Outokumpu Oyj (OUT1V) Earnings Call Transcript

Hello all, and welcome to Outokumpu Q2 2022 Result Webcast. My name is Linda Hakkila, and I'm the Head of Investor Relations here at Outokumpu. This time, we delivered another strong or should I say a record quarter and our adjusted EBITDA reached over EUR 0.5 billion. Our main speakers today are our CEO, Heikki Malinen; and our CFO, Pia Aaltonen-Forsell. But now, before we start with the presentations. I'd like to remind you about the disclaimer as we might be making forward-looking statements. And now, without any further comments, I'd like to hand over to our CEO, Heikki.

Thank you, Linda. Good afternoon and good morning, everybody. Welcome also on my behalf to our Q2 presentation here together with Pia. It's been quite an eventful Q2 for Outokumpu. We saw most of you in June when we had our CMD and we launched the second phase of our strategy. And here, we are now again then to talk about our Q2. And as Linda just mentioned, so Q2 really is a time when we've achieved record level EBITDA against a backdrop of substantial cost inflation which has been going through the whole business secular sector and then, of course, the geopolitical turmoil, specifically here in Europe. Now, if we look at this quarter, so EUR 0.5 billion result and couple of the key points. So, I have to say, I'm very pleased with the strong performance that Outokumpu has been able to deliver. You remember that 2 years ago, we launched a major turnaround strategy which intended to derisk the company and to really raise the performance level of the business. We have been fortunate in the sense that we've had this market tailwind which has helped us really to take the maximum advantage of our capabilities and I think the result we present today to you is clearly just shows that what Outokumpu as a company can do at its best when the circumstances are right. So here, we are very happy with this result. Really amazing performance from the organization. The prices during the second quarter continued to further strengthen and, of course, that did support our profitability. It's been a period of some volatility also on the price side, I'll come back to that in a moment. On the cost inflation side, as we've discussed earlier, it's been sort of an emerging story. Last year, we were able to quite well push back and mitigate the cost inflation, but now as we got into 2022, gradually that cost inflation has been coming through in many different areas and the second quarter was also a time that, especially here because of the Ukraine, Russia war, we had to spend a lot of time, put a lot of energy into thinking about how we mitigate different types of risks. Some of these risks have materialized. Some of them haven't. But in general, it's been a time of a lot of uncertainty and I have to say, we as management have had spend quite a lot of time trying to figure out what might be coming around the corner and what should we do about it, and -- but luckily, I have to say, we've been able to manage very well everything that has been coming our way. So, so far, so good. Now, in terms of the strategy and the first phase as we said in the CMD in June, we've now completed Phase 1 ahead of schedule. I'm very proud to say that we've achieved that ahead of schedule. And we've also achieved all the targets we set out. I can state that Outokumpu now has derisked itself. We've come a long way from where we were in the summer of 2020. And today, just looking at the publicly available data, it seems we've the strongest balance sheet, the lowest net debt in the sector among our peers. So, happy about that as well. And if we look at overall at the performance of the company, we've also been able to develop the way we work inside, our internal efficiency has increased, we've reduced fixed costs. We have a very lean organization at Outokumpu. Across many metrics, this company is performing very well. On the third bullet, I want to comment on Long Products. It's been sort of -- we've mentioned it in all of our presentations, a bit like a side note. I've said every time, it's non-core. Well, here, a month ago, we were then finally able to announce the signing of the [ SP&A ] to divest Long Products to the Marcegaglia family. I think this is a win-win outcome for all Long Products. We'll find a new good owner with the Marcegaglia family. It's good for our employees, but it's also good for our shareholders, if you look at the value we created over the last 2 years, as we embarked on this a very ambitious turnaround that Liam Bates from our company has been leading this, I'd say a rapidly accelerating turnaround and delivered exactly what we wanted even, I'd say more -- a bit more than that. And then what we've exercised, I would say strategic patience. We did not rush and executed the deal. But we took our time, and I think now, the outcome is good for everybody as said for employees, for the buyer, but also for the shareholders of Outokumpu. And it also then makes Outokumpu a much more focused business around stainless steel and then, of course, Ferrochrome in the backdrop. And against, I would say these facts and given the circumstances where we live today, I would like to state that Outokumpu is more resilient than ever before to withstand any changing circumstances that come -- might come our way. And as said, we are living through some very turbulent times to say the least. You have seen, those of you who have followed this company and our strategy carefully, you know this chart very well. As said, Phase 1 is now completed. We've now started Phase 2, effective July 1. Here, in the business area Europe, we now have the 2 business lines. We have the standard products led by Niklas Wass. You saw him on video