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

Good morning or good afternoon, and welcome to the Acerinox First Half 2022 Results Presentation. My name is Adam, and I'll be your operator today. [Operator Instructions] I will now hand over to Carlos Luis Lora-Tamayo, Head of Investor Relations to begin.

Thank you. Good morning, everybody, and welcome to the Acerinox conference call for the first half 2022. The call will be led by our CEO, Bernardo Velazquez; and our CFO, Miguel Ferrandis. They will start with a short presentation and then continue with the Q&A session. Before getting started, let me remember you that this conference call is being broadcast on our website acerinox.com. And now Bernardo, please go ahead.

Thank you, Carlos. Good morning, everyone. This is Bernardo Velazquez, and I'm very happy to present these extraordinary results. It is very important for me to explain that we have been saying in the last years that with our efficiency, our flexibility, with all the progress that we have done and we will continue to do it with our plans, we have reached a new level of competitiveness. And now with these results I think this is proven that we have fulfilled our promise. Let's start with sustainability and saying that we are showing here the most important topics that, first of all, it's a circular economy. We need to recycle 100% of our waste to become a real party of the circular economy. We have the product, we have the process and we are working hard on this, as you can see in the numbers. Second, it's environment, but for us, it's also efficiency because everything that we do to reduce CO2 emissions, to improve our energy efficiency at the end will be higher efficiency and better results for the Group. So this -- in this sense, sustainability and efficiency are going together. And the same we can say with safety. At the end, safety is something that I think is our right to come back safe to home, but it's also a question of money because the lowest level of accidents and incidents that we have in our plants deliver highest level of productivity. Not much to say about the results, I'm sure that you have all seen our numbers. Very good numbers, highest ever is a record. Q2 has been a record and H2 -- sorry, and H1 also has been a historical record. Let's see the data point that what is this all -- how we reached this level of results and where are they coming from. I think that we have to say that, of course, we have enjoyed a tailwind based on the good consumption, a good demand of stainless steel, also the restocking process. And as usual, that have been helped by the increase of nickel price. All these situations were good for our business, but we cannot forget that we have achieved these results also in a very complex scenario. We managed a lot of uncertainties. We managed the disruptions in the supply chain. We managed a high cost, especially in the energy, incidents and everything. And at the end, we have reached the record year. And this extraordinary results can let us announce due to our very healthy financial situation that we are ready to announce the share buyback, a new share buyback of 4% that we feel we will complete the 10% that will increase with our capital increases in the year that we were given the scrip dividend. Miguel, if you can explain the financial results.

