Acerinox, S.A.
Q4 2021 Earnings Call Transcript

Published: 28 Feb 2022

[Carlos Lora-Tamayo:]

Good morning, everybody, and welcome to this presentation for the Fourth Quarter and Full Year Results of Acerinox, the best results in our history. My name is Carlos Lora-Tamayo, and I am the Head of Investor Relations of the group. First of all, we hope that you and your families are well in these very difficult times, not only due to the pandemic situation, but also due to the dramatic geopolitical tension that we are living today. The results will be presented by our Chairman, Rafael Miranda; our CEO, Bernardo Velazquez; our COO, Hans Helmrich; and our CFO, Miguel Ferrandis. It is a pleasure for us that after 2 years of virtual meetings, we can resume face-to-face presentation today. 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 audited integrated annual report that includes the management report, the annual accounts and the statement of nonfinancial information. With any further comments, I would like to give the floor to the Chairman. Please, Rafael, go ahead.

[Rafael Miranda:]

Good morning. I also hope that you and you and all your families are safe and well. As Carlos have said and as all of you know, we have not been able to meet in person since the beginning of 2020, so 2 years ago. So it's a real pressure. It's like being in another world that have the opportunity to have this results presentation in a presential format. To all of you who are here today and all those attending virtually, many thanks for being with us in this day where we are presenting a record year, the best results of our company since the last 51 years of our history. In the first slide, you have the summary of the figures of this year. We have accomplished new record in melting production with 2.6 million tonnes. The EBITDA has been an all-time record, almost €1 billion, exactly €999 million, which represents 2.5x higher than 2020. Beyond that, results after taxes and minorities has been €572 million, the highest for Acerinox in its history. As you can see, we have generated an outstanding operating cash flow of €388 million. And our debt-to-EBITDA ratio is 0.58, approximately , the lowest in the last 20 years reaching a net debt of €578 million, even though debt increases €400 million last year in 2020 due to the acquisition of VDM, as all of you know. Our division of high-performance alloy is now normalizing its contribution to the group's profitability, what is a very good news. And as you know, in terms of shareholder remuneration, we started a share buyback program up to 4% of the share capital. And also the Board of Directors will propose to the next general meeting, a company dividend of €0.50 per share charged to the 2021. With all this, I could say that all the objectives established 1 year ago has been accomplished and we have achieved completely all these objectives. In the next slide, you have the presentation in the next 3 slides, a presentation of our ESG policy and strategy. The ESG in Acerinox is becoming a key element of our strategy for the future. The Board of Directors of Acerinox is promoting and supporting the ESG policy of the company and is fully committed with our ESG strategy, which is now as Acerinox positive impact, 360 degrees. In the next 3 slides, as I say, you have a summary of our strategy, the concrete commitments, long-term goals established for the future and our yearly achievements. This slide focus in part of our ESG priorities. First of all, in the human and labor rights where we can say that Acerinox support for this exception, the Global Compact initiative of the United Nations. Also, as you know, we have a multicultural and inclusion impeccable track record through our plans in 4 continents and physical presence in 54 countries. And we are a quality employer with 97% of permanent contracts. The Board of Directors is, as you see, with a majority of 68% of independence and we have 33% presence of women. And also, we want to be recognized in -- by our excellence in corporate governance, which is very important for the future. We are among the first companies in this sector to use this type of finance, the sustainable financing linked to sustainable KPIs. Until now, €456 million of finance is fully sustainable. And we have also a tax responsible policy, and a very good consequences of this has been that the international compliance assurance program of the OECD certify Acerinox as a low as risk company. And finally, you have at the bottom of the slide, the certification and collaboration, and you can appreciate the several examples of well-recognized institutions that Acerinox collaborated with in terms of ESG matters. And I would like to remark the gold award of EcoVadis that we are now full members of responsible steel and the 3 of our plants, Bahru Stainless, Acerinox Europe and North American Stainless have been awarded, respectively, gold, silver and bronze in international stainless steel forum in sustainability. And with that, I give you -- I give the floor to our CEO, Bernardo Velazquez.

[Bernardo Velazquez:]

