Outokumpu Oyj (OUT1V) Earnings Call Transcript

Good afternoon all, and welcome to Outokumpu's Q1 2023 Results Webcast. My name is Linda Hakkila, 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. As per usual, we will first start with our presentations. And after that, we are happy to take your questions. Year 2023 definitely started well for us. Our adjusted EBITDA reached over EUR 200 million, and this very solid result proves our improved capabilities to create value. Before we start with the presentation, I would like to remind you about the disclaimer as we might be making forward-looking statements. But now without any further comments, I would like to hand over to our CEO.

Thank you, Linda. Good afternoon, and good morning, everybody. Welcome also on my behalf to Outokumpu's Q1 2023 webcast. As you can see, Linda, not me, is smiling here. And I think when you see Pia, she will also be smiling. We came to 2023, obviously, with maybe some uncertainty in the markets. But looking now at how we performed, I personally have to say, I'm very pleased with the results of Outokumpu for Q1. Now let me go and talk, first of all, about how we saw the year start. So as you remember, coming into December of last year, we had actually an exceptional destocking happening. First of all, in Europe and then in the U.S., our customers almost stopped buying as we headed towards Christmas. Then we had this fairly complex macro backdrop obviously, starting with the Ukraine war. Therefore, we then we're looking at a possible energy crisis in Europe. Of course, we saw very high electricity and gas prices. We had a situation where there were labor negotiations, a risk of strikes. Of course, we have the geopolitical situation, central banks raising interest rates, inflation shocks, and so forth. So I would say a lot of moving parts here just in the environment around our core business. But in spite of all of that, I have to say, Outokumpu executed very well, reaching EUR 204 million for the first quarter is, as I said, a good result. Looking at previous years, and we'll look at some historical data, you can see we have performed well as a company. If we then take a look a bit further and dive into the business, and let me start with this slide that talks about the pricing situation. So as we've seen from the past always that if the margin or the price difference between Europe and Asia starts to expand too much, then we will start to see a clear sort of stocking up happening. And that was the case. And now we have seen the price difference between Asia and Europe start to shrink. And of course, now short lead times being somewhat shorter, there really isn't any business case to import product in big quantities from Europe. From Asia, we're able to supply our customers very well and continue to do so. So in that respect, situation has actually normalized, which is good. On the upper right-hand side, we have the nickel price. We've been hovering over $20,000 per tonne for quite a while now. Obviously, the electrical vehicle demand probably is putting a bit of a bid on nickel, but of course, also then the geopolitical situation; Russia, Ukraine, China, of course, may be impacting price as well. China and Russia do account probably for about 70% of global nickel supply. So they are obviously playing an important role here in that respect. On the lower right-hand side, we see ferrochrome pricing. Ferrochrome prices were declining as we started the year, but have since bottomed and now we're seeing, again, upward movement. The Chinese market in the first quarter for ferrochrome continue to be fairly weak. China, as you know, opened up post-COVID. I think most of the demand in China has been more visible in consumer goods markets, hotels, airline travel, restaurants, the activity on the industrial side in Q1 was not really that robust. But now as we look at the coming months, at least we are getting indications and also demand in Asia and China seems to be picking up. And of course, that probably is giving a bit of a bit here on the ferrochrome price as well. Then looking at the results, and let me start off with the volumes, the deliveries on the upper left-hand side, 505,000 tonnes. If you look historically, it's not a huge volume. It's a good pickup from the previous quarter, 12% increase in deliveries. But as I said, compared to the, let's say, the boom years of 2021 and 2022, we're still low. As for those who don't follow us that much, Q1 is always a seasonally stronger quarter vis-a-vis Q4. So the pickup movement is partially also seasonally. On the lower left-hand side, you can see our group adjusted EBITDA on a quarterly basis, EUR 204 million compared to earlier years. We don't have here 2019, which was the quarters before COVID. And compared to, for example, Q1 2019, our results now this year is almost double. So in that respect, I really feel that this was a good quarter. Our performance as a company was almost -- all of our businesses did quite well. In Ferrochrome. As you know, we've had some challenges. Pia will talk about them. But overall, the machine was really humming very well. And then on the right-hand side, you can see the bridge, from EUR 110 million in Q4, EUR 204 million now in the first quarter. Deliveries picked up. But also, we did not -- on the realized pricing side, we had a fairly, I would say, neutral outcome. And then, of course, in terms of net and timing and hedging, we had a plus there. But that's basically really just looking as a bridge item vis-a-vis the previous quarter. So good numbers there. Sustainability has, of course, become a major topic in our industry. Europe and most of the, let's say, Western countries here are trying to decarbonize their economies. Finland as a country has made a decision to be carbon neutral by 2035. So obviously, as we originate here, it's an important part of our journey. From the standpoint of ESG topics, if I just first -- before I say a few words about sustainability on the CO2 side. So let me just say that on the safety front, it was another great quarter for Outokumpu. Our total recordable injury frequency rate, TRIFR, was 1.8. It's a strong number. And based on the data we have, we have the best safety record in our industry and also compared to many other industries, we're doing very well on safety. And our target long term is to reduce it even further. Going back to the question of CO2. One important element of that is how we operate and how we take advantage of the circularity of our business. We have a very high recycled material content