Daniel, you can start now.
Thank you. Hi, good afternoon, everybody. Welcome to Arsenal Metals Q3 2018 Analyst and Investor Call. This is Daniel Fairclough from Arsenal Metals Investor Relations team, and I'm joined on this call today by our Head of Finance, Jonrino Cristino. We're here to answer your questions on the results published this morning.
So as usual, this call is being recorded. Hopefully, everybody's had the chance to read our earnings statement and the supporting Q and A document and the presentation with the detailed speaker notes. All of those were published on our website this morning. So the plan today is for the call to last around 45 minutes or so to address any questions you might have on those results. We're going to answer the questions in the order that they're received.
So with that very brief opening, Jon Renau and I are ready to take your questions. And I think we're going to start with Yanis at Macquarie.
Gentlemen, a couple of questions on my side. First of all, on the Ether Steel, I appreciate the deal has not closed yet, but could you perhaps provide rough guidance on the upfront balance sheet impact and whether you have hedged the currency risk? And also, we think that have you lowered your long term growth ambition from 20 1,000,000 tons to 15,000,000 tons. Could you perhaps elaborate the underlying reasons and discuss whether you need to own an EPC business to deliver the brownfield expansion? And I'll leave it there.
Thank you.
Great. Thanks, Jannis. So to talk about the impact of SR on the balance sheet, obviously, we published a press release detailing the offer that's been and we also have a $1,000,000,000 We also have a $1,000,000,000 payment to the creditors of UG and KSS, which we agreed previously. And then there's a $1,100,000,000 equity injection into the joint venture in order to kick start the turnaround, the improvement and the CapEx cycle there. As we talked about previously, the expectation is that, that JV will be funded on a ratio of 2:one in terms of debt to equity.
So 2 thirds of the numbers that I just talked about will be funded at the JV level with debt, and 1 third will be contributed by the equity partners, ourselves and Nippon Steel. So hopefully that gives you the right sort of framework to be calculating the impact that you're going to see on our balance sheet in terms of cash flow and net debt, assuming we close this by the end of the year. I'll let Jean Reno talk about hedging.
Yes. Thank you, Daniel. Yanil, so as you can appreciate, this is very market sensitive. So we are not really in a position to comment right now on the hedging.
And just to be clear, in terms of our plan for the asset, our near term or medium term plan is to obviously improve the production level to 8,500,000 tonnes. That's what we've committed to as a medium term objective in our resolution plan. And the resolution plan sees a medium term to long term ambition to take the capacity up to 12,000,000 to 15,000,000 tons. So the intention is to obviously use SR as a vehicle to participate in the growth that's anticipated in the Indian steel demand and production and its significant prospects, which we all know about based on the current relatively low levels of steel intensity and per capita consumption in India today, and they're roughly a third of global average levels. So a lot of expectation for growth in the years to come, and SR will provide us with a vehicle to participate in that growth.
So we'll move on to the next question from Alain at Morgan Stanley, please.
Yes. Good afternoon, gentlemen. Two questions, if I may. Firstly, on the profit bridges between Q3 and Q4. It seems that you have incurred a few one offs in Q3, such as the hyperinflation adjustment, operating stoppages in Europe and if I'm not mistaken in the U.
S. Is it possible to quantify those one offs to see how the profit bridges will evolve? That's 1. And 2, we are in November now and I presume you do have a good overview of your CapEx guidance for 2019. Can you give us a flavor of the ranges of spending you do expect to incur next year?
Thank you.
Yes. So let me try to address your first question, Alan. So yes, you're right, in Argentina, so we have now for the first time the impact of hyperinflation, that's about $100,000,000 It's hard to predict whether this is going to repeat in quarter 4. I would expect no. It only the reason why it happened this quarter is primarily because you have a disconnect between how you index the local financials for pesos and the translation.
So there is a disconnect between the exchange rate movements and the inflation used for the indexation. So to the extent that in quarter 4 that is to stabilize, then you're not going to have a repeat of that impact, and we have a normal contribution from our Argentinian business. And in terms of the operational issues that we experienced in Europe in quarter 3, roughly, this is about 400 kt. And we would expect we expect that this will not reoccur in quarter 4. So we would expect our shipments in quarter 4 for Europe and for the group as a whole to be excluding any impact that we will have from Ilva to be at similar levels as we saw last year.
