Welcome to the Aperam fourth quarter 2024 conference call. My name is Alan, and I'll be your coordinator for today's event. Please note this call is being recorded, and for the duration, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star one on your telephone keypad. If you require assistance at any time, please press star zero, and you'll be connected to an operator. I will now hand you over to your host, Tim Di Maulo, to begin today's conference. Thank you.
Hello everybody, and thank you for participating in our conference call today. You were able to listen to our podcast about Q4, which includes the closing of the Universal Stainless & Alloy Products, and maybe you have read the transcript of the podcast. Aperam delivered the promised quarterly earnings increase in a really challenging quarter, and again, we can prove the value of our differentiated value chain.
While the footprint upgrade hurt our results for some quarters, the benefit is now clearly visible in the most competitive footprint in Europe and with a strong market share in Brazil. Together with the acquisition of Universal, our value chain will be even more differentiated and decommoditized. Now, Sud and myself look forward to your question. Please, operator, can you open the lines?
Thank you. If you'd like to ask a question or make a contribution to today's call, please press star one on your telephone keypad. To withdraw your question, please press star two. You'll be advised when to ask your question. We will take our first question from Bastian Synagowitz, Deutsche Bank. Your line is open. Please go ahead.
Yeah, thanks. Good afternoon all, and thanks for taking my questions. My first question is on the situation in Europe. I guess if we look at the setup here, we had volumes improving in the fourth quarter, and you're effectively guiding for a better volume order book in the first quarter as well, and I guess from what you say, it's important to be broadly unchanged, so I'm wondering, what has been driving the big price drop in December and the margin squeeze in a rebounding market?
Is Acerinox ramping up now? Is this someone else trying to take market share? As imports don't seem to be the issue here, at least from what I remember, you felt before that alternative restarts shouldn't really be changing the market balance too much. So it would be great to get your views and maybe also get a bit of color on how far European margins have stabilized and whether you're seeing any signs of an inflection? That's my first question.
Okay, thank you, Bastian, for the question. In fact, when you see, and we have explained also in the podcast what we have experienced in the last part of the year, some slowdown in the majority of the sector, which is probably linked to an end-of-year destocking or further destocking because we were already in a very low stock. So now stocks are very low, and during the period in which the destocking was happening, so the prices have decreased a bit.
Now, as you know, whenever you book prices in Q4, this will show up in Q1. And this is the reason of the pressure that we see in Q1. But I would like to mitigate a bit the impression. So I believe that there is a strong stability of price, and with the slightest rebound of the demand, this should reverse.
Okay, so in fact, you start to see a little bit of a turnaround here from what you are suggesting.
I cannot announce that now. The turnaround is always okay. In January, we are still experiencing what has been the order book of the Q4. And we are not giving a guidance on next quarters. But let's say the stability of price is always good.
Okay. And maybe a quick question in relation to that. There's obviously this ongoing safeguard review. And again, you say imports are not really the issue here, but would the safeguard review also be playing out in your favor? Would that possibly be impacting the market? Is there anything else in the trade side in Europe which may possibly help you?
This part is something positive in the sense that we have seen a different attitude of the Commission starting from the safeguard. The Commission is much more open than in the past to understand the needs of the industry and kind of openness to review some rules which are extremely important to make the safeguard very efficient. I think that this is positive. They are open, and we are expecting very soon the position of the Commission. Of course, any review of the safeguard strengthening some mechanism that today are not fully efficient will be positive for us.
Okay, great. And then my last question is just on this EUR 150 million bottom of the cycle EBITDA target you're providing here. I guess you mentioned that in the podcast. Could you please help us to understand the logic behind this? I'm not objecting against this, but it would be great to understand basically the bridge on how you think you're getting there and maybe even how quickly you'd be comfortable to say you should be hitting that run rate given that it's effectively a bottom of the cycle number.
So hey, Bastian, it's Sud here. Bastian, the point was, first of all, the number was about EUR 100 million-EUR 120 million per quarter at the bottom of the quarter, at the bottom of the cycle. Not EUR 170 million. So it was EUR 100 million-EUR 120 million. In our way forward, we've explained that basically we will be reaching on a like-for-like EUR 300 million improvement until end of 2025, and we are well on that plan to do that.
