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

Ladies and gentlemen, thank you for standing by. I'm Morris your Chorus Call operator. Welcome, and thank you for joining the AMAG Austria Metall AG First Half Year 2023 Results Presentation. [Operator Instructions]. The forecast, budgets and forward-looking assessments and statements contained in this presentation were compiled on the basis of all information available to AMAG as of July 14, 2023. In the events 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 the 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 case of doubt, the German language version takes precedence. This presentation does not comprise either a recommendation or 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 first half of 2023 of AMAG Austria Metall AG. Today, Gerald Mayer, CEO of AMAG will present the development and results of the first 6 months of this year. As usual, after the presentation, you have the opportunity to ask questions during the Q&A session. Gerald, please start the presentation. Thank you.

Thank you, Christoph. Very warm welcome from my side. It's a pleasure having you with us for our half year earnings call which really gives you some insight of the development of the first 6 months and also, of course, of the outlook. And I think turning to page -- to Slide 3, the highlights of our first half 2023. The first bullet summarizes our first half very well. It was a successful one. We managed our production portfolio or product portfolio very well. Compared -- comparing our first half year performance to prior years, it was strong in terms of results. And on the other side, we also saw a demand which is going down, in particular, in some areas since Q2, 2023, which ultimately impacts the outlook, and I will elaborate on this little bit later. In terms of revenue, after a record year 2022, in the first half, we saw roughly EUR 800 million of turnover. This is still strong. But it's the second best we had in history in our group, still strong, but of course, impacted in particular by reduced prices for aluminium. EBITDA and total results are also strong, but down compared to the prior year. We had clearly a very positive first half 2022, which I always have to remind you here in this presentation. Net income of EUR 51 million, a strong one, but of course, also down compared to EUR 78.4 million in the comparing period. Cash flow is up compared to last year to EUR 68 million operating cash flow compared to minus EUR 84 million in the year 2022. The first 6 months, the main reason there is this year aluminium price came down. Last year, aluminium price increased. And in addition to that, we built some safety stocks. In terms of outlook, we reduced a little bit our bandwidth to EUR 160 million to EUR 190 million. And this reflects actually, in particular, the order intake situation in the second quarter. And of course, it assumes that also no unexpected significant deterioration from the current situation is occurring in the next month. Let's turn the page to Slide 4. As you all know, our strategy builds in particular on 2 main pillars, which is sustainability, innovation and we count on a big variety of products. And this was also confirmed again by different ratings, awards, certificates, certifications in the first 6 months. I wanted to mention here with regard to sustainability, we were rated in the first place in a group of 39 aluminium companies from Sustainalytics. So we stand out there. And in their group of Diversified Metals, it's a group of 223 companies we were rated at second place. So a big success there. And this confirms our path as a sustainable company. We also were rated again in the top -- Platinum Top 1% by EcoVadis, which is also very important rating, in particular, for many of our customers. And as you might know, we are also part of the VONIX of the sustainability index of the Viennese stock exchange, and we are still there. Next slide, Slide 5. Here, you'll see that we are really proud of that, we got again as the only company in our industry, the Accredited award from Airbus, which is an award which confirms the highest rating in terms of quality of the supply chain and so on. So this is a very important proof for us that we're on the right track there, and we are very strong partner also for important customers like Airbus. We also have additional things to report there, like we got again the Nadcap certifications, which confirms the continuous compliance with high-quality standards in the aircraft sector. And we requalified for JIS, for the Japanese Industry Standard, which is again a standard which stands out in terms of quality for our products. So we are proud that we were awarded, and this confirms actually our path. Let's flip the page now and go to Slide #7, and I would like to give you some insight about environment and about our numbers. First of all, let me talk about our environment and then move to the financials a little bit later. On Slide 7, you see the PMI for the manufacturing sector. PMI, as you know, is a very good indicator of also the order intake situation in our industry. And what we see there is that, in particular, in the Eurozone and its driver Germany, we are in the dark red right now, and this is of -- and Austria is in this table, let's say, rated as the worst country here. And this also reflects a little bit