Aperam S.A.

Hello, everybody, and thank you for joining our conference call today. All our comments were contained in the podcast that we published this morning.

So please let's start straight away with the Q&A. Operator, please open the lines.

I have 2. The first one, could you discuss a little bit what happened in the alloys division?

Has the problem been solved? And which facility was impacted?

And if you can maybe quantify the cost impact into Q2 and into Q3. And let's say, there were not any type of effect into Q3, would you still have seen some softness in the alloys division?

And maybe if you can talk a bit about the demand environment? I'll start there.

Okay. Thank you for the question, Tristan.

We have had indeed a [ failure ] in one of the plants. We are not disclosing too much the detail as you can understand, but it is something in the range of the EUR 10 million and half of it is repair and half off it is the loss of production and this will show up in Q3.

Now concerning the global market in alloys, there is part of the market, which is still extremely strong, part of the market which has been impacted, slightly impacted by a destocking phase and in particular, some aerospace. So it is what we see.

But also, we see that the ramp-up of the production in aerospace is happening. And so the destocking will soon end with better volumes for us.

All right. That's...

To add on to that, Tristan, for the second part of the question when you were asking about a color on the Q3 numbers for alloys. So Tim has explained the impact of the repair and maintenance, right?

So none of this is coming in Q2. This will be coming in mostly in Q3 and some of it going into Q4.

And in alloys, in terms of numbers, the colors you've asked, the Q3 is not a weakness per se in EBITDA, but more the typical seasonality because, as you know, in our alloys, we are in a growth phase, and we are producing at quite a high rate. And so the annual maintenance requires that we deliberately take down a certain seasonality during summer.

And that's the reason for the projection of alloys, which we give in our podcast. And just to be very clear.

Yes. So that's very clear.

And my second question is on Brazil. I mean the U.S.

has hiked the tariffs from 10% to 50%. There is some exclusion.

Can you discuss a bit broadly of any impact for you? I know directly, there's -- they might not be too much, but indirectly, this could have a broader economic impact.

So if you can touch on that? And would you expect Brazil to improve half-on-half into H2?

So as you have correctly said that there is no impact for us because we have focused Brazil on Brazil and [indiscernible] so it's not the United States, which will impact directly our results in Brazil. What we see is that Brazil continue with a strong order book and with a level of price which are the international price very low and continue to perform very well also because they are very cost competitive.

Now concerning the global economy, at this moment, it is difficult to say, but Brazil is not -- let's say, the growth of Brazil in this moment from what we see is mostly domestic demand, not so much with the export. They export a lot of raw materials.

I think the raw material, whatever happens in the duties will be exported, especially because they are going to China or Asia. And also with the food, all the agriculture product, I think they will always find the market.

So I am not an expert of the macro economy and the impact of that in Brazil, but we are not expecting so much. Also, it is really, really early to see if this duty will become a reality, will be only a negotiation, let's say, tactic as it is for everywhere.

Two for me as well. Just following on from Brazil.

You talked a little bit about some pricing risk into Q3 and then volumes, I think you said flat despite usually better seasonality. Could you just give a little bit more color around both of those points?

Is there anything around mix? Is there anything around import pressure that we should be aware of there?

And then the second question, if I can give it now, is just in Europe, whether you are getting to a point where you would start thinking about taking any capacity out meaningfully in Europe? Because I guess the demand situation still feels very difficult.

Pricing pressure you say continues into Q3. How far away are we from the level where you would sort of look to actively take out capacity as I think some of your peers have talked about?

So Brazil, let's say, I don't see the question of volumes so much. I mean volumes were good in the second quarter.

We remain -- Brazil will remain at full load in Q3. The seasonality of Brazil will start in Q4 and the low season will be in Q1, as you know.

It's a bit different from Europe. So prices also, you remember that the way prices are built in Brazil is in function of the international prices.

So we have had for long today, very low international prices. And then you apply the premium and continue to add the typical internalization, and this is the price in Brazil.

But we don't see a major change in this pattern in Brazil. Now if we are going to Europe, you are staying structural.

Europe is already at a level of low volumes. This is due to the fact that we have had during the last, let's say, several quarters now a decrease of the demand and the level of imports, which has always been important.

So Europe has -- the good part of Europe is that we are based on electrical arc furnace. And so we can adapt switching on and switching off our electrical arc furnace.

We can adapt the level of production. And on top, we have always said that part of the leadership journey has been to develop a model in which we have increased a lot the flexibility of the downstream.

On top of this level of variabilization of the cost, which grant us the strong cost performance and the leadership in Europe. On top of this, we have plans to continue as it is part of the leadership journey to continue to decrease structurally the cost, but it is not because of temporary volumes.

