Acerinox Sa

Good morning, everybody, and welcome to the Atherinox Earnings Conference Call for the first quarter 2024. Our CFO, Miguel Fernandez, will host the call, and we will be accompanied, as in other occasions, by the investor relations team. He will start with a short presentation, and then we will continue with a Q&A session. Before getting started, let me remember you that this conference call is being broadcast on our website, atherinox.com. Please, Miguel, go ahead.

Thank you. Good morning. Thank you for your interest in attending this presentation. We have released this morning a detailed results report, which we consider itself explanatory. So we shall concentrate this webcast of today in just explaining the key message from our side and obviously attending your your questions, as Carlos has stated. First of all, you know we try to be predictable and we are not willing to provide you for prices, so the first issue to remark is that we have obtained an EBITDA of 111 million euros that we consider is satisfactory, especially in view of the actual challenging conditions. The challenging conditions this time is not only still the poor performance on the stainless market in Europe, but in our case this also has been a strong influence by the strike we are suffering at our plant in the south of Spain, and this is having its relevance. The result for us is satisfactory as I have been expressing, keeping in mind, that it's in line with the market consensus. When we presented the year results, we announced that the first quarter figure should be slightly better. And we explained that the word slightly was because of the strike. On normal situation, the first quarter result should be better. But we prefer to say at that time that it shall be slightly better. And the slightly is a consequence of the strike we are facing. We shall talk later about it. But even though on that circumstances the fact that we have obtained this quarterly EBITDA for us is a strong fact for being satisfied. It's a relevant and a strong performance in our cash generation in this period. So we have made a cash generation of 188 million euros, mostly supported by the strong discipline on inventory reduction of 89 million euros, especially in the high-performance areas, but also in the stainless ones. So this is also one of the key facts we want to reinforce as a strong satisfaction with the performance we have achieved in this first quarter. As a consequence of the strong cash generation, our net debt goes down more than 30% compared with that at the end of December. So we are presenting today a net financial debt of 234 million euros, which is the lowest of the last 24, 25 years. And the outlook we are mentioning today is that the Q2 shall be slightly higher. We should have preferred to talk that it should be higher according to market conditions, but we must keep on mind that still during April our plant in Spain keeps suffering the strike and as a consequence of that our commitment for the Q2 results is that it shall be better, better but slightly better keeping in mind that still today ending April the plan remains on strike. So these are the key messages that we now shall try to explain a bit more in detail. When we move to in slide number three, when we move to the circular economy and sustainable development we have strong achievements that reinforce the awards we are obtaining. We have renovated our Platinum Award by Ecovatties, as you know, and it's clear that we have a lot of areas to be proud about. We are extremely efficient in recycling, in waste reduction, in water withdrawal. We are moving ahead also in diversity. In terms of the emission, we have provided 8% reduction in emissions. And this is as a consequence of all the electrification we are actually implementing as well as increasing the renewable electricity in our plants. So these are also strong facts to reinforce. In terms of the safety, the reduction of 3 percent has been lowered at the ambition we have for this year, but this gradually should be improving during the year. we need to improve but we are conditioned by the strike effect obviously in Algeciras is more regarding to the energy. You know that the energy in our case especially the plant in the south of Spain is the plant that where we are using more renewable energy as much as it's not in operations because of that the track is a bit worse than the achievements we are having in other areas but as soon as the the strike solves and we normalize activity and production in our plant in Spain this shall obviously also improve. When we go to the main issues affecting the markets obviously the chart remains as has been the case for the last almost two years. On comparative prices evolution the prices are absolutely depressed in the Asian market. In Europe we are seeing some recovery in prices, but still prices are below the historical average and still the base prices have more room to improve, even though the full market conditions, but the trend has started of some gradual increase of prices in Europe. And the prices in America remain robust, so on comparative performance it's clear that Prices are higher in America than in the other areas. Obviously, as America is our main market, this is one of the reasons of we are keeping a strong profitability of North American stainless. In the States, the market is not moving, but it's a solid market. The upper demand has increased this year around 8%. It's true that still there are some uncertainties and consequently the level of inventories still are low. There has been some domestic or some tightening of supply of some of the other domestic players but even though that's more or less the situation we consider that it's solid in the States. Imports have increased a bit in the States but we must keep in mind that The States is a net importer market. The local production is not enough for covering the necessities, and consequently the issue that imports take up 25 percent market share actually in the States is not an issue that we should be concerned about. In addition, the North American administration is also implementing trade measures that they are going to consume. As a difference of what historically we were concerned regarding Europe in America, this market share of 25% of imports is something that is normal, keeping in mind that there are only three players in the stainless, two of them in austenitic, but just three players which are not enough for covering the demand of the American market. The situation in Europe is not as good. Apparent demand still shows negative figures. It's down 4% in this period. Still the inventories are low. It's not an issue. It's a fact that the stockists are keeping a high level of inventories and the stocking is just the contrary. But it's true that it's not confidence in the market. It's not visibility. And with all the uncertainties in place in Europe still the market remains a bit depressed. In these circumstances there are some positive consequences. One is the correction of imports in Europe. The actual market share