Acerinox Sa

Good morning, everyone, and welcome to the Acerinox First Quarter 25 conference call. Today, the presentation will be hosted by our CEO, Bernardo Velázquez, our Chief Corporate Officer, Miguel Fernández, and our CFO, Esther Camos. After our prepared remarks, we will open the line for questions. Before getting started, let me remind you that this conference call is being broadcast on our website, atherinos.com. Now, I would like to give the floor to our CEO, Bernardo. Please go ahead.

Good morning, everyone. Thank you for attending this presentation. Before I came here, I was reading the reactions in the newspapers and saying something like, I think those results are shrinking because of tariffs. This is not reflecting the reality. Steve and Miguel will explain later our financial data and why the profits are below Q1 2024. But this is not the situation. Remember, there was a correction in the market in Q4. And as expected, we started this quarter recovering gradually, recovering step by step. March was a good month in other book. Other book is in a healthy situation. And in the 2nd of April, with the announcement of the Liberation Day, with the tariffs, that created a lot of confusion. It doesn't mean that the market shrank again or that the market went down again. The market remains stable at the level of March, waiting for the news, waiting for the negotiation, and waiting for what can happen next. with the situations, supply chains, and how the tariffs will affect the different markets. What can we do in this situation, in this scenario? First of all, as we present in this slide, is control the controllables. So we have to surf these big waves, and the best way to do it is monitoring our supply chains, keeping control of our business, and keeping control of our working capital. I think this is something that we always try to show, that we have experience in managing the volatility, and the working capital is very tight controlled. This is important. And once we have this, so we are always in a cyclical business, long-term oriented, with a huge experience in this industry, focusing on our long-term strategy, as you can see here. So we have released a plan to control our working capital that is working well. We will focus on this to reduce our debt. We are very happy and very busy integrating Heinz in the organization. Until now, it's a real success. We are focusing in the strategic plan of Acerinos Europe, trying to move to more added value material, the same that we are working in diversifying the production of Columbus to reduce the dependency in our exports. We have a privileged position in the United States where we are investing to accompany the American market, and we are growing in HPA, in BDM also, because it's a good business and it's very healthy. The situation, so we don't have to panic. There's a lot of news. There's a lot of volatility, but we are very calm. I think we have our business under control, and it's in a better situation. So we have been improving from January to March. March is at a good level. Our other book is solid, and this is what our results will reflect in future. So having said this, I will pass the floor to Miguel that will explain the situation in the different markets.

Thank you. The most remarkable bullet points for this first quarter of the year, first of all, we must express the satisfaction on a bid of 102 million euros. In the actual business climate, as compulsive as it is, We have demonstrated, once again, our resilience. We are establishing at the bottom of our profitability, of our quarterly profitability, these trends of 90, 102 million euros in this quarter, 91 as the EBITDA, adjusted EBITDA in the Q4 last year, so... We are clearly giving the consistency that what was previously our normalized EBITDA three, four, five years ago, now is more or less the sustained EBITDA we are keeping in the lowest part of the cycle or in the difficult times as has been this challenging first quarter. So this for us is extremely positive, as is also extremely satisfaction our strong cash generation in the quarter. We have generated 99 million euros of cash flow in a quarter in which production has increased 29%. In addition, we have been even able to reduce the working capital, around 6 million euros. So what normally means a first quarter of normally increased working capital, especially with such increase of production, in our case, even we have been able to reduce it. So we are extremely committed for a working capital reduction program, and we are fulfilling all our targets. and this is something that obviously is going to keep consistency in the coming quarters. In addition, the net debt of the group, 1.2 billion euros, you know that net debt never has been our strong headache. Our debt is extremely competitive. We are obviously just including in all our debt all the acquisition of France International, so we are there, but in this first quarter, As a consequence of this strong cash flow, the net debt has slightly increased, around 75 million, keeping in mind that it's a quarter with a dividend payment of 77 million euros, keeping in mind the strong capex in which we are involved with 57 million euros, keeping in mind also The conversion difference effect, which is strong in this quarter, because as you know, we have a strong cash position in the States, so the pure accounting conversion difference of our cash in dollars to the euros now, in a stronger euro, weaker dollar, is creating this effect. So in this basis, there is nothing to be concerned about, and this is the basis of the business. Gradually, as we announced, the net debt shall be reducing during the year. In addition... it's more easy to appreciate actually our strategic advantage compared with the industry in regarding the geographical diversification of our assets. We are producing in three different continents. We are not exposed to a single area recession, so consequently we can compensate with this. We are stronger, obviously, in America, which is the one keeping the – better performance market in these days, but having this geographical diversification of assets in the new world we are entering on with this strong relevance of the regionalization issues, this is a unique opportunity probably among in our industry that we are having. As a consequence of all of this, and especially keeping in mind that with all these convulsive months we have experienced rather in the quarter, but the situation is improving, especially since March. We can very comfortably state that no doubt the Q2 EBITDA shall be higher than the Q1. If we go to the market highlights in this period, It's very easy. We try to express in a visible way with dots, more or less, the favorable or the unfavorable facts taking place in each of our markets. So it's very visible to appreciate that our main market, which is America, is where we have more positive dots. We are probably neutral in the HPA business and definitely in the European market is where still We are not appreciating the green shots. If we go to America, basically there are three relevant facts. The inventories remain at very low levels. The prices remain stable, and this stability for business climate is the most adequate, also for the comfort of our customers. So this is a very positive fact in America. And in addition, the Section 232 has been reset. So as a consequence of that, no exclusions and also introducing more final products. This is a very positive fact for the confidence of our customers. So these facts obviously are there. It's true that the demand remains flat in the States, but in any case, with this demand, we can live easily, and we probably shall be increasing our productivity in the remaining quarters of the year. And the most negative fact is that even in this basis, but at the end, still the imports are gaining market share in the States. But for us, we are easily now going to business in America, and we are comfortable on that basis and improving. In the high-performance alloys, depends on the final products. It's more or less a stable market. There are strong sectors, such as the electronic and automotive. We are seeing a wait-and-see in the... In the oil and gas, we understand that this is something that is more coming for the second semester as we are participating in relevant tenders and projects that probably shall materialize in the second semester. So in this regard, we keep comfort. And the sector that is obviously relevant, as is the aerospace, the order book remains strong. The process for the future is very solid. But it's true that the recovery after the – disruptions in the supply chain shall be corrected gradually. So in this regard, we also feel comfortable. The sector that probably is more now painful on the HPA is the chemical process industries, as a consequence that the actual uncertainties on the market are postponing any decision on capital investments. And as I previously said, still we are not seeing green shots in Europe. The prices remain extremely low. There are some markets that have been increasing imports. mostly to markets. We have been appreciating imports in Italy and Poland. So in these markets, the inventories are a bit high, but in the rest of the markets, the European markets, the inventories remain more or less controlled. And still we are not seeing a reactivation of the demand in Europe, which is something that at the end is needed. It should come. But still we have not seen the grid shots in the reactivation of demand. Esther shall explain now the figures for the quarter.

