Elvalhalcor Hellenic Copper and Aluminium Industry S.A. (ELHA) Earnings Call Transcript & Summary

Good afternoon. I am Eric Oreka, your call operator. Welcome, and thank you for joining today's live webcast, where Elvalhalcor will present and discuss its fiscal 2024 financial results. We would also like to inform you that this call is being recorded. Today's call will be presented by Angelos Giazitzoglou, Deputy Group Chief Financial Officer; and Dimitris Theodorakatos, Group Consolidation and Investor Relations Manager. Mr. Theodorakatos, you may now begin.

Thank you. Good afternoon, everyone. Thank you for joining us in our presentation of our 2024 financial results. Me and Mr. Giazitzoglou will provide you a comprehensive overview of our performance followed by a short and brief introduction for our business. After the end of the presentation, we will conduct a Q&A session where you are welcome to ask any questions regarding our group and our performance. It should be noted that our audited financial results and the respective [indiscernible] will be published on 14th of April 2025. Now let's move on the presentation and the key highlights for the fiscal year 2024. Despite the subdued demand and the challenging economic environment in most segments of the economy, our group managed to increase its sales volume to 585,000 tonnes, boosted by the increased production capacity of the Aluminum Rolling division. Our profitability remains strong for another consecutive year to EUR 238 million. This combined with the successful management of our working capital and the reduced investments contributed to solid operating cash flows and the further reduction to our net debt to EUR 643 million. Furthermore, our group managed to successfully achieve another medium-term target of a net debt to adjusted EBITDA ratio below 3x with a year-on-year improvement of 0.7 basis points, bringing the ratio to 2.7x. Now I will turn the floor over to Mr. Giazitzoglou for his comments and to provide further insights for our performance.

Thank you, Dimitris. I would like to continue by reviewing some charts that depict the environment in which we operated in 2024. Metal prices on the LME increased during the year. Aluminum had an upturn 7.4%; copper, 7.8% and zinc 4.9%. This increase posed a challenge to our efforts to reduce working capital. Natural gas prices had a downtrend compared to those in 2023, supporting lower production costs. Inflation in Europe dropped to 2.4% by year-end. Reduced energy prices played an important role to this improvement. And as inflation eased, interest rates were reduced with the fourth and final cut occurring in December. On our next slide, we have our cost breakdown, excluding, of course, metal costs. In slow-moving markets with price pressures, actions are necessary to keep production costs low. Cost control and reduction were critical in our efforts to increase profitability. In 2024, energy costs were significantly lower compared to the previous year, primarily driven by lower prices. As a percentage of total costs, energy expenses dropped from 17% to 12%. Moving on to Slide 5 with our volumes. In the fourth quarter of '24, aluminum segment volumes were lower compared to the previous 3 quarters. However, at 100,000 tonnes, they stood higher than the levels seen in previous years. Rigid Packaging saw strong growth with a double-digit increase compared to '23, while flexible packaging after a weaker start in '24 made a significant recovery and ended with higher volumes than the previous year. Other markets showed mixed performance across different products categories. The Copper segment remained at the same level as the previous quarter with no significant changes in volumes for '23. Meanwhile, demand in markets such as construction and industrial applications remained subdued until the end of '24. Throughout the year, we successfully increased sales volumes in specific product categories, gaining market share for our core products. Now about the adjusted EBITDA evolution per quarter. In the final quarter, markets showed stability compared to previous quarters across almost all markets. Starting this time with the Copper segment, the last quarter appears weaker than the previous ones, however, with higher profitability compared to previous years. Price pressures and maintenance expenses were the main drivers of this. In the Aluminum segment, in the fourth quarter experienced a slight correction compared to strong third quarter. However, profitability remained resilient at EUR 39 million. Figures for each segment at the company level in total will be presented on following slides. On the next slide, we have the adjusted EBITDA per tonne in year-end. In the Aluminum segment, the performance in fourth quarter was slightly lower than the previous, but remained significantly higher than the first 2 quarters. This resulted in an annual adjusted EBITDA of EUR 335 per tonne. I want to reiterate that in the first quarter of '23, the market downturn had not yet affected Flexible Packaging and profitability remained particularly high. However, in '24, the company gradually increased both quantities and profitability in this market. And now the Copper segment maintained strong operational profitability through the end of the year, closing at EUR 578 per tonne, 6% higher than the previous year. Despite the national economic pressures, the segment showed resilience, particularly in the construction, automotive and industrial application sectors. The main pillars of our effort are the development of innovative, high