Earnings call: Acerinox navigates strikes and market shifts in Q1 2024

Acerinox (ACX.MC), a leading stainless steel manufacturer, reported satisfactory first-quarter earnings amidst challenging conditions, including a significant strike at its Spanish plant and depressed prices in Asia. Despite these hurdles, the company achieved an EBITDA of €111 million and generated €188 million in cash, reducing net debt by over 30% from the previous quarter. The outlook for the second quarter is cautiously optimistic, with some recovery expected in Europe and America, though the strike's impact continues. The High-Performance Alloys sector outperformed, with an EBITDA of €31 million, as the company eyes strategic options for its Bahru plant in Malaysia amid unfavorable market conditions.

Key Takeaways

• Acerinox achieved an EBITDA of €111 million in Q1 2024.
• The strike at the Spanish plant significantly impacted performance, with a direct loss estimated at €16 million.
• Net debt was reduced by over 30% from the previous quarter.
• The company generated €188 million in cash and has €1.9 billion in liquidity.
• Prices in Asia remain low, while Europe shows signs of recovery and America maintains robust prices.
• The High-Performance Alloys sector performed well, especially in the oil and gas, aerospace, and chemical process industries.
• Acerinox Europa reported an EBITDA loss of €31 million due to the strike and low European prices.
• The Bahru plant in Malaysia will stop production in Q2, with Acerinox considering a sale or partial sale of the business.

Company Outlook

• Acerinox has a cautiously optimistic outlook for Q2, slightly better than Q1 but still affected by the ongoing strike in Spain.
• The company expects some recovery in Europe and America, while Asian markets remain challenging.
• Acerinox remains confident in its High-Performance Alloys division and the North American market.
• The acquisition of Haynes is progressing, with regulatory approvals expected in Q2 and the deal closing in Q3.

Bearish Highlights

• The ongoing strike in Spain is expected to continue into Q2, impacting production and sales.
• Apparent demand in Europe is down by 4%, with the market remaining weak.
• Production at the Bahru plant in Malaysia will stop in Q2 due to low prices in Asia.
• The EBITDA margin for the High-Performance Alloys division moderated to 8% in Q1.

Bullish Highlights

• The High-Performance Alloys sector achieved an EBITDA of €31 million, surpassing expectations.
• There has been a correction of imports in Europe, which is expected to have a positive impact.
• The US market shows stability with a slight increase in imports and stocks.

Misses

• The strike at the Spanish plant resulted in a loss of around €16 million in Q1.
• Acerinox Europa reported an EBITDA loss of €31 million, attributed to the strike and low prices.
• The company is not taking new orders in Europe due to lack of market visibility.

Q&A Highlights

• Executives expressed disappointment with the strike's handling and are exploring resolutions, including voluntary binding arbitration.
• No significant improvement in demand is seen in the US market, though some better volumes are expected in Q2.
• The company clarified that the Bahru plant has not been a significant cash drain and that they are considering various strategic options for it.

Acerinox's first-quarter performance reflects resilience in the face of multiple market challenges. The company's strategic focus on the High-Performance Alloys sector and prudent financial management has allowed it to navigate through the ongoing labor dispute and market volatility. As Acerinox continues to adapt to the evolving global steel landscape, investors and stakeholders will closely monitor its next moves, particularly in relation to the Bahru plant and the integration of Haynes. The next earnings report is scheduled for July 24, which will provide further insights into the company's performance and strategic direction.

InvestingPro Insights

Acerinox's steady performance, as highlighted in the recent earnings report, can be compared to the metrics and insights from InvestingPro. With a market capitalization of $2.75 billion, Acerinox is a significant player in the stainless steel industry. The company's P/E ratio stands at 17.44, reflecting investor's valuation of its earnings. Notably, the adjusted P/E ratio for the last twelve months as of Q1 2024 is considerably lower at 7.08, suggesting that the company's earnings power may be stronger than the standard P/E ratio implies.

InvestingPro Tips for Acerinox (ANIOY (OTC:ANIOY)) indicate several strengths that could reassure investors. The company's stock is known to trade with low price volatility, which may appeal to investors seeking stability in their portfolios. Furthermore, Acerinox has maintained dividend payments for 39 consecutive years, demonstrating a commitment to shareholder returns even during challenging market conditions.

The InvestingPro product offers additional tips that could provide deeper insights into Acerinox’s financial health and market position. As of now, there are seven more InvestingPro Tips available for Acerinox, which interested investors can explore for a more comprehensive analysis. To access these insights and benefit from the full range of features, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

In summary, while Acerinox faces headwinds such as the ongoing strike and market volatility, its historical dividend reliability and the InvestingPro valuation implying strong free cash flow yield are positive indicators for the company's financial stability and potential for future profitability.

Full transcript - Acerinox ADR (ANIOY) Q1 2024:

Carlos Lora-Tamayo: Thank you. Good morning, everybody, and welcome to the Acerinox's Earnings Conference Call for the First Quarter 2024. Our CFO, Miguel Ferrandis, will host the call and we'll be accompanied in other occasions, by the Investor Relations team. He will start with a short presentation, and then we will continue with the Q&A session. Before getting started, let me remember you that this conference call is being broadcast on our website at acerinox.com. Please, Miguel, go ahead.

