Aperam SA
AEX:APAM
Aperam SA
Aperam SA stands as a dynamic force within the specialty steel industry, having carved out a reputable niche in the production of stainless, electrical, and specialty steel products. Inheriting a rich legacy from its spin-off from steel giant ArcelorMittal in 2011, Aperam steers its operations with a focus on sustainability and innovation, two facets that are central to its corporate ethos. The company’s operations are globally integrated, spanning across six main production facilities located in Brazil and Europe. These facilities aren't just about robust production; they are the pulse of Aperam’s commitment to ecological responsibility, as the company's unique BioEnergia unit in Brazil exemplifies its pursuit of greener production through using charcoal sourced from its sustainably managed forests.
The business model of Aperam revolves around its ability to meet diverse and sophisticated customer demands in industries ranging from aerospace and automotive to energy and construction. Its revenue streams are predominantly generated through the production and sale of high-end steel products, each crafted to provide durability and resistance essential for demanding applications. Capitalizing on a robust distribution network and strategic partnerships, Aperam leverages its technological innovations to uphold its market position, ensuring a balance between maintaining cost efficiency and providing premium quality. In a world increasingly attuned to environmental concerns, Aperam's adoption of best practices in recycling and waste minimization further fortifies its market presence, anchoring its profitability while appealing to the global shift toward sustainable solutions.
Earnings Calls
In Q4, Aperam achieved an adjusted EBITDA of EUR 116 million, benefiting from seasonal steel shipment increases and a strong performance in Alloys. However, they face ongoing challenges from price pressures, particularly in stainless steel. EPS for the quarter was EUR 0.17, with net debt decreasing by EUR 101 million, showcasing improved cash flow management. For Q1, they project lower EBITDA due to seasonal factors, although the recent Universal acquisition is expected to contribute EUR 9 million to EUR 11 million. Looking to the future, Aperam aims for a normalized EBITDA of EUR 100 million to EUR 120 million per quarter while maintaining a progressive dividend policy.
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Welcome to Aperam Q4 podcast. I'm Tim Di Maulo, Aperam's CEO, and I would like to take this opportunity and wish you all and us all the best for this year.
Together with Sud Sivaji, Aperam's CFO, I will discuss our fourth quarter performance, current trading and the outlook into the first quarter. We will host a conference call today at 2:00 p.m. Central European Time, where we will answer your questions. The dial-in details are available on the website and on the last slide of this presentation.
A transcript of this podcast is also available on our website.
Please take, as always, note of this disclaimer on Page 2.
What to say about 2024? It was another challenging year as the desired recovery did not materialize. But low cycles present opportunity and it was a transformational year for Aperam. We improved the competitiveness of our footprint and further differentiated our value chain by moving into the U.S. and into the aerospace industry.
We achieved our projected sequential EBITDA growth in the fourth quarter despite the challenging European market condition. The Leadership Journey improvements are paying off now and fortify our leadership position in Europe. This is crucial as pricing pressure intensified again during December, but we were able to counter it via a combination of better mix, cost efficiency and seasonally higher steel volumes in Europe.
Brazil delivered a solid result in a seasonally softer quarter. The upgraded hot rolling mill is now a valuable and supportive asset.
The import market share amounted to 24.8% and thus in the historical normal ballpark. Incrementally higher volumes put some additional pressure on prices.
Phase 5 the Leadership Journey continues as planned. Adding the classical cost-cutting program and leveraging the benefit of the assets upgrades, we realized EUR 49 million in Q4. We surpassed the original 2024 target gains of EUR 75 million by EUR 20 million.
Just a word about our acquisition of Universal Stainless & Alloy Products. It was a very short and efficient process. We informed you on the 17 October 2024 that we signed an agreement to acquire Universal, and we closed it after only 3 months on the 23rd of January. We will fully consolidate Universal as of the closing date and will integrate it into our Alloys & Specialties segment.
In the ESG space, we are proud to see our comprehensive improvement measures being recognized by independent ESG rating agencies. MSCI, one of the most important ESG rating in the world, awarded Aperam a AAA rating. This puts Aperam in an industry-leading position in the steel sector.
At Morningstar, which owns ESG rating agency, Sustainalytics, Aperam came in top 3 in the steel sector among a total of 158 companies and we also received the ESG top rated badge in the steel industry.
Last November, the Times Magazine released their list of the World's Best Companies for 2024. The ranking is based on a formula of employee satisfaction survey, revenue growth and ESG data. We are happy to be included and to be the best steel company in the list.
These excellent results confirm our industry-leading position and underline our successful ESG improvement strategy with transparent KPIs that are linked to management compensation.
Let's turn now to the market environment. Only seasonal factors supported the steel demand in Europe during Q4 as volumes remained at a depressed level and pricing pressure intensified towards the end of the quarter. This reflects the ongoing soft economy development, especially in industry and manufacturing.
Inventories declined after the increase of the third quarter, but the demand side requires a comment. Similar to last year, December volumes halved due to year-end effects and this pushed inventory days up temporarily in the statistics. Given that inventory is well controlled and demand will snap back in January, the data will show a clean value again in January.
