Acerinox, S.A. (OTCPK:ANIOY) Q3 2023 Earnings Conference Call November 3, 2023 8:00 AM ET
Company Participants
Carlos Lora-Tamayo – Chief Investor Relations and Communications Officer
Hans Helmrich – COO
Miguel Ferrandis – CFO
Conference Call Participants
Francisco Riquel – Alantra
Sandy Beatty – Morgan Stanley
Tristan Gresser – BNP Paribas
Patrick Mann – Bank of America
Bastian Synagowitz – Deutsche Bank
Maxime Kogge – Oddo BHF
Moses Ola – JPMorgan
Operator
Hello, all, and welcome to Acerinox Third Quarter 202 Results Presentation. My name is Lydia, and I will be your operator today. [Operator Instructions] I’ll now hand you over to Mr. Carlos Lora-Tamayo, Chief Investor Relations and Communications Officer, to begin.
Carlos Lora-Tamayo
Thank you very much. Good afternoon, everybody, and welcome to the Acerinox third quarter 2023 results conference call. Today, the call will be conducted by Hans Helmrich, COO of the Group; and Miguel Ferrandis, CFO. After our prepared remarks, we will open the line for questions. Before getting started, let me remember you that this conference call is being broadcast on our website, acerinox.com.
Now I would like to give the word to Hans. Please Hans, go ahead.
Hans Helmrich
Thank you, Carlos. Good morning, good afternoon, everyone. Let me start with the Q3 glance and what we had in this 2023 Q3. So we had a resilient Q3 EBITDA at €146 million despite challenging market conditions across the world. Our teams work very hard to generate a strong cash of €298 million, supported mainly by inventory reductions, which led at the end as well to a net debt reduction of €221 million that Miguel will explain in a second.
And our outlook, which we will go in a little bit more in detail afterwards. We expect to have a Q4 EBITDA slightly below what we delivered in Q3. So as I said, thanks to all our employees for the efforts done in this Q3 and the contribution to these good results.
If we move into the ESG front, we see evidently the impact that we have been talking in the previous calls on volume in some of the key performance indicators. But let me focus my messages in some of those key elements that we had in this Q3 versus the previous ones.
So we continue our focus in our Scope 1 and 2 on the greenhouse emissions with a reduction of 2% versus what we were before. A strong effort in all. And we consider, as we said before, that we are one of the leading in the industry in regards mainly to our Scope 1performance.
In terms of waste reduction, we had an 80% valorization of all our residues that we had in the different factories. And as you can see on the right-hand side, with the recycling of 100% of many of the elements that we have in our facilities.
In terms of safety, I am very proud of the efforts done towards safety across all our facilities. And year-over-year, we have a 19% reduction of our lost incident rate in our facilities, which is, I think, demonstrates a very good effort from all our facilities in terms of the safety.
Following our positive impact, 360 Plan, some of our most relevant initiatives that we had in terms of sustainability. Evidently, I have to recognize as well in the health and safety front. The World Steel Excellence reward that was provided by this international association of all steel manufacturers, where we were recognized by the Excellence Award in occupational health and safety from an effort done in our facility in Columbus and South Africa.
Beyond that, we continue to be focused on water footprint usage and evidently in all – all the rest of the front. And as you can see, we had many initiatives in all the factories across the world, and we will continue to develop our efforts in the sustainability front.
If we go to the market situation and what we have seen in this third quarter, as I said before, a challenging environment across the world. Pressure on prices remains across the world in all sectors and all industries, clear impact of China and being a nonmarket-driven economy with record production with almost very little local demand. So that means exports of those materials are moving out of the country. But still, we see that those exports in the rest of the world remain at lower levels than before.
In the Stainless Steel business, the sustainability exacerbated decrease in consumption in all the regions. North American prices remained stable. Particularly in the United States, these good base prices delivered good results for the region. Inventories remain at low levels. In general terms, all the inventories are in tonnage at historical lower levels but consumption remains soft in the U.S. market. Imports dropped by 40% year-to-date to August, which is an important aspect to the local market and the apparent demand decreased by 27% as well up to August of this year.
If we move to Europe, prices remain at historical low levels, even if there were some increases at the end of the quarter but remain very low. The U.S. investigating anti-circumvention towards Taiwan, Turkey, Vietnam, which we consider a very positive element for the market.
Inventories remain below normal as well in Europe, as I said before as well in the United States and import reduced by 56% year-to-date to September, which is significant in the European market. The apparent demand had also decreased in this case, by 26% year-to-date to September.
Moving to the high performance alloys. Here we have a completely different situation. The market maintained its strength and good prospects, specifically in the aerospace, oil and gas and chemical industry, where we have a strong presence from our group in VDM. We see a strong situation in the HPM [ph] market at this stage and going forward as well. Just to remind everyone that there has been a significant move in the nickel prices in the last months, which affected some of the pricing as well.
