Outokumpu Oyj (OUT1V) Earnings Call Transcript

Hello all, and welcome to Outokumpu's Q4 and Full Year 2022 Results Webcast. My name is Linda Hakkila, 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. Today, we will first start with the management presentations. And after that, we're happy to open the lines and start taking your questions. Year 2022 was definitely a historic one for Outokumpu. Our earnings were on a record level, and Outokumpu was net debt free at the end of the year. Before we start going through the presentations, I would like to remind you about the disclaimer as we might be making forward-looking statements. But now without any further comments, I would like to hand over to our CEO.

Thank you, Linda. Good afternoon. Good morning, everybody. Welcome also on my behalf to Outokumpu's earnings webcast. It's really great to be here today. I feel extremely proud and happy to have the honor to go through the results of 2022. As you saw from hopefully, you noticed the first slide, you had that photo of some of the, our Outokumpu employees from Vinius in Lithuania, that big smile that the team here had on the photo, I think that sort of portrays a bit the sentiment in the company at the moment. A lot of big smiles for the hard work of the last years that materializing in such a good financial performance. So, if we now dive into the actual story here. So as Linda already said, EUR 1.3 billion of EBITDA, it is by far the best financial results of this company probably ever, and of course, there are many, many things that sort of drove that result. As we all know, last year was sort of a story of 2 parts. The first half market situation -- the first half of the year, market situation was extremely strong. And of course, that further gave the company a lot of momentum. We were running pretty full all the way through summer. Our operations overall performed very well last year in spite of especially the very challenging energy crisis that hit us then as we went through the summer of 2022. Our ferrochrome operations probably was the one that was hit most, let's say, clearly from energy. Of course, it's a huge electricity user. And therefore, when electricity prices spiked up so highly in Q4, we, of course, had to take rapid and decisive measures. Cost inflation, of course, has been a much broader topic, not only in energy but also many of our consumables, other sources, factory inputs have also been rising. And as we'll probably cover later on today, the enormously volatile nickel story of last year with some also historic phenomena in Q1. And then finally, I want to just mention that sustainability, of course, is an extremely important part of our strategy, both in terms of raw material content -- recycled material content, we are really the leader and also in terms of CO2 emissions. We are the leader in the industry globally. A few words first about the market. If we kind of take a quick look at the upper right-hand corner, where we have nickel price, which is an average out picture, so you don't see the months and day-to-day volatility. But as you recall, 2022 was a pretty weird year because we had already in March that huge short squeeze in nickel. And I think that sort of in general, it just shows that in 2022 has been quite a difficult year from the standpoint of how to manage nickel risk in our business. As you can see from the slide here the picture that nickel price has been trending upward, we are actually still at a fairly highly elevated level, we're almost touching $30,000 per ton. Historically speaking, in an environment like we're facing today, Nickel typically would have been at a lower level. So, it is high LME inventories are very low. And of course, when one might ask one has to ask, so what is driving that? It's very difficult to get an exact answer. Is it the boom in electrical vehicles, although even that has somewhat softened here recently. Is it energy costs? We just don't know for sure, but anyway, this is kind of the situation we are facing and that we have to manage. On the lower left-hand side, you can see transaction prices. Last year, of course, and the second half of 2021 really was a period of fairly high prices. In some way, we were back to record levels, we had not seen since 10, 15 years prior. I guess what I can say about that is that you should think about the price level where we are today more as a normalization of prices. Yes, they have been coming down percentage-wise, quite a lot, as you can see, in particular for Europe, but this is more a normalization of the level, that's how I would ask you to interpret that. And you can also see that the gap between Chinese prices, which are shown here in green, and then Europe, which is the light blue one, that difference has also narrowed, which, of course, is critical because that delta between Asia and Europe does in many ways, when you factor in, of course, freight rates, it does drive sort of the level of imports into the European Union. We have had COVID restrictions in China for 3 years. The Chinese market has been probably quite weak. And of course, that has sort of put increased pressure either Chinese producers don't produce stainless or then they just have to export. And of course, Europe is a popular destination for product originating from China or Indonesia. Then if we take a look at the results for 2022 for the whole year, so while 2021 was a great year in itself, nearly EUR 1 billion -- in adjusted EBITDA, we ended up with EUR 1.256 billion for the fiscal year 2022. Really, as said, a record achievement. Our deliveries were down by 7%, very strong first half, second half, clearly weaker. Our prices were clearly higher, as you could see from the previous price curve chart, it did, of course, drive our results upward as seen. And then, of course, we had the negative factor cost inflation. After say, in 2021, we were able to manage costs quite well. Inflation was sort of creeping in, but we were still able to sort of buffer that in 2022, the inflation just started to get -- come through. And even with our best efforts, we just couldn't sort of stop it. So, it just came through various sources in the company. And if we then look at the fourth quarter, and of course, this is an interesting situation