Aperam - Second quarter 2011 results (1)
Luxembourg, 26 July 2011 -
Aperam (referred to as "Aperam" or the "Company") (Amsterdam, Luxembourg, Paris: APAM and NYRS: APEMY), today announced results for the three month period ending June 30, 2011
Bernard Fontana, CEO Aperam, commented:
"As expected, the decline in nickel prices and the general economic uncertainty experienced in Q2 2011 led customers to adopt a 'wait and see' behavior which had a negative impact on pricing. However, recently we have started to see signs of market stabilization, which gives us confidence for the end of the year. Additionally, we continue to make progress with the 'Leadership Journey'. In particular, we have successfully converted the second blast furnace in Brazil to use biomass (charcoal)."
Highlights
Highlights
- Health and Safety frequency rate[2] of 0.8x compared to 0.7x in Q1 2011
- Shipments of 439 thousand tonnes in Q2 2011, a 3% decrease compared to shipments of 452 thousand tonnes in Q1 2011
- Earnings per share of USD 0.02 in Q2 2011
- Cash outflows from operations amounted to USD 198 million in Q2 2011 compared to cash inflows of USD 40 million in Q1 2011, mainly due to a working capital peak
- Net debt of USD 1,107 million at June 30, 2011, representing a gearing of 27%, compared to USD 864 million at March 31, 2011
Prospects
- EBITDA is expected to reach a trough in Q3 2011 due, in particular, to a seasonal
slowdown
- Net debt is expected to decrease in Q3 2011
Financial Highlights (on the basis of IFRS)
| (USDm) unless otherwise shown | Q2 '11 | Q1 '11 | Q2 '10 | H1 '11 | H1 '10 | |
| Sales | 1,708 | 1,681 | 1,513 | 3,389 | 2,798 | |
| EBITDA | 102 | 139 | 178 | 241 | 322 | |
| Operating income | 24 | 70 | 108 | 94 | 176 | |
| Net income | 2 | 25 | 66 | 27 | 114 | |
| | | | | | | |
| Steel shipments (000t) | 439 | 452 | 479 | 891 | 915 | |
| EBITDA/tonne (USD) | 232 | 308 | 372 | 270 | 352 | |
| Basic earnings per share (USD) | 0.02 | 0.32 | N/A | 0.34 | N/A | |
Health & Safety results analysis
Health and Safety performance, based on Aperam personnel figures and contractors lost time injury frequency rate2, was 0.8 in the second quarter of 2011 compared to 0.7 in the first quarter of 2011.
Financial results analysis
Sales in the second quarter of 2011 increased slightly by 2% to USD 1,708 million compared to USD 1,681 million in the first quarter of 2011. Shipments in the second quarter of 2011 decreased by 13 thousand tonnes or 3% to 439 thousand tonnes compared to 452 thousand tonnes in the first quarter of 2011.
EBITDA was USD 102 million in the second quarter of 2011 compared to EBITDA in the first quarter of 2011 of USD 139 million. The results of the first quarter of 2011 were impacted by a USD 36 million charge related to the implementation of the "Leadership Journey" which was included within EBITDA. The decrease in EBITDA quarter versus quarter was primarily driven by lower volumes, the weakness of the US dollar and the negative stock effect resulting primarily from the decline in nickel prices. Since the beginning of the year, the "Leadership Journey" has contributed USD 73 million to EBITDA.
Depreciation and amortization expense in the second quarter of 2011 was USD 78 million.
Aperam had operating income in the second quarter of USD 24 million compared to USD 70 million in the previous quarter.
Net interest expense and other financing costs in the second quarter of 2011 were USD 27 million. Income from other investments was USD 1 million in the second quarter. The significant reduction of interest charges in the second quarter compared to the first quarter relates to the specific financing that existed prior to the spin-off and the new financing structure that was put in place in March 2011. Other net interest expense includes the impact of foreign exchange primarily on monetary assets held in different currencies, the mark-to-market of derivative instruments and USD 20 million of financing costs.
The Company recorded net income of USD 2 million in the second quarter of 2011, inclusive of an income tax benefit of USD 4 million.
Cash flows from operations in the second quarter were a negative USD 198 million, with working capital increase of USD 268 million. CAPEX in the second quarter was USD 27 million.
At June 30, 2011, shareholder's equity was USD 4,167 million and net financial debt was USD 1,107 million (gross financial debt as of June 30, 2011 was USD 1,373 million and cash & cash equivalents were USD 266 million).
The Company had liquidity of USD 466 million at June 30, 2011, consisting of cash and cash equivalents (including short-term investments) of USD 266 million and USD 200 million of available credit lines.
Operating segment results analysis
Stainless & Electrical Steel
The Stainless & Electrical Steel segment had sales of USD 1,388 in the second quarter of 2011. This represents a decrease of 3% compared to sales of USD 1,430 million in the first quarter of 2011. Shipments during the second quarter were 431 thousand tonnes, including 272 thousand tonnes in Europe and 159 in South America. This is a decrease of 27 thousand tonnes compared to the previous quarter's shipments of 458 thousand tonnes (296 thousand tonnes in Europe and 162 thousand tonnes in South America). The decrease in volumes is primarily due to the "wait and see" behavior adopted by customers as a result of the nickel price decline that occurred during the second quarter. Average steel selling prices for the Stainless & Electrical Steel Segment were slightly higher for the quarter.
