Aperam S.A. · EURONEXT:APAM
Aperam — Q4 2019 Earnings Presentation
62 slides from Aperam's earnings presentation, Feb 5, 2020
Slide 1: Q4 2019 results
Q4 2019 results 5 February 2020 The sustainable top yielding company in Euro Materials 1
Slide 2: Disclaimer
Disclaimer 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 re
Slide 3: Content
Content 1. Q4 2019 highlights page 4 2. Financial results page 12 3. Value Strategy page 17 4. ESG page 26 5. Business Overview page 37 • Group Segments & corporate structure page 38 • Stainless & Electrical Steel Europe page 44 • Stainless & Electrical Steel South America page 48 • Services & Solut
Slide 4: Health & Safety Performance
Health & Safety Performance Health & Safety frequency rate of 1.9 in Q4 2019 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1Q 07 3Q 07 1Q 08 3Q 08 1Q 09 3Q 09 1Q 10 3Q 10 1Q 11 3Q 11 1Q 12 3Q 12 1Q 13 3Q 13 1Q 14 3Q 14 1Q 15 3Q 15 1Q 16 3Q 16 1Q 17 3Q 17 1Q 18 3Q 18 1Q 19 Q3 19 Health & Safety is our prime ob
Slide 5: Q4 2019 Operational highlights
Q4 2019 Operational highlights Q4 achieves a strong cash flow despite a weak seasonal improvement Q4 2019 key developments Adj EBITDA in line with guidance and high cash conversion results in low net financial debt Leadership Journey© gains are on track with EUR18m additional annualized gains in Q4
Slide 6: 2019 - a recession like stainless market
2019 - a recession like stainless market Real demand contraction and pricing pressure 2019 shows Aperam resilient results under trough conditions 110 100 1,972 1,936 1,917 1,886 1,786 90 80 70 Volume 10% 9% 12% 2015 2016 2017 2018 2019 8% 6% 6% 6% 5% 2015 2016 2017 2018 2019 Brazil SS consumption EU
Slide 7: Q4 2019 Financial highlights
Q4 2019 Financial highlights Solid free cash flow and earnings as well as a strong balance sheet despite a very weak environment Challenging market and Ni price drop triggered a soft seasonal rebound only Q4 key comments • Weak seasonal shipments due to EURm Q4 19 Q3 19 qoq Q4 18 yoy low real demand
Slide 8: Environment & markets
Environment & markets Inventory days remain elevated but Ni price drop promotes destocking. Extreme import pressure persists Nickel spike has almost completely reversed Market share of imports remains at peak* and stainless price is following 450,000 40% 3,500 350,000 20% 17,000 3,000 tonnes 250,000
Slide 9: Leadership Journey update
Leadership Journey© update Leadership Journey© is on track to defend Aperam’s position as lowest cost producer in Europe Progress & target phase 3 (recurring annualized gains) Target savings composition 200 Cumulated 180 EUR123m matic Leadership Journey gains (EURm) Sche- 160 140 Variable costs EUR9
Slide 10: Outlook
Outlook Q1 2020 guidance & other forward looking items Financial outlook Q1 2020: Adj EBITDA is expected at a comparable level versus Q4 2019 adj EBITDA – Soft seasonal recovery in Europe due to high imports and associated price pressure – Brazil’s seasonal trough quarter – Negative inventory valu
Slide 11: Corporate Access
Corporate Access Post Q4 2019 schedule • 6. Feb London Roadshow Bank of America • 7. Feb Frankfurt Roadshow JP Morgan • 11. Feb Paris Roadshow Kepler Cheuvreux • 12. Feb Netherlands Roadshow ING • 3. Mar Switzerland Roadshow Credit Suisse • 5. Mar Brussels Roadshow ING • 9. Mar Chicago Roadshow Degr
Slide 12: Financial Results
Financial Results Middle East Training Center, Beirut Rafic Hariri International Airport, Lebanon - Khatib & Alami Executed using grade316L with Uginox Méca 8ND fini 12
Slide 13: Financial results Q4 2019: Soft qoq seasonality
Financial results Q4 2019: Soft qoq seasonality with weak demand and price pressure in Europe and Brazil Stainless & Electrical Steel Services & Solutions Alloys & Specialties 185 177 54 1,558 1,489 142 28 adj EBITDA* 9 adj EBITDA* adj EBITDA* (EURm) (EURm) 805 (EURm) 87 4 71 a dj EBITDA/t (17) a dj
