Acerinox, S.A. (ACX) Earnings Call Transcript & Summary

Good morning. Good morning, ladies and gentlemen. Welcome to this presentation for the fourth quarter and full year results of Acerinox. My name is Carlos Lora-Tamayo, and I am the Head of Investor Relations at Acerinox. Today, will lead the presentation, our Chairman, Rafael Miranda; our CEO, Bernardo Velázquez; and our CFO, Miguel Ferrandis. After the presentation and the Q&A session for all of you who are here in the room, we will invite you for a Spanish wine. Before getting started, please let me remember that this presentation is being broadcast on our website acerinox.com. And without any further ado, I will give the room to our Chairman. Please, Rafael, go ahead.

Thank you, Carlos. Good morning, everybody. Welcome to the publication of results of Acerinox Group once more. As you may have seen in our decoration today, this year, 2020, we are celebrating the 50th anniversary of Acerinox Group. Turning 50 is a good moment, not only to take a stock of the trajectory to date, but also to lay the foundation of -- for at least, 50 more years. In this sense, in 2019, we announced the diversification towards the sector of specialty alloys with the purchase of VDM Group, a world leader in this high-value sector, which will contribute to the group's EBITDA as from this year, 2020. You have probably read that we have obtained the green light from the European Union as well as from the U.S. trade commissions. Once we've finalized pending matters, we may close the transaction in the coming weeks. In addition to this strategy of diversification, we are working in maintaining North America Stainless steel NAS leadership and efficiency in the American market. As you know, our first and most profitable market. We are also looking for new levels of efficiency and profitability in all factories of the group, particularly in Acerinox Europe and Columbus. And in this process, we have done at the closing of 2019, an important housekeeping exercise for cleaning up the balance sheet. This housekeeping exercise has been resolved with significant adjustments and impairments, which do not affect group cash or debt and are a one-off. These adjustments have totalized an amount of EUR 204 million at profit before taxes and totalized EUR 236 million net profit. These adjustments minorate the strong results activity in a weak environment with a continuous increase of profits quarter-on-quarter. And as the CEO and the Finance -- our CFO, will present to you. In today's session, we shall analyze in detail all these figures as well as the main highlights and outlook for coming quarter. We shall also share with you all our basis for driving Acerinox Group in this new era. We focus on the strategy, excellence, value-add and sustainability and all based in our strong balance sheet. Going down to the 2019 final figures. Net sales for the year amount to EUR 4,754 million, which means a 5% reduction compared with the previous year. After all the big adjustments and impairments, the final figures for the year show EBITDA of EUR 364 million, a profit before tax of EUR 23 million and a net loss of EUR 60 million. We must emphasize the strong cash generation in 2019 with EUR 231 million of free cash flow and the net debt reduction of EUR 57 million, obtaining a net debt figure of EUR 495 million, the lowest since 2002. In addition, the Board of Directors will commit to the shareholders' meeting, consolidate the previous increased dividend of EUR 0.50 per share as we did last year. And now I give the floor to the CEO, Mr. Bernardo Velázquez, who will develop all this presentation.

Thank you, Rafael, and good morning, everybody. Now that many people have doubts about the globalization or the importance of Europe, we are becoming more international, more global than ever, and more European than ever with the VDM acquisition. So there was a strong petition from all our followers and we are switching to English. We will present in English for the first time, we will try to do our best. First of all, let's start with accidents. And we are very proud to say that we have 0 fatalities in 2019 and an overall reduction of 15.9% (sic) [ 17.5% ] in our incident rate. This is not a casualty. We have been working very hard with training programs and focusing on safety because we want our factories and want our working centers a safe place to work. So we have been reducing absenteeism. We have reduced accidents. We are -- we have a system to address very quickly all the issues that are happening, we can share all the information, and we are incorporating that what is important, we are incorporating our safety results in the incentive compensations in the management team. So only one target is 0 accidents. As the Chairman mentioned, we have to be proud of our results in improving our results quarter-on-quarter despite the seasonal slowdown. During Q4, we had the traditional seasonal slowdown, we had the reduction of raw materials prices, around 20% in nickel price. We had a -- we suffered an intensification of the macro uncertainties and that have been affecting our business and especially in Europe and in the United States. In Europe, we still have a high import penetration. We had a high import penetration. At the end of the year was at the level of 28%, more or less the same than in 2018, despite the safe work measures, the financial measures. We suffered a weak apparent demand, is minus 6% in a year-on-year basis. And very low prices, very low base prices are historically minimum. So the scenario in Europe was extremely competitive. In the United States, was slightly different, of course, we had also a weak demand that from January to December, was minus 9%, but with the imports under control at low levels at 13% in the year. We were able to keep our prices to keep the best prices and have very positive results. And in Asia, of course, the ongoing oversupply is generating a tremendous price war and the prices remain extremely weak. And how did Acerinox perform under this scenario? I think it's important to say that all the companies, except Bahru improved EBITDA in quarter-on-quarter basis. How could we do that? It's, of course, keeping control on prices and market in the United States, a market leader that we are and keeping control of the cost of production in the rest of the units. What is very important and showing the flexibility that we have to be able to increase our production or reduce to go fast or to go to like the cash in the export mode or the economy mode. We had to reduce our melting production in order to control our stocks. That was minus 10% in melting and minus 5% in melting in the year basis. Our EBITDA in the quarter was 9% up compared to Q3 and 94% up compared to fourth quarter 2018 with a downward inventory adjustment of EUR 20 million. Working capital decreased in quarter basis, and we have to be proud of our strong cash generation and our debt reduction by EUR 88 million. So this is a clear demonstration of how to run and control the business under difficulties and under a very tough and challenging scenario. And in this challenging scenario, we have been able to improve our results, to control our working capital. And to have a -- release a strong cash generation and reduce our debt, which is the main messages of -- main summary of this year. In this term's results, it's important to see the improvement in quarterly basis. Every quarter has been better than the previous one to totalize an adjusted EBITDA of EUR 402 million, as the Chairman said. We are proud to reach a level of EUR 495 million debt -- net debt, that is the lowest. And this is after paying a higher dividend and after increasing our dividend from EUR 0.45 to EUR 0.50, and after the buyback -- the share buyback that we did during the year. And in this prudent scenario, and it's challenging [ an area ], I think that our traditional prudency, it drove us to make all these adjustments, important to insist that is one-offs and it's noncash adjustments. And this is the cleanup of our balance sheet for the things to come, for the strategies to come. I think it's important in this year that we are celebrating our 50th anniversary that we are starting with a new business that is specialty alloys, we are acquiring VDM. We are very close to acquire VDM. We have been notified yesterday that the European Commission has approved this operation. We are only missing Taiwan, is the only authorization that we are missing, and it's coming very soon. So it's good to start with this new period with the clean house. And now Miguel will give you full details of all these numbers.