Thank you, Rafael, and good morning, everybody. I think that we are in a privileged position as we have a good product. We have always been speaking about the long-lasting product made of stainless steel, the forever recyclability of our product, not losing any property in the process of being recycled. We have a good process. So as the Chairman said, we have reviewed all our ESG concepts in order to align them to our strategy or in order to align our strategy to this concept. So we have chosen 7 of the ESG objectives. Of the 17, we have chosen 6 and this is what we are representing here. It is clear that we are in a -- one of the industries that's situated in this area that is called have to abate, have to abate companies that have more difficulties to reach the CO2 neutral in 2050. But in our case, we have to think that we are not in a blast furnace producer that we are starting our process with stainless steel scrap. So the best way to reduce our CO2 emissions by using the highest percentage of scrap as possible. And now we are in more than 90% of our scrap. This is important. And the results of this review of these concepts is our sustainability plan, what we call Acerinox Positive Impact 360. So from the 17 ESG chapters, we have chosen 5 pillars that are containing most of -- the most important areas where we can have influence. And these pillars have been divided in 15 lines. For this 15 lines, we have 66 KPIs and we are normally representing the right side of this slide, the 6 that have a higher impact in our society. We can say that no industry -- no one in our industry is better located than us in case of the diversity, as Rafael mentioned, having all races and religions in our group. I think that in this 5 pillars, we are containing most of the ESG concepts and we have chosen an area that is priority action, the fast impact in our results. And second one, that is for the longer time for consolidation of these aspects. And we can say that the 6 selected KPIs for 2021, all have been positive, except one, that is valorization of our waste. And this is not real, but resolved because we had some troubles with the contractors that are helping us to recover our slack. So this is a slack that we will recover in 2022. So 2022 is going to be much positive. One year ago, in the same forum, virtual forum, we presented our targets for 2021. What we can say today is that we have achieved all these targets, increasing higher value customers, working together with stainless steel and high-performance alloys. We have been very successful in the integration of VDM going further to our initial targets. I think that the most important thing is that we are achieving these targets in the commercial area. That is the one that we selected to be the level to move Acerinox into high-performance materials, into projects, into more added-value products. We haven't forget the incidence even in the year that we have been pushing to increase our production, but still keeping the control of the process and of our business and generating cash and focus on shareholders' returns as it cannot be other way. So we started with a tailwind that was helping us in the year, but it was not an easy year for sure. I think this is one of the most difficult years that I can remember in 31 years of experience. First of all, because we have been very active in the commercial side, pushing prices because we normally speak about market prices, but prices is something that is really negotiated, item by item, customer by customer. So this is, I think, the commercial team has made an extraordinary effort to move prices up. I think that in a complex market where we have been changing for one sector to another, one of our customers were closing and some others were accelerating the production. We have been very flexible, and we reached what we have been speaking about all the past years, that is flexible. We need to be flexible in a very volatile environment. So I think we can be proud of this. Our plants did an extraordinary effort. First of all, because we reached a new historical record with 20% less people than in the previous record in 2006, not only that because the absenteeism with COVID was something that we couldn't control and we have to mix people from different lines. We are -- we had to use at the maximum level, the versatility of our people, but unfortunately, we also had to stop some line for the lack of people due to quarantines and infections. We suffered operational issues with lockdowns in Malaysia, 2.5 months, floats in Germany, strikes and everything. We suffer as most of the industries in the world. The energy cost, mainly in Spain, logistic costs. And we have to say that also we are proud to not have disruptions in our supply chain. I think several years ago, we organized a diversified source of supplies from different regions and from different suppliers. And we haven't any important supply chain disruption this year. So we are proud to -- of the results that we have obtained, and we have to be very grateful to our workforce for the outstanding efforts. Let me explain the description of the framing, which will run our business in 2021. I think the starting point was that we had a very strong and fast recovery after November, after the good news of the vaccines. And that at that time, all the markets of the whole supply chain in the world was at a very low level. Now the stocks were at a very low level. So we needed to accelerate our production process, trying to fulfill the necessities of our customers. And that showed the idea of lack of material, lack of enough production in the world where is not true. We didn't have enough material to supply the normal consumption plus the refilling of stocks. But at the end, this process led us to increase our production and will let us increase our prices. So this was the initial frame, of course, with cost inflection, impacting the value chain in a complex market that I mentioned, but with a very solid stainless steel demand with an improving market in high-performance alloys and with this effect of the freight cost and the freight -- lack of availability of freight that we have been experiencing, and this is not negative for us. First, with the disruptions of the supply chain with COVID plus the problems in the Suez channel. The customers all around the world started to review the supply chains to have a closer suppliers. If you add to this, the cost and availability of freights plus the disruptions in the supply chain plus trade measures in some of the areas, I think that we are entering in a more regionalized world than before. The consequences in the U.S.A. has been a very strong apparent consumption, inventory remained low, prices increased, imports increased as well but because our customers are desperate trying to find more materials. And I think it's a positive and negative, Section 232 has been reviewed. But the most important thing is that nobody is questioning now that Section 232 will remain in United States with, of course, as we forecasted negotiating with the traditional partners as Japan or the EU or probably U.K. in a very -- will come very soon. But this is not bad for the industry because it's more or less the imports are balanced with the imports that have been exceptional today. Same in Europe, 17% up in the flat products apparent demand. Also import increase with base prices very, very high. Of course, energy prices rocketed and with more activity in the EU and the commission to fight against the unfair trade. And we have a potential and the subsidy against Indonesia and India that is in the last phase of the process, and we are optimistic about this. And Asia is also changing now also with a very strong recovery, with China eliminating the export rebates. So they didn't want to produce to export. They wanted to concentrate their efforts and the raw materials and these resources inside the country. And they also withdraw the antidumping against Indonesia and other countries. So they opened China to receive material from other countries, but countries that are -- where the Chinese producers are producing now like Indonesia. Prices also went up in the region. Korea also entered in this -- the number of countries with trade measures against other countries and put an antidumping to many of the Asian players. Stock levels remained under control. And overcapacity remains as a structural risk. But last year and probably this year as well, it will not be as dangerous as it were before because this is being concentrated more in China, and China is reducing the number of projects that they are building, more focused in Indonesia. So I think this frame was very positive to -- for our activity. So Miguel, I will give you the floor.

[Miguel Ferrandis:]