Okay, so going to the consolidated results of the group, okay, as we announced when we presented the full quarter results, we are showing a recovery, a recovery in terms of EBITDA when we compare to the operating EBITDA that we have in the full quarter that we will come later. Going just line by line, if we start by production, we are increasing our production in the group by 29% compared to the last quarter, which is a significant figure. But we have been experiencing recovery in all our plants, but very remarkable the one in Europe, which has increased in almost 80%. If we go to sales, the sales increase has been lower than the activity, and this is – mainly marked by two things. One is the reduction on the oil shortage in the States, which is also affecting the margin. That is also compared to Q1 last year and also to the previous quarter. And also the higher sales in Europe, which are much lower prices and still depressed prices. Okay, so that's two effects that makes the sales to increase a little bit less. In terms of EBITDA, remember that our fourth quarter operating EBITDA was 91 million. It was affected by the reported EBITDA was different. It was affected by a lot of extraordinary effects, which amounted 59 million being the main one, the sale of Baru. So comparing to that, we are increasing our EBITDA by 12%, which is a recovery. And what is very remarkable in the EBITDA is that when we look at the EBITDA month by month, We are experiencing an increase from January to February and being the best one March, both in sales, in margins, and in EBITDA. And we are finishing March, as Bernardo said, with a solid order book, which makes us be positive for the next quarter as well. In terms of EBIT, and I think that is important to explain because in terms of EBIT, we are reducing a little bit, and that's impacted by depreciation because of the acquisition of Hanes. In that regard, it is not only the depreciation of the pure depreciation of Hanes. Hanes is being consolidated. fully this quarter, okay, but it's not only the depreciations are faced, but it's also the accounting standards, okay, that makes us evaluate the tangible and intangible assets at fair value. And that creates more depreciations for us. That's impacting the EBIT. And in terms of results before taxes, we have also been impacted by the higher net financial debt. OK, that is reducing our because of the cash that we paid for the acquisition of Haynes. We are reducing our cash and therefore reducing our financial financial income. OK, and that is making also the result before taxes to to to be reduced. But in general terms. we are presenting, we are seeing a recovery, we are seeing a recovery for the next quarter. And what's more important is, and what we are more proud about, is the operating cash flow. We are generating a cash flow of 99 million in this quarter, despite the increase on the activity, which is very remarkable. We are even reducing working capital in these circumstances, and this is due to the success of the working capital management program that we are that we have launched in the group and that we are very committed with. If we go to our divisions, starting by stainless, production has increased. It's 29% that we already explained. Sales are affected, as I mentioned, by the lower research in the state and the low market prices in Europe. But even though Compared to last quarter, we have increased 10%. The EBITDA of the fourth quarter is, when we see the reported EBITDA, is 126. But if we go to the operating EBITDA of the previous quarter, it was 57 million. So we are also achieving a recovery in this quarter in terms of EBITDA. We are ending with a solid order book in the U.S. for March that, as I mentioned, the activity has increased month to month, and that is something very remarkable. We still see that for the next quarter. We continue focus on our strategy and cost efficiency plans, okay, and that's enhancing our competitiveness and allow us to continue get better results in all the plants. And the operating cash flow, both in stainless and later we will see in HPA, has been positive in both units, ending with 41 million operating cash flow this quarter. If we go to HPA, in HPA, this quarter fully incorporates Haines. Remember that in the last quarter we just incorporated one or consolidated one month. So that makes the figure not 100% comparable. The decline in nickel prices is also impacting the margins in the HPA division. In terms of demand, the demand in Europe has been weak, based on what Miguel has said. More or less, the customers are postponing all the capital investment projects. Okay, so that's affecting the sales in the European market. And in the U.S., as Miguel has also mentioned, the recovery in aerospace has not yet come, but this for us is not a problem. concern, okay, because due to the long term, all the books that There is in the sector we are still committed and prepared to deliver whenever the recovery comes that we expect possibly most for the second half of the year. Again, positive cash flow in this division as well, and very remarkable the reduction in the working capital, despite also the increase of activity by the 29%. And now going to the capital allocation and the cash flow, okay, we can see, which is very positive, that the full amount of the EBITDA is almost... is almost in the operating cash flow, has materialized in operating cash flow. The working capital has decreased in 6 million, which is remarkable, as we have all said, in an increase with that big increase of activity. Also, I want to highlight the financials on others. Despite the increase on net financial debt and the reduction of cash, we still have only a consumption of 6 million of our cash in interest. We have not – this quarter has not been affected by significant payment of taxes, and therefore we have had an operating cash flow of these 99 million that we are announcing. Regarding CAPEX, our CAPEX has been 57 million, which was 36 million in the Q1 2024. We are on an expansion phase, and our strong balance sheet allows us to continue with big CAPEX projects despite being the lower part of the cycle. So we are investing also in the lower part of the cycle and being prepared for when it comes to recovery. The free cash flows have been 42 million. We have paid 0.31 euros per share in January. Okay, the next payment will come The next payment will come in July. And these 40 million that we also need to explain, our cash in North American stainless have been negatively impacted when converting into euros due to the weak U.S. dollar. And all with that, we have ended with a net financial debt of 1.2 billion. So I think that proud of the capital cash generation, and that's more or less what we have achieved in the quarter. And going to sustainable development, Miguel.

