Acerinox SA
MAD:ACX
Acerinox SA
MAD:ACX
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Good morning, everyone, and welcome to this presentation for the second quarter results of Acerinox. 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 loved ones are okay in these difficult times. Today, we are holding a video webcast from our Board of Directors' room in our headquarters in Madrid. You can follow this video webcast from our website at linux.com. The presentation will be hosted by Bernardo Velázquez, our CEO; Miguel Ferrandis, CFO; and Daniel Azpitarte, former Commercial Director; and currently in charge of the BDM integration. Before getting started, let me remember you that we have published today the interim management report and financial statements for the first half of 2020. And now I give the floor to Bernardo. Please, Bernardo, go ahead.
Good morning, ladies and gentlemen. Thank you very much for attending this conference. Of course, first of all, I hope everybody is okay and you have parties or you're passing this pandemic not suffering too much. Even though we all have close people suffering the effects of the sickness. We are very proud to present these results today because these results have been got only by managing the situation. So I'm very proud -- very proud of my team. I'm very proud of how we manage our cost control, how we manage our working capital because this is only -- only possible with people's commitment and experience. In our last presentation, we already started speaking about this crisis. And how could -- what could we do to repair the situation and we were speaking about our experience. How we -- the current management of Acerinox, also we're managing the previous crisis in 2008 and how we were going to apply our experience in this new situation. And this is what we have done. It is just simple to take a page of the last presentation, first quarter results, Page 12, where we say lessons learnt from 2008. And we are speaking there about cost control, temporary labs in Spain, flexibility in labor costs in United States, adapting maintenance to production levels, reducing the cost of subcontractors and how we manage the capital allocation, focus on liquidity, reducing CapEx, postponing the shareholder meeting, reducing net working capital. So we knew the receipts from the previous crisis, and we have applied these receipts. This is what we explained to you in the last presentation. And this is what -- I think we have to be proud of this. We learnt in the previous situation, and we applied the receipts and they work. So this is what we can -- what we learn, and this is what we are experiencing today. How did we face this COVID-19 crisis? First of all, by creating crisis committee very soon in February. Then we develop very fast as well the action protocol, associating the best practices with a lot of companies in the steel industry and in other industries in Spain and outside Spain, of course, putting safety and prevention measures and our people first to be sure that our plans could work in safe situations, and we did it. And we did it. We have the first protocol, and we have one of the best COVID protocols in the industry. Second, securing liquidity. This is key. Companies never fall because of the results, always follow up because of liquidity. And in this kind of situation, you must secure your liquidity, and we did it. Refinancing our credit lines and our loans to anticipate future renewables and extending maturities. Third, we had to secure our supply chain. And we didn't have any break during the situation; we adapted our supply chain to the situations, and we never suffer the lack of consumables, so the lack of transport line to ship our material. Of course, very important, we managed the situation, operating the business with cost control, capital allocation control, always focus on cash flow generation, and if -- in our first quarter results, when everybody or many companies were withdrawing the outlooks in -- of their companies because of the lack of visibility because of the uncertainty of the situation, we decided to be for Acerinox and to tell you that we were going to generate cash and have positive results, and we did it. We did it. And we did it just working hard. We did it working in the trenches and working in the cost control, working in the business and applying all our experience, as I mentioned, cost control, capital allocation control and always focus on free cash flow that we will see during the presentation. Of course, very important, reinforcing the communication with the Board of Directors because this is key because we were totally aligned during the process. We are totally aligned all the time. But we could react very fast. We're taking decisions very fast. And of course, in the plants, you cannot home working, you cannot manage the steel plant, the lab production or the steel production from home, but we did it when it is possible to preserve the health of our people. And finally, we succeeded in the communication strategy and our collaborative tools to keep our people connected. So we prepared earlier the situation, and we acted fast and efficiently. The main financial numbers. First of all, I have to say that, look like this is not a crisis situation because our EBITDA -- our sales went down by 5%. Our adjusted EBITDA by 4%. EBITDA was EUR 14 million -- EUR 13 million less due to the expenses in the VDM purchase. Then EBITDA went down because we have applied EUR 43 million in the impairment test of Bahru Stainless after the regulator in Europe advised everybody to be prudent in the evaluation of the business and applying the bad scenario of the COVID situation. So after this period, EUR 43 million corrections, our results, our profit is EUR 22 million before taxes and 2 slightly positive after taxes and minority. I have to say that it is very important how we manage the cash flow generation. Our cash -- operating cash flow was EUR 75 million after paying EUR 26 million of the layoff that we applied in [ refire ] that we decided in December last year. And also important to mention that our net financial debt, EUR 872 million, is only EUR 230 million higher than at the end of first half of last year, when the investment and the expenses that we have made due to VDM is EUR 313 million, the cost of the company, plus EUR 14 million of the expenses, plus EUR 85 million that is the EBITDA. This is EUR 412 million so that means that we have digested -- we have already digested EUR 192 million of this operation. So we have, as promised, we have already started reducing the debt and adapting it to our normal strategy -- traditional strategy. So this -- for the first time, these results are including VDM integration from March to June. And including, of course, the cost-cutting in personnel, 9% in the average of first half of 6 months, operating minus 18%, strong cash flow generation EUR 75 million and liquidity, as announced, amounted to EUR 1.7 billion. How is the situation? What's happening in our business? I think I'm asked to start with Asia, the origin of the COVID. And in Asia, in China, especially, there was something difficult to understand for a western company, but the Chinese decided to freeze the economy but not the steel plants. So that means that when most of the customers were in a situation of lockdown, the steel mills continue producing. And they created a huge amount of stocks, inventories that are starting to be digested, but still are highest. And they are provoking a terrible situation of low prices that is spreading all around the world. Of course, the situation finally came to Europe, where imports have amounted 22% in the first half of the year. Prices quarter-on-quarter basis has lower -- lower in every month. And apparent consumption went down in the second quarter compared to the first quarter, 28%. So that means that the [ saver ] measures are not working. Are not working in the market that are in a situation where the [ saver ] measures, we agree for all the imports and they are spreading the low price situation created in Asia. U.S.A., the situation is different. And it's mainly different because Section 232. So when apparent consumption went down by 5% in the 6 months of the year, 22 compared with quarter 1, but their inventories remain under control. Prices are stable. And even with lower production or lower in a lower market, we could manage the situation and compensating with cost reduction, the difficulties of the market. So in summary, Q2 was severely impacted by COVID-19. The situation was tough to manage, and raw material prices recovered because of the Chinese consumption. But in general, it's a difficult -- a difficult environment and difficult also because it is -- it is -- we're going not to speak about markets because it varies country by country. We speak about Europe, but it's not the same the situation in Germany or in the northern countries than in Spain or Italy, it's totally different. Europe is showing that it's more a collection of countries than a real single market. And how did we work in Acerinox? I think the positive side that, as I mentioned, strong financial numbers. It is clear there. I think we work on cash generation. We work on managing the business, and the demonstration is there. Negative points, the low productions. We have our plants not working at 100% as we like, and this is affecting our excellence plans and, of course, layoffs of our people. We had to make, because of the low prices, downward inventory adjustments of EUR 20 million. And in this new COVID situation, we have to recalculate the impairment in Bahru Stainless, and we have applied a EUR 43 million impairment in these results. So now, Miguel Ferrandis will explain the main financial figures.
