Outokumpu Oyj (OUT1V) Earnings Call Transcript & Summary

Hello, and welcome to Outokumpu's Capital Markets Day 2022. My name is Linda Hakkila, and I'm the Head of Investor Relations here at Outokumpu. I'm extremely happy to see that so many of you have joined us today here in Helsinki after 2 years of fully virtual events. Many of you also participated in our site visit yesterday in Kemi and Tornio, and I really hope you enjoyed your time there. Today, we have an interesting agenda ahead of us. As we have been very successful with the execution of the first phase of the strategy, we have been receiving a lot of questions about where Outokumpu is now heading to? Well, I have good news for you. Today, you will get the answers. In today's event, we will talk about the successful closing of the first phase of our strategy and also tell you about the priorities that we have in the second phase, which will last until the end of 2025. Today, our main speakers are our CEO, Heikki Malinen; our CFO, Pia Aaltonen-Forsell; and our President of the BA Americas, Tamara Weinert. As per usual, we will first start with our presentations. And at the end of the event, we have a full Q&A session. However, after each presentation, we will take few questions. We will first start with our CEO's and BA Americas presentations. And after that, we have a short 20-minute coffee break. After coffee break, our CFO, will present her part. And after that, we will take questions from the live audience through the conference call lines and via webcast platform. Please note that you can post your questions on the webcast platform throughout the event. But now before we start with our CEO's presentation, let's watch a short video. [Presentation]

Good morning, and welcome to Outokumpu's CMD, Capital Markets Day live. And also for those of you on the web, you're warmly welcome to follow the event today through the Internet. Yes, it's been quite a time since we last met together. For those of you who had a chance to go yesterday to Kemi and Tornio, I hope you enjoyed the visit to the place where we manufacture the world's most sustainable stainless steel. The market has been quite extraordinarily over the last 2 years, it's almost been like an airplane accelerating to the sky. It seems now we're moving into a new phase in the markets. Now who would have thought that over the last 2 years, we would have seen a set of extraordinary dynamics. We had the COVID pandemic, then the rebound in some ways, then we've had the very unfortunate and sad, Ukraine-Russia war, followed by what I could call almost like an energy crisis. And of course, now we have emerging inflation a bit all over the place. And who would have thought that climate -- narrative of climate change and also energy transition would become such a big topic so quickly. It's on the lips of all the politicians, it's impacting financial markets. We've seen the amount of -- significant amount of money flow into the ESG funds as an example. Now the world we face here provides us in spite of everything, a lot of opportunities for Outokumpu. So today, in our presentations, we will tell you how we intend to capitalize on these opportunities and also how we will continue to execute in a very disciplined manner to provide stronger shareholder returns. Now I will start my presentation today with a few slides just recapping what we did over the last 2 years during Phase 1. And then Pia and Tamara and I will take you on a journey to look at Phase #2 and what we intend to do during that phase. So I hope you enjoy the presentations today, and we also look forward into your interesting and challenging questions. So let me start with this slide here and talk a bit about the key messages. So as you recall, the past decade was quite challenging for Outokumpu. In many ways, we underperformed. We did not meet shareholder expectations. Now in November 2020, when we had -- when we kicked off our journey, we set up some fairly ambitious targets. And I think I recall there was probably some doubts on whether we can pull this off. Well, as we stand here today, I feel strongly and my colleagues as well that Outokumpu has turned the corner. We are stronger financially than we have ever been before. Therefore, I feel, at Outokumpu our customer relationships, our operations, our staff, our people globally and also our processes are stronger, much stronger. And really, it allows us to move in a much stronger position into the next phase of our journey. And also whether some of the inevitable storms of a fairly cyclical industry. And we would not be here without the commitment, strong commitment and resilience of our staff. I really want to express my heartfelt thanks to all the Outokumpu employees for the great work that they have done over the last few years to make all of these good stuff happen. Now as a reminder, let me show you the 3 phases of our journey. Our first objective when we kicked off this process was to derisk the company, and we have achieved this. Looking at the 3-part journey, I'm very confident that we will continue to be able to deliver on the objective of growth and financial returns. As we have now derisked the company, our focus is moving to capital discipline and also stronger shareholder returns. Our Board of Directors have approved a new dividend policy, which aims for stability and predictability over time. And Pia will dive into that deeper today when she goes through her presentation. Now let me remind you and all of us about the first phase and the targets. So initially, we set out and -- set out with 2 targets. First of all, achieve a EUR 200 million run rate improvement in EBITDA. And this target we raised last year to EUR 250 million of EBITDA. And in terms of leverage, I said, intention was to delever the company. Now we have clearly exceeded those leverage targets. We will be done with Phase I practically by the end of Q2. So we're almost there. We're basically there now. And we're basically at the target 6 months ahead of what we initially planned when we set out. Now let me share with you a couple of concrete examples from what we have done. So on this chart on the left, you can see the 3, what we call the must-win battles. Let me just start from the bottom of the chart in that blue box, lean and agile organization. Well, we had to reduce headcount by 10% or about -- and we're now up around 9,000 FTEs. Secondly, on maintenance, we developed a new approach of smarter maintenance. And the underlying notion here was to focus the maintenance money on bottlenecks and critical lines. And I feel this has worked really well for us. Thirdly, we have also improved performance management in the company. We've had over 1,800 projects that we've had to execute during this fairly limited amount of time. We had a very disciplined approach and our teams have done really well. And this really gives us a good basis for them as we move into Phase #2. So let's look at where we will focus over the next 3 years. So on this picture, you can see in the circles, you can see the 3 value calibration levers that we will focus on. Let me start from the left-hand side of that chart, with sustainability leadership. Well, this is, first of all, going to be meeting -- about meeting our customers increasingly critical and challenging targets on sustainability. Secondly, we intend to create a defendable competitive advantage through sustainability, particularly against the Asian producers. In the middle, on cost leadership in high-volume products, it's going to be about running our largest and integrated facilities as efficiently as ever possible. Now the stainless steel industry, well, it's a very tough cost per tonne game. We are the lowest cost producer today in Europe, and our intention is to keep that position. Our delivery flows to customers also need to improve further. By getting the flows to be even more streamlined, we can improve customer satisfaction, and we will also be able to lower our working capital. And thirdly, on the right, market leadership in advanced products. Well, now let me put some context into this. Over the past 18 months, we have all been buying a ton of white goods, microwaves, refrigerators, dishwashers, et cetera. Now consumer demand in white goods is gradually going to start to taper. And I guess in its place, people will start spending money on vacationing, holidays, flying, traveling, and that's quite normal as we return back to a sort of a pre-COVID world. But at the same time, we're also seeing quite strong acceleration of demand from the industrial sectors. Now let's take, for example, now with the implications of the Russian energy sanctions, which have started and who knows where they will go. That will accelerate energy transition, particularly in the European Union. Also, we see oil price at $120 per barrel, may stay there for a while, may even go up higher. That has typically at these levels when oil is so high, it does start to lead to more CapEx going into that sector. And then for those of you who have been following Outokumpu for many years, you know that we are also very interested in the scrubber business. The idea of taking this exhaust sulfur gases out of the emissions of the marine industry. Also, the scrubber industry -- the scrubber demand will gradually start to increase as we pick up here and get into Phase 2. So in summary, we still continue to see a healthy market in Europe and in the United States. But we need to recognize that the demand is shifting from white goods gradually to the industrial sector. Now as you saw in the intro video, ESG is at the core of our strategy. And let me remind you why we actually believe we can -- we are the industry leader and how we will continue to be there in this industry. So on this chart, when it comes to ESG, there are 4 things which are really important for Outokumpu, where firstly, what's really important for us is to keep our people safe. And this also concerns the many contractors we have on our sites. Secondly, what we intend to do and where we are already the best is having the lowest carbon footprint in the stainless steel industry. Thirdly, on ESG, it's very important to buy responsibly. Outokumpu has taken decisive steps over the last 18 months to really improve the responsibility of its sourcing. And then fourth, for us, it's about leveraging the diversity of our organization, really the power of diversity. So now let's look a little bit deeper into safety and diversity. So on safety, we are clearly the world leader. Our TRIFR, so that is the total recorded injury frequency rate was 2.0 last year in 2021. And I know we can do even better. I track this every month, we have our CEO safety calls. We're following this very clear carefully. And I know we can do even better. Our ultimate commitment is, of course, to get to 0 accidents. And every day, our people and our managers are working towards that ultimate ambition. We have recently canvassed the views of our staff with respect to diversity and equity and inclusion. So we talk about DE&I diversity, equity and inclusion. And based on that feedback, we have set a number of targets. First of all, we intend to recruit 100 leaders into the company to increase diversity of our leadership. We have about 1,000 leaders in the company, so that's about 10%. And with respect to the more senior people in the company, the line management, the business area divisions and so forth, we intend to raise the number of leaders up to 30%, the amount of diverse people up to 30% by the end of the period here. And by 2023, we will have certified for full equality of our reward and compensation processes and systems. So we're also looking to make sure that the pay system is as equal life as possible. So let me talk about sourcing and responsible sourcing in particular. Well, we live in a world where there is increased need for transparency. Our supply chains, they must be responsible. And we take this matter very, very seriously. Now over the last year, we have had our issues. We've had some challenges in Brazil. We've had challenges in Guatemala. But we have addressed those challenges head on. We have hired new resources into the company to focus on this area. And we've also retained world-class experts to help us navigate through this at times fairly tricky piece of work. Responsible sourcing is really ultimately our license to operate in the eyes of our customers and in the eyes of our society and our employees. And also, our customers demand it. They don't want to get bad news. I fairly -- I strongly believe that we can turn also responsible sourcing into a source of competitive advantage. Now let's move on to the next area, and that is emissions. So in our presentations, we have shown you over the huge difference between our emissions and the emissions of the Asian producers. So we are the #1 company when it comes to emission reduction globally. And how are we really doing this? So on this chart, you can see that standard, the sort of the 3 scopes on how you break this into pieces. So we are really uniquely positioned in all of these due to a number of factors. So first of all, on the left, on scope #1. So our recycling rate is over 90%. And that really allows us to run our processes very efficiently. Secondly, in the middle and Scope 2, we are using more and more renewable energy, hydro energy, wind power. And on top of that, of course, here in Finland, we have access to nuclear energy. We are also in terms of Scope 3, on the right-hand side of that chart, we're the only integrated ferrochrome producer in Europe with the lowest emissions. And as you heard yesterday, for those of you who went to the Kemi mine, our clear plan is to be the first to have a carbon-free mine. Now in our opening video, we told you about Circle Green. Our new product which has 92% lower CO2 compared to the global average. And I would like to show you a video now about our cooperation with Fiskars, a truly remarkable global brand of homeware products. Can we show the video? [Presentation]

So that was a lovely summary of our ESG story. One of the 3 value-creation levers. Now let's move on and talk about the 2 other levers or levers, namely cost leadership in high-volume products and market leadership in advanced products. So this is a very important slide. We spent a lot of time analyzing the stainless markets and we've come to the conclusion that we can extract more value from this sector by developing 2 distinct strategies for each one. So what does that really imply? On the commodity side here, and if that's the dark blue on the left of the chart, on the commodity side, it's going to be about taking decisive actions to drive for even better cost leadership. As I said earlier, this is a tough cost per tonne game. And we will do that by putting even more focus on improving our throughput, improving the productivity, that then comes down to costs and also the supply chain flows. And if you -- for those who were at Tornio yesterday, you understand that getting those flows to work even as best as ever possible, does create value for us. On advanced products, which is shown in the middle in light blue, is going to be about creating even greater value to customers through innovation, highest possible quality production and having even a stronger and broader quality sales force providing expertise and technical support to our customers globally. In advanced products, we are the undisputed global market leader. And we think in that area, we can grow even further and take some market share. And as you can see on the right-hand side of the chart in black, we only compete now in those area -- 2 areas on the left. Longer term, there may be interesting opportunities for us also to explore in that black area. Now let's take a look at our assets. So in higher volume grades, we have the most efficient high-volume production system in Europe, which makes us a circular economy leader. We have an efficient supply chain from Tornio through Terneuzen in Holland into Krefeld in Germany. And as you saw yesterday in the Tornio visit, Tornio site is the largest user of scrap in Europe. This also makes us a circular economy leader. And in the Americas, Calvert has really turned the corner. They're performing very well today. And you'll hear more about Calvert and Mexinox and the success there from Tamara. Then moving on to advanced products. So on the upper left-hand side, you can -- on the slide, you can see Avesta in Sweden. Avesta really is at the heart of our pro grade system and pro grades, that's really the category nomenclature for the types of products we make for these very complex industrial applications. And combining that Avesta with Dillenburg and Dahlerbrück in Germany and then Nyby in Sweden, that really creates a very strong, powerful combination. Now what are new applications for advanced products? So I said, we, of course, in our business, we're trying to have the lowest possible carbon footprint. But on that -- on top of that, we help our customers solve their carbon reduction problems. So looking at the chart on the left-hand side, you can first see marine scrubbers. Basically, what we are providing our customers with high corrosion resistance duplex material to make those scrubbers really work. In the middle, you can see an example of bipolar plates for manufacturing hydrogen fuel cells. And then on the right-hand side, you can see our low nickel containing solution for battery housing in electrical vehicles. As I mentioned to you earlier in my opening, we're going to see a big energy transition, and we believe that energy transition in itself will further boost the demand for these types of applications.