at 94%, we have the highest level of recycled materials used in our industry. And again, this was a strong quarter compared to the previous years. We've been able to raise our recycled content gradually year-over-year. And the work towards that continues. And then as I said earlier, in terms of taxonomy, -- we have a good rating -- a good situation there. And we're the only company, as far as I know in the stainless and in the steel industry, which has committed to SBTI 1.5 degrees target. And we're also the only one that fully discloses all the data on Scope 1, 2, and 3. So we take sustainability very seriously at Outokumpu. And a few words about energy because of course, as of following the Ukraine war and then the spike in energy last summer, this, of course, has become an important topic. Our industry, especially Outokumpu, as a large producer ferrochrome -- we are the largest buyer of electricity in Finland. And of course, we are a large user of electricity and energy in general. On the left-hand side, you can see the graph how energy prices have spiked up and down. For us, basically, as we look at the coming years, the 3 sort of things that are on our minds. Well, first of all, we need to have access to renewable energy, basically carbon-free energy. The benefit of the Nordics is that we have historically always -- we've had good underlying energy supply, especially non-carbon energy. The challenge, though, for the coming years is that while Finland and the Nordics is going to be adding a huge amount of wind power, onshore wind power, it's been estimated that we will be bidding in Finland about 1,000 megawatts per year of wind. That in itself is going to be excellent from the standpoint of availability. But we also need to have base power because, as you know, we have windy days, and then we have not so windy days. And for that reason, we have announced, together with Fortum, which is a Finnish or Nordic large utility, a project where we are looking together at the potential to build a small modular reactor, an SMR nuclear power plant, primarily near our facility in Tornio in the north. There is new technology coming along. In Finland, you have -- we have the Olkiluoto 3, which is a huge plant, but we're looking more at modular scalable reactor solutions. And there is new technology coming on stream, and we're going to see whether some of that would fit us. We, of course, hope that we can find a solution which would give us competitively priced base power. Then a few words about CBAM. Now this is a bit of an abbreviation monster here. CBAM stands for Carbon Border Adjustment Mechanism. The idea basically here is to have a carbon tariff that equalizes let's say, the emissions of European producers vis-a-vis non-European producers who supply various types of steel grades and precursor materials, such as ferroalloys into the European Union. On the left-hand side, you can see Outokumpu's situation today, our CO2 emissions vis-a-vis industry on average and also then some data on ferrochrome. I mean you can see from this data in green that Outokumpu is extremely well positioned. We are the lowest CO2 producer. So the starting point is good. But the reality, though, is that competition is tough. And customers, of course, do not always have the best information available vis-a-vis the different options and their CO2 amount. So we believe the carbon board adjustment is a fair and efficient mechanism to equalize. What is important for us is that Outokumpu as a ferrochrome supplier is located in Europe. We have the Kemi mine in Europe, and we will be inside the CBAM region. So as ferroalloys are now also going to be included, it is actually an advantage to Outokumpu that our ferrochrome supply is domestic, and it's actually located near the actual point of use, and that is Tornio in Northern Finland. Then a few short words about the strategy. I was extremely happy last summer when I could report to you that we were 6 months ahead of schedule in terms of implementing Phase 1, and we reached all the targets we had set. We even overdelivered in many areas. Now we're in Phase 2. It's almost 1 year since we launched Phase 2. And I can tell you, and Pia will show you some numbers in a moment, that we are on track. The thing I'm most proud about, and I think which is really most important here is how successful are we in steering our business. You may recall that in terms of BA Europe, we split it into 2 business lines, our stainless Europe, which is more focusing on the commodity grades and then what we call advanced materials, which is the technical high-tech project business. And so in doing that split, of course, objective here was to become much more customer focused. And I can tell you that based on what we've done and what I've seen here, our teams are able to execute much better and in a much more focused and systematic manner in the new structure. Our margin management has also improved. And what do I mean with margin management? It is finding the right optimal balance between procuring raw materials at the right time and at the right place at the right cost, the optimal production and then the sales and marketing. And by having the right optimum there, it also helps us balance our capital employed, our working capital. So that's been a big step forward. I can really see concrete evidence inside Outokumpu that we have become better. We're also continuing to invest in our digital platforms. We still have a bit of work to do here. Over the next few years, we will further implement some new systems that will give us some new benefits, especially on the supply chain side. So that work is ongoing. We announced at the previous quarter, our intention to improve our energy efficiency by 8% in 2 years. Now that is a very tough target. I knew when I set the target that we're going to be stretching the organization, we have promised them that they will get the capital they need. Now it's all about ideas. And we've been able to get already a good amount of ideas that we're now implementing. And at the moment, I can say that we are making good progress also on that front. And then finally, I need to mention that the project around commercializing Circle Green, which is the lowest CO2 content stainless steel in the world. That work is going very well. We're constantly getting more and more positive feedback from customers that they want to try out the product and buy. So that's also good news. Now with those words, let me hand this over to the smiling Pia to report on the numbers. So please Pia, take it away.

