Aperam : Third quarter 2019 results

Third quarter 2019 results​1

"Solid free cash flow despite a seasonal trough and challenging market conditions"

Luxembourg, November 6, 2019 (07:00 CET) - ​Aperam (referred to as "Aperam" or the "Company") (Amsterdam, Brussels, Luxembourg, Paris: APAM and NYRS: APEMY), announced today results for the three month period ending September 30, 2019

Highlights

• Health and Safety: LTI frequency rate of 2.2x in Q3 2019 compared to 1.2x in Q2 2019.
• Steel shipments of 418kt in Q3 2019, a 10% decrease compared to steel shipments of 465kt in Q2 2019.
• EBITDA of EUR 79 million in Q3 2019 versus EUR 95 million in Q2 2019 and down from EUR 123 million in Q3 2018.
• Net income of EUR 37 million in Q3 2019, compared to EUR 57 million in Q2 2019​.
• Basic earnings per share of EUR 0.47 in Q3 2019, compared to EUR 0.69 in Q2 2019.
• Cash flow from operations amounted to EUR 70 million in Q3 2019, compared to EUR 97 million in Q2 2019.
• Free cash flow before dividend and share buy-back of EUR 45 million in Q3 2019, compared to EUR 72 million in Q2 2019.
• Cash returns to shareholders amounted to EUR 35 million in Q3 2019, consisting of dividend.
• Net financial debt of EUR 172 million as of September 30, 2019, compared to EUR 176 million as of June 30, 2019.

Strategic initiatives

• Transforming our footprint with state of the art equipment:​CAPEX Guidance 2019 at EUR 150 million. Genk cold rolling and annealing & pickling line with a total investment of ~EUR 130 million between 2018 and 2020 on track.
• Leadership Journey​®2​​(Phase 3 - Transformation Program Target EUR 200 million annualized gains by 2020): Gains reached EUR 105 million cumulated at end Q3 2019 with good progress on all pillars.

Prospects

• EBITDA in Q4 2019 is expected to increase slightly compared to EUR 79 million in Q3 2019.
• Net financial debt is expected to decrease in Q4 2019.

Timoteo Di Maulo, CEO of Aperam, commented:

"Despite the normal Q3 seasonal downturn, intensified import pressure and market softness we delivered solid results and managed to maintain net debt at a low level. This underlines the resilience of our business model.

Looking ahead, we expect demand conditions to remain challenging. Further actions against unfair trade have been initiated this quarter with aim to restore a level playing field. Meanwhile we continue to strengthen our operations through ramping up EUR 200 million gains through Phase 3 of the Leadership Journey®."

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

(in millions of Euros, unless otherwise	Q3 19	Q2 19	Q3 18	9M 19	9M 18
stated)
Sales	972	1,090	1,123	3,240	3,557
Operating income	43	59	88	148	309
Net income attributable to equity holders	37	57	72	119	237
of the parent
Basic earnings per share (EUR)	0.47	0.69	0.87	1.46	2.80
Diluted earnings per share (EUR)	0.47	0.69	0.87	1.46	2.46
Free cash flow before dividend and	45	72	15	141	73
share buy-back
Net Financial Debt (at the end of the	172	176	64	172	64
period)
EBITDA	79	95	123	255	414
EBITDA/tonne (EUR)	189	204	263	184	277
Steel shipments (000t)	418	465	467	1,384	1,492

Health & Safety results

Health and Safety performance based on Aperam personnel figures and contractors' lost time injury frequency rate was 2.2x in the third quarter of 2019 compared to 1.2x in the second quarter of 2019.

Financial results analysis for the three-month period ending September 30, 2019

Sales for the third quarter of 2019 were EUR 972 million, down from EUR 1,090 million for the second quarter of 2019. Steel shipments decreased from 465 thousand tonnes in the second quarter of 2019 to 418 thousand tonnes in the third quarter of 2019.

EBITDA was EUR 79 million for the third quarter of 2019 compared to EUR 95 million for the second quarter of 2019. The sequential EBITDA decrease was mainly due to seasonally lower volumes in Europe, partly balanced by a positive price / mix effect. Brazil realized a seasonally higher EBITDA despite temporarily higher iron ore costs. The Leadership Journey® contributed EUR 16 million annualized gains to EBITDA. The cumulative annualized savings for Phase 3 now stand at EUR 105 million.

Depreciation and amortisation was EUR (36) million for the third quarter of 2019.

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

Net interest expense and other financing costs for the third quarter of 2019 were EUR (4) million. Realized and unrealized foreign exchange and derivative gains were EUR 3 million for the third quarter of 2019.

Income tax result for the third quarter of 2019 was an income tax expense of EUR (6) million.

The Company recorded a net income of EUR 37 million for the third quarter of 2019.

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Cash flows from operations for the third quarter of 2019 were positive at EUR 70 million, with a working capital decrease of EUR

(2) million. CAPEX for the third quarter was EUR (26) million.

Free cash flow before dividend and share buy-back for the third quarter of 2019 amounted to EUR 45 million.

During the third quarter of 2019, the cash returns to shareholders amounted to EUR 35 million, consisting of EUR 35 million in dividends. Total cash returned to shareholders during the first nine-months of the year 2019 amounted to EUR 200 million consisting of EUR 93 million of share buy-back and EUR 107 million in dividends.

As of September 30, 2019, shareholders' equity was EUR 2,394 million and net financial debt was EUR 172 million (as of September 30, 2019, gross financial debt was EUR 529 million and cash and cash equivalents were EUR 357 million).

