And welcome to the 3NOKS Earnings Conference Call for the Q2 2021. My name is Carlos Lora Tamayo, and I am the Head of Investor Relations at Aethrinox. As you can see, today, the presentation is going to be conducted by Bernardo Velasquez, Aterinox CEO Miguel Ferlandis, CFO and also and for the first time, Hans Henrichs, CEO of Atherinox Group. We haven't had the opportunity to introduce you Hans as we would have liked. But due to the COVID situation, this was not possible.
Let me introduce you, Hans, very briefly. Hans joined Atherinox almost 1 year ago to reinforce Atherin Oaks Group Management. He has more than 26 years of experience in the industrial sector, in companies, in the automotive or packaging. Of late and before, Hans joined at 3 North, He held various management positions in Cooper Standard in Germany and the U. S.
A year late, but welcome, Hans. I think it's a very good half, a very good semester to start and being the best results in 14 years. Before getting started, let me remind you that this presentation is webcast in our web page attherinos.com, where you can find also the annual accounts and interim management reports for the first half of the year. And now I give the floor to Bernardo. Please, Bernardo, go ahead.
[SPEAKER IGNACIO CUENCA
ARAMBARRI:] So good morning, everyone. I hope that you and your families are okay. And at this time, we're going to be the 1st one in our sector to present our results. So I'm sure that you will have lots of doubts and lots of questions for us. So if you don't mind, we will make a very short presentation, and then we will give more time to the Q and A session.
Let me start with sustainability. Let me start with sustainability to show the commitment that we have with this new economy. Sustainability linked, as we always consider it in the signals, linked with efficiency because if we are efficient, we increase our efficiency, we will reduce Our emissions will reduce our CO2 emissions. We'll reduce the energy intensity and everything. So it's very much Linked and inside our traditional culture.
I think that we are very lucky because we have an excellent material. That is the paradigm of the circular economy, stainless steel. We produce our stainless steel with more than 90% recycled material. And We always remember our material, the stainless steel is long lasting, but is forever recyclable. And it is something that is not the same With some other materials, you can recycle infinite times the stainless steel and you get the stainless steel with The same characteristics that the previous one.
You never lose quality when recycling stainless steel. So You want to have long lasting materials with producing less, with less emissions through the cycles, then I think stainless steel Something that you should consider. During this period, we are very happy to announce that we are releasing a new product line There is sustainable stainless steel certified by you, by one of the most prestige Certifiers, and we are starting to develop this product ready for customers that want To get involved and committed with the secular economy and with the sustainability factors. It is good to say that We also got the gold level in Ecovadis this quarter. So Now that we are reporting in a formal basis our sustainability numbers, these companies have recognized That what we have been doing for many years and our numbers are good enough to be recognized for the first time with the gold level.
And more than that, Even our competitors, our sector recognized our efforts in sustainability and IHSF In the close ceremony that we celebrated in May, our Annual General Meeting They gave us the 3 awards in sustainability: gold, silver and bronze. So this is very good. We are reporting on a regular basis from now on all our key performance indicators in sustainability as well that can follow in quarterly basis. And as you can see here, we are making important progress. I think that we need to make a reflection.
There is a Europe and most of the developed economies have decided to be sustainable. So I think that the society must start recognizing companies and products that are making an effort and starting an effort in sustainability, And this is something that we should take into account. We need sustainable products, and Aethrenor will be one of the suppliers of these products. Entering in the second quarter results, let me try to explain What is happening in the stainless steel business? Because to understand the situation, we need to remember That the apparent consumption went down in 2019 and in 2022.
So after 2 bad years, because 2018, United States was minus 2.2% and Europe was minus 0.3%. 2019 U. S. A. Apparent consumption was at minus 9.3% [SPEAKER IGNACIO CUENCA ARAMBARRI:] And in Europe, it was minus 4%.
