Aperam S.A. (APAM) Earnings Call Transcript & Summary

Hello, and welcome to the Aperam Q1 2020 and ELG Transaction Call. My name is Courtney, and I'll be your coordinator for today's event. [Operator Instructions] And I will now hand you over to your host, Tim Di Maulo, Chief Executive Officer, to begin today's conference. Thank you.

Okay. Thank you very much, and welcome. Good morning or good afternoon to everybody. And I will be here with Sudhakar Sivaji, which is our CFO, to discuss with you about our results -- quarter 1 results and about the acquisition of the ELG Company. And you have received the material and the -- our comments in -- they are on our site. So what I propose that we take the time to start with the Q&A. No, no, no. Sorry, sorry, sorry. Just a second. Sorry. That is a mistake by me. It is -- just one second. We have not published all the part of the -- sorry, sorry, from my side, and just a mistake. So let's start. Sorry. Good afternoon. And we hope that you have already listened to the prerecorded Q1 comments in the video format that are available on our website. And we will later answer to the question on both Q1 result and the ELG acquisition. With ELG, we opened a new chapter of Aperam growth and ESG story by becoming a key player in the global circular economy. Please take note of the disclaimer on the slide, and then move to Slide 3 for the key transaction highlights. Now I go to the next page, 3. Acquiring ELG is a process for national status for Aperam. We're expanding to raw materials, or more precisely, into alloys and stainless scrap, the key strategic and most cost-efficient raw materials. We are already cost leader in Europe. Acquisition that we are commit to defend with a leadership journey. The acquisition of ELG is a strategic milestone and will help Aperam improve its competitiveness by leveraging on synergy and participating in a growing recycling storage sector. This should be seen in addition to other initiatives. We are convinced that we need to actively participate in our efforts for environmental initiatives. ELG is among the top players in Europe and in United States, which give us the necessary scale and expertise right from the beginning to increase efficiency in the recycling chain. This integration is also a way to combine better ESG metrics with profitable growth. As the decarbonizing rates accelerate, we expect growth of the scrap sector to accelerate. This is due to the fact that higher scrap usage is a key driver for improving the carbon footprint of the industry. Although ETS certificate might compensate for the rising price of carbon certificate today, increasing recycling and efficiency in the scrap supply chain is a structural and sustainable solution. We are convinced that there is a solid economic case for Aperam ESG leader to intensify focus on carbon neutrality initiative. We will touch on ESG angle in more detail just later. ELG is a good business, with upside potential, and one of the company in the scrap value chain that stretches across all value steps of generating, processing and blending scrap. With almost 1,300 employees, this is a sufficiently large and valuable base that we want to develop further. We expect a smooth and seamless integration of ELG because of the longstanding business relation between our 2 companies and the excellent strategic fit. We have detailed industrial plan in place that will quickly execute after closing the deal. We are moving into an area that is new for Aperam and vertically linked to our activities. We don't foresee any antitrust issue and expect the transaction to close in the second half in this year. I want to stress that ELG will be run as an independent company that continue to serve all its costumers and their -- in their best interest. Synergy will be the immediate benefit of the combination with ELG and we have estimated this at EUR 24 million within the 3 years. However, we see further potential in the combination by applying Aperam operating efficiency and IT standards, also beyond immediate ELG footprint. Our clear aim is to improve the efficiency of the recycling industry. I now hand over to Sudha for review of the financials.

