Aperam Sa Ord

Welcome to Aperam Q1 podcast. I am Tim Di Maolo, Aperam CEO, and I wish you a good start of the day. Together with Sud Sivaji, Aperam CFO, I will be discussing our first quarter performance, current trading, and the outlook for the second quarter. We will host a conference call today at 2 p.m. Central European Summer Time, where we will answer your questions. The link to register for the conference call is available on our website and on the last slide of this presentation. In order to facilitate the dial-in to the call, we would ask you to pre-register for getting your personal code. The transcript of this podcast is available on our website. As always, please note, take note of the disclaimer on page two. What to say about the first quarter of 2025? Overall, it was a quarter without surprises, despite a very volatile environment. Our spending guidance and the effect we anticipated for the first quarter were fully realized. The new year has begun as the old one ended, and the situation remains challenging. The hope for a necessary and welcomed EU economy recovery has improved, but real business has not changed much so far. So we continue improving Apera. The closing of Universal took place in January. Now our value chain is even more differentiated by successfully entering the United States as well as the aerospace industry. Europe was again a very tough market and pricing pressure intensified in the course of the quarter. Seasonally higher volumes did not lend support. But what is still valid and important, we are the cost leader in Europe, which allows us to stay breakeven in difficult times. Brazil is different with Q1 being the summer holiday quarter. However, Demand was robust and we are supporting the market with the good performance of the hot rolling meal upgrade. The negative earning impact last year turned into a benefit with a mixed upgrade and lower cost. There is not much to say about imports into Europe. They declined slightly and are at 23.5%. The leadership journey entering the second year of its fifth edition and we already realized that 21 million in the first quarter after we over delivered our target last year. In total, leadership journey five achieved 116 million cumulated so far. On the ESG side, we are proudly highlighting our recent expansion in forests in Brazil. We are proud to have secured a 250 million euro financing package from the International Finance Corporation, which is a member of the World Bank Group. This includes $150 million from IFC's own account and up to $100 million in mobilized funds from other lenders, for example ING. Such financing is exceptional in the steel space. The IFC environmental audit is very detailed and strict, so we view this as an external confirmation of our approach. sustainable forest management program of Bioenergia. As you know, this is our renewable energy subsidiary in Brazil and also a key building block for our decarbonization roadmap. Aperambio Energia manages 150,000 hectares of forest, including over 40,000 hectares of natural vegetation, preserves and wildlife corridors. We have already expanded the forest with a capex of 50 million, and in addition, we established the bio-oil production facility. This is a key innovation and will help us to pioneer our commercial scale production of bio-oil captured from the waste of the charcoal production process. The bio-oil can replace synthetic fuel products, helping to avoid greenhouse gas emission and improve the circularity of Aperam's operation. The IFC loan will be further used for further expansion, upgrading the charcoal production to minimize greenhouse emission during the process and grow the seedings business with third parties. Beside Bioenergia, Aperam group decarbonization efforts until 2030 are capex-like light around 15 to 20 million annually let us turn to the market seasonality had a significant impact in brazil q1 is their summer holidays quarter with lower demand and in europe seasonality drives volume to higher level compared to q4 however European demand remains sluggish and seasonal variation should not be mistaken for a step change in demand. New inventory declines likely in absolute tonnage, but seasonally adjusted is now on a normal level compared to the average of last five years. These inventory are normal, but given the high uncertainty, we do not expect that the distributors are eager to hold more inventory. Regarding real demand, the sector trends have continued and only one sector has changed. The construction sector, including elevators, HVAC and facades, remains one of our most important segments. It remains burdened by price and cost inflation, but the first positive sign has emerged. While overall demand is still soft, we recognize a pickup in heating, ventilation and air conditioning. We hope that the lower interest rates will further stimulate demand. Additionally, we see the German plan as a potential catalyst for the construction sector. But keep in mind that the money needs to be budgeted and allocated first, so although it comes with a lead time, it could prove to be a game changer for demand. For consumer goods, there was no increase in demand beyond some stock replenishment in Q1. The demand in food, health and catering was solid, but still below normal activity. Industrial demand is showing some dynamics, but only from the energy sector. some recovery signals are visible the automotive sector continue to deliver negative news and it seems that the big run on electrical vehicles have been postponed and it is not happening at the moment once again the market in brazil is performing well in constant to europe even if in the seasonal trough demand was robust as distributors were quite active during the quarter. Demand in automotive and transport is good while truck demand has softened, but trains for public transportation are improving. Consumer goods showed ongoing good demand for white goods and other consumer items are performing stable. Brazil is a growing country and needs additional projects in infrastructure and housing. Capital goods are faced again with higher demand. As mentioned, imports into Europe were unchanged. I will now hand over to Sud for the financial review.