Slide 14: Q4 2019: Soft demand, destocking and high import pressure
Financial results Q4 2019: Soft demand, destocking and high import pressure weighs on seasonal EBITDA recovery Shipments suffer from weak demand, destocking Q4 adj. EBITDA reflects ongoing challenging market and high imports environment 12.3% 517 11.7% 11.6% 508 501 11.0% 495 150 480 141 467 465 130
Slide 15: Q4 2019: Stable Alloys, upstream seasonality
Financial results Q4 2019: Stable Alloys, upstream seasonality, S&S reflects tough market environment Upstream seasonality, downstream weakness, EPS reflects deferred tax asset impairment* alloys stability adj. EBITDA (EURm) 1.22 0.99 0.99 0.94 0.87 0.69 71 103 0.47 57 85 80 0.36 72 0.30 57 49 37 25
Slide 16: Q4 2019: Solid cash generation
Financial results Q4 2019: Solid cash generation and first step to normalizing working capital yield a substantial net debt reduction Hardly changed net debt despite a challenging year High FCF due to >100% cash conversion and a share buyback and a first step to normalizing working capital One-off &
Slide 17: Value Strategy
Value Strategy Adobe stock © Adobe Stock 17
Slide 18: Investment case & value strategy
Investment case & value strategy Guiding principle: Being a sustainable safe and profitable company Aperam foundation Lowest cost footprint Industry leading in Europe cash flow & & sole producer financial discipline in S. America Strong balance sheet & highest dividend Self help strategy (Leadership
Slide 19: Financial policy
Investment case & value strategy Financial policy: Strong balance sheet, investment in long term growth & sustainability and solid cash returns to shareholders Financial Policy 2020 ~EUR70m maintenance Company Sustainability, Upgrade and Transformation ~EUR15m Leadership Journey© ~EUR35m capex in Ge
Slide 20: Leadership Journey
Investment case & value strategy Leadership Journey© Self help has turned Aperam into a resilient, profitable and cash generative company Phase 1 (USD350m): Phase 2 (USD225m): Phase 3 (EUR200m): 2011-13 Restructuring 2014-17 Asset upgrade 2018-20 Transformation Realized cost savings Number of produc
Slide 21: Track record
Investment case & value strategy Track record: Aperam a solid performer even in challenging times Transformation yields a positive net income even Solid operating performance despite market headwind in a recessionary market environment 12.7% 4.00 3.39 11.8% 2.47 10.6% 10.8% 1.99 1.82 8.9% 0.91 8.0%
Slide 22: Resilience: Strong balance sheet
Investment case & value strategy Resilience: Strong balance sheet, high liquidity and low maintenance capex A strong balance sheet forms a solid base Low maintenance capex + solid investment in a volatile industry* in growth improvement 3.7 200 2.3 175 150 47 84 1.1 125 61 0.6 619 0.3 0.1 0.2 100 44
Slide 23: Shareholder focus
Investment case & value strategy Shareholder focus: We care about investors and can support it due to a high & stable FCF Solid cash generation through the cycle 126% 112% High profitability 69% 78% 85% 67% 59% 45% 377 374 400 354 295 Low cash taxes* 212 184 152 2012 2013 2014 2015 2016 2017 2018 20
Slide 24: Portfolio improvement: Top line strategy
Investment case & value strategy Portfolio improvement: Top line strategy Constant innovation to shift portfolio into attractive growth / margin segments New products in sales 130 125 120 Growth Niches Index 2015=100 115 Margin management / 110 demand driven 105 100 95 New Asian 90 competition 85 80
Slide 25: ESG excellence
Investment case & value strategy ESG excellence: Take a look at Aperam from an ESG perspective Our mission is to produce reliable, 100% recyclable, green stainless steel Products Non toxic, long lifespan and 100% indefinitely recyclable without loss of quality Climate change We have the lowest CO2 f
