Alro S.A. (ALR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am [indiscernible], your Chorus Call operator. Welcome, and thank you for joining the Alro S.A. Conference Call and Live Webcast to present and discuss the first quarter 2021 financial results. [Operator Instructions] At this time, I would like to turn the conference over to Floria Motiu, Investor Relations of Alro. Mrs. Motiu, you may now proceed.

Thank you. Good morning, everyone. Welcome to our earnings call for Q1 2024. Our result presentation is structured in 3 parts as usually and will be presented by Alro management as follows: an overview and market outlook section that will be presented by Mr. Marian Nastase, the Chairman of the Board of Directors, and operational section that will be presented by Mr. Georghe Dobra, Chief Executive Officer of Alro; and the financial section that will be presented by Mr. Genoveva Nastase, Chief Financial Officer of Alro. The presentation will have a question-and-answer session in the end where you are invited to address your questions. Now I invite Mr. Marian Nastase for the overview section of our presentation.

Good morning, everybody. Hello. I'm starting with a brief review of the performance for the Q1 for the first quarter. Average 3 months [ LME ] quotation was $2,240 per ton in Q1 2024 similar to 2023, Q4 2023, even decreasing by $194 per ton as compared to Q1 2023, an 8% decrease of the quotation in the market, but we had a higher production of sales and sales of aluminum products, especially plates in Q1 as a consequence of our investment made. We have a positive EBITDA, which is RON 86 million, increasing compared to the similar period of 2023 when EBITDA was RON 22 million -- and that is made and is based on the strategic decisions which we made at the group level in the past 2 years and continuous efforts to position Alro a reliable player in the aluminum industry. It is correlated as well with the recovery of demand at the level of end users and the normalization of electricity prices, to some extent, I would say. Positive growth result of RON 14 million in Q1 2024 compared to a negative one of RON 35 million in the similar period 2023. And that is thanks to higher sales volume, focus, as always, as you know, on value-added products and our investment in sustainable production at lower cost. The bottom-line consolidated net result affected by the 1% minimum turnover tax according to the legislation, which has been published at the end of 2023 excess compared to economic performance, aggressive competition with pressure on sales price and interest rates still at high levels. The group has a net loss of RON 14 million in Q1, but substantially lower than the loss of RON 52 million, which have been reported in the similar period of 2023. Floria, back to you.

Thank you, Mr. Nastase for the introduction to the Q1 results of our group. Let us move to the operational section now, for which I invite Mr. Dobra to tell us a few words. Mr. Dobra, you have the floor.

Okay. Thank you, Flora. Good morning, everybody. Regarding the operational highlights in production, in Q1 2024, the production was 57 to 181 tons compared -- much higher compared with previous [indiscernible] previous similar quarter in 2023 when the volume was 43,531 tons. Production practically increased with 32% higher compared with Q1 2023 and 12% higher compared with previous quarter Q4 2023. Still operating with a lower capacity in the smelter to [ put through of rooms and ecological line ] yielding results more [ liquid aim ] produced from scrap by 11,000 tons for [ 50 per ] tons more. Regarding the favorable [indiscernible] process aluminum production, in Q1 2023, we have production 22,000 tonnes to [ 186 ]. And in Q1 2024, we have 29,000 tons [ 65 ]. The [ federal ] products [ fell ] increased 56%, 7,744,000 tons, and the [ 3D ] products remain a quite similar level with a slight decrease, 7% compared to the same quarter of 2023. Regarding the sales, sales level improved due to the sales efforts and better demand. Practically, sales of primary aluminum increased from -- compared to Q1 2023, Q1 2024 increased to 19,280 tons compared with the similar period of the last year, we had 70,068 tons. Practically, the sales of process aluminum products increased from 22,634 to 29,740 tons. Primary [indiscernible] boosted the sales of primary aluminum in Q1 2024 compared with Q1 2023, with more than 5,000 tons as demand improved in the European consumer were more orientated to the local suppliers. Process aluminum, significantly higher quantities when we compare with the [indiscernible] quarters, almost 7,400 more tons in federal products, 52% more sales, solid demand demonstrated by restocking activities in the European distribution market and geopolitical factors, difficulty in supply chain overseas. Hope for end user market to pick up gradually too. Alro has deployed this new line of cut-size federal products, good demand in aerospace sector compares Q1 2023, demand picking up in automotive industry, low level of demand in building and construction, [ quoting ] for interest rate adjustment. Also, if you have in front the presentation, on the page 8, you see in the left graph, we have here show our focus in [indiscernible] federal products gross. Thank you, Floria.