Well, entering now in the details of the figures for 2019. First of all, as you know, and is tradition in our company, the financial statements are available in the web page, the financial statements for this year already audited. There are a lot of technical details in -- consequently available. We shall concentrate today just in the simple topics. Any case, I strongly recommend for you to follow the financial statements for all the specifications and explanation on what has been already incurred. Our accounting and consolidation teams makes an incredible effort in order to reach this time of the year with our financial statements, not only formulated but also audited as has been by PricewaterhouseCoopers. So then, consequently, most of the details that maybe you cannot find in this simple presentation shall be available over there. Prior to enter, we have tried more or less to explain in the most simple way all the adjustments, all the impairments that have been done at the closing of the year, and we want you to give some guidelines of how to understand these adjustments and how to place them in each of the lines of our P&L. So consequently, the first column appearing in the slides reflect what has been the normalized results and the normalized profitability of the year. The main figures have been already achieved. As you know, we have reached an EBITDA of EUR 402 million as normalized EBITDA, this has been done after making inventory adjustments of EUR 20 million at the end of the year, as it's also our tradition, putting our inventories at a net realization value. So after that, we have obtained an EBITDA of EUR 402 million, this means a margin of 8.5%. For those of you who follow the stainless industry and follow other stainless players, which are listed, you may understand quickly, that this has the best margin achieved by the stainless industry in this year. So consequently, we are once more proud of our efficiency in this regard. So with this EUR 402 million EBITDA, at the end, a normalized result before taxes of EUR 227 million and with a tax rate of 25.2%, at the end, we reached a net result for the year of EUR 176 million. After these normalized results of the year, at the end, what you probably know, most than anything, what we are is North Americans, 50% of our sales is America. And as you know, we have our most efficient plant in the best-performing market, which is the States. So consequently, you know that much of our profitability comes from the States. As the Chairman has stated, we are concentrating our efforts on keeping this leadership of efficiency in North American Stainless. But also, we are making detailed exercises of housekeeping and especially in this year, which has been a successful year for the company in view of the circumstance to obtaining these profits. But we have made a very, very detailed exercise of housekeeping in order to make as clean a balance sheet as possible. At the end, due to the absolute depressed prices in Europe and in Asia, mostly, we have made extremely conservative projections for the coming years. We have been extremely conservative in our projections, but consequently, extremely aggressive in our adjustments for keeping the company as clean and safe as possible for the next future. As a consequence of this housekeeping, we have made substantial adjustments in Acerinox Europa, in Spain and Europe, in Columbus, South Africa and also in Bahru Stainless for Malaysia. So we are detailing now, which are these adjustments that we have been doing in these 3 areas. First of all, you may find the layoff in Acerinox Europa, this has been announced in December. It has been a program for reduced 215 positions in our plant. You know that we -- in terms of workforce, we are 30% or 40% below the workers of our peers. Any case, still, we need to find further levels on efficiency. As a consequence of this, we entered in this program. This has had an economical impact of EUR 38 million, which has been registered in 2019. The payback for this adjustment of EUR 38 million is achieved in 3.5 years. So this has been already registered in 2019. The cash out of this measure is practically not taking -- has not been taking place, part of it, has been already taking place but in the year 2020 in January. So this is a -- has had a cash effect in January 2020 of EUR 26 million. We understand [ or it's not ] needed probably to consider further cash out of these measures. Any case, still, we have a provision for in the case of the -- according to the Spanish Regulation, the IRS in Spain should recall part of this amount, which has been already provisioned. So the fact in cash out already has been done in January 2020 and has been EUR 26 million. So you can find in the line of personnel expenses and adjustments of EUR 38 million, which at the end raise a correction in adjustment of EUR 38 million. So this means that the EBITDA -- official EBITDA reported has been EUR 364 million coming from the adjusted one of EUR 402 million. This layoff in Spain of EUR 38 million, at the end, you can realize that affects definitely all the other main lines of our P&L, and reaching an adjustment in the result before taxes of EUR 38 million. And after the tax effect, the minoration for the net effect of the group has been EUR 29 million. We have also made impairment of tax credits in Spain. This has been, again, as a consequence of the very, very conservative estimations for the next year. And also as a consequence of the limitations that exist in the Spanish law, in which we can only use a certain amount of the tax credit in every year corresponding to the 25% of taxable income for the following coming years. And then as a consequence, of the EUR 125 million of tax credits that we have actually available, we have considered in a very prudent basis, what can surely be able probably to use and compensate in the coming 10 years. But as a consequence of that, we prefer to make an impairment of EUR 61 million. This is an adjustment that can be reversed anytime just with the change of the projection and estimations or an improvement of the market conditions or clarifying of the uncertainties, we shall be able to revert these adjustments in the coming years. So this has been the second effect, which, as I said previously, as the first one, affects mostly to our Spanish business. There are also 2 additional adjustments, one refers to South Africa in Columbus. As you know, and we explained it recurrently, South Africa is a net exporter to Europe and to Asia, markets with prices absolutely depressed. And also the decline in the apparent consumption in Europe, mostly as the increase of the imports in the European market has affected the profitability and the margins of our South African business. We have made a detailed analysis and assessment for the impairment on Columbus. It's not needed to make any impairment of the assets in Columbus, but we have preferred on a prudent basis to make an impairment of the goodwill that was generated in the acquisition of Columbus. So this is EUR 68 million. It does not affect EBITDA. It's below EBITDA level, as you can see, it minorates our EBIT figures, as minorates our figure of result before taxes. The net effect after taxes of these adjustments is EUR 51 million and is also affecting the net figures for the group in the last year. And then depending adjustment to detail is the one we are doing in Bahru Stainless in Malaysia. While making this year, this impairment in assets in Bahru Stainless, as you know, and you are following in the last years, the situation of prices in Asia is extremely, extremely depressed. We are talking about $900 less or $400, $500 less than the equivalents prices in America and in Europe, respectively. But it's where more relevant is that with steel the excess of capacity mostly coming from China, and also from Indonesia in the last years, it's a lot of material available in the market. As far as it's not so easy to place that material in other parts of the world because of the trade barriers, the assumptions that we have is that the prices should remain very, very depressed in the area. So consequently, with the support of our external consultant, we have made projections, and we have made an impairment on assets, on Bahru Stainless of EUR 98 million. As the same that occurs in Columbus, this has been done below EBITDA level, it affects the EBIT. It affects results before taxes and also the result after taxes of the group. The aggregated amount of all these adjustments, as is precise in the slide, at the end has an effect of EUR 38 million at EBITDA level, reaching the EUR 364 million that we mentioned. At EBIT level, and at the result before taxes, it has been a global total effect of $204 million and the effect, because of the tax credit and the net result attributable to the parent company, has been EUR 236 million. So as I expressed previously, it is a very, very aggressive exercise of housekeeping in a satisfactory results, even though the tougher environment that our CEO has precised previously. If we go to the quarterly evolution of the figures of the year. I want just to -- for you to keep an eye, especially in the upper side of the graph, which allow to understand the efficiency in the group. In this regard, you can see that due to the market conditions, the melting production has been reducing quarter-on-quarter, especially the reduction coming in the fourth quarter of a 10% coming from the third one. But even though, a reduction in the melting production according to the market weakness that has been experienced mostly in the second half, and especially in Europe. Even though the declining of the melting production, the efficiency and the continuous efficiency results of the excellence plan we have been involved in the last years allows us to help maintain a growing EBITDA. And you can check that quarter-on-quarter, the EBITDA has been increasing 7% to 10% quarter-to-quarter, establishing a EUR 90 million, EUR 97 million, EUR 103 million and EUR 112 million as the adjusted EBITDA. So at the end, we have been able, with a reduction in production to keep an improvement in profitability on a quarter-on-quarter basis. This is as a consequence of all the works in increasing efficiency we are running in the group for the last decade, as you know. So this for us is a matter of proud. As it's also a matter of proud the constant involvement in developed cash for the company and the free cash flow. You can see also, which has been the evolution of the free cash flow for the year 2019, especially the concentration on cash flow generation in the second semester, which amounts to EUR 192 million. A big contribution to this cash flow generation is also the extreme concentration in working capital. The working capital -- the cash obtained through working capital has been also gradually increasing, EUR 4 million first quarter, EUR 8 million second quarter, but EUR 40 million in the third and EUR 44 million generated by reducing working capital in the fourth quarter. So with this, we achieved this EUR 192 million of cash generation in the second half of the year. And at the end, the consequence of this strong cash generation is the reduction in our net financial debt, which we have been also reducing quarter-on-quarter since the second one, and even should have been better. But at the end, it has been distributed during the year, the retribution to the shareholder in the first quarter. The buyback program had an impact of EUR 49 million. This more or less helps to understand the increase in net debt for the first quarter. In the second quarter was EUR 81 million and because of that was also this peak in the debt. In the third quarter, where it has been EUR 54 million. In the fourth quarter has been no additional retribution. Everything was done in the first 3 quarters and also the net financial debt with all these cash generation and the reduction of working capital move us to this final level of EUR 495 million. If we put this in connection, not on a quarterly basis, but coming from the previous years, the evolution in the last 4 years, more or less, we realize in terms of melting production, as has been previously stated, at the end, we are well below optimal levels. We must understand that in this business, certain levels of capacity utilizations are relevant for keeping our competitive production. But in any case, even though with this work below what should be the optimal levels, especially in the South Africa and in the Spanish plant, we are able to achieve these group results. In terms of the EBITDA, we think we are very, very consistently reducing the volatility of our business. We have 3 consecutive years performing and obtaining EBITDA above the levels of EUR 400 million, which is something that also demonstrate the strength of the group. We are also consistent on free cash flow generation, this is not one topic to talk once in a decade or once in every 3 or 4 years. We are consistently generating free cash flow year after year, and at the end, you can see in the last -- this year, we achieved EUR 231 million, but it appeared is the fifth consecutive year in a row with a strong free cash flow generation. And in our net financial debt, as appeared in the slide before, we finished the year after a consecutive reduction in -- also for the coming years, 10% on an annual basis in the last ones. And we achieved the lowest level of debt since 2002. As you may remember, the structure of the group now is substantially different and bigger than the one that took place in the year 2002. So also, this is also for us, a strong fact to be proud about. It would concentrate in there, as we have been talking about in the cash generation. For us, cash generation is not only the EBITDA, we are able to obtain on a yearly basis, the final figure -- official figure of EUR 364 million. The strong working capital reduction allows us to have additional cash generation of EUR 96 million. Which are the users for our cash flow. It clearly appears in the chart. We go to the last one, from this cash flow generated, the first usage has been the retribution to shareholders. So the bigger usage in the year 2019 has been the EUR 184 million distributed to the shareholders in the 2 ways: the dividend, which was increased 11% last year; and also the buyback program. The second usage of our cash flow is CapEx, and you know that this CapEx are not, in our case, something to be decided in good market times. So we have a long strategic program. We are keeping consistent and keeping the necessary CapEx, not only to increase efficiency but also to invest in sustainability, environmental, safety. And obviously, in improving the levels of the group. So consequently, the second big usage is the investments. And the third big usage is mostly the taxes. So at the end, part of being sustainable is also been in terms of tax contribution. And in the end, most of these others -- taxes and others are related to the tax that we have been paying in the year 2019. At the end, when we reach to the level of our net debt figure for the year, I'll repeat again, the relevance of the net reduction that we have been achieving in the years, it's a high-quality debt, not only because of the pool of banks that finance our group. We have a high-quality pool of consistent banks supporting our business. They're a nice friend for this long type of journey. And at the end, we must recognize that all of this net debt, all of the net financial of the group's is term debt, 92% of it actually is at fixed rate, which is a strong fact. Figures in this business, having a net debt-to-EBITDA figures of 1.2 is also something to be probably proud about, it's an extremely nice ratio. This year, the net debt of the group after the acquisition of VDM may increase. But even though in this big expansion, we think that we shall remain in the levels of 2, which are -- for our business is extremely comfortable level. And once again, I want to express one issue. We are -- the player is in -- we are not the players in this industry, reporting a lower debt, but what's clear and demonstrates the high-quality of our debt is that we are the ones with less finance charges. And in addition to this, this year, we have had an income on the managing of our net debt and our financial charges. So in this regard, our treasury team is able to make magic once again. And this year, even we have been able to reach an income of EUR 400,000. As a consequence, not only of the very competitive debt we have in place with the interest rates we negotiate. But also with a very, very active positions and handling of all our FX exposure. So in this regard, this is another fact, I insist to be proud about.