So after 2 bad years, we expected to have a better 2020. [SPEAKER IGNACIO CUENCA ARAMBARRI:] But everything changed with COVID, with the pandemic. And finally, the numbers for the year was in the United States, we lost 10.8 percent apparent consumption and in Europe, 13.4 percent. So it is very logical that at the 3 consecutive bad years, No, the apparent consumption is now growing in most of the economies. But after 3 years going down, it is clear to And understandable that the stock levels in all the markets were very low.
And not only I'm not speaking about stainless steel or Stainless steel in factories and warehouses, I'm speaking about stainless steel in the whole supply chain. No, I mean, There's no stainless steel in warehouses, but there's no stainless steel in pipes and tubes and And exhaust systems for the cars, but also there's not enough cars in the car dealers' shops. So the situation was a very low The stocks in the whole supply chain, so now that as we reported before, when in last November, The world started to trust on the recovery of the economy with very good news of the So people wanted to get ready for the new situation. Everybody wanted to start replacing the stocks to reach a normal level Of consumption, a normal level of utilization. And then what happened is that what it's called the WIP effect, that In our case, it's stainless steel that we are at the beginning of the supply chain.
All the effects are amplified. I have A very interesting restocking period. But also, we have to understand that since last summer, as We also reported the savings in families was translated in a better situation for consumer goods, Things like white goods or house spending and things and other things We're moving very well. So we had, on one hand, a strong recovery in the consumer goods sector. In 2nd hand is the stock replacement.
If you add these two things, with A recovery in all the countries in the world, plus unexpected high transport cost, Plus some trade regulations. At the end, we are coming back to a more regional world, a more regional business That let us have more visibility in our business, increase our order book. And as a result of this, as we always explained, when you have a stronger order book, you can select your orders, you can Improve your product mix and you can increase your prices, and this is the situation that we are living today. So we have very good business conditions, and this is what is In this number that you can see, we have the strongest EBITDA since 2,007, Net sales of more than €3,000,000,000 EBITDA, €378,000,000,000 that is 130% Higher than last year, 2.3 times. And we have results after taxes and minorities of 203 That cannot compare with the only €2,000,000 that we made last year.
But always keeping our long term strategy also keeping our long term strategy, that means in this time We have a strong operating cash. Remember, cash is king for us and our net debt under control. So with this brief explanation, I will leave the floor to Hans, our new Chief Operating Officer That started working in September. So I'm sure that he thinks that the stainless steel business is very easy. You can only increase prices.
But we have to consider that we also have to think in our business and through the cycle business. I think that Janssen, as Carlos mentioned, was recruited to reinforce our lean management and to bring new ideas From other sectors to help us to keep on improving because at the end, this is what we are always doing, looking for the excellence. So, Hans, the floor is yours.
Thank you, Bernardo, and good morning to everyone. Pleased to be here today with all of you. So let me talk briefly about what happened in this second quarter In the market, but as well in Aethrinox. The market of stainless steel continues to grow. The demand is improving.
And the same happens with the high performance alloys market, with the recoveries is going fast and In North America, inventories and imports remain low, and that's an opportunity as well going forward. In Europe, antidumping duties for core raw materials were approved to India and Indonesia and extended the safe work another additional 3 years also happened in this quarter. Within Aserenox, each one of our divisions improved the results quarter over quarter. And as said, our profitability is the best in 14 years. Continuously focus on cash performance and operational excellence, which is what we were focusing In operations for this quarter and going forward as well.
With that, I will pass it to Miguel.
Well, the chart shows very, very clearly the evolution and the strong reaction that took place Since mid year 2020, the strong reaction that came in the Q3 and we start Reacting in the stainless side, later on with a growth that was expanded through all the units. And also, we have seen the strong reactivation coming more recently also in the high performance alloys. So at the end, We are seeing 4 consecutive quarters of growth. When we put this on figures and we show The figures for this strong increase in profitability, we appreciate that more or less all the variables are And all the figures are absolutely remarkable and all the improvements. All the slides that are coming now are going to be Or you cannot perceive that Alper, very self explaining.
