Aperam S.A.

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 third quarter 2016 results.

Despite the traditional on the seasonality in Europe and slow ramp up post annual maintenance, I am pleased to announce another strong performance from Aperam in this quarter with the record of net income and cash generation for the third quarter. This financial performance is the result of Aperam’s strong execution of its strategy combined with the solid fundamentals of the industry, and the positive price momentum in Europe.

For the last quarter, 2016, EBITDA will continue to improve for fifth consecutive quarter, thanks to some volume recovery and price improvement in Europe and despite seasonality in Brazil. We also expect net debt to continue to decrease driven by our operating results.

We will now take you through Aperam Q3 results. First, I would like to go through our safety results.

The frequency rate for the Company in Q3 was 1.8 to be compared to 2.1 in Q2, 2016. The overall safety performance of Aperam group is a key focus as we continue to see well utility in Aperam safety result, which remains high but is going down in the right direction compared to Q2 results.

This once again, highlights the importance of being always and continuously vigilant to the safety and the proper implementation of our ongoing action plan. Safety remains our outmost priority, and we will continue to promote a safe and sustainable culture within the Company to continue our path toward zero accidents.

Moving now to environment and markets. You see slide six, the nickel price seems to have stabilized around $10,500 per ton during the quarter, after recovering from a very low levels and also supported by a recent concern about supply from the Philippines.

In Europe, we see healthy real demand, in line with the yearly growth of 1% to 2% while in Brazil the current demand remains at the low level but stabilized. Stocks are fairly barrels both in Europe and also in Brazil.

From stainless steel price standpoint, European price has increased during Q3. Thanks to the healthy European supply demand balance, and the recent stabilization of steel price.

I will now discuss Aperam performance in slide 8. As you can see, EBITDA reached $124 million in the third quarter of 2016 compared to $123 million in Q2.

EBITDA margin reached a high level of 12.2% during the last quarter. The traditional seasonality and the slow ramp up after annual maintenance were compensated by the positive price momentum in Europe as well as the result of strong execution of the leadership journey top line strategy.

These results demonstrate the resilience of the Company despite the headwinds coming from the environment in Brazil and on alloys segment. In this content, I am pleased to announce the continuous improvement with the net income of $54 million in Q3 to be compared to $53 million in Q2.

This is the highest net income for a third quarter since Aperam’s inception. Going now to slide nine.

Total shipments reached 457 in Q3 compared to 520 in Q2. The decrease was driven by the traditional seasonal effect in Europe as well there is low ramp up post annual maintenance, the stainless and electrical steel division generating an EBITDA of $102 million in Q3 versus $101 million in Q2.

In Europe, the traditional seasonality as well as the slow ramp up on the hot roll mill in Châtelet were partially compensated by the recovery of stainless steel prices and the continuous contribution of the leadership journey on all other plants. In Brazil, we continue to face real appreciation and challenging market condition.

At the same time, we are partially mitigating these affects with the continuous contribution of the Leadership Journey and top line. At the service and solution level, the slight decrease of EBITDA was due to the traditional seasonal impact on volumes and mostly compensated by a slight positive effect from inventories.

The Q3 EBITDA alloys and specialties decreased slightly as a result of seasonality, lower mix to indirect oil and gas contents comparison effect. Now slide 10, the Leadership Journey has had $506 million positive EBITDA impact since the beginning of 2011 and is well on track to reach the 2016 target.

The tranches 2 and 3 of the investment launched last year are also well on track. I'll turn now the presentation over to Sandeep.

Sandeep, please?

Thank you, Tim. Good afternoon everybody.

On slide 12, as you can see, Tim also mentioned, we have reported EBITDA of $124 million for the third quarter. Depreciation and the impairment expenses during the third quarter was $43 million.

Net interest expense and other financing costs in the third quarter was $12 million out of which nearly 50% is accounting for non-cash, interest cost pertaining to the amortization of convertible bond premium. Realized and unrealized foreign exchange and derivative losses in the quarter were $1 million and the pre-tax income was $68 million.

Additionally, we recorded an expense of $14 million pertaining to tax during the quarter, which results in a net income of $54 million, which is the highest third quarter net income recorded in Aperam -- since Aperam’s inception. Basic earnings per share amounted to $0.69 per share.

