Acerinox Sa

Good morning, everybody, and welcome to Atherinox earnings conference call for the second quarter 2024. The call will be hosted by Bernardo Velázquez, our CEO. Miguel Fernández, who you all know and was the CFO for the last 25 years, has been appointed chief corporate officer of the group. In addition to his current responsibilities, he will assume those of the indirect procurement information systems, corporate risk, sustainability, and cybersecurity. As you can see, we have also a new face here. It's my pleasure to introduce you, Esther Camoz, who will replace Miguel as CFO of the Acerinos Group. Esther has 30 years of experience in the company. And among other responsibilities, she was the Director of Consolidation, Budgeting, Tax, Financial Reporting, and Financial Planning. A huge congratulations to both of you. As in other occasions, we will start with a short presentation and then continue with a Q&A session. Before getting started, let me remind you that this conference call is being broadcast on our website, atherinos.com. where you can find also the financial statements and the management report for the first half of the year. And now, with any further ado, I would like to give the floor to Bernardo.

Please, Bernardo. Our business model, so we should make changes in our organization, also looking for this agility and this flexibility and this efficiency in decision-making and in the management team. So that's the reason of these changes. Moving to the first slide, we are happy to say that we are presenting a strong set of results in a very weak scenario in the stainless steel market and after a five-month strike in the Algeciras plant. After five months of negotiations, finally we reached a good agreement for everybody. We could explain, as we wanted, the necessity to change the business model in the Spanish plan to have more flexibility and to get adapted to the cycles of the economy much faster than today. In this scenario, we have a stronger generation. It's also based on the stock management and working capital management, and this led us to reduce our debt to 191 million euros. I think it's a very remarkable number. And as we will explain later with more details, we expect the Q3 EBITDA to be in line with Q2 more or less. Under these circumstances, we targeted to work in the capital reduction to do and manage what we can manage. I think we are in a very good situation with this low debt to be able to access and to have a higher target in the future.

We clearly keep committed on sustainable development, and we are extremely proud of our contribution to circular economy. In this regard, we are presenting as normally the targets and the key PAs we have for the organization. It's clear that we are overachieving in specific targets, and we are extremely proud. We are by far overachieving in water withdrawal. with already a 46% reduction from the baseline, substantially better than what was our target. We are also extremely proud, as I said before, in our contribution to circular economy, especially in waste reduction. So most of our, as appears in the cycle, we are recycling most of our spurs and consumables. We have obtained a 90% valorization of this waste, and in addition, even improving. We have closed in this first semester with the support of the regional government of Andalusia also another project for using slag as a concrete aggregate. So still we have room to improve on that. So clearly there are areas in which we are overperforming. We are absolutely on the right track on other areas, for example, in terms of diversity as appears here. We also are comfortable in safety. We have put the two colors on the safety. It's clear because even though the figures reported for the first semester are not fine yet, obviously we have been affected in this estimation by the disruptions in the first semester, has been also some minor incidents, but we keep also comfortable that during the second semester we shall be able to fill on the the targets established for the year. So in this regard, we are definitely proud. There are two areas which have been not under our control, and these are the areas which appear in red or in yellow. This is regarding, obviously, one is regarding the carbon footprint in terms of emissions, and the reason is very clear. The most intense and efficient in renewable energy of our plants is the plant of Afrinas Europa, And as you know, five of the six months of this semester, this plant has not been running. So consequently, we have not been able to take advantage of that use of renewable energy. In addition, also, another part which is not under our control yet is the fact of the energy intensity. This is a parameter which is obviously linked to the productivity. And again, we have in one of our plants, mostly as Africa and Europe are only running one month, but also we must keep in mind that in the actual market conditions, we are not running full in North American steelers, which traditionally we always have been running full. This is not the case. Still, the market is not allowing that. And also in Columbus, we are running at low capacity utilization. Still, we are consequently not favorable for this productivity to be fulfilling our targets. Any case, We are not only waiting for the market to improve because in addition, as shall be explained later, in our Beyond Excellence plan, there are a lot of areas in which we can improve. So we shall not only be depending on the activation of the market because we are also concentrating on that. We are also concentrated in the new decarbonization plan. This shall be published and released in the second semester. We have almost finished it and and we shall explain it in more detail in the future presentations. We have also included ourselves and participated in the United Nations Water Mandate Plan, led by the United Nations CEO. And in these facts, more or less, what we feel is, as I said before, comfortable. We are by far committed, and all the areas under our control, we are achieving more than our targets, and we feel comfortable that in the others it shall come soon.

