and ferrochrome smelting is running at full capacity. We are pretty much sort of near a point where we are maxed out. We are trying to, in our long term strategy, to readjust the mix So that we would have more value added even higher margin, higher value added ferrochrome grades. But I think in the short term, for this year, Those product development initiatives will not bear fruit, and we're pretty much going to be just sticking with our current product line. So I think Kind of the performance we had in the Q had in Q2 is sort of indicative of how the business is performing probably this year, but we'll see. Our next question comes from Carsten Rieke from Credit Suisse. 2 from me. The first one is actually on your ESG measures. As you mentioned, you want to invest in CO2 reducing measures. My question is, What will be the investments, at least monetary wise? And when will you actually recognize them in the CapEx? That's the first one. So, thank you. I want to revert to the conversation we had during our Capital Markets Today in May, at that stage, we indicated that we had just sort of made a decision. We have made Preliminary calculations about what the journey assuming that the 1.5 degrees will mean a roughly 30% reduction in CO2. So assuming that's kind of the baseline case, then we had calculated that This is probably going to be somewhere in the €300,000,000 to €400,000,000 range. We obviously are going to look at will the European Union want To contribute in any way to some of these investments, that remains to be seen. And also in some areas, we would see that some of our suppliers We'd be making the investments. And then, of course, from that standpoint, it would be sort of we would pay Through the price of the raw material or service, we will then cover that capital outlay. In terms of timing, I think it's realistic to say that we will use the whole decade for this journey. And I think in the strategy as we've launched it, we have been very explicit that for 2021 2022, Our focus is very much on just getting now the Kemi mine, deep mine investment completed. And we have some CO2 reduction initiatives underway For the next couple of years, but nothing major. So the more substantial investments will probably come in the mid, Let's say halfway through the decade and then as we head towards the latter part of the decade. That's the current view subject to change, but one thing is certain For 2021 2022, be at all, the CHF180 million CapEx, and we're sticking with that. Perfect. Thank you very much. The second one is probably one for Peer. Because you mentioned in your presentation a You can't fix cost increases. Do you see the cost inflation as a trend rather than a one off? Or do you think it will reverse? Yes. So I think what particularly happened in this quarter, if I'm sort of looking at the full group, It's also that we are recognizing somewhat higher SEI levels, somewhat higher production bonus levels. And also if I look to, for example, long products, It is clear that we have been able to ramp up some shifts, etcetera, to support the higher volume on a temporary basis. So I think the nature of these for me is not a trend, but rather recognizing higher production levels, etcetera, as higher production bonuses, for example. So not a trend there. I do think that we are observing like Extremely carefully what's happening in our environment because clearly, I mean, on a macro level, there is inflationary pressure. So I'm not sort of ruling out that there is pressure on the cost side. That could also be a trend going forward. But For these particulars, I would say no more of sort of particular events in the quarter. Okay. That helps a lot. Thank you very much. Thank you. Thank you. The next question comes from Ioannis Masvoulas from Morgan Stanley. Please go ahead. Your line is now open. Yes. Thanks very much for taking my questions. I'll start with the first one. As executive returns, you mentioned that you're looking to invest in working capital, particularly inventories. If we were to assume that spot market dynamics persist, What sort of investment should we expect for the full year, including obviously some of, I guess, the release that you're expecting Towards the end of the year. And the second question is around Europe. So if I look at EBITDA, we're still far below the 20 17 quarterly peak levels despite exceptionally strong base prices on the spot market and the headcount reduction that is progressing well. I appreciate the negative volume seasonality in Q3 and the fact that spot prices are feeding through with a lag. But could you give us a sense on when we should expect you see a step change in profitability in Europe should the spot dynamics persist? And do we need to possibly wait until the Q1 of next year? And I'll stop here. Thank you. Thank you, Janis. Indeed, first, let me address the working capital question. And I still think that there is there are a few things that we are Following up extremely closely before we take the final decisions on how we run the inventories towards the end of the year. And that's really also a lot to do with sort of the market Visibility into the Q1, which I think as per our earlier comments, I mean, we are clearly today at least Experiencing customers asking for contracts even into 2022. But as always, I mean, this is something we need to monitor really carefully. But let's say on the assumption that the market continues on a strong note, it is clear that if I sort of look at Let me just take it as sort of a euro amount. I mean, big picture, 2019, we brought home 2 €19,000,000 cash from working capital. 