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

Ladies and gentlemen, welcome to the Acerinox First Quarter 2021 Results Presentation. My name is Simona, and I will be coordinating your call today. [Operator Instructions] I will now hand you over to your host, Mr. Carlos Lora, Head of IR at Acerinox, to begin. Carlos, please go ahead.

Thank you. Good morning, everybody, and welcome to the Acerinox earnings conference call for the first quarter 2021. My name is Carlos Lora-Tamayo, and I am the Head of Investor Relations of the group. The presentation will be hosted today by Bernardo Velázquez, our CEO; and Miguel Ferrandis, CFO. Before getting started, let me remember you that this conference call is being broadcasted in our website, acerinox.com. Now I would like to hand over to our CEO. Please, Bernardo, go ahead.

Good morning, everyone. Thanks for attending this Acerinox Q1 results presentation. First of all, I hope that you and your families are fine, and you have not been badly affected by the coronavirus. At this time, we are the last 1 of the 3 European players, so many of you already know everything about the stainless steel market situation. That's why we will try to be brief in the presentation to the dedicate more time to answer in the Q&A session. Anyway, there's a lot of information in our first quarter report as well as in the [ nexus ] of this presentation. I would like to start speaking about sustainability, and I would like to show how seriously we are approaching to this important matter. We have delivered our sustainability plan. We have created a Sustainability Commission of the Board. We have a specific sustainability department in the company that is centralized in Madrid, but with dedicated people in all the plants, who are the people that will be responsible and the people pushing to get the targets in sustainability. And we have to say that -- or we have to admit that we are not the first company in reporting the ESG KPIs, but we are on the way to improve. But you know that we are one of those companies that prefer to act first and report the results later instead of the opposite. And Acerinox has always been a reference in efficiency, so it means that we have been a reference in the use of -- the rational use of resources to be competitive, and consequently, to be sustainable. In this slide, the first slide of our presentation, you can see that we have -- we are in our way to reach the targets of CO2 emissions. We have reduced 4% compared to the previous quarter, 2% compared to the first quarter last year. We are making a big improvement in our accident frequency rate. It's 45% compared to 2020. We are achieving the objectives that we fixed for our sustainable financing. And of course, it's -- I don't want to repeat everything. But I want to mention that we have a very sustainable business model and we have demonstrated through our history. And of course, that stainless steel is the paradigm of the circular economy. We have a good product that is 100% recyclable, and in our case, we are producing our stainless with more than 90% recycled material. And it's a long-lasting product with a long life cycle, what means that we -- you need to produce it less times in the -- compared to the life of other products. And at the end of the life is 100% recyclable. And it is clean. It's hygienic. This is low maintenance. So in general, a lot of advantages that will make stainless steel the material for the future. Going to the -- first quarter results. We are presenting today very strong results, and we are continuing the progression that we started in Q3 last year, and that we will continue in Q2 2021. The market started recovering in September last year, especially driven by the consumer goods industries. In -- since November, we have started to see a strong restocking period, what means that the customers, the distributors, everybody, trusted more on the economical recovery. That means that they invested in inventories, in a supply chain that was very weak after more than 1 year, because remember that 2019 was also a year when apparent consumption went down in Europe and in United States. So that means that the supply chain was empty of inventories, not only in stainless steel, but also in goods made with stainless steel. I mean with washing machines in the department store. The car dealers have a low inventory of cash, so everything was in the low level in the supply chain. So this is restocking period, plus the good behavior of the consumer goods industries is promoting this strong demand. More than that, since March this year, we are facing now a strong recovery in the private business, I think, with a very important point order entry in March and especially in April. And all these things are still without the recovery funds or still without the infrastructure programs. That's only based in the real economy or, more than that, in the expectations of the economic recovery. We have other factors that are contributing to the goods situation that is the supply chain breaks, cost of transport, that -- and trade measures, especially the one that is now being discussed in the European Commission against India and Indonesia, that will be something between 13% and 34%. We are also placing antidumping [ duty ] in Malaysia against Vietnam and Indonesia. It is important to mention also the 13% rebate in the -- in China, the export rebates. And all these factors are moving our industry to a kind of new regionalization. We are getting -- we are global, but we are getting more local with all this these measures. And on top of this, we have a strike on [ ATI ] in the United States. We had the problem in the Suez channel that also affected to the supply chains. There are problems in India with the COVID situation, but it is using the oxygen for medical purposes instead of the industry. So everything, of course, is contributing to the healthy situation that we are living today. But as you perfectly know, good market conditions, plus low imports, plus lower stock, means an extension in the delivery time. And always, a delivery time extension in our industry led us increased prices. That is the situation that we are facing now. In Page 4, you can see the market highlights, what I mentioned. I would like to remark prices. We are increasing prices in all the markets, but especially in the United States, where yesterday, we announced a new price increase, a general price increase, for all cold-rolled materials of 2 points of discount. That will mean something around USD 70 to USD 90 per metric tonne. And this is going to be important, it's going to help us to increase our results. And in the right-hand side of the slide, you can see the Acerinox highlights. Production, of course under this situation, we are trying to push our mills to produce as much as possible at 100% capacity utilization, which is not easy after some years trying to control cost and reduce our production. We have delivered a very strong EBITDA. We are recovering -- as I mentioned, we are starting recovery in HPA, high-performance alloys, more based on project business. And what is very important to say that we are managing our capital allocation in an optimal way, the way that can be better for all our stakeholders. And we are managing our capital allocation moving from a cash generation to the net working capital increase that we will release through the year and always trying to make the most of the situation, and to make the most for our shareholders and our stakeholders in general. And with this simple explanation, I will show you our progress in Slide #5, that we are ready to, in the start of this new year, in good market conditions, in a better situation that in a market that is changing. And finally, after many years of business control and business measures to be adapted and to get flexible, to be adapted to the situation, now we are in the position to take advantage of these improvements and make the most of the situation and take advantage of the good business conditions. You can see that we have started a good progression in 2019, starting for a weaker Q1. We repeat more or less the same scenario, but with better results in 2020. And now we are starting 2021 with a stronger Q1 that will follow a stronger Q2. And who knows, if this [ provision ] will let us, present a reasonable results after many years of control of the business and tough business condition. So this is the scenario that we are facing now, and I will let Miguel Ferrandis to explain our numbers.

