Hello all, and welcome to Outokumpu's Capital Markets Day 2025. My name is Linda Häkkilä, and I'm the Head of Investor Relations here at Outokumpu, and I will be hosting today's event. First of all, it is so great to see so many of you joining our event here physically in Helsinki, and I also want to warmly welcome all of you following our event virtually. The big theme for today is our new strategy, EVOLVE. We have an exciting agenda ahead of us. Our main speakers today are our President and CEO, Kati ter Horst, our Chief Technology Officer, Stefan Erdmann, and our Chief Financial Officer, Marc-Simon Schaar. Today we will be having two Q&A sessions: one short Q&A session before the coffee break and one full Q&A session at the end of the event.
During the short session, we will be taking questions from the live audience and via chat function, and at the end, in the full Q&A session, we will be also opening the conference call lines. Please note that questions can be posted via chat function throughout the event. Please note the disclaimer, as we might be making forward-looking statements. Now, before our President and CEO, Kati ter Horst, starts with her presentation, let's watch a video showing what our new strategy, EVOLVE, is all about.
Stainless steel is the silent force shaping the future of modern society. Amidst the turbulent geopolitical situation and the need to combat climate change, we are leading the way into a new age of industrial evolution. This is more than growth; it's a step towards a cleaner, smarter, and more resilient future. Outokumpu's vision is to pioneer materials and technologies that power tomorrow. Our strategy is named EVOLVE. It connects to our heritage and builds upon our strong foundation to explore high-value growth opportunities. We build upon the robust core in sustainable stainless steel to accelerate growth in advanced materials and alloys, expand our ferrochrome portfolio, and pioneer innovative technologies. The foundation built over decades is now more resilient than ever. It focuses on harvesting the full potential of the sustainable stainless steel business.
Leveraging our strong legacy, we aim to move up the value pyramid and broaden the portfolio in advanced materials and alloys. We expand our range, fueled by the increasing demand for materials that can withstand the most extreme conditions on Earth. Our modern chromium mine in Finland serves as the backbone for our ferrochrome production, making Outokumpu uniquely positioned in the market. We continue to grow our ferrochrome portfolio to help our customers lead where others follow. We solve the paradigm between ore and metal, unlocking ferrochrome from the constraints of ore quality and redefining what's possible. By utilizing innovative clean technology and access to sustainable raw materials, we envision a future where we can provide zero-carbon alloys and metals on an industrial scale. The EVOLVE strategy empowers our people to build on collective expertise, embracing collaboration to explore new ways to transform beyond the obvious.
With over a century of innovative spirit and know-how, we are committed to working towards a world that lasts forever.
Dear ladies and gentlemen, very warm welcome to our Capital Markets Day 2025, also on my behalf. We will be talking today about our new strategy, EVOLVE, and I'm super excited to share more details about that with you. Our strategy is twofold. We have classified our businesses to foundational and transformational, and we have done this to create more focus, to really clarify the strategic role of each business, and to guide our capital allocation. While we see extremely interesting potential in our transformative initiatives, we will keep our feet on the ground. We will proceed step by step towards the transformative areas where we can find higher growth, higher margins, and less cyclicality. At the same time, our foundational business will concentrate on cash generation, cost competitiveness, leverage the sustainability position we have, and ensure the access to critical raw materials.
This foundational business will deliver EUR 250 million of EBITDA improvement over the strategy period by 2030. In this geopolitical situation, in these uncertain times, we will also make sure we keep our balance sheet healthy, and we ensure competitive shareholder returns. Before I move forward to talk about the details of the strategy, there are a couple of words I would like to say about the name of our strategy, EVOLVE. Outokumpu has been evolving for more than 110 years, from copper to nickel to zinc to cobalt, and Outokumpu has been developing technology knowledge processes in the mining, but also in metal processing technology. When in 1959 in Kemi, just an hour and a half below the Arctic Circle, the big chromium deposit was found, that was actually expanding Outokumpu's horizons to ferrochrome and in the end to stainless steel.
Outokumpu was actually a pioneer in integrated vertical production. Coming from that heritage, we now continue to evolve, and we are evolving to pioneer the materials and technologies that power tomorrow. Today you will hear about our innovative breakthrough technology that will revolutionize how we think about metals, how you can produce low CO2 metals. Before we go there, I think it is also good to talk a bit about what is happening around us in the world and what is the basis we are starting from. I really want to highlight that the base we start from is stronger than ever to invest in transformative growth. We have considerably improved our profitability over the cycle, and in the last period of 2020- 2024, our average adjusted EBITDA was EUR 640 million. In the same period, we returned EUR 531 million to our shareholders and deleveraged the company.
I'm also extremely proud of our world-class safety performance, and our sustainability leadership has been confirmed by the many, many recognitions that we've been getting during the years. One of the latest ones being our 25th position in the Corporate Knights list of the most sustainable companies in Europe. As we move forward, geopolitics and mega trends are actually driving demand for Outokumpu's products. Let's look at some of the areas where our demand is increasing. I give you a couple of examples. If we, for instance, look at hydrogen storage and transportation, hydrogen, when it's liquefied, requires very low temperatures going down to - 250 Celsius. If it's compressed as a gas, it requires very high pressure.
Very often the storage tanks of hydrogen are on a coastal area when they have salt all around them, which puts a lot of emphasis on corrosion resistance. We have a fantastic product range, Supra, that has high performance in these applications and also offers very good total cost of ownership. Defense industry has been a lot in the media lately, and as probably many of you know, the carbon steel industry is the traditional supplier to the defense industry. Times are changing. Now that there are more investments going to the defense industry, we need new suppliers and we need new product development. Outokumpu is already supplying stainless steel to protective areas in helicopters, in submarines, and we are very actively innovating in this area. The benefits of stainless steel in this area are many.
For instance, when you use the sheets of stainless steel, you can bend them without welding, and welding is always a risk. Also, the stainless steel is very strong, but at the same time it's very light, and that's good for the vehicles. Also, stainless steel has a low carbon footprint and it has very low maintenance. We see demand growing also in the defense sector for Outokumpu. Within move forward, I come back to the two businesses: our foundational business and transformative business. I would like to comment a little bit about what is the definition that we are having for these two words. The foundational business for us concentrates on cash generation and cost competitiveness, and foundational business is not an area of growth for Outokumpu, but it does help us to finance growth in the transformative areas.
In this foundational part, we will be having, or we will discipline ourselves to basically mandatory and maintenance investments that we need to do, and we will then also invest in cost competitiveness and smart decarbonization. There our requirement is that the internal rate of return for those investments needs to be a minimum of 15%. If we then move to the transformational area, that is where we are looking for growth, higher margins, and less cyclicality in the markets where we want to grow. We also want to have a good strategic fit and be able to create unique positions for Outokumpu. Here we are looking for growth both through organic and inorganic investments, and the hurdle rate is 20% for our own investments. I think it's interesting to discuss what are the foundational businesses and what are the transformative businesses that we see.
Next slide is very important. Let's start from the foundation. Basically, our sustainable stainless steel business, both in Europe and in the Americas, is our foundation. That's our biggest foundational business. This business concentrates on cost competitiveness, leveraging the sustainability leadership we have, and then ensuring the access to critical raw materials. We currently have also in our portfolio advanced materials, and advanced materials in the current business is doing value creation by transformational program to look at new customer segments and develop the product portfolio. On the ferrochrome side, our current business is actually moving from being a mainly internal supplier to our stainless steel business to unrestricted market player, and I come back to that. These two areas, advanced materials and ferrochrome, with our Kemi Mine behind the ferrochrome, actually create platforms to transform.
From advanced materials, our current business, we can move to advanced materials and alloys, and I will be talking today, for instance, about high nickel alloys. High nickel alloy is not a metal anymore. It's an alloy. It's not anymore stainless steel because the nickel content is more than 30%. I'll come back to that. From ferrochrome and our chromium mine, with the new technology that Stefan will be talking about more in detail and what it can do, it enables us to climb up the chromium value ladder. We come back on that as well. It creates two transformative businesses from our foundation. If we then talk about Americas, in Americas we are looking for transformative growth beyond stainless steel because we still see America's market geographically very exciting and important for us longer term.
It is of course also so that when we go to high nickel alloys and we start applying our new revolutionary technology, it creates also growth opportunities in Americas. I then start discussing a bit more the foundational business going forward, and we first start with Europe. If we look at 2024, 2024 saw actually the lowest stainless steel demand in nine years in Europe. The growth percentage you see here as an estimate from a market intelligence that the growth would be 3.3% per year going to 2029 comes actually from the fact that we come from a very, very low demand from 2024. Here the other area is our Circle Green. Our volumes in Circle Green are increasing, and I think we will get more and more benefit from our sustainability performance also in stainless steel going forward.
