Ladies and gentlemen, welcome to the Cerinox First Quarter 2021 Results Presentation. My name is Simona, and I will be coordinating your call today. I will now hand you over to your host, Mr. Carlos Lara, Head of IR at Aperinox to begin. Carlos, please go ahead.
Thank you. Good morning, everybody, and welcome to the Telenor's earnings conference call for the Q1 2021. My name is Carlos Flora Tamayo, and I am the Head of Investor Relations of the group. The presentation will be hosted today By Bernardo Velasquez, our CEO and Miguel Hernandez, CFO. Before getting started, Let me remember you that this conference call is being broadcasted in our website at telenotes.com.
Now I would like to hand over to our CEO,
Good morning, everyone. Thanks for attending this ASEANO's Q1 results presentation. First of all, I hope that you and your families are fine and you have not been badly affected by the coronavirus. This time, we are the last one of the 3 European players. So many of you already know everything about the stainless steel market situation.
That's why we will try to be brief in the presentation to dedicate more time to answer in the Q and A session. Anyway, there's a lot of information in our fiscal report as well as in the in excess of this presentation. I would like to start speaking about sustainability, and I would like to show how seriously we are approaching to this important matter. We have delivered our sustainability plan. We have created a sustainability commission of the Board.
We have And a specific sustainability department in the company that is centralized in Madrid, but with dedicated people in all the plants, Well, the people that will be responsible and the people pushing to get the targets in sustainability. And we have to say that we have to admit that we are not the best company in reporting the ESG KPIs, but we are on the way to improve. But you know that we are one of those companies that prefer to act first and report the results later instead of the opposite. No, Anathiono, it's truly been a reference in efficiency. What means that we have been a reference in the use of the rational use of resources to be competitive And consequently to be very sustainable.
In this slide, the first slide of our presentation, you can see We have to be in our way to reach the targets of CO2 emissions. We have reduced 4% compared to the previous quarter, 2% Compared to the Q3 last year, we are making a big improvement in our accident frequency rate. It's 45% compared to 2020. We are achieving the objectives that we Fixed for our sustainable financing. And of course, this is I don't want to repeat everything, but I want to mention that we have a very sustainable business model that we have demonstrated Through our history and of course that stainless steel is the paradigm of the secular economy.
We have a good product that is 100% Recyclable, and in our case, we are producing our stainless, we're more than 90% recycled material. And it's a long lasting product with a long life cycle, what means That will you need to produce it less times in the compared to the life of other products and at the end of the life is 100% recyclable It is clean, it's hygienic, this is low maintenance. So in general, you know a lot of advantages that We'll make stainless steel the material of the future. Going to The Fresco results, we are presenting today very strong results and we are continuing the progression that we have started Q3 last year, and I will continue in Q2 2021. The market It started recovering in September last year, especially driven by the consumer goods industries.
In since November, we have started To see a strong restocking period, which means that the customers, the distributors, everybody Trusted more on the economical recovery. That means that they invested In inventories, in a supply chain, that was very weak after more than 1 year, because remember that 2019 was also a year When the apparent consumption went down in Europe and in United States, so that means that the supply chain was empty of inventories, not only in Stainless steel, but also in goods made with the stainless steel. I mean, with washing machines in the department store, The car dealers have a low inventory of gas, so everything was in the low level in the supply chain. So this is restocking period plus The good behavior of the consumer goods industries is provoking this strong demand. More than that, since March this year, we are facing now a strong recovery in the product business, I think with a very important order entry in March and especially in April.
And all these things are still without the recovery funds or still without the infrastructure programs. It's only based on the real economy More than that in the expectations of the economical recovery. We have other factors that are contributing to the good situation That is the supply chain breaks, cost of transport, that's an Android measures, especially the one that is now Being discussed in the European Commission against India and Indonesia, that will be something between 13% and 34%. We are also placing anti dumping in Malaysia against Vietnam and Indonesia. It is important to mention also the 13% rebate In China, the export rebates.
And all these factors Moving our industry to a kind of new regionalization. We are getting We are global, but we are getting more local with all these businesses. And on top of this, we have a strike On ITI in the United States, we had the problem in the Suez channel that also affected to the supply chains. There are problems in India with the COVID situation, but that it is using the oxygen for a medical purposes So everything of course is contributing to the healthy situation that we're living today. But as you perfectly know, Good market conditions, plus low imports, plus lower stock means An extension in the delivery time and always a delivery time extension in our industry, let us increase prices.
That is the situation that we are facing now. In Page 4, You can see the market highlights is what I mentioned. I would like to remark prices. We are increasing prices In all the markets, but especially in the United States, where yesterday we announced a new price increase, a general price Chris, for all gold raw materials of 2 points of discount, that will mean something around $70 to $90 per metric tonne. And this is going to be important.
It's going to help us To increase our results, in the right hand side of the slide, you can see the ATHENA's highlights. Production, of course, under this situation, we are trying to push our mills to produce as much as possible at 100% capacity utilization, It is not easy after so many years trying to control cost and reduce our production. We have delivered a very strong EBITDA. We are recovering as I mentioned, we are starting recovering in HPI, high performance alloys, more based on private business. And what is very important to say that we are managing our capital allocation in an optimal way, The way that can be better for all our stakeholders, we are managing our capital allocation, moving from Due to net working capital increase that we will release through the year, I'm always trying to make the most of the situation and to make the most for our shareholders and our stakeholders in general.