value-added products and the optimization of our industrial production to give long-term success. On the next slide, we have an analysis of our products per market. '24 was a year of weak demand with most markets moving downwards. Construction, automotive and industrial applications were the markets that suffered the most. The only resilient market remained packaging. In the Aluminum segment, the recovery of flexible packaging from the second quarter onwards boosted quantities and reached 6% of total revenues for '24. All other markets had minor changes. In the Copper segment, the changes between markets were small with no major quota variation. Moving to geographical distribution. The company sales reached more than 19 countries worldwide with Europe remaining the core market. Germany, Italy, Poland and France are the predominant markets. This did not change in '24 for both segments with only minor variations from the previous year. The export orientation of the company remains strong for another year. Moving on to financial results. The Aluminum segment achieved strong sales volumes, while the Copper segment saw a slight decline. Overall, the company performed very well with sales to 585,000 tonnes compared to 561,000 tonnes in the previous year. All these achievements occurred in a weak market environment, which remained unchanged in the last quarter of the year. Despite the stable market conditions in the last quarter, the company's operational profitability remained strong at EUR 238 million, down only 0.8% from the previous year. Turnover amounted to EUR 3.4 billion in '24, up 4.4% compared to EUR 3.3 billion in '23. Drivers to that were the increased sales volumes and the elevated metal prices that we mentioned before. The elevated quantity of aluminum products, combined with the lower LME prevented this number from being even higher. The positive metal result of EUR 6 million further boosted EBITDA to EUR 243 million, much higher than the previous year, almost 38%. Moving to some more financial figures. We see that strong performance continued in fourth quarter with earnings before interest and taxes amounting to EUR 177 million, up 71% on '23. We were able to achieve this by leveraging increased capacity, optimizing the product mix and implementing cost reduction strategies. At the same time, we managed to gain market share and enhance our position with high added value products. In '24, our adjusted EBIT surpassed '23 by 3.2%, closing at EUR 171 million. Finally, profit before tax amounted to EUR 126 million, 193.3% increase from '23. A key driver of this profitability was financial costs, which dropped to EUR 45 million from EUR 53 million in '23. Moving to the next slide. Let's see how we achieved this strong EBITDA result. Despite adverse market conditions and the continued geopolitical tensions, the company boosted profits before taxes by EUR 83 million to EUR 126 million. Increased sales volumes, mainly in the packaging sector resulted in an increase of profitability by EUR 17 million. Price pressures were offset by lower production costs, increased sales, general and administrative expenses by EUR 7 million, a significant impact from the reduction of debt, combined with the interest rate cuts led to lower financing costs by EUR 8 million. We had the positive effect from an investment valuation. And finally, the positive metal result, which stood at EUR 54 million, boosted profits for '24 to EUR 126 million. Let's proceed to the cash flow bridge. The strong performance in profitability continued in the fourth quarter, reaching EUR 243 million. Interest payments to EUR 48 million, working capital improved by EUR 82 million, income tax paid at EUR 12 million, investments at EUR 75 million. Long-term loans repayments amounted to EUR 141 million, EUR 66 million of them being early repayments and dividend at EUR 50 million. As a result, we created a robust year-end cash position of EUR 80 million. Next slide is about working capital and net debt. The successful management of working capital throughout '24 led to a reduction to EUR 538 million, an EUR 82 million or 13% decrease from '23. As a percentage of sales, working capital stood at 16%, down from 19% in '23. Net debt decreased by EUR 170 million, driven by strong free cash flows, successful working capital management and a slowdown in investments. The company has also taken necessary actions to mitigate its exposure to high reference interest rates, securing 66% of total debt at a fixed rate by year-end. And let's close with our CapEx. 2024 followed a year of completion of major investments in the Aluminum segment. These investments allowed us to expand our capacity and drive sales growth. In the Copper segment, investment expenses maintained close to those of the previous year. Meanwhile, the investment program at Sofia Med continues successfully and is expecting to enhance the company's position in a competitive market. Now before we close and pass to a Q&A session, let's summarize. '24, the company showed resilience despite challenging market conditions and managed to achieve increased sales quantities by 4.3%. Despite subdued demand and pressure in prices, we delivered a robust profitability with earnings before taxes stood at EUR 126 million, up 193.3%. Successful management of working capital resulted in a reduction of 13% from '23, down EUR 82 million. And last, net debt reduced to strong operating cash flows and a slowdown in investments to EUR 643 million, down EUR 170 million. Thank you for your attention, and now we can proceed to the Q&A session.