I'll now move to cash flow on slide 13. Despite an increase in the working capital of $13 million, cash flow from operations amounted to $103 million, which is again the highest since inception for third quarter.

Capital expenditure during this quarter reached $33 million and as a result Aperam generated $70 million free cash flow before dividend, which is again a record for the third quarter. We paid a dividend of $24 million during this quarter.

I’ll now move to the balance sheet on slide14. As of 30th September, our net debt was $241 million, compared to $280 million at the end of previous quarter, and this represents a gearing of 10%.

Aperam’s liquidity was $690 million and the non-current assets including intangible assets represented $2.8 billion at the end of September. Thanks to our continuous strong operating performance, net-debt is anticipated to continue to decrease in the last quarter of 2016.

Moving to slide 15, at the end of the third quarter, the net debt was at $241 million and the ratio of net debt to EBITDA was at $0.52. I will now turn the presentation over to the operator for any Q&A.

Good evening. Thanks for taking my questions today.

One, kind of maintenance question and a broader thematic question, I guess. First, when you talk about the maintenance issues in the course of Q3, the slower ramp up after your normal somewhat slowdown, just I think you mentioned is now fully settled, but can you provide exactly how has impacted your volumes in the past quarter and whether or not there will be any ongoing cost implications going into Q4 from that?

And the more broadly speaking, a question on capital allocation, exactly a year ago, you launched your maiden progressive dividend policy talking about gradual dividend growth with net debt to EBITDA under one times. You obviously have a very high quality balance sheet at this point, potential to return net cash in the next year.

With that sort of flexibility, can you speak a little bit about how you think about the various capital allocation options and how we should start to think about the options for shareholder returns going into 2017? Thank you.

Okay. Thank you very much for the questions.

So the normal life of -- the industrial life is that we have maintenance during this season in which the volumes are lower and happens that some of the tools are a little bit slowing in ramping up. This was the case of Châtelet, but Châtelet as you know is -- our maintenance essentially will effect on the volumes.

We don’t disclose this kind of information. But I mean you can see that globally, despite these levels, a strong resilience of the Company to compensate with other management gains, the cost that has been generated business this slowdown.

So, we are on track -- what I can say, we are on track with the leadership journey at the level of management gains we had in mind. And we have fully recovered the performance of the Châtelet plant.

For the capital question, I will hand it to our CFO.

Thanks Seth very much for your question. So clearly our first and foremost priority remains to make sure that we are generating the highest level of cash and a yield to EBITDA and as a yield to our market capitalization.

And clearly, we are continuing to perform well in terms of the cash generation quarter-after-quarter. This remains our first and foremost priority.

Having said that, clearly, we have a financial policy that we declared one year back. And this policy is very clear regarding the allocation of the cash.

Now, we are very close to the yearend and clearly after the yearend, this is a matter to be discussed at the Board. And it’s an annual event where we have to come back to the market and give you a clarity regarding this cash utilization.

And the priorities are very clearly outlined in our financial policy in terms of the internal opportunities, in terms of the dividend, and in terms of the surplus deployment. So, we will clearly come back after the Board deliberation at the annual results.

If I can ask a follow-up question and more broadly speaking, I know that you've commented on past conference calls about the outlook for inorganic growth through acquisitions. Can you speak a little about what levels of traction if you see in the market right now for either public or private transactions if valuations are looking attractive or if they are looking stretched amongst the most potential targets?

Thank you.

I think this is not clearly a question of discussion. It is -- maybe whenever there will be any relevant information from the market, we'll come on this.

Okay. Thank you.

Good afternoon, gentlemen. Just one question, which is related to the profitability of Brazil.

Clearly, the currency is headwind at the moment. Can you just explain a little bit better how that works?

How long does it take for example from a stabilization of the currency and which theoretically should hint through an improving domestic demand for stainless steel to the effect on your P&L? Am I right to assume that if there is a stabilization or reversal of demand then now gets better, so positive growth form this current level of FX some worth, am I actually be seeing any improvement in the EBITDA, [ph] this generates much richer mix compared to the stainless steel at the moment you’re selling because it's mostly influenced by international stainless price, mostly on quality grades, commercial quality grades?

Thank you.

You’re perfectly right. So, there is the counterpart of the exchange rate is the situation of the economy in Brazil.

