AMAG Austria Metall AG

VSE:AMAG

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome, and thank you for joining the AMAG Austria Metall AG Q1 2022 Results Conference Call. [Operator Instructions]

The forecasts, budgets and forward-looking assessments and statements contained in this presentation were compiled on the basis of all information available to AMAG as of April 20, 2022. In the event that the assumptions underlying these forecasts prove to be incorrect, targets be missed or risks materialize, actual results may diverge from those currently anticipated. We are not obligated to revise these forecasts in light of new information or future events.

This presentation was prepared and the data contained in it verified with the greatest possible care. Nevertheless, misprints and rounding and transmission errors cannot be ruled out entirely. In particular, AMAG and its representatives do not assume any responsibility for the completeness and correctness of information included in this presentation. The presentation is also available in German. In cases of doubt, the German language version takes precedence. This presentation does not comprise either a recommendation or a solicitation to either purchase or sell securities of AMAG.

Now I'd like to turn the conference over to Christoph Gabriel, Head of Investor Relations. Please go ahead.

[Christoph Gabriel, executive]

Good morning, ladies and gentlemen, and welcome to our conference call for the first quarter of 2022 of AMAG Austria Metall AG.

Today, Gerald Mayer, CEO of AMAG, will present the developments and results of the first 3 months of this year. As usual, the presentation as well as the press release has been published this morning on our home page under Investor Relations. After Gerald's presentation, you have the opportunity to ask questions during the Q&A session.

Gerald, please start your presentation. Thank you.

[Gerald Mayer, executive]

Thank you, Christoph, for the introduction. A very warm welcome from my side. It's a pleasure having you here for our Q1 presentation.

Let us start with the highlights of the first quarter, and it was a really excellent first quarter for AMAG. It was, in our history, the best quarter to be reported or we reported up till now.

Revenues are up 60% to roughly EUR 400 million. The figure of last first quarter was EUR 250 million. Our results, earnings, EBITDA, we had EUR 68 million. This is more than doubled compared to the first quarter of 2021. Also, net income is significantly up more or less sixfold, folded to EUR 32.5 million from EUR 5 million last year. And it's a result of a very positive operating performance, high productivity, good capacity utilization, in particular, in all our operations and facilities in Ranshofen. And of course, we also still have tailwinds from high aluminum price and also stable production at our Canadian subsidiary, Alouette.

The outlook for 2022 is really difficult, but we are very optimistic that an EBITDA of above EUR 200 million is a realistic one, but given, of course, some reconditions there, I mean, secured energy supply and on, it's all mentioned there, in particular first is sustaining higher aluminum price level.

Let us flip the page to Slide 5. You can see here the purchasing manager indices from the last months or the last 2 years. So the signal is still green. So this means the environment is still positive. But of course, the green, the green tone is a little bit lighter. So it is -- yes, it's a little bit weakening back, also little bit weakening in March. And this translates quite well in our order intake situation. All in all, it is still very positive. We expect some weakening for the second half of this year. This is also confirmed by IMF downgrades for global economic growth forecast to 3.6% and for the Eurozone to 2.8%, which I added here at the bottom of this slide.

Slide 6, aluminum price trends. Of course, all in all, and let's start with the average numbers to the right. It is a consistent, let's say, increase in aluminum prices quarter-by-quarter in the last since Q1 2021. In the last month or weeks, aluminum price was highly volatile, but came down again to a level as of today of around USD 3,000 per tonne of aluminum, means still high, but below the levels we are reporting here for the average number of Q1 2022. Of course, there is a lot of uncertainty in this price trend given the environment we have right now with lockdowns in China and also of course, with the Ukraine war.

Alumina price trends. So also there, you see looking at this chart to the left, high volatility there. So we saw we had a very, let's say, interesting or positive stuff for us. That is a main cost element for our primary division, Metal Division. So it was more or less flat at a very low level in the first half of last year in Q3. We increased -- this alumina price increased dramatically. It came down again until, let's say, end of last year, and now it went up with this Ukraine war, and it normalized in the last weeks again. So it is right now very interesting level -- price level for us, given this aluminum price we have, which I presented at the last slide.

