Hello and welcome to the Aperam Q4 2023 results conference call. Please note, this call is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of this call. You can do that by pressing star one on your telephone keypad to register your question. I will now hand you over to your host, Mr. Tim Di Maulo, CEO, to begin today's conference. Thank you. Hello everybody. I'm happy to meet you around this call after the publication of our result on the podcast. I'm here with Sudhakar Sivaji, the CFO of the company, and we will be happy to take your questions. The floor is yours. As a reminder, if you'd like to ask a question, please press star one now on your telephone keypad, and to withdraw your question, please press star two. The first question comes from the line of Tristan Gresser, calling from BNP Paribas Exane. Please go ahead. Yes, hi. Thank you for taking my questions. I have two. The first one is on the demand environment, notably in Europe. I think in your remarks, you said that the normal market is still far away. But if I look at the outlook by end market you have in your presentation, it does not look that bad. I can see that consumer goods and catering demand is improving from prior. So I'm curious to have your thought on the situation right now in February. Is it fair to say that you're seeing some green shoots? So, I think that there is a weight between the different segments. But in any case, we have a very weak construction, as you have seen. We have the consumer goods, food, health data; they are close to normal, but they are still below. A few elements have to be said that this is a global view in which you have Brazil and Europe. And you see, for example, in consumer goods, demand in Europe improves, but we are really far in Europe from the normal level. While in Brazil, the demand is very solid, and we are happy with this level of demand in Brazil. It's similar in the industry, when you see energy, chemical, etc., so you see that oil and gas, which is a project, a big project, etc., which are mostly related to quarto plates, are good, but the rest is soft, while in Brazil is good. So, maybe we will be more specific in the future, but I am repeating what I say. In Europe, demand is far from having been normalized. We still are in low cycle, and we see this in all indicators. We see this from the speech of the distributors in particular, which are very close to the final demand as Services and Solutions, are reporting that demand in Europe is really, really very low compared to the normal. Okay. That's very clear. And then my second question is on volumes. I think with CapEx for the year, EUR 150 million, which is quite lower than anticipated, I wonder what kind of stainless volumes you're targeting for the year. I know that getting back to pre-COVID levels of maybe 1.9 million tonnes for stainless is a bit of a stretch, but can you at least break above 1.7 million tonnes? And then if we see some restocking, which I think best case is maybe Q2, Q3, can this CapEx figure be adjusted upward if volumes, you know, are better? So, first of all, I would like to better explain what is CapEx. CapEx is, there is a part which is maintenance CapEx, and the other part is a project. So indeed, in the last two years, we have invested a lot, in line with our Leadership Journey 4 on, on what has been the CapEx for the improvement of the footprint. And so you have, for example, in the slide 109 of our, let's say, presentation, you see the split in the different year. When we refer to EUR 150 is the level of CapEx in which we have the maintenance CapEx, the regular maintenance CapEx to maintain all our work plants. We have ESG, and we have all the related small projects, but we have not big projects which are not anymore in the scope of the Leadership Journey 4. In Leadership Journey 5, we are targeting today measures which are mostly on efficiency on the ramp-up of what has been invested. And so this has not a direct link with volumes. If for a small part, which is the flexibility that we have every time, the more you use the plant, the more you need some maintenance CapEx because it's a normal consumption of the tools. Okay? But this is, let's say, not at all or cannot be a forecast, a forecast for the volumes of the year, which is, from today, we have a relative view on what is Q1, but after Q1, Q2 and Q3 is completely not visible for the moment. All right. That's, that's helpful. I jump back on the queue. Thank you. Thank you. The next question comes from the line of Ioannis Masvoulas, calling from Morgan Stanley. Please go ahead. Yes. Hello. Thank you very much for the presentation. A few questions from my side. The first one on Stainless and Electrical Division. If we look at Europe, performance appears to be somewhat weaker in Q4 versus one of your closest peers that reported this week. Do you anticipate to close the gap and return to be the profit leader in Europe over the next couple of quarters, as the incremental Leadership Journey gains come through, or could that take longer? Thank you. Well, Ioannis, let me explain the performance. I cannot speak for our closest competitor which