Thank you, Tim. Good afternoon and good morning from my side as well. So I stay on Slide 3. In 2020, Aperam has demonstrated how much it changed over the years. Thanks to our flexible and resilient business model, we remained free cash flow generative with a positive EPS in every single quarter, even throughout the crisis. We're convinced that our business model wil also deliver during the recovery as we saw in Q1. The disciplined execution of our strategy and our solid balance sheet puts us today in a position to capture the value-accretive opportunity that ELG presents. We agreed to pay an enterprise value of EUR 357 million. The deal is based on a locked box principle agreement per year in 2020. So the EV will be subject to any changes in working capital on the floor. However, we expect the dominating share of the enterprise value to come in the form of assumed debt to ELG for net working capital. The Aperam net debt stood at just EUR 67 million at the start of the year, translating into a very low net debt-to-EBITDA of 0.2x. With more than EUR 800 million in liquidity on hand, our balance sheet and liquidity position are easily capable to support the transaction. We expect our high cash generation capability will allow us to quickly deliver our balance sheet again. I also confirm that we will maintain our base dividend at EUR 1.75. We value the transaction at an EV-to-EBITDA multiple of 6.5x before synergy, which compared favorably with the global recycling peers and Aperam's own multiple. Adding a conservatively estimated synergies of EUR 24 million shows that we buy an excellent strategic fit at a price that generates value for our shareholders. ELG plays a key role in the recycling value chain in both its stainless and its alloy segment, and has historically been a cash positive business. Unsurprisingly, 2020 marked the trough due to the COVID impact on scrap demand and the aerospace industry, which is the main driver for the superalloys business. However, the first quarter of 2021, business in the scrap industry has normalized. And we expect ELG to be value accretive and cash flow positive within the first year of the transaction. Further earnings growth should be based on organically growing scrap volume and a rebound of the global aerospace industry post COVID. As indicated by Tim already, we can see additional improvement potential from the base scrap industry operates in the medium term. Throughout the leadership journey, we have a track record for improving efficiency throughout the value chain and see many options to transfer this know-how to the recycling industry as well. A potential recovery of the aerospace industry would also be a beneficial for ELG superalloys business and is an upside. We are looking forward to riding the next chapter in our continuous improvement and growth strategy with the acquisition of ELG. I now hand back to Tim for a look at the operations.

Okay. Thank you, Sud. Please turn to Slide 4. Let me stress again that this is a process for national acquisition for Aperam. ELG has been an important supplier to Aperam in the past. And through our long-standing relationship, we know each other quite well. About 90% of Aperam alternative steel production is based on scrap. And while this is a good value, we could improve in quantity and in efficiency. ELG team is very knowledgeable and experienced in scrap procurement, analyzing and blending the various stainless grade. This is a complex task as there are hundreds of different alloys. Stainless steel scrap also comes in various shapes and forms that have an impact on productivity of stainless steel mill. Having this know-how in house will keep us to further maximize the value of this raw material. In a wider perspective, this will be also beneficial to the whole European stainless steel industry. We can assure all customers that ELG's operation will continue to serve their interest in the same way they did in the past, and we intend to run the company as a completely independent entity. The European scrap market is of utmost importance for Aperam, and we are convinced that ELG is the right partner. On top, the combination with ELG give us more strategic options. For the first time, we get an industrial foothold in North America and a presence in Asia. We think this has strategic value to Aperam. With ELG alloys, we become exposed to the market of nickel and titanium based superalloys, where Utica is an undisputed market leader. The aerospace industry is in the prime application. So 2020 has been an extremely challenging year due to the impact of COVID, which has had demand from the aerospace industry. On the one side, this is reflected in a temporary depressed level of profitability, but on the positive side, this gives us the opportunity to buy an outstanding business at 2 multiples. We are convinced that Utica has substantial recovery potential when aircraft demand normalize as COVID sales. Combining Utica experience in this market with Aperam existing alloys know-how might unlock additional growth and synergy potential that we could not tap ourselves. Please move now to Slide 5 for a look at the ELG proposition. Let me remind you that Aperam has the smallest CO2 footprint in the industry and less than half on our CO2 per tonne of steel. This is partially due to the maximum use of scrap in Europe, and our efficient production, but also due to the -- our forest certified in Brazil, that supply renewable foods -- fuel for the blast furnace. As a consequence, Aperam's CO2 emission per tonne of steel are only half of the global stainless steel industry and about 1/4 of the global steel industry. Within a few months, 1/3 of our employees will work in environmentally sustainable supplies, either in supplying recycling material for ELG or Recyco or our nursery, forest and charcoal activities for renewable energy. Aperam has been an intensive user of scrap in the past, and as such, a key consumer in the circular economy. Via the ELG acquisition, Aperam now moves in the center of the recycling industry and becomes a backbone of the circular economy. The beauty is that the definition scrap carries zero CO2 content. And even on the Scope 3, apart from meaner emission for transportation. This compares to ferronickel, with a whopping 8.7 grams per tonne according to ASFS, and nickel pig iron is even worse as it goes through a blast furnace process. This is why in Scope 3 Aperam basis emits only 20%, 25% of the CO2 per tonne of steel compared to our Asian competitor that builds their production on nickel pig iron. This is of increasing importance to our customer. In future, Aperam will be able to warrant a real full circularity from scrap collection to stainless steel products, becoming partner of choice for CO2 reduction. Despite our leadership position, we become better -- we can become better and have committed to do so, as evidenced by our ambitious 30% CO2 reduction target by 2030 and carbon neutrality by 2050. Increasing environmental regulation and even more expensive ETS certificates that now close to EUR 50 per tonne, clearly signal the need to reduce emission and the CO2 footprint. We expect that these factors will drive demand for scrap in future, making it even more desired strategic raw material. Now let me conclude. We are convinced we are buying the right business at an excellent strategic fit, with further potential in the superalloys business. The second point, we invest in the growing recycling and circular economy business. This will become a strong pillar of Aperam, with 1/3 around -- about of its employees. This combination will create value for all stakeholders and will be embarked in an exciting journey to external growth. And we expect to be more profitable, resilient and cash flow-generating company than before. We are now ready to take your question. And I hand back to the operator.

