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

Good morning, everybody, and welcome to the Acerinox Earnings Conference Call for the Second Quarter 2023. My name is Carlos Lora-Tamayo and I am the Chief Investor Relations and Communications Officer of the group. First of all, we hope that you and your families are okay. As you can see, today, the presentation will be led by our CEO, Bernardo Velazquez, our COO, Hans Helmrich; and our CFO, Miguel Ferrandis. They will start with their presentation and then continue with the Q&A session. Before getting started, let me remind you that this conference call is being broadcast on our webcast acerinox.com, where you can find also the financial statements and the management report for the first half of the year. Without any further ado, I would like to give the floor to our CEO. Please, Bernardo, go ahead.

Thank you, Carlos. Good afternoon. Good morning for the Americans. Thank you for attending this event. We are presenting a strong set of results, particularly good for the time being for the environment that where we are for the geopolitical and economical situation of the destocking process that has pushed apparent consumes down by 30% in U.S.A. and Europe. We believe that we are confirming with our results, our new level of competitiveness that we are reaching, and we are basing on our excellence and continuous improvement in our operations, success of our strategy of growth and focused in HPA in high-performance alloys and in United States and the rationalization of the globalization process that is both -- that we are perceiving in both the U.S.A. and Europe and that will benefit for our local mills for continents of these advantages of the regionalization process and approaching the supply to the mills. And we can do that because of our geographical diversification. We continue focusing our strategy that we are basing in 4 pillars. The added value with the success of VDM integration. The excellence that we have achieved and that is providing us a new higher level of competitiveness. Our traditional strong financial balance sheet and sustainability in an area that we are particularly working had to improve and to participate in the green transition as we assure that with our recyclable product, our focus on the circular economy and our production process, we will contribute to make our world better. Hans, I will pass the floor to develop the sustainability process.

Thank you, Bernardo. So we continue to progress towards our 2030 ESG targets. Given the lower volume this year, some of our key performance indicators are behind, but we remain committed on delivering towards our goals and targets that we have set. Acerinox continues to be a strong contributor to the circular economy. As you remember, we had set 6 sustainability targets for the 2030 connected with our 360 positive impact plan that we had set at that time. We continue to reduce our water consumption and waste to landfill. In both cases, we are already very close to our goals and all our factories around the world are doing an outstanding job on these initiatives. Energy efficiency and greenhouse emissions are the ones impacted the most by our lower volumes. But we have set specific actions in place, which once volumes come back to our normal situation will allow us to achieve our targets. Worth mentioning is in regard to this year that we have achieved 33% electricity supplied by green energy sources. On the first half of the year, we have had many energy initiatives I would like to remark our new whistleblowing channel in the group, our safety week hold in April, where we implemented our corporate cardinal rules and the launch of the Acerinox EcoAcx a rebranded and sustainable steel product lines were the first ones 2 years ago, 2 % in the industry. This product line is getting customer attention. I will present this in more detail to you very soon. Finally, I would like to bring your attention to the improvement realized by our plants when it comes to safety. A 13% reduction year-over-year in lost time incidents is not easy, even more after 3 years of great results and record results in our factories. If we move on to our ESG ratings and achievements, Acerinox continue to drive those throughout the whole company, and we participate in the most relevant ESG assessment processes in the industry. In the first half of the year in 2023, we have received several recognitions of which I would like to mention. Our Ecovadis Platinum rating, where Acerinox is the only among our peers to hold the platinum level. They have award for transparency in tax reporting and governance. This year, we have been recognized again for our tax transparency as well by ICAP, which is the international compliance Assurance program. And the World Stainless Steel Association recognized Acerinox group in 3 main categories: first, the market development for the creation of new ideas and applications for the industry. Second sustainability, connected to my previous comments, around the reuse of water in our factory in Spain, where, as you know, water is scarce. And the one I feel most proud of is the global recognition of how we improve safety at the workplace, a project which was done in collaboration of all our plants around the world. In the second quarter of this year, we have had a challenging environment, as Bernardo was mentioning. In the stainless steel business in quarter 2 in North America, market remained in a good condition with prices at reasonable levels. Stock levels have stabilized in all markets. Apparent demand is decreased year-over-year by 29% in the United States and 31% in Europe. On a positive end, imports have come down by 44% in the United States and 62% in Europe. On the other hand, our high-performance alloys business in the market maintain its strength and good prospects. We keep having a strong order book today. Worth mentioning is especially the strength of the quarter in the aerospace industry, oil and gas and petrochemical industries.