Miguel Ferrandis: Thank you. Good morning. Thank you for your interest in attending this presentation. We have released this morning a detailed results report, which we consider itself as plenary. So we shall concentrate this webcast of today and just explaining the key message from our side and obviously attending your questions, as Carlos has stated. First of all, you know we try to be predictable and we are not willing to provide you on stock prices. So the first issue to remark is that we have obtained an EBITDA of €111 million that we consider is satisfactory especial in view of the actual challenging conditions. The challenging conditions this time is not only still the full performance on the stainless market in Europe. But in our case, this also has been a strong influence by the strike. We are suffering at our plant in the South of Spain. And this is having its relevance. The result for us is satisfactory, as I have been expressing keeping in mind that it's in line with the market consensus. When we presented the year results, we announced that the first quarter figure should be slightly better. And we explained that the word slightly was because of the strike. Our normal situation, the first quarter results should be better. But we prefer to say at that time that it shall be slightly better. And slightly is as a consequence of the strike we are facing. We shall talk later about it. But even though-- on that circumstances, the fact that we have obtained this quarterly EBITDA for us is a strong fact for being satisfied. It's relevant and a strong performance in our cash generation in this period. So we have made a cash generation of €188 million, mostly supported by the strong discipline on inventory reduction of €89 million especially in the High-Performance Alloys area, but also in the stainless as well. So this is also one of the key facts we want to reinforce as strong satisfaction with the performance we have achieved in this first quarter. As a consequence of the strong cash generation, our net debt goes down more than 30% compared with that at the end of December. So we are presenting today, net financial debt of €234 million, which is the lowest of the last 24-25 years. And the outlook we are mentioning today is that the Q2 shall be slightly higher. We should have preferred to talk that it should be higher according to market conditions. But we must keep in mind that still, during April, our plant in Spain is keeps suffering the strike. And as a consequence of that, our commitment for the Q2 results is that it shall be better, but slightly better, keeping in mind that still today, ending April, the plan remains on strike. So these are the key messages that we now shall try to explain a bit more in detail. When we move to in Slide 3. When we move to the circular economy and sustainable development, we have a strong achievements that reinforce the awards we are obtaining. We have renovated our Platinum award by [indiscernible], as you know. And it's clear that we have a lot of areas to be proud about. We are extremely efficient in recycling, in waste reduction in water with [indiscernible]. We are moving ahead also in diversity. In terms of the emission, we have provided 8% reduction in emissions. And this is as a consequence of all the electrification we are actually implementing as well as increasing the renewable electricity in our plants. So this is -- these are also strong facts to reinforce. In terms of the safety, the reduction of 3% has been lower than the ambition we have for this year, but this gradually should be improving during the year. The area that still we need to improve, but we are conditioned by the strike effect, obviously, chart is more regarding to the energy. You know that the energy in our case, especially the plant in the South of Spain is the plant that where we are using more renewable energy as much as it's not in operations. Because of that, the track is a bit worse than the achievements we are having in other areas. But as soon as the strike solves and we normalize activity and production in our plant in Spain, we shall obviously also improve. When we go to the main issues affecting the markets, obviously, the chart remains as has been the case for the last almost 2 years. On comparative price evolution, the prices are absolutely depressed in the Asian market. In Europe, we are seeing some recovery in prices, but the steel prices are below the historical average and still the base prices have more room to improve, even though the full market conditions, but the trend has started of some gradual increase of prices in Europe. And the prices in America remained robust. So on comparative performance, it's clear that the prices are higher in America than in the other areas. Obviously, as America is our main market. This is one of the reasons of we are keeping a strong profitability of North American stainless. In the States, the market is not moving, but it's a solid market. Apparent demand has increased this year around 8%. It's true that still there are some uncertainties and consequently, the level of inventories still are low. There has been some domestic or some tightening of supply of some of the other domestic players but even though that more or less the situation, we consider that it's solid in the States. Imports have an increase within the states, but we must keep in mind that the states is a net importer market. The local production is not enough for covering the necessities. And consequently, the issue that imports take a 25% market share actually in the States, it's not an issue that we should be concerned about. In addition, the American North American administration is also implementing trade measures that are going to come soon. So on this basis, as difference of what historically we were concerned regarding Europe and America. This market share of 25% of imports is something that is normal. Keeping in mind that there are only 3 players in the stainless, 2 of them in austenitic. But just 2 players which are not enough for covering the demand of the American market. The situation in Europe is not as good. Apparent demand still shows negative figures is down 4% in this period. Still, the inventories are low. It's not an issue that it's a fact that the stocks are keeping a high level of inventories and destocking. It's just the contrary. But it's true that it's not confident still the market is not visibility. And with all the uncertainties in place in Europe, still the market remains a bit depressed. In these circumstances, there are some positive consequences. One is the correction of imports in Europe, the actual market share of imports in Europe is 15%, which is the lowest since several years ago. As much as also, it appears that there are more in this regard, more involvement on establishing also trade barriers by the European Union. We think that this is a good starting point maybe for realizing the effectiveness of the new measures that are being decided these days in Brussels. So we trust on that also for bringing some more positive performance for the European market. The clear demonstration that the market still is weak, is that for the 4 players, we are running stainless production in Europe, 2 of them in the first quarter. We have been suffering a strike, not also in our case, it was also in Finland. But even though that this has not been concern of further tight supply in the market that has moved the stock is to start buying material again. So still, the market is weak. And therefore, we consider that even though prices are gradually improving for getting a normalized level, but still the demand we consider that is weak and shall remain broadly being weak also in the second quarter. So certain increases of prices, but still not enough. When we go to the-- analyze the high-performance alloys, the market is also solid. The demand is strong. relevant sector for us, as is the oil and gas. It's really booming in these days. We are participating in new pipeline projects. In addition, the aerospace market, which actually, we have a presence there. But as you know, shall be increasing substantially as soon as we integrate Haynes on Acerinox is another sector that also is booming. So we are very confident consequently for increasing our presence covering that market. In the chemical process industry, which is also a relevant sector for VDM. The market led by all the engineering sectors and covering their necessities also is keeping a solid performance. And Electronics and engineers are coming back after a low demand that took place last year as a consequence of all the after COVID movement in the market. So we are having a solid year and a solid performance of our high-performance alloys as we shall explain later in more detail. When we go to the group highlights, I think we have talked about that, the EBITDA figure of €111 million is in line with the market consensus. So this should not be a surprise, and it's 15% above the one that we experienced in the fourth quarter. So this is a slightly better that we mentioned at that time as a consequence of the fact that we have been mentioning. Cash generation has been strong, €188 million in the first quarter. This is not very normal for our first quarter, with a strong reduction in inventories of €89 million. With this, we reached a net financial debt of €234 million. This is the minimum level of the last 24 years. We must go back to year 2001 to find equivalent levels of net financial debt at Acerinox Group. But we must keep in mind that at that time, we were just a stainless-steel maker with only one fully integrated plan. So the comparison is obviously absolutely favorable or the business at several plants that we are running actually and also our diversification through other alloys. So we are absolutely proud about these levels of net financial debt. In addition, as you know, we have plenty of liquidity that we have also talked later. We have €1.9 billion in liquidity at this time, which is also something to get absolutely comforted and demonstrate that we can cover our expansion that actually has been explained purely with the cash that we have actually