Thank you. If you go now to explain the main figures for the year. First of all, I want to remark that as every year at this time, all the financial statements, the annual report for Acerinox Group is fully available at the web page. We made a big effort to reaching this point when we present our results with all our figures fully audited. They have been audited this year by PricewaterhouseCoopers, as the previous ones. All of them are fully available. It's a relevant pack of a lot of valuable information. I strongly recommend you to read it for your analysis, for your understanding of our business and also for putting in value, all the results that we have been achieving this year. Our main divisions have performed strongly well, recovering, coming from the previous year in the stainless. It's very clear. We have obtained this EBITDA figure of €929 million as average for the year is a 16% margin EBITDA, which is, no doubt, a very, very strong figure. So we shall go later on in further details, but it's clear that the stainless business is running well and healthy in all of our units, even though all the issues that we have in phases and all the challenges and disruptions that Bernardo has explained. So the stainless is performing extremely healthy. And I think this year, the tailwind we are experiencing is also allowing to realize and have more visibility of all the homework and all the improvements that we have in achieving and performing in the last years. In regard to the high-performance alloys, this is the first year of a full integration in 12 months of the High Performance Alloys division. BDM was acquired late March 2020. So we have been passing through the COVID crisis, obviously, also in the high-performance alloys. As you know, because we have been explained, the rhythms of this division are a bit different from those of stainless. So the correction came a bit later and also the recovery has come a bit later than for the stainless division. But any case, we have normalized in this year an EBITDA margin of 8% in the High Performance Alloys division, and we are well prepared in these improvements in competitiveness that we are working on in VDM. We are very, very well prepared also for taking advantage of the good momentum and of the good order book we are achieving now for the high-performance alloys. If we go to the figures of last quarter, first of all, one of the issues to remark is that, normally, the fourth quarter is the seasonal slowdown in our case as we are more exposed to the American market, which is our main market. The fourth quarter in the States normally is a more weak quarter, keeping in mind that there's less activity, especially from Thanksgiving to Christmas time. But this case has not been so. So the fourth quarter has been the stronger of the year in our record year in our profitability and in our business as has been 2021, the best quarter has been the fourth one. So I think this is an issue to remark the good momentum that we are actually experiencing. We have obtained €318 million, which is 8% above the very, very strong and successful EBITDA we mentioned and disclosed for the third quarter. So for a final quarter, it has been absolutely remarkable figures. And what's also very relevant to State is the cash flow we have in generating in the quarter. We have generated an operating cash flow of €204 million. And with this cash flow, we have been able to reduce our net financial debt, and you can appreciate that we finished the year with a net financial debt of €578 million, which means, roughly speaking, a reduction from the coming year and also from the coming quarter of around €190 million. So most of the cash flow generated in the fourth quarter has been specifically to reduce the net debt of the company. The quarterly evolution is very, very self-explaining, so I don't think it's needed a lot just to put on value of this charge. It's 6 consecutive quarters of EBITDA growth. What is also for us more relevant, as we shall mention later on and probably in the Q&A, is that still we do not appreciate signs of tiredness. So it's not only a 6 consecutive quarters of growth, but the market remains strong. So we are not considering by far that we have passed through a pipe, and we think still that we have a substantial room to growth. If we go for our main divisions, just concentrating first in the stainless steel. As we have mentioned before, when we analyze all our business units at the end, the main conclusion today should be that more or less we are working with fire in all cylinders. We are very, very well diversified. As you know, we are geographically diversified with our 4 plants. This is one of our main virtues. But what's relevant in this time is that being diversified, the performance everywhere in the fourth quarter has been remarkable, even though the disruptions of challenges. But fortunately, the fourth quarter has not been big issues. And consequently, we have been able to put and to take advantages of the good momentum almost everywhere. In the case of Malaysia, which was obviously our Bahru, it was affected in the second and third quarter. It was affected by the official shutdown imposed by the Malay government. But in the fourth quarter running full, we have obtained 2 digits EBITDA. In the case of Columbus, we have also benefited by the good momentum. And in this regard, we must put on value the fact of the diversification in our product mix in Columbus, thanks to our previous CapEx, especially, for example, in the other furnace, we have been able to diversify the product mix there. And all the divisions in Columbus, the mild steel and the stainless steel both for the local market and for export has been running very, very satisfactory. So Columbus also has been a great contributor to the profitability of the fourth quarter. Acerinox Europa being the one with more pressure, especially by the utilities and the energy costs, but also has been improving its profitability and then NAS is keeping its rhythm. So consequently, the results for the stainless division with this quarterly EBITDA margin of 18% shows the good momentum we are passing through. When we go to the high-performance alloys, it's also clear that we have been able to normalize pre-COVID levels. We mentioned this when we explained the third quarter figures. We achieved €21 million EBITDA, 10% margin. In the fourth quarter, the profit or the EBITDA should have been equivalent with €21 million. But as we have mentioned before, we are making several improvement contribution for increasing competitive-s for the coming quarter. And we have had certain adjustments at the quarter and at the year-end, but for putting this division also in very, very good shape for taking advantage of the good momentum that the high-performance alloys now are achieving. So consequently, we are starting 2022 in excellent position for taking advantage of this excellent order book we are achieving in the High Performance Alloys division. So this is, for us, the most relevant fact to mention. And then when we go to the slide of the cash flow, I want probably to take a bit more time for explaining this slide, which probably is one of the most relevant for understanding now our actual situation. And it's the extremely satisfactory cash flow generation we are achieving and especially the flexibility that this provides us. I want to start just mentioning in the lower side of the slide. If we go to the full year 2021, you can see, as always, we explained that the driver of our cash flow generation, obviously, is the working capital. So the circumstances of this 2021 in which gradually all the market, all the areas have been recovering has created that we have experienced an increase in working capital of €460 million. So at the end, when I mentioned flexibility, it's clear that you need flexibility for taking advantage of the good momentum of recovery in the market, but keeping in mind that this may imply that you must absorb this cash out, which means financing this huge raise in working capital. So we have been effectively covering that. And in addition, we have obviously been able, not only for keeping our CapEx and also to consolidating the increase in return to shareholders, but what we must have is flexibility for facing every time of the cycle. Any case, for understanding also the time or what we can expect for 2022, we must put it in value with the figure of the fourth quarter. So you see that the rate increase in working capital for the full year, €460 million, when we analyze the fourth quarter has been a lower figure than in the previous quarters. What this means is that, as gradually, we are putting all the units on full capacity utilization. But now for the fourth quarter, we are almost achieved what means running full. So as all the units have been running at high levels of output, the increase of working capital has been less. Consequently, as we have had less necessities of financing working capital because we already were running full, this means that the cash flow that we have been generating, as we mentioned before, has been fully to reduce our net debt. This is something, which is -- I wanted just to remark for understanding what we may expect for the coming years running full, keeping on mind whatever may occur with the raw materials. But we understand that also the cash flow generation we may achieve in 2022 should probably have a big effect also on reducing net debt for the group. And another issue I want to remark in this slide, which also is relevant, is in terms of the cash flow we have been generating in the year, you can see the free cash flow figure of €297 million and then we experienced a dividend payment to our shareholders of €145 million. This means free cash flow after dividends of €153 million in this year. The equivalent figure for the period April to December in the previous year was €249 million. So what I want to remark this is that we raised our debt in March 2020 for acquiring VDM with €398 million. Since the 1st of April of last year, we have generated a free cash flow after dividend of €402 million. What I want to say is that in these 21 months, we have enabled with the cash generated by the business to fully cover the acquisition and the integration of the net debt of VDM. So this is already fully paid. And consequently, all the contribution that the High Performance Alloys division should bring to the business, and we are talking of normalized EBITDA of €80 million to €90 million should be for free because at the end, we have more cover the cost of acquiring this business. I think this is the expected level of returns you can realize that we mentioned when we announced and were so satisfied of the acquisition of VDM and consequently, our diversification through high-performance alloys.

[Hans Helmrich:]

Good morning, everyone. I would like to share with you some of our important steps, our corporate strategy in 2021. Due to the acquisition of VDM, we consider it was very important to update our mission and vision statements. I will go briefly through our mission, which we consider very important, is to create the most appropriate high-performance materials for each application our customers might need and, at the same time, contribute to the progress and quality of life in a sustainable society. So this is a very important segment, the strategic pillars we have in front of you and all the values are -- remain the same, and we consider those are very recognized in the marketplace by our customers and all our stakeholders. Moving to Page 17. We consider that corporate strategy is not only 1 year and prepare exercise and -- but it's something we need to have in front of us, and we work towards achieving all those short, medium and long-term results when we set to satisfy all our stakeholders. We move to the next one. I would like to share some of the accomplishments our teams have done through 2021. In our excellence pillar, everything we do starts by taking care not only about our own employees, but as well our contractors in our premises. Therefore, we set safety as our #1 priority in everything we do. Our operation teams have worked very hard and managed to reduce our lost time incident rate by 32%, even though we are not happy with the result, and we continue to drive through everyone focused on getting a long-term goal of 0 incidents in our operations. Our customers continue to recognize us globally for the quality, and we thank them for the continued stress in the Acerinox Group. We have received several recognitions from customers through the 2021. Excellence is one of our core values. And one way to materialize is through our continuous improvement projects in our Excellence 360. In 2021, we made significant progress and managed to recover part of the time lost through COVID in 2020 and have achieved 80% of our accumulated savings that we had put in target for these years. In our value-added pillar, the video integration is a success story, as you have heard. And we have really made the possibility to convert it in transformation lever for the whole Acerinox Group. We managed to generate more than €12 million in synergies in 2021, which is 51% above our target for the year. In 2021, we created as well our Innovation Committee, chaired by Bernardo Velazquez, our CEO, and we will continue to fill new products and ideas for the markets and all divisions of the group. In the strong balance sheet, Miguel recovered very well. We continue to focus on cash generation and efficient capital allocation, which allows us to provide value to our stakeholders, including, evidently, our shareholder returns. In 2021, as mentioned before, we achieved our lowest net financial debt ratio since the last 20 years. In our sustainability pillar, we all know how important is and will be sustainability in a broader sense. In 2021, we're recognized by EcoVadis with the gold level. We have continued to work very hard, as our CEO explained before, in all fronts of sustainability. We are very proud about the efforts and by all our teams around the world, giving back to the communities where we live and work even through the very difficult times of COVID-19. I would like to thank all our employees, not only for the outstanding results maintained before, but also for the great job done towards achieving also our long-term goals set in the multiyear strategic plans, Acerinox represents in the waste way, what we call the circular economy. We go to the next page. These are some of our targets for the period 21 to '25 in our strategic plans