Okay. Thank you, Bernardo. Just remind you that there is a lot of data and explanations in the results report you have available. So consequently, we shall go quickly through these reduced number of slides in order to leave more time for the Q&A. Just going to Page #6. It's clear for us to show the strong start in 2021. I just want to mention briefly 3 ideas for the more remarkable facts in this slide. First of all, the consistency and the resilience of our profitability. It was shown in the previous slide. But then this drives us to show this EBITDA of EUR 161 million in the first quarter, which is a 90% increase compared with the one of the first quarter last year, with a positive trend that was shown and explained by Bernardo. But I think what's more remarkable also is that we had a very strong performance in the fourth quarter last year. And even though that, we have improved our EBITDA at 23% compared with the fourth quarter last year. So this shows our consistency, the resilience and then the advantages we have in taking soon and properly the positive waves in our business. So this is message number one. Obviously, this is coming also by our presence in different geographies and in different sectors. So we can -- and it was appreciated last year. Quarter-to-quarter, when the stainless commodity was suffering in the second quarter, we have the contribution coming from the high-performance alloys. And then the high-performance alloy had their own reduction in cycle, but then we start appreciating from our regional improvement because of our presence in America, and now on all the rest of the geographies are evolving properly. So I think this is one of our main remarkable characteristics, and this is more or less what is coming in these profits. The second point I want to remark is the operating cash flow of EUR 23 million, in a quarter in which we have experienced an increase in working capital of EUR 153 million. So even though that big increase in working capital as a consequence of the good momentum of the market, even though that, we have a positive cash flow of EUR 23 million. And the third fact to remark in this slide is that the net debt is absolutely under control. So we can see this EUR 756 million. Keeping on mind that just the working capital, which is a momentum, means EUR 153 million, the equivalent figure could be EUR 600 million normalized, just a month later than we made the acquisition of VDM through increase in our debt of EUR 313 million. So at the end, we think with all these facts, we must be absolutely comfortable and relaxed with these net financial debt absolutely under control. If we go to analyze per division, first of all, in Page #7, we talk about stainless steel. I think there are 2 main facts to remark in the evolution of the stainless steel. One is remark -- the control we have on our cost, and especially all the homework that was achieved last year in variabilizing, at the most, all our cost is well appreciated here. You can see that the melting production compared with last year is 650,000 tonnes have improved 9%. And with a 9% model volume, I want to remark that the operating expenses have increased less than 1%. Yes, 0.7%, the operating expenses, operative and personal, less than 1%. So I think this is a good demonstration of the of the cost control. And the other facts also to remark -- well, with this -- obviously, with these improvements in the cost savings, we can achieve that with a 9% increase in melting production, we have increased our EBITDA in figures of 80%, and this is obvious at the end. It's very, very easy to appreciate it. In addition, other fact to reinforce is purely on the stainless, the EUR 25 million of operating cash flow. As a consequence, as you know, of our huge control of our inventories. And at the end, what's clearly the increase in working capital in the stainless is mostly driven by the increasing their receivables as a good consequence of the good momentum in the market, because the increase in payables is even a bit higher than the increase in the value of inventory. So we are having excellent rotation in terms of our production. So as a consequence, the working capital is very, very healthy, driven by the increase in their receivables. When we go to analyze in Page #8, the performance of the high-performance alloys. I think there are, from my point of view, also some things to remark. Probably 3 things. One is, as you remember, we talked in the fourth quarter that there were green shoots in the high-performance alloys. The green shoots are more than growing in this first quarter and shall continue in the coming one. There are sectors that are doing good. The electronics is doing good, the automotive. The chemical is doing good for the high-performance alloys. And then the more growing green shoots also is coming in the -- probably coming second quarter because we are seeing that the oil and gas sector is now coming back again with reactivation of certain projects, which were kept on standby. So this reactivation has come a bit delayed compared with the others. But we are seeing in the order book now for March, for April. So these green shots has -- already have grown probably shall bring on flowers, especially coming in the third and fourth quarter. So with the high-performance alloys, also, we are very, very comfortable seeing more or less the evolution and expected improving quarter-on-quarter that may occur in this year. The part of this increase in the order book, you can see that, for example, the melting production in the first quarter, 18,000 tonnes having -- has increased 43% compared with the one in the previous quarter. So this is an excellent indicator of all these increases in the order book that we are experiencing. In addition, the working capital is keeping the same control that we have in the stainless division. So at the end, the working capital increase of EUR 14 million is mostly coming by the increase in receivables as a demonstration also that it's a growth in working capital, but very, very healthy as a growth in the activity. And the third fact to remark in this slide is what appears in the left side. The integration remains on track and should accelerate in the coming months and the synergies are ahead of the schedule. So in this regard, we are very, very satisfied with integration of the high-performance alloys division in the whole group. And then with this, we drive to the Page #9 for showing the operating cash flow of the group. I think there's also some fact that we need to remark as is well appreciated. Normally, the cash flow generation in our business is driven by the working capital. But in this time, the main driver has been the excellent cash generation, the margins achieved with this EBITDA, quarterly EBITDA of EUR 161 million. That even though the big growth of the working capital by the positive momentum, at the end the contributions has been higher. So at the end with this, we reached this operating cash flow of EUR 23 million. It must be appreciated, and I think it's very, very roughly shown in the slide, that the increase in working capital is temporary. It shows just the momentum of the strong change in the trend that has occurred in the first quarter. You can easily imagine what may occur in our cash generation when the situation stabilizes in the coming quarters. So we have seen the growth in the first quarter. Probably also still in the high-performance alloys, this good momentum should increase some -- should mean some increase in working capital in the Q2. But it's clear that in this year, in the second semester, we are having absolutely positive inflow of cash that should drive us to very, very healthy figures of cash generation for the full year. At the end, keep also in mind that, as we have said, the net debt is absolutely under control. And then that we have liquidity actually in place of EUR 1.8 billion, more than EUR 1 billion in cash. And at the end, credit facilities available of EUR 800,000. But this is -- this could be a concern 1 year ago, and we provided these figures. Nowadays, it's clear that the net debt is, as we have said, not only under control but also shall be reduced, especially in the second semester of this year.

