AMAG Austria Metall AG

VSE:AMAG

Earnings Call Transcript 2022-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. I'm Morris, your Chorus Call operator. Welcome, and thank you for joining the AMAG Austria Metall AG Q3 2022 Results Presentation.

[Operator Instructions] The forecast, budgets and forward-looking assessments and statements contained in this presentation were compiled on the basis of all information available to AMAG as of October 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 any of these forecasts in the 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, rounding errors and transmission errors cannot be entirely ruled out. In particular, AMAG and its representatives do not assume any responsibility for the completeness and correctness of information included in this presentation.

This presentation is also available in German. In cases of doubt, the German language version takes precedence. This presentation does not comprise either -- or a recommendation or a solicitation to either purchase or sell securities of AMAG.

I would now 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 3 quarters of 2022 of AMAG Austria Metall AG. Today, Gerald Mayer, CEO of AMAG, will present the development and results of the first 9 months of this year. After Gerald's presentation, you have the opportunity to ask questions during the Q&A session. As usual, the presentation as well as the press release has been published this morning on our home page under Investor Relations. I would now like to hand over to Gerald, please start the presentation. Thank you.

[Gerald Mayer, executive]

Thanks, Christoph. Good morning from my side to our Q3 earnings presentation. I would like to start with the highlights on the first slide. It was a very strong third quarter for us and on the one side, on the other side, we got the first, let's say, indications that we see a slowdown in certain industries in the market. All in all, Q3 was very strong with a significant revenue growth of 47% to EUR 1.35 billion for the first 9 months after EUR 900 million roughly in the first 9 months of the year 2021. Also, EBITDA grew by 48% to EUR 217 million, which is a record, of course, for AMAG, up till now the best full year was last year was [Technical Difficulty] so a very strong first 9 months.

The significant growth can also be seen in net income, we are at EUR 107 million roughly right now after EUR 57 million in the first 9 months of 2021. And one reason for that or the most important reasons for that was an optimized product mix, of course, we took advantage and we used quite well, I would say, our plant and personnel capacities, as you know, we had some bottlenecks here in particular, the HR side. And we managed a very stable production. And of course, we also had tailwinds from the market.

What we also see right now is that the business performance increasingly will be affected by declining demand for some of our -- in some of our sectors and the slowdown in markets as well as by energy prices. I will talk about that a little bit later. This brings me to the outlook for 2022. So we expect in our guidance right now is an EBITDA range between EUR 230 million and EUR 250 million based on our current estimates for trains and shipment volumes and prices. And of course, we assume a stable energy supply midterm and long term, we are convinced of a solid growth expectation for aluminum products. I think the future is up a positive one.

Slide 4, some highlights regarding sustainability. I would like to share with you that our approach regarding sustainability, which is definitely a holistic approach was awarded several times in the last weeks and months. We have a top sustainability rating from EcoVadis from Sustainalytics. We just won the Energy Globe of Austria for the erection of our rooftop photovoltaic system. We were awarded with the effective Sustainability Communicator Award 2 weeks ago. We got the Best Business Award, which is an award in Southern Germany. We have other awards like the ICT, which is a very interesting one for sustainable digitization. And we got another one regarding our expertise in climate protection for our construction of the pedestrian and cycle over-path. So it's a holistic approach, which is seen in the outside world and also awarded.

Let's go to -- and go to Slide #6, which is the Purchase Manager Index, the heat map. And what you can see at the heat map perfectly also translates into our order intake situation in our downstream business. We saw end of second quarter, beginning of third quarter decline in this sentiment in this heat map, so the color turns red. And this is also reflected in our order intake situation quite well. So we saw a decline in order intake, which I will share with you a little bit later. And -- but just in some of our industries we supply and this is, in particular, for the industrial application industry and to a smaller extent in the automotive industry.