And then after the wait and see approach that we experienced in quarter 3 also meant for us about 400 KT, not only in U. S, but also in Canada and probably a little bit more pronounced in Mexico. So we would expect based on what we can see right now in our order book, we would not expect that to reoccur. And then looking to Q4, we would expect our shipments in NAFTA to be stable compared to quarter 3, given that as you know in quarter 4, traditionally, we have some seasonality in NAFTA.
Does that help, Alan?
Yes. A quick follow on on this question. I think you had some operating issues in the mining division as well. Is it possible to just put a number behind the impact, the dollar impact in Q3? That's the first part of my question.
Yes. So in quarter 3, Alain, you see that our shipments, our marketable shipments were down. I think primarily we had 2 issues. 1 was the wet season in Iberia, which we hope will not repeat in quarter 4. And then we have also the some of the issues that coming from the the pit issue that we announced in quarter 4 of last year, 2017.
So we have been shipping from a little bit from inventories. And that's why you see now this reduction in the shipments also coming from mines Canada. So today, we are our run rate there is back to the normal levels. So we would expect production to be back to the normal levels in quarter 4. However, we're not going to be able to recover the shipments that we lost during quarter 3, and that's why we are revising our guidance of marketable shipments from 10% to 5%.
Great. And just to come back on your question on CapEx for 2019. Obviously, we'll give you some firm guidance with our full year results. But I think directionally, clearly, CapEx is expected to increase next year. If you think back to our Q2 results, we did announce at that point that we were going ahead with our downstream expansion at Vega in Brazil.
We also talked about the study that we were doing to potentially look to add a concentrator at our Liberian iron ore operations. We're still waiting for the detailed feedback of that study before the Board moves forward with a decision. But the bigger driver is obviously going to be Ilva. So we have the confirmation today that we've taken ownership of Ilva. And so if you think about 2019 versus 2018, there will be a step up in our CapEx just reflecting the overwork that we're going to be undertaking.
So hopefully, you can see some of the components there. But as I say, come our results in February, we'll give you a much more detailed overall picture. Great. So we'll move to the next question please from Seth at Jefferies.
Good afternoon. Thanks for taking my questions. I have 2 on the U. S. And then one specifically on Ilva.
On the U. S. And the NAFTA business, obviously, your NAFTA operations have been hit by tariffs bringing material across U. S, Mexican, Canadian borders. Can you quantify how much those tariffs cost you?
And if 232 changes to quotas rather than tariffs, in aggregate, would that hurt or help your NAFTA business? Secondly, within the NAFTA realm, can you comment at all about auto contract negotiations? We've heard from some of your peers some constructive outlook going into 2019, but we've heard from the automakers more pushback in their ability to control that cost. Do you see upside to your margins on the backup auto contracts? And then I'll let you start with that.
I'll come back for one question on Ilva, please.
So Seth, let me take your first question on the impact of the tariffs. So in quarter 2, we had basically 1 month of impact, right? Because for Canada and Mexico, the tariffs in, in 1st June. And now in quarter 3, then you have the full impact of that already in our results. So in terms of quantification, basically, quarter on quarter, it's about $60,000,000 negative to us.
But overall, I think it's important to I think it's clear that net net Section 232 is a benefit for us.
And on the topic of auto contracts, I think obviously 2018 has been a good year for a major opportunity to reprice those tons. So we are obviously starting the negotiations for quite a lot of that business. There's a majority of those tonnes which reprice on a 1st January basis. And the there's a day repriced on the 1st January, so we're renegotiating those contracts now. And I think we go into those contract negotiations with a lot of optimism.
The industry has significantly improved over the past 12 months. If you look at where steel prices are today versus where they were 12 months ago, that's a positive sign. Is raw material inflation, which we need to factor into those contracts as well. And finally, we're consistently providing innovative solutions for our customers to help them achieve their objectives. That's costing us money in terms of R and D dollars.
It's costing us money in terms of the CapEx that we need to spend in order to have the industrial
capacity to provide those solutions.
So it's only fair that we are with a degree of confidence. Okay. And then just a follow-up on the with a degree of confidence.
Unchanged EBITDA accretive year 1 on 2016 conditions. Clearly, the European market strengthened a lot since then, although it seems like Elva's performance has perhaps deteriorated. Can you give us any sense on how you expect Ilva margins to compare to core Mattel Europe in the coming years? And then when we take into account the known disposal remedy assets, should we still expect net net earnings accretion or will there be something different than that, at least in the early years? Thank you.
