ALRO Group registered a turnover of RON 2.78 billion in 2019

ALRO GROUP

Slatina, 27 March 2020 – ALRO S.A. (BSE: ALR, “the Company” or “ALRO”), one of the largest vertically integrated aluminium producers in Europe, measured by production capacity announces today its consolidated and separate financial full-year 2019 results. ALRO Group registered a turnover of RON 2.78 billion, slightly lower compared to the similar period of 2018, namely RON 2.98 billion, mainly as a result of the unfavourable international and national market conditions. In 2019, the Group registered a net loss of RON 67 million compared to a net profit of RON 235 million, in 2018. The significant decrease in results was a direct consequence of a continuous downward trend of the LME and tough conditions on the international market (including US Government policies regarding the imposed aluminium tariffs, US-China trade war, the Brexit negotiations, higher costs for utilities and on the alumina segment,  Norsk Hydro’ Alunorte alumina refinery restarting its production), as well as on the local market, where the Company had to face increased prices especially for energy that continued to report high levels in 2019. 

"Facing adverse circumstances in the market, where LME showed a 15% decrease in 2019 compared to 2018, alumina market affected by excess output that led to downward selling prices, higher utility prices (energy and gas) in 2019 versus 2018, with increased acquisition prices for 2020, we implemented an anti-crisis program containing cost reductions and cash flow optimization measures for H2 2019 and 2020”, said Marian NĂSTASE, Chairman of the Board of Directors of ALRO. “We postponed the investments except the maintenance CAPEX and those compulsory from an environmental and energy efficiency point of view, we lowered the inventories level, we minimised the scrap acquisitions in line with the flat-rolled products demand. Furthermore, we reduced the raw materials level, limited the aluminium electrolytic production by decreasing the energy intensity and delaying some capital repairs for the pots, collectively with a change in sales mix structure by raising the quantities of very high value-added products. All these measures helped us to limit our losses for 2019”.

Market Update

2019 continued the trend reflected by 2018 and the global market showed fragility being marked by uncertainties such as the risks of higher production output and state-subsidised excess capacity in China, both for primary and processed aluminium; the US Government aluminium tariffs and new policies for potential imposed barriers; Alunorte activity resuming; macro-economic uncertainty; climate change policies, Brexit updates etc. The slowdown in demand and the effect of the US-China trade war were mainly visible for Germany, the heart of Europe along with the sharp decline in the car industry, which has been disrupted by new EU emissions rules and a shift towards the electric vehicle. Outside Germany, the picture remains decidedly combined with weaker demand amidst suppliers of parts and components to the German manufacturing industry weighed against good demand from the construction, truck and trailer, marine and can sheet industries. 

Moreover, in 2019, the aluminium industry was one of the main players of the new global level regarding law and regulations, taxes, environmental protection, CO₂, green certificate prices and allocations. As a direct consequence, LME quotations decreased while the raw materials prices increased with a direct impact on the financial results of all major companies in the aluminium industry. In 2019, LME continued its decreasing trend as showed at the end of 2018, leading to an average price for 2019 of 1,791 USD/tonne compared to the LME average price recorded for 2018 of 2,110 USD/tonne and 1,969 USD/tonne in 2017. 

Nevertheless, aluminium remains one of the strongest vectors for decarbonisation of the economy with an increasing role in mobility solutions (electric cars), cargo and freight (aluminium railway cars), in deployment of a wider solutions for renewables (aluminium frames for solar panels) and lighter, energy-friendly buildings. Also, the New Green Deal which will position Europe as a global leader for the fight against climate change, based on the impact studies which are either in progress or about to be launched at the European and member state level, will reaffirm the importance of aluminium as vector of decarbonisation and one of the key elements to achieve both the 2030 and 2050 targets.

At national level, the main influencing factor on ALRO’s business in 2019 was represented by the high energy price as a result of boosted taxes on energy and the significant increase in CO₂ emission prices. 

However, at the end of December 2019, the Romanian Government issued an Emergency Ordinance for amending GEO no.115/2011 through which the Romanian Government committed itself to implementing a State aid scheme to compensate significantly impacted by the EU-ETS Directive for a share of their indirect emission costs, as passed through in energy prices. 

For ALRO, as well as for companies from other 15 Romanian industrial sectors and 8 subsectors, these compensations have the role of counteracting the high energy price on the overall cost. Moreover, the source of funds for the actual compensation comes from the auctioning of the greenhouse gas emission certificates attributed freely by the European Union to Romania. Therefore, the scheme is supported directly from this mechanism implemented across the European Union and is not affecting the rest of the Romanian consumers.

Financial and Operational Review

In 2019, the Group reported a lower EBIT of RON 99 million compared to RON 361.8 million, in 2018. The corresponding development, was registered at ALRO’s level, the Parent-company, which recorded a negative EBIT of RON 88.6 million in 2019 compared to a positive EBIT of RON 274.5 million in 2018. In 2019, the Group managed to generate positive cash flows from its operating activities of RON 97.5 million. 

In respect of the cost of goods sold, the Group reported a level higher by 10% in 2019 (2019: RON 2.55 billion versus RON 2.3 billion, in 2018), mainly due to more high-priced utilities costs, which were in line with the prices from OPCOM's platforms. 