Very important for us on Slide #7, the aluminum price trends. What we can see there is that the decline started after a real, let's say, a sharp development upwards, we saw a decline which started in spring right after the war in the Ukraine started, we saw the peak and then it started to decline and we see a continuing decline until today actually, despite we saw an increase last night to more than USD 2,300 again. But all in all, we were between 2 to 1 and to 2 to the last days. A high -- low aluminum price always affects our EBITDA and it also in our Metal Division, in particular, and it also affects, of course, working capital and this decline, you will see a little bit later also affected our cash flow significantly in the last quarter, which is a fairly positive number right now.

Yes, let's go to Slide #8. Alumina price also very important. It's a similar picture, more or less in parallel with the decline of the aluminum price, also price for alumina trended down. As you know, it takes 2 tonnes of alumina to produce 1 tonne of aluminum. So this is a very important raw material for us. So we see some sort of correlation there despite the fact that the aluminum price declined, of course, a little bit more in absolute numbers than the reduction of alumina was. But all in all, this level of alumina price is a good level for us. And so the overall situation for the upstream business is still quite positive despite the fact, of course, that the -- let's say, the overall, let's say, top line number will go down there and also the margins because of the sharp decrease in aluminum price.

Slide 9, shipments. You saw a stable situation, some increase compared to the prior year from 317,000 tonnes to 319,000 tonnes for all our divisions. If you look to the bottom of this chart, the details there, minus 1,100 tonnes for our Metal Division. This had to do with early shipments in the prior year. So there is no impact, no -- we have a very stable production there actually at our smelting operation in Canada, [Technical Difficulty] a topic from last year.

In [indiscernible] Division, we made it possible with high productivity to increase shipments by 1,300 tonnes, in Rolling Division by 1,400 tonnes, and this is despite the fact that, of course, we had a bottleneck in the area of HR in many in the first 9 months.

Slide #10, Rolling Division, the shipments by industry, you see some changes there compared to the past. We saw, in particular, an increase in the aerospace to 10%. We were quite low there after COVID, so we increased by 6,400 tonnes compared to the prior year. So this is quite significant. So we see a stabilization and still increase for aerospace industry. Also, automotive was up, and we are now at 18% share and also quite positive, packaging what trends down, it's treadplate industrial application in industrial applications. So here we see a decline and this has to do, in particular, with market development. So this is the part of our business which is affected by the downturn of the economy right now.

Slide #11, you see the order backlog development. You see this downward trend there. And we see the slight decrease since Q3 in automotive in demand and we also see -- and this is a significant decline for, in particular, non-heat treated products in the industrial application area like treadplate and so on. We see that our customers ordered a lot in the first half of the year. We shipped a lot, stocks are full there and they have to destock before they start to order again. In addition to that, of course, a big piece of uncertainty is the energy price level waiting for actually a final solution there. And then we are convinced that our customers will also start to order again for the industrial applications area. Very solid order intake still from aircraft and packaging industry. So we have pluses and minuses there. So all in all, I would say that the level of order backlog is still a healthy one.

The revenues turnover sales number on Slide 12, you see that we were up roughly, nearly 50%. And we saw the increase in all our divisions. So in metal, we are up EUR 77 million, roughly EUR 80 million from EUR 250 million to EUR 290 million. Also in Casting, we are up EUR 40 million. This is 45% increase. And in our Rolling Division, we are up more than EUR 300 million. It's a 50% increase roughly.

Going to the bridge, you see that this increase, first of all, reflects, of course, to a higher aluminum price by EUR 120 million, but prices premiums in general had to go up in order to compensate for higher energy prices and inflation trends in particular. So we saw an increase in prices in general by more than EUR 200 million. Volume was up. It accounts for EUR 20 million. Then we have, for example, and other FX effects of roughly EUR 40 million. So this brings us -- this bridges from EUR 900 million and gives us the reconciliation from EUR 900 million to EUR 1.3 billion for the first 9 months.