Moving to talk a bit about the financials. First of all, I want to state as normally that the management report as well as the financial statements revised by auditors are available on the web page. We are just giving now some bullet points that you have a very pack of detail information fully available. Just giving some bullet points on the Q2. What we must remark, you can see main parameters indicated in the slide is that there are no surprises. When we explain the results of the first quarter, the outlook we provide was that the second quarter should be slightly better. We have been there, and we have been there, even though some decline in sales. As you can see, the sales have been 2% lower than the previous quarter. But even though that the EBITDA has improved 5% compared with the first quarter and reaching an EBITDA margin of 14%, which in the actual circumstances is no doubt a very remarkable figure. When we talk about the cash flow, we shall talk later about it. There are several issues to explain regarding the cash flow evolution in this year. We are committed with the cash flow. We are not concerned by a temporary increase in the working capital. This has been necessary and easy to explain in the first semester, which I talk about it later. It's true that the working capital has been increasing EUR 131 million in this quarter as well as it's true that it shall be reverted in the third quarter. And during the second semester, we shall see a relevant reduction compared with the operating working capital that has been increased in the first semester of the year and especially in the second quarter. Any case, having said that, with the level of net debt being in our balance sheet of EUR 721 million at the end of June and net debt to EBITDA ratio is strongly, very, very low in forwards the standards in our sector as well as our ROCE of trending the year is in the level of 21%, which also in the actual circumstances is remarkable. If we go to analyze more the figures of the whole semester. First of all, the first message is to talk about the consistency, consistency quarter-after-quarter, EUR 226 million 1st quarter to EUR 236 million 2nd quarter, this is a clear demonstration of what we are working since several years ago in trying to make as much as possible flaring of the cycles and exposure to our cycles in our industry. It's clear that we are a cyclical business. But having said that, all our efforts in the last years and our other strategy is moving to flattering these cycles through the diversification. The diversification that we did moving to the high-performance alloys is a clear indicator. We are experiencing a very good momentum in the high-performance alloys in a time in which the stainless market, mostly in Europe, is in poor conditions. So this contributes to the stability in the results. And also the diversification in our group has obviously the best position among the industry because we are more than any other regional, we are North Americans, the best performer market in these days, especially on a comparable basis, is the North American market. So we are improving margins and having excellent results in the weak stainless time in the North American market as well as we are having excellent margins in the high-performance alloys. Those facts are to be always kept on the memory for understanding these figures. We have done at the end of June, inventory adjustment of EUR 96 million. This is a clear consequence of the momentum that is experiencing in the European market. The prices are substantially affected in the last months instead of our recovery, we are seeing that we are entering the seasonal slow down with a lower base prices ever achieved in Europe. And this is facing at the same time that we are still having very high energy prices. So the consequence of this is no doubt a fact that affects our profitability, mostly in Europe and as consequence of that, what we have done in our inventory is an adjustment for putting all our stock and net realizing value. And this, at the end of June, EUR 96 million affecting the EBITDA, what we have been explaining the results of the first quarter in the last month, we always stated that we knew we were going to be better, the Q2 compared with the Q1, but it should depend on how we reach in Europe, the summer season for realizing how much necessity was of making huge inventory adjustment as has been the case. But even though that we have obtained this EBITDA figure of EUR 236 million for the quarter.

