Outokumpu Oyj (OUT1V) Earnings Call Transcript & Summary

Hello all, and welcome to follow Outokumpu's Q4 and Full Year 2021 Results Webcast. My name is Linda Hakkila, and I'm the Head of Investor Relations here at Outokumpu. Year 2021 was definitely a success for Outokumpu. Last year, we had our best annual safety performance ever. And at the same time, we really accelerated our derisking. Our main speakers today are our CEO, Heikki Malinen; and our CFO, Pia Aaltonen-Forsell. We will first start with our presentations. And after that, we are happy to take your questions from the conference call lines. But now before we start with the presentation, I would like to remind you about the disclaimer as we might be making forward-looking statements. And now without any further comments, I would like to hand over to our CEO, Heikki.

Well, Linda, thank you, and good morning, good afternoon to everybody. Welcome also from my behalf to Outokumpu's Q4 release and review also of year '21. As Linda has said, 2021 was really a remarkable year for Outokumpu. It was a big rebound from the COVID bottom in summer of 2020. And overall, I think we performed across all businesses really well. If I look at the company, I think across many areas of the business, our performance was really excellent. Of course, we had operational challenges throughout the year. There was COVID, of course. We had supply chain challenges, raw material questions, volatility in the markets. But overall, the direction of the business was upward and in the right direction. You will also hear today some data on our safety performance. I want to always mention that because I do feel that we are -- in this industry, we're definitely one of the best in the steel industry regarding safety, and you will see very soon data on how extraordinarily good our performance was. But let me just stop here for a moment on this photo, which I found. This is a photo from our Calvert plant in Alabama. And I think sort of the spirit of this photo in some ways sort of resembles the spirit within Outokumpu, a spirit of working together locally, globally, a spirit of trying to get things done and a spirit of increasing confidence in the company, where it is and where it is going. So I'll leave you with that thought. We so often talk about numbers, and we talk less about people. And ultimately, in any business, Outokumpu, of course, it's all about people and how passionate they are about the company. We had a annual employee engagement survey in Q4, and the results of that employee engagement survey indicated or confirmed that the Outokumpu staff is committed to the direction of the company and are passionate about where we're going. So that also is a good sort of basis for developing the company further. But then let's go to the numbers, the traditional numbers. And maybe we just stop here for a second. Obviously, adjusted EBITDA, reaching over EUR 1 billion. Now that is a big number. If we look at the historical past, in 2017, our best year after the merger of Inoxum was EUR 631 million. So we almost made EUR 400 million more EBITDA. It's obviously a huge, huge result compared to, of course, the performance of the past. For me, what the EUR 1 billion means is that it shows that in a good market condition, Outokumpu has the potential to really perform. When our mills are running full, we get good utilization and everything is running really well. This company can really generate a lot of value for the company, for the shareholders and for our stakeholders overall. If we look at overall where we are today, the strategy execution is ahead of plan. I'm really happy about that, and we'll come back to that with Pia to discuss the status of it. But overall, strategy is going very well, and the company is moving in the right direction. We've also launched our climate change strategy, and we're committed to the 1.5 degrees climate targets. And in that respect, we're also at the vanguard of trying to battle climate change. And on the strategy side, you recall this chart from previous presentations. Our strategy has 3 phases. We're currently in Phase number 1. The time period is years '21 and '22. And now we're in the second year. Basically, what we can see already now is that we are making excellent progress towards reaching the goals set in many areas. We've actually already started to exceed those goals. Of course, net debt-to-EBITDA being one of them where we are already beyond what we aim to achieve. And therefore, we are now starting in a small team working together with Pia and some colleagues to think about what we are going to be doing in Phase 2. With this progress, of course, now that we're having, it's -- I think it's a good time to start thinking about what we do then when Phase 2 happens. And of course, it is good that we will be able to think about Phase 2 from a much stronger position with the balance sheet of the company already being so much derisked. As part of the strategy execution of the company, we, of course, are trying to achieve sustainable improvements. Things that will last beyond the current time period. We have changed many things within the company, how we're working. Many of our processes have changed. We brought in new competencies into the company. We're much more disciplined. You'll, for example, see from capital allocation that we are very disciplined in terms of how we deploy capital and try and be very consistent and systematic in our approach. Looking at sustainability and ESG. Here are 2 important statistics. I've already talked about the safety piece. If you look at the upper right-hand corner of the chart, you can see that our total recordable injury frequency rate hit 2.0, which is really a strong, strong performance for the company, especially in a year when we had so many things going on. So with production being so high and all the plants being -- really struggling to get all the volume out, making sure that our safety was so good, is something I'm extremely proud about as the CEO of Outokumpu. On the lower right-hand side, you have information on our recycled materials usage. We, of course, strive to also battle climate change by having our recycled rates being as high as possible. And last year, we were able to achieve a level of 90% in the midst of many supply chain challenges that we faced during that COVID times. In May of last year, we announced our ESG strategy for the coming years. And as part of that, we made a very bold commitment that we will be the -- I guess we were the one and only company in the global steel industry that has committed to SBTi's 1.5 degrees climate reduction, a climate change target. In December of last year, SBTi has formally now confirmed, approved of our targets. And as you can see from this chart, our intention is that by 2030, we will reduce our emissions, measured in terms of CO2 per ton of crude stainless steel, from about 1.78 where it is currently to close to 1, and that is a 30% reduction. And I want to underline that when we talk about emissions and emission reduction, we talk about Scope 1, Scope 2 and we also talk about Scope 3. So it is important not only to look at -- you have to look at the whole value chain and you have to also consider Scope 3. And we will be talking about also that topic in the future presentations as we go forward. Then on sustainability. As part of being on the vanguard of ESG, we also want to strive or strive to be a responsible buyer of different types of raw materials. And as we've said, we are committed to the UN Guiding Principles on Human Rights and try to develop the way we operate in the company so that everything would be going very well. Last year, we were reminded in the case of Brazil that we need to do even deeper analysis of our suppliers. We have currently approximately 20 suppliers in what we call high-risk countries. And basically, now that we have completed the work on Brazil, we are going to extend the work and analysis now into Guatemala, which is the next country we're going to do a deep dive on. And after Guatemala, we're going to continue gradually working through these areas of high risk to make sure that everything on the procurement side would go well. Now then moving from ESG, talking a bit about markets. So as I mentioned already before, the summer of 2020 was really a period when we were really at the bottom of -- we had really the bottom price level, the lowest pretty much in terms of the whole decade. And from there, prices have gradually rebounded as you can see from the chart on the left-hand side at the bottom. Maybe one thing to point out, if you look at the fourth quarter of 2021 is that the green bar or the green line, which shows China, you can see now that the line charts are starting to diverge from each other, Chinese prices starting to decline somewhat and then the others price is somewhat rising. So that divergence clearly started to grow towards the end of the fourth quarter. On the upper right-hand side, you see nickel. We've now been in a rising trend for almost, I would say, 8 quarters. And if you look at last year, although the picture doesn't really show it, we had a very, very volatile nickel market, and nickel prices then finally starting to hit the upper 2020, $23,000 band. And on the lower right-hand side, ferrochrome. Of course, if you look at ferrochrome prices, historically, at the period we're now going through in 2021, we've now had 3 quarters where the price level has been elevated. Going back to, let's say, 2016, '17, we had one spike when ferrochrome prices went up, and I think they were about 1 quarter at that level. Now we've had about 3 quarters where ferrochrome prices have been higher than trend. Then really looking at the full year result, 2020, we did EUR 250 million EBITDA, adjusted EBITDA last year, EUR 1.21 billion. Clearly, we benefited from market. Our deliveries increased by 13%. As you can see from the third bar, realized prices for stainless steel also increased, obviously, a result of the very, very strong recovery. And then the fourth -- last bar on the right-hand side, you can see costs, the little box in red. Clearly, we started to see inflation pressures, but we were able, through all measures, to sort of push back and really contain the cost inflation. At the end of the fourth quarter, we did start to see pressure from electricity prices and also ferrosilicon and some other items. But overall, on a net-net basis for the full year, I think we did quite well in terms of managing cost inflation. And then the last chart I want to show, really the third -- for the fourth quarter from EUR 295 million to EUR 326 million. At EUR 326 million, this is the best Q4 in the history of what I would call the new Outokumpu since the merger. It's a strong number. As you can see from the left-hand side, we've now had 5 quarters consecutively where our results quarter-by-quarter have been rising, and I said, EUR 326 million, best figure so far as a quarter result in Q4. So with those, I think, very positive figures, very much like to hand over to Pia to go even deeper. Please, Pia.