Slide 13, EBITDA. We exceeded the first time the EUR 200 million level in a year and is after 9 months. So we are at EUR 217 million after EUR 146 million in the prior year. As I said before, this is roughly 50% up or EUR 70 million. If you look at the reconciliation, we see that we, of course, aluminum price, EUR 50 million as a big contribution there. We have prices and premiums in general, which were up EUR 150 million and they had to absorb raw material increases, energy price increases and increases in the section of other, which refers to structural costs, other inflationary effects, some valuation effects there, which had to do with inflation and so on, in particular, and EUR 20 million of this higher EBITDA refer to higher volumes.

Slide #14, the change in EBITDA by division, you see a positive trend in the divisions there in all our operating divisions. Metal Division is up EUR 15 million compared to the prior year, Casting, EUR 3.5 million. That did an excellent job this year and Rolling, EUR 55 million, also very positive development there.

Let us have a look on Slide 15 on the EBITDA of Q3. You see in Q3, we are up compared to the prior year by 15% or roughly EUR 7 million, EUR 8 million. The third quarter of 2021 was already a strong quarter for AMAG, and EUR 60 million is still a very strong one. But we also, of course, see the reduced run rate compared to the first half of the year, looking -- having a quick look at the reconciliation, you see aluminum price is responsible for EUR 5 million of the increase. We perfectly, let's say, absorbed with higher -- with price increases the higher cost for raw material and energy, we had a positive impact of volumes and mix. And then we had, of course, some other structural and valuation effects in the third quarter, in particular with regard to inflation trends as I mentioned them for the first 9 months.

Net income also, of course, quite positive, driven by the operating result. Depreciation is a little bit up. Of course, net financial result is a little bit negative. And of course, we had to pay higher taxes, accounts for higher taxes, higher results, we end up at EUR 107 million after 9 months.

I think what is very interesting, looking at the energy situation, I have a chart on Slide 17, which shows the average energy cost for just our site here in Austria, Ranshofen. If you look at that, we see that the average number was -- is significantly below the market prices. AMAG does not pay the market prices right now. We have hedges in place also for next year.

So if you look at the 2020-2021 number, we saw an increase of 100% 2021 to 2022. It will more than double again, and we are still significantly below the current market. And this is the average number of Q3. So it came down again a little bit. So it's getting better, of course. But this is, it is -- this chart, I think, shows perfectly the necessity to increase prices to have a strategy of price increases in place and this is exactly what we did quite well in this, let's say, starting more than 1 year ago. We have step-by-step increased our prices. And of course, what you also see there is that hedging absorbs for energy price increases, which is also quite positive. And as I mentioned before, we have hedges in place also for the year 2023.

Next slide, you see the summary of our strong results. You also see quite well that the run rate in Q3 is reduced, as I mentioned before, compared to the first half of the year. Aluminum prices came down for Metal Division. And of course, we also saw the decrease in demand for non-heat treated products, in particular for industrial application, only treated products. The rest was, I would say, quite positive.

Cash flow, I would say, in particular, in Q3, very positive after a difficult first half with strong aluminum price increases. We built up safety stocks for alloy metal, also for primary metal on our side. Of course, this had to be financed in the third quarter. We had a positive operating cash flow of EUR 125 million. So this was very strong for us. And so all in all, year-to-date, we are at an operating cash flow of EUR 70 million plus and deducting the cash flow from investing activities returned the cash flow from a negative free cash flow to a positive free cash flow after 9 months. The impact of higher volumes in the cash flow is still very negative of EUR 90 million. This has to do with a higher -- in particular, higher safety stocks, as I mentioned before.

Slide #20, you see on the left side, net financial debt development. This number reflects the strong cash flow in the third quarter. So it is, I would say, very solid and the EBITDA, net debt-EBITDA ratio is at 1.5 right now. So reduced net financial debt as well as a strong EBITDA are responsible for debt.

Solid financials, key financials also on Slide 21, equity increased. And you remember that we distributed a dividend of EUR 50 million, but we are up there compared to the 31st of December 2021 by EUR 90 million roughly. So very positive and it's, of course, in particular, driven by our result. Cash and cash equivalents, we built up cash this year when the war started. We did one [indiscernible] financing facility of EUR 200 million to be on the safe side there. And now in the last quarter, we also see, of course, the impact of the strong and positive operating cash flow.

