Aperam SA

MAD:APAM

Earnings Call Transcript 2019-Q4

[Operator]

Hello, and welcome to the Aperam Q4 2019 Earnings Conference Call. My name is Mahan, and I'll be your coordinator for today's event. Please note this conference is being recorded. [Operator Instructions] I will now hand over to your host, Tim Di Maulo, Chief Executive Officer; and Sandeep Jalan, Chief Financial Officer, to begin today's conference. Thank you.

[Timoteo Di Maulo, Chief Executive Officer]

Hello, good morning, everybody. Thank you for attending Aperam's earnings conference call. Next to me is Sandeep Jalan, Aperam's CFO. And together, we will present the results of the fourth quarter 2019. Please note -- take note of our disclaimer regarding forward-looking statements. We start from health and safety on Page 3. In Q4, our LTI frequency rate remained elevated at 1.9. This is due to the high CapEx spend for new projects and maintenance. We employed a high share of contractors and external parties during Q4 that are more accident-prone than our regular employees. This is another reminder that we constantly need to work hard and diligently towards our goal of becoming a zero-accident company. Now let's move to the key developments in the fourth quarter on Slide 4. The market environment remained challenging during Q4. The seasonal improvement was soft in Europe while Brazil was seasonally weak. In total, 2019 was the most challenging year since the inception of Aperam. In this context, we achieved a solid adjusted EBITDA, in line with guidance, and a very strong free cash flow, both for the year and during Q4. Cost savings are one of the drivers for this. We realized gains of EUR 90 million through the Leadership Journey in 2019, and we remain well on track to achieve the targeted EUR 200 million by the end of this year. Imports continued to flow into Europe during Q4. So we welcome the decision of the European Commission for registration of hot-rolled imports from China, Taiwan and Indonesia from January 24. We remain mildly optimistic for additional trade measure from the antidumping and CVD investigation, but we will discuss this later. Other than published ambitious environmental targets for 2013, we also plan to become a carbon-neutral company by 2050. Today, we have an industry-leading CO2 footprint, which we want to defend by reducing CO2 emission by another 15% until 2030. We also target a 40% reduction in water intake and plan to cap dust emission by 70% versus 2015 baseline. We are today an integral part of the European recycling landscape with our Recyco unit and more than 85% scrap input in our European [ alternative ] production. We seek to improve our position further by increasing the recycling rate of our own waste to over 97% until 2030. Independent agency rate us highly for our ESG achievement, but we constantly strive to minimize our environment footprint, and we'll continue to be a fair employer with highest corporate governance standards. Finally, I would like to share good news from Brazil. With a positive outcome of a long-standing dispute regarding PIS/COFINS with tax authorities, we have booked EUR 16.8 million credit in Q4 and expect further earnings before taxes of up to EUR 200 million to come during 2020. Let me now elaborate the environment on the next slide. The market environment in 2019 was the most challenging since the inception of Aperam. We experienced a substantial volume contraction together with a massive price deterioration. We experienced both on such a scale only in a recessionary year so far. On the volume side, we see 2 major reasons at work. First, weaker real demand across all the sectors due to the slowdown growth in both Europe and Brazil. Second, distributors' destocking amplify the market contraction. This caused 9.5% decline in our shipments as we pulled a strict margin-over-volume strategy to continue to be the most profitable and cash-generative standard steel producer. Imports also had some effect on volumes, but the major impact was on pricing. Asian competitors dumped material in Europe. According to CRU, the average base price in 2019 was 35% lower than in 2017. This was the last undistorted year before the global trade war started impacting Europe in 2018. Putting this into perspective, with 9% lower volumes and a 35% price decline, not many company would remain profitable. However, despite recessionary-like environment, we generated a solid adjusted EBITDA of EUR 340 million and the cash flow that fully covers an 11% shareholder return via dividend and share buyback. This is not a small achievement and was made possible by completely transforming the company through the Leadership Journey over the past years, a program that will continue beyond Phase 3. I hand over now to Sandeep.