So I shall just give some messages from each of the slides. First of all, when we purely analyze the Q2, as has been remarked, is the strongest since year 2007, the strongest In the last 14 years, keeping in mind any case how different was the market at that time and which were the drivers That led to that profitability in that period with a strong and constant revaluation of the nickel and consequently of all the inventories all around the world. The Now it's absolutely different. So we have been able to obtain figures as remarkable as those Yes, in different market conditions with a much more stable nickel, but at the end, this is as a consequence also of the Strong improvements and cost reduction and increasing efficiency we have been doing that with a proper tailwind of market conditions now appears as our results in our P and L. The EBITDA is very, very strong, but what also must be remarked is the cash flow generation.
When we present the figures of the Q1, we anticipate that we were saying that they should the second quarter should be even better. We have seen that this has been coming as increase in EBITDA of 35%. But also and even though the increase In capacity utilization, the increase in production, the increase in volumes, what we have been The thing is that we still keep an operating cash flow. And it's remarkable keeping an operating cash flow in a momentum in which the working capital Increase and continue increasing. We saw increases of €130,000,000 in the Q1.
We anticipated also that for the second, We expect an increase in working capital of around €100,000,000 for all the units that are running At high capacity utilization, so this has been appreciated. But the increase in working capital has been even absorbed By the increase in margins, the increase in efficiency and consequently, the operating cash flow has been €84,000,000 in the quarter. So this is something to clear your remark. It's very, very relevant. As is relevant also, the figure of the net debt Remains absolutely under control.
We are showing figures of net debt of €138,000,000 even though when we compare, for example, with the equivalent figure In the Q2 last year, which is very similar, but in the figures this year, it appears also that in June, We have paid a dividend, so the whole dividend of €135,000,000 has been already paid. So this is reflected In the debt figures at the end of June, as also is reflected, the increase in working capital that as we have in the state, that has been up €253,000,000 And also keeping in mind that just 1 year ago, we raised additional debt of €313,000,000 For the acquisition of EDM, so it's very, very simple to just analyze and conclude how it should have been a normalized debt in our group With note, these three facts have been appearing and showing in the figures we are reflecting at the end of June. This is going to be the peak of the debt in the group in this year. And the 2nd quarter and especially the Q4 Shall bring a strong cash generation and a strong net debt reduction in the whole group. If we just separate in our main divisions, stainless And high performance alloys, going to the next slide, just showing the stainless.
It's very, very relevant also to appreciate the EBITDA of €201,000,000 which is 32% Higher than one of the previous quarter. What's relevant also is that at the end, for being appreciated, What we are seeing now is the consequences of all the homework that has been achieved. So at the end, we expressed Last year, all our efforts that we're doing in Varavalis and the fixed cost, this appreciates. So when we saw the figures In the stainless, we appreciate that with the increase in melting shop in this period of around 28% in the whole semester, the operating expenses have only gone up 12%. So in this regard, it's clear that we have made a special effort in the increase in efficiency, and all this is appreciated as well as all the improvements of the excellence plant As soon as we have had these tailwinds.
So I think the evolution of the Stainless Steel division has been remarkable. And keeping also in mind that having circumstances in the quarter that could have spoiled a bit, but I think that this has been Very, very properly and efficiently handled by the management. We have had some problems on some supply In oxygen, in South Africa, we are having some disruption also in the north of Spain in Porvoo with a certain strike. So We have had in different units some problems that have been very, very properly solved. And consequently, we have been able to develop these figures And also remain very, very positive for the coming quarters, as shall we explain later on.
If we move to the high performance alloys, What is probably more relevant to remark, you have all the figures in front of you, is how successfully It's taking place all the integration. We have been able to achieve the most relevant milestones that were planned 1 year ago. And consequently, we are seeing that a lot of best practices more than 70% best practices have been implemented, More than 100 more than 250 trials have been done in the stainless operations plans for processing alloys. A lot of new products have been created in different alloys, a lot of best practices in the share Among the teams and the specialists in both the alloys and the stainless commodity works, so this has been extremely, extremely successful. And as a consequence of this, we have obtained synergies which are 40% above than the synergies that were Precise for being achieved at this period.