Okay, let's speak about the market environment. Starting with raw materials, I can say that ferrogram price is more or less stable, but nickel price going down, you know, that is always a headwind for our business. I think we have two clear different parts. It's stainless steel and high-performance alloys, and in stainless steel we can also make a big difference between the European and the American market. More or less market conditions are similar. If we check the numbers that we have calculated in these markets, apparent consumption in the United States after a drop of 20% in 2023 is growing 3%. It's a very modest growth after a 20% reduction last year. But inventories are in a historical low number. because we have calculated there is 15% below the historical average. In the case of Europe, after a 21% reduction in apparent consumption in 2023, still this year the apparent consumption is dropping 7%. This is reflecting the weakness of the European consumption. Stock levels are even lower than in the United States, because we have calculated there is minus 26%. below the historical average. So the market conditions are more or less the same. The difference is the way we manage or the conditions inside the country to manage this scenario of weak demand. In the case of the United States, we have better prices, stable prices. We manage to keep our prices stable. And we manage with our customers certain deliveries and service and quality that cannot be easily substituted by material from overseas. So we are keeping this level, of course, with the support of the Section 232 measures. In the case of Europe, safe world measures, as we always say, are not enough when the market is weak. And in this case, we are affected by the low Asian prices, low Asian prices basically because China has been increasing stocks and there's a lot of material available in that area. We are concentrating our efforts in our major markets, but still we cannot say that we are totally isolated of what is happening in China. But under this scenario, in Europe we have low prices, And stable imports is not a problem, a level of 14%, because prices are not attractive for other countries. In the case of the United States, we have stable prices, but that is attracting more imports from the Asian countries, and imports have grown from 24% to 27%. Still, it's not a problem, it's not an issue for us, but we are keeping this market stable. In the high-performance business, the situation is different because still we are enjoying a strong order book and a very healthy demand. This is, once again, we can say again that it was a good decision to diversify in nickel alloys and high-performance alloys because even being also a cyclical business, the cycle is different. So it's giving us more stability as a group. In high-performance alloys, demand is still good. Airspace in Europe is still good. In America, it's a little bit weaker because of the Boeing reputational problems. And oil and gas, still we are working for important projects all around the world. And electronics and electrical engineering is going well. So the situation is still healthy. In the standard steel, we can say that we are in the low part of the cycle. In high-performance alloys, we are still with a strong demand.

When we go to the consolidated group figures, first of all, this quarterly EBITDA of 125 million euros is slightly above that of the first quarter, which was 111. Slightly above as we committed... that it should be in the results presentation of the fourth quarter, so even though the uncertainties that we were facing at that time, but we committed that we should be there, and this has proven to be the case. We have improved our margin from 7% to 10%, so three points of increase in our margin is also a demonstration of the higher efficiency We have achieved in the quarter, even though the circumstances that we have been mentioned that have been affecting us. When we reach the first semester figure, we at the end come to a figure of 236 million euros of EBITDA in the semester. Those of you who cover our sector understand that this figure with this 8% margin is unique in our sector in these days. And this is the fact that that for us we are much more proud about. It's clear that when we compare it with the figure of last year, we are 49% below, but this is something that obviously is not a surprise. This is a consequence of all the unprecedented situation our market is facing almost everywhere, and even though that, we are keeping this consistent performance. So at the end, For us, our relevant figures to be achieved, we have had external facts and internal facts as a strike that has been talked and Esther should talk more of it later on. But in these circumstances, apart of the results, we have been able to obtain an operating cash flow of 266 million euros. And at the end, we closed the semester of 30th of June with a net debt of 191 million euros. So it's clear that we are well prepared. Our financial strength and our low debt is in the best position now for facing the new challenges we are on with the exciting strategy expansion we are doing, that you know it perfectly. We shall comment it later. But we are reaching to that time in the best financial position and well prepared for absorbing the new debt as a consequence of of this strategic expansion for our future that we are facing. Now I give the floor to our CFO, Esther Camoz. Some of you may have not met her personally, but indirectly you know her as you have read hundreds of pages and reports coming from her. She has been the responsible of accounting, consolidation, and reporting for the last 20 years. Our financial statements are who are recognized and well awarded on a worldwide basis, and she has been the responsible of them for the last 20 years, so still the floor is yours.

Thank you Miguel. Well, a pleasure for me to present the half year results as the first time. Well, talking about the stainless steel division, okay, I want to insist on the main drivers of this division in the group. First of all is the strong contribution of NASS. Secondly, the strike in Algeciras. We also need to mention the cease of operations in Baru in this half of the year. And, of course, we cannot forget about the remaining weak situation of the market conditions, especially tough in Europe. Okay, but thanks to our leading position in the U.S., this is allowing us to be resilient in Evita despite the market situation. If we go to the chart in terms of production, we have been comparing quarter over quarter. We have lower production. This is mainly due to the strike. Remember that in the first quarter we could produce for one month, which has not happened in the second quarter. But we go to the comparison year over year in production. We also have a reduction, but it's due to the strike, but it's been partially compensated with increases in the production of NAS and also Columbus. In terms of sales, we had a reduction of 10%, basically due to volumes, quarter over quarter. But if we go to the comparison year over year, we need to, despite a part of the volumes due to strike, we also have to mention the reduction in the base prices in the U.S. that we did at the beginning of the year, and also the reduction of the alloy shortage. This makes the 26% reduction. The EBITDA achieved in the quarter has been of 92 million, which is 15% higher than that in quarter one. So despite of the reduction of volumes, we've been able to get a better EBITDA, and this is basically due to the increase in the margins. We have increased margins in two points from seven to nine percent. The EBITDA in the half of the year has been 171. And we also want to remark the operating cash flow. We've been generating cash flow also in quarter one and quarter two. So the total cash generation for this division has been of 182 with a working capital reduction of 41 million. It is true that we have been reducing inventories. We have helped. to support our customers from our service centers, so that has also contributed to the reduction of inventories. If we go to high performance alloy, the situation is different, as Bernardo has mentioned. The market conditions of the high performance alloy are good, and the other book is solid. The EBITDA of the quarter, we have increased the EBITDA from quarter one to quarter two in three millions, and the margins from eight to 11. And if we go to the half year, we got an EBITDA of $65 million. This $65, if you recall, when we bought BDM, we compromised to an EBITDA for the year range among $80, $90 million, and we are making $65 million in this half year. So we think it is a very good figure. Someone might think, yes, okay, but it's less than last year. Last year, it was 15% higher, but it is true, and we have already explained that last year we had some metal wind tails that were positive, and these are being neutral this year. In cash generation, HPI has also generated cash in $84 million this quarter, also contributed by a working capital reduction of $43 million. And on what regards to capital allocation, I will focus on the half year. As mentioned, we had an EBITDA in the group of 236 millions in this period. We reduced working capital in 84 millions. We are also proud of our net financial cash in, which is not a cash out. And this is basically due to our competitive financing and also the solid cash that we have in the U.S. Okay, we have paid 73 million all in the quarter of taxes. And in this sense, and talking about taxes, I want to mention that our group is internationally recognized by the OCDE. We are a low-risk profile multinational group. and that we have also been awarded for our transparent taxation in this period. So the payment of taxes is just the consequence of the good results that we have had. The operating cash flow has been of $266 million, which has been used for CAPEX, $78 million. Someone might think that this figure is lower than expected, but we cannot think that the second quarter, second half, sorry, will keep the same line. Probably we are expecting to increase some CAPEX for the second half. The total free cash flow is being 188, and we have increased. We have paid our dividends, as usual, and we have increased the dividend in 3%. All these have allowed us to reduce the net debt in 150 million, and we have achieved the good figure of low figure of debt of 191. Thank you, Esther.