This is very representative to illustrate what I mentioned at the beginning of the presentation. In 2021 and 2022, we reached historical records, but it is even more remarkable that it's a tough correction in the market of more than 30%, we are well above the average EBITDA of the last decade of EUR 89 million. And this is -- thanks to the excellence in our operations. By the way, I would like to announce that we are working in the new excellence plans that we will deliver at the beginning of next year. This is thanks to our product and geographical diversification, betting on high added value products and the American market I remember that we have decided to invest $244 million in the expansion plan of North American stainless that will increase capacity by 20%. And as we mentioned before, the advantages to be local in 4 continents in this [indiscernible] process. So it is very representative and I think that we will change the scale of our EBITDA in the coming quarters. This is what we expect, and this is what we are remarking in most of our presentation. Miguel, do you want to add anything?

I think we can go directly today. Explanation of both sectors, stainless steel and the high-performance alloys. Starting for the stainless steel. I think basically what's more relevant is that in sector as the stainless that is performing weekly all around the world. Apparent consumption has declined in the states at 29% in the first semester. The figure is around 31% in Europe. So in a very, very difficult time for the stainless industry. We have obtained EBITDA margin of 13% or 14% on our stainless division. This is a very, very strong fact to realize, especially the circumstance and the advantages of our presence in the North American market, which has proven to be the most resilient market is in this base. it's extremely resilient, it's resilient because the balance between demand and supply is very tight. And no doubt that for the local players, this is an advantage. And it's also resilient because of the stability in prices. And this is very relevant in our sector. Base prices in America have remained stable during most of 2022 and the first semester of 2023. This is an advantage for the market, not only for producers, also for customers or final customers, also for distributors. It provides a clear view and understanding and stability for making business. The situation in Europe is just the opposite. We saw in 2022, in the first semester, the maximum levels of base price ever achieved in history. And also we saw in the second semester, the lowest level of base price ever achieved in history. And at the end, this effects the market, obviously effect the performance of distributors and customers as its relevance in terms of imports. And at the end, this is the fact that for us, we consider and we always have been proud that one of our main assets was a strong and relevant position in the best-performing market, which is the North American one. So as a consequence of this, mostly have obtained this EBITDA margin of 14% as well as we have had an operating flow in the semester of EUR 70 million. If we move to the high-performance alloys, indifferent with the stainless market, what we must clearly state is the strong momentum that this sector is experiencing a level of sectors, high value-added sectors among the high-performance alloys such as chemical, the petrochemical, the aerospace. Those sectors are very, very relevant and very consistent in terms of the profitability for our business, and this sector are doing extraordinary well. Our order book remains solid. And as a consequence of that, we have obtained an EBITDA figure for the semester of EUR 76 million. Since we acquired VDM, we were explaining that our projections and our figures were that this acquisition should provide us a contribution of EUR 80 million to EUR 90 million per annum in this year only in the first semester we have achieved an EBITDA of EUR 76 million and improving quarter-on-quarter. It was EUR 29 million in 1st quarter. It has been EUR 47 million in the second quarter. So the momentum of the high-performance alloys is very strong. And the performance of VDM industry momentum also has been remarkable. In addition, we are moving better than expected even and obtaining higher synergies than the one we designed for this period. We have obtained around EUR 47 million in synergies in the integration of VDM with our extended division in this first semester. We have reached 126 new customers so this is something also to put on value that our strategy of moving forward to the high-performance alloys division has been extremely successful. This sector is the one that has as a consequence mostly of the good momentum that is actually experiencing has been accompanied by a strong increase in the working capital in terms of EUR 202 million. As we normally say, we are cyclical. We need to allocate the capital in the best way for our business. And sometimes, the good momentum needs to be making strong investments in working capital as has been the case in VDM. It shall be probably better understood in the next slide, which that is the one in which we want to explain the capital allocation. You have the bridge for reaching from EBITDA to the net debt figure in the left side of the slide, but lets concentrate on clarifying basis on the right side of the slide. The net debt increase in the semester has been of EUR 281 million. Let's talk about the items which clearly has been appearing as cash out. The cash out on this period mostly has been related to tax payments, EUR 152 million. And we have been -- we are also sustainable in paying taxes in the communities where we are based and contributing through our profits in the region of these areas. And after 2 consecutive periods of high profitability as was the 2022, but also the first half of 2023, we have paid a big amount of taxes, EUR 152 million only in this period. In addition, we are growing. We are committed to increase, as you say, as we always have been explaining with further investments and now the CapEx expected for this year were around EUR 200 million, more or less EUR 97 million of paying for these CapEx has been taking place in the first semester as well as the dividend. You remember that it was decided to increase the dividend at 20% for this 2023 and split that into dividends, one interim dividend that took place in the first semester, another one has been already paid, but shall appear in the figures of the third quarter and the second semester. So this EUR 324 million has been cash out for the group in the first semester. And this must be also combined for understanding the level of debt with an operating working capital increase. And this has been remarkable. This has been EUR 304 million. Where has been taking place this increase in working capital, mostly in the division that actually is performing better and it's in a better cycle and better momentum, which is the high-performance alloys. So we have an increase in working capital for accompanying this good time for high-performance alloys. And this is showed in a strong increase in inventories and why increasing inventories? First of all, because of the higher activity because of the strong order book because of we are more or less having stocks of high-value material, which obviously high cost in [indiscernible]. In addition, because the circumstances also have changed. Previously, VDM was mostly supplied from Russia nickel. We now have moved to obtain nickel from overseas, but we need to develop a buffer stock for keeping nickel on place, and this obviously is included in our inventories. As we have explained before, we are making strong synergies and part of the synergies comes as a utilization of other plans for the group for making [indiscernible] for a high-performance [indiscernible]. This also is included in the inventory figures. So at the end, this is a consequence, not only of the good circumstances of the market in the high-performance alloys but also of the improvements and the synergies that the group is obtaining with this integration. So this is partially one of the reasons of this increase in inventories. The strong change has taken place in the second semester. So this figure shall be softening in the second semester. But obviously, most of this big rally has been more or less appearing and shown in this increased inventories in the first semester as well as there is a big relevance of the creditors figure in the case of VDM, and this is mostly related by the replacement of Russian nickel from nickel from other sources as was explained in detail during last year. Most of the nickel of VDM came from Russia, now came from other sources. The terms in which was established, that procurement of Russia nickel was farewell for the company. We need to find other sources. And in the first semester of the year, most of these other sources having experiencing payment terms of 45 days compared with historical 90 days. This is appearing in this figure in this period and in this reduction of the greater figures and obviously affecting the working capital. Ordinarily, we are now normalizing this. And for the second semester, we should move this more to the standard 90 days. And as a consequence of that, also we shall see some relaxation of the working capital for the second semester. In addition, also the conditions of the contracts that VDM had with the Russian Nickel allow VDM to make certain trading on the nickel that obviously was favorable for financing that working capital. And now this is not in place, and we are adjusting our procurement of nickel to our necessities. But having said that, this is a figure that also should reduce substantially for the second semester. So most of our working capital increase has been in the division that is performing strongly in these times, as we have explained. Also in the second quarter, especially in the first quarter in the steel we were flat. But in the second quarter, the change in conditions and especially the lower production expected for the third quarter is reflecting some increase in the working capital for the second quarter. In the third quarter, no doubt, the figure of creditors shall increase and contribute to improvement of the working capital as well as the collection from the debtors. So most of this third quarter -- sorry, second quarter increase in working capital in the quarter shall be reverted in the third one, which will be a strong cash generation quarter also in the stainless business. So as I said before, we are no doubt committed to the cash generation of the group. We are committed to keeping the working capital as low as possible, but we need also to take advantage of the good momentum and accompany that with the proper allocation of working capital.