enhanced. If we move to the stainless-steel highlights in the Page 7. There are some things to reinforce here. EBITDA is €80 million, which is a strong improvement compared with the €50 million of the stainless unit in the fourth quarter. But at the end, it has been affected, as we have been mentioning, but the situation in Spain. You know that normally, we disclosed figures of the stainless-steel business unit and the High-Performance Alloys business unit. So we normally prefer not to disclose figures among the different plants. But the abnormal situation we are facing actually and obviously, for you to understand, which are the consequences of the situation in Europe. We now are reporting EBITDA loss of Acerinox Europa in the first quarter of €31 million, which is more or less big figures, but 50-50, half of it should be as a consequence of the strike around €16 million is a direct effect and consequences of the strike. The other still is the situation we are explaining in the European market that is still prices, even though recovery that prices are abnormally low and discrete this effect. So the situation should have been substantially better in the stainless unit, even though the actual market situation in Europe, if not were by the strike in our plants. We hope that this issue should solve soon. In fact, we have been trying that our staff should vote on assembly the mediation proposal that came from the regional authorities, but union representatives have preferred or avoid the fact that our workforce should vote regarding the acceptance of the proposal coming from the regional mediation. So we hope that in the coming weeks, the situation should solve, but still, we have no visibility for that. This means that the whole month of April, probably the effect of the strike shall remain. And let's see, if in the coming weeks, we find a solution in order for bring normality to the operations in a couple of [indiscernible] plants. In addition, during this is going to be more related to the second quarter. But gradually, we are reducing our production in our Bahru plant in Malaysia. In the actual situation of prices that is taking place in Asia, it's clear that for us, it doesn't make sense to keep our plants running. And consequently, during the second quarter, mostly in May, our production at the plant shall stop. We are actually still delivering material to our customers and keeping commercial activity. But the production shall stop in Bahru in the second quarter. As we have been announcing since the year-end results, we made huge impairment of Bahru and writing it down its book value. And now we are studying all the strategic measures that can take place there, contemplating every possibility. So we are contemplating a sale of the business or a partial sale of the lines for moving the lines to other plants. So all these issues are actually under the study for finding the most effective one. But what we must clearly state now is that we are stopping production in the second quarter at Malaysia. Moving to the High-Performance Alloys. This is a sector that is having a strong performance. Also, this year, we are having a first quarter EBITDA of €31 million compared with the €29 million we had in the first quarter last year. As you remember, when we acquired VDM Metals, our figures and our projections were that this should provide additional €80 million to €90 million EBITDA per year to the group. 4 years later, at the end, we are 40% to 50% above that level. So an annualized EBITDA, keeping this quarter figure of 31 should be €120 million to €130 million, which is, as we always have been indicating what we can expect of the normal speed cruise of the contribution at VDM. In addition, in year 2023, there were strong tailwinds that VDM took good advantage about and run more or less taking advantage of that tailwinds mostly related to the metal effects that were increasing its margins especially by the nickel evolution and by the relation and the difference between the nickel transform that we were selling in VDM compared with the nickel average at our stocks. And this creates a metal game that has been especially in the second part of last year, improving strongly the margins of VDM. This year, we are not contemplating or at least with the visibility that we have now that an equivalent tailwind is taking place but even though that the business as usual in the actual good momentum of the High-Performance Alloys is creating for us that we are obtaining these EBITDA figures of €31 million just in the first quarter. Another fact that is relevant for VDM is the operating working capital decreased by €52 million. So mostly related to a reduction in inventories. So in the last year for a company in the market reaction after the COVID, it's true that working capital increased substantially in VDM, also as a consequence of some all the distortions that have been taking place in the nickel market and in the nickel supply. But once the situation is normalized VDM since last quarter of 2023 and especially in this first quarter is making a remarkable effort on reducing its inventories. And as a consequence of that, the operating cash flow has been €76 million of our High-Performance Alloys division. When we move in Page 9 to the capital allocation chart of the group is a strong fact for being proud about. So as a sequence of our EBITDA figure and as a consequence, obviously, a decrease in working capital, we have obtained an operating cash flow of €188 million. And then at the end, even though keeping on place on the CapEx program, but also the dividend paid in the start of the year, but we have reached this figure at the end of the quarter of a reduction in net debt of €107 million. Moving to obviously, the fashion topic today in our world, which is the Haynes acquisition. This is something that is going as scheduled. And as we announced you on the 5th of February when we explained the deal. So all the procedures are taking place and we already have obtained the antitrust of the American administration. Last year, we obtained also the massive approval of the shareholders' meeting taking place at Haynes. We are just waiting for the pending regulatory approvals. And consequently, we assume that this shall be gradually obtained during the second quarter. So we hope that we shall be closing the deal early at the starting of the third quarter. So more or less, as we anticipated that was going to be the probable scenario. But all the necessary steps are moving in accordance and consequently, we are very excited with the idea that early starting third quarter, we shall also integrate and incorporate Haynes to the consolidated group and the consolidated results. When we have been explaining Haynes, we always have mentioned that for us is a AAA investment grade. And the fact that we put that AAA, as a consequence of alloys as a consequence of America and as a consequence of our space. It's not a casualty that the areas that we have mentioned are the ones keeping a more strong performance. Obviously, one is the alloys in the solid market that we have in Spain we are experiencing. Another is America on comparing basis, it's clear that American market is the market better performing and with better prospects for the coming years. And in addition, we also mentioned before that the ore space is keeping a booming performance as well as the oil and gas in all the world of alloys in this day. So clearly, our strategy of the AAA is also reinforced by the fact that they are the best comparative performance areas that we can place actually. And then just the conclusions, I think most of the topics have been already explained. EBITDA, we must consider that it is a satisfactory. The strong cash generation we have done and especially the strong discipline in reducing working capital, especially inventories has proven to be successful. You know in our strategy of capital allocation, the relevance obviously, is working capital but also the relevance of investments. And this year with a strong and consistent investment plan with a special investment phase taking place in North American stainless as well as in VDM. So we are satisfied that we are generating cash for covering the expansions that are taking place as well as increasing the revision as has been the case in the last year and then consolidated that increase and with further increase in dividend this year, achieving a 6% dividend yield that we consider that is extremely healthy. Thinking about the market, as I said before, we are contemplating that the consistency of the High-Performance Alloys shall remain. In America, we are also confident in the evolution. We are not seeing further pressures on the market side, still the supply, the continuous supply, the proximity to our customers, the uncertainties in our customers and in the American distributors for not bringing imports considering that it should be rising the way of increasing imports is clearly in our favor as we become the closest supplier to most of our customers. And therefore, we think that the situation in North America is also remaining very robust for the remainder of the year. Haynes acquisition is taking Obviously, a lot of our interest still until we obtain all the necessary approvals with certain distance. Clearly, we are not interfering now on Haynes's business evolution. We shall start after the integration, but clearly, everything now is in well positioned. But in not too many months from now, we shall be integrating Haynes in our group. And in view of all these situations, Q2 is going to be better. But with the uncertainties that came from when the strike issue is going to solve. In Spain, we only can say that it shall be slightly better. We know that at the end in the second quarter, at least the whole month of April is going to be obviously, it's probably by the strike, but we still have no visibility of when the normality is coming back. And as a consequence of that, up to now, what we can say is that it should be better, but it's slightly better. Thank you for listening to my explanations. And now let's go to the Q&A. Carlos shall also support me in the Q&A session.

