Aperam SA

MAD:APAM

Earnings Call Transcript 2020-Q3

[Operator]

Hello, and welcome to Aperam Q3 2020 Results Call. My name is Val, and I will be your coordinator for today's event. Please note this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Tim Di Maulo, CEO of Aperam to begin today's conference. Thank you.

[Timoteo Di Maulo, Chief Executive Officer]

Thank you very much. Good afternoon, everybody. Thank you all for attending Aperam's earning conference call. Together with Sudha Sivaji, Aperam's CFO, I will present the results of the third quarter 2020. Please take note of our disclaimer regarding forward-looking statements. Let's move to Slide 3 with the key developments of the third quarter. Q3 growth, the first step back towards a more normal business environment. The usual seasonal August slowdown in Europe was in large part compensated by the refilling of the supply chain, while Brazil experienced a strong quarter, even above the normal strong seasonality. We are also able to fully utilize the flexibility of our multiproduct business model, which benefited volumes. As guided in July, intense pricing pressure in Europe materialized during Q3, which partially compensated for the volume increase. However, tight cost control and strict working capital management allowed us to report a solid EBITDA and a strong cash flow that more than covered our 7% dividend yield. Phase 3 of our self-serve program of the leadership journey progressing well with 13 million annualized gains in the quarter. This leaves EUR 16 million to complete the program, and we are confident to cross the target line in Q4. Cost savings are crucial to master these challenging times, and we have just released first detail about Phase 4. We talk about this in more detail later. On the trade protection front, safeguard quota remains [indiscernible] and has, as expected, the market share of imports has [ speed up ] again this quarter. However, the European Commission opened an investigation to control the imports from India and Indonesia, which accounted for 25% of the imports in this segment in Q3. This could act as a positive catalyst in 2021. Finally, the Aperam Board decided to revoke the 2020 share buyback. Our financial policy states clearly that the share buyback is used to hand excess cash back to investors. Aperam has solid balance sheet, and we have the highest dividend yield in the stainless space, which we expect to be covered by free cash flow even in this challenging year. However, the second wave of COVID lockdowns that we now face could further deepen and lengthen the recession. In this uncertainty, we simply do not know if there will be excess cash. We deem it prudent to protect the balance sheet, but we explicitly confirm our comments to hand back excess cash to investors if and as it materialize while continuing strengthening Aperam. I know -- now hand over to Sudha for a comment on the financials.

[Sudhakar Sivaji, Chief Financial Officer]

Thank you, Tim, and a warm welcome from my side as well, everyone. Please turn to Slide 4. So Q3 was a recovery quarter, as Tim explained, and the volumes are even up 3% year-on-year. Nevertheless, it was a very challenging quarter with prices in Europe reaching new lows. Our excellent cost control with a very high fixed cost realization partly compensated for this. Tim already spoke about the excellent contribution of our multiproduct business' flexible volumes in Brazil. Together, these increased EBITDA by 33% quarter-on-quarter. The financial results were normal at minus EUR 4 million as was the tax rate at 16%. This explains that the EPS increased by 13% quarter-on-quarter. However, generating such a positive net income in an environment at rock bottom prices and high import pressure demonstrates how Aperam has changed to a more flexible and resilient business since it was established in 2011. Our excellent cash flow speaks for itself. After burning working capital in the first half of the year, as promised, we were now able to [indiscernible] EUR 42 million on the back of our tight working capital management. This contributed to an operating cash flow of EUR 77 million, up 34% quarter-on-quarter and 118% EBITDA to operating cash flow conversion. We spent EUR 22 million CapEx in line with guidance and have now a relatively small number left for the fourth quarter, about EUR 10 million. Free cash flow at EUR 55 million more than covered our dividend and with net debt reduced to EUR 111 million, we ended the quarter with a strong balance sheet and a very stable net debt-to-EBITDA ratio of 4.4. We've improved our liquidity ever since to EUR 810 million, just almost covering our growth steps twice. And lastly, there is no news on the Tesco tax credits as we still wait for a new Supreme Court appointment from Brazil with COVID in mind. Now I pass back to Tim for a market update.