Yes, thanks. So just to confirm what we said previously, which is we expect ILBA to be EBITDA positive in the 1st year and free cash flow positive in the 3rd year. Yes, I think it's fair that the operating performance of that business has deteriorated over the past 12 months, but at the same time, the overall industry conditions have improved versus where they were 12 months ago. So we're happy to reiterate that expectation and plan to be EBITDA positive year 1, free cash flow positive year 3. In terms of the net net impact, so the integration of Ilva versus the sale of the Remedy assets, To be honest, I think that's going to be a wash.
So the EBITDA that we gain in year 1 from Ilva should offset the EBITDA that we are selling through the remedy asset package.
Great. Thank you very much.
Great. So we'll move to next question please from Seda at Bank of America.
Thanks very much. Follow-up questions on Ilva, please. Can you talk about the quantity of shipments that you're divesting in Galati and Ostrava and compare that to the upside to Ilva's shipments over 2019 2021? And then can you also just follow-up on where we are with the remedy assets outside of those that have been agreed to be sold to Liberty House? How is that process shaping up?
Thanks.
Yes. So I think in terms of the shipments from the assets that we're selling, it's based on the 2017, it's a very similar number. So the shipments from the Remedy assets are very similar to the performance of Ilva. Obviously, I just noted in the previous question that the performance Ilva, we believe, has deteriorated over the past 12 months. So, that's something that we will need to address and will need to improve upon, and that's a major part of our undertaking and our ability to turn around and improve that business.
What we outlined in terms of our shipment plan is obviously a near term plan to ship 6,000,000 tons from Ilva and then gradually as we or not gradually, but once we've executed our environmental improvement CapEx plan, that will allow us to move to a higher level of production and shipments. So once that plan is complete, then we'll be able to step up the production and shipments from Ilva towards 8,500,000 tons.
And then the other remedy assets, anything to say about that?
So on the remaining asset sales, that's imminent. So we're making good progress, I think, there on that on the sale of the remaining rolling assets in Luxembourg and Belgium.
Daniel, how do we think about the importance of those assets in the total remedy package? I mean, if you look at the last book value of the remedy assets and then the impairment you've taken, book value is sort of €1,300,000,000 for the entire Remedy asset group. Can we assume that the majority of that sits with the upstream assets at Ostrava and Galati?
Yes, that's a good assumption, Silvia.
Okay. Thank you.
Great. So we'll move to the next question from Bastian at Deutsche Bank, please.
Yes. Good afternoon, gentlemen. I've got three questions. My first one is a quick one on naphtha. If we look at your ASPs, they did evolve pretty much as they probably should have been in this market environment.
But then if we look at costs on the other side, they have been up much more on a per ton basis. What has been driving this? Because it seems like this has been much more than what we could explain by just the lower fixed cost dilution, variable costs and tariffs. And then my second question is on market dynamics, but obviously talking a little bit about this customer stand given the market dynamics and the falling prices in markets such as the U. S.
Has this come to an end already? Or do you continue to see the market share being rather a little bit in the slow mode? And then my last question is on just in product mix. Is there anything we have to keep in mind with regards to the Q4? Thank you.
Yes. So, Bastian, in terms of your question on NAFTA, I mean, basically, I mean, if you look at the profitability evolution quarter on quarter, you will see that it's really volumes and offset by higher pricing. And that's basically the in a nutshell plus, of course, the impact of Section 232 that we discussed. That basically briefs your results. We talked a little bit about the weakness in Mexico also impact our loan business, but primarily our loan business in Mexico.
That is also a component there. And that's basically what we see. In terms of prices, yes, I think, as I'm sure you are aware, most of the players announced price increase. And based on what we can see, we feel that those are sticking.
Okay. Thank you. And then on product mix, please?
In terms of product mix, there is nothing that other than maybe what we need to factor in Brazil in quarter 4 is that traditionally given the seasonality you have higher exports traditionally. So that is something that I would highlight to you.
Okay. Thank you.
Great. Thanks, Bassian. So we'll take the next question please from Rokos at Kepler.
Yes, hi. Thanks for taking the question. Can you elaborate on the cash needs for 2018? When I look at the run rate of your CapEx and of your cash taxes, so you're actually well below that guidance you have given before. So shall we expect a certain shortfall in this original plan or is there a massive rise on both sides?
The second question is on this Argentinian thing. You have done this inflation accounting rather than proper asset impairment. Maybe can you explain why this is not being done through an asset impairment? And thirdly, for the working capital release in the Q4, you have given quite a big range between €1,300,000,000 €1,800,000,000 As we are now already in November, what are the main elements for creating that uncertainty for the rest of the year?