Yes, sure. We shall report on semester basis all the KPIs in sustainability. In any case, we wanted to include, yes, 10 programs developed in the first quarter on different sustainability areas, sustainability is on our DNA. But the one today we probably want to give also more relevance is the successful penetration in the market of the equathrinox. So at the end, in this product, the adding the traditional virtues of the stainless of quality, durability, and recyclability. In addition, we are reducing the carbon footprint. So this EcoAcerinox is the first stainless steel in the world that covers the three scopes of the greenhouse gas emission carbon protocol. So at the end, it's covering the scope one with more than 50% reduction in the CO2 emissions. It's covering the scope two in the using of 100% of renewable energy, and it's covering the scope three with more than 90% recycled material for its production. So it's a unique product, and it's being appreciated by our customers. We are dealing... We have activities and introduction in more than 40 customers, and this area probably is expanding. And as soon as the demand also mostly in Europe reactivates, probably shall be a much more appreciation and expansion of this product.

Okay, just to finish and summarize the presentation. Of course, we are waiting for negotiations between countries with the United States to put some more rationality in the systems and to clarify what's going to be the situation. We need stability. And I'm sure that it will come sooner than later, but probably sooner. And in between, we are doing what we have to do, that is focus on controlling the controllers, controlling our business. And you know that there's nobody more experienced in this industry than that our team, that we have been managing crisis in 2008. So we know how to do it. We know how to work with this volatility. We are trying to keep our working capital under control and inspiring confidence in the way we manage our business. This is important. Tariffs at the end, or not tariffs, this protection of the industry will be positive for the Athenian group. Remember that we are leaders in the United States and that the United States, North American stainless, is the engine of our group. So more stability in the United States and better industry protection will give us more benefits. We are more Americans than Europeans today. But also, I think that Europe will wake up and will consider seriously to protect the industry because it is necessary. And of course, as I said, controlling our working capital, this solid operating cash flow, giving us a healthy financial position. So this is more or less as we see the business today at the end of the quarter. This is stability, quiet, but not panicking and waiting for the negotiations and waiting for more visibility with the tariffs because the expected recovery has been postponed, but it will come. And now for the second quarter. We are optimistic because we have a very solid other book in stainless steel. So we are better now. We're in a better position than we were in January when we started the year. So our other book is strong. Also in HPA, it's also strong. It's very stable in the United States with some wait and see in Europe, especially in oil and gas and chemical processing industry projects. The same that in stainless steel. consumer goods are performing better than capital investment. It's very logical with this situation. and this is also affecting a little bit to HPA, but our other work in both sections, in both divisions, is solid. So having said this, we will repeat again. Q2 is going to be better than Q1, and Q2 is going to be better than Q2 2024, and most probably the first half of the year is going to be at the same level or slightly higher than the first part of the year in 2024. So that's it, Carlos.