last month. And then we have Thomas Anstots, leading our Advanced Materials where we've the pro grades business. So those 2 organizations have now been established. They have started running forward, moving their business, getting themselves organized, and I look forward to then presenting also what they accomplish in the coming years. The Americas business, of course, very important part of Outokumpu, a very solid, I would say, second or third leg for the company, especially in these times when America is such a strong market. I am very happy that we have a very good business in North America and then we have our Ferrochrome activity this year. And so, during the course of Phase 2, as said, we will focus on investing in productivity. We will look to add capacity both in Europe and in the United States by opening product -- opening bottlenecks and then also in investing in activities to further reduce our CO2 exposure. As you know, we are the sustainability leader in the stainless steel industry globally and we intend to maintain that #1 position also going forward. So that is the strategy. And now we are in Phase 2. And then now that we mentioned sustainability, just a couple of highlights, that safety is absolutely #1 topic at Outokumpu. We have the best safety record in our industry. Our total recordable frequency rate for the first half is 1.8. You can see the curve on the upper right-hand side, I think that curve just shows you how much effort and determination we've put into improving our safety and obviously, target is to get that [ 0.1 ] some time one day in the future. But during that journey we are gradually trying to reduce it every year a bit lower and lower. Last month, we introduced our new product Circle Green. I would say that the intention of developing a product where we've a very, very low CO2 footprint, it's part of our innovation journey looking to develop solutions for customers and really looking to test the market's willingness and readiness to take on these low carbon products. And so, I think we will then report to you in the coming quarters what -- how this CO2 journey then goes forward. Then on the markets, if we start maybe on the upper right-hand corner nickel, it's been quite an eventful year so much volatility, barely seem that -- I think as we've to go back to like the -- to before the financial crisis to see a period where we had so much volatility in nickel as we've had this year. It has been challenging to manage through that, also it has created, I would say quite a lot of -- a fairly big price gap between Asia and Europe at some stage as nickel went up. But now we've seen in the last month and 2, again, nickel starting to correct back from the very high levels, more towards a -- I would say more a lower level anyway over $20,000 per ton but anyway, still coming downward. And maybe worth thing to mention is that, that if we look at history and the nickel price, one should also consider the fact that well, we also think about nickel in the context of how -- what is the nickel price vis-a-vis corresponding materials in Asia, that also the NPI products in Asia that their costs are also influenced by higher energy costs. So I would say that the sort of competitive advantage that the agents have had in nickel, that is also tightening as energy cost go up in that market. On the lower left-hand side, you can see the transaction prices, the market has been very, very tight for a long time. We've had 7 quarters of increasing demand. Correspondingly, we've had transaction prices moving up. Now during the course of the second quarter, we started to see softness in some areas of the market, more in Europe than in North America in the second quarter, partially also resulting from the fact that we've seen nickel then fall in value, but also on the distributor side, we started to see fairly strong restocking and that has then brought a certain softness, which can gradually be seen in the transaction prices. On the right-hand side at the bottom, you can see Ferrochrome. The Ferrochrome market also has been very strong. But in the second quarter, especially as we came into this summer, we started to see some softness and especially in the spot market of Ferrochrome in the last 8 weeks, we've started to see a clear softness and the transaction levels have fallen quite a lot in the past 8 weeks. Now then, looking at the results. From EUR 377 million in the first quarter, which was a great number in itself. Now then to EUR 547 million, a record number for the company. Best ever results. What really drove us well, as you can see deliveries declined somewhat. We were benefiting from the price -- elevated prices that gradually came through in 3 order books, that delivered quite a lot and then, of course, we had the metal timing impact, which, of course, then led ultimately to EUR 547 million. Interestingly, if you look at the costs, we've been able to mitigate still the cost pressure's quite well. Maybe one area where we've seen a lot of volatility recently as the energy and electricity prices, maybe Pia, you can lead us to the discussion on energy when you come, look at the different businesses and maybe we can discuss that also in the Q&A, when we get that far. So overall, I guess you can see from my face, I'm happy, very pleased with where we are. It's been quite a journey, 7 quarters looking at where we were 2 years ago. And now here we are a derisked company, strong balance sheet, business is doing -- company is performing very well, motivated staff. And in spite of challenges, we are in a very resilient position here to face any challenges that the future might bring us. So with those words, let me hand it over to Pia, who will start a discussion on the numbers. Please, Pia.