And with this simple explanation, I will show you our progress in Slide number 5, that we are ready to In the start of this New Year, in good market conditions, in a better situation, That in a market that is changing and finally after many years of business control and Business measures to be adapted and to get flexible to be adapted to the situation, now we are in the position to take advantage of these Improvements and make the most of the situation and take advantage of the good business conditions. You can see that we have started A good progression in 2019, starting for a weaker Q1, We repeated more or less the same scenario, but with better results in 2020. And now we are Starting 2021 with a stronger Q1 that will follow a stronger Q2. And who knows if this operation will let us present reasonable results after many years Control of the business and tough business condition. So this is the scenario that we are facing now.
So, and I will let Miguel Fernandez to explain our numbers.
Okay. Thank you, Bernardo. I just remind you that there is a lot of data and explanations [SPEAKER SOLONITSYNA ANASTASIA:] In the results report you have available, so consequently, we shall go quickly through these reviews number of slides In order for a little more time for the Q and A. Just going to Page 6, it's clear for us to show the strong start In 2021, I just want to mention briefly 3 ideas for The most remarkable facts in this slide. First of all, the consistency and the resilience of our Profitability, it was shown in the previous slide, but then this drives us To show this EBITDA of €161,000,000 in the Q1, which is a 90% increase Compared with the one of the Q1 last year with a positive trend that was shown and explained by Bernardo.
But I think what's more remarkable also is that we had a very strong performance in the Q4 last year. And even though that, we have improved our EBITDA at 23% compared with the Q4 last year. So this shows Our consistency, the resilience and then the advantages we have in taking soon and properly the positive waves in our business. So this is message number 1. Obviously, this is coming also by our presence in different Geovramp is an indifferent sector, so we can and it was appreciated last year quarter per quarter.
When the stainless commodity was suffering in the 2nd quarter, We have the contribution coming from the high performance alloys, and then the high performance alloys had their own reduction in cycle, but then we From our regional improvement because of our presence in America and now on all the rest All the geographies are evolving properly. So I think this is one of our main remarkable characteristics, And this is more or less what is coming in this profit. The second point I want to remark is the Operating cash flow of €23,000,000 in a quarter in which we have experienced an increase In working capital of €153,000,000 So even though that big increase in working capital as a consequence of the Good momentum of the market, even though that we have a positive cash flow of €23,000,000 And the third factor remark In this slide is that the net debt is absolutely under control. So we can see this EUR756,000,000 Keeping in mind that just the working capital, which is a momentum, means EUR 153,000,000 the equivalent figure could be EUR 600,000,000 normalized. Just a month later, then we made the acquisition of BDM through increasing our debt of EUR 313,000,000.
So at the end, We think with all these facts, we must be absolutely comfortable and relaxed with this net financial debt absolutely under control. If we go to analyze per division, 1st of all, in Page 7, we talk about stainless steels. I think there are 2 main facts to remark in the evolution of the stainless steel. One is remark the control we have on our cost and especially all the Homework that was achieved last year in variable, I think at the most all our cost It's well appreciated here. You can see that the melting production compared with last year, the 650 1,000 tons have improved at 9%.
And with a 9% model volume, I want to remark that the operating expenses have increased Less than 1%. Yes, 0.7%. The operating expenses, operative and personnel, Less than 1%. So I think this is a good demonstration of the cost control. And the other facts also Two remarks well, with this obviously, with these improvements in the cost savings, we can achieve that With a 9% increase in melting production, we have increased our EBITDA in figures of 80%, and this is obvious at the end, It's very, very easy to appreciate it.
In addition, other factors to reinforce is purely on stainless, The €25,000,000 of operating cash flow, as a consequence, as you know, of our huge control of our inventories. And at the end, what's clear is that increasing working capital in the stainless is mostly driven by the Receiveables as a good consequence of the good momentum in the market, because the increase In payables, it's even a bit higher than the increase in the value of inventory. So we are having an excellent rotation In terms of our production, so as a consequence, the working capital is very, very healthy driven by the increase in the receivables. When we go to analyze in Page number 8, the performance of the high performance alloys, I think there are, From my point of view, also some things to remark, probably three things. One is, as you remember, we talked in the Q4 that there were green shots In the high performance alloys, the green shots are more than growing in this Q1 I shall continue in the coming one.
There are sectors that are doing good. The electronics is doing good, the automotive, The chemical is doing good for the high performance alloys. And then the more growing green shoots also is coming in the Probably coming Q2 because we are seeing that the oil and gas sector is now coming back again with reactivation of certain projects, which were kept on standby. So this reactivation has come a bit delayed Compared with the others, we are seeing in the order book now for March for April. So these green shoots have already have grown prior, it shall Bring on Flowers, especially coming in the 3rd and 4th quarter.
So with the high performance alloys, also we are very, very comfortable seeing More or less the evolution and the expected improving quarter on quarter that may occur in this year. The part of this increase in the order book, You can see that, for example, the melting production in the Q1, 18,000 tons, having has increased up 43% Compared with the one in the previous quarter. So this is an excellent indicator of all these increases in the order book that we are experiencing. In addition, the working capital is keeping the same control that we have in the Stainless division. So at the end, the working capital EUR 14,000,000 is mostly coming by the increase in receivables as a demonstration also that it's a growth in working capital, but Very healthy as a growing the activity.
And the 3rd fact to remark in this slide is what appears in the left side. The Integration remains on track and should accelerate in the coming months, and the synergies are ahead of schedule. So in We are very, very satisfied with the integration of the High Performance Airways division in the whole group. And then with this, we drive to the Page number 9 for showing the operating cash flow Of the group, I think there's also some fact that we need to remark as is well appreciated. Normally, the cash flow generation In our business, it's driven by the working capital.