Thank you very much for the presentation. Let's move now, please, to the Q&A session. So, operator, please go ahead.

Thank you. We will now start today's Q&A session. If you would like to register a question, please press star followed by one on your telephone keypad. If you wish to withdraw your question, then it is star followed by two. Our first question today comes from Adana Okoku from Morgan Stanley. Your line is now open. Please go ahead.

Hi, morning. Thank you for taking my questions. My first is on Europe. Could you share some more detail on the progress of the strategic plan? So you mentioned the volume uplift, but how did profitability look in Q1, and are you still confident that you'll reach breakeven by Q2? Okay.

Thank you for the question, Adana. The plan is going well. It's going ahead. Focusing in end-user business, focusing on more added value products, and we are doing well. We are doing better than expected with new grades, with new customers, and as Miguel mentioned, with the ECOA 3NOX. We're moving in the right direction. With the current situation of prices, as we mentioned in the last presentation, that we expected to be in break-even at the end of Q2, now we have to say that this situation is also postponed a little bit. But we are close to this.

Okay, perfect. Thank you. And just second on alloys and Hanes in particular. Could you help us understand how Hanes contributed to the results in Q1? And are you still expecting an inflection in the aerospace supply chain disruptions from the second half? Or do you expect some delays here as well?

We have more visibility in higher volumes in the aerospace, gradually recover for the second semester, and especially in the oil and gas. Those are the ones which appear with the two dots, especially because of that circumstance. Still a weak beginning of the year. But gradually, in the second semester, we wait for recovery in both areas. The area that for us is also relevant and is the area that still needs more certainty and a more relaxed climate for investing again on specific projects is the chemical process industries. But in the others, we are comfortable. As it appears... and electronics are doing well, and we gradually see the recovery for aerospace and for the OLS.

Disruptions were last year. Now the situation is improving. It's not the bottlenecking. Still, they have some bottlenecks in the supply chain of the industry, but our deliveries are very stable and most probably will remain stable for the second half of the year.

Great. Thank you very much.

Our next question comes from Tristan Gresser from B&B Paribas Ex-Aim. Your line is now open. Please proceed.

Yes, hi. Thank you for taking my questions. Maybe on the U.S. market, if you can comment a little bit on what you've seen in recent weeks in terms of order activity and demand. I guess the recovery that you expected in Q2 has now been a bit postponed. What kind of operational support do you see in coming quarters? If you can try to quantify that maybe on the higher volumes. We've seen CRU saying that base prices have started to increase. Can you confirm that? You also mentioned increased productivity. Is that something we should see in Q2 or is more H2? And if you could discuss that a little bit as well.

Thank you, Dustin. In the United States, as I mentioned during the presentation, we see better activity in consumer goods than in capital goods. In our case, in our business, that means that we have a better order book in cold roll than in hot roll. Heavy gauges are more focused on the capital investments, while The cold roll is more for washing machines, suppliers in general, automotive industry. So our other book is full in cold roll and still waiting for some more others in hot roll because of this project that has been postponed. But this means... that our order book is solid, is good, the more added value products are full, and that will give us more production, and that means in our business, in our line, also more productivity and more competitiveness. Price increase. I think that there's enough noise in the system to put more. So we have to take care of our customers. I think we are not only the biggest in the United States, but we are the leader. We want to be a good leader. We want to take care of the market. And now we have to give stability. The level of prices is enough to compete. And let's see what's happening in the coming months if there's something that we can do. But Until now, we are quiet and we are happy the way the prices are.

Okay. That's very clear. And maybe just on the tariffs impact, I've seen that you started to put, again, some surcharge on tariffs. They're relatively small. But can you just let us know where you impacted on the raw material side and what's the customer reception of those higher surcharges?