Thank you, Heikki. It was a very good overview on the first page of the strategy. Now we have time to take a few questions from Heikki, so from the live audience, if you wish to ask a question, please raise your hand and you will receive a microphone. Yes, we have the first question there.

Alan Spence from Jefferies. I was interested in what you marked out as the potential 0.4 million tonnes of market opportunity in cobalt and titanium alloys. I think when a lot of people think of cobalt, they think of a very dirty mining process in Central Africa. I know it's maybe early stages, but how are you thinking about sourcing that and tying it to sustainability, which is obviously very core to the company?

Indeed, that is a good question. I have to say that at this stage, we just want to highlight the fact that there is a category of applications and products we do not manufacture. And the point you actually raised will be very relevant if we ever were to decide to go down that avenue, because, of course, for us, sustainability is really at the core. So we will come back to that talk eventually, it may be more of a Phase 3 issue. But I really wanted to highlight that there is this market that we do not serve at the moment.

I think there was 1 question...

In the middle, yes.

Yes.

[indiscernible], JPMorgan. So I just wanted to ask on the Circle Green product. So are you targeting any volumes as you scale up the product? And what other low-carbon partnerships might you be considering and which end markets?

Right. As said, we are now launching this product. We have had discussions with a number of customers. I can't really reveal the names. Fiskars, of course, we're very happy for the partnership with them. This is a real new opening for us in many respects. With respect to the volumes, still early, too early to say. But as I said, we have discussed this with a number of customers, and there is clearly emerging interest. And I think this is -- this whole idea with Circle Green, I think it's more of a -- it's a story for this decade. I mean -- I think in the discussions we've had before I've been asked to what do our customers think about sustainability? This is really a sort of a situation where I can see customer interest growing week by week, month by month. So we are very excited about this initiative.

Ioannis Masvoulas from Morgan Stanley. A question on the EBITDA uplift target. So you've delivered EUR 250 million in Phase 1. So first part of the question is how much of that is a reflection of improving cycle relative to your sort of mid-cycle scenario? And then if we take combined the EUR 250 million from Phase 1 and another EUR 200 million from Phase 2, can you give us a sense on normalized EBITDA once you deliver Phase 2? Because it's difficult when we look at different numbers, to get comfortable and start putting this into our model. Normalized level would give us a lot more confidence.

We will -- we actually discuss this second part of your question in detail. If you bear with me, I'll let Pia sort of do the deep dive. But on your first part of the question, if I understood correctly, you were asking about the first part of our journey, the EUR 250 million, how much of that or how much of the total improvement in our earnings came from the markets and our self-help measures. So I mean, what we know for sure is that EUR 250 million of the total improvement in performance came from own measures, and that's roughly about 1/3 and then the 2/3 would have bid market. But I have to say that scaling up a business system of this nature from very low COVID situation to an extremely ambitious situation where our mills are running at full, it's been a huge amount of work. So I would almost say that it's more than 1/3 that came out of our own efforts and then the remaining over the profit improvements over the last year has come from the markets. So about 1/3 and 2/3. But Pia will talk a lot about that.

Yes. So we still have time for 1 question.

Yes. Harri Taittonen from Nordea. Thanks for the good opening for the event. Maybe several questions. But the dimension you said about the market and I think most people are now worried about the cyclical slowdown and that people might not be buying their [ third ] washing machine. But the fact that you said about the industrial side demand picking up. I mean, in sort of historical context, I mean, what has been the balance between the consumer versus industrial? I mean what's kind of the playing field and what gives you the comfort that the industrial side can be sizable enough to compensate what the sort of slowdown?

Right. So you have to remember that stainless steel goes to many, many applications. So of course, stylistically, we have the consumer markets, but they have many applications. Although I didn't discuss automotive at all. And then, of course, the industrial area is very broad. Some of our standard grades also go to some industrial applications. If you just look at the past, look at, for example, 2019 and '18, which were tough years, the advanced products area actually did deliver a lot of value to us. So I listen, I say that we, at this moment in time, we feel that by accelerating even more resources into that advanced products area, we should be able to compensate at least part of that change. But also remember that the demand for microwaves has been really extraordinary. So we've probably gone a bit further, maybe people have 3, perhaps 4 microwaves. So I mean, of course, it has to come down eventually. But we are still fairly optimistic about the ability to balance that.

Okay. Thank you, Heikki. Thank you for the questions. Let's continue with questions at the end at the event.

Okay. So thank you for those questions. And so let me continue by saying, first of all, that against the backdrop of our ESG plans, and the diversified market strategies, I want to talk about the operating targets, and you can see them on the right-hand side of that slide. So first of all, the objective of Phase 2 is about strengthening the core and building capabilities then for the ultimate Phase 3 of our journey. We have 2 major operative targets. On emission reduction, our plan is to reduce it further by 14%. And the 14% basically allows us to stay on this curve that will let us achieve the targets we agreed to when we made the SBTi commitment. So SBTi is the Science Based Targets Initiative, where, as far as we know, we're the only company in the steel industry that, first of all, has committed to the 1.5 degrees reduction, and this has also been approved and accepted by the SBTi organization. So we need that 14% reduction in this period, and we will be able to be on that curve to the ultimate 1.5 degrees. And then secondly, our plan is to further improve our EBITDA run rate by EUR 200 million. And this follows the work we did on Phase 1, which was the EUR 250 million. And of the EUR 200 million run rate improvement, roughly 2/3 will come from BA Europe. And then Tamara is going to deliver the other 1/3. And then with respect to ferrochrome, it's going to be more about the emission reduction area. So we're now at a point in the presentation where we're going to start the deep dive into the businesses. And we will go now through all of our business areas one by one and tell you how we -- specifically -- what we specifically are going to do to reach those operative targets. Now first on deck will be Tamara. Now in our last CMD, when Tamara was here, the title of her presentation was the turnaround of BA Americas and getting to full potential. Tamara and her team have done really excellent work. And BA Americas, as you see from the numbers, is really in a fantastic position compared to the past. So I'm really happy that Tamara flew in last night from the U.S. to be here today with you and tell her story. Now when -- after Tamara is finished, I will then walk through the other business areas one by one, and I will tell you what we plan to do. And after each presentation, we will have a couple of short videos where Niklas and Thomas, who are now going to be running the business lines, standard -- Stainless Europe and Advanced Materials. So Niklas and Thomas will briefly tell their story via video. And then after ferrochrome, you'll hear Martti, who is running Ferrochrome. He will also see a few words via video. And then I will wrap up with Long Products. So ladies and gentlemen, that was my opening session. Tamara, the podium is yours.