So now after this brief description of the situation in Q1, I think it is very simple to tackle this outlook and conclusion. First of all, I think it is clear, we have had a strong start of the year in Q1. Free cash flow is positive. But still, we can improve in the rest of the year, always, as I mentioned before, focusing on the optimal capital allocations. We have a strong order book in stainless steel that will remain strong in Q2. And our high-performance alloys business is improving, especially since mid-month. And now -- and the order entry has been very strong in March, in April and it's continuing in May. This net working capital increase should be released through the year, as we have demonstrated many times in the control of our working capital and our inventories and the working capital in general, and that will -- let me show a very brief outlook. And I would like to remind you that during the COVID situation, during Q2 and Q3 last year, we remarked many times that the European situation were different in the north and in the south. We experienced tougher business conditions in the south with more breaks and -- with more breakdowns and lockdowns of the economy that continued in Q3 and Q4. So the recovery of the southern countries in Europe has been delayed compared to the north. So all these good business conditions, order entry, price increases, plus this delay in the high-performance alloy business and this delay in the Southern European economies, will let us say that the Q2 EBITDA is going to be stronger than Q1. I think this is the message and this is the simple and brief explanation of our results. I'm sure that you have a lot of questions after all that you have heard this 2 weeks about the stainless steel business. We are ready to start the Q&A session.

Thank you, Bernardo and Miguel, for this very clear presentation. Now we are happy to take your questions. Please, operator, go ahead.

[Operator Instructions] Our first question is from Krishan Agarwal of Citibank.

My question to Bernardo is that -- I mean can you, more qualitatively, give us a comment as in what is the status of profitability improvement between Europe, Southern Europe and the NAS in America? I mean this is in the context that many of your peers have said that the pricing in Europe is sort of starting to come back on the base price and the alloy surcharge, which has moved back into the transaction side earlier in 2020. So what is your assessment in terms of pricing? And then is it fair to assume that Europe probably will be going to be stronger in 2021 versus the U.S. business, which was anyway stronger earlier?

Krishan, I couldn't hear you very well. I will try to answer what I understood in -- if I'm missing something, please let me know. Prices in Europe has been improving through the quarter. You know that the pricing mechanism in Europe and United States is different. In Europe, we have been increasing prices order by order and with different markets and different conditions and different customers. But at the end, we are reaching a price increase in all the sectors and in all the countries. It is important to say that I'm taking advantage of the good business conditions. We -- I think I can speak about Acerinox. And in the case of Acerinox, we are trying to come back to the previous pricing situation with base price plus alloy surcharge that we have always defended. Remember that we never wanted to take this system out of the pricing mechanism in Europe. I think it is a very good way to reflect the raw material prices and concentrate our negotiations with customers in base prices. And we have always defended the system, and now we are trying to go back to the situation. In the case of United States, it's different because they always had a discipline following this mechanism that is good for customers and it's good for suppliers. So nobody doubted about the advantages of this system, and we always follow the average of charge. In -- now we, as North American expanders, the Acerinox group, we are trying to improve our prices in the United States because we think that we have all the circumstances to face it. And I think that is going to be -- it will be well accepted by the customers. But this is something that we are trying. We announced yesterday to our customers that we want to increase our prices in -- by reducing 2 points of discount. And I cannot say anymore. That let's see if we can get it or not. It is something that I will tell you in the next presentation, but no idea today. This is -- the market is how it is. And I don't know, prices are also increasing in Asia. I never forget Asia because many times, you have a benchmark that is the Asian prices plus cost of freight, plus duties or antidumping so -- or whatever. So you always have a limit. But in this case, I think that the -- all the Asian countries and even Brazil or -- are facing now pretty strong business conditions. So they are concentrating -- focusing their sales more in the local market. So we have less pressure in all the markets with the measures in China of this 13% export rebate. They are also reducing pressure on the surrounding countries. So in general, I think that we are enjoying better business condition in -- all around the world, and that, of course, will affect Europe and United States. I don't know if it answered -- okay.