Thank you, Mr. Dobra. Now for the market outlook and the overall environment of our industry, I invite again Mr. Nastase to tell us a few words. Mr. Nastase.

So we actually -- what we experienced in Q1 2024 compared to the last quarter of last year, quarter 4, what we saw -- we saw fluctuations of the aluminum price between bullish and bearish factors with a slight upward trend starting to develop towards the end of the quarter. We saw some demand picking up in Q1, partly fueled by restocking and geopolitical issues, although there are some good signs from end-user demand. Production also increased in accordance with the International Aluminum Association. Global primary aluminum production increased in Q1 by 4.1% year-on-year to 17 million tons. Increase was registered in most key regions in North and South America, Asia and Western and Central Europe. The demand for primary product for wire rod demand was slow at the beginning of '24 due to the low season in the cable industry, but picked up in March. There are signs that good demand would continue during the second quarter as the ban on the Russian wire rod as well as the logistic problems with the wire rod coming from Asia and Middle East, made European consumers reorient to local suppliers. Demand for billet followed a similar trend in Q1 and remains on an uptrend, which coupled with lower stock levels in Europe encourages us to believe some improvements in pricing may follow through. The demand for processed products higher, we experienced a higher demand for sheets than for coils in Q1, mainly generated by restocking in the European distribution market and geopolitical factors as well. The European aerospace sector continues to remain strong. In the automotive industry, despite several hiccups linked mainly to the transition to EV production, the demand is also picking up. The demand from building and construction continues to remain at low levels in the need for some interest cut rates. Price-wise, we still see a challenging situation, particularly in the European markets with aggressive competition among all players. The outlook for Q2 remains optimistic from our perspective from a quantitative perspective and several signals from the market indicate that the end-user demand will also pick up gradually. Recent resurgence of economic activity in key markets such as U.S. and China gave material boost to LME quotation starting with April '24, and low inventories level made some worry about metal availability according to CRU. In addition, speaking of supply [indiscernible] recently U.S. and U.K. implemented new sanctions on Russian metal, including copper aluminum and nickel. So, demand seems to begin bottoming out. Market may need time to settle down and incorporate the new conversion fees and premium levels. Macroeconomic catalysts such as the interest rate reduction by the ECB, hopefully, in June may be needed to support fragile demand throughout the year, especially in the construction sector, but that is still to be seen. Also, LME evolution with mid-market recovery in some sectors and no improvement in [indiscernible]. In Q1, as I mentioned earlier, the average aluminum 3-month seller LME quotation has averaged at $2,240 per ton, 1% change quarter-on-quarter. So basically, almost flat. The LME quotation has started the year still [indiscernible], but initially the upward trend developed and seems to continue in the second quarter, supported by increases in manufacturing activity, sanctions on Russian metal and decreasing inventories as well as hopes, as I mentioned, for interest rate cuts. In terms of inventories, aluminum holdings in London Metal Exchange warehouses increased in December, following the restriction imposed by Britain on U.K. entities and individuals taking physical delivery of Russian-made base metals and remain around those levels in Q1. However, the share of available aluminum stocks of Russian origin in LME warehouses also increased to 90%, 91%, which is metal with restricted delivery. Available for delivery stocks are still at low levels, supporting an uptrend in the LME quotation. Floria, thank you. Back to you.

Thank you, Mr. Nastase. We now move on to the financial part of our conference call that will be presented by Ms. Genoveva Nastase. Ms. Genoveva Nastase, you have the floor.

