Eregli Demir Celik Un/Adr

Ladies and gentlemen, thank you for standing by. I am Mina, your chorus call operator. Welcome and thank you for joining the Erdemir conference call and live webcast to present and discuss the third quarter 2025 financial results. All participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by a question and answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. Please note, Ergli Demir Celik Fabikalare Tasha Erdemir may, when necessary, make written or verbal announcements about forward-looking information, expectations, estimates, targets, assessments, and opinions. Erdemir has made the necessary arrangements about the amounts and results of such information through the disclosure policy and has shared such policy with the public through the Erdemir website in accordance with the Capital Markets Board regulations. As stated in related policy, Information containing forward-looking statements, whether verbal or written, should not include unrealistic assumptions or forecasts. It should be noted that actual results could materially differ from estimates taking into account the fact that they are not based on historical facts, but are driven from expectation beliefs, plans, targets, and other factors which are beyond the control of our company. As a result, forward-looking statements should not be fully trusted or taken as granted. Forward-looking statements should be considered valid only considering the conditions prevailing at the time of the announcement. In cases where it is understood that forward-looking statements are no longer achievable, such matter will be announced to the public and the statements will be revised. However, the decision to make a revision is a result of a subjective evaluation. Therefore, it should be noted that, when a party is coming to a judgment based on estimates and forward-looking statements, our company may not have made a revision at that particular time. Our company makes no commitment to make regular revisions which would fully cover changes in every parameter. New factors may arise in the future which may not be possible to foresee at this moment in time. At this time, I would like to turn the conference over to Mrs. Idil Onay Ergin, Investor Relations Director. Mrs. Ergin, you may now proceed.

Thank you very much, Mina. Good afternoon, everyone. Welcome to our conference call and webcast of Erdemir for the third quarter of 2025. First, I will go through our presentation, master presentation, which you can find on our website. And you can also follow it through the webcast. Then at the end of this presentation, there will be a Q&A session, as usual.

So I'll start with slide three.