Thank you. Heikki. And indeed, a very good afternoon, good morning to all of you. And this has certainly been a very eventful quarter. So let me talk you through some of the highlights there. I will really start off with repeating, it was not only a record also sector sort of record result definitely also in terms of indebtedness, our strategy is now showing the result. Our net debt reduced to EUR 289 million. I will show you the time scale, obviously, we can remember, it's not that long ago that our debt level was still above EUR 1 billion. So, this has been a good and rapid development as well. But when I say eventful quarter, of course, there was a number of positive things happening here. We have signed a new EUR 700 million revolving credit facility. It's sustainability linked. It's unsecured. All of those are things that really please me and the team very much here. Our liquidity has improved to EUR 1.3 billion. So maybe you remember or at least I do that when COVID period started, at that point, 2 years ago, roughly 2 years ago, our liquidity was at EUR 0.9 billion. So I think sort of all through this period, we've also wanted to make sure we are stronger and stronger also on that side. We worked, obviously, a lot on the Long Products divestment, and certainly here, we've signed the deal in July as Heikki spoke to. But this has kept us definitely busy during the quarter. We also still have a number of smaller also kind of non-core asset divestments. So we are continuing this path to really ensure that we keep the house in good order and have the balance sheet in good order here. And we paid the dividend for the first time here again after the COVID, EUR 68 million in April. And I think, this is then followed by the renewed strategy launch, the new financial targets. The target also in terms of dividend to have a stable and growing dividend going forward. So all of those, obviously, very positive topics. When I say it's an eventful quarter, obviously, the whole situation in Ukraine has also been something that I think has been weighing on everyone's shoulders from a range of perspectives, obviously, also from risk management perspectives and the energy cost development here is something that I will get back to later in my presentation. Let's have a short look at the main KPIs that we have here. I think this is demonstrating a lot of financial strength of the quarter. So you see here record EBITDA, EUR 547 million in the quarter, resulting also in a net result of EUR 385 million. So definitely best result here also for us. When we look at the next phase of the strategy and strengthening the core, one of the KPIs that we want to highlight in our reporting more going forward is return on capital employed here now in the quarter, it's 29.9%. We have chosen a method where we always counted on a 12-month rolling basis, so just a note that's the way we are doing it, that's kind of in our way -- mind, a good way of showing how we create results with the balance sheet that we have. And you may note then when you look at the details of the report that we are also disclosing the BA. BA return on operating capital figures now for the first time. When you look at the personnel figure at the end of the period, I just wanted to add, I'm really happy to say in this market situation we've also had 800 summer trainees. I do hope all of the summer trainees get a good experience and we, of course, get the support and help that we need in these busy periods that have still been around. So strategy Phase 1 has indeed been completed. Heikki already spoke to the fact that we've been completing ahead of time, you remember the reporting we've done quarter-over-quarter building this. So I thought there were maybe 1 or 2 details that I still wanted to bring just in terms of sort of closing this chapter and kind of moving on into the next phase and the phase of strengthening the core. So the first one is specifically just stating the Long Products share of this. Obviously, being a smaller business, it is still a very significant improvement of EUR 18 million that Long Products and the team have contributed into this overall. But out of the EUR 260 million, we can see that BA Europe has been the biggest contributor and certainly then followed by Americas, as well as of Ferrochrome. The other thing is that, we used a method, we used a tool following up all of the more than 1,800 projects that we had here and that's something we will take with us along with the improved cost base, along with the improved product mix also into the next phase of the strategy. So next, I will say more about each business individually and obviously, from a result perspective, I think BA Europe and we all can be extremely proud of the EUR 289 million result in a quarter. This is, obviously, a statement of the favorable market conditions that there have been in the quarter, even though you see that volumes are slightly lower than in the previous quarter indeed. We had a higher share of pro grades also in absolute amounts. A higher amount of pro grades and this has certainly helped us. But the market indeed, overall, I would say, when we more look at sort of the forward-looking situation, there has been a shift with a very high share of imports, especially in the first month of the quarter and certainly then impacting the business going forward. Many of these things have certainly already been debated and Heikki has mentioned some of them, but I'll just state at least the obvious facts. First of all, when we look at the peak of Asian imports in April, this then followed kind of the normal pattern of being a lower both in May and June and indeed, we've again now in July seen a higher -- clearly higher market share of imports. So this sort of same pattern seems, at least, to some extent, still to continue here. Then another point worth noting is that, from distributor perspective, we are indeed seeing higher inventory levels on average compared with the previous periods. So there is certainly now some inventory that sort of takes digesting