of order intake situation for at least some industries. In general, the sentiment we see here turned really negative. And it is -- the worst month was June since the worst COVID month actually in April 2020. So the overall sentiment is not very positive right now, I would consider it as negative. All in all, the expectation in terms of global growth forecast is still on the positive side for the Eurozone. Of course, it is more or less a flat and not really a growth there anymore. Yes, as I said, in general, we -- this mirrors or this reflects very well our order intake situation. I will give you some insight on the next Slide 10. Slide 8 show us the -- what the experts expect from primary aluminium development and rolled product development in the next years. So, specifically, the expectation is a slight growth in the year 2023 for primary metal 0.7% and a compound growth rate of 1.9% until 2027 on a global perspective. Going into more detail there, and we mentioned it here that for 2023 the expectation is negative for Europe, minus 5%, and positive, in particular for China, which is the driver there. In average until 2027, we expect the growth rate -- CRU, expect the growth rate of 1.9% per annum. And also Europe, if you go through the details there, would be positive at 1.3% per annum. On the right side, on the right chart, you'll see the rolled product development, which is expected by CRU. CRU expects a growth -- global growth of 1.1% here and 3.5% compound growth rate until 2027, which is fairly positive. And going into details here, again, a similar, I would say, pattern as for primary metal. Not as bad as for primary metal talking about Europe, but still negative, minus 4%, is the forecast for 2023. But on average for the next years 2027, on a global scale, but also for Europe, the expectation and the outlook is positive. Slide #9, global demand for aluminium rolled product. I have to say the long-term view here is definitely healthy and the big driver is transport. We consider as transport aerospace, ships, automotive industry, in particular, and the expectation is a compound annual growth rate of -- CAGR of 5.9% per annum. Packaging, plus 3.4%; mechanical engineering plus 2.9%, others -- or I would say, construction 1.5% and also other industries plus 2.7%. So the long-term outlook is a healthy one. On Slide 10, I'll give you an overview of the development of energy prices of the last year's quarters. The chart at your left shows the electrical -- electricity price development in Europe in megawatt hours. On the right side you see the same for natural gas. What I have to say here is, of course, we see reduced and a sharp decrease in price levels, but we are still far above compared to what we saw. If you look to the left of this chart and charts in 2020 and also in the years before actually. So level came -- levels came down, but it's still very high and compared to prior years. And -- but, yeah, this is the situation in this environment right now. So it's softened for us. It is better, but still above going back historically to 2020 and before. Slide #11, aluminium price trends. We also see a significant decrease there after the highest -- after the beginning of the war in the Ukraine where we shortly even saw a level of USD 4,000 per ton. So things normalized there. We are roughly at the level of USD 2,200 as we speak or little bit below USD 2,200. At the right chart, you see there that this means for us that the aluminium price was sharply reduced if we compare quarter-by-quarter Q2 2022 and -- to Q2 2023. And also even sharper decrease comparing the numbers of first half 2022 to first half 2023, with reduced price for aluminium of more than USD 700 per tonne. This, of course, has an impact in our, let's say, top line sales turnover, which I mentioned before that we are definitely down there, but this is the main reason. The price for aluminum has impacted not just our turnover, of course, it also impacts directly our results, but also our financing requirements. And this is also one of the reasons of why cash flow was positive. So there is not everything negative when aluminium price comes down. Aluminium price trend is more flat. If you look at absolute numbers, slightly down, but seeing in relation to the aluminium price, it's even up. And so this means that this adds some pressure to the margin of our upstream business, which in general, is doing still very well. But, of course, softened compared to the prior years. In terms of shipments, you see some details on Slide #13. You see that shipments are down compared to the prior year from 225,000 tonnes to roughly 221,000 tonnes. Going into the details there, you see the Metal Divisions, we are up by roughly 3,000 tonnes. The main reason is there, as we run this plant 24x7, very stable, stable production in 2022, but also in 2023. This increase is mainly due to a cut off -- it's more a cut off event, so that in the prior year a part of the shipments were shifted to the third quarter or had to be shifted to third quarter in cash, but it's more or less stable development and very positive. Casting plus 1,700 tonnes. Demand was stable there and okay there from automotive, but also internally, things are going well in Casting Division. In Rolling Division, minus 8,300 tonnes, here we have to differentiate a little bit more in terms of demand from automotive, from