Operator: Thank you. [Operator Instructions] Our first question today comes from Krishan Agarwal from Citibank.

Krishan Agarwal: I have 3. The first is in the guidance for the Q2, when you see the slightly higher EBITDA, can you spell out what are the volume expectations you have made into the guidance between U.S. and Europe.

Carlos Lora-Tamayo: Well, thank you, Krishan, for your question. We expect some volume increase mainly in the States. In Europe, it's much more difficult for us given the certainty with the strike. So this EBITDA increase, it's mainly driven to higher volumes in the U.S. and also better behavior in South Africa in the stainless side of the business.

Krishan Agarwal: I Understand. And then Miguel has quantified the number, €16 million loss due to the strike and the overall €31 million loss in the Europe and stainless-steel business. Is there any way you can quantify how much of this impact is likely to be from the strike in Q2?

Miguel Ferrandis: Obviously, still, we have no certainty on when the strike should finish. The strike has been spoiling 2 months of the first quarter. Up to now, we know that it shall expo 1 month of the second quarter, April. Some days ago, we were contemplating that maybe in May, the situation could be normalized as I said, after having the proposed agreement by the regional mediation authorities, we contrite being that accepted by the workers assembly normally, this should come in May. But as I said before, the union representatives have not allowed that to be decided on an assembly. And consequently, we do not know how much time maybe in May, this could be affecting. And this has, obviously, it's a consequence. In the first quarter, more or less, this is a rough figure that we estimate related with the direct impact on the plant. For the second quarter also, we must take in place that the effect of the strike in our plant is affecting other business of the group. So you know that in the plant of Spain we are supplying billets to roll down to our long project operations. We are also processing material for VDM. So at the end, the strike also is having that consequence. And so at this time, it's difficult to precise how much shall be the effect. So more or less, we have been talking about €16 million as the effect in the first quarter, maybe a rough estimation of €8 million, €10 million per month if it were sold and we should have starting in May, that should be the figure. If it takes more, let's see, more or less what can be the consequent damage that other plants should experience for not receiving more or less the material that actually is produced or transform in in Acerinox Europa. So this is the fact that for us, it's difficult to quantify. We hope that this situation should normalize. But at the end, still is spending to the turbine. But that figure or a rough figure of €10 million per month could be rational to keep an eye.

Krishan Agarwal: I understand. And then while the strike is going on, should we expect the continued release of the working capital as you optimize the shipments?

Miguel Ferrandis: Well, during the first quarter, clearly, with 2 months with the plant being stopped, our commercial distribution has been keeping the business and reducing stock. So this is something that is clearly appreciated. Then as soon as we normalize activity and see when it comes, obviously, we shall have its further effect. But in principle, we don't consider that the second quarter, we should experience strong variations from what has been the case up to now. So at the end, we had normalized production, but that's also as much as normalized production and there is no raw material to entry. Obviously, this also shall more or less have its effect. So we don't consider that this is going to be a relevant negative impact on the second quarter. So at the end, we think that still we are more or less keeping good control on the working capital. We must obviously process all the material that is work in process in our plants. And then the other plans that have been increasing its production, this already has been included in the first quarter. So we don't think that there shall be a huge variation in the working capital for the second quarter and also probably not either in the net financial debt figure.

Carlos Lora-Tamayo: Keep in mind, Christian, that the main release in working capital in Q1 came from the HPA division, okay, not from Acerinox Europa in the Spain.

Krishan Agarwal: I Understand. And then finally, if you can help us quantify the valuation impact from the inventory into the Q1?

Miguel Ferrandis: Yes, it has been some inventory adjustment at the month of March still in view of the actual condition, and it's more or less in the range of €40 million. It's substantially negative, yes.

Krishan Agarwal: Sorry, it was negative €40 million?

Miguel Ferrandis: Yes.

Operator: The next question is from Tristan Gresser from BNP Paribas (OTC:BNPQY). Please go ahead.

Tristan Gresser: Maybe a follow-up on the strike situation. So if we read the press release, it seems there are no short-term resolution inside. But could you walk us through a bit the scenarios? And notably, I think you mentioned some voluntary binding arbitration. If you could tell us what this would imply. And I think you also mentioned that you're analyzing and evaluating changes in the current 5 shift production model, and that could maybe solve the conflict. So if you could provide us some details there. And finally, well, if the situation worsens? Or does it improve? At which point would you decide to go for a more, let's say, drastic decision there?

