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.

Hi, Miguel. Hi, Carlos. Thanks a lot for taking my question. I have three. The first is, in the guidance for the Q2, when you say the slightly higher EBITDA, can you spell out what are the volume expectations you have baked into the guidance between U.S. and Europe?

Thank you, Christian, for your question. We expect some volume increase, mainly in the States. In Europe, it's much more difficult for us, given the certainty with the strike. So this big increase, it's mainly driven to higher volumes in the U.S. and also better behavior in in South Africa in the stainless steel of the business.

Understand. Thanks a lot. And then Miguel has quantified the number 16 million euro loss due to the strike and the overall 31 million loss in the Europe stainless steel business. Is there any way you can quantify how much of the impact is likely to be from the strike in Q2?

Obviously still we have no Certainly on when the strike should finish, the strike has been spoiling two months of the first quarter. Up to now we know that it shall spoil one month of the second quarter, April. Some days ago we were contemplating that maybe in May the situation could be normalized. As I said, after having the proposed agreement by the regional mediation authorities, we concluded that being that accepted by the workers' assembly, normality should come on May. But as I said before, the union's representatives have not allowed that to be decided on an assembly. And consequently, we do not know how much time maybe in May this could be affecting. And this has obviously its consequence. In the first quarter, more or less this is the rough figure that we estimate related with the direct impact on the plant. For the second quarter also we must take in place that the effect of the striking in our plant is affecting other business of the group. So you know that in the plant of Spain we are supplying the billets to Roldán, to our own product operations. We are also processing material for for BDM. So at the end, the strike also is having that consequence. So at this time, it's difficult to precise how much should be the effect. So more or less, we have been talking about $16 million as the effect in the first quarter, maybe a rough estimation of $8 million, $10 million per month. If it were sold and we should be starting in May, that should be the figure. If it takes more, let's see. Let's see more or less what can be the consequent damage that other plants should experience for not receiving more or less the material that actually is produced or transformed in Nazareneas Europa. So this is the fact that is for us is difficult to quantify. We hope that this situation should normalize but at the end still is pending to determine But that figure or rough figure of $18 million per month could be rational to keep in mind.

I understand. Thanks a lot. And then while the strike is going on, should we expect the continued release of the working capital as you optimize the shipments?

Well, during the first quarter, clearly with two months, with the plan being stopped, our commercial distribution has been keeping the business and producing stock. So this is something that is clearly appreciated. Then as soon as we normalize activity, let's see when it comes, obviously we shall have its further effect. But in principle, we don't consider that the second quarter we should experience strong variations from what has been the case up to now. So at the end we've had normalized production, but that's also as much as normalized production and there is no raw material to entry, obviously this also shall more or less have its effect. So we don't consider that this is going to be a relevant negative impact on the second quarter. We think that still we shall more or less keeping good control on the working capital. We must obviously process all the material that is working process in our plants. And then the other plants that have been increasing its production, this already has been included in the first quarter. So we don't think that there shall be huge variation in the working capital for the second quarter. and also probably not either in the net financial debt figure.

Keep in mind, Christian, that the main release in working capital in Q1 came from the HPA division, okay? Not from Acerinox Europa in Spain.

I understand. And then finally, if you can help us quantify the valuation impact from the inventory into the Q1.

Yeah, it has been some inventory adjustment at the month of March still in view of the actual condition, and it's more or less in the range of 40 million euros. It's substantially low. Negative, yes.

Sorry, it was negative 40 million euro. Yeah. Okay, thanks a lot.

Thank you. The next question is from Tristan Gresser from BNP Paribas. Please go ahead.

Yes, hi, good morning, and thank you for taking my questions. Maybe a follow-up on the strike situation. So if we read the press release, it seems there are no short-term resolution in sight. But could you walk us through a bit the scenarios? And notably, I think you mentioned some voluntary binding arbitration if you could tell us what this would imply. And I think you also mentioned that you're analyzing and evaluating changes in the current five-shift production model, and that could maybe solve the conflict. So if you could provide some details there. And finally, well, if the situation worsens or doesn't improve, at which point would you decide to go for a more, let's say, drastic decision there?