aerospace, from packaging, everything is quite stable. We have other markets like industrial application markets, architectural areas, but also sports where we are still down, and where we saw, in particular, from industrial applications a reduced demand beginning in Q2 2023. Slide #14 gives you the split as you are used to it and as we always present it, and going into the details there. It's confirmed that we have a positive development. We are up in automotive. We are up in aerospace. We are up in heat exchangers, which go partly also to automotive. And where we are down, this simply confirms what I just mentioned is industrial applications where we -- for example, ship to machine building industries and so on. A very important market for us is also Germany. And we're also down in sports and architecture which sometimes has do -- to a certain extent, has to do with sometimes distocking, sometimes also simply demand. Because after COVID they had a special type of boost in demand there. Everyone bought bicycles and by the way skies. And so this was fairly positive in the past, and we see a correction there. Switching to Slide #15, our order intake, or order backlog situation actually, you see it looks at least fairly flat or stable. The level, I would say, is not high. It's more on the low side. But, right now, order intake, as I mentioned, and also in this order backlog, which is strong, as aerospace, as automotive, as packaging and so on. Where we are definitely on the low -- very low side in industrial application and also architecture and to a certain extent sports. Slide #16, revenue, the bridge. Of course, I mentioned and presented that the aluminium price is down, also volumes are little bit down, and this is what you see in the bridge there. Aluminium price is responsible for, let's say, reduction of EUR 90 million roughly. And this is more or less the bulk what you see there. Of course, with lower aluminum price and every tonne we sell is affected by that, of course, leads to a lower level of turnover. But it's the second highest we had historically in a half year presentation. So it is high -- its perhaps a little bit lower than it is. Slide #17, the same bridge for EBITDA. So we came down from EUR 155 million to roughly EUR 120 million. And going into the details there, aluminium price responsible in terms of result for roughly EUR 29 million. This actually is -- can be attributed or can be allocated totally to the Metal Division. So this is -- all of it is, of course, also suffering and aluminium price is down. On the other side, we see positive impact from raw materials and energy. So that we saw big inflation -- inflationary tendencies and trends last year, we saw positive impacts there as, in particular, energy crisis came down. And also positive prices and premiums there. Negative, of course, is volume. I mentioned, in particular, in the Rolling Division, we are down in terms of volumes. This has an impact of EUR 34 million, and it's mainly allocated to the Rolling Division. Slide #18 shows the development compared to the first half 2022 by division. Metal Division, minus EUR 27 million, but still high. Casting Division, minus EUR 2.5 million. But this is the baseline for all the divisions, was a record year. This is what I have to remind you here. Rolling, minus EUR 12 million, yes, and this is more or less the summary. And I mentioned actually the reasons in -- with minus EUR 27 million in Metal, we are still at a very strong level of EUR 36 million, which is very strong for Metal Division. Operationally, we are doing very well there. Casting, the absolute number is EUR 7 million, which is also strong operationally. And in Rolling, we are down EUR 12 million. This is good operationally, but also impacted, of course, and this is what I will tell you a little bit later by some valuation effects. Slide #19, which gives you an overview of the Q2 performance for Q2 only. Same development actually and same bridge, and in the EUR 16.2 million. And this is what I would like to point out there, EUR 16.2 million in others. This includes the release of a risk provision we had -- which we had to end of last year because of high energy prices. So we released EUR 7 million roughly in the second quarter. Slide #20, net income after taxes, interest and depreciation. So starting point is, of course, EBITDA, nothing surprising there. We end up at EUR 51 million, which is also historically quite strong. Of course, we earned less and therefore, we paid less income taxes. This is a positive development there. So yeah. All in all, I would say it's a satisfied first half in terms of results. And you see the summary on Slide 21, also no surprises in terms of tax rate. So this is, I would say, yes the development there. On Slide 22, we summarize some ESG numbers there, some ESG KPIs, just 2, 3 sentences there. We managed to keep the scrap utilization rate of 75%, which is quite high. The share of specialties is up dramatically there. And the ones that we understand this is all -- this is on the one side, of course, our approach in terms of innovation and innovative specialty products. On the other side, this is a big extraordinary effect in there as, let's say, standard type of products, industrial application products were decreased -- so had market-wise decreased in our portfolio. And this, of course, brought our -- this number up. And this might correct down when the market stabilize again. Specific energy consumption is very stable. The only thing which stands out there negatively is TRI. So this means our health and safety KPIs. So we managed to do this quite well in the last year, so we improved dramatically there to below 1. This year we had some accidents, we set countermeasures there, and we are doing everything to improve there again. Slide 23, in terms of cash flows, I mentioned this is the positive development here, in particular, also driven by a lower price for aluminium. Compared to the prior year, we also didn't increase in the levels of safety stocks, for example, and so on. So we are working on that and optimizing -- constantly optimizing. So all in all, operating cash flow was positive, and we had a good performance there. Cash flow from investing activities is EUR 50 million. So the free cash flow, as a result, is roughly plus EUR 20 million and on the positive side. Solid key financials on 24. Slide 24 show that we are stable there in terms of -- you see an increase there in net financial debt. It had to do that we distributed the dividend in the second quarter. And if you deduct then the positive free cash flow, this is roughly the number. Slide 25. Equity is stable, cash and cash equivalents came also down in particular, because of the dividends. We distributed nothing spectacular in there. Let's have a quick look to the divisions. Slide 26, Metal Division. In Metal Division, after 2 record years, which were -- that were really outstanding high, I would define the year -- the first half 2023 at a normalized -- a normalized year at high level. So we saw performance there at EUR 35.9 million, which is definitely a very positive one given the long year -- let's say, a year in a -- let's say, a period or in the context of decades, this is still very high -- at a very high end. And so the performance is good and production is very stable there. In terms of, yeah, valuation effects, there are some in there. But it was roughly -- I would say, compared at least to the -- so there were -- if I compare 2022 to 2023, we had a positive impact of EUR 8 million. As last year, we had minus EUR 8 million in there. This year in 2023 in -- we do not have valuation effect -- effects there, which affect the results. So it is an operational result of Metal Division, what you see there. In terms of Casting, let's switch page to Slide 27. On Slide 27, we are, of course, down to the comparing period, but still at a very high level, given a historical context there. So we are satisfied with the performance of Casting Division. I have to say, a very stable demand still from the automotive industry there, productivity on our side is high. And so we enabled also solid level of shipments, as we mentioned there. And our guys are doing really well and good job in Casting Division. Rolling Division. If we look at there, and compare the level of this last 3 years, of course, as I mentioned, 2022 stood out. 2023 is still a strong year. But of course, compared to 2022, the performance is not as good. But in a long-term context, definitely a good first half. The interesting part there is, and this is what I mentioned repeatedly during this presentation, we have still good and strong demand in automotive, in aerospace, stable demand in packaging. Where we are impacted right now is industrial application business, machine building business where the demand is down since -- in particular, since Q2 of [indiscernible]. In sports, we see some developments there, where we had very strong economy. Especially economy during -- and after COVID everyone was buying bicycles and stocks are built up there. So we see some sort of improvement there, and we expect that this will soften and will get better beginning of next year and the first half of next year. But in terms of architecture, we are also down, the whole building industry. I think this is an impact we see there. Of course, we also see there and have the reactions there of many other things like the measures of the central banks, which increased interest in order to bring down inflation. This was an effect everyone wanted. And we also have it now and feel now in our well approved order intake situation in particular from building. Some words about our outlook, Slide #30. We put it together there. I think I mentioned many things now. On the one side, the overall sentiment is not really positive right now, in particular for some industry and in some areas. On the other side, we have strong demand and stable demand from many of our customer industries. Hence if we put together everything there, we feel a decrease, all in all -- some sort of a decreased demand, in particular, of our Rolling Division. And this was also the reason why we reduced slightly, at least, our, let's say, guidance here to EUR 160 million to EUR 190 million. It's I would say, a soft adjustment there still, and we optimistically that we will be somewhere in this guidance by end of this year as long as we do not have unexpected and significant deteriorations somewhere in the economic situation or in the aluminium price or as long as we do not have other Black Swan events, as we also saw them many times in the last years. So this was my presentation. Thanks for listening. And I'm definitely there to answer your questions. Thank you.