And we have also split our segments into the segments dependent on Stainless and the Growth segments. And our number right now, which we gave out, is that at the bottom of the cycle for the stainless segments, we would target EUR 100 million-EUR 120 million per quarter as Aperam to continue along our path on deleveraging, building a stable company, delivering returns to the shareholder without any support from the stainless market.
This just shows that fundamentally, compared to the past low cycles, thanks to the addition of the Growth segments and through improved mix and cost control in our stainless segments, we have added close to EUR 40 million per quarter, and that's the target. Is that clear? It's the bottom of the cycle, EUR 100 million-EUR 120 million.
Okay. All right. Yeah, maybe I misunderstood EUR 150 million in the podcast. Okay. Okay, understood. Okay, thanks for that. I'll jump back into the queue.
We will take our next question from Tristan Gresser, BNP Paribas. Your line is open. Please go ahead.
Yes, hi. Thank you for taking my question. If I can start with just two quick follow-up on Bastian's questions. Just the EUR 120 million EBITDA per quarter, by when do you expect to build that resilience to be able to do those levels? Because if I look at the Q1 guidance, it seems like you're going to fall short. You also mentioned it's an average, but would it be by the end of 2025?
All things remaining equal, this is the discussion which you mentioned that our plan has not changed. The guidance to end of 2025 was the EUR 300 million uplift, and that is the same plan. We are just breaking it down granularly at a quarterly level, number one.
Number two, Tristan, it's an important point you mentioned, which is that on an average, but another point is also all things remaining equal. Remember that the Q1 guidance has a negative inventory valuation effect, practically a reversal from Q4. So on a quarter-on-quarter level, it's a EUR 15 million-EUR 20 million effect.
Okay, that's clear. And just a quick follow-up as well, that's helpful on the safeguards. I mean, for the carbon steelmakers, it can be kind of a big deal, and we've seen some demand from the steel lobby you referred to potentially cut quotas by 30%-50%. Do you believe you mentioned the Commission is receptive now more, but could you see such measures as drastic being taken?
The attitude of the Commission is different from the past, as I said. So the cutting of the quota is not the only measure that has been asked on which the Commission is working. There are other mechanisms like the reporting of the quota, the allocation of quotas more granularly by country, etc. But all the mechanisms will be in favor of better controlling the flow and eventually to put the right duty when the quotas are surpassed.
All right. That's helpful. And my last question is on the Alloys business. Can you discuss a bit the visibility you have and if you can explain a bit the temporary impacts? You mentioned the destocking in the aerospace. So when we look at USAP, that can do $10 million EBITDA in Q1 for two months. Is that a fair run rate that we can also assume into Q2, or do you expect some negative impact later in the year? Thank you.
Just to be sure that we are clear on what is aerospace. Aerospace is a very, very long supply chain because there is not only the complexity of the products, there is all the part of control. It is a supply chain which goes through many intermediate transformations, like in the case of the Alloys.
So normally, whenever there is from the demand side, a stop or a reduction of the volumes, this will translate in the destocking that will last longer than the simple. So the two months of the destocking of the stop of a Boeing has been translated in some postponement of volumes, which will be recovered in full during, let's say, the second part of the first half. For sure, it will be all in the second half of the year.
All right. That's clear. Thank you.
We will take our next question from Ioannis Masvoulas, Morgan Stanley. Y our line is open. Please go ahead.
Back to the trade defense measures in Europe and the current review. Have you seen any change in purchasing?
Sorry, we can't hear.
Can you hear me now?
Yes.
Perfect. Okay. Apologies. So I'll just repeat the question. On the back of the review of trade defense measures in Europe, have you seen any shift in purchasing behavior among importers that would potentially support either restocking trends or pricing domestically, or that remains to be seen?
No, there has been some increase in imports. You know that in the first half of the year, imports have been lower than in the second half of the year. So while the imports, as an average, are at the normal level, so around 20%-24%, which is the normal level that we expect into imports, there is always some ups and downs, and these ups and downs can be explained by some delta in prices between the different regions.