Well, the fact is, obviously for us, it's an extremely disappointing fact how this issue has been handled by the unions. We have been negotiated in the discussions for the wage agreement almost for one year. In the actual world, when you realize a plan is three months, we still consider that April it's going to be the case. A three-month strike, obviously the first impression a normal person should say is, come on, this is because the plant is under a strong layoff or retrenchment program, and this is not the case. This has never been introduced in the discussion with the representatives. Or it be considered that more or less the staff is asking for a for a strong compensation reduction, which also is not the case. So at the end, more or less, what is creating this conflict with the union representative is the fact that we are bringing some flexibility and establishing some more flexible decisions and adopting the work in every line according to the many cycles we are experiencing in the market. So for this we need certain flexibility in terms of organizing the work, moving people from certain lines to others according to the order book century, and establishing more programming which should be the driver. So what we need is to flexibilize more the plant as a consequence of the many cycles that have driven our market in Europe in the last years, and also in our actual strategy design evolution for Acerinos Europa for being more specialized and reaching directly for final customers, as well as in the fact that we want to concentrate more on a specialty stainless This needs further flexibility to be on and running our staff in the plan and with such mobility that we are missing. And this is what is actually in place. In fact, the union representative that attended our shareholders meeting last Monday and expressed his opinion and made some speech at that time and some questions to our board. but his main explanation that what they were missing and the reason for the strike was more in terms of family conciliation. So this is the fact, and when we bring these new measures, the fact that we need some more flexibility for adapting ourselves to these circumstances, and this is what creates a strike. From our point of view, it's clearly not understandable how these proposals... motivate a strike that now is taking for three months. So we have appreciated the mediation coming from the regional authorities. We still – that we shall find a way that at the end our staff shall be able to vote any proposal. And we are keeping our – are willing to negotiate. But at a certain level we actually consider that it still is a bit out of our control. But we hope that some rationale should be coming. And we hope that it shall be coming soon. That is the fact.

Okay. All right. That's helpful. And maybe my second question on the U.S. market. Are you seeing any, in terms of demand, some green shoots? I think you mentioned that inventories are now below average. So is it conceivable to get some restocking in May or June? And historically, when restocking takes place, we usually see some pricing momentum as well. So yeah, I wanted to have your view there. And you also mentioned, I think you talked positively about trade protection. So if you could develop it as well, that'd be great. Thank you.

Well, thank you, Tristan. Well, I think that still is a bit soon to see these green suits in there. in the market. We probably, you know, you mentioned that inventories are below average, and this is a very positive thing, because as soon as the final demand reactivates, we can see this or some restocking into the market. But still, maybe for the second quarter, it's going to be soon. You know that our visibility is low as well. And this can change very quickly. But we are not seeing yet these green suits in the market in the final demand. In any case, as we stated before, due to the very low level of interest, we expect some better volumes in Q2 compared to the first quarter.

Okay, that's clear. Maybe a quick follow-up. I think in your prepared remarks, you mentioned some supply tightness in the market. Could you, I just want to make sure I understand correctly.

Yeah, this is, I think it has been up here in the media. This is more or less has been affecting metric production at Otocompo. All right.

Thank you. Thank you. The next question that we have on the line is from Ioannis Massoulas from Morgan Stanley. Please go ahead.

Yes, good morning. Thank you for the presentation. Three questions from my side. The first, going back to Spain, it seems that the labor deal there may take some time to materialize. If the strike were to continue, when do you expect to declare force majeure on deliveries, or do you think you can make up for that by production in the other facilities. Thank you.