[Bernardo Velazquez:]

So we have tried to give you a short explanation on how was the market in 2021. Let me just take some conclusions of this. That is in 2021, we had, of course, the tailwind, but we were very well positioned for this market recovery because of the previous homework that we did in the previous year, and we could generate this EBITDA record. Also that, as Miguel mentioned, given our intensive cash flow and balance sheet focus, our net debt is now at the level of pre-VDM level. Of course, cost inflection remains a challenge. But until now, we have been able to pass this cost to our customers. So we are in a good situation. And we wanted to point out here of something about the geopolitical situation. Of course, speaking about Russian and Ukrainian tensions and the situation is really uncertain. On one hand, we don't have an important direct exposure to this risk. But we can say that this -- out of this, I think that will affect to all the world, it is going further. I think that we have enough supplies and our position is very good, but nobody can say what is going to be the prices of these suppliers. In our case, we are exposed to Russian raw materials in nickel price, especially in Germany. But since several months, we have been changing our strategy and moving to other suppliers. And we think that we will be able very soon to change our strategy or our sourcing there if it is needed. In the case of our customers, in several newspapers, we have read that the Acerinox has a great exposure to these risks, but it isn't true because in 2021, only 0.45% of our sales were to Russia. So we are almost out of this region. We have been concentrating in our main markets that are United States, Europe, South Africa. And so the risk is very limited, and it's no more or even less than most of the industrial companies in the world. But we cannot forget the situation. But what we can say until now, this is our reality today is that the market conditions remain very strong. We have contract prices and we are -- we have renegotiated our prices with end users for -- starting 1st of January. Our visibility is good for almost the whole first half of 2022. So we have a longer visibility than ever or at least in the last 15 years. And our prices are better than in the fourth quarter of last year. So we are optimistic. Stainless steel continue -- will continue to give excellent results, and the HPA division is now in pre-COVID levels and increasing. Our order book is also very positive. We have a new record in our order book and increasing prices. So we are also optimistic. So for us, our reality is that we expect a good first half of the year. We can say that Q1 is going to be better than Q4. So it will be the seventh consecutive month increasing our EBITDA. Having said this, we are open to your questions, and we can start the Q&A session. Thank you very much.

[A - Carlos Lora-Tamayo:]

Okay. Thank you very much for this presentation. As Bernardo said, we move now to the Q&A session. We will start first with questions here in the room, and then we will take your questions from the conference call and wait. Here is our question. Please, microphone.

[Francisco Riquel:]

Yes, Francisco Riquel from Alantra. So congratulations for the results, and thank you for organizing this presentation again physically. Two questions for me. So first one, I appreciate the guidance in terms of EBITDA that you have given. So I wonder if you can comment on the outlook for margins. In particular, cost inflation, freight costs, energy costs in Spain and overall for the group. And if you believe that the realized prices that you're obtaining now that you are rolling over the contracts will more than offset for this cost inflation or not in this start to the year, first half of the year. And then the second question is on capital allocation for '22. What should -- if we should expect another build in working capital or not, if you can update on the plans for CapEx. And then in terms of shareholder remuneration, you have given a target debt-to-EBITDA of 1.2x. I wonder what is left in terms of shareholder remuneration. And if you can comment on the through-the-cycle EBITDA that you are using in this target.

[Bernardo Velazquez:]

Thank you very much, Paco. I think for your first question, more or less, our message is clear for Q1. I think our margins -- percentage EBITDA margins are going to be the same or slightly higher than in Q4. So the only say -- the only thing that I can say. In prices, I think we have been negotiating strongly since last September. Remember that September 2020 was a very weak position for all the suppliers. So we have been able to increase prices today. Maybe our COO can give you further explanations.

[Hans Helmrich:]

Thank you, Bernardo. Our teams globally did a good job, I think, changing the price structure into base plus. So that allows us to have new contracts starting in January this year, which are reflecting those changes. So we expect those to cover those costs. Then on CapEx?

[Bernardo Velazquez:]

Yes, regarding CapEx. Our target for this year is to increase from a target of €100 million for 2020. We will go up to €145 million in 2022. I think with this amount of money, we are keeping all our equipment updated. We are investing in actualization of all the equipment, and that means that it's also sustainability because every time it is difficult for us to distinguish between investments for organic growth or investment for sustainability because all the business, all the CapEx are going to reduce our CO2 emissions are going to increase our efficiency. And this thing -- so in this €145 million, we'll be able to actualize our equipment. We'll include all the maintenance, sustainability, digitalization and the organic growth that cannot be otherwise. We have to keep more or less the rhythm of the growth of the markets where we are. This is the idea. And also keeping a safe position to afford if it is possible. And if we find the right thing, something like we did in VDM. So always ready and conservative, trying to find new opportunities.

[Rafael Miranda:]

In terms of shareholder remuneration, Francisco, you know very well that our company likes to maintain a sustainable dividend. We have been doing that since the very beginning of the times. And even in the times of the difficulties, we have applied a dividend scrip as you know. Also nowadays, we are trying to remunerate our shareholders through the share buyback programs. In this moment, you know we have one who will try to cover 4% of the total 8% of shares launched in the script during the 3 years we have a script. No decision has been taken. But if we do not find any important opportunities of value-added opportunities for our shareholders, of course, if we have cash free -- free cash flow, of course, we will -- I'm sure the Board will decide. In terms of dividend, as I say, I think it's important to attain a sustainable dividend in a company, in a business which is very cyclical. Nevertheless, again, I'm sure that we do not find other opportunities in which we will deliver more value to our shareholders. Why not to decide in the future? But that's a question that has not been yet decided.

[Francisco Riquel:]

Just the last one on the build in working capital.