With that, I will pass it over to Miguel.
Miguel Ferrandis
Thank you, Hans. If we move further and we go to Slide number 6, we just want to indicate some of the group financial highlights. And first of all, for putting this in context, I want to remind when we presented the results of Q2 in the month of July, more or less our forecast for this Q3 was that it was going to be good results below those of the second quarter and with the aim to reduce working capital.
As you know, our effort is that we want to be predictable and to avoid surprises. And I think all of these statements that appear in our outlook have been achieved. It’s clear that we have had good results in the actual circumstances, EBITDA margin of 9% with an EBITDA total figure of €146 million in this quarter, those of us who follow the industry and are following other players can put it in value, which is a remarkable figure and remarkable margin for the circumstances that Hans has been mentioning that are taking place in the third quarter.
Clearly, it’s below the Q2, the sales decrease of 11% is there. But what is – I insist, is more remarkable is the resilience that we are demonstrating with these figures and also that the aim to review working capital that several of you point out this fact when you analyze our figures of the first semester. This is something that we have demonstrated that we were committed to that and as soon as the market evolution was appropriate. We have been able to make a strong working capital reduction. We shall talk about it later on, but it has been €125 million.
This is something remarkable. And this is the part that generates at the end that we now present figures, demonstration – we’re demonstrating only in the quarter, operating cash flow of €298 million. So this is a big amount and it’s – in this regard, I think it’s something that we must put on value and we must congratulate the whole organization because it has been a strong demonstration of a proper operating cash flow achieved. That has allowed us to reduce the net financial debt only in the quarter in terms of €221 million. So in general, we must be proud of the figures we must present out.
As I said before, it’s a good demonstration of resiliency. And I think the explanation of this resiliency in our profitability, there are two facts. One is the efficiency. We have been working hard, and you know, for years and years and improving the efficiency in the stainless division, as well as in the high-performance alloys.
So part of these results are a consequence of that committed improvement in efficiency and also it’s a clear demonstration of the advantages of the diversification. We are diversified geographically, and this is clearly a good point when we analyze market by market, it’s clear that the market were – that is performing better, where projects are better is our main market, which is North America, that is 50% of our sales. So this is the advantage of the geographical diversification and also its diversification in products.
We strategically moved forward on the high-performance alloys with the acquisition and the satisfactory integration of VDM. This has proven to be very effective as we shall talk later in detail with a strong profitability that the high-performance alloys is bringing on to the group. So the resilience is achieved as a consequence of that.
When we are seeing the evolution quarter-by-quarter of the year, €226 million third quarter, €236 things in the second one. So the first semester was brilliant on the circumstances where we are – where we were working, the some correction obviously takes place in the third quarter with this €146 million. But as we told when we were explaining the results, we explained, it shall be lower than the second quarter, and most of your questions were, how much lower, which is below, how much is going to be below. And all our answers were in the same line. It shall be depending on how is the market situation and the inventory adjustment that is needed at the end of September.
So as Hans previously were saying, the market evolution still, especially in Europe, the prices remain being extremely low in – in the lowest levels ever. And in addition, the nickel also has been moving down. So we were in level of nickels at $21,000 at the end of the first semester. And nowadays, we are below the levels of $18,000. So this clearly has its consequences. And as a consequence of that, we are having or we are making at the end of September, this inventory adjustment of €75 million. So at the end, if you put on – on the balance, an EBITDA achieved of €146 million and an inventory adjustment in view of the actual circumstances and the weak market still that we are finding in the Q4, you shall realize that our announcement and our outlook that shall be below.
But depending on that inventory adjustment, we didn’t want to commit how much we know should it be because we didn’t know that. We have been more or less fulfilling what we clearly announced you. So this is something that we wanted to remark, an EBITDA margin of 9% in this quarter is strong. And clearly, in the actual basis, having an accumulated EBITDA margin of 12% in the year with €607 million is also a figure to put – and keep on mind, especially for the following page, where we want to clearly demonstrate what has been the improvements in the quarterly EBITDA.
Let’s move to Page number 8. You have at the right, the quarterly average of the last decade, which was €89 million. We have passed through a difficult decade in which more or less our contribution of EBITDA was in the line of €300 million to €400 million per year. And as we have been explaining, we have moved up with all these improvements and investments and increasing efficiency. And we clearly now are saying that our EBITDA through the cycle should be more in line with the €700 million rather than the €400 million where we are coming.
So at the end, you can appreciate that we are obtaining up to September, €607 million in EBITDA. We are announcing, as Hans mentioned in the outlook that the fourth quarter shall be slightly below. So this clearly demonstrates that even in this tough 2023, it is clear that we can be obtaining just that run rate that we have been mentioning that we are able to obtain through the cycle.