So all in all, going to the right side of this slide, you see after an average quarterly number of around USD 300 per tonne of alumina in the first 3 quarters of last year, we are now at the level of roughly or has been at the level of roughly USD 400 in the first quarter. It is still an attractive price given the aluminum price we have right now.

Slide #8, shipments. In shipments, you see that we are up 6% in the first quarter compared to the prior year. Metal is more or less a flat development, over 400 tonnes up. But this is to be, of course, considered or put into consideration. We, again, as last year had to shift shipments to the second quarter given congestions at port facilities, given the shifting situation, the logistics situation, so 10,000 tonnes will be realized in the second quarter. They have been produced, but the earnings part of the profitability of the 10,000 tonnes what we've seen in the second quarter.

Casting Division, roughly same level as last year. So we run this plant more or less at full capacity. So all good there.

Rolling Division significantly up to 5,800 tonnes. So the volume and shipments grew materially, and this -- and we supplied this growth or this growth has to be allocated to a wide range of industries. So all in all, the first quarter was good for all our businesses.

Slide #9, distribution of shipments in our Rolling Division. What I would like to point out here is that we have attractive -- still attractive volumes in automotive. So compared to the first quarter last year, we are slightly up. Here last year at 16% in share of automotive, now we have 17%. Aircraft, more or less normalized. So we have been at 6% first quarter last year. Now we are at 11% again. So this is quite a significant increase there. And for the rest, I would say, more or less where we have been -- the only part that we are down is in treadplate, so which is part of our industrial application business.

Order intake trends, next slide, Slide 10, in the Rolling Division. Let's have a look at this -- at the chart we included here in this presentation. So order intake increased dramatically in the first half of 2021. On purpose, we were a little bit reluctant to take in orders because of cost inflation we saw in the second half of last year. And so we are more or less stable in terms of order backlog situation, order book situation in our Rolling Division.

But what I can say here is, up to now, the order situation is really positive. We have sustained high demand for many of our customer segments, as I mentioned here. What I can share with you here is that we see a decrease in demand, which is expected to translate also into perhaps a little bit lower shipments in the second half of this year in the automotive products, and also treadplate, as I mentioned before, part of our industrial application segment, the demand is quite lower right now in this regard. I would say, the stocks are full. And so this is the main reason for that.

Slide #11, AMAG Group revenue. Of course, we saw a very high aluminum price level. We saw increase in shipments. This translates automatically into higher revenue, and we are up 60% roughly and from EUR 250 million to EUR 400 million. The reconciliation at the bottom of this chart shows that the bulk comes from -- results from higher prices. So EUR 68 million is the aluminum price, EUR 62 million refers to the price and premium increases, which comes mainly from our Rolling, Casting Division and so on. And this was necessary to compensate for significant cost increases and inflation trends. Volume was also up, and this accounts for a little bit less than EUR 20 million. And so we end up at that revenue of EUR 400 million for the first quarter.

Profitability EBITDA on Slide 17 -- 12, sorry. So as I mentioned, as the highlight for us, it was the best quarter in history with EUR 68 million of EBITDA compared to EUR 30 million in the first quarter 2021. Again, having a look at the reconciliation there, you see aluminum price is, of course, responsible for that in an amount of EUR 20 million. The general price and premium situation is responsible for that at an amount of EUR 50 million roughly.

On the other side, we -- it was necessary to increase these prices to compensate higher raw material and energy prices. And because they increased aluminum -- raw material and energy prices increased to roughly EUR 44 million in the first quarter 2022 compared to the prior year.

Slide 13, this is the change of EBITDA by division. What you can see here that all the divisions had material growth there. In Metal Division, we are up EUR 10 million despite the fact that -- well, that this is okay. We are -- as I said before, so 10,000 tonnes roughly were not shipped, but it was a similar volume we did not ship in the first quarter of 2021.