[Timoteo Di Maulo, Chief Executive Officer]

Thank you, Sudha. Please turn to Page 5 to discuss the market environment. In Brazil, Q3 is the seasonal peak. Demand is good with strong volumes. However, the mix has been a bit softer in Q3 as we ship more electrical steel and carbon specialties. Automotive, construction, capital goods and consumer goods were quite good. But oil and gas showed no sign of life. In Europe, Q3 is usually the seasonal weakest quarter. However, this year, the economic recovery from the lockdown in Q2 supported volumes. Automotive recovered but remains below the pre-COVID level. Consumer goods and white goods were strong. Construction, food and health-related business was normal, while industrial demand, including chemicals, remains weak due to low oil price. Anything catering and hospitality-related is relatively weak. Also, the order book for our alloys business is showing first signs of softer demand. The distribution business was normal as inventory levels normalized. Cash management remains a priority for distributors, but pricing make imports now less attractive. The price pressure in Europe has narrowed the premium versus Asia considerably -- actually, to a low level historically. Also, nickel pig iron costs have moved substantially higher with impacts -- which impacts the cost of Asian players. Imports developed as we expected. While the lack of quotas capped the imports in Q2, they increased again during Q3. Especially in cold-rolled products, the safety health quota remains too much [indiscernible] for the current market environment. Cold-rolled, the imports increased 50% quarter-on-quarter and the market share moved to 27.8%, when it should be in the low 20s. The story is different in hot-rolled products where the antidumping duties against China, Indonesia and Taiwan make a defense and the level playing field restored. Hot-rolled imports increased by 13% quarter-on-quarter, but the market share at 17.5% is down 26 percentage points year-on-year. In this slide, it's encouraging that the European Commission opened the investigation against the cold-rolled from Indonesia and India. These 2 accounted for a quarter of cold-rolled imports this year, a positive decision here conducts as a catalyst in 2021. We now move to the Leadership Journey set forth on Slide 6. Let me quickly review the basic principle that Aperam rests on as well as the value proposition for our segment. Our strategy rests on the foundation of a solid balance sheet. In the current environment, our balance sheet is clearly -- is a clear competitive advantage at both ends of the value chain. We are dedicated to keep it that way. The next layer describes the dimension of the Leadership Journey, our self-help program, which is often misunderstood as a pure cost-cutting exercise. Well, cost improvement and defending the leading cost position in Europe are indeed nonnegotiable and remain at the core of the program. However, the Leadership Journey was always much more and past investments like the new distribution center in Haan, our very successful sales platform and the new product development to the program via the top line strategy. In Phase 4, we continue to improve our structural cost position to which we add value-enhancing growth and mix improvements that will strengthen each of our segments. Now on some pillars, ESG. Despite being the leader in the sector of the steel, we are working on substantial further improvements. As the legislative environment progresses, we see this developing into a competitive advantage. Europe, we are the lowest cost player, and we are dedicated to remain the lowest cost player. Since 2011, the leadership journey has transformed the business. It is now profitable and cash generative even during recession. We have already invested heavily in the improvement of our performance, which will come to a fruition in Phase 4. In Brazil, we are the only regional player with a flexible multiproduct setup in a well-protected market. The entity generates superior margin to all other regions and has always been cash generative. We see significant growth opportunity arising that we will utilize. Alloys is high specialized business that is value generating and resilient. The Q3 results speak for themselves. Phase 4 intend to grow earnings substantially at the Alloy & Specialty over the next 5 years. Finally, Service & Solutions. Our distribution arm brings us in direct contact with our customer and is a prime weapon to fight imports. We see substantial opportunity for growth here. Let me state it clearly, the ultimate goal of Phase 4 is to restore our profitability to a normal level. We'll further flexibilize the business and the high cash generation secure our progressive dividend strategy. I now hand to Sudha to further discuss Phase 4.

[Sudhakar Sivaji, Chief Financial Officer]