Okay. Thank you. Prior to the coming explanations, I just want to remark. We have all the detailed financial statements, and we have the interim semester report available. You can access it in our web page. But most of our presentation, even though we recommend that you go through the figures for the semester, but most of the messages of these presentations are driven to the Q2. And there is a clear reason for this. This is not a standard crisis as the one we have been passing through in the last decades. This is more a war than a crisis. So in addition of what we were used of the slowdown of demand, now we are facing other circumstances. We are facing obviously a global war wealth issue which force us to close facilities to close warehouses and close offices. In addition, the whole supply chain has experienced certain disruptions. So as I said, has been more award on a crisis, and consequently, the explanations today probably are more driven to explain how we have faced this, especially in the Q2. The consequences in figures at the end shows a remarkable stable Q2 compared with Q1. And in addition, you can realize in the -- in this slide, that at the end, the sales have experienced Q2 compared with Q1, a 1% increase. And what's even more remarkable is that the EBITDA -- adjusted EBITDA has increased at 11%. So I think this is the first relevant fact to remark. We have improved figures of Q2 compared with figures of Q1. While we talk about adjusted EBITDA, this is not a standard in our case. And we just normally explain the big figures, and we do not try to explain adjustments or differences. In this case, there is one circumstance, which is a nonrecurrable issue, which has been the expenses and taxes incurred for the acquisition of VDM. This has been concentrated mostly in the second quarter. A big part of it has been the taxes paid in Germany for this acquisition and a part of that, there were other fees and other expenses. And this has more or less been facing a big figure of EUR 14 million. None being a recurrent issue. We talk about adjusted EBITDA for taking it out and talking about our normal business. So this adjusted EBITDA, as we are saying, shows an increase quarter-on-quarter of 11% in this quarter that has been characterized in April by an absolute impact in the volumes with 2 of our plants being forced to close by government restrictions, another, obviously, facing the new circumstances. And in the latest part of the quarter, also facing the consequence in the demand as also -- most of our customers were facing the same circumstances. So even though that we have increased our EBITDA 11% and the reason is obvious is the absolutely effective effort we have done in reducing costs and reducing costs, we shall explain later in the time, we have reached to these figures. In addition, for preparing also and assuming what's coming in the next months, we have made an inventory adjustment at the end of the quarter of EUR 20 million. So obviously, the figures of EBITDA are reported after making these inventories adjustments also. And as Bernardo has explained, below the level of EBITDA, we have done an impairment of some of our assets, in this case, Bahru Stainless. The regulators are very, very strict in these circumstances of making a big review of all the impairments when needed and all making impairment tests as much as possible. The results of the impairment tests we have done all our [ under ] group. Is that there were only a business area that was needed to make some adjustments by being expediently strongly affected by the COVID, and this has been Bahru Stainless. The reasons are in line with what Bernardo has been mentioning. The situation in Asia is tougher than what has been in the rest of the world in terms of the impact, mostly in margins, it has been a big production running of several other facilities in Asia, even though the consumption was depressed. So there is a lot of material available in Asia affecting margins, and this probably shall take for long as much as it's more difficult to put material into Europe or put material into America. And consequently, most of that material that should remain in Asia should impact margins in the coming months or even quarters or even years. So consequently, on a very prudent basis, we have made an additional impairment test because of the COVID in Bahru Stainless in Malaysia, and because of that, below the EBITDA figures at the EBIT figures, we are showing this impairment of EUR 43 million in the case of Bahru, which is obviously a pure impairment with noncash effect. And in addition, more or less, following the slide, you can see the big cash generation we have done on the operating cash flow, especially in the quarter with EUR 111 million operating cash flow. And what's also very, very relevant is the effect on the net financial debt. If you compare the first quarter with the second quarter, in the net financial debt we reported in the first quarter was already the leverage and we made for the acquisition of VDM, which was EUR 313 million. So our debt raised to EUR 854 million. But what's relevant is that in the second quarter also as the integration took place in the middle of the ending of the first quarter, the starting of the second one, we have also incorporated for our consolidation the net financial debt of VDM of EUR 85 million, even though that the debt only raised from EUR 854 million to EUR 872 million, which is also a big demonstration of the cash generated in the second quarter that has allowed us to reduce our normal levels of debt. These are the figures for the group, which includes, obviously, our stainless business and the high-performance alloys one. Now we are going just to provide you segregate figures of both for an easy understanding. It's not so clear to explain and obviously not to understand our circumstances achieving this year, not only because of the COVID but also because we are incorporating and integrating a new business line. So this may create distortions. We hope that you may find all the explanations in the slides. In these figures, you can see the traditional business of Acerinox, the stainless business, the commodity is stainless as well as in the right side of the slide, the high-performance alloys. So the main differences in the second quarter this time is that we are incorporating VDM. The signing of the agreement of VDM finally took place in the mid of March and already the COVID crisis was there, but as the control -- effective control of the company started when we received all the approvals from the competent authorities in most of the areas, and this came late February, we have incorporated figures of VDM from March, but this already took place, and we have done all this integration and purchase price allocation in the second quarter. So because of that, what we are bringing and showing is the performance of VDM from March to June. When we announced the acquisition of VDM in our previous presentations, we always explain that the figures we are assuming as normalized contribution to our EBITDA in -- by VDM should be in a range around EUR 80 million per year, so an average of EUR 7 million per month. This is more or less the figure we are bringing now in this quarter. The cycles of the high alloys are different than the cycles of the stainless, and this is a big fact. And one of the advantages we saw in expanding through integrating the alloys division. And then as a consequence of that, in the second quarter in which the stainless sector has been affected by the COVID, it's true that the alloys has been performing with relative more normality. And because of that, the contribution of VDM is more or less normalized what was expected prior to the COVID crisis arise. So this is the first factor remark. And consequently, we have included figures of EUR 23 million in EBITDA coming from VDM. If we move to analyze what has been the case in the stainless group. I think there are also some facts to remark. First of all, quarter per quarter, you can see that the melting production in the stainless division has been declining at 30%. But the sales has just been declining at 23%. This is obviously as a demonstration of the weak reduction in inventories we have been achieving. And consequently, the sales figure has been less corrected than the figures in production. But what's more remarkable is that with a decline in the sales figure of 23%, the figure of the adjusted EBITDA has been only suffering a 16% reduction. So we have been more than compensating, with the cost reduction we have put in place, the real impact that we were experiencing in reducing volumes because of the crisis. I think this has been a big demonstration of what we can achieve in the stainless division. If we move to the coming slide also, Slide #8. I think what definitely what shows is the robust and relatively stable performance we can achieve, even though in the melting production, we see corrections. For example, from Q2 to Q1, we see corrections of 26%. If we go back to the Q2 of the prior year, the correction is around 22%. So with a relative impact in the melting, at the end, what we have is a very, very robust and stable figures of EBITDA. And this is also relevant. So you can see we have achieved, as we explained, EUR 94 million in the second quarter. It was EUR 85 million in the first one. So at the end, we are moving in EBITDA in a much more narrow gap. In the last 5 quarters, you can see that the range has been from EUR 85 million to EUR 112 million. So I think in this regard, we are demonstrating we can be very, very consistent. And also this consistence is reinforced now with incorporation or the integration, sorry, of VDM, which also may mitigate the effects of the cycles in our business. And then in addition of this, which are the effects on our net financial debt as a consequence of the strong cash generation, where you see the figures, if we analyze like-to-like. So excluding the fact of the acquisition and incorporation of VDM, what we can see is that the debt -- the net debt figure has been EUR 475 million. If we compare with what we were achieving 1 year ago in the Q2, it was EUR 642 million. So it's around EUR 170 million less that we were facing in the second quarter last year as a consequence of the big cash generation we have done in this period. For understanding our there, then you can see the whole disclosure. Not only are the debt as a consequence of our business but also what was the VDM acquisition of EUR 313 million and in the integration of the existing net debt at VDM of EUR 85 million, which at the end, drives us to this figure of net financial debt total at the end of June of EUR 872 million. But was relevant is to understand the free cash flow generation. And I think in the coming slide, Page #9. The bridge is definitely explaining very, very strongly the reality of gas with an adjusted EBITDA of EUR 94 million, showing a free cash flow generation of EUR 84 million. So it's just EUR 10 million, the free cash flow generation below the figure of EBITDA. In EBITDA, it's clear that it's -- we are obviously benefiting from our big cost reduction, but there are other areas under our control. And the most remarkable one is the big change and the strong reduction and the discipline in working capital which has -- brings us additional cash of EUR 63 million. This is under our control as well as is also under control the CapEx control, and then the CapEx expense incurred in the quarter has been just EUR 27 million. As a consequence of this, the free cash flow figure is absolutely close to the adjusted EBITDA as we are mentioning.