into the system. Nonetheless, when I then kind of look at the total picture of what this paints on the market, I still think it's worth may be saying, and especially for BA Europe, first of all, that we do have the stable part of the business here with also end users still being, I would say, in a sort of fairly robust and stable mode. Obviously, projects -- pro grade business sort of doing well under these circumstances, oil and gas, for example, also other projects. So this is still somewhat of a situation with like almost different segments and also overall, when we think about the third quarter, you may have noted that when we still think about what will really be delivered and invoiced, please note that we still have here also orders from previous period. So, what is happening here and now in the spot market is not exactly what will happen in the invoicing in the third quarter. So there, I still think we will enjoy some of the higher price levels also from previous periods. Maybe this is enough said about BA Europe, I certainly want to spend a few words also on BA Americas. This is also a very strong result operationally and adding to that maybe you have noted that the share of timing and hedging or raw material-related inventory gains and hedging that has been a good, positive number in the quarter here as well for BA Americas. So we certainly had strong realized prices, kind of good market momentum, good market share and also looking forward here, I think we can definitely talk about a strong and robust underlying demand. Even though there are, for sure, inflationary pressure, consumers wondering about sort of what inflation will mean, what higher gas prices will mean, et cetera, going forward. So maybe some sort of cautiousness relating to inventories can also be noted. Inventories are also here a bit higher than normal. But overall, an extremely strong quarter here also for our Americas team another [indiscernible] record. Well, Ferrochrome, certainly, as well here looking at Q2, a very good performance, a strong market momentum, high prices, but indeed experiencing some inflation here in the consumables. And when we are then looking forward, then I would move the attention quite a lot to energy and when it comes to Ferrochrome, especially to electricity. And it's good to remember that Ferrochrome is really, out of all of our businesses, the one that is most impacted by higher electricity prices. And then, of course, particularly, in Finland given the location. And when we look at the Finnish energy markets, if we compare with the situation early in the summer I think the fact that Russia had stopped or that there were no more imports of electricity from Russia to Finland that has been well-known now for a period of time. But on top of that, there have been various announcements relating to Olkiluoto 3 nuclear power plant and that is pretty significant. I mean, I'm sure you have seen the forward prices also in Finland going up to a much higher level than we've seen before and the importance of Olkiluoto 3 here, I think is one of those factors really sort of driving the energy balance and also the outlook and well, indeed it seems that the new period of trials and test is just about to start. So certainly, we will follow that a lot. But Ferrochrome is really the business that is impacted and I just want to make this a little bit more tangible and also say that with the forward prices that we see right now and also with the hedging levels that we have into the third quarter for Ferrochrome, I could still see a situation that if we remain this elevated, we could have EUR 20 million to EUR 30 million more costs in the Ferrochrome business based on the higher electricity costs. And obviously, autumn and winter will then tell what will happen next. But this is certainly a topic that we need to follow extremely carefully. So with the BA's, I want to end here on a high note with BA Long Products, obviously, a very strong operational result, but also a sort of a good piece of timing and hedging included here into the record EUR 63 million. A very big thanks to the Long Products team to Liam and colleagues here for delivering the turnaround and, obviously, by now then, we have signed the deal to divest the business to Marcegaglia. In this context, the Degerfors business will remain with Outokumpu also going forward on the Long Product side. A few more words then on the cash flow here, you see the second quarter cash flow first, starting, obviously, off with a good result, but a major investment into working capital. With our strong balance sheet now, I think we have that opportunity to invest in working capital where it's needed. But I do want to say that out of this EUR 400 million investment, there are indeed impacts that also come from us safeguarding, mitigating risks relating to the war in Ukraine. So, for example, building some stock or rerouting some supply chains. And I would estimate that that impact has been negative or building inventory in this case or investing into working capital of at least EUR 100 million out of this EUR 400 million. So may be a note sort of overall to this. And then you can see that, even in this situation, we certainly have managed a very balanced net debt between the quarters. And the CapEx for this year will be EUR 180 million, maybe most importantly also, we expect to complete the investment into Deep Mine by the end of this year. I promise to show how the debt has been reducing, certainly, at this point in time you note the higher levels north of EUR 1 billion of net debt in the years 2020, 2021 already decreasing and now kind of continuing on that path, given us a very strong KPI for the balance sheet, net debt over EBITDA at 0.2x. And finally on our funding then, our maturity profile here, you can see that we've been able to extend it further, liquidity at EUR 1.3 billion. And on the left-hand side, you can see our debt structure, which I think remains sort of very well diversified. So with that said, I would like to hand back to you, Heikki, please.

