Full Year 2024 Outokumpu Oyj Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ioannis Masvoulas - Morgan Stanley - Analyst : Two questions from my side. The first on the US cold rolling investment that is not going ahead. This was arguably one of the most mature and capital-efficient growth options in your portfolio. And as you indicated, the US market in terms of the underlying fundamentals on the demand side and the supply deficit in the domestic market look quite attractive as we've seen on the pricing side as well over the past few years as compared to other regions. Can you elaborate a bit more on the underlying reasons for your decision not to go ahead? Was it mostly a function of higher CapEx than you originally anticipated? And is it fair to say that without tariffs, project economics no longer look compelling? And maybe I'll stop here for the first one.

Question: Ioannis Masvoulas - Morgan Stanley - Analyst : And the second question is on Mexinox. You've got 250,000 tons of cold rolling capacity in Mexico that relies mostly on hot-rolled imports from your Calvert facility in the US. In a scenario where we see US and Mexico erecting 25% tariffs to each other, how can you reposition the supply chain for Mexinox, so it can remain a competitive asset in the years to come?

Question: Tristan Gresser - BNP Paribas Exane - Analyst : Just a follow-up on Mexico. Can you tell us how much volumes you're shipping from Calvert to Mexico and how much then stays in Mexico and how much you ship back to the US?

Question: Tristan Gresser - BNP Paribas Exane - Analyst : Okay. That's clear. So the vast majority of your production in Mexico stays in Mexico then. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 1:00PM, OUT1V.HE - Full Year 2024 Outokumpu Oyj Earnings Call

Question: Tristan Gresser - BNP Paribas Exane - Analyst : All right. That's clear. And just coming back to your options, if Mexico were to retaliate, can you remind us what happened in 2018? And at the time, you had the tariffs of Section 232, but did Mexico retaliate? And exactly how did you adjust your production? What really changed at the time for you in the region?

Question: Tristan Gresser - BNP Paribas Exane - Analyst : Okay. And then when we look at the US market in general, you mentioned the import pressure, but you also said that you're pulling this investment in the US. And I think you're also warn of potential demand destruction from the tariffs. I just wanted to make clear, are those tariffs a positive for your business in the Americas? And if 50% of the import volumes that used to come in the US were not paying the tariffs are not paying it, it should be a positive. So do you expect to see higher base prices like in 2018? Or would you see the situation a bit differently from last time around?

Question: Tristan Gresser - BNP Paribas Exane - Analyst : All right. And then if we look at the margin progression in the US, would you expect to hit the EUR170 million target this year? And can we already see maybe a return in Q1 and Q2 of the margins of last year levels? Is that fair?

Question: Tristan Gresser - BNP Paribas Exane - Analyst : Okay. So you -- in terms of margin pressure, should you see any more squeeze into Q1 with the lagged effect? Or it's more a stable-ish kind of development on the margin side?

Question: Tristan Gresser - BNP Paribas Exane - Analyst : All right. And maybe just -- that's clear. And just the last question on Europe, would you expect to be EBITDA positive in Europe and kind of the same question as in the US. It looks like there will be some pressure on prices, but to have a more definite and precise vision on cost is always a bit tricky. So curious to hear your thought if you think the division came and turn EBITDA positive as soon as Q1.

Question: Anssi Raussi - SEB - Analyst : And I have a few questions left. But first, if I start with your Q1 guidance, so you're guiding somewhat, I would say, exceptional volume growth for Q1 compared to the seasonality in the recent years. So have you seen a clear uptick in an underlying demand? Or is it something else like inventory buildup in the US or just extended maintenance breaks in comparison period? Or do you see something, let's say, extraordinary here?

Question: Anssi Raussi - SEB - Analyst : Okay. Got it. And then about your decision to cancel this cold rolling investment for now. So you say here that these new tariffs could have an impact on your analysis, but when do you plan to reassess this investment? And also, I think you mentioned that this decision to cancel this investment plan allows you to direct your capital into other areas. So what areas you're seeing which would have a better return on capital?

Question: Anssi Raussi - SEB - Analyst : Okay. And lastly, one simple question about your working capital in, let's say, Q1 and the first half of 2025. So do you think that your current inventory levels are, let's say, normal or maybe some excess inventory still? Or how do you see the situation? And of course, I'm thinking your cash flows here.

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : I've got a couple, and I'll start off with volumes. So just looking at the 10% to 20% volume guidance, that's obviously a lot. Can you maybe give us a little bit of color on whether you're feeling more comfortable about the volume uplift in the first quarter in either the US or Americas? Or is this very, very similar what you're seeing? That would be my first question.