[Sandeep Jalan, Chief Financial Officer]

Thank you, Tim. Good morning, and a very warm welcome from my side as well. Moving on to Slide #6. Quarter 4 is usually a seasonally stronger quarter than quarter 3. But this year, volumes declined by 4% compared to quarter 3, a soft seasonality in Europe, the weak demand in Brazil, the skyrocketing imports and nickel-priced induced destocking were the main reasons for these slower volumes in quarter 4. Despite this, we were able to achieve a slightly higher adjusted EBITDA compared to quarter 3. Margins expanded on the back of the Leadership Journey gains and inventory valuation gains. EBITDA during quarter 4, additionally, has benefited from an exceptional EUR 17 million gain from the positive PIS/COFINS decision in Brazil. PIS/COFINS is a federal tax towards social security contributions that is levied on sales. The issue was that the taxable basis for these PIS/COFINS federal taxes also included the state tax, ICMS. So this was like a tax on tax, which many companies in Brazil, including Aperam, were disputing for the last 2 decades. Now pursuant to the favorable decision by the Supreme Court and also by relevant courts during the last quarter in our own cases, EUR 17 million credit has been booked during quarter 4 2019 in our Brazilian results. Aperam will potentially be able to also recoup overpaid amounts and account for additional pretax income of up to EUR 200 million after approval of the code and confirmation by the tax department for recovery of these overpaid amounts. This EUR 200 million pretax income is roughly -- will be 50% in EBITDA and roughly 50% in the financial income as interest for these past years. And these are expected to be recognized in the profit and loss during the year 2020 while the cash collection, net of tax, would take several years. Tax expense includes EUR 26 million noncash impairment of deferred tax assets in several jurisdictions. Due to these items, earnings per share during this quarter has declined to EUR 0.36 despite the higher level of EBITDA back in quarter 3. Cash flow is again the star performer this quarter. We could deliver the promised release of working capital and further with our low cash cost below EBITDA, we were able to convert 160% of EBITDA into operating cash flows. Part of the working capital release is seasonal and will flow back in quarter 1, but structurally, we could still release on working capital during 2020. Capital expenditures at EUR 52 million was seasonally elevated due to the ongoing Genk cold-rolling mill project, and 2019 CapEx was fully in line with our guidance. Adding EUR 30 million cash flow from the complete divestment of the Gerdau equity stake resulted in a final total of EUR 140 million free cash flow during this quarter and a low net debt of just EUR 75 million. We are happy with this solid set of results in an extremely challenging market environment. I hand now back to Tim for in-depth look at the market environment on Slide 7.

[Timoteo Di Maulo, Chief Executive Officer]

Thank you, Sandeep. Let's look at imports first. To cut the long story short, these were in line with our projections and assumptions with no change in the fourth quarter despite the revised set measure having included Indonesia. So annual accounting quotas allow the imports to capture a disproportionate share of 32% in Q4 and 30% for the full year. Quotas run until June, but China has already exhausted its whole hot rolled quota at the end of January and Taiwan used 72% already. Imports accounted 46% in European hot-rolled market in Q4, and in December, it was the highest-ever number at 59%. This clearly show that trade action is pricing issue and we are encouraged by the European Commission to start registration of hot-rolled imports from China, Indonesia, Taiwan from January 24. The 3 countries under investigation accounted for 84% of all hot-rolled imports into the European community in 2019, so the antidumping decision could make a difference. Also, the CVD case, countervailing duty antisubsidies, on China and Indonesia should be concluded by July this year. The cold-rolled market share of imports at 26% in '19 and 28% in Q4 remains high versus the baseline of 22%. It was this [indiscernible]. Turkey, India, Taiwan, Malaysia and Vietnam also ran visibly above their product share of the quarter. We urgently need to discuss with the European Commission to align quotas with the market development in Europe and smooth flows by making country quotas quarterly. Nickel price remained volatile during Q4 and has the large decrease reverse the Q3 unusual spike. Obviously, this promote destocking as stainless steel price followed nickel lower. Stainless steel inventories are below last year's level in absolute tonnes, but slightly elevated for this time at the year. Also, the weak real demand is high inventory days, which is the core driver for the actors, in particular, distributors, besides a soft seasonal recovery for Q1. The price delta versus Asia has declined to a relatively low level, which indicates high price pressure in Europe. Base price remained substantially below historical normal level. Concerning demand, this is not changing during the quarter. In Europe, automotive, white goods and capital goods remained stable at a low level. We continue to see good demand in construction and general industries, but real demand has been clearly declining in 2019. In Brazil, automotive remains good and capital goods growth is coming from pulp and paper and ethanol. White goods are held back by low consumer sentiment. Construction growth has been weak despite improving sentiment because infrastructure spending remained low. Oil and gas has not started to recover. Now I hand over to Sandeep for a review of the Leadership Journey.