Yes. Thank you. We are going to go passing very quickly through the slides. Most of them are very, very self-explanatory. And you have a lot of comments in the reports presentation we have done early morning. Just to remark some facts, you can see the quarterly evolution. We have obtained this new record of quarterly EBITDA of EUR 523 million. Obviously, a record always have challenges for the coming future. And in case, as we also announced in our results presentation, this is not going to be a stairway driven. We understand that the third quarter, obviously, we shall see some correction in the figures, any case, keeping for the second part of the year, very, very healthy and sustainable profits. What this graph also shows us is the evolution. Eight consecutive quarters of increasing results. A huge demonstration, especially in the last 6 quarters that with proper market performance and proper tailwinds, all the achievements in cost savings and efficiency, we have been working hard for years are much more easy appreciated and contribute substantially to our profits as also the diversification that we have been doing in the last period through moving to the high performance alloys. All of this definitely is contributing to this constant increase in profitability we have been achieving. But also, I want to point out what we were able to demonstrate, for example, in 2020. So we demonstrated that we have strong flexibility. We made an excellent performance in the world crisis probably after the world, which was the world recession of the COVID for making a tremendous exercise on realizing the fixed cost of the Group. This contribute to keeping these good tracks. So we demonstrate that we can face and sale properly in travel waters, but also as soon as the tailwind comes and the market reacts and recovers, we are in the best position for taking all the advantage of the tailwinds that we are mentioning. So I think this is very easily appreciated in this chart. Both sections of Acerinox Group, if we go to the next slide, both sections have had a strong -- very strong performance. Our traditional stainless steel business have developed excellent performance. Most of the -- all the units have been really doing well. We have been benefiting of the strong and consistency of the American market. We have also been obviously taking advantage of the good momentum of the European market in the recovery after the COVID and the normalization of the stocks through all the supply chain. We have been also been benefited in Columbus by the diversification going through the mill still as well and the good market momentum in the Asian market. So we have a very consistent and obtaining in all the units double-digit EBITDA margins. This created more or less this achievement of the EUR 481 million in the quarter and developing an operating cash flow only in a quarter [indiscernible] which is EUR 265 million if we take the whole semester. But also, the performance has been extremely successful in the high performance alloys. The high performance alloys is developing a very, very good reaction. We are having records in the order books entry. We are having excellent figures in production in sales. Most of the sectors are actually doing fine. Oil and gas, obviously, the chemistry sector is fine. Even the car industry, even though it's having a lower momentum, is also contributing. The aerospace is coming back. So probably most of the sectors of the alloys could be just electronics [indiscernible] better. But in any case, the order book is full. We have obtained a quarterly EBITDA of EUR 41 million. This is a 14% margin, which is extremely successful. And if you just look to the semester figures, VDM and high performance alloys contributed with EUR 65 million. The historical record for VDM in its history was the year '19 with a yearly EBITDA of EUR 96 million. So just in this semester, we have been able to obtain this strong EBITDA with an 11% margin, which is very, very successful, as is very successful also, the track of the integration. We have already achieved synergies of EUR 13 million, keeping in mind that the target for the year was EUR 17 million. So also in terms of the synergies coming from the integration, we are going substantially better even that was our forecast for this year. And then going through the cash flow, there are some issues to remark. At the end, what we are appreciating here is the allowance and the flexibility that our financial strength provides us. We have 3 big areas, obviously, for the capital allocation, which are investments, retribution and working capital. In the -- we had keep our CapEx program for this year, probably in the first semester, the figure and the total figure that appears, which is EUR 46 million, it shall be a bit lower than the one in the second semester. We will still keep the figure of the EUR 140 million for CapEx in the year. This is a consistent part of our strategy and our capital allocation as well as the retribution to shareholders. In the first semester, especially in the first quarter, we made the share buyback, and we expanded or we invested EUR 150 million in that program. In July, we already have been paying and shall appear in the next quarter cash flow the dividend and we have devoted EUR 130 million to paying the dividend. And as you know, we are also announcing a share buyback program, as Bernardo mentioned, which is taking place in the second half of the year. So at the end, this means that on a total basis, we are going to allocate to retributing to shareholders more than EUR 300 million, EUR 350 million around, depending on the final cost of the buyback program of this 4% that we have announced. So this is a strong part of our capital allocation. But what's relevant is that what we have is the flexibility for allocating capital to the working capital to take the whole advantage of the market momentum. So in this excellent semester the working capital has increased EUR 807 million. We have been able to take advantage of the momentum by devoting all of this cash to the working capital. And it's clear that in the second semester of the year, the movement shall be using working capital and consequently a stronger cash generation. Even though that the cash generation is satisfactory and also is showing in this chart the relevance of the conversion differences, which in Acerinox Group means that a strategy of keeping a strong cash position in the States, industrial momentum is a successful strategy. At the end, it's clear that the strength that the dollar is taking is a huge fact, not only for improving and contributing the profitability of the Group, but also, in addition, the strong cash position we have in the States with this strong dollar in a time also in which the interest rates are substantially improving and going up in the States shall no doubt contribute to a better cash and balance position of the Group.