Thank you, Heikki. Thank you also for the very kind words, and good morning, everyone. I'm extremely happy to be here to see you all also some of you face-to-face. And I'm really happy to tell you about the continued success story of BA America. I do a short dive into Phase 1, just to recap on a little bit what I discussed with you last year and then go into Phase 2. I also still have 1 open question actually from last year. One of you, I don't remember who, asked me, do we need more volume and do we need investments to close the gap to come to the EUR 200 million sustainable EBITDA in normalized market environment, which we promised? And I'm going to answer that question today. Let's have a look at Phase 1. There's no doubt that with the success which you see, market has helped tremendously. Substantial tailwind from the market, very strong demand after COVID has really helped a lot. So I'm going to focus much more on our own actions to recap what we have done in order to get to that number. So we had a fantastic year 2021. You see that here. And it's not only that we're extremely proud of the EBITDA we have achieved. But what really makes us very proud as well is that we have achieved it with a recycled content of 90%, which is a great number for BA America. Number two, we have achieved that with a very, very good safety record of 1.82 TRIFR, the total recordable incident frequency rate. And we have roughly 2/3 of the EBITDA we have converted into cash [indiscernible] group. So we're really happy with the performance in 2021, and that is something which the team has done a marvelous job upon. So if I recap some of the actions which you spoke about at the last CMD. We spoke about commercial excellence, cost and capital discipline, lean and agile organization. On the commercial excellence, last year, I spoke so much about the processes which we have improved. And you can see the result of that work actually in -- you see that result in the year [ 2021 ]. So really fantastic work done by the team here and also around our contract processes. What really helps us when it comes to portfolio optimization is that we have to [indiscernible] helped us that we were able to understand much better coming our way together with our customers and [indiscernible]. Now working well? Thank you. Okay. And this has helped us then also to understand what's coming our way. It gives us a better throughput through our mill and that has really helped to release some of that result, which we're seeing in 2021. If I give you 1 example around portfolio optimization, it makes a huge difference. For example, if you have thin-gauge versus -- light gauge versus heavy gauge, so thin material versus heavy material. A thin coil can be as long as 4 kilometers and a thick material coil only 1 kilometer. So by concentrating a little bit more last year when the demand was so strong on thick material, we were able to release a lot of capacity and satisfy more of the consumer demand, which was great. This, of course, also is then very cost efficient for us. On the sales processes, last year, I spoke about claims. We have continued the work around this one. We have started CSI, Consumer Satisfaction Index. Also that will help us to understand better what is it that we have to work upon. If I look at cost and capital discipline, we have continued our journey on slab cost optimization. We discussed this topic last year. It is about the best use of raw material into the slab, so that at the end of the day, the slab which comes out has the lowest possible cost at the highest possible quality. Last year, we concentrated lime, use of silicon. And this year, we focused very much on over-alloying, what do I mean by that? If I have a certain [indiscernible] rate, which has to read a target of 8% nickel, I want to make sure that we don't deliver to 9% nickel as [indiscernible] of resources. So you try to get your processes, your training right, that you get very close to an 8% nickel. A very hugely successful initiative that is, it saves cost, but it also, of course, saves on the CO2 footprint. And then lean and agile organization. If I can put your attention just very quickly on the year 2017, you can see that we have achieved 742 kilo tonnes, and you can see at the bottom, the headcount number with it. We have achieved exactly the same kilo tonnes in 2021, but with a 12% reduced headcount. So also here, a good success, which has helped us to achieve the results, which you see. And overall, we had a further very good initiative we worked a lot on our yield. And yield initiative, again, introduces your cost but it also reduces your CO2 footprint if you get it right, and it has increased our throughput for the mill again to satisfy the very strong customer demand in 2021. If I speak of yield, I do not only speak about defect yield, meaning that a coil doesn't come out with scratches and we have to perhaps scrap it or downgrade it. I also speak about line scrap. And if I can give you an example here. if something goes through the polishing line, you cannot really polish the very beginning of the coil and the very end of the coil, but you can only basically does -- not the middle, it's more than the middle. But we normally perhaps have cut off 30 meters at the front and 30 meters at the end. But the line is set up in a way that you could actually get away with 50 meters cutoff. So we really look line by line, get all the fundamentals right to make sure we train our people and we run these kind of lines with enough tension to get to the minimum which we can get away with. And that has been a hugely successful initiative for us. So that was my recap on Phase #1. And now I would like to look with you at Phase #2. Our Phase #2 ambition very much is based on our view long-term of the market in the U.S. and in Mexico. We see market growth over the next coming years as strong. And as you may know, the local supply in the market is not enough to satisfy the demand in the market. The gap is made up by imports. We see the growth drivers here coming, of course, from the infrastructure bill. I think now $110 billion just have been released for roads, for bridges. And while most of this goes towards the carbon industry, there's always demand also coming towards stainless. We speak about handrails, lifts, elevators, et cetera, for states so sad. So some of this will come our way as well. Localization of supply chain. This is a trend that will continue. The robust customer demand is there, and we see that sustainability is more and more a topic which we discuss with the customers also in the U.S. and in Mexico. You may have seen the announcement by Ford to look more into green steel. Yesterday, I think it was for Florida Power, we said they want to be carbon neutral by 2045 already. So there is also in the U.S. a drive towards sustainable demand for products. There's no doubt there are some worrying signs as well. We have the inflation rates and interest rates, I guess, where we're topical. We still have supply chain issues in the market. So we will stay a cyclical industry, no doubt. But we are doing our own action in order to make sure that we can withstand the lower part of the cycle much, much better and a lot of the actions of Phase 1 and also of Phase 2 will help us to achieve this. The 3 pillars which Heikki already spoke about, sustainability, growth from productivity and customer-focused steering. Let me say something about growth from productivity first. We will aim towards that. And that answers the questions of last year. Do we need additional volume? And do we need some investment or CapEx in order to close that gap? Yes, we do. Our target is to release 80,000 tonnes of cold rolled capacity through productivity improvements and some smaller investments. The yield initiative, the effectiveness initiatives, which we're running also helps and continues to help to release some of that capacity which we need to achieve the 80 kilo tonnes of growth in cold rolled. And of course, then we need commercial actions in order to get that also out and into the market. But green and clean steel made in America will find a buyer. There is demand in the market, and we are very happy to be able to satisfy that demand better going forward. On the very right side, you see the customer-focused steering. Now that is very, very important. What we have seen in the ramp-up of the mill between the very low market and the height of the market is, that it is, as Heikki said, a lot of work to get there. And we saw we needed better tools in order to run the mill efficiently, and we have worked a lot over the last 1.5 years to get these tools in place. We had last year when the market exploded so much, quite a bit of backlog, trying to satisfy customer demand. We overbooked a bit, our [indiscernible] supplied on time and in full was definitely too low to satisfy customer demand. But last year, with the explosion of demand customer, there gave us some patience. By year-end, we have cleaned this up. We have reduced the backlog close to 0, and we're running this year with a much, much better [indiscernible]. So we're supplying to our customers on time and in full at a very good rate of in some weeks of close to 90%. This is, I think, best-in-class in our industry. Looking at sustainability. Our focus is very much around optimizing raw material use. It is increasing in our transport the share of rail. And again, a lot more engagement with our customers to see where is their demand going. You cannot do that as we saw with our partners, we need the customers to be on the same journey as we are to have an interest in this product and we see that interest is there. In Phase 2, BA America will focus very much on the raw material usage and on transport. And I can show you here some of the numbers which we're doing. Our recycled content, we're planning to keep that very much in the 90% range as we have achieved it in 2021, and we will increase the use of our internal ferrochrome from 68% in 2021 to 100%. This gives us a reduction of 7% to 10% in CO2. Our second focus area is transport. We used, last year, I spoke a little bit about the backlog and delivery on time, we used trucks. So only 6% of our material was shipped on the train. But it's very difficult to go to a customer and say, while we are already 4 weeks late, can we have another 2 weeks so that we can ship it by rail. So you have to be a little bit ahead of this curve. Your production has to be good, well planned and on time in order to increase that rail share. We're now in that position and our target is to go to 25% by 2025, and we are on a very good road here. This will reduce CO2 reduction -- CO2 by 2% to 3%. And again, we have a lot of smaller projects and yield comes back again and again. If your yield is better, it does a lot also to your cost, but also to your CO2 footprint. The volume growth we are planning will help us to achieve the EUR 200 million EBITDA in normalized market environment on a sustainable basis. It will also help us to satisfy customer demand, which we see in the local market. So how do we get there? We plan to release 80,000 tonnes of cold rolled. Out of this, 30 kilo tonnes will come into 2023, 50 kilo tonnes in 2024 and the full 80,000 kilo tonnes (sic) [ 80,000 tonnes ] by 2025. This comes at no additional fixed cost and a relatively minor CapEx, which we see between $10 million to $20 million. We have your 4 boxes. If I start with Calvert. The situation in Calvert is it's a very modern mill. It's new. It doesn't need any major investments. It's small adjustments here or there to also handle the changed product mix, which we have at the moment in order to be more efficient. One example here, for example, would be a capital length line. As I said earlier, we're concentrating a bit more on heavier material. So your capital length line has to be able to push that through as well. So you have to have the tension, you have to have the fears in place. And simple things like the suction caps at the end of the line has to be good enough to lift the heavier material. So Calvert relatively small investments in order to help us achieve more throughput. Mexico, very different situation. Mexico is really an old mill, it's 1 of our oldest. It runs well but it needs some investments in order to get back to the capacity, which it can do. The cold rolling mills in Mexico are our bottleneck, and we have there a series of investments going through on cold rolling mill to the next in order to get the speed up. It runs at too lower speed. And in order to get that speed at for which it was made, you have to look at your foundations. You have to look at lubrications, et cetera, et cetera. So a lot of work is going on. We have started that process. The projects have been defined, and we're very confident in our ability to release additional capacity here. Manufacturing excellence will continue. And again, the yield -- and improving the yield further stays in our focus as it has so many benefits for us. We also focus on the manufacturing excellence side around our cold annealing and pickling line. That is our bottleneck for cold rolled in Calvert. So it basically has a team dedicated to it to make sure there will be no availability and reliability loss, and it already runs at an extremely good level. And last, we continue, of course, the sales product mix improvement. A lot of this was already done. I spoke about thin versus thick material. And of course, we also look at what kind of products we run. As the demand was so strong for the last 1.5 years, we've discussed a lot with customers what we can do in order to get as much capacity out to them as they need. And there, for example, we concentrated more on the 304 upgrade versus a 201 grade, as 201 grade has to go twice through the cold annealing and pickling line for some of the thicknesses which are needed. And that, of course, takes capacity away and by concentrating on a grade like 304, we're able to release more capacity into the market. So ladies and gentlemen, if I summarize here our Phase 2. We will strengthen our sustainability position. It is the core of our strategy. We will unlock the volumes, 80,000 kilo tonnes (sic) [ 80,000 tonnes ] cold rolled by relatively small investments between $10 million and $20 million. The team is ready to deliver on that. They have done an excellent job over the last 1.5 years, and we will continue on this journey. So the ambition to reach $200 million of normalized EBITDA in normalized market environment stays strong, and we will deliver on that. Thank you very much.

Thank you, Tamara. That was a good overview on the BA Americas. I think we have definitely done a good progress there. So now we again have some time to take a few questions. So if you wish to ask a question, please raise your hand and you will receive a microphone. I think that was the first 1 on the front row and then another 1 on the other side.

[ Andy Jones ], UBS. Just on the demand outlook. I mean your slides I think showed some CRU forecast, but I'm aware that, obviously, America is a bit more resilient than Europe our right now. But should we not be seeing a decline in demand given Fed rate cycle and inflation and so forth? I mean what's your -- what are your personal expectations for the market in 2022, 2023? And just on this 80,000 tons of volume growth, just broadly, what's the sort of fixed variable cost split in the U.S. operations, just to understand that dynamic?

Looking at your first question, yes, we definitely see, as Heikki already said, especially in the appliance sector, Whirlpool has spoken about that, that there is a drop in demand on some of the products which we have. We have worked a lot with our customers to make sure that as we go through the cycle, basically, our bottom which in the past has been very low, has moved to a better place. Our cost structure is in a better place. So I think working in a cyclical industry, we will not be able to forget about the cycles. I think what is so important is our ability to give a good return also at the bottom of the cycle. For that, your cost structure has to be right, and you have to have the relationship with the customer that you are not the 1 that gets dropped the first. There is still imports coming into the market actually quite a bit. The local demand is not enough. And so I think there is definitely from us, a very big drive to strengthen again and again relationship with customers, understanding what's happening in the market but also being agile in understanding when does the market turn in order to be able to deal with that very, very well. Now steel mills are not known as being very, very agile. So you have to make sure you have your processes really well under control. You recognize the science and you go from a focused, let's say, on throughput to, again, focus on the cost, and let some of your capacity, perhaps slide a little bit in order to be more cost effective. I think that is the way for us to go. The cycle will be the cycle. And yes, I think there is a lot of -- there's a lot of articles out there, is a recession coming? Will it be a strong one? Will it be a relatively mild and short one? We will have to deal with it whatever comes. Yes. And I think variable versus fixed cost, I leave that to Pia for her later. Yes.

I had a question on the ambition to close the gap with your major peer. If we look at 2021 EBITDA per tonne, your peer was running at double your EBITDA level. So question is, are the targets you announced today sufficient to get you to that sort of level of profitability? Or do you need Phase 3 to fully close the gap? And then maybe just a second question around -- what's happening in the U.S.? We had 1 of the smaller players exiting the market last year. Is there a strategic benefit of potentially owning some of the downstream capacity there, swing capacity? And given that you have Tornio in Europe, you could bring potential potentially some hot rolled material into the U.S. and re-roll it there. Is there any benefit in doing that over the medium term?

When I spoke about closing the gap, I spoke about closing the gap to our ambition of $200 million sustainable EBITDA in normalized market environment. I mean if I -- we have a look perhaps back, if I go to this slide here, you can see that our first breakeven year was 2020, right? And now it was the first time we have a very profitable year. So our ambition at the moment is to close the gap, to achieve that, so at the bottom of the cycle, we are able to deliver as well and then very good results at the top of the cycle, but I don't necessarily look what the competition is doing. I think they have a very different setup, a different product portfolio, a different size as well. So we are trying to be the best we can be with our own actions and by making sure that we understand the customers, right. And the CSI, the Customer Satisfaction Index, we think will help us a lot to really focus on what we think the customers need, but what the customers tell us the customers need. So I think there is a very big drive towards that. In Phase 2, we will speak really about investments, and you saw the small investments, which I talked about in productivity in our core business. And I think that is the focus at the moment. And then I'm not sure, Heikki, if you will say anything on Phase 3, but I think that will come at a later stage.

[indiscernible] capacity in the U.S.?

Regarding buying capacity in the U.S., again, at the moment, my focus is really, after all the investments that have been done, to make sure we are the best we can be. I think it is an excellent market to be in. There's no doubt. It's robust. It is -- it has a very good framework around it with USMCA, et cetera. That is, for sure, something that helps a lot. The sustainability and the discussions around that will also further drive demand, the infrastructure package. So I think it's a good market to be in. But my target is I want to give the return on the assets, which we do have because we haven't done that for such a long time.

Thank you for the questions. And thank you, Tamara. I think I will now hand over back to our CEO, and he will talk more about the business area strategies.