Well, it's at the end more or less obviously what in view of this equation what we are trying is and we are keeping a constant dialogue with our customers and trying just to to create as less damage as possible. And we are involved in that. So this is more a legal decision, and then obviously has its effect on how the situation and discussions are taking place. So I prefer not to enter in this comment now, because at the end, more or less, the declaration of force majeure and the impact that this provides to us customers is different among who are the customers, how are the customers supplied. So consequently, in these days, our legal team prefers not to give too much detail on these issues. But it's definitely something that we are taking our time and we are just trying to produce as less damage as possible to our customers.

Okay, understood. Thanks for that. Second question on Baru, what's the cash burnout that the operations have seized, and what's the estimated cash outflow in a scenario for permanent closure that would involve severance packages and other one-off costs?

Well, first of all, as you know, what we did at the ending of last year is a huge impairment of Baru, so more or less at the end, This is what shall make a much more simple view of that to decide which is more or less the decision to be taken regarding Baru. Keep in mind that Baru is more or less obviously not only a modern plant in terms of the lines and in terms of the equipment, but at the end also we have the land. We have the value of the land according more or less to the real estate evolution in the area and for industrial projects, which also has its relevance. So, for one side, we have the land and the value of the land, the possibility of selling the land in one lot or in several. In addition, we have the issue of the equipment. So, we are open to discuss a sale of of barrow business as it is running business but also we are open to consider and we are making also the studies of that several lines that could be either moved to other plants of the group or even could be sold to third parties. So depending on which is the choices finally decided this shall have its cash effect. So on this basis at the end the activity in barrow has been very low. So what we clearly can state is that Baru is not having relevance in the year figures in losses because the activity has been low. But also it has not been destroying cash, on the contrary. So the driver for the Baru process is not going to be a cash issue. It's more or less finding the time in which more or less the possible decisions in place can be taken. We are analyzing this, and because of that, what we have decided is to stop production. So we realize that this does not make sense to keep running production in the actual places in Asia. At the level of prices also, we can obtain a hot ban for transforming, and we shall stop production. But the other still is to be defined because there are different possibilities in place.

Okay, understood. Thanks for that. Last question on HPA. We saw the EBITDA margin moderating to 8% in Q1. Shall we assume a similar level for the rest of the year, or is there any upside relative to the Q1 run rate?

Well, more or less, as I said before, the market is robust and the market is strong. The tailwinds that we experienced last year as the metal effect, this is something that this year is more neutralized. So because of that, we do not expect in this year the tailwind taking place. And then consequently, obviously, according to the order book, we may more or less keep trading at these levels. But I think, yeah, for us it's a... is a reasonable level. Analyzing these quarterly figures, we think it's a strong performance. We hope that also, and we must be cautious, that part of the material that is processed on total basis to BDM in our plant in Spain is, or at the end, mostly for the second quarter, is not be able to be process and this also may have its consequences. But we understand that even though that at least BDM can keep its more or less actual profitability and contribution. Should we reach the two-digit figures? It shall depend on the evolution in the second semester, but in principle this operating level for us is reasonable. What we do not expect is a correction from these levels, but maybe maybe just keeping business on a normal basis, and we do not expect the nickel to provide further damage, we understand that this is the normal speed cruise that we can expect from BDM this year, as was explained in our results presentation. So the normality of the BDM contribution is not 170. when there is tailwinds, that we are in good position for taking advantage of that. But if not, we shall be in that level.

Okay, very clear. And sorry, just a housekeeping question. Assuming the Haines transaction closes, would you be reporting the HPA division combining the two operations, or is there going to be a different segmental reporting?

No, no. It shall be the high-performance oil division. which will be the combination of both BDM and Heinz. Thanks so much.

Thank you.

Thank you. The next question is from Bastian Sinekowicz from Deutsche Bank. Please go ahead.

Yes, good morning all. I still have a few questions actually on Europe, maybe starting with the strike situation. You said your expectation is that the strike will likely drag on into maybe April, even May time. So is this what is discounted in your guidance, or does your guidance actually discount the continuation throughout Q2? I guess, in other words, is there a risk where if the strike drags on, you just cannot keep your guidance of slightly improving every day? That's my first question.