because I have to say that the first half of the year, we were very much capacity constrained. Demand was very, very high. And then we're moving into a market where we're suddenly, we're seeing the market demand drop and especially as we go into Q4, demand really in some pockets of the market really started to almost like hit the brakes. And so, we, as a company, and we're a large company, we have thousands of people and many mill sites. We had to pivot the organization very quickly from a model of being capacity constrained to then a demand-constrained model where the focus is really extremely on cost mitigation and even harder driving productivity. And I'm really pleased with how well we were able in the summer months of the year heading into Q3 and then Q4, we'll do the pivot and get the organization to focus a little bit differently on how to run the business given the changing circumstances over the fourth quarter. Now of course, if you look at this chart, it is interesting to note that Q4 deliveries at 450,000 tonnes were relatively speaking, absolutely low with you even compared to the Covid lows of Q3 2022. It is my sense though that many of our customers, especially in the distributor segment, I mean they had bought a lot of products. I mean we heard in Q4 that a lot of customer inventories were very full with product. Even some of the harbors were very full. So many of the distributors just decided, hey, the fiscal year is coming to an end, probably we had a good year, let's hit the brakes. And that, of course, then led to a pretty rapid deacceleration of demand for us, then, of course, bringing deliveries down quite substantially. Here on the lower left-hand side, you can see our EBITDA, EUR 110 million for Q4 -- we had, of course, Q3 was extremely strong, over EUR 300 million, the best quarter result we've ever had. And then we dropped. So, you can say relatively speaking, of course, quite a huge drop. But then if you look historically at Q4, I mean, Q4 isn't that terrible a quarter in many ways. I mean it's a reasonable quarter given the acceleration of the market, given the energy crisis, I personally feel EUR 110 million was a pretty okay result, even when you compare it historically. And given the tailwinds, the headwinds and then overall, the costs. So here we are at EUR 110 million. And as I said, stainless deliveries decreased by 8%, and then the price decline, which accelerated as we headed into the end of the year, a 60% impact on that red bar. And the rest really came from the fact that we did not have this one-off positive metal impacts that we had in the third quarter, minimizing the price decline. So that's the story for Q4, and we can answer your questions a bit later in more detail. Then I would like to say a few words about sustainability. This is, of course, a very important part of our strategy. At Outokumpu, we start every meeting, every session in the company with safety. And if you look at that upper right-hand corner, you can see our safety trajectory. We have been now for many years, year-over-year able to reduce our total recordable injury frequency rate, TRIFR, with 1.8, I would claim that we are not only one of the best in the stainless steel industry, we're probably at the world class level compared to many other industries. We have many sites in Outokumpu where actually we didn't have any major accidents during the whole year at all. So just looking at the side-by-side results, I mean I'm really proud with the work we're doing. And obviously, our target is to have no accidents. So, the work is definitely not done, but the trend is strong, and it does position us in this respect as a sustainability leader. On recycled materials, the level of 94 is probably, I believe, very, very high world-leading -- and then as many of you probably are interested in how our company is positioned vis-a-vis the EU taxonomy, I wish to remind you that 91% of our sales in '22 was both eligible and aligned with the EU taxonomy. So please factor that in your analysis. We are on an ambitious journey to decarbonize Outokumpu. We're the only company that has committed to the SBTI, 1.5%, and that has an approved SBTI target. And so, this is the journey we will systematically reduce our emissions by 30% until the end of the decade, and this is keeping us at the forefront of emission reduction and keep making us the sustainability leader. Then the last slide I would like to show you before I hand over to Pia is to say a few words about long products. Now I think over the past years, you've asked me from time to time, so what is our plan on long products. I've said it is noncore, and we have had a strategic review. We kicked off a turnaround program with a whole new management team in July of 2020. And so over the last 2-plus years, we really fundamentally improved the way the business was run. We improved the profitability of the business. We dramatically improved performance; safety became better. I mean, in many, many metrics, LP was a much better performing business. But the reality is we have a strong focus on the core of the company. We will allocate our capital into the core stainless business, stainless commodity side and the advanced materials. And therefore, long products just did not fit into the portfolio. And I have to say, I'm very pleased with the outcome of the divestiture that we have now completed. We have the money in the bank. The total consideration on a debt and cash-free basis is EUR 228 million, and our net debt in Q1 will be impacted by having a reduction of EUR 100 million. So overall, if I look at the earnings we generated between, I would say, the summer of 2020 until the end of Q4 2022 plus the residual , the incremental cash that we got from the divestiture, I mean, that amount of money, in my view, is quite substantial, and we have created a lot of shareholder goodwill, shareholder returns through the way we manage both the turnaround and through the way we executed the divestiture. So, with those words, I think the LP story as far as we are concerned is done, and I wish the LP team good success with the new owner. Now let me hand it over to Pia to go more deeper into the financials. And I'll come back then with some more commentary about Q1 and the future, please?

