Acerinox Sa

Good morning, everyone, and welcome to the Therinox second quarter results presentation. This quarter has been a very positive quarter for the group, despite the continuing geopolitical uncertainties and regional conflicts. With an 85% quarter-on-quarter EBITDA increase, the strength of the CSST division in the U.S. has again proved to be the driver of our solid results. It is not worthy to mention the strong order book in aerospace and defense sectors, as well as the recovery of Acerinos Europa within the European market. The new print measures have started the 1st of July and we are optimistic with regard to the future of the European steel industry. For this presentation, we will hear from our CEO, Bernardo Velazquez, our Chief Corporate Officer, Miguel Ferrandis, and our CFO, Esther Camós. Before we start with the presentation, let me remind you that this conference call is being broadcast on our website atherinox.com. And now I hand you over to our CEO. Bernardo, please go ahead.

Thank you, Carlos. Good morning, everyone, and welcome to this Atherinox Q2 results presentation. You all know that we have a new normal environment that is safe. with our tariffs, sanctions, geopolitical uncertainties, conflicts and so on. And in this environment, it is easy to focus only in the short term. But we at Aferinox, we drive with our high beams. We are focusing in the long term and sticking to our strategy, loyal to our strategy. I think this is the key of the success of these results. In this macro scenario, with a strong position in the United States, improvements in Europe, and focusing on efficiencies in our excellent program, developing synergies, we can say that we are proud of this set of results. Our EBITDA, 176 million, has been 85% higher than Q1, and in the total semester, 271 million is 27% higher than the same period last year. We have a stronger order book. We have higher prices. We have summer breakdowns ahead. So that is the reason why our financial debt has increased due to the working capital increase, basically stocks. but we are pretty confident that we will focus to go to a ratio of around 2 at the end of the year. So everything is under control as we normally say, our focus is our strategy and control the controllables and in this situation we are delivering reliable results. Consumption is low with all these uncertainties. Still consumption is low in all the regions. In the United States, apparent demand, according to our estimations, has gone down 8% after four years of a low cycle. Imports also have been reduced, basically because of the higher transport costs and the stable situation in the United States at 2 points from 24% to 22%. And inventories, the river is cautious. Inventories remain according to our estimations 10% below the historical average. We have the section 232, thanks God, that is providing stability to the market and I think is helping to the target of the United States industrial policies reshoring and re-industrialization. We have seen several examples before. We have spoken about the appliance Thank you very much. We don't see real good signs still for recovery. We're going to speak about data centers. This is true. We can see in this time still a business we see better performance for data centers in the heat exchanger sectors. We have a stronger order book in rivers, so we see some investments in infrastructure. It's a little sign that the truck industry is starting to improve, what is a good sign in the United States, but still In Europe, the situation is changing. I think the new situation is a game changer. Sibam started 1st of January and since that time imports have gone down from 24% to 16%. This is important because the target with the new trade measures is to go to a level of 12-13%. So Sivan has already reached the level of import that was desired in the European Union plan. And now with the new measures that have started in 1st of July, we can only expect consolidation. Consolidation of this level and stability. Stability for us means low imports, that is more local production, that is more volume and that is Thank you very much. We are very happy and very excited with this. From the last meetings that we have, we have the new quotas. New quotas have already been published and the European Union is penalizing the countries that are responsible of the world overcapacity. This is very important because the worst and many more. A responsible country with a responsible supplier that is our Columbus Stainless, the European Union has kept the same level of imports, the same level of quotas that we have been using in the last three years. This is also important for us.