In addition, it's clear that in the second quarter, what appears is a strong improvement In the order book, in the alloys sector, the last quarters, the high performance alloys and especially our division, Keep our relevant track in supplying sectors such as the chemical processing or the auto electronics. And what also has been relevant in the Q2 is that it's coming the oil and gas, and we're starting orders of oil and gas. So with this Huge increase in the orders taken in the 2nd quarter, which shall be appearing, obviously, in terms of margin activity in the coming quarters. Also, now we are in position of changing EBITDA strategy up to now, more involved in filling the mill, Now more involved in being very, very selective on the margins of the orders taken. And this shall consequently contribute in a proper Improvements on the profitability in the Performance Alloys division in the coming quarters, and we are going probably to reach the pre COVID levels Sooner than expected.
And this is a very, very positive indication for the 2nd semester of this year in BDM, which up to now, It's trading at EBITDA margin of 8%, which is also close to the expected levels that we always mentioned, around the 2 digits, reaching the 10%. So the reaction has been quicker and very, very efficient, and this is something to be proud about. If we just move to see how is the effects on the cash Flow for the group. I think in terms of capital allocation is also one of our key Issues in terms of focusing the most, and this is something also that we are extremely, extremely proud. When you see the figures, We are showing not only the quarter, but also even the 1st semester.
It's clear which are our priorities. We are having a very, very relevant EBITDA, which has compensated even the huge increase in working capital. And in this regard, this has been our first Prioritized investment in this period. So for us, the main investment has been being in position of Comparing the growth in the market by the huge increase in working capital, as has been the case, This has a very, very quick return and shall be appreciated and is being appreciated already, not only in the margins but also in the cash generation. And this, as I am Stating shall be coming mostly in the 2nd semester.
So the first investment for us in this period has been the working capital, it's going to be very, very successful. We are in terms of capital allocation also, we are very, very strict in regard of the CapEx. So as you may remind, we announced around EUR 100,000,000 CapEx in the group for this year. And at the end, we have achieved until June So we are keeping a strong discipline. We are not getting relaxed by the good momentum on the market.
So we are prioritizing also Yes, the most relevant CapEx, and we are not getting conforted with a good momentum. And this is also relevant, And we keep very, very committed on that. And in addition, we paid a dividend last year in the month of November, as you remind, but also this year, it has been The dividend has been paid in the month of June and also up to now in the 1st semester. It appears also in terms of our capital allocation The dividend that has been paid in the 1st week of June. So this shows our priorities for keeping the business
[SPEAKER CARLOS ALBERTO
PEREIRA DE
OLIVEIRA:] And keeping the business on the long term
run, one is obviously accompanying and be able to develop the working capital. Also, we need to keep a good control on the CapExes And obviously, the proper retribution to our shareholders.
Thank you. Having a good quarter or a good semester should never be an excuse not to focus on cost control and continuous improvement. So this is what excellence 360 is all about. We continue to focus even through the good times in our cost base, And this is where you can see in the chart where we achieved an annualized base €58,000,000 of savings. Our teams are doing a great job in identifying further opportunities for the months and quarters to come, and we already recovered what we missed last year in 2020 due to the situation and the lower volumes that we had.
We have not incorporated the High Performance Alloys until now, but the good news is that going forward, High Performance and Noise division is going to deliver €15,000,000 in the next 3 years on this same excellence 360. All our operational teams are focused on cost control and cash generation, and this is what Excellence 360 is all about. So thank you.
So we are coming to the end. And remember that Our traditional long term strategy, we are focusing, as we have mentioned, focus on our long term strategy, and we cannot forget this is a cyclical business and we have to look at the business in through the cycle parameters. As I mentioned before, with all this new situation, the improvement of our market condition has accelerated and It still is improving, and that gave us more visibility so that we can program our plans better, and we can Adapt the product mix to the necessities, so it's the best in years. Then with this situation, the stainless steel division We posted a remarkable quarter, the strongest, as we mentioned, since 2007. And also, we have a clear recovery Since March, with the order intake in March in the HPI division, which is very positive for us.