[Miguel Ferrandis:]

Yes. On the net working capital, as we previously mentioned, we are running full. So if the effects on the net working capital shall not be coming by a substantial increase in volume, but maybe at a substantial increase in price. If it comes by the -- mostly by whatever occurs with the nickel, which obviously, as has been stated due to the Ukraine crisis, there is a bit of uncertainty. In general, in a normalized scenario, if not were for these circumstances, this should not be a year for a huge increase in net working capital. So net working capital has been the main cash out for 2021, but should not be the one for 2022. So as has previously mentioned, just in terms of retribution, not only with the dividend, but also with a 4% increase of the 4% buyback that Rafael mentioned, this means a cash out in terms of shareholder distribution of around €270 million, roughly speaking. The second usage of the cash flow, as Bernardo mentioned, should be the CapEx, which has been scheduled for around 150. In a normal scenario, raising working capital should be lower, but it may depend on what occurs with the nickel. In the first quarter, it shall be higher because we have seen this rally. If the trend now stables, this should not be distortion in the coming quarters. But in the first quarter, we shall have some effect for this increase in the nickel from December to up to now to the 28th of February.

[Carlos Lora-Tamayo:]

Any other questions here in the room? Okay. So let's move now to the questions from the conference call. Please, operator, go ahead.

[Operator:]

Our first question comes from Luke Nelson from JP Morgan.

[Luke Nelson:]

A couple -- just a couple of questions is more on the geopolitical side. You obviously talked about your exposure in sales to Ukraine, Russia, less than 0.5%. Can you maybe just talk to what extent any of your supply chain relies on Ukraine or Russia? You talked about nickel pricing, but in terms of actual physical tonnages. And I'm thinking maybe more on scrap and specialty alloys. And I suppose on specialty alloys, specifically, Russia is clearly a large supplier for things like titanium. Are you seeing any incoming queries from existing or new customers to secure supply based on these geopolitical events, particularly in VDM? That's my first question.

[Bernardo Velazquez:]

Luke, thank you for your question. As I mentioned, our exposure to Russia, Ukraine is very, very limited. We are not sourcing scrap from Russia, not from Ukraine. We are not sourcing ferroalloys from these areas. And the only exposure is to pure nickel, LME nickel that we normally buy from Norilsk. As I mentioned, we are reducing our exposure, and we are trying to diversify our sources, and we don't think it's going to be a big problem for us.

[Luke Nelson:]

And sorry, just in terms of the sort of incoming queries from existing or new customers in VDM, is there anything you're seeing?

[Bernardo Velazquez:]

No, no. The number of customers is very limited. As I mentioned, only 0.45% of our supplies in 2021. And now we are even reducing our supplies there. I think that we have already cut or canceled the others that we had with the Russian customers. I think it's also the -- our contribution not to these tensions. We have no orders now with the area.

[Luke Nelson:]

And so what -- a follow-up, if I may, just on VDM. Can you remind us of what the revenue or earnings exposure, whatever is the easiest to aerospace and to oil and gas currently?

[Bernardo Velazquez:]

Again, and as announced, of course, we have some exposure to aerospace. That is very depressed around the world. This is one of the sectors that is still is very depressed. Oil and gas sector is improving. Who can say that they will not be affected? We have -- from VDM, we have several projects in the North Sea. And who knows what can happen with these projects in the North Sea if the situation is getting worse, but nothing with Russia, nothing with Ukraine. So I hope that I've answered your question.

[Operator:]

The next question comes from Seth Rosenfeld from BNP Paribas.

[Seth Rosenfeld:]

If I can ask a little bit more on the outlook for stainless prices within Europe. Obviously, we have European prices now a very wide premium to the rest of the world, especially to Asia. Can you comment on your view of the sustainability of those prices? You commented in your prepared remarks on the regionalization of the steel market. Does that help extend the sustainability, let's say, of those big interregional spreads? I'll start there, please.

[Hans Helmrich:]

Seth, thanks for your question. Yes, as I mentioned before, the world is reuniting, and we see that the markets are getting more and more local evidently. The impact that has had through the last 18 months in terms of logistics and transportation costs has helped to that. And we see that the prices have been evolving through the year, and we expect them to continue at the levels that we have them today for the coming months.

[Bernardo Velazquez:]

Of course, the gap between European and Asian prices are important. But with the current situation, most of the customers do not want to take the risk to ship material from Asia with a very long delivery time, more than 5, 6 months. And with the uncertainty of the situation, nobody wants to enlarge the exposure to nickel prices and this tension. So I think that people are still -- have -- a big component of the suppliers have to be sourced locally or regionally. So I think this is going to be positive for our position, and even imports have been increasing in the last months. Still, there's not -- they are not threatened for our prices. But of course, it will help us to stabilize the prices in the market now.

[Operator:]

Our next question comes from Carsten Riek from Credit Suisse.

[Carsten Riek:]

My question is actually on the high-performance alloys business. You mentioned that you achieved already the normalized target, but we are way above normalized target in the other stainless operations. And when we look at the margins, margins are about half of what the stainless steel operations or your other stainless operations return. Why is that still on that low level? And can you just talk about the €7 million in optimization you put in this quarter? How do you want to get to a higher profitability in that business? That's my first question.

[Bernardo Velazquez:]

Thank you, Carsten. I will start with the first part of the question, and then I will let Miguel to explain these one-offs that we have at the end of the year. I think there's a big difference between the stainless steel and the high-performance alloys businesses. In stainless steel, we depend very much on stockists, and that gives to the stainless steel business kind of speculative content with the stockists. RMT, they try to source more materials and then give us the possibility to increase prices, and also there's some speculation with the sales of these stockists to the market. This is more or less what is happening in the stainless steel business. So it's more volatile. It's more a cyclical business, and it's more volatile. Remember that we decided to acquire VDM, we mentioned that with the high-performance alloys had a different cycle. I cannot say that it is not a cyclical business, but the cycle is different. And first of all, because it's more flat, because the high-performance alloys are normally sold to projects with a longer period of time. And in these projects, there's no speculation. Almost the sales to stockists are almost nothing below 10%. So this is mainly why the cycle is different, and it's more volatile in stainless steel. One day, this cycle, I hope that's very far away. But 1 day, this -- the prices and margins in stainless steel will go down, and then high-performance alloys will remain flat, and we will say that we are lucky to have VDM and this business with us. Miguel, could you please go to the second part?