We continue to follow our philosophy of leadership journey and continue to focus on the most competitive footprint in Europe.

So first, just a follow-up on this alloys kind of asset repair. Will this have any impact on reaching the EUR 100 million stand-alone EBITDA from the alloys division, excluding USAP?

And then maybe just a second on USAP. And if you could give any guide on the performance in the quarter.

Should we kind of just extrapolate the 2-month contribution from last quarter? And would that be a fair run rate for the rest of the year?

Or will we start to see kind of tailwinds from synergies and maybe a bit of the aerospace recovery as well?

Yes. So in terms of alloys ex USAP, yes, the performance continues to remain strong.

So we said about a run rate of close to EUR 100 million. And I think we should not see anything different from it, plus or minus EUR 5 million depending on how orders move from one quarter to another, right?

So that's the high level of expectation, so to speak. And in terms of USAP, I think the past run rate is a very good indicator.

Tim has already given a good guidance based on how aerospace is looking up and aerospace this year, and that was kind of Tim's message, and I'm repeating it, seems to be still slow. The expected pickup seems to be in the supply chain not happening.

So that continues to be. But thanks to synergies, but also the operational measures, which we put in as Aperam working together with the new colleagues, we do believe that the run rate of the previous quarters can be definitely secured.

So on the alloys front, I'd say that, that's the summary.

So first question on my side is regarding Recycling and Renewables. Actually, the division has made a quite soft start to the year.

So there, are you still targeting a kind of normalized EBITDA rate of EUR 80 million to EUR 85 million as in previous rates -- as in previous year, sorry? And can you perhaps shed more light on the weakness?

Is it only due to weak stainless scrap markets in Europe and the U.S.? Or does it extend to Bioenergia and Recycle as well?

So first of all, it's not at all extending to Bioenergia. Bioenergia is really a very stable, let's say, business.

And typically, Bioenergia has some seasonal effect at the end of the year. So you see that typically part of the results of Bioenergia are in the end of the year.

What has happened in the scrap market is very clear. So scrap prices have declined sharply during the last 6 months due to the impact of the gap versus the raw material entering in Europe or being used by the Chinese.

So it is a business in which you have in between inventory. So you continue to buy at a certain level and to sell at a level which is below.

And this is a typical effect for this kind of business. On top, the offtake has been low in certain region, in particular in the South for what I said before because other competitive raw material semi products have been imported in Europe.

So this explains the temporary situation of recycling.

Okay. And regarding the run rate of EUR 80 million to EUR 85 million for the year, perhaps Sud can provide some insight on that.

Yes. So Maxime, the thing is that besides the 2 factors Tim has mentioned, what is actually happening, and you remember last year, we did say that there was a certain slowdown, and this has turned around is on the aerospace recycling side, which is our Utica business.

So on the year on a run rate basis, I don't see anything which will deviate us from that around that EUR 80 million mark, which you're saying, again, give or take, the plus or minus 5%, 10% on. So there's no significant discussions on recycling and renewables.

So that's a good run rate to assume.

Okay. Okay.

That's clear. And just a second last one question on CBAM.

So you mentioned a potential start in 2026, but that would be step by step. I'm not sure to understand actually what you mean with the step-by-step approach.

Does it mean that CBAM will only start very minimally, including just Scope 1 emissions at the start? And gradually, we will have Scope 3 emissions being included because I know this is quite crucial for you to have the Scope 3 emissions included or resource shuffling and downstream markets will perhaps also not be included initially, but will then be taken care of.

What's your view and what's your expectations on that?

Okay. So let's start from coming back to the story of CBAM.

For us, CBAM is only a plus in the sense that CBAM is not for us something which is linked to huge investment that have to be done to be decarbonized, okay? So whatever CBAM will bring will be positive.

This is the first concept for us. Second concept is CBAM will start in January 2026.

So will have an impact in January 2026. But today, the CBAM has still parameters to be defined by the commission.

The commission has been probably very busy into this trade war with the United States and has not published yet recovery criteria of the CBAM. So but 1 January 2026, it will start, okay?

From January 2026, the counter of every ton which will come in Europe is started. For stainless steel, precursors are included.

So not only the Scope 1, but also the Scope 3. What will be progressive is the application because there are parameters to have gradual abandoning of the ETS to the full, let's say, application of the CBAM.

This is public, okay, has been already published by the commission. You can find it.

So it will be a progressive ramp-up. We don't know the parameters.

If we had all the parameters today, we can, let's say, have a good estimate. But I repeat, whatever happens, it will be positive, okay?

Some point like the capacity shuffling, et cetera, have to be solved. Yes, there are some loopholes, but this will not prevent to have a CBAM, which is power to the cleanest producer, which are the European.

