AMAG Austria Metall AG

VSE:AMAG

Earnings Call Analysis

AMAG Reports Strong Q3 Results Amid Challenging Market Conditions

AMAG Austria Metall AG showcased robust results in Q3 2024, achieving revenues of €1.787 billion, up from €1.142 billion year-on-year. EBITDA reached €147.6 million, although it declined 11% from €166 million due to rising alumina prices and lower shipments, particularly in the automotive sector. Net income fell to €54.3 million versus €69.7 million last year. For year-end, AMAG confirmed an EBITDA forecast of €160 to €180 million, with potential variances linked to market conditions. Despite challenges, demand for aerospace and industrial applications remains strong, though uncertainties loom in the automotive market as electric vehicle developments evolve.

Strong Revenue Growth in a Tough Environment

AMAG Austria Metall AG reported impressive revenue of EUR 1.787 billion for the first three quarters of 2024, a significant increase from EUR 1.142 billion over the same period in the previous year. This growth demonstrates the company's resilience and strategic positioning in a challenging market landscape.

EBITDA Decline Amid Challenges

Despite the revenue growth, the company's EBITDA declined to EUR 147.6 million from EUR 166 million in the previous year, reflecting a decrease of about 11%. This was largely due to pricing pressures and decreased premiums, highlighted by challenges in the Rolling division, which faced notably lower sales.

Earnings and Cash Flow Performance

Earnings after tax for AMAG dipped to EUR 54.3 million from EUR 69.7 million a year ago, marking a substantial decrease. Additionally, cash flow from operating activities fell to EUR 109.3 million compared to EUR 157 million last year, which indicates tighter cash management despite robust top-line growth.

Challenging Market Outlook

The market environment remains difficult, particularly in Europe, where the Purchasing Managers' Index (PMI) points to continued economic strain. Notably, the automotive sector is facing significant challenges related to electric vehicle market uncertainties, which is expected to affect AMAG's order intake in the forthcoming quarters.

Guidance for the End of 2024

Management confirmed the EBITDA forecast range for 2024, projecting between EUR 160 million to EUR 180 million. However, it was cautioned that the upper limit largely depends on valuation effects that are difficult to predict due to fluctuating costs of aluminum and alumina.

Impacts of Raw Material Prices

A significant increase in alumina prices has been noted, with implications for production costs as two tonnes of alumina are required to produce one tonne of aluminum. This price jump started affecting profit margins in the last quarter of 2024, potentially spilling over into the first quarter of 2025.

Sector-Specific Performance Insights

The Metal division showed better performance, particularly in primary metal production, with a slight increase in shipments. Conversely, sales declined significantly in the Rolling division, exacerbated by a shift to specialty products due to reduced demand in sectors like packaging and automotive.

Cash and Balance Sheet Health

The company is maintaining a stable financial position, with net financial debt levels remaining consistent. However, the equity ratio decreased due to a EUR 160 million refinancing, which has been strategically managed to ensure liquidity for upcoming obligations.

Future Strategic Focus

AMAG plans to pivot towards more specialized products, particularly in heat-treated materials for aerospace and other industrial applications, to counteract the softness in the automotive sector. This strategic shift is expected to help mitigate the ongoing global market challenges.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, welcome to the Q3 results 2024 presentation conference call. I'm Sergen, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions]

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 October 22, 2024. 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.

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

At this time, it's my pleasure to hand over to Christoph Gabriel, Head of Investor Relations. Please go ahead, sir.

[Christoph Gabriel, executive]

Good morning, ladies and gentlemen, and welcome to our conference call for the first 3 quarters of 2024 of AMAG Austria Metall AG. Today, Helmut Kaufmann, CEO and COO; as well as Claudia Trampitsch, CFO, will present the development and results of the first 9 months of this year. After their 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 homepage under Investor Relations.

I would now like to hand over to Helmut. Please start the presentation. Thank you.

[Helmut Kaufmann, executive]

Good morning, everyone, from my side. I would like to start with Slide #3, highlights of the first 3 quarters of 2024. And I'm glad to say that we had a quite good performance in a challenging environment.