It's called, as Miguel mentioned, the integration process is going very well, and we are very excited with the possibilities that we have with the 2 divisions working together. And as Miguel explained, with our working capital increase due to better market conditions, As I said, as indicated most of our cash generation, but now in the Q2, we'll be in a better We'll release some of this working capital, and we expect to finish the year with a better net debt and a good cash generation. So we can say that in the Q3, we will continue focusing on cash. We will have a very strong cash generation. And also, we can foresee that EBITDA in quarter 3 is going to be higher than in quarter 2, and we will reduce the net debt.
So this is all from our side. So we can start, Carlo, with the Q and A session.
Okay. Thank you for the presentation. Let's move now to the Q and A session. So please, operator, go ahead.
Thank you. Ladies and gentlemen, registration for the Q and A is now open. If you are already unregistered, please do so again. Our first question comes from Alan Spence from Jefferies. Alan, your line is open.
Please go ahead.
Thank you and good morning. I've got three questions. I'll take them 1 at a time. The first one is on the price increase you announced in North America recently. Just wondering if you could give us an update [SPEAKER CARLOS GOMES DA SILVA:] How that's been accepted so far by customers?
And what's the time frame before it will be fully reflected in your results?
We have released this letter to our customers last week, And this price increase will be effective 1st August. So still we don't know, but we trust very much that we'll be well In the market, how does it will affect in the profit and loss account, we'll have To see. No, we never give these numbers.
Sorry, I didn't mean the profitability change, but just Given contracts, if it is accepted, how long before it would be in there?
This is for contracts. So that will be Affecting more or less 1 third of our production in the first months and after 1 quarter to 2 thirds of our production.
Okay. And the second one is on VDM. You gave some helpful commentary around The next couple of quarters, but just with a strong order book right now, do you have any early sense Where the margin could be in early 2022?
Well, as was previously explained, we have seen and we anticipated That the margins are improving. We are going to reach the pre COVID levels in terms of margins in the 2nd semester. This means that probably we can be trading in those levels and we are talking about a 2 digits EBITDA Probably for early 2022. So we feel very, very comfortable on that. And we have seen a strong reaction of the market.
And consequently, We think that this is achievable for 2022. In addition, gradually, we shall also be appreciated the synergies that are to come. But at least reaching to these pre COVID levels in early 2022, we feel very comfortable with that.
Thanks. And my last one is on the sustainable stainless steel line that you're launching. What's the CO2 Reduction compared to your standard products and what is the type of volumes you might be thinking about that for next year?
Good morning. We don't have specific CO2 targets that we're going to be looking at this morning time. What we can ensure Is that the main products are going to be focused on the sustainability of stainless steel. It's going to be focused on the recyclability of the material use, but as well the use of renewable energies and how these are going to be combined into a certain volume that It's going to be specifically dedicated with this TIF stamp that will allow us to mention that this is a sustainable steel stainless steel that we are selling.
You mentioned volumes. We can say that we can guarantee that we can certify that sustainable More than 15% of our production, 1.5%. But it is much more than the current demand. So We have to develop the demand of these products.
Our next question is from Christian Grisser from Exane BNP Paribas. Please go ahead.
Yes, hi, good morning. Thank you for taking my question. I have 2, please. First, maybe on the outlook for Q3. Would you still expect some weaker seasonality we usually see in Q3 In terms of volumes, you could even see volumes up sequentially, even the strength in demand in all regions.
And looking at the margin performance you have here in Q2, how sustainable is this? Were there any raw material one off gain in Q3 as we've seen sorry, in Q2 as we've seen in Q1?
And I will start there, please.
Okay. Let me answer your questions. I think seasonality, We don't expect a strong seasonality in Q3. We'll have, of course, some reductions in Europe as it is normal, but less than And before, less than in the previous years. And we think that the American economy is performing very well, and we will not see the seasonality in United States.
