AMAG Austria Metall AG (AMAG) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome and thank you for joining the AMAG Austria Metall AG Full Year Results 2021 Conference Call. [Operator Instructions] The forecasts, budgets and forward-looking assessments and statements contained in this presentation were compiled on the basis of all information available to AMAG as of February 8, 2022. In the event that the assumptions underlying these forecasts prove to be incorrect, targets be missed, or risks materialize, actual results may diverge from those currently anticipated. We are not obligated to revise these forecasts in light of new information or future events. This presentation was prepared and the data contained in it verified with the greatest possible care. Nevertheless, misprints and rounding and transmission errors cannot be ruled out entirely. In particular, AMAG and its representatives do not assume any responsibility for the completeness and correctness of information included in this presentation. This presentation is also available in German. In cases of doubt, the German language version shall be authoritative. This presentation does not comprise either a recommendation or a solicitation to either purchase or sell securities of AMAG. I would now like to turn the conference over to Christoph Gabriel, Head of Investor Relations. Please go ahead.

Good morning, ladies and gentlemen, and welcome to our conference call for the full-year results of 2021. And together with our CEO, Gerald Mayer, as well the COO, Helmut Kaufmann, and CSO, Victor Breguncci, all Board members will guide you through the presentation. As usual, we will enter into the Q&A session directly after the presentation where the Management Board is happy to answering your questions. Before we start, I'd like to remind you that the press release, the presentation, and our Annual Report were published on our website at 7:30 AM this morning. Now I would like to hand over to our CEO, Gerald Mayer.

Thank you, Christoph. Very warm welcome from the 3 of us here in our meeting room in Austria in Ranshofen. I would like to start with the first Slide #3 with our highlights about the year 2021. What we saw last year, it was really interesting new challenges, it was -- we saw a significant growth in revenues and earnings due to a very stable production, high productivity and, of course, the very attractive environment, in particular, in the primary aluminum sector. The revenue increased from roughly EUR 1.2 billion from EUR 900 million in the year 2020. In EBITDA, we achieved a new record level of EUR 182 million (sic) [ EUR 186 million ] after EUR 108 million in the year 2020. Also, net income increased dramatically from EUR 11.1 million in 2020 to EUR 64.6 million end of the year 2021. This is also the reason why we proposed a dividend of EUR 1.50 per share, which reflects simply our positive business performance. The highlights from operating side will be shared then by my colleague Helmut with you. Of course, our new products fireworks consistently continued. Our path to climate-neutral AMAG was outlined and published last year. So we have a lot to tell here in this regard. Regarding the outlook for 2022, we expect, again, a high demand for aluminum products, so it will rise again according to CRU. And two, of course, it's -- again, in our business in each and every year at the beginning of the year with many uncertainties, it's very early to give you a -- too early to give you a guidance based on these uncertain market trends we see. Let's turn to Slide #5, just again for many of you, I would like to repeat, more or less the pillars of our strategy. And the first one and very important one for us is innovation. So first pillar, innovation, we have unique product solutions according to our customer needs. We built a perfect environment for our R&D employees last year, in the year 2020. It's our CMI, or Center for Material Innovations. And we're top in terms of spend, of R&D spend in our sector. Second pillar, sustainability. We follow an holistic approach here. So we count on 100% hydropower in our smelter in Canada. We are, I would say, best-in-class in terms of recycling. It is part of our DNA and we follow this approach for more than 30 years and more than 3 decades. So we stand out there. We are totally convinced. With our customers, we really also invent -- introduced closed loop concepts with regard to recycling and this is not just with our customers, this is also something we do within our Group. For example, with our acquisition from the year 2020 with AMAG components. All in all, this is certified, this is approved by a top sustainability rating published by Sustainalytics. Next pillar, diversity. So we have over 2,000 employees from more than 30 nations in our team. We have a very broad customer structure with around 1,000 customers and we have more than 5,000 different products based on more than 200 alloys. So a very wide range of products, which also reduces -- or brings us resilience to, let's say, volatile markets. Last pillar here is the humane approach or we call it empathy, which is a little bit more than respect. We are here beyond respect as we always say internally, this -- what do we understand here, it's a respectful and appreciative communication with people, with the community. We have social engagements here in a wide variety of examples and so on and so forth. So fourth pillar, we count on. Let's flip the page to Slide #6, our value chain, as a reminder here, so we have a unique value chain in our business after we acquired AMAG -- Aircraft Philipp, as it was called last year. We renamed it to AMAG components end of -- beginning of this year. So AMAG has a value chain, which starts at primary aluminum, we have semi-finished products on our site here in Austria with foundry alloys on the one side, semi-finished rolled product sheet and plate in a wide variety -- for a wide variety of applications and industries on our site here. And we acquired, of course, AMAG components last year. They built detailed parts for the aerospace industry. And last but not least in the circle, we are very strong on recycling and here the game begins again for our semi-finished products. I would like now to hand over to Helmut Kaufmann, our COO, who gives you some details and insights to what we did last year from the operational perspective.