Moving to strategy. I think as Miguel mentioned before, we have a strong sustainability strategy, but not only this, because we are following our consistent and clear strategy to increase added value products, to be more customer-centric, and provide solutions for the industry, for a sustainable industry, with the broadest portfolio of heat and corrosion resistant materials in the world. Our group has the broadest portfolio. We can supply from the more commodity stainless steel to the more sophisticated nickel alloys, every kind of solution for the industry. In this case, in the stainless steel, of course, after negotiating the union contract, I think that we are fully aligned today to start changing our strategy and moving our production strategy to a higher added value product with more flexibility and versatility to get adapted to the cycles of the market. Focusing in our main markets and following the idea that we have developed in previous meetings that the globalization process is in place. We want to be more regional, and we are concentrating in our major markets where we can provide to our customers a better service, better quality, and more attention. That's why we decided to stop our activities in Baru Estainless in Malaysia. And on top of this, we are going ahead with our investment in NAS to increase our capacity by 20%. as we explained before, and we are developing new alloys and mild steel grates and stainless steel grates in South Africa that most probably is the most flexible factory of stainless steel in the world. In the case of nickel alloys, of course, we are going ahead with Heinz, as Miguel mentioned in previous meetings, the AAA investment, focusing alloys, American and aerospace. We got most of the permits, including every permit in the United States, CFIUS, that is Foreign Investment Committee, and antitrust, and we got also the approvals in Europe on the trust, and we are still pending for the regulatory approvals in Austria and in UK. We expect to close the deal by the end of quarter four. And with this, I think we are going ahead with the strategy that we presented to you. We are very clear. We try to be transparent and predictable. And now I think we are doing our homework and we are moving our business to a more stable in the cycle, through the cycles, and also moving to end-users business that will give us a higher profitability and stability in the future. One of the important topics that we wanted to bring today is the New Excellence Plan, what we call the Beyond Excellence. We have been speaking about our Excellence Plans during the last 15 years. We adopted these plans 2009 and since that time we have developed several plans with a total more or less estimated savings per year of more than 300 million. With that system we have reached a moment that is more difficult to make improvements based on benchmarking and based on benchmarking initiatives and we have changed the approach and we presented recently the new one and I think that we have to reinforce the idea that we are still capable to improve our competitiveness, to reduce our costs and to manage our business better than today. Of course for these purposes we are using all the tools that we have available in the market including advanced analytics and artificial intelligence. We have based this Beyond Excellence plan in six pillars. It is decarbonization. We want to decarbonize our business. We have plans in sustainability to reduce CO2 emissions, but we want to make money with this. We don't want to consider it expensive. We want to get profits from this decarbonization. We have another pillar that is efficiency, of course, with raw materials optimization and looking for the use of more recycled materials and more scrap and a more circular economy, customer-centric, as I have repeated several times, quality service close to the customer, because that makes the difference between the Atherinox business and the import business. in our major markets. R&D, very important. We have to develop new grades of stainless steel and new nickel alloys that will give us a privileged position in the market. We have to focus on productivity and now we have the tools to do it with advanced analytics and artificial intelligence because there's a lot of predictive maintenance and possibilities to improve maintenance and the change of of items in our equipment and to increase productivity by reducing the breakdowns. And finally supply chain in an area that we are concentrating our efforts in better use of better raw materials and better management of our inventories and of course consequently of our working capital. We are very happy of the results that we are showing today because we have a target for the year of close to $45 million in real savings in this year, and we have reached $20 million. It's 44% in six months, but this is not a symmetric. So we will make more progress in the second half. I think that we, from now on, will reinforce the results of this plan because I think that this is interesting and will give us another way of growth. It's not only that we are entering or increasing our presence in high-performance alloys with Haines acquisition. We are expanding VDM with a new investment that will will increase our sales by 15%. We are reinforcing our business in Europe with a new union contract and in the United States with another big investment plan that will increase capacity by 20%. But also, we still have room to improve and we have room to grow with these cost savings initiatives. With all this... With all these pieces, finally we'll reach the conclusions. I would like to summarize what we have mentioned until now. We are proud to present this strong set of results with a satisfactory BDA in each one, with a very strong cash generation that will put us in a very good position to face all the challenges that we have at the end of the year, including hedge acquisition. We have a stable and very solid shareholder return, 0.62 euros per share. We have paid half of this during the first half. We have already paid in July the second part. We are facing a challenging scenario with weak market conditions, with a lot of visibility and with a lack of visibility and a lot of uncertainty is what can happen in the market. But on the other hand, we can say that inventories are in a historical low record and that any change in the economy, any trust on the economy can lead the market to bid for stainless steel more, to start rebuilding inventories, and that will change totally the business conditions. And, of course, we have a strong other booking in HPA, in VDM, that will give us stability and more homogeneous results through the quarters. HES acquisition is going ahead. CFIUS has the green light. It was very important. We're waiting for the results in Austria and in UK. We don't expect any problem. And this scenario... We think that we are a resilient company, and in a third quarter that normally is the weaker quarter in the year, and with this being in the low part of the cycle and with apparent consumption moving down in the European United States, so we can be proud to say that we will keep our EVDA in Q3 in line with Q2. We don't have too much visibility. But we think that quarter three is going to be in line. And that's all from our side. Carlos.