Well, thank you, Heikki, and please do let me start with just a few comments on our balance sheet, our industry-leading balance sheet. I think that is such -- it's just a sign of strength. It does give us financial flexibility. But of course, this also now helps us operationally, so being in this strong position. And maybe just a few sort of key figures to back that up first. After all, I'm the CFO here. So the numbers, our net debt is now further reduced. It's a negative of EUR 166 million, and I'll come back to a few factors impacting that for sure. Our liquidity reserves are strong. They are up to EUR 1.5 billion at this point. But maybe a few words on shareholder returns. So I'm sure you recall that for last year, we have now actually just in April, paid out the dividend. And the dividend where we sort of set out was EUR 0.25 of a base dividend, EUR 0.10 of an additional dividend because last year was a very good year for us. And now we are then in our first quarter of 2023, delivering earnings per share of EUR 0.22. And so I think that sort of sets a good base for our financial policy with the growing dividends. So that's a good starting point. We have also just completed our first ever share buyback program. I'm very satisfied with the way how we executed on that program. I think that was a good success. And now we have added this tool also to our toolbox. And I think as management, we found that to be a really good tool. So let's keep it in the toolbox and consider using that as a future reference, of course. Then some more key figures. If I'll just first comment on a few that I further want to highlight from here, I think looking at the return on capital employed, first of all, we are here now at almost 20% at this point. That's a very good performance for sort of a heavy capital-intense industry like ours. And then looking at the cash flow for the quarter, the operating cash flow was at EUR 74 million. So I think that's also just sort of a good start of the year, along with the good performance then when it comes to our results. But there was one thing that I thought when I was really looking at this slide and sort of my memory took me back down to last summer when we had our Capital Markets Day, and we talked about the fact that, of course, market sentiment was at that point already changing. I mean we went from the very hot market that we still had in early 2022 into something that was sort of visibly going to start to slow down. And then we introduced our view of what a normalized EBITDA could be. So what would our performance be under more normal market conditions. And I still remember the many questions I got about that, how did you calculate it, et cetera. But I think most importantly, I mean, what I said then was that we were sort of looking back at more like historical levels or, for example, sales prices, volumes, et cetera. And when I look at the situation now, obviously, as we speak and as Heikki has already described, I mean sales prices have been under some pressure. So if I just look at the CRU data, as I'm sure you are looking to, we do see sort of below average levels even in sales prices. But I am still happy and I still feel good about that discussion that we had about what could such a normalized performance be, I think the first quarter is a good proof point of that. And I think sort of the main learning is that in this market situation where we have had the pressure, especially on the spot prices, we have also seen how the raw material market has reacted. Some of that is maybe testimony to our own good actions and the way how we have been able to steer the business. But certainly, I think we also have a bit of a sort of -- these 2 go somehow now hand-in-hand. And I think that gives me confidence that our earlier statements about the normalized are still -- those are still valid. But let me take you further still with a brief view really on the sort of details on the strategy execution. I think that's also an important key to our performance. And Heikki already spoke about many of the things that we have been addressing in the strategy execution. But just looking now at what we really were able to achieve in the quarter. So in the quarter, our run rate EBITDA improvement based on our strategy execution is EUR 24 million. And I would say we have a number of projects there. And many of them are important in this quarter, especially the expansion of the oil concentrating plant in Kemi. I mean, that was one of the contributors. But if I look over time, what are some things we really need to keep an eye on. Heikki mentioned the energy efficiency. That's really important. I mean this 8% energy efficiency improvement, it's such a significant step change compared with kind of normal continuous improvement, maybe like 0.5% per year, something like that. So that's important. But if you recall, we also spoke quite a lot about sort of enabling more volume, so growth from productivity of our current system. And we talked about 80 kilotons out of our Americas system and 100 kilotons out of our European system. And I would say, in the background, we are really well on track for enabling that. And obviously, that will give us opportunity once we reach the point where the market is really rebounding. So keep an eye on that. And I still want to also go back to the sustainability targets. We did set ambitious CO2 reduction targets, 14% just for the second phase. And when I look into that, I think there's a few important projects on top of the energy efficiency yield improvements and many other operational improvements. We are investigating the bio-coke, as we have described before, and that is one of the things that we will then -- we continue working with this in the background, and that is an important enabler for the CO2 reduction as well. And maybe finally then, when we really looked into the more sort of specialized grade, what are now being developed in the Advanced Materials portfolio, I think just being able to sell, being able to expand here in that portfolio is also one of the drivers for the journey here during Phase 2 of the strategy. Maybe then as a matter of completion and just sort of completeness, maybe the divestment of Long Products. We closed that big deal early in Q1. Our net debt was reduced by EUR 100 million as a result of that. And then we also signed to divest the remaining Long Products units that were in Sweden. That deal is still kind of expected to be completed during the third quarter of this year. So then my final 3 slides on the BAs and then a little bit on working capital. So what I want to cover here, first of all, when I look at the European business, I think EBITDA of EUR 122 million in the quarter is a good performance. It's testimony to good steering. We also did have a stable performance in the quarter. I mean, yes, there were some strikes, but these were still managed well and somehow kind of -- we had overall a good capacity utilization above 80%, and that enabled us to have a good run, to have a good supply chain planning, to have efficiency, variable cost efficiency, also fixed cost efficiency. So that combined with efficient raw material management really allowed for this good result in the quarter. So on to my topic of what sort of was still important, what made the result better