What we have announced today, you know that we have been mentioning European competitiveness before, even before I joined Outokumpu as the CEO. Here we now have an example of what are we doing for European competitiveness. We are planning to invest in a new annealing and pickling line in Tornio. Tornio is our lowest cost, most integrated, efficient asset base. In Tornio, we can also benefit from the renewable and cost competitive energy that we have in Finland. Moving volumes to this setup with new machinery improves our cost base and also increases some of the capabilities we can have in Tornio. We are not doing this investment for growth. We are doing this investment for cost competitiveness. Therefore we are also closing two older, less competitive lines, actually not older, but less competitive lines at our site in Krefeld, Germany.
This will result, this new setup, once the new line is operational in Tornio, in annual about EUR 70 million EBITDA improvement over the cycle. If we then talk a little bit about Americas, in Americas the demand did not drop as much as in Europe, and therefore the growth percentage going forward, what you see, is somewhat lower than in Europe. In Americas we also concentrate on cost competitiveness. We have still an opportunity to improve our operational efficiency through some of the processes and also some of the gap investments that we might be doing going forward. We are also working with our Americas team on our new commercial strategy, looking at our go-to-market, looking at new customer segments, seeing where Outokumpu could, through innovation, really bring some new products and develop certain segments. That work is also ongoing.
As I said, we are then looking for transformative growth beyond the standard stainless steel. It is not only cost competitiveness that is important in our foundational business. It is also very much about smart decarbonization. I like to always say that sustainability is also a good business. What I mean is that, and I like the word smart decarbonization because if you do decarbonization right, you are not only avoiding cost, but you are creating new profitable business opportunities. In fact, the more that we decarbonize our production, the more valuable our side streams become. Just to give you an example of that, today in ferrochrome we produce CO gas. We very much burn that CO gas then in our stainless steel production.
When that CO gas with biocoke becomes biogenic, it becomes much more valuable and very interesting raw material for the chemical industry and for instance for production of aviation fuels. The European Commission is also now pushing for creating lead markets for green steel. We are in that discussion. CBAM, when it starts in 2026, should really support Outokumpu's business both in ferrochrome and stainless steel because our carbon footprint in ferrochrome is 67% lower than the industry average, and we are the only producer in the EU area. In stainless steel, our carbon footprint is 70% lower than the industry average. One area that actually contributes a lot to the decarbonization and carbon footprint is the raw materials we use. That brings me to our critical raw materials to make stainless steel.
As you know, scrap is our main raw material, and the high percentage of scrap that we have is the key contributor to the 95% of recycled material that we have. It's also the key contributor to our low carbon emissions. The ferrochrome on the right side, that is what we have in our own hands. We are the ferrochrome producer. As we have invested in the past in our Kemi Mine, we now have mineral reserves that are well invested until 2050, so we do not need new investments in the mine currently. Of course, deposits there are even bigger than that. It gets more challenging when we talk about nickel and molybdenum sourcing them.
The reason is, for instance, in nickel, that if you look at the global nickel resources in the world, they are actually up to 80% of them in controlled or in the hands of Russia and China. That is why we have invested in a junior nickel mine in Canada. That is why we have made a 10-year offtake agreement with Greenland Resources molybdenum to ensure our access to critical raw materials. This basically completes the foundational part of the business. Just to summarize, it is about cash generation, cost competitiveness, leveraging our sustainability position, and ensuring the access to these critical minerals, materials that we need to produce stainless steel.
Before I move to the transformational area and switch gears a bit, I want to highlight that we have worked hard to ensure that we have a clear value creation criteria for the investments we would do in transformative growth. We have the hurdle rate of 20% to start with, but this is criteria what these investments need to kind of address. They need to create new growth, they need to create higher margins, less cyclicality, they need to be able to leverage Outokumpu's capabilities, competitive advantage, they need to create unique positions, and if possible, hopefully also optionality. You create a platform that you have different possibilities to go to different directions from that. That is actually what our technology is doing. Avesta is one of the sites in advanced materials that has had a very, very long heritage in innovation.
I start from there. In our current advanced materials business, like I said, we are developing our portfolio, we are looking at new customer segments, so we are accelerating the commercial transformation. We have recently brought Nickel Alloy 825 to the market, so it is expanding our specialty range. Now we are exploring the opportunities in high nickel alloys. Why are high nickel alloys interesting? First reason is that they are a much higher growth area than standard stainless steel or our current advanced materials business. The average growth rate in high nickel alloys is more than 5%, but then there are many pockets and many applications where the growth rate is two- digit, clearly above 10%. There is high growth. That makes it interesting. The premiums that you get in the price are clearly higher compared even to our current advanced materials business.
That makes it interesting. There are a very limited number of players. Why would Outokumpu then be in position to go to this area? Why would we have a unique capability? It starts from our asset base. In Sweden, we have a unique asset base that is integrated, and we have a competence in Sweden over time. That is why we are looking now in the feasibility study at an investment in our Avesta melt shop. We have very powerful hot rolling equipment in Avesta. It is probably one of the most powerful in the whole advanced materials business globally. Why is that important? Because nickel and these kinds of alloys are hard. You need power in that hot rolling to be able to roll it. We have that already, so we do not need to invest in that. That is a clear advantage.
If you would need to invest in that, it would be a billion investment. We do not need to. Next to that, we have certain capabilities that, combining that with high nickel alloys, would make us the only player in the market being able to do that. Here I refer to the fact that we can make heavy and wide coils up to 2 meters, and we can also make thick and wide plates. Let us look at then a bit the application area segments where you find high nickel alloys. Basically, as you saw in the film, you could say that these are really high nickel alloys going to applications where very high performance is required and where you have indeed the toughest conditions on Earth.
If I take a couple areas which are also high pocket growth areas as an example, if we look at reactors in the energy segment, today's reactors need to get bigger and bigger because there is a higher efficiency requirement. Reactors are usually made of plates, standard stainless steel plate or stainless steel plates. When reactors get bigger, the temperatures go higher and there is more pressure. Therefore, the wall thickness in these reactors needs to become higher. This is now exactly what we can do in Avesta, thick plates. If we then look at the oil and gas and you use the tubes to pump the oil up from a well, the deeper you go in the ocean, the more pressure you will get and the lower the temperature will go. Here again, typical application for high nickel alloys.
In this case, a lot of these tubes are made of sheets today. When you do that, you need to weld a lot to create the long pipe. When we have our wide coils now, we can actually make bigger tubes without that welding need going forward. It saves time and it brings safety into the system. Again, a unique opportunity for Outokumpu. I would move to discuss our ferrochrome business as the other platform to transform. Sorry, I need to take a bit of water. The demand for our very sustainable and geopolitically reliable ferrochrome is increasing. Other reasons supporting that are that there are capacity reductions now in Africa, in South Africa and Zimbabwe because of the high electricity cost and logistic issues that they are having. Also, there is no ferrochrome production in the U.S. or in Canada.
There are also no tariffs for ferrochrome. We happen to have this fantastic asset as Kemi Mine. I want to say a couple of words about Kemi Mine because there is so much negative talk about mining. I think you need to understand what Kemi Mine is about. It is the world's most modern mine. It is very automated. All the mining is happening underground. We are steering the operations more and more from distance, and soon they all will be above the ground where the people are and where we steer the operations. Kemi Mine will be carbon neutral as the first mine in the world by the end of the year. Our mining method is based on gravity. We are not using any chemicals to mine in the Kemi Mine.
Now, using this great asset we have that actually cannot be copied because the chromium is nowhere else in the EU area, with a new technology that Stefan will be talking about in more detail, that is where we can now really start climbing up the chromium value chain. In this geopolitical situation, you probably can recognize that from everything that you read. It feels like the world has really woken up to understand the importance of critical metals and critical Earth minerals. The supply constraints are coming bigger and bigger to get to that. We do need new sources for metals. We do need new extraction methods because the old ones are not really anymore fit to purpose. It is exactly here where we have the answer with our new breakthrough technology.
We will be testing it first with our own chromium, but it is scalable to other metals, and we have proven that already. To summarize my part, first of all, our foundational business, stainless steel, we are going to be maximizing our result from that. That business concentrates on cash generation, cost competitiveness, leverages our sustainability position, and secures the access to our critical raw materials. It is also the business that during the strategy period will deliver the most cash to help us to transform to higher growth areas, and it will deliver EUR 250 million EBITDA improvement over that cycle. We are transforming to two areas. We are transforming to advanced materials and alloys. Here I talked about the feasibility study in Avesta going to high nickel alloys.
