altos hornos de méxico-ahmsa - 4q19 earnings release...steel segment net sales for 4q 2019 were us$...

IR Contacts:

In Mexico

Luis Guillermo Valdés Portales

Director of Financial Planning

Altos Hornos de México, S.A.B. de C.V.

Tel: 52 (866) 649-3366 | [email protected]

4Q19 Earnings Release

AHMSA Announces Fourth Quarter 2019 Results

Monclova, Coahuila – February 27, 2020 - Altos Hornos de Me xico, S.A.B. de C.V. and Subsidiaries (“AHMSA” or

“the Company”) (BMV: AHMSA) reported financial results for the Fourth Quarter ended December 31, 2019 (4Q

2019). Financial and operating figures included in this report are unaudited and are based on AHMSA’s operating

figures and financial statements; they are prepared in accordance with International Financial Reporting Standards

(IFRS) and are expressed in U.S. dollars (US$) and metric tons (MT), unless otherwise indicated.

4Q 2019 Highlights

Adjusted EBITDA was US$ (66.8) million, a 1,059.8% decline compared to US$ 7.0 million in 4Q 2018.

Adjusted EBITDA for the Steel Segment was US$ (58.3) million, a 528.8% decline compared to US$ 13.6

million in 4Q 2018. This result was explained by the following:

o Steel shipments were 657 thousand MT, a 27.4% decrease.

o Average price per ton declined by 17.4%, due to unfavorable steel market conditions.

o Net Sales declined by 40%, driven by a weaker demand for our main products.

o Cost of sales decreased by 32.4%, due to lower production volumes.

Adjusted EBITDA for the Steam Coal Segment reported a loss of US$ 5.8 million, compared to a loss of

US$ 3.4 million in 4Q 2018.

mailto:[email protected]

4Q 2019 Earnings Release

Financial Highlights

4Q 2019 4Q 2018 %Var

Steel Segment

Sales volume (thousands of MT)

Flat products 617,665 814,367 (24.2)

Coated products 33,247 40,704 (18.3)

Structural shapes 6,556 49,961 (86.9)

Steel slabs - 50 -

Total volume of shipments 657,468 905,082 (27.4)

Average sales price (US$ per MT) 664 803 (17.4)

Steel financial highlights (thousands of US$)

Net sales 441,277 733,175 (39.8)

Cost of sales 458,037 677,932 (32.4)

Depreciation 39,765 39,035 1.9

Operating costs 38,775 42,630 (9.0) Operating (loss) profit (95,300) (26,421) (260.7)

EBITDA (48,907) 16,810 (390.9)

Currency fluctuation (9,383) (3,218) (191.6)

Adjusted EBITDA (58,290) 13,593 (528.8)

Steam Coal Segment

Sales volume (thousands of MT) 1,240 1,551 (20.0)

Average sales price (US$ per MT) 57 47 21.7

Steam coal financial highlights (thousands of US$)

Net sales 70,930 72,870 (2.7) Cost of sales 73,260 77,104 (5.0)


Operating costs 2,283 2,746 (16.8)

Operating (loss) profit (12,585) (14,287) 11.9

EBITDA (3,961) (3,733) (6.1)

Currency fluctuation (1,837) 286 (743.5)

Adjusted EBITDA (5,798) (3,448) (68.2)


Consolidated Financial Results

4Q 2019 4Q 2018 Var %

Net Sales (thousands of US$) 529,936 816,656 (35.1)

Cost of sales 550,007 765,602 (28.2)


SG&A 38,916 47,021 (17.2)

Other (income) expenses 4,869 (456) 1,167.8

Operating income (113,122) (43,238) (161.6)

EBITDA (55,619) 9,896 (662.0)


Adjusted EBITDA (66,839) 6,964 (1,059.8)

Consolidated net sales for 4Q 2019 were US$ 530.0 million, a 35.1% decrease compared to 4Q 2018. This result was due to the general weakness of the steel industry. In 4Q 2019, cost of sales totaled US$ 550.0 million, a decrease of US$ 215.6 million (-28.2%) compared to 4Q 2018. This impact on the cost of sales was primarily due to a decline in the consumption of raw materials and energy costs, resulting from lower production of liquid steel. Selling, general and administrative expenses (SG&A) for 4Q 2019 represented 7.3% of net sales, a decrease of US$ 8.1 million compared to 4Q 2018. This result mainly stemmed from the implementation of a savings and efficiency plan that was carried out by the Company during the quarter. As a result, the Company reported an operating loss of US$ 113.1 million in 4Q 2019, an increase of US$ 69.9 million compared with an operating loss reported for 4Q 2018.