Thank you. Esther, Bernardo, Miguel for the presentation. And we can move now to the Q&A session, please.

Thank you. We will now start today's Q&A session. To register a question, please press star followed by one on your telephone keypad. And to withdraw your question, please press star followed by two. Our third question today comes from Tong Zhang from Barclays. Your line is now open. Please proceed.

Hi, good afternoon. Thanks for taking our questions. Two from me, please. The first one, just could you give a bit more color about the speed of the Europa ramp-up? I mean, it's obviously a site that's been out for a long time. It was part of the new agreement you planned to, I think, in future years, idle the plant in August for two weeks anyway. Can you just give us an idea of how quickly that's going to be back up and running and, as a result, how much of that $28 million the DA cost is actually going to reverse in Q3. Does it fully reverse or is there still going to be some impact? That's the first one.

Thank you, Tom. I can say that we have restarted our operation in Athens, Europe, surprisingly well, with no failures, no major failures in the main equipment. Everything is working. And we were able to start our production in June and July. I cannot say that it's moving in a normal way because now we have to rebuild our other book. And we don't want to destroy the market going to cheaper prices. So we are reestablishing our relations with our major customers. We are negotiating the orders for the third quarter. and we are trying to have a reasonable and responsible startup moving up, but with our regular customers and taking care of the level of prices.

Thank you, and maybe just a sort of slight follow-up. I suppose you mentioned utilization rates at South Africa and Nass, you know, not being fantastic. Can you just remind us what kind of volumes were being sent into Europe from those assets, and whether or not, you know, now that Europa is ramping up, there's sort of more risk for utilization rates in the other businesses into Q3? Thanks.

So it's difficult to predict But roughly, and please understand that this is not precise figures, we will try to run the mill in August more or less or in July at 20% of capacity utilization and move step by step to reach in October, November, the level of 80% of utilization. This is our target. In Europe, and that will depend, of course, on the market environment. Got it.

Do you have similar numbers for NAS and Columbus for utilization?

Yeah, NAS is more or less running above 80%, but in the region slightly above 80%. In the case of the South African market, which also is facing similar conditions than the European one, we are slightly above the 60%. So in the range of 62%, roughly speaking, Columbus, 82%, roughly speaking, NASA.

Got it. Very clear. Thank you. I'll turn it back.

My next question comes from Tristan Greaser from BNP Paribas Exxon. Your line is now open. Please go ahead.

Yes, hi. Thank you for taking my question. The first one is on the inventory losses. In Q1, I think you reported a 44 million negative impact, and you expected some of a lower impact in Q2. So how much pressure did you see in what's included in the EBITDA and Given the trajectory of nickel prices, are you expecting further pressure in Q3, and could it be as large as in Q1?

We are not expecting further pressures, keeping in mind that we have done the most on reducing our inventory. So consequently, the mass of our inventory now is low, and consequently there is not so many items in which we are exposed to make price adjustments or realizable price adjustments. So consequently, this is not going to be a driver for the coming quarter.

Okay. That's very clear. And then on the U.S. stainless market, I mean, we have this view that we have reached a bottom in terms of pricing and demand. but we've seen some CRU, for instance, publish lower base prices recently, and we've also seen some softer demand for carbon grades. So is there a patch of weakness at the moment in the U.S. stainless market, and do you feel confident that you can defend the current margin level?

Thank you, Desana. I think that we are keeping our prices stable, in a stable way because the American market is stable. I also read in some magazines that the prices were dropping a little bit in the United States, but this is mainly deliveries from stock from the service centers. This is not our business. We are supplying from meal to end user or from meal to big distributor. So this is not our case. We are keeping stable prices and we trust that we will be able to keep them also stable in the second half of the year.