Thank you, Pia. So finally, we have the outlook against, I would just say, again, that the backdrop is that we are living through some fairly exceptional uncertain times, much so more in Europe than United States. The U.S. market seems to be insulated from many of the, at least geopolitical challenges we see coming potentially our direction. But the outlook for Q3, for continuing operations and please notice the star in that statement. So, Group stainless steel deliveries for continuing operations in the third quarter are expected to decrease by 10% to 20% compared to the second quarter. Prices for stainless steel in the -- are already received orders have remained at a higher level. The European Ferrochrome benchmark price decreased to $1.80 per pound for the third quarter. Energy costs are expected to increase in the third quarter and impact, especially negatively business area, Ferrochrome. Planned maintenance cost in the third quarter are expected to increase by approximately EUR 10 million compared to the second quarter. With current raw material prices, significant raw material-related inventory and metal derivative losses are expected to be realized in the third quarter. And the guidance for Q3 2022 is, adjusted EBITDA for continuing operations in the third quarter of 2022 is expected to be lower compared to the second quarter. So that is the outlook for Q3. And with those words, let me hand it over then to, I guess, Linda, and the operator for Q&A. Thank you.

Thank you, Heikki. Operator, we are ready to start taking questions from the line.

[Operator Instructions] Our first question comes from the line of Anssi Raussi of SEB.

It's Anssi Raussi from SEB. I have a few questions. And I go one by one and I start with the basic one again. So what kind of lead times you have at the moment? And also again about your Q3 deliveries as you guide still high prices in already received orders. So what kind of mix you have in your Q3 deliveries in terms of timing in bookings? So are these orders from March to Q3 months or how is it? This is the first one.

Right. Thanks, Anssi. Sorry, maybe first to say that where we are booking new orders right now in Europe in cold rolled is early in the fourth quarter. In U.S., of course, this cycle is a little bit shorter quite sort of following normal practice. And when I look sort of the mix quarter-on-quarter, first of all, sort of in the product mix, I really don't see any significant changes. But when you are asking that when did we book these, I think we have started to see shorter lead time sort of throughout the spring and the summer, but I cannot really give you an exact that, hey, we booked all of this in March or something like that, but clearly sort of on a shortening cycle for sure.

Okay. And the second one is about your delivery guidance as it is a bit on the low side, some could say. So what kind of factors we are looking at here like? Is it all about maintenance? Or is the underlying demand affecting this? Or like how much do you expect to lose volumes due to maintenance?