[Sandeep Jalan, Chief Financial Officer]

Thank you, Tim. Let's now take a look at Phase 3 of the Leadership Journey results on Slide 8. We are happy with the continued good progress towards our targets. During the fourth quarter, we added annualized gains of EUR 18 million and this brings total gains for 2019 to EUR 19 million and the cumulative gain for Phase 3 so far now to EUR 123 million. Quarter 3 gains -- quarter 4 gains were dominated by procurement of raw materials and purchasing in general. The top line strategy also contributed to the good results. EUR 77 million remain to be captured now during 2020, and we are well on track for realizing our goal of EUR 200 million gains by year-end 2020. Please be assured that we are working additionally on new ideas, both for cost and growth, and that we will share with you in due course of time. Phase 3 of the Leadership Journey will definitely not be the end of Aperam's transformation, and we expect to continue strengthening Aperam's performance. Capital expenditure associated with the Leadership Journey was EUR 5 million during this quarter and EUR 19 million during the full year 2019. The cumulative capital expenditure was EUR 83 million against a total plan of EUR 100 million, implying a remaining EUR 17 million spend mostly within this year. The realization does remain well within the plan. We have updated Slide 20 in our quarterly presentation to allow you to keep easy track of the improvements in Aperam's results over time, thanks to the Leadership Journey actions despite a very difficult market environment. I now hand back to Tim for the outlook.

[Timoteo Di Maulo, Chief Executive Officer]

Thank you, Sandeep. We go to the next page for the Q1 outlook on Slide 9. Despite the first quarter being seasonally stronger, we only expect a comparable adjusted EBITDA. Real demand has remained soft in Europe and Brazil. We also expect a negative inventory valuation during Q1. While the registration of the import is clearly positive news, any impact should be felt only in Q2. We expect net financial debt to increase seasonally due to higher working capital. After taking a close look at analyst estimates, we conclude that for a given level of earnings, our operating cash flow is systematically underestimated. Hence, we are providing some detailed guidance to assist you in your EBITDA and cash modeling. We plan with a CapEx budget between EUR 110 million and EUR 120 million for 2020. Obviously, lower volumes require lower maintenance. The budget also includes the remaining EUR 17 million for the Leadership Journey and CapEx to finish the Genk project. We expect a tax rate of 20%, 25% for 2020, only about half our P&L interest payment and effective tax rate are cash items reflected in the cash flow statement due to noncash financial charges and deferred tax assets. Please bear in mind that on top of that, the PIS/COFINS refund we'll add to EBITDA and cash flow later in 2020. We maintain a stable dividend in line with our progressive dividend policy and our earnings, that implies a sector-leading yield of 6.5%. We have also simplified our dividend policy to avoid confusion. We delivered the intention of 50% to 100% payout ratio. Aperam has a progressive dividend strategy with a base dividend of EUR 1.75. We will review this only in the unlikely event that net debt-to-EBITDA is above 1x. Due to our strong balance sheet and in line with our financial policy to hand back excess cash to investors, we also announced EUR 100 million share buyback for up to 3.8 million shares. You can take this as a sign of confidence in Aperam's ability to generate a very attractive free cash flow even in the most difficult market condition. Finally, you have seen that Sandeep has decided to leave for personal reasons. After a long career in steel and mining industry, he has decided to give his career an entire new orientation, leave his comfort zone and start an adventure in a new industry. I'm really grateful for Sandeep's tremendous contribution during these 7 years with Aperam. He will still be with us till May, which give us enough time to find a suitable successor. I regret that he's leaving, and I wish him all the best for his new career. Next page. As usual, we conclude our presentation with the corporate access schedule. We are looking forward to meet you at one of these events and provide you plenty of opportunity to address your questions in person. We are ready now to take your questions.