[Operator Instructions] Our first question comes in from the line of Patrick Mann calling from Bank of America.

I kind of have 2 questions. One is around just the supply and demand outlook for scrap. I mean, clearly, you guys are suggesting that demand will grow very quickly with this -- with increased carbon prices and the need to kind of use more scrap in the production of stainless in Europe. Do you think that supply is going to be able to keep up with that? Or is this acquisition, in some way, around getting security of supply? And then I suppose related to that, can you give us a market share sense for how big is ELG in Europe? And sort of how big is Aperam, much of -- how big a customer is Aperam of ELG at the moment? Yes, I'll stop there.

So thank you. The supply/demand is in different regions. So you have typically a region in the world of -- in the developed country, you see that there is quite a kind of balanced supply versus demand of scrap, while this -- the demand of scrap is increasing in all the developing countries. It's clear that Europe is even a little bit an exporter of the domestic scrap, because we believe that the full potential of using scrap is not yet reached. And that we believe that we can have a part in this journey. So definitively, definitive scrap, the percentage of scrap, which is used by the stainless steel industry has increased during the last 10 years. We were using a lot of nickel, even pure nickel or ferronickel 20 years ago, then has continuous growth to level today, which are around above 85%, 90%. So we still think that there is a potential and there will be an interest. And on top, there has been -- there will be an interest in the efficiency of the collection, which means quality and logistics. In this area, we see the growth. So in term of market share, we are not disclosing today real market share. We are on the top, let's say, 2 bigger supplier in Europe, but there are many participants. We don't -- we have no, let's say, particular subjects in terms of concentration of dominance in this market because this is a market with a lot of participants. But the quantities collected, you can try to find out some rational in the figures, in the global figures, which are the level of collect of ELG and the level of production of Aperam.

The next question comes in from the line of Alan Spence calling from Jefferies.

I've got 3 questions. I'll take them one at a time. The first one on ELG and their debt. Can you give us a sense around the cost and duration of that, maybe if there's an opportunity to refinance and cut interest expenses once the transaction is closed?

So ELG debt is mostly just to finance net working capital. So that's something which we don't believe is something which is going to be substantially different when we take [indiscernible] No, I'll just add it's a rolling debt, so.

Got it. And then regarding the synergies for you, can you give us a sense of the buckets where you see that coming from? EUR 24 million obviously means like a minimum. So maybe what are the 1 or 2 areas where you think is the most upside potential?