Thank you, Tim. On Slide 7, you'll find the first [ sketch ] of Phase 4 of the Leadership Journey as well as the time line. We estimate gains of EUR 150 million for Phase 4 and combined structural cost, mix improvement and growth measures. We will further detail the program in the coming months. Now how do we bring down cost structurally, which is a critical task at this time? We were extremely successful as Q2 and Q3 have shown us in variable license fixed costs during the time. This program now intends to take these gains and make them permanent. The footprint concentration will form the basis of these controllers. This is a bit like Phase 1, where we closed almost 25% of our capacity. But in Phase 4, it is on a much smaller scale. Now it is about removing uncompetitive line but also developing flexibility on our line. The ramp-up of our new rolling lines [ we gained ] the lowest cost plans in Europe will play a crucial part in this and result in efficiency gains and comfortable fixed cost reduction. In addition, we also target sizable improvements in our SG&A costs. So the clear majority of the gains will come from the cost side. But the growth component might be less obvious. We're not building new plants or in big new rolling lines. Our approach this time is completely different. The footprint concentration and increasing the flexibility of our line's fleet capacity for high-value products. This new setup will enable us to accelerate our decommoditization strategy. Investments for each project are at the maximum in low double-digit range. To state it clearly, the growth components were to some degree material even beyond 2023, which is not included in the Phase 4 [ gains ]. We plan with a total cash out of EUR 90 million for Phase 4, which would include CapEx and any needed costs for restructuring. We'll share further details about these measures, the one-off cost and CapEx split and the annual gains target when we publish the Q4 results in February. Now I pass it back to Tim for the outlook.

[Timoteo Di Maulo, Chief Executive Officer]

Thank you. Let's move to the outlook for the fourth quarter on Slide 8. It is obvious that the COVID crisis is not over. Our revenues had a gain in Europe. The gains that we give today is, therefore, based on the assumption that our operation will not be hit by second wave of disruption shutdowns and closed borders. On this basis, we are looking with confidence into Q4, which is seasonally slightly stronger in Europe and has allowed us to better price in Q4. Q4 is seasonally softer in Brazil. This year, however, business remained usually -- unusually strong. We also expect some mix improvement versus last quarter. For the group, this adds to EBITDA together with continued tight cost control and a small inventory valuation benefit. And as a consequence, we project higher adjusted EBITDA versus a strong Q3 basis. Let me add a word of caution. How long this will last is a different question. Apart from the COVID risk, we are still not convinced that underlying demand has fully and sustainably recovered. Refilling of the downstream value chain might be one driver for the positive volume development. As we all know, this is only temporary tailwind that could evaporate in Q1 on the rating. We expect to reduce net financial debt into year-end. The higher profitability and the further working capital release should generate more free cash flow than we needed to cover the 7% dividend yield. CapEx and tax guidance remain unchanged. So this ends the introduction with -- and in the slide, in the next slide, you see our corporate access schedule. We would be happy to video meet you at one of these events and discuss your question in detail. We are looking forward to talking to you soon. We are now ready to take your questions.

[Operator]

[Operator Instructions] And the first question comes from the line of Ioannis Masvoulas from Morgan Stanley.

[Ioannis Masvoulas, Equity Analyst]

A couple of topics from me, if I may. The first one on the Leadership Journey. I appreciate it's early days, but could you give us a rough indication on the proportion of the EUR 150 million that is coming from cost reduction? And how close would those initiatives take you to cost parity with Indonesia by 2023? And related to that, can you elaborate on the growth potential a bit in alloys in Brazil? And what sort of targeted returns we're looking at here? And I guess I'll stop here, if that's okay.

[Timoteo Di Maulo, Chief Executive Officer]

So thank you for the question. So we will more elaborate more on Leadership Journey, but the EUR 150 million will, as usual, consistently come from a big part of cost efficiency and competitiveness, which are the bulk of the competitiveness and the need that we have to compete against the Asian producer in both Europe and in Brazil. But indeed, there are elements of growth. So the elements of growth coming from Brazil from the lines that we will ramp up in specialities like electrical steel and some special kind of steel. And in the alloys, even not disclosing the full plan, it's clear that the alloys is more a mix of the specialties for which we are unlocking new capabilities and products which we we're not producing until now. So all in all, I will say that a very consistent part will be found in cost and sustainable cost improvement and the rest will be in the rest of the growth.

[Ioannis Masvoulas, Equity Analyst]

Okay. And any comment around targeted returns on the growth initiatives?

[Timoteo Di Maulo, Chief Executive Officer]

We -- in, let's say, we have always published these as a return in IRR higher than 15% for any kind of investment. Of course, the growth in terms of specialties, in terms of products and specialty products are always higher because they have also to, let's say, keep some risk effect on the variation of the demand. So this will be higher in this than in the cost.

[Ioannis Masvoulas, Equity Analyst]

Understood. And maybe just a follow up in terms of the opening remarks around the performance for Q3 and the lack of revaluation impact during the period. Can you elaborate a bit on this point? Because you seem to be suggesting that at the group level, there was no headwind from inventory revaluation, but you had some headwind of the alloys division. So is it fair to say that the stainless division had a positive effect? And then what's the outlook, I guess, for Q4?

