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

Ladies and gentlemen, welcome. Thank you for joining the live webcast of Elvalhalcor for the full year results of 2025. Mr. Angelos Giazitzoglou, Deputy Chief Financial Officer of the Elvalhalcor Group and I; Mr. Dimitris Theodorakatos, Consolidation and IR Manager of the Group are going to provide you with insights for our performance. 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 its financial performance. Now let me walk you through the presentation and the highlights of the year. The group delivered a solid year-on-year performance in the challenging and volatile economic environment. Despite the position of 50% tariffs on aluminum and copper products imports in the U.S., the unfavorable sales mix, raw materials and scrap constraints and increased energy and overall inflationary costs, our operational profitability adjusted EBITDA remained resilient at almost the same level as in prior year, reaching 236 million, down by 0.6%. Our sales volume noted a 2.6% year-on-year increase, reaching 600,000 tonnes driven by the packaging sector of the Aluminum segment. Our robust free cash flow supported deleveraging. Net debt stood at EUR 605 million, down by EUR 38 million from 2024. It is worth noting that LME prices due to tight supply and [indiscernible] in raw material supply put pressure on our working capital needs at the year-end. The reduction in debt levels combined with lower interest rates led to lower financial costs driven by positive accounting metal results and losses from the remeasurement of financial instruments to fair value, partially offset by reduced finance costs resulted in earnings before taxes at EUR 125 million. Net debt o adjusted EBITDA ratio improved to 2.6x from 2.7x last year, allowing us to pay dividends of EUR 34 million or EUR 0.09 per share during the fiscal year 2025 and also to propose to Shareholders General Meeting a dividend payment of EUR 0.11 per share from 2025 results. It should be noted that the aforementioned proposal for dividend is under the approval of the general assembly on May. I will now turn the floor over to Mr. Giazitzoglou for his comments. Angelos?

