Aperam Ord Regulatory News (0OLF)

"Strong cash flow and earnings despite the worst stainless market environment since inception of Aperam"

Luxembourg, February 5, 2020 (07:00 CET) - Aperam (referred to as "Aperam" or the "Company") (Amsterdam, Luxembourg, Paris, Brussels: APAM, NYRS: APEMY), announced today results for the three months and full year ending December 31, 2019. 

Highlights

Strategic initiatives

Prospects

Cash Deployment

Financial Highlights (on the basis of financial information prepared under IFRS)

Health & Safety results

Health and Safety performance based on Aperam personnel figures and contractors' lost time injury frequency rate was 1.9x in the fourth quarter of 2019 compared to 2.2x in the third quarter of 2019. For 2019 the lost time injury frequency rate was 1.7x after 1.4x in 2018.

Financial results analysis for full year period ending December 31, 2019

Sales for the year ended December 31, 2019 decreased by 9.3%, at EUR 4,240 million compared to EUR 4,677 million for the year ended December 31, 2018, mainly due to lower shipments. Steel shipments in 2019 decreased by 9.4% at 1,786 thousand tonnes compared to 1,972 thousand tonnes in 2018.

EBITDA reached EUR 357 million for the year ended December 31, 2019 (including exceptional gains of EUR 17 million for PIS/Cofins tax credits related to prior periods recognized in Brazil) compared to EBITDA of EUR 504 million for the year ended December 31, 2018. Group EBITDA declined by 29% despite the positive effect from the Leadership Journey(R)4 and the Top Line strategy. A weak economic environment both in Europe and Brazil weighed on volumes while excessive imports into Europe severely depressed prices. Brazil additionally suffered from temporarily higher raw material costs that could not be passed on to customers.

Phase 3 of the Leadership Journey(R) - the Transformation Program - continued to progress over the year with an annualized contribution of EUR 90 million to EBITDA.

Depreciation, amortization and impairment was EUR (150) million for the year ended December 31, 2019.

Aperam had an operating income for the year ended December 31, 2019 of EUR 207 million compared to an operating income of EUR 361 million for the year ended December 31, 2018.

Financing costs, net, for the year ended December 31, 2019 were EUR (23) million, including cash cost of financing of EUR (10) million and including an exceptional financial loss of EUR (16) million related to the early buy-back of convertible bonds due 2021. Income tax expense for the year ended December 31, 2019 was EUR (37) million.

The Company recorded a net income of EUR 148 million for the year ended December 31, 2019.

Cash flows from operations for the year ended December 31, 2019 were positive at EUR 400 million, thanks to a working capital decrease of EUR 81 million. CAPEX for the year ended December 31, 2019 was EUR 151 million.

Free cash flow before dividend and share buy-back for the year 2019 amounted to EUR 281 million including EUR 30 million from the divestment of the entire Gerdau stake.

As of December 31, 2019, shareholders' equity was EUR 2,418 million and net financial debt was EUR 75 million (gross financial debt as of December 31, 2019 was EUR 450 million. Cash & cash equivalents were EUR 375 million).

Total cash returns to shareholders in 2019 amounted to EUR 235 million consisting of EUR 93 million of share buy-back and EUR 142 million of dividend.

During 2019, the Company fully repurchased the remaining part of Convertible Bonds 2021 with a nominal amount of USD 237.2 million for a total consideration of EUR 219 million.

On February 25, 2019, the Company announced the signature of a financing contract where the European Investment Bank makes available to Aperam an amount of €100 million. The financing contract, which is senior unsecured, with final maturity date March 15, 2029, was entirely drawn down on March 15, 2019. .

On September 27, 2019, Aperam S.A. closed a "Schuldscheindarlehen" loan agreement for a total aggregate amount of EUR 190 million, with maturities spread over 4 to 7 years.

The Company had liquidity of EUR 675 million as of December 31, 2019, consisting of cash and cash equivalents of EUR 375 million and undrawn credit lines4 of EUR 300 million.

Financial results analysis for the three-month period ending December 31, 2019

Sales for the fourth quarter of 2019 increased by 3% to EUR 1,000 million compared to EUR 972 million for the third quarter of 2019. Steel shipments decreased from 418 thousand tonnes in the third quarter of 2019, to 402 thousand tonnes in the fourth quarter of 2019.