And as we explained several times before, the broad positioning of the AMAG Group connected with the high flexibility in operations enabled solid revenue and earning figures in a very and still very difficult environment. Revenues remained above EUR 1 billion with exactly EUR 1.787 billion compared to EUR 1,142.8 million in the same period last year.

EBITDA reached EUR 147.6 million. And as I mentioned, in this difficult environment, we see this as a good performance of the operating divisions. Nevertheless, compared to below to the EUR 166 million of last year's result.

The earnings after income tax reached EUR 54.3 million compared to EUR 69.7 million in 2023. Cash flow from operating activities was at EUR 109.3 million compared to EUR 157 million last year.

Looking ahead to the end of this year, we can confirm the EBITDA range that we published in the previous call with a range of EUR 160 million to EUR 180 million. But we would like to comment that the upper limit is primarily linked to valuation effects, which can occur or may not occur. The forecast is very difficult in this respect.

Let me continue with market and shipments. Slide #5 shows the PMI. And as you can see, especially the European market is still rather red. But in the very recent months, also PMI of the United States went below 50 and also the Chinese PMI became now slightly below 50. So as we said in the headline there, we can see little optimism from the general markets globally actually, but of course, Europe being the most difficult area.

Looking at Slide #6, which indicates the shipments of this quarter. We were close to 300,000 tonnes of the products that we ship. Metal division was compared to last year, 1,000 tonnes above. So this means primary metal production in Canada worked very well. Our recycling foundry alloys sold by Casting division was slightly below last year, especially due to the slight reduction of the European automotive industry and the biggest decline we saw in Rolling.

But this was a heterogeneous situation compared to last year, while industrial applications, aerospace and transport products were better than last year, we saw a decline in packaging and in the automotive sector.

This is shown in a little bit more detail on Slide #7. There, you can see that we are compared to last year, 3,000 tonnes below the result in automotive industry, summing up to 20% of the overall shipments. Aerospace, slightly above, other transportation also above. Also industrial applications, 4,000 tonnes above, sum up to 28%.

Heat exchanger business slightly below last year. Architecture, Sports and Electronics remained the same, but the biggest decline and this was part of a contract negotiation last year, so not unexpected, was the reduction in packaging, where now it sums up to 15% of the overall shipments.

Looking ahead on Slide #8, you can see the order backlog and this is on a stable level also compared to the previous years with slightly above 60,000 tonnes. This is quite okay.

We see a rising order intake in aerospace and in the industrial applications in this third quarter. But still, we have a challenging environment in the automotive industry. As you know, there is this uncertainty about the electric vehicles. But this is, of course, also reflected in the AMAG business.

And slowly, but surely, we see improvements in the Sports segment, which was very positive during COVID, then slightly down and now improved again. Architectural products pretty much remain stretched, but slight improvements we expect for the future.

With this general information, I hand over now to Claudia, who will give financial details.

[Claudia Trampitsch, executive]

Thank you. Good morning from my side. I want to start with the information on the aluminum price. So we saw an increase in the price in quarter-on-quarter comparison by USD 220 per tonne. And also when we compare the quarters -- the 3 quarters 2023 and 2024, we saw an increase of USD 100. Nevertheless, there was -- not displayed here, but there was a decrease in the premiums, mainly the Midwest premium, where we saw a difference from around $55 per tonne in the last 3 quarters compared to last year.

When we move over to raw materials, we saw a significant price increase at the alumina price. And when you look at the graph that we provided, you can see that it was quite stable over the last, let's say, 1.5 years. And starting mid of, let's say, more or less May 2024, there was a huge increase in the alumina price and that will significantly affect not only the quarters that just arrived, but also the quarters beyond as the aluminum that we buy now at high prices will affect the P&L in the next month.

We had reflecting what Helmut talked before about shipments and the market, solid revenue in the first 3 quarters 2024. And what we see is that there is a decrease compared to last year, which mainly results to the Rolling business. And there, I think it's 2 things I want to point out. One is price and premiums that declined compared to last year. And on the other hand, for sure, it's as we heard before, lower volumes shipped and therefore, lower revenues.