Steel Segment

4Q 2019 4Q 2018 Var %


Cost of sales 458,037 677,932 (32.4)


SG&A 33,563 40,107 (16.3)

Other (income) expenses 5,212 2,523 106.6

Operating income (95,300) (26,421) (260.7)

EBITDA (48,907) 16,810 (390.9)


Adjusted EBITDA (58,290) 13,593 (528.8)

Steel segment net sales for 4Q 2019 were US$ 441.3 million, a 39.8% decrease from those of 4Q 2018, mainly due to a decline in demand of our main products. The average price per ton of steel was lower in US$139/MT (-17.4%). In 4Q 2019, cost of sales reached US$ 458.0 million, a decline of US$ 219.9 million (-32.4%), compared to 4Q 2018. The impact on the cost of sales was primarily due to a decrease in the cost of energy and raw materials, as well as a lower consumption of these inputs. Selling, general and administration expenses (SG&A) for 4Q 2019 reached US$ 33.6 million, representing 7.6% of net sales, a decrease of US$ 6.5 million compared to 4Q 2018. This result was mainly due to the decline in costs incurred in 4Q 2019 for professional service fees and other contracted services. As a result of the aforementioned, the steel segment reached an operating loss of US$ 95.3 million in 4Q 2019, a US$ 68.9 million an increase versus the operating loss reported in 4Q 2018. As part of the Company’s vertical integration, mineral production for our own internal demand was as follows:

Product (in MT) 4Q 2019 4Q 2018 % Var

Iron Ore 735,721 941,844 (21.9)

Metallurgical Coal 197,202 280,326 (29.7)


Steam Coal Segment

4Q 2019 4Q 2018 % Var


Cost of sales 73,260 77,104 (5.0)


SG&A 2,620 2,749 (4.7)

Other (income) expenses (337) (3) (9,626.0)

Operating income (12,585) (14,287) 11.9

EBITDA (3,961) (3,733) (6.1)

Currency fluctuation (1,837) 286 (743.5)

Adjusted EBITDA (5,798) (3,448) (68.2)

Steam Coal segment net sales for 4Q 2019 were US$ 70.9 million, a 2.7% decrease compared to 4Q 2018. During the quarter, sales were affected by a lower steam coal demand by CFE (-20.0%). This result was partially offset by improved sales prices derived from the new formula for calculating the sales price. In 4Q 2019, cost of sales was US$ 73.3 million, a decrease of US$ 3.8 million compared to 4Q 2018. This result was mainly driven by a lower sales volume. Selling, general and administrative expenses (SG&A) in 4Q 2019 represented 3.7% of net sales, reaching US$ 2.6 million. This represented a decline of US$ 0.1 million compared to 4Q 2018, mainly due to lower professional services fees. As a result of the above, operating loss for the steam coal segment during 4Q 2019 was US$ 12.6 million, an increase of US$ 1.7 million compared with the loss registered in 4Q 2018.


Sales Analysis of Steel Segment By Product Type:

By Client Type:

By Market:

17%

62%

15%

5% 1%

4Q19

Plate

HRC

CRC

Tin plate & TFS

Structures

20%

58%

13%

4% 5%

4Q18

34%

32%

32%

2%

4Q19

Distributors

Profilers

Industrials

Export

39%

23%

29%

9%

4Q18

75%

23%

2%

4Q19

Domestic

Co-export

Export

72%

19%

9%

4Q18


Financial Debt

As of December 31st 2019, financial debt was US$ 992.7 million, up 4.2% compared to the US$ 952.8 million reported at the close of December 2018. Of this figure, US$ 767.6 million (77%) corresponded to bank debt, and US$ 225.1 million (23%) to financial and capital leases.

