Aperam S.A. (APAM) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Aperam Second Quarter 2026 Results Conference Call. I'm Iruna, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Sud Sivaji, CEO. Please go ahead, sir.

Hi. Welcome, everyone, and thank you for joining our Q2 2026 conference call. Our presentation covering the Q2 performance was published earlier today in our morning podcast alongside our financial results and relevant regulatory disclosures. We have always set up things this way, so we can jump straight into Q&A and spend more time addressing what's top of the mind for you. I know it was a busy day for a lot of you, and hopefully, our podcast time helps make that day a little bit more easier for you. Together with my colleague, Nicolas Changeur, we are looking forward to the dialogue with you now. Let's start straight away with the Q&A. Operator?

[Operator Instructions] The first question from the phone comes from Tristan Gresser with BNP Paribas.

For the slide in the presentation that shows the net margin improvement. I have some questions around that number. If you could clarify if that is related to Europe only, if it's the spread -- the EBITDA per tonne improvement or the raw material spread improvement for H1 year to date? And if it's also on a spot basis or is that already realized in the Q2 results. So a few clarification on that number, that would be great.

Sure, Tristan. Let me start right away by saying that because it is for the Europe safeguard impact primarily, so it is just the scope of Europe, right? And to be clear for Aperam because you may be looking at other stainless companies which do not have a distribution division. It covers the consolidated scope of margin improvement over both our businesses, meaning our stainless mills, which is part of the Stainless & Electrical segment and the European part of the Distribution segment. So this is a market view really end to end, okay? Second one, it is not a raw material improvement. It is a net margin improvement. So you can consider the equivalent of EBITDA margin improvement per tonne. This is the reason we have spoken about demand being a factor. This is the reason we have spoken about volumes overhang from last year from some of the domestic suppliers being a factor. This is the reason we have spoken about energy costs being a factor. And this is the reason we have spoken about the raw material prices in Asia being a factor. So it is a net EBITDA margin improvement. As we promised last year, Q3 2025, we always talk about net figures, clear figures, which translate into adjusted EBITDA. And so this is the EBITDA impact. And the impact we have shown -- your third point was it wasn't H1 or YTD, It is a spot assessment of as we stand after the TRQ measures came into effect. That answers the fact that not a lot of this margin improvement was present in H1. And the last point, you asked me if this is spot and some Q2 results have been have -- have they gone in. I can tell you that much of the Q2 results, as you remember, was in the period where the importers could not bring in volumes. But at the same time, we did have volume overhang from last year. So these results are present to a very small extent in the Q2 results. So if you do a quarter-on-quarter bridge, you should see a very limited part from Q2.

Okay. That's very clear and helpful. And if that's spot, I don't want to be too precise, but we've seen scrap prices kind of decline heavily recently. Does that include also that those lower scrap prices?

So in the sense, we are looking at net margin. So it does include the scrap price effect. So yes, we cannot double count it at that point. You have to understand that there's two parts to the discussion. One is that scrap price is declining, yes, but there is also a valuation effect coming out of it. So this is just a market effect.

And the structural EUR 200 per tonne improvement you discussed previously and that probably we need to compare to that EUR 75 per tonne. Do you see in the current market conditions? And I know it's the summer low, so it might be a bit difficult to have visibility, but with what you're seeing on the market, getting to this EUR 200 per tonne, do you currently have the conditions to get there? Or it might require something else? And then if it requires something else, it it likely that it's a margin recovery also, well, jumps a little bit into 2027.

Look, first of all, you rightfully pointed out summer is not quite ideal quarter for these measures to come into being, right? That's clear. So we cannot make that measure. So we do not see it over the Q3 period. The other part is that if you look at it, this margin improvement, as we've shown in the curve comes with a certain increased demand, which is what will lead to, okay? The other factor which could lead to is reduced supply or inventory overhang in Europe from domestic suppliers. So those are the 2 factors. From the demand side, at this point in time till end of Q3, our outlook, we don't see a strong order book coming in from underlying demand. There might be some restocking because people have also imported in Q2. So -- but from the demand side, there is not a trigger built into our Q3 forecast. In Q4, we always see Q4 as a strong quarter because Europe comes back from summer. So let's wait and see how that develops. At this point in time, because our order book is also significantly shorter compared to other stainless players because 70% of our volumes go through our own distribution business, where you know the length of the order book is within a month. So we profit from it, as you see there from our distribution segment. But from our view for Q4, it's a little too early for me to give you any kind of outlook on how I see that demand.

Maybe one last question also on -- sorry, it's the European stainless steel outlook. But for carbon steel, there is a view that come September, October. It won't be a lot of imports. The inventory buildup would have declined. And you can see a bit of a supply squeeze. I was wondering if you could see the same thing for stainless? My understanding is that the import decline has already kind of been absorbed in a way that demand might be a bit weaker. So would have to -- would love to have your views on what could potentially happen in that September, October time frame.

So first of all, let me start with the last statements of yours, Tristan. And please do ask questions because I understand this is a complex issue, and there are a lot of factors at play. So first one is that demand has not weakened. It has just continued being weak. That's the first thing. Now the point is that if we compare to carbon, and I cannot speak for carbon, in stainless, we had Q1 and Q2 already reduced imports. Right? And so that's the reason we do believe that, that momentum will continue, so to speak. The primary difference for us, as a positive trigger if you look forward is that with the 120,000 tonnes of cold rolled import quarter-per-quarter, we are right at like our curve shows the margin of what would be considered as a demand improvement. Is that clear? So in the sense, I don't say that for us, it is the same situation as carbon steel, but for us, it takes less to trigger this discussion because of the quotas per quarter.

