Aperam SA

MAD:APAM

Earnings Call Transcript 2017-Q4

[Operator]

Dear analysts and investors, welcome to the Aperam Full Year and Last Quarter 2017 Results Conference Call. I'll leave the floor now to Tim Di Maulo, Chief Executive Officer; and Sandeep Jalan, Chief Financial Officer. Please go ahead.

[Timoteo Di Maulo, Chief Executive Officer]

Good afternoon, and thank you very much for attending Aperam's Earnings Conference Call. Next to me is Sandeep Jalan, Aperam's CFO and together, we will present the company's full year 2017 and fourth quarter 2017 results. 2017 was marked by several challenges for Aperam, among which an historical low demand in Brazil, the technical outage of the hot strip mill in Châtelet in the first semester, high volatility of ferrochrome price and high level of the imports in Europe. Despite these headwinds, I'm very happy and proud to see that Aperam continued to further enhance its performance and profitability, reaching another record yearly EBITDA and net income. So net debt has also continued to decrease significantly, enabling Aperam to become a net cash positive company at the end of 2017. Our company is now very robust and resilient and above all, extremely well oriented to save any accretive opportunity. Therefore, the Board of Aperam has decided to increase the base dividend in line with the earnings improvement and to launch a new share buyback program over the full year 2018. Our intention for this year on top of the ongoing action is also to invest further in transforming our footprint in Genk in Belgium and in the service center in Germany. Looking ahead, we remain cautiously optimistic about our environment and we will put our focus on our competitiveness enhancement and further transforming the company. For the first quarter 2018, despite traditional weak seasonality in Brazil and the blast furnace realigning in Timoteo, EBITDA is expected to slightly increase mainly due to the traditional seasonal recovery in Europe. Net debt is expected to be at the low level in Q1 2018. We'll now take you through Aperam's Q4 results. I'm going to Page 4, about health and safety. Our performance has improved this quarter compared to Q3 2017. Our frequency rate was 1.3 in Q4 compared to 2 in Q3 2017 and remained stable on annual basis at 1.4. The overall safety performance still needs to be improved and becoming a 0 accident company remains our utmost priority. We now go to environmental market in Page 6. We continue to see the European market as healthy and we expect the demand to continue to grow in 2018 by about 2%. In Brazil, the environment remained much more challenging and we remain cautious as of today in the forecast of demand for 2018. Yet, we now believe that the trough is behind, and we start to see signs of recovery beyond Q1 2018, which will be impacted by the traditional seasonality. Moving to Slide 7, some comments about prices. Nickel price has rebounded since the second half of 2017, remaining volatile. It has recently reached close to USD 14,000 per tonne on the back of a stronger U.S. dollar moment and demand-supply balance. Ferrochrome price recovered in Q4 to $1.39, but since then it has dropped in Q1 to $1.18. In this context, stainless steel prices have started to improve in Q4 due to raw material price increase. Going now to Page 9. I'm happy to report that successful completion of both phases of the Leadership Journey, resulting in a total of $573 million positive EBITDA impact since 2011. Those 2 phases were dedicated to restructure and upgrade our asset base. These initiative has enabled Aperam to cope with its environment headwinds and enhance its profitability, and cash generation capacity. Going forward, we will report on Phase 3 of our Leadership Journey, the transformation program, as I will describe later in our -- in my presentation. I will now turn the presentation to Sandeep.

[Sandeep Jalan, Chief Financial Officer]