Slide 26: ESG
ESG Silène luminaris sive Muflier de Borges, Miguel Chevalier Fondation Clément, Le François, Martinique – France Fabrication : Serrurerie La Parette, Roquefort-la Bédoule Aperam stainless steel used : Aperam 316 Hot Rolled Aperam produces the greenest stainless steel globally 26
Slide 27: ESG summary
ESG summary ESG is core at Aperam and starts at the top We take E, S and G seriously Governance & Stakeholders Social • Our high ethical standards are reflected • Our people are colleagues with whom we share in our robust corporate governance and values and a common future – Their safety is our non-
Slide 28: Our products are environmentally friendly
ESG summary Our products are environmentally friendly Our mission is to produce reliable, 100% recyclable, green stainless steel • Our stainless & alloy products are 100% recyclable - without any loss of quality • Our products have a very long useful life – they support and enable a sustainable glob
Slide 29: Aperam produces sustainably and responsibly
ESG summary Aperam produces sustainably and responsibly Our mission is to produce reliable, 100% recyclable, green stainless steel Renewable energy Recycling In our BioEnergia unit, based in Brazil, we produce charcoal from our FSC-certified sustainably cultivated eucalyptus forests in Minas Gerais
Slide 30: Supports the UN Sustainable Development Goals
ESG summary Aperam supports the United Nations’ Sustainable Development Goals We take broad responsibility: our Products and Environmental and Social action Gender balance is ranked In our forestry, located on highly on our priority list as hydric-stressed areas like from 2017 and has received our o
Slide 31: Social: Our people are our asset
ESG summary Social: Our people are our asset Criteria 2020 Target Aperam 2018 status Steel industry 2017* Lost-time injury frequency rate <1 1.43 ! 2.93 Employee satisfaction1 N/A 86% 78% Women 12% of staff Diversity Increase 20% of exempts Training hours/FTE Increase 34 Absenteeism 2.0 2.29 Safet
Slide 32: Environment: A best in class footprint
ESG summary Environment: A best in class footprint² Criteria Target 2030 Aperam 2018 status Steel industry 2017 Energy intensity* 12.1 GJ/t -5% vs 2015 12.5 GJ/t -2% CO2 intensity** 0.45 t/t -15% vs 2015 0.49 t/t -9% 0.95 t/t² Water consumption 5.9 m3 /t -40% vs 2015 9.9 m3 /t -1% ! Dust intensi
Slide 33: Environment: convincing track record and targets
ESG summary Environment: Aperam has a convincing environmental track record and clear improvement targets* CO2 emissions (t/t crude steel)* Energy consumption (GJ/t crude steel) 0.78 0.70 0.72 14.7 14.0 13.8 14.0 13.6 13.6 0.61 0.58 13.0 12.8 12.8 12.4 12.5 0.54 12.1 0.50 0.48 0.49 0.48 0.49 0.45 20
Slide 34: Environment: Bio Energia & recycling
ESG summary Environment: Bio Energia & recycling give Aperam a best in class climate change footprint Aperam energy mix 2018 Aperam’s has the smallest CO2 footprint in the industry* CO2 t/t scope 1+2 2% 1.0 30% 33% 0.5 Aperam Stainless Industry 1% CO2 t/t scope 1+2+3 34% Factor 4-5x >8 Charcoal Natu
Slide 35: Governance: Our leadership team
ESG summary Governance: Our leadership team Key facts & compensation A diverse & experienced team • Entrusted with day-to-day management of the Company • Appointed by the Board of Directors • Experience and industry know how • Average age: 48 / 6 Nationalities • CEO: responsible for Aperam’s sustain
Slide 36: Governance: Board of directors and shareholder structure
ESG summary Governance: Board of directors and shareholder structure Principles of our board Shareholder structure ● Responsible for strategic direction and oversight of the business, as well as for appointing senior management ● Election subject to shareholder approval. Directors are 8% elected for
Slide 37: Business overview