When we move on to AMAG Group. EBITDA for the first 3 quarters 2024, we have a decline of around 11% compared to last year. And this is mainly affected by -- negatively affected by prices and premiums and valuation effects. On the other hand, we saw a positive effect out of raw material and energy, not only in Canada, but also in Austria.

When we talk about changes in EBITDA per division, at the Metal division, we saw a very good performance at the smelter, as mentioned before, but an impact on the earnings due to the higher alumina prices. On the Casting division, there were solid shipments and the EBITDA was affected by lower prices, but also higher structural costs that made a negative deviation here. And on the Rolling division, as mentioned before, we had a decline in sales in packaging, a product mix shift and valuation effects compared to last year and this sums up to EUR 29 million negative deviation compared to last year.

But overall, especially when we just look at the third quarter, which you can find on the next page, we saw -- we had a very solid result this quarter, also affected by aluminium prices and affected by the volume and the mix compared to last year's third quarter. We saw particular increases in the area of the Metal divisions and the Rolling divisions in this quarter.

On the net income after taxes, there is nothing particular to mention as the -- it's affected by lower EBITDA and out of that lower income taxes and that's why we have a decrease there and no specific other input.

You now find from this Page 17, a summary of all the key figures we mentioned before. And I want to move on to Page 18, where we show you as every quarter, a overview of our ESG key figures. And you see the key figures of 2024 compared to 2023 are stable, are constantly on a high level.

And also compared to the first 2 quarters, we're still on the same good path as we have been there. Perhaps I want to point out our scrap utilization rate, which was at the end of June at 76.9%. This is always influenced by our product mix, but more -- nevertheless, it's more or less stable compared to the year before and the quarter now. So we are here on our very good rate to have a high scrap utilization in our products.

When we look at our group cash flow for the first 3 quarters 2024, we see a high cash flow from earnings, which has, for sure, a positive effect and a negative effect out of working capital development with around minus EUR 23 million. So in total, we ended up end of this quarter with a operating cash flow of around EUR 109 million. Adding the investment cash flow, which is below previous year's level, this was budgeted and planned to be below that level. So we end up with the free cash flow for the first 3 quarters of EUR 40 million compared to last year EUR 82 million.

Now I want to move on to the key figures regarding the balance sheet. And when you have a look at the net financial debt and the EBITDA in million compared to the net debt, you see that we are on a stable path there as well compared to last quarter or the last year. And when we move on to our liquidity and equity, one thing that I want to point out is that we have -- you see it's quite obvious at the cash and cash equivalents, we have a large increase there.

And this is mainly we made a refinancing of our future debt payments we have to make mainly in 2025. And this sums up was a refinancing of EUR 160 million, which is now reflected in our balance sheet as the cash is on the cash side and also you see the liability on the liability side. And therefore, the equity ratio went down a little bit despite the equity in -- at the end of this quarter was higher than the end of last quarter.

We added in our slides the details per division, but I informed you about all of these details beforehand. So I will skip these slides now for the moment and will hand over to Helmut to give another information about our outlook of 2024.

[Helmut Kaufmann, executive]

Yes. I will continue with Slide #26. As already mentioned, the general market condition and the PMI globally are also positive, but it's still different between especially North America and Europe. So GDP growth of about 2.5% is forecasted for the U.S. while the growth in the Eurozone is below 1% and stagnation, even recession in Germany and Austria is possible.

Fortunately, AMAG's wide product range and diversified markets globally again help us. This is one real important pillar of our strategy and this has had stabilizing effect headed in the future and we are convinced that this will help us also now.

In the Metal division, the alumina price, and Claudia mentioned the steep increase in alumina prices over the past couple of months will have an increasing impact now and even in the next year, 2025 in the beginning. And changes in the alumina price and valuation effects, I mentioned this at the beginning, may also have a noticeable impact on the further development of our earnings.

In the Casting division, which delivers around 95% of the volume into the automotive industry or automotive tiers has a very challenging environment and therefore, price levels are under pressure. So the aim is still to match the good level of the previous year.

And in the Rolling division, again, it is a little bit different to last year because of change in product mix. I mentioned that the non-heat treatable packaging material has to be replaced by heat-treated materials. So we are really trying to go towards more specialty products and grow in this area. This will then hopefully help us to cover the pessimistic outlook of the global market.