In October, November and December 2019, MINOSA made disbursements from its line of credit with Caterpillar, for a total of US$ 2.7, US$ 2.8 and US$ 3 million at an annual interest rate of 6.75%, maturing in one year . The resources obtained were used for working capital.

In October 2019, AHMSA obtained resources from Cargill, for the amount of US$ 19.9 million, under the line of credit for working capital, at a rate of LIBOR plus 7.0%, with a maturity of 45 days, extendable by mutual agreement for another 45 days. Certificates of Deposit were discounted for this transaction, which are secured by inventories.

In August, September and December 2019, MINOSA AND AHMSA signed debt recognition agreements in favor of UNIFIN in the amount of MXP$101 million. This debt was documented in promissory notes, with a rate between 19% and 20% annually. The Companies agreed to pay the principal plus the corresponding interest through monthly payments beginning in the month of January 2020.

In November 2019, AHMSA entered into a debt recognition agreement with its equipment suppliers Primetals Technologies Austria GmbH, Primetals Technologies Germany GmbH, Primetals Technologies USA LLC, Primetals Technologies UK and Primetals Technologies Me xico, S.R.L. ("PRIMETALS") For a total amount of US$ 15.2 million, at a rate of 7% per year and with a maturity of two years. As per the agreement the agreement, a payment of US$ 1.5 million in two equal parts, one in January and the other in February 2020, will be made.

As of December 31, 2019, certain covenants included in the contracts with financial creditors were not met, so the unpaid balance at that date of MXP$14.2 million was presented in full in the short term. We are currently in negotiation with the respective creditors to obtain the corresponding waivers.

Financial Debt Profile

CAPEX Capital Expenditures as of the 4Q 2019 were US$ 64.6 million, a 46.7% decrease compared to the capital expenditures executed as of 4Q 2018. This figure includes the application of results from mining exploration expenses incurred to date. The main investments carried out during this period included those for the modernization and optimization processes, as well as technological updates and development of mines.


4Q19 Shareholder Composition

Shareholder # of Shares % Ownership

Grupo Acerero del Norte 302,325,250 64%

Board & Management 14,401,883 3%

Float 154,750,627 33%

*** About AHMSA AHMSA is the largest steel producer in Mexico. The Company was founded in 1942 and began operations in 1944. In December 1991, the Company was privatized and Grupo Acerero del Norte, S.A. de C.V. (GAN) assumed control. In December 1995, GAN incorporated into AHMSA the iron ore and coal mines to convert AHMSA into an integrated steel producer in Mexico with a nominal capacity of 3.8 million MT of liquid steel per year. Since 2007, it has managed the Fénix Project, the most ambitious investment program in the Company’s history aimed at increasing installed capacity by at least 40% and enabling AHMSA to surpass 5 million MT of liquid steel per year following the incorporation of its new electric arc furnace. With this new equipment, AHMSA also expanded its ranges of steel and increased specifications, which allows the Company to enter new market niches. In 2018, AHMSA held 13% share of the domestic steel market, 24% of the domestic market for flat products and 12% of exports from Mexico of finished steel products. The corporate headquarters and steel mills have an area of approximately 1,200 hectares and is located in Monclova, Coahuila de Zaragoza, 248 km from the U.S. border. Forward-looking statements: The information set forth in this presentation contains “forward-looking statements” within the meaning of applicable Mexican securities legislation and the United States Private Securities Litigation Reform Act of 1995 (collectively, "forward-looking statements") including but not limited to projections of revenues or losses, plans and objectives for future operations, products or services, and statements relating to future economic performance. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause AHMSA’s actual results to differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include but are not limited to regional, national or global economic, business, market and regulatory conditions and the following: (i) AHMSA’s ability to service its debt, including the outstanding non-transferable rights of each recognized creditor in the suspension of payments proceeding to receive certain payments; (ii) competition and loss of market shares; (iii) changes in AHMSA’s relationships with customers and suppliers; (iv) increases in raw material costs or interruptions in supply; (v) declines in, and volatility affecting, global prices of steel; (vi) the existence or termination of free trade agreements, such as the North American Free Trade Agreement; (vii) foreign currency exchange fluctuations; (viii) the inherently dangerous nature of mining; (ix) work stoppages, strikes or other labor disputes; (x) changes in Mexican economic policy, as well as currency instability; (xi) inaccuracies in AHMSA’s estimates of economically recoverable coal reserves; and (xii) AHMSA’s dependence on certain raw materials. The financial and operating projections, as well as estimates of assets, are based solely on the assumptions developed by AHMSA that it believes are reasonable based upon information available to AHMSA as of the date hereof. All projections and estimates are subject to material uncertainties, and should not be viewed as a prediction or an assurance of actual future performance. The validity and accuracy of AHMSA’s projections will depend upon unpredictable future events, many of which are beyond AHMSA’s control and, accordingly, no assurance can be given that AHMSA’s assumptions will prove true or that its projected results will be achieved. Non-GAAP Financial Measures: This presentation provides information regarding EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA are not recognized terms or measures of financial performance under U.S. GAAP or IFRS and do not purport to be and should not be considered as alternatives to net income, as determined on a consolidated basis in accordance with IFRS, as indicators of AHMSA's operating performance or as net resources generated by operating activities as a measure of AHMSA's liquidity. AHMSA includes EBITDA and Adjusted EBITDA because it believes that they enhance the understanding of AHMSA's financial performance and its ability to satisfy principal and interest obligations with respect to its indebtedness as well as to fund capital expenditures and working capital requirements. Exchange Rate disclaimer This document includes certain exchange rate conversions from Mexican Pesos to U.S. Dollars, only for convenience of the user. The exchange rate used for the purposes of this translation is, for accounts related to the Income or Cash Flow statements, the average of the Official Exchange Rates published by Banco de Mexico each day during the months and the years ended, and the last day of each period for accounts related to the Balance Sheet.