Thank you, Heikki. And good afternoon and good morning, ladies and gentlemen. So I'm going to start with a few words about the accelerated derisking. And obviously, from my perspective, also really looking at the balance sheet here. I think we have been able to capture the full benefit and some more from the improved market situation. And why I'm saying that, of course, first of all, we've also had a number of actions. And secondly, when we have had good results of those actions, we have really turned that into reduction of debt. So first, we had the equity issuance that was quite early, quite early during the spring of 2021. And obviously, that was the first really good step in taking the debt down. So all of the proceeds from that equity issuance went to the reduction of the debt. And the same goes then for the improved cash flow later in the year. And it was possible because when we had improved cash flow from operations, we were then extremely diligent. We kept the discipline on the CapEx at EUR 175 million. And also, we only invested modestly in the working capital to support the business through the year. So clearly, we were really able to push a lot of the funds and proceeds then into the debt reductions. There is one more point that is being mentioned on this page, and that was something that we reported on in December, and it's another type of derisking item. So obviously, we have some defined benefit plans. The one in U.K. is the one we are talking about here now. We managed to get to an EUR 390 million insurance solution or a buy-in solution in good cooperation, obviously, with our trustee. And here, the really good news is that I think this is both derisking in terms of the company in terms of future obligations, but also it is the right thing to do vis-a-vis our personnel who have now received an insurance solution. So all in all, I think we are well on our way to reposition the company as a less risky investment. On this following page, I have a few KPIs. And I think I really want to highlight and mention that on the back of the adjusted EBITDA being over EUR 1 billion, you can see that we have also translated that into a very high net result figure of more than EUR 500 million for the year. And you also see that the earnings per share for the year are at EUR 1.26. So obviously, that is a record figure and a very good performance per se. I will talk about the debt levels later. So let me just finally comment from this page that also the return on capital employed has now reached 18.8%, which I also consider a good performance in this situation. Okay. Heikki also talked a bit about the strategy execution. So let me talk through a few details on that. So first of all, I want to say, I mean, this is truly a team effort. And I think Heikki already alluded to that, but I think just about 1 week back we were on a call where more than 600 people contributing to these various projects were participating. We were celebrating some of the successes. So I think it also shows how we are changing the way how we are working. We are integrating these new ways of working into the DNA of the company. And what you see here is, first of all, the quarterly improvements, how these improvements have been built through the quarters. And when we here talk about the impact of EUR 198 million, what we mean is that we have taken a number of projects to something that in maybe a little bit of sort of internal lingo is called Level 4. But what it means is that these projects are in a phase where all actions have been executed. So we are ready to harvest the benefits. And this EUR 198 million is then the annualized benefits that we will see. We have seen already some in our P&L and then what we will see going forward. You also remember that we were hiking up the target here because these actions, I mean, this is clearly moving forward like a train. And we have a really solid pipeline also for ensuring the EUR 250 million of improvements that we have promised in the hike target that we announced after Q3. Then a few words about the BAs, and I will focus particularly here on BA Europe and BA Americas, I think for good reasons as well. And on BA Europe, I want to start with a few comments around how we see the market situation right now. I think first and foremost, we do see the markets, particularly when we talk to our end users, market situation and demand remains very solid across all of the segments. And I know we have been talking about our longer lead times for a time period right now, but I just want to keep on reiterating that. I mean we still have long lead times. They are more than 6 months. We have booked Q1. We have booked Q2. We are clearly booking into Q3, even with some orders being booked even later or towards the end of the year. So clearly, this is all testament to still a very strong market situation. Distributor inventories is something we keep a close eye on, and I know you do, too. So maybe first, just sort of looking at the stats that we still have available. We know that inventories are still below those historical average levels. But something that we have seen in the markets particularly sort of late in Q4 and also now into Q1 is that the level of imports is somewhat increasing. So I think what we talked about in the report is then also clearly the congestion that there has been in the harbors and maybe also a little bit of a catch-up effect here, but somewhat higher imports. And overall, I think that also leads that the distributor segment is a little bit sort of watching and seeing and observing what is happening right in the markets right now. But overall, still, we have these distributor inventories below historical average levels. Maybe then I'll move a little bit to the cost side. I do think Heikki already shared really sort of the key topics also for BA Europe. When it comes to costs in the fourth quarter, in particular, I mean, we did see this spike in electricity prices really towards the end of the year, particularly in December. And I think all in all, now when we have all data available, we can see that from Q3 into Q4 on the stainless side altogether, so there are a little bit of impacts also outside BA Europe. But of course, predominantly BA Europe, we have about EUR 15 million of increase from the electricity and energy side, but it's really predominantly electricity. And then ferrosilicon was also mentioned. And then I think you may, of course, ask that how is this continuing? And you have seen that forward prices on electricity have perhaps somewhat calm down by now. But it's still clear as we see the situation right now, there is still going to be a step-up in the costs from Q4 to Q1. Maybe that can be around EUR 20 million. I think that still remains to be seen. I mean this market has been really volatile. And then really going forward, further in the year, maybe this is then sort of showing at least the forward curves at the moment, let's say, some coming down, but of course, remains to be seen. And finally, a word on the COVID situation, and I think that's also relevant in terms of the guidance that was part of the report. And maybe I'll just start by giving an example from how we see these cases developing. Somewhere around Christmas time, I mean, when we were looking at the reports, there was really -- out of our 9,000 employees, I