But there is not big spikes. So the 25% is not a dramatic increase of the imports like we saw in certain periods in which the imports have reached 40%-50%. So no, I will not say that there is a change in behavior, but there is the normal adjustment. Some periods are relatively lower because the delta prices are lower. Other periods are higher, and that's normal.
Okay. Understood. Thank you. Second question on Alloys, because you mentioned in your guidance a EUR 30 million CapEx for 2025. Could you elaborate on what that relates to? Which parts of the Alloys business are you looking to grow this year? And is there any CapEx associated with the USAP in 2025 beyond sustaining CapEx?
Two parts. Ioannis. Hi, Sud here. So Ioannis, a couple of things, right? First, if you're trying to figure out specifically, no, as we guided during the closing of the transaction for the synergies which we came out and said of $30 million, there are no investments needed, no CapEx needed. As we guided, this was commercial, cost, SG&A synergies. This $30 million is just our phase two of developing our Alloys globally.
As you know, we are the only Alloys player with the presence in Asia. We've always given clear guidance on our investments into India. So this is basically transforming our Alloys footprint globally, and it has nothing specifically to do with the Universal synergies, right? So we doubled our Alloys EBITDA, as you know. We did EUR 80 million, now EUR 82 million in 2024, and we expect to do EUR 100 million in 2025. For us, the opportunities there are limitless, and so we continue to grow there. These investments are for that organic plan and nothing specifically to do with Universal.
Very clear. Thank you. Last question for me on the Recycling & Renewables segment. We've seen strong EBITDA seasonality in Q4, which has been the case or a pattern that we've seen since the acquisition. Can you remind us what that relates to? Is it something that we should be baking into our numbers going forward?
See, the thing is there's three factors at high level, and one of that is the year-end valuation effects as we go through our inventories and look at both our recycling and our renewables business. The second thing you do have to keep in mind, there is a technical seasonality built into the business because in Europe and in the United States, Q1 are strong businesses.
So as stainless suppliers look to purchase raw material volumes, the previous quarter is typically stronger for the recycling segment. And then there are year-end cleanup and inventory adjustment effects which come in. So the third part, I don't think you should bake it into your models, but the first two parts, I think, is something as a seasonality you can continue to plan.
Very clear. Thank you very much.
Sorry, if you exclude any drastic situations like it happened in March 2022, if you know what I mean, so.
Of course. Yeah. Thank you.
Thanks, man.
Once again, if you'd like to ask a question, please press star one on your telephone keypad now. We will take our next question from Tom Zhang, Barclays. Your line is open. Please go ahead.
Hi. Afternoon. Sorry. Thank you for taking our questions. First one from me is just around Brazil. Maybe a little bit of, yeah, sort of your outlook on the demand side there. I guess one of your peers yesterday was talking about stable demand in the carbon space in 2025 versus 2024. I guess we've seen a pretty sharp move up in domestic interest rates. Just wondering if you're seeing any kind of slowdown or any kind of risk and whether you'd kind of agree that stable demand in Brazil is also true in stainless and electrical.
We are very happy about Brazil. We see that all the markets in Brazil are in good and, let's say, healthy shape. There are always risks in Brazil because there can be some volatility. But fundamentally, there are also opportunities because markets like oil and gas have never recovered the full potential that Brazil has. Typically, the big investments which are slower to go up.
For the moment, we can say that consumer goods and all the segments are performing well and even very well. We can expect that in the longer term, the big projects and the capital goods also will come back to the promise that they had before the big crisis.
Okay. Fair enough. And then the second question, just on the safeguard review, sorry to come back to it. I guess, yeah, as you say, sort of stainless import share is already at a normal level in terms of volumes. And you know, correct me if you think I'm wrong, but I guess the issue has not really been import volumes. It's been import price, right?
And so when we talk about these quota cuts and changing the allocation, I get maybe it improves your pricing power a little bit, but are any of these reviews really going to change the game, I guess, for domestic producers, or are we going to have to wait until a more holistic cost curve steepener trade barrier, something like CBAM that comes in next year?