So in this kind of business, the majority of the costs are related to logistics, to collection and to the transport that goes in different direction. And on the way, you can, let's say, clearly define the level of quality which are used in the melt shop. The combination of the knowledge of what is the best suited by the melt shop with the combination of the flow, of the -- with the best -- the better forecast on the demand will help us to decrease all the costs, which are along the supply chain, is along the supply chain that goes from customers, which are customer -- typically customer also of Aperam in term of [indiscernible] There is the collection, general collection, et cetera. So it's a complex way to go from the point in which you collect the scrap to the point in which the scrap is used. And we believe that having a full view of the supply chain will increase the efficiency and can leverage the synergy we are speaking. But we see also additional potential because this company, Aperam, has a long tradition of cost efficiency and leadership journey. And we are sure that we will apply in the future similar concept, investing in having a stronger industry, a more efficient industry. This kind of synergy for the moment has not been, let's say, studied because it's too early to be in, and so we'll add to the synergy that we have already identified.

Okay. And then my last question is just on Brazil and the improved mix you saw there in Q1. If you look at your order book for Q2, and I'm not sure if it's stretched into Q3 there yet, but do you expect that mix shift benefit to continue or to be flat, or what you're seeing there?

So your question, if I understood, Alan, is on Brazil Q2 outlook, right, so to speak, in terms of mix?

Yes.

Okay. So yes, so we expect the mix to stay quite similar. So you just -- yes, the improvement we saw last year has remained with us.

The next question comes in from the line of Rochus Brauneiser calling from Kepler Cheuvreux.

Maybe first question is on ELG and then maybe 1 or 2 other ones. Can you give us a bit of a sense in, when you integrate ELG, how quickly you consider to achieve the targeted synergies? And in that context, how shall we think about the third-party share of the scrap business in the future? Because I could consider that you have your know-how about what to collect and what's the best plan for a melt shop that you want to keep that know-how more as a captive business in the future. So any color on this is appreciated. And maybe can you also say something about the -- through cycle EBITDA. I'm not sure how long the time horizon this is referring to. When I looked at the annual report, the average EBITDA was considerably lower than that. Maybe you can help me to understand where the gap might be.

Okay. So first of all, synergy. As we have said before, we'll be fully leveraged in the next 3 years. Our target is to be as fast as possible. I just remember you that we are in the phase of having signed the SPA, and so it will be from the integration process that we can be more precise. But we have a clear idea where the synergy will be under their magnitude and their minimum magnitude that we have estimated in our plan. So the efficiency in collecting and using the scrap is something that it is related to the fact that when you collect the scrap, you collect hundreds of different grades, which are combined. And then you have to fit in a very strict, let's say, analysis, which is our final product. So if you want to reach very high level of usage of scrap, you must fit at the best possible mix. And this is the improvement in term of the quality that we think to achieve. But as I said before, whatever it is, the -- let's say, the efficiency and the possibility of more quality can be offered also to the traditional customer of ELG as ELG will remain in the term of an independent company, offering to all customers for their best use and their best interest. The other question you want to take, Sud?

Sure. Rochus, so thanks for that question. So I'm sure you looked at the website. So there's probably 2 or 3 deltas, and I can give you some color on that. The first one is the depreciation, which is a noncash expense, right? So that's something that you directly have to add on top on those numbers. The second one is that the scope of ELG, what we are buying and what you've seen historically is also different, right? So businesses which are not profit-making as ELG start to transform itself over the last 3, 4 years like carbon fiber or specific [indiscernible] businesses have been carved out. And it's public knowledge that also ELG just increased its scale by close to 25%, 30% by acquiring Iberinox, it's the Spanish company with a footprint in the European South, and its first full year was 2020. And the last part is also probably a delta you find is the hit from the COVID and the impact on the alloys business, which is primarily Aerospace business, which you've spoken about in our presentation. And I'm sure management did an excellent job also restructuring and preparing for a transaction or scale, so that may have had some impact as well. So those are the primary items to bridge whatever numbers you're seeing. So what we see as a -- through the cycle, EUR 55 million EBITDA just.