So let me summarize the main messages that I think is we had a strong year results and a strong cash generation in a very challenging environment. Under this environment, we had the -- in Q-on-Q improvement. And at the end, we have some adjustments, but I have to insist these are one-off adjustments and noncash adjustments. Now let's see what we expect for this challenging environment in Q1, because until now, everything remains the same. We have started a -- we have started the year with the same uncertainty, the same lack of visibility. But as we predicted, taking advantage of the different opportunities that we find in the different markets. In United States, the fundamentals of the market remain strong. As we predicted, stocks are now normalized, even a little bit below the historical levels. Consumption remains stable, imports remain low, and the other entry is getting better. Putting all these circumstances together, we decided last week to increase our prices in the United States. That will not affect to the whole business because it's only in our export basis and it will affect more or less 30% to our sales, but it's important to us to find the right level of prices for the -- and a strong market as the American one, our competitors, as far as I know, are following this initiative. And the idea is to keep the level of prices at the right level and be able at the end of the quarter -- of the second quarter to extend it to the rest of the niches of our market. I think the situation in the United States is good, it's healthy, but we always have to take care about the gap in prices between the different markets and now United States is -- with this improvement is [ in limit ]. In Europe, the market is still to awaken. Europe still has a lot of doubt. So our customers still do not have any visibility, do not have a clear picture of the year. And in this scenario, with apparent consumption going down, the safe work measures are not working properly. Imports remain high, stock levels are still high. We think that they're -- have been normalized now. And we expect it to be in normal levels at the end of first quarter, but still are high. So prices are still keeping at a very low historical levels. But we must say, under this scenario, with all these doubts, with all these uncertainties, our order book is improving. Our loans are coming. Our order book is improving and we will improve the production figures. In Asia, everything is the same. There's activity in different areas, that will depend on, of course, in the impact of the coronavirus, China has totally collapsed now. It's difficult to make an analysis of the situation. And more than ever, as is living in a very uncertain period with -- still with high stocks with high overcapacity and the lowest level of prices that we have seen in our history. So what can we expect under this scenario? We are doing our best. We are doing our homework, and we think that we'll have broadly similar results that -- Q4 2019. Happy to have here such a loyal group of analysts following Acerinox because -- and then you can find out what we want to say in the scripted language because you know that is a policy of the company not to give any forecast. But this year is even more difficult than ever because we will ask what EBITDA. Because it's the first time that we will speak about this adjusted EBITDA, of course, we will improve the adjusted EBITDA and the target is to be very close and broadly similar to the adjusted EBITDA. So we'll improve the reported EBITDA, the real one. And we will be close to the adjusted EBITDA, this is our target. And for the rest of the year, it is very, very difficult, there we can say that the stainless steel normally anticipates the economical cycles. This is the second year of 2019, was the second year when extensive consumption was going down in the 2 major western regions in the world, United States went down, apparent consumption in the United States went down in 2018, 2% and, again, 9% in 2019. In Europe it was flat in 2018 and minus 6% in 2019. If it's true that the stainless steel is anticipated in the cycles maybe we have to see the light at the end of the tunnel. And maybe in the second half of the year, we will start seeing more signs of recovery. Now let's speak about strategy. Because this is 50 years of history, is not bad. Still we have people in the company that they joined Acerinox in the very beginning with 20 years of history. But even for them, we're a steel agent company. We are a steel agent company with a lot of ideas with more enthusiastic than ever with more projects, willing to start working with VDM, willing to integrate VDM in our group, mainstream projects and very well-defined, clear and solid strategy, in which we are not going to forget what is Acerinox. We are going to stick to our traditional competitiveness in the commodity business, but we are adding added value and we'll move in another direction. I think we are very happy to face this new area with a lot of optimism. And we have created this kind of symbol that is not a logo, it's not a sticker. No but it is -- our Investor Relations team has been very creative to show what is our strategy in a very clear picture, in a very visual way. Not because the strategy is clear, we have a very solid, a very clear strategy of value creation. Value creation is the only strategy that we have. How can we face this value creation strategy. First of all, because we have a strong base, that is our strong balance sheet. So we can do what we're doing. We can keep on investing, we can remunerate our shareholders, we can acquire VDM, but we can think in different business because we have a very solid base. We have a strong balance sheet. That is the best of our business. It is not the strategy itself, it is not the target, but we must give this strong balance sheet to face the difficulties, the lack of visibility of the market and the different opportunities that we are funding. And then what are the levers that we are using to create value? In one hand, we have a commodity business, and we will be commodity forever. This is our business, we cannot change our factories to produce different products. So we have to focus on excellence. We have to insist on excellence, that this is the key of our success. And excellence is -- excellence in everything. So I mentioned there is excellence in safety, there is excellence in productivity, in efficiency, in research and development that is also important. We are insisting and we are very active in this area. So we have to be excellent in our commodity business to support the rest of the group. But we are now moving to added value products. And this means new activities, new products and also differentiated products. We are making our company different to the others entering in projects, entering high special alloys, entering in high added-value products, that would be VDM products, but also Acerinox products. We'll find complementary businesses with the 2 companies to improve and create value to our shareholders. And on top of this, because this is not another area of our business, is not another business line, on top of this sustainability. Because we have to be sustainable. So as I will explain later. And with this board, with everything together, we will insist and we'll focus in a clear strategy that is just creating value.