Okay, perfect. Thank you very much.

Arne, this question comes from Ionis Masmoulas from Morgan Stanley. Your line is now open. Please go ahead.

Yes, good afternoon. Thank you very much for the presentation. First question from my side. With a new operating model in place in Spain, do you expect the business to be EBITDA positive, assuming you hit the 80% utilization rate and assuming current stainless price in Europe? Thank you.

Of course, we expect positive EBITDA in quarter three and quarter four, but this is our plan. Let's see, because still, as I mentioned before, we are rebuilding our other book. We are negotiating new prices with our customers, and we need to know the results of these negotiations and also in the environment that we are living today. But in our plans, we are expecting to move to positive in quarter three.

Okay, very clear. And the second question, when it comes to Haines, and regarding the Austrian and UK antitrust investigations, do you foresee any meaningful remedial measures needed to close a transaction, such as potentially some planned divestments across Europe, or do you see you can find solutions with limited footprint and financial implications?

You know that remedies in our sector are not so simple. Heinz has no production in Europe, and VDM has most of the production in Europe in different places. So remedies in this, as you mentioned, closing any plant or these kind of remedies will not be very easy. But we are not expecting this kind of problems in Austria and in the UK. I think that we trust. We don't have any... any concentration in those markets. In UK, Haines is more concentrated in aerospace, while VDM is more concentrated in chemical and oil and gas. So if we analyze our numbers deeper, I think the UK antitrust authorities will realize that we are not damaging the market at all. In the case of Austria, we have a strong concentration of VDM's product. Most probably is the concentration of our customers there more than our material, and VDM has a very, very low presence in that market. So we think that we will be able to reach all the approvals from these countries.

Okay, great. Thank you. And last one from my side. On working capital, performance has been very good in the first half of the year. As you wrap up production in Spain, shall we expect to see a build during the quarter? And if so, could you give an indication of the potential range? Thank you.

Yeah, okay. Regarding working capital, we have a very strong policy on keeping working capital on low levels. It is true that with the ramp-up, we might be increasing some of the inventories, but we don't expect them to increase a lot because of our because of our strategy, but remind also that working capital is very much dependent on what raw materials are doing, so that will much depend on what level of nickel we get on the second quarter, which is unpredictable. Okay, but all that in our hands in terms of a strategy, we are deeply following what is happening with the working capital.

Okay, great, so if we were to assume stable nickel prices, you would think that working capital remains within the two-digit million euro range as a bill for the quarter.

Yes, maybe increasing some, but not with significant increases.

Great. Thank you very much.

Our next question today comes from Bastian Sinagowit from Deutsche Bank. Your line is now open. Please go ahead. We're getting no audio, so we will move on to our next question from Moses Ola from J.P. Morgan. Your line is now open. Please proceed.

Hi all, can you hear me? Yes, we can hear you.

Yes, we can hear you.

Okay, thank you. So I just wanted to clarify on the capacity utilization target in Europe. If I look over the past few years, you've not gone above 70% utilization in Europe. So I just want to understand, am I looking at the right capacity of 700,000 tons as theoretical, or is there, I guess, a lower capacity that we should look at if there are any bottlenecks that stop you from achieving the theoretical capacity.

Thank you, Moses. It is always difficult to speak about capacity and about capacity utilization because it depends very much on the product mix that we are producing. It is not the same to produce commodity stainless steel grade than going to more sophisticated products. So most probably, you know, we have changed the The capacity calculation in Algeciras plant will be at the level of 600,000 tons per year with the current product mix. So that's why you would think that this 80% that I mentioned is high for the historical average, or the last year average, but it's not.

Okay, so I guess, should I then look at that 80% as... versus last year's production, perhaps? Would that be a better gauge?

Yeah, more or less.

Yeah, okay, thank you very much for that. And then also just wanted to, I guess, clarify on the guidance here. So if we look at the first half of the year, if we exclude the impacts of the strike of around 40 million, then the run rate is pretty significantly higher versus what you're guiding into Q3. How much of that is, I guess, perhaps expectations on volume decline, and then also what are you seeing in the Americas in terms of business activity, I guess, into a U.S. election as well? Are you seeing perhaps a deferral or delay of demand, so perhaps maybe a stronger pickup into Q4?

You're right, as we mentioned, there's a lot of... The uncertainty is in the markets, not only in the United States but also in Europe and in the rest of the world. I think that it is even more important for the Europeans than for the Americans what can happen in the American elections because we think, we fully believe that any candidate that can be the new president in the United States is going to be supportive for the industry. There's no doubt about this. I think that both Trump and Biden in their presidential campaigns have been always speaking about supporting the American industry and the Buy American program. I think there's no doubt about this. But it's creating some wait-and-see position, but no more than what we have had during this part of the year. In our guidance, of course, we are considering the slow startup of the Therianox plant. So we have finished the strike, and we will not have the effect of the strike, but we will have the effect of low-capacity utilization. And also you have to add some seasonality in our numbers, so that's the reason why we are expecting to be in the same level than in quarter two.

