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Edited Transcript of ACX.MC earnings conference call or presentation 26-Jul-19 8:00am GMT

Half Year 2019 Acerinox SA Earnings Call

Madrid Aug 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Acerinox SA earnings conference call or presentation Friday, July 26, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Bernardo Velázquez Herreros

Acerinox, S.A. - CEO & Executive Director

* Carlos Lora-Tamayo

Acerinox, S.A. - Head of Investor & Media Relations

* Miguel Ferrandis Torres

Acerinox, S.A. - Chief Financial Director

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Conference Call Participants

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* Alain Gabriel

Morgan Stanley, Research Division - Equity Analyst

* Alan Henri Spence

Jefferies LLC, Research Division - Equity Analyst

* Cedar Ekblom

BofA Merrill Lynch, Research Division - Analyst

* Francisco José Rodríguez Sánchez

Banco de Sabadell. S.A., Research Division - Research Analyst

* Jose Maria Canovas Garcia de Blanes

JB Capital Markets, Sociedad de Valores, S.A., Research Division - Analyst

* Krishan M. Agarwal

Citigroup Inc, Research Division - Analyst

* Luis de Toledo

BBVA Research SA - Chief Analyst of Oil and Materials

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Presentation

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Carlos Lora-Tamayo, Acerinox, S.A. - Head of Investor & Media Relations [1]

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Good morning, everybody, and welcome to the Acerinox Earnings Conference Call for the Second Quarter 2019. The call will be hosted by our CEO, Bernardo Velázquez; and our CFO, Miguel Ferrandis, and accompanied by the Investor Relations team. They will start with a short presentation and then continue with the Q&A session.

Before getting started, let me remember you that this conference call is being broadcast on our website, acerinox.com, where you can find also the financial statements and the management report for the first half.

Please, Bernardo, go ahead.

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [2]

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Good morning, everybody, and welcome to this webcast. I will start speaking about the second quarter performance, remembering where we're coming from. Note that last year was a difficult year, full of turbulences, because of many different reasons, because of uncertain environment, political world, also with a lot of economic uncertainties that -- and in our case -- in our specific case of stainless steel, we're very much affected by all the trade measures that have been established in the United States and in Europe and in the reactions in different countries.

So that was the -- the result of this was an oversupply during last year that led us to a strong correction in quarter 4. And since that time, as we adapted very, very fast, and we are very flexible to be adapted to the new situation, we'll start improving. We've made some improvements in Q1 this year. And as promised in our outlook, with the results of the first quarter, we also improved and we kept the uptrend in quarter 2.

I think it is important to remember this because we are living in a very volatile world. Still, we are very much affected by the trade measures that are strong in United States, still with some uncertainties in Europe after the [final] safeguard measures started in February. But still -- and we are reviewing them. Still, it's not clear if Indonesia will be part of this safeguard measures or not. So under these uncertainties, what we can say is that, today, the market is stable. And this is very good.

Because it is stable, the economy, you know better than me how is it -- this is performing. In some areas like the automotive industry, there's some weakness. Also in appliance, also suffering some weakness. Other areas, construction is growing in United States, in Asia, in Europe as well. But today, the market is stable. And the stability is good for the steel company because we have the possibility to make a better program of our factories, control our cost, our inventories and keep our business running smoothly.

If you [don't have upside], you have to say that the volatility remains in the raw materials area. And we have a drop in ferrochrome price for the first quarter due to the excess of material in China and what is happening with nickel price.

And also, of course, the macro uncertainties prevail. Still, there's a lot of doubts in the economy, as many people are saying that maybe we are at the end of the cycle, maybe not. But probably as we are -- it begins so much around the end of the cycle that at the end, it will come. But this is creating a lot of uncertainty in our business. Most of the distributors in other regions, some are in the United States, in Europe or in Asia, even if the final consumption is solid, all the distributors are trying to reduce inventories as much as possible in order to get ready for the bad times. And this is affecting the apparent consumption in all the areas.

In Europe, we estimated that apparent consumption went down by 9% in this first 6 months of the year. In United States, with data still until May, but it fell down 4%. And in China, we also estimated another 4%. And this is not a final consumption, this is apparent consumption, but this is stock reductions and is a cautious movements of the distributors trying to be with -- as low inventories as possible.

Going to the different areas. In Europe, imports remain low on year-on-year basis. Imports have dropped 17% to a market share of 26%. But under -- in a scenario where apparent consumption is falling 9%, we have to say that safeguard measures are not working as well as we wanted. Still, the quarters are enough to put pressure on the market with the -- this inventories mix. That means that in some areas, as in Germany or France that have been published, the -- we can say that the inventories are low. But in other areas that do not publish the inventory levels, the rumors or the information from the market is still the inventories, the stocks are high, high stocks in Italy, high stocks in Spain or in Belgium and Holland, and probably also high stocks in the ports waiting to be cleared.