Thank you, Dimitris. Before we make a deep dive into numbers, it is critical to examine the macroeconomic environment. Metal prices trended higher through '25, reflecting tighter inventories and energy-linked smelting costs. Copper rallied strongly into year-end on supply constraints and demand momentum. Natural gas prices, even though they started to decline in the second quarter of '25, the full year average was above '24. Electricity remained volatile and moved higher than '24 due to weather and renewable swings. Inflation moved in a more stable direction, yet at levels where the pressures on prices and costs were evident and persistent. European Central Bank pivoted to gradual easing in '25 with rates trading lower, reducing finance costs. In a nutshell, higher LME supports revenue but increases working capital needs. Energy raises operating costs and pressure margins when lower rates reduced finance costs. Overall, the operating backdrop was mixed. Now let's see how all this affected our cost base. Total costs, excluding, of course, metals rose by 9.5% year-on-year, driven by inflationary pressures. Labor costs accounting for the largest share of our total cost at 28%, reflecting wage inflation. Energy, another cost driver for us, demonstrated an increase due to prices. Of course, it is not a game changer for us, but yet again, the elevated cost is taking away part of our profitability and creates an unfair advantage for other companies operating in lower price regions. All other categories have slightly changed compared to previous year. In an environment so challenging, the company stays vigilant, taking necessary actions and ongoing initiatives to mitigate the risk from external factors. Now let's see how sales volume evolved quarter-by-quarter. Headwinds, which started in the third quarter of '25 due to trade measures and global tensions continued to affect the last quarter of the year. Aluminum segment sustained momentum on quarters, the second and the third. Although last quarter appeared weaker than the previous 3, it stood higher than the respective quarters of '23 and '24 by 5.9% and 2.9%, respectively. Copper segment moved softer in the last quarter with a more balanced deliveries volume evolution. However, it is obvious that the strong semester for the segment is traditionally the first one. Now from quarters to markets, the fourth quarter of the year demonstrated the same volatility in most of the markets. In the Aluminum segment, the most resilient market remains packaging, accounting for 64% of our total sales. In a positive direction was transportation when [indiscernible] building and construction and industrial applications. In the Copper segment, energy and power networks supported by expanding data center activity showed healthy improvement. In contrast, industrial applications declined by 9%, mirroring weaker manufacturing activity. Moving from markets to geographical areas. The company is export-oriented with presence in more than 90 countries worldwide. Approximately 95% of our revenues are generated outside Greece in both segments. The European Union remains the core market with incremental exposure to the Americas and other regions. I want to reiterate that geographic diversification supports sales volume stability and reduces single market risk. Now from our footprint areas, let's turn into the financials. As noted on the cost breakdown slide, energy costs trended higher, putting pressure on operating profitability. However, the company demonstrated resilient performance, managing to navigate energy-related pressure and disruptions in scrap markets. In the Aluminum segment, an early -- yearly bump in profitability was followed by headwinds in scrap markets due to tariffs, which pressured adjusted EBITDA to lower levels. In the Copper segment, the second half of the year was weaker as well, driven by the increased energy costs and the unfavorable mix. In addition to that, the imposition of tariffs in the middle of the second semester affected sales volume and eventually profitability. Let's zoom out from quarters to profit per tonne. Leaving behind seasonality and differences in quarters, let's see what every tonne of final products contributes to operational profitability. In the Aluminum segment, despite the challenging and volatile environment, the adjusted EBITDA per tonne rose from EUR 335 in '24 to EUR 347 in '25, although in the single digits at 4%, adjusted EBITDA demonstrated a stable delivery. Drivers for that increase were an improved product mix, better commercial prices and of course, sales volume. In the Copper segment, the adjusted EBITDA per tonne stood lower than the previous year by 12% in EUR 509 per tonne from EUR 578 driven by inflation-related pressure and unfavorable sales mix. Moving to some profitability ratios. Despite the challenging and volatile environment saved by protection measures and the geopolitical uncertainty, the company managed to increase sales volume by 2.6% to 600,000 tonnes. Operational profitability amounted to EUR 236 million, representing a slight decline compared to the previous year. Cost headwinds from higher energy prices, inflationary pressures and scrap market disruptions were offset by higher volumes and improved selling prices. Revenue amounted to EUR 3.6 billion, representing an increase by 5.1% compared to '24, driven by higher sales volume and an uplift in LME prices. Metal results remained flat at the same level as '24 at EUR 6 million and earnings before taxes maintained momentum slightly lower than '24 at EUR 125 million. Now a deep dive to earnings before tax evolution. 2025 was a year marked by significant challenges, volatility and uncertainty. The imposition of tariffs, the persistent inflationary pressures and the ongoing geopolitical tensions created a difficult environment, keeping most markets on a slow trajectory. Despite all that, the company managed an increase in volumes driven by the resilient growth in some markets like packaging and energy and power networks. But headwinds from energy cost and inflation were evident and partly offset increased conversion prices. SG&A modestly went up due to inflation. Financial costs improved by EUR 9 million on lower interest rates and lower gross debt. Other investments kept profitability lower by EUR 6 million. Now profits are critical, but cash is the king. So on the next slide, the relevant order flow. Despite higher LME prices, challenges in the European scrap market and market volatility, the company generated robust free cash flow of EUR 76 million. The starting point was a strong EBITDA of EUR 226 million. During the period, we paid EUR 36 million in interest and EUR 15 million in taxes. After that, we have sufficient headroom to invest EUR 89 million to reduce debt by EUR 70 million and to return EUR 39 million to our shareholders via a significantly higher dividend. Now let's move from cash generation to working capital and net debt. Working capital increased by 3.5 million versus '24, reflecting higher LME prices. In addition, scrap market disruptions led us to increase inventories to ensure uninterrupted production across our facilities. Despite the headwinds, the working capital to sales ratio remained at a sustainable 15% below the prior year. Maintaining the same pace from '24, we further decreased our gross debt by EUR 64 million, leveraging the strong profitability of the year. Net debt improved to EUR 605 million from EUR 643 million in '24. Resilient profitability with lower debt improved the leverage ratio to 2.6x. The pressure in working capital from LME prices, the uncertainty in markets, the energy cost and inflation, capital environment where less exposure sensitivity of rates is critical. The strong cash flow generation enabled us to improve our gross debt to -- and along with the rate cut of our financial costs declined by 20% year-on-year to EUR 36 million. With a healthy balance sheet in place, let's see our CapEx. Completing our last big investment plan in '23, we entered a period where small improvements in maintenance CapEx are in place. In the Copper segment, CapEx for the year totaled EUR 29 million, focusing on improving production flexibility, optimizing copper sourcing and increasing the use of cost-efficient materials. In the Aluminum segment, CapEx of EUR 61 million was directed to hot rolling infrastructure and to equipment upgrades to enable quality improvements in value-added flexible packaging solutions. Before we take your questions, let me summarize the company's performance. 2025 unfolded in a challenging operating environment with higher LME and energy prices. Additionally, volatility in trade and the disruption in scrap markets enhanced the uncertainty. However, the company weathered cost pressures and maintained momentum, increasing volumes by 2.6% to 600,000 tonnes. Operational profitability reached the amount of EUR 236 million, modestly lower year-on-year. Free cash flow of EUR 76 million was sufficient to fund capital expenditure of EUR 89 million, reduced gross debt by EUR 64 million and support EUR 39 million dividend, resulting in a debt of EUR 605 million. Having said that, we are not complacent, but we remain vigilant on cost, energy and trade dynamics as we enter the next period with a stronger balance sheet, clear priorities and disciplined execution. Let's now proceed to address any questions you may have.