Good morning from my side. I am very proud to say that we were able to continue our so-called new products fireworks. I would say, we were able to introduce roughly 15 new products in the past 3 years. And so, it is clear that I can only show some examples here. And one very important area of aluminium usage now and for the future is electric vehicle, electric mobility, and we introduced 2 new products, one for battery trays and another one sheet metal for cooling of battery area. And combined with sheet metal for outer skin application infrastructure and chassis applications, we now have a full program of aluminium sheet metal available for our customers in the electric vehicle area to combine light-weighting and electromobility. We turn to Page 8. We have something brand-new also accompanied by patents. As you know, our aluminum metals are at the moment, how to say, ordered in 1000 to 8000 series products, but these are more or less artificial [ products ] and we decided to forget these [ products ] in our R&D and mix different materials and develop or invent new material chemical compositions, and therefore, new properties. We saved the name AMAG Crossalloy because we mix and cross here different products. What we expect is a new set of properties for a large variety of applications in the future. However, we must point out clearly here, we started with very fundamental research here and we are now in the stage of transferring from this fundamental basic research towards series production, which takes, of course, some time because, as you know, material development is a quite time-consuming process. On Page 9, I would like to point out again, our strength in recycling. We are still one of the leaders. We, last year, turned around 340,000 tonnes of scrap into high product quality materials, product casting applications, as well as for rolling applications. To repeat for all of you who have listened to us for over the last couple of years, this is already well known, but with roughly 75% to 80% recycled content average in our products, we are still global benchmark. And this is important in terms of energy consumption and CO2 emissions because in recycling, we roughly consume only 5% of the energy compared to the whole value chain when we look at the lifecycle analysis of primary material. For CO2 reduction or climate neutrality, we have a quite holistic approach and our view is that, innovation and sustainability go hand in hand. So many of the materials that we are trying to develop or processes that we are trying to optimize, our focusing on higher recycling is equal to lower CO2 emissions. This, in the end, is accompanied by a number of measures. One important one is that we introduced Austria's largest rooftop photovoltaic system in Ranshofen last year and actually we are on the way to expand this one already in this year and in the upcoming years. To prove that we are committed to reaching the climate neutrality targets, we dared to publish a roadmap to reach the Austrian climate target to be neutral by 2040, to make sure that this is understood. This is 10 years earlier than the European target and 5 years earlier than the German target and this is quite challenging. On Page 11, you can see this rough approach in a drawing here. We started in the year 2017 as a reference year because this was the year when we started a new plant to -- after the expansion program. And there are several topics that have to be solved. First of all, we have to do quite a lot of research and development work. For example, our industry normally hydrogen is an enemy because it deteriorates property quality. So we have to learn how to handle hydrogen energy like in hydrogen burners in our melting and casting furnaces. Energy efficiency stays a very important topic. The infrastructure has to be modified for new amounts of electricity that will be required in the future, also maybe a change from natural gas to hydrogen. This is a significant job to do. And in the end, as I said, to replace fossil energy by alternative new energy is the key topic for the future. Since AMAG has a growth plan to utilize the new investment, it will not be possible to reduce the absolute consumption of energy in the next couple of years, but we are on the way to stay rather even up to the year 2030 and from then on in absolute numbers, in specific numbers, CO2 per tonne aluminum produced will be reduced and we are committed to end up with 0 CO2 emission by 2040. All these efforts have been seen by the public, and we received a number of awards. Last year, one also very connected to sustainability is that, we got the award for the Effective Sustainability Communicator 2021. We got very good ratings, ESG ratings by Sustainalytics. We are still a member of the VONIX sustainability index. We also got Vienna Stock Exchange Award in the Mid-Cap category for top scores in financial reporting, investor relations, strategy and corporate governance. And in addition, a number of certificates and awards also towards quality and sustainability, occupational health, we had the best result ever in our company last year, and then not in the end, for management of quality. Thank you very much.