Thank you, Tamara. Good updates. These were your slides. Here you go. So as I said, really happy with the performance of the BA Americas. It was a tough decade. But all the work they've done really is paying off and I hope you will have a chance to visit that at some stage. So then let's move on to -- see if I can turn the slide here. Okay. So let's move on to then BA Europe. And so as I said, on the commodity side, and we discussed now the distinctive strategies. So on the commodity side, the focus -- our focus will be very much now on maximizing Tornio utilization. And for those of you who yesterday saw that you saw, for example, the RAP5 line, I mean that's a real monster. When you really can get everything out of that, you make some money. Now in addition to that, we intend to unlock 100,000 tonnes of extra volume, stainless volume by optimizing our operations. So we have calculated different types of combinations, what products are being produced where. And we concluded that there is still an opportunity to extract 100,000 tonnes more capacity through internal measures. And also related to that, the routes to market that we have can be optimized even further and that sort of adds on. And this relates to the sort of the role of Avesta and advanced products and stainless steel commodity grades, we're doing some readjustments internally that will give us 100,000 tonnes. On advanced products, as I said, Avesta is really key here. Avesta is our flagship mill and there's a number of things we can do in this area. We're going to increase, of course, the sales team. I mentioned the sales resources. This is a global market, whereas commodity stainless for us has been pretty much Europe on advanced products, this is a global business. We can basically sell these trades from Asia to Latin America to the United States. So we will add more capacity into sales and service. And then thirdly, bringing all of this together, we are launching a new steering model to drive these 2 differentiated strategies. And related to that, Niklas and Thomas have new roles as business line heads. And on this EUR 200 million EBITDA run rate improvement target. So Tamara, about 1/3. And then in Europe, we'll do the remaining 2/3 to get to that EUR 200 million. I'd now like to show a couple of videos where you will see first Niklas give his commentary on the commodity side, and then you will listen to Thomas talk about Advanced. So can I have the -- can we flip to the -- can we flip to the videos. [Presentation]

So that was Niklas was running the commodity side and then Thomas Anstots, who is funding the advanced material side and those growth come into effect now 1st of July. Now moving in on to ferrochrome. So as you know, Outokumpu has the only chromium mine within the European Union, and that is integrated into the ferrochrome operations and then ultimately, in Tornio's stainless steel production. And for those of you who had a chance to go down to 1,000 meters, hopefully, you enjoy the trip down. So you saw that we're almost done with the big mine expansion project that has been really, one of the biggest projects we've done in many, many years. So that's almost complete now by the end of the year. All in all, Ferrochrome BA is actually a very important contributor of our emission reduction journey within Outokumpu. Over the next few years, 3 years for Ferrochrome, it's all going to be all about CO2 reduction. We will start preparing an investment project to produce bio-coke and coke is a key source of our process. And of course, it contains some carbon. And so we're intensely looking for ways how we can reduce our CO2 emissions. So bio-coke will be part of that solution. We're also going to maximize the value of our most sustainable Ferrochrome in the world by solely using that material within Outokumpu. So in Tamara's slide, for example, you saw that we had not been using 100% on ferrochrome for logistics and other reasons, but now we will just dedicate all of the capacity, which is available for our own needs. There will be some residual capacity available, we believe we can get a green premium for that low carbon Ferrochrome product also from the markets. Now let me have -- now let's take a look at Martti Sassi, who is running the Ferrochrome, BA, he will elaborate on his business. [Presentation]

So that was Martti Sassi, who is heading the Ferrochrome operations. Now let's move on to our fourth and last business area, Long Products. So as you recall, in the summer of 2020, we changed the management. Liam Bates was appointed as President of the business area we basically changed the whole team. A lot of changes took place very quickly, and we set up a very ambitious target -- set of targets to change the business and turn it around. So over the last 2 years, Liam and his team have done an excellent job in doing a turnaround and really creating value in the business. As an example, I just want to mention that last year, Long Products had the best safety record in the company. And basically, they did phenomenal job on safety. And as I've said before, for me, safety is one indicator on how efficient the product processes are run. In addition to that, they made good strides on sales. The operational efficiency within LP has improved quite a lot. And the EBITDA has doubled since he started. Now Liam and his team will continue executing the plans going forward. We're in a very diligent way. And I think we -- and because of that, I think we see that the business will still have good legs underneath it. But still, I want to remind you that within our portfolio, LP is still noncore. Then moving on to my last slide of this section. So let me sum up the priorities of Phase #2. So as we said at the outset today, we have 3 main priorities: sustainability, growth from productivity and then customer-focused steering. Our sustainability strategy focus is very heavily on Ferrochrome operations, as you just saw. And I want to still highlight one more time the notion Europe investing and preparing an investment on bio-coke production. In terms of growth from productivity, we aim to achieve 200,000 increase in additional cold rolled. Part of it is coming from business area Americas and then the rest from Europe. And this will come in Europe from better steering of BA Europe. We've done a lot of analysis on how we reoptimize this business area here. And then for Tamara, it's with respect to these few investments she made and also mentioned that also the improvement in yields. And we also see exciting opportunities in advanced products globally. In terms of customer-focused steering, we are going to embed a new steering model here in Europe. And that basically will allow us to drive value in a more efficient manner. And then finally, our plan is to invest more in our capabilities so that we are ready then for Phase 3.

Thank you, Heikki. So this was the first half of our Capital Markets Day today. Now we will start a 20-minute coffee break. And after the coffee break, our CFO, will talk about how we have improved our resilience and about also other very important topics, capital allocation. So stay tuned. We'll be back in a moment. Thank you.

Thank you. [Break]

Hello all, and welcome back. Now without any further comments, I will hand over to our CEO.

Right. So I just -- I forgot to mention my introduction to Pia, I wanted to do it again here. So if you remember, we've now had 2 CMDs here. And the last one, Pia talked about the fact that we are on track to meeting those financial targets. And we and I -- the 2 of us have worked really diligent to follow and monitor that we really make these numbers. So I'm really happy that we can tick the box off on those targets. And thank you, Pia, for the work you've done. And now let us hear from you what's up next from a CFO's point of view. So please.