So, what happens is that whenever the real is extremely weak, because positive impact on the cost competitiveness of Brazil, so help's to expose. When the contrary, this reduces the cost competitiveness but is the result normally of better expectation on Brazil.

So, it is clear that for Aperam, Brazil is the best place in which being. Because Brazil is our domestic area; we have all the logistic; we have all the support of the local industry; and we have very strong protection against dumping coming from majority of the countries in the world.

So it's really Brazil, the best place in which we can sell. Today, Brazil represents more an opportunity for the next period than the actual situation, even if the exchange rate is showing that the climate, the economic climate in Brazil is changed.

So, we are confident that the climate is changing means that there will be the opportunity for Brazil to recover, which is not today. So, today, in this moment, we are at the lowest level, we are under thrust of the economy in Brazil.

Tim, Just a follow-up, what kind of expectation, just to be realistic, you might have going in 2017? You might actually see an improvement of domestic demand in Brazil in H1 2017, which should be meaningful relative to Q3 just reported or not?

Frankly speaking, I will not have any forecast of this kind. I am sure what will be the trend but I am not sure when it will start.

Brazil can start even very fast. But the actual situation is still to be normalized.

We see that demand today is not showing any relevant recovery. Even if this clear, we have no further slowdown.

So, it's more a stabilization today. When you have stabilization, then normally you see a recovery.

Recovery, why? Because of the exchange rate as you said and because in our contacts with customers, there is a very positive expectation.

But I am far from saying that this will be realized in the next few months. And I think it will take some time to go back and can go fast.

A few questions on my side. First, you spoke about the healthy European stainless steel demand and supply outlook and possibly better outlook for nickel.

Maybe, can you talk about how that may translate to further base price increases in coming months? Second question on the free cash flow waterfall.

You just had €8 million from interest and taxes, are there any one-off items there that supported the free cash flow in Q3? And last question on shipments, if we look at the trends in H1, you showed shipments up 5% year-over-year but Q3 was flat year-over-year because of the ramp issues.

Since these have been resolved, should we expect a resumption of a positive trend in shipments year-over-year for the last quarter of the year? Thank you.

I'll start from the first about European demand. The base price increase and general decrease.

The price increase is evident in Europe due to a strong demand and a healthy demand, more than strong because it is the second year in a row in which the real demand has increased with inventory [ph] which are relatively low at the low level, so with an Aperam demand which is closer to the real demand. Forecasting new price increase, it will depend a lot on the sustainability of this demand, which we believe it will be there.

But then as always, the gap between the European price and the worldwide price, if it opens too much, if this gap becomes too high, then we can see some import increasing which will let's say mitigate the possibility to increase, further increase the price. Then on free cash flow, I'll let Sandeep going through.

Yes, Ioannis, regarding the free cash flow, this item of net financial charges, tax and others is clearly including that cash component from the interest tax, it is including the tax payments and it is also including the non-operating working capital. In the working capital line what you see is the operating working capital but clearly in the balance sheet you have many other non-working capital elements, which is reflecting here in certain positive during the quarter three.

If we take the corresponding number for year-to-date September, this number stands at $70 million for the whole year, and this includes all other non-operating working capital movements.

There was the last question about shipments. So, even if we don’t get on shipments, of course there will be a recovery of this shipment of the delay, and Q4 will see some seasonality effect from Brazil compensated by an increase of volumes of Europe.

Thank you very much, ladies and gentlemen. I actually have one question left.

So, I’ll beat this two-question target. Just on the capital returns.

I know that you actually have to discuss it in the Board, but what would be your preferred way, buybacks or special dividend?

Carsten, thanks very much for your question. As you can imagine, I mean, we have first of fall a very clear cut financial policy, which is addressing several funds and priorities for this Company.

And clearly, any decision has to be taken, not only in light of the results, but also in view of the maximum value that the board would believe, will be created by one or another option. And it is clearly an annual event which should be discussed at the Board after the annual results.

And then we have to come back to you with the final answers. Clearly, at this movement, speculating on any of the preference for one option or another, it will be a pure speculation for us.

Okay. Fair point.

Thank you very much.

Yes, hi. Good evening, everybody.

Just a brief one on the volume performance in Brazil in the third quarter. I guess the shipment figure for stainless and electric steel was overshadowed by these volume issues in Europe.