The base, obviously, for this strategy has been appearing is the balance sheet and keep the intense balance sheet focus as we have been demonstrating, the basis now for us, clearly is cash is king. And then this is a consequence of several issues. Obviously, the working capital control we have been talking about, keeping low level of debt as possible. And the financial expenses as competitive as possible for providing proper and strong return to the shareholders. And keeping an special eye also on capital allocation as efficient as possible, which means this efficient capital allocation, but basically concentrating in the main facts for our business. One is keeping the necessary level of CapEx for maintaining our main assets are the state of the art. In this regard, what we need to clarify, as I said before, CapEx are not decision of a high profitable year it's not a good decision. It's part of a long-term oriented and a strategic plan. And maintaining the necessary CapEx needed for keeping productivity, keeping efficiency, but especially also taking care of environment and keeping safety of our workforce. So CapEx must be efficient but concentrating, obviously, in these issues for maintaining the competitiveness of the group. The return of the shareholder, as it appears in the coming page, is also one of our priorities. We have been consistently keeping dividends in any part of the cycle during our history and keeping dividends -- we try to have found that the best way. So for years, we work through the scrip dividend because still in the 2016, it appears a low figure because at that time, most of our shareholders prefer rather to obtain new shares than pure cash. But it's clear that when we have normalized to a cash dividend, we have been also growing. And as I said before, in the year 2019, the growth for retribution to shareholders from the previous EUR 128 million was up 44% to reach this EUR 184 million. So it's a very, very consistent policy of retribution to our shareholders. And at the end, obviously, keeping always in mind to be the most low and competitive finance debt that needed. So with all this efficient capital allocation we are definitely in position and able as we have demonstrated, that when appears nice opportunities, as has been the case of the acquisition in this year, for example, of VDM Metals have the necessary strength to enter in this new strategic step for the group.