With this situation of import pressure and still high import penetration, 26%, and high inventories, logically, prices remain low. Every time we have -- we see an operation in the market, there's 3, 4 people trying to get it as soon as possible. So under this situation, it's difficult to increase prices.

In the case of United States, it's different. The tariffs are working perfectly. Even with a minus 4% in the apparent consumption with import under control, it's minus 24% to a market share of 15%. In this scenario with a good final consumption, a strong economy yield and inventories under control, logically, we are keeping a very good performance in the market with reasonable prices. I will not say high prices because the prices today in the United States are at the level of 2014 when -- and remember that in that year, we did not have tariffs. So still, we are in a good level. And this is good because we are keeping imports under control, and we are also giving the -- our customers the possibility to compete in the international business.

In -- and of course, in Asia, the economy is not an issue. But with the oversupply situation, the market conditions are tough, really competitive market and the prices remain low, probably the lowest in the history.

And how is Acerinox performing? So as we announced in -- when we published our results in quarter 1, we have increased -- slightly increased our financial situation. We are plus 7% in EBITDA on quarter-over-quarter basis. But it's still very, very far from what we got in first half of 2018. That was a minus 36%.

With this inventory situation and low prices, we couldn't get a better results in Europe and in Asia, but we have kept all what we could under control. So we have dedicated this time to keep the strong performance of North American Stainless, keep cost control in the -- in all the plants, keep inventories under control and trying to, as we have said many times, convert our business in a flexible one that can adapt very easily and very rapidly to market conditions. So this is what we are doing.

We are -- even with this volatile scenario, and this expectation is to increase our activity, we have inventory levels at the same level that we've been in the last year in December 2018. And this is important to us because any change in the market will be followed very, very rapidly in case market condition improve or in case not.

For me there's 2 big questions that will lead market conditions for quarter 3. One is raw materials prices. One is the volatility of raw materials. In the last 2 weeks, we have seen nickel prices going up 24%, which is something unusual, with not very clear explanation and probably not sustainable because we have seen yesterday, prices going slightly below $14,000. But this is a big question mark. Today, it's difficult to make a prediction because there's no market. Most of the customers internationally are waiting until nickel price coincide with the trend.

Some countries, as we have heard in Korea, there's no offers and some of our customers are waiting -- everybody's in the situation of wait and see until nickel price stabilized. So it can be positive, I think, that it was very low before. Even with the correction that we have this year was probably tougher than what the real economy shows, and this improvement has been probably too high. But if nickel price stabilize at the level of $13,000 because $13,000 and $14,000 can be positive and give us a stable scenario, and probably the situation can improve.

And also the second driver -- main driver will be the inventory levels. And this is a big question mark because we have learned during these years that the information that we have about inventories is not always enough, or that in the case of the United States, I think inventories are showing the reality of the market, the distributor market. But I think, during these years, we have all learned to control our inventories and to reduce our inventories. Some of the American customers that we -- who used, in the past, to leave with 3 months of stocks, now they are focusing in 2 or even in 1.5, and that is possible because with the mills have a very short delivery time, we can supply very fast and reducing the risk of the distributors.

But in some other areas, like in Asia, probably, the (inaudible) information do not represent the reality of the Asian market. Probably, there's a lot of inventories in the mills. And in the case of Europe, we have information about Germany and France. But remember that nor Germany and neither France are the typical traditional entry door for imports in Europe. We want to show -- we want to know what is happening, most of the information -- most of the key of the stocks are in Italy or in Holland or Belgium.

But this is difficult to predict today what is going to happen. So we cannot -- visibility is very low, still uncertainty has driven the markets. But we can say that our quarter 3 is going to be aligned with quarter 2, more or less. And we expect the similar result in these difficult market conditions and with -- also taking into account the seasonality of our industry.

Having said this, I think, Miguel, that we -- you can explain our financial figures.

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Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [3]

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Yes, thank you. Well, all the financial figures, I think you have -- as every semester, you have a detailed explanation and the management report, which explain most of the issues. And in case, what has been also disclosed in the slide is the quarterly evolution within the year. You'll remember when we made the results presentation of the first quarter, we announced that we were expecting some slight improvement into the second quarter. And this is -- more or less this has been achieved.

As you can see, we improved sales of 3%. And we have improved EBITDA at 7%, reaching EUR 97 million. What is remarkable is this EUR 97 million of EBITDA has been obtained even though and after making an inventory adjustment of EUR 13 million. So the EBITDA normalized in the second quarter should have been EUR 110 million. But we are very, very strict on the issues on the inventory adjustment. We try to react very, very quickly to the changing market environments.