Casting Division, very positive. It is -- I always mentioned this here, it is, of course, our smallest division, but very positive first quarter. And they are up EUR 1.6 million. So very successful first quarter there.

And for Rolling, significant growth of EUR 26 million, of course. On the one side, we have shipments. We had a very positive, I would say, production. We had high productivity there. One bottleneck is still personnel, so the guys we need to run our shift. So very difficult, one of the challenges we are facing in times like this. And on the other side, of course, we managed to adjust prices, which was necessary to cover those cost increases, which were really significant in the first quarter. And so it was very successful.

Net income after taxes was more than sixfold, they resulted at EUR 32.5 million. Of course, the main driver is the higher operational -- operating result EBITDA. And if you're, of course, earning more money, it means also that we have to pay higher taxes. And this is then the bridge, so there is nothing to add, I would say.

On this slide, I would like to skip the key figures. It's, I think, a reading exercise there, which there is no surprise in it. So I would like to skip that and go to the flip side of the coin on Slide 16. Trend, at times like this, with significantly increase in aluminum price and also in a worse situation that we built up stocks, of course, translate into high working capital needs and financing needs, and this is why the cash flow is that negative in the first quarter. So the price effects result in financing needs of EUR 80 million roughly. We have 23,000 tonnes of higher stock, 10,000 of that refers to our Metal Division, the shift in shipments to the second quarter I mentioned before, but this also translated into roughly EUR 90 million. And then we had, in particular, taxes to pay for the prior year, around EUR 20 million. So all that is mentioned here on this slide.

The positive, I would say, sign there is looking at the second quarter, I expect a significant positive cash flow, again, as long as aluminum prices stay stable and the business stays, as we expect it, positive. So all in all, this is no surprise for us, and we always say being dependent also on the aluminum price, we have to refinance all our inventories, and this translates into a situation like that in the first quarter.

All in all, our key financials on 17 shows -- Slide 17 shows, of course, net financial debt was up. I just explained it at the cash flow slide. But on the other side, look at the left, we are still very sound in terms of financing, let's say, key KPI is net debt to EBITDA, at the level of 2.2 compared to the last -- using the last 12 months EBITDA.

Slide 18. Equity is down a little bit despite this high result. The reason is that we have valuation effects in there from hedging, and this goes directly into equity. And on the other side, cash was -- we drove down cash on purpose the last year. This year, of course, we had our cash flow effect. We still have sound position there with EUR 130 million in terms of liquidity, plus, of course, some financing facilities.

Metal Division. Metal Division, as I said -- I mentioned before, very solid production there. High aluminum price compared with low alumina price result in a very positive result. We have these delays in shipments, which will be then -- we will see it coming in the second quarter, and with high certainty for the first 5,000 tonnes of these 10,000 tonnes we already had in April. So it is definitely will be a very good quarter for Metal Division also in the second quarter of this year.

Casting Division. Casting Division, with an EBITDA of EUR 5 million, it was definitely the best quarter for Casting in -- also in history. There is positive environment. But what we also see there is weakening demand from the automotive side, which definitely will affect our business latest from Q3 onwards. This is how we expect it as of today. And the energy price development there, of course, we did some hedges in the past. And of course, this helped us also to driving those results. Same valid by the way for Rolling Division, on Slide 21, where we see an EBITDA of more than EUR 40 million in the first quarter compared to EUR 17 million in the first quarter of 2021.

So we are right now at the level, I would say, that we should be and yes, very positive in this regard. And also there, the expectation for the second half of this year is definitely a softer development and we will see heightened demand depending, of course, on the development also of the Ukraine war and, of course, the lockdowns in China.

I'm now at Slide 23, outlook. All in all, and I mentioned it during my presentation, things are going quite well. Demand is still positive with some shadows there for the second half of this year in some of the customer segments, in particular, automotive. And this is then reflected in the second half of -- will be reflected in the numbers second half of Rolling and Casting. But all in all, it is still positive, including that, and it will not be a disaster, shouldn't be one.