[Sudhakar Sivaji, Chief Financial Officer]

So let me take that call, Ioannis. So when we said we had [ events ] on the alloys side, we meant from the market side. We have seen that on the alloy side, there has been a slight slowdown in our order book. So on inventory valuation, on the whole, there was no major effects in positive or negative contribution, which is what we had expected at the end of Q2. We said then it would be very insignificant, and that's how it turned out to be so.

[Ioannis Masvoulas, Equity Analyst]

Okay. And in terms of the Alloys & Specialties, you mentioned that you have less of a negative impacts relative to Q2. Could you quantify that impact for Q3?

[Sudhakar Sivaji, Chief Financial Officer]

I'm sorry. We did not say that. So you mean on inventory valuation because we never -- no, we did not guide for specific inventory valuation numbers [ on those ], and we never do so.

[Timoteo Di Maulo, Chief Executive Officer]

We have only said that, on alloys, there is a resilient way of -- even in the deepest recession, they can resist. So they have a long-term -- longer-term contracts, and they have a business model for which they are very resilient.

[Operator]

The next question comes from the line of Seth Rosenfeld from Exane BNP.

[Seth R. Rosenfeld, Research Analyst]

If I can ask a couple of questions first on Alloys & Specialties, and then second, just on the outlook for Q4, please. On Alloys & Specialties, can you talk a little bit about the drivers of the shipment performance in Q3? And how that would relate to the state of your order book as we look forward into Q4 and the year ahead. Obviously, this is an area that you're targeting for growth in the next area of Leadership Journey. Can you just talk about some of the key end markets there, particularly energy and how you're seeing that order book develop into the year ahead, please? I'll start there.

[Timoteo Di Maulo, Chief Executive Officer]

Okay. So first of all, we have to remember that the message we have always given on alloys is that they have a mix, which is not at all commodity. So there is no short-term shortage, but they are exposed to some markets. And the typical markets of the alloy specialties are market related to the electrical engineering, to the oil and gas, but in particular, to LNG, LNG tankers, which are our specialty, to automotive and to industry with a very special grade. So when you see this, you see that, for example, we are not exposed massively to aerospace or exposed to, let's say, the oil and gas directly massively exposed on oil and gas, even if this oil and gas is one of the segments that we have. So this has an impact on the mid to long-term contract that we have, and we have some impact in Q3. Then if you look at Q2 versus Q3, the difference is coming -- not -- it's coming only by the fact that in Q2, we have had some closure in our French plants. And when you close the plants, you can deliver, so you have an effect, an economic effect on that. And then the answer on the growth is that we believe that on the electrical application and the segments in which we are mostly exposed in Alloy & Specialty, there is a lot of potential. And we are solving developing applications and products that can go in the electrical mobility.

[Seth R. Rosenfeld, Research Analyst]

Great. And if I can ask just one follow up please, on the outlook for Q4. I believe you commented earlier that Q3 is aided by some, I believe, inventory restocking throughout customer supply chains. I know this is always a difficult question, but is there any indication for the scale of restocking? How much that benefited Q3 performance? And how much you view that as maybe an opportunity or a risk going forward for further restocking behavior?

[Timoteo Di Maulo, Chief Executive Officer]

You mean [ in sales ] this time.

[Seth R. Rosenfeld, Research Analyst]

Yes, sorry.

[Timoteo Di Maulo, Chief Executive Officer]

Yes. So I think that normal -- stock around to normal today. And due to the high volatility, I don't believe that our distributors will take the options to take risk in making inventory. So if there is no, let's say, disruption in the supply chain linked with COVID, normally, we will assist that to a Q4, which is the most normal in Europe. What is -- what has been interesting is the development of Brazil because in Brazil, the Q4, which is normally seasonally low is much better this year than it has been in the previous year.

[Operator]

The next question comes from the line of Krishan Agarwal from Citigroup.

[Krishan M. Agarwal, VP & Analyst]

You mentioned that -- I mean, or Sudha mentioned that there was no negative impact from the inventory while some of your competitors, they had larger inventory mark-to-market. Would it be okay for us as analysts to read it that in a way that you guys had better visibility in terms of passing on -- or your ability to pass on the impact of the price increased in the fourth quarter? And hence, there is kind of a better outlook for pricing for the fourth quarter earnings?

