Outokumpu Q3 2021 Webcast transcript

Transcription

Outokumpu's Q3 / 2021 Interim Report

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04 November 2021

Outokumpu's Q3 / 2021 Interim Report

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PRESENTATION

Linda Häkkilä

Hello all and welcome to follow Outokumpu's Q3 2021 Result webcast. My name is Linda Häkkilä, and I'm the Head of Investor Relations here at Outokumpu. With me today we have our CEO, Heikki Malinen, and our CFO, Pia Aaltonen- Forsell.

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, without any further comments, I will hand over to our CEO, Heikki.

Heikki Malinen

Thank you, Linda. Good morning, good afternoon to everybody and welcome also on my behalf to this session to discuss Outokumpu's third quarter results.

Let's get straight to it. So, adjusted EBITDA of €295 million. This is in fact the best quarter in a long time and if we look at our figures for Q3 compared to, for example, the annualised results for 2015, 2019 or even 2020 for this quarter was even more than for those three years combined. It just shows how challenging the history in the past decade has been for Outokumpu.

It's been a truly exceptional recovery from the COVID bottom last year when actually last year in the third quarter, our adjusted EBITDA was only 20 million and we also, on an annualised basis, last year recorded quite a substantial loss.

While the annual demand in our global market for stainless steel, probably this year, are not going to be, at all-time highs in terms of total volume, it's still quite amazing the speed by which the demand is actually increased in such a short time in a situation where the global supply chains for stainless steel were actually fairly low when we came out of the COVID crisis in the fourth quarter of last year. And what's also quite amazing is that the rebound continues to be so robust, and we're now sort of three/four/five quarters into it and still the customers and the markets are very sort of confident that this continues.

Our execution within the company regarding our strategies moving very well forward; we're somewhat ahead of our schedule, and as Pia will show later today, we're making good progress and hence we've decided to raise our Phase One EBITDA target run rate target from 200 million to 250 million.

At this stage I also want to thank all Outokumpu employees globally for a fantastic job done. It is really tough to deliver stainless steel when utilisation is at maximum. We have all the challenges on logistics and really serving customers; it's a 24/7 job, it is very demanding. So I raise my hat to the Outokumpu people for such a good performance.

Sustainability is at the core of what we do at Outokumpu. We are the stainless-steel industry's sustainability leader, and we are also seen as a benchmark in many areas. I want to highlight on the left-hand side our safety performance where we made substantial improvements over the last years. Obviously, our challenge is to have zero accidents in our facilities

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and I'm actually very proud to tell you that we have a number of facilities within Outokumpu where we actually have achieved zero accidents and in some of them for quite a long period of time. And we will continue further our work to push that number even lower.

On the ESG front, I'd like to mention or report to you that we have just completed our organisational Health Index survey, which we do annually. It is a survey where all employees participate. We actually have a very high participation rate, and the data is actually then benchmarked against McKinsey & Company's global reference database of 900 companies with similar backgrounds. I will report back on those results in the fourth quarter once we have had a chance to analyse the data in more detail.

We are investing in high-quality leadership within the company. We very much believe in good leadership, good empowerment, being inclusive and then making sure all employees within Outokumpu feel that they have a good chance to contribute. Diversity inclusion is becoming more and more important. I want to highlight that in the Americas and Calvert specifically, we have initiated a number of projects to further improve our DEI or Diversity, Equity and Inclusion so that people are even more committed to work with us or for us.

And we are actively working with our suppliers with the initiative, or intent, to make our sourcing more responsible. We are focusing on human rights issues. We're doing our best to make sure that our sourcing is as responsible as can be.

This week, as you all know, world leaders are meeting in Glasgow to discuss how to tackle global climate change. I'm very proud to tell you that Reuters has decided to choose Outokumpu as a case example that they will be highlighting at their Vision 2045 conference or summit next week showcasing Outokumpu as a global leader in climate change.

I also want to remind the audience and remind you of the fact that Outokumpu is the only steel company globally that has committed to SBTI or Science-based Targets Initiatives; targets which are aiming to keep global warming at less than 1.5 degrees, and we are now in the process of finalising our targets with SBTI and I hope that the next time we meet I can then confirm to you all the details that we have agreed with SBTI.

When you look at the CO2 emissions, it is important to not only look at scope 1 and 2, but also look at scope 3. We really believe that it is not sufficient just to focus on one part of the value chain; you have to look at everything and, as I said, we report openly and transparently our emissions end to end.

In the third quarter, our recycled content remained high. We added more to wind power, and we have made good progress in focusing and improving our yield even further. And as you know, the more we get yield up, the more we conserve energy, we conserve raw materials. And it also, of course, improves our cost competitiveness.

The trade topic has been an issue over the last few years. Obviously, that's the reason why we have felt a need to highlight it in each of these webcasts. As you know, over the last 12 months, the European Commission has taken some firm decisions to try and create a more level playing field in the industry. Decisions regarding antidumping duties on China and Taiwan are in place for five years and also similar duties are in place for India and Indonesia. I really feel good about the situation now, in the sense that trade is becoming more level.