And the first lever for value creation is excellence, and we are constantly improving, constantly improving our efficiency, our productivity, our [ metallic deals ], and everything in our operations and sales. First of all, using digitalization and using our 360 plan -- planning to improve our business. Now that is reaching a limit that is difficult to pass with the traditional tools. Of course, this is not the only plan. We have a lot of cost-reduction plans, because this is part of our culture. Of course, as Miguel mentioned, we are continuously investing. We are keeping our CapEx high. And we are prioritizing good return on investments for under this volatile scenario. And we are now optimizing, again, our commercial network, it has more than 40 offices and service centers through the world. This is the best thermometer of the economy, of the global economy. We have information and we have the flexibility to move from one market to another when we need it. But we have to use the digital technology as the first and the grade level. But digital transformation doesn't come alone. The sensors or the tools, the intelligence -- the artificial intelligence, they cannot be applied alone. You need a lot of experience, you need a lot of know-how in your company to know where you have put the sensors, how to analyze it, how to improve the business, and we have that in the group. So nobody better than Acerinox would take advantage of this digitalization process. So we have started first year with the new plan with the Excellence 360º. And we bid -- slightly bid the target for 2019. That was EUR 24 million, and we reached 102%, more EUR 25 million, so we're underway to transform our company in a digital business. And remember, as we have -- we've shown this before, we presented it last year, just to remember what are we doing because we are developing the 360º planning, that is a homemade system. It's a platform where we are putting or trying to adapt all the artificial intelligence, all the [ sensory ] and all the improvements of the digital transformation inside our planning system to give advantage to our customers and to be customer-focused. And of course, to improve our efficiency and our productivity. In the left-hand side, you can see the tools that we're using for this because these are tools, this is our platforms are -- that analysis is collaboration tools. It's a research and development essentially, but at the end, what we are doing is improving our quality, it's improving our cost, it's improving our maintenance and reducing the cost in general. So we'll be more efficient with this. Sometimes people ask me what is the -- how to land this information? What is our digitalization plan? What specific projects are we facing? And just to give you some examples, we are -- we have already released Phase 1 of the 360º Planning Program that this is matching the -- matching others optimization and finishing lines and cold rolling mill optimization. This is already in place, and that will help us with the demand planning program that we have installed. And we will be more flexible. We will reduce our delivery time. We will reduce our working capital and we will improve the business in general, focusing on customers. Second, what are we doing in predictive quality, for example, until now, everybody has spoke about a predictive maintenance. But we are now applying this -- the same technology to predictive quality. So we have artificial vision applied to quality control. We are controlling with artificial vision with other techniques last year we had the welding quality. We had welding our colds to have a continuous production. And the quality of this -- the weld is very important for the productivity of the lines. We are a improving reliability, not only quality, but also maintenance, trying to predict and trying to fix the problems because they happen. We are also improving costs, we are decreasing our cost. For example, we are analyzing with a artificial vision, the state of the factory of our melting shops in order to anticipate the problems and reduce the cost of the factory. It's the same for the electors and we are also applying the digitization and artificial intelligence to reduce our energy consumption.

And again, for keeping our strategy of added-value, excellent demonstration has been the acquisition of VDM Metals that was announced, the deal that was announced in early November. And that lately, we are in the final steps for closing the deal. And integrating VDM Metals in the Acerinox Group. Where does VDM Metals add value? First of all, we are talking about a market leader. When we say market leader, is not only because of size, is the first player in the high nickel alloys industry by far. So it's not only a leader in terms of size, but it's also a leader in terms of reputation, in terms of innovation, technology and excellence. So it's -- by more or less, by the [ experts ] in the industry is no doubt, the name #1 in the nickel alloy sector. And in addition to this, it still has a significant growth potential. So it's a leader in all these areas in which parts of our business can VDM Metals add value to Acerinox Group? There are several. So in this regard, it's a complementary product and has similar end users to some of the end users also that we are covering. And they have developed an excellent expertise in terms of tailor-made solutions. So this also can be extremely, extremely useful for Acerinox Group. They have a weatherproof portfolio. And at the end, when we analyze this deal, apart that it's a company that provides value and profitability since their first minute, at the end, we have been extremely conservative in analyzing the synergies. So for those who follow us regularly, you know us, and we are normally very, very accepting when analyzing synergies in terms of processes of M&A. And also, we have been so extremely conservative in this regard. So when we announced the deal, we said that we have found synergies of at least EUR 14 million per annum. This means that we have certainty that this EUR 14 million of savings can be easily taken just in the first year of integration of VDM. In addition, we know that there are a lot of areas in which additional synergies are coming because of that, we express synergies, VDM synergies. But this acquisition, this deal is not a synergy-driven deal. It's a deal that provides value by itself. And in addition, shall become synergies. We have very, very well found the first EUR 14 million that are coming very, very quick. But in addition, we know that shall come more. What is very, very relevant to understand now our processing, which we are for integrated in VDM is what we call that this is a plug and play. This means that this is a very, very well-managed company, which a big rationalization that has been taking place in the last 5 to 6 years. So it's no need to make any type of restructuring. So the work is already done, it's an absolutely clean company, very, very well-driven. So consequently, it's going to be very, very easy to integrate, and this shall not create disruption. So in this sense, we are convinced that it shall be creating value and providing us profits, starting since the [ minute 1 ]. This is also, I think, a demonstration of more or less, our focus on the value-added. And our focus on the value-added also means that we are doing constant review of every asset of the group. So at the end, we are a sustainable company, which we know, which are our targets, we know they're a long-term [ run ], but we are keeping an eye for analyzing constantly every asset of the group in order for keeping them as efficiently as possible for providing value for Acerinox Group. This is also part of our key strategy now.