Metal Division, Slide #22. I would say all good, all stable there regarding production. We had tailwinds in the last, let's say, 24 months from high aluminum prices. Of course, these prices came down quite a bit in the last month. And so the expectation is that it's normalizing to a normal type of result and run rate in Metal Division right now. And -- but all in all, a very important things there. [Technical Difficulty] shipments, stable production and we took advantage of this positive market environment.

Casting Division, Slide 23, also very stable in terms of production. We had a high productivity there. We took advantage of our capacity, I would say, in a quite perfect manner. The cost increases we saw were offset by price adjustments. And so a very good job there and very stable development for Casting Division after 9 months.

Rolling Division, we optimized the product mix. We had a high productivity. It's a record year for our guys in the Rolling Division. So we saw a sharp EBITDA growth on the one side. On the other side, you also see, if you're looking at the third quarter, it was still a very good one for Rolling Division. But on the other side, we also saw that a highly profitable part of our business is volume-wise declining and this is reflected in the numbers there. And of course, always in Q3, we produced a little bit less as we have plant maintenance. They are always in August as we have it also in December, by the way.

Let's talk a little bit about the outlook, obviously, the future. It is, of course, quite difficult right now to do a precise forecast there. So I think the only stable thing we have right now is uncertainty. And all in all, I think in the first 9 months, we took advantage of this positive environment. We had a high productivity. I think we did a quite good job and took advantage of that and enabled this really good result after 9 months.

We had in Q3 very stable order intakes from aircraft, aerospace industry, also from the packaging industry on the one side. And as I mentioned, we see declining developments in industrial applications, in particular, in the non-heat treated part of this business as the stocks are pretty full on the side of [Technical Difficulty] but we saw a slight decline throughout the demand of automotive industries, but it will be a very strong year for automotive. And within AMAG, we will have definitely a record number in terms of tonnage there.

On the other side, we see this ongoing Ukraine war with rising energy prices, big uncertainties, also uncertainties in energy supply. We have high inflation. And this, all in all, guides us -- drives us to a negative impact on the overall economic growth expectations in the short term. In the long term, midterm, we are absolutely convinced that it will be a positive and stable development. But for the uncertainty, I would say, is quite high.

What we also have on our side in AMAG is -- and we expect a very stable development for primary production in Canada. So we are not affected by the Ukraine situation at all there and despite of general global economic development. So given that and all the current estimates for -- and [ trans ] for shipment, also some, let's say, reduce some working capital initiatives. So we produced a little bit less in the fourth quarter and try to reduce working capital there.

We see prices which are trending down, not just in -- for aluminum, but also for some of our -- in particular, for example, industrial application products. So this also -- all will lead to our guidance of EUR 230 million to EUR 250 million for 2022. And it's definitely given all the uncertainties too early to give a specific band guidance for the next year 2023.

So with that, I would like to finish this presentation and I'm definitely ready to -- hopefully ready to answer all your questions. Thank you.

[Operator]

[Operator Instructions] And the first question comes from Markus Remis from RBI.

[Markus Remis, analyst]

Congrats to the record results. First of all, a couple of questions, please. The first one relates to the, I would say, price cost spreads, we saw that part of the earnings equation contracting in the third quarter compared to the first half. I mean, what's your expectation for Q4 specifically and then also moving into 2023? I mean do you think that cost pressure kind of -- or let me rephrase it, to which extent do you think you will continue to be able to balance out cost pressure by rising prices? Or do you think that, I would say, price sensitivity or pricing power will decline owing to a weaker kind of macro outlook overall?

[Gerald Mayer, executive]

Markus, it's a difficult to answer question, but let me -- up to now it worked quite well. Also the order intakes we have right now in terms of pricing, we managed to push, let's say, this higher cost to our customers, which is absolutely necessary without debt. Given the sharp increases in particular, on the energy prices, it would not be possible to, let's say to work, yes. So we have to do that. And this is -- we have a pricing strategy in place where we definitely do everything to push, in particular, the high energy prices to our customers. It is necessary.