Thank you, Tim, and a warm welcome to everyone. Let's start with adjusted EBITDA. For the first quarter in 2025, we guided for lower EBITDA compared to Q4 2024. We gave this guidance at the beginning of February, mentioning the price pressure in Europe, negative valuation effects, and the seasonality in Brazil as responsible for this development. We confirmed this on 3rd April in our Q1 update. And today, we reported an adjusted EBITDA of 86 million. Despite the price pressure in stainless, we were able to achieve an EBITDA per ton of 200 euros. And this proves the success of the leadership journey. Even in difficult times, we are able to earn money. Due to the first time consolidation of Universal for two months, there were some specific effects. Exceptional items amounted to a negative 36 million. Purchase price allocations for inventory fair value were reversed directly during the quarter. Here, a reminder that the reversal is non-cash. For this reason, earnings per share for the first quarter came in at minus 24 cents. To give a comparable figure, when excluding the universal effects, earnings per share was nine cents. Our cash flow showed the typical seasonal swing happening in the first quarter. Networking capital increased significantly. I will explain this later. As you can see, the net financial debt increased with the acquisition of Universal as the main driver. But now, let's dig deeper into this topic. Moving to the next slide. Following the acquisition of Universal, we have one clear mission, deleveraging. This is our key financial objective. On the graphic, you can see the development of net debt since the end of last year. There are two main components, and the first being the acquisition of Universal. In total, 517 million euros in payment for equity and assumed debt, including all M&A costs. Another topic was mentioned already. Like always in the first quarter, the networking capital is increasing. Q1 volumes are higher, and we have to prepare for the business for even higher volumes in the second quarter in stainless steel in Europe and Brazil. Avoy split up inventories for the successful LNG business. In addition, destocking and lower raw material prices had an impact on payables first. You will see deleveraging starting in the second quarter. Networking capital will reverse and free cash flow will reduce the net financial debt. As promised, we will pay our quarterly dividend in line with our financial policy. But there is enough left to pay down debt. When we announced the acquisition of Universal last October, We promise to deleverage within three years. This means that financial debt fully normalized at the end of 2027. But how can we be sure about that? Is a recovery of the economy necessary? In fact, we simulated different scenarios, especially for this year, and even without a recovery in 2025, we will reach our target. At the end of this year, net financial debt should already be lower than last year adjusted for Universal. Just a reminder, that one billion of the net financial debt of AppRam is the networking capital of the recycling business and the value of the universal business. Both value-accurative business acquisitions that given a sum total of 70 million synergies on their 120 million baseline EBITDA and drive the transformation of AppRam. Moving to the next slide are four segments performed in line with guidance. The pricing pressure in Europe for stainless steel and the seasonality have already been mentioned. The cycling and renewables adjusted EBITDA is down to 16 million coming from the typically strong fourth quarter. Selling prices were lower and the valuation effect was negative as expected. In general, there was lower scrap demand. For Q2, we do not expect any major change. Adjusted EBITDA should be rather stable compared to Q1 as the scrap market remains challenging. Stainless and electrical reported adjusted EBITDA of 28 million. Seasonally higher demand could be more than offset by the seasonal Brazilian , but volumes are not the key issue here. EU pricing pressure intensified and resulted in a decrease against Q4. Under these circumstances, only the cost leadership in Europe prevented a very poor result. The Brazilian business now benefits from the positive effects of the hot rolling mill. The outlook for Q2 is positive. This is mainly due to the seasonality. Europe and especially Brazil are prepared for a seasonally higher volume. In addition, we expect a less negative valuation effect. Strong demand continues in Brazil. and H1 EBITDA should already surpass the full year result of 2024. Service and Solutions achieved an adjusted EBITDA of 13 million. This increase resulted from higher spot market prices as well as higher volumes. A negative valuation effect was more than offset. Our segment is close to the spot market, and this can quickly drive results in any direction. For Q2, assuming an unchanged market environment, We do not expect any major change in EBITDA and the necessary balance for pricing could come from lower valuation effects. Alloys and specialties reported a new quarterly record EBITDA of 29 million. The universal consolidation for two months was the main driver here. But the success of the segment continues and it is much less cyclical and less susceptible to economic cycles than other segments. Demand was high and shipments have increased significantly. Ongoing temporary aerospace supply chain destocking is a factor to consider and Universal's full potential will be reflected in subsequent quarters. In Q2, the full consolidation of Universal for the first time will support EBITDA noticeably. And please do not