Can you talk a little bit more in detail how the third quarter performed in Brazil quarter-on-quarter? Was it better, as you expected before or has it been more flattish, because your comments sounded a bit cautious there?

And regarding the expectations on the base price, I think if I remember back in the last quarter event, there was a bit more optimism I could hear from the comments three months ago. When you look at the market and what you could realize in the past quarter, is it fair to assume that the base price increases have been in the similar magnitude that one of your competitors was reporting recently by some €20 in the third quarter and maybe a similar magnitude in fourth quarter in Europe?

And what do you think, how realistic could be this price increase announcement made by the Acerinox on the Iberian Peninsula; is this something realistic you could you see crawling up to the most of Europe?

Okay. Thank you very much for your question.

So, I’m talking from Brazil, we are let’s say happy with the performance of Brazil overall and especially the investment performance has been very good. The cautious is I have put on Brazil is due to the fact that as I said, the Brazil for us, the best is to be in Brazil, as I said.

So whenever we export, we have a lots of opportunity and a reduction of the margin compared to Brazil because there is more expanses to go externally because the loyalty of a customer outside premium [ph] and because the Brazilian prices are much higher than the rest of the world. So, this explains that Brazil despite the good performance, despite the fact that we still continue to have a plan which is very well loaded, have this headwind which is due to the economy, differences in economy, which represents an opportunity for the future when the economy will recover.

Because all the efforts we are doing today to keep on and to strengthen our cost competitiveness et cetera will pay when the Brazilian demand will come back. Then on the base price, I will not give detailed guidance because this is clear that the general trend can be only commented in general.

We see and we are very happy, and I continue to be happy about the price evaluation and in particular I’m very happy with team which during Q4 has strongly mitigated the impact of volumes with good prices. So, this is something that will be continued with we are positive on at the momentum on the base price due to the fact that there is a stability of the nickel price, due to the fact that there is some loss of competitiveness form the Chinese and that there is some tradition.

Now what I said before is that we can't imagine let's say huge price increase without paying for an increase of import. So, in this case, import will -- would come back.

There will be balance [ph] between supply and demand which will make some aggression in prices.

But to clarify my question on Brazil, actually you didn't confirm whether the volumes better in Brazil as you previously guided. Can you confirm that?

I think the volume in Brazil, the volume start continue to be at the level of the level we are expecting; there is no problem in volume in Brazil. We don’t disclose the exact figure but volumes are perfectly aligned with our expectation.

Yes, good evening. I have two questions.

First was a bit on the Q4 guidance, and I appreciate that you indicated that volumes or the Brazilian seasonality should be compensated by better volumes in Europe. But I am still wondering why, given the fact that you had some production or that you had some lower shipments because of the ramp issues, I would have may be thought that would be able to guide for a much better Q4 rather than just a slightly better FDA.

And I am just wondering if there are any other things that are at play there. And of course a bit difficult because we don’t know what impact has been on volumes but own feeling would have been that maybe Q4 guidance could have been better.

So, I am just wondering is there other things there? And then, my last question is on the interest charge, Sandeep, you indicated that nearly 50% of the charge was non-cash.

I was wondering if in terms of -- if going forward what is the normalized level that we should be looking then at -- the net interest expenses, assuming that you won’t have this convertible premium non-cash item in the P&L?

Okay. About Q4 guidance, you see that historically the Q4 is not the strongest of the quarter for this seasonality.

And we continue to see this seasonality as the main driver which has been -- which will be compensate by better volumes and price in Europe. And on top, we have also -- so the two problems we see and we continue to see, the profitability of Brazil or the level of -- due to the seasonality and due to the situation in the market of Brazil, and alloys which has some oil and gas headwind.

For the rest, the rest of the Company is performing very well and we are very happy with the results of Europe, but of course, we can't disclose our results. What we are showing is a strong resilience of the Company on headwinds, against headwinds.

And this Q4 shows once again that will have an increase in profitability of the Company. We are at the fourth or fifth quarter in which the profitability of the company progressively is increasing, as you can see from one of our slides.

And Sandeep, you can…

Thanks , Philip, for your question regarding interest. Clearly, we have made lots of progress in this area.