Still, it's interesting because we know what are the tariffs today, but we don't know what are going to be the tariffs tomorrow. But what is clear is that everything related with raw materials will pass through the customers because it's a raw material cost. And we are normally in our business, through the alloys or charts, we pass this cost to the customers. But let's see what happens until now. For example, Ferrochrome is important for us, and it's out of the tariffs. Scrap is local scrap, so we don't have tariffs. So it's not affecting. That's why the impact is so low.

Okay, that's clear. And maybe the last one on the U.S. to wrap up. We've not seen too much of a decline in imports on the flat roll side in April. Have you seen Asian competitors... which were already paying the tariffs, taking share maybe from European players or other exporters and that putting pressure on the market. And I think you mentioned in your remarks that you're negotiating with the U.S. maybe, if I understand that correctly. Does that mean that you think there's potential additional trade measures that could be implemented near term?

You know, imports are in a stable way now. Some of the European players or some of the importers try to accelerate the orders that they had in the ports in order to take this material before the tariffs were applied. Today, with the 90 days of impasse that we have now, everybody has a 10%, more or less, More of the same. Yeah, negotiations, it's something that we cannot control. And additional trade defense measures, it is totally out of the tariff system. I think following the WTO rules in all the areas where we are applying, if there's an importer that is not fulfilling these rules and we can consider this an unfair competition, we will think and we will study to place or try to send to the trade court, you know, these cases of anti-dumping or anti-subsidy or anti-circumvention. And we are studying several cases in the United States.

Okay, perfect. I leave it there. Thanks a lot.

Our next question today comes from Tom Zhang from Barclays. Your line is now open. Please go ahead.

Yes, morning. Thanks for taking our questions. Two for me. The first one, just again on the guidance around the building blocks. So you kind of said, you know, you have solid order books. So it sounds like there'll be some volume increase in the Q2. It sounds like pricing can be fairly stable in the US and Europe, you know, Europe could be at a lower level. I was just wondering if there's anything you can say around cost movements into Q2. Do you think that'll be fairly stable again? I guess we've seen European stainless scrap prices come down a little bit in the last month. And also, if you could clarify if there's any inventory valuation effects in the Q1 prints that might reverse in Q2, please. That was the first question.

Thank you, Tom. Yeah. In terms of in terms of all the book, as we said, we are we are we have a solid order book. OK, especially in the state. And we are we are comfortable with the levels that we are achieving. We are increasing, which are continuing, continuously increasing. both month by month. We will, as I said, we have been increasing from January to February to March. March has been the best month for us in the quarter, and we expect continuing in that level for Q2 or even increasing. So that's more or less what we expect with the With the volumes, we will have a slight increase. It won't be the 29% that we are presenting compared to full quarter, but we will have an increase for the next quarter again in terms of volume. In terms of cost, you know that very much depends on the prices of the raw materials as well. Okay, but we will continue with our – we are continuing with our programs and our efficiency costs programs that we are working on scrap, on higher percentage of utilization. So that will help also with the costs as well. Okay, as well as continuing with our programs for variable and fixed. But, of course, there are uncertainties on the raw materials and in our side sometimes on the electricity, which has also improved in the last months. But, of course, there is always uncertainty. some volatility there. But everything that is under our control will be managed correctly and trying to reduce. And regarding inventory variation effects, if there is stability on the nickel, which we don't know, we won't expect inventory variation for next quarter. In this quarter, I think I mentioned, but we have had a negative inventory impact of $24 million in this quarter, and this is part of the EBITDA as well. If the nickel and everything remains in flat levels, then that effect will not be happening in the next quarter.

Thank you. And then just the other, the second question was around, you know, you mentioned the chemical processing in some areas, you're seeing capex being postponed. So just to clarify, is that as a result of tariffs or is that something that's already kind of been in the market? And are you seeing any of that now spill over into stainless or at the moment is your order intake still largely unchanged from what you can see in April?

This is very clear. Imagine that you are an American customer and you are importing a car from Europe. And you don't know if the tariff is going to be 25, 20 or nothing. So normally how do you manage the situation? You postpone it and wait to clarify. Once the situation is clear, you will decide if you want to pay the tariffs or not or buy from another area. And this is what is happening. It's only possible. postponing the decision, waiting to clarify the situation.

Keep in mind also for the capital projects in chemical processing industry, it's a combination of focus with the tariff, which is highly relevant, but also with the geopolitical uncertainties. We are still having conflicts, and therefore there is no certainty of when Europe is more or less reactivating, and as a consequence of that, this part of the business is the one remaining more in a wait and see prior to taking further investment decisions.

That's it. Thank you. And since you mentioned electricity, maybe if I could just sneak one in. Could you just clarify there was no sort of impact on the business from power outages in Spain earlier last month?

No, no, no. We were lucky. That was good luck because we were not melting at that time. That day, at the moment of the blockout, we were not melting. So we have a very clear protocol how to manage the situation because something normal in the industry... We call it in Spanish interrumpibilidad. Normally we have a contract with the system, the company that is managing the system, that is they can cut the industry when it's necessary. This time they didn't have time to call us. It was a cut without any information in advance, but we were not melting, so the damages were very, very small, very limited. One day of production. Got it. Thank you. I'll turn it back.