mean, there were like a handful of persons who were on sick leave or being quarantined. But what we really saw during January was a spike, really an increase in the number of people who were infected or quarantined, maybe because someone in their family had been exposed or they had been exposed. So I mean, we definitely have sites where there is 10% of people being absent in some cases, even spiking towards 20%. Those are quite high absenteeism figures. And this just means that to run the operations has been more challenging right now. Until today, we have managed this without losing production. But hey, there's still 7 weeks to go in the quarter or even a little bit more. So this is something we really keep an eye on. Perhaps we are now in a situation where COVID has spiked. Maybe these are the highest levels or maybe this is in February that we will experience them. But clearly, this is something we need to prudently look at and the same then obviously also goes for our supply chain. I move on to BA Americas. I think, obviously -- I mean such a record result, puts a smile on my face for sure. Such a solid execution also by the team. So really a great pleasure to talk about this record result. I mean EBITDA adjusted on BA Americas level, EUR 297 million for the year. So first of all, maybe just reiterating a bit on the market situation here. I mean demand still continues on a strong level. The same comment then here also about somewhat higher level of imports, I mean, congestion in harbors, sort of easing it up and then sort of all of the sudden, somewhat higher inflows. Is this temporary? Is this not? I mean time will tell. Time will tell for sure. But overall, good demand situation. Distributor inventories in cold rolled slightly increased towards really the end of the year but still remained on lower levels than historical average. And then maybe from the booking situation, as you remember, sort of typically for BA Americas, we are looking like 1 quarter ahead. So at the moment then looking into bookings in April. Maybe there is still one big technical comment around 2021. I still want to make it timing and hedging or I think as we officially say, raw material-related inventory and metal derivative gains was a quite significant positive for the full year. It was EUR 55 million out of the around EUR 70 million for the full group. So quite significant part here from BA Americas. All in all, I mean, volumes were up in the year by 26%. So I want to say it was a super effort from the team also, I mean, to execute on this and to enable this high results. So very pleased with that for sure. I'll be a bit briefer here on BA Ferrochrome. I mean, obviously, still a very strong result also EUR 246 million for the year. breaking new records here, a little bit higher production. And then, obviously, we could talk a lot about the price situation and the price level, but maybe I'll just shortly mention that, obviously, prices here set very much by the sort of demand supply balance, demand has still been on a high level. On the supply side, there has really been variation in how much supply there has been, for example, from China. It was still quite restricted early in the fourth quarter, and then we started to see more towards the end that led to somewhat lower spot prices, but now also spot prices have been stable for some weeks. All in all, I mean, the big theme for 2022 for Ferrochrome will be the finalization of the Deep Mine investment also an important strategic project for us. That's expected to be finalized by really the end of the year. And then finally, I mean, we do have a very cost-competitive operation, and we also have a very low carbon emission footprint here. So clearly, we are also here looking forward to the year '22. Long Products, great success on the turnaround. But if I may choose to highlight one more detail, we don't normally talk about safety performance per BA, but I still want to say it's been such an amazing turnaround also from safety performance perspective in BA Long Products. There were no LTIs during the year. So excellent performance. You also see the EBITDA here, adjusted EBITDA up to EUR 47 million for the year. We have the cash flow next. I'll briefly comment first on this page to say it's clear that a big part of the improved cash flow really comes from the improved profitability. We have remained diligent on the CapEx. You see it here, EUR 175 million, and also had modest investments into working capital. In the fourth quarter, especially when we look at the overall working capital, we managed to turn it a little bit on the positive side, and I think there was a lot of work sort of late in the year to make sure we had all the inflows we were counting on. So in the end, I would say, this was a nice good positive figure for the quarter. And then you see this stronger cash flow. Here in the net debt, you see us ending up at EUR 408 million from a level of over EUR 1 billion or EUR 1.028 billion end of 2020. And you also see on the chart on the right-hand side, I mean, we set the target to be below 3x. We are now at 0.4x. So I mean, clearly, ahead of the target, accelerated derisking. But we actually also now have reached that debt level that I think Heikki and I talked about in some earlier webcast saying that, yes, we probably would be comfortable at this level of EUR 400 million, EUR 500 million of debt. And maybe just to make it really clear, we are still in the Phase 1 of the strategy execution. And in such a good market situation, I also think it's really good to build some buffers, keep some firepower for the future. So we are still ready to further reduce the debt with that in mind. And then finally, a more technical comment on our debt portfolio. You can see there was quite a few actions, a very busy year in 2021. But now looking at the improved credit rating, looking at the balanced debt portfolio that we have, I will say, we are well positioned also to consider future steps whether it's refinancing for the future, and we are clearly still focused on reducing our interest expenses. My final slide is a short note still on sustainability-related topics. And I wanted to answer to a question that I really often get especially in Europe, of course, a big topic is the amount of emission allowances, what are our free allowances? What's the balance of those? And we have also been quite actively describing our sustainability targets and our agenda there also towards the year 2030. So with the plans that we have discussed, with the actions that we have discussed, we really aim to ensure sufficient carbon allowances until the end of this decade. And for that plan to be realized, we need about EUR 300 million of CapEx in total, up until 2030. So that is sort of the balance of things to work with. And then, of course, given the fact that we are really emphasizing and working towards much lower carbon emissions, we do think that all of the questions, whether it's around the carbon border adjustment mechanism or whether it's around other measures to ensure a level playing field for the low-carbon production that we have here in Europe and, of course, also with the same technology in the Americas, we will continue to emphasize that as an important factor of building a sustainable future. But with that said, thanks, and back, Heikki, to you.