Yes. I mean you covered most of the things. My follow-up question to Miguel, probably, is that can you comment on the impact from inventory revaluation in the quarter? That number has been missing in the release.

Well, we normally do not provide that as a separate figure. At the end, more or less, it's a consequence of what has been the movements in the raw material. But just for your understanding, probably the improvement and the revaluation that we have experienced through the nickel upward movements was in the range of the mid-EUR 30 million in the mid-30, I think, more or less.

Something that we will have in Q2.

Yes, that's right.

Our next question comes from Alan Spence of Jefferies.

I've got 2 questions. I'll take them one at a time. The first one is on VDM. The synergies previously were increased from EUR 14 million to EUR 22 million. And today, you note that they're running ahead of schedule. Is there potential to further increase that for the year?

Alan, thank you for your question. We reported the second time because after the acquisition of VDM, we put a higher level of synergies and that was 22.3, if I remember well. And now we are seeing that we have better possibilities. Especially, we see the most important part of this operation that is in the commercial and the project side. You know that we have insisted very much that we acquired VDM not to restructure it, because we acquired VDM because it was a good company. And that we wanted to develop common sales and being the lever to move Acerinox to higher added-value products, and this is working perfectly -- working better than expected. The VDM customers are happy to buy from the Acerinox Group stainless steel. And the stainless steel customers are very happy of this broad portfolio of products that we are offering. We are entering in some private business, so we are developing common sales and common marketing strategies. So we are improving in this sense. I think it is soon -- it still is soon to give you a number. Probably we will speak about this in July that we will report, of course, what is the performance of the Excellence 360º plan and the performance of the synergies plan and sustainability, we will go deeper on these numbers. But I cannot tell you a number today.

Okay. That's fine. That's helpful. And then the second one, could you just give us a sense of lead times for stainless steel in Europe and U.S.? And just if you're seeing any evidence of restocking at the ultimate end customers?

No, lead times is something that depends on the company. We cannot speak about general lead time in the market. I think every supplier is trying to manage the business as we consider the best for our interest. In the case of the Acerinox Group, we have a policy that is that we don't like to extend the delivery time too much because it is the best way to attract imports. When you are eliminating the risk of imports by extending your delivery time, it is very easy for your customers to buy today something from Asia or from other markets that will be delivered at the same time that the local product. So you don't have any advantage in terms of risk management by buying locally. So we are trying to keep a short order book. That means, of course, that the short order book today is not as short as it was a couple of quarters before. Now remember that the -- we have reduced during the tough times our delivery time to 30 to 45 days, and now we are speaking about July. We are contracting July orders in stainless steel, and it's more or less what we are doing in Europe and South Africa and all the markets. I think we can say that we are now finishing contracts for Q2 and starting with Q3. It doesn't mean that we don't have the orders, it's that we want to control our business and our lead times.

Just on the inventories?

If I can add something, I would say that under the current scenario, with prices increasing, we also prefer to take advantage to any price increase. But having a possibility of increased prices in the pending -- others pending to be contracted. Restocking. It is difficult to know because you know that there are no official stock figures. We have some reports from the German distributor association, of the American distributor association. And they are reporting that they are in a very low level. It is very low in terms of volumes and historical minimums in terms of inventories, if you divide it by the deliveries. What I know is that -- in these numbers is that everything that we are selling is -- to distributors is going directly to customers. It is not stopping a long time in the warehouses, so there is not any evidence of replacement of inventories. I think we are still in the phase of restocking and -- okay.

Our next question is from Juan Ros of InterMoney.

I have 2 very quick ones. First one is a follow-up question regarding VDM. I don't know if you guys can guide us to what kind of margins can we expect for this year. And I'm not an expert in this kind of alloys, but with a very similar level of melting shop activity as first quarter last year, you're doing just half of the EBITDA. But then you're saying that synergies are going ahead of schedule. So I'd like to maybe get some color on that and how -- or what levels can you expect -- can we expect for the VDM by the end of the year? Then second question is regarding Bahru. I don't if you guys can provide us some melting shop activity. It was quite low during 2020. I don't know if you guys are maintaining this very low level of melting shop activity in Bahru or it is increasing versus the last quarters of last year.

Thank you, Juan. Well, first of all, regarding VDM, as we told when it was explained on the transaction, VDM has a stable double-digit EBITDA in a normalized scenario. It's clear that this was not the case, especially in the second half of last year. More or less the big affection of the -- for the high-performance alloys came a quarter later than in the stainless, so starting on the third and fourth quarter. And it's clear that certain sectors have been well affected as we explained before, mostly, for example, the oil and gas that has been probably out of the market for several months. Now it's coming back, as we previously stated. So we think that gradually, VDM shall normalize the double-digit EBITDA, and we hope that it may occur prior to the year-end. When we compare the figures in the case of the high-performance alloys division, VDM, with the last quarters, keep on mind on the slide of Page #8, that the figures appearing in the fourth quarter of last year are not coming as a pure quarter contribution. Keep on mind that the integration of VDM has been done gradually, and more or less all the issues coming from the accounting treatment of the new entry of that company, the purchase price allocation has been done during the revenue during the months. And for the year-end, we make all the final adjustments of these. These are then meant in the fourth quarter, that it was certain issues as we explained in the year presentation, improving the profitability in the quarter that corresponded to the whole year, and this came for the fourth quarter VDM. Because of that, it may appear that there has been deterioration in the margin compared with Q4, with the Q1 in this year, but this is not the case because the Q4 last year of VDM was supported by these accounting treatments of several issues that appear in the P&L of the fourth quarter, but were corresponding to the 10 months of incorporation or integration of VDM in our figures. So I think we are actually, with these EBITDA margins we are showing in the 6%, we shall be gradually improving it and we shall -- we think that sooner than expected, maybe for the growth of this year, we can be in the double margin -- double-digit EBITDA. Maybe not for the whole year, but at least for the last quarter and reaching that normalized for the next year.