We are talking about these materials and technologies where the basis is our ferrochrome, current ferrochrome business, current Kemi Mine. When you combine it with our technology, we can make higher chromium content ferrochrome products, and we can go up the chromium ladder. That is a big step. We can also go to other metals. When we are increasing the value of Outokumpu, we also support our strong balance sheet, and we support the returns to our shareholders. This brings me to introduce to you our financial targets and dividend policy very briefly. We will concentrate on cash generation. We will keep our balance sheet healthy with a targeted leverage ratio of 1. Foundational business will provide a step change in our EBITDA profitability over that strategy period, EUR 250 million.
We have clear criteria for investments, hurdle rate being 15% for foundational investments and 20% for transformative investments. We continue to take care of our shareholders, aiming at stable and growing dividend over time. Before we move forward and Stefan will talk about the technology, I would like to show you a short video that connects to our heritage, but also works a bit to introduce the technology that Stefan will be talking about. Enjoy.
Over 100 years, we have been pioneering in the field of metals and materials. That journey has defined who we are. Heritage alone is never enough. The question is, what do you do with it? Today, the world faces a new set of questions. How do we secure critical materials in an uncertain geopolitical landscape? How do we build infrastructures, industries, society? Not by increasing emissions, but by reducing them.
In Kemi, north of Finland, we operate the only chromium mine in the European Union. In Europe, it marks a local, reliable, traceable source of critical raw material. Outokumpu ferrochrome is not like any ferrochrome. It's produced with the best available technology and has 67% lower carbon footprint than the global average. We are not just being the sustainability leader, but we look beyond it. The role of chrome is expanding beyond stainless steel. It's essential from everyday items and electronics to clean tech, aerospace, high-performance alloys, and the energy systems of tomorrow.
Outokumpu is entering a new phase. We are not just producing, not just refining, but disrupting how green metals are made, used, and valued. We dared to ask ourselves, how far can we go to decarbonize ferrochrome? Merging science with technologies.
We not only answered this question, we also solved the paradigm between ore and metal, unlocking ferrochrome from the constraints of ore quality and redefining what is possible. By combining this innovative technology and our access to sustainable raw materials, we are climbing the chromium value ladders. Today, Outokumpu stands prepared to lead the transition to green metals and showing the path to a sustainable future. We are not here to wait for the future. We are here to shape it.
Ladies and gentlemen, it is a great honor to be here. It is a great honor, and I think after four years of extensive research, this is the day. This is the day on which Outokumpu decided to announce a new technology, a technology that we developed over years. And you know what? The timing could not be better.
It's a time where countries are looking for secure sources for metals, for materials, for scarce materials, and for pure materials. Materials like this. I will talk a little bit about that at a later point of time, but this is pure chrome that we are able to produce out of the chromite from Kemi. First, I would like to give you a short background for this. Why did we come up with this? Why did we work for four years on this journey? Now, you probably all remember that by 2021, we committed to the most stringent guidelines of decarbonization, the Science-Based Targets Initiative for 1.5 degrees global warming. Now, this is a journey. It's a journey towards carbon neutrality. We had to find out that most of our carbon emissions are generated in our ferrochrome operations.
As Kati said, we are producing a high amount of ferrochrome, and in this process, by design, and I will talk about that later, we are producing carbon monoxide that is later burned to carbon dioxide. One way is to use biocarbon in the future and generate with smart decarbonization value. The other option is to look for a new process. That is what I will talk about. That is what you will hear more about, not using any more carbon for reduction to use a new technology. I will talk about not only decarbonization. I will talk about the platform technology that is enabling Outokumpu to go beyond the current commodity ferrochrome. We are producing in Tornio at the moment 53% chromium-containing ferrochrome, and we will be able to enrich this to higher levels, whether it is 60%, whether it is 65%. I will talk about that in the next slides.
This is not what we will be doing alone. As I said before, we have also proven that we can do pure chrome, pure chrome metal. This is something extremely exciting. Not only that, think about the following. We will be able to use other raw materials than just the ore that we have currently in the mine. We will be able to use also side streams. We will be able to use wastes in the future and also lower chrome-containing ferrochrome ore. The last point that we are also looking into, which we were able to prove already in our facility, is that we are able to produce these advanced materials, these alloys that Kati was talking about, 625, 825, and so on, purely from raw materials from ore. Not first generating metals. We can do this directly from the ore.
Now, what did we do over the last years? You see here a picture. The larger picture is a photo of our newly opened facility. As I said, we worked since four years on this, and last year we opened a new laboratory in the northern Boston area. We were able in this facility to scale up the technology from one gram, typical laboratory scale, to 1 kg. It's 1,000 times. Is it already a ton? No. It's 1 kg. We generated with the people in this, which are the world's leading scientists for metal extraction, not only these kinds of developments. We were also generating knowledge. I would call it Outokumpu Technology because we generated over the last 12 months more than 15 invention notices, which makes this an Outokumpu Technology. This is not the product alone or the technology alone.
We will be able to scale it to other materials as well. Let us come to the technology. I would like to slowly take you through. As a technologist, I might be sometimes a little bit fast, but I will try this very slowly so that it is hopefully understandable what we are doing. Now, this is the traditional process. On the top, you see metal ore and coke going into a furnace. The furnace in Kemi or in Tornio, we are using submerged arc furnaces under high temperatures, more than 1,600 degrees Celsius. The coke and the metal ore are reacting. As we said before, carbon monoxide is generated, and this will be later becoming carbon dioxide and reproduce a ferroalloy, in this case, ferrochrome. Important here to notice, and you should really take this out of this room if you listen to this presentation.
At the moment, you see the symbol by the lock that is shown on the left side. There is a strict correlation between the metal ore quality and the product that comes out. For Kemi, with the good quality of ore that we have over there and what we use in our furnace, we can go to 53% of chrome content in the final product. Our customers get 53% of chrome. The rest is mainly iron. In the new technology, as you see disappearing, we do not need coke anymore. Instead, we will not have the furnace, but we will create a reactor, which is then also utilizing a reductant. It is not coke. It is a different reductant. We will not have any more carbon dioxide or carbon monoxide as an off-gas, as a side stream. We will have other side streams. This will make it a more lower climate technology.
It will also make it economic or cost competitive because the side streams are having value. The side streams that we generate in this process are commodities that are utilized worldwide. The most interesting point now is coming with the unlocking. In this process, we are unlocking the strict linkage from the metal ore quality to the final product. What does it mean? We can decide how we run the process, what kind of material we want to produce. Do we want to produce 55%, 60% content of chrome, or do we want to go beyond this up to chrome metal? It breaks the paradigm, as we also heard in the movie, between ore quality and the final quality of the product. It will give us the opportunity to unlock also the ingredients for this process. We do not need this high-quality ore.
We can also utilize lower-quality ore or side streams. We will be able to scale this to other metals. I prepared here a couple of samples which should illustrate a little bit what we do. This, for example, and you can take a look in here at a later point of time also. This is our standard ferrochrome. If you go closely, you can see it is quite shiny, and this is the standard material. We produced in the lab already 65% containing, so enriched chrome, enriched ferrochrome. As I showed before, it is quite heavy. We also produced 99% chrome, pure chrome metal in our laboratory. This is not anymore a gram scale. This is not a laboratory hobby that we do here. This is up for scale. You might ask yourself, what is this? This is nickel metal.
We produced also nickel metal in our lab out of raw materials. I would like to explain a little bit more about the value of this and why we selected our unique opportunity inside Outokumpu with the ferrochrome business. We have, in our opinion, the ideal launchpad, as Kati said. We have the ore, which is the most modern mine, the carbon-neutral mine, the only carbon-neutral mine in the world, and the only chromium mine in the European Union. You see with number one, with the dark blue, what this product would resemble on the value curve, on the chromium value curve. Explaining the curve, you see on the X-axis, you see the chrome content, and on the Y-axis, you see the value of this final product. You can imagine a commodity product is pretty low on the curve. Even lower would be the ore out of the mine.
You see number one, which is the chromium-enriched ferrochrome with 60%, 65% in this case, which has not only low carbon content, which has also higher chrome value. You see in number three, I have to put it like this, probably, the pure chromium metal, which not only is higher value, which is not only carbon neutral, which is also solving what a lot of different companies are looking for, companies that are looking for secure sources of chromium metal. Chrome metal is used in aerospace, in defense, in highly complex applications, and it is very difficult to produce at the moment, and there is no integrated supply chain existing, which Outokumpu will generate as the only company. If we talk about customers, we have already the first customer, the first customer contracted.