Balance Sheet (thousands of US$)

December 2019 December 2018

ASSETS

Cash and cash equivalents 15,200 19,768 Restricted cash 15,945 0 Clients, net 134,081 282,232 Due from related parties, net 16,336 14,570 Other accounts receivable, net 115,383 82,313 Inventories, net 342,651 478,929 Prepaid expenses 15,489 6,499

Total Current Assets 655,086 884,311 Due from related parties, net 25,808 24,722 Other accounts receivable, net 2,736 2,784 Guaranty deposits 63,517 54,302 Investments in shares of associates or joint ventures 3,875 5,320 Property, plant and equipment, net 2,091,651 2,114,383 Intangible assets, net 156,673 159,435 Other assets, net 67,934 48,165

Total Non-Current Assets 2,412,195 2,409,111 TOTAL ASSETS 3,067,282 3,293,422

LIABILITIES Financial liabilities 840,510 180,479 Suppliers 578,302 533,724 Taxes payable 82,746 59,803 Due to related parties 20,713 25,075 Liabilities from SP Restructuring 59,438 419,669 Advances from customers 88,677 77,859 Other payables and provisions 168,587 127,405

Total Current Liabilities 1,838,972 1,424,014 Financial liabilities 152,201 352,663 Liabilities from SP restructure 0 0 Employee retirement obligations 415,703 363,894 Other payables and provisions 20,986 13,954 Deferred income taxes 24,706 158,259

Total long-term liabilities 613,597 888,769 TOTAL LIABILITIES 2,452,569 2,312,784

SHAREHOLDERS’ EQUITY Capital stock 724,332 693,235 Retained earnings (121,649) 245,114 Other comprehensive income concepts (25,745) 9,152

Total controlling interest 576,938 947,502 Non-controlling interest 37,775 33,137

TOTAL SHAREHOLDERS’ EQUITY 614,713 980,639 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 3,067,282 3,293,422


Income Statement (thousands of US$)

4Q 2019 4Q 2018

Net Sales 529,936 816,656

Cost of Sales 599,273 813,330

GROSS PROFIT (LOSS) (69,337) 3,327

Selling, general and administrative expenses 38,916 47,021

Other Expenses, net 4,869 (456)

OPERATING INCOME (LOSS) (113,122) (43,238)

Financial Expenses 55,553 32,868

Financial Products (2,357) (2,318)