And by the way, it's also understood the difficult fact there is that we act in a, I would say, in a global environment here, we have competition not just from Europe, from outside Europe, from guys there in competition, which is -- yes, has a lot of advantages in terms of energy compared to us. On the other side, which is also -- which will be more difficult in the next weeks and months is, I think, the downturn of economy because with the downturn up to now it was easier as everyone or all the guy, all the people there were running their plants more or less really at very high capacity levels and this will be definitely more difficult and it might result perhaps in an impact in lower volumes up to now.

The only part that we really have the impression that it might go into the first half of this year, this industrial application non-heat treated as I mentioned before that several times, we will definitely see a pressure there on volumes. All in all, just price-wise, we do everything at the utmost to keep the level high and also increase if necessary. I think this is our job now and our people up for now in the last 18 months, they did a fantastic job there, and I'm confident that we also managed to do in the beginning of the year, but the pressure from the other side will be there. Sorry for this very general answer.

[Markus Remis, analyst]

Yes. No, but in general, you're more concerned about the volume side than about the price side? Is that...

[Gerald Mayer, executive]

Yes, of course, I'm concerned with every downturn in the economy and PMI, as I mentioned before, it's a perfect indicator for our downstream business. And it's reflected in our weather index right now. And as long as it stays like that or even gets a little bit worse, we will be impacted and it's not just us, it's the whole, I would say, industrial sector here. And yes, and normally, of course, it's more difficult in a not so easy market environment to keep price levels high. But what we do right now, we compensate for higher cost. It's not that we have to do that in order to keep the margins.

[Markus Remis, analyst]

I mean the decline trend we recently saw, I mean, I guess, another tough question, but is there any sense you have about the impact of destocking? Is it I mean, customers kind of being more hesitant to place orders because they expect lower prices to know that lead times have come down? Anything you can kind of...

[Gerald Mayer, executive]

What I can share here with you is 2 things. First of all -- or 3 things. In our Industrial Application business, stocks are definitely non-heat treated stocks are full at the side of our customers. And the expectation is that this will last, let's say, another 3 to 6 months roughly. So they will step by step reduce the stock level there, will start to place orders again on this side. But I guess, we will also have an impact there in the first half of next year for sure.

On the side of automotive, and this is something that you see the uncertainty. Normally at this time of the year, all the contracts for next year are concluded normally at this time of the year. The bulk of that is still open because of uncertainty, our gut feeling there is that the order backlog is still quite high on their side, on the customer side, but we all read daily in the newspapers that people are canceling orders for cars and so on.

So the uncertainties is very high, so no one knows how shall this proceed. And I think this is the big issue right now and the big uncertainty for the upcoming year. What is positive for us is primary division was positive for us, is aerospace, it's packaging and so on. So we are very positive -- many positive areas for our business. But for sure, we also have the automotive industry, which is a driver with big uncertainty there and industrial applications. The sample stocks are full. And in this area, half a year ago, our customers thought they do not get enough metal and things changed dramatically in the last month. And this is simply an issue right now. But it's also something we had in the past. So it's an up and down there in this area.

[Markus Remis, analyst]

Sure. I mean, generally referring to the kind of weakening of the euro, I mean, are there any implications you would see from that change on your downstream business?

[Gerald Mayer, executive]

Weakening of euro for us is positive. And so for us in 2 senses, upstream, of course, we have a U.S. dollar production and downstream we produce here and export. And so this is normally compensates perhaps for the disadvantage we have in a part -- at least to a part -- to a certain extent to the disadvantage we have, for example, from energy.

[Markus Remis, analyst]

All right. Okay. And then last question, also referring to the topic of inflation. I mean, how big is the inflationary pressure on your capital spending? I mean it's not only cost, but I guess also your investments will become more expensive.