And finally, I'm going to speak about sustainability. And I must start saying that sustainability is the core of our business model. Now it's a trending topic, everybody's speaking about sustainability. And I must admit that the beginning was difficult for us to understand the word sustainability. We started listening about sustainability with the mining companies. And at the beginning, it was not easy for us to understand it, but believe me, that we are thinking, okay, we're not doing nothing. And we thought that we are doing nothing because we have been doing everything since the beginning. That's why it was difficult for us to understand what sustainability was because we have been sustainable since the beginning. And what now is -- it's very trendy, and everybody is very proud to change to this strategy is something that for us is totally integrated since the beginning, and I will explain you why. It's corporate governance. I mean, we fully understand that Acerinox is not -- we are not the owners. It's not our company. We feel it ours. But we are not the owners, as I remember in an advert, we are not the owners. We are just keeping it and improving it for the next generation. This is how we feel at Acerinox. And what is -- what better than a strong corporate governance to defend the interest and the rights of all the shareholders. So this is what we have, and this is what we are developing and leaded by our Chairman, Rafael Miranda. Acerinox is a safe and healthy place to work. As we spoke before, we have 0 fatalities. We have 0 fatalities in Spain since 1978. I think it's a safe place, and we are continuously training our people to be efficient, to be a part -- also to be excellent, a part of the excellence is safety. We are providing quality jobs, stable and quality jobs, and we are contributing to the local development. And this is easy to understand. We have big factories. The factories are not located in the cities, normally are located in the countryside. If you go there, you invest in a factory. So first of all, you have to develop the community. You have to help the community and support the committee because otherwise, you cannot succeed. So since the beginning, Acerinox in all the areas, and all the locations where we are, we are contributing to the local development. We are developing the economy of the area and also developing the education of the area. I understand that there's no technical schools at the beginning in Algeciras or in Middelburg, in South Africa or in Johor Bahru, in Malaysia. So we are not in the cities. So we need to develop everything. So since the beginning, we are contributing with the local community. We are contributing with education. We are developing and we have a lot of exchange programs with technical schools with universities, but this is what we are doing since the beginning because we need it. This is part of our culture. And, of course, recycling and waste reduction. Okay? What is better to improve our cost than using more scrap. The more we recycle, the more competitive we are. The more we reduce our waste, the more competitive that we are. The less energy that we use, the more competitive that we are. So we are always looking for efficiency and reducing emissions. So this is part of our strategy. Yes, that is part of the way of being. So Acerinox is -- as it is. At the beginning, we have been focused on cost reduction, and cost reduction is to be efficient and be efficient is to be sustainable. So this is the way it is. And there's no other way to do it for us, excellence and sustainability is the same. And we are not part of the circular economy. We are the circular economy. No? Because we are -- the circular economy is to -- is what is defined here. Stainless steel, not everybody knows, but it's 100% recyclable and is recyclable forever. You can melt it again with the same properties, and melt it again and you don't lose any property. You have exactly the same qualities in the beginning is forever, recyclable. And not many people know, that in our production, more than 90% of the raw materials that we use are recycled materials, can be a scrap, can be metals recovered from slack, can be metals recovered from dust. So more than 90% is recycled materials. What is another important topic of sustainability, it's long-lasting products. Long-lasting products, it will last more, and then you have to produce less. So with the resources that we are demanding from the planet are less because this is a long-lasting product. Of course, we are constantly reducing our emissions, as I mentioned, but we are also helping other industries to reduce their emissions. For example, stainless steel is in exhaust systems. Stainless steel is in marine scrubbers, stainless steel is in water treatment plants. So the stainless steel is helping other industries to reduce their emissions. And as to certify our position. Just to mention that Acerinox joined the circular economy pact a couple of years ago. And is committed as we declared with the target of being carbon neutral in 2015. So what can I say? You should buy more stainless steel and you should buy Acerinox, no?

Okay. Thank you very much, Rafael, Bernardo and Miguel for the presentation. Let's start now with the Q&A session.

We will start first taking your questions here from the room, and then we will move to the conference call. So if you have any question here, please. Francisco, please state your name and company before the question, please.

Okay. Francisco Rodríguez from Banco de Sabadell. You've spoken about efficiency -- efficient capital allocation, you've spoken about -- well, [ renewable ] assets of the group, you've spoken about not improving the situation in Asia. So I suppose that one question we should ask is about the options you are considering for your assets in Columbus and Bahru, if there is anything you would like to talk about there? And the other question would be regarding your -- well, I don't know if we could call it guidance you just given for 2020 in the sense that you're feeling that the EBITDA should be near the one you've had this year with the, let's say, [ test it ]. Are you considering any positive impact coming from anti-dumpings from the European authorities in the, I don't know, guidance or whatever you want to call it? Or should we have a positive impact on those numbers if that happens? And what are your feelings about this possibility? And any dates you're expecting?

Miguel, you can answer the first questions, and then I will go to the guidance.