But in this time, the main driver has been the Excellent cash generation, the margins achieved with this EBITDA, quarterly EBITDA of EUR 161,000,000 That even though the big growth of the working capital by the positive momentum, at the end, the contribution has been higher. So at the end with this, We reached this operating cash flow of €23,000,000 It must be appreciated, and I think it's very, very graphically Shown in the slide that the increase in working capital is temporary. This shows us the momentum Of the strong change in the trend that has occurred in the Q1, you can easily imagine What may occur in our cash generation when the situation stabilizes in the coming quarters. So we have seen the growth in the Q1, probably also still in the high performance although it's this good momentum. We should increase Some should mean some increase in working capital in Q2, but it's clear that in this year, in the 2nd semester, We are having absolutely positive inflow of cash that should drive us to very, very Healthy figures of cash generation for the full year.
At the end, keep also in mind that, as we have said, the net debt is absolutely Under control and then that we have liquidity actually in place of €1,800,000,000 more than €1,000,000,000 in cash And at the end, credit facilities are available of 800,000. But this is for this could be a concern 1 year ago, and we provided these Because nowadays, it's clear that the net debt is, as we have said, not only under control, but also shall be reduced, especially in the 2nd semester of this year.
So now after this brief Description of the situation in Q1, I think it is very simple to tackle this outlook and conclusion. First of all, I think it It's clear we have had a strong start of the year in Q1. Fee cash flow is positive, but still So we can improve in the rest of the year, always as I mentioned before, focusing on the optimal capital allocations. We have a strong order book in stainless steel that will remain strong in Q2. And our hedge Performance alloys business is improving, especially since mid March.
And the other entry has been very strong In March, in April and is continuing in May. This net working capital increase should be released through the year, As we have demonstrated many times in the control of our working capital and our inventories and the working capital in general, Let me show a very brief outlook, And I would like to remind you that during the COVID situation, during Q2 and Q3 last year, We remarked many times that the European situation was different in the North and in the South. We experienced a tougher business Conditions in the South with more breaks and with more breakdowns and lockdowns of the economy That continued in Q3 and Q4, so the recovery of the Southern countries in Europe has been delayed compared to the North. So all these good business conditions, order entry, price increases, plus this delay in the high performance alloy business and this delay In the Southern European Economies, let us say That the Q2 EBITDA is going to be stronger than Q1. I think this is the message and This is a simple and brief explanation of our results.
I'm sure that you have a lot of questions After all that you have heard these 2 weeks about the stainless Steel business, and we are ready to start the Q and A session.
Thank you, Bernardo and Miguel, for this very clear presentation. Now we are happy to take your questions. Please, operator,
Thank Our first question is from Christian Agarwal of Citibank. Christian, your line is open. Please go ahead.
Yes. Hi. Can you hear me?
Yes, sure.
Yes. Thanks a lot. Thanks for taking my question. And my question Leonardo is I mean, can you qualitatively give us a comment as in what is the status of profitability improvement between Europars here in Europe and the NAS in America, I mean, this is in the context that many of your peers have said that the Pricing in Europe is sort of starting to come back on the base price and the alloy surcharge, which has moved back into the transaction size earlier in 2020. So what is your assessment in terms of pricing?
And then is it fair to assume that Europe probably will be going to be stronger in 2021 versus
Christa, I couldn't hear you very well. I will try to answer what I understood. If I'm missing something, please let me know. Prices in Europe has been improving through the quarter. You know that the pricing mechanism in Europe and United It is different.
So in Europe, we have been increasing prices order by order and with different markets and different conditions and different Customers, but at the end, we are reaching a price increase in all the sectors and in all the countries. It is important to say that taking advantage of the good business conditions, I think I can speak about Atherinov. In the case of Atherinov, we are trying to come back to the previous Pricing situation with base price plus alloys such as that we have always defended. Remember that we never wanted To take this system out of the pricing mechanism in Europe, I think it is a very good way To reflect the raw materials prices and concentrate our negotiation with customers in base prices. And we have always defended the system, And now we are trying to go back to the situation.
In the case of United States, it is different because they always Have had a discipline following this mechanism that is good for customers and it is good for suppliers, so nobody Adapted about the advantages of the system, and we always follow the adviser charge. Now, we as North American stylists, the Aterina Group, we are trained to improve our prices in United States because we I think that we have all the circumstances to face it, and I think that it's going to be It would be well affected by the customers. No, but this is something that we are trying. We announced yesterday to our customers that we want to Our prices by reducing 2 points of discount. And I cannot say anymore, no, that let's see If we can get it or not, this is something that I will tell you in the next presentation, no, but no idea today.
This is that market is How it is? I don't know, prices are also increasing in Asia. I never forget Asia because many times you have a benchmark that is the ASEAN prices plus cost of freight plus duties or antidumping or whatever. So you always have a limit. But in this case, I think that the all the Asian countries and even Brazil They are facing now very strong business conditions.
So they are concentrating Focusing their sales more in the local markets, so we have less pressure in all the markets with the measures in China of this 13% export rebate. They are also reducing pressure on the surrounding countries. So in general, I think that we are enjoying better business condition in all around the world.
Yes. I mean, you covered most of the things. My follow-up question to Miguel probably is that Can you comment on the impact from inventory devaluation into the quarter? That number has been missing into the release.
Well, We normally do not provide that as a separate figure. At the end, more or less, it's a consequence of What has been the movements in the raw material, but just for your understanding, probably the improvement And the revaluation that we have experienced through the nickel upward movements Was in the range of the mid-thirty million euros in the mid-thirty million, I think, more or less.