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On this chart on the left-hand side, you can see import data from third countries into Europe. The green line gives you the share of imports. It's now been fairly stable at around 26%, which in our view is sort of a more level phase. On the right- hand side you can see the data for the United States. There the import share at the moment for the third quarter was 20%.

And a few words about pricing. As I mentioned in my opening, following a really remarkably strong COVID rebound and increases in metal prices, energy, consumables, and also freight, it is obviously clear that, or not surprising, that prices are rising. But I want to remind you that if you looked at this chart 12 months ago, our price level was at a decade or even more than a decade low. That's really how deep the trough was last year.

The chart on the left-hand side shows you CRU data regarding spot prices. Naturally in a very tight market spot prices have a tendency to move, often even strongly in either direction. The CRU reference base-price data on the chart and Outokumpu's data are not comparable one to one. The reason being our contractual structure and also our product mix. So, a direct comparison should be treated with care.

On the right-hand side, you can see information regarding metals. This has been a year where metal prices, nickel among one of them being very volatile. We've seen really swings of one, two or three thousand dollars per tonne up and down. For Q3 it was up 10%.

So overall, against the backdrop of a very strong market, good performance in our plants, we've been running full across the whole mill system, and we've really worked hard to get our costs down. The restructuring we made earlier this year, reducing headcount by a thousand and then the other continuous work on cost, basically then delivers, I'd say, a result of 295 million.

Pia will go through the details in a moment. I said we've had ten tough years. This year's performance so far and given the guidance I will share in a moment here, really just shows that we are now able to move forward with the strategy and the development of the company and really continue with de-risking. And as things go at the moment, and with the good momentum we have, we have indeed made a decision that we will raise the EBITDA run rate target from 200 million to 250 million.

And before I give this over to Pia, I want to highlight or underscore the points at the bottom, which means that deleveraging will continue through the first phase of the strategy, even beyond the initial target. Remember, we had committed ourselves to getting net debt to EBITDA below three. We are now clearly below that, and we still intend to move it even further down lower. Now, why is that the case? Well, we are in a very cyclical business, and we know from history that the swings can be quite dramatic. We want to make the balance sheet very resilient and really, now is the time to reduce the debt when the going is good.

So, with those comments, I would like to hand it over to Pia, please.

Pia Aaltonen-Forsell

Thank you, Heikki and good afternoon, good morning, also on my behalf. So, let's share a few more deep dives here. First on our strategic journey and the financial targets there, and then also a bit on the quarter.

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Looking here first at the strategic targets that we have had, the financial target, of improving our run rate EBITDA with 200 million, let's first look at this programme that we had and then the progress also that we have made. So, first of all, we've had a good start in Q1, continued in Q2 and in Q3. So, on a cumulative basis, we have now got up to 163 million of run rate savings.

And I have the next slides for those of you who like to use the ruler and look into the different buckets. We'll get into some more detail. But I first want to touch on the point here. What are the tools and how we have reached there? And I first want to say we have indeed already completed a number of projects. So actually, 827 initiatives have been completed by now. But we are also in a continuous ideation process relating to further improvements. Based on analysis that we did a year ago, and then also really based on the momentum that we have built inside the company and the engagement of the team.

So, Heikki has already shared his sincere thanks to the whole team for the great results we have achieved. And I also want to say that these achievements of €163 million of EBITDA run rate improvements were only possible because there's a really great number of people within Outokumpu who have committed. And I'm sharing with you these details of the number of initiatives in the pipeline really to underscore and to illustrate the point that to achieve such savings, you really need the full team.

There are a lot of savings, but there are also commercial improvements. So maybe I'll take us to the next slide here and show you the buckets, so to say, of the different savings.

So, you see that we started off strong with the reductions here from lean and agile with, I mean, a big amount of savings already in the first quarter and then tapering off a bit towards the second and third quarter. And we now have about 10% remaining of the lean and agile organisation-related improvements here from a P&L perspective.

Then you see that we have really been strong on the cost and capital discipline, which is the various areas of improvement, operational improvements. Heikki has spoken about the yield, but there's also a number of other improvements, whether it's reduction of packaging materials or whether it's various [? 00:14:47] improvements, or maybe on the commercial side, topics such as a new web shop, for example. So, these are then examples that you see sort of growing in importance here over the quarter.

And if we look then into the new targets. So, we have improved or increased our target from 200 up to 250. And you see that when we look at the three different areas of improvements, there are no changes to the lean and agile from the initial programme. But we are raising the commercial excellence targets with 20 million and we are also raising the cost and capital discipline-related targets with 30 million of impacts. And we have been through a lot of diligence and a lot of work with our teams to make sure that we are comfortable raising the target. And I would say we have the right momentum as we speak to do that right now. And just one repetition from the initial phase of this programme. This is all self-help. This is not market based and these are things that we have in our own hands.

But then let me take you through some of the highlights, really of the financials of the quarter and of the year-to-date figures in September.

And obviously, looking here into the KPIs, first, just looking at the comparison of the EBITDA of €295 million in this quarter and then compared with 22 million a year ago, this improvement certainly comes through in all of the BAs and I will soon walk through the BA specific changes, especially then highlighting the changes, obviously with the previous quarter. You

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