The Company had liquidity of EUR 657 million as of September 30, 2019, consisting of cash and cash equivalents of EUR 357 million and undrawn credit lines3​​of EUR 300 million.

Operating segment results analysis

(1)
Stainless & Electrical Steel​
	(in millions of Euros, unless otherwise stated)	Q3 19	Q2 19	Q3 18	9M 19	9M 18
	Sales	771	842	917	2,544	2,927
	EBITDA	57	79	101	188	335
	Depreciation and amortisation	(29)	(30)	(31)	(89)	(92)
	Operating income	28	49	70	99	243
	Steel shipments (000t)	401	440	449	1,320	1,444
	Average steel selling price (EUR/t)	1,861	1,856	1,983	1,863	1,969

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

The Stainless & Electrical Steel segment had sales of EUR 771 million for the third quarter of 2019. This represents a 8.4% decrease compared to sales of EUR 842 million for the second quarter of 2019. Steel shipments during the third quarter were 401 thousand tonnes compared to 440 thousand tonnes during the previous quarter. Seasonal factors, continued high imports into Europe and weak demand in both Europe and Brazil explain the difference. Average steel selling prices for the Stainless & Electrical Steel segment remained stable compared to the previous quarter.

The segment had EBITDA of EUR 57 million for the third quarter of 2019 compared to EUR 79 million for the second quarter of 2019. The decrease in profitability was primarily driven by lower volumes in Europe. Positive price/cost and mix effects and positive contributions from the Leadership Journey® were not sufficient to balance the headwind.

The Stainless & Electrical Steel segment had an operating income of EUR 28 million for the third quarter of 2019 compared to an operating income of EUR 49 million for the second quarter of 2019.

(1)
Services & Solutions​
(in millions of Euros, unless otherwise stated)	Q3 19	Q2 19	Q3 18	9M 19	9M 18
Sales	418	453	489	1,391	1,599
EBITDA	9	16	8	41	46
Depreciation and amortisation	(2)	(4)	(2)	(8)	(6)
Operating income	7	12	6	33	40
Steel shipments (000t)	166	182	191	562	638
Average steel selling price (EUR/t)	2,397	2,374	2,436	2,358	2,403
(1) Amounts are shown prior to intra-group eliminations

The Services & Solutions segment had sales of EUR 418 million for the third quarter of 2019 compared to EUR 453 million for the second quarter of 2019. For the third quarter of 2019, steel shipments were 166 thousand tonnes compared to 182 thousand tonnes during the previous quarter. The Services & Solutions segment had higher average steel selling prices during the period compared to the previous period.

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The segment had EBITDA of EUR 9 million for the third quarter of 2019, compared to EUR 16 million for the second quarter of 2019. Lower costs did not offset seasonally lower volumes and negative valuation effects.

The Services & Solutions segment had an operating income of EUR 7 million for the third quarter of 2019, compared to EUR 12 million for the second quarter of 2019.

(1)
Alloys & Specialties​
	(in millions of Euros, unless otherwise stated)	Q3 19	Q2 19	Q3 18	9M 19	9M 18
	Sales	128	156	136	437	416
	EBITDA	12	12	9	36	39
	Depreciation and amortisation	(3)	(2)	(2)	(7)	(5)
	Operating income	9	10	7	29	34
	Steel shipments (000t)	8	9	8	27	27
	Average steel selling price (EUR/t)	16,018	16,122	15,521	15,796	14,522
	(1) Amounts are shown prior to intra-group eliminations

The Alloys & Specialties segment had sales of EUR 128 million for the third quarter of 2019 compared to EUR 156 million for the second quarter of 2019. Steel shipments during the third quarter of 2019 were at 8 thousand tonnes compared to 9 thousand tonnes during the second quarter of 2019. Average steel selling prices decreased over the quarter.

The Alloys & Specialties segment achieved an EBITDA of EUR 12 million for the third quarter of 2019 compared to EUR 12 million for the second quarter of 2019. Lower volumes were compensated by lower costs and positive valuation effects.

The Alloys & Specialties segment had an operating income of EUR 9 million for the third quarter of 2019 compared to an operating income of EUR 10 million for the second quarter of 2019.

Recent developments

• On September 27, 2019 Aperam S.A. closed a ​"Schuldscheindarlehen" loan agreement for a total aggregate amount of EUR 190 million.
• On October 1, 2019, Aperam S.A. announced its intention to redeem its U.S.$300 million 0.625 per cent. Net Share Settled Convertible and/or Exchangeable Bonds due 2021, exchangeable into ordinary registered shares of Aperam, of which U.S.$27.6 million in aggregate principal amount remained outstanding. All of the outstanding Bonds were repaid at their principal amount plus any accrued interest on November 4, 2019.

Investor conference call

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

Date	New York	London	Luxembourg
Wednesday,	04:00 am	09:00 am	10:00 am
November 6, 2019

The dial-in numbers for the call are: France ([phone]); USA ([phone]) and international (+44 (0) 2071

928000). The participant access code is: 9179044#.

A replay of the conference call will be available until November 13, 2019: France ([phone]); USA ([phone]) and international ([phone]). The participant access code is 9179044#.

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Contacts

Corporate Communications / Laurent Beauloye: [phone]

Investor Relations / Thorsten Zimmermann: [phone]

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 2.5 million tonnes of flat Stainless and Electrical steel capacity in Brazil and Europe and is a leader in high value specialty products. Aperam has a highly integrated distribution, processing and services network and a unique capability to produce stainless and specialty from low cost biomass (charcoal). Its industrial network is spread in six production facilities located in Brazil, Belgium and France.

In 2018, Aperam had sales of EUR 4,677 million and steel shipments of 1.97 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.

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