Well, thank you. First of all, the situation is the one we have mentioned, fortunately being well diversified. The end means that when a specific storm is affecting one area, we still have strength in others. So as we have been mentioning, the prices we are experiencing in Europe, the base prices are the minimum level, the imports have reached levels of 30%, and the safe work measures in Europe up to now have not been efficient. Maybe shall be in the future. You mentioned -- as you are mentioning, the European Union is also consider further also anti-dumping actions against the hot imports from China, from Indonesia, from Taiwan. So definitely, this may have its effect. So we prefer to be very conservative on our projections in view of hot dumping circumstances. But we know that -- are several facts that probably should improve the situation. You are mentioning Bahru and Columbus, in this regard, we explained the prices are absolutely depressed in the case of the Asian market. And with the trade values, they shall remain in there. In view of this, as you remember, some years ago, we announced that the further integration expansion of Bahru should keep on standby because it doesn't make sense in this time investing, growing in the area. We are keeping our cold-rolled facilities with extreme high-quality production, but we must assume that the market in this area may remain depressed. And consequently, what we'll have brought these circumstances is to our balance sheet. And because of that, we have made the impairment. So with this impairment, we have done in Bahru Stainless, we feel absolutely comfortable for keeping more or less the situation or the evolution even another price -- depressed price scenario for the next future. So we are definitely confident that this impairment is enough for keeping definitely Bahru running as it is. In the case of Columbus, Columbus is an efficient plant, but trading in South Africa with a domestic market that covers 20% or 25% of its capabilities. So it's depending to exports. The South African economy has been weak in the last year, and the dependence of exporting to the depressed price scenario in Asia and Europe, as we are mentioning, make them. But at the end, they are exposed to a low price. And with this circumstance also, their order book has not been so easily full in the last year. The levels of capacity utilizations have been below 60%, which is not a scenario in which our plan can be definitely efficient and profitable. But even though in these circumstances, when I say that Columbus is efficient, as I said before, we did not need to make impairment on the assets. So we have just resized the impairment of the goodwill that was generated in the acquisition. In this basis, we're confident it didn't make sense keeping that goodwill, and we prefer to make that exercises in this year as has been done. So we have been prudent in the estimations but very aggressive in impairments for it allows us that we are in very, very comfortable position in the coming periods. And we think with this, it's enough. So we are comfortable with it.

And in relation with your question about the options for Columbus and Bahru, I must say that the Board of Directors is always asking the management of the company of look what strategies are the best for deliver the best value for our shareholders, or the best value for the company. In this regard, anything could be considered. We always study the possibility of recycling and look at the portfolio of our assets, but there has not been any decision taken. And in this regard, as the CEO has said and also me and Miguel, we are in Columbus concentrated in improving the efficiency, and I think there is a possibility of doing that, a part on the difficulties of the South African market and of course, in Bahru. But no decision has been taken. But honestly, I think it's our task to study all possibilities in any time, but this is normal in any company.

Francisco, regarding trade measures, there's not much that we can say. There's no -- nothing official. What we know is that the safe work measures didn't work well because the safe work measures are normally a design for a growing market, not for a market that is going down. There are some products like hot band that is close to the limit. I think that China has already covered all the quarter. So there can be some opportunities there. And regarding the anti-dumpings and the subsidy that we presented against China, Indonesia and Taiwan, the only thing that we know is that they have accepted the monitoring of imports, and this is normally the first step for the imposition of preliminary measures. The calendar is that they can take the decision of preliminary measures by April. And in that case, they can apply -- as they have imports monitoring, they can apply since the 1st of January. Normally, European Commission do not like to do this, but they can impose preliminary measures in April, and then the final measures will come normally 3 months later. What I can say is that, of course, our case is very strong, and we think that we will succeed because we have a strong case. And our feeling is that the EU is now more and more open to these trade cases because they understand that we are not complaining without any reason, that we are suffering since many years, the not fair competition from other countries, and they have to do something because we need an industrial Europe. We still -- we have stopped speaking about this, but still the target of the 20% GDP coming from industry, the 20% target for 2020 was something that we haven't fulfilled.

Next question, please, here from the room.

Robert Jackson from Banco Santander. Regarding the improvement in margins during 2019, I guess the majority is coming from NAS. Could you give us an idea of those improvements coming from mix, from cost savings and looking ahead also towards 2020?

Thank you, Robert. I think we are not disclosing this information. Of course, I can say the improvement is coming from cost savings programs, coming from all the plans. Improvement from the pricing side are only coming from NAS. But we are insisting and we are intensifying our efforts in cost savings. But we are not disclosing this part of our account. I can say that we reached the target for 2019 in our Excellence Plan. We reached this EUR 25 million of savings, but I prefer not to disclose it in the plans.

The bright annealing line in 2019, what sort of utilization rates were you using?

Utilization rates, I don't have the numbers here, but NAS hasn't been working at 100% capacity. The American market went down by 6%, and we have reduced our production in NAS more or less by 9% following the market as well. In this case, the capacitilization can be something around 90%, let's say, 90%. In the case of Acerinox -- thank you, I know the numbers now. In the case of Acerinox, we have been working at 70% as an average of the year. But in Columbus, with the success -- my colleagues mentioned before, with the low South African market -- by the way, South African market went down 15%, 1-5, that is -- this is a lot. And Columbus production was at the level of 55% capacity utilization.

Any further questions here in the room? So let's move from the conference call, please.

[Operator Instructions] The first question comes from Seth Rosenfeld from Exane BNP.

If I can please ask, I guess, 3 different points. First with regards to the Q1 guidance, you clarified earlier about stable versus the adjusted EBITDA figure that will strip out, of course, some of the impairments write-downs but still includes some assumption for inventory valuation. Can you please clarify what your assumptions for raw materials inventory valuation for Q1 are baked into that guide? Secondly, with regards to shareholder returns. Can you please provide us some color on how you think about the opportunity for both dividend and buyback growth looking forward? How does VDM change your options and the scale of potential shareholder returns? And should we think about that buyback for '19 as a recurring item or something of a one-off? And then lastly, please, with regards to the U.S. market. We've seen reports, CRU for example, about modest base price weakness during the course of Q4. You comment today's release, that prices are stable today. Can you give us a bit of color on what drove that recent price decline? And what your outlook is into 2020? Have you seen a shift in how your peers are pricing in order to perhaps gain share or something else driving the recent price weakness?

Okay. Thank you very much for your questions. Regarding the guidance, as I mentioned before, our outlook is that we'll have a Q1 EBITDA at the level of the adjusted EBITDA. So this is our target. Broadly similar to Q4. Inventory valuation is something that -- recurrent in our books, and that would normally depends of course in market prices, but mainly in raw material prices. So this is a recurrent provision that we have. So we don't have any evidence that we can say that we are going to release it or we are going to increase it at the end of the quarter. So we are not considering this amount.