This is obviously as a contribution of our two main divisions. We have the stainless steel as well as the high-performance alloys. In the stainless steel in these 9 months, we have achieved an EBITDA margin of 12%. This is also remarkable. We have obviously obtained a lower one in the Q3. But at the end, still, the aggregated figure for the year is 4%.
I insist those of you who follow the industry and you can more or less understand better, where is the price level factor in the market, how this is impacting the profitability all over the world. And for us, the issue that our financing division is opening these margins in this year is something extraordinarily successful for us, and we must be proud of keeping this trend and this performance in the 2023.
And also what we always explain in our business is that it’s clear that we must be flexible in the times of high performance, high profitability. It’s clear that our working capital raises, but we must be flexible as soon as the market corrects, we are flexible enough for reducing working capital.
And this is – we have a very strong performance in the first semester in the third quarter with a reduction in profitability and in margins. But what we have been doing is also obtaining this strong operating cash flow of €225 million, which is most of the ones that we are obtaining for the accumulated 9 months of €296 million. But this demonstrates also the flexibility and how we quickly start reducing working capital and contributing reducing inventories as soon as the market situation changes.
When we go to the – to analyzing in Page number 10, the high-performance alloys division, we also must express our satisfaction for the evolution of this business unit, which is doing, frankly, speaking, very, very satisfactory above what was considered when we acquired VDM in the year 2020, the historical peak of profitability was in €96 million in obtaining the year 2019, and we always say this is not the speed quiz. We understand that the contribution of VDM should be around €7 million to €8 million per month, around €80 million to €90 million per year.
What is true is that, that was our forecast. That was our understanding. And only in the year 2022, we obtained €125 million. We established a new record for VDM. And what is true is that when you analyze the 9-month figures, we already have achieved at September more than the peak annual results of last year, and we have obtained 129. So it’s clear that with the contribution that is also coming in the fourth quarter. We shall obtain a new peak, which was much more above than what we would ever imagine when we acquired VDM.
So it is a strong demonstration of the increase in efficiency and also the good momentum and the good prospects that the high-performance alloys are experiencing in the world. We have achieved a 14% EBITDA margin in the third quarter and also having an aggregated amount of 12%.
So this for us is a clear factor of satisfaction. In the most of the year, we have been experiencing as appeared since last year, an increase in working capital in the high performance alloy division due to the good momentum of the market but also due to the diversification of sources of nickel as a consequence of the Ukraine invasion by Russia.
And then what we are now experiencing and after time, we are being able just to reduce the working capital, and we are making all our efforts as a consequence of that on the Q3, the cash flow was positive on €73 million. Still not the annual figures, but we consider that also in the fourth quarter, we have some room to improve that.
If we move to Page number 11, with the capital allocation. It’s just a summary of most of the things that we have in – more or less explaining in this presentation. In the capital allocation figure of the Q3, you clearly appreciate in the bridge, what we are talking about. The EBITDA contribution has been lower, but the working capital, the operating working capital reduction has been huge. As a consequence, the combined factor both will reach this operating cash flow of €298 million.
When we move to the figures of 9 months, at the end in our capital allocation, obviously, our main facts to allocate are clearly the shareholders’ compensation through dividends and so on. It’s there. It’s also the CapEx. We are investing in this year, as you know, with clear targets of growth and increasing efficiency, we’re keeping that.
We are paying taxes of not only those pending taxes of the stream [ph] profitable year in 2022, but also we are paying interim taxes corresponding to the high profitability we are having. So this is something also that is part of our sustainability wherever we are.
And as we said before, we have the increase in operating working capital. Still up to September, we have an increase in working capital of €178 million. A strong part of it shall be probably neutralized during the Q4. We also mentioned at the first semester results that maybe not all of it shall be compensated in the year, but most of it shall be. And in this time, where we can also skip [ph] that commitment. Maybe we cannot reach to neutralize this €178 million, especially because of the fact of the void of the dependence of the Russian nickel and the diversification on nickel sources in the high-performance alloys, but most of it shall be already achieved for the full year results of 2023.
So going quickly to the conclusions because we are more interested also on trying to satisfy all your questions. In this regards, just clearly, the message from our side are the satisfaction and the demonstration of resiliency in results. Our ability to generate strong cash flow and especially the main use of that in the quarter has been going to reduce the net debt.
This is something that we must clearly express that in the global situation where we are having with the macro uncertainties, obviously, the geopolitical tensions, two strong wars. Simultaneously, the energy prices, which is still in Europe are also really uncompetitive. The weak demand and especially the low visibility that we have up to now is a cocktail that is extremely toxic. But even though that we are facing satisfactory in our profitability and in our efficiency in this year.
The market has already experienced a strong destock. So the level of stocks in the market is low. So still the activity, obviously, is – has not react. But as soon as we have seen an increase in activity, the low level of stocks in the market should probably imply that some restocking should start.