2020, we did the same and a little bit more. So it was like close to €250,000,000 that we brought home, Cash in from working capital. So we have significantly reduced those levels during 2 last years. Also at the same time, obviously, market Going down and down. Now if I look at the first half, I mean now in a better market situation, we have invested cumulatively €255,000,000 in working capital and really sort of the big ticket items from inventory with also a lot of value change and then the second big one from accounts receivable. And my sort of best assessment of it with the current knowledge that I have, but this is still subject The final decisions that we will take towards the end of the year, it is that for the full year, we will need to invest somewhere between €100,000,000 €1,000,000 So if the market is really strong, it could certainly go up even to €150,000,000 So that would imply that we would have a little bit of cash in from these in Q3 and Q4, but those would not be significant amounts. So I think that's sort of the order of magnitude where we can see it or where I can see it right now, but still sort of subject to Basically, like not from my perspective, not daily, but a weekly review of how things are proceeding. So maybe then further to the BA Europe question, I think that you did pick yourself on one really key item there, which is that The lag in when the pricing is actually visible in the P and L, and I think that's just down to the fact that, that's okay. 1st of all, with the 5 to 6 months order book, it just means that we see those realized prices at a later point in time. Another point that I think is important is also mix because the value added grades are still At lower level than what we have seen in 'seventeen or in 'eighteen or even in 'nineteen. And I think particularly That value added impact also to profit is quite significant. So I think that's those are sort of 2 Key elements that at least I would sort of immediately say that we have to observe how the development of the mix continues. And I think in the order intake, we have seen a gradual uptick. But I think, as I also said quite carefully In some earlier calls, as this gradually really means gradually to be seen in the invoicing. So we are maybe sort of from the interest in the market and the Yes. And the dialogue with the customers approaching more normal levels, but we are not yet there when it comes to the value added. So at least those from the revenue side, I would say sort of immediately comes to mind. Obviously, 2017 that you compared with also was a really, really Different year in the sense that the first half was really strong and then we really had a dip towards the second half. And now it seems that the sort of annual dynamic is a bit different this year. Just to kind of build on that value added grade, you remember that, for example, in 'eighteen, 'nineteen, we had a very strong scrubber business. And the scrubber business at the moment is pretty much not active. So when will that return? Hopefully soon. But these are sort of sub pockets of the pro grade business, which are they are important for our profitability. And at the moment, They're missing and the order book has had a very high weight of these so called flat stainless classic grades. Understood. That's very clear. Thanks for the comments. And maybe one more question on the Americas division, if that's okay. So you guided to medium term EBITDA potential for this division in the order of $150,000,000 to $200,000,000 Which translates to around €200 per ton at the upper end of the range. And the fact is, if I look at H1, your EBITDA per ton has been north of €300 per tonne and U. S.-based prices continue to rise into the second half of this year. So shall we Effective and high profitability per tonne in H2 this year versus H1. And then is there a case for revisiting your medium term guidance? Or Is that upside fully a function of better market dynamics? Hence, there's no reason to change your medium term outlook. Thank you. If I start answering to the question just from the sort of perspective of the medium term outlook with the €150,000,000 to €200,000,000 I mean, obviously, we want that to be sustainably strong on an underlying basis. So in the realized EBITDA that we see right now, obviously, we've still had some timing and hedging Gains both in the first and in the second quarter, I mean, order of magnitude closer to $20,000,000 So I mean, Just to keep that in mind, but I'm sure you already did. Then overall, of course, now the market momentum is good And the macro environment in the U. S. Is really good right now. Can we assume that this is a sustainable position? Well, we have visibility with the order book, etcetera. And clearly, well, we are all following the market dynamics in the U. S. So how long will this last? We will