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Acerinox Reports Results for the First Half of 2012

07/25/2012 - Spanish stainless steel producer Acerinox reported its results for the first half of 2012, noting the strength of the North American market and strong performance of North American Stainless has enabled it to post healthy results despite the weak European market and tense prices in the Asian markets.

Spanish stainless steel producer Acerinox reported its results for the first half of 2012, noting the strength of the North American market and strong performance of North American Stainless has enabled it to post healthy results despite the weak European market and tense prices in the Asian markets.
Stainless Steel Market
Acerinox says the stainless steel market continues to be affected by the international economic crisis and its performance reflects the intensity of the crisis in each geographical region.
The market recovered in the first quarter, but was hit again in the second quarter by macroeconomic factors which aggravated the effects of the weak performance of nickel. This rapid adjustment impeded surplus deliveries and the replenishment of inventories.
Stainless steel manufacturers are adjusting their production to market conditions without generating stock increases within the industry. Inventories in end customers and distributors have fallen to historic lows across the globe, leading the company to anticipate a rapid recovery as soon as the current economic turmoil subsides and visibility and confidence improve.
Nickel on the London Metal Exchange underwent a price correction of 26% from the peak reached on 8 February. The current price levels are under the yield threshold of many of the new nickel projects.
The European market reflects the severity of the economic crisis and the lack of liquidity, visibility and confidence, which combined with the fierce competition between manufacturers has led to a general decline in prices.
The Asian market continues to perform well in terms of sales but prices, affected by the global economic situation and the presence of strong competitors, are very low. China continues to be the driver of growth, with an increase in production in the first six quarter of the year of approximately 10% (source ISSF).
Production
Acerinox’s steel production for the period, amounting to 1,177,398 tonnes, is up 10.6% compared with the first six months of the prior year. The group has utilized 89% of its total capacity to achieve these production levels.
Cold rolling production (736,886 tons) was up by 12.6% compared with the first half year of 2011.
This increased use of the group’s capacity was the case at all the plants, but was particularly notable at North American Stainless, which was running close to full capacity.
Results
The group’s revenues, which amount to €2,419 million, are down 5.5% on the same period of the prior year despite the higher volume of tonnes sold. Prices were down by 15% and had been greatly hit by the drop in the nickel price and the international economic situation.
The North American market in the first half year consolidated its position as the most important for Acerinox Group with over half of the sales.
The ongoing drop in nickel prices and the resulting downturn in alloy surcharges meant that inventory adjustments to net realizable value were carried out to the tune of €14.8 million at 30 June.
EBITDA for the first six months, amounting to € 165.9 million, is down 35% compared with the first half of 2011, although it is double the amount obtained in the second half of 2011.
Profits after taxes and minorities, € 40.6 million, is 60% lower than that of the same period of 2011.
Acerinox highlights the following points:
- The net debt of the group stood at € 1,214 million. 83% of which is long term.
- The financial debt of the group refers mostly to finance the operating working capital (stock + customers + suppliers), which came to € 1,236 million.
- The good management of the working capital enables to balance customers and trade payables.
The net financial debt of the group increased by € 328 million, due to the greater funding required for the working capital (€ 310 million). We expect the working capital to decrease over the coming months, as was the case in the second half of last year, and therefore a reduction of debt.
Human Resources
Acerinox, S.A.
At the general meeting held on 7 June the shareholders endorsed the decision adopted by the board of directors to freeze the remuneration of the directors, senior management and all other company.
Acerinox Europa
The employees of the Campo de Gibraltar plant agreed a new, three-year collective labour agreement, which was signed on 5 July.
The aforementioned agreement represents a step forward in the understanding between employees and management and is a clear demonstration of their shared commitment to the future of the company and the achievement of common goals.
In this respect the linking of pay increases to productivity and profits has been of crucial importance, having added a greater flexibility to production, which is essential to adapting to an environment as volatile as the current market.
The agreed measures will clearly contribute to the success of the plans of excellence and will make this plant more competitive, as it is already one of the most competitive worldwide in the manufacturing of stainless steel.
Other measures include a wage rise of 0.5% in the first year, 0.6% in the second year and 1.0% in the final year of application, provided that the plant remains profitable.
Besides the economic measures, has agreed to develop an ambitious training plan in the safety, environmental management and operational excellence areas.
 Roldán, S.A.
On Friday 22 June 2012 Roldan, S.A. submitted a further temporary workforce restructuring plan for the Ponferrada factory, which will allow it the necessary flexibility to adapt its production to demand. The plan will be applied on the basis of the orders received, and could affect up to 86% of the headcount for a maximum period of 15 days per month. The plan is for an eight-month period running from July 2012 to February 2013.
Commercial Network
During April the group adjusted the headcount of the Spanish sales network to bring it into line with the current conditions of the local market. This measure has affected 73 employees.
Bahru Stainless
Phase I continued to be implemented successfully. The good quality of the production and the good judgment in the equipment allocation was proved. Production continued its upward trend and had churned out 25,790 tons of cold rolling at 30 June.
Bahru Stainless is already regularly receiving hot rolled coils from the rest of the group at its own port.
Construction of Phase II is continuing at a good pace. The first equipment has already been received and Phase II is expected to be commissioned at the end of the first quarter of 2013.
Commercial Network
Acerinox continued to expand commercially on markets with significant growth in consumption such as the Asian one. The company is thus already operating effectively in Vietnam and Indonesia. Furthermore, permission has been given to open an office in Saint Petersburg in Russia, another market with great potential for growth.
European consolidation
In January, two of the main competitors of Acerinox, Inoxum (ThyssenKrupp stainless) and Outokumpu, announced their merger agreement. It establishes that the latter will absorb the former by paying a significant amount to its shareholders, aimed at offsetting part of the debts incurred, while at the same time as undertaking to close different factories.
Acerinox views this operation favorably and very positive for the industry, as it does not negatively affect the free market. It likewise considers that this concentration process will clarify the European scenario and will reduce the current overcapacity existing in Europe.
Outlook
The financial tensions and the uncertainty related to the global reach of the European crisis limit the visibility and make us feel cautious regarding the third quarter of the year. The level of prices is still very low and the volumes will be affected by the low seasonal activity. 
The company has been optimistic expecting that the American market strength would be transferred to the European one and it would improve the activity and prices from September on, but the problems of the European Union could alter this situation, which prevents us from making forecasts.
Notwithstanding, the caution in the management of inventories and the higher stability in the raw material prices, make it not to expect big corrections regarding the fourth quarter, unlike which happened last year.