Pia, thank you very much for those remarks. So let's go to the final section against really based on the information you just heard. I think this picture also gives a bit of the sentiment in the company. Outokumpu is really confidently heading towards 2022. The Board of Directors have had their meeting, and they are proposing a dividend of EUR 0.15 per share for the year 2021, and that will be presented to the AGM for approval. Paying a dividend after a number of years when we were not able to pay dividend is, of course, a very important thing. We value our shareholders, and I personally feel that it's very -- I'm very happy that the Board of Directors is able to make this decision and -- or proposal, and therefore, we can then hopefully pay that. EUR 0.15 amounts to EUR 68 million in total dividend payments when it gets paid. Then let's move to the final slide, the outlook for the first quarter of 2022. So group stainless steel deliveries in the first quarter are expected to increase compared to the fourth quarter. The European ferrochrome benchmark price remained stable at USD 1.80 per pound for the first quarter. Higher stainless steel prices are reflected in the already received orders and more than offset the increase in energy and consumable prices. COVID-19 remains a risk and could potentially impact operations and logistics. Adjusted EBITDA in the first quarter of 2022 is expected to be on a similar or higher level compared to the fourth quarter. So ladies and gentlemen, these are the slides we wanted to show you, and now look forward to your questions. Thank you very much.

Please, operator, we are ready to take questions.

[Operator Instructions] Our first question comes from the line of Luke Nelson from JPMorgan.

Two questions from me. Firstly, just on the guidance for EBITDA, flat to higher. If I just think about the other comments you made of pricing offsetting cost inflation, which means margin expansion and shipments higher quarter-on-quarter. So surely, that means absolute EBITDA increases for stainless. We know with the ferrochrome prices, it's been rolled into Q1. So I'm just trying to square those individual building blocks with the comment -- the bottom end of the guidance range for flat. Can you maybe just outline what scenarios or other factors could get us to a situation where EBITDA is flat quarter-on-quarter, for example, anything such as maintenance, the inventory, hedging revaluations or anything that we should be factoring in?

Yes. Luke, thank you very much. And I think it's an excellent question. First of all, I think the risks that we have really highlighted relate to operational or logistic-related challenges. And I mean, what that really translates into is then some lost production, some lost deliveries and obviously, with the margin levels, I mean those are relevant to consider. And I think what I would maybe specifically say there is we have not lost production until date, but there still remains time in the quarter. And especially if we get some sort of logistic chain challenges, I mean, those could honestly still sort of the last week or the last weeks be impacting, it's then more of sort of a shift from quarter-to-quarter, but it could, of course, impact a particular sort of quarter performance. So maybe that's sort of the key message from my side. I could comment on the sort of timing and hedging side. I mean, obviously, yes, indeed, I mean, metal prices have really been varying, particularly nickel, again, sort of huge daily movements. But I think our estimates were made at levels of fairly close to those that we see today. And I wouldn't be seeing any significant timing on hedging kind of based on where we are right now. I mean, obviously, that could change. But that's not a sort of key topic at all here. That's maybe more of a sort of side comment. Maintenance, pretty much the same level as in Q4. I mean, this is not a big maintenance quarter. There's maybe some smaller work done, but not really significant there. So I mean, it's really striking the balance between if we look at those key underlying business performance sort of typical impact, whether it's higher volume, from our order intake, we know the prices are higher. We know costs are increasing, but the price increases are still more than offsetting that. So it is really the COVID-related risks, and I hope I was just able to illustrate what that means. It's really the first time that we see these sort of true spikes with really so high amounts of people being taken off duty, so to say, at the same time.

Okay. Great. My second question is just circling back on your comments on cost inflation, power, natural gas of ferrosilicon. I think you mentioned EUR 20 million quarter-on-quarter impact Q1 versus Q4. Can you just clarify, is that -- firstly, is that at the group level? Or is that just in BA Europe? And then secondly, does that relate to power and natural gas and ferrosilicon or just power? And then I suppose, any additional comments on Ferrochrome because the costs quarter-on-quarter were quite a step change higher as well in Q4.

