Aperam Sa Ord

Hi, good afternoon. Thank you very much for joining our conference call today. All our comments were contained in the podcast that we published this morning, which, you know, supports our quarterly financial reporting and where applicable, our disclosure of regulated information. We hope we can also save more time so you can ask pertinent questions during this call. Together with my colleague, Nicolas Charjois, I'm looking forward to this dialogue with you. So let's start right away with the Q&A. Operator, can you please open the lines? Thank you.

We will take the first question from Tristan Grasser and BNP Paribas. Please go ahead.

Yes, hi, thank you for taking my questions. The first one is on stainless Europe. We've seen U.S. stainless price rising close to 600 euro per ton since Q4. Scrub prices are also up maybe 400 euro per ton. So it looks like you have a solid spread expansion year to date. But in your guidance, I've been surprised you don't mention any price-cost effects into Q2. So maybe can you discuss the other elements of your cost base and if we should expect a positive cost effect in Q2 for stainless and electrical?

Hey, Tristan, let me start with, and then Nicola can answer the spread question, right? So the one thing you do see is obviously... These two factors, but the second thing is obviously what we have clearly guided to, which is also valuation effects, right? You have to understand that we do talk about the root cause of this rather than the effects. And the root cause, we have clearly mentioned in our podcast and everywhere else, is the utilization improvement in the European business, right? So we clearly guide to that. And in the past, we have always been very explicit on the fact what happens when utilization goes up. And so we thought it was obvious, but Nicolas, go ahead.

Yeah. Tristan, so first, of course, price and raw material are increasing, but as you know, we benefit especially from our service institutions division in which we have a short order book and we are able to get benefits in term of price versus cost in our account. The second point maybe I can tell you is about the valuation. We expect a low double-digit valuation effect in Q2, and we have the same in Q1.

All right, that's clear. Second question is a bit on the market situation. Again, in Europe, I think you talked pretty positively about the import situation and also inventories being low and some restocking actually taking place. Do you see any risk of an import surge before the July quota implementation? And also, I think you mentioned short-term demand effects for your distribution arm. I just wanted to clarify that because I would have thought that market share gains versus imports would be more structural, or is that just near-term restocking?

There's two equations, right, Tristan. One's the fact that we do have to keep in mind that we cannot treat Q1 isolated. Remember the above-average surge in imports in Q4, also trying to avoid CBAM, which came in, right? And this stock is in the inventory. And the second thing is we also are very clear that there's no underlying demand improvement, and that's the reason we see this short-term demand improvement in our distribution business. We typically tend to qualify structural demand as an improvement in underlying demand. However, the imports being reduced and we've seen the Q1 run rates have increased more opportunities for supply for us. So yes, there is a clear increase in utilization at the stainless mills in Europe because of this improvement in supply opportunities just because imports are already at the run rate post safeguard. And your first question about is there any risk in the next two and a half months, let's say traditionally Supply chain-wise, we have needed at least three and a half to four months for imports to come from Asia to Europe. And since we are within that timeframe, I think we can say with some comfort that additional imports during this timeframe, we do not see much of that happening.

All right. That's very clear. Thank you.

The next question is from Adana Ekoku, Morgan Stanley. Please go ahead.

Hi, Sid and Nicholas. Thank you for taking my questions. I've got two on alloys. So first, on the whole business, we saw a quarter-over-quarter margin improvement. Should we expect another step up here from this kind of 10% level looking ahead, given the maintenance costs in Q1, or is there anything on the mixed flag? And second, on universal, I think you guided previously that the year one synergies should start showing from 2026. I believe these are 9 million for this year. So could you just give a quick update on how this is progressing so far?

So on quarter on quarter, I think we are at the mix which we expect for H1, Adana. So for Q2, there should not be a significant mix difference, so to speak. The maintenance charges falling away may have, I would say, a very low single-digit million euro impact, but that's not going to be material in the apparent scheme of things for alloys from Q1 to Q2. The margin improvement you see from Q4 to Q1, indeed, is because of mix improving into Q1. But going forward, that should be the mix until we see a Boeing structural parts demand pickup, which we expect probably towards the second half of this year at this point in time. On your second question, which was about synergies, yes, they are – ramping up as planned, and that is included in our guidance. And the way we look at it is that we have guided to $30 million and about this 9 million euro pickup that should happen through the course of this year. Perfect.

That's super clear. Thank you.

The next question from Maxim Kog, Odo BHS. Please go ahead.

Yeah, good afternoon. So the first question is on recycling and renewables. I was wondering how sensitive the division was to higher scrap prices. Is the division set mostly to gain from higher volumes in the quarters ahead? Or is it also exposed to higher prices? Because in my understanding, it was set to generate a relatively fixed EBITDA per ton, irrespective of market conditions. But any color on these topics would be at full, yeah.