You also remember how we make also the quick reactions in the fourth quarter last year. We made at that time an inventory adjustment of EUR 22 million. Probably, because of that, also, we have a good starting performance at the beginning of the Q1. So we keep the trend of trying to be very, very quick reacting to market conditions. And consequently, we prefer, at the end of the quarter, following the trend that raw materials is having -- experiencing during the second quarter, we'll make certain adjustment of EUR 13 million.

So at the end, in general, this is consistent of what we are seeing in the market. And the evolution of the raw materials in the following months are more or less demonstrate as to what sense -- it took sense or not, but we feel confident. As we say, I'm very, very -- we've been very, very strict on that.

In terms of free cash flow, we remain being free cash flow positive. As you know, cash is king. This has been a priority for us. So the operating free cash flow has been positive in the first quarter, EUR 17 million, and has been also positive in the second quarter, EUR 22 million. So at the end, we have a free cash flow before dividends in the semester of EUR 39 million.

And then there is a positive fact. We have been, obviously, following this semester all the announcement we have made in order for not only increasing the dividends but also making certain buyback. This is something relevant, which I'll explain later in the cash flow. But as a consequence of this, you shall realize that the net financial debt has increased and is probably increasing over what is normally occurring at the 30th of June. But this is a consequence of a big majority of this increase in retribution to shareholders taking place in the first semester.

So as a consequence, more or less, the performance has been robust as is appearing at the main comment in a very, very challenging environment. And we must recognize that we are proud of these results. Obviously, in the -- we should have experienced better market conditions, but what's true, once more, again, I think, in our group is our quick reaction and our easy adaptation, more or less, for the market challenging conditions. And as a consequence, we have had -- there's a slight improvement in our figures.

You have all the details of the melting production and EBITDA quarter-per-quarter, which are probably contribute for you to make an easy understanding of the figures. Maybe we do not need to have a further step on that.

In the Page #8, we have the second -- the quarter second cash flow at the end with an EBITDA of EUR 97 million. We have made a reduction in working capital, so this has been a cash contribution of EUR 8 million. We are very, very committed and very, very strict with the working capital and especially with inventories. And consequently, we have been even adjusting inventories in the second quarter. So we are also proud about that.

And then in the explanation of the other figures -- other financial charges, tax and others, this has been a cash out of EUR 48 million. It's not mainly financial charges. Financial charges has been just EUR 5 million. I think the most -- has -- I think the more relevant part of this has been the taxes, which are in the range of EUR 50 million. So more or less most of this has been tax out paid in this quarter.

Then the operating cash flow has been EUR 57 million. And we have made a CapEx payments of EUR 35 million, reaching this figure of EUR 22 million free cash flow. And we have in the second quarter as retribution to shareholders, in this regard mostly dividend. In the first quarter, we achieved most of the buyback program. In the second quarter, we have achieved the payment of EUR 81 million of dividend. And in the third quarter also, it's becoming the dividend payment sort of issue premium refund that took place on the 5th of July, which shall be additional EUR 15 million. In the second quarter, what has been taking place is that EUR 81 million, reaching this figure of negative cash flow after dividends of EUR 59 million.

If we move then to Page #9 for seeing the evolution -- the quarterly evolution and the semester evolution. You can see these issues that at the end are -- we have been mentioning. We have obtained this EBITDA generation in the first semester of around EUR 186 million. The operating working capital has had a -- on a semester basis, a negative effect of EUR 39 million.

And at the end, after the income tax payments that we have been mentioning of EUR 76 million in the whole semester, finance expense of EUR 5 million, we reached this operating cash flow of EUR 104 million. We have been making payments of EUR 65 million, reaching this free cash flow of EUR 39 million.

And we have made retribution to shareholders directly through pure dividend, indirectly through buying back of EUR 130 million. And this reached to a cash -- negative cash flow of EUR 90 million, EUR 91 million, which, at the end, has been the increase in the net financial debt that we are reporting.

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [4]

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So it cannot be other way under this scenario. Of course, we are focusing, as we always did, but even more intensively in our Excellence 360° Plan. Remember that in February this year, we released Excellence 360°, integrating our traditional Excellence Plans. And as I explained at that time, we are integrating in this plan all the improvements that we were achieving with our benchmarking exercises and targets our technology, but using the traditional technologies with Excellence 360° that we will include also the progress that we have made in due to digitalization, the digital transformation of our company. We are very happy with this plan. I think it's -- it will give us the possibility to reach a new level of competitiveness. And we are starting to receive the results of these new technologies.

Logically, as still we are in the first year, most of the advances -- most of the progress in this excellent plan is coming from the traditional plan, no? But we are in the target now. So we have reached, in 6 months, 100% of the targets that we put for the whole year. So this is very challenging for us. But we are starting to receive, as I said, the advantages, the benefits of the digitalization.