So fundamentally, we'll say that Europe for stainless steel has many protections. There are some parts that can be skipped with some circumvention. And so one of the aspects that we want to tackle is really this part of circumvention that can be improved a lot with the "melt and pour," let's say, the traceability and reality is the traceability.
So call it "melt and pour" because this has been already introduced by the United States for their measure. And this is one of the things that we are waiting for the Commission to implement, also because this will be extremely important also in the future implementation of the CBAM. So in fact, it is being sure of the origin of the products.
Okay. No, that's clear. And then the last one for me is just the, as I remember, you had some discussions around exemptions for products that you move from Europe into the U.S. and I guess Europe in general at the moment has an exemption from Section 232 or the tariff rate quota, but that is due to expire later this year. Could you just remind us or give some indication of any volumes that you move from Europe into the U.S. and how you're positioning yourself for any tariff risk? Thanks.
Remember that Europe stays in Europe, Brazil stays in Brazil. And typically, we send to the United States only very marginal volumes for high added value product for customers that don't find locally a solution because the quality or the technicality of the product is different. Quotas are limited, as I said. So some quotas are good because our customers are paying less, but whenever they need the material from Europe, they are also ready to pay the duties.
Okay. Fair enough. Thank you. I'll turn it back.
We will take our next question from Maxime Kogge. ODDO BHF, your line is open. Please go ahead.
Yeah. Good afternoon. So the first question is on the U.S. tariffs. Do you see potential upside for your Universal business? Is there foreign competition on the products that Universal serves, especially from Canada and Mexico? Or is it only a domestic market that you cater to?
No. Let's say that all these tariffs are mostly for commodities. The large majority of the customers of Universal are aerospace. Aerospace is United States, some customers in Europe. But typically, this is on the basis of homologation, very technical homologation. So it's not like in commodities. The question of price and service, which will make the difference between suppliers, is really a question of supply and demand and homologation from the typical producer. So tariffs have no impact, no direct impact on the business of Universal.
Okay, and the second question is, we've seen prices of natural gas ticking up over the past months. And given how energy-intensive the stainless steel industry is, do you see that as a risk, as something that could drive down Q1 results, or do you have sufficient hedging instruments in place to offset that?
Maxime, I just wanted to start off by reminding that between carbon steel, aluminum, and stainless, stainless is the least energy-intensive, especially in the European footprint. Okay? First, secondly, as you know, our primary energy source is electricity and not natural gas. And thirdly, this increase in prices affects all players in Europe. Some players are more disadvantaged than other players. And this time, we are actually on the positive side because the areas where we operate in, as you know, our energy costs are lower than other parts of Europe. And as a result, we do not believe that these prices would translate to any material effect on our earnings.
Okay. That's good. And just the last one is on Europe versus Brazil. I think on an annual basis, you provide the breakdown of shipments in EBITDA. Is that something you're able to provide at this stage, or?
It should be in the presentation, Maxime, so if you look at it.
Okay.
Yeah, yeah, so.
Okay. I'll go to the presentation.
I think it's not in the main section, but in the presentation and also in the earnings.
All right. Thank you.
We will take our next question from Tristan Gresser, BNP Paribas. Your line is open. Please go ahead.
Yes. Hi. Thanks for taking the follow-up. Just following up on Maxime's questions on the tariffs in the U.S. regarding USAP. There is no direct impact, you mentioned, but indirectly, is aerospace pretty integrated like automotive? And hence, if Trump decides to go with tariffs against Mexico and Canada in a couple of days, could there be a negative impact on USAP customers, and could you see a negative hit on demand? Is that a scenario you're contemplating, or you don't believe it's an issue?
I don't think to understand very well your question because fundamentally, aerospace has an order book of many years. Okay? The planes are booked. Here, what we are expecting in aerospace is mostly the ramp-up of Boeing, which has been in strike, has been some internal problem, and should in the next month go from the actual level of production to just a double. When they will reach the double, there will be the full, let's say, the full demand and the upside. For the rest, I mean, there is no other impact on this.
Okay. All right. No, that's clear. Thank you. And lastly, just a quick one on CBAM. We've seen some headlines that the Commission is looking to allow the vast majority of smaller companies not to report. Does that change a lot of things for you? Do you think that they could bring circumvention? Is that something you're - yeah. What are your thoughts on it when we were talking about the strengthening of measures and how we're seeing that? I would be keen to have your view. Thank you.