Okay, Rocha. Let me in terms of the cash needs, so we are as you can see in our Q and A, we are reconfirming the $5,800,000,000 So yes, you're right. So CapEx, traditionally, we have a larger chunk of our CapEx coming in 4% to 4%. So we feel comfortable with the guidance with the 5.8 percent. In terms of Argentina, so impairments and hyperinflation, these are 2 separate things.
And the fact that you apply hyperinflation, it doesn't mean that you have to impair your assets. That will be done, the exercise, the impairment review will be done as we always do in quarter 4, but one thing has no correlation with the order. And in terms of La Boussia, the key drivers really as we see every year. So the fact that we have the release in quarter 4, it's part of the seasonality of our working capital. And the key drivers will be a reduction of metal stock that, as you have seen in quarter 3, we built inventory.
So in quarter 4, we haven't released as we improve shipments. And then traditionally, in December, because of the holiday season, you ship less compared to where you were in end of September. So those, I would say, are the main drivers for the working capital release. So it's a reduction in metal stock and it's a reduction in volumes for the last, let's say, 15 days of December, vis a vis September. And the range, as I hope you appreciate, there are so many elements here that it's very hard to be precise.
So that's why the range.
Okay. Maybe one brief follow-up on ESSA. What is the residual legal risk you're seeing that that deal is not materializing at all?
Yes. Thanks, Rokos, for the question on this topic because I think it's important that it gets asked. From our perspective, we've had a very positive development in the recent weeks. The news that we've been selected by the Committee of Creditors as the winning bidder for SR. So we now move to the final stage of the process, which is having our resolution plan approved by the NCLT.
So throughout the process, that's been laid out. We've followed that process. There was a Supreme Court ruling which we followed. So we expect the process to continue to follow the clear terms of the IBC. So next step, NCLT approval, that's the final step, hopefully by year end.
And really, we don't see any legal grounds on which Committee of Creditors decision could be challenged.
Okay. That's very good.
Great. Thanks, Rokus. So we'll move to next question please from Carsten at UBS.
Thank you very much. Three questions from my side. The first one is on your outlook, which is comparably constructive to what we have seen across the board in the Q3. Could you elaborate what are what is the driver of this constructiveness as the market seems to worry about the at least about the price direction and the earnings direction? 2nd question is on the net working capital.
The higher net working capital seems to be mainly in NAFTA and ASUS. Could you tell us what caused the buildup other than the higher U. S. Steel prices? Were there any other elements, especially in ACES, which caused the rise in net working capital?
And is that being reversed in the Q4? Thank you.
Great. Thanks, Carlton. So before Genuino comes back to you on working capital, I'll talk about the outlook. So the reality is that business conditions remain favorable. Demand is growing.
Utilization rates are high, and high utilization rates are supporting healthy steel spreads, and that continues. If you look at the indicators, they're continuing to support an outlook for positive demand growth. So yes, the PMI readings on an aggregate basis have come off the high levels that they were in Q1 and Q2, but they're still comfortably above the 50 level, telling you that demand continues to expand. I think if you look more broadly, the economic indicators and forecasts for 2019 are also suggesting growth. And for its worth, the World Steel Association came out with their forecasts in the past couple of weeks, and they're forecasting growth in all of our core markets.
And so obviously, we will be detailing our growth forecasts for 2019 at the time of our full year results, but so far the WSA have put their numbers out. So I think hopefully that gives you some context to around the outlook for the business, but happy to go into it in more detail if you would like.
Thank you. Maybe just on the U. S. Market, because you stated in your press release that you have seen a weak U. S.
Market, which given where we are price wise, was a bit of an interesting comment. Is that weakness with regard to demand? Or is that just weakness because of inventory release in that market?
Yes, I think you're absolutely right. So it's a contrast really between apparent demand and the robust underlying demand. So we can all see the robustness of the U. S. Economy, the strong GDP print for the 3rd quarter.
So the real underlying demand indicators are very positive. But what happened during the Q3 is obviously steel pricing started to come down. And when steel pricing comes down in the U. S. Market, where possible, buyers will sit on their hands, they'll step to the side and allow the price to drop, and they'll reduce their inventories and look to come in at a lower price point and replenish their inventories then.
What we said on a previous call, previous question, as Generino addressed was we increased our prices just a couple of weeks ago and transaction prices in the U. S. Market have moved up. And so that should be a positive signal for you there.
Okay. Thank you.