Our next question today comes from Dominic O'Kane from JP Morgan. Your line is now open. Please go ahead.

Hello. Thanks for taking my question. I just have two quick questions relating to Haynes. um could you maybe just clarify specifically what the haines ebitda contribution was within hpa during q1 and then on the synergy uh estimates that you've previously provided obviously you've previously increased the synergy estimates to 75 million dollars is is there opportunity as you get further into the business for upside potential on a longer-term view to that $75 million, and how are you thinking about the timing of those synergy realizations? Thank you.

Dominique, in regarding we are now presenting as a business unit the HPA. So in that regard, as Esther mentioned, we are including the full quarter of Haines this time. So obviously the comparison with the previous year, this is not there. And Heinz only registered one month in the previous quarter. So this is a normalization period of three months for Heinz. In general basis, as has been precise, the evolution in the American market and for relevant sectors of Heinz, as for example, their space is gradually recovering, so their contribution should be higher. And in the case of EDM this year, it's more easy to appreciate that there are effects on the nickel, more or less affecting also the profits of EDM, which are slightly lower than those of previous year. You remember there were certain tailwinds at that time. And the chemical process industry is a sector which also for BDM is relevant, as well as it's the oil and gas in which, as I mentioned before, we are involved in certain projects. So the contribution of things is expected to be increasing during the year. In regard of BDM, it's true that with the better prospects we are seeing now for the second semester, especially in oil and gas, which is also a relevant sector for BDM, we are comfortable. But we must remark, as we have been making in the last months, That at the end, for the last year and a half and the previous year, BDM was strongly supported by Tailwinds. And at the end, our reference level, our reference contribution for BDM is substantially above the one that we expected. initially contemplated when the acquisition, but we cannot establish that the standard of BDM contribution is going to be in the next term, the 170 million that we were able to do two years ago. So this is something obviously below that level. But it's absolutely in line and has been in line with the forecast we have for the year. So in this regard, there have not been surprises. So our HPA division has been absolutely consistent with the forecast and the budget established for the year.

Regarding the scenarios, it's good news that when we presented the acquisition of Heinz at the beginning of 2024, we estimated scenarios of 71 million, but at that time we didn't have access to the Heinz books. So now, once we enter in Heinz in November 2024, We have been double-checking all these sceneries, and the result of that is that we have confirmed that 71 million of sceneries are there, and also there's some room to improve it, so that's why we changed the number to 75. Of course, there is no potential, but that will come. Remember that we have announced with the Heinz Acquisition also a capex of $200 million to increase upstream production, to put a vacuum induction furnace, a beam. to install a forge that will give us more capacity, that will give us also the capacity to process some of the enhanced materials in North American stainless. So the potential is huge, but we haven't quantified it yet.

Thank you.

Our next question today comes from Bastian Sinowitz from Deutsche Bank. Your line is now open. Please proceed.

Thanks for taking my questions. I just have two quick ones left. The first one is on the U.S. market where you seem to be pretty confident on the demand side. I'm wondering what is driving the order book strength? mostly improving because your clients are basically taking market share following their inclusion into Section 232 or is there any tactical inventory building as far as you see because at least the direct tariff impact on stainless has been pretty small so far and clients don't know whether that could be changing in about three months from now. That's my first question.

This is a mix of everything. Until now, I think the effect of import reduction hasn't come yet. We cannot see this yet. Probably it will come in the future. There's more activity and we are not, more or less, the market is stable. The thing is that we are recovering a normal business. At the beginning I mentioned that we have been gradually increasing because Q4 last year was a correction quota. We are correcting, so we are increasing our other book. We have what is normal today. I cannot say that the market is booming. We said that the recovery has been postponed. But we are in a stable situation. Remember also that the stocks in the American market are still much below the historical average. So there's no stock reduction. Last year in 24 and 23, there was a stock reduction. So apparent consumption went down in order to digest this excess of stocks. that the stocks are in a normal level or even lower than normal, the customers or distributors are buying what they need and customers are buying what they need. So that's why the market is strong.

Okay, got you. And maybe just to round this off, can you maybe give us a quick update on where utilization rates are for you in the U.S. at the moment and where this may be trending in the course of the second quarter and maybe same situation or same picture on Europe?