Our presentation consists of two sections, as you already know. The first one is market overview and then the financial results. So, let's start with commodity prices. On page 3, you will see the prices of steel-related commodities and HIC. Let's take a look at Colt & Cole Iron Ore scrap and HIC prices. In the third quarter of 2025, the cotton coal market showed a volatile yet narrow range trend under supply constraints and regulatory pressures. Production restrictions in steel-making regions of northern China and weak demand in India exerted downward pressure on prices. Overall, cotton cold prices fluctuated between $170 to $190 during the quarter, averaging around $184. The iron ore market has been supported by a moderate demand recovery and lower than expected production cuts, while current prices remain elevated compared to fundamental indicators. Although downward pressure on steel prices persist in China, iron ore prices holding steady in the $100-$105 per ton range. Towards the end of the year, weak domestic demand and rising trade protectionism stand out as key issues that could exert downward pressure on iron ore prices. In Q3, Turkey's imported Crap markets remain generally under pressure due to cautious buying from producers and strong supply conditions. Nevertheless, prices averaged around $345 per ton in line with the previous quarter. On the bottom right, we show HIP prices in Black Sea, China, and South Europe. In the third quarter of 2025, the global HRC market continues to search for direction amid weak demand, high inventories, and uncertainties in trade policies. As the final quarter begins, regional price differences are expected to become more pronounced with the increase in protectionist measures. On page 4, you will see the production, consumption, exports, and imports figure of 30 steel markets for the first 8 months of 2025. While consumption rose slightly by 3% and production increased by 4%, exports of steel products grew by 12%, in volume during the first eight months of the year and reached 10 million tons. Imports also increased by 18% to 12.6 million tons over the same period, mainly driven by higher semi-finished product imports. As a result, the export-import coverage ratio increased to 79% in the first eight months of 2025. It was observed that the total imports were largely realized under the inward processing regime. With the circular published by the Trade Ministry on September 16th, it was made mandatory for 25% of the input of products processed to export to be supplied domestically. This change was welcomed in terms of domestic fuel production. At the export side, the tariffs imposed by the U.S. and Safeguard System by European Union have continued to offer Turkish producers a more competitive environment. Under the Trump term, the U.S. reached agreements with many countries However, steel was generally excluded and remained subject to a 50% tariff. On the other hand, uncertainty due to carbon border adjustment mechanisms, which will come fully into effect from January 1st, 2026, and looming safeguard system revisions negatively affected EU buyers' imports demand. Asian countries, which have been the most negatively affected by this policy, increased their exports to unprotected markets. So let's take a look at the financial results and operational metrics. On page 6, you will see the summary of our 9-month results. We achieved 3.8 billion U.S. revenue, U.S. dollar revenue. Also, we generated 341 million dollar EBITDA and 62 million dollar net profit. On page 7, you will see the operational indicators of our company following the commissioning of the last two investments in our current investment package in the second quarter. Our crude steel capacity utilization ratio, which was 75% in the second quarter, increased to 90% in the third quarter. Accordingly, sales and production levels returned to their normal levels. We aim to close the year 2025 with around 7.8 million tons of freight. So let's take a look at the segmental breakdown of domestic sales and export volumes in page 8. As you can see from the pie charts, there has been a slight change between sectors when we compare it to last year's breakdown. There has been a transition from general manufacturing and auto to pipe amplifiers and distribution chains on a percentage basis. We see similar changes between sectors in the long products, although its share in total sales is relatively small. We achieved an export volume of 371,000 tons in Q3, representing 19.2% export share in our total sales. We are above our historical average with 23% export share in the first 9 months. Although our main focus is the domestic market, we also consider export as an alternative market. On page 9, you can find breakdown of revenue for domestic and export sales. 76% of the revenue comes from domestic sales in line with the domestic volume. Despite important pressures in the domestic market, we achieved to generate $341 million EBITDA and $62 million net profit in the first nine months of the year. We generated $68 EBITDA per ton in nine months as we Approach the end of the year, we would like to share that our EBITDA proton expectation stands in the range of $60-$65 per ton. On page 10, you can see how we reached a net profit from EBITDA. One of the largest items was depreciation, which was $200 million in nine months. The other major item in this chart was financial expenses of $177 million. After other expenses, net profit was $62 million. In the graph below, you can see a bit of a change in cash switch. Our net working capital increased compared to the second quarter due to the expansion of the trade table's maturity. Additionally, a distant payment of $43 million was distributed in the third quarter. Also, we spend around $336 million to investment activities in nine months. This amount also includes CapEx, Advances paid for the capital expenditures and sale of commercial offices for investment properties as well. On page 11, you will see historical trends of financial borrowings and net debts. As you can see in the financial borrowings chart, the share of short-term debt in total debt decreased to 24% in Q3 with the support of $950 million Eurobond issuance. When we look at 2025, our net working capital decrease due to the expansion of the trade payables maturity. Despite high capital expenditures, we succeed in keeping net debt EBITDA below three multipliers in the first nine months, and we expect to keep the net debt EBITDA ratio below 3.2 multipliers for 2025. Slide 12 represents our cost of sales breakdown. Due to the decrease in coal prices, the percentage of coal-to-coal costs decreased in the raw material baskets, which is in line with the trends in raw material markets. Since we can see the costs in the fourth quarter, we can say that there will not be a significant cost increase in raw materials. Page 13 represents the historical capital expenditure. Total capex was $1.1 billion in 2024 and $631 million in the first nine months of 2025. The new first-class furnace in İçdemir and number four coal battery in Erdemir was commissioned in the second quarter of this year. Other than these investments such as palletizing plans, solar power plants and energy efficiency investments are included in the capex figure of 2025. And the goldmine, we expect the resource announcement for the goldmine to be made in November and the reserve announcement in the first quarter of 2026. As we have shared since the beginning of the year, we expect that capex will be around $850 million in 2025 with maintenance and other ongoing investments. And maintenance will be around $58 million per year as usual. As you already know, this figure is April based and the cash out flow will be lower due to advance payments. So on page 14, just as a reminder, we announced our net zero roadmap last year in January. There are more changes to this roadmap, the details of which we previously shared. The first investment in this package, solar power plants, is planned to be commissioned by the end of 2026. Now, we may continue with the Q&A session. We will be delighted to answer your questions. Thank you for listening.

Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press Start followed by 1 on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your handset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question comes from the line of Gabriel Alaina with Morgan Stanley. Please go ahead.

Yes, thank you for taking my question. Hi, Idil. My first question is on the CAPEX plans for 26 and 27. Do you mind reminding us of how much you're budgeting for the next couple of years and how will the split work by project, roughly? I'm just trying to get a better understanding of what is essential and what can be re-phased for a later date if your earnings, run rates, and if the broader environment for seed in Turkey does not improve materially. That's my first question.

I'm so sorry, but I couldn't get the question because of the sound problem. Could you please repeat your question?

Yes, yes, absolutely. So my question is on the CAPEX plans for 26 and 27. Do you mind reminding us how much you're budgeting for the next couple of years and what is the split roughly by project? And I'm just trying to get a sense of what is essential and what can be re-phased for a later date if the broader environment does not improve for steel in Turkey.

So, there is no calculation on this zero roadmap, so it means that we announced we will spend 3.2 billion dollars in seven years until the end of 2030. It means that $450 million additional per year will come only from the net zero investments. Plus, we have regular modernization, which is also included in CAPEX, and a small amount of maintenance. So all together it's going to be around like $650 million. So we can say that the sustainable amounts will be in 26 and 27 will be around $600, $650 million.