of imports in Europe is 15 percent which is the lowest since several years ago as much as also it appears that there are more in this regard more involvement on establishing those trade barriers by the European Union. We think that this is a good starting point maybe for realizing the effectiveness of the new measures that are being decided these days in Brussels. So we trust on that also for bringing some more positive performance for the European market. The clear demonstration that the market is still is weak is that For the four players, we are running stainless production in Europe. Two of them in the first quarter, we have been suffering a strike, not also in our case. It was also in Finland. But even though that, this has not been a concern of further tight supply in the market that has moved the stockists to start buying material again. So still the market is weak, and therefore we consider that even though prices are gradually improving for getting a normalized level. But still the demand we consider that is weak and shall remain probably being weak also in the second quarter. So certain increases of prices but still not enough. When we go to analyze the high performance alloys the market is also solid. The demand is strong. relevant sector for us is the oil and gas. It's really booming in these days. We are participating in new pipeline projects. In addition, the aerospace market, which actually we have a presence there, but as you know, shall be increasing substantially as soon as we integrate Haines on atherinox is another sector that also is booming. So we are very confident consequently for increasing our presence covering that market. In the chemical process industry, which is also a relevant sector for BDM, the market led by all the hydrogen sectors and covering their necessities also is keeping a solid performance. And electronics and engineer are coming back after a low demand that took place last year as a consequence of all the after COVID movements on the market. So we are having a solid year and a solid performance of our high performance alloys as we shall explain later in more detail. When we go to the group highlights, I think we have We have talked about that. The EBITDA figure of 111 million is in line with the market consensus, so this should not be a surprise. And it's 15 percent above the one that we experienced in the fourth quarter. So this is the slightly better that we mentioned at that time as a consequence of the fact that we have been mentioning. Cash generation has been strong, 188 million euros in the first quarter. This is not very normal for a first quarter, with a strong reduction in inventories of 89 million euros. With this, we'll reach a net financial debt of 234 million euros. This is the minimum level of the last 24 years. We must go back to year 2001 to find equivalent levels of net financial debt at the Trinos Group. But we must keep in mind that at that time, were just a stainless steel maker with only one fully integrated plant. So the comparison is obviously absolutely favorable for the business, for the several plants that we are running actually, and also our diversification through other alloys. So we are absolutely proud about these levels of net financial debt. In addition, as you know, we have plenty We have plenty of liquidity that we shall also talk later. We have 1.9 billion euros in liquidity at this time, which is also something to get absolutely comforted and demonstrate that we can cover our expansion that actually has been explained purely with the cash that we have actually on hand. If we move to the stainless steel highlights in the page number seven, There are some things to reinforce here. EBITDA is 80 million euros, which is a strong improvement compared with the 50 million euros of the stainless unit in the fourth quarter. But at the end it has been affected, as we have been mentioning, by the situation in Spain. You know that normally we disclose figures of the stainless steel business unit and the high-performance alloys business units. So we normally prefer not to disclose figures among the different plants. But the abnormal situation we are facing actually, and obviously for you to understand which are the consequences of the situation in Europe, we now are reporting a bit of a loss of Angelina's Europa in the first quarter of 31 million euros. which is more or less big figures, but 50-50. Half of it should be as a consequence of the strike. Around 16 million euros is the direct effect and consequences of the strike. The other still is the situation we are explaining in the European market, that is still prices, even though recovering, that prices are abnormally low. and this creates this effect. So the situation should have been substantially better in the stainless unit even though the actual market situation in Europe if not worse by the strike in our plant. We hope that this issue should solve soon. In fact we have been trying that our staff should vote on assembly the proposal that came from the regional authorities, but the union representatives have preferred or avoid the fact that our workforce should vote regarding the acceptance of the proposal coming from the regional mediation. So we hope that in the coming weeks the situation should solve but still we have not visibility for that. This means that the whole month of April probably the effect of the strikes shall remain and let's see if in the coming weeks we find a solution in order for bring normality to the operations in Capo de Gibraltar plant. This is going to be more related to the second quarter but gradually we have reducing our production in our baru plant in Malaysia. In the actual situation of prices that is taking place in Asia it's clear that for us it doesn't make sense to keep our plant running and consequently during the second quarter, mostly in May, our production of the plant shall stop. delivering material to our customers and keeping commercial activity. But the production shall stop in Baru in the second quarter. As we have been announcing since the year end results we made a huge improvement of Baru and then writing it down its book value. And now we are studying all the strategy measures that can take place there. contemplating every possibility. So we are contemplating a sale of the business or a partial sale of the lines or moving the lines to other plants. So all these issues are actually under study for finding the most effective one. But what we must clearly state now is that we are stopping production in the second quarter at Malaysia. Moving to the high performance alloys. This is a sector that is having a strong performance. Also this year we are having a first quarter EBITDA of 31 million euros compared with the 29 million euros we had in the first quarter last year. As you remember when we acquired BDM Metals our figures and our projections were that this should provide additional 80 to 90 million euros EBITDA per year today. to the group. Four years later, at the end, we are 40 to 50 percent above that level. So an annualized EBITDA keeping