Thank you. That's clear. And just finally from me, if we look back to the initial communication about the acquisition of Haynes, you targeted a pro forma leverage level of one and a half times this year and reversing back to 1.2 times next year. Obviously, with greater visibility now on earnings and the debt level to the end of the year, Is that guidance in your view still relevant at this point, just given where market consensus is on the leverage? And perhaps could there be further ways to release cash flow? I see obviously CapEx at the start of this year has run far under the $250 million target that you discussed for this year. So maybe if you could clarify on that as well.

Yeah, when we announced on February the Haines acquisition, our understanding, we were at the time more optimistic that all the antitrust procedures should be solved more quickly. So our assumption should be that any time during the third quarter, we should be able to acquire Haines. Now, as we said before, we understand that finally all the regulatory approvals may come in the fourth quarter at the end. It may vary. Maybe we are going more to the close of the year. So still it's a bit unsure. And then consequently, as long as we take during the year, the acquisition price, as you know, is already fixed. But then the contribution that Haines should provide obviously should be depending on the period that Haines is incorporated in our group. And let's see if finally at the end everything is solved prior to year end. So on that basis, we understand that the ratios that we were providing must be understood on an annualized basis. As I said before, what we are doing is our best in order to reach in a very comfortable position of flow depth, keeping in mind that that our net financial debt shall increase at that time. And then the contribution of an American player, and especially in this sector, normally the fourth quarter, we know that it's a weaker quarter in contribution. So on that basis, let's say that should not be the best time if finally we are in closing and obtaining the approval for closing it in November or December. But at the end, looking on the On the long track, we feel very comfortable with these ratios for the year 2025. So it has nothing to do with this issue. And at the end, regarding also the point of the evolution of the American market, maybe also it's clear that there are some temporary issues in terms of overstock and maybe some delays that are taking place here. in the aerospace orders, but this is something that is not coming now. Probably it should not be appearing in 24 figures, but maybe in the coming years shall be when probably Heinz should be full participating in the group. So we are not concerned about that, and we feel very comfortable with the guidance we did, as well as with the ratios. On an annual basis, it's going to be achieved in any case.

Thank you very much, Miguel, and good luck to you on your new role, and welcome, Estelle. It will be a pleasure to work with you. Thank you.

Thank you.

Our next question comes from Bastian Sinagowitz from Deutsche Bank. Your line is now open. Please go ahead.

Yeah, hi, good afternoon. Can you hear me now? Yes, we can. Perfect. Glad to hear that. I just have one last question, actually, following up on the implications of the bargaining agreement, which was obviously pretty hard work. Now, my understanding is that this is one of the, I think, key requirements, which you basically need to also be able to produce and run the plant in a much more flexible way, i.e., also produce maybe neater and more profitable grades. Could you maybe quantify what the annual earnings impact of these changes will be once we're back in a sort of normalized environment and once we will be able to see the full effects? And is this part of this cost initiative and efficiency program which you've just announced?

Thank you, Bastian. First of all, I would like to point out that we have been focusing on the new strategy, flexibility, and we never had a tough discussion about salary increases. It was a change of model. It was a change of model that we need to develop our new strategy, and I think that we reached it. I think that we mentioned in our presentations that during the four years of duration of this union contract, we will increase salaries at the level of 13% based on the expected inflation, but we will compensate with our flexibility and with less rigid structure. That increases, and at the end, we expect the labor costs will remain flat for the period, but with a higher flexibility and a higher focus on on high-performance alloys, more sophisticated stainless steel, with more delivery to end users, and in general to more focused in added value products. But we expect to have a flat influence during the period.

So the cost impact, do I understand correctly, that the cost impact is flat because you're going to offset basically the weight increases with flexibility and the fact that maybe you don't have to pay as much for things such as overtime. Yeah, right. But then there's got to be some incremental benefit from basically being able to produce more niche and more profitable products, is that correct?

That's right.

And how much is going to be the effect of basically producing... the upgraded products and improving your mix overall. Is this included in the 100 million number and maybe so how much?

Difficult to quantify.

Okay, fair enough. Thank you.

Our next question comes from Maxim Koch from ODDO. Your line is now open. Please go ahead.

Yeah, good morning. Just a question on Baru. Can you perhaps quantify the impact of the closure on your EBDA in Q2? And I believe there is still a land there which you hoped to sell for a pretty good price. Have you started negotiation in that respect, and when could that come through? And I think you have a pretty modern... set up there, so there were also plans to move that to other places too. So can you also provide an update in that respect?

Thank you, Maxime. Well, basically, still the alternatives still are there. What is clear is that we stop production, as has been stated. We stop production on the month of May, and then we are in the way of of finding the best solution for Baru and for the group. There are certain costs that have been recorded in the second quarter, more or less for retrenchment as well as for some of the cancellations of supplies and so on. This is obviously the part that should be reflected in this second quarter. It's in the range of around 8 million. for the coming months, more or less, at the end, we are in the process of determining which is the best solution. We are having all the necessary conversations with key players for a solution of even selling the business as it is or selling separately the assets. And we are receiving tenders for each of these possibilities. So still we need some months to determine which is the best option. And what is clear is that Most of the pain regarding negative contribution coming from Baru already is there. So there shall not be additional figures that should minorize the group results from now on. As we make a huge improvement at the end of last year, whatever may come shall be a positive contribution on an annual basis by far. And

Yeah, just the last one on import pressure in the U.S., because this has been a big theme in carbon steel, and this has been driving down prices quite heavily in the last few months. It seems that in stainless steel, the threat is not that visible. Can you confirm that, and why do you think that the stainless steel market is better shielded from imports there than carbon steel is?