[Miguel Ferrandis:]

Yes. Thank you, Carsten. Regarding VDM, keep in mind, we always have been mentioning, as Bernardo says, this stability provides VDM contribution to our profits in an average of around €7 million per month, which means €84 million per annum. This should be a normalized scenario, which are double digit of around 10%. So this is the stable contribution that is more or less expected from VDM. In addition, obviously, we have the synergies that gradually are coming. And so when we realize the figures for the year coming from the recovery of the COVID crisis and especially in the second semester, the figures for VDM have been €60 million. So at the end, it's a remarkable figure how the recovery has been coming, especially in the second semester. What we just tried to explain in the slide is when we convert separately just the fourth quarter figures, there have been some issues taking place there. We are going through some restructuring in terms of personnel, and we are increasing the productivity through that. There have been some valuation on actuarial issues regarding also pension funds. And so there have been some stock take adjustments on the year-end. And also they have in some works that have been achieved and maintenance work that have been achieved in the plants, which could not take place previously part because of the floods that took place in the summer time in Germany and also part that we have in using this period, in which also the fourth quarter is certain seasonal adjustment, especially in December, and we have taken the advantage of doing it at this time in order for being running full for the 2022 as we have been stating that the order book is extremely high. So I don't think this is something for taking too much detail. It's -- we are talking of year-end adjustments of €7 million in a division which is normalized. And as we have been stating, the contribution shall be normalized in the year, and the synergies shall be -- start appreciating as we are hiring or performing better than what was scheduled initially. So there is nothing to concern regarding that. When we just make these details is purely for your analysis of the fourth quarter. It's not such a relevant figure.

[Operator:]

The next question comes from Patrick Mann from Bank of America.

[Patrick Mann:]

I wanted to ask a bit about your scrap supply chain. And more specifically, you mentioned that you've got over 90% scrap use and it's an important part of reducing emissions. Presumably, everybody is heading in that direction. And we've seen one of your peer companies in Europe actually acquire a scrap collector as part of the way of securing their supply chain. I mean, how should we think about the security of supply of scrap? And would you consider a similar type of move, especially given its importance for decarbonization?

[Bernardo Velazquez:]

Thank you, Patrick. I think, normally, the European production model is always based on scrap probably who have been in history, the most intensive in scrap utilization. The situation, I think, is still the same. There's a big difference between carbon steel and stainless steel. In carbon steel, there's 2 ways to produce carbon steel. One is using blast furnaces. We have very high CO2 emissions and starting with iron and raw material -- as a raw material, iron ore. In the case of electrical furnaces in carbon steel as well, they are using mainly carbon steel scrap. So what happens is now with the necessity to reduce CO2 emissions, some of the blast furnaces producers are trying to move their model to electrical furnaces. So they will need more carbon steel scrap. So there's probably -- there will probably be a lack of carbon steel scrap in the future, and some of the producers are moving to iron pellets. So it's a different story. In the case of stainless steel, we are all producing with stainless steel scrap since many years ago. We are the same players, the for same players that we were in 20 years ago. So I think the business is not going to change. One of our competitors acquired a standstill scrap supplier, but this is not a big issue for us. So we have enough suppliers. We are buying our stainless steel scrap, mainly all -- as much locally as we can in United States and in Spain, but we have enough sources of supply, even we have a good relation with ELG, and so we don't think it is going to be a deal breaker between the stainless steel producers. I think that there's no reason to try to have a war in stainless steel scrap collecting because you must understand that the stainless steel scrap is not produced. It's collected, so the amount of scrap is the same for everybody. And if somebody wants to take the biggest portion of the cake, now the only thing that they are going to achieve is that the price will increase because at the end, we are all -- or stainless scrap dealers are always competing to collect more scrap than the others. So this is a question of price, not of availability. So we don't think this is going to be an issue. And we are very comfortable with our situation today as the most intensive stainless steel scrap user in our business.

[Operator:]

The next question comes from Ioannis Masvoulas from Morgan Stanley.

[Ioannis Masvoulas:]

A few questions left from my side. The first one, can you talk about the increase in CapEx this year? You mentioned some of the initiatives there, but you also alluded to organic growth opportunities. So what are you looking there? Is it more about debottlenecking, any product mix upgrade? Some visibility on that would be useful. And related to the growth strategy on M&A, if you're not looking at potentially buying a scrap supplier, what is most interesting to you

[Hans Helmrich:]

Thank you for your question. So in regards to our CapEx investment of the €145 million that were commented before, big portion of those is really for maintenance and getting our equipment into improvements that we need to do. Most of it, as Bernardo mentioned, are connected as well evidently through sustainability projects because everything we do in changing any kind of piece of equipment in any of our machines globally is going to improve our efficiency and reduce our electricity consumption, et cetera, et cetera. And we have as well innovation as part of those CapEx, which we're going to be going through new projects and new products going to the market. And evidently, we have some increases of our output in some of the markets where we consider is important because the market is growing, and we are going to be keeping our output to those market growth, but mainly it's connected to maintenance activities that we have around the world.

[Bernardo Velazquez:]

Regarding M&A opportunities, I cannot answer your question, but I will give you a couple of tips because as you know, several years ago, Outokumpu acquired ThyssenKrupp group, and AST, the Italian plant, was part of this deal. And finally, they have to resell AST because the commission -- the trade commission didn't want to accept that the number of players in Europe were reduced from 4 to 3. So having this situation in Europe, that is difficult to reduce the number of players, having a similar situation and even worse in the United States because there are 2 very strong players, that is Acerinox and Outokumpu, and the rest are losing weight in the market. The M&A possibilities in the stainless steel section is difficult. I think it is more diversified in high-performance alloys. And I think -- and also, as we mentioned, when we acquired VDM is that we have been the smallest player in the stainless steel industry because most of the stainless steel plants were part of a big carbon steel group. And now, we have changed our situation, and probably we are the biggest in the high-performance alloys business. So I think that we'll have more opportunities in this area that we will be able to afford.

[Operator:]

We have a question from Krishan Agarwal from Citibank.

[Krishan Agarwal:]

A couple of them have already been asked. If I can ask a quick question on cost. So the Spanish energy prices have been going up. Is it fair to assume that the peak of the cost inflation from energy is already there into the Q4 and, hence, progressively, we are not looking for any quarter-on-quarter increase in energy costs in Europe?

[Bernardo Velazquez:]

Yes, this is true. The impact of electricity and gas cost is already in Q4. Now the prices are more stable. Who knows what can happen? But all the future groups tell us that probably prices will start to slow down a little bit in Europe without, of course, the new tensions. But we have a very positive Q4, including all this inflation costs, and we expect that the situation will remain the same. I think you are right when you mentioned that this is Spanish energy prices because many people are speaking about the global energy crisis, and this is true, but it's mainly a Spanish crisis. I think it is important to say that 80% of our extra cost in energy in 2021 came from Spain, and Spain is only 30% of the production. So 80% of the extra cost coming from 30% of the production. But we don't expect the situation to get worse than it was in Q4. Thank you, Krishan.

[Operator:]

The next question comes from Bastian Synagowitz from Deutsche Bank.

[Bastian Synagowitz:]

Yes. I just have a couple of questions left as well. Could you maybe just share your view in terms of whether you believe that the impact from the partial exit from the U.S. market from ATI has fully played out by now? That would be my first question.

[Bernardo Velazquez:]

Sorry, Bastian, but I couldn't pick up your question. Could you repeat, please?