Miguel Ferrandis: Well, the fact is, obviously, for us, it's extreme disappointing fact how this issue has been handled by the unions. We have been negotiated for-- in the discussions for the [indiscernible] almost for 1 year when in the actual world, when you realize a plant is 3 months, we still consider that April is going to be the case 3 months strike. Obviously, the first impression a normal person should say is common disease because the plant is under a strong layoff retrenchment program, and this is not the case. This has never been introduced in the discussion with the representatives or it be considered that is more or less the staff is asking for a strong compensation reduction, which also is not the case. So at the end, more or less, what is creating this conflict with the union representative is the fact that we are bringing some flexibility and establishing some more flexible decisions and moving-- adopting the work in every line according to the many cycles we are experiencing in the market. So for this, we need certain flexibility in terms of organizing the work, moving people from certain lines to others according to the order book entry and establishing more program in which this should be the driver. So what we need is to flexibly more plant as a consequence of the many cycles that have driven our market in Europe in the last years. And also in our actual strategy design evolution for Acerinox Europa for being more specialized and reaching directly for final customers as well as in the fact that we want to contribute more on a specialty stainless, this needs further flexibility to be and running our staff in the plant with such mobility that we are missing. And this is what is actually in place. In fact, the union representatives that attended our shareholders' meeting in last Monday and express his opinion and made some speech at that time and some questions to our Board but his main explanation that what they were missing and the reason for the strike was more in terms of family conciliation. So this is the fact and when we bring these new measures, the fact that we need some more flexibility for adapting ourselves to these circumstances. And this is what great strength. From our point of view, it's clearly not understandable how these proposals motivate a strike that now is taking for 3 months. So we have appreciated the mediation coming from the regional authorities. We still-- that we shall find a way that at the end, our staff shall be able to both any proposal, and we are keeping our willing to negotiate. But at a certain level, we actually consider that still is a bit out of our control. But we hope that some rationale should be coming. And we hope that it shall be coming soon. But this is the fact.

Tristan Gresser: Okay. All right. That's helpful. And maybe my second question on the U.S. market. Are you seeing any-- in terms of demand, some green shoots. I think you mentioned that inventories are now below average. So is it conceivable to get some restocking in May or June? And historically, when restocking takes place, we usually see some pricing momentum as well. So I wanted to have your view there. And you also mentioned, I think you talked positively about trade protection. So if you could develop it as well, that would be great.

Carlos Lora-Tamayo: Well, thank you, Tristan, well, I think that still is a bit soon to see in this green shoot in the market. We probably-- did you mention that the inventories are below average, and this is a very positive thing because as soon as the final demand reactivate, we can see this or some restocking into the market. But still maybe for the second quarter, it's going to be soon that our visibility is low as well, and this can change very quickly. But we are not seeing yet this green shoot in the market, in the final demand. In any case, as we stated before, due to the very low level of inventories. We expect some better volumes in Q2 compared to the first quarter.

Tristan Gresser: Okay. That's clear. Maybe a quick follow-up. I think in your prepared remarks, you mentioned some supply tightness in the market. Could you-- I just want to make sure I understand correctly.

Carlos Lora-Tamayo: Yes. This is -- I think it has been appeared in the media. This is more or less has been affecting melting production at the [indiscernible].

Operator: Thank you. The next question that we have on the line is from Ioannis Masvoulas from Morgan Stanley.

Ioannis Masvoulas: Three questions from my side. The first, going back to Spain, it seems that the labor deal there may take some time to materialize. If the strike were to continue, when do you expect to declare force majeure on deliveries? Or do you think you can make up for that by production in the other facilities?

Miguel Ferrandis: Well, at the end, more or less, obviously, what in view of the [scutation] what we are trying is, and we are keeping a constant dialogue with our customers and trying just to create as much as possible. And we are involved on that. So this is more a legal decision and then obviously has its effect on how the situation and discussions are taking place. So I prefer not to enter in this comment now because at the end, more or less, this is the declaration of force majeure and the impact that this provides us to as customer is different among who are the customers, how are the customers supplied. So consequently, in these days, our legal team prefers not to give too much detail on the thesis. And it's definitely something that obviously is-- we are taking our time, and we are just trying to produce as less than much as possible to us.

Ioannis Masvoulas: Okay. Understood. Second question on Bahru. What's the cash burn now that the operations have ceased? And what's the estimated cash outflow in a scenario of a permanent closure that would involve severance packages and other one-off costs?

Miguel Ferrandis: Well, first of all, as you know, what we did at the ending of last year is a huge impairment of plant. So more or less at the end, this is what shall make much more simple view of that to decide which is more or less the decision to be taken regarding Bahru. Keep in mind that Baru is more or less obviously not only a modern plant in terms of the lines and in terms of the equipment. But at the end also, we have the land, we have the value of the land, occurring more or less to the real estate evolution in the area and for industrial projects, which also has its relevant. So for one side, we have the land and the value of the land, the possibility of selling the land in one lot or in several. In addition, we have the issue of the equipment. So we are open to discuss our sale of Bahru business as it is running business, but also we are open to consider and we are making also the studies of that several lines that could be either moved to other plants of the group or even could be sold to third parties. So depending on which the choices finally decided, we shall have its cash effect. So on this basis, at the end, the activity in Bahru has been very low. So what we clearly can state is that Bahru is not having a relevance in the year figures in losses because the activity has been locked. But also, it has not been destroying cash on the contrary. So the driver for the value process is not going to be a cash issue is more or less finding the time in which more or less the possible decisions in place can be taken. But this is still-- we are analyzing this. And because of that, what we have decided is to stop production. So we realized that this does not make sense to keep running production in the kind of places in Asia. At the level of prices also we can obtain a hot band for transforming and we shall stop production. But the other still is to be defined because there are different possibilities in place.