We have an MOU with an American company, which is very much interested in chromium metal going forward, and we are developing collaboratively the supply of highly valuable chromium metal for this company. Now, you might ask the question, how will this continue? Where are we? What is the readiness of this technology? We are quite humble. We did not talk about this for four years. Now we think it is the right time, and we believe in the next two years, two to three years, we will be able to mature this to a ton scale, which means a ton per day is our target of making the next step, which is an important step in order to make sure that we have the right design for the industrialization. Remember what our heritage was. Outokumpu comes from designing technology, furnace technology, mining. We know what we are doing.
This will be the next step to industrialize then. After we achieve that in 2027, we are looking into until 2030 for about a 10,000-ton scale of chromium metal and chromium-enriched chromium ferrochrome as a first implementation of industrial scale of this technology. After 2030, we believe we have to go to the full deployment of this unique technology, which is not only for chrome, which is including nickel, which is including molybdenum, which is including waste streams, side streams, and other material sources that will become more and more valuable going forward with the right technology. I would like to end this presentation with a short summary about what we heard now over the last couple of minutes.
First of all, I think, as I said in the beginning, this is a breakthrough extraction technology where we worked for multiple years now and which came to a maturity that is up for the next scale. We believe that the deployment has to be done based on our chrome asset because we have the access to chrome ore, which is the best economic but also value perspective that we can give for our shareholders, for us going forward. We believe that it's scalable. We will not only look at chromium. We will look at not only on enriched chromium, enriched ferrochrome. We will also, and we have proven that for highly nickel alloys, but also for nickel itself.
We will address with this step, with this technology, a global challenge, a global supply challenge, secure resources for, for example, chrome metal, which is at the moment not existing from a full supply chain perspective. Last but not least, this is a platform for growth. It's starting here with chromium-enriched ferrochrome going over chromium metal to other metals. With that, I would like to thank you for your presentation and hand over to Linda.
Thank you, Stefan, and thank you, Kati, for your presentations. Now it's time for a short Q&A, so I would ask Kati to join us on stage. In this short Q&A session, we'll be taking questions from the live audience as well as from the chat function. If you wish to ask a question, I would kindly ask you to raise your hand, and my colleague will bring you a microphone. Maybe we'll take the first one from the second row.
Thank you.
Thanks very much, Tom Zhang from Barclays. Maybe one for each of you, if that's okay. Kati, you talked quite a lot about nickel alloys. I guess it's an area that some of your competitors have also been making moves into, probably more inorganically, I suppose. Do you think you can do this organically, or do you think, I guess, some of your competitors have talked about difficulties with certification and breaking into new customers? Do you think you can do this organically, or do you think inorganic is needed? Could you maybe expand a bit more on how you think the market dynamics will change? I guess some of your competitors are adding capacity both in Europe and the U.S. Stefan, I guess the pure chromium metal is something I'm still quite new to.
Could you just talk a little bit about what the traditional process is today that other people can make pure chromium metal, how they do it, where it's kind of made, and maybe just some color on how much lower down the cost curve you think your process could be? Or do you think it's just environmental health and safety concerns that set you apart? Thank you.
If I start on the high nickel alloys, yes, we have competitors who have moved in that area, but inorganically and paid quite a high price getting there. I think the difference here really is that with the asset base we have in Sweden and the competence that we have, we can, with a relatively small investment, now move to high nickel alloys and combine that with the capabilities we already have. Like I said, wide and heavy coils and thick and wide blades. When you combine that with high nickel alloys, we would be the only one being able to do that. That makes it interesting for us. We are also looking at possible inorganic possibilities in that area, but that could be an add-on or it could be something else. Let's see.
We are now starting the feasibility study step by step, like I said, but at least it looks very interesting for us to do that organically. Hopefully that answers a bit your question.
On my question that you posed to me, so there were two questions. First one on the process itself. The traditional process for producing chromium metal out of chromium ore is that you first create chrome oxide. That's the first step. In this process, and you are absolutely right with your question regarding environmental, you probably mentioned mainly CO2 emissions. That is not the most challenged why, for example, mostly no one in Europe could be implementing this facility because it's generating a lot of hexavalent chrome, which is proven to be carcinogenic. This is a very hazardous process, the first step to only produce chromium oxide. The second step, then you take the chromium oxide, similar like in our ferrochrome furnace, and you reduce the chromium oxide to chromium metal and further refine it afterwards. That's the traditional process today, which is done in different steps.
Most of the chromium oxide is coming from Russia and Kazakhstan and China. The big producers of chromium metal are, for example, there is one in France, there are some in the U.S. also getting established now. The big difference to our step is that we will not be needing to go through the chromium oxide while forming hexavalent chrome. That is the first environmental advantage. The second one is obviously the CO2 emission topic, which we can also prevent with using other reduction methodologies. That is the question, the first question that you asked. The second question on the cost competitiveness. At the moment, what we calculated so far, and I have to say it is based on smaller scale because we are not yet at the ton scale. At the moment, we try to design the right equipment for that. It is very much cost competitive.
It's lower cost than the traditional process.
Thank you for the very extensive answers. Okay, we have some further questions in the audience. Please, Anssi.
Yes, Anssi Raussi from SEB. A couple of questions from me as well. First about this new chromium technology. Just to double-check that, is it fully your own technology or do you have partners in this area?
No, it's a full ownership. We have to go into the details. It's a base technology that is licensed, but it's circled with own technology so that it becomes our own technology.
Okay, and then you mentioned your future plans and maybe industrial-sized plan at some point. What kind of investment are we talking about here just to get a grip of this potential?
It's a good question. At the moment, we are looking at the first scale-up, as I said, to the ton scale. If we then go to the industrial scale, what you will most likely refer to, we are not talking about a billion investment. We are talking about a lower three-digit million number.
Okay, thank you.
Thank you. Maybe here in between, I could take one question from the chat, which is related to the ferrochrome topic again. Can you talk about the current chrome content in your ferrochrome and your target to increase the chrome content? Can you help us understand your expectations on incremental pricing you would be able to secure for the new products versus the operating cost of such an upgrade?
Y eah. Maybe I start a bit on that, then you can, Stefan, add something if you want. Currently, like Stefan said, without having this new technology yet, we are limited to the ore quality you have. Our ore quality is 53% chromium content in the ferrochrome. We cannot go higher. With the new technology, we can. Then we can choose what kind of chromium content we want to have in our ferrochrome.
Our ferrochrome anyway is not sold as a standard market price because it has so much lower carbon footprint. Remember, 67% lower carbon footprint. This new technology would make it almost a carbon-free ferrochrome. It has an additional value from that. The ferrochrome production being in Finland, in the EU area, geopolitically compliant source would give it another value. Like you could see in the chromium value ladder, when you start going to higher content of chrome, actually the value goes up very steep. We will be able to go to different markets, support our ferrochrome business with different chromium content, what we choose then to have. We will be able to go also towards the pure chromium. We will be balancing this. This is optionality, what I mean. We can go to different directions.
Thank you.
Do we have any questions in the live audience? There is one. Go ahead, Adahna. You will receive a microphone soon.
Thank you, Adahna from Morgan Stanley. On the demand for these products, could you kind of talk about the market size of your current ferrochrome products as compared to the higher chrome products and a bit more detail on the key drivers here?
Yeah, to be honest, I don't have really exactly the details, but like I said, we can a bit decide what areas we want to stay because we can actually choose and pick what we want from the ore with the new technology. I think when you go also to pure chromium, the size of the market doesn't become so important anymore because you have such a valuable product in your hands. It's a bit the same when you go to high nickel alloys. It's not this high-volume business. It's a business where you really have considerable premiums compared to anything else. I think the chromium market with this kind of technology and the use of chromium will definitely increase because one constraint now is this very difficult process of coming from chromium oxide to chromium and where that chromium oxide comes from, Russia and Kazakhstan.
I'm not worried about the market size going forward.
Thank you, Kati. I think there was a question on the left-hand side of the audience, please.
Thank you, Igor Tubic, DNB Carnegie. Just one question. I just wonder how much do you expect to sell to the open market of your total share of ferrochrome going forward, and how much are you planning to buy something from somewhere else? Thank you.
Good question. Thank you. Currently, we sell about 1/3 of our ferrochrome production to the external market, and 2/3 we use in our own stainless steel production. One thing is that maybe we did not talk about yet today. We have additional ferrochrome capacity. We have just not been using it. We do not, in the first instance, actually need to invest in anything to sell more to the external market, and we can still supply internally. This is, of course, something we can then play with going forward, depending on what the pricing is and how quickly we can develop external markets. I think when you go to higher chromium content, then you are not anymore necessarily supplying to stainless steel, but then you also go to other areas.
We have a lot of optionality, let's say, potential to move in that area, and we have capacity.