you're talking about, but I can speak for Aperam, right? So in the stainless and electrical segment, we have already clearly guided when we presented the Q3 results that, for the second half of the year, we will have, EUR 50 million, and I actually said the number, EUR 50 million, one-time effect from rolling energy hedging. This has been clearly guided to the market. So if you split that up by two quarters, it is basically EUR 25 million each per quarter, which is there. Okay In both results, right? So this is basically because energies were hedged on a rolling basis when energy prices were high. It's if you want theoretically, like, buying natural gas, keeping it on our books, and then writing it down. But we reported as part of EBITDA because we consider this as adjusted EBITDA as normal business. So we have given that clear guidance. So that one-time effect has to be taken out of our EBITDA when looking forward. So when we guide towards a EBITDA which is slightly negative but tending towards zero for Q1, this one-time effect goes away from that -34 you see. Despite Brazil having the lowest volume quarter in Q1, we are confident that our competitiveness will return to where we can actually speak despite a net price-cost squeeze, especially because of the Leadership Journey and cost control crisis measures we are introducing in Q1. Okay? So, that's the framework on which we have to operate on. The second part is, I think you have asked a good question on our cost competitiveness and the Leadership Journey, Ioannis. Let me give you that, we have shown EUR 186 million of gains on Leadership Journey 4 the last Leadership Journey. Let us just take Europe, for example, and there have been several factors as we have discussed, which is a cost inflation, which to a large extent still remains, but an energy cost inflation. For baseline of 2019, energy costs on an absolute basis have gone close to EUR 240 million higher. So if you look at it, end of the day for Aperam, there is actually, if you see, a slight improvement in prices because of Trade Defense. And if you net out, you will see that even EUR 60 million of the Leadership Journey gains remain in our books despite the low situation and being consumed by all those losses. So we continue to be positive that going forward, also, this booster we have announced will bring us back to competitiveness as, specifically because they are concentrated in Europe. T o summarize, I've given you a framework on which to operate on what Q4 actual performance was and what was the losses, just, reminding what we said in Q3. Second, I've given you also an outlook on Q1. Q1 we expect to reach this improvement, despite Brazil performing at lowest volumes and having a price-cost squeeze in Europe. I hope that gives you enough color to work with. That's very useful. Thank you very much. And, sticking with the division, and looking at Brazil, could you comment whether the Brazilian business was EBITDA positive in Q4 before and after inventory valuation? Absolutely. There is no doubt. No doubt. Has always been positive. Brazil, it's a very positive unit, one of the best contributors in percentage. And, what you have to see is that Brazil, in the past, was presented combined with Bio Energia. Now these two have been put in two different divisions. And, this is an effect of around EUR 30 million for the Brazilian unit. But Brazil remains very profitable. They are very competitive in what they do. They have this advantage of choosing their product mix. And the market in Brazil, in terms of volumes, is very good as we have seen before with the market with the segments. The only tailwind is the international prices, which are the prices due to China. I can fully understand that. That's great. J ust to clarify then, would you expect Brazil to remain EBITDA positive even on directional traffic in Q1? Yes. Very clear. I'll jump back in the queue. Thank you. The next question comes from the line of Patrick Mann, calling from Bank of America. Please go ahead. Thank you very much for the presentation. Good day, everybody. I just wanted to go back to maybe European demand. I mean, you're obviously, your release and the podcast, it, you sounded, you know, very, very negative, and you spoke about it's the lowest, lower than the financial crisis, lower than COVID. Is this cyclical, or do you think there might be a structural impact here? And maybe, you know, you do have Services and Solutions. You do have, you are quite close to the end customers. I mean, are we just seeing very low utilization rates at customers, or do you think there's been closures of capacity, and maybe you've permanently lost some customers? That's the first question. Thanks. So for the moment, we don't see really capacity closure. We have, here and there, some of the capacity closure that have been announced, in Germany, etc., but they're not very big capacity closure. You know, cycles are always cycles. So we tend to forget that this happens. But each time that there is a cycle, there is a huge drop in volumes. I'm quite positive on Europe because in Europe you have two parts. You have the fact that cycles