Indeed. Thanks very much. That EUR 20 million comment is -- I mean this is very much a European question. I mean we haven't seen the same spikes at all in energy prices in America. So I mean this is really very much a sort of European question. And when I talked about the EUR 20 million increase from Q4 into Q1, I mean, obviously, that sort of -- that's still at this point an estimate to the best of what we know today, but it's an estimate that is relevant for electricity, and it's not including ferrosilicon. And then to add to your question, there might still be some inflationary pressure as well in ferrochrome so both from electricity and energy consumption side. But I said I wanted to mention that EUR 20 million just to still give an order of magnitude that there could still be a step-up. I mean, obviously, when you have seen the spikes in the electricity price, it's maybe not a surprise even though we are hedged by our policy. So I mean we only have sort of a top layer where we are exposed.

Okay. And just, I suppose, in the Q4 numbers, it looked like Europe, the cost increase was sort of around EUR 30 million quarter-on-quarter. And I think prior guidance was EUR 10 million for power, EUR 10 million for natural gas. So can I take from that that ferrosilicon was an additional EUR 10 million cost, along with some other sort of broader inflationary pressures? Is that roughly how we should be thinking of the split in Europe in Q4?

Yes. I think it's fair to say that the ferrosilicon is about the same magnitude as the energy in total, about. I mean, here, we haven't -- maybe it's kind of getting into too much detail, but the ferrosilicon increase has been significant in Europe as well.

Our next question comes from the line of Tristan Gresser from BNP Paribas.

The first one, can you talk a little bit about the import situation in Europe? I mean you mentioned that we've seen volumes surging of late. The inputs are between European and Asian prices is at a record high. So how has this upward trend impacted your business, if at all, for now? And do you view this price differential by region as sustainable?

So maybe I'll take on that question. So clearly, I mean, we've seen the Asian market being very strong in 2021. And we've seen very high freight rates from Asia to Europe, which, of course, has put sort of a bit of a damper in terms of imports into the European market. I think we've probably seen sort of 2 phenomenons. One is that there have been supply chain or port bottlenecks, and some of that volume just started to compress and sort of pile up into the fourth quarter. And I recall that in November, for example, we did see a clear sort of October, November a clear pickup in imports. I think part of that might have been just sort of clogging in the supply chain. As we saw from the chart, the price difference between Europe and Asia has started to increase. We do have quotas in place, which, to some degree, set a certain type of -- sort of a threshold on the volume that can come into this market. But I think more recently, we have also seen volumes from certain countries where they have actually now exceeded also the quota and therefore, the customers, of course, then will pay also of the duty, which could be in excess of 20%. I think that, in some ways, also shows that the market demand in Europe is still fairly strong, and there is a need for those imports. But at the moment, I would say that imports are rising, but we haven't sort of seen any, I think, material shift yet in the dynamics. Let's see what the rest of the year then entails.

All right. That's helpful. My second question is still on the European stainless market. You mentioned that distributors might be a bit taking a step back. When you look at your end markets, end customer, is there also a bit of resistance regarding the level of stainless prices where they are? Are you also seeing maybe end customer taking a step back, given market conditions?

I think one could sort of divide the market simply into 3 areas. This is a very simplistic thing approach. But anyway, if we look at end users, you have, I would say, more end users targeting consumers. And then you have end users which are targeting industrial investments, heavy investments in oil and gas, et cetera. And then we have the distributor market. As far as the end users are concerned, what they are reporting to us across, I would say, the whole sector to a light degree is fairly good demand, fairly good sort of confidence about demand for the market. This year, overall, I think things are fairly stable. I think where we've seen different variation, as pointed out earlier, with distributors. You have to remember that distributors are also traders. And they are also, of course, very cautious in terms of what type of risk they take when they pile on inventory. So hard to say whether there might be some reticence at the moment from distributors. They want to take a bit of a wait and see what happens. What will happen next, I really cannot project. But as said, end-user demand looks good, and it looks stable at the moment.

Our next question comes from the line of Antti Koskivuori from Danske Bank.

So 2 questions from my side. First, on divisional profitability. I mean if we look EBITDA per tonne in Americas grew by almost EUR 200 per tonne now in Q4 versus Q3. While in Europe, it was only up EUR 10 per tonne. I mean, you talked a little bit about the energy side and the cost side in general in Europe. But could you talk us a little bit through between the -- or the deviation between the 2 divisions now in Q4? And would be very interested if you see some structural reasons why we should not anticipate Europe to catch up in coming quarters? And the second question, maybe a little bit related to this, but as you described many times, the order books are now quite long in Europe. How should we think about the increases in your average sales price now in Q1 and Q2, which are fully booked more or less? Is it -- should we anticipate kind of a linear increase? Or is the contract structure with a fairly high degree of annual contracts? Will that kind of tilted, it's more towards Q1 rather than being linear? If you could talk us through that as well.

Yes. Antti, thanks very much. And maybe actually the sales price is the one that I could just give sort of more of a mathematical answer to. I mean, I'm happy to sort of look backwards into already received orders and sort of consider how they would realize then according to the invoicing date. And I think you are right that there is a certain sort of step up in Q1 because there's a lot of annual or 6 months, but I mean typically annual contracts that would come into force then. So, I mean that -- normally that pattern should be there every year, but there is really sort of a certain step up happening this year. So therefore, I would not sort of make the linear kind of continuing into Q2. But obviously, if we just look backward, we know that we have still been pricing in a price environment where prices have kept increasing. So I think that's still what we know based on history. But then maybe on to your question about the divisional competition, I think that's a really, really interesting question to answer to. So let me first frame it through the more sort of inflationary pressure. And I think even though when you lead sort of -- read macro-level news, it's clear that inflation is really being debated a lot, particularly in Americas right now. But if I look at our figures, what I see is that, yes, indeed, we were hit by some cost pressure, for example, freight, logistics and similar items actually already in Q2. So some part of this, we kind of absorbed a little bit earlier in the year. And then particularly when we look into the later part of the year, the pressure started to come more into the European side and not due some sort of broad absolutely everything increasing because we were still pretty well protected by either longer-term contracts or our own actions, but really in these particular categories of ferrosilicon and of energy where really electricity and natural gas were the 2 categories. And these were really sort of very prominent in Europe. So I think that sort of explains the cost increase bucket in Europe that was clearly more than in BA Americas. And I will still mention that there were also some fixed cost item. I mean can I just give one example? I mean, we have, for example, a personnel fund in Finland that is paying to employees in a situation where we reach certain profitability thresholds. Luckily, and obviously, we have reached those. So we have had some more accruals into these. So there are some fixed cost items that we also kind of kept piling up towards the end of the year. So I think that there are particular cost elements that were really more sort of towards the European operation. you can obviously sort of look at prices, realized prices increasing in both of the BAs. And I'll still mention one more topic that is relevant in the context to consider for margins, and that is that we have seen this incremental increase back to more normal levels of the [ pro rates ], so the value-added grades in the European operations. But we are not yet back to some sort of levels that we achieved, for example, in 2019. So I mean we are still sort of creeping back up. We do see a lot of order intake right now. So I mean this is clearly something where this investment cycle is sort of kicking in, but we are not quite there yet. So when you then ask sort of about the margin development going forward, I want to be a little bit cautious because who knows the price for electricity next summer or the price for ferrosilicon. But obviously, at least on electricity, we can look at the forward curves, they seem to be sort of, yes, normalizing a little bit. So maybe that's all I dare to say sort of about the future development.

