Investor Day Alloys Imphy November 16 th, 2011 Philippe Darmayan Chief Executive Officer
Disclaimer Forward-Looking Statements This document may contain forward-looking information and statements about Aperam and its subsidiaries. These statements include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, products and services, and statements regarding future performance. Forward-looking statements may be identified by the words believe, expect, anticipate, target or similar expressions. Although Aperam s management believes that the expectations reflected in such forward-looking statements are reasonable, investors and holders of Aperam s securities are cautioned that forward-looking information and statements are subject to numerous risks and uncertainties, many of which are difficult to predict and generally beyond the control of Aperam, that could cause actual results and developments to differ materially and adversely from those expressed in, or implied or projected by, the forwardlooking information and statements. These risks and uncertainties include those discussed or identified in Aperam s filings with the Luxembourg Stock Market Authority for the Financial Markets (Commission de Surveillance du Secteur Financier). Aperam undertakes no obligation to publicly update its forward-looking statements, whether as a result of new information, future events, or otherwise 2
Market growth, globalization and Chinese factor
Market growth, globalization and Chinese factor The stainless steel market is growing again following crisis World stainless steel flat product demand (in million tonnes) Stainless steel consumption by end user (%) 35 30 25 20 15 10 5 0 1997 1998 China Emerging Developed +5% Source: CRU and Aperam estimates +5% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Catering & Appliance 34% Automotive & Transportation 12% Building & Construction 17% Demand expected to grow CAPEX by less budget 2% per of USD year 4.0 in Europe billion for and 2010 by 7% in South America Others 3% Energy & Chemicals Industry 14% General Industry 20% 4
Market growth, globalization and Chinese factor China has taken over the global leadership World stainless steel slab production breakdown (%) Stainless steel flat product export/import from China, Taiwan and Korean (in million tonne) 100% 80% 60% 40% 20% 1,20 1,00 0,80 0,60 0,40 0,20 - -0,20 0% 2000 2010 China Korea & Taiw an Europe Rest of the World -0,40-0,60-0,80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 China is leading the global CAPEX stainless budget steel market of USD through 4.0 billion its for market, 2010 its industry and exports Source: CRU and Aperam estimates 5
Market growth, globalization and Chinese factor Pricing is set by China Chinese marginal cost player landed price in EU27, illustrative (base 100) Chinese marginal cost player landed price in Brazil, illustrative (base 100) 140 160 120 140 100 120 80 100 80 60 60 40 40 20 20 0 Chinese marginal cost FOB +8% and transportation cost Margin EU transaction price EU Alloy surcharge EU Base price 0 Chinese marginal cost FOB +8% and transportation cost Imports duty Domestic transportation cost Margin Brazilian transaction price CAPEX budget of USD 4.0 billion for 2010 European and Brazilian pricing directly driven by Chinese pricing Source: Aperam estimates 6
Market growth, globalization and Chinese factor Strong pricing correlation Price for flat stainless steel cold rolled Grade 304 2mm Nickel price and Chinese stainless steel price 7000 6000 31000 29000 4200 4000 5000 4000 3000 2000 1000 0 27000 25000 23000 21000 19000 17000 15000 01 2010 03 2010 06 2010 09 2010 12 2010 02 2011 05 2011 08 2011 3800 3600 3400 3200 3000 2800 Jun 11 11 Aug 10 Mar 10 Oct 09 May 09 Dec 08 Jul 08 Feb 08 Sep 07 Apr 07 Nov 06 Jun 06 06 Aug 05 Mar 05 EU transaction price derived from Chinese price (USD/t) EU real price (USD/t) Nickel price (USD/t) CR 304 2mm including VAT (USD/t) CAPEX budget of USD 4.0 billion for 2010 Chinese are adjusting the stainless steel price to nickel rapidly but not perfectly Source: SBB and Aperam estimates 7
Overcapacity challenge and cost opportunity
Overcapacity challenge and cost opportunity Overinvestment has led to overcapacity Stainless steel slab capacity expansion (in million tonnes) Stainless steel slab equivalent global utilization rates (% of capacity) 12 10 8 6 4 2 95% 90% 85% 80% 75% 70% 65% 60% 55% 0 2000-2005 2005-2010 2010-2015E 50% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Europe China Rest of the World CAPEX budget of USD 4.0 billion for 2010 Expansion of capacity is expected to slow Source: CRU and Aperam estimates 9
Overcapacity challenge and cost opportunity Prices and margins have been under strong pressure South Europe stainless steel base price (CR 304 2B 2mm coil) Margin to stainless steel maker in % of total price 2000 100% 1800 90% 80% 1600 70% 1400 60% 50% 1200 40% 30% 1000 20% 10% 800 600 99 00 01 02 03 04 05 06 07 08 09 10 11 0% 2001 2011 Material margin including energy cost and fixed cost Alloys cost Alloys surcharge Monthly (EUR/t) Annual average (EUR/t) Margin to the stainless steel maker has become very limited relative to total stainless price Source: SBB 10
Overcapacity challenge and cost opportunity Closure and optimization potential on stand-alone Shipments and finishing capacity for European producers in 2010 (in million tonnes) Steel making and finishing capacity for European producers (in million tonnes) 7% of capacity Optimization Competitor 1 Aperam Competitor 3 Competitor 2 Competitor 1 Aperam Competitor 3 Competitor 2 LT supension/closure Shipments and used capacity Unused finishing capacity Steel making capacity Finishing capacity CAPEX budget of USD 4.0 billion for 2010 Overcapacity offers significant cost reduction potential through closure, suspension and optimization Source: Aperam estimates 11