So, Maxim, there's two parts to recycling and renewables. You are absolutely right. Your memory serves you right. It is a fixed margin. However, there is a volume effect, and when scrap demand goes up, that volume effect plays in. And secondly, there's a valuation effect because, you know, most of our net debt is purely the networking capital of recycling. So there is an impact on that as well. And today in the podcast, we've been very clear. I think Nicolas presented that recycling is an improvement between valuation effect and the volume effect. Yes, exactly.

And on top, we see that all the actions we are doing to improve structurally also. Our scrapyard is working and you see that in recycling benefits and also in the successful start of our leadership journey.

Okay, thanks. The second question is on working caps. There was a strong performance in that respect in Q1 despite the seasonal build-up. The guidance for Q2 looks also encouraging. So I'm wondering if there could be a scenario where this year in 2026, you have a strong increase in volumes in prices and at the same time contained working cap outflow and like previous upcycles. And that would, of course, be very positive to free cash flow.

Yeah. So you remember that we have significantly improved our working capital last year. And this is a structural improvement based on all the synergies that we have and that we have developed inside our value chain. So the seasonal, slight seasonal increase that you see in our working capital is a reflector of that. And if your question is on the deliverage, I can very much confirm to you that we are on track and we will deliver the deliveraging as we have guided.

Okay, and just the last one is on the guidance. So now you're guiding to 700, 800 million euros already for 2028. So can you clarify whether that includes already the benefits from the CAPEX initiatives that you announced in the latest quarterly result? I think there are some initiatives also ongoing ramping up on recycling and renewables by the end of the decade. And in other words, could we expect a further step up here when those initiatives kick in after 2028 to perhaps close to 1 billion or above?

Yeah, so Max, and this is an important question because we always invest for the next cycle. And this is something which I want to make very clear and we will talk about this in our roadshows and probably even in in fall when we get together to talk about our performance. APRAM always invests for the next cycle. What that means is that all the leadership journey six gains which we have planned and announced to the market, the 150 million euros, a significant part of that, close to 90% of that, is coming from investments made in the previous cycle. So the investments we are currently announcing, the ones we announced last quarter and the ones we are announcing right now, except when specifically mentioned, and Nikola has presented this morning, two short-term investments which may come down on board much shorter. It's always for the next cycle. Like for like, they should lift the EBITDA of Aparam. You know our principle, the leadership journey gains are like for like, same macro environment, same raw material prices and improvement to EBITDA. About this announced 700 to 800 million euro EBITDA figure beyond 28. Yes.

All right. Thank you.

As a reminder, if you wish to register for questions, please press star and one on your telephone. Star and one. The next question from Bastian Sinagovic, BB. Please go ahead.

Yeah, good afternoon and thanks for taking my questions. I've got a couple, maybe firstly coming back on Christian's question and particularly the spread side of things here. Could you let us know whether you think that we are now on track towards mid-cycle spreads in Europe already? And is there any timeframe which you think, within which you think we will hit those? That would be my first question.

Yes, so today what we see is that we have achieved, let's say, 20% to 25% of what we have guided in terms of the potential margin improvement in Europe. And we spoke about 200 euro per tonne spread, if you remember. So 20%, 25% is achieved. So there is still some potential. Right.

Understood. Okay, and then the next one would be on the situation around the Indonesian mining regulation and maybe also sulfuric asset We've seen nickel price going up Chinese price are going up. So what does this mean for you in both stainless and the alloys business?

So for the alloys business I'll start directly because there we have all our nickel requirements at You know pure nickel so to speak even purer than battery nickel if I can say that there we are completely hedged all these contracts are based on on LME so in that case it is a pass-through for us in terms of costs and these are high value materials we are talking about average revenue or average cost of one ton of such materials above $50,000 for one ton. So 20 times the price of stainless steel, right? When it comes to stainless, short term, there is a limited impact because we are talking about scrap and that is raw material prices. Midterm, there is an impact because the raw material prices of our competitors go up which is Asian competitors who do look at all this Indonesian raw material, either in the form of slabs or NPI as their raw material, and that has an impact. But if this continues, obviously it lifts up also the scrap prices everywhere. So it is for us, you know, a shift, a delta shift. Now, we have to monitor this carefully because the Indonesian government obviously is doing this based on quota system and based on needs. But underlying for us at this point in time, we do not see any paucity or scarcity of nickel.

Okay, I understood. Got you. Then very last question on volumes. Could you maybe give us some guidance on the quantum of the volume step-up, which you expect in the second quarter, even if just a range?

Tristan, I think – sorry, Bastian, I think – we have our SNS business, as Nicola has explained, and that's where we always see the upsides in short-term improvements. And there, the order books, as you know, are one to one and a half months. So we cannot give a volume guidance directly on the impact for the entire European supply chain. What we can see is that fundamentally, we said once the safeguards are implemented, depending on the player inside Europe, there should be a 7% to 10% utilization lift. So we are well on way to that.