Our next question comes from the line of Carsten Riek from Credit Suisse.

Two questions from my side. The first one is on the dividend. Looking at your balance sheet, you could have been able to pay a higher dividend than the EUR 0.15 you suggested now. What caused you to go more cautious here? Yes, if you could just give us the thinking behind the EUR 0.15. And if the year shapes up, reasonably well, is there upside risk to the dividend offering going forward?

Let me address that question. You may need to rephrase the second part again. But in terms of the dividend consideration, the EUR 0.15, so obviously, we haven't paid dividend for quite a number of years. It's great that we can restart that. Pia mentioned to the fact that we are still looking to further solidify the balance sheet, build more solidity, more -- maybe firepower, I think, is the word you used. I think from the Board standpoint, it was more about, let's get the dividend payment going, EUR 68 million, but at the same time, still reserve funds to further strengthen the balance sheet. So there was this derisking philosophy still, I think, as a backdrop in the minds of the Board. Now could you please rephrase the second part of your question? I didn't quite get that.

Yes. I believe looking at the earnings level, even what you guide for the first quarter, it looks like it's shaping at least up quite nicely. So would there be upside risk to that dividend offering for next year for the shareholders? Or is it quite too early to say?

I think it's quite early to say.

Okay. I guess the second question is, on the net working capital, we have seen quite a bit of a release in the fourth quarter, not because of the inventories, but rather because of the payables and receivables. Do you expect that effect to reverse in the first quarter? And on a different one, whether you expect further inventory build or not? Could inventory help here or not in the first quarter?

Carsten, thanks very much. And first, I would say, it is really sort of typical seasonality to have a little bit higher inventories end of Q4 to be just ready for, we simply don't even have enough capacity to deliver everything that is typically required in the first quarter. So with that said, what we would then start to see is a gradual decrease in the tonnes of inventories towards the end of Q3, that typically is the lowest point, and then we build up a little bit again under Q4. So with that said, I think I don't expect it to significantly decrease in terms of inventory tonnes by end of Q1, but will then really start to decrease during the second quarter. Then as to your question, whether that will reverse, the sort of better flows that we had from the AR/AP balance? I don't think it will reverse, but I will still remind that when we go into higher volumes, higher prices, I mean we are in a quarter where we typically build up some working capital really just on the balance of sort of how kind of things are shaping up during the quarter. So with that said, not reversed, but still Q1 is typically a quarter where we are building up working capital.

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

Two, please. Your Phase 1 of your strategy in derisking the business, I mean it looks like you're obviously making very good progress on that front. And I think you mentioned that you've started some early work groups just on looking at Phase 2 and what that could look like. Could you just give us some idea of what are the priority areas you're looking at into Phase 2? And when we can hear some more around what actions you're going to take? And then the second question is just on decarbonization. You're obviously already pretty low compared to industry. We've seen a lot of plans being announced by Carbon Steel around what they're doing. And can you give us a bit more detail around the specific project you can implement to lower your CO2 emissions even further?

Right. So maybe if I comment on that. So indeed, on Phase #1 of the strategy, we are making good progress, of which, of course, we're very pleased about. This is a large organization that's trying to change. In terms of the priorities for Phase #2, I go back to what we said when we launched the strategy in November of 2020. What we did say at that stage is that once we have derisked the balance sheet, we are going to start investing in our business -- in the core of the business, looking at the debottleneck, trying to sort of open up free -- reduce costs in sharp focus and further simplify the process. We still have IT investments we have to do. Our supply chain needs even more capital to get it even more digitalized. So these are some of the areas. Of course, sustainability and emission reduction is another area which we'll use. We will need money for that. The journey to minus 30% in CO2 will, of course, require capital like Pia said. But of course, that will be then spread out over the decade. In terms of the details of Phase 2, I really don't want -- and I cannot really open that up more. But you should not sort of expect any massive, big investments or things like that. That is not the intention of Phase #2 per se. And now in terms of decarbonization, what we have said here in the past is that one of the areas, of course, if you look at where the emissions stem from, so of course, our Ferrochrome operations -- the operations in Finland are an important part or an important source of emissions. One area we're looking at specifically is biocoke, looking at biomaterials, biocoke as an alternative to find ways to further reduce emissions. But as I said, we will come back to these ideas when they are mature. And as far as when in 2021 we will announce the Phase I, I cannot really commit to that either. So let us -- give us some time here to prepare our plan and when we feel we have a good plan that really holds water, we will then rush out and present it to you without any delay.

Heikki, may I still add then? On the decarbonization, just to say that, obviously, out of our Scope 1 emissions. Heikki already talked about the coke and the opportunities there. However, if we look at our overall emissions, obviously, Scope 2 and particularly Scope 3 are really significant. So we have already talked about sustainable sourcing and knowing our supply chain. But obviously, it is also a big question on how we can work with our partners to ensure also really sort of low carbon partnerships. Maybe some examples there of -- we have recently published when it comes to electricity. So we have several long-term contracts on wind power. But of course, that could also then be more broadly into, for example, raw material sourcing.