Thank you. Heikki, thank you very much. And yes, indeed, I mean, Heikki might have mentioned it, but we had 1,800 initiatives that we were following. And I can assure you that some were bigger than others, but each initiative is really important, because that's the way also to create the accountability through the organization and to change. But what I wanted to talk about today really is creating that strong foundation to create value over the cycle. And I think we already have those points throughout the presentation today and in the presentations of Tamara and in the questions, especially we talked about that resilience through the market cycles. So maybe if I take my first slide here, what I really, really wanted to talk about is how Outokumpu becomes an attractive investment also for long-term investors. And the resetting we have now done with the balance sheet. So I will, of course, show still some of those great figures, but just to say that resetting we have done. But now obviously, we need to move forward. And our next phase strategy allows us now to use the capital, both in terms of strengthening the core and I will talk a little bit about the CapEx here, what we are planning, but at the same time also to create that clarity and the predictability when it comes to shareholder returns. So you have seen we have changed our dividend policy also as we have informed today. I also want to talk a little bit about the particular conditions that we are operating in the market environment and indeed, how we think about a more normalized EBITDA level and sort of how we sort of make our reasoning around that. So I have 1 slide on that, so I will come back to that question as you asked it also before. And finally, still one more sort of comment on the first phase. I just want to say that we have, of course, built a stronger balance sheet, which is a strong foundation for the next phase. But we have also changed operationally. We have now, after a very tough decade, we have turned the corner and what we have now is also an operationally more resilient company. So that's why the question earlier on how much of this profit improvement was from your own actions and how much was from the market? Can I still come back to that question. So the EUR 250 million improvement on EBITDA run rate they are all from our own actions. They are all from our own actions. And we have tracked them, and we have this transparency, we have the clear audit trail to what we have done. And I know those are cost improvements to a large extent that we can keep also for the longer term. When Heikki spoke about 1/3 of improvements through our own actions and maybe 2/3, maybe a little bit less through market. That was really to illustrate the full gap between where we were at the lows of COVID to where we are today. Okay. So first, on here with a little bit of market data. And yes, Outokumpu's last decade was tough from a financial perspective, but I wanted to bring here the perspective first, just of the demand in the market, making the most important point here that when we look at the global stainless steel market, I mean, obviously, this is still a very healthy and growing market. Today, Heikki has spoken about the fact that consumer-driven demand is tapering off the logical consequence of us moving on from our COVID life, not staying anymore that much at home. But we have also talked about the investment cycle. And I think in terms of cycle resilience, that is an important driver for us now to put more resources to put more emphasis on these advanced materials globally, because that helps us also to change a bit the risk profile to create resilience to have more like 2 cycles, consumer-driven and investment-driven to be able to leverage those. And as a society, we are living times of a big energy transition of a huge carbon challenge and sustainability challenge. And I think as we have demonstrated in the short videos and inserts today, I mean, we are really in an industry that is able to provide solutions to those challenges. And not only is that good for society, obviously, that also remains a big opportunity for us. So finally, here, I'm going to move on to talk very briefly about trade policy as well because, I mean, even that has been changing even in the last months. So dynamic environment continues. And what the graph here is illustrating is somewhat of a more stable situation when it comes to imports into both Europe and the U.S. over, let's say, the COVID period. But now again, a sort of clear increase in the imports. Maybe in the U.S., as Tamara has alluded to really on the back of the constraint, the higher demand needs to be fulfilled. It has been partially fulfilled by higher imports. But if I zoom in a little bit more on Europe here, obviously, our industry, our sector has benefited from improved safeguard measures in the recent years. We have also benefited from restructuring, where certainly, if we look a little bit longer, Outokumpu has done it's very more than its fair share. But we have also really benefited from cost efficiency. So I mean, this industry keeps on getting more and more efficient. And that has certainly benefited the industry even as a whole from a European perspective. But looking at where we are as we speak right now, certainly, at least into Europe, we have seen increased import volumes. And we have seen, particularly Chinese imports back in the market after actually a fairly long break. And let's say, without going to now the details of what's actually happening in China, I think that is a very big chapter in terms of COVID lockdowns and many changes, but really just trying to look at this from the perspective of a producer in Europe where the requirements and sustainability, obviously, are growing. So we know that the cost of emissions are -- they are increasing, and that's clearly a political vehicle intended to drive emissions down. But at the same time, we do not have yet a level playing field. So we know that there's like a big -- we should have like a big tag on these imports, as Heikki has demonstrated before, we have 4 or 5 or even 6x more CO2 emitted from stainless steel volumes produced in Asia, of course, using a different raw material base, and that's really the primary driver for why that happens. So this level playing field discussion is not over. And I think for our society as a whole, this remains still one of those big topics to be debated even in the near future. But let me move on to another perspective on the market here. And this is more on that perspective of cyclicality and I want to position a bit our strategic thinking and the actions that we have taken also into the very recent history of the dynamic features of these markets. So let me take you here to the next slide. And please bear with me, I will try to explain what's in the slide first, what's in the graph. So what's in the graph is market specific. This is not Outokumpu specific but this is really to explain what has happened in terms of volumes, so demand of stainless steel and pricing of stainless steel in 2 recent major downturns. So if you can see the fine print here, you can see that we are describing the changes after the financial crisis of 2008 as well as the COVID crisis. And maybe you can at least see sort of the shape of the curve. So actually, demand or volumes, naturally, there has been a slowdown due to these crises. But you can see that it's more order of magnitude of 0% to 4% negative. So a decline but a modest decline. In terms of pricing, on the other hand, what you can see on the right-hand side, there's been a really significant move. So in the last crisis, base prices, 304 Europe, down 34%. And this is the inherent volatility that we recognize and see in our business. And I'm not showing this to be depressed. I'm just showing this to say these features or volatility in the sector need to be recognized in the way how we operate. Heikki has spoken a lot about the cost efficiency, Tamara, you have spoken about yield improvements about certain CapEx that we need to do. So it's clear this is a cost gain, but at the same time, this is also a really big question of creating that resilience. So balance sheet, checked. And other questions of resilience, of course, relate to, for example, how we steer the business, how we steer working capital and Heikki has opened a little bit the box here to show that we will be even more customer and market segment focused in that going forward. So I will also take the opportunity now to show the Outokumpu perspective of this just in the form of a few KPIs and about our story of creating that resilience for the different market conditions. And I think starting with the COVID lows of the adjusted EBITDA 2020 of EUR 250 million, obviously, now the last 12 months, we are over EUR 1.2 billion and where have we used that cash? Well, the Phase 1 story was all about give it to the creditors. So give it to the bank. So we have indeed reduced our debt. And we felt it was really necessary. It's creating that resilience. But if I may make that comment right now, we have yesterday signed our renewed revolving credit facility. I also see some representatives of our relationship banks here. So I really want to say a sincere thank you. I think it's also a good proof point of our journey going forward. We now have an unsecured revolving credit facility of EUR 700 million. And I think we have added more years again here to the maturities. And I think this is a proof point also of the history. We can now put it behind us. You see it in the figures here. We have a higher profit level. We have a lower debt and we will pay less interest, of course, because we have a lower debt level right now. And certainly, in Phase 2, you see our policy shifting more towards focusing also on shareholder returns so this EUR 40 million lower interest cost is also for us one good way of adding to that pot of money towards shareholders. There is so much on working capital I would like and love to say. But in order to save a little bit of time and maybe something for a question, I'm just going to say that working capital efficiency has now been an important theme. And obviously, that comes from the fact that when the market has been really booming, it has been important for us to have the right or optimal level of working capital to also support our customers. So the focus now has not been only on what is the absolute level. It has been more on the efficiency and at least 1 KPI, if you allow me, really the inventory turnover days and in that sense, the working capital efficiency has indeed improved by 6%. But we have also created now the path forward with the new strategy to really be able to focus on the supply chain efficiency and take that as a priority also in how we steer the business going forward. So with these improvements in mind, we have now created a playbook to ensure a positive cash flow in various market conditions. And now I'm just going to flip to the last slide that I have on market conditions, and this is back to that question of the normalized EBITDA because I think it's a very reasonable question. To bring some context to that, I wanted to start with just our history last 5 years here of EBITDA. So 2017 was actually sort of the best year ever before last year, that is. And that was one of EUR 631 million of EBITDA. That was, by the way, also a year when Ferrochrome prices was really booming for 1 quarter. Now we have seen higher Ferrochrome prices already for actually 6 quarters. So then we said, okay, looking at this history, we realized that 2021, and as you have just seen in the last 12 months figures, they are exceptionally high compared with the history. We have very much faith in that the improvements that we have done bring us lasting benefits. So our sales help from Phase 1, EUR 250 million, and now the improvements of EUR 200 million on margins that we are planning for the second phase. We really have a strong faith there, especially the historical figures are super well audited as well. But we know market conditions can be changing. So we want to just almost to make like an exercise of math and just look at, okay, so what if we sort of dialed down a little bit here. We think that it's fairly easy to look at market stats and look at so what is our historical average of the base price over a longer period of time. So not the lows, not the highs only, but you choose more years, look into that. And then we said, okay, we understand that this -- in this dynamic environment it's really the price that has changed in the recent downturns. The volumes have still kept fairly stable. So we think it's important to be able to continue to run at reasonable or high capacity utilization. So we made this calculation to say it's about the price. The price is changing. We are keeping the benefits that we have really built through these improvements. We think capacities utilization will remain approximately where it is and then we have to take away from the calculation, the inventory-related metal gains or hedging gains or hedging losses and inventory gains and inventory losses, take them out of the calculation. And that is the way how we ended up to say if the pricing picture would be one, going back to sort of historical averages, we would more see a normalized EBITDA on the group level of 500 to 600. And still coming back to Tamara's earlier presentation, you talked about dollars, but it's almost the same these days, it seems -- so sustainable underlying EBITDA of $200 million is well aligned with this group pictures. And still, if we think about EUR 600 million, what EUR 600 million means is a return on capital employed of around 10%. And what EUR 600 million means also is being super close to our previous record of EUR 631 million, which was from 2017. And maybe a final comment on that 10% return on capital employed, at least I personally see it like sort of a baseline, something that a mature industrial company should always be able to do. So just sort of a bit of a check also from that perspective, it sort of creates a reasonable baseline to then be also able to continue developing from. Okay. So that about normalized. And if I then could turn to my very favorite slide of the presentation. This slide explains how capital allocation is changing and developing through the 3 phases of the strategy, how our priorities are shifting as we are done with some phases and how we use this to support shareholder value creation. So I'll start with what you can sort of see here in the column for Phase 1. So this is done. Heikki has already spoken about that, most importantly, balance sheet fixed, tick the box. We want to maintain that in the future, and you will see that in our financial targets. But we have now reached the levels that we wanted to do. We have also focused naturally in our first phase already in improving the platform. So we've had a lot of operational improvements. And so you see how we are able now to really dial that up, give it the boost. So now I move to the column for the second phase, strengthening the core, improving the core, working with sustainability. Those operational priorities have been described by Heikki and Tamara, and you've also seen some of that in the videos. So you've also seen how we are able to do that, to reach that with what I would call reasonable CapEx and I know the CapEx part is important. So I'll still come back to the CapEx in my next slide as well to explain a little bit more the details on that. And then you can see how we are now really focusing on stable and growing shareholder returns. It's important that this part of the capital allocation is predictable that we can offer stability to investors from this perspective, and that is why we have really wanted to highlight it in terms of the new dividend policy and in terms of the emphasis here on the capital allocation. And you've seen the statement from our Board as well, I mean I was at least really happy to be able to share that with you today, where our Board is actually already here in the middle of the year saying that the way things are going right now, there's a really good chance that we are able clearly to increase dividends from the previous year's level. And obviously, I don't have a crystal ball, and you all know how Nordic governance works. So this decision is taken somewhere next spring. But just sort of looking at the figures and looking at where we are right now, I currently, I don't see any obstacles for example, doubling from the level of dividends that we have paid this year. And I just want to say that as a sort of frame for more stability, more predictability and having a level from which we can then grow over time, but most importantly, keeping that predictability and the stability also in the dividend flows. And as you see, that priority continues into the third phase. And more broadly in the third phase, this will still be about introducing elements of growth we could be buying something, we could be building. This is really exciting. Heikki has already a little bit open here in the box today by talking about the advanced materials how we want to put resources and attention into that to be able to grasp opportunities that we believe will be there even in the next decade. And clearly, as we have indicated in this chart as well already during Phase 2, we do want to start evaluating and assessing some of those opportunities. So while we are preparing the company from the inside to be stronger, strengthening the core, very clear operating priorities at the same time also looking at that strategic journey going forward. So our priorities on shareholder value creation very clearly. And then on the next page, I really want to summarize that into our financial policy and targets. So here we go. You remember that the first phase, the complete peak was obviously on our EBITDA improvement target for the period, but also really importantly, on strengthening the balance sheet. And now we want to maintain that. So we are trying to paint a very clear picture here. We talked about what we think is kind of a more normalized EBITDA environment. And now we also say from here on for the second phase until the end of 2025, we do want to keep our leverage at a very low level. So under 1x net debt over EBITDA in all normalized market conditions. Heikki has also already spoken about the margin improvements. This is so important in the type of business that we are operating in and also to create value for shareholders. So the clock is starting to tick now for that further EUR 200 million EBITDA improvement and we are indeed expecting ratings from Tamara and also from the BA Europe, and of course, the support of everyone else in the group. But I'm looking a bit at Martti Sassi because he is here in the room. And I'm just saying that don't forget to be cost conscious but we really need that lower CO2 as well. That's an important perspective for the future. And I'm not sure if you remember those details, but out of our Scope 1 emissions, clearly still a very big part, actually half is coming from the coke where Ferrochrome is the big user using it as a reductant in the Ferrochrome production. So that's the natural link why we really want to focus on CO2 reductions in Ferrochrome. Then on to CapEx. So what you see here is a CapEx program of EUR 600 million over 3 years. And please remember that in the previous phase of the strategy, we had EUR 180 million. And fair enough, you could say, well, that's not so much higher. Why is that? But some of you have visited actually our mine in Kemi yesterday. And for those of though who didn't, I mean, we are about to complete the investment for going 1 kilometer underground. So once we are completing that we are actually releasing quite a lot of cash for other CapEx purposes. So on average, we have spent about EUR 60 million per year in this Phase 1 and actually already a little bit prior to that into the deep mine. So that has been a significant undertaking for us. And now we are completing the investment end of this year. So we also create room for other investments. Out of the EUR 600 million, we have about EUR 330 million where this is really more like maintenance, where we are making sure that our current footprint remains very efficient. Of course, we are also looking there for all possible sort of improvements we could do in those, but by nature, maintenance, then we have strategic and more sort of development-oriented investments that we can do. Some of them to be exact about 85, we have sort of started to building the pipeline. So Tamara talked a little bit about some, and we have some actually more into, for example, IT to create really efficient processes, but we still also have about EUR 185 million worth of room that we will navigate around where we have a pipeline where we are looking for good returns where we are looking for fast paybacks and where we are looking for CO2 reductions. So that is really the investment portfolio for the next 3 years. And finally, with this priority, we are also then able to commit to a target of a stable and growing dividend and a new dividend policy, as we have just talked about. So in summary then here, we are targeting to be really at the top when it comes to total shareholder returns. And the first important milestone for that or building block is the margin improvement. So we need margin improvements. We have a methodology for that. So we have built a way to work it within the company to have accountability, to have transparency, to have follow-up. So I think Heikki, the next years as well, we'll continue with this follow-up, and it will be great fun every week, but it's a great way of keeping track. The more customer-focused steering within business area Europe, it's also on one hand, going to help us to leverage from the future growth that we can see in this decade of the more advanced material needs that we see ahead of us as both energy and sustainability transitions will occur. But at the same time, we are focusing Tornio and Krefeld really to these high-volume products in Europe. And this also allows us to benefit from the unique cost benefits that we have in those entities. Tamara has outlined the very clear milestones for reaching 80 kilo tonnes more. In Europe, it's more than 100 kilo tonnes more, and these are important building blocks also for our future profitability. And then the good profitability is an important building block for a good cash flow. That is for sure. We will work on streamlining supply chain, reducing inventory also going forward. That is for sure. And when we have that cash flow, we will make sure it's balanced for strengthening the core and paying stable and good shareholder returns. My final point really here is on the profile of the company, repositioning ourselves in terms of sustainability brings a lot of tools for benefiting from future development in the society. But at the same time, it also brings us more resilience and a different risk profile, I believe, from an investment perspective. So my big message here, we have created a strong foundation to create value over the cycle and becoming more consistent and predictable on shareholder returns going forward. So thank you very much.

Thank you, Pia. So it's time to wrap up today's presentation. Let me start off by, first of all, showing you a slide of the leadership team of Outokumpu. So on this team -- on this slide, you can see our leadership team. This team has worked together very well over the past 2 years. I think we worked very well together. I think we've been having a bunch of fun in spite of all the challenges, at least that's my own personal view. The same team will continue into Phase 2. Only difference is that we have Niklas now in a business line responsibility, taking care of the stainless commodity side and then Thomas Anstots is focusing on the advanced materials. So that's a team, and that's the team that will take us forward. So to conclude and wrap up the presentation today, let me just make the following remarks. First of all, Outokumpu has gone -- come a long way over the last 2 years. We're financially stronger today than we have been ever before. We've derisked the company and I feel as CEO, together with my colleagues that we feel very confident about moving into Phase 2 of our 3-part journey. Now we have a lot of opportunities ahead of us, sustainability, a big one. We have opportunities to make the company even more cost competitive. And there are growth opportunities also for Outokumpu, particularly in the area of advanced materials. We have executed very systematically over the last 2 years. As Pia said, we will continue with the same approach, the same methodology, the same tools and the same spirit really to deliver what we have committed ourselves to. We will also be capital disciplined, and we as management will have a strong focus on providing good shareholder returns. Now I just want to say to you that Outokumpu with its 9,000 employees, those 9,000 employees, they're resilient, they're very committed, and they have a real can-do attitude. I think this team, us and the 9,000 employees, we will make the company even more successful towards 2025. So with those words, let me thank you a lot for your attention today. We look forward to answering your questions. Thank you very much.

Thank you for the presentation. And now it's time to start the full Q&A session. We will take questions from the live audience through the webcast platform and through the conference call lines. But maybe we will start by taking questions from the audience.

Patrick Mann from Bank of America. First one is very easy. It's just point of clarification, the EUR 500 million to EUR 600 million normalized EBITDA, does that include the EUR 200 million improvement in the Phase 2? And then the second question is you've got a cost leadership position at Tornio in the commodity grade or the high volume and the lower CO2 footprint versus your European peers, how do you benchmark versus imports? And then -- so I'm trying to think why you don't have a runway there to just continue to grow market share because it does feel like these cost advantages are structural. And then you spoke about a level playing field. So maybe that ties into carbon border adjustment mechanism. Can you maybe just talk about what you would like to see from CBAM to give you that level playing field?

That's excellent. And I missed my pen, maybe, Linda, you can actually help me because they were left on that table. But I can start with the first question and maybe, Heikki, you also were keen to take some of the rest. But in that EUR 500 million to EUR 600 million, I have to admit -- I don't put sort of a secret sauce in the calculation. It is a bit of mathematics as well. So sort of thinking where we started before the COVID was really sort of at its lows and then just building in the improvement step by step. So the answer is that, yes, both are included and we are counting in the fact that the normalized price level would be at historical averages. And then we don't take in, for example, metal-related gains that we have seen in this year's figures. So it's really -- there is really no magic as such, it's a little bit more mathematics, but I think it's just sort of also illustrating the impact of the market prices that we have seen this year.