So good morning from my side. This is Victor Breguncci. I will go through -- quickly through the slides from market and shipments. As you go to Page 14, you can see our heat map for PMI Index, and we can see in '21, we had a global economic growth of around 6%, which really pushed the demand for aluminum. And you see in the next pages, on Page 15, what happened to primary aluminum. So demand remains high. We grew 9% in consumption versus the production. So as Helmut already mentioned, aluminum is a very intense user of energy and we've seen this impacting business cases of many smelters globally. So production didn't grow at the same pace as consumption, which puts pressure on pricing of aluminum, primary aluminum, and we saw this in our Alouette smelter, the impact. When we go to Page 16, going down to downstream, we see what happened to aluminum flat-rolled products. We are in a balance at the moment when you look from a helicopter view, consumption and production are equivalent in terms of growth. We expect for '22 stronger demand remaining in many segments. So we see that within each segment, within each market, we have different dynamics, but overall flat-rolled products will remain pushing with strong demands. What does that mean? So when we go into markets in Chapter 17, we saw the transport pulled by automotive and transport applications for aluminum grew by 8.5% versus 2020. We still lag behind in the development of the aerospace market, aerospace industry, but we are expecting that this year this can be a bit better. Industrial applications, mechanical engineering, packaging and construction also had a positive growth after the big impact of the pandemic in 2020. Going to Page 18, what does that mean to AMAG? We grew by 9.3% in total shipments, which is a positive note from our side and prove the rich side of our strategy. So in the Metal Division, Alouette in Canada produced at full capacity and even shipped 700 tonnes above. In the Casting Division, we were 8,000 tonnes above 2020. The automotive sector really leveraged all this demand. And in Rolling, almost 30,000 tonnes, 28,900 tonnes in all industries that we serve, which proves that when we go to Slide 19, we see how the distribution of sales happened in 2021. Normally, we see around 13% of aerospace. We saw 7% here, but the other part of the portfolio kicked in and helped and we had a big growth in automotive applications, also in the industrial part, in tread plates and sheets and plates, which puts us in a good situation for the year 2022. So in order to conclude the part of the market, we saw over the quarter since 2020, the development of the order book. We were present at the market. We were showing empathy in respecting our key customers and their demand, so we see that '22, this will remain, the attitude we treat the market. We had a record order book position in 2021 and we see this as a good way to show the ramp-up of our expansion in 2017. So from the market side, I bring it back now to Gerald, please to carry on. Thank you.