Okay. Okay. Okay. Makes sense. Then maybe 2 more general questions on results. The one is, can you give us a sense to what extent the realized base price improvement in Europe could be higher in the second quarter compared to Q1, given the lag effects you mentioned this morning? And the second thing is just more general, on the Brazilian margin. In a way, it feels sometimes like a black box given the product mix. And what is a bit difficult to assess is you're now showing margins in Brazil which are twice as high than in the good times in the last years. So when you look at the last 2 quarters, how much of that margin upside or the better margins you're showing at the moment, how much of this is structural? How much is cyclical component? Let's -- yes, let's put it this way.

Okay. So first, on the base price. So we don't give guidance on the base price. But there is clearly a recovery of the base price. You can see in all the publication. And what we believe is that after the big trough of prices that we have experienced starting from 2018 when there was the crush of the 232, then -- even worse during the first phases of COVID. So we are improving, but we are not going to this historical. We are not yet the historical average prices that we had as base price in the past. So we think that the market today is more a market in which we have a more normal level of imports in -- a demand which is correct with the plus and minus in some sectors, but correct. There has been some -- a small boost on the demand from the restocking that had to happen for some customer because they were at very low level of activity during the Q3, so they have restocked a little bit. But today, all over the supply chain, the stock are absolutely the normal, let's say, rotation, normal level compared to the typical Q1. So still, we see if the market could -- has a potential, has a further potential for the future, we are in a normal market. But in term of price, there is a further potential. Then for Brazil. For Brazil, I will say that Brazil has disappointed more than the normal during the last 3 or 4 years. It was extremely strange for Brazil to be at this very low level of consumption after the crisis that they have had on Petrobras. And now Brazil is showing a recovering from a very low point. We decided 2 effect. One effect is that the depreciation of the real has a positive impact in the sense that protected from imports. The country is protected by the duties, but -- with the exchange rate which is becoming more effective. And second, there is the fact that, globally, the price has increased. This is reflected also in the prices in Brazil. And this is the double effect that we count on Brazil. This double effect leads to the fact that there is more demand in Brazil, and so the mix is better for us in all products, not only for the stainless steel, but also for the rest of the products. We have Brazil which is much stronger than it has been in the very low period that were a couple of years ago. And I repeat, Brazil has still a potential to recover because, in Brazil, all the demand which were -- which was coming from, let's say, the capital goods, all the oil and gas, et cetera, is still not there. We have also to take in mind that on the results that you see today, you see the EUR 200 million of leadership journey that has been achieved in the last 3 years, and these are contributing. So when the situation of the market normalize, then you see that our results are boosted by the -- all the efficiency and the gains that we have done.

The next question comes in from the line of Christian Georges calling from Societe Generale.

Just on this expansion into your stainless scrap. I mean is it a small -- first small step, both in terms of your expansion in that particular activity and North America and Asia? Effectively, are you now -- you're going to be a consolidator into what you suggest is a very fragmented market?

So let's say that we are extremely excited of this acquisition, which is a big one. And we have no pretension today to be a consolidator in the market, not at all. So this is a big step. We are focusing on this step in doing the best possible out of this step. We don't know if the market needs to be consolidated. And I think the -- there is no unique answer because the markets are different all over the world. But we think more on the growth of the market, the organic growth of the market in this moment. We repeat, the interest of scrap for the ESG is tremendous. And we believe in the future of this business because we are the customers of this business. And we know how important is for our footprint to promote our products, to promote green steel, et cetera, to have a sustainable and growing part of scrap of high quality. So this is most of the focus today.

Okay. And therefore, in that context, what's the benefit exactly of your -- of the market position you're getting as you're highlighting for the first time in North America and Asia? I mean is this strategically very important for you?