Well, in relation with your question about dividends, buybacks, I mentioned in my first words to the presentations that the Board of Directors has decided to ask the general meeting, the shareholders' meeting, to maintain the dividend in EUR 0.5 per share as the last year we did. Do you remember that we increased 11% dividend over '19 -- over 2018? Last year, we [ made ] buy back. And we say that in case that we generate enough cash flow, of course, we will follow in doing that. But you must understand that this year, 2020, there is an important change, which is the VDM acquisition. So in this regard, in this year 2020, we will concentrate on the cash flow in the acquisition of VDM. Nevertheless, of course, we will be trying to study the possibilities in the future going forward in maintaining programs of buybacks depending of how is the generation of cash. And of course, we believe that the VDM integration in which we must concentrate all our efforts during the year 2020 probably will give us -- or will enhance the generation cash of the company. And in this regard going forward, probably, we will prepare to do something more. But this year and since 2020, we must concentrate our efforts in apply the generation of our cash flow to buy VDM.

And finally, regarding to prices, we don't see any weakness in prices today. I think we reached the bottom level in November when the alloy surcharge was going up in Europe and in United States and the market with the difficulties of the end of the year. That was a weak environment, plus stocks inventory adjustments in most of our customers. The market was not ready to accept this alloy surcharge increase in November. So prices were -- base prices were reduced in both United States market and European market and was the bottom level of prices. Now in Q1, we don't see any weakness. It's the opposite. We are increasing prices in United States, and we are keeping the same level of effective prices in Europe. What means that with a lower alloy surcharge, we are increasing our base prices a little bit.

The next question comes from Luke Nelson from JPMorgan.

Can I just dig a bit more into the Q1 guidance? Clearly, there are a lot of economic risks from coronavirus, but we're already pretty much 2/3 of the way through Q1. You have good visibility until the end of the quarter and factor in the EUR 60 million of one-off, I still struggle to build a bridge to the adjusted level. So my question is, how much guidance is conservatism versus some other effects, such as volumes, pricing? Or is there anything else that we should be factoring in, in the quarter-on-quarter on bridge? That's my first question.

Thank you for your question, Luke, but I think there is not much that I can add. Because if I add something, I will tell you the number, and the company policy is not to make any forecast. We see the environment that is more or less the same at the end of Q4. Of course, we have more volumes in our order books, so we can improve our production, and that will help our cost control. And in general, we will make our best, and we'll take advantage of this opportunity to improve the situation at the level of Q4 that I think that was a very good number. Inventories is something that we cannot control, so we don't take this inventory adjustment under consideration. Of course, we will not have the adjustment of Q4 with the layoff in the Algeciras plant. So what I mentioned is, of course, we will pass. We will improve the EBITDA, the real EBITDA of Q4. And our target is to reach the level of our adjusted EBITDA in Q4.

Okay. And then just more of a geopolitical question, just given the situation in Spain with the new coalition government. Is -- do you have any thoughts around any potential changes from a labor or taxation perspective that might affect your operations in Spain?

Luke, thank you. I think there's several reasons why we, of course, we need our government, and we look carefully what the new governments are doing. So one is labor. And I think that even if they go back in the labor law reform, that will not affect Acerinox because, as I mentioned, we always have long-term employees, quality employees. And for us, that would not affect because we have a stable working force. The second thing, the second factor that is very local is energy price. So we have been complaining and suffering with the rights, the less, and anybody come in will make us suffer again. So we have a window that we can say that with the electro intensive institute that the new government is releasing, we can have an opportunity to improve our situation. And in taxes, of course, they will damage [ definitely ] go to this tax reform. It's something that we have to say that can affect to the investors, investors in the country. And of course, in Spain. Last year, we closed our union contract, not only in Spain, but also in Malaysia. And 1 year before, we did it in South Africa, and we don't have a union contract in the United States. So now we can face for years a peace period. I think that this is very important because now -- we have to negotiate the union contract, it's always -- you are not focusing your attention or putting all your attention in the business. And now after a very interesting negotiations in Algeciras last year, finally, we signed a very positive union contract, positive for both sides because we are keeping employment after this correction. So I think we have been generous in the layoff. I think we will keep the level of competitiveness of the plant with increases that are below the recommendation of the [ ordinary ] recommendations of salary increases. And we, of course, we are contributing to the social part of the union contract. Now we are contributing to this -- [Foreign Language]. It's trying to help our employees to coordinate the work and family life. No, I think it's a very social program, and that will help to the good relations [Foreign Language] conservation. Okay. Thank you. Thank you.

The next question comes from Carsten Riek from Crédit Suisse.

The first question I have is on the fourth quarter, and you refer to Slide #6 of your presentation. So I'm just trying to build from the third quarter to the fourth quarter the bridge, how you actually got to the good results, which apparently didn't come from Europe, didn't come from the U.S. and didn't come from Asia, really, and the volumes were also very low. So I'm just curious, what actually caused the increase in EBITDA quarter-over-quarter? Were there any provision releases in there? Or could you simply say, no, that was not the case? Because it would also help me in order to build the bridge then to the first quarter.

Well, the situation in the more resolution quarter-on-quarter, at the end, probably the main issues were coming, as we said, as a consequence, on one side. The situation was tough in Europe. Keep also in mind that, for example, in the third quarter, we had the effect of that strong correction in the nickel. This had its -- definitely also its consequences in the [ right ] price evolution and mostly in Europe. So the situation in Europe was most affected, but the situation in the States remains healthy. Normally, we are always mentioning, traditionally, the fourth quarter in the States is a short quarter as more or less from Thanksgiving to Christmas, there is low activity. And because of that, the contribution of the State normally is lower in the fourth quarter. But we must say that the North American market is giving a good demonstration of a strong performance. And consequently, even the activity this year has been high, as also has been the price evolution in the state. So we have been growing margins in the States quarter-on-quarter, and this is what probably our -- the big relevance. The North American market has in our figures created also the accumulated effect of excellent years in terms of the market in the States. Probably even in our case, the market in some areas may have production but a strong reduction in imports appearing in the States, allow us to gain presence in that market. So in the fourth quarter, the growth has been driven mostly from the States because the situation in Europe was a bit more depressed.