Thank you Heikki. And the audience, what an honor for me to be here as CFO of the company today, us being debt-free, resilient and the derisking completed. We are financially stronger than ever before, and we delivered a record result for the year 2022. So, let's first look at a few facts around the balance sheet. On a high level, liquidity as well increased, and I'll actually have a bit more detail of that still talking about the funding structure that we have right now, but it's now up to EUR 1.4 billion. We have an EUR 800 million committed credit facility that we haven't used. That's something that we did refinance during 2022, actually during the first half. And we have also, at this point, no commercial paper funding left at the year-end. And on top of that, obviously, our balance sheet is already impacted by the full share buyback program that we are now in progress of doing. It will amount in total up to EUR 100 million. And at this point in time, we have already taken that as a liability. So that in full is impacting our net debt now. So, the KPI table on the next page talks about the strong financial performance. I will come back with a few more comments on the BA specific figures and talk a bit more on the deliveries. As Heikki had pointed out, obviously, that is a figure that particularly for the fourth quarter is weaker and a lower one due to the softer market and destocking. But if we look at the result of EUR 110 million for the quarter and the adjusted EBITDA of then almost EUR 1.3 billion for the year. This has also delivered us a really good net result of more than EUR 1 billion. What is, of course, a bit extraordinary in the year is that due to the improved performance in the U.S., we were also able to recognize in our balance sheet, basically the right that we have in future years to use kind of old losses or recognize taxable losses so that we don't have to pay cash out taxes in the future years. But let me just say that from a sort of accounting perspective, this is important. It adds something to our balance sheet. It actually adds profit to our P&L. But from a cash perspective, this doesn't make any difference. So, I actually wanted to point it out here. I mean really from the underlying operations more out of the record level earnings per share of EUR 2.40, we did have EUR 0.67 out of this deferred tax asset booking in the U.S. We also published a separate release of that in December if you are interested in more detail. So, for me, that leaves EUR 1.74 as sort of a more regular EPS to be looked upon. Of course, other important KPIs from this page, I would highlight the return on capital employed now at 22.6% as well as then the net debt being negative. I have one page here about strategy execution. And you remember that we launched the Phase 2 of our strategy execution last summer. So now we have started the journey of reaching the financial target of EUR 200 million EBITDA run rate improvement that we are targeting. And I think what I want to illustrate with this chart is that we have now come off to a good start. We have EUR 28 million run rate improvements that we have achieved during Q3 and Q4 of 2022. And if you just look at it sort of linearly, you know how much do we need to do by month to reach the EUR 200 million by 2025. We are actually in a really good pace there. So, the 3 areas that we are focusing on here are the growth from productivity, the customer focus steering and sustainability. So, I think these are areas we will then return to also in our later reports, the start has been good and solid since last summer. So on to my next section, where I have comments on our business area performance. And I will start with business area Europe. I mean, obviously, looking from a profitability perspective, deliveries have been now, as you can see here, at a somewhat subdued level, however, with not much sort of change anymore from Q3 to Q4? And Heikki ready talked about some of these impacts. But obviously, the destocking and the distributors turning to a lot of imports that happened in Europe earlier in the year of 2022, particularly during the summer. And I would say, towards the end of the year, we already saw imports declining. We did also see sort of an end of this destocking cycle. And what we see now is somehow the light in the horizon, so to say that we do see a return of the distributors, the distributor replenishment gradually starting. When we are now looking at the current market environment in Europe, I mean, obviously, contract negotiations, annual contract negotiations are just in the completion phase, and then we have completed more contracts compared with the previous year. And I get a lot of questions about, okay, what's the price level there? And I always want to refer back to something I think I also said a year ago, which is that through the years, we have observed that there is less variation year-to-year when we really talk about long-term annual contracts. So, without sort of saying, well, it's exactly EUR 100 or it's exactly EUR 150 or something. If you just look really longer term, it's clearly sort of a flatter curve with some variation. And I would say, in 2023, the contracted prices are a bit lower than they were in 2022. But I certainly would only talk about a slight impact there. And then you may also ask that okay, so