[Operator Instructions]

Probably, we described everything so that we don't have any questions. No, we do have.

I think there is one on the chat, yes.

Yes. Okay. Outlook, yes. Could you give us guidance for '26 from Mr. [indiscernible]? Despite persistent macroeconomic uncertainty and elevated energy costs that may continue to weigh on operational profitability, the company remains cautiously optimistic. This is something that I must say, and we have to admit that. Of course, the recent developments in the Middle East and the further layer of geopolitical risk could lead to higher energy prices, increased freight costs and insurances, and probably new supply chain disruptions. I want to reiterate that we remain vigilant and we monitor the developments and assess potential impact. But let me say that the company has already demonstrated resilience with continued increases in market share and sales volume in both segments despite all the geopolitical uncertainty and elevated raw material costs. From Vassilis Roumantzis, thank you for the presentation. Can you please provide an update on first quarter of '26? I think that I described what we can say for '26. Of course, all these new developments in Middle East, as I said, are putting a layer of uncertainty and, of course, increasing challenges in our environment. But I think that it is very early to see the full implication for all -- from all these tensions, but the company is very well positioned to mitigate the risk from any implications in Middle East. We did that in the past, and we believe that we can do the same in the future also. Again, from Vassilis Roumantzis. Also, can you provide an estimate for '26 CapEx? Elvalhalcor is a company that never stopped investing. But for the time being, we don't have any new big plans for '26. I think that this is the wise thing to do as a company due to all these geopolitical tensions and this uncertainty in markets. But as we said before, we always evaluate new plans. We're always following the developments. And when we see the opportunity to make the next step, we will do it. As I said, in the past, we invested a lot, and we are an industry that cannot stop investing. [indiscernible] Can you give us more color about the tariffs and how they affected you? I think in previous updates, you said that they would not have a significant impact. Yes. We told that when the first imposition of tariffs was 25% for the aluminum, and it was during the first -- the webcast for the first quarter performance. And that was true that the impact from 25% tariffs was not significant for aluminum. When the tariffs went to 50%, this window of opportunity starting to close. The same happened for copper also when they imposed tariffs on -- during August, again for 50%. The biggest issue in terms of tariffs was not the quantities that declined in U.S. sales, but the disruptions that we faced in Europe and especially in scrap. Prices went up in U.S. because scrap was out of this regulation of tariffs and American producers took a lot of scrap from Europe with higher prices. European suppliers sent most of the qualities in U.S. So we experienced a significant shortage in Europe. And that was one of the biggest problems that we faced. Fortunately, the situation was more balanced at the end of the year. We saw prices moving more lower than they used to be in '25. We didn't see this shortage of scrap from Europe as we experienced at the middle of the year. But again, we believe that as a company, we managed to weather these challenges by securing the smooth operation of our factories. There is no doubt that this is a difficult environment and these difficulties are not coming without the cost in terms of profitability. Without knowing exactly the details, I have to say that it seems that the European Union has decided to take measures to protect scrap leaders. If something like that happens, it will be a very positive development for sustainable growth in both segments. A question from [indiscernible]. What is your estimate for copper and aluminum demand in '26? We don't see significant changes in '26 compared to 2025. There are some markets that are having a steady growth like packaging or data centers. There are some other markets that are more soft and are more sluggish. But if we exclude what happened in Middle East, I don't think why demand can go -- can have a more decline trend. Of course, now with all these developments, the visibility is more narrow, you have to admit that. [indiscernible] Can you give us some color on scrap scarcity situation, also energy input costs? How soon will you feel the potential energy cost inflation? It depends. For me, the question is the duration of this disruption in the Middle East, how long this will last. If it lasts for a long period of time, yes, definitely, we will have some disruptions and some pressure in energy. If the whole situation sees earlier, then I believe that we will return to more normal levels in terms of energy costs. About the scrap, I think that I have already answered. We expect strongly, we expect from the European Union to take some measures to protect local industries. If they want to have industries in Europe in the future, they have