forget that we have guided already for 2025 that Abrams historic alloys and speciality segment should deliver 100 million EBITDA based on the LNG order book, the additional capacity available through Guignol, and the ramp up of our Indian business. The result from Universal will be added to this guidance, and this means that 2025 will mark a record on a standalone basis, and even much more with Universal. Others and elimination recorded in total a balanced result. It's normal here to expect a high single digit Euro figure per quarter, but the high level of integration between different APRA businesses such recycling, charcoal, stainless metals, and distribution compared to the competition allows us to make strategic decisions on managing just-in-time inventory between segments. And this is then reflected in the elimination. This can change the outlook for the next quarter depending on spot markets. Moving to the next slide. The leadership journey is transforming Aparam and aids in building a differentiated value chain. We are now in the second year of phase five on the successful journey. After having targets clearly exceeding last year, we started already strong into the new and realized 21 million in Q1. This equals to almost 30% of our target for 2025. But what happens now and what is still to come? Let me remind you of the booster component, the classic cost-cutting program contained in 2024 and 2025. You're now realizing the gains. This is the next crucial step in strengthening our competitive position in Europe. Furthermore, the new hot rolling mill in Brazil is finally fully up and running and we're getting the benefit from this investment. With this development, we are cementing our cost leadership in Europe and Brazil. You know the goal of the leadership journey is to achieve an EBITDA improvement of 300 million in a normalized economic environment. Looking at the Q1 results, it is clear that we are still far away from a normalized situation, but the relevant improvements are put in place. and the progress becomes also visible on a relative basis within Europe. We realized an EBITDA per ton of 200 euros in Q1, which is much higher than the previous cyclical lows. In addition, we announced the synergies we expect from Universal. They will ramp up to a sustainable additional 30 million US dollars per year. As the transformation materializes and resilience increases, AFRAN should generate an average of 100 to 120 million adjusted EBITDA per quarter, even in difficult times like now. On this basis, AFRAM will be fully self-financing, able to deleverage our balance sheet, and pay an attractive progressive dividend to our shareholders on a recurring basis. I hand over back to Tim, now for the outlook.

Thank you, Sudha. At the beginning of February, when we published our Q4 figures, I said that the situation in Europe remained unclear. But today the situation is even more difficult. Not only the development in the most important economy in Europe is unclear. Furthermore, the biggest uncertainty comes from the tariff wars. While we are not directly impacted by tariff, indirect effects apply, although they are hard to estimate. In this situation, the guidance carries an additional risk element And our outlook depends on the continuation of reasonable macro environment. We have not planned for a recovery in 2025 and instead rely on what we can control, the leadership journey improvement and the continued return from our differentiated value chain that now includes a US element via Universal. In Q2, we expect higher shipments. This is based on the seasonally stronger quarter in Europe and in Brazil. However, price pressure will continue in Europe. On the other hand, Universal will be fully consolidated for three months for the first time, and the valuation effect should be less negative. Sud spoke already about cash flow and net financial debt. higher earnings and improve the free cash flow will reduce our financial debt and we will start the leveraging. As a reminder, this means that we are on a dividend of two euros per share this year and a bit more. In terms of CapEx, we are very consciously investing only in maintenance, in productivity and in our alloys business. Our budget for 2025 remains unchanged at 200 million. As you know, volatile commodity price could still change the above EBITDA and networking capital indication. We'll only be able to provide guidance once the raw material prices are known. It is now a well-established routine to provide an update shortly after the end of the quarter. This means that our next update will be published in early July. The current trading in Europe and in Brazil, as well in the EU regulation and the uncertainty environment, leave much to be discussed, even though we can't have an answer to everything here. We are back on the road in May, participating at conferences and carrying out roadshows. I hope to meet you in person and look forward to that. Please contact our investor relations department with any feedback or if you need corporate access. I would like to close with our new vision. It makes clear what we are doing and how our journey looks like. Our vision is, we are committed to establish Aperam as the leading value creator in the circular economy of infinite world changing materials. Our vision expresses everything that we are doing. We are bit by bit transforming the company as we tap new earning streams which create value independent from the stainless steel cycle. Thank you very much for listening to our Perenki One Management Podcast. We wish you a pleasant day and look forward to your questions in our conference call at 2pm.