So Ukraine conflict is, of course, something, which brings a lot of volatility and uncertainty as well as the lockdowns -- COVID lockdowns we have right now at -- in many places in China, which brings a lot of uncertainties about, let's say, the economic development. We saw significant cost increases, which are still there. Energy is just one of them, logistics is something else and so on. So we have high prices on the cost side. On the other side, the aluminum price is still highly attractive for us, in particular, given our pricing formula for energy in Canada. So this is still very attractive.

And of course, we did some hedges in the past. And as long as these hedges are there, and given also our diversified portfolio, I think, yes, it should be fine. Labor shortages of course, I mentioned it before, at least for us, are definitely a bottleneck and a daily thing to manage. In particular, also -- I'm personally very happy that we managed to do such a good performance productivity-wise and so on in our rolling mill and therefore, we had this first quarter, which was really good.

And in the beginning of this presentation, I also gave you an outlook for 2022, of course, subject to high uncertainty. No one of us knows what happens with gas supply. We need, of course, our energy price hedges as counterpart is in danger. This is, of course -- there's a lot of risk associated to that. And in addition to that, the general economic development is also, I would say, linked to a lot of uncertainties, given in addition to that these lockdowns in China, inflation trends and so on.

But given all that and with the assumption I made there, with a secured energy supplier, energy price hedges, which should be in place for the rest of the year and sustained attractive aluminum price, the full year result is very realistic that it's over EUR 200 million.

With that, I'm ready to answer your questions. Thanks for the presentation and participation in our call and looking forward now to answer your questions. Thank you.

[Operator]

[Operator Instructions] First question is from the line of Markus Remis from RBI.

[Markus Remis, analyst]

Congrats on the results, and a couple of questions. Firstly, on the Metal segment, roughly 10,000 tonnes that are delayed into the second quarter. Is it fair to assume that the EBITDA effect would be roughly EUR 10 million?

[Gerald Mayer, executive]

Yes.

[Markus Remis, analyst]

Okay. Then on the topic of energy surcharges in the downstream business, I was actually surprised by the strength, especially in Rolling. I mean, what's the scope for further increase if the hedging [ is lacked ] and increasing impact of higher energy prices? But is there a scope that this is just a temporary, you should say, for a quarter or 2, and then there's more surcharges to be implemented to compensate for that?

[Gerald Mayer, executive]

In general, what we did, and we started to increase prices 1 year ago. And we did it step-by-step. We're always a little bit lagging behind the steadily increasing -- sharply increasing energy prices last year. And as energy prices plateaued in the beginning of this year, then we saw our price increases for Rolling exceeding this energy price increases, and this is the reason for these margins we have right now.

What we see now -- in our order intake right now that in terms of price, they are more or less flat compared to what we saw in the months before. Energy prices are highly depending on what we see at the markets. They are, at least, not -- they were higher. So they're not at the peak right now, but they are, of course, very high. And what I personally do not expect is that we manage to get additional -- let's say, additionally higher prices significantly -- additional higher prices from our customers. This will be very difficult, I would say.

It is also a market which you need there, and this was the combination we had. We spent a lot of efforts there, explaining to the customers the reason. And on the other side, the demand was there in the market, then it's always easier to, of course, be successful here in rising prices. And I would say this is not easier. I do not expect that this will be easier in the next months then. For the second quarter, I'm optimistic. For the third quarter, I mentioned that we see some, let's say, at least some clouds at the sky, but it's still overall, the sentiment for us is still positive if I exclude Ukraine and exclude the shipment -- the issues from China.

[Markus Remis, analyst]

Right. On the topic of automotive production, there was a couple of shutdowns, especially also then in the truck market related to the supply disruptions for cable harnesses. Can you elaborate what you're currently seeing in terms of the call-off pattern from your OEM customers?