We have never been in United States, in North America. We are very -- we are the unique one in South America. In North America, we have not had the possibility, but North America is a big market. And for the, let's say, expansion of our activity as Aperam and to be exposed to different area with different dynamics, which can compensate each other or can -- and profiting also of the know-how of the different zone, we feel this is a good move. The expansion is also in Asia, because in Asia, we know that the use of scrap is expected to grow quite quickly. So everybody is speaking about nickel pig iron and the very high content of CO2 in the nickel pig iron industry, et cetera. So now when the industry will need in the future to develop a better environmental-friendly footprint, the scrap will be the opportunity for stainless steel producer in that zone to do this fast. So we believe that there is growth there. And we believe also to have growth and the part of the -- our diversification is in super alloys, in aerospace because this is a market that today is suffering both. But fundamentally, all the products which are in aerospace, which is a very difficult market, you need more visionary space, a process which is extremely sophisticated. And we are, let's say, excited to have the leader in this sector, which will also become extremely important for the aerospace when this will improve.

Great. And so looking forward, you're saying you will keep ELG operating separately from the group. But are you referring to the scrap operation of ELG, like with the quality alloys operation be brought into your specialty high-performance alloys division?

Well. The -- let's say that the detail of where we will put this division will be for a second step. But as a logic, the recycling of scrap is a business in itself. And we want to keep it as one of the division of Aperam, which fully, let's say, accountability on their P&L, on their performance, and on their customer, their suppliers. For everything, including alloys.

Okay. Because the alloys is 60,000 tonnes per annum, right? And your alloy business is, what, 35,000. So I mean, is that comparable? Are we looking at the same kind of selling price?

Sorry. Maybe there is something is what we're understanding. So the focus of Utica and their specialty is on the super alloys for aerospace. And we are not using this kind of scrap for the alloys business that we have in industry. But you are right, there could be marginally synergies for certain kind of alloys, which were -- have not been tapped until now and could be part of the synergy that we should look for in the future. But really, it is a very special company, this Utica, with a very high knowledge of what is the aerospace. They have a very long-term, let's say, partnership with a major actor of the aero industry, and they have homologation, et cetera. It is completely different from the scrap, is very high, high level and [indiscernible] and homologated scrap.

Okay. And my next question is you were highlighting in your presentation that you're taking advantage of the weakness in aerospace to purchase in a trough level. I mean will it be logical given the strength of your balance sheet for us to expect you to keep looking in that particular exposure to leverage on potential acquisitions that would be cheaper right now because of the situation? Or is this really what you're looking at the moment and that's more than enough for the time being?

Look, Christian, we always said that there is no such thing as a taboo topic. And we keep looking at every M&A transaction. If it makes sense, it makes sense for us. And this time, it made sense, and that's why we've signed an agreement to acquire ELG. And we'll keep looking at opportunities. If it makes sense, adds value, doesn't -- there are 3 principles, which I keep stressing, right? It makes sense business-wise and it's a strategic fit, second is it adds value and third is it doesn't destroy our balance sheet. And these are 3 things which have to match. And we'll keep looking.

The next question comes in from the line of Ioannis Masvoulas calling from Morgan Stanley.

Congratulations on the ELG transaction. A couple of things from ELG from my side and then one on Brazil. So starting with ELG, you talked about the significant exposure to aerospace. Could you give a rough -- and sector split? Just trying to figure out how your end-market exposure may change on the back of this transaction. And then secondly, in terms of the sustainability benefits, I'm just trying to figure out what benefits you can get upfront. Because I know you run very high scrap usage ratios across the business. With ELG part of the group now, how much more can be deliver on scrap usage? And also beyond that, what is the potential improvement, let's say, with Scope 3? If you take that on board, you can eliminate some of the logistics. Just interested to hear about your Scope 1 to 3 footprint today, and that how that changes with ELG. And lastly, on Brazil, you talked about the demand recovery relative to a couple of years ago. I think the peak was around 400,000, 450,000 tonnes of stainless demand. How are we tracking today relative to the peak?