In 2019, ALRO Group reported a total production of cast aluminium of 280,326 tonnes, a slightly lower level compared to the one reported in 2018 of 282,810 tonnes. The processed aluminium production reported a higher quantity in 2019 than the one registered in 2018 (2019: 104,614 tonnes versus 2018: 100,501 tonnes), which was in line with the Group strategy to move its production and sales to the high-value added products that have higher margins.

In 2019, alumina production was of 460,911 tonnes lower by 19% compared to the one reported in the same period of the last year when it was 571,772 tonnes.

Significant Events

The Covid-19 crisis also hit the aluminium industry that registered a decrease of the LME price from an average of 1,791 USD/tonne, in December 2019, to 1,686 USD/tonne in February 2020. However, the aluminium market has seen even lower quotations in the past, and such volatility is commonly registered in the industry, so the level of correlation between the evolution of the epidemics and the evolution of the aluminium price cannot be ascertained. ALRO Group has been monitoring the situation from the very beginning of the outbreak, and it has taken all the necessary measures to limit the spread of the virus through its activities. At this moment, several countries have temporarily closed their borders for individuals (with exception of Italy who closed the borders for both individuals and goods) causing certain slowdowns and temporary bottlenecks to the supply from Romania outwards and for imports of some materials from affected countries. The Primary aluminium supply is less affected as our major clients continue their activity with significant less disruptions than the clients active in the processed products area. The Group remains alert to find the best solutions in order to keep potential slowdowns at minimum levels.

In March 2020, ALRO received from the United States International Trade Commission a notification that a petition for establishing antidumping tariffs for certain aluminium products originated from 18 countries, including Romania, was received by the US Department of Commerce. The petition is filed by the US Aluminium Association and concerns aluminium sheets between 0.2 mm and 6.3 mm made of common alloys (1xxx, 3xxx and 5xxx series). In respect of the sheets of Romanian origin, produced by ALRO, the requested antidumping tariff to be assessed by the US Department of Commerce, is of 56.22%, with prospective application. ALRO considers this petition as unfounded and the calculations which are behind it as erroneous and it intends to vigorously defend its position in front of the American authorities involved. The petition does not impact past years and, from the preliminary analysis performed, it does not appear that the performance of ALRO will be significantly affected in 2020 by a potential negative outcome of this petition. The Company is actively working to mitigate any adverse impact that it might face if the petition is adversely determined.

These financial results are available in a separate document on the Company's website, Investor Relations category, Shareholder Meeting section: http://www.alro.ro/en/ir/alro/shareholdermeeting

¹ EBITDA: Earnings before tax, other financial gains and losses, amortisation and impairment

² Adjusted Net Result: the Company’s net result plus/(minus) non-current assets impairment, plus/(minus) the loss/(gain) from derivative financial for which hedge accounting was not applied, plus/(minus) deferred tax.

Figures included in this press release are audited and present the individual and consolidated financial results of ALRO and ALRO Group that have been prepared in accordance with the Ministry of Public Finance Order no. 2844/2016, with subsequent amendments, which is in accordance with the International Financial Reporting Standards (IFRS) adopted by the European Union (EU), except for IAS 21 The Effects of Changes in Foreign Exchange Rates as regards the functional currency, for the provisions of IAS 20 Accounting for Government Grants as regards the recognition of revenues from green certificates, and except for IFRS 15 Revenue from Contracts with Customers as regards the revenues from the taxes related to the distribution grid connection. These exceptions do not affect the conformity with IFRS of the financial statements of the Group and Company.

For further information, please contact:

www.alro.ro

Florența Ghiță

Bucharest

Phone: +40 744 644 004

Email: investor.relations@alro.ro

Notes to the Editors:

ALRO Group

The companies part of ALRO Group are: ALRO S.A. – manufacturer of aluminium, Alum S.A. – producer of alumina, Sierra Mineral Holdings I, Ltd. – bauxite mining, Vimetco Extrusion S.R.L. – extrusion business line, Conef S.A. – holding and management company, Global Aluminium Ltd. – holding company and Bauxite Marketing Ltd - marketing. Having this structure, the Group created an integrated production chain assuring the raw materials for ALRO.

ALRO

ALRO is a subsidiary of Vimetco N.V., a global, vertically-integrated primary and processed aluminium producer. ALRO is one of the largest vertically integrated aluminium producers, by capacity, in Europe, having an installed production capacity of 265,000 tonnes per year.

The main market for ALRO products is represented by the European Union; the Company exports its products to the USA and Asia, as well. ALRO is ISO 9001 certified for quality management and has NADCAP and EN 9100 certificates for aerospace production organizations, ALRO’s products adhere to the quality standards for primary aluminium on the LME, as well as international standards for flat rolled products.

Starting from 18 March 2019, the Index Committee of the Bucharest Stock Exchange approved the inclusion of ALRO (code ALR) in BET, the main index of the market, and in BET-TR, the total return version of BET. The BET index will thus include 16 companies, which is a first time in the history of the local capital market, and it represents an unprecedented diversification of the sectors reflected by the index. ALRO’s shares have been listed on the Bucharest Stock Exchange since October 1997, and following this decision ALRO becomes the first company in the aluminium industry present in the two indices.