So, just to point that should be important. For us, CBAM is only an upside. So, whatever happens, this will be in favor of the stainless steel industry in Europe because we are already electrical. We have low emission, and so eventually, there is an upside.
Second, our numbers are not depending on the CBAM. So, we have not the burden of having to be protected if not, we cannot run again our plants because of the emission and because of all the big investment that has to be done in other sectors to decarbonize.
So, this is first. Second comment is that what the announcement of the Commission is about simplification. It is not clear what they mean for the moment as a simplification, but it's simply simplification doesn't mean that CBAM will be withdrawn from the sector in which the emission has a sense. Okay? So this has to be seen in the clarification that will come.
All right. That's helpful. Thanks a lot.
We will take our next question from Krishan Agarwal. Your line is open. Please go ahead.
Hi. Thanks a lot for taking my question. Most of them have been answered, but a follow-up on Alloys' business. Can you discuss what sort of the margin return is there in the USAP business pre-synergies? And obviously, synergies will take it up. And then a related question to that. I mean, now you have got access to the U.S. aerospace market in a much wider way. Do you see some space for you to employ some best practices and increase the footprint into the European aerospace where the exposure is limited for now?
First of all, we are discussing a company which is a publicly listed company. All data are available. We have just integrated this company. You probably know better than us the numbers. Nothing has changed except some slowdown, as I said, because of Boeing. No, we don't see big changes.
Then when you refer to the fact of Europe or U.S., Universal is already selling to all the big aerospace customers. They have also big customers in Europe, not only in the aerospace in the United States. The United States is a part. The aerospace industry is extremely important in the United States. It is extremely important for Universal, but also European and Brazilian aerospace industry which are important and which Universal is present. Maybe it can be strengthened in the future.
But what we expect is, and this is why the aerospace is important for us, is that aerospace is one of the sectors which has the biggest growth, growth international, and growth into products which are high technical products and then in which homologation and know-how give you really an advantage. So it's not at all commodities.
I understand. And then slightly on the stainless, I mean, there was a lot of question on the demand, but is there any kind of early sign of inflection that you may have noticed in your order book for the stainless business in Europe?
So a little bit, we don't give guidance for longer than the quarter we are discussing. But what we have clearly said is that inventory are low. There has been a phase of destocking in many segments that are our main customers. And this is the reason why there has been some pressure in price, which will be translated in Q1. But as you have seen, also, we have guided for a Q1 with higher volumes. So higher volumes, low inventories, less prices, let's say, booked, which were stable, are good signs.
Okay. I understand. And the final question maybe for Sud on a housekeeping basis. So purely from a reporting point of view for the Alloys, are you going to report the European and the U.S. business separately, or it's just like one combined line in terms of reporting?
It will be one also. Go on, Sud. It will be reported. We have already communicated that they will be reported under the segment of Alloys combined.
Okay. Thanks a lot. Thanks for clarifying. Okay.
There are no further questions on the line. So I will now hand you back to your host for closing remarks.
Okay. Thank you very much for this meeting and for your question. The current trading and the situation in Europe are an important issue for us. But you have seen that we still have some progress to be done into the interest rates, which are still high in energy price and some political instability, which doesn't give the good economic context. But we don't look at that.
These are factors that can be upside in the future. What we are looking at and where we are focused is to manage and improve our parameters completely independently from the environment. We want to be more resilient and continue to earn well as in bad times as in this period. We have now Growth segments. We have seen that the fact that Universal now is completing the growth of Alloys is an extremely good, let's say, move from Aperam.
We have been able to close the deal in record time. We are very happy and proud of it. We are confident of the full potential of our full value chain, including the segment which is renewable and recycling, and when the economy will normalize also in Europe, for which we are confident, you will see the full potential of Aperam. Now, I wish you a nice weekend, and I hope to see you soon on the road. We will be in meetings during the next weeks. Thank you very much, and bye-bye.
Thank you for joining today's call. You may now disconnect.