[Operator]

[Operator Instructions] And the first question comes from the line of Alain Gabriel from Morgan Stanley.

[Alain Gabriel, Equity Analyst]

Two questions from my side. Firstly, on the maintenance CapEx level that you've guided for 2020. I'm just trying to get a sense of how sustainable that level is, given that it's materially below your depreciation level. Should we expect an understanding in 2020 and then a ramp-up again in 2021? That's one. And then two is on the outlook for Q1. You mentioned demand remains soft in Europe and in Brazil. Can you give a bit more granularity on the order books, inventory levels, any evidence that we are seeing of a restock in any of the regions?

[Sandeep Jalan, Chief Financial Officer]

Alain, regarding your first question regarding the maintenance CapEx, we have always given a guidance that our maintenance CapEx is anywhere around EUR 70 million to EUR 100 million range and this includes several improvements in the Leadership Journey. So during the year, you can see that we are giving a guidance for next year, EUR 85 million. And we are very happy to cover all our maintenance requirements while continuing to progress with new investments like Genk line for which we are allocating EUR 35 million during next year.

[Timoteo Di Maulo, Chief Executive Officer]

Okay. So concerning Q1, we see 2 elements. The first element is Brazil. In Brazil, there is seasonal effect that is enormous, so it's the period of their holidays around January. And then the second part is Carnival. This takes a lot of importance for them. In Europe, normally, Q1 is a very strong quarter. It's not as strong as Q2, but is a strong quarter. But this strong quarter is some work in continuity. So we're in continuity what has been the situation of all the years with some sector and some countries which are weaker than the usual. And so we consider that this has not really showed sign of a dramatic change from last year. So we are mostly in continuity with last year, different from the historical level that Europe has reached. You see, that for the first time, Europe in real consumption has been below the previous year.

[Operator]

The next question in the queue comes from the line of Tom Zhang from Credit Suisse.

[Tom Zhang, Research Analyst]

Two quick ones, please. Firstly, could you help quantify maybe the raw material-related inventory impact in this quarter and to what extent we expect this to reverse in Q1 given nickel and ferrochrome price movements? And then following on the outlook again. Could you just give any color on your realized base pricing or product mix if there's any impact from those on your Q1 outlook? Just looking at [ CRE ], for example, it looks like there was a tick-up in January base pricing, but that doesn't really connect with some of our on-the-ground sources. So any color you have on the direction of pricing would help.

[Sandeep Jalan, Chief Financial Officer]

So regarding your first question regarding the raw material inventory valuation effects, all of you are well aware about the volatile movement that we have seen over past 2 quarters for nickel and nickel saw the massive rise during July and August, which had very important effects. With the time lag that we have explained over the previous calls, it had a certain positive valuation effects during quarter 4. And we have seen then subsequent declines in nickel starting towards latter part of quarter 4 extending into quarter 1, and this is leading to certain negative impacts, which we cannot fully quantify at the moment. Clearly, quarter 4 to quarter 1, the net impact is negative and this is part of our guidance that we are guiding for quarter 1 of net of EBITDA compared to quarter 4. However, when you exclude these effects, clearly, we can see improvements in the underlying EBITDA.

[Timoteo Di Maulo, Chief Executive Officer]

So comparing base price, it is quite difficult to give a guidance, which is different from what I'd said before. You see in that we have a page in which we show what is the situation of the market. We are exiting a quarter, the Q4, with a very high level of imports at a record high level, with a very low, let's say, apparent demand and with prices which have been under pressure. So we see, let's say, more longer-term possibility of improvement. And in particular, in -- with the effect of the filling of the quarter, which, for certain products is happening now in -- at the end of January and for the possible announcement of antidumping measure. But this is still to come. As you know, there is also always an inertia in this kind of movement, so price is not yet moving. We have to see also what will be the consequence on the imports in the first quarter. So we will be, let's say, more aware of what will be the evolution of this price at the end of this quarter. For the moment, we are not anticipating anything about that.

