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

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the AMAG Austria Metall AG Third Quarter 2023 Results Presentation. [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 October 18, 2023. 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 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 cases of doubt, the German language version takes precedence. 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 first 3 quarters of 2023 of AMAG Austria Metall AG. Today, Gerald Mayer, CEO of AMAG, will present the developments and results of the first 9 months of this year. After Gerald's presentation, you'll have the opportunity to ask questions during the Q&A session. As usual, the presentation, as well as the press release have been published this morning on our homepage under Investor Relations. Gerald, I would like to hand over to you, and please start the presentation.

Thank you, Christoph. Very warm welcome from my side from a sunny fall day -- autumn day in Ranshofen. It's a pleasure to present to you the first 3 quarters, it was for us the second-best 9-month results in history, which we have to put into perspective as we had a fantastic year 2022. So this is for the start. So what we saw this year is that, our portfolio, which is highly diversified, as you know, that we have our interest in Canada means an international footprint was, of course, supportive and provided a solid earning trend in a very challenging environment. The positive trend also continued and was supported by demand in particular from sectors like aerospace and also stable development of the automotive industries. Sports, architectural project -- products, as well as industrial applications, or in particular, industrial applications are still at a very low level. The revenue, all in all, was at EUR 1.1 billion roughly, which exceeded to really the EUR 1 billion level. But, of course, below the last year's or prior year's comparing number of EUR 1.3 billion. EBITDA at EUR 166 million, as I mentioned before, was the second-best performance for 9 months for AMAG up to now, and if you compare these numbers to a record year 2022, where we had EUR 217 million. Net income after tax at a solid level of roughly EUR 70 million after EUR 107 million in the first 9 months of 2022. What was very positive was our cash flow performance, cash flow from operating activities at the level of EUR 157 million, way above the prior year's number of roughly EUR 40 million. I will talk about this definitely a little bit later. Outlook in a time where we continuously hear of recession and so on, difficult to take, but we are convinced that we will end this year between EUR 175 million and EUR 195 million in EBITDA. Next slide, we are very proud that we were awarded 4 times last week. And I put you this on Slide #4 as it is more or less confirms the overall approach there also of AMAG and our strategy. So we have one award there, which was about sustainability communication that brought transparency there. We got one, the Austrian SDG award in the Parliament in Vienna in Austria, which was also something, which confirms our sustainability approach, which is a holistic one. We got the so-called Green Data Business Award, which had to do with digitization, digitalization, and sustainability where we have fantastic initiatives, and we were awarded as Austria's leading company in -- of Austria, and this had to do with financial KPIs, so it confirms our strategy and our opinion, and we are very proud of that. Next slide, Slide #6, the overall sentiment and environment. What we see here, and this is what we read on a daily basis in the newspapers is that, the overall sentiment, and you see here the PMI [ forward ] curve is, of course, not really positive, it's negative actually, and we are still at 40 in Austria, and this is now the situation, or has been the situation for more than 6 months. Same in Germany and on Europe, it's more or less negative. This index -- this PMI index is very important for us, for our industrial application business, where we see low order intake right now. On the other side, as we mentioned or as I mentioned in the highlight slide in the very beginning, we have other areas where we are really doing well, and this is, in particular, the transport sector, which is continued -- continuing positive in terms of demand. So means rising aircraft build rates, also stable demand from automotive is also effect in our business, and this is then accompanied by positive development for our smelting operation in Canada. So, I would say, not -- it's not a super negative picture, it is also positive in many aspects. Next slide, aluminum price trend. It is a stable development, I would say, overall in 2023, more or less flat, some ups and downs. Right now, we are at the level of slightly below USD 2,200 per tonne. If we compare the levels to prior year levels for Q3 or for year-to-date numbers, of course, we are down. We are USD 530 per tonne down, if you compare the first 9 months, and we are USD 150, USD 160 down if you compare the third quarter stand-alone, and this, of course, is then an impact in our top line in sales, which I will talk about a little bit later. Slide #8, our most important raw material for the primary aluminum production is alumina. As you know, a similar situation there, or a similar picture there, also stable development throughout the year. But we see just a slight decline compared to what we saw in aluminum. And this is also a main reason that the margins are more tight compared to last year in our upstream business. So the percentage, if we always compare and calculate the price for alumina as a percentage of the aluminum price, and this is up, and this means margins are slightly lower. Next slide, shipments. In first 3 quarters 2022, we shipped 319,000 tonnes. This year, we shipped 303,000 tonnes, so we are roughly 5% down. Going to the bottom of this chart, you see that in Metal Division, we are more or less flat, 100 tonnes up. In Casting, we matched the prior year's level, and we are down in Rolling, and this is exactly what I mentioned before, that the industrial applications business is, of course, affected by the recession in Germany, in particular, and in Austria, and this is what we see there, this is the reason for this demand. Aircraft is up, automotive is slightly up, architecture and sports are also down, but this is to do with -- I would say, still with bullwhip effect after a very strong, let's say, demand during and after COVID time. To the shipments by industry in Rolling Division, this is Slide #10. You see there, again, what I mentioned before. First of all, you see that the product portfolio gives a stabilizing effect as we are down in certain areas. Of course, we compensated a part of it in other areas. And you see that we shipped 2,000 tonnes more, for