[Gerald Mayer, executive]

This is definitely correct on the one side. On the other side, which was -- it is more expensive. We are right now building -- having a big investment project on our side. It's a EUR 50 million roughly. I guess we got an up charge of, I don't know, 15%, 20%, I don't know, just because of that, but this is -- comes from last year. So it may take like 12 months. So the market was very strong for the plant building industry at this time, but also we saw the trend of inflation also last year.

So -- and right now what is interesting for me is we just had a minor investment, which we approved the other day. And what we saw there is, again, reducing prices from the construction industry. So we'll see how this develops. I think they see the downturn in economy quite strongly there. And so building should -- I think perhaps it also -- we see a positive trend there after it was peaking, let's say, in summer, it seemed to look at aluminum price, it came down from USD 3,500 to USD 4,000 per tonne down to USD 2,300 as of today. We have other, let's say, important raw materials for the construction industry with similar. So this will have an impact also again on the positive side. But all in all, wages and salaries and so on, it's -- yes.

[Markus Remis, analyst]

Yes. Okay. What's the most updated CapEx figure for this year and then maybe also an outlook for next year already, EUR 100 million?

[Gerald Mayer, executive]

Yes. This year, I think it's more EUR 90 million. So we have a little bit less than we expected. We shifted something to the next year and next year will be above EUR 100 million. But we will give you a guidance there. And we are in the budgeting process right now. So it's not approved yet and we have to talk about that in the next weeks internally, you will get an update there.

[Operator]

And the next question comes from Michael Marschallinger from Erste Group.

[Michael Marschallinger, analyst]

I've 2. First one would be on your new outlook range. This EUR 200 million the lower bound of the guidance, it would mean only EUR 30 in million in Q4, this would be quite a big drop of some 70% in the -- is that [indiscernible] positive statement really a realistic assumption?

[Gerald Mayer, executive]

It was very difficult to get. But all is reflected in our guidance for the rest of the year, I would say, in particular, 2 things. First of all, in the fourth quarter, we always have maintenance. We expect for the fourth quarter a run rate in our Primary Metal Division, which is definitely by far lower than it was in the last 3 quarters as prices came down significantly. And in addition to that, for our downstream operation, we are running now also sort of working capital initiatives.

So we produce on purpose also a little bit less than it was a run rate-wise in the last quarter, for example. And so this brings down our, let's say, where we had in our operation here in Ranshofen and this is -- are the main reasons for these trends. And if you look back to the history, this is -- we always had between EUR 20 million and EUR 40 million, I think for the fourth quarter, which I would say okay.

[Michael Marschallinger, analyst]

Okay. Understood. And I have one question on hedging quarter, so give us a number here last year, last question, [indiscernible] that you saw on the natural gas prices in Europe came down below EUR 100 per megawatt hour again, did you use this time frame to increase the quotas you mentioned last time to ask this 75% and 50% in the next 2 years?

[Gerald Mayer, executive]

This was the question, natural gas hedging.

[Michael Marschallinger, analyst]

Yes, yes, if you increased the quotas?

[Gerald Mayer, executive]

Yes. So I think the price level you have in mind now is always the day ahead price, which is definitely way lower than it was in the past, but day ahead is reflected for sure in the price for electricity is my understanding. For us, when we do hedges, we have to look at normally next quarter, next year and not to list the hedge price, but we also learned yesterday that there was a negative price for natural gas in Spain, but this stocks last week -- or this week, stocks are full.

And you have these developments right now as the ships are there, they are queuing and you have your spot business, you might have, again, way lower natural gas prices, if they stay where they are I would doubt that. For us, we are at the level for next year of roughly 80% right now of natural gas hedges in place. And so we increased. And yes, and I think this -- I hope is something [indiscernible].

[Michael Marschallinger, analyst]

Yes. Could you also give us the number for '24?

[Gerald Mayer, executive]

It's lower. I think we are perhaps around 50% for natural gas, but this is now for all of my -- but around 50% is definitely not wrong.

[Operator]

The next question comes from Wolfgang Matejka from Matejka and Partners Asset Management.