it's growing, how big is it now? Well, the share of annual contract is still below 50%. That's for sure. But we have been able to increase it from the previous year, which I think is a good sign in this market environment. If we look at the market and what has impacted it, obviously, the whole autumn was also all about electricity. How expensive is it to run operations? And how does that impact the margins? And of course, higher electricity prices also impacted our BA Europe result. But we have been able to continue operations throughout the autumn, and I would say the same goes now for the springtime. So, at the moment, we are fairly well booked for the first quarter. I think that also gives us the confidence for the guidance we have on the higher volumes. We have a little bit left to book for March, but we are really focused now on booking the second quarter. And just the final word on BA Europe and the electricity in particular. This also impacts ferrochrome, obviously, even more so than the stainless steel operations. But as those of us living in Europe have noticed, we have definitely been able to sort of regain, I would say, maybe even a little bit of optimism or at least a more neutral position when it comes to electricity. And of course, in particular, gas, where prices are down to the level before the whole Ukraine crisis started, the Ukraine war started. And this also has an impact on electricity. Weather has been, let's say, much better or much warmer than could be expected. Q1 normally should be, at least in the Nordic, still a really cold period, but actually weather has been, to some extent, warmer. So, this has taken away some of the spikes. In Finland, we are still due to wait for the new nuclear power reactor, Olkiluoto 3 to really get into commercial operations. We are still there in a sort of trial period at this point in time, and that is still important for the future. We are hedged about 70% now on electricity for the first quarter. So, I think we are in a good position to continue operations here. Then on to BA Americas, obviously, here, the distributor destocking has been sort of almost more brutal, I would say, for the fourth quarter. You see a really low volume, 125 kilo tonnes. This is really impacted by the typical seasonality where Q4 is the weakest in the U.S. in particular, but at the same time, a real sort of soft underlying market because the destocking has impacted the fourth quarter, but we still see that it could impact into Q1, maybe even during full of Q1. So, the destocking cycle is still definitely ongoing when it comes to the U.S. in particular. I think we need to we need to mention one more thing that actually in the BA Americas context was quite big in the fourth quarter. And that is the negative impact of net of timing and hedging. That's really negative timing that is impacting here. It's a EUR 29 million figure in the fourth quarter. So, comparing with the overall results that has, of course, some significance. If we look at the full year, obviously, Americas has delivered a remarkable result and really good operational performance. So, I don't want to sort of leave the team without a thank you. I think, given our overall performance here for the year, we should still be really, really proud. And finally, business area, ferrochrome, here, the high electricity prices have really given us no choice but really curtail production. You know we have discussed this before that one of the furnaces has been closed, and we have continued optimization. This is really electricity price driven. This continues now a bit into the first quarter. So, we are still at this point now looking at 50% to 60% capacity utilization. A few more words then on the cash flow. I think we had a strong cash flow on the back of a good performance result-wise. In the fourth quarter, we already turned into actually getting some cash out of the working capital. But if I look a bit at the full year and focus on the buildup of working capital, I think there's a few words that are sort of worth mentioning. The first one, obviously, is that when it comes to inventory, this is really not about volume, this is about value and the same goes for accounts receivable. There is one more important item that has contributed or resulted in this quite big working capital buildup during the year. And that is the accounts payable through redirecting of some supply chains where earlier we were sourcing from Russia, and now have been then looking for other sources. So, I think that's worth mentioning that the AP impact in this working capital is also fairly significant. But I will move on to -- my next slide, and this is just the final time I will show this slide, which shows our debt development, our leverage development. And you can see that we have now reached our target. Actually, no net debt. We have promised as a target that leverage would be below 1x in normal market conditions. I think that's fulfilled. So, this is now the Grande Finale for this page. And I also wanted still to include one page on our funding profile. I think this shows a balanced funding profile. Obviously, our gross debt has decreased a lot. And also, when you look at our debt maturity profile, it is balanced and sort of well managed at this point in time. But with that said, may I hand back over to you, Heikki.