Thank you, Victor. So next slide, Slide 22, let's start with the regional business performance. So, of course, one driver was the aluminum price trend, very important for our Metal Division. We saw, let's say, a sharp increase starting from mid of the year 2020, it continued throughout the year and we saw then the level peaking last year sometime in beginning of October, middle of October at more than USD3,200 per tonne. It came down again until year-end in the fourth quarter and the start into the year 2022 was again promising. This, of course, translates then into 2 things. One thing is high profitability in our Metal Division and also working capital needs, and I will talk about this, of course, a little bit later. Next slide, alumina price trend, also very important, of course, for our Metal Division performance. The level of alumina was really low until beginning or mid of third quarter. And with this mid of third quarter, we saw a sharp increase to high levels again, we peaked at -- in October at roughly USD500 or USD480 per tonne, sorry. And then after that, it came down again. Right now, the alumina price is above USD400 per tonne. Again, all in all, it was very attractive in average for us and for our Metal Division, in particular, you have to bear in mind that it takes 2 tonnes of alumina to produce 1 tonne of aluminum. Slide #24 shows now how this translates, what we learned now about shipments in downstream from Victor, and the price trends I just explained into our revenue, which was up 40% roughly compared to the year 2020. And you see an increase in all our divisions. On the top graph that you see that Metal Division is up EUR 88 million or EUR 90 million roughly from roughly EUR 200 million. In Casting, we saw an increase from roughly EUR 80 million to EUR 120 million. And also in our Rolling Division, we saw an increase from a little bit more than EUR 600 million to EUR 850 million in this case. Let's go to the bridge, and if I look to the bridge, the reconciliation 2020, as I mentioned before, the level was EUR 900 million. Aluminum price had an impact of a plus of EUR 140 million. The bulk here refers to Rolling and Metal Division. Prices and premiums were up in general plus EUR 93 million. Also volume is up plus EUR 140 million. And then we have some others like currency translations and so on. So the increase, all in all, was roughly EUR 360 million compared to the prior year or 40% as I mentioned before. How does this translate into profitability? The level of 2020 was EUR 108 million. We're up 72% to EUR 186.2 million. Let's say, if you look again to the bridge, alumina price is responsible for the [indiscernible] amount of EUR 60 million roughly, EUR 58.2 million. Then we had prices and premiums, which increased by EUR 46.5 million. We have, of course, high raw material prices and energy prices, which also peaked in the fourth quarter of last year, and this is a burden and this burden is what is also reflected in our fourth quarter's result, in particular in the Rolling Division, and we are talking about EUR 50 million of higher cost in raw material and energy for the year as a whole. Volume and mix, of course, is positive with EUR 60 million plus, and then some others like structural costs, in particular, maintenance compared to last year of minus EUR 40 million. So this ends up at EUR 186 million or roughly 72% plus. Let's have a look at Slide 26. Here, you see the change in EBITDA compared to 2020 by division. You see that we are significantly up in our Metal Division. It was a record year for our Metal Division. And the reason, of course, is the combination of a high aluminum price with an attractive alumina price, and this compared with our formula for energy prices, which is a percentage more or less of the price for aluminum. Casting Division is up EUR 5 million, and this refers, in particular, to a sharp increase in the first half of the year 2020. In Rolling, we're also up by roughly EUR 30 million, high demand from numerous industries, of course, there is still room to improve, in particular, in the aircraft business. But all in all, we are happy with demand. It was picking up in the beginning of the year and it stayed strong throughout the year and it's still strong, is what I can say as of today. And in Service, of course, we have higher energy cost, structural cost, and so on, which is compared to the year 2020, a minus of EUR 6 million. Yes, Q4, Slide 27, similar picture. EUR 40 million was the number for the fourth quarter in 2021 compared to EUR 28 million in the comparing period of 2020. Also the bridge shows a similar picture. You see that the raw material prices account here for, let's say, rough to an amount of EUR 18 million minus roughly, EUR 48 million was the number for the whole year, so it's a little bit more than the quarter, so you see that, in particular, in the fourth quarter, the impact, in particular, of energy cost. Yes. And all in all, the increase was again significant. This also translates into a sharply increased net income after EUR 11 million, it was a plus in the year 2020 where we were proud, because this was not so clear throughout the year, but now with EUR 64 million, we are happy that we could achieve this. The year as a whole was still impacted -- highly impacted by COVID. We saw sharp price increases, in particular, picking up in the second half of the year and sharply picking up at the end of the year, and so EUR 64 million or EUR 65 million is, I think, a satisfying number. There, of course, if you -- when you earn more, you have to pay more taxes. And this is then the comparison or the deviation in the bridge compared to the prior year, in the net income bridge. Cash flow, I mentioned before, the flip side of the coin of high -- of increasing aluminum prices is a need for working capital. We saw an increase of roughly USD800 per tonne. Last year, we also saw in our semi-finished product downstream business in Rolling, for example, that the level, let's say, a work in progress shifted from, let's say, scrap and slabs to, in particular, semi-finished products and finished products, which means we added, of course, working capital and this accounts for EUR 130 million roughly the working capital impact last year. And this is also the reason why the cash flow from operating activities is lower than in the comparing period. Investing activities, we had a level of EUR 70 million of investing activities last year, which is way below EUR 84 million of depreciation. And all in all, this adds up to a negative free cash flow, in this case, but understanding the mechanism in our business with working capital needs in the time of significantly rising aluminum price and picking up of demand. I think then it is clear that the free cash flow in this year was not positive. The equity, gearing KPIs are still very stable. Net debt-to-EBITDA is not on the slide here. We show the gearing, but net debt-to-EBITDA is at 1.9, so also very sound. Slide 31, this brings together everything I just said. I would like to skip this table with P&L KPIs, and would like to continue with a view on our divisions. Slide 32, Metal Division. Very positive, stable production, which is always, we run this plant at the edge. So it does not go without saying, we are now at roughly 125,000 tonnes of shipments and production, the stake for AMAG. And so, this is quite high and needs a stable production, which went quite well. And, of course, we had tailwinds from the market, as I mentioned before, and this then translates into record year for our Metal Division at EUR 104 million of EBITDA. And what I also can say here that the start into the year 2022 was also promising, aluminum prices again increasing and, yes, and alumina is low, LME is high, so we expect, yes, a good start into the year all in all. Casting Division, also a very good year with EUR 10.8 million. I think it was the second best year in history for our Casting Division. So it was very positive, in particular, driven by the automotive demand in the first half of last year. So all in all, very satisfying and a very good result in our foundry alloy business. Rolling, it was EUR 80 million. EUR 80 million does not look satisfying, of course, on the one side. On the other side, we have to understand that we have a lot of long-term contracts in place with -- where we -- that the prices are fixed. On the other side, we also saw, in particular, in the second half and fourth quarter, a very sharp increase in energy prices, which tripled, for example, with regards to electricity. And this, of course, impacted the result. All in all, the demand is very good. We increased prices, and this will be -- in particular, will be seen in the first quarter of this year 2022. Dividend on Slide 36. We talked about historic levels in profitability for AMAG. We saw EUR 180 million of EBITDA. We saw more than -- roughly EUR 65 million in net income. This was the main reason why we proposed a dividend of EUR 1.50 per share. In the last -- in the comparing periods, we reduced the dividend to EUR 0.50. The free cash flow, on the one side, was higher in this period because of decreasing aluminum prices, in particular, but the profitability is high, and I think it's also promising for the start into this year. So this is the reason why we proposed EUR 1.50. Outlook for 2022. On the one side, of course, the forecast economically are positive for this year. On the other side, we see a lot of uncertainties. As we said, we had a decline in aluminum price in the fourth quarter of last year from $3,200 to $2,500. Again -- now it's peaked again at roughly $3,200. No one knows how long this remains. On the other side, we also saw low, let's say, levels of alumina, which now again, picking up a little bit. We have geopolitical, I would say, challenges to solve here, in particular, in Europe, we have inflation, we will see maintain high cost levels, so very difficult to give you an outlook for the whole year and more or less a band for our EBITDA developments. We will do that in the first -- when we publish the first quarter results. Pandemic is still not over here. So we have roughly, right now, 60 people who are suffering from COVID are not here and can't support us in our production. But all in all, demand is there. The start into the year was very positive. Cost inflation, of course, is there. Logistical challenges are still there. And what is also a big challenge for us is labor shortages. But I would say, not just for us, it's a general trend in the industry as the baby booming generation start to retire now. And yes, to summarize everything, what we -- based on this positive operational start into this year, also based on what we saw in terms of tailwinds from the markets throughout the divisions, we expect a good first quarter. We also -- yes, and I would say rest, let's wait, and how it develops in the next month, but I would say, the table is set for a good first quarter. This is how I would like to summarize the outlook here. I think I can skip the development of our share and would like to end now and the floor is yours for your questions. Thanks.