For example, we reached in the North American Stainless a new -- a low record of refractory consumption after a very interesting deep big data analysis of the light of the refractories in each side of the vessel and in an -- with a historical information of maintenance. So this is very challenging for us because we think that we are reaching a certain level of cost reduction that is going to be difficult to improve in the traditional way. But all these sensorization analysis and artificial intelligence will give us the possibility to work further in the areas that we have been always working.

So we will increase our efficiency. We will increase our metallic yields. We will increase the working time and productivity of our lines. And we will be able to predict maintenance breakdowns, but also predicts a quality problem. And at the end, it will give us a higher volume of good products to sell in conditions. So we will keep on reporting about this plan. But in this first few months of the year, we have reached the target of the year.

By the way, we estimated a EUR 24 million recurrent annual savings. This is an annualized number.

And I will finish the presentation with the outlook that is not easy because, as we say in our presentation, prices remain low in Europe and in Asia, remain lower at historical low levels. The macro uncertainties remain in the market and the visibility is very weak. We have to add to the situation the seasonal slowdown in Europe and in some other countries. But on the other hand, we are likely to be market leader in United States, where market conditions remains robust.

And of course, we have to keep an eye on the 2 drivers that for me will mark the trend in quarter 3 and for the full, that is what happened with nickel price, what is the real level of inventories because with apparent consumption going down in most of the areas, that means that the stocks are also going down. So we don't know at what level. But of course, there will be a moment that the apparent consumption will match the real consumption or even we will have depending on nickel price and stability given some restocking issues.

So what can we do? As we said, be ready for everything, be flexible, try to adopt our production to the real market situation and try to keep our cost, as much as we can, under control and waiting for the better things.

So under this scenario, I think it's positive. With the low prices and the uncertainties and, of course, with the seasonality in Europe, I think it's positive that we expect a similar result in quarter 3.

Miguel, do you have something to add?

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Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [5]

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I think we can go directly to Q&A.

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [6]

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Okay.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Alain Gabriel from Morgan Stanley.

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Alain Gabriel, Morgan Stanley, Research Division - Equity Analyst [2]

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Just 3 short questions from my side. On the inventory adjustment for Q3, what is embedded in your outlook or in your guidance at the moment? Second question is on the working capital. If current prices prevail, how much working capital do you expect to move in the second half of this year? And third question, I think you touched on that on the call. On the cash taxes, can you kindly just elaborate a bit more on the reason why your cash taxes are much higher than your P&L tax?

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Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [3]

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Okay. Well, regarding the inventory adjustment, as we are stating, this was done at the end of the quarter according to the -- also to the market conditions at that time, the expected extra alloys. It's very, very difficult to make a forecast and projections and budgeting in these days with all the actual oscillations we are experiencing. You have seen in the last week, for example, the rally experienced by nickel. So we were talking of nickel about levels of $12,000 and even with some concerns of where it was going. And then we are talking now of nickel in the ranges of $14,000. Is the nickel going to stay there or shall go back to levels of $12,000? It may have vary. And this is going to have effect definitely on the situation of -- as of September. So consequently, it's difficult to make predictions regarding on that.

We feel comfortable with the inventory adjustments we have done. We feel comfortable with the guidance that has been remarked that at the end shall be in line. And then obviously, we are -- we -- the profitability of the third quarter being more or less giving that message, depending which -- what is the nickel evolution are maintaining in these levels, this may have impact in September. If the nickel remains high, this probably could be a good driver for the prices and for the consolidation of prices from September to the end of the year. And in this situation, we shall be more relaxed. But at the end, what we can say for now is that we feel comfortable with this guidance, keeping more or less the prudency that we always try to stress when we are making this type of outlooks.

In regarding of the working capital, it shall be mostly depending on this -- on the circumstances, normal -- working capital normally in our market goes up in good market environment. And this is, for us, is something that we are willing, obviously, to accept even though it may have its consequences. What is critical for us is keeping the strict discipline in the inventories. And in this, I think we are doing good exercises.

We -- as I had mentioned before, we also have been doing a good exercise in the Q2. So consequently, we feel comfortable with the actual levels of inventories we have in place. Evaluation of these inventories corresponding which -- whatever is the nickel situations may have its effect. But we shall, especially at the level of inventories, keeping a good discipline just by far. So consequently, this should not bring substantial changes [more away] what are the market conditions and the fate they may have in the evaluation of our future production of inventories.

The taxes, yes, in the taxes, it has been, especially in the Q2, a certain increase. This is something, at the end, that is not concerning fact. These taxes in terms of cash-out are also none -- more or less not so reflecting any issue rather -- or any big increase rather than, at the end, we are profitable in the States. And consequently, obviously, we are having the tax in the States, but is in line, actually, with the tax rate in the other areas.

But in the second quarter, we have also been paying taxes by the withholding tax of the dividend intercompany that was given in dividend from North American Stainless to Acerinox S. A. And this is something that, still up to now, is subject to a withholding tax of 10%. So this has been also registered in the second quarter.