So we are pretty comfortable with the situation in Q3. And how sustainable the margins are with so We maintain the level of production, we maintain our cost under control and we push prices up if we can with more visibility and the stronger order book. We feel very comfortable as well with the current margins. And we will of course, we will try to increase.
All right. Thank you. That's very clear. And maybe one question on the ETS and the European legislation around carbon credit. Can you give us some idea where your current status of carbon credit inventories?
When do you expect to Witness cost inflation when you need to buy more regularly on the market and also how would the new ETS legislation impact That's status quo. So maybe some thoughts on the ETS and also on the carbon border adjustment mechanism. Stainless is excluded now from the legislation. What is your view on that? Are you lobbying
This question is enough for one conference, Because the carbon problem and the carbon matters are very complicated. In the case of the credits, We have been and we are still receiving free allowances. And also, we have some savings in these allowance that will let us work Comfortable for the coming years as well, no? So this is not a problem and we are not going to suffer the cost inflection that you mentioned. What is going to be the future of the carbon commerce and carbon borders and these things is difficult to know today because this is Just a project in the European Commission.
What we know is that it's a real political interest to establish this carbon border because otherwise, we will leave the European Union unprotected. And this is not fair. If we want to be sustainable and want to reduce the emissions, we have to protect the producers that are working under these Because as we have mentioned many times, if we are not protected with this kind of tool like the carbon border tax, Probably the production of many things will move to other countries with more relaxed legislation in environmental Matters, so that will be like exporting this CO2 credits or giving them the advantage to Increased production against the European producers and consequently, increased the CO2 and On every kind of emissions since in these countries, the legislation is more relaxed, as I said. So I think that our representatives in the European Union are Now recognizes that this is something that they have to take care. And there's a political interest to establish the carbon border tax.
How are we going to do it is another question, no? Because the complexity of the European Union is high. And to once you have the interest to do it, it is difficult to establish the right mechanism, satisfying all the Not only the European Commission, but also all the individual member states. So this is a very interesting matter. We are following it very, very closely.
As you know, from our position in In Unisys, the Spanish Association and in Eurofair, we are working very hard on this to protect our interest. You have been following Atheriones for many years, and you know that since many years ago, we have been claiming for this kind of tools, For this kind of protections or at least to play against the other producers that are not in the same
Our next question is from Patrick Mahn from Bank of America. Please go ahead.
Good morning. Thank you very much for the opportunity. I wanted to ask around imports into Europe. So we've seen a reduction. I want to get your views on how much of this is cyclical, so because demand is strong Globally and we're reopening.
And as you mentioned earlier, inventories throughout the supply chain are low. And how much of it is because of These increasing trade barriers, for example, well, and the most the best example being the antidumping on Indonesia and India, just trying to get an idea of if we start to see the restocking cycle play out and the tightness eases, Where do you think imports would sort of settle at? At what kind of level? Thanks.
It is difficult to split this impulse if they are coming because of they are not coming because of The safe wear measures are because the anti dumping duties for it is because the local market, but I will give you a couple of examples, not the favorable countries That they have quota under the several measures and are not using this quarter, like for example Korea, Korea, South Korea. And this means that they have also a very strong market. I think that there's a strong market in China, a strong market in India. Now the measures that the Chinese government has taken to eliminate the export rebate of the 13% is a clear sign that they want To keep production inside the country, to promote the recovery in period and also to This is something similar that was happening in India that they have temporarily eliminated the trade barriers. So this is also a clear sign that they want to protect the local market and with an inflection.
There are also some signs In the same sense in Brazil, they are reducing 10% the duties. So in general, I think that Most of the markets are very strong today and then producers are focused on local markets. Now if you add the cost of transport, now that from USD 50 per tonne has moved to close to USD 500 per tonne, that's another reason To finish with this globalization process and be more focused on regional and local sales, Another simple is U. K. For example, U.
K. After Brexit is not included in anti dumping of And the profile of the imports and everything is imported there, almost of the Consumption is important, but even European producers are increasing market share in U. K. So that means also that there's not a so that is not only driven by anti dampings and cyber messes. So I think that Today, the most important thing is that most of the world markets are very strong and that producers are concentrated In the local business, but anyway, we are very happy that the European Union is also taking Conscious of what we have been suffering in the EU of unfair practices.