Okay. Good morning to everybody. My name is Daniel Azpitarte. I am the former -- the Commercial Director for the group. And since March, in charge of the integration of VDM into the Acerinox group. To give you an update on the VDM integration process. Just remember that we did the closing on the 17th of March. The first kickoff meetings for the integration, we had them on the 23rd of March. So barely 4 months in the group. This transition process was built to ensure the business continuity and also to prioritize the long-term vision, always having in mind a smooth transition. The current work plan includes 20 areas of the business and -- which have had more than 300 meetings during the last 4 months, which have completed over 600 activities that were planned, who made a deep analysis on the commercial footprint in terms of geography, sector and customers, and that has identified up to 90 synergy opportunities up to now. This has led us to a synergy target for the next 3 years of up to EUR 22 million that compared with the EUR 14 million that we announced previously. But of course, we do not rule further areas of improvement, which will be analyzed in the coming months. And despite all the difficulties that we had in the last month -- excellent, we have met our targets, and I must say that the teams have been with a very good spirit. And I want to highlight the highly motivation on the VDM side but also on the group side.
We now go on to talk a little bit about how we manage the business, the Q2 and the COVID crisis and how we intend to focus beyond Q2. We will explain a little bit further our far reaction in Q2, how we see the recovery process, whatever the shape it has. And of course, keeping intact our long-term strategy, as we will discuss later.
Well, first of all, it's clear as we state that for us, free cash flow focus remains a priority. The best explanations we can do on the cost control is what appears in the left side of this presentation. First of all, in the -- both areas of personnel cost and operating cost. It's clear that when we report these figures, where we have done most of our effort is the -- in our traditional business, which is the area that definitely, we have put all our efforts. We -- as Bernardo mentioned previously, we come from prior crisis, we know how to face that. And as a consequence of the experience we have in prior crisis, what is relevant is that if we compare Q2 with Q1 in the stainless business, we have reduced personnel cost an 11%. I think this is a very, very relevant fact to understand what has appeared in Q2. But keeping on mind that we are comparing Q2 with Q1, but in the Q1 also, we were improving the cost line but some of the saving programs that were addressed in the last year, mostly related with some of the labor savings as a consequence of the retrenchment plant we've made in Acerinox Europa. If we compare Q2 2020 with Q2 2019, the difference is not only 11%, it's even higher. It's 15%. When we go to the reduction in operating costs, we achieve the same. The reduction in operating costs Q2 with Q1 has been of 24%, which is also a huge demonstration of how we are accomplishing our cost evolution to the market evolution and making most of our cost as variable as possible. And this reduction of 24% quarter-on-quarter is even higher if we compare it with the second quarter of 2019. And in that comparison, the reduction is of 29%. What this demonstrates is that in the stainless business, if we compare the savings we have done with the second quarter last year, the savings are 18%, and this is EUR 48 million. If we need to face a long crisis, and we just take into account that in a quarter, we have been able to reduce EUR 48 million, this, on an annual basis, is a demonstration that in tough conditions, the savings programs could move us to experience savings in cost of EUR 200 million, which is, as we are saying before, an absolute demonstration of the flexibility in our cost and the achievement we have done of making all our cost structure as variable as possible. I think this is one of the most remarkable parts probably for us in our presentation for making you understand what has been the results we have achieved. In addition, it's clear that we are also disciplining our CapEx and adapting our CapEx programs to the actual circumstances. It's clear that we need to reinvest in this business, you must reinvest for keeping not only alive, but also improving the productivity and improving efficiency. But we are absolutely putting our effort on the necessary CapExes, but with a big control on what definitely we need to improve productivity and making all the, obviously, environmental CapExes which are needed. Having said that, we are keeping in EUR 22 million as very, very stable figure compared with Q1, which was EUR 23 million. And incorporating the CapExes achieved in the quarter by VDM, which has been in line, which was previously explained in the previous presentation we made after the year-end, which has been EUR 5 million. And then all the efforts also has been put it in the working capital management is remarkable in a quarter that we have reduced inventories as most. And the inventories reduction has amounted EUR 95 million. So we are -- we are driving in terms of tons, the inventories around the group in minimum levels compared with the prior year. So a very, very big effort then in that area and very successful. Also, the debtors reduction has been of EUR 93 million. In this regard, I think our commercial risk committees are absolutely consistent. And what's also remarkable is that we have not had failures from our customers. We have not had any relevant failure. The figures are in line with what was coming in the -- coming from the previous year. So in this regard, there is no bad news just to talk about because we are keeping our collections, but we have reduced our debtors figures in EUR 93 million. And then also, what is clear is that a reduction also has been taking place and very, very strong in the figures of creditors. In the actual circumstances, with a low level of production, we cannot finance ourselves through our suppliers. This is clear. But with a big demonstration done in inventories and inductors, we have more than compensated the reduction in creditors. And as a consequence of that, the working capital reduction has been of EUR 50 million. So I think in this regard, as we are saying, the cash is keen inside the group, and I think we have worked on that on that direction. And also, what's very, very relevant when we go to the coming picture is -- in the coming slide is the liquidity. In our sectors, I think that management definitely must concentrate in running the business, in keeping the strategy and must not be fighting fires which came as a consequence of financial struggles or liquidity struggles. This is not our case and has never been. We left the prior crisis stronger in terms of our balance sheet. And probably, this is also the situation in which we shall exit from the actual crisis or the actual war. We have actually liquidity in our hands of EUR 1.7 billion. So we have already cash on hands of EUR 1.1 billion. And available lines and fully committed available lines of EUR 625 million. So with the liquidity, we have actually, on hand, we can cover all the debt maturity for the coming 10 years. And I think this is also something very, very remarkable. We have been able in these circumstances of the second quarter even to increase the available lines and consequently, the liquidity has been improving from the first quarter, which was also remarkable at the time. We were talking about EUR 1.5 billion, now it's EUR 1.7 billion. So we have increased liquidity in terms of EUR 277 million. If we analyze the cost of our debt, we are keeping extremely, extremely competitive cost of our finance and the average cost of our debt is 1.5%. So I think this is very, very unique, probably in our industry. And in our favor also, as we also said, it's really absolutely high-quality debt in terms that we are mostly free of covenants. In all the stainless area, we are absolutely free of covenants. So consequently, we are in a cyclical business, but the strength of our balance sheet and our strategy is well-respected by all our banks and the financing community. And consequently, we have no covenants on results in most of our debt. And we are talking about the 93%. The only part which we still we have certain covenants is the debt that has been acquired through the VDM acquisition. And obviously, we are in a process of refinancing and accomplishing the EBITDA debt to the standards of