Our next question comes from the line of Alan Spence from Jefferies.

Just 2 left from me. The first one on Ferrochrome. I mean you highlighted the big divergence between the European benchmark and Chinese spot prices. Heikki, interested in your view on how sustainable or not sustainable you believe that premium may be?

Well, I think the Chinese market, of course, as far as we understand, we obviously don't operate there actively ourselves, but 2 things come into effect -- come into play. One, of course, is what is the demand inherently in China. There have been some views that maybe the Olympics and preparation to the Olympics did cause sort of a slowdown in overall industrial production, we've seen cutbacks in electricity, power in China, in Mongolia. And of course, that has maybe softened the market at least for some time. Now remains to be seen what happens when the Olympics are over, when industrial activity really restarts in China, will that sort of change the dynamics? As far as we can entail, that is probably the one sort of driver that may explain the movement in China in Q4.

And the second one, in Finland, the paper and packaging industry has recently been faced by some strikes with the unions. Can you just remind us of your contracts of the unions last time they were negotiated? And when they go until?

Yes. So basically, the Outokumpu and our peer companies in the steel industry belong to the technology federation of industries in Finland, and we have actually completed our negotiations with the, let's say, the blue-collar workers. And that contract is now in place. The salary increases have been agreed upon and we have a contract valid for into 2023. So as far as that is concerned, that risk, if we want to call it the risk, is sort of -- has gone away. The one sort of thing in Finland, which may pop up, of course, relates to logistics and specifically harbor employees, the freight side -- let's say, the longshoremen from time to time have had strikes in Finland. Will that sort of materialize this year remains to be seen, but that might be one thing to follow. And Outokumpu is sort of not a party in that contract. So that would be separate. We are kind of the -- we're not a direct party in those negotiations.

Our next question comes from the line of Krishan Agarwal from Citigroup.

Most of them have been asked by the fellow analysts. A couple of them remaining. On the Ferrochrome, I was wondering if Pia can discuss those sensitivities, if there is any update to that given in the context that the increase in ferrochrome EBITDA in Q4 has been slightly lower than most people expected despite a sharp increase in the benchmark contract prices?

Yes. Thank you very much. And indeed, I think our sort of typical sensitivity has been the Tencent delta and the EUR 10 million EBITDA impact for the quarter. However, before the fourth quarter, I tried to give a little bit of a word of warning there that with some of the sort of cost pressure, it would mean that even with that type of cost difference, probably the EBITDA impact would be smaller on the positive side. So that was a bit sort of the setting in a fairly cost pressurized environment, particularly on the electricity costs that we saw in the fourth quarter. So obviously, a bit sort of pending on that kind of how pressurized the situation will be on inflation going forward. I'm sure we will have a reason to come back and clarify. Obviously, right now with the sort of stable outlook on the benchmark price, not so much to add exactly right now, but we will probably reiterate this for our next report just to check the inflationary pressure and then the overall situation with the sensitivity.

Okay. Understood. Very clear. And then I think there has been a lot of mention about the exposure to freight rates being a key reason for cautious guidance and also the cost inflation. Is there any way you can help us quantify the overall freight bill maybe for the quarter or the annual, just to give us a better sense as in how sensitive the earnings can be from the freight rate point of view?

Right. Thank you very much for that question. And now unfortunately, I don't have top of mind that figure to give to you. But I want to say it's really around freight availability. So it's really then around sort of deliveries that we possibly -- the risk is that there are deliveries that we are not able really to deliver all the way to customer because maybe the truck drivers also have COVID, are not available, et cetera. So it's not so much the cost. It's really not the cost, it's the availability. And so therefore, it's really relevant to what sort of margins we do with our products and whether we'll lose 10 kilotons, 15 kilotons because of some disruption in the logistics chain.

Yes. Yes. Pretty clear. And then finally, how much of the CapEx you guys are planning to spend this year?

Our plan is still at EUR 180 million.

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

I just wanted to follow up briefly on capital allocation. I think you said earlier that you aim to update on shareholder returns and capital allocation around the second quarter, and I guess now you're obviously announced the dividend already. But by the second quarter, you could be easily debt-free. So I'm wondering, are you still planning to give an update around mid-2022? And then maybe in that context, I saw that you're seeking approval for a buyback of up to 10%. And here I'm wondering whether that is a completely new approval or basically a revolver or renewable -- renewal of an approval, which you already had last year.

Thank you, Bastian. Yes, a really good question. So the buyback in there, that's sort of a renewal of a typical text that we have had relating to the AGM. So as such, sort of it is nothing new. And then I mean, now that we have the Board's proposal out there with the dividend proposal, then I don't know if we will really have a new update by Q2. But let's see when we keep working with the strategy. So as Heikki said, once we are sort of complete with the package, of course, we will really try to give a comprehensive view at that point in time.

Okay. Okay. And then just, Pia, following up briefly on the maintenance cost side, I guess, if I reconcile it correctly, and I really try to keep track of it as good as I could. But I think you guided for an increase of EUR 10 million of maintenance -- in the maintenance cost in, I think, in Q3 -- in Q2 last year and then you basically guided for another EUR 10 million increase in Q3. And you said, I think Q4 was roughly flat, which basically means maintenance spend and costs have been at a run rate of about EUR 20 million in, I think, Q3 and Q4, which is basically above your normal level, which is normal. I think the second half always used to be a little bit more maintenance heavy traditionally. . I know you say Q1 is going to be the same level, which basically means you drag that maintenance spend into the first quarter. That's actually untypical. I guess, usually, your maintenance costs would be coming down. You usually maintenance lighter in the first half. Is there any reason why we're not seeing that release? Or are you just being very conservative here?