Thank you, Tim. Good afternoon, everybody. Moving to Slide 10. Aperam achieved an adjusted EBITDA in 2017 of USD 629 million compared to USD 503 million in 2016. This is a record since last 10 years of the company reaching EBITDA margin now at 12.5%. This once again confirms the trend and our relentless focus to continue to further improve our performance. Aperam has also achieved a new record of net income reaching $361 million in 2017, which is leading to a basic earnings per share of USD 4.51 per share compared to USD 2.75 in 2016. I will now comment the quarterly performance on Slide 11. Aperam had group adjusted EBITDA in quarter 4 of USD 154 million compared to quarter 3, which was at USD 135 million. Adjusted EBITDA of our Stainless & Electrical Steel increased from USD 102 million to USD 139 million during the fourth quarter. The seasonality in Brazil was more than offset by the seasonal recovery in Europe, the absence of nonrecurring charges in Brazil and the continuous contribution of the Leadership Journey and the top line strategy. Service & Solutions EBITDA amounted to USD 25 million in the fourth quarter compared to $8 million in the third quarter. EBITDA increased mainly due to some positive stock effects during the fourth quarter, compared to some negative stock effects that we had during the third quarter. Alloys & Specialties EBITDA decreased from USD 15 million to USD 12 million, mainly due to seasonality and some product mix effects. Moving to Slide 13. In quarter 4, Aperam recorded an adjusted EBITDA of USD 154 million, depreciation during the quarter amounted to USD 50 million and the net financing cost amounted to $10 million consisting of noncash cost of convertible bond amortization and also the cash financing interest cost of $2 million. Income tax during this quarter amounted to a benefit of USD 31 million. And this income tax is mainly due to nonrecurring deferred tax income of $47 million that we have recorded arising from changes in the corporate tax rate, which have reduced in many jurisdictions and this leads to a positive effect on the deferred tax liability and the assets that we have. This is leading to an yearly tax rate of 9%. However, we continue to expect our effective tax rate to be in the range of 20% to 25% as guided previously, if we exclude this effect of $47 million. As a result, net income during the quarter amounted to USD 122 million. I will now move to cash flow in Slide 14. During this quarter, we had a working capital decrease of USD 88 million mainly due to the seasonal effects. Cash flow from operation amounted to USD 231 million and after CapEx of USD 74 million, free cash flow before dividend and share buyback was positive at USD 157 million. Moving to Slide 15. I'm very proud to report that we have continuously expanded the cash generating ability of the company and used that strength to further improve the sustainability of Aperam and also now reaching enviable position of net cash and investment grade rating from both agencies, S&P and Moody's. Net debt as you can see, it's reduced from USD 116 million in quarter 3 to a positive cash situation of USD 75 million, and including the effects from the good operating cash flow as well as the conversion of the 2020 convertible bonds. Now having moved to a position of net cash from a position of over $1 billion of net debt a few years back and with continued expansion of euro results in Aperam, the Board has also approved our financial reporting currency to euros starting from first quarter of 2018. I will now turn the presentation back to Tim.

[Timoteo Di Maulo, Chief Executive Officer]

I will go to Page 17 to show about the Leadership Journey and our transformation program next phase. Following the completion of the first 2 phases at the end of 2017, Aperam will now focus on the third of these phases, launched in June of 2017, targeting $150 million of contribution gain by the end of 2020. This program aims to further transforming Aperam to address the next challenges of our market and anticipate on the needs of our customer to sustainably offer best-in-class products and services in the most competitive way. This program is running on time as for now. In the next page 18, we are also happy to announce a new investment project in our Genk plant in Belgium consisting in a new cold rolling and annealing and pickling line. This investment project targets to further facilitate transformation of our business with state-of-the-art modern lines using latest technologies to enlarge our product range to the most demanding application; to improve lead time and flexibility to the market demand; to increase efficiency and cost competitiveness of our assets; and to continuously enhance our health, safety, environmental impact. This investment project is expected to be completed by early 2020. Besides, Aperam also announced another investment to transfer its German Service Center from Duisburg to Haan. This investment will enable to further improve our supply chain, reduce working capital and decrease our cost, while continuously improving our health and safety environment. This investment is expected to be completed by the end of the next year. The related CapEx to this project and forecast over this year is already included in our 2018 guidance and further details will be provided with the next quarterly earnings release. Both investment have very high returns. Now in our value proposal in Page 19. In line with our financial policy, we are pleased to announce an increase in cash return to our shareholders with a 20% increase in base dividend from $1.50 to $1.80 per share subject to AGM approval as well as launching a share buyback program of up to $100 million. This is in line with our intention of payout ratio between 50% and 100% of earnings per share. Our CapEx guidance for the year 2018 is in the range of $220 million, $240 million. This includes a recurrent investment for repair and maintenance, safety and environment investment, the CapEx dedicated to the transformation programs as well as the 2018 part of the CapEx of the new investment in Genk and in German Service Center. Thank you very much. And we are now happy to take your question, and I will turn the call back to the operator.

[Operator]

[Operator Instructions] And we will take the first question today from Seth Rosenfeld with Jefferies.