So we are coming to an end. Conclusions are very simple. We've got exceptional second quarter results, exceptional first part of the year with results, and of course, that we are proud of the results as we manage the complex geopolitical scenario. What can we expect for the second half of the year. It is difficult to say because we have a lot of uncertainties. We have to remember that we are living in a conflict in Europe and it is difficult to predict how is it going to affect our business. But what we can promise is that we will control the controllables. And we will focus on cost control. We will focus on the -- not to have any problem with the supply chain. We'll focus on taking advantage of our geographical diversification. We will try, as we normally say, to control the controllable. In this sense, with the visibility and the order book that we have today with the strength of the American market, we can say that Q3 EBITDA will remain at a very strong level, but not comparable with the exceptional Q2. And I'd like to spend some time in this slide, the last slide because I think that the new situation hasn't been understood completely by the markets. It is not probably your case because you are always suggesting that Acerinox share price is below value. I think that you probably understand this perfectly. But for many people in the market, this is still new. Now of course, that we have been -- we are working very hard. We have been working very hard in the last decade. That was in the toughest decade in the history of stainless steel. We lived the 2008 crisis, 2012-14 financial crisis, the COVID crisis in '19. And at the same time, the China was increasing capacity and move in this 10 years from around 30% of the global production to 67%. This decade have been the head of many problems and also of the globalization and also of the unfair trade practices. And now we are starting a new period. And this is what I'd like to explain to you. With all these new tensions, geopolitical tensions before COVID and before these things, we have started to see this kind of a polarization in the geopolitical situation. Now remember, Section 232, safeguard measures in Europe and these types of things and governments in the United States and in Europe started fighting against unfair trade practices. Then we started with COVID. We suffered, first of all, lack of sanitary -- necessary sanitary elements and of course, masks and these kind of things and then semiconductors and several other things. That was before with all the disruptions of the supply chain that we suffered with the COVID situation. Also, we had the problem in the Suez Canal. That also delayed like 10 days most of the goods coming to Europe. And these factors are now moving to a more regional business. I'm not saying that the globalization is over, but we will live with a mixed model. What does it mean? With the disruptions in the supply chain, the geopolitical problems, the cost of transport, the trade defense measures and all these things, most of the purchasing managers in Europe and the United States will try to diversify the suppliers and also to bring or to give a higher weight to the local or regional suppliers. That means that will be -- that will increase local purchases in Europe and in the United States. But if everybody in the supply chain, if they tend to do the same, that means that industry will come back. I mean, this is something that we have been crying all the time in the last times. We need industry in Europe and in the United States. Our business situation I think is contributing to this industry coming back to Europe. And that means also not only more local purchases, but also higher stainless steel consumption. So at the end, what can we expect for the future that we will have a higher consumption, there will be higher production in our plants and we will take advantage of our global position, but also that with the trade measures plus transport costs plus the needs of a regional supplier, the gap between the Asian prices or, let's say, the Chinese prices and the European and American prices, they will be higher. I'm sure that will be higher or I guess that it will be higher. So I think in the future we can expect a healthier situation for the European and American industry, of course, for the steel and the stainless steel industry. At the end, it will be reflected in better results. That, for sure, are not reflected in the share price today. With this reflection, I finish the presentation and we can give the floor to Carlos.

Thank you, Bernardo and Miguel for the presentation. Let's just start now the Q&A session.

[Operator Instructions] The first question today comes from Krishan Agarwal from Citibank.

My question is for Bernardo. I mean, EUR 523 million is the record number and I'm assuming there is a bit of a support from inventory valuation here. But then, America, as you are saying, is very, very strong, both in terms of the market and the pricing. Then I'm assuming that the weakness is coming from the Europe. So your Q3 guidance appears strong, but then what sort of indication you can give us that this inventory valuation will reverse in the Q3, but then the underlying EBITDA will stay strong in Q3 and Q4?

Krishan, it's difficult for me to give you these numbers, because first of all, because we never give the forecast for the future, we'll give just some indications. And I think it would be very, very easy for you calculate the stock effect. Now just look at the nickel prices, the evolution of nickel prices and you can make an estimation of how much was for the Acerinox Group. What we see through is that still we can see a very strong American market. We are #1 in North America and even increasing our relative position there in the market. So we are the preferred supplier in the American market. We will also take advantage of this. I think this Q3 is going to be strong, but it's strong for what we historically considered as strong, as we said, not comparable with future.

Understood. My second question is on the capital allocation. You have announced another set of a buyback. And then if I were to look at my forecast or the consensus forecast, you probably can exit the year with a net cash position. Any kind of medium-term thoughts how you would approach the capital allocation with a strong balance sheet in the say next 12 months?