the rest of the group. So this is something that should come. So in this regard, even though the COVID situation should take place more quarters than expected, what's clear is that this never is going to be a problem for the financing in Acerinox. And then -- and now what? So what's coming beyond the Q2? It's clear that we have made an excellent demonstration that we can achieve in terms of operational performance and free cash flow. What's clear is that we have demonstrated what we can achieve. So if the situation remains, the labor agreements have demonstrated to be flexible, and we shall adapt to whatever are the conditions we may experience. So if this takes for long, we shall be keeping the flexibility in our labor and obviously, also keeping on our cost control. So as a consequence of that, with value-added that the high-performance alloy division should come to us. Don't forget that we have acquired and we have integrated in our group the best-in-class player of the high-performance alloys. We are long-term runners. The industry is affected in the actual quarter or maybe in the coming quarters by the consequences of the COVID. But in a long term run, we are celebrating our 50 years as appears in every slide this year. So we are preparing the group for the next 50 years. And with this, by far, the added value of the high-performance alloys should be also an issue. For the future success of the group, keeping the working capital management in the same discipline that we have done up to now. And obviously, regarding also the integration of VDM, we shall make our best and also in terms of the CapEx control, keeping it ongoing. So at the end with this, what we can probably assure is the strength and the performance of the company, very, very focused on the capital allocation areas, which is our priorities.
So as Miguel mentioned, we are long-term runners, and we need to have a strategy, and this strategy cannot only be how to sail our ship through these storms. We have to be flexible. We have to adapt our business to the times, the situation, but the company needs to have a north and a clear north. And I think we have it. And I like very much this kind of logo because it represents very well the spirits and the values of Acerinox. Of course, we based everything on our strong balance sheet because cannot be different. The company cannot be sustainable without the strong financial basement. And we have already demonstrated that we are sustainable after 50 years of life, and we will demonstrate that we still are sustainable because we are going to last more than 50 years more. In the middle, in the core of this is excellence and added value. In some extent, it -- excellence represents the stainless steel business. In commodity, you have to be not good; you have to be excellent to succeed and to have margins. But in added value, it is a different business. And this is VDM. But we have been the kind of interaction between the 2 businesses because VDM is going to drive Acerinox to high added-value products, to projects to different alloys, more special stainless steel, and Acerinox is going to move VDM through the excellence plans, and we will make it more competitive. So this is the core of our business. And of course, sustainability is on top of this. It's surrounding everything because today, you have to be sustainable. Sustainability is surrounding all our business. And sooner or later, our customers and the society is going to put in value what sustainability is and what sustainability represents for a company because we can -- we have to take care of the planet. And we have to take care of our people and the next generations. And stainless steel is a perfect product for this recyclable -- unlimited recyclable. We are making our stainless steel with more than 50% of recycled material. We are working on how to use the second life to our byproducts. We are working in the circular economy. It's a long-lasting product. Everything made in stainless steel can last forever. Everybody is still keeping in all the pots and pans, so the category that was given in the waiting, things like this. The stainless steel is forever. It's a sustainable product, and we are making our company more and more sustainable because sooner or later, there will be a value for all of us. And of course, as we mentioned before, a strong balance sheet, strong balance sheet and moving on excellence and moving on added-value products and moving on excellence through our Excellence 360º Plan, that is still working well. We are making progress, even in these difficult years because it is difficult to run a stainless steel plant with this on-and-off system. We need continuity. We need a long series. And this is not easy when you are running the plant in this way, running for 15 days without stopping. And even in this situation, instead of producing slowly and producing with low productivity, we are moving our people home where we don't need the production, but keeping the productivity during the time that we are working. So keeping the same standards of production and improving through a lot of digital products that we are facing today because we fully believe that digitalization will help us to be more competitive. Many people think that digitalization is an opportunity. I think it's an opportunity or a risk because you cannot miss it but it's important to apply this digitalization, this -- all these technologies to the experience of the people. It is not only to be digital, you have to be digital for something. You need to have a target and you need to know where to apply. And we are applying toward our experience of 50 years, we are applying the best technologies. So we are improving in productivity and efficiency, metallic yields. We have a lot of projects in energy savings, optimization of our productivity, our production lines, our mix and our routines, optimization of the supply chain, we're working in every area, using the best tools that we have available in the market. So still in these difficult times, we are getting EUR 17 million in this excellent plan. And before the Q&A, I will finish trying to give you some outlook and some conclusions of this presentation. It is clear that the remainder of 2020 will continue to be very challenging. Probably, we have already passed the worst. Probably we have that inflection point in June. But still the situation is going to be tough. Still the recovery process is not going to be clear. We don't know the shape of this recovery process. But what we can tell you is that we will remain our business flexible and adapting to the situation. We will sail in these waves. We have already see -- show some signs of recovery in Europe, not the same in every country, but Europe in the stainless steel business is already recovering. Of course, United States market never went down as much as the European one, but -- and it is moving up. So we see sign of recovery in the traditional extended steel industry; at the same time, we can also see a slowdown in projects. And projects will affect times and pots, assorted tanks and this kind of producing capital goods in stainless steel, but it will also affect to our division that is more focused on projects that is VDM. So this is more or less how we see the quarter 3. And of course, no visibility for quarter 4 or later. And of course, as I mentioned, in Q2, we acted the facility to take out costs and to keep liquidity, and we will continue controlling the controllable aspects for our business. This is our priority. Operating performance, capital allocation and management of all these situations will be key for us and still cash is king. We will continue with our process of VDM integration, trying to allocate more synergies, trying to develop the synergies that we have already discovered. And what we can tell you is that regardless of the environment, we will never lose sight on our long-term strategy. We'll develop our strategy, integration of VDM, our strategic sustainability, our strategy of excellence and digitalization plans and being as competitive as we used to be and even farther in the future. The situation, what can we say about Q3? Not clear at all, but we expect to have more or less results in line with the Q2 report. And this is what we can say today. And I hope this presentation has been clear to understand, and we have been able to explain the situation in a very difficult environment with the integration of VDM. Probably you will have a lot of questions about how we consolidated these numbers in our accounts. So now we are open to your questions. Thank you very much for your attention.