The high performance alloys still keep a strong profitability with a strong order book. So we are also very confident for 2024. And as a consequence of all of that, still we consider that the Q4, as Hans mentioned, should be slightly below at the end. Let’s keep in mind also that in the state, the fourth quarter is normally the seasonal slowdown from Thanksgiving to Christmas is less activity. This is one fact.
Also in the high-performance alloys, the seasonal fact of December normally is the weaker month of the year. This is something to keep in mind. And still, we are not seeing a clear reaction on the market. And consequently, we assume that the prices remain low. So on this basis, the fact that we are going to be not far away from the Q3, maybe below, but slightly below for us is a strong fact also of comfort.
And having said that, we prefer to go quickly to your main questions.
Carlos Lora-Tamayo
Thank you, Miguel, and for the presentation. And now please, we can start with the Q&A session.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question today comes from Francisco Riquel of Alantra. Your line is open.
Francisco Riquel
Yes. Thank you for taking my questions. I wanted to focus first on VDM, which is the brightest spot unit in this quarter. You mentioned that the order book remains good. I wonder if you can elaborate a bit more. I understand you should have visibility on sales well into the first half of ’24.
If the order intake is coming from the past quarters or if you still see strong demand coming in, what sectors are driving growth, what synergies are you capturing already? And also the visibility on the margins from the current order book in this unit?
And the second question is on the stainless steel division. As production is sharply down this year. I wonder if this is mainly in Europe, given the depressed prices or if you’re also cutting production in the U.S. to preserve the pricing power. So if you can comment on the utilization rates across the main units. And outside the U.S., I wonder if you manage to avoid losses during this downturn or not really? Thank you.
Hans Helmrich
Thank you, Francisco. Let me take that question both on the VDM side and on the stainless steel. On the order book, yes, it remains strong. On your question about the sectors, we – as we said, strongly on the oil and gas sector and chemical industries, that’s where we see the demand is strong, stable in other sectors as could be automotive and others, given the past years and the improvement over the previous years, but remaining stable.
Demand is still there, yes. And it’s an element that we see that those sectors that we are strong in – remain strong in the future and the order book for next year, we continue to increase our order book in those same sectors, and we are bullish about the opportunities going forward as well in that area.
And moving into the stainless steel. Evidently, the prices in Europe are impacting the situation of the stainless steel division. And we have been working across our factories, I would say, around 60% to 70% depending on the factory. And the demand in the different regions is softer than last year, and this is contributing together with the prices in some cases to the lower results as we have seen, but the profitability in terms of percentage remains, we think, very strong and I think a state of what we see probably in the rest of the marketplace. So we are seeing that the demand in the future, we don’t have much visibility, but we will see what’s happening for next year.
Operator
Our next question comes from Sandy Beatty of Morgan Stanley. Please go ahead. Your line is open.
Sandy Beatty
Thank you, operator. And thanks for taking my questions. So firstly, what level of inventory adjustments are you baking in your 4Q guidance? And can you confirm if you’re expecting 4Q EBITDA on an underlying basis, i.e., excluding the inventory adjustment to be slightly down quarter-on-quarter?
Miguel Ferrandis
Well, obviously, for the inventory adjustment, still is – we are not in a position of precising what should be the level of inventory adjustment at the end of the year, first of all, because it shall be depending on the order book. We have to put it in context and in relation the order book we may have for the first quarter with our inventory. So for us, still is a bit early.
And as we said before, with the level of stocks occurring in the market, whenever our reaction of activity comes this shall create very quickly and assistive [ph] of restocking the market. So this may – we are not seeing a strong improvement from now to the year-end, but maybe any time we can appreciate some recoveries for the first quarter. So still is a bit premature.
In addition, as we said before, we are putting all our efforts in reduce as much as possible the inventories in our commitment of reduced working capital. So also, we consider that there shall be less necessities of reducing – of making inventory adjustment because we consider we shall have less stock of [indiscernible] in hands. But we cannot still – we cannot concrete because we do not know what should be needed for the fourth quarter.
In general, in terms of margin, the situation should not drop. The fact is that what we may have is lower activity, as we mentioned. In America, the fourth quarter is the seasonal slowdown and most of the time is a quarter of 2 months, rather than a quarter or 3 months. So as a consequence of that, it should be less volume, but we do not expect a strong correction in the market. We think that we may more or less keep these margins in place. So in terms of margin, we do not expect big changes.
Sandy Beatty
Thank you. So on an underlying basis, you still expect slightly down quarter-on-quarter, if I understand your comments.
Miguel Ferrandis
The logic moves to that. And on that basis, we are not seeing yet any reaction of the market. So we understand that should not be probably big changes. But we have comfort actually starting November with our order book and more or less with business that we have actually enhanced that we are going to be close to the figures of the Q3.
Sandy Beatty
Okay. Thank you. And one final question. So we noticed that U.S. prices have declined for the first time during the year. Can you confirm if you are seeing similar price trends?