EBITDA has increased over the quarter to EUR 102 million for the fourth quarter of 2019 (including exceptional gains of EUR 17 million for PIS/Cofins tax credits related to prior periods recognized in Brazil) from EUR 79 million for the third quarter of 2019. In addition to a seasonally weak quarter in Brazil the seasonal increase in Europe was rather soft. High import volumes into Europe caused prices to deteriorate further during the quarter. The weak economic environment also prevented seasonally higher volumes during Q4. Lag effects from raw material pricing caused positive inventory valuation effects during the quarter.

Depreciation, amortization and impairment was EUR (43) million for the fourth quarter of 2019.

Aperam had an operating income for the fourth quarter of 2019 of EUR 59 million compared to an operating income of EUR 43 million for the previous quarter.

Financing costs for the fourth quarter of 2019 were EUR (2) million, including cash cost of financing of EUR (3) million.

Income tax expense for the fourth quarter of 2019 was EUR (28) million, including a EUR (26) million reversal of deferred tax assets on tax losses in various jurisdictions.

The Company recorded a net income of EUR 29 million for the fourth quarter of 2019.

Cash flows from operations for the fourth quarter of 2019 were positive at EUR 162 million, with a working capital decrease of EUR 70 million. CAPEX for the fourth quarter was EUR (52) million.

Free cash flow before dividend and share buy-back for the fourth quarter of 2019 amounted to EUR 140 million.

During the fourth quarter of 2019, the cash returns to shareholders amounted to EUR 35 million, consisting fully of dividend.

Operating segment results analysis

Stainless & Electrical Steel (1)

(1) Amounts are shown prior to intra-group eliminations

The Stainless & Electrical Steel segment had sales of EUR 808 million for the fourth quarter of 2019. This represents a 4.8% increase compared to sales of EUR 771 million for the third quarter of 2019. Steel shipments during the fourth quarter were 402 thousand tonnes. This is stable compared to shipments of 401 thousand tonnes during the previous quarter. The weak economic environment in Europe and further destocking only allowed for a soft seasonal recovery post the summer effects while the seasonal volume decline in Brazil was supplemented by the weak economy. Average steel selling prices for the Stainless & Electrical Steel segment slightly decreased by -1% compared to the previous quarter.

The segment had EBITDA of EUR 275 million (of which EUR 150 million from Europe and EUR 125 million from South America) for the year 2019 compared to EUR 422 million (of which EUR 260 million from Europe and EUR 162 million from South America) for the year 2018. 2019 EBITDA declined year on year despite the successful implementation of the Top Line strategy and Leadership Journey(R) and exceptional gains of EUR 16 million in Brazil for PIS/Cofins tax credits related to prior periods.

Real demand was soft due to the low growth economic environment in both Europe and Brazil. Persistent high imports into Europe depressed prices. Soft global prices impacted margins in Brazil and made it impossible to pass on temporarily higher raw material costs to customers.

The segment generated EBITDA of EUR 87 million for the fourth quarter of 2019 compared to EUR 57 million for the third quarter of 2019 including exceptional gains of EUR 16 million in Brazil for PIS/Cofins tax credits related to prior periods. Slightly higher volumes in Europe and positive inventory valuation effects from raw material pricing added to the higher EBITDA which was partly compensated by deteriorating prices and a seasonally weak quarter in Brazil.

Depreciation, amortisation and impairment expense was EUR (34) million for the fourth quarter of 2019.

The Stainless & Electrical Steel segment had an operating income of EUR 53 million for the fourth quarter of 2019 compared to an operating income of EUR 28 million for the third quarter of 2019.

Services & Solutions(1)

(1) Amounts are shown prior to intra-group eliminations

The Services & Solutions segment had sales of EUR 382 million for the fourth quarter of 2019, representing a decrease of 8.6% compared to sales of EUR 418 million for the third quarter of 2019. For the fourth quarter of 2019, steel shipments were 144 thousand tonnes compared to 166 thousand tonnes during the previous quarter. The Services & Solutions segment had higher average steel selling prices during the period compared to the previous period.

The segment recorded EBITDA of EUR 46 million for the year 2019 compared to EUR 43 million for the year 2018. The higher result despite weak demand and negative inventory valuation was attributable to higher margin, lower costs through the Leadership Journey as well as various smaller positive items including Pis/Cofins credits.

The segment generated EBITDA of EUR 5 million for the fourth quarter of 2019 compared to EBITDA of EUR 9 million for the third quarter of 2019. EBITDA decreased mainly due to a pronounced 13% seasonal decline in volumes quarter on quarter.