Something that we will look up in Q2. Yes, that's right.
Okay, okay. Thank you. Thanks a lot.
Thank you, Krishan. Our next question comes from Alan Spence of Jefferies. Alan, please proceed.
Good morning. I've got two questions. I'll take them 1 at a time. The first one is on VDM. Synergies previously were increased from 14,000,000 to 22,000,000 You note that they're running ahead of schedule and the potential to further increase that target.
Good morning, Alain. Thank you for your question. We reported the second time because after the The acquisition of BDM, we put a higher level of synergies and that was 22.3%, if I remember well. And now we are seeing that we have better possibilities, especially What is the most important part of this operation that is in the commercial and the project side? You know that we I've insisted very much that we acquired BDM not to restructure it because we acquired BDM because it was a good company And we wanted to develop a common sales and being the lever To move Atherinox to higher added value products, and this is working perfectly.
It's working better than expected. The BDM customers are happy to buy from the Atherinost Group, stainless steel. And the stainless steel customers are very happy Of this broad portfolio of products that we are offering, we are entering in some product business. So we are developing common sales and common marketing So we are improving in this sense. I think it is soon it's still soon to give you a number.
Probably, we will speak about this in July that we will report, of course, what is the performance of the excellent 360 plan, the The performance of the synergies plan and sustainability will go deeper on these numbers, but I cannot tell you a number today.
Okay. That's fine. That's helpful. And then the second one, can you just give us a sense of lead times for stainless steel in Europe and U. S?
And just if you're seeing any evidence of restocking the ultimate end customers?
No, lead times is something That depends on the company. We're going to speak about general lead time in the market. I think every supplier He's trying to manage the business as we consider the best for our interest. In the case of the Acelainos Group, we have a policy that is that we don't like to extend the delivery time too much because it is the best way to attract imports. No, when you are eliminating the risk of imports by extending your delivery time, it is very easy for your customers To buy today something from Asia or from other markets that will be delivered at the same time that the local product.
So you don't have any Advantage in terms of risk management by buying locally. So we are trying to keep A short order book. That means, of course, that the short order book today is not as short as it was A couple of quarters before. Now remember that we have reduced during the tough times our delivery time To 30 to 45 days, and now we are speaking about July. We are in the we are contracting July orders In stainless steel, it's more or less what we are doing in Europe and South Africa and other markets.
I think we can say that we are now Finishing contracts for Q2 and starting with Q3. Doesn't mean that we don't The other is that we want to control our business and our lead times.
Thank you. On the inventories?
If I can add something, I would say that Under the current scenario, with prices increasing, we also prefer to take advantage to any price increase, But having a possibility of increased prices in the Pending or the other spending to be contracted. Restocking, it is difficult Because you know that there are no official stock figures. We have some reports from the German Distributor Association of the American Distributor Association, they are reporting that they are in a very low level. It is very low In terms of volumes and historical minimums in terms of age of inventories, if you divide it by The deliveries. What I know is that in these numbers is that everything that we are selling It's to distributors, it's going directly to customers.
It is not stopping a long time in the warehouses. So there's not any evidence of a replacement of inventories. I think we are still in the phase of restocking.
Thank you, Alan. Our next question is from Juan Ross of Intermoney. Juan, your line is open. Please go ahead.
Hello. Good morning. Thank you for taking my questions. I have 2 very quick ones. First one is a follow-up question regarding BDM.
I don't know if you guys can guide us to what kind of margins can we expect for this year. I'm not an expert in this kind of alloys, but with a very similar level of Melting shop activity as Q1 last year, you're doing just half of the EBITDA. But then you're saying that synergies are going ahead of schedule. So I'd like to maybe get some color on that and how or what levels can you Can we expect EUR 40,000,000,000 by the end of the year? Then second question is regarding Baru.
I don't know if you guys can provide us some melt in shop activity. It was quite low during 2020. I don't know if You guys are maintaining this very low level of melting shop activity in Baro or is increasing versus the last quarters of last year? Thank you.
Thank you, Juan. Well, first of all, regarding BDM, as we told When it was explained all the transaction, BDM has a stable double digit EBITDA In a normalized scenario, it's clear that this was not the case, especially In the second half of last year, more or less, the big section of the for the high performance alloys Came a quarter later than in the stainless, I'll start on the third and fourth quarter. And it's clear that certain sectors have Well affected as we explained before, mostly for example, the oil and gas that has been probably out of the market for Now it's coming back as we previously stated. So we think that gradually, VDM shall normalize This is double digit EBITDA, and we hope that it may occur prior to the year end. When we compare the figures in the case of the High Performance Alloys division, BDM, With the last quarters, keep in mind on the slide of Page number 8, that the figure On the figures appearing in the Q4 of last year are not coming as a pure Quarter contribution.
Keep in mind that the integration of VDM has been done gradually and more or less All the issues coming from the accounting treatment of the NEO entry of that company, The purchase price allocation has been done during the last year during the months. And for the year end, we make all the final adjustments. So These at the end meant in the 4th quarter that it was certain issues, as we explained in the year presentation, Improving the profitability in the quarter that corresponded to the whole year, and this came for the 4th quarter EBITDA. Because of that, it may appear that there has The deterioration in the margin compared with the Q4 with the Q1 in this year, but this is not the case because the Q4 last year of EDM We're supported by these accounting equipments of several issues that appear in the P and L of the Q4, but were corresponding to the 10 months of incorporation of So I think we are actually with this EBITDA margins we are showing in the 6%, We shall be gradually improving it, and we shall we think that sooner than expected, maybe for the close of this year, We can be in the double margin double digit EBITDA, maybe not for the whole year, but at least for the last quarter And reaching that normalized for the next year.