[Tom Zhang, Research Analyst]

Okay. And just a quick follow-up on the mix. Does that play any role in your Q1 outlook? Or do you kind of expect a flattish product mix versus Q4?

[Timoteo Di Maulo, Chief Executive Officer]

You -- when you refer to mix, you refer to what exactly? Mix of products on stainless steel?

[Tom Zhang, Research Analyst]

Mix of products, yes.

[Timoteo Di Maulo, Chief Executive Officer]

Yes. So not significantly. So we don't change the mix significantly unless the same industry goes up and down. So we don't see today any kind of segment which is particularly booming or dropping. So -- and typically, the mix is linked to the segment to which you are selling. Of course, we have an improvement, a continuous improvement, in our product mix, in the commoditization of our products. So our top lines have increased and this explains in a big part the resilience of the results of the company because on commodity, pure commodity has been the biggest drop in terms of volumes and in terms of price.

[Operator]

The next question comes from the line of Seth Rosenfeld from Exane.

[Seth R. Rosenfeld, Research Analyst]

Two different points. First, starting with the presentation...

[Sandeep Jalan, Chief Financial Officer]

Seth, we can't hear you. Can you be a bit louder, please?

[Seth R. Rosenfeld, Research Analyst]

Sorry. Can you hear me better now, please?

[Sandeep Jalan, Chief Financial Officer]

Yes, yes. Much better. Thanks.

[Seth R. Rosenfeld, Research Analyst]

Great. Starting out with the Brazilian tax gain, can you please give us a bit more color on what tax rate you expect to be applied to this gain as we go forward? Ultimately, what should the cash benefit be in benefiting your balance sheet over the medium term? You commented on taking several years to achieve the full EUR 200 million net-net cash benefit. Any sense of timing on that? Secondly, with regard to stainless scrap prices, can you give us a bit of a sense in terms of how you view the stainless scrap market developing into 2020 in a lower and more stable nickel price environment that we saw in 2019? Obviously, this past summer, you saw these discounts widen at near all-time highs. Do you think that those discounts in percentage terms are sustainable? Or ultimately, do you expect the scrap price to be much more stable than what we've witnessed in nickel of late?

[Sandeep Jalan, Chief Financial Officer]

Seth, so regarding your first question regarding the PIS/COFINS gain, so we expect, in addition to the EUR 17 million that we recorded during quarter 4, we expect further EUR 200 million of pretax income. And on this, yes, you are right that there will be some taxes that will be imposed. As you know, like in Brazil, the statutory income tax rate is 34%. But at the same time, you know that we do have certain deferred tax assets and that includes Brazil as well. So our net cash tax should be far lower, more in the range of around 24% or so. And this cash recovery we would expect over several years while the P&L recognition we would expect after all these procedures is completed to be recorded during quarter 4 -- sorry, during 2020 in the P&L and the cash flow during next few years.

[Timoteo Di Maulo, Chief Executive Officer]

Okay. On the scrap, so I can't give a guidance of what will be the scrap discounted price during the year, of course. But the mechanism is the following. Scrap is one raw material and follows the trend of all the competing raw materials. So the competing raw material are nickel pig iron, ferronickel and all the nickel vectors that we really use in our, let's say, standard steel production. While the pure nickel, which is the LME grade, is not used directly for stainless steel producer. So the adaptation of scarp discounts or price, let's say, because discount is only a way to price at the end will follow -- will continue to follow, which of this we are convinced with the general trend of the raw material. When you see a very high discount publicly named, this is because there is a big correlation between what is the LME and the real price of the raw material. LME has had a spike in Q3, which were not supported by a real demand of the ferronickel or real, let's say, consumption of nickel pig iron or ferronickel at much higher prices and the same has been for scrap. So I am expecting that the scrap will continue to be a usable raw material. Usable means that it has to compete with all the rest of the raw materials that are being used to produce stainless steel.

[Operator]

The next question in the queue comes from the line of Rochus Brauneiser from Kepler Cheuvreux.