Miguel Ferrandis
Yes, but to a different magnitude to the European ones definitely.
Sandy Beatty
Perfect. Thank you.
Operator
The next question today comes from Tristan Gresser of BNP Paribas. Your line is open.
Tristan Gresser
Yes, hi. Thank you for taking my questions. The first one is on – I wanted to discuss a little bit the free cash flow guidance. If I understood correctly, you’re saying that a good portion of the year-to-date working capital build of €178 million is to be released in Q4 and you guide for slightly lower EBITDA. So it looks like you expect a significant net debt reduction, actually much lower than last year level.
So I wanted to confirm that with you to see if there’s any other item, cash item. I know you have another line that moves around a bit. And in that context, if you expect strong free cash flow generation into Q4, how do you think about buyback this year? Thank you. That’s my first question.
Miguel Ferrandis
Well, for the Q4, as you have mentioned, yes, if we follow more or less the – the bridge on the third quarter at the end. We are saying that the EBITDA should be slightly lower. We are making up – putting our efforts in the working capital. So at least, we think it should be in line or if not a bit higher. But then also, we may have some taxes to be paid, interim taxes during the Q4. So this more or less same should neutralize.
I don’t dare to say that the debt reduction shall be as intense as in the Q3, but clearly – but we shall move down from the actual levels of €500 million. We shall improve the figures of last year, but still it’s a bit premature for us to determine where we should be. But the logic makes things makes us think now that we should be reaching below the €400 million.
Tristan Gresser
All right…
Miguel Ferrandis
Regarding the buyback, sorry, going into our – this is something that still has not been decided. We – our Board more or less follows closely the results evolution with a clear commitment that buyback is a possibility when the strong cash flow generation and these are now other special areas for capital allocation. It still has not been determined, keeping in mind that obviously up to now and with the effect in the third quarter, we have seen this year the 20% increase in the dividend follow the additional €200 million that were used for buying back in the last year and still up to today, the Board has not decided anything in regard of a buyback.
And I think in the actual momentum and the uncertainties and lack of visibilities – you know that our approach in this regard is normally is very prudent. And maybe this is something that could be discussed in the coming months, but still up to now, nothing has been decided.
Tristan Gresser
All right. That’s very clear. And another question on volumes. So you commented on negative seasonality into Q4. So then if – looking into next year, I mean, if melt shop production reaches 1.8 million tonnes this year. And in good years, you’ve been doing 2.5 million tonnes. How should we think about 2024? Do you expect some demand, some volume recovery there by region? Because there is a wide margin between the run rate for this year and what you can do. So yes, if you can share a little bit your demand and activity production level expectation for the year ahead? I know it’s early, but any color there would be appreciated.
Hans Helmrich
Yes, Tristan, at this point in time, we have low visibility for next year. The situation is really we are discussing with all the customers around the world, and we are, as I said, looking into 2024 with them and the contracts for 2024. We think that North America probably will recover faster than the rest of the world because that’s how we see as well the situation today and the strength of the market will recover sooner than the European one.
The current geopolitical situation in Europe is not helping at this point in time. But it’s true that with the customers, we are, as I said, at really early stages this year compared to other years, we are late into the discussions, not because of us, but because of their taking the time to see what is going to happen next year. So we want to be at this time as well, very cautious about the situation and waiting to see. But it’s – we don’t see yet any specific situations for 2024 that we can see if it is going to be as good as 2023 or better at this point in time. It’s too early to say.
Tristan Gresser
All right. Thank you.
Operator
The next question today comes from Patrick Mann of Bank of America. Please go ahead.
Patrick Mann
Thank you very much for the opportunity. I just wanted to ask a little bit more on the different markets. So U.S. pricing has held up very well in terms of relatively flat base prices, but both Europe and the U.S. as apparent consumption is down 26%, 27%. So in terms of volumes, there’s not much difference. From your perspective, what’s the reason for that having pricing power in the U.S. and not in Europe?
And then the second question would just be, how should we think about the through-the-cycle earnings for high-performance metals now? So Miguel, I think you said originally, it was around €85 million, but of course, it’s been doing a lot better than that. Should we reset our expectations to this sort of level? Thank you.
Hans Helmrich
I’ll take the first one, and then Miguel will take the second one. So on the market, evidently, the North American market, the United States market is significantly different in terms of behaviors to the European one and things that we – the strength that we have in that market being the main manufacturing supplier in the North America markets that evidently contribute significantly to our results.
And as I said before, Tristan, we think that the North American market would always recover faster than European ones. And the pricings in the markets are different. And we think that as well the situation of relocalization and regionalization back of businesses into North America, the Inflection Reduction Act, the Buy American Infrastructure Bill, all those things are helping to healthier pricings in those markets versus what is the situation in Europe. Miguel?