Sector trends did not change. There was ongoing negative news from the automotive industry in Europe and near-term improvement looks rather unlikely. A more pressing issue is on low construction output and interest rate cut have failed so far to refill the pipeline despite high household savings in Europe.
Consumer goods have gone through a destocking cycle that has ended, but real demand remains soft. Demand in food, health and catering improved somehow, but there was no significant normalization.
Industrial demand is driven dynamically by the global sector energy.
The market in Brazil is in much better shape than Europe. Robust demand almost everywhere with the added benefit of our solid market share. Prices, on other hand, are linked to the global price environment and this still leaves much to be desired.
Demand from automotive and transport is only slightly impacted by the seasonal development and remains robust.
Consumer goods experienced ongoing solid demand for white goods and other consumer items are performing stable.
The economy in Brazil is growing, and this has a positive influence for additional new project in infrastructure and housing.
Capital goods has experienced positive effects based on higher demand.
As mentioned already, the imports in Europe were in the normal historical level. While imports from South Africa and Taiwan decreased, China, Vietnam and Indonesia filled the gap.
I hand now to Sud for the financial review.
Thank you, Tim, and a warm welcome to everyone. Let us start with adjusted EBITDA. We guided for higher EBITDA compared to Q3 2024. We confirmed that in our update on 7 January, and today we can report adjusted EBITDA of EUR 116 million.
The seasonality was slightly positive for steel shipments in Q4 and we had a small benefit from valuation effects. The driving factor, however, was our differentiated value chain with Alloys reaching a new quarterly record and Recycling & Renewables confirming the seasonal pattern with a strong Q4.
In a challenging market with intensifying price pressure in stainless, we realized an above-normal EBITDA per tonne of EUR 287, which exemplifies the improvement through the Leadership Journey.
The tax line contains a EUR 24 million impact from deferred tax asset changes.
Earnings per share for the quarter amounted to EUR 0.17. The clean EPS without special effects came in at EUR 0.33.
Our cash flow statement reflects a big swing in net working capital that we have flagged since reporting Q1 results last year. After deducting EUR 36 million dividend payments and EUR 27 million CapEx, net debt declined by EUR 101 million to EUR 544 million. This is better than guidance and the resulting net debt-to-EBITDA ratio at 1.5x, almost half since Q1, and we made the balance sheet just in time ready to assume Universal in Q1.
You are aware of Universal's enterprise value of $537 million will be added to Aperam's balance sheet. In addition, we expect some seasonally higher working capital and also the regular Q1 increase in CapEx as we pay out calendar commitments on past projects.
Starting the year with a net financial debt of more than EUR 1 billion makes deleveraging the key priority within our capital allocation policy until our leverage ratio has normalized again.
Our dividend remains unchanged in line with our financial policy of keeping net financial debt below EBITDA over the cycle and reflecting our focus on these deleveraging priorities.
Moving to the next slide. Our 4 segments performed in line with the update we published at the beginning of January. We already mentioned that the pricing pressure for stainless steel in Europe and the seasonality.
Recycling & Renewables had the usual strong fourth quarter performance with an adjusted EBITDA of EUR 41 million. Recycling's external volumes were slightly lower, but pricing was favorable while BioEnergia proved the value of the forest where we are ramping up new business streams. The segment also benefited from some positive valuation effects in Q4.
For Q1, we expect a normal result in line with the recurring underlying earnings power of about EUR 20 million EBITDA per quarter for the Recycling & Renewables segment.
Stainless & Electrical achieved adjusted EBITDA of EUR 42 million. The positive seasonality in Europe matched a rather mild seasonal downturn in Brazil. Although EBITDA was somewhat strained, in the end, even in difficult times, an adequate result was achieved.
It might be good to remember that a soft Brazilian real versus the U.S. dollar tends to be good for the local cost line of our business in Brazil as revenues and raw material costs are dollar driven.
The Leadership Journey supported earnings via a mix improvement while pricing pressure in standard products, higher costs and negative valuation effects resulted in a lower EBITDA.
I would also like to remind you that the Brazilian business suffered a EUR 40 million hit due to the ramp-up difficulties in H1 2024.
The outlook for Q1 is determined by 3 main factors on top of an unchanged challenging economic outlook. Firstly, Q1 is the seasonal trough quarter in Brazil with a corresponding lower EBITDA contribution. Secondly, the price pressure in Europe that started in December will fully materialize in the P&L. And thirdly, we expect a temporarily softer mix.
As a consequence, we expect the segment to remain profitable, but with another step down in profitability.
Services & Solutions with EUR 4 million adjusted EBITDA was in line with last quarter. This segment has the highest spot market influence and the pressure is directly reflected in its results.
S&S has a rather quick adjustment cycle, but also enables us, just like in Q4, to deliver best-in-class speed on cash flow release on net working capital in down cycles as it is closer to the market. So while the market remains difficult in Q1, a slightly improved outlook looks possible on the back of higher volumes and slightly cost -- lower costs.
Alloys & Specialties reported a new quarterly record EBITDA of EUR 27 million. The result in Q4 was driven by the ongoing positive development in key markets, seasonally higher volumes, a better mix and a small tailwind from valuation effects.