[Rochus Brauneiser, Head of Steel Research]

Yes. One general question on the European market. As you mentioned in your presentation, you have been suffering a significant decrease in the volumes, particularly during the second half of the year and you're now pointing to a rather muted recovery. What is your current thinking about the 2020 shipments overall in Europe? Do you think a further decrease in the shipments will be most likely again as some of the market might be lost to imports? Or are you still hoping that the impact from the potential antidumping duties would be strong enough that this could be, to a certain extent, corrected? That's the first question. And the second question is in regard to your CapEx guidance. To what extent would come any incremental CapEx on top in pursuance of the climate targets you are setting for the current decade? And thirdly, can you please get a bit more specific on the positive windfall effects you have benefited from in Q4?

[Timoteo Di Maulo, Chief Executive Officer]

Okay. So it is a bit early to give a guidance on what will be the volumes on 2020. But what are the, let's say, factual reason or the factual fact -- the facts on 2020 compared to 2019. So in 2019, the safeguard was not including Indonesia, this is a fact. And this will have an effect, and so we see that already in Q1, some quota filling up with the inclusion of Indonesia. The second effect will be that we have the registration of the imports. And the registration of imports is, let's say, something positive. We can't say today that the antidumping is done -- is not done, but is something positive, and we will continue to work with European Commission to be sure that they will level a fair market. The third point that is totally unknown today is the economy is unknown in the sense that we have had in '19 when which many countries and sector have suffered a lot. Now is this the end of the -- this decline in term of real consumption or not? This is still very early to be said. But for the moment, there is a stabilization and there is a seasonal effect that will happen in Q1 and Q2. So all this will be the real fact and then we will see during the year. Sandeep, you want to take on the windfall?

[Sandeep Jalan, Chief Financial Officer]

Yes. So on the CapEx guidance, we already had this question earlier. Overall, we are comfortable with the guidance on the CapEx that we are giving and this includes all the actions on -- the environmental actions, which is part of our 2030 target. And we have concrete plans internally within the company to realize those targets that we have announced. Now as I said earlier, we are working on additional ideas. And clearly, we can see the potential to go beyond Leadership Journey 3, and both in terms of the cost and other potentials and we'd be working on those ideas and later on we'll be coming back what are the kind of CapEx allocation and is there any potentials that we can focus then on.Then regarding your last question, Rochus, regarding windfall during quarter 4. On windfall, we are not giving any concrete numbers as such. As you know, our stand, we have always considered it as part of our results, part of our adjusted EBITDA. This is the basic model of our business to work with the availability of nickel and inventories and sometimes it's positive, sometimes negative. And as I said earlier, it was clearly a positive effect in quarter 4, an important one. And in quarter 1, it would be a negative effect at least based on the nickel position that we see as of today and this position is still developing. And based on that, we will see those impacts in our books.

[Operator]

The next question in the queue comes from the line of Bastian Synagowitz from Deutsche Bank.

[Bastian Synagowitz, Research Analyst]

Can you hear me now?

[Timoteo Di Maulo, Chief Executive Officer]

Yes. Yes. Now it's okay.

[Bastian Synagowitz, Research Analyst]

Perfect. I've got 2 questions left, and my first one is actually just on the seasonality and volumes in the first quarter and maybe what you can already see for the second. I think you talked about weaker-than-usual seasonal improvement in Europe in the first quarter. Could you please let us know whether you've seen just any notable change in the patterns of your customer behavior since the beginning of the import registrations, which also is obviously the only reason? And maybe also give us some color on whether you expect that to impact the market in the second quarter already? And then my second question is just a follow-up on the Brazilian social insurance overpayments. Could you please be a bit more specific on the period in which we should expect you to collect the majority of the cash? Are we looking here at a 5-year time frame or maybe rather a 20-year time frame? I guess it may depend on the earnings performance, which you obviously don't know, but any color on that would be great.