Depreciation and amortisation was EUR (5) million for the fourth quarter of 2019.

The Services & Solutions segment had an operating income of less than EUR 1 million for the fourth quarter of 2019 compared to an operating income of EUR 7 million for the third quarter of 2019.

Alloys & Specialties(1)

(1) Amounts are shown prior to intra-group eliminations

The Alloys & Specialties segment had sales of EUR 160 million for the fourth quarter of 2019, representing an increase of 25% compared to EUR 128 million for the third quarter of 2019. Steel shipments were higher during the fourth quarter of 2019 at 9 thousand tonnes compared to 8 thousand tonnes during the third quarter of 2019. Average steel selling prices increased over the quarter.

The segment recorded EBITDA of EUR 50 million for the year 2019 compared to EUR 46 million for the year 2018 despite negative inventory valuation effects due to lower raw material prices. This is mainly attributable to the contribution of the Top Line strategy and Leadership Journey​(R).

The Alloys & Specialties segment achieved EBITDA of EUR 14 million for the fourth quarter of 2019 compared to EUR 12 million for the third quarter of 2019. The increase in EBITDA was mainly due to higher shipments despite negative raw material induced inventory valuation effects.

Depreciation and amortisation expense for the fourth quarter of 2019 was EUR (1) million.

The Alloys & Specialties segment had an operating income of EUR 13 million for the fourth quarter of 2019 compared to an operating income of EUR 9 million for the third quarter of 2019.

Recent developments

Aperam will potentially be able to also recoup overpaid amounts and account for additional pre tax income of up to EUR 200 million (including approximately up to EUR 100 million in EBITDA and approximately up to EUR 100 million in interest income) after approval of Court / confirmation by the Tax Department for recovery of overpaid amounts. These amounts would be recognized in the P&L in the year 2020 while the cash collection (net of tax) would take several years.

New developments

Investor conference call

Aperam management will host a conference call for members of the investment community to discuss the fourth quarter 2019 and full year 2019 financial performance at the following time:

The dial-in numbers for the call are: international +44 (0) 20 3003 2666 ; USA +1 212 999 6659 . The conference password is Aperam.

A replay of the conference call will be available for one year at https://channel.royalcast.com/webcast/aperam/20200205_1/

Contacts

Corporate Communications / Laurent Beauloye: +352 27 36 27 103

Investor Relations / Thorsten Zimmermann: +352 27 36 27 304

About Aperam

Aperam is a global player in stainless, electrical and specialty steel, with customers in over 40 countries. The business is organised in three primary operating segments: Stainless & Electrical Steel, Services & Solutions and Alloys & Specialties.

Aperam has a flat Stainless and Electrical steel capacity of 2.5 million tonnes in Brazil and Europe and is a leader in high value specialty products. In addition to its industrial network, spread over six production facilities in Brazil, Belgium and France, Aperam has a highly integrated distribution, processing and services network and a unique capability to produce stainless and special steels from low cost biomass (charcoal made from its own FSC-certified forestry).

In 2019, Aperam had sales of EUR 4,240 million and steel shipments of 1.79 million tonnes.

For further information, please refer to our website at www.aperam.com

Forward-looking statements

This document may contain forward-looking information and statements about Aperam and its subsidiaries. These statements include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, products and services, and statements regarding future performance. Forward-looking statements may be identified by the words "believe," "expect," "anticipate," "target" or similar expressions. Although Aperam's management believes that the expectations reflected in such forward-looking statements are reasonable, investors and holders of Aperam's securities are cautioned that forward-looking information and statements are subject to numerous risks and uncertainties, many of which are difficult to predict and generally beyond the control of Aperam, that could cause actual results and developments to differ materially and adversely from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include those discussed or identified in Aperam's filings with the Luxembourg Stock Market Authority for the Financial Markets (Commission de Surveillance du Secteur Financier). Aperam undertakes no obligation to publicly update its forward-looking statements or information, whether as a result of new information, future events, or otherwise.

APERAM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

* Increase in Net Financial Debt by EUR 27 million from EUR 48 million as of December 31, 2018 to EUR 75 million as of December 31, 2019

primarily due to accounting effects (+EUR 56 million out of which IFRS 16 Leases +EUR 29 million and Convertible Bonds 2021 repurchases

+EUR 27 million).

APERAM CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

APERAM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 Appendix 1a - Health & Safety statistics

Lost time injury frequency rate equals lost time injuries per 1,000,000 worked hours, based on own personnel and contractors.