this quarter figure of 31 should be 120 to 130 million euros, which is, as we always have been indicating, what we can expect of the normal speed cruise of the contribution at BDM. In addition, in the year 2023, there were strong tailwinds that BDM took good advantage about and run more or less taking advantage of that tailwinds mostly related to the metal effects that were increasing its margins by the, especially by the nickel evolution and by the relation and the differences between the nickel transform that we were selling in BDM compared with the nickel average at our stocks. And this creates a metal gain that has been especially in the second part of last year improving strongly the margins of BDM. This year we are not contemplating, or at least not with the visibility that we have now, that an equivalent tailwind is taking place. But even though that the business as usual in the actual good momentum of the high performance alloys is creating for us that we are obtaining these figures of 31 million euros just in the first quarter. Another fact that is relevant for BDM is the operating working capital decrease by 52 million euros. So mostly related to our reduction in inventories. in the last year for a company in the market reaction after the COVID, it's true that working capital increased substantially in BDM, also as a consequence of some older distortions that have been taking place in the nickel market and in the nickel supply. But once this situation is normalized, BDM seems since last quarter of 2023, and especially in this first quarter, is making a remarkable effort on reducing its inventories. And as a consequence of that, the operating cash flow has been 76 million euros of our high performance alloys division. When we move in page number nine to the capital allocation chart of the group, it's a strong fact for being brought about. As a consequence of our beta figure, and as a consequence, obviously, of decreasing working capital, we have obtained operating cash flow of 188 million euros. And then at the end, even though keeping in place all the CAPEX program, but also the dividend paid in the start of the year, but we have reached this figure at the end of the quarter of our reduction in net debt of 107 million euros. Moving to obviously the fashion topic today in our world which is the Heinz acquisition. This is something that is going as scheduled and as we announced you on the 5th of February when we explained the deal. So all the procedures are taking place and we already have obtained the the antitrust of the American administration. Last year we obtained also the massive approval of the shareholders' meeting taking place at Haines. We are just waiting for the pending regulatory approvals, and consequently we assume that this shall be gradually obtained during the second quarter. So we hope that we shall be closing the deal early at the starting of the third quarter, as we anticipated that was going to be the probable scenario. But all the necessary steps are moving in accordance and consequently we are very excited with the idea that early starting in the third quarter we shall also integrate and incorporate Haines to the consolidated group and the consolidated results. When we have been explaining Haines We always have mentioned that for us it's AAA investment grade. And the fact that we put that AAA, you know, it's as a consequence of alloys, as a consequence of America, and as a consequence of aerospace. It's not a casualty that the areas that we have mentioned are the ones keeping a more strong performance. Obviously, one is the alloys in the solid market that we have explained we are experiencing. Another is America, and on a comparing basis, it's clear that the American market is the market better performing and with better prospects for the coming years. And in addition, we also mentioned before that the aerospace is keeping a booming performance, as well as the oil and gas. in all the world of alloys in these days. So clearly our strategy of the AAA is also reinforced by the fact that they are the best comparative performance areas that we can place actually. And then just the conclusions, I think most of the topics have been already explained. EBITDA we must consider that it is satisfactory. The strong cash generation we have done and especially the strong discipline in reducing working capital and especially inventories has proven to be successful. You know in our strategy of capital allocation the relevance obviously is working capital the relevance on investments and this year is a year with a strong and consistent investment plan with a special investment phase taking place in North American stainless as well as in BDM. So we are satisfied that we are generating cash for covering the expansions that are taking place as well as increasing the retribution as has been the case in the last year and then consolidated that increase and with further increase in dividend yield achieving a 6 percent dividend yield that we consider that is extremely healthy. Thinking about the markets as I said before we are contemplating that the consistency of the high performance alloys shall remain. In America we are also confident on the evolution. We are not seeing further pressures on the market side, still the supply, the continuous supply, the proximity to our customers, the uncertainties in our customers and in the American distributors for not bringing imports, considering that it should be reaching the way of increasing imports, is clearly in our favor as we become the closest supplier. to most of our customers and therefore we think that the situation in North America is also remaining very robust for the remainder of the year. Heinz acquisition is taking obviously a lot of our interest still until we obtain all the necessary approvals with certain distance. Clearly we are not interfering now on Heinz business evolution. We shall start after the integration, but clearly everything now is in well position, but in not too many months from now we shall be integrating Haines in our group. And in view of all the situations, Q2 is going to be better, but with uncertainties that came from when the strike issue is going to is going to solve. In Spain we only can say that it shall be slightly better. We know that at the end of the second quarter at least the whole month of April is going to be obviously spoiled by the strike, but we still have no visibility of when the normality is coming back. And as a consequence of that up to now what we can say is that it shall be better, but slightly better. Thank you. for listening to my explanations, and now let's go to the Q&A. Carlos shall also support me in the Q&A session.

Thank you. If you'd like to ask a question, please press star, fold by one on your telephone keypad now. If you change your mind, please press star, fold by two. When preparing to ask a question, please ensure your device is unmuted locally. We'll pause here briefly as questions are registered. Our first question today comes from Krishan Agarwal from Citibank. Please go ahead.