[Operator Instructions] And the first question comes from Christian Obst from Baader Bank.

I just have a broader question concerning the length of outlook from CRU 2027. So the overall growth per annum is 3.5% for rolled products, only 1.9% when it comes to primary aluminium. Can you give us some kind of your thoughts about the kind of growth which not really exceeds GDP growth? And this is despite massive state support for structural changes in the industry and so on and so forth. So normally, one would think that demand for aluminium will grow faster also during that time frame. So what do you think about that?

It's a good question. But I think still 2% is a -- it sound development in addition that we are growing. We know that it's limited possible. We're also growing in the areas, let's say, in the rolling -- in the areas like recycling and so on. So we are doing this. In addition to that, of course, we have to have a look and perhaps this is an impact there, in particular, China is development and as all in all. And -- so very difficult to say how directionally come to this outlook and why it is that different between primary and rolling. But what we assume here and given the fact that we have -- in our portfolio, we have strong demand still in auto and transport in the long run. We have to and manage the transformation. I would be definitely positive. What we also saw is, by the way, some buildup of stocks. Is it the Russian production and so on. And perhaps, yes, this is also included there. But for me difficult, I do not know the details why they can't do that.

Okay. Do you see some kind of a accelerating switch coming from aluminium to other products? Or does the construction and the car industry or industrial base, it's changing away from aluminum to both other materials?

Not really. No, not really. This is what we do not see. We still see strong demand out of the transformation, still strong demand in aerospace, still strong demand in automotive. So I don't see that. So that -- I think we have a very good material with a lot of good -- and good future in front of us.

Okay. And the last one on that is, just before you mentioned that you don't like to have too much of a share in -- towards one industry. Now auto is exceeding 20%. I know that this is partly due because of the commodity demand is going down. Nevertheless, auto 20% plus, are you fine with this kind of number, or are you still think, okay, 20%, and that's enough. So we have to keep our portfolio a little bit broader.

Christian, I think you gave the answer. And I think we see the downturn, in particular, industrial applications, which is an impact there on the split. On the other side, we also have -- I also have to say, we have limited capacity for automotive, and we have a natural cap there and this is how we set up the plant. And so we roughly stick to that. Of course, what we do there within automotive, we try to have a diversified portfolio there from different OEMs and also a nice split between, let's say, electrical vehicle, combustions and so on, premium and not premium and so on. This is what we are working on strategically. But all in all, it is still there what we said and unchanged. And it is also simply given by our setup of our site and facilities.

Okay. And the last one is on cash flow. Of course, you described why you were it now in the first half compared to the last minus. Going into the second half, can we expect some more of a working capital release because of lower activities overall, and so increase in free cash flow in the second half?

One reason why the outlook is where it is has to do that we definitely reduced production level for the second half, also to reduce working capital. So we are working on that constantly. So we take out, for example, some flat production, which we did in the first half because in the beginning of the year, the outlook was that the second half should better than the first half and the economy should, let's say, recover quicker. And now we had another pattern, I would say, to what we thought the economy would look like during this year. So we had, I would say, quite a good first half there, of course, with now a downturn in demand. And so what we included in our outlook there and in our internal forecast is some sort of working capital measures there, of course, and reduce production. So we are working on that. And it will definitely highly depend -- depending on the development of economy in the next weeks, but we are actively managing it and trying to bring it down. And this would, in principle, have a positive impact as you mentioned it. And very important KPI for us is and for working capital at the end of the year. How high the sales levels are, in particular, in the month of, let's say, of November, December in particular. Because this has then to do with high levels of receivables or lower levels of receivables, which we always have then with definitely an impact on working capital number. But we're working on that and actively managing, and this is also part of the reason why the run rate looks a little bit lower than perhaps it is in the second half.

And the next question comes from Markus Remis from RBI.

Actually I have just 2 questions. Firstly, on the downstream and the pricing side. So you're basically guiding for lower volumes. I mean, what's your perception of the pricing environment? Did you bake in some incremental pricing pressure in the second half as well?

A little bit. What we actually see is right now -- and this is definitely interesting in the Dutch application we're also testing the market. And what we see is on our side is, even if you would reduce prices, the market is not there. So it's not that our pricing that we are down. So we try to keep the pricing more or less where it is, of course, with we have to do some reductions there. It's also included to a certain extent in this outlook. But we try to sell perhaps a little bit less, but at the prices where they should be because also cost is high. We have inflation, we have the next, let's say, collective agreements round in front of us. I think it's not the right solution how to get nervous there and reduce prices dramatically and this is what we want to keep.