example, in automotive, 4,000 tonnes more in aerospace. We shipped 2,000 tonnes more in heat exchanger business, also slightly more in packaging, and then the other areas, as I mentioned them before, and this is in particular industrial applications where we are 19,000 tonnes down, and this is the area, which is mostly affected by the actual economic situation. Slide #11, revenue. I think now it's crystal clear that we had a decline in volume. We saw a declining aluminum price. This results then in a lower number, a top line number, means revenue is down from EUR 1.3 billion to EUR 1.1 billion, roughly, but still at the high level and clearly above EUR 1 billion. And at the bottom of this slide, you see the reconciliation. The 2 main reasons why we are down, as I mentioned before, is aluminum price and volume, and this is clearly stated there in this bridge. Next slide is Slide #12, our EBITDA performance in the first 9 months. As I mentioned before, clearly above 2019 levels. It was the second-best year for 9 months for us, but we are significantly down compared to prior year numbers as we had a record year last year. Last year, we were supported, and this is what you see at the bottom of this chart at the bridge, again, we were highly supported by aluminum price, EUR 40 million was the impact roughly, and this, of course, is something we missed there. On the other side, this year, raw materials energy was cheaper. This contributes EUR 17 million. Volume is down. Mix is different. As we lost, let's say, high-margin industrial application products this year. So we are EUR 60 million impact is there. And then we have some other effects, which in particular has to do with valuation effects. You might be aware that we had to provide, in particular, for losses because of high energy prices last year. And so, we had to be consumed and release some of these provisions this year. This is the main impact of this EUR 28 million. Of course, besides some other effects like higher structural costs, for example, inflation, of course, is simply effect also for a business like us. Change by division, this is Slide #13. In Metal Division, we are down EUR 37.7 million, but we are still way above a normal full average year in EBITDA in Metal Division. So this was an extraordinary year 2023 with an overall result for the full year of more than EUR 100 million. So this is -- this, for us, it is -- it was more or less like planned for this year that we are down there. Casting Division at the very high level, slightly down EUR 1.6 million that we still have a good demand from automotive. And, of course, we also have higher structural costs, and this is the reason why we are down. Rolling Division, the impact from lower volumes, and of course, price pressure is also there in markets which are going down. And this is something which we see in the comparison of the numbers. Last year, again, in Rolling, we had a very good year, also in Rolling, we had a very good year, and so we are EUR 15 million down compared to the prior year in EBITDA. Slide #14, same picture, similar pattern for Q3. After EUR 60 million, the record level last year, we had EUR 48 million this year, still high. We saw impacts from lower aluminum price, which is mainly -- or which is actually an impact from the Metal Division. Lower price for primary aluminum is the reason there, combined, of course, with raw materials, we have a positive contribution, which you see there on the fourth line at the bottom of this chart, plus EUR 13 million cheaper raw material and cheaper energy. You know that for us, the energy price is linked directly to the aluminum price in Canada for our smelter, so if aluminum price is down, also the price for electricity, for example, is down. This is what you see there. We also have impacts from other effects, means higher structural costs, but also evaluation effects. I mentioned the loss provisions before, which we had to build end of last year. This is a positive impact there. And so, we end up at EUR 48.2 million for the third quarter. Net income, EUR 107 million roughly prior year, EUR 70 million first 9 months 2023. It is still a higher level despite the fact that we are significantly down compared to last year. The bridge, I think there is nothing spectacular there. We had some impacts from lower depreciation and, of course, less income taxes to pay because of this decreased result. I would like to skip the key financial figures of Slide #16. I think this would just be -- I would just repeat myself to what I mentioned before. Slide #17, some ESG numbers. I simply want to point out that because we had such a significant shift in product mix with low -- way lower industrial products, many of these numbers are affected. Just to give you an example, scrap rates are higher for industrial applications, then, for example, for aerospace products. And so, this number had to go down. So -- and it's just -- it is at the same level of 75%, a little bit more than 75%, still quite high. Same is true for specialty products. The more aerospace we sell, the more specialty products we have here in the statistics. The less we sell in terms of industrial products -- industrial application products normally is then translated also to a higher number and higher rate of specialties. So this is the main reason there. Specific energy consumption is at the same level as CO2 emissions are also roughly at the same level. We have an issue this year where the performance is not where we want to have it is safety TRI is at 2.5. We have to improve the performance here and we're working hard on that side. So, yes, it is our target that all our employees, they should arrive safe and healthy on our site here and they should leave then and go back home to their relatives and their spouses when they return home safely and in good health. Of course, this is the main target there. But all in all, I would say, knowing the shift in product mix is the main reason, in particular, for specialties, scrap rate and environmental numbers. This is important to know and that we are on top and on it in terms of safety. This is something I wanted to mention. So, Slide #18, I would say this is fantastic first 9 months in terms of cash flow from operating activities. We had very positive impact in terms of working capital. But comes, of course, automatically with lower aluminum price, but 60% relate roughly in terms of working capital changes relate roughly to our working capital performance. We reduced simply volume. And this is what you have to do when demand is low. You really have to be strict there and this is what we did. We walked the talk there. And so, the cash performance was really positive in the first 9 months. Investing activities here at the bottom after roughly EUR 50 million last year, EUR 75 million this year, we are right now finishing, let's say, the final phase of