Currency Fluctuation (25,715) 10,808

Investments in shares of associates or joint ventures 873 (255)

INCOME (LOSS) BEFORE INCOME TAXES (141,477) (84,341)

Income Taxes (38,139) (19,372)

INCOME (LOSS) FOR THE PERIOD (103,338) (64,968)

EBITDA (55,619) 9,896


Statement of Cash Flow (thousands of US$)

Jan-Dec 2019 Jan-Dec 2018

Profit (loss) net (497,773) (25,824) Depreciation and amortization 217,401 218,911 Equity in income of associated and joint ventures 27 (1,223) Impairment of assets 0 1,165 Loss on sales of property, plant and equipment, net (4,631) (13,807) Income from sale of shares (288) 0 Interest income (10,614) (6,903) Currency fluctuation, Profit (loss) 167,750 105,217 Interest expense (9,009) 9,922

(137,137) 287,459

Trade accounts receivable, net 159,374 (60,724) Due from related parties, net (7,485) (5,258) Other short and long-term accounts receivable, net (22,256) (20,218) Inventories, net 152,196 (110,061) Advance payments (1,840) (898) Suppliers 78,910 110,540 Taxes payable 17,307 (14,939) Due to related parties (4,745) (2,173) Other payables and provisions 27,162 5,489 Advances from customers 7,401 (42,449) Employee retirement obligations, net (12,167) (27,546) Other long term payables and provisions 2,016 2,252 Income tax (paid) recovered (7,060) (29,449) Interest expenses paid (20,548) (21,595) Interest income received 2,008 6,635

370,272 (210,394)

Net cash flow provided by operating activities 233,135 77,065 Additions to property, plant and equipment (64,614) (121,216) Cash provided by sales of property, plant and equipment 13,781 17,238 Dividend from associated company 1,558 0 Investment in shares of associated companies 57 (3) Accounts receivable from sale of shares 288 780 Guaranty deposits (6,655) (9,729) Interest received 8,588 278 Restricted cash (15,601) 0 Other assets 1,567 (3,398) Purchase of equity of Non-controlling interest 0 0 Intangible assets (16,048) (15,879) Net cash flow from financing activities (77,079) (131,930) Financing debt 546,507 300,509 Increase in social capital 275 0 Financial debt paid (183,409) (237,154) Payment released of lifting of Suspension of Payments (412,461) 0 Interest paid (104,179) (52,652) Net cash flow from financing activities (153,266) 10,703 Increase (decrease) in cash and cash equivalents 2,790 (44,162) Adjustments to cash flow due to exchange rate fluctuations (13,820) (21,046) Beginning of year 19,768 84,976 End of period 8,738 19,768


Balance Sheet (thousands of Ps$)

December 2019 December 2018

ASSETS

Cash and cash equivalents 286,455 389,094

Restricted cash 300,492 0

Clients, net 2,526,791 5,555,137

Due from related parties, net 307,855 286,787

Other accounts receivable, net 2,174,418 1,620,153

Inventories, net 6,457,328 9,426,710

Prepaid expenses 291,898 127,927

Total Current Assets 12,345,236 17,405,808

Due from related parties, net 486,351 486,595

Other accounts receivable, net 51,557 54,806

Guaranty deposits 1,196,998 1,068,815

Investments in shares of associates or joint ventures 73,034 104,717

Property, plant and equipment, net 39,417,581 41,617,198

Intangible assets, net 2,952,543 3,138,142

Other assets, net 1,280,235 948,020

Total Non-Current Assets 45,458,298 47,418,293

TOTAL ASSETS 57,803,535 64,824,100

LIABILITIES

Financial liabilities 15,839,574 3,552,358

Suppliers 10,898,222 10,505,235

Taxes payable 1,559,359 1,177,103

Due to related parties 390,335 493,549 Liabilities from SP Restructuring 1,120,122 8,260,310

Due to related parties 1,671,134 1,532,490

Other payables and provisions 3,177,055 2,507,690

Total Current Liabilities 34,655,800 28,028,735

Financial liabilities 2,868,266 6,941,438

Liabilities from SP restructure 0 0

Employee retirement obligations 7,834,000 7,162,481

Other payables and provisions 395,488 274,648

Deferred income taxes 465,597 3,114,989

Total long-term liabilities 11,563,350 17,493,556 TOTAL LIABILITIES 46,219,150 45,522,291