[Wolfgang Matejka, analyst]

So first, congratulations to bridge all those troubles ahead and behind where we all done. In any case, we had nightmares, you provided to come into reality. So my question has been also as well on the natural gas prices of today, if you take advantage or not has already been answered in that respect. My question is twofold. The main question is the net financial debt. You mentioned about the changing interest rate development currently. Is that an impact to your outlook or not? And second question is forward-looking, maybe your suggestions in relation to a dividend.

[Gerald Mayer, executive]

I don't know if I got your question all right regarding net financial debt. So for me, we have -- what I said is that we had a very positive impact because of positive cash flows in the third quarter. I do not expect a significant impact there on our, let's say, bottom line of financial result. For us, it is also the case that the majority of our financing facilities have fixed interest rates. We have some flexibility there, simply to be flexible and pay back, if possible, and if it makes sense.

Therefore, we have also a part in variable interest rates can be [indiscernible] that in our annual report, I think discrete. So I do not see a big impact there on bottom line if this was not the question. In terms of valuation, interest rates have an impact in, let's say, in our provision for pensions and so on, but this is reflected in equity and not in the bottom line and to a little extent, for sure, the operating results when it comes to [ tubile ] provisions. So there, you can see it.

Then regarding dividend. For me, it is still too early. So we are thinking about that in our Board what we can do and should do there for next year. And it's too early for me to give you a guidance there.

[Wolfgang Matejka, analyst]

Okay. But in relation to the earnings development, okay, you will skip dividend, smiling. One question is still remaining on my side related to the natural gas situation. Do you see some kind of development on your client side in relation towards the problems currently arising that you mentioned queuing up the LNG tankers ahead of Spain and negative price development on the natural gas price because nobody is able to store that gas, that there is some kind of industry development arising to build up in a fast mood storage facilities and so on.

[Gerald Mayer, executive]

What I see on the customer side that overseas customers sometimes are nervous about the situation in the geopolitical situation in Europe and that it's more difficult to get orders, for example, from customers in the States who are at a certain extent, nervous. On the one side, we have, of course, storage. This is very positive in Austria. It's also well-received by our customers, for example, in the U.S.

On the other side, it's still an issue if the cash flow will be totally interrupted, I think, for Europe, Austria, Middle Europe. So this is definitely something we see for our industry and for our company, it would be super difficult to have a simply, let's say, substitute, for example, our gas supply, which comes via pipelines to our plant by LNG would be -- I can simply share with you what we are working out. So we are working also on -- and I think we are more or less there to have our own, let's say, storage facility for some weeks in place and we are working on other concepts like LNG type of content, but they are simply -- they had to substitute the part of our consumptions. All in all, I think it's too big to store for a company like AMAG. I don't know, 6 months...

[Wolfgang Matejka, analyst]

Of course. No, no. My question was related towards the, let's say, the storage industry or, let's say, the LNG pipe building industry, is aluminum a factor in that where you can take part of it when Germany, for instance, is building LNG terminals and so on? Or is it just more or less a steel business?

[Gerald Mayer, executive]

I would say not directly, but indirect, but not as a supplier because these are the tubes and pipes alone are coming from aluminum and steel.

[Wolfgang Matejka, analyst]

Okay. Okay. And congrats, again.

[Gerald Mayer, executive]

Thank you.

[Operator]

[Operator Instructions] The next question comes from the line of Christian Obst from Baader bank.

[Christian Obst, analyst]

I just have 2 additional questions. One is a more technical one. Do you see some kind of valuation effect when it comes to your safety stocks and to your stocks as a whole in the fourth quarter that you have to go in with a lower valuation of the entire stock and this again then affects the result?

[Gerald Mayer, executive]

No. As we always hedge when we have the bulk of safety stocks refer to primary metal for us. And if we do that, it is always hedged and so we do not have an impact there.

[Christian Obst, analyst]

Okay. And the next one is we have -- well, we see some discussions about LME and possible ban of Russian products there. What is your position there? And what do you currently see how...