Okay. Thank you very much, Bernardo, Miguel, Daniel, for the presentation. Let's move now to the Q&A session, please. We can start with the questions from the conference call.
[Operator Instructions] Our first question comes from Alan Spence from Jefferies.
I just got 2. Firstly, on the very impressive cost performance you achieved in the quarter, how much of that was driven by the likes of short time working schemes and lower consumption due to activity compared to what portion of that is something more sustainable that you think you might be able to hold on to?
Well, basically, I think what we have make our most is in terms of flexibility. The flexibility, as has been explained, is coming from our experience in the prior crisis. I think we have extreme flexibility in North America and stainless. This is another relevant fact. And in this regard, all our staff there always has given a big demonstration of commitments. And in this regard, this flexibility is the one that when difficult times arise in terms of impact on volumes, we are able also to maintain -- I'm sorry, reduce costs by the way of reducing subcontractors. Part of our workforce means what was previously jobs done by subcontractors. And with that, we obtained certain savings in that area. We also, in South Africa, we have also a system which allows us to have certain flexibility. And consequently, when the orders book made that the production is affected, we have the possibilities also that people take holidays and consequently as a way for that, more or less, we have a quick reaction for adapting the production to the order book. In the case of Acerinox Europa, a part of the retrenchment plan we made last year, which is a definite one. We have made a temporary one in this year, and this is taking place for the coming 12 months. And consequently, to adopt also the workforce present on the plan to the circumstances and to the production. So in general, I think that we can remain keeping that flexibility to adapting the workforce presence in our plants to the situation of the production. And this is probably keeping for the coming months. And the most clear case, which is in Acerinox Europa, which probably, in Spain, the regulation is more strict than what use in other areas. And with this system that we have and with the actual [ indiscernible ] in place, a temporary retrenchment, we have that flexibility for 12 months.
If I can add something, we have to make a difference between cost control, that is what we have done under this situation, trying to variabilize our fixed cost as Miguel explained, with maintenance, with subcontractors and with people and a different story is what we're doing in our cost reduction programs, and cost reduction programs includes Excellence 360º and many other programs that we are taking in place. So we are always working on cost reduction. This is something that we have in our root. But this situation is something different. It's something unique. We need to manage the cost-cutting in a very short period of time, and we have to do that through the do's that Miguel have explained. But we always are improving our competitiveness through our cost reduction programs.
That's very helpful. And then in the outlook, you flagged the slowdown in the performance or a slowdown for high-performance alloys for Q3. But given the fact that I believe you've got a quite a bit longer visibility in the order book there compared to stainless, can you give us a bit of a sense of what you would expect from that division into the fourth quarter?
As we have mentioned during the presentation, it is good to have a new business now in our group. VDM that is in -- has a cycle, of course, is also cyclical, but has a different cycle. During -- especially during April, May with the lockdown of the economy. In the case of stainless steel, our stockholders didn't place any other so that affected very much to the standing steel business, while at the same time, projects were still working. But there's no new projects in the business. Now it is difficult under these circumstances to invest in new price. And this is affecting not only the high-performance alloys but also the stainless steel that is applied in these kind of projects, as I mentioned in times or capital goods. So this will affect Q3 because in the lockdown of the economy, nobody placed another or in stainless steel or in new projects. So fortunately, fortunately, we have [ Idea ] and VDM with its integration helped the Acerinox group to have this positive results in Q2 and in Q3, we will see that the stainless steel section will help with that is -- will live better within the stainless steel group of Acerinox. So the addition of these 2 effects will be in line with Q2, as we mentioned.
Any comments on Q4, if you have the ability to?
No, sorry, but no comment for it. No, it's impossible to predict what can happen in Q4.
Our next question comes from Seth Rosenfeld at Exane BNP.
If I can just follow-up a few more questions with regards to outlook for Q3, please. Just to clarify on the guidance, which you note is stable quarter-over-quarter. Is that relative to the adjusted EBITDA of EUR 94 million or the reported EBITDA of EUR 80 million, following on it. Within that, you comment on kind of demand trends for Alan's question. But just to clarify, do you expect to have stable shipment volumes in Q3? Am I right interpreting your last comments, that would include stainless up and VDM likely down Q-over-Q. I'll start there.
Well, yes, when we talk about that, more or less, EBITDA should be in line. It's difficult to be more precise, should be in line with the adjusted should be in line with the normal. The difference is purely the EUR 14 million, we have contributed as nonrecurrent of the expenses. But we just only talk about the inventory adjustment at the end of June was EUR 20 million. So depending on how is the final picture of the markets in September, we may know if this is needed, inventory adjustment at that time or not. So in this regard, just with a robust and stable performance we are showing in the slides, we cannot precise and even obviously, still, we even do not know if we shall be in EUR 80 million or in EUR 94 million, but I don't think this provides a big difference. We shall be there. We shall be there as a consequence of the facts we have mentioned. There are strong performance and good recovery in the states. And this obviously, our main market is North America. Our best plan is in the best market and is a market which is doing robustly. So this is a nice contribution for the third quarter. And as has previously explained, in bad times or struggle times for stainless. The alloys has neutralized effect of the COVID. The contribution of the alloys division in the coming quarters, as a consequence of the COVID may be lower, but we shall have the other facts so still, we consider that we shall keep this consistent. The issue if we are going to be in the mid-80s or in the mid-90s, we don't know, but we shall be in that range.
So I think shipments will go up because VDM shipments is irrelevant for our business. The sales in euros will be more or less the same. And EBITDA, as Miguel mentioned, will be more or less in line with Q2.
And just one final question on working capital. Obviously, it's been a strong source of cash to date. Can you touch on your expectations for the second half of the year? With demand coming back, do you expect some working capital investment might be needed? Or do you view the recent gain as being more structural in nature?
I think we have adopted ourselves properly to the performance of the market. So I think what we have achieved in the second quarter in terms of the working capital, probably the bigger pain in terms of cash has been in regarding of the suppliers and procurements, mostly raw materials. So in the second quarter, we have achieved most of the payments of the raw materials we consume and we produce in the first quarter. So this is a big cash out. And because of the low levels of activity, there has not been the equivalent entry of additional raw materials. So as a consequence of that, the reduction in suppliers has been strong, as we mentioned. But we have made an excellent effort in terms to reduce our inventories level for mitigating that. And also, we have been very, very consistent with our collections. So having said that, from now on, if there is a market recovery in the coming months, what we can expect is that the normalization of the entries of raw materials shall be a driver for the working capital. And then our commitment is to keep the discipline as much as possible, obviously, in terms of inventories. So we consider that we shall be in position now generating probably also a positive contribution for working capital in the -- in our cash flow statements. And this is more or less with the visibility we have up to now. So in this regard, we think and we expect that also we may pass through the quarter and having a positive cash contribution, mostly from results but also from working capital. And consequently, some net debt reduction also in the figures of the third quarter. This is what we addressed. From the structure of our working capital, now if there is an improvement in the market, I think we -- this time, we should be well protected. As a consequence, that what should be more coming is new entries of raw materials, and we shall also be financing through suppliers. So this should be not corrections for the coming quarter as we expect from now.