So first of all, superalloy is a scrap, but is a very, let's say, small part in term of volumes of the total volumes that are -- compared to Aperam or even compared to ELG in itself. So it's a niche collector of scrap. It's more a processor, which is embedded in the value chain of the aerospace. And with the specialty, which are really at the most niche and the most sophisticated way of collecting, treating, cleaning, trying, everything, and also, granting, so if you have an [indiscernible] you have to grant that this participated to the quality of the components of the aerospace industry. So impurity or nominal quality are tolerance 0, completely 0. So it is a kind of product which is not compared. So we'll not change our, let's say, footprint globally because we are speaking of very small volumes. But it is an interesting sector, and we want to learn how managing this kind of business. And mostly, we see that we -- indeed, we have taken it from a moment in which the company was in a trough. And maybe we'll see the recovery, not immediately, but in the next year, so there will be a recovery of the sector, which is a potential upside for us. Then in term of scrap usage, I can give you figures today. This will be partially because this is, let's say, part of our industrial plan that we are fine-tuning, partially is sensitive. So -- but indeed, the integration in large supply chain and the quality -- and the quality, the selection of products, et cetera, will definitely have a positive impact on the industry. And when I see industry, it's not only for Aperam, but it is for the full industry, we believe that this knowledge can be profitable to increase the global footprint and the benefit of the scrap. So the third question was about Brazil. If I understand, the question was how sustainable is the situation in Brazil?

It was more about what we are today -- demand today relative to the peak of 400,000 plus.

In Brazil, as I told before, that we see Brazil today with the demand which is higher than what was expected because we were coming from different years of very low demand, but still far from the full potential that Brazil has, even considering, let's say, the years of 2013, 2014. So we are still far from that period. And we see sector that have not recovered like the oil and gas or the capital goods.

The next question comes in from the line of Moses Ola calling from JPMorgan.

So just 3 questions on the ELG acquisition. So firstly, you mentioned the potential synergies which you wish to extract. How much investment is associated to attracting the synergies?

So we have not noted a detailed industrial plan. But as I said before, the synergy are mostly in the sense of the logistic and in the sense of understanding and putting on the same frame, in the same database, the same IT, all the supply chain that we are looking at this kind of -- and it is not like for the industrial production, you change the nature but you change the line, and then this will happen. So it is more on the process. So we don't think that there will be an investment on top of the normal or just a marginal -- just will be marginal. I repeat, the quality mix, logistic supply chain, this is the flow that has to be put under control. There is no investor process with CapEx.

Okay. Understood. And how much working capital will have to be invested in ELG, or is that already captured within the transaction EV?

So the dominant share of that, Moses, what we're doing a transaction maybe in this for working capital. So if you want, it's a product like of less than 10% is outside that. It's all net working capital.

Okay. And what is the cash conversion of ELG?

So see the trading business in a certain sense, and you know how peers work. So ballpark at that level.

Sorry. Can you repeat that? I didn't quite hear that.

So see it's -- I said it's a business, which in a certain sense, the short cycle and the buy scrap transform it and trade it back. So it is similar to trading business multiples, and it's always quite free cash flow positive.

The final question in the queue comes in from the line of Bastian Synagowitz calling from Deutsche Bank.

My first question is also on the ELG acquisitions, and congratulations for taking this step. In the slides, you talked about the P&L synergies. But have you already looked into the potential to take out working capital as well? We've seen a couple of transactions in the metals industry where the buyer was able to shave off 20% to 30% of the purchase price while working capital optimization. And I'd imagine, as you already mentioned, ELG is a very working capital-heavy organization as well. So there must be a lot of duplication of storage which can be removed. So is there any early steer you could provide? So that would be my first question.

So as I said, the synergy are in the acceleration of the [indiscernible] on the floor. There will be opposite, let's say, trend from one is that the logistic and reducing the transit time will be positive. From the other, if you want to improve the quality, you have to select more material, et cetera. And this selection is something which will be done having some working capital. So we are not -- for the moment, we are not at all in a frame in which we say, okay, this is some type of business in which we squeeze the working capital. We think that the company has been well managed, is well managed. And there is the right level of working capital to manage the company. The management that we have met is a good one, sensitive to the P&L concept, the cash concept, et cetera. So we believe that this will be -- will not be the typical non-managed business in which we can find a simple working capital squeeze and the cash.