Business overview Musée © Musée des Confluences in Lyon, France. Architect: Coop Himmelb(l)au des Confluences, Sergio Lyon - France Pirrone. Stainles COOP steel used: HIMMELB(L)AU Aperam © Sergio 316L/1.4404 Pirrone with Uginox MeExecuted using grade 316L - microblasted finish 37
Slide 38: Group segments & corporate structure
Group segments & corporate structure 38
Slide 39: Group: Segments & corporate structure
Business overview Group: Segments & corporate structure* Stainless & Electrical Steel Services & Solutions Alloys & Specialties 2.5mt production capacity 40 kt production capacity 1.7mt of gross shipments 706kt of gross shipments 36kt of gross shipments 73% of group adj EBITDA 13% of group adj EBITD
Slide 40: Group: Segments & corporate structure II
Business overview Group: Segments & corporate structure II Production assets in Europe and South America Châtelet, Belgium Genk, Belgium Gueugnon, France Isbergues, France Timóteo, Brazil Imphy, France Location & facts Location & facts Location & facts Location & facts Location & facts Location & fa
Slide 41: Group: Segments & corporate structure III
Business overview Group: Segments & corporate structure III Aperam’s value chain Slabs Hot rolling Cold rolling / Finishing Service Isbergues Direct Châtelet 0.35Mt Sale 1.0Mt Service Center Châtelet Genk Stainless 2.8Mt 0.7Mt flat Direct Genk Sale End customers 1.0Mt Gueugnon Service Steel service
Slide 42: Group: A balanced risk profile and customer structure
Business overview Group: A balanced risk profile and customer structure Shipment split by segment 2019* Adj EBITDA contribution by segment 2019* 13% 29% S&E Europe S&E Europe S&E S. America 14% 42% S&E S. America 45% 1% A&S A&S S&S S&S 25% 31% Revenue by region 2019 Revenue by customer industry 2019
Slide 43: Group: Self help has transformed the group
Business overview Group: Self help has transformed the group. Higher cash generation and profitability even in adverse market conditions Adj EBITDA by segment (EURm) Shipment by segment (kt) 600 559 504 1,936 1,972 1,917 451 455 1,886 500 368 1,813 340 1,786 400 1,728 300 220 1,683 168 200 100 - 201
Slide 44: Stainless & Electrical Steel Europe
Stainless & Electrical Steel Europe 44
Slide 45: S&E Steel Europe: Self-help measures yield robust performance
Business overview S&E Steel Europe: Self-help measures yield a robust operational performance despite a price and volume squeeze Major adj EBITDA contributor 2019 Robust profitability capitalizing on restructuring 12.8% 11.1% 8.8% 9.1% 13% 6.7% 352 6.0% S&E Europe 2.7% 258 260 14% 42% S&E S. America
Slide 46: S&E Steel Europe: Leverage Aperam's unique position
Business overview S&E Steel Europe: Leverage Aperam’s unique position European stainless steel industrial footprint Aperam key competitive advantage Finishing line Steel making • The only integrated upstream Sourcing Sourcing operations in the heart of Europe • Superior access to scrap supply Outoku
Slide 47: EU trade action update
EU trade action update Further actions against unfair trade have been initiated in addition to the existing Safeguard NEW Safeguard Anti-dumping (AD) Countervailing duties (CVD) • Maintain traditional trade flows • Duty on imports that are priced below • Neutralize effect of subsidies that Aim fair
Slide 48: Stainless & Electrical Steel South America
Stainless & Electrical Steel South America 48
Slide 49: S&E Steel South America: A flexible, agile and highly profitable asset
Business overview S&E Steel South America: A flexible, agile and highly profitable asset A significant adj EBITDA contributor 2019 despite Earnings reflect weak domestic economic environment demanding conditions 17% 19% 17% 13% 14% 13% 13% 176 13% 167 162 S&E Europe 8% 14% 42% S&E S. America 120 113
Slide 50: S&E Steel South America: Our Brazil asset is unique