In general, I repeat myself now that we confirm the EBITDA range of EUR 160 million to EUR 180 million and again, with the upper limit possible only with valuation effects. And we will see how this will turn out. There, we have no influence.

So thank you very much for listening to our presentation. And I think that we are now prepared for questions.

[Operator]

[Operator Instructions] And we have the first question coming from the line of Marschallinger Michael from Erste Group.

[Michael Marschallinger, analyst]

I have 3 and would do them one by one. First one on your end markets and especially automotive. We are all hearing quite negative news out of the sector, especially Germany. And you also said you're seeing that increasingly in your order intake. Could you give us some more color here what you're seeing currently the last few weeks? And what are your expectations for the rest of the quarter?

[Helmut Kaufmann, executive]

Well, I mean, first of all, I would like to say that our positioning is generally quite positive because we do not only supply the European or especially the German market or the German OEMs, but we also deliver from Austria globally. This means to the United States customers and also to Asian customers. So this helps us because not all brands are in difficult situation at the same time generally. We think that we had a quite positive automotive year so far and this was because of our wide range of different customers.

But generally speaking and this we hear every day now in the news, because of the negative development of the electric vehicles market, of course, also AMAG is somehow influenced because we are delivering to both the combustion engine cars as well as to electric vehicle cars. And while the combustion engine sector is still doing quite well, we see a downturn or even a strong downturn and quite some uncertainties also at our customers. So it's difficult for them to forecast what will really happen.

[Michael Marschallinger, analyst]

So this means you don't see it in the order book yet, but you expect that it's getting weaker in the fourth quarter?

[Helmut Kaufmann, executive]

We think that something in this direction will happen maybe in the fourth quarter or at the beginning of next year.

[Michael Marschallinger, analyst]

Okay. Understood. And secondly on your really strong volume mix EBITDA effect. I wanted to ask you what you expect now last quarter? Do you believe that this rebound in industrial applications will continue also going forward?

[Helmut Kaufmann, executive]

I'm not exactly sure if I understood correctly. But when you mentioned the industrial sector and the growth in the industrial sector compared to last year, unfortunately, we have to say that especially the negative development in the German market and I think Austria, Austrian suppliers or Europe depends on the development of the German market. And there, as we mentioned, we see stagnation and this is strongly reflected in the industrial applications area [ handle ] as we call it in German. So there, we do, honestly speaking, not see a positive development in the upcoming quarter.

[Michael Marschallinger, analyst]

Okay. And lastly on the outlook, after 9 months, you have EUR 148 million EBITDA and the lower range would imply only EUR 12 million in fourth quarter. This is, I think, a bit unrealistic what negative impact would you see after your comments, they were quite positive. Of course, you will see some pressure from the alumina side. Is there anything else that you would see? And could give us more color on this valuation effect? How big of an impact would you expect here?

[Helmut Kaufmann, executive]

First of all, before I -- Claudia will answer in more detail. I have to repeat that when we talk about the alumina price, we need 2 tonnes of alumina to produce 1 tonne of aluminium. So a steep increase in alumina price has a double effect basically because we need 2 tonnes of this for 1 tonne of aluminium. So this increase in alumina price has a significant impact. Claudia, maybe you can...

[Claudia Trampitsch, executive]

Yes. So first of all, you asked about the valuation effects in the last quarter. And I will start with that, perhaps that will then explain why we -- how we see the outlook for the following quarter. So we were impacted this quarter by positive effects out of valuation, which means we have 2 parts.

One is in the Metal division where we have valuations out of derivatives, out of hedging, out of inventory valuation, which are all related to the not just the development of the aluminium price, but also the value it has on the date, let's say, this on the 30th of September. So there, we have valuation which we cannot forecast, that nobody can forecast what will be the exact valuation on the 31st of December. And that is one of the risks we have in our forecast where we say we had a very strong valuation impact on the third quarter and this could be reversed in the last quarter that's very much driven by aluminium price at the 31st of December.

The second thing that always influences our valuation effects is in the -- mainly in the Rolling department where we have to build reserves when we have negative full cost contracts. And this is something that happens in the third or in the fourth quarter, and we have to take these reserves -- have to build these provisions. And this is something that can also affect the fourth quarter again.