Well, as you know, as we have explained, the capital allocation, the first semester, the main usage has been for the working capital. And in case we understand now that according to the cash flow that we expect for the second semester, we feel very, very comfortable with the decision of making the buyback, which is a decision that absolutely makes sense. We understand that, as I said before, in the second semester, shareholders shall take a relevant part of the capital allocation with a dividend in July plus the buyback program. And up to now, in this part of the year, keeping in mind that what we are doing is keeping the track of the CapEx previously announced. With this, we feel comfortable in the coming quarters, we shall see in view of the circumstances. When you mentioned that we were going to be in a cash position, we don't think that we shall finish the year -- full year of debt. This is something that may occur in the coming years, but probably not at this time because even though part of the net working capital shall be -- or the cash allocated to net working capital shall be in the second half of the year shall be liberated. But at the end, not enough for keeping the whole raise of the EUR 800 million we are contemplating. So we are going to have a strong reduction in working capital in the second semester. But keeping in mind that we are keeping a high output in most of the plants and the effect is going to be coming mostly by the decline in the raw material prices and the effect that they may have in the valuation of the inventories, but not necessarily as a huge reduction of tons. The reduction of tons that we can expect shall be coming mostly for some additional stock inventories we have done for preparing some of the maintenance shutdowns scheduled for the third quarter. And consequently, because of that, some of the inventories for keeping and feeding the rest of the lines in the plants active move to this partial increase on inventories, but this has not been so huge and it should be more or less normalized in the second half of the year. But the rest is coming from a period in which at the end we are seeing the nickel prices going down. Consequently, the extra alloys should be going down. And this is what shall be correcting the working capital allocation and necessities, but not a huge reversion in the second semester of the EUR 800 million that we have invested in the first one. This shall take more time. So it shall be a partial reduction of that.

The next question is from Ioannis Masvoulas from Morgan Stanley.

Just going back to the guidance as my first question, you're guiding to a step down of 50% in EBITDA quarter-over-quarter. And that, I'd like to better understand the moving parts here, if possible. One element is the revaluation gains, fine. But what about volumes? I mean, Q2 was fairly weak. What sort of delta should we expect for Q3 at the Group level? And also in terms of pricing, the U.S. seems to be holding up, but Europe is weaker. Would you say that U.S. pricing will be stable and then all the impact will be in Europe?

In terms of volumes, we have been suffering different incidents in our plants, starting with strikes in Spain, not in our plant, but in the supplier side. And also we have been suffering some breakdowns in our melting shops. So that is the only meaning of this reduction in production because the market was there. The demand was strong and our order book was very strong. So what can we expect for the second half of the year, a recovery in production going back to at least the last year levels. This is what we have in our plans. Regarding to prices, it is true that in Europe we have reduced our prices based on what is normally in our market, following the trend of the alloy surcharge, anticipating the trend of the alloy surcharge are now in nickel remains stable at the level of 21,000, 22,000 and we expect a more stable alloy surcharge, more stable prices and will remain not as high as they were in the first half of the year, but still in a very healthy level. In the United States, the situation is different because the market is still very strong. And you know that we always say that this is a more stable market, a more structured market and the situation is still very good there. So we are keeping the same level of prices and we are keeping a strong order book and still real consumption is performing very well.

That's clear. And the second question on energy. You talked about energy costs that are up 2.5x year-over-year. Could you perhaps quantify the headwind in absolute terms? And are you seeing any benefits from the gas price gap recently introduced in Spain?

Normally, I don't like to speak about this -- the effect of the energy price, but I must do it in order to alarm the Spanish Government of the situation and the position of Chairman of the Steelmakers Association in Spain. We have to say this, the energy cost or the gap between what was considered in our cost and the final cost this year can be more or less at the level of more than EUR 100 million per year. So it is important. It is really, really important. The new measures that have been taken by our government, what is called the Iberian Solution is still not working. I don't think. They try to do it. I think they tried to help the industry, but the final result is that as we have to compensate the excess of cost of gas to the gas power station at the end noticed the money is more or less the same. And finally, we are paying more or less the same energy price. We hope that with the situation in the second half of the year, if it is only based on real consumption, probably prices will go down. If it is related with the lack of gas in Central Europe especially, prices will go up.