have been driven down by the consumption. And the other part has been due to the huge imports. You remember that we have had also imports up to 40% in Europe. Now with all the trade defense, we have a level play field which is much better than in the past. The only thing that we expect is a recovery of the demand. This recovery of the demand will be partially also linked, for example, in the construction with the cost of money, which is, we think everybody thinks is non-structural. When it will arrive sooner or later is the question that you can have. But this is how we see it. We see this really as a cycle in which you see we have a very low level of inventory in Europe in absolute terms. So as soon as the demand comes back, Europe will restart having results. Okay. Thank you. Yeah. That's a good point on interest rates and construction because I think everybody does agree that that's the next step there is, you know, it feels like we're in the trough. But second question, if it's okay, just on your geographical exposure. I mean, if I look at your two European peers, right, they seem to be investing as fast as they can in the US and other markets. How do you think about your geographical exposure? Are you happy with your footprint being Europe and Brazil, or do you feel like there's somewhere else you could expand into? And maybe is that the US? Is it somewhere else? So I think that all the story of our, let's say, view for the future is driven by the fact that we balance the activity of pure stainless steel with the activity which are in the alloys and in Aperam Recycling and Renewables. Okay? Remember that around 50% of our people are not working in pure stainless steel production. So the United States is a market which is what it is. They have a lot of tailwind due to specific American policy, etc. It's a pity we are not there. Okay. That's a fact. This is not stopping our story. We are not depending on the United States and on legislation there for the large majority of our results. We are differentiating our business model to be in different segments. We are also in Asia, for example. We are expanding in our Alloys activity in India. We have a very specific, let's say, niche product in China. We are expanding in Brazil. So our business model is to expand geographically. United States is out. Okay. It's a fact. We are not profiting of the tailwind of the legislation of today of United States. If I may add to that, Patrick, just one question based on some statistics which we have presented in last Capital Markets Day as well, right? So, one of the examples which Tim has quoted, will help illustrate that discussion which he presented, which is we look at capital employed very seriously. We look at it any strategic growth has to come definitely, but not at the cost of employing capital thereby depriving of shareholder returns. So for us, when we decided on the alloy strategy to go organic, if you look at it, last quarter when we presented the numbers, we have guided that in the alloys organic expansion, we had to, between CapEx and working capital, we've had to invest around EUR 200 million in terms of capital employed to get this alloys doubling of the EBITDA. For us, that is a very efficient EBITDA, which is you're talking about investing EUR 200 million, EUR 210 million, and getting a EUR 50 million EBITDA return over three to four years as part of our growth story. So that is something which is very key to us because we are focused on taking capital employed and putting it where we see that we can get the best returns, yeah? Yeah. No, it all makes sense. Thanks, Scott. I suppose it's just when you look at it, it almost looks like everybody else is fleeing Europe. So I suppose it ties into my first question on the structural versus cyclical. But yeah. I appreciate your answer. Thank you very much. The next question comes from the line of Maxime Kogge, calling from Oddo BHF. Please go ahead. Yeah. Good afternoon. Regarding Recycling and Renewables, actually, I mean, the performance was again flabbergasting this quarter. It's still difficult for me to really understand how it works because you communicate on a normalized contribution of EUR 85 million per year. So that's about EUR 20 million-EUR 25 million per quarter. So the difference that you achieved this quarter, is it only due to valuation gains, or is there something else at play? Because at the same time, I see that prices are slightly down for the division. So that's my first question. See, Maxim, that's a very good question. So if you remember the EUR 85 million, what we guide as normalized EBITDA, right? So it depends on a factor that every quarter is the same. Obviously, not every quarter is the same, right? End of the day, if you look at it, for us, recycling and renewables in Q4 came because of, as you can see in the last quarter, scrap prices going up, number one, right? On the stainless side, you've seen scrap prices go up, and we have benefited from that. This happened because in Q3, as you know, the whole stainless world started destocking. And when you start destocking, you cut at your suppliers first. And then you