 Appendix 1b - Key operational and financial information

Note a: Stainless & Electrical Steel shipments of 1,722kt of which 609kt were from South America and 1,113kt were from EuropeNote b: Stainless & Electrical Steel EBITDA of EUR 275m of which EUR 125m were from South America and EUR 150m were from Europe

Note a: Stainless & Electrical Steel shipments of 1,914kt of which 647kt were from South America and 1,267kt were from Europe

Note b: Stainless & Electrical Steel EBITDA of EUR 422m of which EUR 162m were from South America and EUR 260m were from Europe

Appendix 2 - Terms and definitions

Unless indicated otherwise, or the context otherwise requires, references in this earnings release report to the following terms have the meanings set out next to them below:

Adjusted EBITDA: operating income before depreciation, amortization and impairment expenses and exceptional items.

Adjusted EBITDA/tonne: calculated as Adjusted EBITDA divided by total steel shipments.

Average steel selling prices: calculated as steel sales divided by steel shipments.

Cash and cash equivalents: represents cash and cash equivalents, restricted cash and short-term investments.

CAPEX: relates to capital expenditures and is defined as purchase of tangible assets, intangible assets and biological assets.

EBITDA: operating income before depreciation, amortisation and impairment expenses.

EBITDA/tonne: calculated as EBITDA divided by total steel shipments.

Exceptional items: consists of (i) inventory write-downs equal to or exceeding 10% of total related inventories values before write-down at the considered quarter end (ii) restructuring (charges)/gains equal to or exceeding EUR 10 million for the considered quarter, (iii) capital (loss)/gain on asset disposals equal to or exceeding EUR 10 million for the considered quarter or (iv) other non-recurring items equal to or exceeding EUR 10 million for the considered quarter.

Financing costs: Net interest expense, other net financing costs and foreign exchange and derivative results.

Free cash flow before dividend and share buy-back: net cash provided by operating activities less net cash used in investing activities.

Gross financial debt: long-term debt plus short-term debt.

Liquidity: Cash and cash equivalent and undrawn credit lines.

LTI frequency rate: Lost time injury frequency rate equals lost time injuries per 1,000,000 worked hours, based on own personnel and contractors.

Net financial debt: long-term debt, plus short-term debt less cash and cash equivalents.

Net financial debt/EBITDA or Gearing: Refers to Net financial debt divided by last twelve months EBITDA calculation.

Shipments: information at segment and group level eliminates inter-segment shipments (which are primarily between Stainless & Electrical Steel and Services & Solutions) and intra-segment shipments, respectively.

Working capital: trade accounts receivable plus inventories less trade accounts payable.

1 The financial information in this press release and Appendix 1 has been prepared in accordance with the measurement and recognition criteria of International Financial Reporting Standards ("IFRS") as adopted in the European Union. While the interim financial information included in this announcement has been prepared in accordance with IFRS applicable to interim periods, this announcement does not contain sufficient information to constitute an interim financial report as defined in International Accounting Standard 34, "Interim Financial Reporting". Unless otherwise noted the numbers and information in the press release have not been audited. The financial information and certain other information presented in a number of tables in this press release have been rounded to the nearest whole number or the nearest decimal. Therefore, the sum of the numbers in a column may not conform exactly to the total figure given for that column. In addition, certain percentages presented in the tables in this press release reflect calculations based upon the underlying information prior to rounding and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers. This press release also includes Alternative Performance Measures ("APM" hereafter). The Company believes that these APMs are relevant to enhance the understanding of its financial position and provides additional information to investors and management with respect to the Company's financial performance, capital structure and credit assessment. These non-GAAP financial measures should be read in conjunction with and not as an alternative for, Aperam's financial information prepared in accordance with IFRS. Such non-GAAP measures may not be comparable to similarly titled measures applied by other companies. The APM's used are defined under Appendix 2 "Terms & definitions".

2 Exceptional gain of EUR 17 million in 2019 related to PIS/Cofins tax credits related to prior periods recognized in Brazil.

3 The Leadership Journey(R) is an initiative launched on December 16, 2010, and subsequently accelerated and increased, to target management gains and profit enhancement. The third phase of the Leadership Journey(R) - the Transformation Program - was initially targeting EUR 150 million of additional EBITDA gains per year by end of 2020. In February 2019, the annualized gains target has been increased by EUR 50 million to reach EUR 200 million by year end 2020.

4 Includes a revolving credit facility of EUR 300 million.

[1] Scope 1 + 2