Miguel Ferrandis
Yes. In regard for high-performance alloys, I think this – clearly, the momentum is – the momentum is good. The actual orders actually in place with the order book with this strong reaction that has experienced the oil and gas and the chemical industry. This has driven our high profitabilities.
Our high-performance alloys division is diversified. So these sectors now have reacted strongly, probably during the COVID years were a bit more weaker and then there was more relevance in our case, for example, of the electronics one, which is a lower margin, but also contribute to run the plants at high levels of output.
So that flexibility is a warranty for high performance alloys, but depending on the market momentum, the mixed product determines the margins. The actual picture, clearly, it’s brilliant, so we are prudent because we don’t think necessarily that this is the new speed cruise for VDM.
I think clearly, we probably upgrade what were previously our forecast, but we think that in this figures expected for this year also, there are some tailwinds that have been taking place in the year, especially moving to these new order books to this sector.
So we are prudent. I think we – as I say, we shall upgrade our projections for this sector. But I do not dare to say that this is something that still is going to keep growing and that it may be just stabilize a bit. And just with this shall be probably more than enough.
Any case on this basis, I just use your question for remind that we are preparing our Capital Markets Day this time and shall take place in Dusseldorf for later on visiting the Una [ph] plant of VDM. I think that most of you are following us for years and understand the stainless steel business but are not so introduced to the specificities of the high-performance alloys.
So it’s a good opportunity, not only the team of VDM shall be there obviously making presentations and Dr. Mueller, especially the CEO of VDM shall have a relevant role. We shall also talk about research and development in the high-performance alloys and the possibilities for the future, as well as visiting the plant.
So we clearly recommend you to participate in that Capital Markets Day because especially, you shall obtain much more visibility and clarity on the high-performance alloys and what can be expected for the future.
Patrick Mann
Thank you.
Operator
Thank you. [Operator Instructions] Our next question comes from Bastian Synagowitz of Deutsche Bank. Your line is open.
Bastian Synagowitz
Yeah. Good afternoon, all. Thanks for taking my question. I have two quick questions left, please. And the first one is also a follow-up just on the – I guess, on the demand picture, which I would maybe just like to frame in a slightly different way and get your views on underlying versus apparent amount. So if we look at your melt shop performance, obviously, it’s down 25% in the – so it’s down 25% and I think 35% versus peak levels. And again, that’s very consistent with the apparent demand numbers, which you’re presenting in your presentation.
Now for your two core markets U.S. and Europe, where do you see the underlying demand situation? And I appreciate the picture is difficult to predict for next year. But do you have a view on how far apparent demand is actually undershooting the real demand situation for this year? That is my first question.
Hans Helmrich
Hello, Bastian. Yes, definitely. And one of the things that you’re right, is as well that the current situation with imports being very low. Demand below, that the situation of stocks is lower than historical levels in both markets, the United States and Europe. So we believe that if by the time demand reacts in the future, those stocks will be low for what the demand could be. And this will drive opportunities for all of us in the European and the North American market.
But the unbalanced situation that has changed significantly to previous years in terms of the imports, but with the lower demand, it’s driving the underlying performance that we have right now in the markets, both in – very similarly, behaviors in both cases, we believe that inventories are lower than they should be for the uptick in demand and some – we see some – some already, in some cases, that we have additional orders coming because of those levels being low and the distribution mainly trying to recover from those lower levels.
Bastian Synagowitz
Okay. Thanks, Hans. Maybe a quick follow-up. If we try to frame this number, if apparent demand is down 25, 27, is real demand down maybe closer to 10 or 15? Or how do you look at this?
Hans Helmrich
It’s not an easy question.
Bastian Synagowitz
I know. Hence, I’m asking you as an…
Hans Helmrich
Good question but a difficult question because it changes from this market to market. Really, if we look into some of the sectors, just to give us a little more guidance, really, the automotive, as I said before, is staying really flat. Year-over-year, there is an increase as we see versus previous year, but coming from what we had before really is not good. Going forward, probably will be because the situation in different markets might be an opportunity.
Construction is lower than it was in the previous years, probably half of what had been in the previous years. Appliance then is lower. But what we see is that the customers we’re in are doing good, which is positive for us, mainly in the United States. So we see that the demand in the different sectors has been changing the industrial production, as you probably know, is through this year is flat. I have almost no production.
PMI really has changed a little bit. But what we see is that the behaviors in Europe and the U.S. are similar. So I couldn’t give you an exact number, but automotive is higher by a couple of points. Construction is lower by probably 4, 5 points and home appliances is flat at this point in time. So that’s how we see the main markets we are in.
Bastian Synagowitz
Okay. Very helpful. Look, I appreciate that’s a difficult question, but it’s been good color. And from all of what you’re telling us here, I think it seems like with the exception of construction that there is indeed quite a bit of undershooting of apparent demand, which we are seeing, i.e., destocking.
