The CEO of Acerinox: "We will discuss a dividend increase in the board" | Economy



Bernardo Velázquez (Madrid, 1962) has been with Acerinox for 28 years, the fifth world steel producer stainless steel, and since 2010 he serves as CEO. After guiding the group during the Great Recession, it now faces new economic uncertainties and the invasion of the steel market by China.

Question. Acerinox shares fall more than 25% in the last month and a half. To what do you attribute it?

Answer. The results of the third quarter were good, but we also warned that the last part of the year was going to be a bit looser. The punishment is excessive, the market is now very sensitive. We fall less than the competition, but that is not consolation. I hope that as soon as we see that the adjustment for the fourth quarter has not been so great and that the outlook for 2019 is still good, we correct this situation. Our forecasts say that we still have years of growth left.

Q. Speaking of the results, could you specify how you expect the fourth quarter and next year to be?

R. We still have to close the budget. However, we do have some brushstrokes. There is greater economic uncertainty and that drag down the price of raw materials. In such a situation, since the price of stainless steel incorporates the prices of these materials, customers hold up their purchases to make them cheaper. This spiral has accelerated after the summer. However, we are calm because the perspectives of the consumer sectors with which we work are good, especially in the US. The forecasts of industries such as appliances, automobiles or construction are good so we think that next year we will recover.

"When we ask for protectionism, it is because not everyone plays with the same rules"

P. The increase in protectionist measures, how do they affect Acerinox?

R. In our sector we live daily with the commercial battles, they are part of our strategy and we look for areas with less obstacles. What we do ask is reciprocity in the measures. If the EU has zero tariffs with India, it is normal for this country to have the same policy, which does not happen. In addition, we must take into account the emergence of China, which has gone from producing 3% of the world's stainless steel in 2000 to having a market share of 54% in 2017. It is a bestial change that alters all traditional trade flows.

Q. Is China just the bad guy in this movie?

R. Due to this change, Europe becomes a recipient of metals instead of an exporter. The entire sector has to be reconverted, staffed down ... Is this situation fair? I think not because the rules of the game are not the same for everyone. When we ask for protectionism, it is not because it is a measure that we like, but because, if you can not have the same rules, the game is no longer valid. I refer to issues such as environmental requirements or transparency in subsidies. The risk if we continue like this is that local manufacturers disappear. I do not enter into economic or political considerations, because it is not my subject, but in regard to stainless steel, with tariff protections in countries like the USA, price stability has been achieved.

Q. Do you support the commercial idea of ​​Donald Trump?

R. I do not support your measures, what I do believe is that we should fight at the source of the problem. This situation has the advantage that in forums such as the WTO or the G-20 the situation of stainless steel overcapacity that China has created is beginning to be discussed.

Q. Do you foresee that the increase in demand can compensate for this excess supply?

R. We have a market that moves forward in a healthy way at a rate of 7% in the last ten years. The growth we envision comes in two ways. The first is the new applications of stainless steel in developed countries. In addition, in the case of emerging markets, the greater the degree of welfare, the greater the demand for this product.

Q. The inventories of the group are above the average of the last years, why?

R. We live in a very volatile world. Now there is greater uncertainty, but during the first part of the year, customers calculated higher prices for steel and advanced their purchases. The hard part is knowing when there is a situation of excess inventory. In any case, it is always corrected with the stabilization of prices in raw materials.

"A strong dollar benefits us, but it can also attract more imports"

Q. How do you expect the price of stainless steel to evolve in 2019?

R. I think that with the new nickel sources we are going to achieve greater stability. We went through a situation similar to that of the oil sector and fracking. In China and Indonesia have emerged nickel pig iron manufacturers, with lighter structures and that can easily vary the components of the alloy, which serves as a check for the price of nickel.

P. Acerinox has a great exposure to the United States. Are you comfortable with the exchange rate?

R. In general, we favor a strong dollar due to the simple fact of the impact on our income statement, which is in euros. The downside of this situation is that it can also attract imports of stainless steel. Much of the tariffs that have been imposed on China have been offset by the depreciation of the yuan.

P. Investments remain stable at around 170 million per year. What are the preferences for spending?

R. The excess capacity of the market prevents the creation of new production units. We try to invest in equipment that allows us to increase the use of our capacity and to provide savings from the operational point of view.

Q. In 2017, after four years with 'scrip dividend', they took back the cash compensation. Now they distribute 0.45 euros per share. Considering its financial strength and the limits for investment due to excess capacity, do you plan to increase the dividend?

R. It is an issue that we have pending and we will discuss in the board to see if we propose it at the shareholders' meeting. The normal thing is that, once we feel comfortable with the payment in cash and we see that it is sustainable, we propose an improvement.

Q. Would it be in cash or would they take advantage to amortize the surplus of shares generated by the 'scrip'?

R. Either of the two formulas he poses would be good.

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