Ioannis Masvoulas: Okay. Understood. And last question on HPA. We saw the EBITDA margin moderating to 8% in Q1. Shall we assume a similar level for the rest of the year? Or is there any upside relative to the Q1 run rate?

Miguel Ferrandis: Well, more or less, as I said before, the market is robust and the market is strong. The tailwinds that we experienced last year as the metal effect, this is something that this year is more neutralized. So because of that, we do not expect in this year the tailwind taking place. And then consequently, obviously, according to the order book, we may more or less keep trading at these levels. But I think, yes, for us, is a reasonable level analyzing these quarterly figures. We think it is a strong performance. We hope that also and we must be cations that back of the material that is processed on roll basis to VDM in our plant in Spain is at the end, mostly for the second quarter, it's not be able to be processed, and this also may have its consequences. But we understand that even though that at least VDM can keep it's more or less actual profitability and contribution. Should we reach the 2-digit figures? It shall depend on the evolution in the second semester, but in principle, this operating level for us is reasonable. We do not expect is a correction from these levels, but maybe just keeping business on a normal basis and we do not expect the nickel to provide further damage. We understand that this is the normal speed cruise that we can expect from VDM this year, as was explained in our results presentation. So the normality of the VDM contribution is not 170. This is when there is tailwinds that we are in good position for take advantage of that. But if not, we shall be in that level.

Ioannis Masvoulas: Okay. Very clear. And sorry, just a housekeeping question. Assuming the Haynes transaction closes, would you be reporting the HPA division combining the 2 operations? Or is there going to be a different segmental reporting.

Miguel Ferrandis: No, no. It shall be the High-Performance Alloy division, which will be the-- obviously, the combination of both VDM and Haynes.

Operator: The next question is from Bastian Synagowitz from Deutsche Bank.

Bastian Synagowitz: I still have a few questions actually on Europe. Maybe starting with the strike situation. So Miguel, is that your expectation is that the strike will likely drag on into maybe April, even May time. So is this what is discounted in your guidance? Or does your guidance actually discount the continuation throughout Q2? I guess, in other words, is there a risk where if the strike drags on, you just cannot keep your guidance of slightly improving EBITDA. That's my first question.

Miguel Ferrandis: We understand the guidance at any time during the quarter, it should be normalized, still with a slightly better. We think that we cover any case, the impact that may achieve if this normality comes later in the quarter. So in any case, we understand that any time during May, we hope that should be some possibility of obtaining an agreement. But we still feel comfortable that with slightly better to now, we think that this is enough the situation is not improving, let's see what more or less if it should be necessary to make some further explanation. But we understand that it shall be enough.

Bastian Synagowitz: Sorry, Miguel, I didn't entirely understand it. So you assume that it will actually start operation in your guidance? Or…

Miguel Ferrandis: We understand that we shall start operations during the quarter.

Bastian Synagowitz: Yes. And that's within your guidance then?

Miguel Ferrandis: Yes.

Carlos Lora-Tamayo: Sorry Bastian, but in any case, we should-- we think and we are confident that we should meet our guidance, slightly better EBITDA independently what has happened with the strike in Spain.

Bastian Synagowitz: Okay. I think that's a very different message to be honest, and I think that's actually a very constructive one. Okay. Understood. And then just on the U.S., I guess my question is, what are the actual dynamics you're seeing? I think when you communicated a few weeks ago, my impression was you were reasonably constructive. My impression is it turned at least a notch more cautious here. Is that impression, correct? And if so what's been driving it, please.

Miguel Ferrandis: Well, in the States more or less, as previously Carlos said, it is now a specific green shoots on any specific market. So we are recovering after a correction of operant consumption of 27%, taking place last year. So it's clear that the end the market in certain areas is obviously adjusting above our sectors that are still the tractor trailers and vans is a sector which is healthy. The food service and handling equipment also remained at a high level. It's still more or less this is a lot of a sector that for us also has its relevance. The U.S. auto also is providing further increases. So these sectors are doing relatively well. The pipeline, this is more or less still we are waiting for that sector to appear. So there are several projects involving new construction in regard of this package of allowances is provided by the American administration. But still, we have not seen more or less the real orders for supplying that project. This is something that still needs to come. In addition, more or less, this is the situation up to now, but we are seeing more a spread recovery of most of the of the sectors as a consequence of the adjustment as yet. But after this, the issue is, should we contemplate how to run plant at full capacity, probably not in the second quarter, but I think we are actually at levels of 89% and more or less is 85%, sorry, this is what we contemplate for the second quarter. So we understand that in these times, there is no pressure on pricing. The market still values much more better the proximity and the constant supply and the short-term supply. This is highly appreciated by our customers. And in this basis, we feel comfortable with that. So we are not seeing further pressures. The imports have been stabilized at this level. So on this basis, we understand that can be a robust year for North American stainless. Still, we have no visibility to see for the third quarter, we should more or less increase capacity utilization. This is still to come. But I think we are probably handling well the actual situation in the States. And as I say, our possibility of being in a constant supply for our customers replacing the material we are dispatching allow us to be running the plant as we are doing, and North American is highly profitable. So this is not a bad scenario for us to remain even though we still are willing to increase capacity utilization when also the market reacts and the distributors start being more active because up to now, the distributors are just more or less in that wait and see and replacing their deliveries.

Bastian Synagowitz: Okay. Perfect. And last question is on where I think you seem to be very well on track. You got the shareholder approval, I think, most of the regulatory approvals. So what are the main action points now needed to get to closing?

Miguel Ferrandis: There are still some trust-- sorry, yes, there are some antitrust files pending -- not the American one, which obviously is the most relevant, but as also Haynes is present in several markets as well as we are. We have some other countries in which still we have presented all the files, and we are waiting for more or less the acceptance of that. So this is a gradual process, affecting some countries and some of the countries which Haynes exports. And we understand that this shall be obtained as there is no real issue, but still, we need efficient approvals and countries in Spain, for example, among them, we are also other northern countries in Austria and those are the ones that are expected to come gradually, but nothing makes us think or be concerned that we shall have problems on that. One what was obviously more relevant is the North American one, and this is already in place. So as I said before, this is something that we understand according to the processes and the time or considered at every jurisdiction, our advisers say that maybe during June or late June, everything shall be approved. And then we hope that we shall go through the acquisition be July. My understanding on this basis is that it probably shall not be taking place during the second quarter. So we understand that should be in the third quarter. So the figures that we shall present for the first semester shall be the business as it is in Acerinox up to now in stainless and high-performance alloys and probably from the third quarter, which all include Haynes.

