Eregli Demir Celik Un/Adr

Ladies and gentlemen, thank you for standing by. I'm Polina, your course call operator. Welcome and thank you for joining the Adr Demir conference call and live webcast to present and discuss the second quarter 2026 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, Reliv Demir Celik Fabrikalar Itaj 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 its 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 a related policy, information contained in forward-looking statements, whether verbal or written, should not include unrealistic assumptions or forecasts. It should be noted that the actual results could materially differ from estimates, taking into account the fact that they are not based on historical facts but are derived from expectations, 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's 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 revisions at the 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. As a start, I would like to turn the conference over to Ms. Idil Onay Ergin, Investor Relations Director. Ms. Ergin, you may now proceed.

Thank you very much, Polina. Good afternoon, everyone. Welcome to our conference call and webcast for Agony for the first talk of 2026. First, I will go through our initial 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. Our presentation consists of two sections, as you already know. The first one is the 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 HRT. During the second quarter of 2026, global market pricing was primarily driven by escalating geopolitical tensions in the Middle East, volatility in energy prices, and expectations regarding central banks' monetary policy trajectories. In the first half of the quarter, U.S.-Iran tensions and supply concerns regarding the Strait of Hormuz increased cost pressures in commodity markets by driving up oil and logistics costs. In the steel and raw material markets, pricing throughout the quarter was mainly shaped by cost and geopolitical developments rather than demand. Additionally, weak domestic demand in China, low consumption in Europe, and a slowdown in global steel demand limited the rise in prices. Pressure from energy costs eased towards the end of the quarter. No significant recovery was observed due to the strong dollar-type financial conditions and weak final trend in the global steel market. On page 4, you will see the production, consumption, exports and imports figures of Turkish steel markets. In the first six months of 2026, Turkey maintained its position as Europe's largest and the world's seventh largest crude steel producer. In the January-June period, crude steel production increased by 8% to 19.8 million tons. This growth reflects resilience in domestic output despite the challenging global steel market conditions. Going back to the slide, while exports rose slightly by 1%, Production and consumption increased by 5% and 7% respectively. Imports remained in line with the previous year at 9.3 million tons. As a result, the export-import-publish ratio increased to 84% in the first six months of 2026, slightly higher than the previous year. The European Union remained Turkey's largest export market in the first half of the year, followed by MENA and CIS. In the January-June period, China maintained its position as a leading supplier despite a year-on-year decline, followed by South Korea and Russia. As the EU's Carbon Border Adjustment Mechanism enters its definitive pace on 1 January, carbon intensity has become a more prominent striking factor in steel imports. In addition, the EU's new steel import regime took effect on the 1st of July 2026, replacing the previous safeguard system due to free tariff-based quotas were reduced by approximately 47% compared to the 2024 reference level, while the out-of-quota duty was raised from 25% to 50%. These changes increase carbon costs, quota availability and pricing risk for 2K steel exports to the EU. So, let's take a look at the financial results and the operational metrics. On page 6, you will see the summary of our first half results. We achieved $2.8 million revenue. Also, we generated $281 million EBITDA and $201 million net profit. On page 7, you will see the operational indicators of our company. Following the commissioning of the final two investments in our previous investment package during the second quarter of 2025, our could-still capacity utilization ratio gradually increased since then and reached the 95% level. Accordingly, sales and production levels returned to their normal levels. Supported by strong demand in Turkey, we achieved sales of 4.2 million tons in the first half, and we aimed sales volumes of over 8.2 million tons in 2026. So let's take a look at the segmental breakdown of domestic sales and export volumes on page 8. As you can see from the pie chart, there has been a slight change between sectors when we compare it to last year's breakdown. There has been a transition from distribution chains, general manufacturing and auto to pipeline profiles on a percentage basis. We see similar changes between factors in the launch product, although its share in total sales is relatively small. Our export rolling was 602,000 funds in the first half, representing around 14% export share in total sales. Although our focus is the domestic market, we also consider exports as an alternative market. This year, we aim to keep the share of exports in total sales in the 10% to 15% range. Due to the strong domestic demand and our flexibility to shift to other markets, we expect the impact of the EU's new steel import regime on our company to be limited, which I mentioned in the details in the first slide. On page 9, you can find a breakdown of revenue for domestic and export sales. 84% of the revenue comes from domestic sales in line with the domestic volume. Despite the export pressure in the domestic market, we achieved to generate $281 million EBITDA. We generated $75 EBITDA per ton in Q2. And our EBITDA per tone guidance for 2026 stands in the range of $75 and $85 per tone. In the third quarter, we expect EBITDA per tone to increase through increasing HIC prices and our companies including sales volumes. Due to the regulatory change in June, setting the corporate tax rate applicable to earners from production at 12.5% starting from 2027, the impact of this rate change has been reflected in the deferred tax calculation. This deferred tax income is one-off and the full year impact has been reflected. As a result of that, we generated $201 million net profit in the first half of 2026. On page 10, you can see how we reached a net profit from Elista. One of the largest items was depreciation, which was $164 million in the first half. The other major item in this chart was financial expenses of $104 million. The tax income amounted to $202 million due to the deferred tax income.