If we move to the HPR markets, you know our strategy has been driven by diversification. Thank you very much. driven by the industrial gas turbines, driven by the space exploration, driven by the aerospace in both civil aerospace as well as in defense. So all these sectors now are booming, are creating also prices going up. We have experienced in the second quarter the two highest order entries per month in Athens. and then we are seeing that it's a much steeper ramp than the post-COVID effect so in that regard the momentum is excellent probably the backlog shall reach historical maximums also at the end of July so the timing is very good it was appreciated early in the aerospace as was mentioned the long product recovery and then finally it has been coming to the flag product where currently we still are more base but the prospects remain very good in regarding of the outer space for example the construction which obviously in volume is the most relevant the construction in the narrow body aircrafts in Boeing in Airbus according to the comments is growing more than 40% so what we have is currently for the coming years more or less the appreciation that this is a sector which by far is going to have a spectacular performance. In addition, in the power generation industrial gas turbines, mostly driven by the data centers, the electricity necessities for the data centers are going to double in the coming years. So this unprecedented needed for dispatchable power generation. and in this regard the large gas-fired combined cycle plants clearly are the solution so obviously we are there. So the momentum in alloys in America is brilliant. In regard to Europe the situation is different. We still are waiting for investment projects. The most relevant sector for BDM as you know is the oil and gas. It's obvious that the oil and gas Thank you very much. Thank you very much. further complications with the 232 for example section in the states which is not allowed also for covering that markets combined also with the entry on the most commodity types of also new Asian players so this is more or less keeping that the chemical process industry is keeping a low part of the cycle it shall recover but also let's assume that there are some Parts of the chemical process industries that are having probably a good momentum for the coming future, as for example, can be a clear case the nuclear one. When we go to the results of the semester, the CFO shall explain in detail per section the stainless and the high-performance alloys, but just a general comment, first of all, Gradually improvement during the year, quarter per quarter, we have increased melting production more than 10%, reaching 540,000 tons in the second quarter. We have about a million tons in the first semester, which is 2% above the figure of last year. What's remarkable is the effect on the margins, and especially the contribution on EBITDA. We have had a quarterly EBITDA of 176, which is 85% increase than the previous one. At the end of the first quarter, we made a certain adjustment and we explained them. so the quarterly EBITDA was 95 but we explained that we have made some adjustments in the second quarter has not been necessary to make any adjustments so more or less it's not necessary to report any specific adjustments we are in this figure of 176 which makes a semester EBITDA figure of 271 million euros if we are not We are able to reach this annualized figure which should be above the 500 million euros which clearly is a demonstration of our efficiency, the improvements in our efficiency especially in a time in which we are also suffering the The effect on certain costs related to the Middle East conflict, which has been for the semester around 9 million euros, could have been even worse, but also the diversification on our procurement has allowed us to minimize this effect. But still, that effect is in place. At the end, we are clearly successful of the achievements. The operating cash flow, as has been mentioned, is driven by the increasing working capital, but that increasing working capital is needed to accompany the recovery of the market in both volumes, as well also as in the increase in the cost of raw materials. So we are consequently not concerned regarding this net debt reported, even though the clear commitment as as our CEO has mentioned is to be in the range of two times which for us is in the current CAPEX program and in the current days of the market we think it's a remarkable figure also.