But regarding Melting production of BTM, what I can say that we have started increasing melting production because the production cycle of the high performance alloys Remember that this is a different business and also we don't have an integrated a fully integrated plant there. We have started increasing our metin production in April in order to be able to start delivering we're starting increasing our deliveries from Yunnan. This is what we have done. Regarding Baru Estiles, we have not an integrated plant in Baru Estiles, so we cannot We are increasing our cold rolling production. In previous presentations, we explained That we wanted to focus Varro Stainless in a range of products In which we have less competition from especially our networks from Indonesia or other companies from Vietnam or China.
And then we reduced our gold rolling production more or less to a level of 9,000 tonnes per month. Now that we are comfortable with this nature of the market that is giving us a positive EBITDA and Giving us a positive cash generation. And as we are, we have a better market conditions and especially with a strong Local demand with also prices increasing in the local in Malaysia and in our local market. So we are trying to slightly increase our production there. So Q2 production in Baro Estanes is going to be higher Then in Q1, still I cannot give you the numbers, of course.
But now we are finding more customers In which we can have positive EBITDA and also we are increasing quantities in those customers that we allocated as our target as Customers today.
Thank
you. Thank you, Juan. Our next question is from Patrick Mann of Bank of America. Patrick, please go ahead.
Hi, good day. I wanted to ask a follow-up question on kind of the restocking cycle. Bernardo, I thought it was interesting what you said about industry becoming more local, given freight and given trade actions. Given the capacity in the local industry and the low inventories and low imports, I mean and it feels like everybody is producing flat out. How long do you think until we get a more balanced market where Inventories are rebuilt and demand and supply are better matched.
And what sort of capacity do you think the Industry will be utilizing when we get to this kind of new normal with lower imports, if it sticks around here? Thanks.
Good question, Patrick. I would like to have the accurate answer. But What we think is that there's still less enough capacity in United States and there's enough capacity in Europe. No. What happens today is that everybody wants to buy not only to fulfill The contracts that they have, the sales that they have, but also to rebuild their stocks, sometimes look like There's not enough for this, but the reality is that there is enough.
What I know from especially from the United States that customers are Considering their strategy is that they are thinking that all today everything that they are buying is being sold in the same month. No, but they will have the opportunity in the slowdowns in for summer holidays in July or for Thanksgiving In December to rebuild their stocks. But today, and this is something that you have to take into account, It's very difficult to predict this fact, but today there's not any evidence that stocks are going to be In higher levels for the rest of the year, of course, there are many things That we can consider, for example, the slowdown in the automotive industry, because of the The chips and these things, of course, that will help the distributors and these exhaust system makers To reveal the restocks in some extent, but we don't think that that's going to happen in
Our next question is from Tristan Gressa of Exane BNP Paribas. Tristan, please go ahead.
Yes. Hi, good morning. I have two questions, please. First on taxonomy in Europe. Given your elevated scrap ratio at the group level, are you in a position today to confirm how much of your business Do you believe it's taxonomy compliant?
Okay. It is also difficult because it still is not clear what is considered a taxonomy compliant. No, still we are going to fix the standards in the European Union and in all markets. But I can tell you that we have 90 Of our raw materials is recycled products. So that it is the same that we can say that 90% of our products is 100% coming from recycled origin.
No, Ann. We have electricity. So we have more or less 15% of our Electricity is coming from renewable sources. Now this is the PPAs that we have acquired in the previous years. This 15% if you add This 15% to the more or less 15% of renewable energies in the Spanish energy mix, You can say there is more or less 30%.
So in some extent, we can say that 30% of our production in Europe is 100% Energy renewables and it's 100% from recycled materials. No, but still I think it is soon because we are working To fix the standards of this green stainless steel.
All right. Understood. That's very clear. And my second question, you're referring the release Due to the removal of VAT tax rebate in Chinese stainless steel products, can you help us understand maybe How significant this move is and the positive implication for your business?
Yes. There was a there is a mechanism in China With which the Chinese exporters recovered 13% of the VAT At the moment of exports, no? So that was a kind of discount. When they were exporting, they received a rebate of 13% Of the value of the price of the product. And they have eliminated this rebate.
That means that For Chinese exports, exporting is going to be 13% more expensive, and they will have to increase the prices 13%. That's why The pressure in the area is getting lower. And on the other hand, what can be In the origin of this measure, this is something that is difficult to understand, but probably the origin is that the Chinese market We want to concentrate so the Chinese authorities want to concentrate Chinese production for the Chinese market, they don't want to develop more the overcapacity, which is a very good new for all the industry. No. And probably they also do not want to export pollution.
But this is another reason. In the last month, we have seen that the Chinese government is taking measures in order to reduce pollution in several cities. We have seen A catch of production of ferroalloys in Inner Mongolia, we have seen some messes in different countries. So probably they are going to concentrate all the local production in the local market that by the way is very strong today. We are always speaking about the recovery funds in Europe or the infrastructure program in United States, But do not forget that China is putting a lot of money under the table in order to recover their economy, same that India is doing in other countries, I do know.
So they have a very strong local market, and they want to make the most of their capacity for the local market. They don't want
All right. That's very clear. And maybe just a quick last one on working capital. Am I right to understand that You said there will be a further investment in Q2. And are you able to say if it's going to be higher or lower quarter on quarter?