Yes, the capacity utilization rates at this time in Europe is around 74%, 75%. This is obviously keeping in mind more or less with the new optimizing plan in Europe, we are concentrating our efforts in specific products, high-value added products, and also in final customer. But in this basis, we are running at 75%, which in the actual basis of the European market is fine. In America, we are slightly below the 90%. So we are around 88%. And in South Africa, we are in the range of 61%. Keep on mind that in America, as difference America from Europe, the driver of America, sorry, for Europe in these days is most driven by the demand still is very soft and has not reacted. But the driver of the American market in this time is that America still remains being a net important market. So there is no local production more or less to match the consumption. So consequently, on that basis, our position in America is advantageous. because we are in the highest part of the pyramid of the value added of the stainless making. And there is an increase in imports. This has its effect, but it's true that the imports are placed in specific niches of the markets, and most of North American stainless production goes to the upper niche of the produce. So on this basis, what is gradually coming is an increase and a strength in the order book for production, For North American stainless, the Buy American works. In the actual uncertainties, the Buy American for the American customer each time is more relevant. Because of that, passing over the uncertainties of January, February, since March, the order book is going up. So our priority and our preference in the in North American stainless is running full the plant, and this is a target. So we are absolutely being more favorable by a gradual increase of the productivity rather than the effects in prices that shall be consequence of all the other market dynamics. But yes, running full North American stainless for us is a great advantage.

One position. Miguel. Sorry, just let me clarify something, because I mentioned it before. In cold roll, we are working at full capacity.

Got you. Okay. And just following up, I mean, Europe, 75% capacity doesn't sound too bad, actually, given where the car market is. Does this mean that you may be back to break even, actually, in the second quarter in Europe?

No, as I said before, this recovery will work in the right direction. Now all the parameters that we can control are improving, but this break-even will be postponed to quarter three.

But having said that, sorry, Bastian, keep in mind the breakeven obviously is a psychological effect on being in positive breakeven EBITDA. But when you are slightly below or you are slightly above the difference of three, four, five million euros in our business is not so relevant in the actual market basis. So the fact of being slightly positive by far has a strong motivating factor for all of us, but the distance is so short that it's not relevant.

Understood. Okay. And then last question, just on the metal effect as well. You said that that will pretty much neutralize with the 24 million in the second quarter. One of your peers today has actually guided for a positive metal effect in the second quarter. Could that be positive for you as well, given where the current market, I guess, parameters are, or you think it's more likely just neutral?

It shall be neutral in the stability of the circumstances. So at the end, this is for us is the normal adjusting to market prices and neutralizable value. So we have made the adjustment of around 23 million, as Esther mentioned. With this, we are comfortably matching the Q2. If there are no further turbulences and going down of the market, it shall be enough. If the market reacts, obviously, we shall be able to revert that. But it still is a bit soon to determine that. What we are is comfortably covered with this net realizable value adjusted in our inventory, having it been done at the end of the quarter and amounts, as was previously said, 23 million euros. We prefer not to talk about adjusted and unadjusted, but it's true that this EBITDA obtained of 102 million euros has been after making inventory adjustment of 23 million euros.

Okay.

Thanks so much.

Our next question today comes from Tommaso Castello from Jefferies. Your line is now open. Please go ahead with your question.

Good morning, everyone, and thanks for the presentation. My question is on Europe, and I know you can comment much on prices, but I was curious, in your opinion, what needs to happen to see some pricing inflection? Because prices were declining well before the Paris announcement. And so I wonder whether, like, a low base price, which is leading to low margins, especially in Europe, is mostly related to a misbalance in the supply and demand dynamics. If it's just a matter of high imports, continuous stocking is just a slow economy. And then whether you call it a transition plan and the Germany funding announcements, whether you see and you think those could have a meaningful impact on stainless. Thank you.

Thank you for the question, but we cannot answer everything. We cannot speak about prices. I will explain what is the general dynamics of pricing in our business. When we have a full capacity utilization, we have to extend our delivery times. Normally, it's time to start thinking in a price increase. This is not happening at the moment because the market is still not depressed, but it's still flat, you know, and the import pressure is strong. So we have to do something to protect the industry because these imports that are... growing now because we have passed from 14% first quarter last year to 24% this year, are putting a lot of pressure in the market. And we don't know what can happen now with the tariffs, but the pressure is there. But anyway, the prices are stable, and let's see what happens.

Our next question today comes from Robert Jackson from Santander. Your line is now open. Please go ahead.

Hi, good morning. Thank you for taking my question. I just wanted to get your thoughts on the US market and the potential for capturing import market. Listening to auto suppliers, some have been talking about the opportunities for coming from relocation of production to the US. And I think in your AGM, you mentioned that you've increased your market share in the U.S. So I just want to see, you know, I guess it's probably too early, but if you can give us your thoughts, what the potential, what you're seeing, or what could you see in the future from this opportunity? Thank you.