realize a quarter later that you've destocked too much, and so you go for a higher pickup of scrap. And as a result, scrap prices went up. So that's the first structural one. The second one is that you do understand as part of our recycling, we have two distinct businesses. One is, addressing the stainless industry, and the other one is our special alloys division. I remind again that we are the world's largest specialty alloys recycler catering to the aerospace industry. What that means is that in our Utica division, we've had also thanks to the better performance of the aerospace division, especially now that long-haul flights are coming back post-COVID, we've had an increase. The third part is in our bioenergy division, thanks to the investments we are making and the productivity improvements we are making, we've had improvements in profitability. And the last part is, yes, there are some valuation effects, but these valuation effects are not something which are going to repeat every year. Secondly, these valuation effects always are about valuing what you price wood for the next season, which is the next year. So, so far, we've always seen that the value is justified, and it is never written down, as you see, in our numbers over the years. Q4 always has slight valuation effects based on where the price of wood is for the next season, yeah? So these are the four effects. I hope I've given you enough data to work with. Yeah. Yeah. No, that's easy. That's helpful to us, this color here. And second question, on a bit on the same topic is on your objective of synergies with R&R that has been raised from EUR 24 million-EUR 40 million. How are you able to increase this amount that much given that the acquisition took place, I mean, the yearly acquisition took place three years ago? And can you, I mean, give us a bit more color about the drivers behind this increase? So, you know, that when we have had the visit of the Capital Markets Day, some of you have been able to understand how difficult this kind of collection of scrap from hundreds of different products, etc., is and how it is possible to leverage on synergies. We have also declared that at EUR 25 million, we are expected to be the synergy over with a ramp-up of three years. Now we are in the second year, and we have seen that we were ahead of time in terms of leveraging the synergy. So we have raised the target to the team because we see that there is further potential. This further potential is in the way we collect, sort, and use the scrap in the mill, in the logistics, etc. You can be sure that these are part of our phase V of the Leadership Journey and will be accounted every time. But we are quite, let's say, solid on this kind of synergies. You see that this is in the numbers. Okay. They will be recognized mostly in S&E, right, rather than in R&R? Mostly, mostly, but not only. Okay. Thank you. I'll go back to the queue. The next question comes from the line of Bastian Synagowitz, calling from Deutsche Bank. Please go ahead. Yes. Thanks, and good afternoon all. I have a couple of questions left, please. And with the first one, I would like to come back to the pricing dynamics in Europe and the cycle as well because I guess from what you're telling us and also, I guess, from what your competition is saying, I think there seems to be at least a little bit of a mini rebound, even though that may be just seasonal. And I guess from what you say also, you confirm that inventories are low, imports are low as well. So what I'm wondering here is why does the European landscape really struggle so much to establish any price discipline despite the fact that no one is really making literally any money? And, I think most are literally cross-subsidizing the European stainless operations with other more profitable businesses. So do you share that view? Yeah, just curious to basically hear your thoughts here. So probably in your question, there is the answer. Okay? When there are subsidies from other, let's say, geographical parts, there is less stress in having a discipline in the profitability of Europe. Okay? I can tell you, with low volumes, we have seen in the past that people which have very high sponsorship tend not to focus on what can be extracted by the European market. But I'm positive on the fact that this cannot last because not all the operators in the market have the same culture. And I strongly believe that it's a period. It's due to a cycle. Inventory are low. And whenever demand will come back with the protection that we have with imports, the situation of prices will recover fast. Mm-hmm. Okay. Thanks. Thanks, Tim. The second question I have is on the scrap market and the tightness we're seeing there. I think, given your exposure, you're best positioned to answer that. So, I mean, what's really driving this? We have U.S, I guess, stainless price is still 30% above Europe. But if we look at the scrap price, I think European prices are quoting about $100-$150 above the US. And again, that seems to be a disconnect, which really doesn't make sense. Do you see any, like, signs that this tightness is easing? Is it just mostly