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

Ladies and gentlemen, welcome to the first half year 2024 results presentation conference call and live webcast. I'm Sagar, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [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 July 12, 2024. 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 the 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 the information included in this presentation. This presentation is also available in German. In case of doubt, the German language version takes the precedence. The presentation does not compromise either a recommendation or a solicitation to either purchase or sell securities of AMAG. At this time, it's my pleasure to hand over to Christoph Gabriel, Head of Investor Relations. Please go ahead, sir.

Good morning, ladies and gentlemen, and welcome to our conference call for the first half of 2024 of AMAG Austria Metall AG. Today, Helmut Kaufmann, CEO; and Claudia Trampitsch, CFO, 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 your questions during the Q&A session. Helmut, please start the presentation and thank you.

Good morning to everyone from my side. I start the presentation with Slide #3, highlights of the first half of '24. I give you only a short summary of the financial results and Claudia Trampitsch will go into details a little bit later. So we saw solid earnings despite the fact that the market, especially the European market was still weak. However, we saw higher aluminum prices in the second quarter and we observed that our strategic positioning with the wide product range was again supporting our rolling business. The revenue came up to EUR 707.7 million. It is compared -- it is down compared to the first half of last year. Same for the volumes that we sold. But please remember that the first half of last year was a very strong period. The EBITDA turned out to be EUR 95.3 million and as I mentioned, was below last year's EBITDA, which was EUR 117.8 million. But and this is important, there was an improvement compared to the second half of 2023. The net income after taxes summed up to EUR 33.4 million compared to the EUR 51 million of first half year of '23. Cash flow from the operating activities, however, was strong and grew to EUR 75.7 million compared to EUR 68 million last year. A short first look to the second half and to the possible end year result. We increased the lower limit of the bandwidth compared to our last presentation from EUR 150 million to EUR 160 million. And we say that the bandwidth now will be EUR 160 million to EUR 180 million based on the current assumptions, especially concerning aluminum price and shipment volumes. We thought that in this presentation at the beginning, we give you a short overview of sustainability activities because these are very important already now but gaining importance for the future. We are proud to say that again, we've got a very good Sustainalytics rating, and AMAG was again #1 in the aluminum group, in a group of 42 different global companies. And again, we were announced to be a member of the VONIX sustainability index in Austria. And therefore, we belong here to the leading companies in terms of ecological or social conditions. And what is new? You already know our brand name aluminum forever, AL4ever, which we introduced for foundry alloys and rolled products. But now we are proud to say that we already received this status also for the primary metal produced in Canada. Let me continue on Slide #5. Decarbonization is a big subject for the upcoming years. And as you know, it will not be possible to change all the natural gas to direct electricity consumption. So hydrogen will most likely be required in our cast house. And therefore, AMAG is also active in a new Austrian alliance, the so-called HIAA, Hydrogen Import Alliance Austria, where we partner with a couple of other leading companies in Austria to develop a plan, a road map to promote the import of green hydrogen to Austria especially to achieve volumes and competitive conditions for the future. We also announced that we partnered with Energie AG to double our photovoltaics installation on the roofs of our factory halls, which then will lead to 120,000 square meters of photovoltaic cells. And this will then be Austria's largest for sure producing roughly 13 gigawatt hours for own consumption. So we only use this in-house. On Slide #6, we want to point out that we recently signed a power purchase agreement with the company ImWind in Lower Austria where we will get 48 gigawatt hours from wind power and this plant is now in installation and will most likely start by the end of this year. And same is true for hydro power, where we signed a power purchase agreement with Alpen Energie for 36 gigawatt hours. And so as you can see, we strongly believe we actually need energy mix and we prepare for this for the upcoming future. Let us move on to Slide #7. We are very proud to say that one of our real core customers, the company, Airbus gave us 3 important awards. We were, so to say, the absolute winner at this, what we call the aerospace Oscar here. We were for the third year in a row the best supplier in the product area. And therefore, we received SQIP award for accredited supplier. And we received 2 special awards for innovation and sustainability. And as you know, these are the 2 core pillars of our strategy for the future. And therefore, we are happy that our core customers realize that this is done very well with AMAG. So let us look at market and volumes that we shipped. I continue with Slide #9. Looking at the Purchasing Managers' Index, very briefly, you can see in the upper right corner, the Eurozone is still quite red. Austria, Germany pretty red and also the important markets in France and Italy. Only outside Europe in the USA and of course, in China, the situation is considered to be better. When we look at Slide #10 at the CRU forecast of the future aluminum demand, then we can say that for primary metal as well as for rolled products, the outlook is still positive. However, it's interesting that looking at the primary metal expectation for Europe there, it's flat, maybe even a slight decrease. So the main growth actually comes from the Chinese market. Rolled Products, it's not a big growth that is forecasted for Europe as well. But anyway there is growth in all the continents and all the markets that we supply from Ranshofen. Looking at Slide #11, where we indicate the main areas where AMAG delivers rolled products. Without going into detail, you can see that basically all areas have a positive growth forecast. But for us, it is important that the transportation area is doing well and with a forecast of 6.6% annual growth up to 2028, this is positive information. And as you know, automotive and aircraft business are very important for us. Looking at group shipments on Slide #12, we have to announce a slight decrease compared to the last year with 214,000 tonnes of the 3 product groups that we sell. This is primary metal, recycling foundry alloys and rolled products. We reached this volume with an increase in the middle area compared to last year, a very slight decrease in the foundry casting alloy and in the recycling cutting alloys, but with a bigger reduction in rolling and this is, on the one hand, a positive development, especially in the aircraft and also in the industrial applications area compared to last year. However, temporarily reduction in the automotive sector. So we expect an improvement in the second half of this year. But the volume reduction in packaging has a bigger impact. Sports and architectural products are still at a very low level globally. And looking at the shipments by industry on page -- Slide #13, there is no major change except for the reduction in packaging. But in detail, it's -- in numbers it gives you what I just mentioned before. So automotive industry is at 21% and aircraft at 15%. But industrial application is important with 27%. And this takes me to my final slide. The current order intake situation. As you can see, we are in the range of 60,000 tonnes plus at the moment which is a good value and it gives us actually a good start into the second half of 2024. For further details of the outlook, I will come back later. And hand over to Claudia Trampitsch for now.