[Timoteo Di Maulo, Chief Executive Officer]

So I can say that it can be, let's say, that every company has his own way to be sure that there is a complete pass-through of raw material to the sales price. The stability of sales price in Europe and even being under pressure in Europe means that you can't see raw material arriving with the spikes in term of value. And this means that there is certain stability, both in raw material and in price, which is not, let's say, reflected in inventory valuation. So I can't, let's say, comment on what has been said by competitors. But I repeat, we are always managing the nickel and the raw materials in general, including [ coal ], which has been stable, by the way, in this period in the way to pass through to customers, all the fluctuations.

[Sudhakar Sivaji, Chief Financial Officer]

On your question on looking towards Q4, we do expect and be transparent about that in the past. So we do expect an inventory valuation effect of positive upside as well, so the outlook going forward in the positive side.

[Krishan M. Agarwal, VP & Analyst]

Okay. My second question is on the CapEx. You said EUR 100 million for 2020, which would imply even lower CapEx in the fourth quarter. So how confident you are in terms of operating at current CapEx level for 2021? Or is there any kind of scope you have in terms of leadership CapEx, et cetera, et cetera, to have, say, 10% to 20% increase in CapEx for next year?

[Timoteo Di Maulo, Chief Executive Officer]

So maybe as a reference, I can give you that. So last year, we did have a CapEx cash out of about EUR 150 million by -- influenced by our [ game ] projects at a high level. And this year, after COVID hit, we said that we will reduce our CapEx to about EUR 100 million this year. Now they've had 2 factors because we continue to believe in the future, we said we will invest about 50% of that number into our Genk clients and on our strategic project. The rest, 50% in terms of maintenance, which went down because also based on volumes going down because as volumes go down, we expect also the regular maintenance values to reduce. So for the next year, we typically don't, at this point of time, give our guidance for the year. But we expect that the CapEx numbers in the past alone should not be a bad benchmark to look at. As we said, even for the Leadership Journey, we will use the small CapEx amounts to fund also the growth amount, yes.

[Operator]

The next question comes from the line of Alan Spence from Jefferies.

[Alan Henri Spence, Equity Analyst]

I've just got two questions. The first one is on the Leadership Journey. You talked about it bringing back to normal profitability levels. How do you evaluate these? Are you talking about EBITDA per tonne, EBITDA margins, some other metric? And whatever that metric is, if you could please share these levels that you consider normal, please.

[Timoteo Di Maulo, Chief Executive Officer]

Okay. So indeed, what is normal? It's clear that normal is creating value, having a ROCE, which is significantly better that -- than what you have as work. This is a first concept. And you see that in the past, Aperam has been really strong on that. Having, let's say, if you look at the normal cycle that you can find in the years between 2015 and '17, you have seen the figures, which we are more or less selling. This is the normal profitability.

[Alan Henri Spence, Equity Analyst]

Okay. And the second one on Brazil. For Q3, you mentioned this flexible multiproduct business, and you've also highlighted a bit of a negative mix shift in the third quarter. Do you expect this to turn into a positive in Q4? Or will this slightly weaker mix, I think, you said more carbon and electrical persist next quarter?

[Timoteo Di Maulo, Chief Executive Officer]

Yes, of course. I think that in Brazil, as you know, we have these 4 product lines, and we -- the target of the team is always to put on the mill, the best domestic mix. So volumes are okay. You will have some, let's say, better mix in Q4 than in Q3. This is what we wanted to say.

[Operator]

The next question comes from the line of Rochus Brauneiser from Kepler Cheuvreux.

[Rochus Brauneiser, Head of Steel Research]

The one is can you talk a bit more precisely on the order book length and how that differentiates between Europe and Brazil? And based on the better-than-expected volume trends you see, how much of that is due to genuine underlying demand on your customer side? And how much is, in your view, related to stocking effects on your customer side? So you talked about the distributor, but I want to get a sense how much transparency have or what's happening on the -- at customer side in terms of stocking. That's the first question.

[Timoteo Di Maulo, Chief Executive Officer]

Okay. So what is -- today, the order book is, let's say, at the normal standard of the business. So we are today in the normal way of this level of order book. What has been -- sorry, there is a sound problem in my line. No? No.

[Rochus Brauneiser, Head of Steel Research]

I can hear it as well.