[Bastian Synagowitz:]

The market exit by ATI from the U.S. market has fully played out.

[Carlos Lora-Tamayo:]

Can you repeat again, Bastian, please? We can't hear you properly.

[Bastian Synagowitz:]

Hello, can you here me?

[Rafael Miranda:]

Yes, Bastian. Could you repeat the question because we were not able to understand it?

[Bastian Synagowitz:]

Sure, no problem. I'll repeat again. I just was wondering whether you feel that the impact from the partial market exit by ATI from the U.S. market has fully played out by now.

[Bernardo Velazquez:]

Now I understood, Bastian. Thank you very much for your patience. I think it's a positive impact for us because ATI announced to stop producing commodity stainless steel grades. So that gave us an opportunity in the U.S. market that we are, of course, taking advantage of this. Some of the commodity materials that were previously supplied have been more open in the market, and that's why some of the imports from other countries have been increasing in the American market. But we don't think this is a threat for us. I think we are comfortable with this. We have demonstrated that we can be very, very competitive in the market where some of our competitors are not so much. I mean ATI is closing the business in which we are making a fortune. So maybe this is because -- some of them are not so competitive or maybe because we are a very competitive company. So we are comfortable with this. And we don't expect that the ATI had -- was trying to have a joint venture with Tsingshan from Indonesia to send slabs to America to get control the -- to be controlled in America, and that was stopped by the Section 232. And since that time, we have been negotiating with the commercial department of the United States also because Allegheny was asking for some extensions. And until now, everything is very clear that no Indonesian slabs will come to America, even in the negotiation in Section 232. It was very clearly stated that every material going from Europe to the United States have to be European origin melted in Europe, with something new for the world trade because before, everything was related to certificate of origin, and you could change the certificate of origin by giving enough transformation to the process. And in this case, it's had to be melted in the United States. So there's no chance for Allegheny to start rolling slabs from Indonesia. So the situation for us is very positive.

[Operator:]

The next question is from Alain William from ODDO BHF.

[Alain William:]

I have 3, please. First, what would be your mid-cycle EBITDA target in million euros, if it's possible, just to have a sense? Second question regarding VDM. I think, at some point, you said that the amount of synergies, I guess, €24 million, was conservative. So why are you not increasing this target now? And then the third question is, how has Bahru performed in 2021? And how should we think about these plants in the long run in your portfolio?

[Miguel Ferrandis:]

Thank you, Alain. In terms of the through the cycle or mid-cycle EBITDA target is very, very difficult to give an answer because at the end, it's also even difficult to just define for the next time to come, what can be expected for the cycles. We are coming from a decade in which more than cycles driven by economies, ups and downs. The fact that has been affecting the market in the last decade has been the structural oversupply and mostly the oversupply coming from China or later from China and Indonesia. So this is some of the main disruption that has occurred in our sector in the last decade. Apparently, this is something that now appears to be more stabilized. So maybe in view of this, we can consider that for the coming term, the cycle shall be more coming by offer and demand and more linked to the pure economic ups and downs. Where drives this to us, it's very difficult to say. So what we must be is prepared and be very, very flexible. We -- as we have mentioned, we try to control the controllables and to keep the flexibility. The actual momentum is good, so it's clear that a rising tide lifts all the boats. What we must be prepared is that we keep on sailing when the tide goes down, and I think we are very, very well prepared for that, but it's very difficult to precise if the cycle is now are going to be an average of €300 million, €400 million, €500 million or €700 million. Who knows? It's very difficult. What we shall be is prepared. We keep flexibility. We are prudent in our CapEx. It has been detailed for the coming years. So we are not getting crazy overinvesting. We are open to see possibilities. There also has been remarkable inorganic growth, and we are keeping a consistent contribution. This is more or less what we can say. And this allows us to have the flexibility for every cycle. We are confident that we are trading at other multiples and that our EBITDA shall be at other type of margins than what has been the previous decade. All of our units are highly profitable, having highly profitable in the fourth quarter and are expected to remain so in the coming years. So consequently, we are very comfortable. But it's very, very difficult to precise what should be a normalized EBITDA and especially with the actual uncertainties geopolitically.

[Operator:]

The next question is from Robert Jackson from Banco Santander.

[Rafael Miranda:]

No, wait a minute. There are 2 other questions to answer.

[Bernardo Velazquez:]

Yes, let me answer your question about VDM synergies. Of course, we think, as you said, that the VDM synergies are conservative, but I think that we must be conservative. We prefer to not to underdeliver and fulfill what we are saying. We are finding that the best synergies are coming from in the area that we selected as the most important one because we didn't buy VDM to restructure VDM. We didn't buy VDM to fire people and reduce the size. I think that the most important role of VDM in our group is to combine with the commodity and also commodity stainless steel to offer the biggest range of products in our industry so that if you want to make -- to build a new project, a refinery or a chemical complex, whatever that people will have to think in Acerinox because we will be able to supply every kind of high-performance material, from the best nickel alloy or to the most expensive nickel alloy, to the special stainless steel. I'm speaking about super duplex, super ferritics, and this kind of stainless steel grades and also the commodity ones because I think if there's some commodity grades, normally, it's because they are the -- probably the best in the range of products because more people are using them. And every new grade that with a good success and an increase in the production will become commodity. So I think that we can offer the highest range of products and most of the synergies that are concentrated in these areas. Unfortunately, due to the COVID situation, we couldn't travel from plant to plant to provide the technical support. So the technical part of the production part of the synergies is a little bit delayed. And we expect that we will be able to deliver it more this year with the presential trials because it is difficult to try to roll high-performance alloys in Spain, if we don't have the presence of the German technicians. This is a situation that we are changing. And if we are 50% above our targets in synergies, it is mainly because we are overachieving our targets in the commercial side. The number of customers that are coming to us to buy both stainless steel and HPA or number of customers of VDM that are coming now to buy also stainless steel, it is increasing. This is -- have a very good reaction in the market. So we are very happy with this. And probably in the coming years, we will be able to be a little bit more aggressive in this number because we will be sure that we will deliver these results.

[Hans Helmrich:]

Alain, in terms of the Bahru results in 2021, they've been positive throughout the whole year even though, as was mentioned before, we had 2.5 months shutdown in the plant, and it was definitely much better than previous year with getting very good into the local markets in Asia and providing good results.

[Bernardo Velazquez:]

So regarding VDM, this question is arising every year, and every year, more or less answering the same things, but in a different situation because now we are making money in Bahru Stainless. Now it's not a problem for the Acerinox Group. We have been improving very much the -- our process in the area. Our results in the area are now -- Bahru is clearly contributing to the EBITDA of the group. So this is not -- it's not a problem for us. We are comfortable with Bahru Stainless. It doesn't mean that if somebody comes with a good offer, we can consider it, and we can think about it. But they have to be a good offer because we are not going to sell something that is good and is making money for less than what it deserves.