to do something about the scrap. We believe that they will. And the only development, if they took some measures to prevent scrap from leaving Europe and going to Asia or to U.S., this will be a positive development. Thomas Renaud. Thank you for the presentation. Do you see an improvement of scrap availability in Europe or it's still under pressure? Yes, I said that we see some stability in the last month of '25. And I said again that if Europe decides to take some measures, the environment would be more positive for us. Should we expect an increase in CapEx if you are targeting new markets, those related to data centers infrastructure? For the time being, we have the free capacity. Speaking for copper and data centers, we have the free capacity to cover any increase. Of course, it depends on the increase that we're going to see. We have -- we see that data centers in U.S. are moving a lot. We expect to see that trend coming into Europe eventually. And on that market, yes, we are ready to capitalize any improvement. Now if we decide to increase our CapEx in this area, it depends on the volumes that we will see in the future. Vassilis Roumantzis again. How are sales doing in the U.S. after the tariffs? We are not denying that we have a decline in sales to U.S. But it was something that it was expected after the position of tariffs. We still have customers in U.S. We still sell in U.S. with elevated profits and margins. And we believe that the relations that we have with our customers there will give us the opportunity in the future again to increase our capacity. But as you see, we did not decline in terms of volumes. So we redirect our sales from U.S. to other markets. [indiscernible] again. Specifically for fourth quarter, what is the largest impact on margins? Is it energy, scrap input costs or other cost inflation or mix? All of them, scrap, energy, inflation, everything went in, let's say, negative direction in terms of profits, even though energy costs from electricity and natural gas had a decline in '25 from the first -- the second semester and onwards. Again, on an average, prices were higher than '24. But let me reiterate that this is not a game changer for us. We are not energy-intensive industry. Of course, it takes some profits from our profitability, the increase of energy costs. And again, I have to say that it creates an unfair advantage for companies that operate in regions with lower prices. But again, in energy, we took some measures to mitigate the risk from the volatility of price. We have some hedging instruments in natural gas. I can say that almost 40% of our contracts are hedged in natural gas. And for electricity, we are now into the [indiscernible] markets. We have some solar and wind contracts in order to lower the average price from electricity and have some improvements in our cost from these actions. I see a lot of questions. So I'll try not to lose. [indiscernible] About CapEx. I think that we have already addressed this matter. Recently, the group has been reported to be pursuing potential agreements in Ukraine. Could you tell us more about these plans? Also, are you seeing increased demand coming from the defense sector? And finally, is the company experiencing any immediate impact from the new crisis in the Middle East? I will start with -- from the Ukraine issue. To be honest, I don't know anything about the potential agreements in Ukraine. Forgive me, but I know nothing about it. Increased demand coming from defense sector? Again, I would say that we already have some footprint in defense. It's not something significantly compared to other markets. But of course, we have technology, we have the experience, both methods can serve solutions in defense. After the announcement for this big plan, we started to have more strong presence in some exhibitions and we started to have more intensive conversation with potential customers. But again, we don't see -- until now, we don't see something significant to happen in this sector. We hear about announcements, but we don't see any significant movement. But I will say again that we have the capacity to cover any increase in that market, and we have also the know-how. Now finally, if the company is experiencing any immediate impact from new clients in the Middle East? Immediate impact till now, no, we don't have any immediate impact. But we cannot do something different from every other industry that has interest in this area, but to closely monitor all the developments there and see what we can do as an alternative in terms of the increase -- possible increase in energy cost or in disruptions in supply chain. Let me say that -- this is not the first time that we have come across such a challenging development. We faced similar issues when we stopped purchases from [indiscernible] and we managed to navigate successfully. Our size as buyer is a source of leverage, and we already explore alternatives for our supply chain. So I will say again that it is all on the duration of this tension. I think that I'm not missing any other question. I don't know, Dimitris, if you...

No. I think the latest one was...

Okay. So thank you all for joining, and thank you also for your questions. Bye-bye.

Bye-bye.