And now they are supporting with this to avoid this the flooding of used materials that previously were going to United States and also It's now a very clear focus on our fair practices from other countries like Indonesia and India, and they approved this anti dumping.
Great. Thank you very much.
Our next question is from Jonas Maspoulis from Morgan Stanley. Jonas, please go ahead.
Hello. Good morning, gentlemen, and thanks for taking my questions. A couple of questions on the outlook. You noted Strong free cash flow in the second half. Do you expect to release fully the working capital investment that we saw in H1?
And related to that, how are you looking to deploy this strong cash flow? Is it a case for a buyback in the second half? Or would you also consider a potential direct stake purchase from Nippon Steel, assuming they're willing to exit fully from your share register? And I'll stop here, if that's okay.
Well, in terms of the working capital for the 2nd semester, it's not going to be reverse All the figure that is appearing in the 1st semester. Keep on mind that still in the Q3, as we have seen, we shall see some Even increasing activity, so maybe still is some increase in the working capital in the Q3 and maybe the stronger reduction Shall take place in the Q4, but not matching the figure that has been appearing in the 1st semester. So at the end, it may get stabilized for the Q4, but the figure is not going to be purely symmetric. The fact is that in the Q4, with a But not matching the figure of the increase in working capital in the 1st semester.
The possible buyback that I think is the trending topic today, there's nothing to comment here. Remember that we will have to look at the through the cycle numbers, not only the current situation. We have to consider the full cycle. We haven't taken any decision yet. Of course, it's something that we are considering, we are studying, but there's no decision Taken.
This has to be decided by the Board of Directors and later have to be approved by the another shareholder meeting. So there's no comments here.
Okay, understood. And maybe a follow-up question on VDM. I saw in the slide you talked about a €15,000,000 target of cost savings by 2023. Just to clarify, is that on top of the 3 year synergy target of EUR 22,000,000?
These are all operational activities and savings, which are, yes, on top of the integration savings that we consider at that time.
Okay. Thank you very
much. Our next question is from Robert Jackson from Banco Santander. Robert, please go ahead.
Hi, good morning, Bernardo, Miguel and Hans. Just a few. Thank you for taking my questions. First of all, regarding North America, how are the negotiations Developing with the ATI and could we expect positive impact in along this during this year from those extra volumes? My first question.
Robert, good morning. As you probably know, AGA came to an agreement with the unions and the employees and their resume operations. They are resuming operations right now. They communicated to the market that they are going to be Leaving the traditional stainless steel business and focused on the high performance alloys business in North America. We see a strong demand for the products that we're producing.
And evidently, we are Given answers to our customers, partially also their customers, to provide the needed materials that they have in the marketplace.
Okay. So we could be seeing some volumes even this year?
Already seeing some of those volumes flowing into our mills this year already that happened already since they are in they have been in strike for many months now.
Okay. 2nd question, regarding the disruptions you've mentioned in the first half in South Africa and in Spain, What are the potential risks could be on the for the second half, More in South Africa or could you flag any other risks that you may be seeing?
Hello, Robert. What it is it's good news is that, of course, in production, In the industrial activity, euros can have risk or euros have risk, and our business is how to run and how to manage this risk. We are very proud to say that we have been able to reduce this the impact of These disruptions, and that is not going to affect our profit and loss account. So we always have a big plan. We have always have a risk management Thank
you. And my final question, regarding VDM, could you give us an idea of which markets VDM is gaining more exposure to and where the pipeline which market the pipeline is exposed to? Thank
you. Of the main markets where BDM is active, I have to say, 1 is electronics and electric items. And this is a market that is happening in China still as well, but it's booming. No, it's performing really, really well. And this high performance alloys are used, for example, in small Yes, appliances like dryers or toasters or these kind of things, but also in the OLED TV, the new technology That needs very stable materials.