And after other expenses, net profit was $201 million.

In the graph below, you can see EBITDA2 change in cash bridge. Our net working capital slightly decreased compared to the first quarter due to the increasing inventories. Also, we spent around $117 million to investment activities in six months. This amount also includes capex and advances paid for capital expenditures as well. The reason for the change in credit payments is that we paid off our maturing financial debts to reduce our credit interest costs. And finally, we also paid dividends of $95 million in June. On page 11, you will see social trends of financial borrowings and net debts. As you can see in the financial borrowings chart, our financial borrowings have decreased by the amount of our credit payments. When we look at the second quarter, our net working capital slightly increased compared to the first quarter due to the increasing inventories. We managed to achieve a net best evista of 1.45 most buyers at the end of the quarter due to the dividend payments. We expect not to exceed two multipliers in 2026 as a maximum level. Slide 12 represents our cost of failure breakdown. There has been no significant change in our cost breakdown since Q1. In the second quarter, our cost of sales increased due to freight and insurance costs. However, safe price increases offset these pricing costs. Page 13 represents historical capital expenditures. Total capex was $775 million in 2025 and $225 million in the first half of this year. We expect that capex will be approximately $600 million in 2026 with maintenance and other ongoing investments. And as you already know, maintenance will be around $58 million per year as usual. Investments such as solar power plants, port and crane investments and energy efficiency investments are included in the CAPEX figure of 2026. As you already know, the figure is accrual based and the cash outflow will be lowered due to advance payments. And for the goldmine, as you already know, we announced in first resource in November 2025. There are no new developments regarding the matter. However, further developments will be shared with the public simultaneously. Page 14. As a reminder, we announced our next world roadmap in 2024. There are no changes to this roadmap, the details of which we previously shared. The first investment in this package for the tariff rent is planned to be partially 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 star followed by 1 on their telephone. If you wish to remove yourself from the question queue, then you may press star and 2. Please use your headset when asking your question for better quality. Anyone who has a question may press star and 1 at this time. One moment for the first question please. Ladies and gentlemen, there are no questions at this time. I will now turn the conference over to Ms. Ergin for any closing comments. Thank you.

I think we have two more people right now on the line. Let them ask their questions, please.

Yes, of course. I will announce them in just a moment. Thank you. Thanks very much. Thank you. The first question is from the line of Evgenia Bistrova with Barclays.

Please go ahead. Yes, hello. Thank you very much for the presentation. I have just two quick questions. So first on the domestic demand, could you please elaborate a little bit on what specifically is driving the strong domestic demand in Turkey for steel? Maybe which particular industries or which particular, I don't know, infrastructure investment projects that are outgoing? in the country and do you expect the demand to continue being strong in 2027 and beyond that? And my second question is about the CBAM impact. Could you please maybe provide a bit more color on what has been the impact of the CBAM implementation so far on Turkish producers and maybe like the Turkish market and just the pricing of Turkish Steel when it goes into Europe. Thank you