I think probably the big change in the trend has created this increase in working capital in the Q1 As we are running at very, very high level of capacity now with our order book increase As has been mentioned, and also in the case of VDM, the higher volume now is coming. I think that Probably it shall be certain also increase in the Q2, and we think that it shall be stabilized for the Q3 and Q4. So the big release of working capital is coming mostly in the 2nd semester as soon as the situation gets normalized. Still, There is a big room to improve in general in activity for the Q2, and this shall mean that also some increases It should be coming for the Q2. In the next quarter also in terms of working capital, Steve, we shall see There may be certain increases.
In terms of the so this should be also Some cash out in addition in the 2nd quarter, we shall have also some cash out in the 2nd quarter coming from the dividend payment that This year is being paid in June. So consequently, in the Q2 also in terms of cash out, we shall cover the €155,000,000,000 dividend, Which means that in this year, it's going to be probably all the issues affecting negative the cash concentrated in the 1st semester. And for the 2nd semester, we are waiting for a strong generation and contribution on cash, Providing definitely that for the full year, we shall have a highly positive cash generation in But it's going to be appreciated mostly in the 2nd semester.
Very clear. Thank you.
Thank you, Tristan. Our next question is from Bastian Synagowitz of Deutsche Bank. Bastian, your line is open. Please go ahead.
Yes. Good morning, gentlemen. My first question is just a quick follow-up on What you just talked about cash flow and balance sheet, obviously, if we look at the volumes, they're very strong, but you've been still able to more than compensate the working capital build With your very strong underlying cash generation. So I was wondering, what are you looking forward to decide on whether or not you will continue to buy back shares? Because It seems like you're really well on track to basically get towards like one times net debt to EBITDA, which I remember is sort of the target level.
So I'm wondering what are you looking for? When do you plan to take a decision? If you could maybe provide a bit of color around that, please? Thank you.
Hello, Bastian. Thank you for the question. You always hear that we are trying to manage The optimal capital allocation, we are playing with all the facts in order to get the best results. We have an open program that was approved in the shareholder meeting a couple of years ago, in which we will dedicate some cash For buybacks of shares, when the situation, let us do it. It was not possible in 2019, and it was not possible in 2020.
But we will just keep it in mind. As far as we have the chance to do it, and we don't have We have, of course, enough cash to afford our CapEx and praise that we can have. That is Also the other factor that we'll always keep in mind, which is the best return of our investment. And if the best return is In CapEx, we will apply to CapEx. If the best return is in buybacks, we will apply to buybacks.
But this is something that we'll keep in mind, but I cannot answer you today.
Okay. Thanks, Dan. Just on the CapEx side, Have you anything changed about your outlook on CapEx? Or should we still expect CapEx to basically remain pretty much in line with, I think, the numbers You've been guiding for it so far, which I remember was around, I think, dollars 110,000,000 give or take?
I think the figure remains stable. I think at this time, still the 100 figure appears to be a rational assumption for this 2021.
Great. Thanks, Miguel. And then maybe moving back to the operating side, just on volumes, you obviously also mentioned The market is very strong, I guess, is what we hear from all sides. Could you give us any quantification on the potential volume increase we should be expecting In the Q2 across your group and even though it is very early days, I'm wondering whether there are just any signs that the Q3 It's basically starting to decelerate a little bit either in Europe or in your U. S.
Core market.
Yes. Of course, we are trying to increase our volumes. I think But remember that we don't have an unlimited capacity, and we are moving to reach the 100% of capacity utilization. Now In quarter 2, we are going to increase our volumes single digits. And I can only say single digit because we will have a breakdown in South Africa of In days for maintenance, but we are going to increase our volumes.
Of course, this volume will be sold At a higher margin, no. What is the the other question?
Just whether you see already any signs of Deceleration of that volume momentum into the Q3, I guess, Q3 is usually pretty strong in the U. S. In Europe, it tends to be a little bit weaker. So I was just wondering whether on a group level, you basically still see so far signs for stability into the 3rd quarter or whether there are any signs that maybe we'll see a bit of a volume ease into the Q3?
Thank you, Westin. No, As I mentioned, we are now starting to contract orders for July for Q3. So this is the visibility that we have. With this visibility, we can speak about Q2. What I can tell you is that there's not clouds in In the sky, we haven't seen any sign to say that the market is going To a slowdown in the quarter 3 or quarter 4, so there's no deceleration.
No, I think we are ready to be flexible to get an update to the situation. No, we would never forget our cannibalization of It's caused and these things, but until now, if you ask me personal, no, Personally, there's no clouds in the sky, no signs that the market will slow down in Q3.
Okay, perfect. Thanks, Dan, Nardo.
Thank you.
Thank you, Bastian. Our next question is from Ioannis Masvoulas of Morgan Stanley. Yanis, your line is open.
Yes. Good morning, and thanks for taking my questions. 2 of them left actually. The first one on high performance alloys. You mentioned earnings improvement from June onwards.
So shall we expect a flattish EBITDA development for Q2? Or could we see another step down before a recovery in the second half? And then the second question is around Columbus. You just mentioned that you're running flat out across the business, but Conlungus is also planning to switch to some carbon steel grades. Can you help us put that into perspective?
Given the better stainless demand outlook, Can you focus a bit more on stainless and only consider reducing and selling carbon when prices come under or demand comes under some pressure? And then within that, how is Columbus coping with the higher freight costs And Brazil's decision to initiate an antidumping duty against South Africa, just interested to hear your comments around that. Thank you.