quarter-on-quarter. I would still there highlight as a plus energy costs that were actually lower than in the fourth quarter and also actually some other consumables were a little bit cheaper. So what this means is that, that sort of peak inflation, of course, very much driven by energy is at least for now kind of behind us. And then finally, I think looking at sort of the market situation, Heikki has commented already, many really important points there. But I would say, as we are now seeing the end of the destocking phase, especially in Germany, but also more broadly, if we look at the stats, we are commenting that quite a lot in our report actually. But I mean we do see now the inventory levels to be to be normalizing. So that is, for sure, sort of making a bit easier to breathe in the next quarters. You also see that, of course, in our guidance for the stable volumes going forward. And when you look at the bridge of our price impacts that we haven't closed, as I don't show it here, but it's in the detail of our webcast material. What you will, of course, as well see is that, yes, indeed, if you look at CRU data, you see that there's pressure on the spot prices. But please remember that we do have a good, stable base of contracts in our portfolio. And we always used to say it's more than 1/3 but less than half. I mean, let's land the figure somewhere around 40%, and it sort of gives you sort of a magnitude of what that means. And that's, of course, a much more sort of stable part of the business. And then some of the raw material benefits also kicked in there so that the overall -- what we look at as price impacts were not when you look at it in big picture, they were not that negative at all. And then I come into BA Americas, and then this gives me a chance to talk a little bit about timing and hedging because Heikki already spoke about the market situation, how extremely difficult it was in Q4 when the distributors really stopped ordering, how we've had a little bit of a gradual rebound here during the Q1. We clearly can see now the destocking come to an end. But when will the real sort of replenishment start, we will still have to watch and see for that. But clearly, we are now in a more stable phase. What impacted BA Americas result really negatively in the fourth quarter was also the hit that we had on timing and hedging. And that is now very clearly rebounding. So on a bridge, we really get a positive impact there. Let me still remind you that we have, of course, some info raw material and scrap as such an important driver in our results. So there are many ways how it impacts. I'll start with the most important one also linked to sustainability, which is that when our recycling ratio is high, that really also improves our financial performance. So that is something we have really nailed down. But on top of that, we have some other impacts. What we always report per BA and what you can see here as well as timing and hedging impacts, that's really sort of the timing difference that we have between when we have bought and when we have sold, so price-in price-out, there's a delta in between because we do have an inventory turnover still. I think we are sort of closer to 3 months. So it takes some time for material to flow through the system. And with that being said, there's always a difference between price-in and price-out that we are then risk management, to some extent with hedging. And those, I think you can clearly see here now that, that's a very positive impact for the Americas in this quarter comparing that with Q4. But we also have other raw material impacts that we are showing as a part of the pricing component, and that could have to do more with sort of onetime opportunities in the market or particular purchasing conditions. So with that being said, I hope it clarifies a bit. I'm sort of super proud about what our Americas team have done and really rebounded in the result here in the quarter as well. And I think that's sort of a good sign of what we are now able to do with the operative performance and stability that we have reached. Not to mention, by the way, do you still remember when we were talking about the ferritic investment all the time and how good that is. And I think in a year like this, with a slower market, it has proven really good to have a broader product portfolio. BA Ferrochrome is the BA that was really impacted by the European energy crisis, and Q1 is still unfortunately sort of a testimony of that. The result of the high energy prices was that we had to stop production. And then we also suffered some operational difficulties. So all in all, we actually were down to just a notch above 50% capacity utilization in the quarter. And that's, of course, then visible in the result. But together with the good work of the team, the energy optimization, we still managed to deliver what I would call an acceptable result under the circumstances even a good result of EUR 16 million of adjusted EBITDA in the quarter. And now then for the second quarter, we do see this kind of rebounding and stabilizing again. So we will be back to normal capacity utilization. And we will take the maintenance break the longer maintenance break in the third quarter. So that is when it's being planned at the moment. Okay. On to my final slide then. And here, I get a little bit of a chance to talk about the cash flow and the CapEx. I'll start really briefly with the CapEx because I don't have so much to say the CapEx figure in the quarter was low. The deep mine is really coming to an end and that impacted it. So there wasn't sort of that push from the deep mine strategic investment at all. But you see here that we are still foreseeing a EUR 200 million CapEx overall for the year. Then maybe more interestingly, if you look at the left-hand side of this graph, you see a bit of our cash flow components here. So obviously, starting with the reported EBITDA and then looking at the working capital performance of the quarter. My description of it is, it was really smooth. So I mean, Q1 is typically a quarter where we are investing somewhat into working capital. I think this was now a fairly minimal investment. I think we managed our payables, receivables well, just given some a little bit uptick in inventory, and that's really what you see here. And I really see the sort of same smooth situation going into Q2 because we have a fairly stable view of the volume development. Then in this other bucket here of, let's say, other cash outflows, please note that we made -- we used all of our deferred tax assets in Finland last year. So we actually already had some cash payments of taxes in Finland for last year, and we paid all of that out now during the first quarter. So you see here some more sort of tax payments than normal. I think we will also pay some cash out during the second quarter from Germany. Maybe that was EUR 15 million, EUR 20 million, something like that. So there is a little bit of an uptick now in the cash out compared with previous years. So operating cash flow of EUR 74 million. And then as the CapEx was low and we got EUR 100 million uptick from the Long Products sale, then that is really what you see here in the end as a positive in the net cash from investing activities. But with that said, Heikki, may I please hand back over to you.