The next question comes from Tristan Gresser from BNP Paribas Exane.

The first one on the European market. We've seen challenging market conditions for H2 with base price falling and energy costs rising. Do you think you will be able to defend the 10% margin target you have in coming quarters in Europe? And if not, do you believe you would be able to defend that level, maybe at the Group level, notably if energy costs stabilize at those very high level?

Well, basically, when we're thinking mostly in Acerinox Europa, the energy prices is the one that should be probably affecting our margin. And then the main difficulty for keeping the 2 digit EBITDA is specifically because of the energy cost. If it's kept at this price, there is a lot of uncertainty of where is going to be the energy price in the coming future. But in any case, in the first half of the year, with a strong increase in prices in the European market, this fact has been neutralized because the increase in prices was substantially higher. As much as now there is a correction in the level of prices and in the base price in Europe where the stocks have been normalized in the market, we also see that the imports are taking its stake. So we understand there's going to be a bit more pressure on the base prices in Europe. And consequently, in this scenario, the crazy energy prices that we are suffering in Spain has more relevant. So this shall be the destruction in fact for Acerinox Europa not reaching maybe the 2 digits for the second half of the year. And then let's see, depending on where we reach, what should be the average for the year. But this is going probably to be the big change. And in these circumstances, with a much more lower level of base price that we have been facing in the first semester, these extra costs is more easily appreciated and spoiling the margins.

And my second question for the U.S. market. We've seen some appliance makers cutting their guidance quite sharply for North America. Could you remind us and market exposure in the U.S. And also, you mentioned you will remain optimistic in the region, but have you seen some slowdown there in real demand as order intake slowed or product mix changing? Any color there would be appreciated.

No, Tristan, we can -- with the visibility that we have, the American market is still remaining very strong. We haven't seen any decline in our order book coming from the end user side. Of course, with the trend of nickel price and the trend of the alloy surcharge, that the distributors normally try to readapt their stocks to the new situation and things and probably we'll have a slowdown in the distributor side in this month and the summer time, the summer period. But so far, we haven't seen any sign of weakness in the real demand in the business. Suppliers is very strong. Auto is coming back, it's improving now with -- probably with the higher number of chips available. Food industry and catering is performing really well. Trucks, light trucks and everything until now, there's nothing that we can -- no signs of slowdown at this stage.

The next question comes from Bastian Synagowitz from Deutsche Bank.

My first one is on your guidance. And can I please come back to Ioannis question on shipment volumes, please. In the context of the weaker seasonality and then destocking and then also the maintenance breaks, which you brought up, I guess, we may see some volatility here. So could you please provide even a bit more quantitative color on the volume trend, which you assumed in your third quarter guidance, i.e., may we see volumes dropping double-digit in the third quarter or will the decline be less than that? Any color around the rate and maybe also differentiate a little bit how you see your different regional business is performing? It seems like you're more positive on [ VS ], but was wondering whether that's also reflected in your volume implied guidance?

Bastian, in general, in sales, more or less, there is not going to be a huge correction. At the end, more or less, what we shall experience is some correction in the melting shop due to the maintenance shutdowns that were scheduled to take place in the second semester. But this is partially affecting more the production. But at the end, in terms of sales, we -- more or less our order book now for the third quarter is showing very, very similar figures to that of the second quarter. So it's not going to be a huge correction on the sales. So we are saying that the American market performed strong. In Europe also, the order book is fine. So no doubt that with the downward trend of the nickel and consequently the extra alloy, there are pressure on the prices, but not in the order book. So not in the tonnage to be sold.

So basically, third quarter really stable. That's quite amazing in an environment where you see, at least in Europe, some seasonality and destocking. Wouldn't you agree to that or?