Well, first, maybe I can start with heavy maintenance in this quarter is sort of quite seasonally typical and I would say, the seasonality is definitely a part of this guidance. And then on top of that, this sort of destocking, I would say, is more important than -- and then really sort of being able to say that the underlying demand per se would have changed. I do say this having in mind the macroeconomic backdrop that certainly gives a lot of negative signals as well. But just if we really listen to our customers on the end-use side, it is clear that there are still some sort of robust or stable situation in the Americas and even in Europe, I would say, still sort of on that more elementary kind of looking at derisking, destocking in the face of a lot of uncertainty.

If I can just sort of build on that. Still first on the U.S. So, the U.S. market, of course, has been extremely strong. The COVID rebound was just unbelievably strong. So, I guess, from the underlying demand, I would say, we are more moving towards the phase of normalization. Pia already talked about sort of restocking by the distributors. I would say, the stocking issue is much less a topic in the North American market than it is here in Europe. In the U.S. some of these sectors, if you look at automotive, seems to be quite okay. But I would say not especially strong, so okay-ish. On the white goods side, I mean, we've had a huge phase where people have brought a lot of microwave ovens, et cetera. There has been a lot of money also supplied in the U.S. to consumers. That is now, I would say, starting to come to an end, and some of the white goods suppliers are indicating that we are moving more to a more normal phase rather than this super-hot face. But overall, I would say, the big trends in the U.S. are positive. And now, just have to see what the next quarter brings. If you look at the U.S. consumer, for example, we have fuel costs are very high in the U.S., housing costs have risen. I think the consumer has less disposable income, although they have a lot of savings. So, it will take now some time to see how this really flows through into that consumption. And then as Pia said here in Europe, we've seen that the fairly large or the price difference between Asia and Europe which sort of started to grow as time went by led to a fairly substantial import volume from Asia and that volume has been coming in. We saw that in the first month of April, in Q2, and we've seen that volume also come in the month of July. So gradually, the Asian imports are moving in. Let's see how long that takes. I think the European, let's say, destocking of the distributors will probably take a couple of months to normalize again.

Okay. And the last one from me for now, at least about still your guidance and raw material inventory and derivative losses for Q3. Any ballpark here like something like in Q1 or...

Yes, Anssi, thank you. I do think it's a relevant question. And maybe I can sort of get back to when we guided for Q2, we talked about this figure potentially being a significant positive and now you've seen the figure, I do think that we could see sort of similar level but with the negative sign in front of it into the third quarter. So it's clear that there is a swing. I mean, the dynamic also is one where Q2, in elements of that, brought positive timing, so raw material-related inventory gains but negative hedging and now when we move into the third quarter, it will be the opposite. So we will see negative timing, but we will see positive hedging.

Our next question comes from the line of Patrick Mann, Bank of America.

I just wanted to ask around sort of capital allocation, Pia. You're sitting with the lowest net debt ever. Can you just remind us the sale of Long Products? Is that all going to be received in cash and just the timing around the end of the year? But you are effectively in a net cash position with arguably sort of working capital unwinding. Still sticking to the capital discipline sort of EUR 180 million or EUR 200 million a year for the next 2 years. I mean, you are going to build up -- at those rates you're going to build up quite a cash pile. How are you thinking about deploying that?

Yes. Thank you, Patrick. And I can say I love that question, because now we are living a period with a lot of uncertainty, and that's really the macroeconomic situation that's obviously here in Europe, very much the war in Ukraine and the energy issues around that. So actually, just for the time being, I feel super comfortable. I think it's a good position to be in, to have this pile of cash. But you are right, of course, I mean, if we look a little bit more, we take a bit more perspective a couple of years. I think this CapEx guidance in the next strategy phase or this ongoing strategy phase now of around EUR 200 million per year is correct. I mean, this year of '22 will be still EUR 180 million. But then kind of for the next '23 to '25, this EUR 200 million per year is what we've talked about before, or more precisely EUR 600 million over 3 years. But yes, indeed, that's about EUR 200 million per year. So I think this gives us some room to consider and to maneuver and think about sort of various options for that. Definitely paying a stable and growing dividend is one of those important points there. And I think, once we are kind of over this period of big uncertainty, it's then a big -- it's a big opportunity for us then to come back to this topic.