our new pickling line, which we erect right now at our site here in Ranshofen. It's on time, on budget as we see. And this we are convinced a nice new equipment will be on stream soon. And, of course, there are still payments to be made, and I guess, some payments to be made next year out of that. Some numbers about our balance sheet and our status, so the next 2 slides simply should give you an overview that financial debt is a little bit down compared to last year. I think it's good you see there the positive impact of this positive cash flow. It is necessary in times like that that you are strict there and I think a good performance in terms of net debt/EBITDA, we are below 2. And also something we are prepared even if a recession takes longer, but this is, I think, you know that we are conservative in that sense and this is our target also for the future. Equity and cash equivalents. Equity is up, of course, the result is positive, and the dividend payment is digested. This is more or less the impact there. And yes -- and cash and cash equivalents, in particular, I would say, because of this higher cash flow dividend payments, which as I said digested, we are up compared to 31, in this case -- sorry, 30th of September -- June means end of last quarter. A quick view to the divisions. Metal Division earnings are solid. They are, of course, below previous levels. The market conditions changed. The plant is up and running, very good operational performance there. And I would say prices in relation to all the important raw materials, of course, are not as high as they were last year, but they are still at an attractive level and we are right now in the run rate, I would say, roughly at the level of, yes, long term historical level roughly. So this is where we are right now. So I would say a decent level. Slide #22, Casting Division, they had again a very good, I would say, super positive year after record year 2022. Automotive is still good. We take advantage of that, of course, their capacity utilization is high. The guys do a very good job there operationally, and this is something, which then translates into high results and this is what I also can say the plant and the equipments are full also for Q4 for our Casting Division. Rolling, as I mentioned before, here, we have -- because of the wide variety of our product portfolio, we have on the one side, very positive performing parts, their business units. They like aerospace right now is growing. It is strong. We just published our new contract with the Airbus, where we won shares also and market shares, and we expect also for the future increasing numbers there. And this also, of course, has to do with the ramp-up of our customers there in this business. In automotive industries, we saw a very stable development this year. And so, I would say, good and positive trend there. On the other side, as I mentioned before, we have other areas in our portfolio of roughly 5,000 products, which are not doing that well right now. They are impacted in current market conditions and environment. The recession is there. It is a fact, and this has to do with industrial application products where we serve, in particular, German market, Austrian market and so on. We have also other areas like sports, where we ship, for example, sprockets for the bicycle industries. This is down after fantastic, I would say, demand after and during COVID. And we expect that this bullwhip ends then during the course of next year. Architectural products are down. You know that we supply some tonnage for facades, in particular, also to China and we all know that China real estate business is difficult right now. But all in all, I would say, we are supported by a wide variety of products in our business and this is also where the performance is doing well there in our Rolling business. So this brings me now to the last slide and talking a little bit how we see the future. I added Slide 25, which shows you the global demand for primary aluminum historically and what CRU expects for the next years. And the trend is positive, and this is what you can see there. So in the year 2000, the overall tonnage was -- demand was roughly 25 million. Just 24 years later, we are at roughly 70 million and there is definitely not just room to improve, there is expected growth to 76 million, so until 2027. So the overall demand and demand strength for aluminum is very positive. We have super applications. The performance of our material is developing year by year, month by month. And so, for the industry, I would say, I see a bright future. Slide #26, rolled products, similar pattern, but even 4% demand, which is expected there by CRU for 2027 per annum actually. So increase from roughly 30 million to 36 million is expected there. It's a similar pattern. And also there we know that we are growing, in particular, in the transport sector. And this is -- I would say, we have a very good set up there here in Austria with our new mills, which are up and running and with some capacity there for growth. Slide 27, how do we see the next month? I would say, the current market environment is, of course, something which is super different for the different business areas we are in. For our smelting operation, means the Metal Division, we see, in principle, continued stable earnings. So what we expect for Q4 is more, let's say, a continued run rate as we see it right now. So this is our expectation based on the assumptions. Of course, we have in terms of aluminum price and alumina. For Casting Division, I also mentioned that we expect high capacity utilization as we have the orders in-house and the book is full for the rest of the year. So we will see a decent development there. This is our expectation. Of course, we also have to bear in mind that there's always maintenance time with business in our facilities. Same valid for Rolling, by the way. And in Rolling Division, as we had mentioned it before, roughly 5,000 different products to the different industries we serve. We have, I would say, somehow a different view depending on the industry. We don't expect that things are changing for industrial applications in the next month. We also think that in architectural applications and in sports, it stays difficult. But on the other side, we are very optimistic, in particular, for the aerospace industries, we are also optimistic that we see stability in automotive in the next weeks and months. So, yes, we'll see. And what we expect, and this is what I mentioned in the beginning, an EBITDA range between EUR 175 million to EUR 195 million of EBITDA. And as we do it normally, and this is the tradition that in the earliest, with our full year numbers or at Q1, we will give you then the outlook -- a more specific outlook than for next year. So thanks now for your patience. I'm definitely here and ready to answer your questions. Thank you.