On this basis, probably, this is something that -- it's a good timing for comment that this withholding tax of any flows from the States and Spain in the future may have a much more better treatment after 10 years of blocking by the Senate in the States, the double tax treaty agreement between the States and Spain. But fortunately, 1 week ago, the American Senate ratified that double tax treaty agreement and is expected to be on place coming in the following months.

Still, for that dividend that we have been receiving this year, we obviously have been paying the withholding tax. But maybe, for the next months, it shall not be that, and consequently, any dividend flow among the companies should not be subject to any other specific tax. So this is the main reason why it has been going up in the second quarter. But are thinking, from now, it may be not occurring in futurely on our type of dividends distributed among the subsidiaries to the parent company.

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Operator [4]

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The next question comes from Cedar Ekblom from Bank of America.

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Cedar Ekblom, BofA Merrill Lynch, Research Division - Analyst [5]

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Two questions from me. One again on the guidance, just want to revisit that, and then the other one just on what you're feeling related to the import safeguard review currently underway in Europe. Just on the guidance, you showed a slide at the beginning of the presentation where prices are falling in all of your major markets at the moment. And you also alluded to your usual seasonal slowdown in demand and also potentially an underlying demand slowdown. So I just want to get an understanding of how you are assuming flat profitability in Q3 versus Q2. Is it a case that you think that there's going to be no inventory revaluation gains or losses because you've written down inventory to low enough levels, which, obviously, was reflected in that EUR 13 million charge in the second quarter? So just sort of run through the drivers, considering we've got lower prices, lower volumes, but yet flat quarter-on-quarter guidance. And then secondly, can you just give us a sort of update of where you see things shaping up in terms of Indonesia being included in the safeguards? Have you got any sort of soft commentary from the European Commission yet? Is there anything you can share?

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [6]

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Thank you, Cedar. I will start with the guidance. You said that prices are falling, but I didn't say that. I think that prices are low. The situation...

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Cedar Ekblom, BofA Merrill Lynch, Research Division - Analyst [7]

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Well, I'm just looking at the chart, so you put a chart up at the beginning of your presentation where you had pricing for the 3 regions. And if you look at the price trends there, they all seem to be slowly declining. And then it's...

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [8]

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Yes, but this is the effects of the nickel price and the ferrochrome price. So if you calculate the equivalent base price for that, now it is stable. The situation is, of course, is going down, but it's due to ferrochrome and nickel pricing. From our point of view, what is important is to have a strong base price, even if the market is negotiating effective prices. But we always keep this control in order to know if you are passing the raw material cost to the customers or not. So from base price perspective, prices are stable.

Demand will not slow down, will remain as it is. As we said, it's stable, of course, with the seasonality of Europe, but this is something normal. So we have a flat quarter 3. So if we have a slowdown in demand due to seasonality, and we'll keep our profits at the same level, it's because we are increasing our margins, because we are increasing our EBITDA margin and this is positive. So now in a stable market, we are making the most of our cost control in order to increase due to the -- with the cost control in the -- our mines.

Regarding the provisions, this is something that we don't know because normally, what we matches at the end of the quarter -- at the end of the month, we compare our cost of production, including raw materials with the prices -- effective prices in the market. If the nickel price have -- this happened in June this year, nickel price is going down and we expect a lower surcharge, what it means, we expect a lower effective price to make this kind of provisions. So in order to see if there's going to be provision, the inventory provision would be enough or not, we'll have to wait until the end of the quarter. Something that we'll...

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Cedar Ekblom, BofA Merrill Lynch, Research Division - Analyst [9]

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Okay. So can we assume then that in the flat quarter-on-quarter EBITDA expected in Q3, that, right now, you are assuming no inventory revaluation gains or losses related to nickel or ferrochrome?

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [10]

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Yes, you're right.

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Cedar Ekblom, BofA Merrill Lynch, Research Division - Analyst [11]

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Fine. Fine. Okay. And then can you just give us some color on the safeguards?

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [12]

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Yes. In Indonesia, you know perfectly that is a [threat] for everybody. And now they are increasing very much exports to Europe, and now they represent now 10% of total imports in Europe, okay, and this is very important. And I think the European Union is very sensitive with this. I think they are very sensitive with this excess of production or excess of installed capacity in a country that sometimes is not following levy duty or rules, and with the company that we don't know if it's -- it would subsidies or not, but it's a very special case that the European Union is following very closely. I cannot tell you anything else because at the end of this, the decision is under the European Trade Commission and we don't have any privileged information. But I hope, and according to all conversations, that they have sympathy for our case and they will try to -- probably to stop or to include Indonesia in the safeguard measures.

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Operator [13]

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The next question comes from Alan Spence from Jefferies.