We know your worries about our working capital increase and as Miguel mentioned, we are busy working on this. We are not worried. And as Miguel mentioned, this is just a summary to explain that we are totally committed to our main principle that we have repeated many times in previous presentation, is that cash is king. This is our principle of our activity. And cash, we will generate cash enough to grow to improve our shareholders' return. And also, we will keep loyal to our basement 1 of the pillars of the strategy that is our traditional strong balance sheet. So we can say today that we are committed to develop and release a lot of an important portion of our working capital during the second half of the year. And finally, to finish this presentation, I would like to summarize. And I would like to remark that this set of results is strong for the time being, and considering a 30% correction in the main markets, that we have explained in detail that the circumstances that made us to increase our working capital and that we are committed to correct that the market remains weak, but with normalized stocks that situation will help us to improve our order book. Our customers will stop reducing their stocks will keep in a normal level of stocks they will come back to the market. They will start buying again. and that is not going to move us to a building stocks up situation, but we'll increase our order book, will improve our order book. Of course, that EBITDA is helping us to flatten our cycles and increasing our profits and contributing to this new level of companies, this new level of EBITDA that we would consider for the future. And also that under these conditions, we are going to release in quarter 3, a good results, but not as good as the well of the preceding quarters. With this, Carlos, I think that we are coming to the end of the presentation, we will be open to the Q&A session.