Thank you. That's very clear. And the second question is on the regulatory environment that is getting more challenging with the EU's election plan and the Section 232 in the US that's in place. What are you doing to counter these risks? Are you finding new markets that would be an offset? And are there any policy changes that you are discussing with the Turkish government to try to mitigate these risks?

It's a very good question and a very popular question because the regulation has recently changed. I mean inward processing regime. So let me start from the European Union changes in quotas. So although the proposal has not yet been accepted, we do not expect changes in quotas to have a material impact in our sales volume. Because the share of exports in our total sales averages around 20% and the majority of our sales are directed to the domestic market. Approximately half of our exports are made to European Union countries but we have the flexibility to redirect any potential volume loss resulting from the quota changes to the domestic market or other export destinations. So in September this year, the Ministry of Trade revised the inward processing regime and making it mandatory to use 25% domestic steel and shortening the certificate validity period from six months to four months. We see this development as positive for domestic steel producers and believe it will be a support We haven't seen any impact from this regime because since the certificates are obtained in advance, the positive impact of the import processing regime will begin to be seen in the first quarter of 2026. Kota change, actually the main target is not Turkey. So we know that this change is basically against the far-Asian countries, especially China. So Turkey still holds the largest quota for HRC, for household oil, and we believe that Turkey will continue to be the primary import source for Europe as it is now. So, of course, there is another part in U.S. So, the tariffs imposed by the U.S., you know, it continues to offer Turkish producers a more competitive environment. Under the Trump tax pledge, the U.S. reached agreements with many countries. However, steel was generally excluded and remains subject to 50% tariffs. But again, since the US is not our main export market, we do not see any risk to our exports. So, the problem is, if some countries cannot go and sell their products, for example in European Union, if they come to Turkey, so this is the main question, If our imports will increase. But we believe that Turkey will be able to protect itself against imports from other countries with the revision of the inward processing regime and both completed an ongoing anti-dumping investigation and additional taxes so as you remember last year the trade ministry finalized the anti-dumping investigation against HRC products from China and some other countries and the average of additional taxes was around 30% for China, for example. So, we believe that these two regulation changes, the first one is import processing regime and the second one additional taxes from anti-dumping investigations, we believe that Turkey will be able to protect itself against the risk of increasing imports.

Thank you very much. Thank you.

The next question is of the line of Megulia Zenande with UBS. Please go ahead.

Thank you. Can you hear me?

Yes, we can hear you, Zenande.

Thanks. Just a follow-up question on the CAPEX figure. Are you saying that you've now revised down your CAPEX assumptions to 600 to 650, or is it still the 800 per annum that we should expect

For 2025, we have been saying since the beginning of the year, we are expecting 800-850 levels for 2025 CAPEX. But for the next year and a year later, for 2026 and 2027, it will be less, because the biggest part of this year's CAPEX was the two main investments, one The Blast Furnace in İskenderun and the other one is Kop Battery in Ereğli. So these two investments was already completed and commissioned. So the biggest part of 800-850 million dollars from this year was these two investments. So they are already completed that's why next year and a year later we will see a smaller amount of capex.

Okay, and then will it increase from 2028 to 2029? On the back of the new EAF installation?

Well, it might change in 2028 because at these years we will start the electric alternatives. The first one will be completed in Iskenderun and then at the end of 2030 the second electric arc furnace in Ereğli will be completed. So it might increase again but or we can say that it might be stable because most of the additional investments will be completed for example solar power plants we will commission these solar power plants at the end of 2026 so it will be more or less but will be around like 600 million dollars during the years until the end of 2030.

Okay okay that's clear and then just another question on the near term stuff I mean you've had quite A massive working capital relief in Q3. Just wanted to ask what should we expect for Q4? Should we expect maybe a little bit of a build since we're going into a seasonally strong quarter or should we expect more or less the same release?

Considering that Q4 becomes clearer in terms of both price and cost, we expect to see similar figures in Q4. The next question is from Nenarlov Bistrova Evgenia with Barclays.

Please go ahead.

Yes, hello. Thank you very much for the presentation and for the answers. So, I have several questions. So, first of all, on your margins, I mean, quarter on quarter, since the EBITDA margin was down, even though that EBITDA per ton was up. So, just trying to understand what we can expect in the fourth quarter. I mean, you said that your EBITDA per ton guidance for the year is now down. So, what could be the main driver of that, or basically, What was unexpected that made you change or revise your guidance down for the full year in EBITDA per ton terms? And what are you expecting in terms of EBITDA per ton maybe for 2026? And how much improvement do you expect to come from this commissioned investment in energy efficiency, et cetera? And then my second question is on just a follow-up On CAPEX, could you please repeat the number for maintenance CAPEX and also for the gold, for potential gold CAPEX. Is it right to assume that this year it will not happen but maybe starting from Q1 2026 we might see additional CAPEX related to gold operations? Thank you.