We understand in the guidance that any time during the quarter it shall be normalized. Still with a slightly better, we think that we cover in any case the impact that may achieve if this normality comes later in the quarter. So we, in any case, we understand that any time during May we hope there should be some some possibility of obtaining an agreement. But we still feel comfortable that it's slightly better. Up to now, we think that this is enough. If the situation is not improving, let's see more or less if it should be necessary to make some further explanation. But we understand that it shall be enough.

Sorry, Miguel, I didn't entirely understand. So you assume that it will actually start operation in your guidance, or if it is offline in... Yes, we understand that we shall start operations during the quarter. Yes, and that's within your guidance then.

Yes. But in any case, we should be... Sorry, Bastian, in any case, we should... We see now we are confident... that we should meet our guidance slightly better independently of what has happened with the strike in Spain.

Okay. I think that's a very different message, to be honest, and I think that's actually a very constructive one. Okay, understood. And then just on the U.S., I guess my question is, What are the actual dynamics you're seeing? I think when you communicated a few weeks ago, my impression was you were reasonably constructive. My impression is you turned at least a notch more cautious here. Is that impression correct? And if so, what's been driving it, please?

Well, in the States, more or less, as previously Carlos said, it is now specific green shots on any specific market. So we are recovering after correction of apparent consumption of 27 percent taking place last year. So it's clear at the end the market is, the market in certain areas is obviously adjusting above our sectors that are still the tractor trailers and vans is a sector which is healthy. The food service and hunting equipment also remain at high level. It's still more or less this is a lot of a sector that for us also has its relevance. The U.S. auto also is providing further increases. So these sectors are doing relatively well. This is more or less still we are waiting for that sector to appear. So there are several projects involving new construction and regard of this package of allowance as provided by the American administration, but still we have not seen more or less the real orders for supplying that project. This is something that still is to come. In addition, more or less this is This is the situation up to now, but we are seeing more a spread recovery of most of the sectors as a consequence of the adjustment as yet. But after this, the issue is should we contemplate now to run plant at full capacity? Probably not in the second quarter, but I think we are actually at levels of 89%. and more or less is 85 percent, sorry. This is what we contemplate for the second quarter. So we understand that in these times there is no pressure on pricing. The market still values much more better the proximity and the constant supply and the short-term supply. This is highly appreciated by our customers and in this basis we feel comfortable with that. So we are not seeing further pressures. the imports have been stabilized at this level. So on this basis we understand that can be a robust year for North American stainless. Still we have no visibility to see for the third quarter we should more or less increase capacity utilization. This is still to come. But I think we are probably handling well the actual situation in the States. And as I say, our Our possibility of being in a constant supply for our customers replacing the material they are dispatching allow us to be running the plant as we are doing and North American is highly profitable. So this is not a bad scenario for us to remain even though we still are willing to increase capacity utilization when also the market reacts and the distributors start being more active because up to now the distributors are just more or less in that wait-and-see and replacing their deliveries.

Okay, perfect. Then last question, Miguel, please, on Hain. I think you seem to be very well on track. You got the shareholder approval, I think most of the regulatory approvals. So what are the main action points now needed to get to closing?

There are still some antitrust fines pending, not the American one, which obviously is the most relevant, but as also Heinz is present in several markets, as well as we are, we have some other countries in which still we have present all the files and we are waiting for more or less the acceptance of that. So this is a gradual process affecting some countries and some of the countries which Heinz exports. We understand that it should be This shall be obtained, as there is no real issue, but still we need the official approvals. And there are countries in Spain, for example, among them. We are also other northern countries, Austria, and those are the ones that are expected to come gradually, but nothing makes us think or be concerned that we shall have problems on that. The one that was obviously... more relevant is the North American one and this is already in place. So as I said before this is something that we understand according to the processes and the times or consider at every jurisdiction. Our advisors say that maybe during June or late June everything shall be approved and then we hope that we shall go through the acquisition early July. My understanding on this basis is that it probably shall not be taking place during the second quarter. So, we understand that should be in the third quarter. So, the figures that we shall present for the first semester shall be the business as it is up to now in stainless and high-performance alloys. And probably from the third quarter, we shall include .