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : Okay. Understood. And then just if we extrapolate that to the commercial side, I guess, 10% to 20% volume uplift, that's a lot. And I guess on the other side, when we look at prices, particularly into the late last year, they've been obviously under a lot of pressure, but it would be generally hard to imagine that there is a 10% to 20% uplift in volumes without at least some positive traction on the pricing as well. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 1:00PM, OUT1V.HE - Full Year 2024 Outokumpu Oyj Earnings Call Do you start to see or feel more positive about the pricing side as well? Are there any actual tangible improvements you would already see in the first quarter at this point?

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : Okay. All right. But I mean, we can put it the other way around. I guess if there's a 20% uplift in volumes, if you can't capture it via pricing, I guess there would be a commercial issue. So I guess from that, I would infer that probably should have been a little bit of pricing power moving back to the mill side in Europe?

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : Understood. Okay. Great. And then just following up briefly on the cost situation in Europe. I guess you mentioned that there has been a bit of a headwind here from the replenishment of inventory and input factors probably after the strike, which has impacted in Q4. So I'm not quite clear. Is this a temporary headwind and more of technical nature and that will unwind into Q1 or the quarters ahead, so will be more of a tailwind from here? Or is the current level you've been running at more or less what you've seen in the first quarter as well?

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : Understood. Great. And then maybe coming back on tariffs here. So you've been discussing about the situation probably more from a US angle. Is there any major exposure you do have from shipping stainless steel into the US from the European sites as well, either Sweden or Finland or Germany. So maybe you can update us what is the actual volume exposure you do have? I'm thinking particularly about things like brightened yield, for example. Maybe you could help us there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 1:00PM, OUT1V.HE - Full Year 2024 Outokumpu Oyj Earnings Call

Question: Krishan Agarwal - Citigroup Inc - Analyst : (inaudible)

Question: Krishan Agarwal - Citigroup Inc - Analyst : Is it better now?

Question: Krishan Agarwal - Citigroup Inc - Analyst : Yeah. Okay. So two questions from my side. First, on the ferrochrome, you mentioned that there was a favorable impact from the electricity cost in the Q4. Do you mind giving us a perspective if those gains on the cost base are sustainable or going ahead into the Q1 or for 2025? And also, what are the pricing trends you are seeing for the ferrochrome, which probably would be applicable for the Q1 earnings?

Question: Krishan Agarwal - Citigroup Inc - Analyst : Understand. The second question is more on the announcement around the nuclear SMR expansion. I mean I sort of reckon that it's early days because you're in the feasibility stage. Is there any kind of color you would have in terms of what kind of time lines you are looking at this particular expansion? And then in terms of how much of the proportion you could probably get from nuclear as part of your overall requirement? And then more importantly, are there going to be any kind of subsidies from the government on this capacity?

Question: Krishan Agarwal - Citigroup Inc - Analyst : Understand. So if I can push you a little bit on that. If you are looking for someone, what is the value proposition you are going to bring on the table? Is it the firm demand from your side or some kind of land availability or something like that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 1:00PM, OUT1V.HE - Full Year 2024 Outokumpu Oyj Earnings Call

Question: Maxime Kogge - Oddo-BHF Securities - Analyst : So my first question is on imports. So in light of the ongoing review of the safeguard mechanism in Europe, which is set to expire at the end of March, have you already seen lower import pressure in Europe as some distributors are reported to have already considerably reduced imports? And conversely, in the US, have you seen higher imports recently given that some people, some distributors and clients are set to rush to import stuff before the tariffs kicking in March?

Question: Maxime Kogge - Oddo-BHF Securities - Analyst : Okay. Fair enough. And the second one is, can you give us a high-level implications for you or the truce in Ukraine, both directly and indirectly if Russia were able to return to commodity export markets? So I think in the past, you had sourced nickel, coal, natural gas to probably from Russia. Is it possible to give any potential financial impact of a normalization in this cost going forward?

Question: Maxime Kogge - Oddo-BHF Securities - Analyst : But net it will be a positive element, as you said, definitely from an economical point of view as well besides certainly the human point of view.

Question: Maxime Kogge - Oddo-BHF Securities - Analyst : Okay. And just the last one is on the convertible bond you still have and which is maturing this year. I think your plan was to settle it in shares, but you're still short of owning all the shares that you would need to do that. So is there any plan to do another share buyback program in the coming months? Or are you going to tackle the situation otherwise?

Question: Ioannis Masvoulas - Morgan Stanley - Analyst : Just a couple of follow-ups. First on SMRs. I appreciate that you're not looking to invest directly and you're looking for a partner. But can you give us an idea on what proportion of your power consumption in Finland you expect to be sourced from SMRs, assuming this project comes into fruition?

Question: Anssi Raussi - SEB - Analyst : Yes. One more from me. It's about your annual contracts. So there have been some rumors that some end users of steel would like to negotiate lower volumes in their contracts or even outsource their procurement. So have you seen any changes in your dynamics with your end-use customers in your annual contracts?

Question: Anssi Raussi - SEB - Analyst : Okay. And I guess nothing major regarding the pricing in these contracts?