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Alan Henri Spence, Jefferies LLC, Research Division - Equity Analyst [14]

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Just 2 quick questions left for me. Regarding the Excellence Plan, you noted an early achievement of the EUR 24 million annualized in the first half of 2019. Is there an opportunity to begin tackling some of the targets that were previously allocated to 2020 in the back half of the year? Or are those activities that are just not -- you're not able to get to yet? And then secondly, just quickly on that change in the withholding tax. Will there be any retroactive application to that? Or is that purely a go-forward issue?

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [15]

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Well, it's difficult to predict if we can anticipate the results or not. What we explained when we released the plan is that it's an ambitious plan that is more long-term oriented. We also explained that in this new digital transformation, still, there are many areas that we have to explore. So probably, we will find even more areas of improvement, like the one that we showed in the plan. Now we are anticipating a good first half of this year. We have reached the targets of the year. I think it is important to consolidate the number. For us, it's very important to consolidate the number and to have -- and to make this progress sustainable. Let's see what happen next year, but I think that we will be on track.

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Alan Henri Spence, Jefferies LLC, Research Division - Equity Analyst [16]

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And in regards to the change in the withholding tax.

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [17]

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That's increased, changed.

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Alan Henri Spence, Jefferies LLC, Research Division - Equity Analyst [18]

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The second question was in regards to that change in withholding tax from the U.S. -- or U.S. into Spain. Would there be any retroactive application? Or would that purely be the change going forward?

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Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [19]

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No, no. It's not retroactive. It still needs to being finally put on place. I think it's pending from some notification from the president of the States to the president of the government in Spain. And then after that, it shall be a period of 3 months. So probably, it shall be -- we'll consider that it's going to be broad, that is going to be on place prior to the year-end. But the dividends having distributed during this year, already has been experiencing that and it was in place in those days. So it shall not be retroactive. It shall be working for future dividends distribution, but not retroactive.

On that basis, it's not going -- the relevance, keep on mind, as it's expressed in the management report that the relevance of it it's affecting cash, but it's not affecting results. Because this was provision in the -- in December 2017, we raised a provision of EUR 25 million in our statements for future withholding tax payments. So corresponding to these, more or less, they are around EUR 13 million of withholding that we have been paying in cash. This quarter was already provisioned in December 2017, so it's not affecting the P&L. It's purely a cash-out, but it was already provisioned. So it's not going to have impact on the P&L. It is having the pure effect of cash-out. We think that, for future, this division of dividends shall not be suffering in that. But that in cash, it's not going to be retroaction.

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Alan Henri Spence, Jefferies LLC, Research Division - Equity Analyst [20]

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And that EUR 25 million provision, was that just your estimate for 1-year payment of withholding taxes or was that for multiple years?

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Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [21]

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At that time, more or less, we estimated that should be covering 2 years dividend. And consequently, we have used more or less half of it. And depending on when this is centered in place, maybe even we could revert part of the pending provision. But it shall be determined whenever the certainty of when this double tax treaty agreement finally is going to be on effect. We think it shall be coming on the following months, but still, we prefer to keep it as it is and keep the provision there.

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Operator [22]

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The next question comes from Jose Maria Canovas from JB Capital Markets.

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Jose Maria Canovas Garcia de Blanes, JB Capital Markets, Sociedad de Valores, S.A., Research Division - Analyst [23]

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I have a few. First of all, you have guided for an EBITDA similar to the second quarter for the third quarter. Consensus right now stands at an EBITDA estimate of EUR 420 million for the year -- for the full year. Do you feel comfortable with this figure or -- that would be my first question. Secondly, prices in Europe reached floor levels. Or do you believe that they could still go down? And I know that you won't give a quantitative guidance. But maybe qualitatively, what would you expect towards year-end? And finally, a question on working capital. I assume that you have increased your factoring capabilities during the first half of the year. Could you specify if this increase has been done during the first quarter or the second quarter? And what should we expect towards the year-end?

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [24]

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Thank you, Jose Maria. First question is difficult. So we are only giving a guidance for Q3. If I answer your question, I will be giving the guidance for Q4, and I think it is -- the visibility is very low.

Prices in Europe, I think they are at the floor. I think they are at the floor because we have been -- all the European players are reducing production in order to match the apparent consumption and that put more pressure on prices. So I think they have already reached the floor. And if the situation improves or driven by nickel price or driven by low inventories, we will improve. Miguel?

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Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [25]

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And regarding -- yes, and regarding to the factoring utilization, normally, what more or less we -- what we feel is a normal procedure. We keep factoring utilization in regards of around EUR 150 million. This has been very, very stable since 3 years ago. On a specific times when the figure of debtors is moving up substantially, we are a bit more flexible. I think we made something pretty similar in June last year, keeping on mind that the debtors have increased around 20%, we'll make an equivalent reducing in 20%. And also [whether the figure] this year, around EUR 30 million. So because of that, in June, we moved up the factoring utilization from EUR 150 million to EUR 180 million, and then we normalized it back again to the levels of EUR 150 million at the rest of the year.