Karsten, one of your questions on working capital, maybe if I can start with CIS. So you're absolutely right. So what happened in CIS this quarter was that so we increased our production, which is good news. As you know, we faced operational issues in Clivery during 1st and second quarter. So during those quarters, we were selling also from inventories.
As we recover from those operational issues in quarter 3 and we increased production, as you can see, by about 15% in CIS, we were forced to replenish our inventory levels. So what it means is as we move now into Q4 and we don't need to replenish inventories anymore and our production remain at normalized levels, we're going to be able to ship much more. And that's why we are guiding for higher shipments in CIS in quarter 4.
Okay. Thank you very much.
Great. Thanks, Carsten. So we'll move on to the next question please from Luc at Exane.
Hi, gentlemen. A couple of follow ups, if I may. You mentioned the potential approval of a new concentrator in Iberia. Would it be possible to have a ballpark quantitative guidance as to what kind of CapEx we are talking here? That would be my first question.
And second question, could you confirm that Uttam Galva will be included in your JV? And what are the kind of synergies, if you can discuss these, that you are targeting by including these assets in the JV? And last but not least maybe, you were also referred as a bidding for EPC Construction, which is related to Essar to some extent. What can you say about this? Thank you.
Great. Just addressing the Essar question first. I think the it should be clear that the intention is that the investments in Utangalva will be a part of the joint venture and funded by the joint venture. So hopefully, that's clear. And the second point around ESP, etcetera, This headline came out earlier this week, and we chose not to comment then.
And I think it's inappropriate to comment today on any market speculation in India or in any other markets. But the reality, I think, is that with the $1,100,000,000 of funding that we are putting into the joint venture, it's going to be a very well financed business and with all of the capacity and capability to do what it needs to do strategically and CapEx wise to realize the potential of the joint venture.
Look, let me just complement on the synergies between UG and ESSA. So UG is basically a downstream business. So, it fits very well in the overall footprint in Esa and Eugene. So Esa has more HRC capacity so that we're going to be able then to roll in UG. So we believe that there is an important synergy to be captured once we can have the 2 business together.
And in terms of the concentrator, I think we are at very early stage. So we are still going through the engineering phase. So that will not be the right moment to talk about to try to quantify amounts. I think this will come as part of our next quarter release. Did you?
Maybe, Luke, just to highlight a couple of points though that we already have a lot of capital equipment on the ground. We have effectively a half built concentrator, so a lot of capital equipment sitting in boxes. We obviously also have the infrastructure, which is already there to handle more volumes from Liberia. So if you were to think about the CapEx intensity of a potential growth of our capacity in Liberia, it is low. So it's we're considering a low CapEx intensity brownfield expansion of our gives you some more context to how we're thinking about gives you some more context to how we're thinking about that potential investment decision assuming that the feasibility study comes back positive.
Thanks. Thank you.
Great. Thanks, Luke. So we'll move to Francisco at Banco Sabadell.
Yes. Hello. Good afternoon. I have few questions, please. First one would be regarding working capital.
We've already discussed about inventories, but I can also see an important decrease in your trade payables. I don't know if there's something that you would like to comment about. The second one would be on your costs in ACIS, which have had a very good performance this quarter. And I would like if you can give us some more color on that issue and if it's something we should see also in the next few quarters. And the last one would be regarding Europe and Brazil.
If you could comment a little bit on what are your expectations going into Q4 and 2019?
Yes, Francisco. So on your first question on working capital, you're right. So we see a reduction in payables. This is just a function that once you increase your metal stock, you don't have so then part of your payables just they get automatically reduced because it's an increase of your metal stock and not raw materials and things like that. So here what we see is with an increase of material stock.
In terms of CIS, one of the two drivers I would mention this quarter. 1, of course, is the stable operations in Ukraine. That helps, of course, from a cost point of view. And second, the effects. So we had a significant devaluations in most of CIS countries.
So just if you look at the rand, it was 12%, depreciation, ruble. So all the currencies depreciated, which, of course, can help this business to the extent that they are competing in the export market. So that is a positive. In terms of Europe and Brazil, I think we already talked a lot about those the trends for quarter 4. So we talked about how we see shipments evolving.
You have already a good handle, I'm sure, on costs and prices. So I think you have all the elements you need to come up with your forecast.
Okay. Thank you.
Great. Thanks, Francisco. So we'll move to Phil at KeyBanc, please.