Overcapacity challenge and cost opportunity Chinese costs set to rise China domestic stainless steel price and cash cost evolution (USD/t) 6000 5000 4000 3000 2000 1000 Jun 05 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 Jun 11 Chinese marginal cost producer - CR 304 2B 2mm - USD/t China domestic Foshan -CR 304 2B (exc 17% vat) USD/t Key factor to impact Chinese cost competitiveness 1 Inflation expected to remain high and 1 weight of fixed cost 2 2/ Slow but progressive revaluation of the RMB 3 3/ Productivity to reduce as capacity expansion stabilize 4 4/ Low nickel price to reduce/remove nickel pig iron advantage CAPEX budget of USD 4.0 billion for 2010 Domestic prices, which are already close to the marginal cost level, should follow cost inflation Sources: SBB and Aperam estimates 12
Aperam strengths and strategy
Aperam strengths and strategy A leading position in stainless steel and alloys Flat product stainless steel producers ranking by slab capacity (mt) Nickel Alloys producers ranking (kt) 4 3 40 35 30 2 25 20 1 15 10 5 0 TKS Acerinox TISCO YUSCO POSCO Aperam Outokumpu Baosteel JISCO Nippon Steel AK Steel 0 Special Metals TK VDM Carpenter Aperam Hitachi Nippon Yakin Allegheny Sumitomo Daido Haynes Leading player in stainless, alloys and specialty steel in Europe and South America Sources: CRU, SRM and Aperam estimates 14
Aperam strengths and strategy A solid industrial base Steelshop Hot rolling Cold rolling Service Isbergues Chatelet 0.35Mt 1.0Mt Chatelet 3.4Mt Genk 0.74Mt Stainless flat Steel Service Centers Transformation Direct sales Genk 1.1Mt Gueugnon 0.40Mt Clients Timoteo 0.90Mt Timoteo 0.88Mt Timoteo Electrical 0.17Mt Timoteo Stainless 0.38 Mt* Electrical flat Stainless flat Steel Service Centers Transformation Direct sales Imphy Chatelet (strip) 0.06 Mt Imphy (wire) Imphy Ni alloys & specialties SSCs, Direct sales Transformation Integrated plant in Brazil and stainless upstream restructured in Europe Built in 2005, Chatelet has been the latest greenfield built in the developed world to date * Includes 0.06Mt of finished HRAP products 15
Aperam strengths and strategy Close to customers through a highly integrated distribution network Sales, distribution and steel service centers network, including precision & tubes businesses Sales subsidiaries and representative offices Sales agencies Steel Service Centers A key competitive advantage to maintaining market share and capturing growth opportunities 16
Aperam strengths and strategy A large product range of specialties supported by strong R&D Corrosion resistance FERRITIC 400 series DUPLEX 2507 LOW NICKEL 200 series AUSTENITIC 300 series 6Mo 446 444 434 439 430 409 Capital Goods White Goods Automotive Appliances 2205+ 2205 2003 2304 2202 2101 Food & Health 17-4 Cu 201 204 1Ni 14Cr 904 317LNM 317LN Building & Construction 316 304 Aperam product 25% 30% 50% Elongation (%) High-end application and specialty products benefiting from higher margins and growth 17
Aperam strengths and strategy A unique exposure to Brazil Apparent consumption in South America of stainless steel flat product ( 000t) Apparent consumption in South America of non grain oriented (NGO) electrical steel ( 000t) 700 +7% 350 +7% 600 500 +10% 300 250 +10% 400 200 300 150 200 100 100 50 0 0 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E Brazil Rest of South America Brazil Rest of South America Brazilian operations, producing stainless & electrical steel represent approximately 30% of the group* and are running at full capacity. As market grows, shipments expected to be redirected to profitable domestic market *% shipments 18
Aperam strengths and strategy A unique capability to produce stainless and specialties from biomass (charcoal) Bioenergia produces biomass (charcoal) from eucalyptus - planting, maintenance and cutting at 7 years old Target to produce of 450,000t of biomass (charcoal) for 2012 following the forest development and the conversion of Blast Furnace #2 from coke to biomass Positive impact on environment Equivalent coke and charcoal cost (USD/t)* Imported (coke) Brazil (charcoal) ~200 ~450 Biomass integration (% of Aperam production) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2009 2010 2011E 2012E 2013E 2014E Biomass Stainless & Electrical Stainless, Electrical & Alloys Biomass is a strong competitive cost advantage Fully integrated in biomass since mid-2011 *One tonne of charcoal is equivalent to approximately 0.90 tonne of coke Source: Aperam 19
Aperam strengths and strategy Solid financials relative to the sector European producers adj. EBITDA per tonne (USD/t)* European producers gearing ratio (% on Equity)* 350 90% 2010 Q3 2011 300 250 200 2010 9M 2011** 80% 70% 60% 50% 150 40% 100 50 30% 20% 10% 0 Competitor 1 Aperam Competitor 2** Competitor 3 0% Aperam Competitor 1 Competitor 2 Profit improvement in Q1 due to market and internal initiatives but Q2 expected to be more challenging An adj. EBITDA of 257 USD/t in the first nine months of 2011 *Based on earning release and annual reports ** 9M 2011 figures are substituted by 1H 2011 figures when unavailable 20
Aperam strengths and strategy Level of profitability to improve Adjusted EBITDA* (USD) Strategic priority 1 178 930 Average 2007-2010 1 1 Delivering Leadership Journey to allow profitability uplift 2 2/ Targeting significant net debt reduction 410 339 226 2007 2008 2009 2010 9m 2011 3 3/ Improving working capital performance 4 4/ Maintaining focus on productivity and cost cutting CAPEX Stainless steel industry fundamentals and economic uncertainty justify conservative strategy * Adjusted EBITDA is defined as operating income plus depreciation, impairment expenses and other items as defined in the Aperam Model 21
Q&A