And when you take a look at our cash cost of interest, it has come down drastically over past couple of years and then you compare with our 2014 interest charges and take into account the latest charges, I mean we divided cash cost of interest by more than 75%. So, it's now less than one-fourth of what it used to be just a couple of years back.

And it is also -- I mean there is a slide in our road show presentation that you can find, the previous conference as well. And currently, we are in a range of about $18 million to $22 million total cash cost, which includes all the interest and other financing costs including bank charges et cetera.

So, this is the kind of the range which we are at and it's clearly a lot less than what it used to be. And it continues to enhance our cash generating ability of Aperam.

If I may, maybe one just follow-up question on the prevision question on Europe. I understand that you don’t want to disclose what the impact was on volumes, given the slow ramp up.

But would you be willing to disclose what EBITDA impact was, maybe?

No, no we don’t disclose in detail this effect. We are always showing global results of the stainless and electrical steel divisions.

And we don’t give this kind of detail. But as you see, the global performance remains solid and then the performance has not been reduced compared with previous quarter in EBITDA.

Okay. Thank you.

You already mentioned relatively low level of inventories in Europe. So I was just wondering almost half way 4Q, what let’s say the current momentum is of inventories, if you could give any color on that and maybe also the same for Brazil?

Thank you.

So, let’s say that – inventories, I’ve said many times that the time where there were very big swings in inventory is little bit sold now. Now we see that there is a healthy demand, real demand.

We are much more focused on this because as you know the business model of Aperam is mostly on the end user and real demand. So, the level of inventory today is considered as relatively normal, slightly below the historical long-term, historical series but normal.

What is most important is that Europe is really healthy as a final demand in all segments and the region we see in which we have a presence in Europe. Concerning Brazil, Brazil is slightly different story.

So, typical in Brazil due to the supply chain, which is much more complicated, the transport, infrastructure and the dispersion of customer in such a big area with the so low volumes implies higher inventory. But even in Brazil after the strong drop of apparent demand due to the reduction of the inventory in the middle of 2015, we have seen stabilization of the inventory at the level of rotation, which is normal for this level of demand.

So there has been really a drop in -- during the Q3 of 2015 and also Q4, but now we see normalization and resistance and the stabilization of the inventory in Brazil.

So, you mentioned the Brazilian economy and demand troughed so that would also count for inventory levels you’d say?

Yes, the level of inventory has been adapted to this level of demand, which is a trough. So, if you say in the future, it could be advanced in apparent demand when demand will recover, will be reconstitution of inventory, normally in this kind of situation, there is this kind of effect.

So, when demand goes down, real demand goes down, you have a double penalty because the adjustment of inventory and when demand recover, there is advance because there is also constitution of the investors.

Hi, good afternoon. Just couple of questions.

The crust of [indiscernible] and scrap, sort of been increasing particularly in recent weeks and we are seeing some price increases coming through in Asia. So, one, is it going to a affect you this quarter or is first quarter of next year?

And two, if price increases in Asia, does that potentially enable you to increase prices in Europe more comfortably than you currently expect to have?

Thank you for your question. I’ll start from the second one.

The second one is very clear one. You see there is a graph in our presentation with environment.

I think if is page 6 or 7. You see that in page 6 there is a plan which is typically show the correlation between the price increase and price evolution in Asia and in Europe.

So, this continues to happen. And both these prices are correlated to materials.

So, the price increase is coming from nickel and which has grown from 8,500 to today a range of 10,000, 10,500. But also [indiscernible] which has been in a trough during Q2 and has recovered in Q3 and still recovering today with the spot market you have seen.

So all this is affecting the final price but in stainless steel is a pass-through of this kind of prices. So, there are different mechanisms for which we buy and sell with the same level of price, both in nickel and in chrome.

Concerning scrap, the full price of scrap is a compound of both the elements that you have in scrap. So, you scrap with more or less content of nickel and this will be the final price of the scrap but of course when raw materials are increasing also scrap is increasing.

And also for scrap you have the this effect of past quarter.

Hi, gentlemen. Two questions, if I may.

First of all, would it be possible to have an indication as to what was the impact of the floodings [ph] you've been facing on alloys and specialties in Q4 and to what extent you would expect that to recover over the cost of Q4? And the second question related to your 2020 conductible bond, which I understand is at the half [ph] of the large short positioning on the equity, just talked.