Thank you, Pia. Thanks for the good summary. So to wrap up this section. So I would kind of summarize Pia's presentation with the words, Outokumpu has good momentum. And I said, we are really -- many of our customers have already completed their destocking. So also the dynamic of the market is again changing to a more positive tune. Now of course, there are always risks. And so we have this one page that tries to give a bit of a more holistic picture about the risks. Our view here is that the risk outlook is now neutral. So yes, we have pluses and minuses, but I think overall, we're in a neutral situation here. On the positives, of course, assuming now that the Chinese reopening moved to the second phase, and that means that in the second half of the year, industrial activity does improve and pick up in China. So of course, that would then have a positive impact in terms of demand for stainless and ferrochrome in the Asian markets and of course, creating its own positive supply-demand dynamic into Europe and the U.S. as well. And then the other positive, which is more of a longer-term thing is, of course, significant amount of capital is now being allocated in various forms for green transition investments. And of course, we -- especially in our Advanced Materials, but also -- when we look at our standard grades, classic grades, hydrogen is one example. I mean, there's a lot of demand going to be coming in the next years. That's really a positive. Then on the uncertainties, of course, as we all know, I mean, are we going to have a soft or hard landing here. I think it's still a bit of a coin toss. What are the central banks going to do? Are we going to have too much tightening? Or are we going to sell through this? Cannot really say the war in Ukraine, what's the next phase going to bring about? And then finally, of course, energy as we head into next winter. I have to say though, with the experience we had from this winter, how we learned and became even smarter with energy optimization, things like that. I'm more comfortable about winter of 2023, even if we were to have a big of a challenge like we had this year. I'm just feeling more confident in our ability to manage also through that type of a situation, if hopefully not, but if it were to materialize. So hopefully, you get a good sense that this is sort of a neutral -- overall neutral viewpoint about risk. And the outlook for the second quarter. So group stainless steel deliveries in the second quarter are expected to remain stable compared to the first quarter. Our ferrochrome production will increase and return to normal levels in the second quarter. However, the business area is preparing for a maintenance break, as Pia in the third quarter. With current raw material prices, no significant raw material inventory or metal derivative impacts are expected to be realized in the second quarter. And finally, the guidance for Q2 2023 adjusted EBITDA in the second quarter of 2023 is expected to be at a similar or higher level compared to the first quarter. So that's the outlook. And now Pia and I are happy to answer any questions you may have. Thank you.