Our next question comes from Ioannis Masvoulas from Morgan Stanley.
I just wanted to ask you on VDM. You talked about the lack of new projects. Can you talk about the outlook on and use level? Is it mostly oil and gas or some of the other sectors also impacted?
Thank you for your question. We are seeing that the big projects in oil and gas are being postponed, not canceled, but postponed due to the actual situation. And we see some -- a big dip in the drilling activity with the creation of new rigs or the maintenance of the [ Actos ] one. For the first pass, we think that the CapExes of the companies will come back beginning next year. In the drilling activity, we do not see for the time being any improvement. But said that, we see improvement in other sectors where VDM is active like automotive, which is coming back, or electronics and electrical equipment, where we see also an increase. And there, I must point out the big advantage that VDM has due to the product portfolio that can supply material to different markets and take advantage of the sectors that are improving when others are lacking back.
The next question comes from Luke Nelson at JPMorgan.
Just can you give an indication on how utilization rates changed over Q2 in stainless steel? And how you expect that to move over Q3?
Okay. Utilization rates in Q2 have been very low because remember that we had the Columbus plant in South Africa was closed for a little bit more than 1 month. We also had 2 weeks Malaysia working lockdown and another 2 weeks working at 50% of capacity utilization. In Acerinox Europa, we are currently working at 50% of our capacity utilization in the United States. We targeted to finish the quarter working at 50%, but things got -- the situation has already improved, and we are working more or less at 70%. Of course, in Q3, we expect to improve our situation. As an average of the group, we can work around 70% -- 75%, 80% of the traditional capacity utilization. I mean traditional is not the capacity of the lines, but they compare with the best periods that we have already got in our life.
And then 2 follow-up questions on VDM, if I may. Firstly, just on operating cash flow. I think you reported around EUR 111 million of operating cash flow at group level. Is it possible to give a sense of how much related -- of that related to VDM? And then my second question is you've changed your midterm synergy targets from what you previously guided, around EUR 14 million. Can you maybe give a sense of just what's driving that as well?
Well, basically, in regarding to VDM, what we understand from the alloys business for the coming months is that, obviously, the margins shall be affected. The contribution of VDM shall be lower, but we are talking about contribution, not about deduction. We are talking about contribution. So the contribution may be lower but remaining profitable and remaining positive cash flow generators. So this is more or less the fact of our comfort. VDM is a very, very well-managed company and with a long experience in running the business through every part of the cycle. So in this regard, the -- the effects of VDM in the coming quarter in terms of profit contribution and also the effects in cash shall be probably lower in accordance to their business, keeping in mind the range of productivity VDM provides. We have been talking about 25,000 tonnes. So it's, let's say, by boutique of high added value products. So in the good times, they contribute with high profits. But in the bad times, they shall not deduct, and they should contribute with some cash generation and also with some maybe lower profitability, but profitability in a case. But shall not be a big distortioner of the rest of the results and the cash flow of the group.
Regarding VDM, remember that when we presented this operation, first of all, we mentioned that the operation was good itself that we didn't -- and was a creative for the -- for Acerinox even with 0 synergies, and we were prudent, declaring that EUR 14 million synergies that we detected and during the process. Now that we know VDM better and now that VDM is more integrated because even with the distance, with the impossibility of having presidential meetings, we know each other much better than before. And we are investigating that we can have bigger synergies in the operational side, especially in the operational side. It's more than we can do for VDM, and it's more that VDM can do for the traditional Acerinox group because we are all -- today, we are all Acerinox, and we are detecting this possibility to and of course, I am sure, and I can promise you that in the future, we will increase this number because we are still finding more areas where we can improve. So with the knowledge of BDM and Acerinox, with the knowledge of how can we interact and how can we help each other, meeting by meeting, we will disclose higher synergies, I get it, because the -- the possibilities. This complementary business is more complementary than we thought. And of course, and we can -- we can increase our portfolio of products in both stainless steel and in high-performance alloys because we can use our facilities to produce high-performance alloys, and we can use VDM's facilities to produce other range of dimensions of stainless steel. And in the selling side, we have founded out that we can go together to many projects. So this is just the first step.
Okay. And just a follow-up, if I may, just on that. Is there any underlying sort of assumptions there around sort of end market, particularly you'd spoken about the full expansions into North America. Is that yet reflected in those synergies? Or is that additional upside we can think about going forward?
Of course, we have a very good opportunity in America. We are market leaders in United States and in all North America. VDM has a weaker position, with the images stronger in Europe. And of course, we will find a way to cooperate in United States. I think we -- with the leading position of North American and stainless, we'll find many opportunity is there. And also with the flexibility of our plan, we will find how to process some of the VDM material there. I can tell you that after 3 months, we have already succeeded in several trials that we have made. So we are processing stainless steel 2 meter splits in Germany, in VDM, we are -- we have process slabs and billets from VDM in the Acerinox factories. So the combined business will improve.
The next question comes from Sebastian Synagowitz from Deutsche Bank.
So my first question is on Malaysia and Columbus, which were partially shut in the second quarter, and I suppose that both of them were probably direct on EBITDA. I understand you usually don't give that granularity, but could you please update us in terms of the current EBITDA run rates, which Bahru and Columbus have both been contributing?
Well, definitely, Columbus, as you know, is mostly as an exporter -- export replier. The situation in Europe has been substantially affected in the quarter. Columbus was forced by the South African government to be close all the month of April. So the activity of Columbus has been consequently May and June. It has had a positive contribution, no doubt in May. The contribution has been a bit lower in June as a consequence of the actual circumstances. So the natural exporting markets of Columbus is Europe with -- where the prices are absolutely horrible, as has been previously explained, with a very, very relevant market share coming, taking from the imports and driving the prices to greater levels in Europe and the situation in Asia also is very tough. So the natural export markets of Columbus are affected. And also, the South African economy is not easy in its best days. Columbus can be fully, fully efficient running at certain levels of capacity utilization, but actually, we are below. And as we have mentioned, in the quarter, Columbus shall be -- has been probably in the range of 50%. So in this regard is difficult to be profitable. We hope that the situation may improve, and we are making our best in order for increase the productivity and also the margins. But the end, Columbus in this regard, because of depending of these markets, is more fragile than other plants of the group.
Are numbers -- is it fair to assume that Columbus may even have been double-digit negative on EBITDA level, from what you're saying?
By far, not double digit. And I think it's -- we can -- we do not make a disclosure of figures, Bastian, as you know, per business line. But at the end is, let's say, that has not been deducting. That's it.
And on Bahru?