Thank you, Bernardo, Hans and Miguel, for the explanation and give us more color in the different markets, the numbers, sustainability strategy. and so on. And now we can move to the Q&A session, please.

[Operator Instructions] Our first question today goes to Tom Zhang of Barclays.

I've got 2, if that's okay. Maybe first, just a little bit of help on the guidance. You said that Q3 is going to be good, not as good as Q2. You've given the slide where you say your Q2 number is still well above the 2010 to 2020 average of EUR 89 million. It doesn't feel like we're going back to EUR 89 million EBITDA, but maybe if you go halfway there, you're sort of EUR 160 million or EUR 170 million EBITDA. Is that a number you'd feel comfortable with? And then the second one just on Europe, it sounds pretty bad, destocking, yes, here, your destocking looks to mostly be over. Imports have fallen, but otherwise, especially on the demand side you paint a fairly cautious picture. Just wondering if you see any green shoots at all, any kind of sectors or products where you do see decent demand in European stainless?

Thanks, Tom. For the first question, we cannot give you further guidance. I mean we'll never give a clear forecast. So what we have already explained is the only thing that we can mention. We will not give a number. We have our numbers, and we are comfortable with the situation, but we will not provide further guidance. Sectors in the European stainless. I think the European stainless is mainly suffering as stock crises. Of course, with the economic and geopolitical situation, the economy in general is not in the best shape. We are growing. And I think that most of the institutions are giving better forecast for the second half of the year, but still is weak for the extended steel consumption. But on one hand, having the distributors reach a normal level of stocks, they will start buying again. And with today's prices and with the delivery time of the imported material, they will buy most of the necessities locally, and that will increase our order book. On the other hand, in the end user sector, the consumer goods are not in the best shape. White goods or automotive or everything related with constructions are things -- white goods again or [indiscernible] I'm not in the best momentum, but on the other hand, many projects that were postponed the previous year because of the energy cost as well as the cost of standing still were postponed and now they are coming back. So the sector project -- the project sector is performing better. And in the lower stainless steel is present, like can be catering industry, food processing industry. It's also chemical industry and it's also the oil and wine industry. So the projects are performing better than consumer goods today.

And the next question goes to Ioannis Masvoulas of Morgan Stanley.

Two questions from my side. The first, again, on Europe, talking about pricing, which has been extremely depressed in recent months, partly due to weak underlying activity, partly due to destocking. But where do you see base prices currently in Europe? And are there any signs of recovery near term? Or are we probably going to stay at low levels throughout the rest of summer? And then the second question, going back to the working capital topic where you did spend quite a bit of time explaining the moving parts. But could you perhaps quantify the release you expect in the second half out of the EUR 300 million you built in H1. And the reason I'm asking is there is clearly an element of a structural built due to HPA and the new sourcing of nickel.

I can take the first part of the question, I'll leave Miguel, on the second one. On the pricing, we don't disclose any prices. But evidently, the prices that we have reached are probably the lowest that we can expect. And we are working and we have hope that those prices will go up. But at this moment in time, we are not sure about what is going to happen in the marketplace.

And then, Ioannis, your assumption was absolutely adequate most of the release of working capital, obviously, the majority shall be concentrated what has been the high increase, which is in the alloys division. Part of the one that has been shown in the in the figures of the first semester as you are mentioning is structural because of the change in the supplier or atleast the actual circumstances affecting the supply of nickel. So consequently, shall we revert the whole working capital in the second semester. I don't think so. I think that the final figure for December 2023 should be some increase in working capital, not relevant, but as a consequently mostly of the circumstances. So I don't think that the EUR 300 million shall be fully reverted, but a strong part of this, yes. But the final figure for the year should see some increase in the working capital.