In terms of sales, yes. Maybe we are reducing our sales in Malaysia, for example, because the market there is tougher. And we are -- you know that inevitably our strategy to focus on high margins and in profitability in that term. But in general, it's -- let's see what's happening. You know that in our market sometimes we have surprises after summer, because normally, when the trend changed at this part of the year, many stocks remain in the situation of wait and see and see what happen. Probably in mid-September, we'll have the real feeling of the situation. But so far, I can tell you that we haven't seen any weakness in our order book. Even in the United States, it is not only that the real economy is strong, it's also that the lack of employment is delaying some of the deliveries of many sectors. So that means that they have extended the order book of appliances for many, many issues. So that will also give us more stability. So we see a strong American market and probably a more uncertain situation in Europe.

Just one quick follow-up. Is there a way you could briefly tell us broadly how much maintenance charges you're taking in the third quarter? Will this be like a EUR 20 million to EUR 30 million cost item, which you will face in the third quarter? Is that a good assumption?

Normally, this kind of program maintenance are prepared since more than one year time. And normally, we spread the cost of this maintenance through the year. So it is more -- it will not affect the results of the coming months.

And then my last question is just coming back to, I guess, the point you were making to just the structural nature of your business, i.e., that the market environment has changed in principle in your favor, obviously, we're seeing some near-term volatility, but I guess you also highlighted that the regionalization obviously is generally in your favor. So I was wondering, is there a range for mid-cycle EBITDA, which you have in mind for Acerinox as a whole company in this environment, probably also having in mind that you obviously bolted on VDM as an additional business versus the past? Is there like a mid-cycle EBITDA range you've got in mind?

Bastian, in the vicinity if we have the range of the EBITDA, the answer is yes. But I am sorry, but I cannot tell it to you.

The next question comes from Moses Ola from JPMorgan.

Just have a couple of questions. So the first one is on the timing of the share buyback announcement. It's atypical for you to announce in Q2 versus typically in December. So how should the market basically frame this off-cycle announcement? Should we still expect further room for additional returns with December results? And then secondly, I just wanted to understand the energy impact quarter-on-quarter. So going to Q3, what should we be thinking about maybe relative levels to Q2? And if you have also any exposures to natural gas, maybe on your customers, if there's any production risk as well there on natural gas?

I'll answer the point on the buyback. Normally, as you mentioned, the decisions to be taken regarding retribution are in the month of December, historically, in the case of Acerinox. What now has been probably put on the table for taking the board decision for one side is obviously the excellent evolution and the profitability demonstrated in the first semester and also the good fundamentals for the final cash generation figures, not only in the semester, but also for the year. So we include these circumstances. And having clearly more or less the CapEx design for the whole year, it appeared that was the proper time to proceed with the buyback, keeping also in mind the level of the share price as we have mentioned also considered it's not reflecting the value. So at the end, in terms of investing the capital that we generate, we think a proper investment or there is no better investment in this time than going ahead and buying our own shares. On this basis, our commitment established some time ago was to make a buyback program -- a global program of 10% for neutralizing the shares that were issued during the 4 consecutive years of a scrip dividend where there were more financing divisions in Europe. And at the end, up to now, we had our 6% and what has been decided was that the pending 4%, the best time should be now. And at the end, it's a decision that we are saying of the capital allocation. The expected reduction in working capital that we are comfortable contributing for the second semester as well as the -- with the CapEx program, we are also in good shape. And consequently, we prefer just to start that movement. From now on, at the end, we allocate the order for proceeding to a bank. So we are not active doing that. So it's another entity, the one that should more or less accommodate in this period and shall be more or less spread during the coming months. But we understand that starting in the month of August, shall be fully finished for the year-end. And this shall be reported for the shareholder meeting next year in order for the decision of amortizing the shares.