But regarding melting production of VDM, what I can say that we have started increasing melting production because the production cycle of the high-performance alloys is longer than in stainless steel. Remember that it's a different business. And also, we don't have an integrated -- fully integrated plan there. And we have started increasing our melting production in April in order to be able to start delivering or starting increasing our deliveries from June on. This is what we have done. Regarding Bahru Stainless, we have not an integrated plant in Bahru Stainless, so we cannot speak about melting production. But we are increasing our cold-rolling production. In previous presentations, we explained that we wanted to focus Bahru Stainless in a range of products in which we have less competition from especially our networks from Indonesia or other companies from Vietnam or China. And then we reduced our cold-rolling production more or less to a level of 9,000 tonnes per month. Now that we are comfortable with this niche of the market that is giving us a positive EBITDA and is giving us a positive cash generation, as we are -- we have a better market conditions and especially we have a strong local demand, with also prices increasing in the local -- in Malaysia and in our local market. So we are trying to slightly increase our production there. So Q2 production in Bahru Stainless is going to be higher than in Q1. Still, I cannot give you the numbers, of course. But now we are finding more customers and in which we can have positive EBITDA. And also we are increasing quantities in those customers that we allocated as our target as a customer today.

Our next question is from Patrick Mann of Bank of America.

I wanted to ask a follow-up question on kind of the restocking cycle. Bernardo, I thought it was quite interesting what you said about industry becoming more local, given freight and given trade actions. Given the capacity in the local industry and the low inventories and low imports, I mean -- and it feels like everybody is producing flat out, how long do you think until we get a more balanced market where inventories are rebuilt and demand and supply are better matched? And what sort of capacity do you think the industry will be utilizing when we get to this kind of new normal with lower imports, if it sticks around here?

Good question, Patrick. I would like to have the accurate answer. But actually what we think is that there's -- still there's enough capacity in the United States and there's enough capacity in Europe, right? What happens today is that everybody wants to buy not only to fulfill the contracts that they have, the sales that they have, but also to rebuild their stocks. I know sometimes look it like there's not enough for this, but the reality is that there is enough. What I know from -- especially from the United States, that customers are considering their strategy is that they are thinking that all -- today, everything that they are buying is being sold in the same month. But they will have the opportunity in the slowdowns in -- for summer holidays in July or for Thanksgiving in December to rebuild their stocks. But today, and this is something that you have to take into account, it's very difficult to predict this fact. But today, there's not any evidence that stocks are going to be in higher levels for the rest of the year. Of course, there are many things that we have -- we can consider. For example, the slowdown in the automotive industry, because of the chips and these things. Of course, that will help the distributors and these exhaust system makers to rebuild their stocks in some extent. But we don't think that, that's going to happen in general, speaking about general numbers, before Q4. I don’t know if -- thank you, Patrick.

Our next question is from Tristan Gresser of Exane BNP Paribas.

I have 2 questions, please. First on taxonomy in Europe. Given your elevated SREP ratio at the group level, are you in a position today to confirm how much of the business do you believe is taxonomy-compliant?

Okay. Thank you, Tristan. It is also difficult because it still is not clear what is considered taxonomy-compliant. Still, we are going to fix the standards in the European Union in all markets. But I can tell you that we have -- 90% of our raw materials is recycled products. So that it is the same that we can say that 90% of our products is 100% coming from recycled origin. And we have electricity, so we have more or less 15% of our electricity is coming from renewable sources. This is the PPA that we have acquired in the previous years. This 15%, if you add this 15% to the more or less 15% of renewable energies in the Spanish energy mix, you can say that it's more or less 30%. So in some extent, we can say that 30% of our production in Europe is 100% energy renewables and is 100% from recycled materials. But still, I think it is soon because we are working to fix the standards of this green stainless steels.

All right. Understood. That's very clear. And my second question, you refer in the release due to the removal of VAT tax rebate in Chinese stainless steel products, can you help us understand maybe how significant this move is and the positive implication for your business?

Yes. In -- there was a mechanism in China with which the Chinese exporters recovered 13% of the VAT at the moment of export. So that was a kind of discount. When they were exporting, they received a rebate of 13% of the value -- of the price of the product, and they have eliminated this rebate. That means that for Chinese exports, exporting is going to be 13% more expensive, and they will have to increase their prices 13%. That's why the pressure in the area is getting lower. On the other hand, what can be in the origin of this measure? This is something that is difficult to understand. But probably the origin is that the Chinese market will want to -- so the Chinese authorities will want to concentrate Chinese production for the Chinese market. They don't want to develop more the overcapacity, what is a very good news for all the industry. And probably, they also do not want to export pollution. This is another reason. In the last month, we have seen that the Chinese government is taking measures in order to reduce pollution in several cities. We have seen cuts of production of ferroalloys in Inner Mongolia. We have seen some measures in different countries. So probably they are going to concentrate all the local production in the local market that, by the way, is pretty strong today. If we are always speaking about the recovery funds in Europe or the infrastructure program in the United States, but do not forget that China is putting a lot of money under the table in order to recover their economy. At the same time, India is doing that and other countries are doing also. They have a very strong local market and they want to make the most of their capacity for the local market. They don't want inflection in the country, and they don't want lack of materials in the country.