Hello, Evgenia. So unfortunately, I am not able to give any figure for the gold mine. But good news that we will announce soon the resource report, hopefully in November. And after we share the resource and then the reserve report in the first quarter of 2026, and then most probably we will be able to share CAPEX and many more figures after these reports. So the other questions you mentioned that, yes, by the way, it's lower. We said around $70 EBITDA per ton expectation in our last quarter's call. But obviously the market conditions, drive us to lower our EBITDA per ton expectation to $60 to $65 per ton. And despite the decline in sales prices in Q3, we maintained the balance in EBITDA per ton and even increased it by reducing costs through increased efficiency in our newly commissioned facilities So the new investments had an impact of approximately $20 on EBITDA per ton. And for 2026, unfortunately, again, I am not able to give any number for the next year. We will start our budgeting process in November. So most probably when we announce our year-end results, we will share some guidance. for 2026.

Thank you. Just as a follow-up on CAPEX, because previously you mentioned that if the gold investment goes ahead, you might increase your CAPEX this year from 800, 850 to 1 billion. So could we expect maybe a similar increase of CAPEX next year, depending on the parameters of the gold project?

Yes, you are right. It depends on the size of the gold mine. So yes, at the beginning of the year, we said that we expect to have 800-850 million dollars. That's the regular amount. And if the gold mine has a significant reserve, it might go up to a billion dollars. But right now, we would like to wait and see the amount. But yes, I mean, this number is not that far from our expectations. But again, we would like to wait and see the amount of reserve in gold mine. Right. Thank you.

The next question is from the line of Jones Andrew with UBS. Please go ahead.

Hi, Idil. Thanks for taking the follow-up. I just wanted to ask about those capex again, because I think you said originally 3.2 billion of capex by 2030 on the EAF, the solar and the biomass stuff, I mean, which implies over five years, 640 million a year just on that without any maintenance capex. So I'm curious to understand how you're now saying it should be 600 sustainably. to the back end of the decade can you just again just clarify the moving parts how much maintenance how much you know from the you know the eaf related spending how much for other projects next year and you know how do you see that step up playing out in the coming years because clearly at some point spending will have to go back up as far as i can say i'm not sure why it would stay down at 600 given that previous guidance and Basically what's changed?

Hi, Andy. So actually it's not five years, it's seven years. So we announced it in 2024, beginning of 2024, and we started our solar power plant, you know, the first phase of solar power plant in 2024. So until the end of 2030, it's seven years and actually we just divided equally per year. So 3.2 billion dollars when you divide it to seven years is 450 million dollars. Plus we have around 150, sometimes 200 million dollars regular modernization, small size of modernization. Plus we have maintenance. Ibrahim Ozbunar, Hakan Korkmaz, Ismail Dogan

I mean it sounds still to me like it should be closer to 700 but maybe it's lower next year and then it steps up later but is that a way to think about it?

Of course it's not going to be 450 you know price of leave for every year so it will change during the years so we are just roughly trying to give a projection to our analysts and investors that it's going to be around 450 so Sometimes it could be 500 for a year, and next year it's going to be like 400. So it will change from time to time, but the average will be around $450 million.

Cool, and just a clarification on 4Q, can you just talk us through the moving parts there, like the expectations around volumes, pricing, costs, like what are the moving parts in terms of that margin, and the organic stuff?

Sure, so as I mentioned during the call, we expect 7.8 million tons sales, so it's going to be around 2.2 million tons We expect to have very similar sales prices and costs in Q4. But the thing is, the contribution from our new investments will increase. So in this quarter it was around $20. and it's going to be around like $40 next quarter and finally in the third quarter of 2026 we will see the full impact of $40 from our new investments so that's the general expectation for the next quarter

And that's $40 per ton on the whole production base, or are we just talking about a fraction of it?

Sorry, I couldn't get the question.

Sorry, and the $40 per ton is what, on the total production, on the total margin of the group, or is that on a proportion impacted by this?

No, it's $40 contribution to EBITDA per ton. So, yes, groups. It will be around $40 contribution to that figure.

Okay. Okay, that's great. Thank you.

The next question is a follow-up question from with Barclays. Please go ahead. Ms. Mistrova, you have the floor.

Sorry, sorry. Can you hear me now? Yes, we can hear you. Yes, just a quick follow-up. So on the $20 per ton contribution from the investment, so without this $20, the EBITDA per ton this quarter would have been $48 per ton. Is that the right way to think about it?

Yes, yes, that's correct. So it would have been less if our new investment wasn't completed. Thank you. You're welcome.

Ladies and gentlemen, There are no further questions at this time. I will now turn the conference over to Mrs. Ergin for any closing comments. Thank you.

Thank you very much for joining us. We hope to meet you again at our near-end conference call.

Have a nice day. Thank you. Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for calling and have a good afternoon.