[Gerald Mayer, executive]

Perhaps the call-off of pattern is perhaps a little bit lighter than we planned, yes, or weaker than we planned in the first months or weeks of this year. It has been a little bit weaker than what we expected, in particular for the second half of this year. So beginning second half of this year that it weakens a little bit stronger, and I do not expect too much change for the second quarter. At least up to now, we have no big signals there.

[Markus Remis, analyst]

All right. Okay. Final question on the -- on your contingency plans. So in case of gas disruptions, I know how it works in Austria, what the scheme is. But I mean, is there in any sense or in any way kind of possibility to change the energy mix shorter term? Or does it actually mean in case the gas supply is disrupted, you will have to shut down?

[Gerald Mayer, executive]

I think for -- like all the main European industries, and it has nothing to do just with AMAG and just with Austria. I think it's independent. You're depending 80%, or 60%, or 50%, or 40% in the country of Russian gas. It would have a significant impact and you cannot substitute in the short run with other, let's say, energy sources. So this is not possible. And changing in energy mix, for example, for us to go [ oil ] or do hydrogen. Hydrogen is not there, [ oil ] is not possible, the facility is prepared to run on gas, natural gas and this is simply the point there.

And so in the short run, there is no change possible. And I would even say, in the midterm, it is really difficult or not possible technologically. But also where should the gas come from, where should hydrogen come from and so on. So this is not just valid for aluminum -- and not just for AMAG aluminum, it is, I would say, for the bulk of our competition in Europe, but also for other industries, like glass. We all need natural gas where the burner goes directly, for example, in our facilities to the scrap to melt it and we cannot use something else there.

[Markus Remis, analyst]

Okay. Very clear. And maybe you could also share your CapEx budget with us? That would be my last question then.

[Gerald Mayer, executive]

I guess, for this year, I would expect -- we have some projects in place right now. And I would say, all in all, including the Metal Division, roughly EUR 100 million for this year.

[Markus Remis, analyst]

EUR 100 million. Okay.

[Operator]

[Operator Instructions] Next question is from the line of Christian Obst from Baader Bank.

[Christian Obst, analyst]

I just have one question. It's about the Rolling situation. So very good results, of course. Favorable mix. You signed a new aircraft contract. Can you give us some kind of an idea how do you expect the mix to change in the next 3 to 4 quarters? And will you be able really to transfer more towards the more profitable areas or will it be -- will it stay as it is? The next one then, of course, related to that, you reached an EBITDA per tonne of more than 700 million -- EUR 700 per tonne, which we have not seen since the start of 2011.

So is that -- could there be some kind of a run rate for this time? Or will -- that has been coming especially also from the energy side or from [ that mix ] go towards the average we have seen over the last 5 years?

[Gerald Mayer, executive]

Okay. First question, the contract, we are very happy. And this refers to our acquisition in AMAG components which we finalized last year by acquiring the remaining 30% stake. It is a very important contract, given the disruptions in the aerospace sector. We are happy having this -- but we got this, for us, a very important contract that we are super convinced and -- fully convinced that the whole concept there could end in a good success. And this is the first important step.

Regarding the split, what we expect? Of course, we expect, but by increasing build rates of the main aircraft producers, but also the percentage of aircraft in our portfolio if the Rolling Division goes up, at least slightly, because we are growing more or less everywhere.

To the question, what we expect or how we can improve towards more or higher profitable products? I would say this was managed really well in the last 6 months, and this is where we are exactly now. And the surprise is that it is not the OEM part right now, which is really strong in terms of margins in the industrial application part, which is really strong in margins for OEM. It has long-term contracts for industrial application customers. We have short-term contracts, so it was also possible to increase prices together with high cost increases and the demand in the market. So this was a good job done by, let's say, by our sales team there.

You mentioned the 700 roughly EBITDA euros per tonne for the first quarter. I would say this in general, this stands out. It will be very difficult the long run to sustain this level. I'm very positive that also the second quarter will be a successful one, and I didn't do the math there. If it's EUR 700 or exactly it would be as we had an order book of 3 months, I also expect a very high number there.