So as we announced in our first quarter results presentation we expected A year with a positive trend of results and this is exactly what we are presenting in this second quarter. We are presenting better results and we are presenting better results in all the KPIs, so like production, sales, EBITDA, EBIT, so all the results have been better than first quarter. I think that there are two main aspects to highlight in the stainless division. First of all is U.S., our good performance in the States with better results, higher margins, higher volumes, quarter over quarter, and benefiting, of course, from the alloy shortage, despite also of the higher raw material costs. And the second is the improvement of the results in Europe, both in volumes and in margins as well. We have successfully started up the P4 that was fired last quarter and this has allowed us to get better volumes as well as the reduction in the inputs that have been mentioned. Of course, all these increasing volumes means also higher contributions to fixed costs and therefore higher margins. In terms of FDA, the stainless steel division has achieved an 80% higher result than in the first quarter. And the margin, 12%, we are returning to the two-digit margin, which is Very successful. We haven't seen that much since 2023. And this is even with weak demand momentum because the demand is not in the higher volumes. And Bernardo has already mentioned the reduction both in Europe and in the States. In terms of operating cash flow, the operating cash flow for the second quarter has been better than for the first quarter, despite also the increase in working capital. and the strong tax payments that we will later explain. And going to the half year results, I think we have the same positive results. We are presenting 66% higher EBITDA in 236 million and we are also growing in volumes, margins and all the different figures. Going to the HPA, HPA is also improving versus quarter one, basically due to the better mix that Miguel already explained. Because of the stronger contribution of aerospace, this has allowed us to achieve better margins in this quarter. Other sectors, as Miguel already mentioned, like oil and gas and CPI, remain weaker. So, remain weak. We expect to continue with this positive trend for the future quarter, especially because of the high order book that we are receiving. We are in the highest levels ever achieved. And we will see that result for the aerospace due to the production lead times, mostly in the second part of the year, more in the end of the year. This again demonstrates the success of our strategy to diversify to different regions but also to different sectors because at this moment we are benefiting from the sectors better performing. In terms of EBDA, we are presenting an EBDA of 22 million which is 76% better than in Q2. In terms of operating cash flow, the operating cash flow has been negative this year due to the increase of working capital, which in HPA is more significant due to the production lead times, which make us to purchase the raw material much in advance to be able to serve our order books. And the last factor that we want to mention in high-performance allow is the synergies. We have got accumulated synergies of 16 million, which is 70% of the target that we had for this year. The target was 23 million, so it's been also very successful. In terms of capital allocation, in the quarter, the 176 million of EBITDA has been utilized. Of course, we have increased working capital, as we mentioned, due to the higher activity, but also to the higher prices of the raw material, especially in HPA. We have had a strong payment of taxes. There are two settlements, especially in the U.S. in this quarter and that's the reason for the high amount of taxes paid. And the third expenditure, higher expenditure is CAPEX, okay, due to the strength of our balance sheet These allow us to invest even in the lowest parts of the cycle. As we mentioned, we are on an expansion phase of our investments, and therefore our CAPEX has been strong also this quarter. If we go to the half of the year, more or less the figures are the same, so increasing working capital, taxes, and CAPEX. And finally, the debt has been increased by 173 million. We are the net financial debt at the end of this quarter. it's been 1,266, so 1.3 billion with a ratio that to a bit of 2.5 if we make the calculation as of June, but we expect to reduce it at the end of the year.

Okay, if we go to our vision, the three chapters included in this page show and a bit of upside contribution of 500 million euros. We are working on that. First of all, the synergies, as has been mentioned, we have accumulated synergies up to now 60 million. We shall reach probably for the year around 23 million euros in this year as committed in regarding of the integration of the HPA division. We develop almost 700 The most relevant one for the future because the others are more in place or very close to be but the most relevant one for the future is coming in the States is coming for the HPA in both plants of Kokomo and in Kentucky of North American stainless also for the long HPA possibilities. And then the progress is there. We are on track and they shall be working for the year 2028. In the other expansion projects, most of the expansion project of NASA is currently working. The expansion that was And in Columbus also, starting this year, we shall have on place The development of the CAPEX done for covering also the electrical steel in Columbus for keeping this position of the most diversified steel plant in the world covering electrical, carbon steel, as well as stainless steel. So this is on track. In addition, we have the incremental 120 million euros that is coming from the From the Beyond Excellence Plan, which is our operational excellence, we were very ambitious on a program initially designed for 100 million euros, but as we clearly overperformed, you know that we mentioned that we were increasing it to 120 million euros for this year 2026. and we already have obtained up to now even 29 million euros. So we have no doubt that we shall cover by far the plan in the remainder of the year in the second semester. So this shall be a strong contribution and we already are appreciating its effect. So it has been mentioned in the current circumstances of the market with the prices that will still remain in Europe. The possibilities that this is giving us for being profitable and being efficient at this level of prices is a clear demonstration of the success of this policy. So we are extremely proud about it and especially of the combined effect of these three chapters for the future of the group. Last but not least from my side is obviously the sustainability as part of our strategy. You know the plan on places for the period 25 to the year 30, but the baseline is established according to year 21. So in this just one year and a half, we have obtained the targets of 44% in the carbon emissions. We have obtained 89% success on the waste utilization. We have already obtained the target that was designed for the year 2030 of 15% of women in staff and consequently we are now working on a further more ambitious target in this regard. So in this area it is a success. The only area in which in this year we are not proud is in regarding the accident rate. We have reached extremely low levels. We have had an excellent track month per month most of the semester, just except one month. And we have some incidents taking place in the month of April that has had its effect in the way that we have increased up to now, obtained an increase in 10% compared with the very low levels achieved last year. But having said that, keeping in mind that the rest of the month the track has been excellent and we are reinforcing all the measures for avoid relaxation of personal behaviors, we understand that for the remainder of the year we shall be on track for covering our target for the year. Having said that, if we go to our recognition in this regard, obviously we keep the gold The Gold Medal of EcoBuddies, which includes us in the five better performers in our industry. And also, we have been included this year in the Standard and Poor Sustainability Yearbook, which means that we are in the top 15% worldwide of every industry, according to the Standard and Poor Sustainability Yearbook member.