Thank you, Ruben. You know, as an estimate, you know, the size of the market of imports were imports subject to quotas in the past were more or less like 15% of the total American market. Now 15% of the American market were imports that were subject to quotas. Now without quotas in the new system, the new Section 232, this 15% of the market will be charged with a 25% duty. That doesn't mean that this 15% of the market is going to pass automatically to the local producers because some of the materials are not made in the United States, so some of the customers prefer other suppliers and also in some of these sectors you cannot change from one supplier to another in one day. You need to certify, to qualify the in which stainless steel is a significant part of the cost, are included in Section 232. For example, beer barrels, sinks, for example, screws or tubes. And that means that they will have a protection of these sectors in the United States Most probably, with a 25% duty, this production will improve in the country. That means that we'll have more customers in a better situation and that the American market will grow. And this is very important for us because, you know, we are bidding for the American market. And it's a good market. Now it's in the best position in the industry. is important for the country. They are taking care of the industry and not only steel, and now they are moving up or moving down in the supply chain and also supporting our customers. And this is very important because that means that our plants will be successful there because the American market is going to grow. I think the last question was related to

That was the main question. Just the other question I just wanted to ask, the timing of the ramp-ups of your investments in Ness, can you give us an update on what that would be?

We expect the new production to come at the end of the year, and then the ramp-up curve, as usual, will be around one year, one year and a half.

Okay, thank you very much.

Our next question on today's call is from Maxime Kog from Oddo BHS. Your line is now open. Please go ahead.

Yeah, good morning. No, I'm referring to the objective to bring down net leverage to 1.2 by the end of 2025. That was an objective announced as part of the acquisition of Haynes the last year. And now, given that the start of the year has been a bit slower than expected, where do you see that figure trending at the end of the year? I can see that the working cap was very good in Q1. Are you expected to pursue that trend over the coming months, too?

Okay, thank you. Thank you very much, Maxim. Regarding net financial debt, it is true that we have an objective of 1.2 terms EBITDA, okay, and that will most probably come more or less we were projecting in two years' time, okay, so it Possibly won't come end of this year, but we are highly committed on working capital, okay, because as we announced, we are making higher investments in capex in this area. in this year that we will try also to compensate with this working capital. We need to consider also the increase on the activity, which is a big effort just trying to keep the working capital at a normal level. So for end of the year, we will still be on figures less than – But we won't be on levels of 1.2 yet until two years' time possibly. So we must possibly be on a range of 1.7 or something like that at the end of this year.

Okay, now that's clear. And just a second and last question is on South Africa because I'm wondering about the – the business model of this entity because we have seen recently trade tariffs being erected all over the world. In Europe, they are bound to be increased as well. So how do you see South Africa trending in that environment because its model is still heavily dependent on exports? How does it track actually in terms of reducing its share of exports and increasing its share of domestic revenues.

We don't have the crystal ball, but we can say that we started to announce a kind of deglobalization many years ago. And since that time, we have been trying to adapt our business model to a regional business model. So that's why the United States is making stainless steel and high-performance alloys for the American market, basically, including Mexico and Canada. Atherinos Europe is totally focused on the European market, and as we have mentioned many times, Columbus has a lot of R&D activity because we are specializing in very special ferritic grapes. having the advantage of the local ferrochrome. South Africa has the biggest chrome reserves in the world, and Columbus is taking advantage of this and also starting to make carbon steel, and it's also studying, and very soon we will have electrical steel and even high-performance alloys. The reason of this is because Columbus will have to be concentrated in the African market mainly. We are the market leaders in all Africa. We have close to 50% market share in the whole continent. This is a unique position, very strong. And Africa is starting to grow. Many countries in Africa are waking up. And this is the strategy, being local in the international markets and nobody with a better location of assets than the Acerino Group.

Okay, helpful. Thank you.

It looks like we have no further questions in the queue at this time, so that does conclude today's Q&A session. I'll now hand you back over to the management team for some closing remarks.

Thank you very much. There is just one last question coming from the web. The question is from Darío José Sánchez Junco from Villabuena Inversiones. And the question is regarding the shareholder remuneration. And has the company considered the possibility of offering a script dividend?

Not really. So we have a very clear remuneration policy. I think it is even written in our website. that we are keeping the total amount of money of the dividends. In the past, we have a fixed dividend per share. Now we have a fixed total amount of money, so we will reduce the number of... of shares, the dividend per share will improve, or if we don't make a script dividend, it will be the opposite. We are not considering at this time a script dividend. We are considering to pay cash in two payments, one in advance, as we did in January, and now the dividend of 0.62 has been approved at the shareholder meeting, and the second payment will come in July. And as it is also included in our policy, if our EBITDA ratio is below 1.2, we will consider the possibility to make another buyback of shares. But until now, we think that all the investments that we are facing now, including the acquisition of Heinz, will give us a better return and will be a better return to the shareholders than a buyback of shares, but not considering a script dividend today.

Thank you very much. That concludes today's conference call. Thank you for joining us today.