Okay. Perfect. Then my second question is also on ELG. And I was wondering whether you could give us a bit more color on the regional split where ELG is active in terms of sales exposure? And maybe also give us some color on how far ELG will be changing your CapEx line. I imagine it's a pretty lean business, so probably not too much. But if you could give us an early update on that, that will be great as well.

So ELG, in terms of split, we actually gave respect for the superalloys and stainless. The rest is about 2/3, 1/3 between Europe and rest of the world. So that's the first question. And your second question, Bastian, was on the CapEx, right? So CapEx, it's quite a lean CapEx, so to speak. So I expect a CapEx, which is -- yes, it's probably a lower double-digit increase on ours -- our -- as a percentage on ours, no clarity in terms of CapEx.

Then just one additional question on a different topic as well. I saw you are now installing a 20 gigawatt solar module in Genk, which is something you never really actively mentioned before. Could you please share with us how much of the European electricity consumption that is? And also, maybe how much CapEx that will require? Whether that's already baked into your current budget?

So the investment is done. And it was part of the -- what we have, let's say, already put in our previous plan. It is operational. I just remember you that the electricity, the global electricity, which is green, including this is -- we are 36% of our electricity which is coming from renewable sources already today. And this represent a part of it. I have not in mind the percentage, but unfortunately, it's not a huge percentage. It should be in the range of 5% to 7%, if my number are correct. So in global, the energy, the green energy, I repeat, for us it's important because this includes also the Energia for which we are taking some energy in the circle. And for all the investments that we are planning in solar and in wind in Europe with a partnership with different partnerships. Okay?

That was the final question in the queue. So I shall turn the conference back across to yourselves for any closing remarks.

Okay. Thank you very much for having listened to our call. I think that for us has been one of the most exciting period in the story of Aperam. Just at the end of the 10 years, we are, let's say, toasting these 10 years with something that we believe is fantastic. First of all, this -- the first M&A of Aperam and makes a lot of sense, a lot of sense from a strategic point of view, from sustainability. On the feet of the company, it's -- it has -- was a great opportunity. And it is worth to be patient and wait for the right opportunity to do an M&A. And really, we are happy what we have there. Second, also including in the fact that we are more and more growing in the specialty. You have certainly noted that Aperam has launched the other 2 major investment. One is in the rolling mill, hot rolling mill in alloys in our specialty division. This will strengthen the company and reduce -- further reduce the level of CO2 emission. It is impressive because this plant will reduce by 2,000 tons per year for this kind of activity is a very high content. We have also launched the AOD new investment, which will boost our progression in the investment that we are doing in [indiscernible] for the production of strips of specialties. This is an important step because increase our flexibility to serve customer and to give them the right mix and the more sophisticated mix of product that they need with the right flexibility and absorb the peak of demand. So on top of it, we see in our result that in a market which is normalizing, and I want to stress the point, we are not yet in a cycle which can be defined as the top of the cycle. From a market point of view, from the segment that we authorized, et cetera, we see that, okay, there is demand. But still there is not the full recovery of the consumption. And yet in this full -- not full recovery of the consumption, we have -- we are recording the best results ever in this 10 years of Aperam. And we will look at the next quarter with an even better quarter, which means -- what means that simply what we have done in term of leadership journey is paying and there is a further potential for us. So all in all, with the ramp-up also of our line in Genk, which is going tremendously well, and it is delivering the first volumes just in these days. We are very confident in what will be our future. So I thank you. And I wanted to show you this moment of great times [indiscernible] from what we have as a result and as the outlook and as project at Aperam. Thank you very much, and see you for the next roadshow and meetings, and bye-bye.

Thank you for joining today's conference. You may now disconnect your handsets.