Got it. And just in terms of when the -- how and when the receipts for Long Products comes through?

So, of course, this now depends on sort of those closing procedures being finalized. And I think we are sort of foreseeing that that could happen by the end of the year. And not everything of this is fully in our control. There are, for example, this competition clearances, et cetera. But given that, then I think that by the end of the year and, obviously, sort of looking at a clear, sort of cash payment here. So...

The next question comes from the line of Ioannis Masvoulas of Morgan Stanley.

A few questions left from my side. Starting with the first one. Looking at the EBITDA bridge, pricing and mix was over EUR 100 million positive in Q2. Can you give us a rough idea on the share of mix improvement within that? And how we should expect this to develop in the second half?

The majority of that was steel price improvement. So the mix was a positive boost there. Definitely that's why we mentioned it, but really the majority was on the price. And obviously, I'm not able to really give you the specific price guidance into the third quarter, but somehow just with this sort of focus on the current sort of market dynamics or looking at CRU price list, et cetera, I just still want you to remember that we will indeed invoice a lot during the third quarter where we've already priced this in at an earlier point. So with that in mind, I'm sorry that there is not really more light that I can share. But certainly, still with some sort of upward trend in the pricing to some extent being in what we will invoice in the third quarter.

Okay. And the second question on working capital, you have built around EUR 670 million in H1. You talked about the EUR 100 million of that being in safety stock as you adjust the business. But thinking about the second half, should we expect that perhaps more than half of that H1 investment could be released?

Thank you, Ioannis. I think it's a fair assessment that there is many elements here that are also dependent on, for example, nickel prices. So with elevated nickel prices also the full price invoice, the accounts receivables, et cetera, have sort of through that mechanism being higher. And we see that already now with nickel at around 20,000 that these levels will come down. So I don't think that there is no doubt about the direction. The direction is clearly that we will get the cash in here. Then what exactly is the magnitude? I think that will depend on some -- to some extent, the market dynamics and how low inventories can be taken then. I would just remind that the seasonality for us usually always is significant working capital reduction in the third quarter with typically the lowest inventory points towards the end of the third quarter. And then as we go to the fourth quarter, a little bit of pickup before the end of the year. So with that said, certainly, following all normal patterns, there will be sort of a good rebound of that in the third quarter and into the fourth quarter.

Maybe I can -- now that you talk about working capital inventory, I could just take another topic here, if you don't mind and that relates to the natural gas situation in Germany. And as you know, there is a lot of news flow about what will happen to natural gas flows this winter. We are waiting for more information from the German government on how they potentially would sort of guide the industry in a situation if there is not sufficient supply. Our plan is to supply our customers, take care of them in all circumstances. And for that reason, we are now going through all possible contingency plans so that we can take care of our customers, and that may potentially involve also creating some buffer stocks in some products. And of course, that would then be in the working capital figures then potentially in Q4 and so forth. So we'll come back to that later, but I just wanted to mention that that is in my view, a relevant sort of topic, at least on the top management CEO agenda at the moment.

And is that part of the EUR 100 million in Q2 or is there more to come in Q3 on buffer stocks?

So the buffer stocks that I was talking about around Q2 were really more on securing supply and kind of the raw material flows in various ways, also readjusting some of the supply chains. So I think to a very large extent that has been completed. So I wouldn't really foresee sort of further impacts of that. And then I would say, based on building then sort of on finished goods side, any buffer stock that is then relevant towards the winter. So, if we take -- if that is the conclusion then and if that is necessary, then that would certainly impact again in the Q4.

Okay. Very clear. And just a last question from me, Pia, you mentioned the pickup in EU imports in July. Is that peak higher than what we saw in April?

No, not as far as I know right now. I mean, we are still looking to some extent at a bit sort of indicative figures because the statistics are always coming only a little bit late, but it doesn't seem higher, but it still seems high.

Slightly lower was...

Slightly lower but on a high level for sure.

Our next question comes from the line of Bastian Synagowitz of Deutsche Bank.