[Seth R. Rosenfeld, Equity Analyst]

I'd like to start out with outlook for Brazil, please. In the past, you've perhaps sounded a bit more cautious than many of your peers regarding domestic demand prospects. Your comments this evening that 2018 we'll see growth that are pretty meaningful. Can you help us quantify what scale of volume recovery in the domestic market we might expect? With that in mind, can you give us a sense of where your export flows are running right now? What mix is currently going into the export versus domestic market, so we'll understand how that can move looking forward? And then, kind of tied to that, lastly, sorry, my understanding is that some of the Brazilian antidumping duties that you currently benefit from are due to expire later this year. Can you please give us a sense of how progressed you are in discussions with the government over potential renewal of those duties?

[Timoteo Di Maulo, Chief Executive Officer]

Okay. So from Brazil, as we said, we are optimist, but cautiously optimist in the sense that the -- there are some progress. We can't show today figure showing the recovery of the demand of Brazil has been in the past. I remember that we had a drop of 25%. So you can see in the figures presented in our slide, there is some increase and we are cautiously optimistic for the future. Also, in Brazil, we have a position in the first quarter in which we as announced, that we have the realigning of one of the major lines, which is the blast furnace, the blast furnace. So this will be with the seasonal effect, not showing the full potential of Brazil. For the future, we are optimist that the Brazil will recover. At which speed, this is not for the moment possible to be said. All signs are positive. We've seen many industry, very good signs of -- and very good mood about Brazilian economy. Concerning antidumping, 2 points. The first point is that, yes, antidumping -- a part of antidumping will expire during 2018. We are working on it. If the condition of, let's say, that have generated the antidumping will still be there. We are confident that the discussion with the commissions in Brazil will be positive, but for the moment, we have -- we can't announce anything. Remember that, as a second point, that the big part of the point the, let's say, the traditions of Brazil is also the fact that they have duties, which applies and will not be grown. This duties of 14% that applies on our products are a barrier, a stable barrier. There is absolutely no doubt that they will stay. And the second point is that our strategy in Brazil has always been the same: strengthen the competitiveness of Brazil, continue to cancel all the effect of inflation and continue to work on the competitiveness of Brazil, knowing that the potential of the consumption per capita is still there. It is one of the region, which has the lowest level of consumption of per capita. And we have a position, which is extremely good in term of logistics as Brazil is an extremely complex country for the logistic.

[Seth R. Rosenfeld, Equity Analyst]

Just to clarify one point, can you give us some color on your mix of exports versus domestic sales at present or at the very least how that may have moved directionally over the past several years?

[Timoteo Di Maulo, Chief Executive Officer]

So in the past, this mix has been up to 40% in -- during the year. It has been depending on the month between 20% to 40%. And remember also that we are managing this mix dynamically. Meaning that we have 4 product lines and we choose every month what is the best for the plant in term of margin, in term of charge of the mill, et cetera. So exports are one of the alternatives to our best products, which remains stainless steel in domestic area. But we have also other products with high added value in Brazil like the oriented grain and all the other products are competing for the best. So the point is Brazil remains -- our plant remains very well loaded. We continue to run this facility at the maximum load. Of course, what we aim at is developing the internal market, staying competitive and whenever the market will recover, Brazil will recover also part of the profitability that has been impacted by the crisis.

[Operator]

We will now take the next question from Luc Pez with Exane BNP.

[Luc Pez, Stock Analyst]

First question is with regards to the investments you are announcing today, would it be possible to maybe quantify a bit more what is the extent of the CapEx you're contemplating and some maybe indication as to how we should put CapEx for the next 2 years? And you're talking high returns on these ones. Should we compare the returns for these project with the ones you've been targeting through the top line and Leadership Journey programs? That would be my first question.

[Sandeep Jalan, Chief Financial Officer]

Luc, as you have seen, we have not disclosed the exact amount of investments. And going forward, during next quarters, we'll clarify the total extent of investments. Clearly, a part is already factored in, in our guidance for 2018. For these 2 projects together, at this moment, we are contemplating something in the range of $60 million to $70 million of spend, which is a part of our guidance today. Clearly, the returns that we are targeting from these investments is going to be above our return on capital employed. So it will clearly continue to expand the returns for Aperam and irrespective of the market condition because this is the test that we clearly apply. As Tim elaborated, the components of the projects earlier, it has a significant potential on our footprint and further expanding our cost efficiency.

[Luc Pez, Stock Analyst]

Okay. Second question maybe with regards to the European market, you were talking about healthy demand conditions. Could you maybe be a bit more talkative as to how you see Q1 developing beyond the seasonality? Are you experiencing some import pressure because of the weakening dollar, et cetera?