Moses, regarding the energy prices, first of all, I must say that this is a European problem. Of course, natural gas is increasing around the world, but it's not comparable -- the situation is not comparable between Europe and the rest of the world. We have very stable electricity price in the United States. The increase in natural gas, that is not comparable with the one in Europe. We have a stable gas and electricity in South Africa and in Malaysia. That is a European problem. What's going to be the situation in second half is difficult to predict. Everybody is speaking about this. Everybody is now looking in the newspapers, more gas coming from Russia or not and would that happen. The reality is that in Spain we are not affected by the Russian gas. We are affected by the price of gas. And probably, the price in this situation gets worse, the gas price in all Europe will go up, but we will have gas. Spain has like 30% of the regasification capacity in Europe. So that is a problem probably for the Northern European producers. So something that we have to say to our customers that they have to diversify and buy more from Europe, but also buy from the South, because in Spain, we don't think that we will face the lack of gas. We'll have expensive gas, but we will have gas we think.

We have a follow-up from Ioannis Masvoulas from Morgan Stanley.

Bernardo, one question I had on your prepared remarks around the regionalization of the stainless steel market and how that could benefit your business in Europe and the U.S. I guess, in the U.S., I can totally see the logic there. The struggle I have is in Europe, because if we end up in a situation where energy costs remain higher for longer, there is a more structural element to what we're seeing today. How do you think the stainless steel industry can respond? And what do you think needs to be done in the case of the policy front to make sure that the domestic capacity remains viable?

You're right, it is very clear in United States. I have recently read some reports in Bloomberg and in Financial Times about the situation that is very clear and it's very visible that this industry is coming back. But remember that they started before because before COVID with the Trump announced Section 232 and since he was putting a lot of pressure to the big American companies to bring industries back to United States. So they started before. It doesn't mean that Europe is not seeing or not facing the same situation. I think probably energy cost will influence these decisions. But finally, this will be in the margins of the producers, but for a purchasing manager, the most desirable situation is that is to be -- is to diversify and [indiscernible] geographically, not only from different suppliers, but also from different regions. And they will have to have this -- a big portion of the supply much closer. We have seen the lack of electronic components, lack of chips that has affected so strongly to the automotive industry in Europe, but we also have seen a lack of cables for cars that from Ukraine that is also affecting the automotive industry. And I think that we are all totally our customers, we are doing the same. So we are all diversifying and trying to bring some industry closer to our facilities. I read an article also from one of the automotive components organization in Spain that they wanted to have more than 40% of the purchases in less than 1,000 kilometers. So this is interesting. Of course, cost of energy probably and the less clear situation of the EU regarding trade defense and the events and all these things will be a little bit more -- we'll have more doubts. But I have no doubt that at the end that will happen because this is a natural feeling. I think that's something that doesn't need the support of the government. It is just purchasing managers or companies affected by disruptions in the supply chain that we'll see that they need to have closer suppliers. Now we are suffering the problems of supplies from Russia from Ukraine, but people can think in United States or even in Europe that we can have the same problem in China. And also it is the new geopolitical situation. I think that it teaches us that it's just common sense that we need to have closer suppliers, and that will happen in Europe.

Maybe one last question for me on the high performance alloys division, which was exceptionally strong in Q2 where we saw EBITDA margins going from 8% in Q1 to 14%. How should we think about the second half given the order backlog and given the cost pressures? Do you think you can sustain anything close to the Q2 margin levels or should we be thinking something closer to the 10% sort of range?

Well, the -- as we said before, the order book is full. The prices also are having a very, very positive trend in the high performance alloys. What also we must keep in mind is that also for this division, the relevance of the nickel in the alloys and the relevance of the nickel revaluation has had a contribution for the second quarter. So we did not consider that this 14% is a standard level of contribution, but that has been in this case, but obviously supported by this revaluation. So we -- as you know, our target is a 2 digit EBITDA. We always have considered the high performance alloys a much more stable sector than the stainless, and this was the virtue for us moving forward, the high performance alloys. So consequently, we keep that very, very comfortable with the 2 digits. But this 14% has been also supported by the nickel movements in the second quarter. So we don't think that this is the new standard.

As we have no further questions, I'll hand back to the management team for any closing remarks.

Thank you very much for participating in this session. We also have to thank you for your continued support, as I said at the beginning, Carlos and Maria will always be available for your questions. And I hope that the support that you are demonstrating always recommending buying Acerinox and increasing the share price will be reflected finally in the share price and will be understood by the investors. Thank you very much.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.