Operator: Thank you. The next question we have is from Oscar Rodriguez from Banco de Sabadell.

Oscar Rodriguez: Congrats with the results. Two, if I may. The first one is linked with the working capital evolution this year. How it should perform considering the moving parts of net prices Acerinox [indiscernible] business? And the second one is about CapEx. Should we expect a steep CapEx increase in the second part of the year in Haynes? Or is something that you apply for the 2025.

Miguel Ferrandis: No. In CapEx, we keep the indication we gave. It's true that the CapEx-- the cash out for CapEx in the first quarter has been lower. But gradually, this is going to be increased. So at the end, more or less, especially for the second quarter and especially in the second semester, it shall be much cash out related to the CapEx, so this is very clear. So keep in mind that some of the projects were decided and announced at the end of the year, mostly related in the case of the high-performance alloys. And the ones in North America and stainless there shall be also cash out as much as these equipment are receiving North American stainless and being implemented and constructed. So consequently, this shall be coming in the remainder of the year. The figure of the first quarter probably is going to be the lower one. And regarding the working capital, I think it's obviously, it shall be more or less depending on the normalization on our plants. But any case, whenever the situation reactivates, we obviously have the material that now we have in process, that is the one that should be transformed. And in addition, we shall start also in the normality with receiving additional raw material. But as I said before, this is not going to be a driver for the second quarter cash generation.

Operator: The next question from the line is from Moses Ole from JPMorgan.

Moses Ola: So just a couple of questions from me. So firstly, on the U.S. stainless steel market, you've talked about part consumption up 8% year-on-year. Could you perhaps maybe give us a breakdown in terms of real demand versus inventories and restocking? It did seem that there was more restocking behavior towards the end of last year and start of this year. How was real demand in your view, responded to that?

Carlos Lora-Tamayo: Yes. As we commented before, we are not seeing a pickup in the real demand, a strong pickup, slightly better than in previous quarter, but not a big increase in the demand side. Imports are going up a little bit compared to the same period last year. And as not a slight increase in stocks, but no more done. What we are seeing, it's mainly a stability in the market and maybe reinforce that the worst is behind us. I think that the fourth quarter probably was the trough. And since at this point, we state a progressive improvement in the market.

Moses Ola: Understood. And on VDM as well. So if I look in terms of realized prices on a unit basis, it does seem that there has been a noticeable reduction in realized pricing per ton of steel. So just really trying to understand here what are the pricing power dynamics of VDM and why compared to last year, which was a really strong year in terms of your pricing power, if you expect that to change into this year and what the drivers are for that?

Miguel Ferrandis: More than an issue on prices. It's an issue on costs, especially related with the raw materials. So High-Performance Alloys and consequently, VDM is very sensible to nickel evolution. The material that VDM was dispatching last year to its customers. It was a strong gap between the average of the nickel in hands by VDM and the selling price that, that contractor material were dispatch. And consequently, this create these tailwind effects. The situation after the nickel decline and the normalization of the nickel cost as the stock of VDM now is much more reduced the gap. And consequently, because of that, we are not having this metal effect. This metal effect was a tailwind. We always stated last year that this was not the normality of VDM, but we were taking advantage of that metal effect. And this year, the effect is not expected to be relevant or at least not up to now. So this is mostly the effect, but it's not so related to a price issue, more related to the consequences in the cost of this fact that for the High-Performance Alloys is very intense on the nickel cost.

Moses Ola: If I look at nickel pricing and the outlook, just here where we are today, Q2 versus Q1, just on nickel features, it does point to perhaps more upside for nickel prices near term. So perhaps that margin reduction that we saw in Q1, could that benefit or see an uplift into Q2 as nickel prices recover? Is that a short lag there?

Miguel Ferrandis: Well, for Q2, we have-- one effect is more or less regarding also with the nickel. Another effect is that one of the relevant customers at this time of-- for VDM with strong good margins is a material that is pending to be processed in Spain. And consequently, this is something there is losing margin opportunities for VDM not being able to dispatch that material yet. So this may come later, maybe for the third quarter. But it is something that could spoil or affect the second quarter figure. But having said that, looking at the other areas involve, we understand that the second quarter for VDM should be in line with this first one. So keeping everything in mind, our forecast, as I said before, is that we-- considering a normalization of the €31 million EBITDA contribution of VDM, this the annualized version of that should be around €125 million we feel comfortable with that. So on this basis, as I said before, this should be the most prudent projection at this time. And in addition, it is clear, as I say, that VDM historical record previous full year '19 was €96 million. So now the fact that we are reaching figures of €120 million to €130 million is a remarkable result for VDM, but obviously, with some challenges and when is this issue taking place. But we understand that everything should be normalized. And for us, this is a proper specs, if there is possibilities regarding the nickel market evolution that VDM is advantage for that. Obviously, we shall be there. But this has not been a driver of the first quarter, and we do not expect it to be a driver for the second.

Moses Ola: Very clear. And similarly, on Haynes as you gain greater visibility on integrating the business. I think you talked in Q4 about starting with a more conservative annualized run rate of €80 million to €90 million in that business. Just based on the visibility you have now, is that guidance still valid?

Miguel Ferrandis: I must say that we have no news in that regard because we still are not interacting with Haynes. So and we receive all the allowances for all the different authorities and antitrust, we are keeping certain distance. So what we are making is all our preparation work internally here for making the integration very expeditive as soon as we are apt to do but we are not involved or not participating now with Haynes in any special issue. We are not talking about the markets or the prices. We are not thinking about the margins. So there are several areas in which our legal advisers prefer that we do not participate. So we are keeping certain distance and just making all the preparatory works. So for whenever we are allowed to interact with them.