[Timoteo Di Maulo, Chief Executive Officer]

Okay, okay, okay. So it is a normal order book that we're saying, which is different from what has happened during Q3 in Europe. Because in Q3 in Europe, we have seen that instead of the normal slowdown or total closure during August, customer had a need to refill the supply chain, which was being disrupted during Q2, okay? Now in Q4 is better in the sense that there are some, let's say, still some recovery in Europe. And there is a strong momentum in Brazil. This is what we see in this moment. So it is genuine. It's not -- as we said also in the presentation, we are not saying that the crisis is over. This is not what we can anticipate. We don't know. We are on the careful side. We'll continue to focus on the fundamental to manage, let's say, an economy, which is still weak, and we think that the risk that this economy remains weak is still there. So we'll continue managing this with a careful approach in everything we do. But also, we have today a situation in which, we have been able to pass to some recovery in price. We are very happy of that in Q4. And the order book is better than we have experienced in the most difficult moment.

[Rochus Brauneiser, Head of Steel Research]

Okay. And just context, can you help me a little bit to understand the dynamics in Brazil? So what I struggle to square together is how that strength of volume fits together with the economic trends in Brazil. I think the GDP is contracting over 5% this year and the forecasts have not really increased over the last couple of months. So what is -- where is this demand coming from? Can you give us a bit more flavor on that?

[Timoteo Di Maulo, Chief Executive Officer]

I think that Brazil has been hit by the COVID effect with some delay compared to Europe and with a different effect. So in fact, at least, I can see what is happening around us in Brazil. In Europe, when the COVID effect came, all of a sudden, all the industry was stopped. We didn't know how to manage with COVID, so we had to close plants during 4, 5, 6 weeks. And the same for our customers. And so this has immediately stopped the economy and the volumes have come down by something like 25% to 30% during Q2. And then as we recovered in Q3 when we were -- we have been able to put in place the protocols, et cetera. Now Brazil has been different in the sense that we have never been obliged to close down the mill and we don't -- we have not seen a very big closure in our customers, but the economy globally has gone down under the worries of the economy, the impact of the COVID, et cetera. And now they are back and they are better for -- let's say, better prepared to face the crisis. But Brazil has a fantastic asset, which has been the fact that the exchange rate has boosted their competitiveness globally in all the industry and the industry which are exported. So the exchange rate and the weak reals has been, let's say, something which has boosted Brazil.

[Rochus Brauneiser, Head of Steel Research]

And maybe on your directional on your Q4 guidance, the improvement you were foreseeing, is this more the kind of dimension in direction where you had been in Q1 this year? So in the range of EUR 70 million? Or are we talking about the kind of H2 2019 levels?

[Timoteo Di Maulo, Chief Executive Officer]

I will not give such a previous guidance. Of course, it will be better than Q3, which is what we have seen. We are careful about the fact that we, let's say, we have anticipated that the COVID can still have some effect, in particular, if some border were closed inside Europe, which is not what -- for the moment we see but could happen eventually. So for the moment, our guidance remains in an increase, which is something that is a clear guidance. But going to the precise number, I will not go.

[Operator]

The next question comes from the line of Carsten Riek from Credit Suisse.

[Carsten Riek, Director & Co]

My first question is on the buyback program. What sort of balance sheet and cash flow metrics do you look at to determine whether the buyback program will return? Because clearly, you could have afforded the buyback program given your balance sheet strength. So why did you cancel? Did any other considerations play a role in that decision apart from COVID? Or do you just wait for lower share price? The last part is, of course, a little bit sarcastic.

[Timoteo Di Maulo, Chief Executive Officer]

So we have been always very clear about what is share buyback. Share buyback is one of the ways to manage the excess cash. Okay. So it is clear that the hypothesis we have said at the beginning of the year around the cash, which is, first of all, coming from the EBITDA. We are different from the hypothesis of today. So we want to maintain our dividend, progressive dividend policy. This is our target. We have engaged there, and we have engaged there because we know that this company is strong enough and resilient enough to continue to give our shareholders an important yield based on the dividend. Then depending on the situation, the excess cash will be allocated. And as I repeat, there is a different way of looking at the excess cash at the end of a COVID period like the ones we have seen then at the end of the year 2019. And on top, remember that our priority always is on top of the dividend to continue to strengthen the company and being sure that we invest to make this company always better, which we are doing with the new project in Leadership Journey for.