And the next question goes to Krishan Agarwal of Citibank.

I mean if I look at the second quarter number, excluding the inventory write-down, I mean, we are looking at underlying number of EUR 300 million plus. Now in that context, when you're saying that third quarter will be lower, can you help me understand as in how weak the Europe is going to be? Is it going to be a profitable no quarter for the Europe stand-alone? Or we are looking at some kind of a negative number for the Europe?

Europe has been [indiscernible] now, we have the summer seasonal later in Europe combined with the level of base prices that Hans has mentioned that are historical minimums and the energy still is very high. So at the end, this is -- the equation makes that it's very difficult to be profit making in Europe on the circumstances. So maybe for later on with more normalization of activity for the fourth quarter could be, but in principle, the third quarter in Europe, should we -- in Europe, I mean stainless should be weak, yes.

I think if you follow the prices that you can read in the publication like the CRU or [indiscernible], you can understand that the current level of prices are unsustainable. So the situation can only improve.

And the next question goes to Alberto Espelosín of JB Capital.

I have just 1 follow-up. Since you are not concerned on working capital, and you should continue your generating free cash flow, as you said, -- so looking to your strong balance sheet position, what should we expect on capital guidance? Are you looking for any M&A? And if not, could improve shareholder returns. Would you think of a share buyback at current market prices?

Thank you, Alberto. I think that our strategy in capital allocation is very clear. We have certain necessities of CapEx, including the new expansion plan in North American Stainless. So we have to generate enough cash to pay this EUR 0.6 per share. We have to generate enough cash to pay our Capex and if the situation is good and we have an excess, we will continue with the buyback programs. But as we mentioned in previous presentations, there is not -- we don't have a date to do this to apply this buyback of shares. Expansion, as we always mentioned, with 0.7 ratio in EBITDA. I think that we can be comfortable that if we find an interesting project, we will have enough funds to achieve it. I think this is what we normally disclose. Now it's cash enough to pay our dividends and CapEx and the excess of these cash will be for share buybacks. And in case of a new acquisition, a new interesting project we'll find the funds to do it with a very comfortable debt situation.

And the next question goes to Patrick Mann of Bank of America.

Just wanted to ask on your outlook for inventory adjustments. I mean your results are really strong considering where apparent demand is where volumes are and if we add back the inventory adjustments, they're even stronger. So just trying to think about if raw material and alloy prices stay where they are today, what would you expect for the third quarter for inventory adjustments? Do you think there's still more downside to inventory levels.

Do you know what happened normally with the feeling of stock levels. Not that you could say mormally distributor are acting like not with today's necessity but considering what they will need in a couple of months. They always have to program in advance of the real necessities. So every time for a normal stock level, what was -- last year in May, what was not enough for the necessities in April was too much in May. So that will depend very much on the feeling of the economical situation or the feeling on the future. In volumes, in terms of stock in the main markets that we are following in the United States and in Germany, the stocks are more or less on the historical average. Of course, as normally distributors are calculating the stock levels in days of stock. So basically dividing by deliveries of demand, if deliveries are short, then the days of stocks are much higher. So they will continue with the feeling of reducing the stocks, but that can change very, very easily. If they come back to purchase again. And of course, if the situation improves. So we'll have to wait until the -- after summer to feel how the market is going to perform for the second half. But it's not a year to expect a big recovery. Under the situation with the low base prices in the European market plus the raw material pricing, things normally we will be able to deliver or to really to release some provisions at the end of the year, but this is something that we cannot predict today.

The next question goes to Maxime Kogge of ODDO BHF.

Could you give us a bit of flavor on how each region performed within the stainless steel division in Q2? I mean, is it fair to assume that U.S. was essential contributor to profitability with Europe, Asia and Africa barely profitable or perhaps even loss-making. That would be my first question. And second question is on the European market. Do you see that the path to becoming profitable again in the near or even distant future? There are some imports from pressures. There's also apparently a lot of overcapacity with possibly some [ antidumping ] behavior based on competitors. So -- I mean, is there a point when you will be able to be profitable again in Europe? And if that's not the case, do you envisage disposing the Europe [indiscernible] .