[Timoteo Di Maulo, Chief Executive Officer]

Okay. So for -- concerning Q2, you have the typical effect that are [indiscernible]. So Q2 is the strongest quarter for Europe in term of consumption, in number day of opening of the industries. But it also is the full opening of Brazil, so it is seasonally also a quarter which is strong for Brazil. Now as always, Q2 tend to be the stronger in terms of volumes for Aperam due to the addition of these 2 facts. We don't see for the moment, and we are not anticipating major of disruption in the behavior of customers. But okay, this is very early in this kind of industry to pretend to know what the customer will do in 4 to 6 months.

[Sandeep Jalan, Chief Financial Officer]

Bastian, regarding your second question concerning the cash flows. So as you have seen, that we have delivered very strong cash flows during the last year. And going into quarter 1, we do have seasonal effect as you have seen during all the previous years. They do have a strong pickup in volumes and some seasonal effects in the working capital. That is leading to build up inventories, et cetera. Overall, for the whole year, of course, as you have seen, as in our past years, we have been generating very, very strong cash flows, thanks to the robust profitability as well as below-EBITDA items be very, very low in terms of the cash flow impact, as you can see from our cash interest, which is about EUR 10 million as per our guidance. And cash taxes being around half of our ETR guidance, expected effective tax rate being around 20% to 25% and only half of that converting into cash taxes. So overall, cash generation ability of Aperam will continue to remain high, apart from the seasonality but they will reverse. In particular, about PIS/COFINS, PIS/COFINS should further strengthen this cash-generating ability of Aperam. As I mentioned earlier, all these additional amounts, EUR 17 million that we accounted for in Q4 as well as EUR 200 million that will be accounted for during this year, these amounts, net of the taxes impact, would be recovered over the next several years. And this would, of course, lead to additional cash flows for Aperam.

[Bastian Synagowitz, Research Analyst]

And just to follow up on that. I mean it's going to support your cash flow, but I mean, can you give us any guidance on whether we are looking at maybe 5-year time horizon for you to collect those Brazilian cash benefits? Or is this more like a very wide 20-year time frame in which we have to...

[Sandeep Jalan, Chief Financial Officer]

Yes, Bastian. So we are looking more at a 5-year horizon. Again, there are a lot of, let's say, complexities involved in the documentation and the process where we are not at the end. There are certain approvals needed as well. So we are following that very closely. And during next quarter, we should come out with a bit more precise guidance and clarity concerning that. But yes, I mean, at the overall, we see like a 5-year horizon at the moment.

[Operator]

The next question in the queue comes from the line of Alan Spence from Jefferies.

[Alan Henri Spence, Equity Analyst]

Just 2 quick ones remaining from my side. And just firstly, on what we were talking about on Bastian's question there on tax, can you just confirm whether this will definitely come into your proceeds? Or is there any kind of decision you're still waiting for to get confirmation on it?

[Sandeep Jalan, Chief Financial Officer]

Yes. So regarding the EUR 17 million that we have accounted for, these are the credits that only belong to us, so they are already in our returns and we'll start recouping this very shortly. Regarding the other EUR 200 million, as we mentioned earlier, there is still a part of the documentation and process left to be followed. And clearly, we are trying to accelerate it to complete it as soon as possible. And at the moment, as the decision stands today, both the Supreme Court and the local courts, the position stands at amounts that we are indicating which is around EUR 200 million, half in EBITDA and half in financial income. And of course, as we go along the process, we'll be able to give you more clarity.

[Alan Henri Spence, Equity Analyst]

Okay. And I'm going to try one last time around negative inventory valuation for Q1. I know you mentioned it's provision and part of that is going to depend on where nickel prices trend in the remaining part of the quarter. If nickel prices end the quarter where they were today, can you give us a very rough number of what you think that negative inventory valuation might be? Is it for the sake of this, say, less than EUR 5 million or above EUR 5 million?

[Sandeep Jalan, Chief Financial Officer]

Look, we have never given a guidance because this is a very difficult number to give. And even if I gave, you should not trust me at all because this is not a number that any of us can control. And it's part of our results and it will be an important number based on the nickel as it stands today. You remember, the nickel went up last year from $10,000 to $18,000, $19,000 leading into these positive effects, mostly during quarter 4. And yes, it is unwinding a little bit now -- a lot actually, went back to levels below $13,000. So yes, it is having an important effect on the quarter 1 results as we stand today. I'm sorry, I won't be able to give a number there.