[Operator Instructions] And the first question comes from the line of Wolfgang Matejka from Matejka.

Congratulations, gentlemen, and a warm remark from Vienna. So my question -- so I would have 2 questions. It's related towards your near or, let's say, far future. The first one is having in mind the study already being issued 1 or 2 months ago that gives aluminum a broad picture, a great picture for relation to electric vehicles and to alternative energy. Having in mind that it's -- in that study coming from Goldman Sachs, 6x more aluminum is needed by electricity and alternative applications more than 9x. It's some kind of being bullish on that, of course, being a market participant. But do you see a similar trend or, let's say, a similar development in your business coming ahead?

Yes, I think as you mentioned, this is why we added these 2 slides. You see that the overall demand and order for all products is definitely a positive one. What we expect in automotive right now, roughly 25-plus, I think, it's 27% is the number percent of our materials, which we ship to automotive industry goes into electrical vehicle. And as this business is growing, I'm convinced that we will have a bright future there. We have products to support the electrical vehicle business in automotive industry there, for example, for thermal management, for batteries. But also, we are a one-stop shop there and we are prepared to serve this growing market. So we are optimistic there. Yes. In terms of alternative energies and aluminum for extrusions, of course, extrusions are there. This is not our business. For the industry, it's definitely very positive for extrusions. It's super optimistic. We are super optimistic with regard to photovoltaic systems. And for our Rolling business, it is important for windmills again. So wind is important. This business, interestingly, is down right now. So this market is not super bullish. So, I think projects are stopped or on hold. We are waiting that this is picking up again speed, and we are prepared to ship the tread plates. So this is what we ship to this industry. But we have products to serve and we are one of the, I would say, the biggest suppliers of tread mills in Europe -- of tread plates in Europe was [indiscernible]. Yes.

Some kind of catch-up question afterwards. So congratulations for the sustainability award. It gives a picture that AMAG is doing so well on that pattern. And the -- all the ESG-related investors should take notice on that. But my question is that, you are not only awarded for sustainability, but also for industrial intelligence. And maybe you can give me some actual or maybe coming highlights from your personal view related to this.