[Timoteo Di Maulo, Chief Executive Officer]

So we have seen the import pressure during -- all over the year. But what is important in Europe is that the level of the import is, in a certain sense, limited by the competitiveness of the European. And we continue to have, let's say, a balance between the level of price, which remains healthy, with the level of the import and the level of capacity, which are charged. So the utilization rates remains at a good level. What is very important for us is that the economy of Europe remains stable, steadily growing, expanding at, let's say, with a health, which is shown by the fact that in every sector we see and in every country, we see the same, customer confident on the continuity of the economy. So we are very much confident on Europe and on the solid base of Europe.

[Operator]

We will now take our next question from Tom Zhang with Crédit Suisse.

[Tong Zhang, Research Analyst]

My first one is, maybe if you could just help us narrow out a bit on the guidance. So we're saying EBITDA is going to be up slightly into the next quarter, but if we -- what kind of level are we talking about? Is it kind of like Q1 '17, when you had very strong ferrochrome comes through but nickel not as good as it was or is it a bit smaller?

[Sandeep Jalan, Chief Financial Officer]

Tom, so regarding the guidance for quarter 1, we are guiding for a slight increase in EBITDA. When you compare the conditions comparing to quarter 1 of last year, if you remember, ferrochrome during quarter 1 was shooting up by 50% from $1.10 to $1.65. And clearly, we are not seeing that phenomena. We have a reverse situation because chrome, if you remember in quarter 4, as Tim just told you, we were at $1.39; and in quarter 1, we are at $1.18. So there is about 15% drop compared to the 50%, which was an abnormal increase in quarter 1 of last year. So clearly, this has some impact on the entire windfall effects. The second impact is also coming from Brazil, as Tim told you, that on top of a traditional seasonality that we usually have in Brazil, we have one of the blast furnaces, realigning is ongoing and this is about the 60-days operation. So the activities and the volume will be slightly impacted by that. But overall, we continue to expect our results to continue to improve, even compared to quarter 4, where we had some positive effects. As you saw in quarter 4 of last year, we had both chrome as well as nickel increasing. And as of this moment regarding quarter 1, clearly, we know that chrome is down. And regarding nickel, it's still premature to say as to how things will evolve during next couple of months. And at this moment, clearly, we see a slight increase in our EBITDA and the underlying operational results remain very strong and robust.

[Tong Zhang, Research Analyst]

And if I could quickly just follow up. Comparing kind of stainless against carbon, it just feels like the stainless industry is sort of lagging in terms of pricing and volume given the strong macro backdrop, particularly as you were saying earlier in Europe. Do you agree with that? And do you think stainless will accelerate in earnings going into Q2 onwards?

[Timoteo Di Maulo, Chief Executive Officer]

I don't know if we can compare, but I think the progression of stainless steel has been more progressive than other industries. So comparing -- let's say, when we see Aperam, Aperam has reached a level of profitability and then the most important has been the resilience and the continuity in this level of profitability, continued to improve, thanks to what we do in term of performance of the top line, focus on being on the product that we aim, et cetera. So for us, the journey is mostly to be sure that we continue a journey of profitability, of continue increase of profitability, thanks to our, let's say, internal resources help us measure and focus on the customers. And whatever the headwinds will be because stainless steel has its typical headwinds, which had the volatility of certain raw material, which are extremely high and extremely impacting both the dynamic of the market and the level of value of the inventories.

[Tong Zhang, Research Analyst]

Yes. Okay. Sorry. Yes. That was what I was trying to get at whether or not the compared to say, [ carbon steel ] the volatility of [indiscernible] and nickel has been impacting it, but it sounds like that's been one of the headwinds you've been facing.

[Operator]

We will now take our next question from Carsten Riek with UBS.

[Carsten Riek]

My question or my first question also focus around the guidance, let's say, slightly up. If I look at the nickel, the nickel is still above where we closed in the end of December. And I hear you on the ferrochrome, but nickel is a way bigger impact on your -- on the inventories. Do you lowball here on the guidance or -- so you're a bit cautious? Or do you think the nickel actually has to come back during the fourth quarter and, hence you're a bit more cautious into the first quarter? That's the first question.