All right. That's very clear. And maybe just a quick last one on working capital. Am I right to understand that you said that there will be further investment in Q2? And are you able to say if it's going to be higher or lower quarter-on-quarter?

I think probably the big change in the trend has created this increase in working capital in the first quarter as we are running at very, very high level of capacity now with the order book increase, as has been mentioned. And also in the case of VDM, the higher volume now is coming. I think that the -- probably, it shall be certain also increase in the Q2, and we think that it shall be stabilized for the Q3 and Q4. So the big release of working capital is coming mostly in the second semester as soon as the situation gets normalized. Still there is a big room to improve in general in activity for the Q2. And this shall mean that also some increase is -- should be coming for the second quarter. In the next quarter also, in terms of working capital, still we shall see maybe certain increases of -- in terms of the -- so this should be also some cash out in addition in the second quarter. We shall have also some cash out in the second quarter coming from the dividend payment that this year is being paid in June. So consequently, in the second quarter also in terms of cash out, we shall cover the -- EUR 155 million dividend, which means that in this year, it's going to be probably all the issues affecting negative the cash concentrated in the first semester. And in -- for the second semester, we are waiting for a strong generation and contribution on cash, providing definitely that for the full year we shall have a highly positive cash generation in the accumulated year. But it's going to be appreciated mostly in the second semester.

Our next question is from Bastian Synagowitz of Deutsche Bank.

My first question is just a quick follow-up on what you just talked about, cash flow and balance sheet. Obviously, if we look at the volumes, they are very strong, but you've been still able to more than compensate the working capital build with your very strong underlying cash generation. So I was wondering, what are you looking for to decide on whether or not you will continue to buy back shares? Because it seems like you're really well on track to basically get towards like 1x net debt-to-EBITDA, which I remember is sort of the target level. So I'm wondering, what are you looking for. When do you plan to take a decision? If you could maybe provide a bit of color around that, please, sir?

Bastian, thank you for the question. You always care that we are trying to manage the optimal capital allocation. We are playing with all the facts in order to get the best result. We have an open program that was approved in the shareholder meeting a couple of years ago in which we will dedicate some cash for buybacks of shares when the situation, let us do it. It was not possible in '19 and it was not possible in 2020, but we'll just keep it in mind. It's -- as far as we have the chance to do it and we don't have -- or we have, of course, enough cash to afford our CapEx and projects that we can have, that is also the other factor that we will always keep in mind, what is the best return of our investment. And if the best return is in CapEx, we will apply to CapEx. If the best return is in buybacks, we will apply to buybacks. But this is something that we'll keep in mind, but I cannot answer you today.

Okay. Just on the CapEx side, have you anything changed about your outlook on CapEx? Or should we still expect CapEx to basically remain pretty much in line with, I think, the numbers you've been guiding for so far, which I remember was around, I think, EUR 110 million, give or take?

I think the figure remains stable. I think at this at this time, still the EUR 100 million figure to be a rational assumption for this 2021.

Great. And then maybe moving back to the operating side. Just on volumes, you also mentioned the market is very strong, I guess is what we hear from all sites. Could you give us any quantification on the potential volume increase we should be expecting in the second quarter across your group? And even though it is very early days, I'm wondering whether there are just any signs that the third quarter is basically starting to decelerate a little bit either in Europe or in your U.S. core market.

Yes. Of course, we are trying to increase our volumes. I think -- but remember that we don't have an unlimited capacity and we are moving to reach the 100% of capacity utilization. Now in quarter 2, we are going to increase our volumes single digits. And I can only say single digits because we have a breakdown in South Africa of 15 days for maintenance. But we are going to increase our volumes. Of course, this volume will be sold at a higher margin. But what is the other question?

Just whether you see already any signs of deceleration of that volume momentum into the third quarter? I guess third quarter is usually pretty strong in the U.S. In Europe, it tends to be a little bit weaker. And so I was just wondering whether, on a group level, you basically still see so far signs for stability into the third quarter? Or whether there are any signs that maybe we'll see a bit of a volume ease into the third quarter?

Thank you, Bastian. No. As I mentioned, we are now starting to contract orders for July, for third quarter. So this is the visibility that we have, okay? With this visibility, we can speak about Q2. What I can tell you is that there's not clouds in the sky, that we haven't seen any sign to say that the market is going to slow down in the quarter 3 or quarter 4. So there's no deceleration. But -- no, I think we are ready to be flexible, to get an [ update ] to the situation. No, we would never forget our variabilization of fixed cost and these things. But until now, if you ask me, personal, no. Personally, that there's no clouds in the sky. No signs that the market will slow down in Q3.

Our next question is from Ioannis Masvoulas of Morgan Stanley.

Yes. Two of them left, actually. The first one on high-performance alloys. You mentioned earnings improvement from June onwards. So shall we expect a flattish EBITDA development for Q2? Or could we see another step down before a recovery in the second half? And then the second question is around Columbus. You just mentioned that you're running flat out across the business, but [ Columbus ] is also planning to switch to carbon steel grades. Can you help us put that into perspective? Given the better stainless demand outlook, can you focus a bit more on stainless and only consider reducing selling carbon when prices come under -- or demand comes under some pressure? And then within that, how is Columbus coping with the higher freight costs and Brazil's decision to initiate an antidumping duty against South Africa? Just interested to hear your comments around that.