At the end, as you mentioned and as you know us quite well, it will highly depend on the mix. We can realize them, and yes, we'll see. But all in all, I think it is at a very high level right now, and we do the best to sustain it as long as possible.

[Christian Obst, analyst]

Of course. I have another follow-up question. And Norsk Hydro just announced to buy a recycling company in Poland. And it seems that there is some kind of a tougher competition when it comes to recycling material. Do you see that already? Or are you worried a little bit about the kind of development?

[Gerald Mayer, executive]

No, I'm not more worried. Aluminum is a metal which stands out when it comes to recycling -- recyclability, and with regard to CO2 emissions. Because look at all the other alternatives, in terms of materials, you have so many others which you cannot say are definitely recycled by keeping the quality. And this is simply what we have. And with the European Green Deal where a circular economy is a very important part of, it is, of course, clear that recycling and circular economy and also our competitors, we do everything to increase the stake there.

On the other side, we are really strong there. We stand out in one aspect. And we have all different Alouette families where we have end products on one side. And we are really -- we have experience of roughly 40 years now in recycling. And I would say we are really strong there. We are ahead there. And this is why we always and continuously also improve our recycling center in Ranshofen in Austria.

We have latest sorting technology and so on and so forth that we can also use, let's say, lower-quality scraps. I know that in Europe, we are also working to reduce the exports of aluminum scrap. There are still, I think, 1 million tonnes, perhaps, or even more going to Asia. And this is, let's say, raw material, which we have to use, in my opinion, in Europe, and we should work on that so this is done. So lot of things are done there. Of course, all our competitors also try to do recycling where possible. And as -- also, of course -- also true for us, we go ahead with that, and we are not worried.

[Operator]

Next question is from the line of Michael Marschallinger from Erste Group.

[Michael Marschallinger, analyst]

I have a question on the guidance preconditions you mentioned, especially at the aluminum prices. And I would like to know why you're optimistic that the prices will remain elevated when you already mentioned the price is corrected now to USD 3,000, below the first quarter numbers and now given the slowdown in automotive in the second half, shouldn't it bring the prices further down in your view?

[Gerald Mayer, executive]

We are not speculating on aluminum price, and I do not say that I think that it is at this level. I said this is an assumption which we made to get to this 200-plus, that is realistic. So what we also assume there that aluminum price in our internal calculation goes down. But still with an average price of roughly USD 3,000 for the year as a whole, we will be roughly there what we said. But of course, this is crystal ball. We don't know. There's a lot of uncertainty. This is what I mentioned. And those are our internal models. We are not able to give you [ advanced ] for example, for the guidance, but we are really fairly optimistic to come there.

Of course, if prices collapse for XY reason, then things have to be reevaluated. And this is why we mentioned this assumption. But there is no -- this is not that we assume that we know that it is going there.

[Michael Marschallinger, analyst]

Could you maybe comment on which price levels your optimism would start to fade?

[Gerald Mayer, executive]

Once again.

[Michael Marschallinger, analyst]

Could you maybe comment on which aluminum price levels, your optimism for the guidance would fade?

[Gerald Mayer, executive]

No, as we said -- what we said is we need to stand or we expect or -- that we expect that assumption for -- that more than EUR 200 million is realistic with a sustained high aluminum price. I just said if it's around USD 3,000 for the -- in average for this year, so it can come down to below USD 3,000, this is what this means, yes, then we are still optimistic to be above EUR 200 million.

[Operator]

[Operator Instructions] There are no further questions at this time, and I would like to hand back to Christoph Gabriel for closing comments. Please go ahead.

[Christoph Gabriel, executive]

Thank you very much for joining this call. As always, I'm glad inviting you to give me a call if you have any questions. I wish you all the best and stay healthy. Thank you.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephones. Thank you for joining, and have a pleasant day. Goodbye.