[Operator Instructions] The next question comes from Anssi Raussi from SEB.

I have a few questions and I go one by one. So first of all, back to this, Pia's a favorite topic of normalized EBITDA. So do you still think that we are in the middle of like somehow exceptional market conditions, as you reminded about this one. And of course, you generated over EUR 200 million of EBITDA in the first quarter. That's the first one.

Right. Thanks, Anssi. I think the reason I wanted to mention it was really looking at the price development and the CRU statistics in particular. So just sort of seeing that the prices have been at a lower level. And then that, of course, prompted also an analysis that what is our stance at this because the intention, of course, we're talking about the normalized profit last year, when we were at a much higher level in very favorable market conditions was to somehow just make this more tangible than what could the performance be. And I just wanted to reiterate it because I felt that, hey, this is a really strong start of the year. Obviously, there are even factors that are quite positive. Our strategy execution, for example, is really going well. The business steering is really going well. So I think we have added a lot of positive factors here. But I wanted to take a step back and look at those market dynamics. And I think when I look at it holistically, yes, I see that the market prices are a bit lower than the historical averages that we built into the model, but there are also more favorable perspective from the raw material side compared with that. So on balance, I'm still happy with this EUR 500 million to 600 million as sort of a broad somehow description of what is possible in a normalized market environment.

Okay. I understand. And then about Ferrochrome division. So in Q2, should we expect so-called normal quarter in terms of external sales volumes and costs. Like have you been running this business normally since the beginning of April? Or have you been gradually ramping up the business?

Yes. I think the demand at the moment for us in terms of our own usage of ferrochrome and what we can sell to the outside world is quite normal. As said, we had some production issues as we headed into the end of the year and then in the beginning, plus, of course, the whole standstill because of energy cost impact. But I would say, overall, ferrochrome should be running in a normal at least that's kind of what I'm expecting. I want good performance from the plants and they promised to deliver.

Indeed, and Heikki, they have been running. I mean we were ramping up one of the furnaces already from end of February and also the operational issues that we have been sold. So indeed, I mean, as per 1st of April, production is running normally. And then the reason that we reminded about the maintenance break was just to say that in term of external deliveries, I think they will need to build a bit of inventory at the end of Q2 to prepare for that maintenance break in Q3.

Okay. Understood. And then about -- just a quick one on lead times. So what kind of lead times you have in Europe and Americas?

I think lead times are still fairly -- I mean, compared to the last year, the lead times, of course, are short. So we're talking weeks less than a month. It depends a bit on the product. The good thing is that our supply chain is very efficient. So we have been able to also increase the speed, the throughput time from raw material procurement to delivery of the product. So that also gives us the ability to deliver faster than in the past, I hope. So as said, the lead times are not very long. We can supply at the moment, well.

Yes, yes. And this depends, of course, on the grade. But, Heikki, if I look on average, I mean, Americas is the same as before. We typically sell the one quarter and let's say that's kind of the norm -- we are in that normal rhythm of that. So we are still sort of within the second quarter here. And then when it comes to BA Europe, I don't think we are over 2 months at this point as a total. Of course, the more advanced grades in advanced material have somewhat longer lead times. But on average, I don't think we are above 2 months.

The next question comes from Tom Zhang from Barclays.

Two from me, which I'll take one by one. The first one, just on the volume guidance. It sounds like you're a bit more conservative than some of your peers, especially given the seasonality normally getting a bit better into Q2. Heikki, you mentioned many of your customers are coming to the end of destocking. Just any high level of thoughts here on why we wouldn't expect volumes to be better? Is it sort of value over volume? Or is it really just apparent demand not really improving?