[Operator Instructions] The first question is from the line of Markus Remis from RBI.

Congrats to the results. A couple of questions, please. Firstly, on the upstream part, in the past, you've been -- kind of gave us always some sort of sensitivity to say a $100 change in the LME price. I was wondering if you could provide us with an update on the current sensitivity.

Still unchanged, I will say, [ 3 million ] to [ 5 Million ] EBITDA.

Okay. Right. And I'd also be interested to get an idea about the current hedging level. I mean, to which extent have you locked in the spike in the LME price, how much of your exposure is kind of spot price-related?

Yes. As of today, Markus, look, we have roughly -- we have natural hedges. Let's talk about 100% of the production and forecast of shipments, which are stable for our alloy businesses at 120,000 tonnes, 125,000 tonnes per annum. Roughly 50% we refer to be somehow naturally hedged. 20% is -- refers to our power contract, roughly 30% to alumina. With alumina, it's a little bit more tricky, as in the last year, it was not correlating so perfectly, but there is somehow correlation there. But there we have to put additional hedges because we consider that as being some sort of a natural hedge. From my opinion, we have some upside here, not the full-fledged natural hedge, and therefore, it is not directly linked. Then we have some, of course, hedges in place. But I would say, all in all, roughly 50% is still breathing with the market.

Okay. Right. Then on the upstream part, I mean, we've heard some kind of industry comments that the automotive demand has stabilized, has actually improved at the beginning of the year, the call-offs are less erratic. Is there something you also can confirm on improving demand?

What I can say for -- regarding demand, in general, is high from automotive and we are definitely optimistic there. But we still saw, at the beginning of this year, some delays at least and the push back to the future, some of the shipments. And so still some volatility there and we are somehow optimistic that this balances out throughout the year.

Okay. But there is an improving trend at least compared to 2020-'21.

This is what I heard, you could say so. Yes, this is what we can confirm.

Okay. So is it then fair to assume that for the Rolling segment better product mix in 2022, also assuming that aircraft has bottomed out?

Markus, what we saw in terms of product mix, very strong right now is the area of industrial application or distribution business. As we said, this was really picking up last year also in terms of prices. And so, all in all, for the first quarter, in particular, in the downstream business, we see, I would say, an improved mix. But is it because of higher automotive or just because in the mid short-run, industrial application is a very attractive business area, I would say, this is more the reason there. But it will be -- it is [ positive right now, yes ].

Okay. My last question refers to the energy bill, specifically at Ranshofen. I mean, can you provide us any help to understand the headwinds in terms of cost inflation that you will encounter in the current year?

Let's go back a little bit some months, and what you see there is that, in particular, electricity started at the market price of EUR 50, EUR 60 and this was stable until, I would say, June. And it started really to pick up in the fourth quarter from EUR 80 to EUR 200, so tripled, I would say, since mid of third quarter roughly. So I do not have the specific numbers in front of me, but this is how it was roughly the case. And of course, this also translates into a bill and the level now is still quite high. On the other side, you also -- we have a similar picture for natural gas. What we do when we view and have a view on energy, we see it as energy consumption for our site in Ranshofen independently. If it's electricity or natural gas, we put together everything, say, we have needs of roughly 750 gigawatt-hours per year, roughly plus-minus, where 2/3 roughly refer again to electric -- to natural gas, 1/3 to electricity. And then we try to let you understand our position, which means we have fixed-price contracts. We try to be fully hedged, of course. And this was the case last year, and this is also the case for the year 2022. And the rest, of course, is also fluctuating with the market. But I would say, it is a sound, I would say, hedging type of structure where we fixed cost also for energy for our site in Austria.

Next question is from the line of Rochus Brauneiser from Kepler Cheuvreux.

Two follow-ups from my side. Maybe if we can go through them one by one. The one is just on the energy cost side, again. On the structure for 2022, can you give us a rough sense how much of your total energy bill is secured through fixed price agreements and what is the portion which is purely spot?

As I mentioned before, what we try to do is we try to have a sort of hedging, let's say, hedging process with physical partners. So we do not buy derivatives and we try at least to hedge the exposure we have from long-term agreements, and those exposures are fully hedged. And of course, there is some left also, so we are a little bit over-hedged, I would say. So this is definitely positive, but part of the hedges is also based on higher prices, which we saw, let's say, in the beginning -- mid of the fourth quarter. So definitely what we -- so we have attractive levels. We have plenty. I don't have the specific numbers for you, but I would say, it is a sound hedging structure, which we have for 2022.