My second question is just briefly following up on the cash flow side. Just on CapEx, do you still expect to fill the full €100 million CapEx budget to make your full year budget, I think, €2 – €230 million. I think that would leave €100 million for Q4. Do you think you will spend that number?
Hans Helmrich
So the – as Miguel said before, we’re trying to control the controllables and evidently one of the things that we are putting some effort is to try to support the cash flow generation, but as well the situation by managing and getting some tasks to the teams in the factories. We will end up slightly lower than what we mentioned in our beginning of the year what will be the CapEx level. So it’s going to be on the run rate lower than what we had before and probably we’re still looking into the numbers by about €10 million lower than what we said what’s going to be the year-end number.
Bastian Synagowitz
Okay, excellent. Thanks so much.
Operator
Our next question today comes from Maxime Kogge of Oddo BHF. Please go ahead. Your line is open.
Maxime Kogge
Yeah. Good afternoon. So first question, do you see some further benefits from the anti-circumvention case opened against three countries by the EU. I think that was in August, do you see already an impact in terms of import pressure? And do you think more generally it can have a significant impact on – significant impact on both prices and volumes in Europe?
Hans Helmrich
Hi, Maxime. The impact that we have seen right now is that customers are looking into those cases and is creating, we think, an interesting analysis of the buy side of the impact that these circumvention could have in the strategies going forward and people are more cautious about buying from those countries. And we expect that this will have the impact that we think this is a positive element that we need to have in the European market because of – definitely, there were circumventions taking place by those countries through other neighbor countries into Europe, and this has to be controlled.
And yes, we think that this will have in the future, but we don’t see yet that impact today, but we see at least reflections and discussions with the customers about regionalization of some of the buys going forward.
Maxime Kogge
Okay. And second question is on Asia. Pricing is very much depressed even more so than in Europe. And in that context, how is your Malaysian unit faring currently?
Hans Helmrich
Yes. As I said before in my intro remarks, the situation in China is very depressing. And as we said, this is a nonmarket economy driving production beyond what is needed in the country and for the needs. And that’s driving pricing in the region, as you said very well, depressed versus even what is the situation in Europe, which is already very depressed.
And we think that, that situation is not changing. But what we have been discussing in our case of our Bahru Stainless production side is to be focused on very specific customers, being very selective even if we have to take volumes down to make sure that we try to make the unit as profitable as possible so that we don’t suffer so much.
We are selective of the customers selective of the products and working at the lower production rates to make it as efficient as we can, given the current market circumstances in the region, which is not easy for the teams, but they have been successful to run the factory at those levels. And we’ve seen that this collaboration with customers, they prefer our materials, they prefer the quality that we have and the service that we have from our team in Malaysia.
Maxime Kogge
Okay. Thank you.
Operator
The final question in the queue at the moment comes from Moses Ola of JPMorgan. Please go ahead.
Moses Ola
Hi, there. Thank you very much for taking my questions. I have three questions, if I may. So the first one is just on your through-cycle leverage target of 1.2 times. So if we look at where net debt is today and your normalized earnings gives you capital headroom let’s say of about €300 million to €400 million, at that target, can you support both M&A opportunities as well as buybacks? Or is this leverage target something that you might want to revisit in the future? That’s my first question.
Hans Helmrich
Well, it’s true that clearly, more or less the strong figures we are having up to now are below in the range of 0.3, 0.7 [ph] where we actually are below the target that we achieved. As you know, we are stating from years ago that we have the ambition to grow, but we need this to analyze carefully which are the opportunities. We have stated that our natural goal was to grow especially in the high-performance alloys.
But it’s true that especially the high-performance alloys, where we are having – we are leaders in the oil and gas and in the chemical industry. In this sector, no doubt, we are the first player. Maybe there is a sector in which we have less presence as we normally have mentioned, which is aerospace. This is mostly dealing in the States.
But what’s true is that the correction in multiples that the European employees have experienced is not – has not taken place similarly in the state. So when you analyze possibilities of inorganic growth in the States, you realize that being high the multiples, you must have a clear visibility of the synergies of the improvements that can take place there. And this makes time to having the proper analysis.
So where you never can mistake is in an investment, especially in this type of big investments. And consequently, it’s better to take your time to get certainty and analyze all the possibilities for making the best deal possible rather than taking a quick decision that you must be more or less suffering the consequences in the future. And there are some examples in the industry that demonstrate this.
So this is now – we feel certainly comfortable in these levels, but we know we have a space for future possibilities in terms of investment, but as well as in terms of shareholders’ retribution. So this is something that still is on the table, but we shall decide gradually according to the possibilities that may appear.
Moses Ola
And I guess a very quick follow-up to that. So total synergies now high-performing alloys. I think that first half of the year, you said that it was tracking at €47 million. Is there an update year-to-date on where achieved synergies are?
