Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Aperam SA (APEMY, Financial) has seen some recovery in prices and volumes in Europe at the end of Q2, which is expected to continue into Q3.
- The company has invested in cost competitiveness and product mix, which is progressively coming on stream and supporting their operations.
- Aperam SA (APEMY) has finalized the ramp-up of their European plants, restoring cost competitiveness and improving operational efficiency.
- The company has a strong recycling business, which is the largest stainless steel scrap recycler in the world, contributing positively to their inventory valuation.
- Aperam SA (APEMY) has a clear financial policy and is committed to generating free cash flow to cover dividends without raising debt.
Negative Points
- European pricing remains below normal levels, and there is a lag effect in pricing adjustments, which could be a headwind in the Q3 to Q4 bridge.
- The company faces challenges with inventory revaluation due to fluctuating raw material prices, particularly nickel.
- The European market is experiencing a seasonal low quarter, which could result in relatively neutral performance for Aperam SA (APEMY).
- There are concerns about the impact of competitors returning to the market, which could affect pricing and market share.
- The ramp-up of the Brazilian hot-rolling mill has been slow, impacting competitiveness and volumes in Brazil.
Q & A Highlights
Highlights from Aperam SA (APEMY) Q2 2024 Earnings Call
Q: Given the lag effects, would you expect European pricing to be a headwind on the Q3 to Q4 bridge? What are you seeing in your order books?
A: (Timoteo Di Maulo, CEO) Prices and volumes in Europe are currently below normal. We saw some recovery at the end of Q2, which will translate into Q3. However, Q3 is seasonally low for Europe, so the impact will be relatively neutral.
Q: How does the inventory revaluation reconcile with the Q3 guidance for a still positive impact, given the drop in nickel prices?
A: (Sudhakar Sivaji, CFO) We are hedged on nickel, and other raw materials like chromium, molybdenum, and cobalt also play a role. The impact on inventory valuation is minimal unless there are significant price changes.
Q: Can you elaborate on the mix benefit in Europe and whether it is structural or related to industrial demand?
A: (Timoteo Di Maulo, CEO) Investments in cost competitiveness and product mix are progressively coming on stream, supporting a structural improvement. We expect the product mix to continue to grow and support our EUR300 million improvement target.
Q: How do you see supply and demand in the European market, especially with competitors coming back online?
A: (Timoteo Di Maulo, CEO) The market has been adjusting to lower volumes and inventories. The return of competitors will take time and is not expected to significantly impact the market.
Q: Is the net debt guidance still expected to be only slightly higher on a year-on-year basis by Q4?
A: (Sudhakar Sivaji, CFO) Yes, we have guided for a EUR120 million reduction from Q2 to the end of the year, bringing net debt to around EUR500 million.
Q: Do you still see European stainless margins improving on a spot basis, given recent pricing movements?
A: (Timoteo Di Maulo, CEO) We see more stability or a slight increase in margins. The ramp-up of our plants and cost competitiveness improvements are key factors.
Q: Could restocking in Europe take place in September after the summer?
A: (Timoteo Di Maulo, CEO) It depends on demand. If there is no change in final demand, inventories will remain low. If demand increases, restocking could become tight.
Q: How do you view the risk of prices potentially falling back with competitors trying to take market share?
A: (Timoteo Di Maulo, CEO) We don't see competitors coming back with extreme prices. The market has already adjusted, and we don't expect significant price drops.
Q: What is the status of the Leadership Journey and the EUR300 million EBITDA improvement target?
A: (Sudhakar Sivaji, CFO) We are on track with our EUR75 million target for 2024 and another EUR75 million for 2025. The EUR50 million cost reduction program is also progressing as planned.
Q: How do you plan to use excess cash generated above the dividend?
A: (Sudhakar Sivaji, CFO) We will look at internal and external opportunities. If no opportunities arise, we will consider share buybacks. Our financial policy remains unchanged.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