Okay. And can you give us, maybe on the quarter, can you help whether there has been anything in metals? I think the shipment level looked a bit soft. Was there any deferred shipments of cargos from Canada or was there anything why it was sequentially a bit down in terms of output?

In December, I think we had some tonnes left, and this seemed to do with capacity of the ships or, let's say, cut-off date issues. What I can share here with you, we saw lower shipments in Jan. We will see lower shipments in February. But again, simply because of cut-off issues, the ship arrives, for example, on February 26, will not be loaded before beginning of March. So we will see also some delays here and they will not be solved in full end of first quarter, but all in all, production is doing well. We are fully convinced by first -- when we meet again in first quarter, we will be somehow behind in terms of shipments for metal in the first quarter, but this will be solved and balanced out until end of Q2, but stable.

Okay. All right. Because you always have this kind of fluctuation, just want to make sure that you have a bit of a carryover effect for the first half then.

In particular, in the winter months, because there we have to take different vessels, the St. Lawrence is frozen to a big extent and so on and so forth. So it's difficult -- more difficult between, I would say November and April. And for the rest of the year, it's definitely easy and we're stable normally.

Okay. Great. On the power side, again, you mentioned the photovoltaic plants. How much is that covering your electricity needs in Austria? And what is the magnitude of the expansion you're planning in Ranshofen?

So to start with the second one, we are checking the roofs that we have already installed here in Ranshofen, and we know about new factory house that we are adding. Already this year, we have a new one. Next year we will have a new one, which from the beginning, are designed to carry this photovoltaic load. This will allow us to double the existing one roughly. So if we have 55,000 square meters now, roughly 120,000 is a target over the next couple of years. Concerning coverage of the need, only if we look at the electric current that is required, it is roughly 3%.

It's the existing installation?

Exactly.

This is the average over the full year, day and night. In a shiny day, in spring, it accounts for up to 10%-plus right now. But one additional perhaps information, the interesting part here, of course, in particular now is that the low price we have to pay. So it was the perfect timing for us to install this facility because the price there is below EUR 50 for 1 megawatt-hour and so this is really cheap.

Yes, of course. Can you maybe talk a bit about this new innovation on this so-called cross-alloys you talked about? How should we think about the kind of alloy structure, what kind of metals are in this new products going into, and what are the new applications you're targeting with that and properties maybe of that alloys?

Yes. As I mentioned, we have, for example, 7000 series materials, these are high-strength alloys with zinc. And copper is important alloying element. These materials today are mostly used in high-strength applications for aircraft, for sports and so on. On the other hand, for example, we have the 5000 series materials with the main alloying element being magnesium. For this, we have good corrosion properties, for example, very good formability, less high-strength or lower strength, yes? So the idea is what happens if we combine these 2 and make a 5000 series alloy and add copper and zinc, and so this is just an example. This is what we did successfully on laboratory scale. This is where we found nice materials and patented these, which have a reasonable high-strength, good formability, good corrosion properties, so actually have a combination of the properties of the original ones. And this is what we are investigating for various combinations at the moment. But as I pointed out before, in the early stage of fundamental research where we -- because it's complicated and it is completely new and -- but -- and therefore, I cannot tell you now this is the actual application. I think this will -- once the set of properties is understood and we can produce it in a stable manner, this will open up thinking for many areas of applications.

So the seeds are now -- they cannot grow and this is what we want to say, and what I learnt from my colleague here, our COO Helmut, material development is a long road to, let's say, the finishing line at the end. This is part of the success we are also having now and we are in our business, I think, best-in-class in terms of rolling there and we have many innovations in place and this will be -- this is one perhaps element of future success. This is how we think.

I just want to underline this, I mean, usually, when we start some material investigation or a development, the first thing the customers ask for is mechanical properties, what is the strength level? But as it goes on, what is this, what is electrical conductivity, what is corrosion behavior, what is formability and so on and so on. And you can imagine, this takes time, and you see the customer and he has another surprising question, and therefore, it takes a while until you really cover all these questions and introduce what the customer accepts it and brings it into serious production. And this is, especially difficult when it goes into a high volume automotive or into a safety-critical aircraft. So you really have to understand and be able to reproducibly develop these quality levels.

All right. That kind of innovation, would that be subject to patent protection or is it more that the car guys want to have multiple sourcing here?

In this case, we applied for patents already.

But there will always be conflict with your client once the multiple sourcing possibility...

Yes. But then in the end, if the client is convinced that this is a good material, I would say it is a question of licensing to other suppliers. I mean, they are our solutions.

Yes, okay. Now that makes sense. Maybe on order again, on this previous question, I'm not sure whether I got the full picture, because the tone on the fourth quarter was at the Q3 stage a bit mixed, I guess. I think in the end it didn't turn out to be so bad. But when I look at your actual Rolling Division shipments, I think they look a little bit soft to me. So I don't know, was that more of a question of order call-off rates or kind of year-end inventory drawdown? Because it looks a bit soft, maybe you can comment on that.