Thank you, Pia. So, let me say a few words about the coming quarter and a bit -- make some general observations about kind of the environment that we are living at the moment. So, we're going through, obviously, some dramatically changing times. It gives me a lot of comfort here as CEO that I can say that with that balance sheet and the financial situation that Pia just went through, we have a significantly improved resilience, and that really will allow us to create value in these changing circumstances. You've seen our strategy road map before to just summarize where we are again. Phase 1 was completed. The derisking has been -- is done. We have the strong balance sheet as Pia already mentioned. And now we're in Phase II. It's about strengthening the core. -- long products has been sold -- and now we're really trying to extract even more value from our existing assets by allocating smart capital. We will remain capital disciplined and the focus on shareholder returns is now higher than before. And sustainability, of course, is underlying everything we do. Now in terms of shareholder returns, it does give me great pleasure to report that the Board of Directors propose that to the AGM that we will pay a base dividend in the amount of EUR 0.25 per share. And that is the base dividend. On top of that, as a plus, we will pay an extra dividend of EUR 0.10 per share for a total of EUR 0.35. And in addition to that sort of amounts to about EUR 150 million. On top of that, as you know, we have the ongoing share buyback program in the amount of EUR 100 million. So, all those together amount to EUR 250 million. And as I said before, our aspiration is that we are seeing attractive, especially for longer-term shareholders. We understand the volatility of the business, but we hope that this type of an approach gives our investors sort of comfort to stay with us through the longer term. Now here's a new chart I want to show some observations about the market environment and really more a bit of a holistic view on what's kind of happening around this and what might be drivers of our business. I want to underscore the fact that this should not be taken as guidance. I'm just trying to raise some of the key themes that we are also monitoring carefully. So, on the left-hand side, more looking at sort of upside, positive upside impacts, as I said, the distributor replenishment should now begin. In Europe, we have clearly signs. It is starting in the United States. It may be still going through the end of Q4 before we really start seeing that happen. But eventually, we're now coming closer and closer to the point of restocking. And of course, that should then give us upside trajectory in our order inflow. Also, there are signs that ferrochrome demand is picking up. That's a very positive thing. The demand for Advanced Materials continues to be strong. And I would say that with the exception of the construction sector, which is probably at its weakest let's say, in a decade, all the other sectors where Advanced Materials products are sold, seem to be doing reasonably or very well. And then finally, on the positives, I think we have a lot of positive momentum with our low carbon offering. Circle Green was launched last summer. Now the volumes are still small, but I think it allows us to position Outokumpu, really at the cutting edge of low-carbon product supply. And then here, we really are the leader. On the uncertainty side, We, of course, have the timing and impact of China reopening. I mean 3 years of COVID lock down, now when they open, I mean, things could get hot. We just don't know the timing. We don't know the impact for sure, but I would see this more as a positive upside. Will we see that in the second half of the year? Or will that sort of impact '23, it's still uncertain. But if it -- when China reopens and if it reopens with the vengeance, it should also impact some of the demand for stainless in that Asian region, which, of course, maybe has some impact on exports out of Asia into other parts of the world. We've seen interest rates rise quite a lot in some countries, a lot of discussion about a software hard-landing. Well, as we all know, the data that we're getting every day is very -- giving us somewhat different signals. On the one hand, it seems we're heading towards a soft landing. Other data is indicating a harder landing, just cannot really say yet. But at least at the moment, things are a bit more heading towards a more positive direction. Then the war in Ukraine, this terrible situation that we have here in Europe. Usually, when you have a war, it does create inflation. We have to hope that crisis and war will cease soon. But in the interim, we will probably be facing different waves of inflation or different policies of inflation in the future. And then starting the energy markets in Europe, as Pia mentioned, it's been unseasonably warm here. The German natural gas inventory levels are very high. So, I think it's clear the winter of 2022 - 2023 should be pretty much handled. But then we look at next year, and I think what will happen in '23 - '24, we will then have to come back to that after this summer and see what type of actions are needed to prepare for a potential next wave of challenges. But we still have 6 months to go before that is again a topic. Let's hope we can find new ideas on how to mitigate that potential risk. So that's sort of a big picture of the themes we are monitoring, I said, should not be taken as guidance but more a general overview of the types of topics, which can impact our business. And then finally, I want to just go through the outlook for the first quarter. So, as I stated here in the slide, our group stainless deliveries in the first quarter are expected to increase by 10% to 20% compared to the fourth quarter. Ferrochrome production continues at 50% to 60% of full capacity. As a result of the planned optimization we're doing because of the higher energy electricity costs and also, we have had a disruption in 1 of our 3 furnaces in Tornio. Inflation in energy and consumable price is expected to continue in the first quarter. With current raw material prices, no significant raw material-related inventory and metal derivative impacts are expected to be realized in the first quarter. And guidance for Q1 2023 adjusted EBITDA in the first quarter of 2023 is expected to be higher compared to the fourth quarter. So, with that outlook, we look forward and Pia and I are happy to answer your questions. So, thank you very much.