Well, I think it's more from the standpoint that customers are starting to replenish, but the order size is smaller. So I think there's still some, how should I say, I mean, uncertainty about what the view of where the world is going. So they are ordering, which is good, but the quantities are smaller. And so I think probably customers want to see a bit more visibility at the second half of the year and 2024 before they lean forward even more. That's how I would read the market at the moment. Anything you would want to add to that?

I think the stability is more how I would describe it, and I think your description fits that really well. So it's difficult to see that sort of jump upwards. Rather, it's a more stable situation as we speak.

Understood. And then the second question is just on capital allocation, please. If you're in a healthy net cash position, you've had positive free cash this quarter, and it sounds like probably more to come. What's the sort of thought process between CapEx, M&A, and further shareholder returns, especially bearing in mind you've had the new AGM authorization that would allow you to do more buybacks if you chose to?

We have guided in terms of CapEx that Phase 2 is going to be the EUR 600 million, and we are focusing very much on our existing operations and trying to make them more efficient and more cost competitive. Of course, if we're able to continue along this momentum, it, of course, gives us some flexibility, financial flexibility. But at this moment in time, we have a plan for Phase 2, and we're sticking with that.

And then I think as for our financial policy, obviously, the dividends are there really at the heart and center. So I think our first priority is to ensure that we can stay on that path of the growing dividends. Obviously, with the EPS, EUR 0.22 in the first quarter, this is already on extremely good track. And then we still remain with the tool of the share buybacks in our portfolio. So I mean, it was a good tool. Let's then check sort of a bit later on how we think about that.

The next question comes from Patrick Mann from Bank of America.

Could you talk a little bit more about your contracts and the pricing under the contract? So you said we should think about roughly 40% of the volumes. But are those -- how often are those prices sit and on what basis?

It's good that we have a good contract here. It gives us stability. I mean, both upside and downside. As we saw during COVID, it was also a bit of a buffer when the market got really bad in the 2020 time period. So as I said, most of the contracts were agreed to end of last year. It depends on the customer, how they are structured. But half year to a year is not uncommon. And on the pricing side, I think what I've said before is that the volatility up and down, it's much less. I mean the CRU curves that some people follow, they do not give it all the right indication on how the contract pricing moves. So those are point estimates. I don't know from what sample where the data is collected from, but it gives only a point estimate and doesn't sort of represent, in my view at all, how contract pricing behaves.

And Patrick, my comment was specifically on Europe, and I think, Heikki, your answer as well was really focusing on the dynamics in Europe. Obviously, in America, as you know, a very big share of our sales is through distribution and there's also usually a very big share of contracted basis. But I would maybe characterize the contract sort of type in Americas a bit more like frame contracts. Whereas in Europe, it's really typical that you really commit and lock in pricing, et cetera, for whatever period then is half year, a year, et cetera. So those are usually longer stretches.

So it is.

The next question comes from Bastian Synagowitz from DB.

I had a question on pricing as well. And I'm wondering whether you feel that you've already been seeing pretty much the trough in realized profitability from the current spot market conditions. I guess most people have been, I think, talking obviously about a lot of price pressure, I guess you were referring to that as well, even though, I guess, it's not perfectly clear basically how far this has already set through your system or not. So could you maybe help us understand how far you've been already seeing pretty much the trough in realized profitability? That is my first question.

Well, when you say realized profitability, of course, there's always a revenue line and then there's a cost line. So -- but your question was more about the revenue line and specifically not the volume, but the price I never make forward-looking statements about price. I'm only going to comment on kind of what we have seen. So as I just commented to Patrick's question on price, that the contract pricing, they live a whole different world than what this price -- spot price is indicating. And even there, I don't know from what market and from what customers those numbers are. Of course, it's clear that there are situations from time to time when prices may be adjusted on a case-by-case basis. But assuming that the market now starts to -- is now normalizing, usually, there is a supply and demand effect. And if the balance is now starting to head into a situation where the market is getting tighter, of course, that at least should, by definition, then start to create some kind of a floor. But of course, every market and every customer and every country is maybe a bit different. So I don't want to generalize too much.

Heikki, if I could still add. I mean, obviously, the dynamics, as also shown in the charts by Heikki earlier today have been a bit different also in Europe and Americas. So in Americas, we have somehow seen a more robust environment broadly when it comes to pricing. The only thing I can then add is, obviously, if you look at our EBITDA guidance, we are now quarter-on-quarter guiding stable or higher. So maybe that's also -- at least that's our view of how profitability will develop.

Indeed.