[Carsten Riek, Director & Co]

Okay. Understood. Perfect. Second question I have is what I noticed was a rather steep drop in the realized prices quarter-over-quarter in stainless steel and electrical steel, and you still pulled in comparably good EBITDA out of this quarter. That means that the cost per tonne improved significantly. Was that based mainly on mix? And here, a hint on the Brazilian carbon steel volumes on furlough or on both?

[Timoteo Di Maulo, Chief Executive Officer]

So there is a clear effect of carbon steel, of course, because as we have said, the carbon specialty -- carbon steel has been bigger in Brazil. Of course, there is this effect. But Q3 has been really a period in which the price pressure has been extremely important in Europe. So this is coming there in these figures. So the combined with the mix and mix effect, et cetera, et cetera, is giving the numbers that you are referring to.

[Carsten Riek, Director & Co]

Okay. Perfect. And the last question is on the European pricing because everybody was complaining into the third quarter that pricing has been tough despite rather strong nickel prices. Is that European pricing starting to bottom out in what you can see in your order books? Or do we still face a tough environment in the European Union in stainless steel?

[Timoteo Di Maulo, Chief Executive Officer]

Sorry, I'm not sure that I got your question. It is about the business?

[Carsten Riek, Director & Co]

Is the industry pricing improving? I'm not talking about base prices, but just in general, because we have seen a situation where the pricing was still under pressure in the third quarter and everybody was complaining about this. But now looking into the fourth quarter, do we see it actually bottoming out here or this is totally the...

[Timoteo Di Maulo, Chief Executive Officer]

Yes, yes. Of course. Before that -- yes. Yes, of course. I told before, we are happy to say that in Q4, we have increased price during Q3, of course. We have started the 2. So Q3 fundamentally is the result of -- in majority, the result of what has happened in during Q2. And the price has been booked in majority in Q2 at the beginning of Q3, and you remember the period. Now in Q3, we have been able, in particular, starting from September to have increase of price, and this will translate in the better guidance that we are giving because these prices have been recovered in Europe. There's still a long way to go on to have the best historical prices. We are not at the end of that, far from that. But the improvement is there, and then we are happy that we have been able to do it.

[Operator]

The next question comes from the line of Patrick Mann from Bank of America.

[Patrick Mann, VP & Research Analyst]

I just wondered if you could talk about what you've seen for imports, particularly from Indonesia and India into the fourth quarter. Sometimes or typically, even the threat of an investigation can be enough to reduce some of the imports. So I just want to see if you're seeing any positive impact there. And then the second question is if we do start to see significant disruptions on a second wave of the virus going into winter now in Europe, what's your contingency plan? What levers can you pull?

[Timoteo Di Maulo, Chief Executive Officer]

Okay. So for cold-rolled, what we can't see are figures today because figures will be known only in January about the cold-rolled imports during Q4. I'm not sure that there will be an important announced effect on cold-rolled from Indonesia and in India. I will say that the prices remain so much under tension that the delta versus imports is, in my opinion, not enough to convince people to build big inventory before the release of the antidumping, if this will happen. So for me, in this moment, the level of imports will remain more or less stable, and the announcement of this new file for the antidumping, which will happen in mid-2021 has, for the moment, no impact in Q4, will not have an impact. Then when you refer to the contingency plan, there are 2 aspects. One aspect is in our plant. In our plant, what we have seen is that since the moment we have put in place our health protocols, we have not had any contamination in our plants. So we are quite confident that even during the new wave of COVID, our plant will continue to run with, of course, one effect, which will be some more absentees that we see also already today because when people are declared contact cases or are sick for COVID, they can't come to the plants. This is in the level of a few percentage here and there in the plants, and it is something that we manage correctly without any disruption of the business. Then there is the part of customers. If customers or any, let's say, border would be closed, then there can be an impact. And this impact, our contingency plan is the fact that we have a very strong distribution with Services & Solutions, and we are able to manage the very short-term demand putting in place -- and we have done this for customers, also contingency stock at our service centers close to the customers. And whenever they can reopen or whenever the border is open, we can serve them on very short term.

[Operator]

The next question comes from the line of Luke Nelson from JPMorgan.

[Luke Nelson, Research Analyst]

Three questions from me. Just back on the Leadership Journey. Can you give any indication on to what extent those gains, EUR 150 million target are tied to any baselines, particularly around pricing? Or you did talk about Brazil as being a key cog in unlocking that amount. So FX, the real, to what extent or what's being factored in there? And then I'll stop there and ask my questions after you answer.