Ioannis, well, first of all, going to VDM. As we mentioned, we are seeing the increase in volumes, which is by far going to be appreciated in the second quarter, keeping the maturity of orders terms in the high-performance alloys and for VDM. We think that we shall have probably stability in the margins for the second quarter or some improvements. But the better appreciation is coming for the second semester. So I think that the -- as we said before, the green shoots are growing, the flowers are coming for the third quarter in profits. In activity, the second quarter is going to be a month of high activity, but still it shall not be this big growth on the sales appreciated until the third quarter. So increase in volumes in second quarter, big increase in profitability from the third quarter for VDM.

Okay. Regarding Columbus, [ their ] steel is helping us to balance the -- our capacity utilization in the country. So now we have a very healthy business in carbon steel with a long-term contract, which is an opportunity for Columbus, not only for this year but for the coming years as well. But we also have to say that we have a nice improvement in the local market. The Columbus, the South African apparent consumption is growing 5% this year. So that will give us better opportunities. And of course, they are following the trend in prices at the rest of the market. Freight cost, of course, is affecting South Africa. But still we have room to -- with the increase in prices, we have room to export to the European Union as we did before. And remember that South Africa is out of the safe work measures as from -- due to a treaty between Southern African countries and the European Union. And we can -- we have room to do it. And we are increasing our capacity utilization in South Africa with these 3 legs, that is mild steel, it's local market and opportunities in the European market. Brazil is not one of the major markets for Columbus. We have exports to Brazil, but it's not one of the major markets, it's not our focus.

Okay. Understood. That's very clear. And maybe just to follow up on this. So if we look at the different stainless plants, is it fair to say that Columbus would be showing the slowest or the lowest EBITDA improvement quarter-over-quarter relative to the other plants, given all those dynamics?

We never give this information. I mean all the plants are in positive EBITDA today. Of course, we have better performance this quarter in one of our plants, but that's going to change next quarter. So this is not an important information.

Our last question comes from Carsten Riek of Credit Suisse.

One follow-up on Columbus. You already mentioned that it performed well this quarter, but what percentage of shipments went actually outside South Africa or Africa for the sake of it, in the first quarter? And where did they go to? And do you expect, for the remainder of the year, this kind of breakdown to be largely stable? Or will we see some kind of different outcomes, especially in the second quarter. As you mentioned, the maintenance round, how long will it actually be there? So that's the first set of questions, I would say.

I don't have the precise number of exports from Columbus. But of course, with the mild steel business, we are reducing exports and maybe export today are at the level of 40% of Columbus activity. But don't take it serious, it's just an approximate number. But it can be at the level of 40%. What was the rest of the question, please?

I believe the -- where does it go to? Because you mentioned Brazil is not the main kind of destination, I would guess it's Europe predominantly, where you ship to at the moment. And do you expect that these kind of export out of South Africa will remain stable for the rest of the year? Or will the maintenance in the second quarter have a significant impact?

I think that the -- I don't know how it's going to be, the evolution of a container cost in the rest of the year. But probably in terms of availability of containers and vessel, we have already passed the worst part. I think that with the reactivation of the economy, there was a lot of imbalance of vessels in the different parts of the world. Also the Suez channel problem didn't help us on these things. But probably the availability of vessels is better now, and it's getting better. And probably the cost is stabilized, so we can foresee that imports -- sorry, export from South Africa to Europe are going to be more or less stable in the rest of the year.

Perfect. And that leads exactly to my last question. You mentioned the low -- comparably low imports increased recently. But are low imports really the new normal? Or just the temporary freight restrictions, as you mentioned some like availability of containers, et cetera, just pushed out an international response to the large stainless steel price differences we see currently in Europe is the U.S. compared to Asia?

Who knows? Difficult, difficult question. But in the United States is we have mainly the Section 232. And this is something that there is limit in the imports at a level of, I think it's 12% or something like that. But today, we are following very closely the -- what the new administration is saying about this Section 232 or new negotiation with other countries or whatever, and there's not any evidence that they are going to remove Section 232. So imports probably will remain at the same level. Also, there's not a real intention of most of the customers to buy from other sources because transport cost is high, delivery time is long and also availability is not the same that it was before because of the strong activity in all the markets. In the case of the European Union is more or less the same. Of course, we are discussing today what's going to happen with the safe work measures. It is still not clear. It's something that is being discussed in the European Commission. There's different ideas. 'we hope that they will keep the stable measures because I think they are fair. Safe work measures is something that was decided not to protect the European industry. It's not protectionism. This is -- that was to avoid the exports go into United States to be -- to go to the European market, creating a distortion in the market. So as far as the Section 232 to is alive in the United States, and as far as the U.S. is still keeping the 25% duty, I think that it's fair that we will confirm and will extend safe work measures in Europe. But anyway, I think the European Union, the European Commission is also taking message against the unfair imports, unfair competition. That is the -- we have something that is helping to balance the European market, that is the antidumping against Indonesia and China in -- and Taiwan in hot-roll, that this is important because it creates a double distortion. One is in the -- in the hot-rolled market but also in the rerolling market that can give a lower cold-rolled prices to the market. And this is more or less under control. They are not filling the same [ large ] quotas. And also this new measure in the antidumping in cold-rolled that we are very excited that we will get very soon because I think that the provisional measure is going to be taken in 28th of May, and then they will confirm or not. But we hope that they will confirm the dumping duties against India and Indonesia. And finally, at the date, 20th of May, if they publish or they ratify these dumping duties, that will mean that we'll start applying these duties to Indian and Indonesian customers. So that will give us a better balance of the European markets. Remember, trying to avoid -- not competition, it's trying to avoid unfair competition from these countries. And the last thing that you mentioned, it was about -- related to imports. Now we are at the level, of European imports, of 19% more or less. We finished last year in 22%, now we are in 19%. We are very close to 30% 1 year ago. So I think it is important that now you can see that we have a better situation with 20%. That can be stable, rather than 30%. But you will have to take your own conclusions.