Well, first of all, going to VDM, as we mentioned, we are seeing The increase in volumes, which is by far going to be appreciated in the Q2, keeping the maturity Of the orders terms in the high performance alloys and for BDM, We think that we shall have probably stability in the margins for the Q2 or some improvement, But the better appreciation is coming for the 2nd semester. So I think that the as we said before, The green shows are growing. The flowers are coming for the Q3 in profits, in activity. The 2nd quarter is going to be Month of high activity, but still it shall not be this big growth on the sales appreciated until the 3rd quarter. So increasing volumes in 2nd quarter, big increase in profitability from the 3rd quarter for BDM.
Okay. Regarding Columbus, a general deal is helping us to balance the our capacity utilization So now we have a very healthy business in carbon steel with a long term content, which is an opportunity for Trinity for Colombo, not only for this year, but for the coming years as well. But we also have to say that we have a nice improvement In the local market, the Columbus, the South African apparent consumption is growing 5% this year. So that will give us Better opportunities and of course they are following the trend in prices at the rest of the market. Freight cost of course is affecting South Africa, but still we have room to with the Increasing prices, we have room to export to the European Union as we did before.
And remember that South Africa is out of the safe work measures, Due to a treaty between Southern African countries and the European Union, and we can we have room We are increasing our capacity utilization in South Africa with this 3 legs. There mild steel is local market and opportunities in the European market. Brazil is not one of The major markets for Columbus, we have exports to Brazil, but it's not one of the major markets. It's not it's not our
Okay, understood. That's very clear. And maybe just to follow-up on this. So if we look at the different stainless plants, Is it fair to say that Columbus would be showing the slowest or the lowest EBITDA improvement Quarter over quarter, eleven to the other plants, given all these dynamics?
We never give this information. I mean, all the plans are in positive EBITDA today. Of course, we have Better performance this quarter in one of other plants, but that's going to change next quarter. So this is not an important information.
Okay. Thanks very much.
Thank you, Yanis. Our last question comes from Carsten Riek of Credit Suisse. Carsten, please go ahead.
Thank you very much. One follow-up on Columbus. You already mentioned that it performed well this quarter, but what percentage of shipments went actually outside South Africa or Great now, for the sake of it. In the Q1 and where did they go to? And do you expect for the remainder of the year this kind of Breakdown to be largely stable or will we see some kind of different outcome, especially in the second quarter, As you mentioned, the maintenance round, how long will it actually be there?
So that's the first set of questions, I would say.
I don't have the precise number of exports from Columbus, But of course with the mild steel business, we are reducing exports and maybe export today are at the level of 40% of It's an approximate number, but can be at the level of 40%. What was the rest of the question?
I believe where does it go to? So because you mentioned Brazil is not the main kind of destination, I would guess. It's Europe Predominantly, where you ship to at the moment. And do you expect that this kind of Export out of South Africa will remain stable for the rest of the year? Or will the maintenance in the second quarter have a Significant impact.
I think that the I don't know how it's going to be the evolution of a container cost In the rest of the year, but probably in terms of availability of containers and vessels, we have already passed the worst part. I think that with the reactivation of the economy, there was a lot of unbalance of vessels in the different parts of the world. Also the Suez channel problem didn't help us on these things, but probably the availability of It's better now and it's getting better. And probably the cost is stabilized, so we can foresee that imports Sorry, exports from South Africa to Europe are going to be more or less stable in the rest of the year.
Perfect. Thank you. And that Leads exactly to my last question. You mentioned the low comparably low imports increased recently. But are low imports really the new normal?
Or did the temporary freight restrictions, and you mentioned some like availability of containers, etcetera, This pushed out an international response to the large stainless steel price differences we see currently in EuropeUS compared to Asia.
Who knows? Difficult question. But in the United States, we have mainly the Section 232. No, and this is something that there is limit in the imports at the level of, I think it's 12% or something like that. No, But today, we are following very closely the what the new administration Saying about this Section 232 or new negotiation with other countries or whatever, and there's not any evidence That we are going to remove Section 232.
So imports probably will remain at the same level. And also there is not a real Intention of most of the customers to buy from other sources because transport cost Delivery time is long. And also availability is not the same that it was before because of the strong activity in all the markets. The case of the European Union, it's more or less the same. Of course, we are discussing today what's going to happen with the safe work measures.
It's still not clear. It's something that is being discussed in the European Commission. There's different ideas. We hope that they will keep the same message because I think they are fair. No, say web message is something that was decided not to protect the European industry.
No, it's not protectionism. This is that was to avoid The exports go into United States to be to go to European market, creating a distortion So as far as the Section 232 is alive in United States and as far as they are still keeping the 25% duty, I think that it's fair that we will confirm and we'll extend several messages in Europe. But anyway, I think the European Union, the European Commission is also taking measures against the unfair imports, not unfair competition. So that is the we have Something that is helping to balance the European market that is the antidumping Against Indonesia and China in Taiwan in a hot roll, This is important because it creates a double distortion one is in the hot rolled market, but also in the rerolling market that can Give lower cold rolled prices to the market, and this is more or less under control. They are not Feeling the same words quotas and also this new measure in the antidumping in Coal Road that we are very Excited that we will get very soon because I think that the final the provisional measures are going to be taken in 28 May And then they will confirm or not, but we hope that they will confirm the dumping duties against India and Indonesia.
And finally, At the date, 28th May, if they publish or ratify these dumping duties, That will mean that we will start applying these duties to Indian and Indonesian customers. So that will give us A better balance of the European markets, remember, trying to avoid no competition, trying to avoid unfair competition from these countries.