The conclusion system. I think as we have explained, it's very, very simple. As I said, we are driving with the high beams. We are focusing in the long term. This is very clear. We are very loyal to our strategy. And still in this case, we never forget and we have enough experience to manage the daily changes. We have to keep a very close eye to the daily changes because every day we have a different situation. We have tariffs, we have freights, we have... Thank you very much. and things are changing. Things are changing especially in Europe because now steel is in the ex of the European industrial policy so the situation can only be better. The seabank is being very effective until now and we think that with the trade measures that have been published, have been started in 1st of July that will consolidate the level of imports that will give us more volume, more stability in the market, less distortions and there will be Thank you very much. and we are sure that sooner or later the oil and gas market will come back for restructuring all the damages in this sector. CPI is very cyclical, finally it will come back, so the situation can only be better. So we are positive for our future. But in the short term we have to be cautious because we are still, we haven't seen the improvements due to the trade messes in Europe. and we have this sustainability of this period the breakdowns in the summer period so we have to be cautious but even in this case with all these circumstances we have announced that our Q3 EBDA results will be slightly higher than Q2. Considering all this situation considering the low consumption and low production of this part of the year I think it's very positive. Thank you.

Okay, thank you.

Esther, Bernardo, Miguel for the presentation. Let's move now to the Q&A session. Please, operator, go ahead.

Thank you. Please press star followed by the number one if you'd like to ask a question. And just ensure your device is unmuted locally when it's your turn to speak. Our first question today comes from Adana Okoku with Morgan Stanley. Please go ahead. Your line is open.

Good morning. Thank you very much for the presentation. My first questions are on Europe. So on the improvement that you spoke about, can you speak a little bit about what your order book looks like for Q3 and Q4? And just related to that on the profitability levels, how does this look in Q2? And are you still on track for reaching breakeven in Europe by Q3?

Okay, thank you, Adana. Regarding the other book, other books have been improving through the year, but now we are facing the summer months, so now the situation is a bit weaker. Normally we only have feasibility for two, three months maximum, so our other book now is stable, considering that we are facing the summer months. According to the second question, We have been improving our results in Atherinox Europe since January, have been consistently improving month by month, and we can say that we reached the positive EBDA in June. So we have already reached positive results at the EBDA level in June, but not in the accumulated numbers.

Thank you, that's very clear. Maybe just on the HPA division, so again on Haynes, you spoke about the strong order book. When can we expect this to start converting into a stronger increase in shipments? And for the whole HPA division, you'd spoken about a kind of 30 to 40 million run rate per quarter in H2. Does that still stand?

As we said before, the order book is very strong. The backlog also. This is more or less showing now obviously the advantages of increasing activity, but this is material that probably shall be supplied and showing its improvement in profitability for the end of the year or starting of next year. So the order books are there, but you know that the maturity in this sector is substantially higher than in the stainless one. So the momentum is brilliant. The contribution is increasing quarter on quarter, but this shall have its more relevant effect in the P&L at the end of the year 26.

Okay, thank you. I'll turn it back.

Thank you. Our next question comes from Maxime Cozy with OdoBHF. Please go ahead.

Good morning, Jens. So the first question is on valuation adjustment. So they distorted a lot the picture in Q1. Can you confirm that there weren't any adjustments this time? I mean, I would have thought they might be positive, given the impressive increase in EBITDA. And do you have any incorporated in the Q3 guidance as well? That's my first question.