[Gerald Mayer, executive]

This is a very interesting question, I think a very important one for our industry. So the position of the industry is, first of all, AMAG has just some kilos or some tonnes indirectly of Russian metals. So we are not depending at all on that. So we, as AMAG, we don't need, let's say, supply from Russia. We have some minor volumes, but this can be substituted. For the industry itself, I would say it is very important.

So right now roughly 1.5 million tonnes of aluminum come directly from Russia to Europe right now in the last year. Yes. In addition to that, we assume that roughly 500,000 tonnes come via other countries. So indirectly it goes to -- from Russia to somewhere else. And the bulk comes, let's say, from semi-finished products from countries like Turkey to Europe, again, who have free trade association -- free trade agreements and so on, and it comes then into Europe. So if this would be sanctioned, we have to go in a little bit more detail. Do we have issues there, yes or no?

I would say this is twofold. If I go to our industry, I'm -- as far as I know, there are some players in the market who need Russian slabs, for example, rolling slabs. So it is definitely an important raw material. And so it is needed to a certain extent, at least there. And normally, to substitute rolling slab takes time as you need to qualify and so on and so forth. You need to find a proper supplier, and it's not so easy. We know that from our own experience.

And then you have other products or also products, we have to be very careful in sanctioning in my opinion because sometimes that the metal flows, it goes then from Russia to somewhere else and then we have to close and shut all the back doors so that it does not come then back to Europe, but just more expensive. And this is what I feel a little bit. But all in all, it is simply affected 1.5 million right now per annum come from Russia to Europe. It's one of our most important suppliers there.

And on the other hand, we are in a situation where we know that 1.1 million tonne of annual capacity in Europe is curtailed right now because energy prices are that high. So I think it would be very wise to solve this energy problem for the, let's say, European production because this would compensate quite for a big part of the niche, which we will see from, let's say, sanctions to Russian players.

[Christian Obst, analyst]

Yes. This is, I think, also is some kind of a very interesting topic going forward.

[Gerald Mayer, executive]

Yes.

[Christian Obst, analyst]

How do you see customers behave currently, do they try to avoid any kind of rush from material as far as possible so far? Or what you see is their behavior?

[Gerald Mayer, executive]

Not really actually up to now. I would say it's not sanctioned. And of course, we know many players say that they do not take Russian metal or Russian raw materials on the other side. We all know that we are depending not just in energy. Also aluminum, for example, we all know this is stored energy. So you produce, you use energy in -- Russia-produced ingots and ship them more or less energy in the form of aluminum to the rest of the world.

And we have many other raw materials, titanium and others where we, I think, to a certain extent, really depend on Russia. So it will be definitely interesting. And I think this is all the reason why all the players and all the people out there have to be cautious and simply saying, oh, I don't take Russian energy, Russian gas and so on the Russian metal and raw material, we need it from somewhere.

[Operator]

The next question comes from [ Gunther Eig ] from [ Eig Trade International ].

[Unknown Analyst]

Congratulations for the figures. My question is about the high-speed trains in Japan, we are seeing you are involved there. If I see the price of the yen to the euro as well as to the dollar, it is extreme expensive for them to give you orders or does it work?

[Gerald Mayer, executive]

I fully agree what you say, it is very difficult for us in Japan, we supply to some industries. It's automotive, it's sports, for example. We also -- right now we have new products which go -- should go. So we are at a very early stage in selling, for example, for building industry for material and if you say high-speed strength -- high-speed trains, we also shipped some smaller volumes there. And you are totally right. Right now it is super difficult to get new contracts there on the one side because of the weak yen.

And this is, for sure, not easy. On the other side, we also are aware that the local production of our products is not too high in Japan. So there is definitely also an opportunity there. I just visited the country and I saw some opportunities, but we'll see how this develops. This is something to be solved for sure.

[Operator]

There are no further questions at this time. I hand back to Christoph Gabriel for closing remarks.

[Christoph Gabriel, executive]

Thank you very much for joining this call. As always, I'm pleased to answer any further questions via mail or telephone. Thanks again for your participation and have a nice Thursday. Goodbye.

[Operator]

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