see. And then what is really important for us is to build that underlying sustainable Strength in sort of the overall platform that we have there. And I think we are really we are making a lot of good progress there, but certainly not yet at the point where we would change That's mid term view of the potential. But then as to your more specific question also about margins in the second half. I mean, obviously, we are not guiding for the full second half, just sort of the components that we can see right now Really, from a volume perspective, obviously, historically, there has not been seasonality in the The same way as for Europe. So the seasonality with lower volumes has historically really been more a European phenomena based on just how markets operate here. And then as well in the U. S, we have seen in the order intake the pricing momentum. So obviously, there are some key components. And then as to development throughout the rest of the year, we will continue to observe. Understood. Thank you very much. Thank you. Thank you. The next question comes from Patrick Mann from Bank of America. All of my questions have been answered except for Just one which I maybe wanted to ask Heike a little bit more about. You spoke about how The CBAM doesn't particularly help stainless, if it excludes the Scope 2 and Scope 3 emissions. Can Can you just talk a little bit about why they've been excluded from your perspective? And what is the difficulty in getting them included? Yes. It does seem like quite a glaring omission, if you only look at Scope 1. To compare the products, it seems pretty meaningless. So why is this situation developed this way? And do you what does the EEC or EU need to see in order To expand it to include Scope 2 and Scope 3? Thank you. Yes. Thank you. It's a very important question. I'm not Able fully to answer that in particular because I don't we don't have sort of visibility on the, let's say, decision making process within the European Union and The specific sort of thinking that would have gone through. If we look at, for example, the Scope 2 piece, So there we know that there is a link also to these energy, let's say, energy Compensation mechanisms, energy cost compensation mechanism that we have in different countries like in Finland, where basically The market the government is sort of compensating for part of the extra energy costs That we are incurring. And the thinking there is that if scope 2 were to be included in CBAM, then you know that energy piece will be taken away. On Scope 3, my guess and this is purely hypothesis, my guess is that This CBAM in itself is quite a complex animal. There will be the next couple of years, they will be Testing how the system works, getting the reporting going will be probably, I would assume, a bit of a challenge. And for that reason, probably just doing Scope 1 because that is also the same for carbon steel. That was sort of a probably easy straightforward mechanism how to move forward at this stage. But I do want to underscore that as you saw from that ESG A slide I showed where we have our 1.5 tonnes of CO2, this is a fundamental issue for us. The overall carbon footprint difference between us and the Asians is so dramatic. It's almost 4x to 5x That if one wants to really have CBAM with some validity and some teeth, one has to include it. This is my personal view, and Let's see what time we'll bring. Thank you. The next question comes from Ruckus Bonhoeffer from Kepler Cheuvreux. Please go ahead. Your line is now open. Yes. Thanks for taking my questions. First one, let me go back to the previous question on inventory gains. I want to get a better feeling about what's happening in Europe actually. I think you had a negative effect of €13,000,000 In the quarter from timing and hedging versus a benefit in Q1. And I think that was pretty much in contrast To what your competitors were reporting and also the outlook for Q3 where you're not expecting any meaningful In fact, also there seems to be some difference. Can you explain us what is running differently? Is it just The mixed metals in the quarter? Or how shall I think about that? Thank you for the question. And I think it's a really, really It's a fairly detailed question, but let me try to make sort of a few observations. I think, first of all, looking back at the Q1, Where from our figures as well, you can see we had really significant gains in this area. I mean, at that point, it was really we could see nickels sort of running through the system. We could see any more sort of on average level that significant difference. Obviously, also, we haven't had, let's say, the same boost In that sense, as we had in the previous quarter through all then we had all of the 3, and now we just have sort of smaller moments. But then the other part of the equation that I think is more company specific, it is, of course, the mix. Do you have more austenitic? Do you have more phreatic? What of metals do you actually have there? And then obviously as well, where do you keep your inventory? When were you pricing in? There's a lot of sort of detailed differences that still, if I look at the significant amount of money that we have tied In these metals sort of through the chain and