If I may add a comment to that, what we should never underestimate if we, for example, create higher chromium-enriched ferrochrome, let's say, for example, 65%. For a lot of stainless steel players alone, this would make a huge sense because you can use more scraps. At the moment, you can just dilute and use ferrochrome because it's a limit of 53% charging chrome that you have. If you have this valuable resource, it gets much more interesting for other players, including us, to use more scrap, cheaper scrap, in order to make the same products as today in stainless steel. It is not only a new market. It is not only other applications of ferrochrome, which are using now higher chromium-containing ferrochrome. It is an opportunity from also an operational improvement for existing stainless steel mills.
Thank you. Let's take some questions from the chat. First of all, what is the timeline for the feasibility study for a smelt shop in Avesta?
We have started the feasibility study now, and I would think that during this year, we have an outcome of that feasibility study.
Thank you. Regarding the new metal technology, where do you see the biggest growth potential outside the company?
You mean of? It's a good question of applying this technology. I really believe that, as I said, side streams are getting extremely interesting for any business. If you have a lower amount of metals in some waste streams, this might be interesting. I can name nickel batteries. I can name any other side stream that you can imagine. I can also name here if you, for example, have a mine like ours and you have just instead of probably 32% of chrome content, 30% or 25% chrome content. This technology can extract metal independently of the content in the ore. That's the big change.
Basically, using ore quality that is not economic to be used today could be, with this technology, economically viable in the future.
Thank you. Before we have our short break, we would still have time for one question from the audience. If you wish to ask a question, please raise your hand and my colleague will bring you the microphone. Apparently, there are no questions from the live audience, so I will be taking one last question before the break from the chat. This is more of a general question. What is your view on impact from tariffs on your Mexican supplies in the U.S. market?
I do not know if you are aware of that, but there is actually currently a discussion ongoing between the U.S. and Mexico of getting rid of the 50% tariff.
I can't, of course, say if that will be a positive outcome, but we do very much believe that there is a path now to actually try to re-establish the USMCA, so the old NAFTA, because that would be, of course, the most positive outcome for us. Basically having steel and aluminum tariffs on the outside borders of USMCA, so Mexico and Canada being inside. That is at least my understanding that those are the discussions that are going now between the U.S. and Mexico. Also because that supply chain for Mexico from different car parts, different metal parts, it's so important for the U.S. That's what I'm expecting to come out. As you know, this has been very uncertain, different tariffs, different things being said and other things being done.
We need to see what the outcome is, the final outcome, but that's actually what I believe in currently.
Thank you, Kati, and thank you all for the great questions. Now we'll be having an approximately 20-minute break, and after that, we will continue with our CFO's presentation and also the full Q&A session. As said, we will continue the event at 2:30 P.M. Finnish time, 12:30 P.M. UK time. Thank you. Welcome back, and I hope you had a great break. Now it's time for the third presentation of today, and after that, we will be having the full Q&A session. I'm pleased to hand over to our CFO, Marc-Simon Schaar, to talk about our new strategy from the CFO's point of view.
Good morning, good afternoon. It's great to see you all, and also a warm welcome from my side.
Before we now dive into the financial part of today's presentation, let me briefly recap on the key messages which we have heard so far. Our new strategy EVOLVE, illustrates, and plans to show how we're going to invest into transformative areas targeting growth, higher margins, and enhanced resilience, and all of that together to drive total shareholder returns. This transformation is based on and supported by our strong foundation and a clear commitment to unlock the full potential of our current existing assets and thereby driving sustainable EBITDA improvements. Now, with that strategic direction in mind, I will present our financial framework, including our updated financial targets, our capital allocation, and a dividend policy which enables our new strategy going forward. During the last 13 years, Outokumpu has significantly improved its through-the-cycle profitability.
This improvement has enabled us to deleverage our company, and now we have the strongest balance sheet in the industry, which then serves as a very strong foundation and provides us with strategic flexibility to invest into growth and thereby providing competitive shareholder returns. This is an important slide to illustrate how we have really transformed our business since 2012, with a significant improvement in our EBITDA performance over time. Our enhanced through-the-cycle profitability is the result of targeted cost and efficiency measures together, as well as with broader operational improvements across the business. What makes this progress even more notable is the demand development over the years. Especially post-Covid, global market weakness and the geopolitical tensions have put pressure on demand, and 2024 clearly marking the low cycle of the bottom of the cycle.
Despite these external challenges, we were successful in maintaining our market share, demonstrating our strong competitive market position. While the analysis supports our current normalized EBITDA level of EUR 500 million-EUR 600 million, we still have to acknowledge that our bottom of the cycle EBITDA in the range of EUR 200 million-EUR 250 million, excluding the impacts from the strike, remains below our expectations. That is precisely what we are addressing with our new strategy. Importantly, we do not start from scratch. Years of focus on restructuring and deleveraging have given us a strong platform with a solid foundation, and that provides us now with a robust foundation to invest into growth and opportunity, which was only limited before. At the same time, we have returned to a dividend-paying company and taken good care of our shareholders.
Now, let's explore how we deliver value creation through our foundational and transformative investments. To start, let's first look into our strategic objectives and investment criteria. The role of the foundational business is to generate cash flow through cost and capital efficiency. The clear target of the foundational business is to sustain competitiveness and fund our transformation. Here, disciplined maintenance and mandatory CapEx, as well as efficient working capital, play an essential part of that journey. Investments beyond mandatory maintenance CapEx have a clear focus on improving competitiveness and smart decarbonization, as mentioned by Kati before. As an investment criteria, those projects require a minimum internal rate of return of 15%. This is critical over short term, but at the same time, or longer term, we clearly need to unlock high-value growth opportunities, and we are doing this through our transformative initiatives.
Coupled with growth, our transformative investments target to reduce cyclicality and make the business more resilient. Besides growing into high-nickel alloys, supported by our unique asset base in Sweden, and exploring growth opportunities beyond stainless steel in the Americas, we have heard from Stefan today our focus on innovative materials and technology, and particularly our chromite ore mine providing an ideal launchpad for that to start. Transformative investments have an internal rate of return of at least 20%, and they will be funded by cash generated from the foundational business together with a balanced leverage approach. We do have the financial strength to invest while maintaining clear guardrails to ensure the continued health of our balance sheet. This strong position empowers us to execute our transformative strategy, driving growth, enhancing margins, and building greater resilience, and all of that in order to provide and deliver competitive shareholder returns.
As we have heard earlier, through our foundational initiatives, we are targeting an EBITDA run rate improvement of EUR 250 million by the end of 2013 through fixed cost savings, efficiency improvements, as well as product development and customer mix improvements, targeting at a normalized EBITDA level of EUR 750 million-EUR 850 million. Now, let's have a closer look at the tangible actions enabling the achievement of these EBITDA run rate improvements. In the area of fixed cost savings, our plan to invest into a new annealing and pickling line in Tornio will allow us to close down two older annealing and pickling lines in our Krefeld facilities. We further look into outsourcing and labor flexibilization in our Krefeld site to be able to adjust for the market cyclicality in the stainless steel industry and business.
We are focusing globally overall on a lean and agile organization with the support of process improvements and optimization. If we then move on to the efficiency improvements, here, for example, we are evaluating the opportunity to invest into a ladle furnace in our Calvert melt shop and thereby improving our yield, energy, as well as energy and raw material efficiency in our business area, Americas. Also, the targeted investment in our annealing and pickling line in Tornio, which is much larger and much more modern, will provide efficiency improvements and on top allows us for higher integration within our business area Europe, as well as product flow optimization in that area as well.
Now, on the product development side, those are based on new products and customer segments in advanced materials using our current asset base, and these are being rolled out globally, including also the American market. We are also reviewing our commercial strategy in business area Americas, where in terms of customer segments, product portfolio, and innovation opportunities which are in the markets. In our ferrochrome business, we will expand our external customer portfolio based on the uniqueness of our product setup, given that we have the lowest CO2 emissions compared to industry average, and then also the uniqueness of having the feedstock from the only chromite ore mine in the European Union. We also target to broaden our product portfolio in business area ferrochrome by adding low-fos and granulated ferrochrome products. And we already have an established market with higher margins in these areas here as well.
These initiatives are built from the bottom up, right? These initiatives, they are detailed, they are tangible plans behind, and that gives us strong confidence in the credibility of the measures and in the achievability of our targeted EBITDA improvements until 2030 with strong cash flow generation. All of these measures are then being part of our annual target setting. Let me now walk you through how we plan to manage our sources and uses of cash. Our investments will be primarily funded through cash flow from our foundational business, as mentioned earlier, supplemented by a balanced use of debt. The timing of these investments will be carefully aligned with the prevailing market conditions and to preserve a healthy balance sheet with a targeted leverage ratio of 1. For mandatory and maintenance CapEx, we follow a disciplined budget of EUR 100 million per year.