So this is very good. 2nd, automotive. Automotive, until now and for us, It's running very well. So we haven't seen any signs of depression of this market. Automotive, for us, is performing very well.
3rd market is oil and gas. And we can say that there's a recovery in the oil and gas Business, maybe not in Europe, maybe we don't see it in Europe, but we have projects in Qatar, in Emirates, in Brazil and in some other countries And are going well. So these projects are giving us a lot of other intake. Chemical Industry, I think it's also a very good sector. It's a sector that is performing very well, that is also booming and that is investing.
It's investing in new plants and in new equipment, so it's also good. The only thing we missed today is the aerospace industry. This is still no progress on that, especially in United States and in Europe. And it's the only sector that we are missing. But in general, we can we see a good activity, and this activity will improve during the second half of the year.
And geographically, would you say the Middle East is very, very relevant?
Not really, but not because it's not relevant. It's because most of the equipment is made in Europe. So we are supplying this material in Europe that will be finally for the engineering company, whatever, released to the Middle East, but the The transformers are in Europe.
Our next question is from Carsten Reich from Credit Please go ahead.
Thank you very much. I have 3 questions. I will take that 1 by 1. Special Aloy is the first one. You mentioned the better order book and that it will show further earnings improvement in the second half.
What kind of levels are we talking about, 8% EBITDA margin? Is that already A level we are satisfied with? Or do you clearly go for double digit? What kind of earnings level could be expected in
the second half? Thank you.
As has been As stated, we are in a good trend, so it shall be improved gradually. We think we may be close to seeing the double digit figure during the second half, but not as average for the period. This is a gradual recovery. And then consequently, maybe we'll reach those levels. If we consider on an annual basis, it could be assumed that Not reaching for the whole semester a 2 digit figure.
This is clear. Maybe this is coming for the next year, but not in the 2nd semester. But In any of the coming months, we may see that.
The second question I have sorry? So the second question I have is on the cost inflation. We see the usual cost inflation out of the alloy element and scrap, But more interesting in the usually more sticky cost inflation because a lot of companies currently talk about this. Do you see the same, especially from a labor perspective, that cost will increase going forward? And what kind of level do you expect?
Carsten, good morning. So we are Xtend360 is one of the tools that we use to mitigate cost And we are working in continuous improvement activities to mitigate those cost inflations that we see, mainly when it comes to efficiency in our lines and working. And our teams are doing an outstanding job of managing those situations. We really see the inflation mainly on materials, as you have seen, and that's where Has been over the last months, the situation. And evidently as well, energy costs in Europe mainly Are going through the roof, and that's what is that's we're working as well to mitigate those through efficiency, but it's really significant increases that we have seen there.
Okay. Good. Perfect. Thank you. And the last question is on the carbon board adjustment mechanism.
I completely agree. It's an important step forward. But does it also mean that we will see a gradual removal of Other antidumping measures, which to some extent are based on the same argument as we get closer to the introduction of carbon border adjustment mechanism.
Okay. Good morning, Carsten. There's no related. This is not related. Anti dumping is regarding The unfair practices, and we have that.
And this is related with unfair practices in market activities. Sabre message is only related with Section 232 in United States. This is a mechanism to avoid that Inputs that were going to United States before invaded Europe because the closure of the American market, so it's another fact. And carbon border tax a totally different story. And it is not clear it's going to be applied or it's going to be compared By per country or per producer, I think it should be per country.
And then they will compare the level of emissions, And that will be compared with the best in class in Europe, and the difference will be applied in a kind of Not tax. It's a compensation, no? Compensation. But this is like 3 different effects, not related between them.
Okay, perfect. Thank you very much for the explanation.
We have no further questions. Thank you.
Okay. Thank you very much. There is no further questions from the website. Well, just to Already answered regarding the buyback, that there is no more comments in this sense. So this is all from our side.
Thank you very [SPEAKER
CARLOS ALBERTO PEREIRA DE OLIVEIRA:]
Thanks for your questions and joining us. And we hope you have a very good day and to see you on the next webcast on the 3rd November, have a good summer break. Thank you very much.