in our inventories, it is just that, that underlying amount is so big That the level of changes that we see right now are still, at least for me, understandable that they could vary and that they are not necessarily in the same direction. Right. Then I've number this time like EUR 19,000,000 versus EUR 7,000,000, EUR 8,000,000 in previous quarters. Can you help us a bit what is how we shall understand the changes and what we shall think about the run rate for the second half year? Indeed. And I think sort of the biggest impact that we have here, the delta in this Others is relating to the sort of Internal inventory, should I call it gains or inventory valuation gains that occur sort of through our chain, If we are selling goods between our business areas and then sort of need to eliminate it on the top. So I think there's just been a little bit more of this Sort of cutting the inventory values on the group level in this quarter. And I don't think that you should interpret this as a trend. But rather, of course, if you look at sort of historical averages, how this has varied, now we, I think, ended really at the top end. I wouldn't expect us to always be at the top end. But this is maybe one of those areas that is even internally Really getting the estimate right on this one would require to know exactly at the end of the month exactly where we have the goods and whether they sort of passed on already to customer or were still in house. Right. Understood. Certainly, again, on the fixed cost item, but Maybe specifically on ferrochrome. So when I look at your performance, I think volumes were in line and I think your average realized prices were pretty strong actually. But in contrast to that, I think there is obviously some effect coming from the cost side running against it. Can you Explain us, is this the same story? Is it kind of the bonus thing? And try but I don't think there's so much of an element of Dealing with higher volumes, so what is the nature of the fixed cost increases at Ferrochrome? No. You are absolutely right that really from sort of a production Bonus perspective, the impact is not as significant in ferrochrome. There is some from the more sort of general STIs, obviously, as our profit levels are And we are hitting some of those trigger levels. And also some other KPIs that we have are doing I think we are sort of having good numbers Showing good numbers at this point in time. So yes, indeed, out of this €8,000,000 in total, I mean, not more than 1 quarter was from Slightly higher maintenance in the sintering plant and then some of these sort of STI related accruals, But that's not even a quarter of that. That's maybe sort of slightly less of that. And then there was just a number of, let's say, other Fixed cost increases in the quarter here. So I would say certainly an area that we are paying attention to. There was actually even a little bit of variable cost increase because that €8,000,000 is the overall cost increase there. So I would say a number of cost increases across the range in this quarter in ferrochrome. Okay. And then on The whole 2021 and beyond, how shall we think about your actual cash taxes? How long can you run with such low cash taxes and from your loss carry forwards? I think sort of based on the balance sheet from the end of last year, where I think we are also sort of sharing the sort of country by country, We still are running more than €500,000,000 in the U. S. We do have a long tax loss history without even recognizing them in the balance sheet. So I would say that we still have some runway ahead of us. I mean, we are speaking years more than months, where sort of from a cash perspective, tax is not likely to be high. We do have some kind of in the near term future. I'm trying to see if there's sort of any country where significant operating country where we would be running low, but no, not yet. Okay. That's pretty helpful. And then finally, on your on the CBAM proposal and further Pass away. What kind of view do you have until that whole European framework in regard to CBAM, EU funding, etcetera, etcetera is being fixed in a sense that you could Starting investing into decarbonization products, projects you're having in mind. Is this Kind of a 2 year story where we don't actually know exactly what's happening. Do you expect this to be clearer with the test phase of the CBAM? What's your thinking on that? With this whole program, very quickly. But I think reality is that as part of the political will, Things just take their own time. And as we see, the next couple of years on CBAM will be simply reporting. And then really the rubber will hit the road after that when the moment comes that you actually have credits or put money on the table If you are importing, that moment will be critical and we will then see what happens when we get to Is it 2023 or 2024? In terms of EU willingness to support industry, No, of course, EU has made very bold statements about their willingness to allocate quite substantial amount of capital. If there are opportunities for us To participate in applying for those types of EU funding, we will indeed explore that. I think as I I said to your colleague earlier when we asked about CO2 related investments, the