SHAREHOLDERS’ EQUITY

Capital stock 13,650,179 13,644,882

Retained earnings (2,292,496) 4,824,556

Other comprehensive income concepts (485,177) 180,141

Total controlling interest 10,872,506 18,649,579

Non-controlling interest 711,878 652,231

TOTAL SHAREHOLDERS’ EQUITY 11,584,384 19,301,810

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 57,803,535 64,824,100


Income Statement (thousands of Ps$)

4Q 2019 4Q 2018

Net Sales 10,223,043 16,177,940

Cost of Sales 11,559,860 16,114,188

GROSS PROFIT (LOSS) (1,336,817) 63,753

Selling, general and administrative expenses 749,984 931,541

Other Expenses, net 92,894 (9,061)

OPERATING INCOME (LOSS) (2,179,695) (858,727)

Financial Expenses 1,070,423 650,078

Financial Products (45,355) (45,512)

Currency Fluctuation (493,725) 209,009

Investments in shares of associates or joint ventures 16,734 (5,092)

INCOME (LOSS) BEFORE INCOME TAXES (2,727,771) (1,667,210)

Income Taxes (735,046) (382,316)

INCOME (LOSS) FOR THE PERIOD (1,992,725) (1,284,893)

EBITDA (1,072,061) 195,364


Statement of Cash Flow (thousands of PS$)

Jan-Dec 2019 Jan-Dec 2018

Profit (loss) net (9,599,870) (540,846) Depreciation and amortization 4,187,230 4,210,913 Equity in income of associated and joint ventures 585 (23,453) Impairment of assets 0 20,489 Loss on sales of property, plant and equipment, net (89,202) (265,580) Income from sale of shares (5,545) 0 Interest income 123,106 (132,974) Currency fluctuation, Profit (loss) 3,233,538 2,025,841 Interest expense (164,799) 195,208

(2,314,957) 5,489,598

Trade accounts receivable, net 3,069,804 (1,168,065) Due from related parties, net (144,174) (101,140) Other short and long-term accounts receivable, net (428,684) (388,912) Inventories, net 2,931,530 (2,117,109) Advance payments (35,443) (17,265) Suppliers 1,519,930 2,126,313 Taxes payable 333,352 (287,358) Due to related parties (91,404) (41,807) Other payables and provisions 523,186 105,584 Advances from customers 142,550 (816,529) Employee retirement obligations, net (234,364) (529,869) Other long term payables and provisions 38,838 43,313 Income tax (paid) recovered (135,978) (566,470) Interest expenses paid (395,782) (415,395) Interest income received 38,671 127,636

7,132,032 (4,047,073)

Net cash flow provided by operating activities 4,817,075 1,442,525 Additions to property, plant and equipment (1,244,562) (2,331,672) Cash provided by sales of property, plant and equipment 265,442 331,579 Dividend from associated company 30,009 0 Investment in shares of associated companies 1,089 (64) Accounts receivable from sale of shares 5,545 15,000 Guaranty deposits (128,183) (187,145) Interest received 165,423 5,338 Restricted cash (300,492) 0 Other assets 30,184 (65,365) Purchase of equity of Non-controlling interest (4,900) 0 Intangible assets (309,112) (305,436) Net cash flow from financing activities (1,489,557) (2,537,765) Financing debt 10,526,606 5,780,504 Increase in social capital 5,297 0 Financial debt paid (3,532,749) (4,561,818) Payment released of lifting of Suspension of Payments (7,944,652) 0 Interest paid (2,006,655) (1,012,800) Net cash flow from financing activities (2,952,153) 205,886 Increase (decrease) in cash and cash equivalents 375,365 (889,354) Adjustments to cash flow due to exchange rate fluctuations (273,910) (398,591) Beginning of year 389,094 1,677,039 End of period 490,549 389,094

altos hornos de méxico-ahmsa - 4q19 earnings release...steel segment net sales for 4q 2019 were us$...

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