So I will start with some information on the market prices that influenced us the last quarter in the first half of 2024. So we saw an increase in aluminum price compared to last second quarter, but also compared to the last half year. But what we see now is a little bit of decrease now the last week. So at the moment, it's more on the declining side, but for the first half of the year, it has a very good impact. When we move on to the aluminum price, you know that's a very relevant cost factor for our smelt in Canada. And there, we see the increase in price, not only in the absolute numbers, but also in the percentage of the aluminum price. So that is now at the moment at roughly 20% of the LME, which will not -- it has no impact now on the figures, but this has an impact for the next months to come. When we look at AMAG group revenue, we can see that it's a very challenging environment we had for the first half. Our growth orientation and our diversification shows that we still had a very solid revenue, which comes out about 11% less than last half year. And this is mainly influenced by, on the one hand, the realized aluminum price and on the other hand by, for sure, the lower volume you heard about before and the price and the premiums that mainly affects the rolling business and affect the revenue of the group. When we move on to AMAG group EBITDA, you can see that it is still -- if we look at how challenging our market environment was, we mentioned we were able to also reduce our cost of sales and reduce some structural costs so that at the end, we had a very solid EBITDA of EUR 95.3 million. And it looks -- it is lower than the first half 2023, but I also want to point out that it is higher than the second quarter -- second half 2023. So therefore, we really -- we really think that we had a -- did a good job there on that. What we can see when we look at the reconciliation that additional to the things I mentioned before and I want to point out 2 things. One is that we had a positive effect out of energy prices in Europe and of the raw material prices mainly in Canada, but also in Europe. And some evaluation effects that were positively affecting the second -- the first half of 2023 has now a negative impact in the reconciliation. When we look at the change of EBITDA by division, you can see that the weak market environment primarily affected the Rolling Division. So as the Metal Division was positively affected by lower raw material prices and lower premium, the Rolling Division, as we already mentioned before, was affected by lower shipment volumes, energy costs and product mix. When we just look at the second quarter of 2024, we see that the difference between these 2 quarters is smaller than for the total comparison of the half year, which shows what I mentioned before that our second quarter was quite a good quarter also compared to our first quarter and we can show a lower in the second quarter EBITDA of EUR 53 million. For the net income after taxes, there is nothing particular to mention. So there are no special evaluations effect. The only thing you can see perhaps is that the depreciation arise because of mainly the implementation or the -- implementation of the new surface treatment center and some replacement investments in Canada. As every quarter, we also want to show you some of our ESG key figures. So these are the key figures for our Ranshofen site where we want to show how we do on ESG-related figures that we think are the most important for us so that we measure ourselves on and just pick out 2 or 3 of them. So we could increase our scrap utilization rate. Our scrap utilization rate is dependent on our product mix. But even though we are always doing our best and that's one of our core business things that we try to use as many scrap as possible. And therefore, we are proud that we could reach that number. Also, we could reach -- increase our share of specialties and our specific energy consumption was also at a very stable number. When you go to Slide 25, we can see that we had a further growth in our operating cash flow. So the operating cash flow is mainly influenced for sure by our earnings and there is a reduction due to the development of the working capital. But nevertheless, we had EUR 75 million operating cash flow, which is higher than last first half and putting into the account investing cash flow, we come up with a free cash flow increase of EUR 10 million compared to last half of the year. So we are now at EUR 27 million free cash flow. When we look at our key financials on the balance sheet side, we still show, despite the effects we all mentioned before, a stable position due to net financial debt, EBITDA, equity, cash and cash equivalents. So when we look at the net financial debt, you can see that compared to year-end, the main influence sector was the dividend we paid out of EUR 53 million last year -- this year. And apart from that, there was no significant increase of the net financial debt. And also, when we look at the equity, you see that when you take the equity of year-end and compare it with equity to the 3rd of June, you see the earning after taxes and it is redacted by the dividend, and that is mainly the difference to last year. So we are very stable there. We have still over many years, a stable, high equity. And as you also see on that slide, a very comfortable situation on the liquidity side. I now will skip the details on the several divisions, as I mentioned the main points before. I'll now hand over to Helmut for the outlook of 2024.