Adding an additional EUR 100 million will be allocated to that for next year to address the CapEx backlog, which we currently have due to this year's temporary CapEx reduction. Overall, over that period of time, we talk about EUR 600 million. The box on the slide gives us, slightly indicates the size of this investment here as well. Foundational investments, such as the investment in the annealing and pickling line in Tornio, are expected to generate the cash that helps to fund then the transformative investments here. On the transformative investment side, as you can see, we do have the capability and space to look into different areas. At the moment, we have identified two initiatives, one being the potential to go into high-nickel alloys and on the other side then the new innovative materials and technology.
Both of them require relatively modest capital in the range of roughly EUR 150 million-EUR 200 million each. Having said that, in addition, we look also into organic growth and we retain the financial capacity to evaluate selective inorganic opportunities as part of our strategic toolbox. Always with a disciplined and prudent approach, ensuring that there is a proper industrial and strategic fit on the one hand side and also financial synergies which we can explore and get out of a possible acquisition. Altogether, these investments are designed to provide profitable growth and resilience and forming a stronger foundation for delivering competitive shareholder returns. We will increase the value of Outokumpu up to 2023 through clearly defined financial targets and disciplined investment criteria to deliver competitive shareholder returns by aiming to pay a stable and growing dividend over time.
We are combining targeted investments and targeted growth with a strong commitment to maintain a healthy balance sheet during that time. Our EVOLVE strategy provides a clear and actionable roadmap for sustainable growth, not only through 2030, but well beyond. With our strong position and strong foundation, we are well positioned to evolve and our strategy is built to deliver. With these final words, I would like to thank you for your attention and hand back over to you, Linda.
Thank you, Marc-Simon. Now is time for our full Q&A session, so I would kindly ask Kati and Stefan to join us on stage. I would like to remind the audience that during this session, we'll be taking questions from the live audience via chat function, and also we will be opening the conference call lines.
Maybe I will just start with a short question from the chat function related to defense. The defense industry is booming within the European Commission while they are looking for solutions with minimal environmental impact. How Outokumpu aims to harness this momentum?
Good question. I think I turned the presentation a little bit covered that already, but like I said, these big investments coming into the defense industry require more suppliers to come into the pool of supplying, and there is also product development needed. We are actively developing new products in this area. We are mainly as Outokumpu with the stainless steel in protective materials. We do deliver already in helicopters, submarines, and some other areas that I cannot always say. I do see really potential for stainless steel because indeed it is a strong but light material.
It can be bent instead of welded, and it offers a lower carbon print and low maintenance. I am sure there will be also demand coming to our direction, even though the carbon steel is the traditional bigger supplier to that segment.
Thank you, Kati. You basically answered the next question already. Do we have any questions in the live audience? If yes, please raise your hand and my colleague will bring you the microphone. Okay, Tom.
Thanks. Thanks for taking the follow-up questions, I suppose. Probably both of you, Marc-Simon, just on that presentation. The uses of cash charts, I thought, were very interesting. If I back out what you were saying about EUR 600 million around maintenance CapEx and scale that up for the remainder of those columns, you are spending about EUR 550 million a year. Consensus only has around EUR 200 million free cash flow.
I mean, is consensus just way too low, or do you think you'll need to rely more on financing? I suppose if you do, could you talk a little bit about your priorities between shareholder returns, transformative investments, and then the foundational, I suppose?
Yes, indeed. What I mentioned before is that most of the investments will be funded through our own cash generation. I cannot comment on the consensus and so forth, but I can only give the confidence that those are being funded through that one and that we will maintain a balanced approach to what is leveraging, which is also very clearly defined in our new financial target. On the one hand side, the target is one time, but also providing now a certain flexibility to invest into growth. While saying this, also very clearly indicating a ceiling of that here as well.
That probably should give you a good indication of what we think about our cash generation going forward. You had a second question that was on the priorities. Of course, we need to ensure that we maintain our assets healthy and therefore mandatory maintenance. Also, the investments into our foundational part are critical here. As one example, a very concrete example, out of this foundational box, EUR 200 million goes into the new annealing and pickling line investment here in business area Europe to drive our EBITDA performance. As such, those are very important also to be able to fund and finance. At the same time, our dividend, our updated dividend policy says that we are aiming to pay a stable and growing dividend, and I do not see any reason why we should deviate from that one.
At the same time, of course, we need to acknowledge the cyclicality in the market and our investments. I want to reconfirm that we aim to pay a stable and growing dividend.
Thank you, Marc-Simon. I also have a few CapEx-related questions coming through the chat function. What CapEx do you expect for year 2026 and years beyond? How much investment is required to unlock this EUR 250 million EBITDA uplift?
Sorry, what was the question again?
What kind of CapEx are you expecting for years 2026 and years beyond, and how much investment is required to unlock this EUR 250 million EBITDA uplift?
If I start a little bit, we will confirm our CapEx annually. That will come more towards the end of this year when we will confirm what is our CapEx spend next year.
What we have given now is the frame that we think we will need during the five years for mandatory maintenance. The CapEx will come forward yearly. We are not giving the full CapEx frame for the five years. That would be too difficult to do right now.
Yes. When we refer to the EUR 250 million EBITDA improvement, I have said that those are coming and being foundational in nature, being supported by those investments which we are planning to do. At the same time, I also gave guidance on how to think about the size of the boxes. Mandatory maintenance is the EUR 600 million bucket. If you look at the slide, the foundational part is a bit shy, a bit lower than that amount.
Thank you. How much CapEx is there needed for the Avesta melt shop?
We are now just starting the feasibility study. It is a bit too early to confirm that. Just to give you the ballpark, like I said before, it is not this huge investment in hot rolling equipment because we have it. The melt shop investment, depending on what the design will be and how we look upon that, would be somewhere around EUR 150 million, maybe a bit north of that.
I think I gave also a bit of guidance on these two transformational initiatives, which we have clearly identified, and that range applies to both initiatives until 2030.
Thank you. One more CapEx-related question. What is the CapEx timing and schedule for the Tornio EUR 200 million CapEx investment? Will there be any spend this year?
Like I said, we will still need to finalize the basically more detailed engineering.
I would think that the final decision on that, how we do it exactly, will happen this year. I think the most part of the spend will be in 2027, some of it in 2026, and a very small amount this year for the engineering study.
Correct.
Thank you. Do we have any questions in the live audience? Yes, there is one on the third floor.
Yes, thank you. Antti Koskivuori from Danske. I would like to ask about the normalized EBITDA. I mean, EUR 750 million-EUR 850 million annually, very impressive number compared to historical Outokumpu's EBITDA. How should we think about it? I mean, earlier, of course, we talked a lot about what is actually normalized EBITDA. And if I remember correctly, then it was about normalized or historical pricing levels close to EUR 1,000 per ton as a base price.
Now, whereas now in Europe, I guess we are approximately half of that. What should we expect as a kind of normalized market conditions at this point? What are you referring to?
Yeah. So basically, Antti, very good point. And it's, of course, I acknowledge that it's difficult while we finalize 2024 with the EBITDA, which we said, and this is also why I said we have to acknowledge where we are coming from. Definitely. Having said that, we consider also 2024 being the bottom of the cycle, first of all, also when it comes to demand, and we expect the market to recover. The market will remain volatile. I'm not saying that we expect those years of 2021, 2022 to recover, but equally as well, the level of this EUR 200 million-EUR 250 million is not the new normal here as well. You do see a volume recovery.
You see a certain price recovery. We will have a lot of discussions also with the European Commission and new discussions coming here, but also our ability to further leverage on our unique asset base and further improving the profitability with the very tangible investments we are having makes us very comfortable in these numbers going forward.
Sorry, if I may follow up on that, the AB investment in Tornio and the EUR 70 million EBITDA improvement, is that EUR 70 million on current market conditions, or is there an expectation of price improvement, for example?
It is a bit of a mid-cycle number, because the fixed cost improvements are the same. It does not matter what the cycle is.
But then there is, of course, the possibility we can have an annual improvement that's higher than EUR 70 million if we are in a high cycle, and it's a bit lower, maybe EUR 50 million if we are in a low cycle. I think the EUR 70 million is over the time quite a good estimate what it will bring annually.
All right, thanks. Very clear.
Thank you. Any other questions from the live audience, please?
Thank you. Joni Sandvall from Nordea. Maybe a question on the footprint optimization and also maybe related to customer segments. Do you see any risks with this footprint optimization regarding your, let's say, servicing capabilities towards your customers?