[Operator:]

The next question is from Robert Jackson from Banco Santander.

[Robert Jackson:]

Questions related to mid- to longer-term strategy. Bernardo, you mentioned that your interest in developing special alloys. What about the distribution side, which could help to leverage VDM's position globally, especially looking at the North American market, where I think that it has been something that you may have been looking at? Why isn't it something that you are pursuing or may not -- or could pursue in the longer term?

[Bernardo Velazquez:]

Thank you, Robert. This is a very interesting question. You know that the distribution companies in the United States are very big companies, and they are multi-metals. They are more or less -- they are normally listed companies like Ryerson or Reliance. They are listed companies, and the size in market capitalization is more or less the size of Acerinox, but mainly, as I said there, you have to think that they are multi-metals, and stainless steel can be 10% or 20% of the business. So that means that if we entered in this business, we will have to manage 80% of sales of other materials that we don't even know today. I mean that is not our specialty. So we are very comfortable. The way we are now with these good customers that are partners, the relation with them is excellent. This NAS is always the preferred supplier in the market. And we think that we must remain as we are today. Now in Europe, the situation is different but also -- and this is such a big number of players that entering in one distributor could mean that you will have problems with the others. So it is better to work on end users and to have a stable and reliable best of end user customers that will provide us a more stability in the future. But we don't think entering in distribution further than what we already have with our service centers, and with Grupinox, we don't think it's going to be a good idea.

[Operator:]

Question from Carsten Riek from Credit Suisse.

[Carsten Riek:]

Just one follow-up. It's on your fourth quarter crude stainless production growth number quarter-on-quarter. Is that representative for the shipments you had in the fourth quarter? Or were the shipments better or worse? I'm just trying to get a feeling from your -- on your net working capital movements.

[Miguel Ferrandis:]

Thank you, Carsten. As we said before, the volumes have been substantially high in the fourth quarter in terms of shipments. In terms of production, we had certain also adjustments due to the year-end, but the figure in shipments have been high, and I think the trend is to keep an equivalent level through -- for the Q1 2022.

[Operator:]

We have a follow-up question from Ioannis Masvoulas from Morgan Stanley.

[Ioannis Masvoulas:]

Just a couple of questions actually. The first on the dividend. So if we look at your latest announcement, you maintained the base dividend unchanged. However, with the acquisition of the high performance metals business, you have lifted through cycle free cash flow somewhere in the range of €35 million to €40 million. Can you explain the cautious approach here in terms of the dividend? And then secondly, we've seen strong raw material prices and energy costs. You're able to pass it through via higher stainless prices. But can you comment on any signs of a potential demand destruction that you may be seeing at current stainless prices either in Europe or the U.S.?

[Rafael Miranda:]

Ioannis, I said before that our idea in terms of dividend is be cautious, but that if really we have an extra generation of cash flow, well, because it comes from VDM, it comes from the stainless steel. And we do not have other -- better employment of this capital. Of course, going forward, probably, we will be prepared to increase the dividend. We have a target of what should be the ratio between our net debt and the EBITDA, which is, as you know, below 1.2. Currently, we are in 0.6. If this strong generation of cash flow is still being in the future, the more rational if I insist, we don't find other sources to employ this capital will be to remunerate the shareholders without any doubt. So it's early to say. This is a decision that will be taken by the Board of Directors and also, as you know, perfectly by the general assembly. We are not saying no, but this is not yet the right moment to decide that.

[Bernardo Velazquez:]

Thanks, Ioannis. And it is interesting to speak about demand destruction. Of course, sometimes, we are wondering if prices are too high and we're going to have this kind of demand destructions. And maybe we can see at the present time that some of the projects in capital goods, and this is normally more related with hot-rolled material in our case because it is thicker than the cold-rolled material. Normally, this demand is linked to projects. Maybe we are facing today a slightly slowdown of this kind of materials because some of these projects have been postponed or at least delay a little bit. I mean at the time that they are trying to clarify what is the uncertainty in the geopolitical -- from the geopolitical side or also what is going to be the level of prices of these raw materials, not only stainless steel for the future, but nothing more than this. I think in cold-rolled that is more related with consumer goods. I think the demand is still very healthy, very, very strong. And you have to think that, of course, stainless steel prices have gone up, and probably, they are stable today. But what about aluminum or good plastics, petrol? I think this is something that is not only related to stainless steel. So the other materials that can be substitutions of stainless steel are more or less experiencing the same situation. So no fear for this.

[Operator:]

We have another follow-up question from Krishan Agarwal from Citibank.

[Krishan Agarwal:]

Can you clarify or give us an update on your scrap sourcing? I presume you have longer-term volume contract. And also comment on how the pricing of the scrap is working. Is it more like a spot or quarterly or annual contract?

[Bernardo Velazquez:]

Our scrap is -- we are always trying to buy our scrap locally, and I will do it normally. In the case of United States, the -- most of the scrap is located in the area of Chicago and Pennsylvania, and we are buying this scrap from these suppliers. We are the closest big user of stainless steel scrap there. So we have a very good situation. Most of the scrap in the United States or 80% of the scrap that is generated in the United States is less than 8 hours per truck to NAS factory. So this is very positive. In the case of Europe, we are probably sourcing most of the scrap that is generated in Spain and Portugal. And the rest is coming from the bigger scrap dealers located in Central Europe, especially in Rotterdam. We have that material there. We have a diversified source of -- number of suppliers. So we are comfortable with this, and we are comfortable trying to diversify our supplies and being flexible and trying to take advantage of this by negotiating with all these suppliers. We don't have annual contracts in fixed basis, but we have some frame agreements with them that we are reviewing every year and sometimes even every quarter. And the price is set up normally with market conditions. So we cannot speak about the stainless steel scrap as a nickel product. This stainless steel scrap is a product itself. So it depends on the situation. They -- of course, we calculate our advantages buying scrap related to the nickel content. But it's market always -- it's demand and availability. So there's nothing -- no formulas or no strict annual contracts. We are happy the way we are being flexible and to change from one supplier to the other. And what is important is that the stainless steel scrap is not moving very much through the world. There's not just a few amount of scrap, very few that is exported from Europe to India or Korea sometimes but not big enough. And also, China hasn't entered in this market. So stainless steel scrap is still a very regional or even a local business.

[Operator:]

We have no more questions on the phone lines.

[Carlos Lora-Tamayo:]

Okay. So this has been everything from our side. Thank you very much again for joining us to this presentation of our results. Thank you very much also to the speakers. Just remind you that the next -- the Q1 results will be released on the 11th of May. And for all of you that are here in the room, we will be more than happy to share Spanish wine now. Thank you very much, and have a good day.