[Sandeep Jalan, Chief Financial Officer]

So, clearly, our guidance is not formulated on nickel. And nickel is very volatile. It is changing every day. And it's not reasonable for us to give you guidance as to what nickel will land at the end of March. And this is not our job. On nickel, our job remains to continue to make sure that the price effect is passed on to the customers and we manage a robust mechanism. Of course, there's some inventory effects positive or negative. With the visibility that we have currently, we are expecting a slight increase in EBITDA. And of course, and depending upon further moments in the markets, of course, we may have some more positive or negative effects, which is very difficult to give you concrete guidance about.

[Carsten Riek]

I was just thinking about as the stainless prices, as you say, move forward positively into the next -- into the first quarter and you usually have an uptick in volumes in the first quarter. I'm just trying to think about anything which could actually jeopardize a bigger move than you actually suggest.

[Timoteo Di Maulo, Chief Executive Officer]

I think that...

[Carsten Riek]

Volume up, prices up. Before this, it was equal. It must be up and not only slightly.

[Timoteo Di Maulo, Chief Executive Officer]

I don't know how you calculate this, but remember that 17% of our inventories in total are of chrome. So the presence of chrome is much higher than the presence of nickel. And this kind of volatility or change of chrome because it has decreased a lot from $1.39 to $1.18, has an impact, which is significant in our result. So despite the fact that we have some, let's say, 15% increase on nickel, the 20%, approximately 20% decrease of ferrochrome has an impact. So -- and on top, let's say, okay, we see in the last days some spike in the price of nickel. But how sustainable will be, we don't know. We don't know. Nickel is so volatile, it has been so volatile during all the life of this commodity that we can't speculate more.

[Sandeep Jalan, Chief Financial Officer]

And Carsten, just to maybe supplement that, nickel prices, when we see in dollars, yes, indeed that the increases of the past week look quite impressive. But when you see the nickel price increase in euros, it's far less impressive. And clearly, a big part of our business is in European landscape, okay?

[Carsten Riek]

Yes. The second question I have is on the alloys business because it was quite obvious that this business lagged behind the others. I know that the alloy elements here come later into play. What do you actually see, A, is it correct? And B, what do you see for the first quarter? Because for the first quarter, it must actually quite an impressive jump in the alloys business because volume wise, you already have seen quite a bit of an improvement. You just need a little bit more on the alloy elements in order to get this business back up.

[Timoteo Di Maulo, Chief Executive Officer]

So I'm not sure to share your vision on lagging behind about alloys. We are talking of a small -- relatively small division of Aperam specialized in high-end products with their own specific, let's say, dynamic because we are much more linked to long-term development of products with very specific markets and et cetera. So it is not simple, not to link the different environment of stainless steel and alloys. They have a typical, let's say, trend which is more linked to their specific customer and their mix because depending on the contract, depending on the mix, delivery, et cetera. So the impact to this has been in the past, the oil and gas, has been in the mid-2015 and 2016, has been recovered. Now we know that they are in a much better position for this segment and we are developing new customer, new market, and developing markets with high-end products, which will come on stream in the next quarters.

[Sandeep Jalan, Chief Financial Officer]

Just also to give you a few numbers, alloys division, we had an EBITDA of USD 30 million in 2016 and we have recorded USD 51 million for 2017. And yes, clearly, the momentum is on the upside and there is a much greater potential on the volumes and the mix and results.

[Operator]

[Operator Instructions] We will now take our next question from Bastian Synagowitz.

[Bastian Synagowitz, Research Analyst]

I just have 2 questions left now. Just following up firstly on the blast furnace realign, could you possibly quantify the cost related to the blast furnace realign in Brazil, which you mentioned? And then also, will there be any spillover of cost impact or volume impact into the second quarter? And then, secondly again following up on your guidance. I'm just curious here whether you did base your guidance on the current FX rates or what theoretically what the fixed rates can give you a bit more tailwind than the slight improvement you're essentially guiding for, given that FX, I think, here at this point should be quite a bit of a benefit to you. Those would be my questions.

[Sandeep Jalan, Chief Financial Officer]

Yes. So, Bastian, regarding the blast furnace realigning, as you know that it's an event, which comes between 15 to 20 years once and it's a cost which is less than $10 million in the magnitude and it's part of our baseline CapEx. Regarding its impact in the quarter, we will see some impact resulting from this kind of realigning, especially on some of our cost elements and very small impact on the volumes because clearly, we have worked on the inventories and all the mitigations to make sure that we continue to cater to the market. So the impact will be very minimized, but yes, we do have some impact in quarter 1 from such a big realigning. Now going to your second question regarding the guidance, I mean, we are not giving an exact guidance as to what is the forex, what is the commodity prices that we are considering. So except for the chrome price, which is very well known, these are the prices at which we buy during quarter 1. Rest of the things will continue to evolve and we continue to focus on our operational results. And that is where our aim is to continue to improve it and in that line, we see that those results improving in quarter 1 and that's our guidance.