You mean on innovative product, what is...

Innovative products. Correct. Yes. Plates or some kind of mixtures and so on.

I think, we have so many products always in our, let's say, pipeline. I would say, for me, one of the most important things which we might see in future more and more and which we are convinced from our side, at least, that this will be a successful product there in future is a new alloy class, which we call cross-alloy for the future. And when we combine the different alloys and the properties of different alloys, this is brand-new. And it's a material development, means you have to -- it takes long. It's not something which goes from 1 month to the next or 1 year to the next. Sometimes it takes some years to prepare such projects and such products. But with cross-alloy, we have something in our pipeline where I think this can be something, which changes a little bit, at least, let's say, again, our footprint in the industry, this is something brand-new. And we combine properties of different alloy families. Something I think which might have a prosperous future. More to come then with our full year presentation.

The next question comes from Duarte Murta from Kepler.

Congratulations on a solid quarter. A quick one from my side. I would just like to understand if you are expecting this recession we're seeing in the industrial applications and sports to somewhat impact automotive in 2024? And how are you seeing demand and pricing trends as well for auto into next year?

First of all, the only thing I can say about automotive, we have -- we hardly have sport business. Therefore, as it's normally long-term business we have. And we see up to now very stable development. But I never -- you never -- it can go more positive or also more negative. But right now it's stable. And this is our expectation for next year. And this is also how we would plan next year for automotive right now. So everything else is, I would say, a speculation. But right now, as of today, I would say, we expect stable development there. And we hope that it is as we assume the same was -- we had the same question, I think, 1 year ago we had the same answer. So last year was stable and it is still stable. With regard to pricing and automotive, all we do there is, when we take in new orders, of course, this has to reflect also our cost structure. And it worked out quite well up to now that we pass on higher costs for energy and so on and so forth, all this inflation stuff. And so, I would say, also no negative if you want to ask this question, in fact, I would expect there for next years out of that.

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

First of all, I have a question concerning rising interest rates. So we have these touching 5% of the bond in the U.S. and so on and so forth. What is the main impact what you see when it comes to your suppliers, customers or your own working capital financing? What you currently see and what you expect for the next year given the high interest rates? Any kind of changes? Any kind of major disruption, something like that?

I mean, it was really difficult to get now the question correctly. I hope that I got it. So if not, simply interrupt again. So my -- what I got of your question is, you want to have the impact of higher interest rates to our working capital finance or to customers or suppliers and so on. So this was a little bit what I got. Yes. So for us, of course, we have a structure in general, the financing structure. We have, of course, also for us with higher interest rates. Also, this goes up a little bit, but it's not that significant. But this is clear. This is a very general answer. Now, nothing spectacular. I would say for us what we do is, we try to optimize, of course, our cash position or, let's say, the liquidity position, which we have. And we actively optimize also that, having on the 1 side always in mind that for us volatility in aluminum price has a big impact, and we have to be simply prepared to finance working capital needs within short. So this is what we saw during the course of the year 2022, where we had a swing of, I think, EUR 180 million within 1 quarter. So this is where we always have to be prepared. And this is what we do, but we actively optimize. And what I expect for next year is, of course, slightly higher interest rate because step by step, high interest rates kick in. For our customers, the whole supply chain. For AMAG, we carefully monitor, actually, the performance, the status of customers, of suppliers in this regard. We started that 2 years ago, roughly 1.5 years, when interest started to rise, this was one of the first exercises we did and started to do regularly to have a close look there and monitor the performance and the risk situation of our counterparties there. With regard to customers, I have to say that we insure all our receivables and the risk is fairly limited there. So, I would say, as we would say in German and in Austrian, everything in cliff right now and under control. And -- but, of course, you never know how things develop. We also understand that this is a risk. Yes.

Seems to be a good job. And free cash flow, do you expect some further releases in the fourth quarter? Working capital releases?

In free cash flow, I think it highly depends where our investment cash flow will end up. And this has to do with milestone out of our pickling line and so on. So I expect there are some payments to be made for the fourth quarter. And at the end, it highly depends where the aluminum price will stay, I would say. I would expect perhaps slightly lower, again, levels in terms of volume in our inventory and then the rest is in the formula. But I think we did a fantastic job the last month. Yes.