Andamento fonderie alluminio post covid

Post-Covid Aluminum Smelter Performance: Profitability Rises After 2020 Crash, But Not Enough

The market demand of foundries, in 2021, marks a growth of +30.7% compared to the previous year, that of the national lockdown due to the Covid-19 pandemic (2020).

However, the sectors into which the sector is divided have moved in a different way:

- Cast iron foundries are those that recorded the most significant increase in revenues (+40.1%) after the -16.5% decrease suffered in 2020;

- These are followed by the aluminum foundries, with revenue growth of +30.2% (following the -16.9% of the previous year on 2019);

- Revenues from zinc and other non-ferrous metal foundries grew by +20.1%, recovering from -19.5% in 2020.

For all these segments, revenues are at their highest values in the last six years. The situation of steel foundries was different, for which the increase stopped at +5.5%, after a decrease that in 2020 was in any case less significant than that of the other sectors (-7.1%).

Overall profitability and growth in market demand: the ROE of non-ferrous metal foundries is good

The increases recorded in business profits compared to 2020 are exponential for both cast iron and aluminum foundries; in zinc and other non-ferrous metal foundries, +62.9% is reached compared to 2020; for steel foundries, on the contrary, the final economic margin decreased by -64.5% on the previous year. The overall profitability of the sector, measured by the ratio between profits and equity (ROE), is equal to 3.4% in 2021.

Although it too is growing strongly compared to 2020 (+125.8%), the levels of profitability are extremely different from one sector to another. The most profitable one remains that of zinc and other non-ferrous metal foundries: with a growth of +33.5% on 2020, the ROE of this sector in fact reaches 15.9%. Followed by aluminum foundries, at 6.1%, up by +931.5% compared to 2020. Cast iron foundries report the income statement in the profit area, recording a profitability of 1.6% (+2144, 1% on 2020), while the ROE of the steel ones undergoes a decrease of -64.6%, given that it compresses the profitability of the sector to 1.4%.

Characteristic profitability (ROI): better trend and performance for non-ferrous foundries

The overall profitability is a direct consequence of the trend of the profitability of the capital invested in the characteristic activity (ROI). At the overall sector level, the return on operating invested capital grew in 2021 to +124.4% and ROI was 2.7%. Once again, however, the differences between one sector and another are considerable.

In general, the levels of profitability achieved by non-ferrous foundries, i.e. aluminum and zinc, are better not only in an absolute sense, but also with respect to the financial costs incurred, if observed alongside those of cast iron and steel foundries. The highest ROI is that of the zinc and other non-ferrous metal foundries: their profitability rises to 12.2% (+18.1%). Thanks to the high levels of profitability and a good level of capitalization, these companies keep the overall financial risk under control and incur very low costs for their financing, depending on the margins generated.

The lower capitalization of aluminum foundries, on the other hand, exposes this sector to the highest level of financial risk in the sector: debt rises to almost twice the value of shareholders' equity, but the profitability achieved in 2021 (4.0%, in growth of +211.9% on 2020) does not affect overall margins and allows these companies to finance themselves at lower costs than the previous year.

The judgment on profitability changes if we look at the data from ferrous metal foundries: the ROI level of cast iron foundries, although improving (1.7%, up by +774.9% compared to 2020 when it was, however, even negative territory), does not protect these companies from a cost of money that is still too high for the profitability achieved in 2021. The financial situation is deteriorating due to the significant medium and long-term debt and the deterioration of treasury margins which suffer from the sharp increase in the cost of short-term supplies.

The situation of steel foundries is not positive either, the only sector that sees ROI declining (-83.0%), with an operating income that has fallen to 0.7% of operating invested capital. However, the worsening of the overall picture is mainly due to an unsatisfactory market demand in relation to the cost structure of the sector, which has led to a dangerously low characteristic margin. Steel foundries, however, remain highly capitalized and highly liquid: a policy which allows, even in such adverse situations, to maintain a particularly low financial risk.

The performance of aluminum foundries and the financial risk

In 2021 the financial risk of the sector, measured by the ratio between debt capital and equity, increased to 1.42 points (+12.3%): the worsening of the financial picture is explained by increased debt mainly to support the demand for market and working capital rather than for new investments in productive assets. The cost of money (ROD) decreases (-5.2%) as a function of a recovering profitability and capital solidity that remains good, albeit with important differences between one sector and another.