We cannot say that we don't have import pressure in the United States because import market share went from 24% to 27%, so it's increasing. So we cannot increase our prices there because we will lose more market share. But today with the Asian prices plus all the freight costs that is moving up, plus the 25% duty, plus the cost of internalization, delivering the material inside the United States, more or less at the level of the current market price. So I think that is not a good option for importers to import more because, you know, with the lack of visibility when you are importing from Asian countries, you know, delivery times can be at the level of three months, while when buying locally, you can have the material in 30 days. So I think that we can compensate with our short delivery times, the more attractive Asian prices. So we are assuming part of our customers' risk, and we are reducing the risk by delivering the material very fast. So we are comfortable with the situation.

All right. Thank you.

Our next question today comes from Oscar Rodriguez from Banco Sabadell. Your line is now open. Please go ahead.

Hi, good afternoon. Oscar Rodriguez, Banco Sabadell. First of all, congrats to them, Miguel, and they look like in your new roles. And just one question from my side. It's regarding South Africa. Could you provide a bit of color about the global situation there? If we look at the FDA figure for the whole stainless steel division, it's not very clear its contribution. And at the same time, following up on your comments before, thinking about the levels of utilization that you may provide, should we assume that you are not serving to Europe from Africa at this point?

Thanks. Thank you, Oscar. In our strategy, moving to regionalization, so we think that South Africa in the future will have to be less dependent on exports to Europe and more concentrated in the African market and also with the hope that one of these days the African or some of the African economies will wake up. South Africa during the quarter two has been supplying materials to Europe to substitute The cities of some of our customers that couldn't receive material from Acerinos Europe. So South Africa has been increasing the export activity to Europe, but this is not the strategy for the future. There are certain markets that we are very active from South Africa, including the Middle East, including Latin America, that for proximity and opportunities in the market we can work with Columbus. But step by step, South Africa will have to be concentrated more in the local markets. That's why we are trying to develop this flexibility in the plant that I think is the most flexible in the world because we can produce at the same time stainless steel, nickel alloys, and mild steel. So South Africa for us today is not a problem. It's in positive numbers normally, so it's not cash-consuming. So I think it's a part of our strategy, and we are comfortable with the position there. There's not many companies in the world, can say, that have more than 50% market share of a whole continent, and we have this position in South Africa. So I think that we have to defend this position and keep South Africa as a strategic part of our group.

Okay, that's it. Thanks a lot.

Our next question is from Robert Jackson from Bank of Santander. Your line is now open. Please proceed.

Hi, good afternoon, Esther and gentlemen. Regarding Atelionox Europe, can you talk about your plans for balancing the investments to decarbonise Atelionox Europe and also to improve this plant's which has suffered significantly over the last few years. How are you going to combine that with BDM products and integration between the two plants? Just basically give us more visibility in what your plans are for these. That would be my first question. Thank you.

Thank you, Robert. In regarding of the decarbonization, as I said before, We are presenting a new program that we are almost closing it for being approved at our board in the coming quarter, and we shall make it public, so it shall be plenty of data available there, so probably for the year end we can give more details and more disclosure. As you know, in terms of the carbon footprint, as we have said, the 3.0 is the most intense in in renewable energy. We have been suffering that in the first semester, the lack of activity. But once we normalize with the ramp up of the production, this shall be highly appreciated. So in this regard is the plan where this area is absolutely much more relevant. And we keep the trend. So we have also the programs in place that have been explained regarding the Excel program. So we are there. The issue of Azarinas Europa for running material or trolling material for BDM, we are already there. As much as it's efficient and it's effective and the transport costs and so on justifies it, we shall keep on doing, but this has no relevant... consequences in terms of the carbon footprint so keep in mind that when we it's a high qualified production but for a relatively reduced number of tons compared with the tons we are using in the stainless world so on the actual times as has been expressed that we still have capacity available in South Africa sorry in Europe the issue for being transforming or even producing material for BDM takes sense. In Athena Europa, as well as in Columbus, this has been the case.

Bearing in mind Athena Europa, a few years ago, you invested in improving the cold rolling capacity. Could we expect to see any significant investments over the few following years to, again, further improve the efficiency of Athena Europa in order to be more competitive versus some very efficient Asian and Chinese players.

You know, Robert, that we are constantly trying to bottleneck our facilities and trying to find new opportunities to grow. And, of course, we have these plans for Acerinos Europe, but this is still not the moment. We are now concentrating on our expansion in North American style, BDM, and with the case of Haines. It doesn't mean that we don't have plans, but this is the moment to concentrate on the current expansion plans.

Just a final question. Regarding the Mexican steel imports into the United States, which will now be subject to 25% section 232 tariffs, unless proof is provided that the products were melted and poured in North America, could this help to be more supportive and reduce those 27% import levels? What's your opinion on this change?