Okay, regarding the inventory adjustments, what we assume is that in this quarter we have not it's been not necessary last quarter we announced that we made adjustments for 25 million in this quarter we have not it has not been necessary to do additional adjustments to these 25 million of course there are always figures in which we have some or inventories in which we have some adjustments some on the side of the HPA but the figure remains the adjustment has remained exactly in the same levels as for quarter one

All right, and the second question is on the pricing trends. So stainless steel prices have been more or less stable both in Europe and in the U.S. recently. I mean, if we adjust for the alloy surcharges, the best prices were basically fattish. And in the U.S., we actually see a strong traction in carbon steel prices. They are at multi-year highs. How do you explain the fact that stainless steel prices are not that... Is it that strong? Is it because you're ramping up your capacity on your new co-running mills, so you're bringing more volume, so this is somehow preventing price increases? And the same question for you, Rob, do you think that now on the back of the The new trade regime system that has been kicking since the 1st of July. Should we expect now prices to increase a bit like they're already doing in carbon steel? What's your view there? You're not the market leader in Europe, but interesting to have you here.

Thank you, Maxime. Do you know that speaking about prices is a very sensitive issue? So we cannot develop too much this answer, but we can tell you that in the United States we have the alloysor charge system that is working perfectly, so we are covering the ups and downs of the raw material prices with the alloysor charge. During this period, the nickel price especially went up, and with the alloysor charge we increased the final prices due to the higher alloysor charge. Now we'll have a correction after the new nickel price, but it's not going to be very sensitive. In the case of Europe, the market is following the same trend. Basically, we are working with effective prices in most of the cases, so we are trying to adapt our prices to the raw material prices. Still, we haven't gained with the margins. Still, we have enough competition in Europe. This is what we have been always saying, that the European market Thank you very much. Thank you. Next in queue we have Tommaso Castello with Jeffrey. Please go ahead. Good morning everyone. Thanks for the presentation. It's good to

Here you look at the turning point. I would like to focus on volumes. Given the sharp decline in imports penetration from Thank you very much. From the lack of imports going forward, or do you think the volumes displaced by European domestic producers, you will take roughly the same market share that you currently hold? Thank you.

I don't have the precise numbers here. What I can tell you is that in Q1 we couldn't enjoy the increase of volumes of the new import situation because we didn't have one of our hot and pickling lines, the P4, that suffered a fire in November 25. Now the line in Saprin is now in operation. and since April we are coming with the total capacity of the Acerinox factory so we will increase our delivery by 20% and that's why in Q3 we are reaching a better level of competitiveness and we have reached the positive EBITDA. The market share will depend on how our competitors work and what is the performance of the rest of the market. It's something that we cannot speak about.

Thank you very much. Maybe if I may, the last one, just looking at consensus, I think it's around 600 million for fiscal year 2026. How confident are you to get around that level?

You can answer that. I don't want to make mistakes.

Well, I think we are giving, in our sector, it's difficult to make predictions, but we are giving some messages. I give the messages that the annualized figure of EBITDA for the year should be 540, keeping in mind that we are in an upward trend. There has been a strong improvement in the Q2 compared with the Q1. The Q3 we are saying is going to be slightly better, so I don't think it should be probably too ambitious, considering that we should not be far away from the figure you mentioned.

Thank you very much.

Thank you.

Moving on to our next question from Bastian Sinagowitz of Deutsche Bank. Please go ahead. Thank you.

Yes, good morning and thanks for taking my question. First question is a quick follow-up on the European volume situation. Bernardo, can I confirm, did you say that you expect European volumes to grow by 25% into Q3 and is this a delivery number? I guess your second quarter production number was really quite strong, I think up almost... Hello Bastian, thank you.

The equation is very simple. Apparent consumption went down by 2% during this period. So more or less with some restocking at the end of the period, so we can say that was more or less flat. So with a 31% of impulse reduction, we have 31% more for local deliveries. This is very clear. How much of this 31% of the market that we're going to take, that will... We will see. This is business. This is demand and production, and we have to compete in the market. We cannot say that is true, is that the local suppliers will be able to share this 31% more of the market.

But I was actually more asking on your own shipments specifically. I guess your production volumes in P1 and P2 were up about 100%, almost, I think, 80% and 98% or so. And someone was wondering, given the strong production level in your current order book, where would you see shipments in Europe in the third quarter in the European business?

Basically, as I mentioned, we couldn't use part of our capacity during Q1 because of the fire we suffered in our hot iron and pickling line. So this line is in operation again. It started in April, so in Q2 we are able to use almost the total capacity. So that means that from Q1 to Q2, Q3, we are increasing by 20% our deliveries.