[Timoteo Di Maulo, Chief Executive Officer]

So typically, the way of calculating these gains are [ not ] towards prices and exchange rates. So whenever we talk of cost, it's a pure cost, we are at a level of cost today. In run rate, we will be a different level of run cost tomorrow. And this independently from any effect in price exchange rate or whatever happens, okay? So these are pure competitiveness gains and sustainable ones.

[Luke Nelson, Research Analyst]

Okay. And then second question, the guidance for 2020 on P&L effective tax of 10% to 15%. Can you give an indication on what the cash tax effect will be through the cash flow statement?

[Timoteo Di Maulo, Chief Executive Officer]

Sorry, was the question about the cash tax?

[Luke Nelson, Research Analyst]

Cash tax, yes, relative to the effective P&L tax.

[Sudhakar Sivaji, Chief Financial Officer]

Yes. We said that we will be able to match 50% of the effective tax rate, yes.

[Luke Nelson, Research Analyst]

Okay. Great. And final one, again, just a modeling question, just working capital expectations for Q4. Again, with regards to Q3, which was quite strong, if you could give any indications on what your expectations are for Q4.

[Sudhakar Sivaji, Chief Financial Officer]

So there would be some release in working capital, but we have always, in the past, leased working capital in the last quarter of the year. And this year, we've managed to successfully move it to the third quarter. And as Tim has mentioned and he discussed extensively before, so the volumes are going up as well. So we have to keep that in mind. For us, the capital efficiency is important. So we will definitely keep that in mind. But yes, there will be some release, but not a huge bunch, yes.

[Operator]

The next question comes from the line of Alain William from ODDO BHF.

[Alain William, Analyst]

Can you elaborate a bit on the price mechanism in Europe? Because I guess for a year or so, clients have been reluctant to accept base price plus alloy surcharge mechanism. So what is required to make it work again? And second question on Leadership Journey, would you expect the phasing of the savings to be evenly distributed over the 3 years or something maybe back-end loaded?

[Timoteo Di Maulo, Chief Executive Officer]

Okay. So on price mechanism, let's say, we have seen in the history that when imports were extremely low, or at a [ normative ] level, we had a mechanism of alloy surcharge, et cetera, which is the same mechanism that happens in a region where the imports are low like the United States. In Europe, when the -- this mechanism has been reduced but not abandoned -- has been reduced due to the fact that we have to confront every time with imports. So I will say that today, a big part of the pricing on effective price. But also offer to a lot of customers, which have a contract or they can want to hedge nickel, et cetera, the possibility going to continue with the [ analysis charge ] with hedging, with an effective nickel price, et cetera, so this mechanism remains and that they are still important for some customers which are in projects and want to hedge the risk. Then on the second on the Leadership Journey planning, it is early to say what will be the planning because it will also depend on the investment, on the ramp-up of all the investment. So we'll be more specific when we will explain the full detail of the leadership journey, which will come with the result of Q4 full year results. Historically, let's say, there is not a big discrepancy 1 year to the other. So there is no -- we have never seen Leadership Journey coming in 1 single year out of the 3.

[Operator]

I'll hand the call back to the speakers to conclude today's conference. Thank you.

[Timoteo Di Maulo, Chief Executive Officer]

So thank you very much for your question. You have seen -- and for the participation to the call. You've seen that this quarter is a quarter in which we can be relatively satisfied of the resilience of the company, in particular, because in this very tough condition, both in term of market, in term of price, in term of the necessity to recover all the industrial, let's say, to the disruption coming in the supply chain, et cetera, Aperam has been able to restart growing in term of results, has looked at cash with the sustainable level of cash release. And we have a positive outlook on our next quarter. Many risk remains, but I am sure that focusing on the fundamental of the business, which are the attention to customers, the focus on the cost competitiveness, the strict discipline on cash, the use of cash and working capital, and with all the ideas that the team of Aperam is proposing to strengthen further the company with the Leadership Journey for this company will give a lot of satisfaction to the shareholder even for the next quarter to come. Thank you very much, and see you in the next one-to-one meeting, so on our next event. Bye-bye.

[Operator]

Thank you for joining today's call. You may now disconnect. Hosts, please stay on the line and await further instruction.