Okay, perfect. Thank you very much.
Thank you. Anyway, the last thing that you mentioned, it was about related to imports. Now we are at the level The organic growth of 19% more or less, we finished last year in 22%. Now we're in 19%. We were very close to 30 So I think it is important now you can see that we have a better situation with 2020 That can be stable rather than 30, but you will have to take your own conclusions.
Yes. Thank you.
Thank you, Carsten. We have had further questions registered. We have a question from Francisco Racquel of Elantra. Francisco, your line is open.
Yes. Thank you. Just a quick one for me. If you can please An update on the repricing period of your order book, how percentage of your sales Sure, mate on the spot of 3 months of longer term contracts. Just want to have an idea of The pass through on to the EBITDA of the price hikes that you have made in the U.
S. Earlier this year and the one you have just announced now And also in Europe, if there is any difference on the timing of tariff pricings? Thank you.
Okay. Good morning, Paco. Thank you for your question. In the United States, We have a different way of context. We have a spot business That can represent more or less 1 third of our business.
Maybe you will have another Contract based orders that is more or less based on quarterly basis, And then we have the long term contracts that is more or less 6 months. So that means that we have applied a spot prices in Greece in Q1, what we announced starting 1st January that we now Applied in the Q2, these other contracts are the kind of contracts based on a quarterly basis, and we will update Finally, the long term contracts in the 1st July. This is more or less the same cycle will be applied with the new price increase. In the case of Europe, it's more difficult. We have more or less like 50% or 40% Of end users and 60% of distributors in our portfolio.
For the end users, Not all of them are working with annual contracts. Some of them are using the reversal charge formula, Some of them are negotiating in quarterly basis, and some of them are especially the automotive industry Used to work in annual contracts. Of course, we haven't started negotiating annual contracts with these customers, We will start of the summer. And we are trying to, of course, To push all these spot contracts in Europe and in United States and in Europe following the market trend. Remember that we are not market leaders in Europe.
We are more based in the South of Europe. But anyway, so we are getting these price increases, no? And at the end, we are in the same rhythm that the rest of the players United States and in Europe, basically, at the end of the day, the increase is balanced and Price increases will be more or less the same in all Europe or in all United States. But remember that we are less dependent In Europe and the United States, we will benefit of this more stable and higher prices situation in United States.
Thank you.
Thanks, Michael.
Thank you, Francisco. Our next question is from Alain William of ODDO BHF. Alain, your line is open.
Yes. Thank you very much. So I have a question on Barouf. Clearly, it's not up to the standard of Acinetx in terms of returns. I know you have done a lot of work to address the situation, but the question is, can you go well above breakeven on that business on a standalone basis?
And have you engaged with third parties to try and find a sustainable solution? And probably last question related is what is the future of BAU in
Okay. Thanks, Alan. Ibarra Estelle, you are completely right. We have been working very hard to fix the situation. And Now we can say that we are postpaid EBITDA, but we are generating cash in that business.
For Many companies in European and American companies in Asia, the situation is not as simple as it is in the local countries. No, but I think that we all if you consider your company a strong company and a global leader, I think You need the base in Asia in the fastest growing market. It is not easy. We have to fight a lot. But I think that we have a strategical positioning in Malaysia, that is the entry door of Asia in the Just in front of the Malaya Strait, the Malacca Strait, so I think that we are happy to say that We are comfortable with Baru and that we have a positive numbers there.
And if somebody wants to acquire Baru, we have We have to come here and offer a good number.
Thank you.
Thank you, Alain. Ladies and gentlemen, we have no further questions. Thank you.
Thank you. There is still 2 more questions coming from on the web. The first one is coming from And it's related to the shareholder structure. Anything you want to mention regarding Do you see the shareholders selling the stake in the short term?
Good morning, Ninho. Thank you for your question. I think there's nothing new on this. So we are always Speaking about Nippon, there's no news. I think they feel comfortable as the 2nd major shareholder of Therynox.
They have a good dividend and we are keeping the good dividend. We are paying a cash dividend to them. I don't think there's too many businesses in Japan, given the same return than the original one. Of course, now that The share price is increasing. Many people can think that they will have the temptation to sell the share, but there's not any evidence, nothing new on this.
So We are comfortable with the Japanese. And as far as we know from our conversation with them, the relation is, of course, is transparent, is Very close. They have no intention to sell the shares.
The final question is coming from And some also, how do you see European stainless import situation developing over the rest of the year? Do you think that's welcome to an end?
Carol, thank you. But I already answered This question, the civil pressure is under discussion in the European Commission. We don't know what's going to happen. The situation is with the cost rate or The localization of the industry, I think, is positive for us. But do not forget something that I didn't mention before that is what's happening In Asia, China is removing this VAT rebate.
So that means that the Chinese will export less materials. India also announced that they want to eliminate the measures for a while, because I don't want to put in risk inflection or Availability of materials for the recovery process, so that's also very positive. No pressure from India, no pressure from China. So this less pressure, the strong local markets, we know that, for example, Korea or Brazil are not fulfilling The quarter that they have in United States or Europe, so that means United States especially, they are out of the Section 2, they have quarters, So that means that Brazil and Korea are today very strong markets. So in general, every market in the world is strong.
So it's going to be more difficult to So we don't think that especially for this year, the situation is going to change very much.
Okay. Thank you very much, Bernardo. So this is all from our side. Thank you very much for all your questions and joining us on this call. Maybe just remind you that our next scenario report will be on July 29.
We hope to see you all there. Thank you very much again.
Thank you very much.