[Operator Instructions] The next question comes from Harri Taittonen from Nordea.

Yes. Thank you. The -- maybe on the sort of the cost side, I mean, a couple of things. It looks like both in the Americas and Europe, it looks like the -- at least the calculated cost per ton seems to have declined from the third quarter level, even if you sort of saw this decline in volumes. And just wondering, is that -- what was the sort of the -- where were the key imports -- was it sort of energy or scrap or other factors explaining that in that division? And maybe another one related to ferrochrome now that coming into the first quarter, is there a sort of difference in the maintenance cost? And also, is there an increase in cost in Q1 because you are opening that sort of third furnace, but still keeping the volumes down?

Thank you, Harry. And I think on the cost side, first of all, when we look at, first of all, realized energy prices, we, of course, have a mix of a smaller share of spot prices and the earlier agreed sort of contractual or hedge prices. And then on top of that, specific results of the optimization from ferrochrome. So, if I just sort of try to look at this rather holistically, I think we were able, even in a difficult environment to keep the energy costs rather in -- if I could call it more sort of in balance, even though the pressure was really, really high. And on a global level also, we have more maintenance in the third quarter compared with the fourth quarter. So that also eases a little bit on the cost side. Those are, to me, sort of 2 most significant sort of underlying contributing factors, and we've had a lot of focus on the improvement actions. On the scrap side, you may recall that particularly for BA Americas, we said during Q3 that there had been some more advantageous circumstances that we perceived as fairly one-off, and that's actually getting a bit worse in the fourth quarter. So, I cannot really say that, that would have helped. If you look at our bridges, then this impact of that sort of various metal impacts go into this pricing and mix part of the explanatory bridge.

Maybe if I could just say on the ferrochrome. So as said, we have had a disruption there. We are now working to repair that this spring because of the technical problems we had in one of the furnaces, we have to run with a bit of a lower energy load. And of course, that then means also that the output is going to be less. So -- we are going to have to have a maintenance here further this year. But until then, on the larger furnace, the energy load has to be lowered.