Okay, excellent. Thanks, Miguel.

Thank you. The next question we have is from Oscar Rodriguez from Banco Sabadell. Please go ahead.

Hi, Oscar Rodriguez, Banco Sabadell. Congrats for the results and thank you for taking my questions. Two, if I may. The first one is linked with the working capital evolution this year. How it should perform considering the moving parts of nickel prices and Acerinox Europa back in business? And the second one, It's about CAPEX. Should we expect a steep CAPEX increase in the second part of the year or is it something that will apply for the 2025? Thank you.

No, in CAPEX, we keep the indication we gave. It's true that the CAPEX, the cash out for CAPEX in the first quarter has been lower, but gradually this is going to be increased. So at the end, more or less, especially for the second quarter and especially in the second semester shall be much cash out related to the CAPEX. So this is very clear. So keep in mind that some of the projects were decided and announced at the end of the year, mostly related in the case of the high performance alloys. And the ones in North American stainless, there shall be also cash out as much as this these equipments are receiving North American stainless and being implemented and constructed. So consequently, this shall be coming in the remainder of the year. The figure of the first quarter probably is going to be the lower one. And regarding the working capital, I think obviously it shall be more or less depending on the normalization on on our plans. But in any case, whenever the situation reactivates, we obviously have the material that now we have in process that is the one that should be transformed. And in addition, we shall start also in the normality with receiving additional raw material. But as I said before, this is not going to be a driver for the second quarter of the generation.

Thank you. The next question on the line is from Moses Ola from JP Morgan.

Hi, all. Thank you very much for taking my question. So just a couple of questions from me. So firstly, on the U.S. stainless steel market, you talked about power consumption up 8% year on year. Could you perhaps maybe give us a breakdown in terms of real demand versus inventories and restocking. It did seem that there was more restocking behavior towards the end of last year and start of this year. How has real demand, in your view, responded to that?

As we commented before, no, we are not seeing a pickup in the real demand, a strong pickup, just slightly better than than in previous quarter, but not a big increase in the demand side, no? Imports are going up a little bit compared to the same period last year, and a small, slight increase in stocks, no? What we are seeing is mainly stability in the market, and maybe we enforce that the worst is behind us. I think that the fourth quarter probably was the trough, and since this point we are – we expect a progressive improvement in the market.

Thank you, understood. And on VBM as well, so if I look in terms of realized prices on a unit basis, it does seem that there has been a noticeable reduction in realized pricing per ton of steel. So just really trying to understand here what are the pricing power dynamics of VDM and why, compared to last year, which was a really strong year in terms of your pricing power, if you expect that to change into this year and what the drivers are for that?

More than an issue on prices, it's an issue on costs, especially related with the raw materials. So the high performance alloys and consequently VDM is very sensible to nickel evolution. The material that BDM was dispatching last year to its customers, it was a strong gap between the average of the nickel enhanced by BDM and the selling price that that contracted material was dispatched. And consequently, this creates this tailwind effect. The situation after the nickel decline and the normalization of the nickel cost at the stocks of EDM now is much more reduce the gap and consequently because of that we are not having this metal effect. This metal effect was a tight win. We always stated last year that this was not the normality of EDM but we were taking advantage of that metal effect. And this year, the effect is not expected to be relevant or at least not up to now. So this is mostly the effect, but it's not so related to a price issue. It's more related to the consequences in the cost of this fact that, you know, for the high-performance alloys, it's very intense on the nickel cost.