So, sorry, Q3 versus Q1 or Q3 versus Q2, sorry?

Q2, I'm speaking about capacity, no deliveries.

Capacity, yeah. Okay, and then any indication on shipment in Q3?

No, no, we never give indication of this and that, but you have to consider that we're in the summer period. So we will close the FIFIDAS plant for two weeks in August. This is for normal holidays. I don't know what our competitors are going to do. I don't know what the levels are. But normally, especially August is a very weak month. Let's see September. September is going to be the key.

Okay, and then my last question would be on your underlying performance. I guess when you look at the second quarter, nickel prices have gone up a lot. That usually is always a very strong tailwind, particularly in the years we used to work with the dual pricing mechanism and Deloitte surcharging. So hence, rising nickel prices would give you a temporary positive. I think that will swing into a temporary negative in the third quarter and that swing overall. Thank you very much.

As I said, you know, we have the alloys of charge system in the United States. That means that normally when the raw materials are going up, normally the alloys of charge mechanism let us increase prices a little bit faster than our raw material cost. And this is because we use the average cost system. Now, in this case, of course, in the United States, we have been enjoying some of a tailwind that will not happen in quarter three. In the case of Europe, we are not using the alloys of charge mechanism, so more or less we have been following the raw material trend. So we have been enjoying this tailwind in Europe. This is just the basic business. Okay.

All right. Thank you.

Other questions from the call? We can move for some questions that we have from the website, the webcast. We have one coming from Inigo Busquita from Chevrolet Chevrolet, and it's about the U.S. listing. It says, could you please give an update on this potential project, calendar, and what is the plan, actual listing or IPO of the U.S. business?

There's no answer for this. We haven't taken any decisions, so there's no news in the US listing. As you perfectly know, we are considering and studying this possibility. We are preparing the group for a potential IPO, but we haven't taken any decision yet. We are still studying the market, studying the situation, and as you know, many issues, because this is not a simple decision.

Okay, and the last question is coming from Enrique Yahweh of Bestenberg, and it's regarding working capital and expected evolution in the second half of the year.

Okay, as you know, we remain on our control of working capital. We have a very strict plan in the group to try to reduce working capital levels and days, and we continue with our program. Because of the seasonality in some of the markets, we would expect to reduce working capital for the third quarter. So the trend in terms of debt, we had also the dividends in the third quarter. But we will compensate that with a bit of a reduction of working capital. It also much depends on the prices of the raw materials, so it will depend also on the level of nickel. But in terms of inventory, tonnages and days, we are still with our control, and we expect to reduce it.

Okay, I think that we solved the problem from the call, so we can, if there is any further question, please operator, go ahead. Thank you.

We'll take our next question from Francisco Recao with Elantra. Please go ahead, your line is open.

Yes, thank you. So, just one for me. Regarding the EBITDA that you have printed in Q2, I wonder if you can share with us what would have been the EBITDA without the losses in the European business. You mentioned that Europe is already in break-even, so we just want to assess to have a better sense of the underlying profitability now that Europe has done the corner. and if you think that we are already close to 200 million euros, you can give an indication. Thank you.

Well, in the previous results presentation, more or less, we explained that our target was that with the improvements in Azarinox Europa, any time in the third quarter, we should reach the monthly positive EBITDA or above break even. This has been anticipated. As Bernardo mentioned, we have reached this level in June. So on a monthly basis, June, we have changed the trend. This is a very good indication for the future. So having said that, it's true that at the end is the first month in which has been achieved. So gradually, we shall obviously be following the track. On the third quarter, even though the seasonal slowdown in Europe, and combine with the fact as we mentioned that we are more or less stopping operations for half the month of August, the challenge should be that now what we are going to be neutralizing this effect of August is in position of reporting a positive contribution for the quarter. But this is going to be gradual. So with the current momentum that is facing the European market, let's see the evolution. It's difficult to predict. As has been said before, it's a fact of demand and it's a fact of prices. And let's see which is the evolution of the prices. Bernardo mentioned we are in effective transaction prices. Up to now, the prices have been going up following the crisis. The raw materials, if we consider the level of prices with a lower nickel, this may be better margins, but still is too soon to appreciate it. So we are moving to August, and you know that the European market gives signs in September, so still is soon, but what's very good for us is that we are there. We already have seen the positive monthly figures, and clearly we are in position for making it consistent.