The steel foundry sector remains the most capitalized sector and with a financial risk still very low (0.82), although worsening in the last year (+23.6%); the cost of money, by virtue of the equity solidity just mentioned, is reduced to 0.3%, despite the economic scenario in contrast with the other sectors.

The zinc and other non-ferrous metal foundries obtain a substantially stable D/E ratio in 2021, with a mass of debt that slightly exceeds the value of shareholders' equity (1.11); the cost of money increased by 1.0% (+10.7%).

The degree of financial risk begins to be sustained in cast iron foundries, where the D/E ratio rises to 1.42 points (+14.7%); the cost of money also increased (+5.0%) albeit among the lowest values in the sector (0.8%).

The Debt/Equity ratio is highest in aluminum foundries (1.96), up by +4.9% on 2020: the sector suffers from a lower degree of capitalization, even if the good profitability achieved has allowed these foundries to record a reduction in the cost of money (-7.9%), although the ROD remains the highest in the sector (1.2%).

The spread of the sector improves and the market demand for foundries grows

The Spread of the sector returns a qualitative judgment on the levels of profitability achieved as a function of the cost of borrowed money.

2021 for Italian foundries was characterized by a decidedly improving Spread, thanks above all to the results of non-ferrous foundries: the overall figure for the sector is equal to 1.8%, with an increase of +569.7% on 2020, when Aluminum and Cast Iron reported negative values.

The good profitability result in 2021 puts the spread of aluminum foundries at 2.8%, with exponential growth compared to the previous year; overall profitability (ROE) grows as a function of the good characteristic profitability (ROI) which still allows borrowing at sustainable costs.

The spread of cast iron foundries returns to positive territory in 2021 (0.9%) but this result highlights a still low characteristic profitability (ROI) so that the sector can achieve ROE results that allow for a lower financial risk: the cost of money it is not high, but the risk level (D/E) is increasing on alert values.

The steel foundry sector recorded a sharply decreasing Spread (-89.8%) to 0.3%, an indication of a very low profitability situation, in 2021, which compressed the ROE of the sector, i.e. overall profitability: the strong capital solidity still protects these foundries from a financial risk that could jeopardize a still low cost of borrowed money, despite the unfavorable market situation.

Net financial debt (NFP/Ebitda): very different picture between sectors

If we comment on the general figure for the sector, 2021 sees net financial debt improve (+16.3%) in relation to Ebitda and stands at a value, -1.25 points, which returns a significant net debt position, but not yet on alarm values, flanked by economic profitability which, measured in terms of Ebitda, goes back to 8.4% of revenues.

Nonetheless, the situation within the sectors is highly differentiated, with some critical issues in particular for cast iron and aluminum foundries, where the profitability achieved does not allow us to comment on a financial picture that is out of danger.

The NFP/Ebitda ratio of cast iron foundries is the worst within the sector: in 2021, although improving (+27.1%) it remains above the critical threshold of two points (-2.02) with an Ebitda at 7 .4% of revenues. Although the financial indicator is improving, the profitability achieved in 2021 does not allow companies in the sector, despite the good level of capitalization, to mitigate the financial tension.

Even aluminum foundries do not have a particularly reassuring NFP/Ebitda ratio, albeit below the critical threshold: in 2021, NFP is in debt and equal to 1.72 times Ebitda, despite the growth of the latter to 9, 8% of revenues. The sub-fund therefore has significant debt, despite the good economic rebound, due to a lower capital solidity.

The zinc and other non-ferrous metal foundries remain in positive territory, i.e. with a net financial position in credit, albeit almost nil, in 2021 (0.09) and worsening (-68.8%); the Ebitda/revenue ratio is the highest in the sector, equal to 13.7% of revenues, up by more than two percentage points.

The steel sector remains, by far, the most financially solid one: the NFP (credit) is more than 3 times the Ebitda (3.62), with a further improvement in 2021 (+5.2%); however, economic profitability suffers a strong repercussion and Ebitda, in the last year, is reduced to 6.4% of revenues.


Source: In Fonderia - ll magazine dell’industria fusoria italiana