And in this time, it has been the same. It has been mostly taking place in the second quarter. As you can see, the final figures of debtors appearing in our cash flow for the semester is EUR 93 million. So we're probably speaking around EUR 123 million, EUR 125 million. And because of that, it was a 23% increase compared with the figures of December. So consequently, more or less, we make an increase of EUR 30 million. So it's just purely for, more or less, making and in parallel the evolution of the increase in the factoring utilization and the increase in the debtors.

So we think it shall be probably according to that. And probably, we shall normalize it again in the standard levels of EUR 150 million for the rest of the year. So unless there is a big change in the market conditions. We prefer to be flexible on that. But in principle, we think that it has been as a consequence of that increase in debtors, and that shall remain flat in the utilization levels of EUR 150 million for the rest of the year.

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Jose Maria Canovas Garcia de Blanes, JB Capital Markets, Sociedad de Valores, S.A., Research Division - Analyst [26]

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And just one final question, if I may, regarding CapEx levels. They seem to be a bit low during the first half of the year. Should we expect an acceleration during the second half?

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Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [27]

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In what number -- regarding what, sorry?

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Jose Maria Canovas Garcia de Blanes, JB Capital Markets, Sociedad de Valores, S.A., Research Division - Analyst [28]

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CapEx level, sorry.

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [29]

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Yes. No, this is a question of maturity of our projects. We have started the projects and we expect to finish more or less on track or slightly below the numbers that we approved. But this is -- this balance is just a question of the maturity of the projects.

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Operator [30]

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The next question comes from Krishan Agarwal from Citigroup.

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Krishan M. Agarwal, Citigroup Inc, Research Division - Analyst [31]

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I have 2 questions. First, I mean, you talked about the destocking in Q2 with the lower production, but the stable deliveries quarter-on-quarter. So my question is in respect to the guidance for third quarter, should we expect a similar kind of a destocking? I think you're guiding for lower volume because of the seasonal slowdown, but should we expect kind of a slightly higher deliveries and production? That is first. And then the second question is on the workforce reduction. I mean the situation is unfortunate that you were talking about the 300 worker reduction, but can you please talk about the potential financial implication in terms of incremental cost? And when do you expect this reduction to happen?

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [32]

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Okay. Yes, I said that the apparent consumption is going down in the first half of the year, so that means that the -- we are in a destocking period. The end of the period is something that I would like to know, but unfortunately, is I don't have a crystal ball. I think it's a -- what I mentioned that is a key driver of the activity, and I said that it's something that we have to look very, very closely because it will give us the trend of the -- for our market. Still, we don't know. Still -- but apparent consumption is still negative. But you know that there's a limit, so sooner or later, we have to turn.

And according to cost reduction, I mean, we are -- so we have been modernizing and updating the -- our plant in Spain, in Algeciras. And with the new equipment and the new technologies and the -- all the automations and all the electronic control, sometimes, you have to adapt your working force to many necessities. And in this case, we have -- after a very, very strong and detailed exercise, we have identified that we would have a redundancy in 300 people. So there's no best moment to do -- better moment to do it than today where prices in Europe are very low and we need to keep our competitiveness.

So I think that all the business, from time to time, have to redesign the structure, have to adapt it to the new times. And I think, in the case of our plants to be more efficient, to keep in the production capacity and can be more efficient, we can reduce the working force in 300 people. The consequence of this 300 people reduction will be at the level for -- we have an average cost of EUR 50,000 per person, so this will give us a savings of -- recurrent savings of EUR 17 million per year.

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Operator [33]

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The next question comes from Francisco Rodríguez Sánchez of Banco de Sabadell.

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Francisco José Rodríguez Sánchez, Banco de Sabadell. S.A., Research Division - Research Analyst [34]

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Yes, I have 2 questions, please. The first one would be about real demand. You've spoken about apparent demand for a while, but I would like to know a little bit more on what's the situation on the real demand, if I may. The second question would be regarding imports in Europe. You've spoken about the situation for the first semester, but I would like to know a little bit more on the second quarter on its own and what do you expect for next quarters in imports in Europe. And the third one would be assuming that nickel prices will remain where they are now, what impact could we have for the next quarters? Your volume should be obvious, but could we even think that this could be what you needed for a price -- base price increases in the European market? Could we think about that?