Heikki, if I would still continue specifically on the maintenance costs. I think in ferrochrome, I mean we are still talking about a very low single-digit million additional maintenance cost during the first quarter. But then this is because we have made some, let's say, interim improvements. And then if we take the bigger maintenance stop in Q2, we will then talk separately about that in the -- when we have our Q1 report to be a bit more specific, but that will be more like kind of the normal bigger maintenance breaks that we have had in ferrochrome historically?

Great -- maybe sort of slot in one third kind of broad question. I mean after this sort of strengthening in balance sheet and how do you view sort of continued share buyback cess sort of a complementing measure once the current program is completed? I mean is there something you could say about that?

Well, first, we will need the AGM to accept the proposals that are out there that there is an authorization. So, I think it's probably something that we need to then consider once we have that authorization in place.

The next question comes from Bastian Synagowitz from DB.

I've got one question, please. On your guidance for better EBITDA. There are obviously a lot of moving parts, but you give us the ones on volume and the metal charges, which is very helpful. The only missing part are probably your gross margins. So, I'm wondering whether you could help us to understand whether you continue to see the benefits from better mix and whether we have seen the trough in realized margins in the fourth quarter, at least when you adjust for the negative impact from metal effects. So, in other words, will you realize gross margins be stabilizing in Q1?

Again, if I may at least have some perspectives on this, I think, first of all, indeed, if you just look from a sort of bridge perspective, then obviously, in Q4, we had on a bridge level, the negative impact that we had a positive one-off on the metals in the third quarter. But if I try to more think sort of on an absolute level, that what are the various things impacting us. Then I think, obviously, price development is an area where I have some difficulty kind of commenting prices going forward. But if I just look at sort of one of the bases, which for us is the annual contracts that we have concluded, then I think that the sort of -- the decline is very modest that we can see in those. And those are still an important part of our base. Of course, you can follow the sort of the pricing, the CRU pricing and that's kind of one indication of the spot deals that we are seeing right now. However, we are already fairly good booked through the first quarter. So, there is not sort of much new orders anymore taken for the first quarter. So, those prices have already realized just a little bit earlier because we are definitely in shorter order books right now. And then if we look at sort of various components of the markets, indeed, as Heikki said, actually the Advanced Materials business, that part, the more value-added grades is still -- that is showing strength. So, I think overall, with higher volumes and so then with the strength from that market, those for me are like positive signs.

Thanks, through that. If I can maybe even follow up a little bit more on that. I mean, again, if we look at the volume increase, whether it is 10% or even '20, obviously, those are very large increases and with the contribution margins in your business, obviously, that will give you a very positive effect on operational leverage. And as it's been hinting, it seems like you're still probably taking a little bit on pain on average pricing because net-net, probably still realized prices may come off a little, maybe costs are not fully compensating for that. But if we take those 2 effects together, so volumes up, prices may be slightly down, do you think that, that part will already be sufficient to stabilize your profit? And then the metal assets basically do what they do. Maybe they are flattening out. Maybe they are still going to be a negative, but net-net, volumes and prices will still keep your numbers more or less stable?

Yes, I think there is a good boost from the higher volumes. I agree with that. So even though I don't have sort of an exact figure to give you, I do think that those 2 elements are sort of important sort of -- as you mentioned, but I cannot really say if they exactly compensate each other. I think overall, when you add up all of the elements, we are indeed looking, of course, at a higher EBITDA in the first quarter.

Maybe if I can just -- I mean, if you -- a little bit trying to answer your question from a little bit different direction. So, if you look at our sales, you could -- one way to dissect it is we have the Advanced Materials value-added business. And then on this commodity stainless, we have the end-user business and the distributor business. So, so far, the Advanced Materials is it's quite stable. The contractual business, long-term contracts also fairly stable. The volatility really is the distributor business and at the margin, certain distributors who are very actively buying and selling products from Asia. So, we really are seeing the incremental orders coming at the sort of margin from those customers who a bit have been buying less when they took advantage of the Asian influx of volume. So, I do believe that -- and as you know, with these large mills like Tornio, the higher the operating rate, of course, the operating leverage really starts to kick in. So that's why it is important to get those large assets like Tornio running reasonably well. I think that's kind of what we are aiming to do here.