As we have been mentioned, Bahru has been -- at the end, we have been reviewing all the projections we made at December as a consequence of the COVID. And as we said before, the margins in Bahru has been a struggle as a consequence of the big excess of material. In Asia and mostly in China, the production figures has been very, very strong in this period, even though the consumption areas were affected. So consequently, still there is an oversupply. So this pushes margins absolutely down. And as we said before, the exporting possibilities for the Asian players to Europe and America now are much more narrow with the [ saver ] measures. So as a consequence of that, the margins in Malaysia are very bad and this made us make that such impairment of…
[indiscernible]
EUR 43 million. There are bad, but not double-digit bad, as Bernardo says.
And on an operating level, did your cost structures allow you to still retain a positive EBITDA contribution nevertheless? I suppose before have been difficult.
But you know that we are improving our breakeven year by year. So we can do it. We can manage the -- we have demonstrated in these numbers that we can manage the personnel costs, maintenance, all the fixed cost, following the rhythm of the market. But we have worked very hard since 2008 to make all our fixed costs variable. And this is -- this result is a clear demonstration so of course, we can do it. We can run it.
So to be clear, you have actually breakeven in Bahru despite the challenges you faced in that quarter?
We just needed a little bit more price. Today, market prices are an incredible low level. And sooner or later, will recover, will recover because this is totally sustainable for the area and for the whole world. So a little bit more price, and then we will reach this breakeven point very, very, very soon.
And then in terms of magnitude, again, like without maybe going like precisely into numbers, but as you mentioned for Columbus, which you said is definitely not double-digit negative. Has Bahru potentially even double-digit negative that quarter? Or has it been also like in a smaller magnitude?
I don't know, slightly negative. Slightly negative. Remember that in Bahru, we are not only supplying black coil from our group that they are buying at the Asian prices at the shell level. So we are buying from Indonesia, we are buying from China and even using these low raw materials, still we are slightly negative. So it's difficult with the level of prices to keep the factory in positive, but it's difficult for Bahru and for the rest of the players. I mean nobody is making money now at the level of prices in Asia and it's also tough in Europe. So with a more normal situation with a little bit more activity, we will come back to positive.
Okay. Okay. Very clear. Then just secondly, following up on the book value here in Bahru. Could you just let us know what's the residual book value you're carrying at the moment? And are you still actively looking to find a strategic solution for the unit? Or has that been put on hold now given that the current situation requires our full attention on the rest of the group?
Well, we have made an impairment of EUR 43 million, as you know. And this came as an impairment of a range of around EUR 100 million we made in December. So the book value of Bahru on the actual basis for the group is extremely low. And then, we are adapting ourselves of the situation. So I think there is big information in the annual -- in the -- sorry, in the semester financial report. So I think you shall find more information there. But we prefer not to disclose further details.
So the strategic solution of Bahru, we are still working on that. As we always mentioned, we are always trying to find the best solution for the group, not only for Bahru but for all the assets. We have all the assets of the group in constant review, but nothing has been decided.
Okay. Okay. Then just very lastly on VDM, which seems to be impacted quite a bit by the weaker demand in the energy segment in particular. You talked about the postponement of some of the projects. But obviously, some of that could be -- very well be of more structural in nature. Have you already considered a more pronounced cost-cutting or restructuring program in VDM to address this? Or are things like the European hydrogen strategy, which will probably require a lot of VDM's materials? Will there be potentially enough to step up and compensate for part of the demand you may be losing in oil and gas?
I think we were lucky to buy a company that was already restructured because the previous panel made this homework. So VDM is in good conditions today. Of course, there's always room to improve. And of course, applying this expertise of Acerinox in cost-cutting, in optimization of process and everything, they will improve. And we will improve as well from learning from VDM, no? But I think there's nothing structural that we have to make in VDM. It's a good company. It's a good business. The management run the company very well. And of course, we have to work in cost-cutting, we have to apply the same receipts that we have been applying in the rest of the Acerinox group, but there's nothing structural, nothing -- no dramatic actions.
The next question comes from Olivia Du at Bank of America.
So most of my questions have been answered, but just 2 quick follow-up, please. The first one, can you please remind us what is the lead in EBITDA if we only take April to June, please? Because presumably in March period, it is doing relatively better than the subsequent period. And then could you please comment a bit on the end market trend by geographic regions for VDM? Because there's a total presence of VDM in Asian market in my understanding. And if so, what is the major end market by sector over there? And is that contributing positively, please?
In terms of the -- thanks, Olivia. In terms of the -- as is expressed in the -- I think in the report, in the semester report, it's detailed that from the contribution of EUR 23 million of EBITDA coming from VDM, it includes EUR 10 million, which correspond to March. So just purely deducting the contribution of the second quarter has been EUR 13 million. In terms of the markets, Daniel?
Yes. In the case of VDM, the split is not so much by geography, but by end-user market. So we are speaking about 5 main end-user markets in which VDM is located. The ones that are underperforming as of today is oil and gas and aerospace. The ones that are compensating partially this dive is CPI, the chemical industry, electronics and electrical engineering and automotive, which is coming back. And again, I would like to highlight that the broad product portfolio of VDM enables them to compensate one market or one sector with another as they already proved in the 2015 oil crisis, which -- they were very resilient to that factor.
Normally, when we are speaking about the appliance sector, the importance of the white goods for the stainless steel. Now we have to add another sector of also appliances, but different appliances that use VDM's material, for example, the electronics, they always use high-performance alloys, TVs with the [ new technology ], are using VDM's material, but also in a hairdryer, in a duster, whenever you have a resistance, wherever you have high temperatures, you will find high-performance alloys. So in some extent, this market is now even booming in Europe and United States. So we expect a fast recovery in automotive, as Daniel mentioned, and electronics and electric applications.
And just to push a little bit more on the fixed cost reduction beyond Q2, so the plan by the group is still to continue the current effort, but have you factored any potential risk to diminishing furlough benefits?
As we mentioned, we made our fixed cost variable. So we will follow the trend of the activity. We have people -- our people now in a temporary layoff, we will reduce this temporary layoff. If we have more activity, the same that will increase our maintenance and our -- the subcontractors' activity. We have our activity in our plans. So this is what you can expect. There's more activity, we will increase our cost, but this is good for the business. Potential risks, no. I think we have a very good labor environment. We have very good communications with the unions, in the plans that we have unions, with the workers in the place where we don't have unions, but the communication is good. I think that they evaluate very much the way that the company is taking care of employment. And we have a lot of experience in managing this kind of crisis. Unfortunately, but we have learned a lot in this super cycle economy. So we don't expect any risk.
The next question is from Tom Zhang at Crédit Suisse.
I just got 2 left, please. First of all, just following up on the VDM EBITDA. Could you help us what should we think about as, I guess, a normalized level of earnings? Because in March, which was just 1 month, you had EUR 10 million. And then in all of Q2, it was EUR 13 million. Was there anything exceptional in March or should we think about that as a normalized number? Or was Q2 sort of negatively affected by the early impact of lockdowns? More normalized number that we should think about?