Okay. And then just secondly then on the cost part. So I guess we've got energy costs, we've got raw material costs. Should we still expect within stainless, more material realized energy costs? And then you have been pointing out that component of more favorable raw material costs as well, which I guess was something which we have seen also in the third quarter of last year. So here, could you just maybe help us a little bit on whether you think that this could be a more lasting phenomenon?

So first, on the energy, I think at the moment, we have hedged about 2/3 or actually it is closer to 70%, especially of the electricity cost for this year, at least through all of our bigger markets or uses. So I think that still gives us a bit of opportunity to breathe with the market and of course, at the moment, I mean, there is volatility every day, but the direction clearly has been lower. So with that said, I think depending on how the market develops, if the prices go down, we have some room still to sort of see that also realize that in our P&L. But I would be maybe rather be a little bit cautious here and just saying that we still don't know about the winter of '23, '24. I probably will recommend that we will even hike up our hedging levels a little bit when we come more sort of towards the end of the year. But if there's a lower price now during the summer, very likely we can then have some benefit from that into the P&L. And then your question about the raw materials, I think, particularly in Q3, we knew those were sort of really specific conditions, especially that was in the U.S., but that was also more broadly. So we were talking about sort of onetime or one-off impact. And now obviously, we got that again in the quarter. And so I think it's a fair question that has something really changed structurally. And I can just sort of reiterate a few factors that I see directly impacting us. But has something really changed in the market. I think that's a bit early to say just on this, that Q3 was in a certain way and now Q1 was in that way. Again, that would be kind of a too fast conclusion. I say there's not enough evidence on that. But I think what we have seen is, first of all, internally, recycling rate is really good. So our teams are really putting pressure to this to use more and more scrap, have higher and higher scrap ratio. And I think we have made some sort of within the production, some good step changes. And that is one topic that is supporting us. Then the other thing is we now have more cash. So if we see something good in the market, we can act. We don't need to think, okay, cash position, working capital estimate all, all, we can focus broadly on whether this is optimal deal for us or not, which is also good. So those are really like internal things that have changed our situation, which I believe are long lasting. But in the market itself, I mean, this has still been a condition of macro uncertainty and I think it's stainless steel prices have been coming down in CRU reports. And there have been kind of varying statements about weakness in the market. So this has somehow also impacted the overall situation then on the raw material.

If I may just add 2 points. One is, of course, now in Finland, we have Olkiluoto 3 up and running, which, of course, then compensate fully for the electricity we lost when we start buying from Russia and then there's even a net gain. So that's a positive surplus as we head into next year. And as I mentioned, 1,000 megawatts of onshore wind coming now every year. So that does improve the energy picture for us up here in the north. Of course, in Europe, as you know, on the natural gas price side, we are still much lower -- much, much lower than we were. But compared to history, and natural gas prices are still somewhere double, double plus compared to where they were in the past. So that is, of course, impacting then Germany and some of the German prices do a little bit sort of impacted price level in Southern Sweden and then the a little bit also sort of flow into the Finnish market. So that is sort of -- that slight pressure coming from Germany. And on the raw materials, what I just want to say in scrap, I mean, at the moment, the exports of scrap out of Europe to Asia and India, in particular, are quite limited. And we have had -- we basically get all the scrap we need from Europe. We have had no issues in supply. So that is a really good situation.

The next question comes from Maxime Kogge from ODDO BHF.

So first general question about your guidance for Q2. It seems to be quite shy because you're guiding for similar or better EBITDA, but what you show is that in ferrochrome, you will have a much better EBITDA given that you will benefit from higher prices and higher volumes. And regarding stainless steel activity, I think that there are also a number of tailwinds like lower raw material adjustments, similar shipments, perhaps further raw material cost savings. So I mean, yes, can you specify a little bit what you expect for stainless steel if we look at isolated from ferrochrome? Could it be lower Or will it be also at stable versus Q1? That's my first question.

Thank you, Maxime. If I may start, maybe a technical comment, but on the net of timing and hedging where we are saying we don't expect a big impact in the second quarter. There also on absolute terms, wasn't a big impact in the first quarter. But of course, just as a bridge, it was very positive compared with the fourth quarter. So maybe that is kind of actually fairly neutral quarter-on-quarter within the given guidance. But you are, of course, right on ferrochrome that we came from a very low production environment in Q1 into a normal production environment. However, deliveries will not hike up really to the normal level because we need to build some inventory. Although, of course, this will contribute, I think, there's sort of a strong positive contribution in that one. But sort of maybe I'll leave it at that in case, Heikki, you want to add anything.

No, please.