Thanks so much. Daniel, I know it was talked about a couple of times in terms of the specific weakness that you called out in the United States in the 3rd quarter. Was this perhaps buyer strike phenomenon specific to your automotive customers? Or was it broad based because I know auto is a big part of your book?
No, it's a more broad based comment. It's not industry
But it's nothing more than commentary just related to your volume. There's nothing related to pricing or spreads that you're making here?
Yes. It's
the reality is that we had those two effects. So pricing was declining and our order book shortened because in a falling price environment, you effectively have, whether you want to call it a buyer strike or short term destock, you have this sort of temporary phenomenon where the volumes in the market come down considerably. So that is what we experienced as we went through the Q3. It impacted our results. But as I say, given the positive underlying real trends for demand, we see it as a temporary phenomenon and rather than something that we are more concerned by.
And just a second question, if I may. In terms of what your sense is on the Chinese steel markets moving into the Q4, I know that there's some being written about them throttling back production in some regions for environmental and seasonal reasons, some others that are counter to that view. Just curious in terms of what you all see because I know you have operations there and obviously competing against them across the world? Thanks.
Yes. So fundamentally, I think the indicators are positive. If you look at where utilization rates are, if you look at where production rates are in China and then cross reference that with the very low levels of inventory, the year on year reduction in exports and the fact that pricing in that market is still very healthy, in particular for rebar, where the spreads are still very, very healthy, indicates that the underlying conditions in the Chinese market still very healthy. And then it's it is the 1st November today, so it is 1st day of the winter shutdowns. So you're now going to have an enforced sort of constraint on production within the pretty much across the industry.
It's a more targeted, more nuanced approach than we had 12 months ago, but it is a broader program. And so although some companies will have a more limited impact because they've been able to improve their environmental performance over the past 12 months, which is the whole idea of that program, So there will be some exclusions because it's a broader plant. The impact we feel on capacity and production will be very similar to what it was 12 months ago, so through last winter. So yes, we should expect to see that come through in the production starts in the coming weeks months. Thanks, Daniel.
Cheers. Cheers. Thanks, Phil. So we will move to the last question from Christian at SoftGen.
Yes. Thank you very much. I missed the first ten minutes. So if I repeat a question you already asked, I apologize. I only have 3 of them and they're quite short.
The first one is on your CapEx 4Q. And I know you mentioned it, but and it's always the Q4, which is at the highest level. But over 40% of your annual CapEx is coming in that last quarter. So my question is whether it's an accounting thing or whether there is some potential disruptive CapEx taking place in the quarter? And if so, where is that maybe?
The second question is on the type of inflation accounting in Brazil. I mean, for the first time, we get a negative amount when we have if we multiply the average price you provide with the shipments, we get more than your turnover. So the question here is simply should we expect there's a potential negative impact in Q4 in the Q4 because of this accounting or whether that's irrelevant? And the last thing is on your European costs, which for the Q3 in a row, we seem to be much higher than we were last year over 9 months. So my question is, are the 2 higher costs in Europe, A, FX and B, iron ore?
Am I right in thinking these are the highest costs year on year? Thank you.
So, Priscilla, on CapEx, I think if you look back year after year, you will see that Q4 traditionally is the quarter where we have the high end spend. And this is just how it works. I mean, you have your budget cycles happening now actually. The projects get approved. Then they go out and start placing the orders.
It takes time for you to start to see the materials being delivered to you. So we are comfortable with the guidance. So we have reconfirmed our cash needs, which includes CapEx. Of course, I mean, at the end of the year, you can always be a little bit higher or lower, but fundamentally, the cash needs of the business remain what we have guided at the beginning of the year. And the hyperinflation, we talked about it.
I think this is a new phenomenon. This is in Argentina. That's the first time that hyperinflation account is being applied. And it's just a fact as the result of Argentina now inflation over the last 3 years reaching 100%. So that's a negative development, of course, for the country, and we have to reflect that in our books.
Going forward, going to Q4, we also discussed that the impact should not be as extreme because it's really a function of how the peso moves, the FX and the indexation that is used to update your financials in Argentina and Peresuz. And in terms of European costs, costs, you also asked. So this quarter, in particular, we had the translation impact that I can quantify it for you. So that it's about $30,000,000 impact in our costs this quarter. Other than that?
Thank you very much.
Great. Thanks very much, Christian. So that does bring today's call to an end. Thank you very much for your interest and attention. I think we did get through everybody's questions today, but if there are any further questions, then please do reach out to me either by phone or email.
And we will look forward to seeing many of you in the coming days weeks. So thanks very much.