I think we will have a better view on CBAM during Q4, and that's for the moment, take in mind that this concept for us is a positive.

I've got a couple of questions, please. Maybe first one, just a quick follow-up on the CBAM situation.

Tim, you mentioned that you don't, at the moment, have a perspective on the exact parameters. So what are the precise parameters or key parameters which are missing basically in terms of the whole CBAM discussion, i.e., has the actual benchmark already been set?

And what are the other key parameters you're really waiting for? That's my first question.

Fundamentally, what is the benchmark has not been established. And second, what will be the level of declaration, how they consider it.

It will be country-based, product based, it will be audited, et cetera. So all these parameters are not yet there.

So it is -- you go to the website of the commission, you will see that it is a complex formula, what they apply. The concept is extremely simple.

But then there is a complex formula because you have grade, you have precursor which are different, for example, between ferritic and austenitic, et cetera. So this is the -- for carbon steel is much simpler.

It is only the direct emission. And so there is no big calculation.

But even for direct emission, this should be in favor of the European.

Okay. Okay.

Then maybe like at least related to that, listening to the podcast, I must say you sound very, very confident and positive on, I guess, the possible implications of the upcoming European Steel and Metal Action plan. Maybe could you just spend maybe 30 minutes saying like why are you that confident?

And then also maybe share your views as to whether you think it's really realistic to see something on that front already kicking in, in early 2026 rather than replacing the safeguards mid-2026. Is this really realistic given all of the stakeholder involved, I guess, the parliament approval, et cetera?

That would be helpful.

So why I'm confident because it's so many years that we are working with the European Commission. It's the first time that the European Commission has fully understood the magnitude of the problem and the issues that are into the industry, the global industry of Europe.

So now they have understood. Not only they have understood, but they have also engaged.

They have never engaged before, except in CBAM. CBAM at the end is [indiscernible].

They have never engaged at all in all the other parameters. You know that there are 6 part of the action plan.

All the action plan are exactly what this industry needs, exactly. Now what is the closest one for sure is CBAM and trade.

On CBAM, I have already explained. On trade defense, what we are expecting is the renew of the safeguard.

The previous one has been ineffective at least for us. But the new one, and this has been supported by many important member states has the potential to be really a game changer.

When it will come, for sure, it will come in '26. So we will not have an impact in 2025, but we will have, for sure, an impact in 2026.

We hope that we will be at the beginning of 2026 as the member states are asking to decommission. Let's see, but I'm confident that this will arrive.

On top of this, we are working specifically for stainless steel on other files that are ongoing and that will address further the level playing field. So I cannot promise anything on '25 because nothing will happen on this part, but I am really confident 2026.

Okay. Okay.

And then very last question. And I know it's very early, but I mean, just already thinking about the possible moving parts also into the very last quarter of this year.

I guess you clearly highlighted the operational issues in alloys. I think from my understanding, most of that should be fixed.

There's European seasonality in your favor. I guess there's probably Brazilian seasonality slightly against you.

And then from, I guess, perception usually, I guess, a lot of the other businesses were typically a little bit more back-end loaded, particularly alloys, maybe also recycling. So I mean, are there any points we are missing?

Are there any things where you would maybe correct us a little bit in terms of how things may be playing out this year or anything which you would like to bring to our attention?

Bastian, I think you've covered most of the issues. So stainless Europe, yes, the volumes may be slightly better.

Typically, it's been 5% or something, right, from Q3 to Q4. Remember also that in Europe, for example, at least December is half a month not there, right?

So that's always been the reason for the slightly lower increase. Brazil seasonality, Tims mentioned that.

Alloys, there's positive seasonality and hopefully, most of the effects of any onetime occurrences have gone away by then in Q4. Recycling and Renewables, have given a clear guidance to Maxime.

I think we've covered all the basis. So if the market persists like that, I think you have a good scenario to get out of, right?

Okay. Thank you very much for your participation to this call just at the beginning of the holidays for many of the European at least.

So you know that there is a very persistent challenge in particular in Europe, in the market, et cetera. But we are really focused on continuing strengthening our footprint, continuing realizing the leadership gains that we have launched, this wave we have launched nearly 1.5 years ago.

So this grants us that our footprint will be competitive and ready for any rebound of the market. At the same time, we are happy with the development of our alloys business.

We are happy with Brazil because it's not only a performing unit, but it's also on a market which can give a lot of, let's say, satisfactions and with the forestry on top. So we have a lot to be said, and we will meet a lot of you on road show during September and the conference also.

So I wish you good holidays for those who go and please contact our Investor Relations department for any feedback or any need that you want. Thank you very much, and bye-bye.