But if I look at nickel pricing and the outlook just here where we are today, Q2 versus Q1 just on nickel futures, it does point to perhaps more upside for nickel prices near term. So perhaps that margin reduction that we saw in Q1, could that benefit or see an uplift into Q2 as nickel prices recover? Is that a short lag there?

Well, for Q2, we have... One effect is regarding also with the nickel. Another effect is that one of the relevant customers at this time for BDN with strong good margins is a material that is pending to be processed in Spain and consequently this is something that is losing margin opportunities for VDM not being able to dispatch that material yet. So this may come later, maybe for a third quarter. But this is something that could spoil or affect the second quarter figure. But having said that, looking at the other areas involved, we understand that the second quarter for VDM should be in line with this first one. So keeping everything on mind, Our forecast, as I said before, is that we could – considering a normalization of the €31 million EBITDA contribution of BDM, the annualized version of that should be around 125. We feel comfortable with that. So on this basis, as I said before, this should be the most prudent projection at this time. And in addition, it's clear, as I say, that BDM historical record previous for year 19 was 96 million euros. So now the fact that we are reaching figures of 120 to 130 is a remarkable result for BDM but obviously with some challenges and when is this issue taking place. But we understand that everything should be normalized and for us this is a proper speed quiz if there is regarding the nickel market evolution that BDM obtains advantage for that, obviously we shall be there. But this has not been a driver of the first quarter and we do not expect it to be a driver for the second.

Thank you, very clear. And similarly on Hanes as you gain greater visibility on integrating the business. I think you talked in Q4 about starting with a more conservative annualized run rate of 80 to 90 million euros in that business. Just based on the visibility you have now, is that guidance still valid?

I must say that we have no news in that regard because we still are not... interacting with hate. So until we receive all the allowances for all the different authorities and antitrusts we are keeping certain distance. So what we are making is all our preparation work internally here for making the integration very as soon as we are able to do. But we are not involved or not participating now with Haynes in any special issue. We are not talking about the markets or the prices. We are not thinking about the margins. So there are several areas in which our legal advisors prefer that we do not participate. So we are keeping certain distance and just making all the preparatory works so for whenever we are allowed to interact with them.

Okay, thank you. And just really finally, what is your current carrying value of Baru?

The current value for Baru, I think, related with some of the land offers we receive is in line of $40 million.

$40 million. Thank you very much.

Thank you. As a reminder, if you'd like to ask a question, please press star 4 by 1 on your telephone keypad now. Our next question is from Jose Suarez from CaixaBank. Please go ahead.

Hi. Hi, good morning. Thank you for taking my questions. Most of them have been solved, but I have a couple of them if I may. First one is related with net debt evolution. You've seen a strong leverage in this quarter, and you've mentioned that working capital should have a strong effect in the second quarter, but more focused on year-end. Do you see feasible to end the year, excluding the acquisition of claims, do you see feasible to end the year with a net debt level below the 234 million euros you've seen in in the first in the first quarter that will be my my first question and apart from this one uh second one is is related with the hands acquisition you just mentioned right now that you're not talking with with the company about markets and margins overall but in your in your conference call regarding the acquisition you were mentioning that you would be generating around at least 66 71 million in synergies. And I was wondering if you need to apply or to implement, to take some operational costs to reach these 66 million euros in synergies, how much would be the operational cost implied in your next years to reach those synergies?