Thank you, Maxime. Per division, you know that we don't give results, we don't split our results in the different divisions. But what I can mention is that today, United States is the place to stay. And we have a very strong position in United States. And we are benefiting of the better conditions of the American market and the American economy. You mentioned also South Africa, and in South Africa we are doing something that is very interesting that is we are developing new products just to be less dependent on exports. So South Africa or Columbus is stainless. A mill will depend less in exports to other regions as have developed not only stainless steel, but also carbon steel or some high alloys stainless. And in the case of Europe, we cannot take conclusions today because the situation of the European market is very weak. I think that under normal circumstances, with all the -- many reasons. Now when we speak about the globalization, we have to speak about transport costs or transport emissions that is also important because if we are -- these transport emissions to the scope 3 of the products that is going to be a disadvantage. So that's something that will also contribute to the regionalization process. Plus, of course, all the disruptions in the supply chains that have made the processing managers to take decisions to concentrate a big portion of the necessities in a close area. And finally, as you mentioned also, the fair competition rules. I think that's something that we are promoting. Participating in all the associations in the countries where we are present, that during many times, subsidies in different parts of the world have helped not to develop a very strong stainless steel industry that now with the overcapacity that they have to export to other areas. And Europe is the biggest open market. So that's why we are trying to compensate with the severe measures, but also with trying to complain and to looking for competing in a fair way with some of the Asian producers, and we are developing this case of antidumping and anti-subsidies that we have, in the case of China or Indonesia mainly. So this is what is changing the world or at least the stainless steel work is that the world is becoming more local, more regional. And this is what we expect for the future. So we will develop our mills, as we always mentioned, that we have to be local in -- for a global company. So we are local in South Africa, we are local in Europe, and we are local in the United States. This is a situation that we think is going to benefit us in the coming years.

And the next question goes to Moses Ola of JPMorgan.

Two from me. So the first one is on VDM. And on that annual EBITDA run rate target of EUR 80 million to EUR 90 million. So if we look at the different components versus last year, so you had EUR 47 million in synergies this first half versus EUR 25 million for the whole of 2022. 226 new customers versus 122 in 2022. Is there a justification for that EBITDA run rate target to also double given the fact that those synergies and the customer base establish into a weak stainless steel market as well. So do you see potential for greater synergies as the market recovers. And then also on the U.S. Are you actually seeing any evidence yet of restocking? If we look at the macro data, when we look at orders to inventories, PMI has actually picked up in July so you've seen that same level of restocking appetite as well.

Okay. Well, Moses, in regard of the VDM as we have said, we are concentrating in specific sectors, which no doubt are high-margin sectors. And at the end, we think that VDM is well diversified in covering several sectors. So its contribution on the previous year, for example, when there was the separation of projects in the works of the Covid correction. At the end, it's true that VDM have had a strong performance, mostly related to electronics. And this contribute to VDM level of activity and also and also proper profits. But when we are moving the actual scenario to the sectors we are talking about, those sectors are substantially higher margin sectors. And this is more or less what is appreciated as we mentioned before, it's substantially above the projections we had when we made the deal, and this is no doubt a satisfaction. It was also a satisfaction that EUR 120 million achieved in the previous year. Which is a new level of contribution coming from VDM is still for us is an issue which is not so clear. We cannot assume that this reference of this semester that has been extraordinarily strong for VDM is the new average, I should never say that. But the momentum is fine, and we are taking advantage of that. If these -- any of these sectors experience certain correction, maybe we can compensate with others. But in the actual basis, we are taking advantage, and this is appearing in this contribution.

I can take the second one, Miguel, on the restocking process in the United States. We don't believe so yet. Evidently, there are some customers and distributors that had less exposure last year on overstocking and they might be restocking part of it. But in general terms, there is no restocking process yet in the United States meter.

And the next question goes to Bastian Synagowitz of Deutsche Bank.