Moses Ola: Okay. And just really finally, what is your current carrying value of Bahru?

Miguel Ferrandis: The current value of Bahru, I think, related with some of the land offers we received is in line of €40 million.

Operator: Thank you. [Operator Instructions] Our next question is from Jose Suarez from Caixa Bank.

Jose Suarez: Most of them have been sorted, but I have a couple of them, if I may. First one is related with net debt evolution. You've seen a strong leverage in this quarter, and you've mentioned that working capital don't have a strong effect in the second quarter, but more focused on year-end. Did you see it feasible to end the year, excluding the acquisition of Haynes do you see feasible to end the year with a net debt level below the €234 million you've seen in the first quarter. That will be my first question. And apart from this one, second one is related with the Haynes acquisition. You just mentioned right now that you're not talking with the company about market and margins overall. But in your conference call regarding the acquisition, you were mentioning that you would be generating around at least $671 million in synergies. And I was wondering if you need to apply or to implement to take some operational costs to reach this €66 million in synergies. How much would be the operational cost implied in your next year to reach those synergies?

Miguel Ferrandis: In regarding of the net financial debt not contemplating Haynes. I think that still we have a room to reduce debt during the year. So I do not expect big changes in the second quarter. But probably in the second half, some further debt reduction could be taking place. So in this regard in a normalized Acerinox group prior to acquiring Haynes, this shall be the case. We are obviously extremely comfortable now of being reducing our debt because at the end, we must keep in mind that, as you know, the acquisition of Haynes is going to be in the range of $800 million. And in addition, we must take our debt. So as much as we reach in a fit position. Obviously, that absorption should have less relevance on the final yearly figures. And this is what we are working at. And on this basis, we are making this strong commitment to reduce working capital. And as we said before, we have actually cash in hands of €1.9 billion. And we have also facilities in place for additional €700 million. So the liquidity already there. This is not going to be an issue. But in our business, we should also keep on reducing debt during the year. But in any case, this shall be obviously neutralized by the fact that from the third quarter, probably our leverage should increase because of the acquisition and because of-- we shall be using our cash for that. So this is per one side. Regarding the synergies, when we gave the figure of €71 million in synergies, this is after all the cost for implementing the synergies. And this is the figure that we prefer to maintain as it is. All that synergies are achievable and after having absorbed all the necessary costs for this implementation. At the end, obviously, it's clear that shall be gradual in the coming years. But we also keep the commitment and the idea that at the end, this CapEx to be done also in Haynes for the new [indiscernible] and so on, shall be covered by the cash generated by HIMSAd this is more or less the strategy that we shall fix when we start working altogether and taking the proper decision. But this €71 million is after the cost for implementing it.

Jose Suarez: Just a clarification. So you're mentioning the €71 million in an operational terms in EBITDA terms, it's after operational costs. Not referring to CapEx just from operation?

Miguel Ferrandis: Yes, after operational cost, yes.

Operator: We have no further questions on the line. I'd like to hand back to Carlos for closing remarks.

Carlos Lora-Tamayo: Okay. Before disclosing remarks, we have several questions from the web. Most of them have been already answered, but let's try to move to the one that still are pending. The first one comes from Anindya Mohinta, of Exodus Capital. And it's regarding the guidance in the guidance, we are included or not inventory gains or losses for the second quarter?

Miguel Ferrandis: We understand that shall be a negligible increase on working capital, but not runbacks. So consequently, we think that this should not be a distortion in fact. But obviously, we understand that, and as I say, it's not going to be a driver of the cash generation in the second quarter, but it also should be depending on when we normalize operations in Spain. So this can be at the beginning of May or if it's in June, it may have its difference. But this shall not be a distortion. We consider that the working capital is not going to be a relevant issue for the second quarter. Maybe some slight increase, but not significant.

Carlos Lora-Tamayo: The next question is coming from UBS, Miguel Villasante and it's regarding the European market. It's even with the strikes that we have in Spain and also another one in Finland that is just and then one would expect a notable increase in prices, what do you think is the reason behind the prices in Europe?

Miguel Ferrandis: There is clearly an absolutely lack of visibility. And at the end there with the actual phasing challenges in Europe. Still the market is not active more or less the trend of the prices slowly increasing, even though not yet in satisfactory levels makes us some confidence that in the second semester, this could be the case, more or less following also whatever are the decision on the interest rates or the rhythm of more or less start to reducing in the rate this could contribute. What we always realized is that everything is prepared. So the level of storms as we said, is very low, sorry, the level of imports. Market share of 14%, 15%. We have not seen that for the last 10 years. Now the union is much more active on establishing the proper varies. So more or less, this can be a good starting point for when the market start to react. But still, we are not touching it. And as you said, and it's correct, 2 of the 4 players, not running operations. And this has had not an effect of accelerating the apparent consumption and the orders. The situation is really strange. We thought that gradually in the second quarter, the activity should normalize. Maybe we need to wait. And we need to wait. Let's see what the expression in the third quarter. Normally, it's not the stronger quarter in Europe because there's a seasonal slowdown, but let's see if there is some reaction comes, it could be at that way. But if not, maybe we should wait until the fourth quarter. So some of those services or the market are confident of prices going up and normalization in the second semester. But still, we have not seen that. And obviously, especially in our case, keeping in mind that we are not now in a position of taking new orders. But this is more or less what we can say to that.

Carlos Lora-Tamayo: Okay. Thank you, Miguel. There are several questions regarding working capital that I think that Miguel already answered all of them. And also questions regarding prices moving forward in the U.S. that, unfortunately, due to competitive reasons, we can't answer these ones. Just to finish one clarification coming from Inigo Decio, Gaesco, regarding the inventory adjustment in Q1, it is €40 million or €14 million, and it's €40 million.

Miguel Ferrandis: €40 million. In fact, has been €44 million, the exact precise figure is €44 million.

Carlos Lora-Tamayo: Okay. So this has been everything from our side. So thank you very much for joining us and for all your questions on this call. Our next report will be on July 24. So thank you very much again, and have a nice day.

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