March has been the higher month for VDM of the 6 -- first month of the year. So when we talk about -- and as we said before, we talk about normalizing contribution of VDM in terms of EBITDA in the mid-80s. This means that the normal level should be EUR 7 million per month. So I think in this regard, the -- probably March is a high reference, was a high positive month for VDM. In the second part of the quarter, we shall experience also some reduction in the margins. About EUR 10 million EBITDA contribution per month is abnormally high, should not be taken as a reference.
I see. And just the second one, a short one. Just wondering in the U.S., with the increasing rate of infections, whether or not you see any tapering off in terms of your orders, your shipments maybe towards the end of Q2, whether or not you see any impact on demand from that side, yes?
Yes, of course, we have been keeping a very close eye in the demonstration in United States and the possibility of COVID increase. And we are still keeping an eye on this because it is very, very important. It's very relevant for our business, but this does not happen. To the contrary. I think the American economy is starting to recover. So I speak about the automotive industry in United States, is probably working at 80% of capacity utilization now of a normal situation. Appliances is now 100%. Of course, there are some other industries like catering that is totally collapsed with the restaurants closed. Nobody is investing now in new furniture for the restaurants. But in general, the economy is improving and it's improving faster than in Europe, for example. And, of course, taking care of everything and keeping our people under control, keeping all the safety measures and all the preventions in our plant. The situation, more or less in our estate is under control in Kentucky, and our plant is under control. I think there's a lot of cases, but also there's -- the hospitals are reacting well, and the tests are being applied more than in other places. And this is -- of course, this is a risk, but this is something that still we think that is under control, that we are -- what we are seeing is exactly the opposite. It's a fast improving of the economy and more optimism.
The next question is from Francisco Rodriguez from Banco Sabadell.
I have 2 questions, please. The first one would be regarding your expectations on net debt before the end of the year, towards the end of the year. And the second one would be related to your AGM announcement for the 22nd of October. I think I've been able to see the main points for the AGM have not changed. So basically, I would like to know if that implies that the dividend is on top of the table. And when are you willing to pay the dividend if there's any specific date.
Well, basically, regarding the net debt evolution, our expectance also is that we shall be generating positive cash flow, and this shall contribute to certain reduction also in the net debt from now to the year-end. So we are very, very comfortable with that as has been showing in the quarter and the traditional follow. It's clear that this year we are incorporating additional there for the acquisition of VDM, but we are reducing on a like-to-like basis on the other circumstance. In regarding also of what shall the net debt figure for the year and the cash flow. Definitely, we must keep in mind that the dividend, which was coming from your second question, has its relevance on the net debt figure and as euro market, up to now, the situation is that the proposals that the Board made to the shareholders' meeting when the release of the financial statements for the year-end remains in place. In this proposal, obviously, was the -- keeping the policy of offering of maintaining a dividend. Up to now, the proposal remains unchanged. Even though that if that were the case, and there were a full dividend paid in cash of EUR 155 million, even though that we consider we shall finish the year with a reduction in net debt. So this is a demonstration that we expect a positive cash flow evolution in the second semester. But from now to the 22nd of October, maybe there were changes. So the shareholder meeting shall decide regarding the dividend. The decision should take place on the 22nd of October. But up to today, the proposal still remains the same.
Francisco, good morning. Thank you for the question. You know perfectly because we spoke about this in the presentation of first quarter results that it was the original plan of the company that the Board of Directors made the proposal to keep the dividend EUR 0.5 per share. When we postponed the shareholder meeting, again, we said that the idea was to keep it, but that we should -- we have to be prudent. The visibility is so low, and the situation is so different that it's better to have more time to decide. And we think that in October, we will have enough visibility with the normal business, with our cash generation, with everything and we'll have a safe decision for the company. But the idea, and still, as we mentioned, we expect Q2 similar to -- sorry, Q3 similar to Q2. I think that the end of October, the end -- the finish at the end of the first quarter, we'll have enough visibility and our forecast will demonstrate that we can keep the dividend. So this is the -- today, this is the Board proposal to the shareholder meeting, and -- but we have to be decided and the only place that can be decided that is in the shareholder meeting.
This concludes the audio questions. We will now move to those from the webcast.
Thank you very much. There are several questions from the webcast. Most of them are already answered, but maybe we can elaborate a bit in some others. Iñigo Egusquiza from Kepler Cheuvreux asking about the VDM 3-year synergies target of EUR 22 million coming from EUR 14 million. We can make a breakdown of these synergies if are related to revenues or cost, if we can give a bit of color on that.
Okay. So more or less -- no, no. First of all, we have divided the synergy analysis that we did. You -- I mentioned over 90 synergy lines in 4 groups, no, in 18 lines. And as a mix, 50 -- around 50% is increase of revenues and 50% of industrial efficiencies, both linked, as Bernardo said. Partially, the industrial efficiencies come from improving the routing of the materials and creating new portfolio, which will enable us also to increase our sales of those materials. So more or less 50% revenues, 50% industrial efficiencies.
But we will not disclose the synergies.
Okay. Also [ in Okita and Fecal Santé ] from ASO Corporation, both would like to -- if we can give or elaborate a bit more on the strategy of Bahru, what is next on Bahru Stainless?
I think there's no more to add. As I mentioned before, all the assets of the Acerinox group are in constant review. So -- and we will always take the best decision for the group, but in the -- but nothing has changed, but Bahru is part of our group and our main part of the group, and we will make it competitive. There's no changes on this.
Okay. Next question is coming from [ Anina Morinta ] from Exodus Capital. Can we give a sense of how we should think about VDM's profitability in H2?
Nothing. Daniel also explained it very clearly. In the sectors debated in the sector that VDM is present, Aerospace now is down. It's down as I say in Europe, but it's starting to move up in China, especially. Oil and gas in drilling activity is now down, but the projects that have been postponed will come back very soon because these projects are not depending on just the price of oil, the oil price in certain months depends of this lockdown of the economy. These projects that we already decided are for 30 years. And most of them or all of them will go ahead. And they will take the decision -- or they will postpone the decision a little bit, but not too much. In electronics and analytic applications, high-performance alloys are growing. So it's not only that these markets are recovering or already almost 100% of the activity now, but also because every day, there's new applications for high-performance alloys because of the resistant to corrosion or high temperature or low-temperature or stability of the dimension. There's no expansion with the temperature, but they have plenty of activity. And the more sophisticated the electronics agreement are, the more they are using high-performance alloys. So this is a good market. In automotive, it is exactly the same. The -- these new motors of low consumption, they need high temperatures in the -- and turbo equipment. And these high temperatures needs high-performance alloys. So automotive industry is coming back, and it's also -- and the application of hypermetabolic is growing. And of course, chemical industry is another good point for VDM material because if we have learned something in this crisis that we need a lot of detergents, a lot of cleaning products and also the pharma industry is very -- is in very good shape. So -- and they are also using for these special times and special process, high-performance alloys, the same that use the stainless steel. So we will try to compensate with good sectors, the slowdown of other sectors.
Okay. Thank you very much, Bernardo. This is all from our side. Thank you to attend this conference call. And thank you to all the management to participate as well. And hope to see you soon and enjoy the summer. Thank you very much.
Yes. Thank you very much for attending this conference. Please keep safe. Please keep the virus under control, but enjoy your holidays. Have a good summer. Thank you very much.