Maybe to answer it this way, we have typically tried to express ourselves in some sort of good chunks, like EUR 10 million, EUR 20 million, something reasonable. And now when just looking at the figures, we didn't sort of quite reach those threshold of reducing that much. So you are right, of course, sort of seasonally, Q1 is the quarter to really get goods out of the door. It's not a big quarter for maintenance at all. So typically, we would reduce a little bit the maintenance, but we simply didn't get to that sort of threshold of enough of a reduction compared with the previous quarter to talk about it. So yes, maybe it's a little bit downward, but it's not significant enough to sort of give a clear sort of downward statement on.

Our next question comes from the line of Harri Taittonen from Nordea.

I'll sort of leave it to a one question, which may be pushing a bit. I don't know if you want to kind of -- you talked about the sort of the ESG and the sort of CO2 balance ambitious. But if you say that you need EUR 300 million CapEx, total up until 2030 to achieve the targets. Just wondering I mean, to what extent would you be able to pay for the CapEx? We are selling emission rights because if you are kind of taking the sort of emissions down during the decade. So if you assume currency or the emission right prices? And how much would you be able to cover of that EUR 300 million?

Harri, that would be an interesting business opportunity. I still think -- I mean, on the balance of things, I mean, today, we have a surplus, but based on our best understanding of the future free allowances, I mean, obviously, as you know, there are still no sort of really straight decisions, especially from '25 onwards. These are clear estimates from our side. But still, based on our understanding of how the free allowances are decreasing, it's just a matter of fact that companies need to do a lot of efforts and actually investments to be able to keep up with those requirements. So when I say that when we do these projects that we are now aiming to do, we come to a situation where we have enough allowances until the end of the decade. But for me, that also indicates I don't have sort of a huge bank here. to sort of take it from. I do agree. I mean, the price level is sort of very intriguing to consider that opportunity. But at the moment, I think we are all sort of looking at balancing the situation.

Our next question comes from the line of Rochus Brauneiser from Kepler Cheuvreux.

It's Rochus Brauneiser from Kepler. A few follow-up questions. in detail. I think you talked a bit about Europe and Americas. And I think the missing element for me in getting it right or wrong in terms of margin evolution in Europe and Americas. So was the item on the bridge called other, so I'm not sure that you referenced to that. So I didn't fully understand what was the kind of add on the Americas and the kind of downside covered on the others, which has not been in your discussion about costs? That would be the first question.

Yes. Indeed, I mean, those are really -- the thing is that it's also always a bridge impact. So maybe there was sort of a onetime positive impact of something in the previous quarter. And then once you got into this quarter, and there wasn't a positive impact, then you get this negative bridge impact, and I think that's a little bit what we are suffering from there. I have to say there was nothing of the sort of order of magnitude as an individual item that I would just -- it would just pop up to my brain now, and I would be able to share it with you. But there's sort of a number of kind of -- maybe it's in Q4, you have some more sort of closing type of topics, maybe some provisions that need to be increased or decreased, et cetera. So nothing kind of maybe worth a special mention. But if there's something that really comes to our mind, then maybe we'll try to be clearer in our next communication.

Okay. Right. Because if I compare that with your discussions around costs, these items seem to be even bigger than that. It looks like it was over EUR 20 million in U.S. and probably is over EUR 10 million in Europe. And so it's a bit of a deviation for understanding the margin evolution in detail. So if there is any color, would be really appreciated. Then other more kind of housekeeping things. Can you give us a bit of a flavor on the volume evolution on the loan product side? I think typically the reason in your business is that you have the weakest point in the year in the third quarter, and then kind of at a low level in Q4 and then the Q1 is the strong quarter. This year, it looks a bit different as you had a big snapback in Q4 in volumes after weak Q3. What shall we read for the first quarter. Is this then more of kind of a flat trend? Or is there anything incremental in the business which is boosting it beyond the seasonality?

I think what we have seen in overall in the year was, of course, a really good improvement in volumes in long products as well, I mean really significant. And we did indeed get sort of a pretty good figure in the fourth quarter. So therefore, I would say, I mean, the normal seasonality is there, but with a good sort of background in Q4 maybe that's sort of all I dare to say I wouldn't expect sort of a huge jump in into the next quarter.

Okay. I think that makes sense. I think the other question, maybe I got that wrong in your outlook statement, you were referencing to higher fixed costs, and you were referencing to higher fixed cost, there's an element in your earnings evolution in the fourth quarter against the backdrop of higher shipments. Maybe you can clarify what this is referring to is there any kind of cost inflation baked into that statement? Or how should I read that?

Yes. Well, I think on a -- when you look, first of all, at the evolution of the number of personnel, you see that we are approaching the targets that we set also to be below 9,000. So clearly, I mean, overall, we have been here still realizing the savings that we were talking about earlier. But in some instances, we have added shifts when the market has -- when there really has been high demand for some specific products, for example. So there could have been these spikes. But I think what is really visible in the figures more on the fixed cost side is, first of all, that indeed, we are also remembering our personnel now when we have had a good result. So I talked about the personnel fund in Finland, but we are also paying some extra bonuses, some extra rewards based on the good performance. So we are sharing this also with our employees. And some of those accruals we also really had coming into the fourth quarter. So that's one reason. That's, of course, sort of a temporary spike, but obviously still relevant in the quarter. And then the maintenance cost also goes into that fixed cost bucket.

Okay. Okay. That makes a lot of sense. And then finally, on your EBITDA breakdown, on the other operations, you had cleared this unusual jump in the others line from EUR 8 million to EUR 10 million in Q3 to EUR 18 million in Q4. Is there anything we shall keep in mind about this increase? And what's the run rate gain going forward for Q1 or Q2?

Yes. We can have a bit of variation in the other operations depending then on the end also of some kind of internal margin eliminations on the group level. So I'm not aware of any cost element that should really sort of long term be seen as kind of adding there to the profit levels, but rather just some variation in terms of internal inventory margin eliminations. So there's nothing sort of trend worthy that I would mention there.

Thank you all for following our event today, and thank you all for your very good questions. Before we close the call, I would like to remind you that we will be publishing our Q1 2022 results on May 5. Now thank you once again, and have a good evening.