Okay. Great. Then one more question on Americas, if that's okay. Clearly, as I said, it's been a very challenging quarter. If I look at the volume numbers, I have to go back as 2015 to really see a number which has been similarly weak on a volume level. But then on the other side, if we look at prices, maybe they softened a little, but they're still very high. And so, it seems like you're able to keep up a decent level of market discipline there. Now what do you see in terms of the destocking? Do you think it's going to last just until Q1? Are you already seeing any signs of improvement? Because clearly, whenever those are coming through, we'll give you at these margin levels like a very strong operational leverage.

I mean now I have to -- a little bit speculating about Q4 behavior, but I think for many customers, 2022 was a really good year. And probably many of them had achieved their financial targets. And so, when they ended up buying a huge amount of excess volume, of course, they're sitting on that inventory -- and I think we have seen some decline in end-user demand because I think initially, we internally thought that the destocking would end a bit earlier. So, at the moment, we -- as we said, I think we think that the destocking or the stock replenishment should start kicking in as we head towards the end of the first quarter, possibly even the second. We just don't know for sure, but we are starting to see now customers order. So, I mean it's more than green sprouts. -- but it's still not like kicking in, in a full throttle. So, I think the next 4 to 8 weeks will probably give us a better sense on what's happening. But clearly, there's been some end user softening. And I mean, if you look at, for example, the U.S. housing market, I mean, people are not changing houses because of the high mortgage rates, home appliance sales is weak. I mean, of course, you can see the end-user demand is -- has softened here. So that is probably flowing a bit into our customers and then to us. So, let's see. We are still reasonably optimistic that replenishment is approaching in the coming weeks. But again, I cannot promise anything yet.

The next question comes from Ioannis Masvoulas from Morgan Stanley.

The first question is around the -- your ability to fully pass through the raw material costs. As you mentioned, nickel remains elevated, molybdenum has also surged. How is that ability to pass that through to your customers is playing out into the quarter, especially based on your current order book in Europe and the U.S.? And within that, are you seeing any signs of demand destruction for grades that are high in molybdenum content.

Maybe I can start with a few reflections on the high nickel price. I mean, obviously, this is one where then the transaction price gets higher and that fine balance between what is the price level where, for example, distributors will find it attractive to start importing from Asia. And I think that is the fine line and the balance that we need to strike all the time. And now with the current price level, what we experience is that import levels have clearly come down. So, it seems that there is now a better balance and not this sort of need for distributors to play this import game as we speak. So maybe that is at least the part answering the question with sort of the combination of the current high nickel price, but then still kind of at least in the U.S., clearly lower import level and in Europe, maybe somewhat stabilizing import levels maybe there is a kind of balance at the moment. But of course, it's always a fine balance. I think the question of molybdenum is very recent. It's a very recent issue that has surfaced and probably there is both issues on the supply side of molybdenum, but as well on the demand side, demand being strong. I mean, this is something that you need to produce very strong products and including even needs for military equipment, et cetera. And I think sort of just broadly, if I think of the first quarter and then maybe Heikki, I can hand over to you for any further comments. But if I look at the first quarter, we are pretty much booked. We still have some room towards really the end of the first quarter. But that means that this is not really such a kind of Q1 topic, but obviously, it could have impact then going forward, possibly.

Yes. I think this molybdenum challenge really originates from both Chile and Peru where the miners have had labor disruptions and that basically is constraining the supply of the ore. So, we don't see really -- we don't see that demand problem. It's purely a supply issue. And we hope that those issues in Peru and Chile will be resolved soon. And then, of course, we will see more volume coming to the market. But as I said, it is a very recent phenomenon from the last 2 weeks almost.

Great. Second question on the Q1 guidance. Is it fair to assume that the improvement in volumes is mainly driven by Europe, given the destocking pressure in the U.S.? Or do you think the U.S. could also contribute sequentially on the volume front?