So thank you, Patrick, for those questions. If I just maybe answer first your question on benchmarking, particularly to the Asians. So as said, we have a large plant. We have huge integration and scale benefits. But the reality is that in Asia, of course, they have scale as well in some of the locations. There are a couple of differences, of course. I think we have advantages when it comes to energy prices. I mean we have the Nordic region, of course, from an energy standpoint, is quite competitive. And it may be that as energy prices stay higher become even higher, that delta difference the energy cost for us vis-a-vis the others might even become a wider spread. They are, of course, shipping products from Asia, they pay freight. So of course, the cost of freight does factor in to some degree. And then we have the tariffs, which, of course, are now in place. The European Union seems to be committed to maintain the tariffs. They've increased the allocations a little bit to quotas. I think it's about 4% or something like that. But overall, we do have that sort of coverage there as well. So at the moment, there are imports, but we feel that we can compete at the moment. And now then to the final point about CBAM. So the carbon border adjustment mechanism, it's this EU tool policy tool that would be used to create a level playing field on the emissions. Well, our emission rate at the moment is about 1.8 tonnes of CO2 per tonne of stainless produced. You've seen the -- our new product, Circle Green, we get down to 0.5. The agents are of course dramatically higher. We, of course, would very much like to see CBAM in place. On CBAM, of course, it will only be effective in stainless steel if Scope #3 is included. So without Scope #3 for stainless, it isn't really super effective. So of course, that is very much a political decision we'll have to -- we'll see what that would do it. But I have to say, it is a bit frustrating that if there's no CBAM, we invest so much to make us greener. The society here and the politicians would like to see us greener, but then we don't have -- we have this huge gap in emissions. They're like 6, 7, 8 tonnes where 1.5, 0.5, doesn't really make a lot of sense. But we'll see what happens.

It's Andy Jones from UBS again. Just back on those medium-term targets, just a bit of further clarification. We've had the EUR 250 million gains so far. You're factoring in other EUR 200 million to strip that out, it's sort of 50 to 150 based upon those historical averages, which seems materially lower than you've actually achieved in the past. What else is factored into that? Could you just clarify which historical average base price range you're using? Or which years you're averaging over? And are you assuming structurally higher input costs such as energy or coke given the situation we have around Russia and Ukraine, just to frame what's behind those numbers, if that's okay.

Andy, thanks very much. I think it's a fair question, but there's not that much more sort of I can share on that. But let me just say on the base prices. I mean we are indeed assuming a level that is sort of hovering around above the EUR 1,000 mark. So without even remembering now what kind of the decimal of this, but clearly still because that is when you look over a longer period of time, so we didn't want to look just at the COVID low or a recent high, but really sort of that more average the nature there. And I mean recognizing the environment that we are right now, it's an inflationary environment, it's an environment where energy prices have certainly been peaking. So even though this is maybe a bit of a crisis moment, but we certainly cannot sort of ignore the dynamics of inflation, for example. So we are building in those improvements, but we are also acknowledging the nature of sort of the environment we are in right now. I think it's fair to say that you see a bunch of conservative people here.

Can I just add on the energy cost side, of course, particularly on ferrochrome, it is a big topic. On hydro, of course, energy prices will depend a bit on how much rain there is in Norway, the amount of water levels. Water flow, of course, impacts hydro energy prices. So far, they have been very competitive in the north. We have nuclear, that is -- we have a new nuclear power plant coming in Finland, so there will be supply in the Nordics. And then wind power actually is quite competitive nowadays, maybe 10 years ago, we didn't think wind power could really compete on a cash -- cost standpoint, but it does today. So that does give us sort of, I think, regional benefits here in the Nordics to produce high energy-intensive products in a sustainable manner.

Alan Spence from Jefferies. It's probably a couple for Pia. The first one on the new RCF you signed yesterday. What's the interest rate on that? How does it compare to the one that you replaced it with. And if you hit your sustainability goals, how much can you decrease that interest rate? And in addition, on the balance sheet, I appreciate the new targets and probably getting ahead of myself. But if the strong cash flow continues and you find yourself at or in a net cash position, would you let that net cash position grow? Or how would you think about that excess cash flow, let's call it?

Yes. Very good. Thanks, Alan. So first, on the interest rate, our primary target really was to achieve an unsecured facility. So I wouldn't report about any significant change when it comes to the interest rate. And we do have right now also this funding linked to our sustainability target, so to the SBTi targets. So we need to hit that reduction every year. But as I'm sure you are sort of familiar with these types of instruments, I mean, that's like an addition, it's not the base of the contract itself. So maybe without sort of saying more than that. It's clear that it matters to us. I mean we really want to reduce the emission. And this gives us a small sort of further incentive to do that then also to get a lower interest rate for sure. Then I think your next question was what would we do if we would be in a net cash position. And I would look at this now over this journey of the second phase. So we have clear priorities for that phase. We also want to make sure we can pay that dividend on a regular stable, predictable basis. We want to continue investing the EUR 600 million over the 3 years. So with all of that said, I think I would be temporarily quite happy to have a bit of a cash buffer if that is what it needs to sort of ride the wave of cyclicality and ensure those capital allocation priorities. So it's not a problem if we are talking about a bit of a buffer here.

Just a point of clarification on the first part. So if you hit the sustainability goals, the interest rate is probably the same as the prior one, but it's unsecured. Is that the way to think about it?

I think, yes, that's sort of a good bigger picture overview of it, yes.

Thanks for the presentation. Just a clarification on that normalized EBITDA. So say base price is back to normalized levels. What assumptions though have you put on product premium for the green products and also the push into advanced materials. So these products that weren't previously done in 2017, but you're comparing against 2017. So I just wanted to understand what assumptions? That's my first question.

Yes. Very conservative assumptions on those.

And then also on the CapEx, the EUR 600 million. So annualizing that's EUR 200 million per year over the next 3 years, basically in line with D&A. Do you think that's enough? Is that how you want to think about it? Or does that potentially step up?

Yes, it's a sort of -- it's a good match with what we want to achieve in the second phase. So those 2 are aligned. And it's a good opportunity for us to strengthen the company from the inside. And obviously, as you have seen towards the third phase then we are assessing more growth-related opportunities and then we need to come back with more information once those are clear as a part of the Phase 3 strategy.

Rochus Brauneiser from Kepler Cheuvreux. Just one follow-up on the normalized EBITDA. Can you give us a sense how much volume will contribute to 200 Kt versus the margin and cost improvement you're talking about? And the second question is on your balance sheet target, net debt to EBITDA. How -- what is the kind of range we should think about as a normalized ratio between the peak and the trough just to have a sense how you're breathing within this target and where you probably identify net cash or not? And then a third question is on your longer-term outlook in a sense that I think you mentioned a lot the strength being positioned in the Nordics with better CO2 position, better cost competitiveness. How should we think about the upstream growth potential to better elaborate on these strengths or scrap integration? I fully understand why this is something you want to emphasize more in Phase 3, but at the same time, some of these pillars might not wait so long because I think particularly scrap integration what at least one of your peers is doing now could be an interesting angle from secularity standpoint, also from gaining attractiveness from ESG investors.

So maybe you take the two first ones, and I'll comment on the scrap.

Sure. Do you want to start?

No, why don't you go first.

Yes. So I think the volume one is maybe a bit more technical question and a little bit easier. So here, we have continued -- the basis of the calculation is a continued high capacity utilization, and we are factoring in modestly some of the improvements in volumes. I mean, you have seen Tamara's presentation being quite specific on kind of how these investments are gradually helping us to kind of squeeze even further volume out. So kind of with that sort of possibility in mind, it creates a little bit of that sort of upside journey into that EUR 500 million to EUR 600 million. So can I just sort of say that the full capacity utilization is like a basis for the calculation. And there, we have started from our current footprint and that needs to happen for the calculation to make sense. And then we have a little bit of further opportunities through the CapEx, et cetera. And then can I still ask you to maybe sort of help with your second question, I understood that it was really about how we are breathing with the cycle, but was it with the focus on the cash flow or -- I'm sorry, I didn't quite get it.

So you were setting this Phase 2 target of net debt to EBITDA of below 1. I think the way how you think about in terms of balance sheet buffer or comfort is depending on where we are in the cycle, of course. So the question is, how do you think where -- how much buffer do you want to have on the trough and how much headroom at the peak, so to see what kind of range you want to be to identify there is cash left for shareholder returns or maybe some M&A opportunities at some point in time?

Yes. There's a lot that could be said about that. I think one important realization, for example, is that when the cycle goes down, actually the toughest year from a cash flow perspective is usually not that year when the profits are going down. It's actually the year after that. We have analyzed and looked at a lot of data and it really seems that, that is where you start to sort of hit the wall kind of the cash flow intake, so to say. So with that in mind, I would say the below 1 clearly indicates that the debt level, if normalized EBITDA is EUR 500 million to EUR 600 million, well, then the debt level should be below EUR 500 million -- and as I just answered, I think it was to Alan as well. I mean, on a temporary basis, we could even be cash positive. So you see that there really is sort of a fairly big breathing room within that having even a bit of a cash buffer and then go into this maybe around EUR 500 million as a maximum. And maybe sort of a natural link here is still to comment that the level of working capital also is fluctuating a lot with the metal prices. And that's one of the things we need to factor in, in this when we think about what the buffer should be. And maybe a reason why it's fairly big.

Just as I add on to that, what would be the kind of cash flow breakeven under the Phase 2 based on the EUR 500 million to EUR 600 million EBITDA?

So when I'm just thinking, I mean, our interest costs are now down to about half of what they were. So we are like EUR 35 million, EUR 40 million. Obviously, we need to start thinking a little bit also about tax payments. So we have been very close to 0. We probably need to factor in at least 30, 20 30 for that going forward. And then as well, actually our CapEx and our depreciation and amortization are matching fairly well. So I think that gives you kind of a few elements of thinking about the cash flow breakeven.

So maybe then to your question about scrap. Obviously, scrap is strategically very important. We are the largest user of scrap. As you know or may know, there are 3 large scrap dealers in Europe, and then there are a bunch of quite a number of smaller companies. Some of them are specialists, some of them are localized. Of course, in today's situation, of course, we are developing and tightening the partnerships with our key suppliers even more, looking at how we can make those processes even more efficient. We have a very good logistics stream on how we pull that scrap up from Europe into -- particularly into Tornio. So that's working, I think, very well. We haven't seen any issues in terms of scrap supply. On the contrary, I think we are very well positioned with the partnerships we have. I think primarily the key scrap related sort of question is how my scrap is actually get exported out of Europe into Asia. And I think this year, we've seen base of statistics relatively less of that flow through into Asia. We are working actively with Eurofer on which is sort of the industry lobbying organization on issues around can -- could there be EU-specific legislation setting some kind of a limit on scrap exports. And I think that is sort of a theme which is relevant not only for us but for everybody here in Europe. So as I said, we feel pretty good about the setup we have today. And I have to say, scrap dealer -- the scrap trading business, it's not an easy business. Historically, you haven't made a lot of money, at least those companies haven't made a lot of money on it, and trading is quite different from making stainless steel.

Following up -- well, 3 quick questions. None of them have to do with the sort of the normalized EBITDA. But first of all, the ferrochrome business and interesting that you're kind of moving to integrate and sort of reduce the open market exposure in ferrochrome. And you mentioned that there was some sort of -- the reason why you had been in the open market and there were some benefits. So sort of just going through the challenges or the implications when sort of integrating, is there some sort of opportunity cost related to that? And also remind when your stainless steel production grows, how much does your net ferrochrome exposure sort of decline in -- during this Phase 2? Second, just on the bio-coke investment. Just I don't know that it's very early days, but just to give sort of some conceptual feel of the size of investment and the time, it sounded like it's more the Phase 3 implementation, if I'm right and understanding. The final point was about dividend. I mean moving towards stability in dividend in a very cyclical business has its challenges. And I think some of the Nordic peers have solved this by -- well, peers in a broader context have solved it by sort of normal dividend and special dividend during exceptionally good years. I mean is that something that you would keep in the toolbox?

So if I -- maybe a comment on the bio-coke and the investments and these topics. And then Pia, do you want to talk about the dividend normalization and so forth. So First of all, we're very excited about bio-coke. We've studied that already some time. And now we're moving in the really sort of deep dive on the project work itself. You're asking about what are the implications of using more and more of this or using internally only our own ferrochrome. I mean, of course, for example, in the case of Calvert note, of course, there is an extra freight costs. And there may have been situations where we could have bought some of that cheaper from other parts. But there's also the angle of responsible sourcing. We want to make sure that we have the most responsible source for the most important raw material. And that's why we feel we need to use our own products. So yes, there may be some costs, but I think the gains, which are more from the market will sort of overcome that. Secondly, with respect to the investments, so it's still early days to say a number, but I think most likely, we're talking of EUR 100 million plus that range. It depends, of course, on the cost of construction or the cost of metal, of course, and all these type of things. Today, of course, the market is very hard. In Finland, for example, you have a limited supply of labor, these type of things. So but I think we will look for a moment in time when it's easier to make this investment from the standpoint of having the capacity and the workforce and maybe lower costs. Dividends, dividends.