I think, first of all, December is always a weak month. This is number one. Number two is we, of course, had this delays from the automotive sector, in particular, I would say those are the main reasons for shipments. All in all, we are absolutely -- I think we are doing well and we are prepared for a good first quarter. So the run rate is good now.

Okay. And so looking back 3 months, would you still suggest that the ramp-up speed and the availability of semiconductors, is that still the kind of same reason? So most say it's getting better or accelerates from after December. Is there any change in the way you look at this in your perception about the progression of order call-off rates in 2022?

I repeat what I said before to our answer to the question to Markus. We see still some delays in the beginning of this year. But all in all, it is better and we expect that throughout the years, the -- throughout the year 2022 to be solved and we are -- and we expect here definitely shipments on budget. [Operator Instructions] The next question is from Michael Marschallinger from Erste Group.

Thanks for the presentation. Just one follow-up question left on your remarks in the first quarter. You seem rather positive here. And is it fair to assume that, given the strong aluminum prices, they are taken at all-time highs, take it at October '21 level, that we see now that the EBITDA, low point of the margins in the fourth quarter and we see now going forward, quarter-to-quarter, assume expansion in the first quarter of 2022 and going forward?

I don't know if I understood your question right. But this is -- it's a little bit -- but you know what, if you are asking about margins for this year with 3,200 of EBITDA, if you refer to the margin of upstream, I just can say, to start into this year, is good because we see a level of more than $3,000 per tonne. The level of alumina was in particular in the first weeks of this year low, it is picking up now, so the margin gets a little bit small, perhaps right now in terms of percentage. Of course, in particular, for our downstream business, the calculation, if you do that, of course, the margin in terms of EBITDA as a percent of our turnover, it is negatively impacted simply because of higher aluminum price and the aluminum price run through our P&L. All in all, it will depend how the aluminum price will develop and I simply would like or ask you to go back 3, 4, 5 months, and we saw a peak in October of $3,200 something. Within, I think, 20 days, it came down to $2,500 per tonne, and it maintained until Christmas roughly at between $2,600 and $2,700. At 31st of December 2021, we saw a level of $2,800 plus something. Right now we are at $3,200. This is a crystal ball and we do not know how this will develop. Of course right now, we see an impact of the geopolitical situation, Ukraine and so on, we see that smelters, because of higher energy prices in particular in Europe, were forced to stop production or reduce production. We saw in China, is it because of the Olympics, also because of energy restrictions, lower production levels. So this all has an impact on the aluminum price. And if one of these elements change, this also might change again. And so this -- it is really the uncertainty there is really high, and yes, but I don't know if I got now your question correctly.

Next question is from the line of Christian Obst from Baader Bank.

First of all, you talked about, of course, the increase in the net working capital by more than EUR 130 million, but you also said there some kind of a change of mix of more semis and finished products at your balance sheet. So what do you expect when it comes to some kind of a release from that, so when the mix will change, that you can -- leaving the price discussion aside, that you can definitely increase your cash flow generation going into the first half of the next year? So this is first question. So how much of the EUR 130 million will that be?

So from the result, first of all, as I mentioned, we expect a positive first quarter. And this is also the -- and this mix, as I mentioned, that it was more or less perhaps in raw materials, more in semi-finished, it has to do with percentage of completion, let's say, of our work in progress here. And of course, we will see positive development in terms of cash flow from earnings in the first months or in the first half of this year. This is what we expect. On the other side, we have also -- there is also one fact, as of today, we are at around $3,200 per tonne with an exchange rate I think of 1.13. So in terms of euros, the aluminum price has a significant impact there and also premiums on top of the aluminum price of LME up in Europe and in the States. So this also has an impact on working capital, which will be negative. So we will see how this develops and, at the end, translates into working capital if I go to a cash flow statement today and the P&L. And this is now just my estimate from my experience, I would expect good profitability and again, let's say, year-to-date, a low level of cash flow. This is how I see it today and it will highly depend if the level of aluminum price stabilizes or if it further increases or it decreases. So this is the big impact, yes.

Okay. Next one is on, you talked about, of course, sharp increase in energy prices, so sort of costs will increase, you are looking for additional employees and so on and so forth. And you also said that you are able to increase prices in the first quarter going into the second quarter. So how much of these price increases do you expect to compensate or how much do you have to bear on your own P&L?

We compensate the price increases in full.

Totally?

Yes.

Interesting. And the last one is return on capital employed is approximately 7.6% now. Do you have some kind of an internal target in the longer term, let's say, next 3 to 5 years where you'd like to stabilize in average the return on capital employed for your company?

Also these ROCE numbers always highly depend on aluminum price. As a main impact factor, there is aluminum price, and this is unfortunate, all these KPIs are so difficult in our companies because simply look at inventory level, which came up dramatically just because of LME, and of course, this brings down the number. But one thing is also clear, our target is to be above 7% after all the investments we did because this is our WACC and this is where we have to go and then we have to see the company in future. But always with that in mind, that high aluminum prices as we see them right now, yes, of course, not really helpful there. So we have to compare apples-to-apples and try to simulate on a stable aluminum price. So this is --yes. And, but I think all in all, I would say what we expect is another good year 2022 and -- yes.