Yes. Thank you, Claudia. Based on what we see now based on forecast and discussions with our customers, we honestly speaking, do not expect a significant change in the second half of this year when we talk about the economic environment. So we think that this will remain subdued as we wrote here on Slide #32. But again, I repeat this that our right product range in the Rolling Division helps us to somehow move the product mix and go-to-business areas where we can sell and run also in the second half. We do expect stable production for primary metal in Alouette in Canada. We -- Claudia already mentioned, we cannot expect such a strong tailwind from Alouette in the second half because the aluminum price was high in the second quarter but is lower now and the alumina price is high and this is not such a positive combination. The automotive industry remains challenging and we see uncertainty here. But on the other hand, we can see the watering behavior in our Casting Division, which is very strongly linked to the automotive industry is still good. So we are producing very close to capacity limit and we foresee that this will remain the same also in the second half of this year. And we expect to participate in a generally positive environment for the aircraft industry. However, as you heard, Airbus reduced the forecast numbers. And so of course, also, AMAG is slightly affected of this new situation. But in general, we expect a strong performance of AMAG also in the second half of the year, which allowed us to increase the lower limit of the bandwidth, as I mentioned before. And I repeat this that we now expect to come up somewhere in between EUR 160 million and EUR 180 million of EBITDA for the full year. And I would like to stop at this point here and the remaining slides are for additional information. But we are now open for questions. Thank you very much for listening.

[Operator Instructions]

I have already 4 analysts who wanted to ask questions, so I suggest to start with Markus Remis please.

The first question is from Markus Remis from RBI.

So 2 questions related to rolling, please. Firstly, you mentioned that you expect an uptick in the demand from the automotive industry. So I would be curious to hear to which extent that is already substantiated by an improving order intake over the summer month or if that is more, I would say, indications that you received from the industry? And then secondly, you also referred to an improvement in the industrial applications business, which, yes, was probably the weakest link for a couple of quarters now. Is that kind of sustainable and underlying improvement? Or is it more of a restocking effect? And maybe you can shed some light also on the regional development here.

Yes. So thank you for these questions. I'll start with the first one concerning the situation in the automotive industry. All I can say here is that our expectation for the second half is based on direct discussions or already placed orders from our customers to AMAG. So this outlook is, so to say, a very realistic one. And the question concerning the industrial applications, I can say and we mentioned this in the last presentation that we gave that there is a difference between the European market and the international markets. Unfortunately, the European market is still weak. And looking at the newspaper today, when there were some articles saying that Germany was basically flat, almost no growth, this is not so good news for the industrial applications because in the European area, German market actually defines the dynamics here. And so we do not expect, as I said before, in this region, here, we do not expect a significant change in the second half. However, we were able to move to other markets and mostly to the American market. And we also think that this will continue in the second half.

Okay. Can you maybe elaborate a bit more on this deeper penetration of the U.S. market? I mean, is that something more of a kind of structural development or -- let me say so an opportunistic movement and is the kind of the margin profile the same or comparable to Europe?

Yes. All I can say here is we are able to deliver the same products that we supply to European customers also to the American market. And in the American market, there is simply demand. And there is no, like, strategic adjustment or anything or we do not develop special American product. So actually, the industrial market mostly orders to standards, so [Foreign Language] in German. So this is not customer-specific development. And therefore, we can shift to the markets and just have to handle the logistics and -- but we are capable of doing this.

Right. And last question is more of a bookkeeping one on the CapEx side. Is it still the case to expect around depreciation levels of EUR 19 million?

So far, we are working according to plan and this is correct.

Yes.

The next question is from Duarte Murta from Kepler Cheuvreux.

Maybe I can start -- I have a couple of questions, but all around the Metal Division. I'm looking at the average aluminum price for the quarter, which was obviously quite high, but looking at Q3 for the start -- so for the month of July, the average price is already lower at EUR 2,400. Spot prices are even lower at around EUR 2,200. Alumina prices are now at roughly 21% as a percentage of LME. So my question is to what extent is this very quick shift included in the guidance because I personally would see it as a big headwind for the division, yes. And yes, so where is this giving you confidence to raise the guidance for? Are we really expecting such a strong improvement in the downstream operation to possibly offset this decline in the Metal Division? Or was this so big that it's simply not reflected in the current range?

Yes. No, we did the first forecast some months ago when you're quite at the beginning of the year, the bandwidth is broader because there is still 9 months to go more or less and we had to just pursue more uncertainty than now. And we do quite thoroughly forecast and it shows that we now expect a higher -- low level, let's say, put it like that way. And to your detailed question, yes, we always take the -- we take the forecast for the alumina price and the aluminum price. And when we do our forecast, we also put into the account, as you say, they're roughly 20%, 21% of alumina for the upcoming months with a little bit of delay as we also have inventory and so on. So we put the forecast into account. And as Helmut mentioned before, we do our -- a very realistic forecast and we are confident with that forecast.