No, not from that perspective. Basically, the key reasoning here is we are also adding 20,000 tons of capacity with the new annealing and pickling line. That's not the reason of making the investment.
The reason to make the investment is one side, it's the fact that it's a 50-year line, what we currently have in Tornio, and it's just time to replace it. Before you do something like that, as we at the same time want to improve the competitiveness in Europe, we have looked at the kind of total footprint and said that, okay, what could we do if we do this investment? This investment increases the capacity a bit, but it also increases the capability. We can do a broader product portfolio than in Tornio, which is our lowest cost asset base, taking advantage of the full integration of what we have in Tornio. Remember also today, the energy cost is half of Germany. Again, to get the benefit out of that investment, we take two less competitive lines down.
We are also, next to that, what we did not talk about much today, Marc-Simon mentioned very shortly, we are doing quite a big, we call it grayfield recharge operation, where we are outsourcing positions and where we are really putting efficiency in the organization. That is what you see in the figures that we provided in the press release that we will take as a provision. We are constantly in Europe. It does not matter whether it is advanced materials business line or stainless Europe business line. We are constantly looking at how can we optimize our asset base and what is the capacity we should carry over the cycle. Because the more capacity you have, the higher result you can, of course, have in a high cycle, but you carry that cost through the low cycle.
I think we have to find the optimum to do that.
Okay. Maybe a quick question on the safeguard measures here in Europe. We see the, let's say, tariffs increasing into the U.S. Is there a risk of higher flows of low-cost Asian products to Europe?
There's definitely a risk if the 50% tariffs, they didn't move the needle, the 25% tariffs for ASEAN importers to the U.S. didn't really move the needle. If the tariffs in the U.S. stay at 50% towards the ASEAN importers as well, it will put pressure on Europe. That is exactly the discussion we've been having and pushing the European Commission really to understand how timely this discussion now is and that we can't really wait as an industry. We're doing what we can to push for that.
Thank you.
Maybe just to add to that, that's a negative side, the trade issue and that we can clearly get better trade protection in Europe. The positive side that should come that I mentioned earlier is CBAM that is coming 2026. We do not know exactly how effective that system will be, but we have also discussed that with different cabinets in the Commission to try to close the loopholes that the system could have. If you look at our carbon footprint in Outokumpu, 75% low in stainless steel, 65% low in ferrochrome, it has to start supporting also our pricing and our business. This is what we've been waiting for, that we get this. The Commission has promised to create lead markets in green steel with certain criteria that would, for instance, in public procurement, then support buying European steel.
I cannot imagine that the defense industry would cooperate in innovation with a Chinese steelmaker. I think there are certain elements that should also support the demand for European steel once the market also starts to recover and investments come in.
Based on what we all heard before, I think Outokumpu is very, very, very well positioned in that market space.
Thank you. We have received a few questions about the dividend policy via chat. First of all, dividend policy, is it a progressive dividend policy? Specifically, is there an intention to grow the dividend each year?
Yes, I think very clearly stated that we are aiming to pay a stable and growing dividend over time. Of course, it provides also with the flexibility here, as you can see from the dividend policy as well.
I think the importance is over time to progressively increase the dividend going forward.
Thank you. Another question on that. Stable and growing dividend over time, meaning starting from the current level or based on a new baseline to be defined?
Based on the current level.
Okay. Thank you. Do we have questions in the live audience? Yes. There.
Yes, Anssi Raussi from SEB again. One question, and it is relating to your M&A ambitions. Last time, was it three years ago, you said that you have no ambitions regarding, for example, scrap-related acquisitions, but has something changed, or is it more about technologies in specialty grades?
We have not changed our mindset here. We place a lot of value on our partnerships with which we have with all our scrap suppliers.
We have made a small acquisition in one of them, CRONIMET, here, given the proximity to our sites, which we have in the northeastern region. We are not intending and planning anything in that area. We are very happy with the current setup. Yes, those M&A considerations might then be there in our transformative initiatives, which we just mentioned before.
Basically, no need to strengthen in other areas of supply of resources?
I think we, as we said, are very well covered on all the initiatives which we have taken.
I think clearly we are the ones who, given also our nature and unique asset base with our own chromite ore mine, we and together also with Stefan and the new technology, I think a real differentiator for us is that we are having a strong focus and angle on primary raw materials, basically, which, based on what and how we see, are very crucial and important to be successful in that market and also in the markets in which we want to develop even further.
Thank you. Was there another question? Yes, please. Adahna.
On the EUR 250 million EBITDA uplift, you have outlined EUR 70 million, roughly from Tornio. Could you help us with the split for the rest of that across BA Europe, Americas, and ferrochrome if you have got more detail?
Yes, absolutely.
I would say that roughly 50% of this EUR 250 million savings comes from business area Europe, and around 25% or 1/4 is from business area ferrochrome, and then the remainder is on Americas and also the corporate level.
Thank you. There was actually another question in the chat about these EBITDA run rate improvements. What is the timing of these EUR 250 million gains over the couple next years?
I guess we were saying it's a run rate improvement, so it should be pretty much in towards 2030. The investment then in AP line, for instance, with the EUR 70 million improvement on annual EBITDA. Once the line is running, then we're getting that out, and we are now waiting for the investment decisions to finalize the more detailed engineering study on it.
I think building up the line is probably two years, and then we start reaping the benefits.
Yeah. The majority of these savings are expected to be kind of mid-cycle.
Yeah. For instance, what I said earlier, some of the outsourcing and flexibilizing initiatives we are taking in Krefeld, we have negotiated that, and we start implementing that now. Certain things start right now.
Yes.
Thank you. Any questions from the live audience? Oh, Tom.
Sorry, just one quick follow-up. The bridge right to EUR 750 million and EUR 850 million is just with the foundational investments.
That is correct.
For the transformational investments, do you have any sense of what that could add and timing-wise when you might be able to communicate that? Because I guess you are sort of saying there is upside basically to the EUR 750 million- EUR 850 million number.
Yes.
If you looked at a bit what Stefan was showing on the, if we look at the technology, the next step for us would be to establish pilot line. We are planning to do that in the U.S. By summer 2027, I think we would know that the technology really works in that one-ton scale. From there, we can go to industrialization. There you can see that the benefits would come more towards the end of the strategy period, being somewhere maybe starting, what would you say, 2029, something like that. We have so many things still to confirm that although I'm very confident and I'm really excited about the new technology, I do not want to hype it too early. That is why I'm saying we're keeping our feet on ground and we go step by step.
Sorry,
if we're just thinking about probably a potential value creation over here, Stefan has shown basically the value ladder a bit. You might think about, okay, what is the differential or increased contribution margin which such a technology commonly can provide? You know a lot of data from us, what are our capacity? You need to combine this a bit with what are the applications, what is the, for example, the chromium metal market capacity and the needs going forward. By the way, chromium metal is an important element of the jets of the engines of the fighter jet. That is one application. You probably can grasp a bit of an idea.
I guess that makes sense.
You were saying that the sort of industrial scale will come probably next decade, but I think the high nickel alloys is also part of transformational. There it looks like feasibility study will be a bit quicker, as you say, that the sort of capacity is in place. Any idea of what that might add if it's not already included in the EUR 250 million level?
Yeah, I would prefer to come back on that once we make the investment decision. We just started the feasibility study now. I see the potential in that. Let's confirm that, what the timing is and when we expect what once we make that decision.
I think we clearly identified also what we expect as a minimum internal rate of return.
Yes.
Thank you.
I will still take one question from the chat function, and after that, we'll open the conference call lines. Your net debt guidance and your CapEx guidance suggest that you have limited capital headroom for M&A. Is it correct to conclude from your presentation that you consider your organic options to be more value-accretive than M&A and M&A is not a strategic priority?
I think it's important to really understand the, again, sorry, I come always back to that point, the uniqueness of our asset base. When we think about high nickel alloys business, for example, then you might think about, oh Jesus, that requires an investment of a EUR 1 billion or EUR 2 billion or you name it. We already have a very, very strong asset base in place.
We are talking about, and we gave also a bit of a ballpark, what additional investments for capabilities in our melt shop we need, small amounts in order to invest or to enter into that market over here. I think that is important to understand why this is then also value-accretive to us and maybe not for others, first of all. We are not, in a sense, limiting ourselves and saying that by no means we are not looking into M&A or whatsoever opportunities. Again, we are looking into it. We take a prudent approach. It needs to make strategic sense. We need to have a strategic industrial concept and fit to the company. Also, from a valuation point of view, we need to ensure that with our existing asset base we can reap then also the financial synergies out of a potential equity.