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [35]

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Thank you, Francisco. Real demand is difficult to know. But if you see the macroeconomic indicators in all the areas, they are all going down, especially the P&E. I think this is a negative sentiment in most of the economies. I think the data we have on biggest consuming sectors is that the automotive industry is slowing down in all the economies. It's slowing down in Europe, in United States and also in China. Appliances is also a sector that is under a lot of doubts. With a lot of movements of imports coming from Korea and from China to Europe and United States, it's another sector that is slowing down. Construction is still strong. Construction is very strong in all the areas. And construction for us means sinks, it means chimneys, some other areas of consumption, so this is positive.

In other sectors, we still think that the food industry is performing very well. Not industrial equipment, that is also slowing down maybe due to the uncertainty. This is projects and projects are now slowing down because of the lack of visibility. And in the case of United States, still, other consuming sectors are very robust. And I can say, for example, the trucks, agriculture vehicles, agriculture in general, oil and gas and trains. So there are some areas of consumption that are still very, very strong. But in general, I can say the automotive industry is slowing down and this is affecting the auto economies. And it's a very noisy sector. And of course, it wouldn't be -- if the automotive sector is suffering, we are all suffering.

In the case of imports, we'll have to follow the safeguard measures. The safeguard measures worked perfectly in the first period with the final measures. And at the end of the period in 30th of June, 100% of the quotas were current. The uncertainty now is what is happening between today and the 1st of October, that in case of a revision of the Indonesian quota, that will be effective 1st of October. And I think it's a question mark because, in one hand, Indonesia will try to -- probably to export to Europe as much as possible from now to the 1st of October in order to achieve as much material as possible before the possible safeguard measures -- of our [definitive] safeguard measures. But on the other hand, we received some information that still we haven't seen, but it was in some Korean newspapers and -- that there was a fire in Indonesia in a (inaudible) of Tsingshan. And if that is true, they will not be able to produce the cold rolling material and they would have a delay in the orders to Europe, so that can be positive -- fortunately, the full impact, it will be positive for us.

In the case of the nickel price, if nickel price stabilize at this level, that would mean an increase in the orders of [charge] of around EUR 180 per tonne. So it would give us maybe more activity after the summer period, but also it will let us release our inventory provision. So the prices will be higher, so our inventory will be undervalued. So this is also important for our evolution. I don't know if I answered your questions.

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Francisco José Rodríguez Sánchez, Banco de Sabadell. S.A., Research Division - Research Analyst [36]

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Yes. But do you think that we could see base price increasing in Europe because of this nickel price increase? Could this be enough?

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [37]

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Traditionally, you know that when nickel prices went up, also base prices went up. But today, I cannot tell you, because it will depend in the level of the stocks and it will depend on the import pressure because we have to be able to pass the raw material situation. But I'm sorry, but you know that we cannot say more about prices. This is a very delicate matter.

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Operator [38]

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The next question comes from Luis de Toledo from BBVA.

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Luis de Toledo, BBVA Research SA - Chief Analyst of Oil and Materials [39]

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I have just 2 questions, meaning not really business related. The first one is regarding the announcement made by the board member of Industrial Development Corporation that's resigned today. Do you expect a replacement? Or are you considering the plans to reduce more board member and that could be it? And what implications that could have with -- in relation with IDC and their stake in the company? And then the second question is also related with partner installations. Maybe an update Nippon Steel, Sumitomo, Nisshin relationships after the capital changes at the [bank], if you maintained the traditional relationship with the company and what about your own stake in Nippon as well?

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [40]

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Thank you, Luis. Regarding the first question, as you know, the IDC changed the CEO of the company. And Geoffrey Qhena, who was a Board Member of Acerinox resigned. And he's now not related with IDC. It is simply because Geoffrey has been a very important person for us working for IDC and also very important person for the relations between South Africa and Spain. He received the medal of Spain because of the development of a relation between South Africa and some -- and Spanish companies.

But there's a new CEO and they will have to decide what to do. Our relation with IDC are very fluent. Remember that we also have shares in Columbus Stainless, 24% of the company. We meet them regularly. The relations are very good, are extremely good. And we don't know if they're going to substitute, we now -- or not in our Board. What I can tell you is that they feel so comfortable with us that they don't need to send anybody to control the 3% that they have.

On the other side, the merge between Nisshin and Nippon is going ahead and is going ahead faster than expected. I think this is very positive. It's very positive because our second major shareholder is a very strong company. And the more stable it is, it's better for us. So now we are under the umbrella of Nippon Steel, Stainless Steel division. We feel comfortable with them. We are keeping exactly the same relation, even we are improving and strengthening our relations. I was in Japan a couple of weeks ago and I can tell you that we feel very comfortable with Nippon.

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Operator [41]

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Ladies and gentlemen, there are no further questions in the conference call. I now give back the floor to the company.

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Carlos Lora-Tamayo, Acerinox, S.A. - Head of Investor & Media Relations [42]

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Okay. Well, thank you very much for your questions and joining us in this call. Our next report will be on November 4. So enjoy the holidays, and have a nice day. Thank you very much.