[Operator Instructions] The next question from the phone comes from Bastian Synagowitz with Deutsche Bank.

Some of them have already been answered, but maybe starting with one quick technical question. Can you just help us to reconcile why there was a higher valuation effect in stainless last year compared to 2026 now? I guess in the context of what nickel did, I would have thought that the tailwind was stronger this versus last year rather than the other way around? That's my first question.

So Bastian, I think I'll give the numbers to Nicolas in a minute, but you do have to remember that stainless went up and then came down again, number one -- sorry, raw material prices went up and came down, number one. Number two is that we also have a scrap division. So we have a quicker rotation. So any price decrease, and that's what Tristan was talking about, that reflects much more quicker in our P&L because we are just faster in turning things around.

Got you. Okay. So quicker translation rather than, I would say, like a stronger gradual realization.

Yes. So you would see that you can call it valuation or timing effects at Aperam, both at S&S. And Nicolas, you can speak to that and at recycling, because we have the longer value chain. On a paper, you would expect us to have higher valuation effects. But in reality, because the quicker turnaround, and you see that in the excellent net working capital release, these translation effects reflect immediately on -- in our P&L. . So Q2 has had a lot of it. And that's the reason the higher price effect on one side is balanced by the lower effect. What was the valuation effect, Nicolas?

Yes. So on the valuation, in Q2, you can consider that we had a low double-digit impact in our Q2 results. We don't expect this effect to come in Q3. We are rather neutral, let's say, on Q3 quarter.

Understood. Great. And my next question is just on Alloys, and I see the performance fell back a little bit from last year when comparing and you highlight the energy sector, which I guess is a reasonably obvious situation. But would you still be confident enough to say that you'll be able to grow the EBITDA for the business compared to last year, I guess, given the tailwinds you're currently seeing in aerospace, in particular? And maybe also, is there like a very early color which you could give us just across the business maybe with regards to the fourth quarter, even though I know that's very early.

No, that's a fair question. So the point is that oil and gas has been the biggest delta as you've seen across the sector, right? So in this case, for us, oil and gas has been the delta to last year. The improvement compared to last year, there is a technical effect, Bastian, just that we had about 1.5 months of additional Universal this year compared to last year, if you remember, annually speaking, in our P&L because we closed mid -- late January, right? So 1 month, we did not have it in our P&L. So that's one effect, which is a technical effect, which brings additional EBITDA when you compare year-on-year. The other part is that if you look at it, -- in terms of aerospace, order books are looking good. Outlook is more positive. You've seen our message on Boeing restarting the fourth line. So -- this should translate into order books end of Q4 and the positive effect should come probably in Q1. There might be some early gains in Q4. But this is plus a smaller impact. The main factor, if you saw wanted compensating for the lack of oil and gas at Aperam compared to the rest of the industry, which is dependent on oil and gas is our innovation products. The ramp-up in our innovation products, we have spoken about electrical and electronics engineering. We've spoken about OLED screens. We've spoken about our Magnetec acquisition, and that's something which we will talk about in our Capital Markets Day as well the potential going forward. And that's something that is already giving us some help this year.

And if you would just look across also some of the other units, I guess you talked about Europe already, Brazil obviously has the usual seasonality, but particularly recycling really has a relatively good fourth quarter seasonality as well. I guess there's alloys as well, and there's service solutions as well. So is there any early color on those? Does the seasonal pattern in those units still hold?

Nothing which you can think of. Typically, there's like -- these are all short-term businesses because recycling renewables, these are all typically people order scrap a month or 1.5 months ahead, so to speak, except for aerospace recycling where the orders are longer. So -- and S&S, the same on the other side, right? So we don't see anything besides the normal seasonality there.

The next question from the phone Maxime Kogge with ODDO.

Sorry, I missed the start of the call. So excuse me, the first question has already been answered, but this was about volume development in Q1 versus Q2. So they were actually slightly down while you had guided them to be higher. So what's been at stake there? Is it that imports ticked up a little bit in Q2 versus Q1 that demand was weaker than expected or that competitors were also perhaps more aggressive. We've heard Acerinox say actually that they were able to expand the capacity from Q1 to Q2. So any view there?

So look, let me walk through that. When we guided to higher volumes, we did expect a higher demand. I think the demand did not get weaker. It's just been weak stable underlying. Okay? That's the first point. The second point is that as Aperam, we always choose value. So we would not just sell volumes to just for the sake of selling volumes, we prize margins above everything, as you see in our results. And as a result, we did look at it. And we did margin arbitrage where we ended up selling some of these volumes through third-party players, so that our own distribution business, which would have typically imported to compensate these volumes. Right? Because our S&S business is an independent entity with its own value creation and with a significantly higher ROC. So fundamentally, this business we decided, and we have given that in the podcast, not to import also because of the safeguards. And at the underlying demand level, we did not see that arbitrage paying us off. So the volumes did go, which would have gone typically through our S&S, through independent distributors. And that's why it looks compared to what we expected in Q1. It is something which we did not want to play the volume game, so to speak, when demand is weak and we wanted to concentrate on margins.

But against that backdrop, since volumes have been perhaps a bit weaker than expected and a bit beyond what they should be, then we might have expected perhaps the Q3 guidance will be a bit more supportive there. Because you're already from a low base.