Thank you, Floria. Good morning, everybody. I'm so enthusiastic to present the result of the first quarter 2024 as almost each financial indicator is better compared with the previous period. So, if we look starting from the revenues, which improved on the back of the volumes sold on the back on the demand, which recovered. Also, if we look to the cost of goods sales, which decreased in the first quarter, mainly due to the price of the energy, which normalized as also we get rid of the contract, which we were stuck in 2023. And as such, the growth result is in RON 14 million compared with minus RON 35 million in the comparable period of 2023. And going forward to the EBIT, which is now RON 53 million compared with minus RON 14 million. The EBITDA is also RON 86 million compared with RON 22 million in the previous period. There is only one indicator, which was dragged by the income tax, which was calculated based on the tax imposed on the turnover, which practically put a lot of pressure on the result. Looking to the financial performance and looking to the net results from 3 months 2023 to and the evolution until today, we can see the improvement in the sales. We can see the improvement in primary. There is an increase overall of RON 30 million due to the quantities. Also, the energy cost is lower, as I also mentioned previous, and we have an improvement of RON 190 million only for this period. And there are some other financial costs, mainly the FX differences. We had FX loss in RON 40 million in 2024. While in 2023, it was an FX gain of RON 13 million. And the income tax, which I mentioned, which is calculated based on the [indiscernible] to RON 196 million issued at the end of 2023. On the next slide, on the slide 15, we have -- all the margins improved, especially the EBITDA margin, which is quite important for us, it's an indicator which are following quite straightaway and which is showing the efficiency of the measures taken in the past. All of them are better compared with the initial period, as you can see on the graph on the bottom of the page. On the slide 16, we -- for [indiscernible], we also see the EBITDA and each influence coming from the LME and the fixed. The LME practically compared with the previous period stayed flat. And there is also the -- in the later months, there is also an improvement in the LME. Practically, we are now facing LME at 2500 and above, which is very good for our business. While on the right, in the cost of [ electrolytic ] aluminum, you can see that the energy decreased, the proportion of the energy decreased in the overall cost of electrolytic aluminum. We now have -- we have it closer to the 35%, 40%, which is kind of a rule in the industry. There is a smaller increase for the [ alumina ], which is now 25% in the total cost. For the [ Alumina ] segment, there is a slight decrease in the sales [indiscernible] as they deliver a smaller quantity of [ alumina ] compared to the previous period. However, its -- they deliver it at lower prices based on the quotation at which they bought it from the market. On the slide 18 and 19, we presented the financial position of the Alro Group. There are not significant changes compared to the previous period. Practically, we have more or less the same position, the same values for all of them. So, there is nothing significantly to be reported. We practically at the end of 2023 in respect of the liability part of the bank's debt and everything we put it, we assured for the next 3 years under the working capital facility. So practically, we have stability for the period to come. So, in the first quarter, there is nothing important changed. In the cash flow summary, we can see that the purchase of power plant and the equipment increased, which is quite good. So, we continued our investments in the business. There is a small change in the restricted cash, which represented a variation in collateral deposit place of 31st March 2024 for issuing letter of credit for acquisition of the raw materials. So, we end up the quarter with RON 269 million. In the debt and treasury on the next slide, slide 21, we can see an improvement in the net debt on the back of the improvement of cash position of at the end of the month. The debt structure, as you can see in the graph on the right side of the slide, it's quite balanced. We have almost 40%, 40% between RON and dollars, while 18% is in Euro. And for the capex, what I also mentioned before, there are higher amounts spent for capex, we have $8 million spent in fourth quarter. And I will mention compared with [indiscernible] in 2023 first quarter. And I will mention in the next slide, the most important project, but there are some others which are also important for us. [indiscernible] First, I will mention the project in which we participated with 40% as participation in the equity, the CCGT Isalnita power plant, which is a very important strategic project, not only for us but also for Romania. And the total value of the project is, I remind you, it's EUR 506 million. Out of this amount, almost half, EUR 253 million is financed by the modernization fund. It's a non-reimbursable facility. And we are -- I mean CCGT is, of course, is managing -- the management from CCGT is managing the project on a day-to-day basis. They signed a contract for the modernization fund, and they are preparing the documentation for construction, ready to be launched in the public sector in the public field. The next project, which I'd like to present to you, they are related with the -- our production for Alro sectors. And we are talking here about a new aging furnace, which was started in 2023 and to be commissioned in February 2025. And there is another ultrasound scanning system and double-sided conductivity scan for aluminum plates. They are both here to increase the volumes to, increase the capabilities to deliver more value-added products in Alro industry. And this will be commissioned in December 2024 and September 2025. And the Vimetco Extrusion also put in -- commissioned in the April 2024, an automatic packing line, which is financed by some Norway brands for -- which was raised -- I mean, the program was launched for 2014, 2021. And they invested by 31st March 2024, EUR 4.3 million. The status as is already installed is in testing period. practically, it's finalized. Thank you, Flora. Back to you.