[Operator]

The next and last question in the queue comes from the line of Christian Georges from Societe Generale.

[Christian Eric Andre Georges, Equity Analyst]

Two questions. Your Alloys & Specialty division, so you did about EUR 50 million EBITDA this year, so it looks like we are pretty much normalized. Is this an area where you see some potential for further improvement as far as profitability is concerned? Or is this more likely to become a running rate? That's my first question. And my second question is with regards to Chinese production. We've had the ban on ore exports in January. And now obviously, we got this virus issue in China. I mean do you see potentially some impact on the Chinese stainless steel production in the first half of the year between those 2 factors?

[Timoteo Di Maulo, Chief Executive Officer]

So thanks a lot for the question of Alloys & Specialty because this is again an area in which we are fully confident that we are not at the end of our growth. And the results are proving that this is a business which is sustainable, which is -- which has behind a demand which is not volatile. On the contrary, it continues to grow -- continuously grow. And that we see also that we have a trend in which we are positioning -- positioned like, for example, in the very high end of the some aeronautics application or automotive application or in LNG, so the liquid gas in which the potential of our division is tremendous. So we are working on this. And we are very confident on the continuation of the growth of this sector. Now concerning the consequence of nickel or ban on China and what will happen, we see that there is a lot of factors that play in the game. So there is abundant nickel coming also from ferronickel. There are more and more investment of nickel pig iron in Indonesia, which will provide the nickel pig iron, which is a raw material for China. So I'm not an expert of this nickel, but doesn't seem a sector in which there is -- there will be a shortage in the short term.

[Christian Eric Andre Georges, Equity Analyst]

Just one last question. The spike of the nickel price in the last quarter, that suggests that the inventories of laterite and of nickel in China at stainless steel mills have got quite a high value. Would you agree with that?

[Timoteo Di Maulo, Chief Executive Officer]

No. We don't know, absolutely not, because there are 2 effects. The first effect is what is in LME. LME is linked to financial transition and position that some operators take. And what is the reality of the nickel content in the vectors that we use in the stainless steel, which are scrap and nickel pig iron, nickel ore or ferronickel, which has been [ the correlated ] from this spike, which has been temporary and have been resolved after a few months.

[Operator]

This concludes 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]

Okay. Thank you very much for having listened to us and asking these very relevant questions. So I would like to conclude this 2019 year because I think it's a pillar of what we are as Aperam. We have been facing, really, a market which I personally have never seen so weak and so bad in terms of imports, in terms of price, probably never in my life, of 30 years life, in stainless steel. We have seen imports which sometimes were unbelievable in figures like 59% imports in December for hot-rolled is something which in an industry never exists. We have seen a strong difficulties in convincing European Commission in going for a fast implementation of efficient measure. So we have seen a lot, and despite this, we have had an EBITDA which is, let's say, not what we can expect from this company, but a sustainable EBITDA with the generation of free cash flow, which is extremely high and with the capacity of this company to focus at the fundamentals when the -- this kind of situation comes. And the fundamentals for me are the focus on the cost competitiveness, on the customers, on the fact that on the cash allocation and the discipline even in the CapEx spending in the way we do everything, we are maintaining the resilience and the long-term sustainability of the company. You have seen also that we are very actively working on environment and on ESG in general with good results that are -- and the progress and the results are witnessed by the recognition by the competent auditors. So I'm very happy of this set of results at the end of the year, which gives a lot of hope for the -- what will come now -- from now on. What will come from now on is embedded in our strategy, Leadership Journey; in the new investment of Genk, which will ramp up during the last part of the year; in all the investments we have done to improve the competitiveness of the company in the last years; and the fact that we still have potential to further decrease our working capital and continue to be a very cash-generative company. So thank you very much, and see you in the next road show or meeting that we have already planned. Bye-bye.

[Sandeep Jalan, Chief Financial Officer]

Thank you. Bye-bye.

[Operator]

Thank you for joining today's call. You may now replace your handsets.