We have had further questions registered. We have a question from Francisco Riquel of Alantra.

Yes. Just a quick one for me. If you can please update an update on the repricing period of your order book, how percentage of your sales which are made on a spot or 3 months of longer-term contracts? I just want to have an idea of the pass-through on to the EBITDA of the price hikes that you have made in the U.S. earlier this year and the one you have just announced now. And also in Europe, if there is any difference on the timing of the repricings?

Okay. Paco, thank you for your question. In the United States, we have a different way of contracts. We have a spot business that can represent more or less 1/3 of our business. Maybe we have another contract-based orders that is more or less based on a quarterly basis, and then we have the long-term contract that is more or less 6 months. So that means that we have applied spot prices increase in Q1 that -- what we announced starting first of January that we now are applying in the second quarter these other contracts. The kind of contracts, buy and sell on a quarterly basis, and we will update finally the long-term contracts in first of July. This is more or less the same cycle will be applied with the new price increase. In the case of Europe, it's more difficult. We have more or less like 50% or 40% of end uses and 60% of distributors in our portfolio. For the end users, not all of them are working with annual contracts. Some of them are using the [ average contracts ] formula. Some of them are negotiating in a quarterly basis, and some of them are -- especially the automotive industry, used to work in annual contracts. Of course, we will -- we haven't started negotiating annual contracts with these customers. We will start after summer. And we are trying to, of course, to push all these spot contracts in Europe and in United States. Or in Europe, following the market trend. Remember that we are not market leaders in Europe, we are more based in the south of Europe. But anyway, so we are getting these price increases. And at the end, we are in the same rhythm that the rest of the players in the United States and in Europe, basically at the end of day is balanced and the price increases will be more or less the same in all Europe or in all United States. But remember that we are less dependent in Europe and the United States, so we will benefit of this more stable and higher prices situation in United States.

Our next question is from Alain William of ODDO BHF .

Yes. So I have a question on Bahru. Clearly, it's not up to the standard of Acerinox in terms of returns. I know you have done a lot of work to address the situation. But the question is, can you go well above breakeven in that business on a stand-alone basis? And have you engaged with third parties to try and find a sustainable solution? And probably last question related is what is the future of Bahru in Acerinox's portfolio?

Okay. Thanks, Alain. In Bahru Stainless, you are completely right, we have been working very hard to fix the situation, and now we can say that we are positive EBITDA, that we are generating cash in that business. For many companies in European and American companies in Asia, the situation is not as simple as it is in the local countries. But I think that we all -- we -- if you consider your company a strong company and a global leader, I think you need to be -- you need the base in Asia, in the fastest-growing market. It is not easy. We have to fight a lot. But I think that we have a strategical position in Malaysia that is the entry door of Asia in the -- just in front the Malay strait -- the Malacca Strait. So I think that we are happy to say that we are comfortable with Bahru, and that we have a positive numbers there. And if somebody wants to acquire Bahru, will have to come here and offer a good number.

Ladies and gentlemen, we have no further questions. Thank you.

Thank you. There are still 2 more questions coming from the web. The first one coming from Kepler Cheuvreux, Iñigo Egusquiza, and is related to the shareholder structure. Iñigo Egusquiza has a question regarding Nippon Steel stake in Acerinox. Do you see the shareholder [ structure ] in the state in the short term?

Iñigo, thank you for your question. I think there's nothing new on this. So we are always speaking about Nippon, there's no news. I think they feel comfortable as the second major shareholder of Acerinox. They have a good dividend. And we are keeping the good dividends. We are paying a cash dividend to them. And I don't think there's too many businesses in Japan giving the same return than the Acerinox one. Of course, now that the share price is increasing, many people can think that they will have the temptation to sell the shares. But there's not any evidence, nothing new on this. So we are comfortable with the Japanese. And as far as we know from our conversation with them, that the relation is, of course, is transparent, it's very, very close and they have no intention to sell the shares.

The final question is coming from [ Wood Mackenzie ], how do you see Europe European stainless import situation developing over the rest of the year? And do you think surplus will come to an end?

Thank you. But I already answered this question that the safe work measure is under discussion in the European Commission. We don't know what's going to happen. The situation is -- with the cost rate of the localization of the industry, I think, is positive for us. But do not forget something that I didn't mention before that is what happening in Asia. China is removing this VAT rebate. So that means that the Chinese will export less materials. India also announced that they want to eliminate the antidumping measures for a while because they don't want to put in risk inflection or availability of materials for the recovery process. So that's also very positive, with no pressure from Indian, no pressure from China. So [ there's less pressure ]. Strong local markets. We know that, for example, Korea or Brazil are not fulfilling the order that they have in the United States or Europe. So that means -- the United States, especially that they are out of the Section 232, they have quotas and they are not filling the quota. So that means that Brazil and Korea are to be very strong markets. So in general, every market in the world is strong. So it's going to be more difficult to source materials from external sources. So we don't think that especially for this year, the situation is going to change very much.

Okay. Thank you very much, Bernardo. So this is all from our side. Thank you very much for all your questions and joining us on this call. Maybe just remind you that our next report will be on July 29. We hope to see you all there. Thank you very much, again.

Thank you very much.