We would like to inform you that you can trace your in 2 different ways either by raising your or by submitting it on the Q&A tab. You can find both options at the bottom of the screen. I see that we have 3 questions in the -- on the Q&A tab. First question from Mr. [indiscernible]. Could you please comment on press reports regarding your potential involvement with the defense sector and [indiscernible] program? [indiscernible], at this moment, this market is a small part of our operations. Approximately 1% of our total sales are heading to this industry. But of course, it is something that we are very interested in, and we are monitoring all the developments, especially after the announcements from Europe that they're going to spend EUR 800 billion in this industry. We have the capacity. And if we see the opportunities, of course, we will capitalize on them. Next question from [indiscernible]. Congratulations on your good results. From December '24, China has stopped their tax rebate policy on copper and aluminum product exports. How do you expect this to affect your sales in '25, positively or negatively? Yes, this was something that has been announced in '24. Of course, with all this new situation with tariffs from U.S. and all these retaliatory movements that we're going to expect. Probably this is going to be something positive for us because the products from China are going to be more expensive. So we expect to have a positive impact from this situation. Another question from [indiscernible]. Can you please comment on the potential impact from the U.S. tariffs? Yes, the big issue of these days. Our presence in U.S. is approximately around 8% of our total sales. What we have right now is companies from U.S. already announced that they are increasing their prices in U.S. That means that they're trying to -- they're expecting that we will continue to export to U.S. because the domestic capacity is not enough to meet the needs for local industries. So we don't expect to have any negative impact at least for now. Our clients, our customers are continue placing their orders. And what we think that it will happen eventually is all this increased cost to go to the final consumers in U.S. So yes, from -- for the time being, we don't have any negative impact from these tariffs. [indiscernible] is asking about the outlook of '25 concerning the tariffs. I think that I already answered this question. We don't expect at least for '25 to see any significant changes in our sales heading to years because, as I said before, local industries don't have at least now the capacity to meet the needs of their customers. So for '25, we expect to have business as usual. [ Mr. Thomas Reno ] could you please comment on your CapEx plan for the coming years? Yes, we already said that we completed our big investment plan in '23 in Aluminum segment with the new coal rolling mill and the new lightering line, we were heading to increase our capacities in beverage market. We succeeded in that. And we said that for the time being, and that's why in '24, we see that -- you saw that we have lower CapEx. This is the plan for '25 also. We are expecting to see how the markets will evolve. We're expecting to see how tariffs or anything other will change or geopolitical tensions in Europe and how will impact the market. So we don't have any certain plans for '25. That's why we have budgeted a CapEx around the numbers of '24, a little bit higher, but no, we don't have any special investment for '25. [indiscernible], the company has more than doubled the dividend for this year, distributing 30% of EPS for '24. Does this signify a change in your dividend policy. Should the financial condition allow it or it is one-off? I think that we have already said in the past that our goal in order to increase our dividend is to reach our net debt to adjusted EBITDA ratio around 3x. We achieved in '24 to lower even more this ratio. We succeed to have a 2.7x. And because we have strong profitability and we generated enough cash to give us the opportunity to return this profitability to our shareholders. So it's a decision that we hope that we continue to take it in the future, having similar results. And one last question from [indiscernible]. Any comments so far on volumes for '25 and how much more improvement we can see on the working capital management, dividend policy ahead? You know that we don't give any guidance for the future. We are expecting to see a similar market condition that we have as we had in '24. We will keep trying to gain some market share again. And if we have any opportunity to increase quantities, of course, we will try to achieve it. About working capital. Yes. Probably to sustain this level of working capital in '25 will be more difficult than it was in '24 because we see that the LME prices are going up, and this will affect our working capital. But we will try to keep monitoring our inventories and keep them in levels that will allow us to decrease further our working capital. And of course, we will keep trying to push our customers and our suppliers to either low or increase our days of our payments of our receivables. So yes, it will be a difficult task, but we believe that at the end of the year, we will have a positive effect in working capital also. [indiscernible], last question, please. How do you expect the possible end of the war in Ukraine and lifting of sanctions on Russian aluminum affect the company's outlook for '25? I think that anything that will happen in this direction concerning the war, it's going to be a positive -- it's going to be a positive outlook for every company and also for Elvalhalcor. We expect to see, let's say, lower prices in energy. We expect to see lower prices and even bigger supplies from aluminum from Russia. We have to say that Russia was one of our biggest suppliers in aluminum in the past. So I think, yes, that anything good news from Ukraine is going to be a positive for the company. I see no other questions, at least written. I don't know if we have any other, I don't see any raised hands. Okay. So thank you very much everyone, for being here with us today. Thank you for your questions also. I'm looking forward to seeing you again in our next webcast for the first quarter of '25. Good afternoon to everyone.