Business overview S&E Steel South America: Our Brazil asset is unique – the only stainless steel producer in South America Aperam South America footprint Upstream integration Caracas (Venezuela) Cost competitive & environmentally Cost competitive & environ-mentally friendly charcoal from own Bio Ene
Slide 51: S&E Steel South America: Brazil can switch flexibly
Business overview S&E Steel South America: Brazil can switch flexibly between products and markets to maximize profitability Key pillars Aperam’s asset optimization in South America • A wide range of products and geographical Flexible product mix Flexible regional mix sales enables further optimizat
Slide 52: S&E Steel South America: ample opportunity for growth
Business overview S&E Steel South America: Brazil offers ample opportunity for both cyclical and structural growth Brazil consumes substantially below the global trend line Brazil opportunities Short term: reviving the normal investment cycle in the economy. Large scale infrastructure & energy pro
Slide 53: S&E Steel South America: Brazilian protections against unfair market behaviour
Business overview S&E Steel South America: Brazilian protections against unfair market behaviour Type of products Import duties status Anti-dumping status China, Taiwan Stainless Steel Flat Normal import duties are 14% AD duties starting October 4th, 2019 for 5 years Products China USD175/t
Slide 54: Services & Solutions
Services & Solutions 54
Slide 55: Services & Solutions: stronger partnership with customers
Business overview Services & Solutions: stronger partnership with customers enhances margins A significant adj EBITDA contributor 2019 despite trough A profitable Services & Solutions thanks to its focus on conditions service oriented customers 100 19,000 80 17,000 13% 83 15,000 S&E Europe 60 65 70
Slide 56: Services & Solutions: Adding value downstream
Business overview Services & Solutions: Adding value downstream Services & Solutions value chain Input - - - - - - Service Centers - - - - - - Hot rolled coil / Cutting/ Polishing Packaging Logistics Customer Cold rolled coil Slitting Brushing Slit / Machined & Slit deburred deburred Square Round -
Slide 57: Alloys & Specialties
Alloys & Specialties 57
Slide 58: Alloys & Specialties: attractive niche market with high margins
Business overview Alloys & Specialties: attractive niche market with high margins High profitability due to end products & end user Aperam’s high value-added segment 2019 orientation 1,407 1,278 1,385 1,191 1,219 1,264 1,147 13% 864 50 S&E Europe 43 44 44 46 46 39 14% 42% S&E S. America 26 A&S S&S 3
Slide 59: Alloys & Specialties: global top player in nickel alloys
Business overview Alloys & Specialties: attractive niche market with high margins Aperam is global top player in nickel alloys and strong in Aperam Alloys & Specialties geographical footprint long products (kt) Rescal Amilly Imhua Wire The magnetic parts drawing company n n nnn n n n Imphy ICS (JV)
Slide 60: Alloys & Specialties: Specialty alloys add stability
Business overview Alloys & Specialties: Specialty alloys add stability and profitable growth element Innovation is key for premium …to cater for highly sophisticated …yielding growth opportunities and specialties… and evolving needs… margin stability R&D intensive industry High growth end market app
Slide 61: Appendix
Appendix 61 Résidence Hôtelière du Rail, Montparnasse station, Paris - France - aasb_agence d‘architecture suzelbrout - Executed using grade 304L, with Uginox Mat finish
Slide 62: Key stainless product categories by alloy content
Appendix Key stainless product categories by alloy content Martensitic Ferritic (400 series) Austenitic (300 series) <0.1% <0.1% <0.1% 17% 16-21% 10.5- 30% <1.5% 6-26% <4.5% <7% Car exhausts, conveyor chains, cooking utensils, Boiler, aeronautics, electronic components, Cutlery, cutting tools, const