I think that will help. I think the Mexican producer, Mexinos, you know, is part of the Autocompo group, and it is a re-roller. It's never damaging the American market and is mainly concentrated in Mexico. But sometimes Mexican customers or some of Mexican importers can bring material from other countries and after a small process or whatever, send it to the United States. And this is what the new measures are. are avoiding nowadays. You know that the United States decided to apply the melted and unpoored origin of material. It is not aligned with WTO rules, but that reflects better where the material has been done with the carbon footprint in the place that was melted. So now in the United States, moving from WTO rules to this melted and poured, that means that the origin of the material is the place where this material was melted. So that will avoid non-American... material re-entering via Mexico in the United States. Most of the raw materials that this Mexican plant is using are coming from the Alabama plant of Autocumpu, so that is not a problem. They will be able to continue with this process, but some other players will not be allowed to enter material in the United States without duty. when the material is not melted in North America. Very clearly, this is part of the American protectionism, and it's interesting that Mexico is also working in this direction.

Okay, thank you very much, and I wish Esther and Miguel all the best for your new role. Thank you so much.

Our next question is a follow-up from Tom Zahn from Barclays. Your line is now open. Please proceed.

Hi. Thanks for taking the follow-up. It's a very quick one. So you mentioned earlier, I think, that you expect positive EBITDA for Europe already in Q3. I know you didn't disclose for Q2, but in Q1 I think it was minus 31 million. I can't imagine it got a lot better in Q2 with the extra month of strikes. So it sort of feels like it's a 30 million improvement just in Europe that you're baking in, which then, you know, if I put that against your guidance for flat EBITDA for the group, kind of implies quite a bit of weakness elsewhere. It sort of sounds like U.S. is quite good. BDM is obviously fine, or HBA, sorry, is fine. Is there anything else that I'm missing, or is it just some conservatism that's being baked into that flat quarter-on-quarter guidance?

Thanks. Thank you, Tom. You know us. There is no visibility as previously has been expressed. The market is extremely weak and consequently we prefer to be prudent and conservative on this basis. We are entering in the seasonal lower quarter. We are seeing that according to the nickel price evolution, the extra alloys is expected also to go down, and this has a quick effect also mostly in the States. On this basis, we prefer to be prudent. We feel comfortable that these results can be repeated. It's true, as you are saying, that we shall not experience the big loss that we have had in the Q2 as consequence of the of the strike, but at the end we also are contemplating some a bit more soft performance in other divisions, mostly driven by this fact of the Q3. So in these ways, with the lack of visibility in the market and with uncertainties, what is more prudent is to consider that in the third quarter we shall be in line. Got it. Bernardo said previously of being positive EBITDA. I was too optimistic. Maybe, sorry for correcting my voice, maybe obtaining positive EBITDA during the quarter, which doesn't mean for the full quarter. During the quarter we can bid. Maybe not in July, not in August.

Understood. That makes more sense. Cool. Thank you.

Our next question is from Moses Ola from JP Morgan. Your line is all open. Please proceed.

Again, just a quick follow-up on me. I just wanted to clarify, so the CAPEX guidance of $250 million for 2024, is that still retained? And, of course, as you mentioned, Miguel, given the integration delays for Hanes, if I go back to the initial guidance of $200 million CAPEX, for next year, could that also be delayed? Just trying to build a sense of group capex for 2024 and 2025.

Okay, for with regards to 2024, okay, we will, we will We can say we will keep at the high level, so what we have been doing during the first quarter, during the first half is not gonna be the same as we will be doing for the second. It is true that some of the capex might be going slightly down, okay, but not significantly, so we just keep a track of these more or less figure, just a bit reduction, but not an important one.

If I can add something, Esther, you know, we have lost five months of this project development in Spain, so we will not be able to recover all this capex. So, I mean, we will not have time to develop all the projects that we have in mind in 2024, so some of these projects will pass to 2025.

In regard to Heinz, when we disclose the $200 million project, to be done in Haines. We were not contemplating at that time that this shall be starting in 24. And in addition, we must keep in mind that we are extremely respectful with all the regulatory approvals and consequently we are not having any further analysis or details and common discussions with Haynes in this regard. So this shall come later on. So the decisions on the CAPEX and the fine tuning of the necessary CAPEX to be done is something that still we have not been discussing and shall be coming later on. But by far, not in 24. it shall be any case discussed as soon as we take control of Haines and keep in mind that it shall not be starting day one so obviously more or less we should just fix which are the necessary equipments assigned to the proper suppliers and then we shall need a waiting time so in the evolution of the of the 200 million is not in the first two years where it's going to take place the most relevant part of that so in terms of the group we shall accomplish we probably as you know next year it shall be more our capex related to the investments that we are running in NAS and in BDM and later on shall be gradually having more relevance those more driven to gains.

Very clear. Thank you so much.

We have no further questions in the queue at this time, so that concludes today's Q&A session. I'll now pass the floor back to the Theranos management team for closing remarks.

If I can say something, I would like to apologize for my mistake regarding Nazareno's Europe, but we are so excited with the new plans, with the new strategies in Nazareno's Europe that I'm more living in the positive scenarios and dreaming to be able to do all these things after the term negotiations, five months of negotiations with the unions there, and getting a final agreement that's going to be positive for everybody. And I trust very much our people in Algeciras have understood what is the situation, have understood that we need this flexibility, have understood that we need everybody's support to make our company very successful again. So I apologize for that.

Thank you, Bernardo, for the clarification. And thank you, everybody, for joining us during this call and for all your questions. and we hope that you have a good summer break, and just remind you that the next set of results will be on the 4th of November.