Yes. And on the bio-coke investment, maybe, as you said, Phase 3, yes, it's leaning towards Phase 3, but we are ready to take initial steps if the door kind of opens with that in mind what Heikki just said about the timing as well. So we are preparing for that now. And once we have the more sort of details available, we will for sure share them as well. But there could be some initial steps. There's room within that EUR 600 million for that as well. Then maybe on the dividend, so we did in preparations for the new dividend policy, we also did have a broad look over the markets, over our peers, Nordic peers other companies in terms of the policy. And indeed, this extra dividend did sort of stick out a bit as sort of one opportunity, how to manage sort of over the cycle. And of course, it's been a little bit of a maybe Nordic sort of way of expressing things the way we used to do it by saying it's always a percentage of earnings. And certainly, I think the dividend really will remain the main way how we want to pay back to the shareholders. And yes, maybe there's an idea in what you said. But the real emphasis and the real starting point that we have is to bring that stability and that predictability. And that's really where we put our energy now first.

Ioannis Masvoulas from Morgan Stanley. A couple of questions left from my side. Again, I don't want to beat a dead horse, but going back to the normalized EBITDA. So you effectively take 2021 volumes, you assume a bit of volume growth and you believe that sustainably possible even though 2021 was probably a pick-up cycle type of environment. How realistic is that? And given that you want to have a conservative view, is it worth being more cautious on the volumes? And then the second question around the capital allocation. So it seems that you want to further derisk the business by reducing your financial leverage, even more potentially keeping some cash in the business. Is there a case to be made that maybe you can achieve a similar sort of derisking by diversifying towards alloys. I mean you talked about alloys to some extent. But is there an M&A opportunity there? And then talking about backward integration, maybe scrap is not the right type of business. What about ferronickel because you talk about ferrochrome being a differentiation in terms of the sustainable aspect of it. Could ferronickel be another idea here.

Right.

Maybe you do a normal...

I certainly with pleasure, will do it. And actually, I think it's a really good question. How do we think around the volumes. And first, I'll come back to that overall sort of market view. Looking historically, market has been growing and looking even through those recent downturns, actually, the overall fluctuation in volume has been fairly modest. I'm not saying that was not all to combo specific. That was market-specific. But I mean, we really looked at that. And more important for us it is to really make sure that we are the one who remains to get the orders also in that downturn. Tamara spoke about that. More important for us there in terms of sort of having the right approach here also for our normalization is to have the correct approach to our customer groups. So there are customer groups where cost and cost efficiencies, everything, we need the volumes to our sort of high-volume system. And then for Avesta and the advanced materials, there are other competitive benefits that we really need to make sure that we are grasping. And that is our strategy going forward, and that is why in that calculation, we have assumed a high capacity utilization. 2021 was, of course, remarkable. I mean it was really super high, if I may use that word, but we have indeed assumed a high capacity utilization there.

On M&A, maybe a couple of more general remarks. So of course, we are a fairly focused company today in terms of the product portfolio, and that does, of course, create its own nature of cyclicality or volatility and then one could sort of think that will diversify so you get more to take away the cyclicality. We all know that M&A is not easy and most of those fail. And in order to create shareholder value when we have to be able to attract -- acquire at fairly good prices. So it will very much depend on what assets are available and are they available at the price which makes sense for us and our shareholders. And only that time can only tell that. We showed in that slide when we broke the market into these 3 buckets, commodity and advanced and then the others. We showed that simply just to tell you that what we do and what we not -- do not do. We are not even close to a point in saying that no, we would even be looking at that third bucket. So we still have a lot of, let's say, a lot of miles to drive the car in terms of the advanced. We're going to now focus on making that stronger. We have the new organizational structure, Thomas Anstots is sitting -- running that business. Let's first see how much we get out of that. And that is primarily, I would say, it's organic growth. So we are not going to focus on that and keep our eye on the ball. Regarding then what we talked about scrap, I commented on that. On ferronickel and these other metals, again, we are a stainless company. We do have backward integration into Ferrochrome. I feel very confident that we're comfortable -- I feel comfortable with the role we have now in the value chain. And that's why we will just stay here in this -- with this portfolio at least for a while and deliver what we promised now the EUR 200 million.

Tom Zhang from Barclays. Just one very quick one. You guys sort of talked about within the Phase 1, I know there's a little bit of base the 2/3, 1/3 stuff. But if you just look at headcount reductions and you did assume 2/3 of that was helped by market, then the majority of that self-help was really just headcount reductions. It feels like Phase 2 is a little bit more investment focus. So would you say that you're happy with your current headcount level? Or do you think the sort of restructuring on that front is needed?

Can I just -- could you just clarify the headcount was only part of the EUR 250 million. So just clarify that.

Can I do that first and then maybe Heikki, you want to comment on Phase 2. So Out of the EUR 250 million, that was all self-help. So when we talked about the 2/3 market, that was to explain from the COVID low of EUR 250 million up to the EUR 1.2 billion, which is the last 12 months result. So out of the EUR 250 million, this was all self-help. Out of that, less than 1/3 was the headcount reduction. The vast majority were other types of cost-related improvements and then we had some that relates more to the mix that we are doing and some other commercial improvements. I think, Tamara, you made great examples of what we have been doing on the melt side, whether it's reducing -- improving the yield or reducing over alloying or various fairly big ticket items that actually really pay off in terms of profitability. So that is the EUR 250 million. So headcount reduction was indeed important, but it was less than 1/3 of that. But then maybe Heikki, over to you.

Yes, on labor costs. So first of all, when it comes to SG&A -- SG&A, my understanding, and we've had some sort of external reports that have done some benchmarking. So my belief is that we're very competitive today in the steel industry regarding SG&A as a percentage of sales. I mean we basically -- we are very lean. We don't have a lot of extra headcount doing things. It has its own disadvantages at times, but I feel it's the right way in the industry, which is a top as this is. And then in terms of the -- or the blue color, so it comes a bit dependent on the amount of shifts we have. So we have some ability to variabilize some of the workforce in some countries. In some countries, we don't have much space for that. I feel very good now about the headcount of 9,000. We will, although continue to automate our processes and try and become more productive. And in this type of industry, you would constantly look for ways to take out some of that resource as you can, but then you would need to invest in automation and lean, we have lean programs. We're constantly trying to find free up -- increase productivity through lean. So these would be examples, but no immediate need for anything more major than that. In the front, yes.

Just on cash flow and working capital. Given localization of supply chains and all that sort of thing, is for a reason to expect that working capital won't go back to previous levels as prices normalize or will we see the majority of that build in working capital come out over the next couple of years?

Yes. I think it's fair to say that the very high levels of working capital right now are predominantly driven by the market situation being at the peak or very high. So we have bought sort of a lot of volume in the system as well as very high prices as well for the raw material inventory. So that, of course, will react with the market, I'm sure and that's also clearly the playbook that I talked about, it is really to have that view in mind that where is the market going and then also steering the inventory, steering sort of the operations through that lens. So that's one category. But another important part is what you alluded to, is something happening to supply chain. And as a starting point, our supply chains have broadly been very regional as scrap is our most important source of raw material that has clearly been regional before but there are some changes where also on the Q1 call, I said we will see some clear uptick in working capital because of, for example, some supply chains now being disrupted with the sanctions or let's say, with the new situation based on the Ukraine-Russia war at this point in time. So this could relate to, for example, nickel which obviously, for us, having had some supply through Harjavalta has been logistically very advantageous for us. So some increases there could be structural. But obviously, when we look kind of at the overall inventory, et cetera, I mean, these are still, let's say, a small piece of it. So this is not something I want to say is like this is not a major thing, but it is something that will structurally bring it a little bit higher. So then we need more actions as we will focus on in Phase 2 as well.

So. And just a clarification on phasing about -- around the CapEx program? Are we thinking EUR 200 million a year? Or are we thinking sort of a higher start?

Yes. I think there is some sense in saying this over 3 years, because it gives us also that opportunity that Heikki referred to in terms of also observing the market situation. I'm sure there are situations that are more opportune for investments, et cetera. But we do have that EUR 330 million of that EUR 600 million, which is more maintenance type. And I think it's fair to assume that, that is pretty evenly distributed because that kind of goes into a constant flow of needs from the existing footprint. But then for the rest, I think once we have clarity and well in front of 2023, we will, for sure, also then be able to provide some sort of insight into how we think around that. But as we speak right now, as we are, for example, preparing for the bio-coke investment, I think it's fair to say that if that comes in this phase, it's a bit later in it.

Anssi Raussi from SEB. I have actually a couple of questions. And the first one would be that as you talk about defending your volumes and doing this by having a good customer relationship, could you still give some more examples about this? And what do you do actually better than your competitors? This is the first one.

So maybe we can start with Tamara, I think because I think that when -- if you look at where we have had maybe the historically the biggest challenges when the market gets weak, it was the U.S. And so that, I think Tamara, you're the right person to answer that.

Yes. I think what we have definitely tried to do is a lot of foundational work over the last 2 years, trying, number one, to understand our customers better and not just be transactional. We have developed with our key customers, multiyear plans, and this is work that is continuing to see that we can go on various journeys together. Are there specific applications which customers need? What is the need of one customer versus another? And if that's something we, as a mill can deliver to. Reliability. As I said, last year, definitely struggled with debt. But because of this huge explosion of demand in the market, customers were patient with us. And at the moment, we are at a fantastically good spot. We have basically fulfilled the promise to get the backlog down to 0 and deliver with a very high level of reliability, which I do think is best-in-class in the industry. So these are the things we do. We look at applications. We look at new customers, don't forget about existing customers, look at the need, have multiyear plans so that we understand really very early what we need to do in order to be competitive for the customers.

And maybe the second point about Europe and about high energy prices. This could possibly cause some production hiccups to your competitors. Do you see that these high energy prices are even possible problems in availability of energy? So do you see that you have won some market share due to these high prices or are these something that could actually help you to defend your position or volumes in Europe?

Yes. Well, at least I think it's clearly at the moment, developing into an advantage just given how we observe the market. And if I can just say one more perspective on this, we have, as a part of the derisking also now taken really seriously that how do we prepare for example, some sort of gas disruption. If next winter is long and cold, if the war is continuing what could happen. And I will give the example of Tornio as that is our biggest site, clearly. So we have, at the moment, our own LNG terminal or when I say our own, it's co-owned with some other industrial company and then also with the Finnish gas provider. And there, of course, we have not only that terminal, we also have plans and really asking our Finnish gas provider to provide us with options in case there would be a disruption from what is obviously sort of a Russian supply that they are getting sort of as an inflow. Then the next question is what do we do if even that doesn't work out. And we have now -- we are investing into being able again to use propane and we will have that ability before next winter, and we are also stocking up with propane as a backup solution. And then we will use that if that really becomes necessary. I mean clearly, propane is not the alternative #1 from a sustainability perspective. But if that is needed, if there is no LNG supply, then we would also have that readiness and the stock to do that over the winter period.

Right. So that we need to -- we're making sure that Tornio will win all the time.

And have you heard anything from your customers that they would be like worried about your competitors' capability to deliver or anything like that?

I can't comment on them.

So it seems that we don't have any more questions in the live audience. So we are ready to start taking questions from the conference call lines. So operator, please let's take questions from the conference call.

[Operator Instructions] Our first question comes from the line of Krishan Agarwal of Citigroup.

And for all the interesting presentations so far. My first question, and if I can go one by one, is for Heikki. You mentioned at the start of the presentation that you are the lowest cost producer in Europe, which -- I mean probably to a degree. But when we look at the margin differential, for example, EPRA, which is sort of, again, European-based producer there is a huge amount of no differential. So how do you think that way in terms of a strategic opportunity to improve your product offering to catch up on the margins as well with the competitors?

So I guess, first of all, if you -- I mean the only comment I want to say about other companies is they do have somewhat different product profiles and they have geographic difference. So it is based on publicly available information, it's not easy -- that easy to make an apples-to-apples comparison. Yes. So that would be sort of my first question. Then secondly, I mean we have done a lot of analysis to calculate how do we make improvements. And this notion of further trying to -- or what we will do is optimize the product range in each of these plants in Tornio and Avesta and so forth that will give us more volume, we were able to reduce our cost per tonne that way. We already talked about energy quite extensively. So I won't go in there on the fixed cost side. Otherwise, I think we have good sourcing history here over the last years. That may still give some more benefits. But as I said, I think we are #1 and we intend to stay there.