stockpiling of the scrap collectors and obviously at the same time maybe weaker scrap generation because of the lower, I think, industrial production levels and maybe lower scrap generation? Or, is there just anything or any sign you see that this is easing, to really reestablish, I would say, the right balance between both stainless steel prices and s and the secondary market? So, you know, the scrap market is a real, let's say, market dominated by supply and demand. There has been a phase of, let's say, destocking. And then when the stocks were too low, there has been a phase of restocking. And every time there is this movement of destocking, restocking, you see the movement of price of scrap. On the basis, you have to consider that scrap in Europe is balanced in the sense that supply and demand are balanced. Okay? It's a question of a temporary, let's say, shortage due to the effect of inventories. Mm-hmm. So, so basically also from what you say is you're already seeing essentially the restocking in anticipation of better prices in your upstream supply chain in scrap, but, obviously not yet with your customers. Is this what you're saying? Probably, yes. Probably there is the expectation that volume will grow and demand will grow and that there is an appetite to anticipate on the volumes. Of course, you have to see that the typical reflex is maybe to be careful during the period in which the prices were very low. I n Q3, at the beginning of Q4, prices were so low in terms of price sales that everybody has slowed down the collection of scrap, etc. And all of a sudden, they have restarted. And this goes up and downs of the demand. Mm-hmm. Okay. Okay. Thank you. Then my last question is actually on this new bio-oil business, which you mentioned obviously in your presentation. So I'm wondering, what is your current capacity? Where could that capacity go to? And, maybe also could you give us even a broad sense for where the ASP level sits? So I guess is it a business which really matters or can matter in the group context? So first, it will matter. It is a very interesting business. But I would like to, let's say, let this argument for the Capital Markets Day we will have very soon in the 27th of February in Paris, as this will be one of the part that will be largely, let's say, disclosed with you will have and you will see concretely in what we are referring to. It is a very nice business, very nice in the sense that we are producing for plant as we have done with the charcoal bio-oil, which has a real premium on the simple oil. Mm-hmm. Okay. Great. Thanks, Paul. Then I'll wait for that. The next question comes from the line of Moses Sherwood, calling from JP Morgan. Please go ahead. Hi, all. Thank you very much for taking my question. Just two questions from me. So the first really is just on the net debt guidance for Q1. Could you please just talk us through the moving parts of that in especially on working capital, what we can expect with slightly higher pricing and slightly higher volumes into the quarter? If I look versus last year, those are smaller builds than normal seasonality would suggest. Is that the same level of working capital build we could expect this year? So Moses, we've guided to a higher net debt, right? So the higher net debt works through because of two things. One is the fact that we had already guided in Q4 that we had some investments planned for the beginning of this year. And so we had stocked up for that, right? So when you stock up for that, there is a technical effect because first, your payables get reduced because you stop purchasing just a month before the investments start. And then it moves through the inventory. So that's one effect which will result in Q1 net debt. And second one is obvious, seasonality where in Q1, you do build for the stronger quarters going forward, and as a result of that. But for us, if you look at it, working capital, we've guided and I've clearly mentioned in the podcast for the entire year, we even expect a slight release. Okay. That's understood. Thank you. And then also just on the Leadership Journey. Are you able to perhaps guide on the net gain, net effect in terms of the cost of implementing the program versus the gains? For the next Leadership Journey, Moses, the cost of implementing, let me generate it in two parts. One is the OpEx part. Another one is the CapEx part. The OpEx part primarily associated with the cost-cutting and restructuring measures which we are going through. In the Q4 of 2023, we've already booked EUR 11 million provision, as you've seen, as part of our P&L. That is going to be the cost for the fixed cost part. Okay? In terms of CapEx, most of the CapEx investments are already done, as Tim has mentioned. There might be a few. I'm talking about lower double-digit million EUR for the sake of Leadership Journey 5 gains. Thank you very much. Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star 1 now on your telephone keypad. The next question comes from the line of Maxime Kogge again from Oddo BHF. Please go ahead. Yeah. Just two questions left on my side. So first, on your net leverage, now you are at 1.6. And I haven't done the calculation yet, but this level will probably be even higher in Q1 given that you will have lower your annual EBITDA and higher net debt. So when do you think it will be possible for you to get back to 1x net leverage, which is your net debt objective? Is it by the end of the year, or is it later in 2025? So Maxime, I wanted to remind on our financial policy, our net debt, or the leverage ratio. We say it's over the cycle. Okay? So we take clear sign in the fact that it is a cyclical business, especially the stainless segments. And I know their contribution is becoming smaller to the part of the business, but still, it is a cyclical business. And so we always guide for net leverage ratios over the cycle. That is the first one. The second one is that as part of our recycling acquisition, we have clearly mentioned that. And at the time of acquisition, we bought EUR 500 million of working capital. Now, this EUR 500 million of working capital for the recycling business is something which I've mentioned in the past has to be treated like a trading company, which means this is inventory which is bought in. I think we've had this discussion. 70% of that is sold within the next 6-8 weeks or already sold, which means that you have a working capital which is primarily the debt. So as a company and as management who efficiently want to use capital employed, we do not want to take the hard-earned cash, which we typically give back to shareholders or invest in the company, and use it to repay debt used for financing a trading working capital. So if you understand my answer, I think it will give you a sense that we should get used to operating with this working capital and this level of debt with the recycling business. So if you want a clean delta without working capital debt, you see, you should subtract this EUR 500 million working capital for the recycling business. Then you will see clearly that, and that is my first reason why I keep stating at Capital Markets Days, we are still a zero net debt company. I hope that is clear. No, no. That is clear. Yeah. So, so again, Sudhakar, I understand the focus is not necessarily on reducing net debt, at all costs. It can also be share buybacks, right, when, when, when there is opportunities? Exactly. When we have cash, we have always given share buyback back, you know, that the track record says that over the last 10 years, in terms of shareholder dividends, both in absolute and percent percentage-wise, we are at benchmark level in the industry. And that is something which we would continue doing. Okay. Just a technicality, you booked a big deferred tax benefit in Q4. I don't think you gave the reasons, the details of it. Can you provide some now? Yeah. It is basically in some of the legislations, we had a one-time tax booking related to how legislations change and how we expect future taxes to be used there. And that is the reason. It is not going to repeat. It is a one-time tax asset there, specifically. Okay. No cash, I mean, no cash impact, huh? No, no. This quarter, no. But hopefully in future, when you use those tax assets, we do have to have some benefits, right? All right. Thank you. We currently have no question coming through. As a final reminder, if you'd like to ask a question, please press star 1 now. There are no further questions. I will hand you back to your host to conclude today's conference. Thank you. Thank you. Thank you very much for all your questions, which are very, very interesting, and for attending our earnings Q&A of today. Of course, we will, I hope, see the majority of you very soon in our show and especially in the Capital Markets Day, the 27th of February. This 27th of February will be extremely interesting because you will see something different and what is differentiating Aperam from his own, let's say, past and origin. We are suffering today of the typical cycle that comes with the business of stainless steel, which is the majority of our business. The company is in the transformation mode. It has a different, let's say, profile. And this will be explained in large in the 27th of February. We are very confident on the fact that what is part of our DNA that is, Leadership Journey, efficiency, execution, etc., will show up very soon. We have a very ambitious Leadership Journey 5, which is based on efficiency, so finding all the self-help measures that can give us the competitiveness for which we have always been known. And we are back to the most competitive footprint in the area in which we are operating. I am confident that the demand, which has been facing a low cycle, will come back. I cannot grant you when, but it will come back. And all that we are doing, all the investment we have done ahead of any competition in the last year, will show you the result of the company. You can be, let's say, granted on the fact that our shareholder policy will remain the same policy of a company which has always demonstrated to be very cash profitable. Thank you very much. And see you soon. Thank you for joining today's call. You might now disconnect. Host, please stay connected and await further instructions.