[Bastian Synagowitz, Research Analyst]

Okay. Fair enough. Just to clarify, you say the blast furnace realign will be fully finished in the first quarter then. That's my understanding. Is that correct?

[Sandeep Jalan, Chief Financial Officer]

Yes. It is a 60-day event, which was started at the end of quarter 4 and it will be finishing in February, very soon, in couple of weeks.

[Bastian Synagowitz, Research Analyst]

Okay. Perfect. Okay. Very clear. Maybe then just one follow-up on Genk. Is the total project volume, is this the $70 million you have mentioned or is it a larger project?

[Timoteo Di Maulo, Chief Executive Officer]

No. Not at all. Not at all. We have a CapEx guidance over the year of $220 million, $240 million, out of which we have included this footprint -- a part of this footprint. But the rest will be in the next year, the investment will be in 2 years.

[Bastian Synagowitz, Research Analyst]

Got it. Got it. But then -- so the $200 million to $240 million is your guidance for this year. But then, I was more curious whether you could quantify the separate budgets. How much in total would be the entire Genk project and also the Service Center project? If you don't just take the numbers which you will spend this year, essentially, you'll spend -- the entire amount you'll spend over the next 3 years these projects are running for.

[Timoteo Di Maulo, Chief Executive Officer]

Okay. As I said before, we are not giving the precise number today because this will be clarified with the scope of the project and the announcement of our project. The aim of the project is clear, what has been allocated in this year is perfectly clear and we will come back later on in this investment.

[Operator]

We will now take our next question from Christian Georges with Société Générale.

[Christian Eric Andre Georges, Equity Analyst]

Could you clarify the -- in your EBITDA breakdown, there's a cost of $22 million in the fourth quarter. What exactly is in that cost? It seems to be a rather higher amount than usual.

[Sandeep Jalan, Chief Financial Officer]

Sorry. $22 million, what is the cost that you are referring to?

[Christian Eric Andre Georges, Equity Analyst]

Yes. The $154 million in Q4 is $139 million from stainless, $25 million from service, $12 million from alloys and minus $22 million from internal. What is that such a large amount? Is there...

[Sandeep Jalan, Chief Financial Officer]

Yes. So clearly, when we go for the divisional breakdowns, the sum total of these divisional breakdowns will not tie to the total of Aperam due to 2 reasons, mainly. One, of course, there is a set of the corporate cost that's always in minus and the second element is coming from the eliminations. As you know that our Stainless & Electrical division is selling its stainless product, of course, to outside customers, but also very importantly to our own service and solution division. So that means, the inventories that we are having in service and solution division, we have to reverse the profit, which was recorded in the Stainless & Electrical division. So these are the elimination, which are changing in values due to 2 reasons. #1, the changes in the level of inventories; and second, the level of profitability, which was recorded in the upstream. So this difference you see is mainly due to these 2 reasons and it's denoting basically the gaps on account of this.

[Christian Eric Andre Georges, Equity Analyst]

Good. Does that imply that looking forward, we should expect that these internal line should be somewhat higher than it's been in recent quarters?

[Sandeep Jalan, Chief Financial Officer]

Christian, honestly, it's very hard to give a guidance on this. Typically, if our inventories are going up, you should expect higher elimination. If our inventories go down, you should expect lower elimination. Also, on the price or profitability part, let's say, if our profitability is going up in the Stainless & Electrical division, you should expect a higher elimination and vice versa. So it's not something we can give an exact guidance about, but this is where we are at the end of quarter 4.

[Christian Eric Andre Georges, Equity Analyst]

Okay. It's very clear. And the second question, you may have mentioned it in your presentation, but the Genk increase in what -- investment, is that a net increase in capacity? Or is that quite a huge investment, that new cold line?

[Timoteo Di Maulo, Chief Executive Officer]

This new line has objective to replace older ones for a part and then for a part to produce a larger range of products and increase our flexibility to grant service to customers and follow demand. Okay. So whatever will be, let's say, that -- the other answer is whatever will be the level of demand, we will be able to have a very high profitable investment on Genk.