Maybe to that, to that a bit like how I also look up on things. We are looking now in feasibility study at this Harvester Investment. Of course, we compare that opportunity to would there be something on the market that would give us a faster path or would be better. We do that comparison. Right now I'm thinking that Harvester might be the better option. We do that comparison.
Thank you, Kati and Marc-Simon . Now let's open the conference call lines and see if we have any questions there. Please, operator.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Bastian Synagowitz from Deutsche Bank. Please go ahead.
Yeah, hi and good afternoon all. Thanks for taking my questions. My first one is just a quick follow-up actually on the Krefeld strategy and what you're doing there with the new annealing line. First of all, I'm wondering what is the FTE reduction you're planning with this relocation of the annealing line? Is it fair to assume around 500 heads just looking at the restructuring provision? Also, is there an actual capacity reduction built into it just for the current conditions in the European market? That's my first question.
I can maybe give some color on that. I talked about the outsourcing and streamlining organization in Krefeld, which we start implementing right now. That's not linked to the AP line in Tornio at all. That will reduce about 100 positions in Krefeld, mainly through the outsourcing.
Then when we have the new AP line in Tornio operational and take down the two less competitive lines in Krefeld, that will reduce about 50 persons in Krefeld at that point of time. It is about 150 people that are impacted by these two actions.
Okay, thank you. Is there a net capacity reduction as well, which you are going for?
No, there is no net capacity reduction. Actually, the new AP line in Tornio will be clearly more efficient, have more capabilities. The capacity will be even a little bit higher. Like I said earlier, that is not the reason we are doing the investment.
Okay, understood. My next question is on your growth strategy for the U.S. What are the areas of growth you are aiming for here beyond stainless you are talking about?
We are still exploring what they could be beyond stainless steel.
Like I said today, we absolutely also see that if we now move to high nickel alloys, we have opportunities in that area also in the Americas. When we develop our new technology and move towards green metals, there are definitely opportunities in the Am.ericas on that as well. We also continue to explore what else there could be and how we can leverage the number two position we have in the U.S. What is the new message maybe today is that as in Europe, we are not planning to grow in standard stainless steel. The same goes for Americas.
Okay, okay, got you.
And then maybe lastly, just coming back to a point which was made earlier, if I may, I guess if we look at your mid-cycle numbers here, they do look very, very confident, obviously, just versus the recent and the current run rates, I guess, which you've been delivering. I guess that also in the context of a European market, which looks very, very challenging, also looking throughout the entire PA landscape. What drives the confidence? Are you looking for CBAM as a major step change catalyst to your numbers?
If I start on that, I understand the question coming because we come from such challenging market conditions and low point. Remember also that when this market starts moving, it moves fast up. I talked a little bit earlier about the macro trends and geopolitics that should be supporting our business going forward.
It's not that we calculate it in our numbers, we get X million from CBAM, but we should start seeing CBAM supporting us when there's a carbon border adjustment on the European border in 2026. I would also hope the European Commission now developing these lead markets should drive demand then for European steel. It's not that we put a number in our estimates from that.
Okay, understood. Thank you.
The next question comes from Maxime Kogge from ODDO BHF. Please go ahead.
Yeah, good afternoon. Two questions on my side. I will start with the first one. It's on chrome ore. Can you provide a sense of the volumes that you will now be able to sell directly to customers? I know that in ferrochrome, you sell approximately 1/3 externally and 2/3 go to the internal production chain.
Would it be the same proportion for chrome ore? And can you also remind us of the position of your chrome ore activity on the global cost curve? I think ferrochrome is on the first quartile, and is it fair to assume that it's the same for the chrome ore activity?
I think it was on the split on the supplies. Why do we?
Y eah, I'm trying to maybe understand that I heard you right. Let's put it like that. Was the first question about the split, what we sell internally, externally?
Yeah, in terms of chrome ore, not in terms of ferrochrome, but in terms of chrome ore going forward.
Sorry, chrome ore we don't sell.
No, it's ferrochrome. Chrome ore we don't sell. The question was, where do we deliver our ferrochrome?
Currently we deliver about 1/3 to the external markets and 2/3 of our ferrochrome production internally. Chrome ore we do not sell.
Yeah, I understand that. From now on, you have said that you will become a direct partner of the ferrochrome industry. You will now sell some ore directly, if I am not wrong.
No, that is not what we said. No.
Okay. I had understood that you would change your strategy in terms of chrome ore.
No, what I was trying to say is that we have more capacity that we are not utilizing today in the ferrochrome production. As the demand for our sustainable and geopolitically compliant ferrochrome increases, we can sell more ferrochrome to the external market.
We are developing our customer base on the external market, and we do not need to invest in capacity to be able to do that. That was probably the key message from our current ferrochrome business. I think Marc-Simon added that we have also opportunity from current base already to develop our product portfolio on ferrochrome. The big step change is with this new technology that we are not limited to the ore quality of 53% chromium content, but we can go basically to any chromium content that we choose depending on which market and premium is the most interesting.
If we think about this 1/3, or just give a number, 150 kilotons, which we currently sell to the external market, this is 53% chrome content, right?
You need to, or can then calculate if we were just going to nickel metal, which is then 100%, how much less in terms of tons you are basically able to produce when you enrich basically your chrome content in here.
Okay, okay. Because in yesterday's press release, it was written that you were increasing value from the chrome mine and repositioning from an internal supplier to an unrestricted market player. That led me to think that you were now targeting ore sales and not just ferrochrome sales to third parties. That's fine. Just a last question then on your Mexican asset.
I was wondering what could be the strategic future of this asset within Outokumpu because we are now seeing a massive risk of deflection of steel from the U.S. and Europe to Mexico and other emerging countries with higher tariffs. Do you think that this asset still has a future and can earn its living profitably?
What was your last question? Do you think that what has a future?
The Mexican asset, Mexinox.
Yes. Of course, it's to be seen, but we had also earlier here a bit of a discussion that my understanding of the current discussions now is that Mexico and the U.S. are negotiating on the 50% steel tariffs on the border.
I kind of believe that this goes to the direction that it is the U.S. MCA Border that will be protected and that there would not be tariffs between Mexico and the U.S. because it has such a big impact for the whole value chain to the U.S., whether it's carbon steel or stainless steel. This is to be seen, of course, and that would be the best solution for us because then we can also more flexibly use the Mexican cold rolling capacity either for the Mexican market or for the U.S. market.
Okay, that's clear. Thank you.
It seems that we do not have any more questions through the conference call lines. Do we have anything in the live audience? Apparently not. I will take two more questions from the chat, and then I think we'll be soon running out of time.
First of all, is there any share buyback program under discussion? And what would trigger higher capital returns?
No, there are no discussions on share buybacks right now at the moment.
The other one, what would trigger higher capital returns?
Of course, in terms of capital returns, I would assume that this is the shareholder value-related question, right? Here certainly our way going forward with our improvements and our EBITDA coming and streaming from the foundational investments, but also entering now into the growth area and making, first of all, on the one hand side, investing into growth very clearly with higher margins, but also clearly saying that we are working towards reducing our cyclicality or dependence on the cyclicality makes us less cycle business going forward.
Thank you.
More resilient.
Thank you very much.
Then as a last question, this is more of a general question. Could you please give us an update on the ferrochrome market at the moment?
Maybe a short update is that, like I said, demand for our ferrochrome is clearly increasing. The announcements now from South Africa and Zimbabwe that capacity is taken down has increased already the demand for our ferrochrome. It looks relatively good at the moment. This optionality what we're creating, I think, should develop it further.
Thank you very much. As it seems that we do not have any more questions, I would like to thank you all for following our event today. I would like to hand over to our President and CEO, Kati ter Horst, for her closing remarks.
I think you could see it also a little bit, but I'm extremely proud of the strategy that we have developed together with the whole Outokumpu leadership team. We really own this strategy, and we are really going to deliver that as well. We're very committed to deliver on it. You heard about our foundational business. That is the cash generator. That is the one that will help us to reach the stepwise change in our profitability improvement like we have done in the past. It will deliver these EUR 250 million. We are looking at growth in the transformational areas when we discussed today, especially the high nickel alloys and then this new technology that opens a lot of floors for us.
Even though this transformational part is very exciting and has a lot of potential, I continue to repeat that we do stay with our feet on the ground and we will go step by step. Of course, we will then inform the markets as we have more to tell and give more details on that journey. I would really like to thank you all for being here with us today. I extremely appreciate your time and your interest in our new strategy. Outokumpu will continue to evolve. I think this now concludes our today's webcast. I look forward to talking to you then during our Q2 webcast, which will be in the end of July. See you then. I would say bye for now.