So therefore, yes, I understand your question when you say we have already EUR 147 million, and that's not -- when you divide everything, why should we just do EUR 13 million in 3 years? But I think that's the main reason why we want to point it out that we don't see that it's just going on forward like it was and that you can make a linear calculation to the end of the year because we see a lot of risks into these figures reflected and this is what we wanted to point out.

[Operator]

[Operator Instructions] The next question comes from the line of Markus Remis from RBI.

[Markus Remis, analyst]

Congrats to the figures. I would have 2 questions. Firstly, relating to the upstream business. I mean, when I look at the aluminium price in relation to the alumina price, to me, it seems there is some catch-up potential. I mean, how would you interpret the price cost spread situation at the moment? Do you think that markets are telling us that the supply issues on the alumina side are just temporary and nothing structural? So there's just a temporary margin squeeze? Or is there any other interpretation that you consider as viable?

And then secondly, on Rolling, I mean, stripping out this risk provisions or reason for impending losses, whatever it is, I mean, earnings generation was extremely strong, also when I look at EBITDA per tonne. Is that purely the effect of aerospace and industrial applications or anything else?

[Claudia Trampitsch, executive]

So I'll start with the alumina price. When we compare not with last year, but the development in this year that it was that, let's say, in May -- April, May this year, there were some disruptions in Australia regarding to gas supply for refineries or pending problems regarding bauxite mining in Australia. And -- but what happened now, which led the price skyrocket in the recent months is mainly a problem at the bauxite supply.

So what we have seen and that is something quite -- as I talked to many players and it's a quite unusual situation, even when you look historically, that we have disruptions in the bauxite supply, mainly the bauxite going out of China -- sorry, of EMEA into the Middle East are hold back at the ports there for various reasons that are not yet disclosed, I think, but the interpretation is that there is put some pressure for getting some investments done and so on. So I think what the market see at the moment is that it's not a structural problem as you see, but I would say it's something that could be solved in the next months.

But when we look what is the effect on AMAG figures, I must say the high prices now will affect the fourth quarter 2024 and even the first quarter 2025 as we have, let's say, inventory stock of 2 to 3 months, some ships on the water. So that will continuously affect our P&L. And I think I forgot the second question.

[Helmut Kaufmann, executive]

Second question, I think, was about the influence of the mix on the average EBITDA per tonne, if I understood this correctly.

[Markus Remis, analyst]

Exactly. Is it just industrial rebound, industrial applications rebound?

[Helmut Kaufmann, executive]

Yes, you see that there is an exchange of, let me say, non-heat-treated packaging material versus heat-treated other materials, especially an increase in aerospace and general transportation, not automotive, but also in sports applications and heat-treated industrial applications and this had a positive effect. And of course, we looked at cost.

[Markus Remis, analyst]

Okay. And is this high margin levels sustainable? I mean, automotive is weakening, which I think is detrimental to the mix. Is it going to, I don't know, come down again in -- not only for seasonal reasons, but -- on an underlying basis?

[Helmut Kaufmann, executive]

As you indicated, especially the high-strength materials in aerospace industry and sports industry, there have an impact. And for the future, especially also for 2025, this strongly depends on the ramp-up of the -- especially of Airbus. If they continue their ramp-up and aircraft materials are required at a higher volume, then this will be fine.

But as we unfortunately experienced, even aerospace industry now is volatile, not because of their order backlog, but because of their weak supply chain and they keep complaining that they could build more planes if they had all the parts for the planes. And but aluminium supply or sheet and plate supply to this industry is not a limiting factor. So it depends on some other areas whether this can -- whether they can grow in building aircraft and we can supply more sheet and plate material to them.

[Operator]

[Operator Instructions] There are no more questions at this time. I would now like to turn the conference back over to Christoph Gabriel for any closing remarks.

[Christoph Gabriel, executive]

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

[Helmut Kaufmann, executive]

Thank you very much. Bye-bye.

[Claudia Trampitsch, executive]

Thank you. Goodbye.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may disconnect your lines now. Goodbye.