As promised, Q4 EBITDA plugged the remaining gap to achieve the guided EUR 80 million EBITDA, making it the best ever year of Aperam's Alloys business.
For 2025, we've already guided that Alloys & Specialties should be EUR 100 million EBITDA segment based on the full order book, the additional capacity available for Gueugnon and the ramp-up of our Indian business. We expect Q1 to be consistent with this target on a like-for-like basis.
Of course, Universal will now additionally be included from 23rd January onwards, which should add another EUR 9 million to EUR 11 million EBITDA on top. The ongoing temporary aerospace supply chain destocking is also a factor to consider here.
Others & Elimination recorded a positive EUR 2 million result. This includes some intercompany settlements and profit eliminations, which have to be done, especially at year-end. It's normal here to expect a high single-digit euro figure per quarter, but the high level of integration between different Aperam businesses like recycling, charcoal, stainless mills and distribution compared to competition allows us to make strategic decisions on managing just-in-time inventory between segments and this is then reflected in Elimination.
Moving to the next slide. Our Leadership Journey transforms Aperam and aids in building a differentiated value chain. We're now in Phase 5 of this successful journey, and after a slow start, we realized EUR 49 million in Q4. We have thus exceeded the 2024 target of EUR 75 million by EUR 20 million.
Why did it suddenly materialize? Let me remind you of the booster component, a classic cost-cutting program contained in '24 and '25. Previously, we shared with you that we reached an agreement and we are now in a position to realize the gains. This is a crucial step in strengthening Aperam's competitive position in Europe.
Furthermore, the new hot rolling mill in Brazil is finally fully up and running and we are getting the benefit from this investment. With this development, we are cementing our cost leadership in Europe and in Brazil.
You know that the goal of the Leadership Journey is to achieve an EBITDA improvement of EUR 300 million in a normalized economic environment. It's obvious from Q4 results that we are far away from the normalized situation at the moment, but the relevant improvements are put in place and the progress also becomes visible on a relative basis within Europe.
We realized an EBITDA per tonne of EUR 287 in Q4, which is much higher compared to previous cyclical lows.
This is also the point where we would like you to remind of the additional $30 million synergies that we expect from our Universal transaction going forward.
As the transformation materializes and the resilience increases, Aperam should generate on an average EUR 100 million to EUR 120 million adjusted EBITDA per quarter even in difficult times. On this basis, Aperam is fully self-financing, able to deleverage the balance sheet and pay an attractive progressive dividend to our shareholders on a recurring basis. In case that the economy normalizes, we will then realize the full upside potential as shared with you in the 2025 strategy.
I hand over back to Tim now for the outlook.
Thank you, Sud. Looking ahead in 2025, the situation in Europe remains unclear with Germany and France both in political turmoil. On the positive side, the new European Commission seems to have renewed interest in supporting industrial competitiveness again.
However, 2025 could be simply a continuation of 2024. Without a sustained recovery, we are forced to rely on more self-help. The Leadership Journey and our investment in the differentiated value chain have been instrumental to our success. We have clearly leveraged this period to enhance our competitive standing.
We expect higher shipment for Q1 based on the seasonal stronger business in Europe that outweighs the seasonal trough in Brazil. The pricing pressure continued in Europe, which will be visible in results together with a negative inventories valuation.
In total, adjusted EBITDA will be lower compared to Q4.
Universal will be consolidated as of the 23rd of January and should contribute EBITDA in the range of EUR 9 million to EUR 11 million, but this will only partially compensate for the decrease we expect in the first quarter.
Sud spoke already about the cash flow and net financial debt. Net financial debt will increase anyway due to the seasonally higher net working capital. And in addition, the financing of Universal will increase, as planned, our net debt significantly.
As said already, deleveraging to normalized gearing is our prime capital allocation objective.
In terms of CapEx, we will therefore invest very consciously only into maintenance, into Universal and into productivity at our Alloys business. Our budget for 2025 amounts to EUR 200 million.
And to all our yield investors, we would like to remind that upon announcing the Universal acquisition, we already confirmed to maintain our progressive dividend policy. This means that we intend a distribution of EUR 2 per share this year.
As you know already, volatile commodities price could still change the above EBITDA and net working capital indication. We will only be able to provide guidance once the raw material market price are known. It is now a well-established routine to provide an update shortly after the end of the quarter.
Current trading in Europe and Brazil as well as the Universal acquisition leaves much to be discussed. We are back on the road next Monday in Milan and on Tuesday in Frankfurt and hope to meet many of you in person. Please contact our Investor Relations department with any feedback or if you require corporate access.
We are bit by bit transforming the company as we tap new earnings streams, which are independent from the stainless steel cycle. Just now we are starting to realize the fantastic and unique opportunity to establish a strong U.S. manufacturing footprint and to enter the United States aerospace market through a 100% synergistic combination.
Our journey continues as we are committed to establish Aperam as the leading value creator in the circular economy of infinite, world-changing materials.
Thank you very much for listening to Aperam Q4 management podcast. We wish you a pleasant day, and look forward to your questions in our conference call at 2:00 p.m. Central European Time.