Hans Helmrich
I think we shall make it just for the full year. We are keeping the good momentum of the high-performance alloys division. Most of those synergies, which especially were to be placed in the high-performance alloys division by far are being highly successful. Still, obviously, there is some part of that synergies that were more or less to be placed more on our stainless operations. And in this regard, obviously, the analysis must be put on the table combined with the actual levels of output of our stainless operation on our own.
So because of that, it’s not all simple the analysis. We are above expectation. But on that basis, we just prefer to give the figures semi-annual basis. So we shall give the final guidance on the full year presentation. But we are ahead of schedule.
Miguel Ferrandis
The only thing Moses in that respect is evidently what is positive is the – as we said, the 1 plus 1 is more than 2 in this sense because of – mainly at the commercial front and the collaboration between both commercial teams in front of the customer and providing those solutions that we think is unique in our case and that we can deliver from the very basic stainless steel to the very high-performance alloys products, and that’s working very well with our customers.
Moses Ola
Okay. Thank you. And I guess my final question, so just into the CMD, how much of a focus should we expect further restructuring and portfolio optimization to be? Obviously, currently with the state of the market, it seems that only North American stainless and high-performing alloys are your only profitable units. So do you still view Bahru, Columbus’ core assets here? Or should we get an update into the CMD?
Miguel Ferrandis
Well, in this regard, obviously, our highest contribution at this time comes from the States, North American stainless, obviously is high profitable as well as we are providing the full picture of the high-performance alloys. Probably in the actual scenario and what we are seeing from the public announcement and the consensus for our competitors, no player is profitable in the actual time in the stainless business in Europe.
And as we said before, with the situation that is taking place in China as Hans mentioned, with high levels of output – much more higher than the consumption. At the end, the level of prices makes that nobody is also being profitable at this time in Asia. Unfortunately, some of our Asian or most of our Asian players are not profit driven, so they can more or less keeping these policies or high levels of output because they are not submitted to other type of routes. And this creates this mess.
On this basis, your question regarding Columbus and Bahru. Columbus has demonstrated strong flexibility in the last years. We increased, we diversify our product mix. We moved to the mil steel. This business has been profitable for Columbus. In addition, we are reducing also the necessities to exports and consequently focusing more on the local market.
So Columbus takes a full sense inside the group. And in this regard, we think it contributes also to our strategy. It shall have high profits when the market is good, and it shall probably remain flat when the market is in bad momentum. But Columbus is a strong contributor and has its full sense in the strategy of the group.
In the case of Bahru, as we always have mentioned the issue of Bahru is that being re-roller [ph] in Asia, depending on the local source of hot coils for transforming in core roll when the prices are collapsed. This appeared to be structurally not a strong profit – not a strong profit maker.
We are concentrating, as Hans says previously on a specific niche of customers where we can survive in order that Bahru does not destroy cash or is not a loss maker for the group. But it’s true that it’s facing in these days in the worst market to do on that basis. So probably, we have stated previously that on the long-term run, maybe Bahru is not core asset. And we are open to receive any type of approach or we are putting – open to put it on the market for those players who have excess capacity in the melting, but they need to transform meeting core raw materials.
In that regard, it’s a high-quality plant actually underutilized because of that basis, but we are open to receive offers for that, but we are not desperate for selling it at any price. So consequently, we feel comfortable running it at the actual track, but we are open to study any offer if it comes when it comes.
Moses Ola
Understood. Thank you very much.
Operator
We have no further questions in the queue. So I’ll turn the call back over to Mr. Carlos Lora-Tamayo for any closing remarks.
Carlos Lora-Tamayo
Thank you. We received one question coming from the webcast from Bruno Bessa of [indiscernible] That is as follows. Could you please clarify on CapEx expectation for 2023 and 2024 and the breakdown between recurrent CapEx and growth CapEx in the U.S.?
Hans Helmrich
So Bruno, thank you for your question. So we cannot provide too much detail on the breakdown of the CapEx. But as we declared through this year, you know that we have, I will call it, the organic growth CapEx that we approved, which is going to be taken about 3 years from $245 million for the expansion of NAS and this is going to be incremental to the, I would call it, run rate that we had in the past of our CapEx.
And for 2024, we are working on those numbers right away. But definitely, this investment is going to continue in us, and this is going to have a slight increase next year because we are getting into a more significant part of the investment through next year versus what we had this year, okay? So – but as I said, we have not been building yet the 2024 CapEx numbers, and we’re working on those, and we’ll be able to provide more details as we move here to the end of the year.
Carlos Lora-Tamayo
Thank you, Hans. So there is no further questions. So thank you very much all the participants and listeners for joining us today. As Miguel mentioned, we are going to held a Capital Markets Day ending November on the 29th and 30th of November in Dusseldorf. So we hope to see you on all there. That concludes our third quarter ’23 conference call. Have a nice day. Thank you.
Operator
This concludes today’s call. Thank you for joining. You may now disconnect your lines.
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