Okay, thank you. And just a last one for me. Regarding the EBTA upside that you see of 500 million euros that you mentioned in the presentation, so you can comment over what base it is. It is over 25 or 26 EBTA and how much of this upside comes from external market conditions of which you think that is just due to your own internal levers. Thank you.

When we calculated this number, it is based on technical analysis and considering the increases in efficiencies, increases in volumes and what the new CAPEX will contribute to our numbers. Normally we base it in the average EBDA. We call it the through-the-cycle EBDA and this is something that we can consider with ups and downs. Of course, if prices are lower, we'll be below 500. If prices are better, we'll be above that. We consider the average situation.

Okay. Thank you.

Thank you. We'll move to our next question from Dominic O'Kane with JP Morgan. Please go ahead.

Hi, thanks for taking my question. I know we've spoken about the revaluations, but I just want to come back to the question because I'm finding it quite confusing. So, I think in the earlier comment you mentioned that there was no requirement for a Q2 inventory revaluation, but Again, can I just push you on whether that actually was an inventory revaluation because you don't disclose it in your adjusted EBITDA. Is that to say that you're not reporting it going forward or it's just that the value was zero? And then in addition to that, if we're looking forward, I think there's some inconsistency as to which number we're looking at. So for Q1, the focus and the headline EBITDA was adjusted EBITDA. Can you just confirm to us, as we move from quarter to quarter, what is the EBITDA number that you're going to be quoting, and will there be disclosure on an ongoing basis about what the revaluations are, please?

Thank you. Thank you, Dominic. I will try to clarify this figure. Okay, one thing is the inventory adjustments and evaluations that we normally report and makes us to report and adjust a bit on the first quarter. Okay, that... Let's say the valuation of inventories was of $25 million and this is the one that we have not changed for this quarter. That's a different thing. A different thing is the inventory revaluation due to the higher prices of nickel. And that is what Bernardo has already explained, which is in the United States, due to the alloy sorters that we apply in the sales, We get benefited from the higher prices of nickel at some point and because of our valuation of inventories at an average, we get some time until achieving these values and that is benefiting us. It is true that it has an effect in the short term in the States, but this effect because of the low charge mechanisms in Europe is not working, we are not benefiting on that in Europe. In this quarter, in the States, we have had tailwind because of this inventory revaluation, but that's a different thing from the adjustment that I was explaining, which we have not changed from last quarter.

If I look at the adjusted EBITDA in the account, the value for Q2 is zero. So is that to say that the nickel and the alloy surcharge revaluations exactly cancelled out the negative 25 from the first quarter, or is it just that you're not going to be providing those revaluations on a go-forward basis?

We will only provide that number when it's a significant number that really is impacting our EBITDA, but in this case, the EBITDA has not been impacted by that.

So just to push on that one more time, what constitutes a significant number? Are we talking a single-digit number or a double-digit number?

No, it's just when the nickel goes down and we have to make adjustments because our expectation for the next period is going to be a huge impact, then we have to do devaluation of our inventory. In this case, we are not doing... So that's the reason why we are not reporting any more disfigure. This is business as usual. We, of course, are impacted by the trend of the raw materials. And when raw material is going down because of the accounting policies, we need to anticipate that losses. And that is not the case for this quarter. We do not have any need to anticipate any losses because we are not in this situation right now.

Let me try to clarify.

We make inventory adjustments for adjusting the releasable value of our inventory, but we do not re-evaluate the inventory when the When the market goes up, when the nickel goes up, we experience a tailwind, because at the end, clearly, this is having a quick effect when we realize our inventories, but we do not re-evaluate. What we normally do, and we anticipate as a prudency issue, is we are making adjustments to our inventory to neutralizable value. This is what was done in the first quarter. and this has its effect that consequently our inventory was adjusted in the first quarter and at the end as a consequence of that this material has been realized at the end of the second quarter has not been necessary to make any inventory adjustment because our inventory is properly valued for a neutralizable value so consequently has not been made any adjustment The one that was done at the end of the first quarter has had its effect because that material has been sold out already.