in regarding of the net financial debt. Not contemplating Haynes, I think that still we have room to reduce debt during the year. So I do not expect big changes in the second quarter, but probably in the second half some further debt reduction could be taking place. So in this regard, in a normalized group prior to acquiring Haynes, this shall be the case. We are obviously extremely comfortable now of reducing our debt, because at the end we must keep in mind that, as you know, the acquisition of high-interest debt is going to be in the range of $800 million, and in addition we must take our debt. So as much as we reach in a fit position, obviously that that absorption should have less relevance on the final yearly figures. And this is what we are working at and on this basis we are making this strong commitment to reduce working capital. And as we said before, we have actually cash in hands of 1.9 billion euros and we have also facilities in place for additional 700. So the liquidity already is there. This is not going to be an issue. But in our business we should also keep on reducing debt during the year. But in any case this shall be obviously neutralized by the fact that from the third quarter probably our leverage should increase because of the acquisition and because of we shall be using our cash for that. So this is per one side. Regarding the synergies when we When we gave the figure of 71 million euros in synergies this is after all the costs for implementing the synergies and this is the figure that we prefer to maintain as it is. All the – that synergies are achievable and after having absorbed all the necessary costs for this implementation. At the end obviously it's clear that shall be gradual in the coming years but we also We also keep the commitment and the idea that at the end this CAPEX to be done also in Haines for the new forge, for the new furnace and so on, shall be covered by the cash generated by Haines. And this is more or less the strategy that we shall fix when we start working all together and taking the proper decision. But this 71 million euros is after the cost for implementing it.

Just a clarification. So you're mentioning the 71 in an operational term, so in an NBDA term? It's after operational course, not referring to CAPEX, just from operational?

No, it's after, yeah, after operational course, yes.

Okay. Okay.

Thank you. We have no questions, further questions on the line, so I'd like to hand back to Carlos for closing remarks.

Okay. Before the closing remarks, we have several questions from the web. Most of them have been already answered, but let's try to move to the ones that still are pending. The first one comes from of Exodus Capital, and it's regarding the guidance. we are included or not in inventory gains or losses for the second quarter?

We understand that shall be negligible increase of working capital but not relevant. So consequently we think that it should not be a distortion in fact but obviously we understand that and as I said it's not going to be a driver of the cash generation in the second quarter, but it also should be depending on when we normalize operations in Spain. So this can be at the beginning of May, or if it's in June, it may have its difference. But this shall not be a distortion. We consider that the working capital is not going to be a relevant issue for the second quarter. Maybe some slight increase, but

The next question is coming from UBS and it's regarding the European market. Even with the strikes that we have in Spain and also another one in Finland that is just one would expect a notable increase in prices. What do you think is the reason behind the depressed prices in Europe?

There is clearly an absolute lack of visibility and at the end with the actual facing challenges in Europe still the market is not active more or less. the trend of the prices slowly increasing even though not yet in satisfactory levels makes us some confidence that in the second semester this could be the case more or less following also whatever are the decision on the interest rates or the rhythm of more or less start to reducing interest rate this could contribute. What we more or less realize is that everything is prepared. So the level of stocks, as we said, is very low. Sorry, the level of imports. Market share of 14, 15 percent. We have not seen that for the last 10 years. Now the union is much more active on establishing the proper barriers. So more or less this can be a good starting point for when the market start to react. but still we are not touching it. And as you said, and it's correct, two of the four players not running operations, and this has not had an effect of accelerating the apparent consumption from the orders. The situation is really strange. We thought that gradually in the second quarter the activity should normalize. Maybe we need to wait, and we need to wait Let's see what takes place in the third quarter. Normally, it's not the stronger part in Europe because there's a seasonal slowdown, but let's see if there's some reaction comes, could be that way. But if not, maybe we should wait until the fourth quarter. So some of the observers of the market are confident of prices going up and normalization in the second semester. But still, we have not seen that. And obviously, especially in our case, keeping in mind that we are not now in position of taking new orders. But this is more or less what we can say up to now.

Okay, thank you Miguel. There are also several questions regarding working capital that I think that Miguel already answered all of them. And also questions regarding prices moving forward in the U.S. that unfortunately due to competitive reasons we can't answer these ones, no? Just to finish, one clarification coming from Indigo GBC-Gaesco regarding the inventory adjustment in Q1. It is 40 million or 14 million euros, and it's 40 million, 4-0.

Around 40 million euros. In fact, it has been 44. The exact figure is 44.

Okay, so this has been everything from our side. So thank you very much for joining us and for all your questions on this call. Our next report will be on July 24th. So thank you very much again and have a nice day.