How do you considered repurchasing this convertible at some point, before I mean the quarter starts? Thank you.

Yes. Thanks Luc very much for your questions.

So regarding your first question, and this alloys, we have a downstream unit in Rescal in France. And you remember the situation at the end of June when there was a heavy flooding and this downstream unit suffered from some delays and clearly the total impact has not been very significant.

It is around the $1 million. And again, we have adequate insurances in place to recover any major shortfalls from that.

Coming to your question regarding the 2020convertible bonds, these bonds are trading significantly above par. They are trading around 215% or so.

And the first bondholders call is due for September 30th, and the Company first option is on October 15. If the bond price remains above par.

So clearly, there has not being any -- we have not announced any specific intention to repurchase these bonds or to redeem these bonds. And this is a decision again which will be taken together with the rest of the financial policy that we will clarify after the annual results.

I have got two questions, please. My first question is on coal where we obviously see big price cycle currently and particularly in Brazil the large part of your competition…

Sorry can you repeat coal?

Basically, I just wanted to ask on coal where we obviously currently see a big price cycle. And in Brazil, some out of your competition is effectively Chinese players, which use coal in decent parts of their production process.

And I know [indiscernible] integrated with charcoal but could you please share your thoughts, be positive or negative on how the Brazilian business will be affected by the high spot prices for coal? And then also again coming back on your guidance, Sandeep, last quarter you have been very helpful with giving a bit of quantitative color around your guidance.

Could you maybe give us some hint as to what the minimum improvement -- what it is the minimum improvement which you’ve referred to when saying there is some slight improvement in EBITDA in the fourth quarter? I would have thought that the volume loss in Châtelet in Q3 has probably been around call it 25,000 tons, 30,000 tons, and say roughly $200 per ton, could have been between 5 million and 6 million probably.

Does this make any sense to you? And if this, what we should expect to reverse?

Thank you.

Thanks very much Bastian for your question. Regarding your first question, regarding coal, Tim mentioned earlier, I mean it’s ultimately being factored in the international prices because clearly Chinese, they use mostly the coal route, the integrated furnaces instead of the scrap route since they don’t have sufficient scrap.

So, clearly, it is reflecting overall in the Chinese prices and not only in Chinese prices but also in the squeeze, a strong squeeze that we have. And this is an element which is affecting, clearly which is positive, not only for brazil but also for the overall international stainless steel pricing environment, and somewhere very positive for us because on our cost side, as you know that in Europe we don’t use coal at all.

And in brazil we use the coal substitute with charcoal where actually first of all, it’s very, very cost efficient, environmental efficient, and the cost remains low even with the latest appreciating Brazilian real, which is 3.25 but still significantly weaker than what we had in the past. So, this charcoal remains a very cost efficient substitute that we use very profitably in our operations.

And clearly, this coal price increased momentum remains positive for our operations. Coming to the quarter four guidance, clearly we are in the momentum which is remaining positive quarter-after-quarter.

Quarter four will be the fifth consecutive quarter where our EBITDA and the net results will continue to improve over quarter. And I mean, we will not be able to quantify exactly the effect from Châtelet shortfall and other effects, as Tim already mentioned earlier.

But clearly we are in a momentum where we are very confident to continue to improve our results in a good momentum in quarter four as well.

Okay. Thank you.

Just some follow-up on my first question on core. Could you remind us briefly whether you’ve got currently a loan position in your charcoal operations?

Actually our charcoal operation is very fairly balanced with our need and clearly from seasonalities et cetera from time-to-time, we have some surpluses and that is something we sell on the market. And we don’t have a situation where we have to buy charcoal from the market.

And this is again very, very positive part of our operations in Brazil.

Thank you very much for having attended this conference call of Q3. So, this Q3 is showing that Aperam is continuing to increase results, progressively increase results, despite some headwind that you have very well identified, and has been analyzed during the call and especially in Brazil and some operation in Europe.

So, I’m quite happy on the fact that Aperam is today showing strong resilience and showing that in term of cash is continuing to be one of the best generator of cash in the market. So, I thank you very much for assisting for all the question which have been asked today.

And I shall see you in the next days, some of you in the road show or for the next quarter earnings release. Thank you very much and bye-bye.

Thank you. Bye-bye.