The segment had EBITDA of USD 93 million in the second quarter of 2011 compared to USD 79 million in the first quarter of 2011. A charge of USD 36 million relating to the implementation of the "Leadership Journey" was included within the EBITDA for Q1 2011. EBITDA from South America increased from USD 26 million in the first quarter of 2011 to USD 43 million in the second quarter of 2011. There is a charge of USD 12 million included in the EBITDA of Q1 2011 relating to the implementation of the "Leadership Journey" in South America. EBITDA from Europe decreased to USD 50 million in the second quarter of 2011 from USD 53 million in the first quarter of 2011. There is a charge of USD 24 million relating to the implementation of the "Leadership Journey" included in the EBITDA of Europe for Q1 2011.
The Stainless & Electrical Steel segment had operating income of USD 24 million during the second quarter compared to USD 19 million in the first quarter of 2011. Depreciation and amortization expense was USD 69 million in the second quarter of 2011.
Services & Solutions
The Services & Solutions segment had a 4% decrease in sales during the period, from USD 728 million in the first quarter of 2011 to USD 699 million in the second quarter of 2011. In the second quarter of 2011, shipments were 168 thousand tonnes compared to 181 thousand tonnes in the previous quarter. Lower shipments were partially offset by slightly higher average selling prices.
The segment had negative EBITDA in the second quarter of USD 11 million compared to positive EBITDA of USD 33 million in the first quarter of 2011. The significant decrease in EBITDA for the quarter is again the result of the "wait and see" behavior adopted by customers and the negative stock effect resulting primarily from the decline in nickel prices that occurred during the quarter.
Depreciation and amortization expense in the second quarter of 2011 was USD 7 million.
The Services & Solutions segment had operating loss of USD 18 million in the second quarter of 2011 compared to an operating income of USD 25 million in the first quarter of 2011.
Alloys & Specialties
The Alloys & Specialties segment had sales in the second quarter of USD 223 million, representing an increase of 23% compared to USD 181 million in the first quarter of 2011. Shipments increased from 10 thousand tonnes in the first quarter to 11 thousand tonnes in the second quarter, while average selling prices increased quarter over quarter.
The Alloys & Specialties segment achieved EBITDA of USD 23 million in the second quarter of 2011 compared to USD 24 million in the first quarter of 2011. Higher volumes were compensated for by a negative raw material price impact.
Depreciation and amortization expense for the quarter was USD 2 million.
The Alloys & Specialties Segment had operating income of USD 21 million in the second quarter of 2011.
Recent developments
- On April 5, 2011, Standard & Poor's Ratings Services assigned its 'BB' long-term corporate credit rating to Aperam. The rating is in line with the 'BB' preliminary rating assigned on February 3, 2011. The outlook is stable. At the same time, Standard & Poor's assigned their 'BB' rating to the USD 500 million bonds, in line with the 'BB' preliminary rating.
- On April 11, 2011, Moody's Investor Services assigned a definitive Ba2 corporate family rating (CFR) and a definitive Ba2 probability of default rating (PDR) to Aperam. Concurrently, Moody's assigned a definitive B1/loss-given default (LGD) 6 rating to the company's USD500 million worth of senior unsecured bonds. The outlook on all ratings is stable.
- On May 10, 2011, as part of the "Leadership Journey", Aperam announced that the Board of Directors of Aperam approved an investment of USD 35 million to improve the performance and profitability of its steel service center in Campinas, Brazil. This investment will result in the doubling of its processing capacity to 200,000 tonnes through revamping, streamlining and the addition of new processing lines, thus improving Aperam's ability to serve its customers in the thriving Brazilian market.
- On June 7, 2011, Aperam announced that its biomass operations in Brazil have been separated from ArcelorMittal's biomass operations and will be renamed Aperam BioEnergia. The legal steps of the demerger are currently underway and shall be completed in the third quarter. Aperam's biomass operations constitute a leading company in the sector of biomass production for the steel industry with state-of-the-art forest management, harvesting machinery and carbonization kilns. In 2010, they produced 220,000 tons of charcoal.
- On June 7, 2011, Aperam announced the publication of its Financial Report 2010. The report is available on www.aperam.com under "Investors" > "Aperam Reports".
- On July 12, 2011, the Ordinary and Extraordinary General Meetings of shareholders of Aperam approved all resolutions on the agenda by a large majority. 41,988,479 shares, or 53.79% of the Company's share capital, were present or represented at the meetings. The shareholders approved the statutory accounts for the financial period 1 January to 25 January 2011 and elected Ms. Laurence Mulliez, CEO of Eoxis, a privately held company producing energy from renewable sources, as an independent member of Aperam's Board of Directors. Ms. Laurence Mulliez will serve for a term of three years. In addition, the shareholders approved the implementation of the new Restricted Share Unit Plan and Performance Share Unit Plan 2011 as well as amendments to the Company's articles of association intended to strengthen the rights of shareholders.
- On July 18, 2011, Aperam, announced that it had signed an agreement with Google to deploy collaborative cloud-based solutions across its organization. Aperam will gradually switch its office software to Google's cloud-based solutions ("Google Apps") and deploy Google Mail as its core messaging tool among its 9,600 employees. The move is part of the Leadership Journey which aims to achieve USD 250 million of management gains and profit enhancement over 2011 and 2012.
New developments
- On July 26, 2011, as part of the Leadership Journey, Aperam announces that its Brazilian operations (Timóteo) have finalized the conversion of blast furnace number two and will henceforth use biomass (charcoal) instead of coke.
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