All options are open, says Bernardo Velázquez, Acerinox CEO, in response to overwhelming market noise. Analysts await the announcement of a buyback program and the steelmaker says it is considering it. You could also even opt for an extraordinary dividend in the face of a profit that is expected to be historic for 2022.
You already acknowledged that they were optimistic about 2021, but were you expecting such a positive year with upward analyst reviews on profit and target price?
It must be borne in mind that when we published the results for 2018, there was already a certain recovery. We are cyclical, and after several regular years, it was our turn in 2020, but the pandemic came and everything collapsed leaving a lot of money impounded that could play in our favor and that is being uncovered now. To use a very graphic example, during the past year the steel warehouseman opted to lower inventories to a minimum and the manufacturers did the same.
“It is not that materials are lacking: there is plenty to meet the real demand, but not to rebuild stocks at the same time”
This year, people have started to buy washing machines again, which causes the one in the small store to have a shortage, and decide that they have to buy the ones they hope to sell and also others to replenish stocks and be able to meet a demand that is growing. You have to buy twice as much. The same thing happens to the great distributor; and reaches the steelmaker at the beginning of the chain.
It is not that there is a lack of materials, there is plenty to meet the real demand, but not to rebuild at the same time the stocks of the entire supply chain. This leads us to have to extend our delivery times, which historically leads to a rise in prices.
Is the demand for steel already higher than in 2019?
Apparent consumption that includes inventory movements is much higher, but real consumption is somewhat higher than 2019, but not excessively.
Since May they have accumulated up to five increases in steel prices in their American factory of NAS (North American Stainless). Do you expect more until the end of the year?
We made three price increases until June, and then we did in August, September and October, two of them of two percentage points, about $ 75, and another of one point, so we are talking about 150-225 dollars per ton. However, in prices it is difficult to talk about this because it depends a lot on what delivery time we are talking about, what type of client … and so on. When we talk about $ 1,600 per tonne in Europe, which is what is being said, it is rather a price that a large German warehouseman may be giving to one of their customers. In the US it is similar.
The crisis in the supply chain is having a notable impact on the automotive industry, which for Acerinox accounts for 8% of sales. Is it affecting the company?
Yes, it is affecting us because our automotive sales are slowing down. Right now they are between 60% and 80% of what we expected, but, although it affects us, the demand from other sectors is so strong that it makes us compensate for this part.
Do you expect the company to reach ebitda and historical net profit this year above the 952 million of 2006 or, at the latest, in 2022, as the consensus foresees?
I wish it were both. It is too early to say. What I do know is that things are going well and we will continue to do our best to make it as good as possible. It is important to note that not only are prices going up a lot, but since then we have done a tremendous job in saving costs. All the excellence plans that we started in 2008 are now emerging.
“All the excellence plans that we have put in place since 2008 are now emerging”
Returning to the Acerinox accounts, at the end of the first semester the synergies with VDM Metals were 42% higher than the target they had set, up to 5.2 million euros. How do you plan to end the year?
The year is going to end at pre-Covid levels. VDM is working at full production, integrating very well in the group. There are synergies that require the presence of technicians. We did not buy VDM to restructure it. We are already the manufacturer with the widest range of products in the world. The objective of synergies is being exceeded, we continue step by step, they are not synergies that have been advanced in time, but we are finding more ways of collaboration and, above all, they come from the commercial part. There will be much more than what we found in principle, but above all there will be if we are able to develop joint sales and expand our range of clients.
The market has been speculating for months with a possible share buyback once Acerinox’s debt has fallen below 1.2 times ebitda, which is the objective they had set. Are you considering it in the short term?
We have to have a very stable remuneration policy and we cannot get carried away by the results of one year. We have to be very careful and analyze throughout the cycle how we are doing. We are going to look carefully at the three pillars that are related in this equation, which are what we want our debt to be, what we can do to improve the share price, and it is something that can also be done through an investment that will give more return. Through this equation that is debt / investment / repurchase of shares we will see what possibilities there are.
Would the door open to raising the cash dividend [0.5 euros gross / share]?
It could be another solution, or an extraordinary dividend, but I do not want to opt for any of the formulas because it is a decision that corresponds to the board. It seems that repurchase is more fashionable, because it reduces the future dividend [the lower the number of shares, the lower the outlay].
Be that as it may, if they are considering rewarding shareholders in some way?
We are considering it, but nothing has been decided yet.
The exit of Nippon Steel, which had a 15.9% stake, was expected by the market. How have you sat in the company?
It makes me sad. There are many years with Nisshin Steel, which was a founding partner of Acerinox since 1970. We were good partners, good friends, but three years ago this balance was upset because Nisshin Steel was absorbed by Nippon Steel. It no longer fits the strategy so well and we have conflicts of interest. Nippon Steel has a specialty alloys section, it has interests in a factory in Thailand [that would compete with Bahru Stainless] and it no longer fits in. I am very sorry for the departure of a significant shareholder, but the founders of Acerinox had already left a few years earlier. It is a natural evolution that we expected.
Are you feeling a little more relieved once the ‘overhang’ [downward pressure] on the stock has been limited?
We would have preferred to remain allies, but the moment they decide that it is not strategic and put it as a financial asset [for sale] it already begins to create a certain buzz that does not favor the share price. Then when the first pack is sold, you have no going back. We have removed a burden, I am not referring to the shareholder but to the situation of sale of shares, and right now there is a lot of interest in shares. No analyst recommends selling, there is talk of revaluation potentials of 30%.
“The price of energy has eaten half of the profit of Algeciras”
High energy prices are being one of the biggest headaches for the industrial sector. The stoppages of the factories began several weeks ago in Europe, and in Spain they have been occurring in recent days, with companies such as Sidenor or ArcelorMittal being forced to reduce their activity due to the increase in costs that is generating the constant increase in the cost of electricity.
Velázquez recognizes the increase in costs that electricity is generating, but avoids giving a price on the bill that could end up generating a stoppage, or a cut, in the company’s steel production.
“We have not calculated a specific price, but it is something that is affecting us a lot. Part of the recovery of the Spanish factory is being eaten up by the price of energy, both electricity and gas. And it is in Spain where we are most it is affecting the entire group. In all the factories in the world we have profits, but in Algeciras it is eating practically half of the profits that we should have, “he acknowledges.
“The differential that we have between the industry in Spain and the countries with which we compete is very wide. In France, electrointensive consumers live from buying electricity from nuclear power plants at a fixed price, which is around 40 euros.
In this way, even if the price of electricity rises in France, they have that advantage, so their average is much lower than ours. The differential is increasing in France and also in Germany. In addition, they have mechanisms to reward the industrial consumer , which also favors them. If a few years ago we suggested that, if we were in France, we would earn 30 million more, now this figure will probably go to 100 million, “explains Velázquez.
In his opinion, “money from the industry that should go to reward the shareholder, to invest in sustainability … etc, in the end these resources are going to cost energy. It’s a shame,” he laments.