Hello, Evgenia. Thank you for the questions. Domestic demand is strong, but there is no specific project that helps to be strong in this year. Actually, our main customer group is Patent Profile and Rolling, and we mainly sell HRT to this customer group. Most of our customers are exporters, almost half of them. So basically, we don't share any specific reason any specific project why it's being strong but generally it's going back to their normal levels because obviously a couple of last couple of years were under pressure because of the imports of course we still feel that pressure from import in the domestic market. But obviously, starting from last year, there have been many developments, especially from the trade ministry side. They revised import processing regime. They finalized some of the anti-dumping investigations and announced additional taxes. So these kinds of protections help protect the local producers. And of course, it's included the steel user sectors as well. So I think that's the main reason this demand is going strong this year. So the speed on impact, obviously, let me just clarify So, last year, the export share in our total sales was almost 20%. It was 19.9%, but let me say 20%. So, it was an exceptional year because the local demand was weak last year. Demir Celik Un-Adr Demir Celik Un-Adr So right now, we are going back to this level, 10% to 15%. And as we shared earlier, in the first half, our export share in total sales is 14%, which we are going back to our normal level. So mainly, we are focusing to the local market, to the domestic market. So intentionally, we are decreasing our export level when you compare to last year. So that's why we said that the impact of CETAM or the new import regime of EUs will be limited for our company. Because actually we are focusing to the domestic market and we are intentionally decreasing our export level because the demand is strong in the local market. So that's the general view of why we said the impact of CBAM and new regime will be limited.

Thank you. Maybe just as a quick follow-up, I understand that maybe the impact of CBAM or import regime is limited for the company, but what about the industry and domestic prices in general? If, for example, domestic demand will weaken, would you expect those

When we compare the European Union local prices with our import prices, there was a huge gap between these prices. Turkey has the highest quota, by the way, when you look at the European Union's quota. So, Turkey is the leading importer for the European Union right now. We have number one position. So, when they announced all these protections, Turkey wasn't the target of Demir Celik Un-Adr We do not balance the prices. So when you look at the price differences between European Union and Turkey, there is a huge gap and that will help Turkish producers to import their products. So that's the main reason actually. We have the highest quota, that's number one, and we have a huge price gap between European Union prices and Turkish prices. Okay, thank you.

You're welcome. The next question is from the line of Adana Ikoko with Morgan Stanley. Please go ahead.

Hi, Idil. Thank you for taking my questions. Maybe just on following on the policy topic, could you give an update on the latest in terms of The protection or potential protection for the Turkish steel industry, so anything on tightening of the inward processing regime or your own kind of safeguard measures. Thank you.

Hi Adana. We haven't heard anything yet, so we are still expecting, waiting for any news from the trade ministry side, but until now we haven't heard it.

Okay, that's clear. And is an update expected this year at all, do you think, or not likely?

Well, we are expecting, but I mean, normally we don't get news regularly from the ministry, so generally they work for a long time when they decide to make a regulation change, and then they announce it. So, we know that they are working on some kind of regulation changes, But we do not know. Of course we are expecting in the second half, but it's not for sure. So we are just expecting and waiting.

Okay, that's very clear. Thank you. And maybe just one more on your order books. I know you mentioned domestic demand is quite strong, but could you give some indication of whether these are full for Q3? Have you started taking orders for Q4 yet?

Well, we are sure. Actually, we can see the first quarter, so it's going to be very similar to the first two quarters, so around 2.1 million tons, most probably. Of course, we haven't finalized it yet, but this is what we are expecting for the third quarter as phase volume. And as we shared earlier, we expect higher in the third quarter due to increasing sales prices as well.

Okay, that's fair. Thank you.

You're welcome. The next question is from the line of Jason with Bank of America. Please go ahead.

Thanks, Adele, for the call. A little bit of a simple question for me. I'm just trying to square, and sorry if I didn't understand this, but I'm trying to square the EBITDA per ton increasing, even as I look at spot steel prices in Turkey that seem to be going down, and they're going down quite hard. Like if I look at Platts HRC, it's below $600 a ton at the moment. Is it the case that you've just booked up all of Q3 so there's no issue? What I see is going to come through in Q4. How should I think about that?

Hi, Jason. So, our organization is full for two and a half months. So, it's a long period. So, yes, we also see the decrease in local HRT and other steel prices in the domestic market. But the impact of this decrease is the subject of post-partum sales. So, because we are cool for two and a half months, we can say that we almost finished the third quarter sales and we didn't affected by the decrease of these current sales price situations. So, it's going to be the subject of fourth quarter results, but not the third quarter.

So without getting ahead of ourselves here, we should expect, you know, a slight increase in EBITDA for time into the third quarter, but then maybe rolling over a bit in the fourth quarter on the basis of the spot price I can see today.

That's a possibility, but it's not too sure because obviously we have just started to the last quarter's sales. So actually it's really early to make any comments for the fourth quarter, but of course it's a possibility to see that kind of scenario.

Okay, thanks very much. Appreciate the call.

You're welcome.

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Ging for any closing comments. Thank you. Thank you very much for joining us. We hope there are 14 parties in conference. Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for calling and have a good afternoon.