Okay, understood. Thanks so much.

This is H2, right? So that's what we said.

Yeah, okay. Okay, thank you.

The next question from Kirshan Agarwal, Citigroup. Please go ahead.

Hi. So my question is sort of a follow-up from what Bastian was asking on the volume uplift. And we sort of partially answered that. But if I were to run some numbers around it, like potential sort of a one million ton of stainless volume improvement purely from a lower imports into the Europe. So how much of the market share

Gain you probably are looking at over the next two years and not on a quarterly basis So at this point in time in Christians firstly We said the 17% reduction net net so to speak for stainless if you took a year less the average of the years before and um about 900 920 000 tons of imports hot rolled and cold rolled combined there would be a reduction of 300 to 400 000 tons is what we said just to be very clear and we're not talking 1 million tons And after that, there is the market share of every participant. And our base case is that every participant takes their market share. And there's enough capacity in European Union because we all operate electric arc furnaces. And in the past years, we have suffered close to a 20% utilization drop because of the poor demand. So we can all absorb these volumes. And that's the reason I said, depending on where you are, what is your product base, there's a seven to 10% utilization left and that you can model for each and every player.

I understand. And then, I mean, you used to give a chart on the inventory, system inventory, which I don't find in the presentation this time around, but you said that distributing is stopping and starting. So is it fair to assume that, okay, the inventory dilute, which we saw in the second half of last year, has sort of been digested and then price increases are more sustainable?

So the restocking basically has started because in Q4, we saw an extra inventory come in because of imports, right? That gets digested into Q1. And because you see Q1 import levels are already at the safeguard run rate, there is a need for slight restocking. And that's the reason we see that there is the slight restocking effect.

Very clear. Thanks a lot.

We have a follow-up question from Tristan Grasser, BNP. Please go ahead.

Yes, hi. Now it's my turn to come back to Bastien. A question on the spread. When you said you've achieved 20 to 25% of potential spread expansion in Europe, that's on reported Q1 or on spot? And if it's not on spot, what would it be on spot?

No, it's on Q2 and forward on spot, not on Q1.

Okay, that's clear. And on energy costs, what was the energy cost in Q1 so we can bridge into Q2 when you provided guidance of high single digit?

There is zero impact in Q1 of any energy shock linked with the Iron Wall conflict, which will come in the next quarter.

Okay. And last question on CBAM. Now we have one quarter in, and previously you were a bit cautious on CBAM, but now imports have reset lower. You also mentioned the market is adjusted already to the new reality. So does that mean that you think everything is already kind of priced in, in terms of price effect, and it's just about volume into... into H2. And if Q1, you already kind of have a good, decent run rates of imports. Does the melt and pour that I think previously was very much needed and discussed, is that important? If you can discuss that as well. Thank you.

So Tristan, that's unfair because you've discussed four questions in one, but I will take that. It's an important discussion because we have to keep in mind that Firstly, what we are saying is that we see the first signs of the uplift. Secondly, you see that the safeguard level imports have already started, meaning that Q1 already shows that importers are looking at safeguard levels. Third one, on CBAM, we have to see the net effect because, as you know, the registrations are starting this year and there is a ramp-up. So we believe that the net effect is and we have always been guiding to the market. The net effect is going to be more a midterm feature and not immediately in this year. And so that is how we see it even now. So to your question is. All price effects priced in or volume effects priced in. There's two parts to the discussion. One is that to volumes, to Krishan's question, I've answered saying that on utilization, we see the ramp up towards the utilization improvement. So in H2 is when we will be hitting that utilization improvement fully on the missing imports. However, there is a single important factor to all these price and discussions on the different effects. And that factor is this is happening in Europe where demand is underlying and demand is flat at a very low level. And we are not talking flat in terms of past average. We are talking 20% below past average. As you've looked through and walked through each of our divisions, specifically if you look at Stainless Europe and SNS, there has been a clear message from Nicola this morning saying that there is no demand trigger anywhere. And so that is something which we have to keep in mind because most of these discussions center around which is the highest marginal cost on import. And that will be tested only when demand picks up. So what I'm saying is the current scenario is purely a supplied side fair competition. And as a result, utilization going up.

All right, that's clear. Thank you.

This was the last question. I would like to turn the conference back over to Mr. Sivaji for any closing remarks. Thank you.

So good afternoon again, and thank you for joining the call and asking your questions. Thank you for your participation and your continued support. For us, 2026 is already shaping up to be a watershed year for APRAM in our transformation. We look forward to talking to you over the next days and weeks. And as always, our investor relations team is available to connect with you and address any further inquiries. Please do not hesitate to reach out to us. Have a fantastic spring, and we hope to talk to you all soon. Take care.