And last but not least, of course, it's coming a little bit from a different angle to the profitability. When I look at the Rolling Division, so, the average EBITDA between '15 and '20 was approximately EUR 90 million. Now we came out at EUR 80 million this year. You talked about all of these special items in there. Is there any kind of possibility in the current structure that you can reach with this structure a Rolling EBITDA way above, let's say, EUR 130 million to EUR 150 million? Is that possible?

I didn't calculate -- I did not do a calculation of EUR 130 million or EUR 150 million or how you go there. So I think if you have a positive environment and the plant is running in full and then we are ramping up as we planned, then of course, it has to be possible, yes. And this -- never forget this EUR 20 million level, you just mentioned, also was significantly impacted by, let's say, higher -- by inflated costs, in particular, energy, logistics, alloying metal and the price increase, which came with the time delay. But a key, I would say, a very important factor will be that we manage by getting the right people to, let's say, ramp up the plant to our capacity. This is the key -- will be the key success factor.

Of course. Maybe just last remark is looking 2016, 2017 you were around EUR 95 million, EUR 105 million, it was a different setup, a little bit of a different setup. So -- and the original idea is, of course, to increase it substantially. And so far, of course, the environment is different, and so that is very difficult to be -- really exceed this kind of levels, I think, in the current environment. This is a little bit of a disappointment, I would say. But of course, it's not in your -- you cannot change that, yes?

Environment is one thing, but we are optimistic that we can bring also this absolute EBITDA of our Rolling Division to another level. So we are totally convinced that what we need is the full ramp-up and of course, some support of the market.

We have a follow-up question from the line of Markus Remis from RBI.

A few short ones are left from my side. Firstly, on the investments that you have budgeted for 2022, you could provide us with some -- with a figure here. And also maybe with a mid-term view, how much will CapEx have to increase because of your decarbonization measures. Will that be a tangible impact?

First of all, for the year 2022, we will start this, in particular, replacement type of investment with, of course, some -- yes, where we can add quality at least to some of our products, in particular, for architecture, for example, in the brightening side. And this will -- this has a volume of roughly EUR 50 million spread over roughly 3 years. So this is what -- the one big investment is what we have on site and plan on site in the near term, at least. All in all, I expect for the year 2022, a level of a little bit above our depreciation because there's also some things we postponed a little bit, pushback you saw in the last year's numbers below depreciation. In the long run, we think -- or at the mid run, we think that we will manage to stay around or below depreciation in the next years. This is at least our internal target there, and given without decarbonization now. And talking about decarbonization, we are right now doing our homework. We don't think that we have significant impact in the short run, or in the mid run because as Helmut explained to you before, there is a lot of R&D important and necessary there and so on and so forth. And of course, we will also take care that we do the investments when we have, for example, ordinary replacements or anyhow planned replacements to do, and in a time period of now 18 years, it will be possible to plan around that. All in all, one thing is clear that it will be a 3-digit million number at the end. So, everything else is not realistic. And where it will then be exactly, we will have a guidance for you as soon as they are on our side. What we do -- they're content-wise right now as we do, we call it future workshops with all the plant builders, we do, as Helmut explained, R&D workshops and just trying to understand what impact, for example, hydrogen has on the quality of our products. This is what we are doing actually, and then we can define how much it will cost. But it's not for free. And this is the big, I think, mistake we all do in communication, not us, but politics, because this is what they should do and should explain the outside world and everyone who is living on this planet. Decarbonization will come together with cost inflation, and this is for sure the case. And also, this is also true for AMAG.

Okay. So say EUR 90 million in 2022, and then around depreciation is also not far off. And then on top of that, the EUR 50 million spread over 3 years.

The EUR 90 million includes also the [ 100 ] this year. It depends how far we are. And with our -- with this big project, this is -- we always did have this flexibility. If we have a CapEx project, is a milestone achieved on 1st of January -- 31st of December. So this always has direct impact on then CapEx.

Okay, got it. And then I think during the last conference call, the topic of magnesium shortage was quite hot. If you can update us here on the sourcing situation.

Stable in supply. So we increased a little bit the stocks here internally. We also secured by contracts. Let's say, we feel quite safe here in terms of secured supply. Price level is high.

Lastly, on the volume outlook for Rolling is now almost 230,000 tonnes in 2021. Is kind of a figure of up to 250,000 tonnes for the current year realistic?

250,000 tonnes is the very high end, I would say. I would expect that the level will be low, and the main reason is that we have bottlenecks with our [ remaining ].

There are no further questions at this time. And I would like to hand back to Christoph Gabriel for closing comments.

Thank you very much for joining this conference call. I'm always there to assist you with any further questions you might have. In that case, please just give me a quick call. Thanks again and stay healthy. Goodbye, everyone.

Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.