Thank you, Ms. Nastase for the interesting presentation. At this time, we will begin the question-and-answer session. [Operator Instructions] One moment for the first question, please.

Thank you, Ms. Floria. The first question comes from the line of [ Paras Cosmin with NNPC ].

Just 2 questions from me. First, on pulp prices, if you can comment a bit on the, let's say, last 6 months evolution? And how do you see the pulp prices going forward? And the second question is on recycling part of the business. How is this situation going? Is the new government project [ retro ] of any help for you?

[indiscernible] Sorry, I think you or Mr. Nastase speaking about energy price and I will speak about the recycling. Regarding [ Retro ] particularly, we are not involved in 10 stocks. And till now, it's not any -- not yet any help regarding increasing the quantities of the [ scripts ] because they practically Retro there are cans. And practically, we don't produce can stock coils... Yes. In regards with the energy prices, as you saw, there is a trend -- downward trend in the energy prices, which is actually helping the operations. We believe that for us, it's rather easy to understand the inclusion of the renewables in the market in a very -- in such an aggressive way actually put a lot of pressure on the pricing. And we will see more cannibalization most probably in the period to come. We already see it. You saw that we have negative prices in the [ the head market ]. So, the downward trend of the prices is there. However, it's a market which is -- the problem in Romanian market is that it has a very limited connectivity -- interconnectivity with the rest of the European market. And we may see a new wave of speculators in the second part of the year, trying to push up -- to move up the pricing. The key point is that as long as there is not enough balancing capacity in the market, we will see such phenomenon happening. I hope that answered your question.

[Operator Instructions] The next question comes from the line of Mandru Daniela with Swiss Capital.

I have several questions. The first one is related to the first quarter results. Can you disclose the average realized Alumina price in the first quarter and the amount of purchased scrap in tons, of course? So, if you can help us to model in this information?

Daniela, thank you for the question. Unfortunately, we cannot disclose the price, but I can assure you that price which is currently on the market. So, it's -- if you take the price from the public sources from the publications, we are -- and adding the trends forth till digital here, you will be close to the price which we currently have in our P&L.

And in terms of bought scrap tons, I think this you can disclose.

You mean the quantities which we...

The quantities Yes. Yes, exactly the quantities.

I think 16,000, 17,000 tons.

And regarding the Isalnita power plant, from what I remember, the completion date, year is 2027. Is this correct?

Yes, this is correct.

And now since you already -- the first quarter results and some of the second quarter, you maintain your budget -- budgeted lines in terms of sales and profit and EBITDA. I mean the gross results, for example, budget and draft results indicate a gross margin of 6%. The margin is significantly lower in the first quarter. I understood that everything most probably will improve in terms of margin and pricing. But the question is if you still maintain your budgeted figures for the year?

The budget has been approved [indiscernible] less than 1 month ago. And practically, our intention is to keep the budget and not have the revisions of the budget.

[Operator Instructions] Ladies and gentlemen, we also have a question from [ Florian Roberto ], a private investor.

I want to speak in Romanian, if it's possible. [Foreign Language]

In respect to the second question, I can answer you because we also announced publicly this that we are -- we made a contestation claim for the file. And there is a procedure, a certain process, which is following. We are expecting a certain number of days to elapse in order to go further. So that's -- we are -- as we announced, we do not agree with the conclusion of the control of the inspection. And we will proceed further to show that we -- to prove that we are [indiscernible] the transactions which they are referring to... Mr. Florian, you're done with your question, correct?