My first question is on the performance in the -- of the European units and I've got to say I was quite amazed, particularly in the context where you basically say that the impact from raw material and hedges was close to 0, while it was obviously very positive in the other units. Is it fair to assume that there still has been some positive effect from selling products, which still benefited from the lower lagging sector costs in a rising price environment? Or was this really fully underlying? That is my first question.

Bastian, I can, indeed, confirm that the net of timing and hedging impact was really low in the quarter for BA Europe. So, I would emphasize that net because indeed, there could have been some benefits as you just mentioned. But then when we sort of net it off with any hedging losses there might have been, I mean, the net of those certainly was 0. So that one I can just confirm because it's a part of the reporting that we do every quarter.

And then if I bridge that into the third quarter, if we basically look at your gross margin and obviously, you were telling -- you just told us that, at least in Europe, it seems like your gross margin in the second quarter was basically fully reflective of current, I guess, reality, i.e., the costs you see in the market and the price you see in the market, basically reflect your gross margins. We then think about the third quarter, I guess, you talk about still slightly higher cost, but you have just said that also your ASP side is still going to rise. So, are you expecting that you can preserve these gross margins into the third quarter, even though your volumes will be coming down obviously?

Maybe there's sort of a couple of elements to watch for and one of them is that, if we are now focusing really on the BA Europe, I would say that as part of the sort of overall guidance that we had net of timing and hedging being significantly negative in the quarter, I would indeed see some of that actually hitting BA Europe as well. So it's a -- I don't think that will be sort of neutral for the BA quarter-on-quarter. So that's one element to take into account. And then certainly, there are developments on the cost side that are putting some pressure on the margins. Energy could certainly be one of them that I think is worth mentioning here. But there are also kind of a combination of topics here including the price development, as you mentioned, that are also, to some extent, supporting the margins. So it's clear that we are now living kind of the next era of already pressure on the cost side, the pricing momentum in the market having changed, et cetera. But looking at the third quarter, I don't want to be overly negative per se. I mean, this is still kind of a quarter of adjustment, it may be that would be a kind of word to explain it.

Okay, got you. Then maybe staying on the cost topic, you talked about another increase of EUR 20 million to EUR 30 million of cost headwind in Ferrochrome. Is that a quarterly number? Or is that an annualized number?

Yes, that is a quarterly number, quarter-on-quarter because base still on sort of what the actual -- what was the actual electricity price in the second quarter combined with a fairly high hedging level. I wouldn't really talk about any significant energy inflation at all per se in Ferrochrome. But then when I look from the second quarter to the third quarter, I think with the hedging level that we had and the very elevated spot prices that we have seen recently, that in combination to me could mean from Q2 to Q3 between EUR 20 million and EUR 30 million more costs.

Okay. Perfect. And then the last one is on mix, and I guess, like roughly a year ago, you basically started to talk about a significant improvement in mix which obviously, however, at that point, you said it would only become visible in the course of this year pretty much around the current time, basically second quarter. So, I'm wondering if there's any sense you could give us maybe for how much additional EBITDA you have been receiving from mix and pro grades in the second quarter comparing this maybe with the second quarter of last year. Is there any way you could frame this one?

Yes. Bastian, maybe that sort of really when we take the annualized competition, I would almost kind of maybe need to come back to that then in some later comparison simply because I think when we look sort of quarter-over-quarter, the development has been very incremental. And now sort of clearly from Q1 to Q2, we did see a positive boost. It was just overshadowed by the other positives from the pricing, that was my earlier comment. I think we need to come back in some later communication, if we could give kind of an annualized view on that development. I would expect there definitely to be a positive development, but it's still kind of building for the future. I would not expect that to be in any way sort of hundreds or that sort of millions, but certainly it could be tens of millions absolutely, but need to come back to that one later.

But as we said in June, the prospects for the pro grade business, the prospects are good. And now with our new structure, with advanced materials, we're putting even more focus on the global sales and marketing of this product category. And I am fairly confident that we will be able to gain results here. Underlying demand is good. There is a lot of activity happening. The energy transition, oil and gas is very strong at the moment. So, I am confident we will be able to get more business in the future.