[Christian Eric Andre Georges, Equity Analyst]

Okay. Great. Understood. And the very last thing, we're seeing some increased exports of stainless out of Indonesia for that Chinese company back into China it seems. I mean, just in case you're seeing it from Europe, do you see any impact on Southeast Asia import-export flows? And is there any reason to worry that this could impact our situation in Europe or even in Brazil, for instance?

[Timoteo Di Maulo, Chief Executive Officer]

So overall position on this is the following. Today, you find in Asia the most competitive producer of stainless steel as the finished product. I mean, as cold rolled coil, they are in that area of the world. Not only from China, but from everywhere. The Indonesia capacity for the moment is mostly on thin products, means, slabs and black coils and their first target is China. So we don't see how this will completely change the scenario in the world, knowing that even the capacity of Indonesia on a very small part of whatever the capacity today installed in Asia, when you consider the capacity that has been built in Indonesia is less than, let's say, 7%, 8% of the capacity, which is in China. So the impact is relatively low.

[Operator]

We will now take our next question from Kevin Hellegård with Goldman Sachs.

[Kevin Hellegård Nielsen, Analyst]

Most of my question have been answered. But maybe if you -- on your Leadership Journey and sort of the path between here and 2020 that you lay out, can you give a rough split between the different divisions of where you expect to see most of the benefits?

[Timoteo Di Maulo, Chief Executive Officer]

I mean, we are not so much communicating on this. We are showing you figures about the global amount of the Leadership Journey Transformation Program, which is $150 million as gains to be compared to the $150 million of CapEx we are investing in. So we have clearly indicated what are the aim of this investment. This will be in new technology and the new technology will be the acceleration of the productivity, the gains in energy, in the yield, in the control of the process, et cetera, in some kind of robotics the use of all the new technology for our lines. In innovation, developing new application for customer and new application and new services also for customer. In the way we work, meaning that in this world, not only in automation, but it will be also in the transformation of the processes, internal processes of the interface with customers, et cetera. So all this will create the $150 million gains that we are expecting and we will follow quarterly as we have done for the previous 2 phases of Leadership Journey.

[Operator]

We will take our next question from Seth Rosenfeld with Jefferies.

[Seth R. Rosenfeld, Equity Analyst]

I just had one quick follow-up question. Given the change in the reporting currency, I wanted to clarify if your guidance for sequential increase in EBITDA, will that be in U.S. dollars or in euros and just given the scale of euro strength we've seen over recent months?

[Sandeep Jalan, Chief Financial Officer]

So thanks, Seth. So today, we are reporting all the numbers in dollars and our guidance on CapEx as well as on EBITDA is formulated in dollar terms. We will be publishing our unaudited euro model on the website that you can take a look at and also during coming weeks and months, engage with all of you to clarify about this euro reporting. Starting quarter 1, you will see the first set of reported euro results and at that moment, we will adjust all the guidance also in euros. But at this moment, for the sake of simplicity, we have kept all the guidance in U.S. dollar terms.

[Operator]

That is the end of the question-and-answer session. For further questions, please contact the Investor Relations department. I would now like to turn the call back to Mr. Di Maulo for any additional or closing remarks. Please go ahead.

[Timoteo Di Maulo, Chief Executive Officer]

So, first of all, thank you very much for having participated to this call, which is for me, let's say, something which I'm proud because 2017 has been a good set of results. But on top of the fact that these results are record for the company, we have, let's say, in the last 10 years, we have never recorded this kind of result in term of EBITDA, in term of cash generation. This has been the year in which we have seen our position that was in the -- the finance of the company. We were extremely high in debt and in cost of financing at the beginning of the story of Aperam for which -- in which we had more than $1 billion. Now we are cash positive. We have seen also and we have demonstrated the resilience of the company. Whatever condition has happened in the last 4, 5 years, we have continuously growing results and continuously growing the cash generation of the company. You've seen also the constant and the recurrence and the wisdom of the cash allocation policy of the company. We are still focusing on the best investment, the highest return that we can have with the skills we have internally to execute all projects. We are giving to our shareholder -- we have a cash distribution to our shareholder, which should be one of the best of the market. So this gives me confidence in the continuation of this journey of the company, and I'm really happy to see you in the next quarter for the announcement of the result of Q1. Thank you very much, and have a good evening. Bye-bye.

[Sandeep Jalan, Chief Financial Officer]

Bye-bye. Thank you.

[Operator]

And that will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.