Okay, that makes sense. Thank you.

Thank you. And we'll move to our next question from Tristan Greta with BNP Paribas. Your line is open.

Yes, hi. Thank you for taking my questions. Apologies if I repeat others. I joined a bit late. In Europe, you sound pretty constructive. What we saw in May, June, and maybe July is that we allow a surcharge in the region. We're moving up, but transaction prices were steady. On paper, that would imply maybe some margin squeeze or some softness there, but your message is pretty positive. On a spot basis, when you look at the order book in Europe, can you comment a bit on the margin contribution and the expectation for Q3 and Q4? That would be my first question.

Thank you, Rustem. Expectations for Q3 and Q4 is very difficult to predict, but I can tell you that in Europe, as you know, we have lost in most of the customers the aerosol charge mechanism and we are working with effective prices. In some end users we are still keeping the aerosol charge mechanism and this is very comfortable because we apply immediately the ups and downs of raw material prices. In the case of most of the other customers, including distribution, we are working with effective prices. This is something that we suffer for this Asian invasion of imports. And then you have to try to negotiate every single other, trying to adapt the new situation according to market conditions to the raw material prices. I think that thanks to the good situation of imports, we have been able to pass all these increases of raw materials to our customers, including freight and including gas. Also, we are keeping a good level of margins, that if our improvements is not due to the difference between price and cost, it is due to our efficiencies and our higher volume. This is something that you always have to remember. It is not only a question of alisal charge, nickel prices and this thing. We have a lot of homework. This is the situation in Q3, are we going to be able, this is a question of is market, I don't know, the demand is healthy, I am sure that we will accelerate. This is very important in our market. As far as we extend our delivery times, we are able to negotiate higher prices. Until now, we are still working with low visibility, especially now that we have the summit period ahead. So, let's see what happens. We are pretty optimistic because we think that with the lack of distortion, because it's not only the level of imports, it's the level of distortion that most of these importers were applying to the market. Thank you very much. A better behavior of the European market, a more organized and structured European market following the ups and downs of raw materials prices, but especially following the market conditions, following the demand and the level of production of the current players, the local players. This is very critical. This is business as usual. This is nothing new. We are coming back to the period that we enjoyed and we were very profitable, all the European players. Before the invasion of this import due to the overcapacity that was created in the Asian countries. So now we will be in a more healthy situation.

Okay, that's clear. Maybe just two quick follow-up on that. If I were to really simplify it, stainless steel prices in Europe went up. So maybe in Q1 you saw that spread increase and in Q2 it kind of closed. Is that a fair assessment? And now you're working on efficiencies to drive a bit higher. Would that be a fair assessment? And then when it comes down to the CBAM, the quarter structure, et cetera, the fact that the market is structurally going to be in a better footing, Do you have maybe a timeline on when do you think you will be able to revert back to the old dual pricing system with base price and a lower surcharge?

I'm sorry, Tristan, but my compliance officer is following this conversation and we cannot speak about prices.

Okay. My second question is just on the U.S. I'm sorry, again, maybe you touched on it, but you flagged some soft demand. I'm sorry to also get about prices, but what would be required to move from maybe a steady margin outlook to something a bit more positive? Is it demand or even with the current outlook you're seeing into H2, you could see maybe some positive momentum there?

According to my experience in this market, especially in stainless steel, you need a better demand to increase your prices, but a good KPI for you to follow this possibility is looking at the other book. When we extend our delivery times because we have had a strong other book, then it's time to increase prices. This is the normal mechanism, but this is something that I cannot speak about because it's just experience. It has always been the same. If we are not filling our capacities, if we have a short order book, we need to fit the plans because we are very sensible to volume. All the competitors are the same. We have learned to manage our capacity. I think that now we are very flexible, more flexible than we were before, for sure. but I think also our competitors have done the same homework so you know if we need to feed our plans to a reasonable level that we can be competitive but when we are extending our delivery times it's time to normally is when the price increases are happening and I think in the release you talked pretty publicly about your order books would you be able to comment on those uh

Thank you. Thank you.

There is no further questions, so thank you very much for joining in this second quarter results presentation. Thank you for your questions and enjoy the summer break.