Understood. Very clear. My second question is for Tamara, you mentioned that $200 million is sort of a normalized run rate there. And then if I were to calculate the EBITDA per tonne using the 80,000 incremental volumes there, it comes to roughly around $250 per tonne. Now if I were to put that into the perspective for the group target of EUR 600 million in EBITDA per tonne there is also EUR 240, EUR 250 per tonne. So effectively, you're saying that the Americas is going to be at par or better than the European business in terms of margins. Is that the ambition? And then could you also clarify just like Pia has done for the base pricing assumptions for Europe or for the group, what kind of base price assumption you use for that $200 million target.

Thank you for that question. I think like what Heikki just said, I think the businesses are not so very comparable. I think if I look at Calvert for us, the most likely comparison would be actually Tornio, it wouldn't be the whole European portfolio because it has advanced materials, which we don't have in the U.S. So I think from a product portfolio, it is already different. So a one-on-one comparison between BA America and BA Europe, I think would not be the way I would go on this one. I also think the level of protection afforded to the market, specifically in the U.S., but also USMCA as a whole is different from what it is in Europe. And that definitely plays a role as well if I look at possible profitability levels. There's no doubt about that. Do you want to say something?

No, I'm good.

My third question is for Pia. I mean, you've been very clear about the normalized EBITDA and everything else on the cost structure. But then one of the topic for 2021 was hedging, and you clearly have benefited from 6 to 12 months of rolling hedges. Now the view in the market is that because you have benefited and if you have not tweaked your hedging policy, you might end up owning a lot of hedges at the peak of the energy prices. So how do you respond to that in terms of your hedging policy? Has there been much of the flexibility not to get into that hedging at the peak kind of a scenario?

Yes. we have made some adjustments to our hedging policy rather recently to allow for, let's say, 3 different, can I call them funnels or 3 different levels, but they are not sort of fundamentally changing the approach. We are still building energy contracts gradually over a period of 2, 3 years. We have a baseline of more strategic contracts, such as the wind power that can run over 10 years. And then we are sort of gradually building this position. And this allows us to kind of the new -- the amendment or the adjustment, I would rather say that we have recently done just allows us to, again, breathe a little bit with how the market is but we still need to, from our policy perspective, stay hedged and stay within those funnels. But if we make certain, let's say, judgments about the current market pricing, we can tune down a little bit sort of how much we build new hedges. So we cannot totally avoid the situation that you just described. I mean if market prices are fundamentally going to a higher level over time, that will also become visible over time in our P&L, but we can certainly delay those impacts.

Got it. Got it. So basically, the flexibility has been there to the extent you can delay.

We have built in. We have built in more flexibility quite recently, but it is through sort of flex, it's not fundamentally changing the policy.

Okay. And then a quick housekeeping question. You mentioned that on a cash breakeven point, the tax payment will increase, it has been close to 0 for now. How should we think about the tax payments going forward, for example, 2022 or more normalization in 2023 and at what level?

Yes. So the situation, for example, in the U.S. is a decade of very low profits or actually losses. So it means that we still have quite significant deferred tax assets that we don't even have in our balance sheet. But if you read our notes carefully, we are talking about those fairly large amounts. But we have started now to exhaust kind of earlier deferred tax assets, particularly in Finland. So it means that we are -- after this year, I believe, returning to the cash pay -- tax paying position in Finland. And then maybe this is sort of too detailed to then cover sort of how we actually operate, but we have a European model that is called sort of a principal model where we really operate Europe as a system. So when I'm saying that we are running out of the kind of old losses in terms of deferred tax assets in Finland, it's not easy to judge exactly from that how much taxes, what that means exactly in the future. So we probably need to add a bit of communication on that going forward. But we are now kind of approaching during this year that final line of still having all the tax losses in Finland to use.

Okay. Okay. And is there any kind of a group-wide ballpark number you would like to give from '23 onwards, which we should model in our numbers?

Yes. Thanks. I will think about that, and I will come back in a later call.

Okay. Okay. Okay, fine. And then last and final, maybe a request, not a question as such. Have you considered giving the quarterly update on the EBITDA improvement targets or EBITDA improvement actually achieved every quarter, which actually helps us to analyze, okay, this is the fundamental improvement you guys have done. And whatever changes are there, the market delta and the profitability, which is there.

No. Thanks so much. And we did that during the first phase, and I can confirm that we will do that during the second phase as well.

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

The first one I have on bio-coke again. Do you roughly already know the size of that facility and you mentioned you would actually build it yourself. Is it because of the size because we see currently some projects in Sweden from Höganäs, et cetera, et cetera. Why not joining those efforts? And what would be the cost of those pallets? Can you use them to one compared to the normal pallets in the reduction process? Or is there a different ratio? That's the first one.

Right. So as I said early days on coke, there are different sort of volume levels we're calculating through. It can be smaller or higher, we haven't made a commitment yet. We're looking at multiple options. The current thinking might be that we would probably grow volume more like in steps rather than going full. But that said, we will have to wait and see what the different sort of analysis provide. Then you asked about this joint venture idea or doing something with others, at least. Currently, we see that there are certain integration benefits if we have this bio-coke facility within Tornio, we can use certain sort of energy -- excess energy and gases in the other parts of the process or sell out. So we would lose that integration benefit if we did a partnership. But then again, I can't say no either, but we see the benefits in doing that. And then in terms of how this product will then ultimately compare to the coke we now buy, and we'll have to come back to that as well once we have completed all the tests which are undergoing today.

Okay. Fair point. The other question I have is probably also for you, Heikki or Pia, what we see as the world is quite dynamic at the moment in other regions, including Asia, strive to get a lower carbon footprint too. Indonesia, for example, laid out a big program to reduce the carbon footprint by introducing hydropower, solar power plants, amongst other measures, which, of course, is likely to reduce the carbon footprint of the Indonesian sector -- stainless steel sector as well until the end of the decade, at least that is according to Indonesia's Economic Minister, who spoke at the World Economic Forum recently. How confident are you that you will stay ahead of the competition? Or is there a longer-term risk to the global stainless steel sector by facing even higher imports of those greener stainless steel, especially from Asia.

It's quite natural. And of course, smart that other companies also trying to contribute to this CO2 journey. It shouldn't be only Europeans who are trying to reduce the emission. So just good if they can do that. But I do feel that at least in Europe, of course, we are #1, we're globally #1. So others have to do a heck of a lot of improvements to bypass us. I mean, we're -- as you've seen from the figures, we are extremely competitive. It's a long, long way for the others from Asia to close that gap. And don't forget, we will also deliver the [indiscernible] 1/2 degrees, which is 30% less and what the starting point is.

Operator, we still have time to take one question from the conference call lines, if there are any.

There's one further question left, and that's from the line of Bastian Synagowitz of Deutsche Bank.

Very clear messages you're leaving us with today. Just my first question is on Americas, please. Were you obviously target higher volumes and a better product mix and yet obviously, EUR 200 million EBITDA remains the target. There's obviously inflation and the mill had a couple of issues in the past. So I totally understand if you run a conservative approach of under promising and over delivering. But maybe can you guide us through the thought process here as to why the higher volumes did not fall through to a higher target? That is my first question.

I think if you look back at what I said last year, we said this is our target, EUR 200 million normalized EBITDA or EBITDA in a normalized market wherever we are. That's where we want to get to. And there was a gap. And we said we will close this gap buy to be defined investments, perhaps investments in Phase 2, but that was work which still needed to be done. So when we made that commitment last year, there was a gap. And now what you saw today was how will we fill this gap. So the Phase 1 didn't bring us to that EUR 200 million. So it was not that I now say we put 80 kilo tonnes on top of that, but we keep the target the same, we need it still, and you heard it from Heikki and Pia of the EUR 200 million additional roughly 1/3 comes from us. And that approximately was the gap which we still had last year, we had to design it. And basically, the 80 kilo tonnes is the answer to that gap, which we had when we announced this target last year.

Okay. Perfect. That's very clear. Then maybe just staying on the topic and on your setup there. Your JV partner is obviously expanding with an EF integration and you're obviously aiming for this 80 kilo tonnes extra. Does that bring any logistical challenges you need to be working around? And are there any ideas even if maybe further farther down the road to reshuffle the mill setup, why you're separating the stainless with a separate own hot-rolling mill?

Good questions. Yes, I mean, we work -- we have a good relationship with the neighbors. It's always good to have a good relationship with the neighbors. In our case, it's very important. And yes, we definitely have a look at the river terminal, at the roads, et cetera. And everything we look at, it is manageable. We will definitely see, especially on the river terminal side for us a bit of an extension to receive some material on the other side. The roads entry and exit go into different directions, so we should be good on that one. And you heard our ambition around rail. So I think the higher we go towards the 25% and perhaps later even higher than that, we will need to look at our rail setup, et cetera. But everything we looked at so far was challenges, which are in the normal manner of business come you solve them. So far nothing came up where we thought like, oh my god, this is really going to be a very, very big obstacle. To the second part of your question, we do have a good relationship. We have a contract that runs well into the '30s, 2030s, and we're happy with the relationship. So I think at the moment, this is how we would like to work and this is how we envision the next years going forward.

Okay. Perfect. And then with my last question, I'd like to come back on ferrochrome and aim to use more of it internally. You talked, I guess, about the logistical cost, if you use more in the U.S. and SEUs basically more ferrochrome internally. I suspect you may also face a limitation in your ability to push up your scrap ratio and obviously, maximizing your scrap ratio usually as a P&L positive as well. So there seem to be a couple of cost items which go against you from that strategy. And of course, it will improve your sustainability credentials. But I'm wondering, do you basically expect to fully recover these cost items while claiming a green premium with your customers? Or how will you compensate that?

We will, of course, maximize, as I said, our scrap ratio, our recycled content. We are at 90%. That was a huge year for us. We're extremely pleased that the team managed to achieve that, and we want to continue on this level. So the decision to internally source ferrochrome will not change from that ambition. Recycled content comes first. If you can get to 91% or 92%, we will do so. I think on the logistic cost, it will not make much of a difference because you need to see where normally our Board and ferrochrome comes from. There's also logistic costs attached to that one. And I do think that looking at where we're going to with our customers towards the greener steel and the ambition to be a slow in the CO2 footprint as we can. Already today, there is a premium paid on that, right? Because our steel is, of course, more expensive than imported steel. So the green premium is already every day in our sales price and still we're running at very good levels. And if we could have, we could have sold more over the last 1.5 years. So I do think that this market will continue to develop, the green credentials, which we do have, our fantastic CO2 footprint is something which customers value more and more. And the recent announcement to which I referred earlier today definitely showed that also in the U.S. this is the journey which companies are going to. So I am not worried about any additional costs coming from this change of ferrochrome sourcing.

We have also received some questions via the webcast platform. And actually there is only one question that has not been answered yet. And this is related to sustainability. So as a last question, are you able to price in sustainability impact to your customers?

So this comes back to this I guess the discussion of premiums. Time will tell, of course, ultimately, how things evolve. I can just -- that's what I said I think in one of the quarterly calls was that we are constantly seeing more and more customers get excited about this. And of course, it is ultimately then a question of supply and demand. Once supply is clearly limited, you have enough production, then, of course, and demand goes up, there will be more room for premium. I think we have a better product, and it deserves a premium, but we'll see what it is ultimately and then time will tell. I just wanted to just -- on sustainability, just make the remark that it is at the core of our strategy. We have, for example, on the SBTi targets, they are also linked into our executive LTI programs. So we have a long-term incentives. So part of that incentive is linked to our ability to reduce emissions. So from a government standpoint I think it's good that sustainability targets and then executive compensation also has a link and that's through the LTI primarily.

Thank you. This was our Q&A session. Now I would like to thank you all for your active participation and hand over it to our CEO.

All right. So we had a long session. I hope you found this very useful. It was lovely to see you here today. Hope to see you again in not too distant future. I think -- as I said before, we've come a long way. I'm very proud about where Outokumpu is today, very excited to lead it to the next phase. And we will do our utmost to get to the next phase target, as we said, when we launched it in November of 2020. Thank you very much. Have a safe journey back home. Have a great summer and look forward to seeing you then again after the vacation period. Thank you very much.