next couple of years for us are times when we We're doing a lot of research and exploration at the time for larger investments around carbon will be in the future. And when we start talking about step 2 of the strategy and particularly step 3 of the strategy, then we will bring sort of concrete ideas To the market on what we intend to do, but the time for that is not yet. Thank you. Next question comes from Anssi Kivinjani from SEB. Please go ahead. Your line is now open. Hi, guys. Thanks for taking my questions. I have 3 of them left. First, Looking at the mix in Q2, it was weaker in Europe. Could you elaborate a little bit why is this? And what Should we expect in Q3? That's the first one. Thanks. Yes. Thanks. Hi, Anssi. So I think why is this I would say generally, when we see the rebound in volumes, it's been extremely strong in the kind of consumer driven or sort of closer to consumer appliances, automotive And this sort of almost like later wave of more the industrial, the big projects is probably sort of only starting or maybe even somewhat ahead of us. So Heikki spoke about the scrubber business. That business is certainly not alive yet. It has been extremely still now for a year. And so I would really say we are at a lower level than normal in the value added grades in Europe. And Compared with Q1, the change was not significant, but there was a little bit more of the standard grades for sure. And in the order intake, we can see more interest, and also we are booking orders. So I would expect that already for the Q3, we have a step up, but this is not a huge step. This is more of a gradual increase that we will then more see also in subsequent quarters. And if I just build on that, I mean, you have to recognize that we have a lot of demand now for also these Classic rates. So in order to make pro grades, we will then have to take out capacity for classic rates and reallocate That's the pros. And when you're sort of full as we are, that's not an easy choice because You will probably disappoint some customers who want Classic if we start producing Pro. So I think we cannot make a dramatic shift Here quickly, even if we had customer demand for Pro, we have to make sure that we first take care of the commitments we've made with our existing clients and then gradually Pivot more to value added when that market starts to move. Okay. Thanks. It makes sense. On volumes and guidance on Q3, how will Europe and Americas contribute to that? Is the kind of idea right that in Europe, perhaps the volume will decline more, whereas Americas will be quite stable? Or how should we await that situation? Yes. Thanks, Hansi. So first of all, I would just say that based on The fact that we are already on high capacity utilization levels, I mean, it's clear that there's a limit to what could actually grow basically throughout the flat business. Then again, we do not give guidance per business area, But I still think it's fair to say that we do observe these typical patterns where in Americas, if you look at seasonality, it's really usually the Q4 with Thanksgiving, maybe even Halloween, Thanksgiving, Christmas, that tend to be a somewhat slower quarter, whereas in Europe, Really, Q3 is all about summer holidays throughout sort of the European countries. So obviously, We are observing that same pattern, I would say, as has historically been there. Okay. Thanks. Then the last question is on the market balance. I mean, looking at the Stainless spot prices in U. S. And Europe, the latest moves up have been basically driven by the expanded steel margins or Base prices for the producers, you have quite a lot of pricing power currently. In your view, what are the most relevant risks For this situation to end or unfold, kind of what do you see in the market? Well, obviously, when you look at I mean, if you look at the market dynamics from a supply demand standpoint, of course, When it comes to sort of imports outside of Europe, which would bring in substantial excess capacity short term, well, We have now the EU's decisions on quota. We have the duty anti dumping duty. So those are enforced. They're valid. I would pretty much take that risk out. Then there is, of course, just how consumers are behaving. But what we're basically seeing from different EU countries is a quite strong economy. Consumer confidence is very good actually. I know there's a lot of liquidity in the market. Asset prices are going up. It would have to be something of really sort of a shock Of some sudden nature for this to change short term. But of course, we know that we live in a world where sudden shocks can come. We've seen them in the past, Impossible to project. So at the moment, we are I would say, situation looks quite good And for us and it's very much now just to make sure that our mills run effectively, we manage costs, and we complete now the strategy project towards €200,000,000 that we promised, and we will definitely do that. Thank you all for your very good questions, and thank you, Heike and Pia, for the presentations. Before we close the event, I would like to remind you that Outokumpu will publish its Q3 results on November 4. But now thank you once again, and have a good day. Thank you. Thank you.